<PAGE>


                                    UNITED STATES
                          SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C.  20549
                                           
                                      FORM 10-Q
                                           
(Mark One)

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

For the quarterly period ended September 30, 1997
                               ------------------
                                          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)

                          Telephone number   (510) 749-8500
                                             --------------

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___

As of November 3, 1997, there were 21,941,871 shares of common stock of the 
Registrant outstanding.


                                      -1-

<PAGE>

                               TCSI CORPORATION

                                  FORM 10-Q


                                    INDEX


                                                                        Page No.
PART I.  FINANCIAL INFORMATION

 ITEM 1.  CONSOLIDATED FINANCIAL INFORMATION
 
   Consolidated Statements of Operations for the Three and Nine Months
     Ended September 30, 1997 and 1996 (Unaudited) . . . . . . . . . . .    3

   Consolidated Balance Sheets at September 30, 1997 (Unaudited)
     and December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . .    4

   Consolidated Statements of Cash Flows for the Nine Months
     Ended September 30, 1997 and 1996 (Unaudited) . . . . . . . . . . .    5

   Notes to Consolidated Financial Information(Unaudited). . . . . . . .    6

 ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
   FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . .   10


PART II. OTHER INFORMATION

 ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . .   27

 ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS . . . . . . .   29

 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . .   30


                                      -2-

<PAGE>

                               TCSI CORPORATION

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Information

                  CONSOLIDATED STATEMENTS OF OPERATIONS  (Unaudited)
                        (In thousands, except per share data)


<TABLE>
<CAPTION>
                                                           Three Months Ended            Nine Months Ended
                                                              September 30,                 September 30,
                                                        -----------------------     -------------------------
                                                           1997           1996         1997            1996
                                                        ---------      --------     ----------      ---------
<S>                                                     <C>            <C>          <C>             <C>
Revenues:
 Services                                               $  9,239       $  8,835      $  26,097      $  34,380
 Software licensing fees                                     518            950          2,998          8,504
                                                        --------       --------      ---------      ---------
     Total services and licensing fees                     9,757          9,785         29,095         42,884
 Equipment, non-telecom                                       --             --             --          7,270
                                                        --------       --------      ---------      ---------
     Total revenues                                        9,757          9,785         29,095         50,154
                                                        --------       --------      ---------      ---------

Costs, expenses, and special items:
 Services                                                  5,617          8,666         15,899         21,618
 Equipment, non-telecom                                       --             --             --          6,810
 Product development                                       1,408          2,078          4,221          4,569
 Selling, general, and administrative                      4,287          5,993         13,161         17,175
 Non-recurring special items                                  --          3,334          1,088          3,334
                                                        --------       --------      ---------      ---------
   Total costs, expenses, and special items               11,312         20,071         34,369         53,506
                                                        --------       --------      ---------      ---------

Loss from operations                                      (1,555)       (10,286)        (5,274)        (3,352)

Interest income                                              808            719          2,286          1,665
                                                        --------       --------      ---------      ---------
Loss before income taxes                                    (747)        (9,567)        (2,988)        (1,687)

Benefit from income taxes                                   (254)        (3,061)        (1,015)          (540)
                                                        --------       --------      ---------      ---------

Net Loss                                                 $  (493)     $  (6,506)     $  (1,973)     $  (1,147)
                                                        --------       --------      ---------      ---------
                                                        --------       --------      ---------      ---------

Loss per share                                          $  (0.02)      $  (0.31)      $  (0.09)      $  (0.06)
                                                        --------       --------      ---------      ---------
                                                        --------       --------      ---------      ---------

Shares used in calculation of loss per share              21,730         21,027         21,510         20,285
                                                        --------       --------      ---------      ---------
                                                        --------       --------      ---------      ---------
</TABLE>

The accompanying notes are an integral part of this financial information.


                                      -3-

<PAGE>

                               TCSI CORPORATION

                         CONSOLIDATED BALANCE SHEETS
                    (In thousands, except per share data)

<TABLE>
<CAPTION>

                                                      September 30,  December 31,
                                                          1997          1996
                                                      -------------  ------------
                                                      (Unaudited)
<S>                                                   <C>             <C>
ASSETS
Current assets:
 Cash and cash equivalents                             $  35,274      $  30,880
 Investments in marketable securities                     16,373         14,352
 Receivables                                              11,062         12,522
 Other receivables                                         1,773          2,042
 Deferred income taxes                                     1,731          2,178
 Other current assets                                        990          2,308
                                                       ---------      ---------
     Total current assets                                 67,203         64,282

Furniture, equipment, and leasehold improvements, net     10,303          9,234
Non-current investments in marketable securities              --          7,375
Non-current deferred income taxes                          2,478          5,000
Other non-current assets                                     748          1,284
                                                       ---------      ---------
     Total assets                                      $  80,732      $  87,175
                                                       ---------      ---------
                                                       ---------      ---------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
 Accounts payable and other accruals                    $  2,619       $  7,263
 Accrued compensation and related costs                    2,638          4,705
 Income taxes                                              1,210          1,597
                                                       ---------      ---------
     Total current liabilities                             6,467         13,565
                                                       ---------      ---------

Shareholders' equity:
 Preferred shares, $0.01 par value; 5,000 shares 
   authorized; none outstanding                               --             --
 Common shares, $0.10 par value; 75,000 shares 
    authorized; 21,885 shares issued and 
    outstanding - 1997(21,219 - 1996)                      2,189          2,122
 Additional paid-in capital                               48,536         45,939
 Retained earnings                                        23,576         25,549
 Foreign currency translation adjustments                   (121)            --
 Unrealized gain on investments                               85             --
                                                       ---------      ---------
     Total shareholders' equity                           74,265         73,610
                                                       ---------      ---------
     Total liabilities and shareholders' equity        $  80,732      $  87,175
                                                       ---------      ---------
                                                       ---------      ---------
</TABLE>

The accompanying notes are an integral part of this financial information.



