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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

Commission File Number 000-19462

ARTISOFT, INC.
(Exact Name of Registrant as Specified in Its Charter)

        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 such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.) Yes o    No ý

        Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

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 financings, 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—Risk Factors" 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.

ARTISOFT, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX

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PART I—FINANCIAL INFORMATION

Item 1.—FINANCIAL STATEMENTS

ARTISOFT, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

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

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ARTISOFT, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

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

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ARTISOFT, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

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

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ARTISOFT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) BASIS OF PRESENTATION

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

        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 unaudited 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"). The balance sheet amounts at June 30, 2003 in this report were derived from the Company's audited financial statements included in its Annual Report on Form 10-K for the fiscal year ended June 30, 2003. 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, the Company recommends 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, 2003 on file with the SEC. The results of operations for the three and nine months ended March 31, 2004 are not necessarily indicative of the results to be expected for the full year or any other future periods.

        The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Areas where significant judgments are made include, but are not limited to revenue recognition. Actual results could differ materially from these estimates.

(2) SIGNIFICANT ACCOUNTING POLICIES

Stock-Based Compensation

        The Company applies APB Opinion No. 25 in accounting for its stock incentive plan and accordingly, no compensation cost has been recognized for its stock options in the financial statements since the exercise price has equaled the fair market value of the underlying stock on the grant date. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net loss and net loss per common equivalent share for the

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three- and nine-month period ended March 31, 2004 and 2003 would have been increased to the pro forma amounts indicated below (in thousands, except per share prices):

        Generally, options become exercisable over a four-year period commencing on the date of the grant and vest 25% at the first anniversary of the grant date with the remaining 75% vesting in equal monthly increments over the remaining three years of the vesting period. The fair value of options granted was calculated using the Black-Scholes option-pricing model with the following weighted average assumptions:

Recent Accounting Pronouncements

        In November 2002, the Emerging Issues Task Force (EITF) issued EITF No. 00-21, Revenue Arrangements with Multiple Deliverables, which provides guidance on the timing and method of revenue recognition for sales arrangements that include the delivery of more than one product or service. EITF No. 00-21 is effective prospectively for arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of EITF No. 00-21 did not have a significant impact on our consolidated financial position and results of operations

        In January 2003, the FASB issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, and, in December 2003, issued a revision to that interpretation (FIN 46R). FIN 46R replaces FIN 46 and addresses consolidation by business enterprises of variable interest entities that possess certain characteristics. A variable interest entity ("VIE") is defined as (a) an ownership, contractual or monetary interest in an entity where the ability to influence financial decisions is not proportional to the investment interest, or (b) an entity lacking the invested capital sufficient to fund future activities without the support of a third party. FIN 46R establishes standards for determining under what circumstances VIEs should be consolidated with their primary beneficiary, including those to which the usual condition for consolidation does not apply. The Company adopted the provisions of FIN 46R during the three months ended December 31, 2003. The Company's adoption of FIN 46R did not have a material effect on its financial position or results of operations.

        In May 2003, the FASB issued Statement of Financial Accounting Standards (SFAS) 150, Accounting For Certain Financial Instruments with Characteristics of Both Liabilities and Equity which

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establishes standards for how an issuer of financial instruments classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly on a fixed monetary amount at inception, varies in something other than the fair value of the issuer's equity shares or varies inversely related to changes in the fair value of the issuer's equity shares. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS 150 did not have a material impact on our financial position or results of operations.

(3) TAX EXPOSURE

        In the course of a review of various compensation plans for the quarter ended September 30 2002, it was determined that Artisoft had a potential tax exposure for prior period activity. Based on initial estimates, the amount accrued at that time was $.7 million and was included in the six-month period ending December 31, 2002. This accrual was subsequently reduced to $.4 million during the quarter ended March 31, 2003 to reflect management's estimate of continuing exposure. During the quarter ended March 31, 2004 management estimated that the remaining accrual of $.4 million should be reversed based on currently available information. The reversal of this amount is reflected in the accompanying statement of operations for the three and nine-month periods ended March 31, 2004 as a reduction of general and administrative expense.

(4) PREFERRED STOCK

        September 2003 Financing.    In September 2003, Artisoft issued and sold an aggregate of 2,627,002 shares of its series C convertible preferred stock to investors in a private placement at a per share price equal to $1.50. The investors also received warrants to purchase up to 2,627,002 shares of Artisoft's common stock at a per share exercise price equal to $1.88. Proceeds from the financing were $3.9 million, and related expenses were $.6 million.

        The shares of series C preferred stock are initially convertible into a like number of shares of common stock, subject to adjustment. Each share of series C preferred stock generally receives .8152 of a vote, subject to adjustment, when voting on matters presented for the approval of Artisoft's stockholders. The holders of the series C preferred stock, as a class, are also entitled to elect a director of the Company. In September 2003, the holders of our series C preferred stock exercised this right to elect Steven C. Zahnow as an Artisoft director.

        If we liquidate, dissolve or wind up, then the holders of series C preferred stock will be entitled, before any distributions are made to the holders of common stock, to an amount equal to $1.50 per share, subject to adjustment. For purposes of this liquidation preference, the series C preferred stock will rank on a parity with the series B preferred stock, which carries a similar liquidation preference in the amount of $2.50 per share. An acquisition of Artisoft by merger, consolidation or sale of substantially all assets will generally be treated as a liquidation, unless the liquidation preference is waived by the holders of a majority of the series C preferred stock or series B preferred stock then outstanding, as the case may be.

        The holders of the series C preferred stock are entitled to receive dividends only when and if declared by the board of directors of the Company. Any such dividends would be paid to the holders of

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the series C preferred stock and series B preferred stock prior to any distribution to holders of common stock, on a per share basis equal to the number of shares of common stock into which each share of preferred stock is then convertible.

        The warrants will expire on June 27, 2010. The expiration date, the per share exercise price and the number of shares issuable upon exercise of the warrants are subject to adjustment in certain events.

