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



(Mark One)

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

For the quarterly period ended September 30, 1998

                                       or

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

For the transition period from __________________ to __________________

Commission file number  0-19377
                       ---------

                                TCSI Corporation
             (Exact name of registrant as specified in its charter)


               NEVADA                                68-0140975
------------------------------------    ------------------------------------
  (State or other jurisdiction of       (I.R.S. Employer Identification No.)
   incorporation or organization)

              1080 Marina Village Parkway, Alameda, CA 94501
----------------------------------------------------------------------------
                 (Address of principal executive offices)
                                (Zip Code)

                              (510) 749-8500
                              --------------
          (Registrant's telephone number, including area code)

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    X      No
    -------      -------

     22,452,070  shares of Common Stock of the Registrant were outstanding as of
November 13, 1998.

<PAGE>


                                Table of Contents

                                                                            Page

Part I - Financial Information

Item 1.  Consolidated Financial Statements

         Consolidated Balance Sheets at
              September 30, 1998 (Unaudited) and December 31, 1997             3

         Consolidated Statements of Operations for the three and
              nine months ended September 30, 1998 and 1997 (Unaudited)        4

         Consolidated Statements of Cash Flows for the
              nine months ended September 30, 1998 and 1997 (Unaudited)        5

         Notes to Consolidated Financial Statements (Unaudited)                6

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations                                  12


Part II - Other Information

Item 1.  Legal Proceedings                                                    25

Item 2.  Changes in Securities                                               N/A

Item 3.  Defaults Upon Senior Securities                                     N/A

Item 4.  Submission of Matters to a Vote of Security Holders                 N/A

Item 5.  Other Information                                                   N/A

Item 6.  Exhibits and Reports on Form 8-K                                     26

Signature                                                                     27


<PAGE>

Part I - Financial Information

Item 1.  Consolidated Financial Statements

                                TCSI CORPORATION
                           CONSOLIDATED BALANCE SHEETS
               (In thousands, except share and per share amounts)

<TABLE>
<CAPTION>
                                                                                   September 30,          December 31,
                                                                                        1998                  1997
                                                                                  -----------------     -----------------
                                                                                    (Unaudited)
ASSETS
<S>                                                                               <C>                   <C>
Current assets:
     Cash and cash equivalents                                                    $       32,743        $        33,566
     Marketable securities                                                                17,711                 20,301
     Receivables                                                                           7,985                 11,803
     Other receivables                                                                       786                    682
     Deferred tax assets                                                                   2,114                  2,164
     Other current assets                                                                    815                    925
                                                                                  -----------------     -----------------
         Total current assets                                                             62,154                 69,441
Furniture, equipment and leasehold improvements, net                                       9,283                 10,165
Noncurrent marketable securities                                                           8,073                  1,600
Noncurrent deferred tax assets                                                             1,971                  2,297
Other assets                                                                                 728                    728
                                                                                  -----------------     -----------------
                                                                                  $       82,209        $        84,231
                                                                                  =================     =================

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
     Accounts payable                                                             $        1,837        $         2,410
     Accrued liabilities                                                                   3,991                  2,880
     Deferred revenue                                                                        872                  3,640
     Income taxes payable                                                                    473                  1,153
                                                                                  -----------------     -----------------
         Total current liabilities                                                         7,173                 10,083
                                                                                  -----------------     -----------------

Shareholders' equity:
     Preferred Stock, par value $0.01 per share; 5,000,000 shares authorized;
         none issued and outstanding                                                           -                      -
     Common Stock, par value $0.10 per share; 75,000,000 shares authorized;
         22,452,070 and 22,135,949  shares issued and outstanding, at September
         30, 1998 and December 31, 1997, respectively                                      2,245                  2,214
     Additional paid-in capital                                                           50,669                 49,133
     Accumulated other comprehensive loss                                                   (412)                  (126)
     Retained earnings                                                                    22,534                 22,927
                                                                                  -----------------     -----------------
         Total shareholders' equity                                                       75,036                 74,148
                                                                                  -----------------     -----------------
                                                                                  $       82,209        $        84,231
                                                                                  =================     =================
</TABLE>

          See accompanying notes to consolidated financial statements.


<PAGE>


                                TCSI CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                 Three Months Ended                  Nine Months Ended
                                                                   September 30,                       September 30,
                                                          ---------------------------------   ---------------------------------
                                                               1998              1997              1998              1997
                                                          ---------------   ---------------   ----------------  ----------------
<S>                                                        <C>               <C>               <C>               <C>

Revenues:
     Services                                              $     7,383       $     9,239       $      24,154     $    26,097
     Software licensing fees                                     2,333               518               7,706           2,998
                                                          ---------------   ----------------  ----------------  ----------------
          Total revenues                                         9,716             9,757              31,860          29,095
                                                          ---------------   ----------------  ----------------  ----------------

Costs, expenses, and special items:
     Services                                                    5,378             5,617              14,992          15,899
     Product development                                         3,264             1,408               8,709           4,221
     Selling, general and administrative                         3,425             4,287              10,933          13,161
     Nonrecurring special items                                      -                 -                (550)          1,088
                                                          ---------------   ----------------  ----------------  ----------------
          Total costs, expenses, and special items              12,067            11,312              34,084          34,369
                                                          ---------------   ----------------  ----------------  ----------------

Loss from operations                                            (2,351)           (1,555)             (2,224)         (5,274)

Interest income                                                    803               808               2,351           2,286
                                                          ---------------   ----------------  ----------------  ----------------
Income (loss) before income tax provision (benefit)             (1,548)             (747)                127          (2,988)
Income tax provision (benefit)                                    (150)             (254)                520          (1,015)
                                                          ---------------   ---------------   ----------------  ----------------
Net loss                                                   $    (1,398)      $      (493)      $        (393)    $    (1,973)
                                                          ===============   ================  ================  ================
Loss per share-Basic and Diluted                           $     (0.06)      $     (0.02)      $       (0.02)    $     (0.09)
                                                          ===============   ================  ================  ================
Shares used to compute basic and diluted loss per share         22,410            21,730              22,315          21,510
                                                          ===============   ================  ================  ================
</TABLE>

          See accompanying notes to consolidated financial statements.

<PAGE>

                                TCSI CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                                   Nine Months Ended
                                                                                                     September 30,
                                                                                          ------------------------------------
                                                                                               1998                1997
                                                                                          ----------------   -----------------
<S>                                                                                        <C>                <C>
Cash flows from operating activities:
   Net loss                                                                                $         (393)    $       (1,973)
   Adjustments to reconcile net loss to net cash provided by operating activities:
     Depreciation and amortization                                                                  2,913              2,816
     Deferred tax assets                                                                              376               (104)
     Changes in assets and liabilities:
        Receivables                                                                                 3,818                 16
        Other receivables                                                                            (104)              (269)
        Other current assets                                                                          110              1,318
        Accounts payable                                                                             (573)            (2,073)
        Accrued liabilities                                                                         1,111             (2,067)
        Deferred revenue                                                                           (2,768)             1,444
        Income taxes payable                                                                         (680)             2,686
                                                                                          ----------------   -----------------
        Net cash provided by operating activities                                                   3,810              1,794
                                                                                          ----------------   -----------------

Cash flows from investing activities:
   Capital and leasehold improvement expenditures, net                                             (2,145)           (5,918)
   Purchases of marketable securities                                                             (31,457)          (13,061)
   Maturities and sales of marketable securities                                                   27,574            18,500
   Decrease in other noncurrent assets                                                                  _               536
                                                                                          ----------------   -----------------
        Net cash provided by (used in) investing activities                                        (6,028)               57
                                                                                          ----------------   -----------------

Cash flows from financing activities:
   Proceeds from issuance of Common Stock                                                           1,567             2,664
                                                                                          ----------------   -----------------
        Net cash provided by financing activities                                                   1,567             2,664
                                                                                          ----------------   -----------------
Effect of exchange rate changes on cash and cash equivalents                                         (172)             (121)
                                                                                          ----------------   -----------------
Net change in cash and cash equivalents                                                              (823)            4,394
                                                                                          
Cash and cash equivalents at the beginning of the period                                           33,566            30,880
                                                                                          ----------------   -----------------
Cash and cash equivalents at the end of the period                                         $       32,743     $      35,274
                                                                                          ================   =================

Supplemental disclosures of cash flow information:
Cash paid (refunds received) during the period for income taxes                            $          663     $      (3,598)
                                                                                          ================   =================

</TABLE>

          See accompanying notes to consolidated financial statements.

<PAGE>

                                TCSI CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 1 - BASIS OF PRESENTATION

     In the  opinion  of the  management  of  TCSI  Corporation  ("TCSI"  or the
"Company"),  the unaudited  consolidated  interim financial  statements included
herein have been  prepared on the same basis as the  December  31, 1997  audited
consolidated  financial  statements and include all  adjustments,  consisting of
normal recurring  adjustments,  necessary to a fair statement of the results for
the interim  periods  presented.  The results of operations for current  interim
periods are not necessarily indicative of results to be expected for the current
year or for any other period. These consolidated  financial statements should be
read in conjunction with the audited consolidated financial statements and notes
thereto for the fiscal year ended  December 31, 1997  included in the  Company's
Annual Report on Form 10-K (File No. 0-19377).