                                      -4-

<PAGE>

                               TCSI CORPORATION

                CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
                                (In thousands)

<TABLE>
<CAPTION>
                                                           Nine Months Ended September 30,
                                                           -------------------------------
                                                                1997             1996
                                                           ------------      -------------
<S>                                                        <C>               <C>
OPERATING ACTIVITIES
Net Loss                                                     $  (1,973)        $  (1,147) 
Adjustments to reconcile net loss to net cash provided                                    
 by (used in) operations:                                                                 
 Depreciation and amortization                                   2,816             2,327  
 Deferred income taxes                                            (104)           (2,100) 
 Changes in:                                                                              
   Receivables                                                   1,460             2,555  
   Other receivables                                              (269)           (5,270) 
   Other current assets                                          1,318              (887) 
   Accounts payable and other accruals                          (2,073)             (650) 
   Accrued compensation and related costs                       (2,067)            2,417  
   Income taxes                                                  2,686             1,422  
                                                             ---------         ---------
     Net cash provided by (used in) operating                                             
      activities                                                 1,794            (1,333) 
                                                             ---------         ---------
INVESTMENT ACTIVITIES                                                                     
Capital expenditures                                            (5,918)           (4,665) 
Purchase of marketable securities                              (13,061)          (22,816) 
Maturity and sale of marketable securities                      18,500            11,011  
Decrease (increase) in other non-current assets                    536            (1,217) 
                                                             ---------         ---------
   Net cash provided by (used in) investing activities              57           (17,687) 
                                                             ---------         ---------
FINANCING ACTIVITIES                                                                      
Issuance of common shares                                           --            25,845  
Proceeds from exercise of options                                2,135             3,469  
Proceeds from employee stock purchase plan                         529                --  
                                                             ---------         ---------
   Net cash provided by financing activities                     2,664            29,314  
                                                             ---------         ---------
Effect of foreign currency exchange rate changes on                                       
 cash and cash equivalents                                        (121)               --  
                                                             ---------         ---------
Net increase in cash and cash equivalents                        4,394            10,294  
                                                                                          
Cash and cash equivalents at beginning of period                30,880            16,946  
                                                             ---------         ---------
Cash and cash equivalents at end of period                   $  35,274         $  27,240  
                                                             ---------         ---------
                                                             ---------         ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
   Cash paid (refund received) for income taxes, net         $  (3,598)           $  934
                                                             ---------         ---------
                                                             ---------         ---------
</TABLE>

The accompanying notes are an integral part of this financial information.


                                      -5-

<PAGE>

                               TCSI CORPORATION

           NOTES TO CONSOLIDATED FINANCIAL INFORMATION (Unaudited)

1.  BASIS OF PRESENTATION

         The accompanying unaudited consolidated financial information has been
    prepared by TCSI Corporation ("TCSI" or the "Company") in accordance with
    generally accepted accounting principles for interim financial statements
    and pursuant to the rules of the Securities and Exchange Commission for
    Form 10-Q. Accordingly, certain information and footnotes required by
    generally accepted accounting principles for complete financial statements
    have been omitted. It is the opinion of management that all adjustments
    considered necessary for a fair presentation have been included, and that
    all such adjustments are of a normal and recurring nature.  Operating
    results for the periods presented are not necessarily indicative of the
    results that may be expected for any future periods.  For further
    information, refer to the audited financial statements and footnotes
    included in the Company's 1996 Annual Report on Form 10-K.

         The preparation of financial statements in conformity with generally
    accepted accounting principles requires management to make estimates and
    assumptions that affect the amounts reported in the financial statements
    and accompanying notes.  Actual results could differ from those estimates.

2.  CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES

         The Company accounts for its marketable securities under Statement of
    Financial Accounting Standards No. 115, "Accounting for Certain Investments
    in Debt and Equity Securities."  Management determines the appropriate
    classification of investments and debt securities at the time of purchase
    and reevaluates such designation as of each balance sheet date. 
    Investments are classified as held-to-maturity when the Company has the
    intent and ability to hold the securities to maturity.  Held-to-maturity
    securities are stated at amortized cost.  Investments not classified as
    such are classified as available-for-sale.  Available-for-sale securities
    are stated at fair value, with the unrealized gains and losses, net of tax,
    reported in a separate component of shareholder's equity.  Realized and
    unrealized gains and losses from investments have been insignificant to the
    results of operations and financial position of the Company.

3.  RECEIVABLES AND CREDIT RISK

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


                                      -6-

<PAGE>

                               TCSI CORPORATION

         Receivables balances are as follows:

         (In thousands)                   September 30,    December 31,
                                              1997             1996    
                                          -------------    ------------
         Billed receivables                  $11,462         $10,433   
         Unbilled receivables                     --           2,489   
         Reserve for doubtful accounts          (400)           (400)  
                                             -------         -------   
                                             $11,062         $12,522   
                                             -------         -------   
                                             -------         -------   

4.  FURNITURE, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS

         Furniture, equipment, and leasehold improvements are stated at cost. 
    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 five years and three years, respectively, utilizing the
    straight-line method.  Amortization is provided for leasehold improvements
    in amounts sufficient to relate the cost over the shorter of the term of
    the related office lease or ten years utilizing the straight-line method.

