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, 2001

                                       or

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

For the transition period from __________________ to __________________

                                   Commission file number 0-19377

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

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

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

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

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

Yes  X           No
    ---              ---

     23,251,271  shares of common stock of the registrant were outstanding as of
November 5, 2001.

<PAGE>

                                TABLE OF CONTENTS

                                                                            Page

Part I - Financial Information

Item 1.  Consolidated Financial Statements

         Condensed consolidated balance sheets at
              September 30, 2001 (Unaudited) and December 31, 2000             3

         Consolidated statements of operations for the three and nine
              Months ended September 30, 2001 and 2000 (Unaudited)             4

         Condensed consolidated statements of cash flows for the
              Nine months ended September 30, 2001 and 2000 (Unaudited)        5

         Notes to consolidated financial statements (Unaudited)                6

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations                                  10

Item 3.  Market Risk                                                          25

Part II - Other Information

Item 1.  Legal Proceedings                                                   N/A

Item 2.  Changes in Securities                                               N/A

Item 3.  Defaults Upon Senior Securities                                     N/A

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

Item 5.  Other Information                                                   N/A

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

Signature                                                                     27



                                       2
<PAGE>

Part I - Financial Information

Item 1.  Consolidated Financial Statements

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

<TABLE>
<CAPTION>
                                                                                 September 30,        December 31,
                                                                                      2001               2000 *
                                                                                -----------------   -----------------
                                                                                  (Unaudited)
<S>                                                                                <C>                  <C>
ASSETS
Current assets:
     Cash and equivalents                                                          $  7,957             $ 11,886
     Marketable securities                                                           17,354               21,523
     Receivables, net                                                                 3,651                4,827
     Other receivables                                                                  669                  191
     Other current assets                                                             1,002                1,238
                                                                                   --------             --------
         Total current assets                                                        30,633               39,665
Furniture, equipment, and leasehold improvements, net                                 4,209                5,568
Equity investment                                                                       408                  658
Other assets                                                                            297                  422
                                                                                   --------             --------
              Total assets                                                         $ 35,547             $ 46,313
                                                                                   ========             ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
     Accounts payable and accrued liabilities                                      $  2,403             $  2,777
     Accrued compensation and related costs                                           2,327                2,209
     Deferred revenues                                                                  787                1,715
     Income taxes payable                                                               371                1,054
                                                                                   --------             --------
         Total current liabilities                                                    5,888                7,755


Shareholders' equity:
     Common stock, par value $0.10 per share; 75,000,000 shares authorized;
         23,251,271 and 23,144,219 shares issued and outstanding, at Septe  mber
         30, 2001 and December 31, 2000, respectively                                 2,325                2,314
     Additional paid-in capital                                                      52,791               52,654
     Accumulated other comprehensive income                                              62                   21
     Accumulated deficit                                                            (25,519)             (16,431)
                                                                                   --------             --------
         Total shareholders' equity                                                  29,659               38,558
                                                                                   --------             --------
            Total liabilities and shareholders' equity                             $ 35,547             $ 46,313
                                                                                   ========             ========
</TABLE>

* THE AMOUNTS AT DECEMBER 31, 2000 WERE  DERIVED  FROM THE AUDITED  CONSOLIDATED
FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 INCLUDED IN THE
COMPANY'S MOST RECENT ANNUAL REPORT ON FORM 10-K.


          See accompanying notes to consolidated financial statements.