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosures  of contingent  assets and  liabilities at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting periods. Actual results could differ from those estimates.

Recent Accounting Pronouncements

     In June 1997, the Financial  Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments
of an Enterprise and Related  Information".  SFAS 131 establishes  standards for
reporting  information about operating  segments in annual and interim financial
statements and also establishes standards for related disclosures about products
and services,  geographic areas and major  customers.  SFAS 131 is effective for
fiscal years  beginning after December 15, 1997. The Company will adopt SFAS 131
for 1998 and is currently  studying its provisions  which need not be applied to
interim financial statements in the initial year of its application. The Company
does not expect the provisions of SFAS 131 to result in a material future change
in the  presentation of its segment  financial  information nor does it expect a
material future change in its current segment groupings.

     In March 1998,  the  American  Institute of  Certified  Public  Accountants
finalized  Statement  of Position  ("SOP")  98-1,  "Accounting  for the Costs of
Computer  Software  Developed or Obtained for Internal  Use",  which defines the
types of  costs  that are  capitalizable  for  computer  software  projects  and
requires  all other  costs to be expensed  in the period  incurred.  The new SOP
requires  that in order for costs to be  capitalizable  they must be intended to
create a new system or add  identifiable  functionality  to an existing  system.
This SOP is effective for fiscal years  beginning  after December 15, 1998, with
earlier application  permitted.  Although the Company has not fully assessed the
implications  of this new  statement,  the  Company  does not  believe  that its
adoption will have a material impact on its financial statements.

     In June 1998, the Financial  Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"),  "Accounting for Derivative
Instruments  and  Hedging  Activities".   SFAS  133  establishes  standards  for
reporting  information  about  derivative  instruments  and hedging  activities,
requires that an entity recognize all derivative instruments as either assets or
liabilities  in the  statement of financial  position,  and requires  that those
instruments be measured at fair value. SFAS 133 is effective for fiscal quarters
beginning  after  June  15,  1999.  The  Company  does  not  currently  have any
derivative  instruments  but is  currently  involved  in hedging.  Although  the
Company has not fully  assessed the  implications  of SFAS 133, the Company does
not  believe  that its  adoption  will have a material  impact on its  financial
statements.

<PAGE>

Reclassifications

     Certain 1997 balances have been reclassified to conform to the current year
presentation.

NOTE 2 - RECEIVABLES AND CREDIT RISK

     Receivable  balances are primarily from large,  credit-worthy  customers in
the telecommunications industry. The Company performs ongoing credit evaluations
of its  customers  and  does  not  require  collateral.  The  Company  does  not
anticipate any significant default from a customer's inability to make a payment
for products  received and/or for services  rendered.  Allowances are maintained
for potential credit losses.

Receivables consist of the following:

                                        September 30,         December 31,
                                             1998                 1997
                                      -----------------    ------------------
                                                  (In thousands)
                                                   (Unaudited)

Billed receivables                      $       4,211        $      10,366
Unbilled receivables                            4,174                1,837
Allowance for doubtful accounts                  (400)                (400)
                                      -----------------    ------------------
                                        $       7,985        $      11,803
                                      =================    ==================

NOTE 3 - FURNITURE, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS, NET

     Furniture,  equipment,  and  leasehold  improvements  are  stated  at cost.
Straight-line  depreciation  is provided for  furniture and equipment in amounts
sufficient to relate the cost of  depreciable  assets to  operations  over their
estimated  service  lives of three to five years.  Amortization  is provided for
leasehold  improvements  over the life of the lease utilizing the  straight-line
method.

     Furniture,  equipment,  and leasehold  improvement  balances consist of the
following:

                                        September 30,         December 31,
                                             1998                 1997
                                      -----------------    ------------------
                                                  (In thousands)
                                                   (Unaudited)

Computer and lab equipment            $      16,585        $      14,814
Furniture and fixtures                        3,914                3,613
Leasehold improvements                        6,579                6,660
                                      -----------------    ------------------
                                             27,078               25,087
Accumulated depreciation and
amortization                                (17,795)             (14,922)
                                      -----------------    ------------------
                                      $       9,283        $      10,165
                                      =================    ==================

<PAGE>

NOTE 4 - INCOME TAXES

     The Company  anticipates  that its total income tax  provision for the year
will be approximately  equivalent to the taxes paid to foreign  jurisdictions as
the Company's overall domestic income tax provision will be approximately  zero.
Accordingly,  the Company has  recorded a tax  provision of $0.5 million for the
nine months ended  September  30, 1998.  The  Company's  anticipated  income tax
provision  could  change  based  on a  difference  in the  estimated  amount  or
geographic mix of the Company's revenues.

     At  September  30,  1998,  the Company had  approximately  $4.1  million of
deferred tax assets.  The  realization of these deferred tax assets is dependent
upon the Company generating  sufficient taxable income from future operations to
obtain the benefit from the reversal of temporary differences. While there is no
valuation  allowance provided for the deferred tax assets at September 30, 1998,
should the Company be unable to project  sufficient  future  taxable  income,  a
valuation allowance may be necessary for some or all of the deferred tax assets;
this would  negatively  impact the  Company's  income  tax  provision  in future
periods.

NOTE 5 - NET LOSS PER SHARE

     The Company adopted  Statement of Financial  Accounting  Standards No. 128,
"Earnings  Per  Share"  ("SFAS  128")  during the first  quarter  of 1998.  This
statement  simplifies  the  standards for  computing  earnings  (loss) per share
("EPS") as  previously  defined in Accounting  Principles  Board Opinion No. 15,
"Earnings  Per  Share".  All  prior-period  EPS  data  have  been  presented  in
accordance  with SFAS 128. SFAS 128 requires  presentation of both basic EPS and
diluted EPS on the face of the statements of  operations.  Basic EPS is computed
by dividing net income (loss)  available to common  stockholders  (numerator) by
the weighted-average  common shares (denominator) during the period. Diluted EPS
gives effect to all dilutive  potential  common  shares  outstanding  during the
period  (including stock options) using the treasury stock method.  In computing
diluted EPS, the average stock price for the period is used in  determining  the
number of shares assumed to be purchased from the exercise of stock options.

     The following is a reconciliation of the numerators and denominators of the
basic and diluted loss per share computations under SFAS 128:

<TABLE>
<CAPTION>

                                           Three Months Ended                 Nine Months Ended
                                              September 30,                     September 30,
                                      ------------------------------    ------------------------------
                                          1998             1997              1998             1997
                                      -------------    -------------    --------------   --------------
                                                  (In thousands, except per share amounts)
                                                                (Unaudited)
<S>                                   <C>              <C>              <C>              <C>

Basic EPS Computation
Net loss                              $    (1,398)      $     (493)      $     (393)      $   (1,973)
                                      =============    =============    ==============   =============

Weighted-average common shares             22,410           21,730           22,315           21,510
                                      =============    =============    ==============   =============

Loss per share-Basic                  $     (0.06)      $    (0.02)      $    (0.02)      $    (0.09)
                                      =============    =============    ==============   =============

</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                           Three Months Ended                 Nine Months Ended
                                              September 30,                     September 30,
                                      ------------------------------    ------------------------------
                                          1998             1997              1998             1997
                                      -------------    -------------    --------------   --------------
                                                  (In thousands, except per share amounts)
                                                                (Unaudited)

<S>                                   <C>              <C>              <C>              <C>
Diluted EPS Computation
Net loss                               $   (1,398)      $    (493)       $     (393)      $   (1,973)
                                      =============    =============    ==============   =============

Weighted-average common shares                                                                            
                                           22,410          21,730            22,315           21,510
Effect of dilutive options                      -               -                 -                -
                                      -------------    -------------    --------------   -------------
Dilutive potential common shares           22,410          21,730            22,315           21,510
                                      =============    =============    ==============   =============

Loss per share-Diluted                 $    (0.06)      $   (0.02)      $     (0.02)    $      (0.09)
                                      =============    =============    ==============   =============
</TABLE>

     Since the  Company  had an  operating  loss for the above  periods  causing
dilutive options to become antidilutive,  the following  weighted-average common
shares  (with an  exercise  price  less  than the  average  market  price of the
Company's Common Stock) were not included in the above calculation:

<TABLE>
<CAPTION>
                                           Three Months Ended                 Nine Months Ended
                                              September 30,                     September 30,
                                      ------------------------------    ------------------------------
                                          1998             1997              1998             1997
                                      -------------    -------------    --------------   --------------
                                                  (In thousands, except per share amounts)
                                                                (Unaudited)

<S>                                   <C>              <C>              <C>              <C>
Weighted-average common shares                 53              285               156              310
                                      =============    =============    ==============   =============
Weighted-average exercise price       $      3.15      $      4.68      $       5.20     $       4.14
                                      =============    =============    ==============   =============
</TABLE>

     Antidilutive  Securities The following  antidilutive  securities consist of
options not included in the  computation  of diluted loss per share  because the
exercise  price of each of these  options  was greater  than the average  market
price of the Company's Common Stock during the period:

<TABLE>
<CAPTION>
                                           Three Months Ended                 Nine Months Ended
                                              September 30,                     September 30,
                                      ------------------------------    ------------------------------
                                          1998             1997              1998             1997
                                      -------------    -------------    --------------   --------------
                                                  (In thousands, except per share amounts)
                                                                (Unaudited)

<S>                                   <C>              <C>              <C>              <C>

Absolute options outstanding at end
of period                                   2,867            1,366            1,367            1,366
                                      =============    =============    ==============   =============
Weighted-average exercise price       $      6.17      $      7.08      $      6.74      $      7.13
                                      =============    =============    ==============   =============
</TABLE>


<PAGE>

     These  antidilutive  options  outstanding  during the three- and nine-month
periods  ended  September  30, 1998 expire  during the years 2000 through  2004.
Antidilutive  options outstanding during the three- and nine-month periods ended
September 30, 1997 expire during the years 2000 through 2003.