         Furniture, equipment, and leasehold improvements balances are as 
follows: 

    (In thousands)                      September 30,    December 31,
                                            1997            1996
                                        -------------    ------------
    Computer and lab equipment            $  13,884       $  12,856
    Furniture and fixtures                    3,639           3,307
    Leasehold improvements                    6,719           4,194
                                          ---------       ---------
                                             24,242          20,357
    Less accumulated depreciation and
     amortization                           (13,939)        (11,123)
                                          ---------       ---------
                                          $  10,303        $  9,234
                                          ---------       ---------
                                          ---------       ---------

5.  INCOME TAXES

         The effective tax rate used in the calculation of the income tax
    benefit for both the three and nine months ended September 30, 1997 and
    1996 was 34 percent and 32 percent, respectively.  In determining its
    effective tax rate for the quarter, the Company used its estimated
    effective tax rate for the year.  To the extent there are differences
    between planned and actual net income, the components thereof, or changes
    in the tax laws effecting the Company, the effective tax rate could change.

         At September 30, 1997, the Company had approximately $4.2 million of
    deferred tax assets.  Included in this balance is approximately $0.7
    million associated with stock options.  In the event these stock option
    related deferred tax assets are not entirely realized, the unrealized
    balance would be reversed to shareholders' equity. Realization of the
    remaining deferred tax assets is dependent upon the Company generating
    sufficient taxable income in future years to obtain the benefit from the
    reversal of temporary differences and from tax credit carry forwards.

                                      -7-

<PAGE>

                               TCSI CORPORATION

6.  STOCK BASED COMPENSATION

         The Company grants stock options for a fixed number of shares to
    employees, consultants, and directors with an exercise price equal to the
    fair value of the shares at the date of grant. The Company accounts for
    stock option grants in accordance with APB Opinion No. 25, "Accounting for
    Stock Issued to Employees," and, accordingly, recognizes no compensation
    expense for the stock option grants.

7.  PER SHARE INFORMATION

         Earnings per share is computed using the weighted average number of
    shares outstanding and dilutive common stock equivalents from the Company's
    stock option plans, calculated using the treasury stock method.  Such
    common stock equivalents are excluded from the loss per share calculation
    as their effect is anti-dilutive for the three and  nine month periods
    ended September 30, 1997.

         In February 1997, the Financial Accounting Standards Board issued
    Statement No. 128, "Earnings Per Share," which must be adopted on December
    31, 1997.  At that time, the Company will be required to change the method
    currently used to compute earnings per share and to restate all prior
    periods.  Under the new requirements for calculating primary earnings per
    share, the dilutive effect of stock options will be excluded.  The impact
    is expected to result in no change in primary earnings (loss) per share for
    the three and nine months ended September 30, 1997 and 1996.  The impact of
    Statement 128 is not expected to be material.

8.  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 - 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 April 7, 1997, the Superior Court entered an order
    sustaining the demurrers of all defendants to all causes of action.  On 
    June 2, 1997, plaintiffs filed an amended complaint alleging a cause of
    action for violation of California Corporations law. On June 23, defendants
    (other than the underwriter defendants) demurred to the remaining cause of
    action.  That demurrer is pending.  On July 23, 1997, plaintiffs
    voluntarily dismissed the underwriter defendants without prejudice.

         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 (the "Tinkler
    Derivative Action").  The complaint in the Tinkler Derivative Action also
    names the Company as a nominal defendant.  The complaint in the Tinkler
    Derivative Action alleges that as a result of the facts alleged in the
    Copperstone State Action, defendants breached their fiduciary duties to the
    Company, 


                                      -8-

<PAGE>

                               TCSI CORPORATION

    violated California law, and were unjustly enriched.  The plaintiff in 
    the Tinkler Derivative Action seeks damages of an unspecified amount.  On 
    July 1, 1997, the Superior Court entered an order sustaining the 
    Company's demurrer.  On July 21, 1997, plaintiff filed an amended 
    complaint alleging identical causes of action.  On August 11, 1997, 
    defendants filed a demurrer to the amended complaint.  That demurrer is 
    pending.

         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 May 16, 1997, Atmel Corporation made a claim under the TCSI/Atmel
    Corporation Purchase Agreement dated November 14, 1996, asserting that TCSI
    breached certain representations and warranties in connection with the
    licensing  of its embedded software product lines to Atmel Corporation. 
    Pursuant to the Purchase Agreement, $1,000,000 of the sale price was
    escrowed to be available for claims arising from the transaction. 
    Recently, Atmel has asserted that its damages exceed $3,000,000. 
    Management disputes this claim and intends to initiate an arbitration
    proceeding to obtain the release of the $1,000,000 escrow fund.

         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.  In the opinion of management, resolution of these
    litigations 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 operation or cash flows in a
    particular period.(*)



----------------------------
(*) This statement is a forward-looking statement reflecting current
expectations.  There can be no assurance that the Company's actual future
performance will meet the Company's current expectations.  The Company strongly
encourages review of the section entitled "Factors Affecting Operating Results
and Market Price of Stock" commencing on page 17 for a discussion of factors
that could affect future performance.