        As a result of the effects of Artisoft's September 2003 financing on the purchase price adjustment terms applicable to Artisoft's September 2002 financing, Artisoft issued an additional 660,327 shares of common stock to the investors in its September 2002 financing. In addition, as a result of the effects of the September 2003 financing on the antidilution protection provisions of Artisoft's series B preferred stock, each share of the Series B preferred stock became convertible into approximately 1.22 shares of common stock. Immediately prior to the September 2003 financing, each share of Series B preferred sock was convertible into approximately .40 shares of common stock.

        Following the September 2003 financing, the per share exercise price of the common stock purchase warrants issued by Artisoft in its 2001 financing was adjusted from $6.30 per share to $1.50 per share. These warrants have a call provision that provides that if the closing per share bid price of the common stock exceeds $45.00 for 30 consecutive trading days and certain other conditions are met, Artisoft has the right to require the warrant holders to exercise their warrants for common stock.

        The investors in each of the September 2003, September 2002 and 2001 financings have the right to participate in future nonpublic capital raising transactions by Artisoft. This right, as held by the investors in the September 2002 financing, is not exercisable unless and until the expiration in full of the similar rights of the investors in the September 2003 and 2001 financings.

        We registered for resale with respect to each of our September 2003, September 2002 and 2001 financings the shares of common stock issued in those financings or issuable upon the conversion or exercise, as the case may be, of the preferred stock and warrants issued in those financings under the Securities Act of 1933. These registrations include shares of common stock we issued or which we may issue as a result of the effects of the September 2003 financing on the purchase price adjustment terms of our September 2002 financing and the antidilution protection terms of our series B preferred stock and the effects of the September 2002 financing on the antidilution protection terms of our series B preferred stock. We were subject to cash penalties if we did not file the registration statements with respect to these registrations, and if those registration statements were not declared effective by the SEC, within the prescribed time periods set forth in the applicable registration rights agreements. Our registration statement with respect to 317,466 shares of common stock issued in our September 2002 financing was not declared effective within the prescribed time period imposed by the applicable registration rights agreement. Under the terms of that agreement, we were therefore required to pay the investors in our September 2002 financing a penalty in the aggregate amount of $.3 million. In December 2003 the Company issued an aggregate of 82,610 shares of common stock and warrants to purchase an aggregate of 82,610 shares of common stock at a per share exercise price of $4.00 to pay in full the liquidated damages of $.3 million.

        The fair market value of the warrants issued on September 10, 2003 as calculated using the Black Scholes pricing model was estimated at $8.2 million. The proceeds allocated to the warrants of $1.7 million were recorded as a credit to shareholders equity. The value of the beneficial conversion feature embedded in the shares of series C preferred stock issued on September 10, 2003 based upon

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the proceeds allocated to the series C preferred stock is approximately $2.0 million, was recorded as an immediate non-cash deemed dividend to the series C preferred stockholders in the first quarter of fiscal 2004 and was included in the computation of the loss available to common stockholders and in the loss per share in the first quarter and nine month period of the fiscal year ending June 30, 2004. The excess of the aggregate fair value of the beneficial conversion feature over the proceeds allocated amounted to $4.2 million and will not be reflected in the results of operations or financial position of the Company as of and for the year ended June 30, 2004.

        The effects of the September 2003 financing on the purchase price adjustment terms of our September 2002 financing and on the antidilution protection provisions of our series B preferred stock resulted in a significant increase in potential common shares outstanding and a significant non-cash deemed dividend to the series B preferred stockholders and therefore resulted in an approximate $1.1 million increase in our loss per share available to common shareholders in the first quarter of the fiscal year ending June 30, 2004. The excess of the adjusted aggregate fair value of the beneficial conversion feature over the proceeds allocated to the preferred shares amounted to $6.8 million, and this excess will not be reflected in the results of operations or financial position of the Company as of and for the year ending June 30, 2004.

(5) GUARANTEES

        We enter into standard indemnification agreements in our ordinary course of business. Pursuant to these agreements, we indemnify, hold harmless, and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally our business partners or customers, in connection with any patent or any copyright or other intellectual property infringement claim by any third party with respect to our products. The term of these indemnification agreements is generally perpetual. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited. We have never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. Accordingly, we have no liabilities recorded for these agreements.

        We warrant that our software products will perform in all material respects in accordance with our standard published specifications in effect at the time of delivery of the licensed products to the customer for 90 days. Additionally, we warrant that our maintenance services will be performed consistent with generally accepted industry standards through completion of the agreed upon services. If necessary, we would provide for the estimated cost of product and service warranties based on specific warranty claims and claim history, however, we have never incurred any significant expenses under our product or service warranties. Accordingly, we have no liabilities recorded for these agreements.

(6) COMPUTATION OF NET LOSS PER SHARE

        Net loss per basic and diluted share 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. Common stock equivalents have been excluded for all periods presented as they are antidilutive.

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Item 2.—MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        You should read the following discussion together with the consolidated financial statements and related notes appearing elsewhere in this quarterly report on Form 10-Q. This item, including, without limitation, the information set forth under the heading "Future Results", 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 "Risk Factors" commencing on page 19, as well as those otherwise discussed in this section and elsewhere in this quarterly report on Form 10-Q. See "Forward-Looking Statements".

        Our discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States and the rules and regulations of the Securities and Exchange Commission. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Areas where significant judgments are made include, but are not limited to revenue recognition. Actual results could differ materially from these estimates. For a more detailed explanation of the judgments made in these areas, please refer to our annual report on Form 10-K for the year ended June 30, 2003, as filed with the Securities and Exchange Commission on September 29, 2003.

Summary

        The following is a summary of the areas that management believes are important in understanding the results of the quarter. This summary is not a substitute for the detail provided in the following pages or for the consolidated financial statements and notes that appear elsewhere in this document.