NOTE 6 - COMPREHENSIVE LOSS

     The Company adopted  Statement of Financial  Accounting  Standards No. 130,
"Reporting  Comprehensive  Income" ("SFAS 130") as of January 1, 1998.  SFAS 130
establishes  standards  for the reporting  and display of  comprehensive  income
(loss) and its  components;  however,  the adoption of SFAS 130 had no impact on
the  Company's  net income  (loss) or  shareholders'  equity.  SFAS 130 requires
unrealized  gains or losses on the Company's  available-for-sale  securities and
changes in the accumulated foreign currency translation adjustments which, prior
to the adoption of SFAS 130, were reported  separately in shareholders'  equity.
Prior year financial  statements have been  reclassified as necessary to conform
to the requirements of SFAS 130.

     The  following  is a  summary  of  comprehensive  loss for the  three-  and
nine-month periods ended September 30, 1998 and 1997, respectively:

<TABLE>
<CAPTION>
                                                           Three Months Ended                 Nine Months Ended
                                                              September 30,                     September 30,
                                                      ------------------------------    ------------------------------
                                                          1998             1997             1998             1997
                                                      -------------    -------------    --------------   --------------
                                                                              (In thousands)
                                                                                (Unaudited)
<S>                                                   <C>               <C>             <C>              <C>         
Net loss                                              $  (1,398)        $     (493)     $       (393)    $    (1,973)
Translation losses                                           (3)               (35)             (172)           (121)
Unrealized gains (losses) on securities                     (17)               (25)             (114)             71
                                                      -------------    -------------    --------------   --------------
Comprehensive loss                                    $  (1,418)        $     (553)     $       (679)    $    (2,023)

                                                      =============    =============    ==============   =============
</TABLE>

NOTE 7 - LITIGATION

     On November 4, 1996, a purported  class action  complaint  was filed in the
Superior  Court  of the  State of  California,  Alameda  County,  by  Albert  J.
Copperstone and Joseph  Siciliano  against the Company,  certain of its officers
and directors,  and certain  underwriters (the "Copperstone State Action").  The
complaint in the Copperstone  State Action alleges that during a purported class
period of October 11, 1995 to September  25, 1996,  defendants  made  materially
false and misleading  statements concerning the Company's business condition and
prospects,  in violation of California  law. The  plaintiffs in the  Copperstone
State Action seek damages of an unspecified amount. On July 23, 1997, plaintiffs
voluntarily dismissed the underwriter  defendants without prejudice.  On June 5,
1998, plaintiffs filed a second amended complaint.  A demurrer to that complaint
was filed on August 21, 1998.  Oral  argument of that  demurrer is scheduled for
November 24, 1998.

     On November 20, 1996, a purported  derivative action complaint was filed in
the Superior Court of the State of California,  Alameda County,  by Mike Tinkler
against the Company's Board of Directors and the Company as a nominal  defendant
(the  "Tinkler  Derivative  Action").  The  complaint in the Tinkler  Derivative
Action also names the Company as a nominal defendant.  The original complaint in
the Tinkler  Derivative  Action alleged that as a result of the facts alleged in
the Copperstone State Action,  defendants breached their fiduciary duties to the
Company,  violated the California Corporations Code, and were unjustly enriched.
The plaintiff in the Tinkler  Derivative  Action seeks damages of an unspecified
amount.  On  February  24,  1998,  plaintiff  filed a second  amended  complaint
alleging  breach of fiduciary duty and violation of the California  Corporations
Code.  On May 13,  1998,  defendants  filed a  demurrer  to the  second  amended
complaint and on

<PAGE>

October  15,  1998,  the Court  entered an order  granting  the  demurrer to the
California  Corporations  Code cause of action with leave to amend, and striking
allegations  of  nonintentional  misconduct.   Plaintiff  has  not  amended  the
complaint within the time alloted by the Court.

     On September 24, 1997, a purported class action  complaint was filed in the
United  States  District  Court  for the  Northern  District  of  California  by
Copperstone  and  Siciliano  against the Company and certain of its officers and
directors (the  "Copperstone  Federal Action").  The Copperstone  Federal Action
contains  virtually  identical  factual  allegations  as the  Copperstone  State
Action,  and alleges  violations of Sections  10(b) and 20(a) of the  Securities
Exchange  Act of 1934 and SEC Rule  10b-5.  The  plaintiffs  in the  Copperstone
Federal Action also seek damages of an unspecified  amount. On January 14, 1998,
defendants  moved to dismiss the Copperstone  Federal Action.  The Court ordered
that  plaintiffs seek class  certification  prior to adjudication of defendants'
motion to  dismiss  on April 20,  1998.  Pursuant  to that  order,  the  parties
stipulated to the conditional certification of a plaintiff class, and plaintiffs
sent notice to the putative class members explaining that putative class members
had until August 28, 1998 to opt out of the plaintiff  class. The opt-out period
closed on or about August 28, 1998. The Court did not hear oral argument and has
taken the motion under submission.

     In  1997,  Atmel  Corporation  made  a  claim  under  the  1996  TCSI/Atmel
Corporation  Purchase  Agreement.  In 1998,  management  obtained  an  equitable
settlement  of this matter with the escrow agent  releasing  $550,000 (of a $1.0
million escrow fund) plus interest to TCSI, and the remaining $450,000 less fees
to Atmel.  The  settlement  is reported as a  nonrecurring  special  gain in the
statements of operations.

     No trial in any of these actions is scheduled.  The Company believes it has
meritorious defenses to all of these actions, and intends to defend each of them
vigorously.  The  Company is also a party as a  defendant  in various  lawsuits,
contractual  disputes,  and other  legal  claims,  the  results of which are not
presently determinable. In the opinion of management,  resolution of these legal
actions is not  expected  to have a  material  adverse  effect on the  financial
position  of the  Company.  However,  depending  on the  amount and  timing,  an
unfavorable  resolution  of any of these  matters  could  materially  affect the
Company's future results of operations or cash flows in a particular period.

<PAGE>

                                TCSI CORPORATION

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

     In addition to historical  information  contained herein, this Management's
Discussion  and  Analysis  of  Financial  Condition  and  Results of  Operations
contains forward-looking  statements.  The forward-looking  statements contained
herein are subject to certain  factors that could cause actual results to differ
materially from those reflected in the forward-looking  statements. Such factors
include, but are not limited to, those discussed below and in the Company's Form
10-K for the fiscal year ended December 31, 1997.

Overview

     TCSI Corporation provides integrated software products and services for the
global  telecommunications  ("telecom") industry. Since its inception in 1983, a
significant  portion of the  Company's  revenues  has been earned  from  telecom
service providers and equipment manufacturers. Since 1993, the Company's telecom
growth  has been  led by  sales of  SolutionCore(R)  and  related  products  and
services.  Prior to 1997,  the  Company  also  earned  revenues  from  licensing
embedded  software  contained in wireless  products and from the  development of
system solutions for customers in the insurance,  healthcare, and transportation
industries. During the second half of 1996, the Company divested its non-telecom
product lines by licensing its embedded  software  product lines and terminating
its final transportation-related development agreement. As a result, since 1997,
the Company has focused almost  entirely on offering  software  solutions to the
telecom industry.

     The Company provides services to customers under  level-of-effort and fixed
price   contracts.   Service   revenues   are   generally   recognized   on  the
percentage-of-completion  method  based  on the  percentage  of  contract  costs
incurred  in  relation  to total  estimated  contract  costs.  Changes  in total
estimated  contract costs, if any, are recognized in the period such changes are
determined.  The scope and size of the Company's  system  solutions can be large
and  complex,   typically   requiring  delivery  over  several  quarters.   From
time-to-time,  customers  have  established  payment  milestones,  which  can be
achieved only after completion of the related  services.  In limited cases, some
customers have disputed fees charged for services provided. Although the Company
has been and is under no  obligation  to  compromise  its  billed  amounts,  the
Company has  periodically  reduced its accounts  receivable  when such  disputes
could not be  amicably  resolved  and may do so in the future.  Additionally,  a
portion of the Company's  revenues has been,  and is expected to continue to be,
derived from software  licensing  fees from a limited  number of customers.  The
Company recognizes  revenues from software licensing fees only after delivery of
software  products  and if  there  are no  remaining  significant  post-delivery
obligations.  The Company recognizes  revenues from software licensing fees with
significant  post-delivery  obligations  associated  with the  related  services
contract on a percentage-of-completion basis.