                                      -9-

<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, 1996. 

   OVERVIEW

    TCSI Corporation provides integrated software products and services for 
the global telecommunications industry.  Since its inception in 1983, a 
significant portion of the Company's revenues has been earned from 
telecommunications service providers and equipment manufacturers.  Since 
1993, the Company's revenues have resulted primarily from sales of related 
object-oriented software products and services.  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, the Company has 
focused on offering software solutions to the telecommunications industry. 

    The Company provides services to customers under level-of-effort and 
fixed price contracts.  Service revenues are recognized on the percentage-of 
completion method based on the percentage of contract costs incurred in 
relation to total estimated contract costs.  Changes to total estimated 
contract costs, if any, are recognized in the period such changes are 
determined.  The scope and size of many of the Company's system solutions are 
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 some cases, 
customers have disputed fees charged for services provided.  The Company may 
write off receivable amounts if such disputes cannot be resolved.  
Additionally, a significant portion of the Company's revenues and operating 
income 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.

                                  -10-
<PAGE>

                           TCSI CORPORATION

    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.  In this regard, the consistency 
of the Company's 1996 and 1997 quarterly results have been adversely affected 
by customer delays in the purchase of software licenses. 

    A substantial portion of the Company's revenues are derived from the sale 
of the Company's software products and services to major telecommunications 
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 often contains 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 the customer's technology or 
business strategy during such lengthy development and implementation periods 
may cause early termination of the project or discontinuance of future 
phases.  In this regard, the Company has experienced and expects to 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 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. Management intends to target product development 
spending at levels consistent with other software companies.  Furthermore, 
management expects that from time to time it may acquire businesses, 
products, or technologies to enhance the Company's current product offerings. 
To date, the Company has not consummated any such acquisitions and the 
Company has no current agreements to effect any such acquisitions.  The 
failure to successfully evaluate, negotiate, and effect such an acquisition 
could have a material adverse effect on the Company's business, operating 
results, and financial condition.

                                  -11-
<PAGE>

                           TCSI CORPORATION

RESULTS OF OPERATIONS

    REVENUES.  The Company generates revenues from the sale of its software 
products and related services to the telecommunications industry. For the 
three and nine months ended September 30, 1997 and 1996, revenues were as 
follows:

                                   Three Months Ended       Nine Months Ended
                                     September 30,            September 30,
                                   ------------------       -----------------
    TOTAL COMPANY REVENUES:          1997      1996          1997      1996
                                   --------  --------       ------   --------
    Services                      $  9,239  $  8,835       $26,097   $34,380
    Software licensing fees            518       950         2,998     8,504
    Equipment, non-telecom              --        --            --     7,270
                                  --------  --------       -------   -------
         Totals                   $  9,757  $  9,785       $29,095   $50,154
                                  --------  --------       -------   -------
                                  --------  --------       -------   -------


                                   Three Months Ended       Nine Months Ended
                                     September 30,            September 30,
                                   ------------------       -----------------
    TELECOM REVENUES:                1997      1996          1997      1996
                                   --------  --------       ------   --------
    Services                      $  9,239  $  7,686       $26,035   $27,907
    Software licensing fees            518       921         2,577     5,583
                                  --------  --------       -------   -------
         Totals                   $  9,757  $  8,607       $28,612   $33,490
                                  --------  --------       -------   -------
                                  --------  --------       -------   -------

    Total company revenues for the three months ended September 30, 1997 were 
$9.8 million, relatively unchanged from the same period in 1996.  For the 
nine months ended September 30, 1997, the Company's total revenues decreased 
42 percent to $29.1 million from $50.2 million for the comparable 1996 
period.  The decline in total revenues for the nine months period is 
primarily due to $16.7 million of revenues generated for the nine months 
ended September 30, 1996 by non-telecom business units which were 
discontinued in late 1996.  Total telecom revenues for the three months ended 
September 30, 1997 increased 13 percent to $9.8 million from $8.6 million for 
the same three months in 1996.  For the nine months ended September 30, 1997, 
total telecom revenues declined to $28.6 million from $33.5 million for the 
same period in 1996, a 15 percent decrease. The decline in telecom revenues 
is primarily attributable to a 54 percent decline in telecom software 
licensing fees for the nine months ended September 30, 1997 as a result of 
delayed system deployments in North America.  The Company expects software 
licensing fees to continue at rates below the 1996 levels in the near term 
and to vary from period to period.*


--------------------
* This statement is a forward-looking statement reflecting current 
expectations.  There can be no assurance that the Company's actual future 
performance will meet the Company's current expectations.  The Company 
strongly encourages review of the section entitled "Factors Affecting 
Operating Results and market price of Stock" commencing on page 17 for a 
discussion of factors that could affect future performance.