        For the quarter ended March 31, 2004, total net revenues increased approximately 27% in comparison to the quarter ended December 31, 2003, and we experienced a total net revenue increase of approximately 42% over the third quarter in the previous fiscal year. We achieved these increases through an increase in the number of TeleVantage licenses sold and through increasing average deal size. Also contributing to this increase was revenue received relating to the release of TeleVantage 6.0 during the month of March 2004. New releases have traditionally resulted in an increase in sales of upgrades to both dealers and end users, as well as contributing to an overall increase in activity.

        Gross margins for the quarter ended March 31, 2004 dropped slightly to 97.1%, compared to 97.6% in the prior quarter, but increased from 94.8% in the third quarter of the previous fiscal year. This increase was primarily the result of efficiencies and savings derived from increased use of electronic distribution of product and licenses. We believe that all or nearly all of the savings to be achieved through such electronic distribution have been achieved.

        Operating expenses for the quarter ended March 31, 2004 decreased approximately 5.6%, compared to the previous quarter, and approximately 17.4%, compared to the third quarter in the previous fiscal year. The decrease in operating expenses was primarily the result of a reversal of a tax liability accrual related to our stock incentive plan. We originally established the accrual in the quarter ended September 2002 for $.7 million. We reduced the accrual by $.3 million in the third quarter of fiscal 2003 and by the remaining $.4 million in the quarter ended March 31, 2004, based on available information. During the quarter ended March 31, 2004 we also capitalized costs of $.1 million associated with the development of TeleVantage 6.0. Offsetting these operating expense reductions were costs associated with an increase in personnel in the sales and marketing organization, in the quarter ended March 31, 2004, consistent with increased levels of total net revenues. Research and development expenses for the quarter ended March 31, 2004 decreased from the quarter ended

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December 31, 2003 and the third quarter of the previous fiscal year due to the capitalization of costs associated with the development of TeleVantage 6.0. General and administrative expenses for the quarter ended March 31, 2004 decreased from the quarter ended December 31, 2003 due to the aforementioned tax liability reversal. General and administrative costs decreased by 58.6% in comparison to the same quarter in the previous year, largely as a result of a reduction in professional fees, depreciation and severance costs.

        We may incur increases in research and development expenditures in response to customer requirements for features or functionality in future releases of TeleVantage. We do not intend to capitalize any further costs associated with the development of TeleVantage 6.0.

        We believe that future TeleVantage revenues will increase and thereby reduce future operating losses. Activity levels in the telecommunication industry appear to be increasing, consistent with these expectations. However, the rate at which these revenues may increase will be highly dependent on the overall telecommunications industry capital spending environment, the rate of market acceptance of TeleVantage and the success of the Company's strategic relationships including Toshiba. See "Risk Factors" below.

        We intend to continue investing in the sales, marketing and development of our software-based phone system, TeleVantage. We may incur increases in research and development expenditures in response to customer requirements for features or functionality in future releases of the product.

        We believe that future TeleVantage revenues will increase and that operating expenses will decrease as a percentage of net revenue, thereby reducing future operating losses. Activity levels in the telecommunication industry appear to be increasing, consistent with these expectations. However, the rate at which these revenues may increase will be highly dependent on the overall telecommunications industry capital spending environment, the rate of market acceptance of TeleVantage and the success of our strategic relationships including Toshiba. See "Risk Factors" below.

        Specifically, through an original equipment manufacturer resale arrangement with Artisoft, Toshiba is marketing TeleVantage 5.0 under the Strata CS brand, which is being distributed and supported through Toshiba's established dealer channel. Under the terms of the agreement, Toshiba may purchase licenses of customized versions of the TeleVantage 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 may have a material adverse effect on our future results of operations. We have extended our OEM agreement with Toshiba until February 2005; however the extended agreement does not provide for any additional minimum payments.

Results of Operations

Net Product Revenue

        Net product revenue was $2.5 million for the quarter ended March 31, 2004, representing an increase of 42% from $1.8 million for the quarter ended March 31, 2003. Net product revenue was $6.4 million for the nine months ended March 31, 2004 representing an increase of 35.3% from $4.8 million for the nine months ended March 31, 2003.

        The increase in revenue in the quarter and nine months ended March 31, 2004 resulted from growth in TeleVantage software sales of licenses for use by end-users. In late December 2002, Artisoft released TeleVantage 5.0 which increased the system's scalability to almost double its previous capacity and enabled voice-over-IP connectivity to popular digital handsets. Consequently, Artisoft is able to sell TeleVantage to larger businesses that it was unable to accommodate before this release, resulting in an increase in average deal size due to the higher number of users associated with larger businesses. During the quarter ended March 31, 2004 Artisoft released TeleVantage 6.0, which increased its capacity by a further 50% over that of TeleVantage 5.0.

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        End-user license sales of TeleVantage for the quarter ended March 31, 2004 increased by $.7 million, or 51%, over the quarter ended March 31, 2003, and for the nine months ended March 31, 2004 increased by $1.8 million, or 46%, over the nine months ended March 31, 2003.

        We distribute our products both domestically and internationally. International product revenue was $.3 million, or 13% of total revenue, for the quarter ended March 31, 2004 and $.2 million, or 11% of total revenue, for the quarter ended March 31, 2003. International product revenue was $1 million, or 15% of total revenue for the nine months ended March 31, 2004 and $.5 million, or 10% of total revenue, for the nine month period ended March 31, 2003.

