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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)

5 Cambridge Center, Cambridge, Massachusetts 02142
(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code: (617) 354-0600

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 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 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 six months ended December 31, 2003 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 six-month period ended December 31, 2003 and 2002 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.

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        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 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 is 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. The accrual is based on currently available information and represents management's best estimate. The impact of the ultimate resolution of this issue could differ materially from the amount of the established reserve.

(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.

        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 was 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 $2.0 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 of the fiscal year ending June 30, 2004. The excess of the

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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

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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 20, 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 December 31, 2003 total net revenues were unchanged from the quarter ended September 30, 2003, and we experienced a total net revenue increase of approximately 27% over the second quarter in the previous fiscal year. We achieved this increase compared to the quarter ended December 31, 2002 primarily through an increase in the number of TeleVantage licenses sold and partly through increasing average deal size.

        Gross margins for the quarter ended December 31, 2003 improved to 97.6% from 97.0% in the prior quarter and from 96.5% in the second quarter of the previous fiscal year. Both increases were 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 electronic distribution have been achieved.

        Operating expenses for the quarter ended December 31, 2003 were unchanged, and we experienced an increase in total operating expenses of 7% over the second quarter in the previous fiscal year. The increase in operating expenses is primarily the result of limited increased personnel in the sales and marketing organization. Personnel increases in sales and marketing reflected increased sales activity and increased levels of total net revenues. Research and development expenses for the quarter ended December 31, 2003 were essentially unchanged from the quarter ended September 30, 2003, but increased 23% from the second quarter in the previous fiscal year. This increase resulted from the capitalization of development expense in the prior year and is not an indication of increased resources. General and administrative expenses for the quarter ended December 31, 2003 declined 14% when compared to the same quarter in the previous year, largely as a result of a reduction in depreciation and occupancy expenses.

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        While total operating expenses for the quarter ended December 31, 2003 increased in absolute dollars compared to the second quarter of the prior fiscal year, operating expenses declined as a percentage of net revenue, to 148% in the second quarter of fiscal 2004 from 175% in the second quarter of fiscal 2003. This decrease reflects the largely fixed nature of our research and development expenses.

        We expect operating expenditures will continue at levels consistent with the amounts incurred in the first half of fiscal year 2004 throughout the current fiscal year except for increases in sales and marketing which may result from increased levels of sales efforts and increases in research and development expenditures which may result from customer requirements for features or functionality in future releases of the product

        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.

Results of Operations

Net Product Revenue

        Net product revenue was $2 million for the quarter ended December 31, 2003, representing an increase of 26.6% from $1.6 million for the quarter ended December 31, 2002. Net product revenue was $3.9 million for the six months ended December 31, 2003 representing an increase of 31.2% from $3 million for the six months ended December 31, 2002.

        The increase in revenue in the quarters and six months ended December 31, 2003 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 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. End-user license sales of TeleVantage for the quarter ended December 31, 2003 increased by $.5 million, or 41%, over the quarter ended December 31, 2002 and for the six months ended December 31, 2003 increased by $1.1 million, or 43%, over the six months ended December 31, 2002

        We distribute our products both domestically and internationally. International product revenue was $.3 million, or 13% of total revenue, for the quarter ended December 31, 2003 and $.2 million, or 13% of total revenue, for the quarter ended December 31, 2002. International product revenue was $.6 million, or 16% of total revenue for the six months ended December 31, 2003 and $.3 million, or 10% of total revenue, for the six months periods ended December 31, 2002.

Gross Profit (in thousands, except percentages)

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        The increase in gross profit for both the three-month and six-month periods ended December 31, 2003 compared to the corresponding periods ended December 31, 2002 was due primarily to an increase in revenue from higher TeleVantage software sales.

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 six-month periods ended December 31, 2003 compared to the corresponding periods ended December 31, 2002 was due primarily to an increase in net product revenue The increase in sales and marketing expenses in aggregate dollars for the three and six months ended December 31, 2003 compared to the corresponding periods ended December 31, 2002 was due primarily to an increase in employee related expenses and employee benefits related expenses due to increased personnel. We anticipate that sales and marketing costs may continue to increase for the remainder of fiscal 2004, reflecting increased sales efforts in the markets we serve

Product Development

        The increase in product development expense both for the quarter and six-month period ended December 31, 2003 compared to the corresponding periods ended December 31, 2002 was due primarily to the capitalization of approximately $.2 million of expense attributable to development of TeleVantage 5.0 during the 2002 period. In accordance with established accounting policy, product development costs are capitalized after technological feasibility is established and until the products are available for sale. TeleVantage 5.0 reached technical feasibility during the quarter ended December 31, 2002 and was shipped on December 27 of that quarter. Development expenses, including those capitalized, were flat in the quarter ended December 31, 2002 compared with the quarter ended December 31, 2003, and we expect these costs to remain constant for the remainder of fiscal 2004, unless specific customer requirements mandate changes in the resources applied to product development.

        The decrease in product development expenses as a percentage of total net revenue for both the quarter and six-month periods ending December 31, 2003 compared to the corresponding periods ending December 31, 2002 was due primarily to an increase in net revenue.

General and Administrative

        The decrease in general and administrative expenses for the quarter ended December 31, 2003, compared to the quarter ended December 31, 2002, of $.1 million was primarily attributable to a reduction in depreciation resulting from reduced capital expenditures for computers and networking

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equipment and a reduction in occupancy expense resulting from the termination of a lease for warehouse space.

        During the quarter ended September 30, 2002, the Company established a $.7 million accrual for a tax contingency related to stock option plan. The decrease in general and administrative expenses in aggregate dollars and as a percentage of total net product revenue for the six months ended December 31, 2003 compared to the corresponding period ended December 31, 2002 is due primarily to this reserve of $.7 million established in the prior period and a $.2 million decrease in occupancy, communications and employee benefits related expenses, as well as an increase in net product revenue in the current period.

Other Income, Net

        For the quarter and six-month periods ended December 31, 2003, other income was immaterial, which was consistent with the comparable periods ended December 31, 2002.

Financial Condition, Liquidity And Capital Resources (thousands)