                                 -12-
<PAGE>

                           TCSI CORPORATION

         The following summarizes revenues by geographic location: 

                                  Three Months Ended       Nine Months Ended
                                    September 30,            September 30,
                                  ------------------       -----------------
                                    1997    1996            1997      1996
                                  -------- ------          ------   --------
         TOTAL COMPANY:
         North America               18%    54%              26%     60%
         The Pacific Rim             58     36               49      29
         Europe                      24     10               25      11
                                  -----  -----            -----   -----
                                    100%   100%             100%    100%
                                  -----  -----            -----   -----
                                  -----  -----            -----   -----

                                  Three Months Ended       Nine Months Ended
                                    September 30,            September 30,
                                  ------------------       -----------------
                                    1997    1996            1997      1996
                                  -------- ------          ------   --------
          TELECOM:
          North America              18%    56%              25%     53%
          The Pacific Rim            58     32               49      30
          Europe                     24     12               26      17
                                  -----  -----            -----   -----
                                    100%   100%             100%    100%
                                  -----  -----            -----   -----
                                  -----  -----            -----   -----

    Telecom revenues from the Pacific Rim and Europe increased to $8.0 
million for the three months ended September 30, 1997 compared to $3.8 
million for the comparable 1996 period.  For the nine months ended September 
30, 1997, such revenues increased 38 percent to $21.5 million from $15.5 
million for the same period in 1996.  The increase is attributable to 
continued relationships with existing customers, particularly through the 
company's partner in Japan, resulting in revenues from follow-on contracts 
signed earlier this year. Telecom revenues from North America for the three 
months ended September 30, 1997 declined 64 percent to $1.7 million compared 
to $4.8 million in 1996.  For the nine months ended September 30, 1997 and 
1996 telecom revenues decreased 60 percent to $7.2 million from $18.0 
million, respectively.  The decline in telecom revenues in North America is 
the result of low North American based telecom bookings during 1996 and 
delayed deployments in 1997, as the Company generally realizes services 
revenues involving design, development, testing, and deployment over a twelve 
to eighteen month period.  The Company expects the geographical mix of 
revenues 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 significant portion of revenues has been concentrated among a 
limited number of customers.  For the three months ended September 30, 1997, 
the concentration of 


--------------------
* This statement is a forward-looking statement reflecting current 
expectations.  There can be no assurance that the Company's actual future 
performance will meet the Company's current expectations.  The Company 
strongly encourages review of the section entitle "Factors Affecting 
Operating Results and Market Price of Stock" commencing on page 17 for a 
discussion of factors that could affect future performance.

                                  -13-
<PAGE>

                           TCSI CORPORATION


revenue from the Company's five largest telecom customers decreased to 70 
percent from 77 percent for the same period in 1996.  The concentration of 
revenue from the Company's five largest telecom customers for the nine months 
ended September 30, declined slightly to 64 percent in 1997 from 66 percent 
in 1996.   The top three customers represented 32, 12, and  10 percent of 
total revenues for the three months ended September 30, 1997, and 25, 13, and 
10 percent of total revenues for the nine months ended September 30, 1997. 
There can be no assurance that such customers will continue to place orders 
with the Company which equal or exceed the comparable levels for prior 
periods.* See "Factors Affecting Operating Results and Market Price of Stock 
- Customer Concentration."

    DIRECT COSTS OF SERVICES.  The Company incurs direct costs in the 
development and deployment of its customer's 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, and 
depreciation. Costs of services declined 35 percent to $5.6 million for the 
three months ended September 30, 1997 from $8.7 million for the same period 
in 1996.  For the nine months ended September 30, costs of services decreased 
26 percent to $15.9 million in 1997 from $21.6 million in 1996.  The decrease 
for the three and nine month periods is primarily attributable to the 
divestiture of the Company's non-telecom business units in late 1996.  As a 
percentage of services revenues, costs of services were 61 percent for the 
three months ended September 30, 1997 compared to 98 percent for the same 
period in 1996. For the nine months ended September 30, costs of services as 
a percentage of services revenues were 61 percent in 1997 and 63 percent for 
the comparable period in 1996.  In the second half of 1996, the Company's 
costs of services were affected by increased investments in the completion of 
a number of North American telecom software solutions.  Such customer-related 
investments have been reduced in the first half of 1997 resulting in lower 
direct costs of services.
    
    PRODUCT DEVELOPMENT.  Product development includes employee compensation, 
subcontractor fees, training costs, and other product development costs, 
including an allocation for benefits, facilities, and depreciation. For the 
three months ended September 30, the Company invested $1.4 million or 14 
percent of revenues on internally funded product development in 1997 compared 
with $2.1 million or 21 percent of revenues in 1996.  For the nine months 
ended September 30, 1997, such investments were $4.2 million or 15 percent of 
revenues and $4.6 million or 9 percent of revenues for the comparable 1996 
period.  In 1996, product development costs included two major upgrades of 
the Company's SolutionCore product as well as non-telecom product development 
costs from its divested business units. In 1997, the funds have been used 
primarily for the development of the Company's SolutionCore-TM- product, 
which includes the fifth release of Object Services Package (OSP) and new 
releases of related development tools.  The Company expects to continue to 
invest in SolutionCore, as well as its new components-based applications, 
SolutionSuites-TM-, throughout 1997. 


--------------------
* This statement is a forward-looking statement reflecting current 
expectations.  There can be no assurance that the Company's actual future 
performance will meet the Company's current expectations.  The Company 
strongly encourages review of the section entitled "Factors Affecting 
Operating Results and Market Price of Stock" commencing on page 17 for a 
discussion of factors that could affect future performance.