        In January 2000, Artisoft entered into an OEM and Reseller Agreement with Toshiba. Also in January 2000, Artisoft entered into an agreement with Toshiba under which Toshiba acquired 16,666 shares of Artisoft common stock at a price of $41.964 per share and was issued warrants for an additional 8,333 shares of Artisoft common stock at an exercise price of $41.964 per share. The fair market value of the Artisoft common stock on the date of execution of the definitive agreement was $129. The difference between the issuance price and fair market value of the Artisoft common stock, and the fair value of the warrants (which were valued based upon the Black Scholes Options Pricing Model) amounted to $2.3 million. Artisoft determined that the $2.3 million charge should be deferred within equity as "Deferred Toshiba Equity Costs" with an offsetting increase to additional paid-in capital and should be amortized as a reduction of product revenue in proportion to revenue recognized relating to the OEM and reseller agreement. Each quarter, as revenue from Toshiba OEM sales are recognized, the balance of Deferred Toshiba Equity Costs are reduced by an amount equal to 46% of Toshiba OEM sales, while revenues are reduced by the same amount. For the quarter ended March 31, 2004 Net product revenue was reduced by $.1 million, compared to $.0 million in the quarter ended March 31, 2003. For the nine months ended March 31, 2004 net product revenue was reduced by $.3 million, compared to $.2 million in the nine months ended March 31, 2003.

Gross Profit (in thousands, except percentages)

        The increase in gross profit for both the three-month and nine-month periods ended March 31, 2004, compared to the corresponding periods ended March 31, 2003, was due primarily to an increase in revenue from higher TeleVantage software sales

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Operating Expenses (in thousands, except percentages)

Sales and Marketing

        The decrease in sales and marketing expenses as a percentage of total net revenue for both the quarter and nine-month periods ended March 31, 2004, compared to the corresponding periods ended March 31, 2003, was due primarily to an increase in net product revenue. The increase in sales and marketing expenses in aggregate dollars for the three and nine months ended March 31, 2004 compared to the corresponding periods ended March 31, 2003 was due primarily to an increase in employee related expenses and employee benefits related expenses due to increased personnel.

Product Development

        The decrease in product development expenses for the quarter ended March 31, 2004, compared to the corresponding period ended March 31, 2003, was due primarily to the capitalization during the March 31, 2004 quarter of approximately $.1 million of expenses attributable to the development of TeleVantage 6.0. We capitalize product development costs after technological feasibility is established and until the products are available for sale. TeleVantage 6.0 reached technical feasibility during the quarter ended March 31, 2004 and was shipped on March 18 of that quarter. The decrease in product development expenses, during the quarter ended March 31, 2004, compared to the quarter ended March 31, 2003, was offset by higher employee related costs. We do not expect to capitalize any additional product development costs during the remainder of our 2004 fiscal year..

        Product development expenses increased slightly for the nine-month period ended March 31, 2004 compared with the corresponding period ended March 31, 2003. This was primarily due to the capitalization of a higher amount of development costs relating to the release of TeleVantage 5.0 in December 2002 than the amount capitalized for TeleVantage 6.0 in March 2004.

        The decrease in product development expenses as a percentage of total net revenue for both the quarter and nine-month periods ending March 31, 2004, compared to the corresponding periods ending March 31, 2003, was due primarily to an increase in net revenue.

General and Administrative

        The decrease in general and administrative expenses for the quarter ended March 31, 2004, compared to the quarter ended March 31, 2003, of $.6 million was primarily attributable to approximately $250,000 of severance costs incurred relating to the separation of our former CFO in March 2003. In addition, during the quarter ended March 31, 2004, compared to the quarter ended March 31, 2003, professional fees decreased by approximately $.2 million, due primarily to the resale registration statement related to our September 2002 financing that was pending in the quarter ended

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March 31, 2003 but was declared effective by the SEC in October 2003, and depreciation expense decreased by $.1 million, due to reduced capital expenditures for computers and networking equipment.

        The decrease in general and administrative expenses for the nine months ended March 31, 2004, compared to the same period in fiscal 2003 of $1.6 million, was significantly attributable to the reversal of an accrual relating to a potential tax exposure due to a technical compliance issue related to our stock incentive plan. During the quarter ended September 30, 2002, we established a $.7 million accrual for a tax contingency related to our 1994 stock incentive plan. We reversed $.3 million of this accrual in March 2003, resulting in a net increase in genera; and administrative expenses of $.4 million during the nine month period ended March 31, 2003. We reversed the remaining $.4 million of this accrual in March 2004, resulting in a $.4 million decrease in general and administrative expenses during the nine-month period ended March 31, 2004, and resulting in a decrease of $.8 million compared to the nine-month period ended March 31, 2003. In addition, during the nine-month period ended March 31, 2003 Artisoft incurred approximately $250,000 of severance costs relating to the separation of our former CFO, an expense which was not repeated in the current period. Compared to the quarter ended March 31, 2003, during the quarter ended March 31, 2003, professional fees decreased by approximately $.3 million, due primarily to the resale registration statement related to our September 2002 financing that was declared effective by the SEC in October 2003, depreciation expense decreased by $.2 million, due to lower capital expenditures, and occupancy costs decreased by approximately $.1 million.

Financial Condition, Liquidity And Capital Resources (in thousands)

        We believe that our cash resources are adequate to meet our short term requirements. We believe that future TeleVantage revenues will increase and that operating expenses will decrease as a percentage of net revenue, thereby reducing future operating losses. See "Future Results" below. However, the rate at which these revenues may increase will be highly dependent on the overall telecommunications industry capital spending environment, the rate of market acceptance of TeleVantage and the success of our strategic relationships including Toshiba. See "Risk Factors" below.

        If we require additional cash to meet short term requirements, or if the level of growth of TeleVantage revenue is insufficient to meet our long term business objectives or if we determine we require additional capital for other business reasons, such as to fund acquisitions or other strategic initiatives, we will need to pursue additional equity or debt financing. Such financings, if they are available on terms acceptable to us or at all, may significantly affect our stockholders, including for example, by substantially diluting their ownership interest in Artisoft. See "Risk Factors" below.

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        We used cash of $2.9 million to fund operating activities during the nine months ended March 31, 2004. The cash used in operating activities was due primarily to a net loss of $2.3 million, offset by depreciation and amortization of $.3 million, non-cash compensation relating to the penalty referred to below of $.3 million and amortization of deferred Toshiba equity costs of $.3 million. At March 31, 2004, compared to at June 30, 2003, trade receivables increased by $.5 million, deferred revenue decreased by $.2 million, accounts payable decreased by $.1 million, and accrued liabilities decreased by $1 million. These were offset by a reduction in prepaid expenses of $.2 million and an increase in customer deposits of $.2 million.