     The  licensing  and  implementation  of  the  Company's  software  products
generally  involves  a  significant   commitment  of  resources  by  prospective
customers.  As a result,  the  Company's  sales  process  is  subject  to delays
associated  with  lengthy  approval   processes   typically   accompanying  such
significant  capital  expenditures.  Accordingly,  the Company is  substantially
dependent on its customers' decisions as to the timing and level of expenditures
and resource  commitments.  The  variability in the timing of such  expenditures
could cause material fluctuations in the Company's business,  operating results,
and financial condition.

     A substantial portion of the Company's revenues is derived from the sale of
the Company's  software products and services to major telecom service providers
and equipment manufacturers.  Due to the complex nature of the advanced element,
network, and service management systems being developed,  successful  deployment
of these systems can contain significant technological risks. The Company has in
the  past  relied,  and  will  in  the  future  rely,  on  its  development  and
implementation expertise. Additionally,  development and implementation of these
systems often occurs over several quarters.  There exists the risk that a change
in a

<PAGE>

customer's  technology or business strategy during such lengthy  development and
implementation   periods   may  cause   early   termination   of  a  project  or
discontinuance of future phases. In this regard, the Company,  in limited cases,
has  experienced  and may continue to  experience  fluctuations  in revenues and
operating  results on a quarterly  basis due to  termination,  cancellation,  or
non-renewal of agreements.

     Management  believes that continued revenue growth is highly dependent upon
the  development  and  enhancement of software  products that meet market needs.
Prior to 1996,  the  Company's  product  development  was  primarily  funded  by
customers  as  part  of  the  development  of  software  applications  for  such
customers.  The Company typically  retained certain rights to developed software
products. In certain circumstances,  however, the Company agreed to restrict its
use of such products to certain markets and during certain time periods.  During
1996,  the Company  began  funding a larger  portion of its product  development
costs.  Although  management intends to target product  development  spending at
levels consistent with other software companies, from time to time, spending may
be greater or less than these amounts,  as circumstances  dictate.  Furthermore,
management expects that, from time to time, it may acquire businesses, products,
or technologies to enhance the Company's current product offerings.

Results of Operations

     Revenues.  The Company  generates  revenues  from the sale of its  software
products and related  services to the telecom  industry.  Total revenues for the
quarter ended  September 30, 1998 remained  consistent  with the comparable 1997
period at $9.7 million.  Total revenues for the nine months ended  September 30,
1998 increased 10% to $31.9 million.  NEC, Lucent Technologies  ("Lucent"),  and
Siemens were the largest customers during the 1998 third quarter.  Each of these
customers  accounted  for  more  than  10% of the  Company's  1998  year-to-date
revenue.  Revenues from services ("service revenues") continued a downward trend
to $7.4 million for the quarter  ended  September 30, 1998 from $9.2 million for
comparable 1997 period.  Service revenues decreased to $24.2 million,  or 76% of
total 1998 revenues,  from $26.1 million.  The downward trend may continue until
the Company's  existing and future customers ramp up their development  efforts.
Revenue from software licensing fees ("license  revenues") improved by 350% from
$0.5 million to $2.3  million,  or 24% of 1998 third quarter  revenues.  License
revenues improved to $7.7 million, or 24% of total 1998 revenues.  Approximately
two-thirds of license revenues for the quarter were from runtime  licenses.  The
Company expects that runtime license revenues will continue to vary from quarter
to quarter. GTE, Siemens Nixdorf Information Systems, Ltd., and Lucent accounted
for 72% of TCSI's 1998 third quarter license revenues.

     Revenues  from the  Asia-Pacific  region  decreased to $4.7 million for the
quarter ended  September 30, 1998 from $5.7 million for the  comparable  period.
For the nine-month period ended September 30, 1998, respectively,  revenues from
the  Asia-Pacific  region  increased to $16.7 million from $14.0 million for the
comparable 1997 period.  Revenues are  attributable to follow-on  contracts with
existing customers, particularly NEC and IDC. Revenues from America increased to
$3.2  million and $10.2  million  for the three- and  nine-month  periods  ended
September 30, 1998, respectively,  compared to $1.8 million and $6.4 million for
the  comparable  1997 periods.  The increase  primarily  results from  continued
follow-on contract revenues with Lucent, Bell Atlantic,  and Motorola.  Revenues
from  Europe  decreased  to $1.9  million  and $4.9  million  for the three- and
nine-month  periods  ended  September 30, 1998,  respectively,  compared to $2.3
million and $8.6 million for the comparable 1997 periods. The decreases were due
to  continued   delays  in  the  selling   cycle  with  some  of  our  equipment
manufacturers  in Europe.  The Company  generally  recognizes  service  revenues
involving  design,  development,  testing  and  deployment  over  a  twelve-  to
eighteen-month

<PAGE>

period.  The Company expects the geographical mix ofrevenues to vary from period
to period as it responds to global buying habits and develops relationships with
new and existing partners and channels.

     To date, a portion of revenues has been concentrated among a limited number
of customers. For the nine months ended September 30, 1998, the concentration of
revenues from the Company's five largest customers increased to 77% from 70% for
the comparable  1997 period.  The revenues from these  customers  represent many
separate and distinct projects that are geographically  dispersed throughout the
world.  There can be no assurance  that such  customers  will  continue to place
orders with the  Company  which will equal or exceed the  comparable  levels for
prior  periods.  (See the "Certain  Factors That May Affect  Future  Results and
Market Price of Stock-Customer Concentration" section.)

     Costs of Services.  The Company incurs direct costs in the  development and
deployment of its customers' software solutions.  The major components of direct
costs are employee  compensation,  subcontractor fees, training costs, and other
billable direct costs,  including travel expenses.  Direct costs also include an
allocation for benefits,  facilities,  telephone  expenses,  information systems
support,  and  depreciation.  Direct  costs of services  for the  quarter  ended
September 30, 1998 decreased  slightly to $5.4 million from the comparable  1997
period. For the nine months ended September 30, 1998, costs of services declined
6% to $15.0 million from $15.9 million for the comparable 1997 period.  Costs of
services were 73% of revenues from services for the quarter ended  September 30,
1998 compared to 61% for the comparable 1997 period.  Costs of services were 62%
of revenues from  services for nine months ended  September 30, 1998 compared to
61% for the comparable 1997 period. The cost of service percentage may remain at
the third quarter 1998 levels until existing and future  customers ramp up their
development efforts. The Company plans to continue its commitment to quality and
performance.

     Product   Development.   Product  development   expenses  include  employee
compensation,  subcontractor fees, training costs, and other product development
costs for existing and  potential new  products,  along with an  allocation  for
benefits,  facilities,  telephone  expenses,  information  systems support,  and
depreciation.  For the quarter ended  September 30, 1998,  the Company  invested
$3.3  million or 34% of  revenues  on  product  development  compared  with $1.4
million or 15% of revenues for the quarter  ended  September  30, 1997.  For the
nine months ended  September 30, 1998, the Company  invested $8.7 million or 27%
of revenues on product development compared with $4.2 million or 15% of revenues
for the nine months ended  September  30,  1997.  Product  development  spending
increased  as planned  during the third  quarter and  nine-month  period of 1998
compared  to the same  periods  of 1997,  reflecting  the  Company's  continuing
commitment to become a true software  product  supplier.  The Company expects to
continue  to  invest  in  SolutionCore,  as  well  as  its  new  component-based
applications,  SolutionSuites(R).  There can be no assurance,  however, that the
Company's   product   development   spending  will  result  in  the   successful
introduction of new products.

     Selling,  General,  and Administrative  Expenses.  Selling expenses include
sales and marketing,  employee compensation,  promotional material, trade shows,
travel, and facilities  expenses.  General and  administrative  expenses include
compensation costs related to executive management,  finance, and administrative
personnel along with the other administrative costs including recruiting,  legal
and  accounting  fees,  insurance,  and bad debt expense.  For the quarter ended
September 30, 1998, selling,  general, and administrative expenses decreased 20%
to $3.4 million from $4.3 million for the comparable  1997 period.  For the nine
months ended September 30, 1998, selling,  general, and administrative  expenses
decreased  17% to $10.9  million  from $13.2  million  for the  comparable  1997
period.  Selling,  general, and administrative expenses were 35% of revenues for
the quarter ended September 30, 1998 compared to 45% of revenues in

<PAGE>

the  comparable  1997  period.  For the nine months  ended  September  30, 1998,
selling,  general, and administrative  expenses were 34% of revenues compared to
45% of revenues in the comparable  1997 period.  The decrease in spending is due
to lower  headcount  and a  reallocation  of telephone and  information  systems
support  expenses  to their  corresponding  user  departments.  In other  words,
telephone and information  systems support  expenses were charged to general and
administrative expense in periods prior to 1998.