                                  -14-
<PAGE>

                           TCSI CORPORATION


    SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES.  Selling expenses include 
sales and marketing employee compensation, promotional material, trade shows, 
travel, and facilities expenses.  General and administrative costs 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 three months ended September 30, 1997, selling, general, and 
administrative expenses decreased 28 percent to $4.3 million from $6.0 
million for the same period in 1996.  For the nine months ended September 30, 
selling, general, and administrative expenses declined 23 percent to $13.2 
million in 1997 from $17.2 million in 1996.  As a percentage of revenue, 
selling, general, and administrative expense was 44 percent for the three 
months ended September 30, 1997 compared to 61 percent of revenue in 1996. 
The decrease is due to the discontinuance of non-telecom business units in 
late 1996, as well as the Company's business resizing decisions taken over 
the past twelve months.  For the nine months ended September 30, selling, 
general, and administrative expense was 45 percent of revenue in 1997 and 34 
percent of revenue for the comparable 1996 period.  The increase is primarily 
attributed to the decline in revenues for the nine months ended September 30, 
1997 compared to 1996.

    NON-RECURRING SPECIAL ITEMS.  The Company incurred an expense of $1.1 
million in the first half of 1997 resulting from an adjustment to the 
market-value of equipment held for resale related to the termination of a 
non-telecom contract in the third quarter of 1996.  In addition, in the third 
quarter of 1996, the Company recorded an expense of $3.3 million to cover the 
costs associated with the termination of a non-telecom contract.  The Company 
concluded the sale of the equipment in the third quarter of 1997.

    INCOME TAXES.  The Company records income taxes in accordance with 
Statement of Financial Accounting Standards No. 109, "Accounting for Income 
Taxes."  The Company's effective tax rate was 34 percent and 32 percent for 
the three and nine months ended September 30, 1997 and 1996, respectively.  
The Company realized a tax benefit of $0.3 million for the quarter ended 
September 30, 1997 compared to a tax benefit of $3.1 million in 1996.  For 
the nine months ended September 30, the Company realized a tax benefit of 
$1.0 million in 1997 compared to a tax benefit of $0.5 million in 1996.

    EARNINGS PER SHARE (EPS).  Shares used in the calculation of earnings 
(loss) per share increased to 21.7 million for the three months ended 
September 30, 1997 compared to 21.0 million for the same period in 1996.  For 
the nine months ended September 30, shares used in the calculation of 
earnings (loss) per share increased to 21.5 million in 1997 from 20.3 million 
in 1996.  The increase in shares in 1997 was due to option exercises and 
employee stock purchases related to the Company's employee stock purchase 
plan.  The calculation of earnings (loss) per share for both periods in 1997 
and both periods in 1996 exclude unexercised option shares as such shares 
would be anti-dilutive as a result of the net losses for the periods.

                                  -15-
<PAGE>

                           TCSI CORPORATION


         LIQUIDITY AND CAPITAL RESOURCES

    For the nine months ended September 30, 1997, net cash generated from 
operating activities was $1.8 million compared to net cash used in operating 
activities of $1.3 million for the same period in 1996.  The increase in cash 
generated from operations is primarily due to a reduction in the Company's 
accounts receivable, other receivables and other current assets.  In the 
first period of 1996, accounts receivable balances included a significant 
amount related to transportation and wireless business units that were 
discontinued. In addition, in 1996 the Company's other receivables included 
$4.9 million related to the termination of a contract with a transportation 
customer.  The Company also had $2.0 million of equipment held for sale 
related to this contract included in other current assets in 1996.  As in the 
past, the Company's operating cash flows in the future may be affected by 
fluctuating receivable balances.  The Company's receivables are primarily 
from large, credit-worthy customers and, as a result, the Company does not 
anticipate any significant default from a customer's inability to make a 
payment for products and/or services received.* Also included in cash from 
operating activities is $4.0 million in income tax refunds received in 1997 
resulting from prior year net operating loss carrybacks.

    Cash provided by financing activities declined $26.7 million to $2.7 
million for the nine months ended September 30, 1997 compared to the same 
period in 1996.  In early 1996, the Company raised funds through a follow-on 
public offering, realizing net proceeds of approximately $25.8 million.
    
    For the nine months ended September 30, 1997, cash generated by 
investment activities was less than $0.1 million compared to $17.7 million 
used in investment activities for the comparable 1996 period.  Net cash from 
investing activities for the 1997 period was a result of net decreases in 
purchases/maturities of investments, a reduction in non-current assets and 
increases in capital expenditures.  In 1997, the nine month period included 
the purchase of $13.1 million of marketable securities and $18.5 million of 
maturities of marketable securities compared to the purchase of $22.8 million 
of marketable securities and $11.0 million of maturities in the comparable 
1996 period.  A decline in the other non-current assets balance in 1997 also 
contributed to the reduction in net cash used in investing activities.  For 
the nine months ended September 30, 1996, such balances included a 
non-current customer receivable and the non-current portion of an employee 
note receivable. In addition, the net decrease in cash used in such 
investment activities also included $5.9 million of cash used for capital 
expenditures and leasehold improvements during the nine months ended 
September 30, 1997 compared to $4.7 million of cash used for capital 
expenditures for the comparable 1996 period. The increase in capital 
expenditures is primarily related to the consolidation of the Company's 
facilities in northern California and the Company's new facilities in the 
United Kingdom.  The Company expects such expenditures to be significantly 
lower in the near term.* The Company currently has no significant commitments 
for capital expenditures, although management intends to support operational 
needs as necessary. 

--------------------
* This statement is a forward-looking statement reflecting current 
expectations.  There can be no assurance that the Company's actual future 
performance will meet the Company's current expectations.  The Company 
strongly encourages review of the section entitled "Factors Affecting 
Operating Results and Market Price of Stock" commencing on page 17 for a 
discussion of factors that could affect future performance.