        Working capital, consisting of total current assets minus current liabilities, was $.6 million at March 31, 2004, compared to a working capital deficit of $1.0 million at June 30, 2003, representing an increase of $1.6 million. The increase in working capital at March 2004 reflects an increase of $.3 million in cash and cash equivalents. The increase in cash and cash equivalents of approximately $.3 million was primarily a result of our receipt of $3.9 million from the sale of series C preferred stock in our September 2003 financing, less, during the nine months ended March 31, 2004, cash of $2.9 million used in operations, $.6 million for expenses related to our September 2003 financing and $.2 million expended for the purchase of property and equipment and development of software. Other increases in working capital resulted from a decrease of $1 million in accrued liabilities, an increase in trade accounts receivable of $.5 million, a decrease of $.2 million in deferred revenue and a decrease of $.1 million in accounts payable, each as identified above.]

        The decrease in accrued liabilities at March 31, 2004 resulted from the reversal of approximately $.4 million relating to a potential tax exposure. The balance of the decrease arose primarily from the settlement of approximately $.3 million relating to a penalty arising from the non-registration of securities issued in our September 2002 financing within prescribed time limits and payment of executive severance of approximately $.2 million and professional fees of $.3 million. These increases in working capital were partially offset by a reduction in prepaid expenses of $.2 million and an increase of $.2 million in customer deposits.

        During each of the five quarters ended December 31, 2003 we received payments ranging from $.3 million to $.4 million from Toshiba under the terms of our OEM agreement. We received the final payment of $.3 million during the quarter ending December 31, 2003. We have extended our OEM agreement with Toshiba until February 2005, however the extended agreement does not provide for any additional minimum payments. Future payments will be based upon shipments of our products ordered by Toshiba.

        In January 2000, Artisoft entered into an OEM and Reseller Agreement with Toshiba. Also in January 2000, Artisoft entered into an agreement with Toshiba under which Toshiba acquired 16,666 shares of Artisoft common stock at a price of $41.964 per share and was issued warrants for an additional 8,333 shares of Artisoft common stock at an exercise price of $41.964 per share. The fair market value of the Artisoft common stock on the date of execution of the definitive agreement was $129. The difference between the issuance price and fair market value of the Artisoft common stock, and the fair value of the warrants (which were valued based upon the Black Scholes Options Pricing Model) amounted to $2.3 million. Artisoft determined that the $2.3 million charge should be deferred within equity as "Deferred Toshiba Equity Costs" with an offsetting increase to additional paid-in capital and should be amortized as a reduction of product revenue in proportion to revenue recognized relating to the OEM and reseller agreement. Each quarter, as revenue from Toshiba OEM sales are recognized, the balance of Deferred Toshiba Equity Costs are reduced by an amount equal to 46% of Toshiba OEM sales, while revenues are reduced by the same amount. For the quarter ended March 31, 2004 Deferred Toshiba Equity Costs were reduced by $.1 million, compared to $.0 million in the quarter ended March 31, 2003.

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        We lease office, product packaging, storage space and equipment under noncancelable operating lease agreements expiring early in fiscal year 2006. The approximate minimum rental commitments under noncancelable operating leases that have remaining noncancelable lease terms in excess of one year at March 31, 2004 were as follows:

Preferred Stock Financing

        In September 2003, Artisoft issued and sold an aggregate of 2,627,002 shares of its series C convertible preferred stock to investors in a private placement at a per share price equal to $1.50. The investors also received warrants to purchase up to 2,627,002 shares of Artisoft's common stock at a per share exercise price equal to $1.88. Proceeds from the financing were $3.9 million and related expenses were $.6 million.

        The shares of series C preferred stock are initially convertible into a like number of shares of common stock, subject to adjustment. Each share of series C preferred stock generally receives .8152 of a vote, subject to adjustment, when voting on matters presented for the approval of Artisoft's stockholders. The holders of the series C preferred stock, as a class, are also entitled to elect a director of Artisoft. In September 2003, the holders of our series C preferred stock exercised this right to elect Steven C. Zahnow as an Artisoft director.

        If we liquidate, dissolve or wind up, then the holders of series C preferred stock will be entitled, before any distributions are made to the holders of common stock, to an amount equal to $1.50 per share, subject to adjustment. For purposes of this liquidation preference, the series C preferred stock will rank on a parity with the series B preferred stock, which carries a similar liquidation preference in the amount of $2.50 per share. An acquisition of Artisoft by merger, consolidation or sale of substantially all assets will generally be treated as a liquidation, unless the liquidation preference is waived by the holders of a majority of the series C preferred stock or series B preferred stock then outstanding, as the case may be.

        The holders of the series C preferred stock are entitled to receive dividends only when and if declared by the board of directors of the Company. Any such dividends would be paid to the holders of the series C preferred stock and series B preferred stock prior to any distribution to holders of common stock, on a per share basis equal to the number of shares of common stock into which each share of preferred stock is then convertible.

        The warrants will expire on June 27, 2010. The expiration date, the per share exercise price and the number of shares issuable upon exercise of the warrants are subject to adjustment in certain events.

        As a result of the effects of Artisoft's September 2003 financing on the purchase price adjustment terms applicable to Artisoft's September 2002 financing. Artisoft issued an additional 660,327 shares of common stock to the investors in its September 2002 financing. In addition, as a result of the effects of the September 2003 financing on the antidilution protection provisions of Artisoft's series B preferred stock, each share of the Series B preferred stock became convertible into approximately 1.22 shares of common stock. Immediately prior to the September 2003 financing, each share of Series B preferred stock was convertible into approximately .40 shares of common stock.