                                       3
<PAGE>

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

<TABLE>
<CAPTION>
                                                                Three Months Ended               Nine Months Ended
                                                                   September 30,                    September 30,
                                                       ------------------------------------------------------------------
                                                            2001                2000             2001              2000
                                                       ----------------  ------------------------------------------------
<S>                                                      <C>                 <C>             <C>                <C>
Revenues:
     Services                                            $  1,705            $  2,655        $  5,295           $  8,959
     Software licensing fees                                1,323               1,193           4,150              5,675
                                                       ----------------  ------------------------------------------------
          Total revenues                                    3,028               3,848           9,445             14,634

Costs, expenses, and special items:
     Services                                               1,373               1,795           4,429              6,558
     Product development                                    1,449               1,863           5,395              7,433
     Selling, general, and administrative                   3,589               3,443           9,892             10,175
     Nonrecurring special items, net                           --                  --             562                364
                                                       ----------------  ------------------------------------------------
          Total costs, expenses, and special items          6,411               7,101          20,278             24,530
                                                       ----------------  ------------------------------------------------

Loss from operations                                       (3,383)             (3,253)        (10,833)            (9,896)
Interest income and other income (expense), net               540                 660           1,283              1,708
                                                       ----------------  ------------------------------------------------
Loss before income tax benefit                             (2,843)             (2,593)         (9,550)            (8,188)
Income tax benefit                                            --                   --             462                 --
                                                       ----------------  ------------------------------------------------
Net loss                                                 $ (2,843)           $ (2,593)       $ (9,088)          $ (8,188)

                                                       ================  ================================================
Net loss per share - basic and diluted                   $  (0.12)           $  (0.11)       $  (0.39)          $  (0.36)
                                                       ================  ================================================
Weighted average shares used in computing basic
and diluted net loss per share                             23,236              23,117          23,209             23,016
                                                       ================  ================================================
</TABLE>


          See accompanying notes to consolidated financial statements.



                                       4
<PAGE>

                                TCSI CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                    Nine Months Ended
                                                                                                      September 30,
                                                                                          -----------------------------------
                                                                                               2001                2000
                                                                                          ----------------   ----------------
<S>                                                                                         <C>                   <C>
Cash flows from operating activities:
     Net loss                                                                               $ (9,088)             $ (8,188)
     Adjustments to reconcile net loss to net cash (used in) provided by
       operating activities:
         Depreciation and amortization                                                         1,737                 3,372
         Gain on disposal of fixed assets                                                         (5)                  (10)
         Compensation charge associated with grant of stock options to employees                  20                    90
         Write-down of equity investment                                                         250                    --

         Net changes in operating assets and liabilities:
                   Receivables, net                                                            1,176                 9,412
                   Other receivables, other current assets and other assets                     (117)                  434
                   Accounts payable and accrued liabilities                                     (374)               (1,422)
                   Accrued compensation and related costs                                        118                  (102)
                   Deferred revenues                                                            (928)                 (800)
                   Income taxes payable                                                         (683)                  331
                                                                                          ----------------   ----------------
                  Net cash (used in) provided by operating activities                         (7,894)                3,117

Cash flows from investing activities:
     Expenditures for furniture, equipment and leasehold improvements                           (373)                 (464)
     Purchases of marketable securities                                                       (8,479)               (4,469)
     Redemptions of marketable securities                                                     12,689                15,229
                                                                                          ----------------   ----------------
                  Net cash provided by investing activities                                    3,837                10,296

Cash flows from financing activity:
     Proceeds from issuance of common stock                                                      128                 1,286
                                                                                          ----------------   ----------------
Net (decrease) increase in cash and equivalents                                               (3,929)               14,699
Cash and equivalents at the beginning of the period                                           11,886                 8,788
                                                                                          ----------------   ----------------
Cash and equivalents at the end of the period                                               $  7,957              $ 23,487
                                                                                          ================   ================
</TABLE>


          See accompanying notes to consolidated financial statements.



                                       5
<PAGE>
                                TCSI CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 1 - BASIS OF PRESENTATION

     The unaudited consolidated interim financial statements of TCSI Corporation
("TCSI" or the  "Company"),  as of September 30, 2001 and for the three and nine
months ended September 30, 2001 and 2000, included herein, have been prepared on
the  same  basis  as  the  December  31,  2000  audited  consolidated  financial
statements  and  include  all   adjustments,   consisting  of  normal  recurring
adjustments,  necessary  for a fair  statement  of the  results  for the interim
periods presented. The results of operations for current interim periods are not
necessarily indicative of results to be expected for the current year or for any
future  period.  These  consolidated  financial  statements  should  be  read in
conjunction with the audited consolidated financial statements and notes thereto
for the fiscal year ended  December  31, 2000  included  in the  Company's  most
recent Annual Report on Form 10-K, as filed with the SEC on March 29, 2001.