     Nonrecurring  special  items.  During the nine months ended  September  30,
1998,  the Company  recorded a  nonrecurring  gain of $550,000 in following  the
settlement of litigation  related to the sale of a  non-telecom  business  unit.
During the comparable 1997 period,  the Company  concluded the sale of equipment
resulting in a nonrecurring loss of $1.1 million.

     Income Tax  Provision  (Benefit).  The Company  anticipates  that its total
income tax provision for the year will be approximately  equivalent to the taxes
paid to foreign  jurisdictions  as the  Company's  overall  domestic  income tax
provision will be approximately  zero.  Accordingly,  the Company has recorded a
tax provision of $0.5 million for the nine months ended  September 30, 1998. The
Company's anticipated income tax provision could change based on a difference in
the estimated amount or geographic mix of the Company's revenues.

     At  September  30,  1998,  the Company had  approximately  $4.1  million of
deferred tax assets.  The  realization of these deferred tax assets is dependent
upon the Company generating  sufficient taxable income from future operations to
obtain the benefit from the reversal of temporary differences. While there is no
valuation  allowance provided for the deferred tax assets at September 30, 1998,
should the Company be unable to project  sufficient  future  taxable  income,  a
valuation allowance may be necessary for some or all of the deferred tax assets;
this would  negatively  impact the  Company's  income  tax  provision  in future
periods.

Liquidity and Capital Resources

Operating Activities

     Net cash  provided by  operating  activities  was $3.8 million for the nine
months ended  September  30, 1998,  compared to $1.8 million for the  comparable
1997  period.  Cash flows from  operating  activities  for the nine months ended
September 30, 1998 primarily reflected a net loss of $0.4 million,  depreciation
and  amortization  of $2.9 million,  and decreases in  receivables  and deferred
revenue  of $3.8  million  and  $2.8  million,  respectively.  Cash  flows  from
operating  activities  for the nine months ended  September  30, 1997  primarily
reflected a net loss of $2.0  million,  depreciation  and  amortization  of $2.8
million,  decreases in accounts payable and accrued  liabilities of $2.1 million
each and an increase in deferred  revenue of $1.4 million.  The increase in cash
provided by operating  activities  over 1997 is primarily due to the decrease in
accounts  payable  from the  payment  of  year-end  liabilities  related  to the
buildout  of the  Alameda  facility  in the first  quarter  of 1997 and from the
decrease  in  accrued  liabilities   resulting  from  reductions  in  bonus  and
commission  payments in 1998 compared to 1997. Other significant changes are the
decreases in deferred revenue and income taxes payable. The decrease in deferred
revenue  from 1997 is  primarily  attributable  to a  decrease  in the volume of
contracts being entered into that incorporate  prepayments and to the deployment
of the Data Network Management System for Bell Atlantic.  The decrease in income
taxes payable over 1997 is consistent with the refunds received during 1997.

<PAGE>

Investing Activities

     Net cash used in investing  activities was $6.0 million for the nine months
ended  September 30, 1998 compared to net cash provided by investing  activities
of $57,000 for the comparable 1997 period.  The Company  purchased $31.5 million
of marketable  securities while $27.6 million of marketable  securities matured,
compared to the purchase of $13.1 million and $18.5  million of  maturities  for
the comparable  period in 1997. During the nine months ended September 30, 1998,
the Company also shifted a portion of its investment  portfolio into longer-term
investments in anticipation of the predicted  decline in interest rates. The net
decrease in cash flows from investing  activities  also included $5.9 million of
cash used for capital  expenditures and leasehold  improvements during the first
nine  months  of  1997  compared  to  $2.1  million  of cash  used  for  capital
expenditures for the comparable period of 1998. The capital  expenditures during
1997 are primarily related to the  consolidation of the Company's  facilities in
Northern  California and to the establishment of the Company's new office in the
United Kingdom.

Financing Activities

     Net cash  provided by  financing  activities  was $1.6 million for the nine
months ended September 30, 1998 compared to $2.7 million for the comparable 1997
period. The decrease was the result of a decrease in stock options exercised and
stock purchased pursuant to the Employee Stock Purchase Plan which is a function
of market conditions and investment decisions made by employees.

     As of September  30, 1998,  the Company had cash and cash  equivalents  and
marketable  securities of $58.5 million. The Company believes that existing cash
balances (including cash equivalents and marketable  securities),  together with
existing sources of liquidity,  including cash flows from operating  activities,
will provide  adequate cash to fund its  operations for at least the next twelve
months.

Certain Factors That May Affect Future Results and Market Price of Stock

     Statements  in this report which are prefaced with words such as "expects,"
"anticipates,"  "believes"  and similar  words and other  statements  of similar
sense,  are  forward-looking  statements.  These  statements  are  based  on the
Company's  current  expectations  and  estimates  as to  prospective  events and
circumstances  which may or may not be within the  Company's  control  and as to
which there can be no firm assurances given. These  forward-looking  statements,
like any other forward-looking statements,  involve risks and uncertainties that
could  cause  actual  results  to differ  materially  from  those  projected  or
anticipated.

Potential Fluctuations in Future Operating Results

     The  Company  has   experienced  and  expects  to  continue  to  experience
significant  fluctuations  in  revenues  and  operating  results on an annual or
quarterly basis as a result of a number of factors, many of which are beyond the
control of the Company. These factors include the cancellation, modification, or
non-renewal of service, license, or maintenance agreements;  the size and timing
of significant customer engagements and license fees; the relative proportion of
services  and software  licensing  fees;  personnel  changes;  capital  spending
patterns of the Company's  customers;  concentration of the Company's customers;
the lengthy  sales  cycles of the  Company's  products  and  services;  industry
acceptance  of  the  Company's  products  and  services;  changes  in  operating
expenses;  new product  introductions and product enhancements by the Company or
its

<PAGE>

competitors;  the ability of the Company to develop,  introduce,  and market new
products and product enhancements on a timely basis; changes in pricing policies
by the Company or its competitors;  regulatory changes,  currency  fluctuations,
and general economic factors. These factors are difficult to forecast, and these
or other factors could have a material adverse effect on the Company's business,
operating results, and financial condition.

     Historically,  a portion of the  Company's  revenue has been  derived  from
software  licensing fees from a limited number of customers.  Variability in the
timing of such  license  fees has  caused  and may  continue  to cause  material
fluctuations  in  the  Company's  business,  operating  results,  and  financial
condition.  The Company's  products and services  generally require  significant
capital  expenditures  by  customers as well as the  commitment  of resources to
implement,  monitor,  and  test  the  Company's  enhancements  to such  systems.
Accordingly,  the Company is substantially dependent on its customers' decisions
as to the timing and level of such  expenditures  and resource  commitments.  In
addition,  the  Company  typically  realizes  a  significant  portion of license
revenues in the last weeks or even days of a quarter. As a result, the magnitude
of quarterly  fluctuations  may not become  evident  until late in, or after the
close of, a particular quarter.  The Company's expenses are based in part on the
Company's  expectations  as to future  revenue  levels and to a large extent are
fixed in the  short-term.  If revenues do not meet  expectations,  the Company's
business, operating results, and financial condition are likely to be materially
adversely affected. In particular, because only a small portion of the Company's
expenses varies with revenues,  results of operations may be  disproportionately
affected by a reduction  in revenues.  As a result,  the Company  believes  that
period-to-period  comparisons  of its  operating  results  are  not  necessarily
meaningful and should not be relied upon as  indications of future  performance.

Lengthy Sales and Implementation Cycles

     The Company's  products are typically intended for use in applications that
may be critical to a customer's  business.  The licensing and  implementation of
the Company's software products  generally involves a significant  commitment of
resources by prospective customers.  As a result, the Company's sales process is
often  subject  to  delays  associated  with  lengthy  approval  processes  that
typically  accompany  significant  capital  expenditures.  For  these  and other
reasons,  the  sales  cycles  associated  with the  licensing  of the  Company's
products is often lengthy  (averaging  approximately  nine to twelve months) and
subject to a number of  significant  delays over which the Company has little or
no control.  In addition,  the Company does not recognize service revenues until
the services are rendered. The time required to implement the Company's products
can vary  significantly  with the  needs of its  customers  and is  generally  a
process that extends for several  months.  Because of their  complexity,  larger
implementations  may take multiple quarters to complete.  From time to time, the
Company has provided services to implement certain large projects, and, although
no contractual  basis exists for the customer to do so,  certain  customers have
delayed payment of a portion of service fees and in some cases have disputed the
fees  charged.  There  can be no  assurance  the  Company  will  not  experience
additional delays or disputes  regarding payment in the future,  particularly if
the Company receives orders for large,  complex  installations.  Therefore,  the
Company believes that its quarterly and annual  operating  results and financial
condition are likely to vary significantly in the future.