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        Following the September 2003 financing, the per share exercise price of the common stock purchase warrants issued by Artisoft in its 2001 financing was adjusted from $6.30 per share to $1.50 per share. These warrants have a call provision that provides that if the closing per share bid price of the common stock exceeds $45.00 for 30 consecutive trading days and certain other conditions are met, Artisoft has the right to require the warrant holders to exercise their warrants for common stock.

        The investors in each of the September 2003, September 2002 and 2001 financings have the right to participate in future nonpublic capital raising transactions by Artisoft. This right, as held by the investors in the September 2002 financing, is not exercisable unless and until the expiration in full of the similar rights of the investors in the September 2003 and 2001 financings.

        We registered for resale with respect to each of our September 2003, September 2002 and 2001 financings the shares of common stock issued in those financings or issuable upon the conversion or exercise, as the case may be, of the preferred stock and warrants issued in those financings under the Securities Act of 1933. These registrations include shares of common stock we issued or which we may issue as a result of the effects of the September 2003 financing on the purchase price adjustment terms of our September 2002 financing and the antidilution protection terms of our series B preferred stock and the effects of the September 2002 financing on the antidilution protection terms of our Series B preferred stock. We were subject to cash penalties if we did not file the registration statements with respect to these registrations, and if those registration statements were not declared effective by the SEC, within the prescribed time periods set forth in the applicable registration rights agreements. Our registration statement with respect to 317,466 shares of common stock issued in our September 2002 financing was not declared effective within the prescribed time period imposed by the applicable registration rights agreement. Under the terms of that agreement, we were therefore required to pay the investors in our September 2002 financing a penalty in the aggregate amount of $.3 million. This amount was reflected as a component of accrued expenses at June 30, 2003. In December 2003 the Company issued an aggregate of 82,610 shares of common stock and warrants to purchase an aggregate of 82,610 shares of common stock at a per share price of $4.00 to pay in full the liquidated damages of $.3 million.

        The fair market value of the warrants issued on September 10, 2003 as calculated using the Black Scholes pricing model was estimated at $8.2 million. The proceeds allocated to the warrants of $1.7 million were recorded as a credit to shareholders equity. The value of the beneficial conversion feature embedded in the shares of series C preferred stock issued on September 10, 2003 based upon the proceeds allocated to the series C preferred stock is approximately $2 million, was recorded as an immediate non-cash dividend to the series C preferred stockholders in the first quarter of fiscal 2004 and was included in the computation of the loss available to common stockholders and in the loss per share in the first quarter of the fiscal year ending June 30, 2004. The excess of the aggregate fair value of the beneficial conversion feature over the proceeds allocated amounted to $4.2 million and will not be reflected in our results of operations or financial position at June 30, 2004.

        The effects of the September 2003 financing on the purchase price adjustment terms of our September 2002 financing and on the antidilution protection provisions of our series B preferred stock resulted in a significant increase in potential common shares outstanding and a significant non cash dividend to the series B preferred stockholders and therefore resulted in approximately a $1.1 million increase in our loss per share available to common stockholders in the first and second quarters of the fiscal year ending 2004. The excess of the adjusted aggregate fair value of the beneficial conversion feature over the proceeds allocated to the preferred shares amounted to $6.8 million, and this excess will not be reflected in our results of operations or financial position at June 30, 2004.

Future Results

        We intend to continue investing in the sales, marketing and development of our software-based phone system, TeleVantage. We may incur increases in research and development expenditures in response to customer requirements for features or functionality in future releases of the product.

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        We believe that future TeleVantage revenues will increase and that operating expenses will decrease as a percentage of net revenue, thereby reducing future operating losses. Activity levels in the telecommunication industry appear to be increasing, consistent with these expectations. However, the rate at which these revenues may increase will be highly dependent on the overall telecommunications industry capital spending environment, the rate of market acceptance of TeleVantage and the success of our strategic relationships including Toshiba. See "Risk Factors" below.

        Specifically, through an original equipment manufacturer resale arrangement with Artisoft, Toshiba is marketing TeleVantage 5.0 under the Strata CS brand, which is being distributed and supported through Toshiba's established dealer channel. Under the terms of the agreement, Toshiba may purchase licenses of customized versions of the TeleVantage 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 may have a material adverse effect on our future results of operations. We have extended our OEM agreement with Toshiba until February 2005; however the extended agreement does not provide for any additional minimum payments.

Risk Factors

        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 family of products, and our business will fail, if we do not increase sales of those products.

        Our revenues are derived from sales of a single family of products, TeleVantage. If we are not able to increase sales of these products, our business will fail. 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 continue to not cover our operating expenses and that we will continue to incur operating losses.

We have a history of losses and expect to incur future losses.

        We had operating losses for the quarter and nine months ended March 31, 2004, for the fiscal year ended June 30, 2003 and in each of the last nine fiscal years. We also had negative cash flow from operating activities in the nine months ended March 31, 2004 and in four out of the last eight fiscal years. If our revenues do not increase significantly we may never achieve profitability, on a sustained basis or at all, or generate positive cash flow in the future. In that case our business will fail. We expect to incur significant future operating losses and negative cash flows.

Our operating results vary, making future operating results difficult to predict and adversely affecting the price of our common stock.

        Our operating results have in the past fluctuated, and may in the future fluctuate, from quarter to quarter. The resulting continued unpredictability of our operating results could depress the market

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price of our common stock, particularly if operating results do not meet the expectations of public market analysts or investors. Factors that contribute to fluctuations in our operating results include:

•

the extent and timing of sales recognized from significant customers, particularly Toshiba;



•

our ability to develop, introduce and market enhancements to our TeleVantage family of products;



•

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



•

variations in sales by our value-added resellers and distributors; and



•

variations in product returns.

        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, our expense levels are based, in part, on our expectations as to future revenues. If revenue levels are below our expectations, net loss may be disproportionately affected due to fixed costs related to generating our revenues.