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

NOTE 2 - RECEIVABLES AND CREDIT RISK

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

     Receivables consist of the following:

                                            September 30,       December 31,
                                                2001                 2000
                                            -------------      -------------
                                                     (In thousands)

Billed receivables                            $ 3,307              $ 3,604
Unbilled receivables                              691                1,838
Less: allowance for doubtful accounts            (347)                (615)
                                              -------              -------
                                              $ 3,651              $ 4,827
                                              =======              =======

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

     Furniture,  equipment,  and leasehold  improvements are stated at cost less
accumulated   depreciation  and   amortization.   Furniture  and  equipment  are
depreciated over the estimated service lives of the assets (three to five years)
utilizing the straight-line  method.  Leasehold  improvements are amortized over
the shorter of the term of the related  office  lease or the  estimated  service
lives of the assets (ten years) utilizing the straight-line method.



                                       6
<PAGE>
                                TCSI CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

                                   (Continued)


     Equipment,  furniture,  and leasehold  improvement  balances consist of the
following:

                                            September 30,       December 31,
                                                2001                 2000
                                            -------------      -------------
                                                     (In thousands)

Computer equipment                            $ 20,322            $ 20,011
Furniture and fixtures                           3,941               4,253
Leasehold improvements                           7,114               7,089
                                              --------            --------
                                                31,377              31,353
Less: accumulated depreciation and
      amortization                             (27,168)            (25,785)
                                              --------            --------
                                              $  4,209            $  5,568
                                              ========            ========

NOTE 4 - INCOME TAXES

     Due to  uncertainties  regarding  the amount  and timing of future  taxable
income, the Company,  as of September 30, 2001 and December 31, 2000, had no net
deferred  tax  assets due to the  establishment  of a full  valuation  allowance
against  its  deferred  tax  assets.  In  addition,  due to TCSI  agreeing  to a
settlement  with the  Internal  Revenue  Service  related to a  previous  year's
federal  income tax audit,  this resulted in the Company having to pay less than
what had been  previously  provided  for. As a result,  the Company  recorded an
income tax benefit of  approximately  $700,000 during the quarter ended June 30,
2001.



                                       7

<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

                                   (Continued)


NOTE 5 - NET LOSS PER SHARE

     Basic net loss per share is computed  using the weighted  average number of
common  shares  outstanding  during the  period.  Diluted  net loss per share is
computed  using the weighted  average  number of common shares and, if dilutive,
common equivalent shares outstanding during the period. Common equivalent shares
consist of the shares  issuable upon the exercise of the  Company's  outstanding
warrant and stock options (calculated using the treasury stock method).

     The  following  table sets forth the  computation  of basic and diluted net
loss per share:

<TABLE>
<CAPTION>
                                                     Three Months Ended      Nine Months Ended
                                                        September 30,          September 30,
                                                     ------------------      -----------------
                                                       2001       2000       2001      2000
                                                     -------    -------      -------   -------
                                                     (In thousands, except per share amounts)
<S>                                                  <C>        <C>          <C>       <C>
Numerator
   Numerator for basic net loss per share            $(2,843)   $(2,593)     $(9,088)  $ (8,188)
                                                     =======    =======      =======   ========

Denominator
  Denominator for basic and diluted loss per share
    -- weighted average common shares                 23,236     23,117       23,209     23,016
                                                     =======    =======      =======   ========
  Net loss per share-basic and diluted               $ (0.12)   $ (0.11)     $ (0.39)  $  (0.36)
                                                     =======    =======      =======   ========
</TABLE>


Since the Company had losses  from  operations  during the three and nine months
ended September 30, 2001 and September 30, 2000, weighted average shares related
to the effect of employee  stock  options were not included in the  computations
because the inclusion of their effects in the calculation would be antidilutive.