Acceptance of the Company's Products; Product Development Risks

     A substantial  portion of the Company's  revenues are derived from the sale
of the Company's products and services which provide software solutions to major
corporations  in  the  worldwide  telecom  services  and  equipment  industries.
Although  many telecom  companies  currently  seek to integrate  their  business
operation systems and network operation systems,  there can be no assurance that
these or other service  providers will continue to seek the  integration of such
systems  or that such  companies  will use the  Company's  products.  Due to the
complex  nature of the  advanced  Operations  Support  System  ("OSS")  software
developed  by the

<PAGE>

Company,  the Company has in the past relied and will in the future  continue to
rely on its development and implementation  expertise.  The Company continues to
develop  software  products  that reduce the  customization  necessary  to fully
integrate  customers'  systems.  There can be no  assurance,  however,  that the
Company will continue to successfully  develop and market such products or, even
if  successful,  that the revenues from such products  will  compensate  for any
concurrent loss of development and implementation  service revenues. The failure
by the Company to successfully develop and market such products and technologies
would have a material  adverse effect on its business,  operating  results,  and
financial condition.

     Revenues  attributable to the Company's software products and services have
in the  past  accounted  for and are  expected  to  continue  to  account  for a
substantial  majority of the  Company's  revenues.  Accordingly,  the  Company's
future business,  operating results,  and financial  condition are significantly
dependent upon the continued market  acceptance of its portfolio of products and
services.  There can be no assurance that the Company's technology will continue
to  achieve  market  acceptance  or  that  the  Company  will be  successful  in
developing,  introducing,  or marketing improvements to its products.  Moreover,
the life cycle of component-based products is difficult to estimate due in large
part to the recent changes in the telecom  market,  the effect of future product
enhancements,  and  competition.  A  decline  in the  demand  for the  Company's
software as a result of new or existing competing technologies, or other factors
would  have a  material  adverse  effect on the  Company's  business,  operating
results, and financial condition.

Customer Concentration

     To  date,  a  significant  portion  of  the  Company's  revenues  has  been
concentrated among a limited number of customers. In particular,  in 1997 and in
1998, a large portion of revenues was derived from contracts  negotiated through
a large equipment manufacturer in Asia. While the recent economic crisis in Asia
has not  materially  adversely  affected the Company,  there can be no assurance
that it will not do so in the future. In addition,  the Company anticipates that
it will continue to experience significant customer concentration.  There can be
no  assurance  that such  customers  or any other  customers  will in the future
continue to place orders with the Company  which equal or exceed the  comparable
levels  for prior  periods.  In  addition,  the  Company's  customers  typically
designate one individual to procure network management software. If any of these
individuals  were  terminated,  transferred,  or replaced,  the Company would be
vulnerable  to  cancellation  of  an  order  if,  for  example,   the  Company's
competitors had preexisting relationships with the individual's replacement.  As
a result of these  factors,  the  Company's  business,  operating  results,  and
financial condition could be materially adversely affected.

Product Defects

     The Company provides complex software  products for major telecom equipment
manufacturers,  systems integrators,  and service providers. The development and
enhancement  of such  complex  software  entails  substantial  risks of  product
defects.  The Company has in the past identified  software defects in certain of
its  products.  There  can be no  assurance  that  errors  will  not be found in
existing or new products or releases after commencement of commercial licensing,
which may result in delay or loss of revenues,  loss of market share, failure to
achieve  market  acceptance,  or may  otherwise  adversely  impact the Company's
business, operating results, and financial condition.

<PAGE>

Implementation Risks

     As is  characteristic  of  companies  providing  software  solutions to the
telecom  industry,  the  complexities  involved in  implementing  the  Company's
software  solutions entail risks of performance  shortfalls.  In some cases, the
Company  has  agreed to accept  some  financial  responsibility,  in the form of
negotiated   penalty   amounts,   if  the   Company's   products  did  not  meet
specifications or cause customer system downtime. There can be no assurance that
the  Company  will  not  encounter  delays  or  other  difficulties  due to such
implementation  complexities.  Because the Company's customer base consists of a
relatively  limited number of customers,  the product defects or  implementation
errors  would be  potentially  damaging to the  Company's  reputation.  Any such
occurrence  could have a material  adverse  effect upon the Company's  business,
operating results, and financial condition.

International Sales

     Revenues  outside of the Americas  accounted for 68% of the Company's total
revenues for the nine months ended  September 30, 1998. The Company expects that
international revenues will continue to account for a significant portion of its
total revenues in future periods.  The Company  intends to penetrate  additional
international   markets  and  to  further  expand  its  existing   international
operations.  The Company's  international business involves a number of inherent
risks,  including  greater  difficulty in accounts  receivable  collection  and,
therefore, longer accounts receivable collection periods; difficulty in staffing
and  managing  foreign  operations;  a longer  sales  cycle  than with  domestic
customers;  potentially  unstable  political and economic  conditions;  language
barriers;  cultural  differences  in  the  conduct  of  business;   seasonality;
unexpected changes in regulatory requirements;  including a slowdown in the rate
of  privatization  of  telecom  service   providers;   reduced   protection  for
intellectual  property  rights  in  some  countries;   potentially  adverse  tax
consequences;  tariffs; and other trade barriers. In addition,  while the recent
economic crisis in Asia has not materially adversely affected the Company, there
can be no  assurance  that it will  not do so in the  future.  Also,  access  to
foreign markets is often difficult due to the established  relationships between
government owned or controlled  communications  companies and local suppliers of
communications  products.  There can be no assurance the Company will be able to
successfully  penetrate  such  foreign  markets.  In  addition,  there can be no
assurance that the Company will be able to sustain or increase  revenues derived
from international licensing and services or that the foregoing factors will not
have a material adverse effect on the Company's future  international  business,
and consequently,  on the Company's business,  operating results,  and financial
condition.

     International   sales  also   entail   risks   associated   with   currency
fluctuations.  The Company has attempted to reduce the risk of  fluctuations  in
currency  exchange rates associated with  international  revenues by pricing its
products and services in United States dollars whenever  possible.  The Company,
however,  generally pays the expenses of its  international  operations in local
currencies and generally does not engage in hedging transactions with respect to
such obligations. Upward fluctuations in currency exchange rates could cause the
Company's  products to become  relatively  more expensive to foreign  customers,
leading  to  a  reduction  in  sales  or  profitability.   Furthermore,   future
international activity may result in foreign currency denominated sales, and, in
such  event,  gains and losses on the  conversion  to U.S.  dollars of  accounts
receivable  and accounts  payable  arising  from  international  operations  may
contribute to  fluctuations  in the  Company's  operating  results.  In order to
reduce the risk of exchange rate losses from foreign currency denominated sales,
which historically have not been material,  the Company has engaged in a limited
quantity of hedging  transactions.  There can be no assurance  that such hedging
transactions will not have a material adverse effect on the Company's  business,
operating results, and financial condition.

<PAGE>

Dependence on Telecommunications Carriers; Government Regulation

     Many of the Company's principal customers are major telecom carriers.  Such
companies  operate  within  the  telecom  industry,   which  has  recently  been
characterized  by intense  competition  in the  development  of new  technology,
equipment,  and  customer  services.  The Company  believes  that large  telecom
carriers  have  become  increasingly  cautious  in  making  significant  capital
expenditures,  due in  part  to  increased  competition  from  smaller,  rapidly
developing  alternative  carriers,  decreasing  prices for telecom  services and
equipment, and regulatory rate structures that have become less dependent on the
level of carriers'  capital  expenditures.  These and other  factors have in the
past and may in the  future  cause  such  customers  to  experience  significant
fluctuations in capital expenditures for network management software solutions.

     The  telecom  industry  is subject to  extensive  regulation  in the United
States and other countries,  and the Company's  customers generally must receive
regulatory  approvals  in  conducting  their  businesses.  Although  the telecom
industry has recently been characterized by government  deregulation,  there can
be no assurance that deregulatory trends will continue or that reregulation will
not occur. Government regulatory policies are likely to continue to have a major
impact on the Company's  ability to attract and retain  customers.  For example,
regulatory  authorities  may continue to oversee the pricing of new and existing
telecom  services,  which, in turn impact carriers'  ability to make significant
capital expenditures. The enactment by federal, state, or foreign governments of
new laws or regulations or change in the interpretation of existing  regulations
could adversely affect the Company's customers, and thereby affect the Company's
business, operating results, and financial condition.

Competition

     The Company offers products and services in the evolving market for telecom
OSS  software.  Competition  in this market is intense and is  characterized  by
rapidly changing technologies,  evolving industry standards, changing regulatory
requirements,  frequent new product introductions, and rapid changes in customer
requirements. To maintain and improve its competitive position, the Company must
continue to develop and introduce,  in a timely and  cost-effective  manner, new
services,  products,  and  product  features  that keep  pace  with  competitive
offerings by telecom companies and independent  software vendors,  technological
developments,   and  emerging   industry   standards  in  the   development   of
telecommunications   network  management  software   solutions.   The  principal
competitive  factors in the Company's  market are quality,  performance,  price,
customer   support,   corporate   reputation,   and  product  features  such  as
scalability, interoperability, functionality, customizability, and ease of use.