We rely upon the availability to market Televantage of distributors, resellers and original equipment manufacturers and the ability of these organizations to pay for the products they purchase from us.

        If distributors, resellers and original equipment manufacturers in the software industry choose not to focus their marketing efforts on software-based phone systems or on products competitive with TeleVantage, our sales efforts will be materially adversely affected. In the nine months ended March 31, 2004, our distributor, Paracon, accounted for 38% of our total net product revenue. In the fiscal year 2003, Paracon accounted for 42% of our total net product revenue. In fiscal year 2002, Paracon accounted for 32% of our total net product revenue. We depend upon the availability of distribution outlets similar to these relationships to market TeleVantage. In addition, our operating results would be adversely affected if one of our major distributors, resellers or original equipment manufacturers fails to pay us for the products they purchase from us. At March 31, 2004, Paracon represented approximately 38% of our outstanding trade receivables, and at June 30, 2003, Paracon represented approximately 36% of our outstanding trade receivables. Our relationship with Paracon is through its subsidiary Scansource, which is doing business as Catalyst Telecom.

We may need to procure additional third party financing, but financing may not be available when needed or upon terms acceptable to us.

        In order to obtain the funds to continue our operations, meet our working capital requirements or find acquisitions or other strategic initiatives, we may require additional equity financing or debt financing. The proceeds from our series C preferred stock financing completed in September 2003 may not be sufficient to meet our business needs. Any additional financing may not be available to us on terms acceptable to us or at all.

The issuance and sale of our securities could have the effect of substantially diluting the interests of our current stockholders.

        If we issue securities of Artisoft, our current stockholders may experience substantial dilution of their ownership in Artisoft. The holders of our series B preferred stock, the holders of common stock issued pursuant to our September 2002 financing and the holders of our series C preferred stock have price-related antidilution protection in the event of future issuances of securities by us. These provisions could substantially dilute your interest in Artisoft in the event of a future financing transaction. In addition, those same investors all have the right to participate in future capital raising transactions by Artisoft. The existence of this right may substantially reduce Artisoft's ability to establish terms with respect to, or enter into, any financing with parties other than the investors. The

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terms of any additional financing we may enter into may impose substantial constraint on our ability to operate our business as we deem appropriate. In September 2003, Artisoft completed a financing which resulted in the registration of 8,225,437 common shares. Of these, 2,971,433 resulted from the antidilution rights of the Series B preferred stockholders and the holders of common stock issued pursuant to our September 2002 financing.

Our common stock was delisted from the NASDAQ SmallCap Market and transferred to the over-the-counter electronic bulletin which may, among other things, reduce the price of our common stock and the levels of liquidity available to our stockholders.

        During the quarter ended December 31, 2003 our common stock was delisted from the NASDAQ SmallCap Market. Our common stock was transferred to the over-the-counter electronic bulletin board, also referred to as the OTCBB. The listing of our common stock on the OTCBB may reduce the price of our common stock and the levels of liquidity available to our stockholders. In addition, the listing of our common stock on the OTCBB could materially adversely affect our access to the capital markets, and the limited liquidity and reduced price of our common stock could materially adversely affect our ability to raise capital through alternative financing sources on terms acceptable to us or at all. Our delisting from the NASDAQ SmallCap Market may also result in other negative implications, including the potential loss of confidence by suppliers, customers and employees, the loss of institutional investor interest and fewer business development opportunities.

Our market is highly competitive; if we fail to compete successfully, our products will not be successful.

        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. Given the greater financial resources of many of our competitors, our products may not be successful or even accepted. 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:

•

product architecture, functionality and features;



•

price;



•

vendor and product reputation;



•

quality of product and support; and



•

effectiveness of sales and marketing efforts.

        Our 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. For example, our competitors could develop products compatible with the Intel SoftSwitch Framework that could displace TeleVantage.

If software-based phone systems do not achieve widespread acceptance, we may not be able to continue our operations.

        Our sole product line, TeleVantage, competes in the newly emerging software-based phone system market, as well as existing traditional, proprietary hardware solutions offered by companies such as Avaya Communications, Nortel Networks Corporation and Siemens Corporation. We do not know if markets will migrate toward software-based phone system solutions. If software-based phone systems do

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not achieve widespread acceptance or widespread acceptance is delayed, sales of TeleVantage will not increase and may decline. We may then be unable to continue our operations.

We do not have extensive experience in acquisitions, and any acquisitions we undertake could limit our ability to manage and maintain our business, result in adverse accounting treatment and be difficult to integrate into our business.

        From time to time, we may consider the acquisition of other companies, businesses or products. We do not have extensive experience in such acquisitions. Future acquisitions may have negative effects on, and may not produce the intended benefits for, our business. Acquisitions, in general, involve numerous risks, including:

•

diversion of our management's attention;



•

future impairment of substantial goodwill, adversely affecting our reported results of operations;



•

inability to retain the management, key personnel and other employees of the acquired business;



•

inability to assimilate the operations, products, technologies and information systems of the acquired business with our business; and



•

inability to retain the acquired company's customers, distributors and suppliers.

Our market is subject to changing preferences and technological change; our failure to keep up with these changes would result in our losing market share.

        The introduction of products incorporating new technologies and the emergence of new industry standards could render TeleVantage obsolete and unmarketable. If this occurs, we would likely lose market share. The markets for computer telephony solutions are characterized by rapid technological change, changing customer needs, frequent product introductions and evolving industry standards within the markets for computer technology solutions. 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.

Some of our stockholders have acquired a substantial interest in Artisoft and may be able to exert substantial influence over Artisoft's actions.