                                  -16-
<PAGE>

                           TCSI CORPORATION


   FACTORS AFFECTING OPERATING RESULTS AND MARKET PRICE OF STOCK

    The Company operates in a rapidly changing environment that involves 
numerous risks, some of which are beyond the Company's control. The following 
discussion highlights some of the risks the Company faces.

   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 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 significant portion of the Company's operating income 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 
customers 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, net income 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. Due to the 
foregoing factors, it is likely that in some future period the Company's 
revenues or operating results will be below the expectations of public market 
analysts and investors. In such event the price of the Company's common stock 
could be materially adversely affected.

                                  -17-
<PAGE>

                           TCSI CORPORATION


   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 license 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 element, network, and 
service management systems developed by the Company, the Company has in the 
past relied and will in the future rely on its development and implementation 
expertise.  The Company continues to develop distributed object 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, if 
successful, that the revenue 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.

                                  -18-
<PAGE>

                           TCSI CORPORATION


    Revenues attributable to the Company's distributed object 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 
distributed object software products and services in general and the 
Company's portfolio of products and services in particular. There can be no 
assurance that distributed object technology will continue to achieve market 
acceptance or that the Company will be successful in developing, introducing, 
or marketing improvements to its distributed object products. Moreover, the 
life cycle of distributed object products is difficult to estimate due in 
large part to the recent emergence of many of the Company's markets, the 
effect of future product enhancements, and competition. A decline in the 
demand for distributed object technology 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.

    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. Management believes that continued revenue growth is highly 
dependent upon the development and enhancement of software products that meet 
market needs. Prior to 1996, internally funded product development costs were 
nominal. Management intends to target product development spending at amounts 
consistent with other software companies. There can be no assurance, however, 
that such funding will result in the successful introduction of new products.

    CUSTOMER CONCENTRATION

    To date, a significant portion of the Company's revenues have been 
concentrated among a limited number of customers. In particular, the Company 
anticipates that, in 1997, a large portion of revenues will be derived from 
contracts negotiated through a large equipment manufacturer in Asia.  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 such individuals were terminated, transferred, 
or replaced, the Company would be vulnerable to cancellation of an order if, 
for example, the Company's competitors had pre-existing relationships with 
such individual's replacement. As a result of these factors, the Company's 
business, operating results, and financial condition could be materially 
adversely affected.

                                  -19-
<PAGE>

                           TCSI CORPORATION


    PRODUCT DEFECTS

    The Company provides complex software products for major corporations. 
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 revenue, loss 
of market share, failure to achieve market acceptance, or may otherwise 
adversely impact the Company's business, operating results, and financial 
condition.

    IMPLEMENTATION RISKS

    As characteristic of companies providing software solutions to the 
telecommunications industry, the complexities involved in implementing the 
Company's software solutions entail risks of performance failures. In some 
cases the Company has agreed to accept some financial responsibility, in the 
form of negotiated penalty amounts, should the Company's products 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 
complexities. Because the Company's customer base consists of a relatively 
limited number of customers, the reputational harm resulting from product 
defects or implementation errors would be damaging to the Company. Any such 
occurrence could have a material adverse effect upon the Company's business, 
operating results, and financial condition.

    INTERNATIONAL SALES

    Revenues outside of North America accounted for 82 percent and 74 percent 
of the Company's total revenues for the three and nine months ended September 
30, 1997, respectively. The Company expects that international revenues will 
continue to account for a significant portion of its total revenue 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 longer 
receivables collection periods and greater difficulty in accounts receivable 
collection, 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 due to the slowdown in European business activity 
during the Company's third fiscal quarter, 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, 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 revenue 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.

                                  -20-
<PAGE>

                           TCSI CORPORATION


    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 revenue 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, the Company may engage in 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.

    DEPENDENCE ON TELECOMMUNICATIONS CARRIERS; GOVERNMENT REGULATION

    The Company's principal customers are concentrated among major telecom 
carriers, including regional bell operating companies ("RBOCs"). 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.

                                  -21-

<PAGE>
                                TCSI CORPORATION


    COMPETITION

    The Company offers products and services in the evolving markets for 
telecom network management software and distributed object technology. 
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 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 telecom software needs. The Company faces competition in 
each of the three functional areas the Company believes are necessary for the 
delivery of complete network management software solutions: development 
environments, and  turnkey applications and custom services. Because certain 
of the Company's competitors focus only on one of these functional areas, 
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, RBOCs, systems integrators, and equipment 
manufacturers, each of which has substantially greater financial, 
manufacturing, technical, marketing, distribution, and other resources, 
greater name recognition, and longer-standing relationships with customers 
than does the Company. Furthermore, many of the Company's current and 
potential customers continuously evaluate 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.


                                 -22-

<PAGE>

                             TCSI CORPORATION


    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, introductions or modifications by 
systems vendors, particularly Sun Microsystems, Inc. and Hewlett Packard 
Company, and by vendors of relational database software, particularly Oracle 
Corporation, Sybase, Inc., and Informix Corporation, 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.


                                 -23-

<PAGE>

                             TCSI CORPORATION


    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 
were to make a valid claim and a license were not made available on 
commercially reasonable terms, or if the Company were 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 
object-oriented software products, there can be no assurance that the 
prohibition or restrictions imposed by certain customers of the use of 
certain intellectual property will not adversely affect the Company's 
business, operating results, and financial condition.


                                 -24-

<PAGE>

                             TCSI CORPORATION


    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.