     The  Company's  current  and  prospective  competitors  offer a variety  of
solutions to address OSS needs.  The Company  faces  competition  in each of the
three  functional  areas the Company  believes are necessary for the delivery of
complete OSS software: telecom applications platform, configurable applications,
and custom services. The Company's SolutionCore and SolutionSuites product lines
enable the Company to provide its customers  with both  application  development
software and telecom applications.  Because certain of the Company's competitors
focus only on one functional area of OSS software,  such competitors may be in a
position to develop  competitive  products  targeted  solely at the segment they
serve. These competitors  include major  communications  service providers,  and
equipment  and  computer  manufacturers,  each of which  may have  substantially
greater financial,  manufacturing,  technical, marketing,  distribution, greater
name recognition,  longer-standing relationships with customers than the Company
and other resources.  Furthermore,  many of the Company's  current and potential
customers continuously evaluate

<PAGE>

whether to design,  develop,  and  support  internally  the  software  solutions
provided by the Company,  thereby  obviating  the need for relying on an outside
vendor such as the Company. There can be no assurance that the Company's current
or potential  competitors  will not develop  products  comparable or superior to
those  developed  by the Company or adapt more  quickly  than the Company to new
technologies,   evolving  industry  standards,  new  product  introductions,  or
changing customer requirements.

Rapid Technological Change; Need to Manage Product Transitions

     The market for the Company's  products is characterized by rapidly changing
technologies,  evolving industry standards,  changing  regulatory  environments,
frequent new product introductions,  and rapid changes in customer requirements.
The introduction of products embodying new technologies and the emergence of new
industry  standards  and  practices can render  existing  products  obsolete and
unmarketable.  As a  result,  the life  cycles  of the  Company's  products  are
difficult to estimate.  This poses substantial risks for the Company because the
Company's products and software solutions typically have lengthy development and
sales cycles. The Company's future success will depend on its ability to enhance
its  existing   products  and  to  develop  and  introduce,   on  a  timely  and
cost-effective  basis,  new  products and product  features  that keep pace with
technological  developments  and  emerging  industry  standards  and address the
evolving needs of its customers. There can be no assurance that the Company will
be successful in developing and marketing new products or product  features that
respond to technological change or evolving industry standards, that the Company
will not  experience  difficulties  that could delay or prevent  the  successful
development,  introduction, and marketing of these new products and features, or
that its new products or product  features will adequately meet the requirements
of the marketplace and achieve market acceptance.  If the Company is unable, for
technological  or other  reasons,  to  develop  and  introduce  enhancements  of
existing  products or new products in a timely manner,  the Company's  business,
operating  results,   and  financial  condition  will  be  materially  adversely
affected.

     The Company's products are designed to operate on a variety of hardware and
software  platforms and with a variety of databases employed by its customers in
their networks.  The Company must continually modify and enhance its products to
keep  pace  with  changes  in  hardware  and  software  platforms  and  database
technology.  As a result,  uncertainties related to the timing and nature of new
product announcements, and introductions or modifications by systems vendors and
by vendors of relational database software could materially adversely impact the
Company's business, operating results, and financial condition. In addition, the
failure of the  Company's  products to operate  across the various  existing and
evolving versions of hardware and software  platforms and database  environments
employed by  consumers  would have a material  adverse  effect on the  Company's
business, operating results, and financial condition.

     The  introduction or announcement of products by the Company or one or more
of its competitors embodying new technologies,  or changes in industry standards
or customer  requirements,  could  render the  Company's  software  products and
solutions obsolete or unmarketable. The introduction of new or enhanced versions
of its  products  requires  the  Company  to manage  the  transition  from older
products in order to minimize  disruption in customer ordering.  There can be no
assurance that the introduction or announcement of new product  offerings by the
Company  or one or more of its  competitors  will not cause  customers  to defer
licensing of existing Company products or engaging the Company's  services.  Any
deferral of license or service  revenues could have a material adverse effect on
the Company's business, operating results, and financial condition.

<PAGE>

Protection of Intellectual Property

     The Company's  success and ability to compete is dependent in part upon its
proprietary software technology.  The Company relies on a combination of patent,
trade secret,  copyright and trademark laws, nondisclosure and other contractual
agreements,  and technical measures to protect its proprietary  rights. To date,
the Company has patents and patents pending related to its telecom products. The
Company expects to continue to file patent  applications where it believes it is
appropriate  to protect its  proprietary  technologies.  Despite  the  Company's
efforts to protect its proprietary rights,  unauthorized  parties may attempt to
copy aspects of the Company's products or to obtain and use information that the
Company regards as  proprietary.  There can be no assurance that the steps taken
by  the   Company  to  protect   its   proprietary   technology   will   prevent
misappropriation  of such  technology,  and such  protections  may not  preclude
competitors from developing  products with  functionality or features similar to
the Company's products. In addition, effective patent, copyright, trademark, and
trade  secret  protection  may be  unavailable  or limited  in  certain  foreign
countries.  The failure of the Company to protect  its  proprietary  information
could  have a  material  adverse  effect on the  Company's  business,  operating
results, and financial condition.

     While the Company  believes that its products and  trademarks and their use
by customers  does not infringe upon the  proprietary  rights of third  parties,
there  can  be  no  assurance   that  the  Company   will  not  receive   future
communications from third parties asserting that the Company's products or their
use by customers infringe, or may infringe, the proprietary rights of such third
parties.   The  Company  expects  that  software  product   developers  will  be
increasingly  subject to  infringement  claims as the  numbers of  products  and
competitors in the Company's  industry  segment grows and the  functionality  of
products in different  industry segments  overlaps.  Any such claims,  including
meritless  claims,  could  result  in  costly,  time-consuming  litigation,  and
diversion of technical and  management  personnel.  In the event any third party
was to make a valid claim and a license was not made  available on  commercially
reasonable  terms,  or if the  Company  was  unable  to  develop  non-infringing
alternative technology, the Company's business, operating results, and financial
condition could be materially adversely affected.

     In  addition,  certain of the  Company's  customers  regard  the  solutions
provided by the Company to be  proprietary  to such customers and may attempt to
prohibit  the Company  from using or  otherwise  benefiting  from certain of the
advances  made in developing  such  solutions.  Although the Company  intends to
increasingly   standardize  its  integration   solutions   through  the  use  of
component-based   software  products,   there  can  be  no  assurance  that  the
prohibition or restrictions  imposed by certain  customers on the use of certain
intellectual   property  will  not  adversely  affect  the  Company's  business,
operating results, and financial condition.

     The Company relies on certain software that it licenses from third parties,
including  software that is integrated  with internally  developed  software and
used in the  Company's  products  to  perform  key  functions.  There  can be no
assurance that these third party software licenses will continue to be available
to the Company on commercially  reasonable  terms or that such licenses will not
be  terminated.  Although  the Company  believes  that  alternative  software is
available from other third-party suppliers, the loss of or inability to maintain
any of these software  licenses or the inability of the third parties to enhance
their products in a timely and  cost-effective  manner could result in delays or
reductions in product  shipments by the Company until equivalent  software could
be developed  internally or identified,  licensed,  and integrated,  which would
have a material adverse effect on the Company's business, operating results, and
financial condition.

<PAGE>

Dependence on Key Personnel

     The Company's future growth and success depends to a significant  extent on
its ability to attract and retain  qualified  managerial,  sales,  and  software
engineering  personnel.  The Company has at times  experienced  and continues to
experience  difficulty in  attracting  and retaining  qualified  personnel.  The
Company's  future  success  will also  depend on the  ability of its current and
future management personnel to operate effectively,  both independently and as a
group. The Company has recently experienced changes in its executive management.
For example,  in November  1998,  the Company  appointed a new Vice President of
Marketing. Competition for the hiring of such personnel in the software industry
is intense, and there can be no assurance that the Company will be successful in
locating  candidates  with  appropriate  qualifications.  Failure to attract and
retain  key  personnel  could have a material  adverse  effect on the  Company's
business, operating results, and financial condition.

Risks Associated with Acquisitions

     The Company periodically  evaluates potential acquisitions of complementary
businesses, products, and technologies. To support its growth plans, the Company
may acquire companies that have a significant installed base of products not yet
offered  by the  Company,  have  strategic  distribution  channels  or  customer
relationships,  or otherwise  present  opportunities  which management  believes
enhance the Company's competitive position.  Such acquisitions could subject the
Company to numerous risks,  including risks associated with the integration into
the Company of new employees  and  technology.  Moreover,  the  negotiation  and
acquisition of such transactions involve the diversion of substantial management
resources  and  the  evaluation  of  such  opportunities   requires  substantial
diversion of engineering and technological resources. In addition,  transactions
involving the issuance by the Company of common stock or other  securities could
result  in  immediate  and  substantial   dilution  to  the  Company's  existing
shareholders,  large one-time  write-offs,  or the creation of goodwill or other
intangible  assets that could  result in  amortization  expenses.  To date,  the
Company  has  not  consummated  an  acquisition  transaction.   The  failure  to
successfully evaluate, negotiate, and effect acquisition transactions could have
a material  adverse effect on the Company's  business,  operating  results,  and
financial condition.