        Based upon their substantial stock ownership and their director rights, Austin W. Marxe and David M. Greenhouse may be able to exert substantial influence over matters submitted to our stockholders for approval and our management and affairs, including the election and removal of directors and any merger, consolidation or sale of all or substantially all of our assets. As of March 31, 2004, Austin W. Marxe and David M. Greenhouse beneficially owned approximately 66.2% of our common stock. In addition, Austin W. Marxe and David M. Greenhouse, through their affiliates, have the right to elect two directors and the right to designate an additional director. Effective as of August 28, 2002, the holders of our series B preferred stock elected Robert J. Majteles to our board of directors. Mr. Majteles was selected for election by an affiliate of Austin W. Marxe and David M. Greenhouse under an agreement among the holders of the series B preferred stock.

        Austin W. Marxe and David M. Greenhouse may elect to sell all or a substantial portion of their Artisoft securities to one or more third parties. In that case, a third party with whom we have no prior relationship could exercise the same degree of control over us as Austin W. Marxe and David M. Greenhouse presently do.

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If the employment of either of our Chief Executive Officer or our Chief Technology Officer is terminated prior to October 2004 without cause or by the executive for good reason, we will be required to provide substantial benefits to that officer.

        We have change in control agreements with two of our executive officers that provide that in the event of termination of employment of an executive officer within two years of the change in control either without cause or by the executive for "good reason," such as a reduction in duties and responsibilities:

•

all of the executive's unvested options vest and become exercisable in full; and



•

Artisoft will pay the executive a lump sum equal to one year's, or two years' in the case of the Chief Executive Officer, base salary plus bonus.

        Due to open market purchases of our common stock, a change in control, within the meaning of the change in control agreements, occurred in October 2002. Therefore, each of the executives set forth in the table below will receive benefits under his change in control agreement in the event his employment at Artisoft is terminated prior to October 2004 either without cause or for good reason. The salary and bonus of each executive for Artisoft's 2003 fiscal year ended June 30, 2003 is also set forth on the table below.

Software errors may damage our reputation, cause loss of customers and increase customer support costs.

        Software products as complex as TeleVantage may contain undetected errors. This could result in damage to our reputation, loss of customers, delay of market acceptance of our products or all of these consequences. We or our customers may find errors in TeleVantage or any new products after commencement of commercial shipments. In addition, if our products are flawed, or are difficult to use, customer support costs could rise.

We rely on third-party technology and hardware products. This technology may contain undetected errors, be superseded or may become unavailable, thereby limiting our ability to sell, and the performance of, our products.

        Our TeleVantage software operates on hardware manufactured by Intel. To the extent that this hardware becomes unavailable or in short supply we could experience delays in shipping TeleVantage to our customers. 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 TeleVantage. If the hardware becomes unreliable, does not perform in a manner that is acceptable to our customers or becomes more expensive, sales of TeleVantage could fall.

        Because our products run only on Microsoft Windows servers and use other Microsoft Corporation technologies, including the Microsoft Data Engine and Microsoft SQLServer, 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.

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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. If we are unable to protect these properties, we will not be able to remain technologically competitive and our business will suffer. 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. We may not be able to deter misappropriation of our proprietary information or to prevent the successful assertion of an adverse claim to software utilized by us. In addition, we may not be able to detect unauthorized use and take effective steps to enforce our intellectual property rights. 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.

If we are not able to hire and retain qualified personnel, we will be hindered in our efforts to maintain and expand our business.

        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. If we are not able to hire and retain qualified personnel, we will be hindered in our efforts to maintain and expand our business. The computer telephony industry is characterized by rapid technological change, changing customer needs, frequent product introductions and evolving industry standards. These characteristics require a high degree of industry-specific technological and operational understanding. 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.

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 collectability 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 our investments may be adversely affected 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.

Item 4.—CONTROLS AND PROCEDURES

        Artisoft's management, with the participation of Artisoft's chief executive officer and chief financial officer, evaluated the effectiveness of Artisoft's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2004. Based on this evaluation, Artisoft's chief executive officer and chief financial officer concluded that, as of March 31,

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2004, Artisoft's disclosure controls and procedures were (1) designed to ensure that material information relating to Artisoft, including its consolidated subsidiaries, is made known to Artisoft's chief executive officer and chief financial officer by others within those entities, particularly during the period in which this report was being prepared and (2) effective, in that they provide reasonable assurance that information required to be disclosed by Artisoft in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.

        No change in Artisoft's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended March 31, 2004 that has materially affected, or is reasonably likely to materially affect, Artisoft's internal control over financial reporting.

PART II—OTHER INFORMATION

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

        On March 15, 2004, we held a special meeting of stockholders. At the meeting, the votes cast for and against the matter presented to our stockholders, as well as the number of abstentions and broker non-votes, were as follows:

        Approval of Artisoft's 2004 Stock Incentive Plan and the authorization of an initial 2,000,000 shares of common stock for issuance under that plan, plus an additional number of shares of common stock, not greater than 150,000 shares per year, for issuance under that plan each year of the ten-year plan term.

Item 6.—EXHIBITS AND REPORTS ON FORM 8-K

a.

Exhibits

        The Exhibits filed as part of this quarterly report on Form 10-Q for the quarter ended March 31, 2004 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 January 29, 2004, Artisoft filed a Current Report on Form 8-K dated January 29, 2004 for the purpose of furnishing under Item 12 (Results of Operation and Financial Condition) to the Securities and Exchange Commission as an exhibit thereto Artisoft's press release dated January 29, 2004 announcing Artisoft's financial results for the quarter ended December 31, 2003.

        On February 24, 2004, Artisoft filed a Current Report on Form 8-K dated February 23, 2004 for the purpose of filing under Item 5 (Other Events and Required FD Disclosure) with the Securities and Exchange Commission as an exhibit thereto Artisoft's press release dated February 23, 2004 announcing the election of William Y. Tauscher as a director and as Chairman of its Board of Directors.

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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 thereunto duly authorized.

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EXHIBIT INDEX

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QuickLinks

Item 1.—FINANCIAL STATEMENTS

Item 2.—MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 3.—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 4.—CONTROLS AND PROCEDURES

Item 4.—SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Item 6.—EXHIBITS AND REPORTS ON FORM 8-K