    DEPENDENCE ON KEY PERSONNEL

    The Company's future growth and success depends to a significant extent 
on the 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 a change 
in and temporary loss of executive management personnel.  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 from time to time 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 would 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.


                                 -25-

<PAGE>

                             TCSI CORPORATION


    POTENTIAL 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. In addition, the stock market has from time to 
time experienced significant price and volume fluctuations that have 
particularly affected the market prices for the common stocks of technology 
companies. 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 class action lawsuits on behalf of certain of the 
Company's shareholders were filed against the Company and various of its 
officers and directors.  In late September 1997, a third 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 suits allege 
violations of state securities laws during 1995 and 1996. Management believes 
that the lawsuits are without merit and is contesting them.


                                 -26-

<PAGE>

                             TCSI CORPORATION


    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 - 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 April 
7, 1997, the Superior Court entered an order sustaining the demurrers of all 
defendants to all causes of action.  On June 2, 1997, plaintiffs filed an 
amended complaint alleging a cause of action for violation of California 
Corporations law. On June 23, defendants (other than the underwriter 
defendants) demurred to the remaining cause of action.  That demurrer is 
pending.  On July 23, 1997, plaintiffs voluntarily dismissed the underwriter 
defendants without prejudice.

    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 (the "Tinkler Derivative 
Action").  The complaint in the Tinkler Derivative Action also names the 
Company as a nominal defendant.  The complaint in the Tinkler Derivative 
Action alleges that as a result of the facts alleged in the Copperstone State 
Action, defendants breached their fiduciary duties to the Company, violated 
California law, and were unjustly enriched.  The plaintiff in the Tinkler 
Derivative Action seeks damages of an unspecified amount.  On July 1, 1997, 
the Superior Court entered an order sustaining the Company's demurrer.  On 
July 21, 1997, plaintiff filed an amended complaint alleging identical causes 
of action.  On August 11, 1997, defendants filed a demurrer to the amended 
complaint.  That demurrer is pending.

    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 May 16, 1997, Atmel Corporation made a claim under the TCSI/Atmel 
Corporation Purchase Agreement dated November 14, 1996, asserting that TCSI 
breached certain representations and warranties in connection with the 
licensing of its  embedded software product lines to Atmel Corporation.  
Pursuant to the Purchase Agreement, $1,000,000 of the sale price was escrowed 
to be available for claims arising from the transaction.  Recently, Atmel has 
asserted that its damages exceed $3,000,000.  Management disputes this claim 
and intends to initiate an arbitration proceeding to obtain the release of 
the $1,000,000 escrow fund.


                                 -27-

<PAGE>

                             TCSI CORPORATION


    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.  In the opinion of management, resolution of these 
litigations 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 operation or cash flows in a 
particular period.


                                 -28-

<PAGE>

                             TCSI CORPORATION


Item 4. Submission of Matters to Vote of Security Holders

    In connection with the consent mailing of TCSI Corporation dated July 16,
    1997 the following matters were voted upon and approved by the
    shareholders:

    A proposal to amend the Company's 1991 Stock Incentive Plan to increase to
    750,000 the maximum number of shares subject to option awards which may be
    awarded to any participant in a fiscal year was approved by the
    shareholders.  The following votes were cast as to such proposal:  For:
    14,244,855; Against: 333,101; Abstain: 5,300.

    A proposal to grant stock options to Dr. Ram A. Banin under the 1991 Plan
    to acquire 500,000 shares of Common Stock at an exercise price equal to
    $5.8876 per share was approved by the shareholders.  The following votes
    were cast as to such proposal:  For: 14,219,790; Against: 357,616; Abstain:
    5,850.

    A proposal to authorize and direct the officers of the Company to take all
    actions necessary to carry out the intent of the foregoing resolutions was
    approved by the shareholders.  The following votes were cast as to such
    proposal:  For:  14,297,183; Against: 280,773; Abstain: 5,300.


                                 -29-

<PAGE>

                             TCSI CORPORATION


Item 6.  Exhibits and Reports on Form 8-K

(a) Exhibits Required by Item 601 of Regulation S-K.

         Exhibit Number           Document Description            
    ----------------------------------------------------------------------
    ----------------------------------------------------------------------

              10.30          Amendment to TCSI Corporation 1991
                             Stock Incentive Plan, dated May 30,
                             1997, increasing the maximum number
                             of options which may be awarded in a
                             fiscal year.

              11.1           Statement re: computation of per share
                             earnings                                  

              27             Financial Data Schedule               

(b) Reports on Form 8-K filed in the third quarter of 1997.

    (i)       Press release dated August 1, 1997, "TCSI Announces Management
              Change"

    (ii)      Press release dated July 30, 1997, "TCSI and IONA Technologies
              Form Alliance to Develop Next Generation Telecommunication
              Software Solutions; New Product Integration Provides TCSI
              Customers With Full CORBA 2.0 Capabilities"

    (iii)     Press release dated July 17, 1997, "TCSI Corporation Reports
              Second Quarter Results"



                                 -30-

<PAGE>

                             TCSI CORPORATION



                                 SIGNATURES

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

                                  TCSI Corporation
                                  --------------------------------------------
                                  (Registrant)   

    November 13, 1997             /s/ Ram A. Banin
------------------------------    --------------------------------------------
         Date                     Ram A. Banin, President and Chief Executive
                                  Officer, and Acting Chief Financial Officer



                                 -31-