Volatility of Stock Price

     The market price of the shares of the  Company's  Common Stock has been and
is likely to continue to be highly volatile and may be significantly affected by
factors such as actual or anticipated  fluctuations  in the Company's  business,
operating  results,  and financial  condition,  announcements  of  technological
innovations,  new products,  or new contracts by the Company or its competitors,
developments  with respect to  proprietary  rights,  adoption of new  accounting
standards affecting the software industry,  general market conditions, and other
factors.  Due to the foregoing factors, it is likely that the Company's revenues
or operating  results will be below the  expectations  of public market analysts
and investors in some future period. In addition,  the stock market from time to
time has  experienced  significant  price  and  volume  fluctuations  that  have
particularly  affected the market prices of  technology  company  stocks.  These
types of broad market  fluctuations may adversely affect the market price of the
Company's  Common  Stock.  In the past,  following  periods of volatility in the
market price of a company's  securities,  securities class action litigation has
often been  initiated  against such  company.  Such  litigation  could result in
substantial costs and a diversion of management's attention and resources, which
could have a material  adverse  effect upon the  Company's  business,  operating
results, and financial condition.  In this regard, in late 1996, two lawsuits on
behalf of certain of the Company's  shareholders  were filed against the Company
and various of its officers and

<PAGE>

directors.  In late  September  1997, a class  action  lawsuit was filed in U.S.
Federal Court on behalf of certain  shareholders against the Company and various
of its officers and  directors.  The state  actions  allege  violations of state
securities laws during 1995 and 1996, and the federal action alleges  violations
of the federal  securities  laws.  Management  believes  that the  lawsuits  are
without merit and is contesting them.

Year 2000 Compliance

     While the Company believes its products are Year 2000 compliant, it has not
concluded  its  final  assessments  of the Year  2000  problem.  Many  currently
installed  computer  systems  and  software  products  are coded to accept  only
two-digit entries in the date code field. Beginning in the year 2000, these date
code fields will need to accept  four-digit  entries to distinguish 21st century
dates from 20th century  dates.  As a result,  in less than two years,  computer
systems and software  used by many  companies  may need to be upgraded to comply
with such  "Year  2000"  requirements.  In early  1998,  the  Company  developed
procedures for evaluating and managing the risks and costs  associated with Year
2000 problems.  TCSI believes it is devoting the necessary resources to identify
and modify its systems  and  products  impacted by the Year 2000  problem and to
implement  new systems  and  release  new  product  versions to become Year 2000
compliant in a timely manner.

     The Company  believes that its costs  associated  with  implementing  these
procedures will not have a material  adverse effect on the results of operations
or financial condition of the Company.  However,  there can be no assurance that
unexpected  delays or increased costs  associated with  implementation  will not
have an adverse effect on the Company's operations. In addition, there can be no
assurance that the Company's  software  contains all date code changes necessary
to prevent  processing errors  potentially  arising from calculations  using the
Year 2000 date. Any  disruptions in product  development or other  operations of
the Company as a result of Year 2000  noncompliance  would materially  adversely
affect the Company's business, financial condition and results of operations.

     TCSI  believes  that the  purchasing  patterns of customers  and  potential
customers  may  also be  affected  by  Year  2000  issues  as  companies  expend
significant  resources to upgrade their current  software  systems for Year 2000
compliance. These expenditures may result in reduced funds available to purchase
products  such as those  offered by the  Company.  Furthermore,  there can be no
assurance  that the  Company's  customers and suppliers are or will be Year 2000
compliant.  Failure of the Company's customers and suppliers to address the Year
2000 issues at all,  sufficiently,  or in a timely manner, could have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.

<PAGE>

                                TCSI CORPORATION

Part II - Other Information

Item 1.  Legal Proceedings

     On November 4, 1996, a purported  class action  complaint  was filed in the
Superior  Court  of the  State of  California,  Alameda  County,  by  Albert  J.
Copperstone and Joseph  Siciliano  against the Company,  certain of its officers
and directors,  and certain  underwriters (the "Copperstone State Action").  The
complaint in the Copperstone  State Action alleges that during a purported class
period of October 11, 1995 to September  25, 1996,  defendants  made  materially
false and misleading  statements concerning the Company's business condition and
prospects,  in violation of California  law. The  plaintiffs in the  Copperstone
State Action seek damages of an unspecified amount. On July 23, 1997, plaintiffs
voluntarily dismissed the underwriter  defendants without prejudice.  On June 5,
1998, plaintiffs filed a second amended complaint.  A demurrer to that complaint
was filed on August 21, 1998.  Oral  argument of that  demurrer is scheduled for
November 24, 1998.

     On November 20, 1996, a purported  derivative action complaint was filed in
the Superior Court of the State of California,  Alameda County,  by Mike Tinkler
against the Company's Board of Directors and the Company as a nominal  defendant
(the  "Tinkler  Derivative  Action").  The  complaint in the Tinkler  Derivative
Action also names the Company as a nominal defendant.  The original complaint in
the Tinkler  Derivative  Action alleged that as a result of the facts alleged in
the Copperstone State Action,  defendants breached their fiduciary duties to the
Company,  violated the California Corporations Code, and were unjustly enriched.
The plaintiff in the Tinkler  Derivative  Action seeks damages of an unspecified
amount.  On  February  24,  1998,  plaintiff  filed a second  amended  complaint
alleging  breach of fiduciary duty and violation of the California  Corporations
Code.  On May  13,  1998  defendants  filed a  demurrer  to the  second  amended
complaint  and on October 15,  1998,  the Court  entered an order  granting  the
demurrer  to the  California  Corporations  Code  cause of action  with leave to
amend, and striking allegations of nonintentional misconduct.  Plaintiff has not
amended the complaint within the time alloted by the Court.

     On September 24, 1997, a purported class action  complaint was filed in the
United  States  District  Court  for the  Northern  District  of  California  by
Copperstone  and  Siciliano  against the Company and certain of its officers and
directors (the  "Copperstone  Federal Action").  The Copperstone  Federal Action
contains  virtually  identical  factual  allegations  as the  Copperstone  State
Action,  and alleges  violations of Sections  10(b) and 20(a) of the  Securities
Exchange  Act of 1934 and SEC Rule  10b-5.  The  plaintiffs  in the  Copperstone
Federal Action also seek damages of an unspecified  amount. On January 14, 1998,
defendants  moved to dismiss the Copperstone  Federal Action.  The Court ordered
that  plaintiffs seek class  certification  prior to adjudication of defendants'
motion to  dismiss  on April 20,  1998.  Pursuant  to that  order,  the  parties
stipulated to the conditional certification of a plaintiff class, and plaintiffs
sent notice to the putative class members explaining that putative class members
had until August 28, 1998 to opt out of the plaintiff  class. The opt-out period
closed on or about August 28, 1998. The Court did not hear oral argument and has
taken the motion under submission.

     In  1997,  Atmel  Corporation  made  a  claim  under  the  1996  TCSI/Atmel
Corporation  Purchase  Agreement.  In 1998,  management  obtained  an  equitable
settlement  of this matter with the escrow agent  releasing  $550,000 (of a $1.0
million escrow fund) plus interest to TCSI, and the remaining $450,000 less fees
to Atmel.  The  settlement  is reported as a  nonrecurring  special  gain in the
statements of operations.

     No trial in any of these actions is scheduled.  The Company believes it has
meritorious defenses to all of these actions, and intends to defend each of them
vigorously.  The  Company is also a party as a  defendant  in various  lawsuits,
contractual disputes, and other legal claims, the results of which are not

<PAGE>

presently determinable. In the opinion of management,  resolution of these legal
actions is not  expected  to have a  material  adverse  effect on the  financial
position  of the  Company.  However,  depending  on the  amount and  timing,  an
unfavorable  resolution  of any of these  matters  could  materially  affect the
Company's future results of operations or cash flows in a particular period.

Item 6.  Exhibits and Reports on Form 8-K

(a)      The following exhibits are filed herewith:

Exhibit No.         Description

        3.4         Amended and Restated Bylaws
        27          Financial Data Schedule

See Exhibit Index on page 28.

(b)      Reports on Form 8-K.

         There  were no  reports  on Form 8-K filed  during  the  quarter  ended
September 30, 1998.

<PAGE>

                                TCSI CORPORATION

Signature

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, on November 16, 1998.


                                TCSI CORPORATION
                                  (Registrant)


                              By /s/ Arthur H. Wilder
                              Arthur H. Wilder
                              Chief Financial Officer, Secretary, and Treasurer
                              (Principal Financial Officer and Principal
                              Accounting Officer)

<PAGE>

                                TCSI Corporation

                                INDEX OF EXHIBITS

  Exhibit No.                                Description
-----------------     ----------------------------------------------------------
      3.4               Amended and Restated Bylaws
      27                Financial Data Schedule