                                       8
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

                                   (Continued)


NOTE 6 - COMPREHENSIVE LOSS

     The  following  is a summary of  comprehensive  loss for the three and nine
months ended September 30, 2001 and 2000, respectively:

<TABLE>
<CAPTION>
                                                     Three Months Ended      Nine Months Ended
                                                        September 30,          September 30,
                                                     ------------------      -----------------
                                                       2001       2000       2001      2000
                                                     -------    -------      -------   -------
                                                                    (In thousands)
<S>                                                  <C>        <C>          <C>       <C>
Net loss                                             $(2,843)   $(2,593)   $(9,088)   $(8,188)


Unrealized (losses) gains on marketable securities        51        (39)        41         (8)
                                                     -------    -------    -------    -------
Comprehensive loss                                   $(2,792)   $(2,632)   $(9,047)   $(8,196)
                                                     =======    =======    =======    =======
</TABLE>



                                       9
<PAGE>

                                TCSI CORPORATION

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

                                   (Continued)


     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 under "Certain  Factors
That May Affect  Future  Results And Market Price Of Stock" and in the Company's
Form 10-K for the fiscal year ended December 31, 2000.

Overview

     TCSI  currently  operates in one  industry,  which is providing  integrated
software  products and services for the global telecom  industry.  Historically,
the  Company's  two product  lines have been:  (1)  Catalant(R),  which  offered
carrier-class   network  management   application  and  platform   capabilities,
targeting next generation voice, data and wireless networks and (2) WorldWin(R),
which  offered  integrated   operations  support  system  solutions,   including
providing service  assurance,  mediation and billing  functionality for emerging
service  providers.  In the fourth quarter of 2000, TCSI  transitioned away from
new sales of the WorldWin product based upon WorldWin's poor historical results,
and in December 31, 2000, the Company  decided to focus on the two product lines
of Catalant and  IncomeConnect(R),  the latter  being a billing  data  mediation
product which either  centrally,  or in a distributed  deployment  architecture,
collects billing data traversing  multiple  protocols,  network device types and
polling  requirements.  During the second  quarter of 2001,  the product line of
IncomeConnect  underwent  a phasing  out due to its  disappointing  results  and
projections.  During the three  months ended March 31,  2001,  TCSI  Corporation
launched two new products  within the Catalant  product  line:  (i) the Catalant
Service Fulfillment Suite ("SFS"), a scalable, ready-to-use network and services
management  system that enables the delivery of complex,  customer-centric  data
communications  services over today's Time Division  Management  ("TDM"),  Frame
Relay, and automated  Asynchronous Transfer Mode ("ATM") technologies;  and (ii)
Catalant  Quickstart,  a turnkey  software  and  services  package  that  allows
emerging  equipment  manufacturers  to deploy a  functional  element  management
system  ("EMS") for their  devices.  In addition,  during the three months ended
June 30, 2001,  TCSI  Corporation  launched  another product within the Catalant
product line:  (iii) Catalant  Service  Quality  Management  ("SQM"),  a service
management  solution that provides  differentiation  between  voice,  data,  and
application services while containing the cost base, and, in addition, automates
key  operations  tasks,  applying  analysis to a multitude  of network  data and
transforming it into usable  information.  Due to these events,  from the second
quarter of 2001 and  thereafter,  the Company has been  reporting  its financial
results  separately  among the three  separate  classifications  of its Catalant
product  line:  (1) Catalant  Original  Equipment  Manufacturer  ("OEM"),  which
includes Catalant Quickstart, (2) Catalant SFS and (3) Catalant SQM.

     The Company  provides  services to customers  under  time-and-material  and
fixed   price    contracts.    The    Company    recognizes    revenues    under
time-and-material-type contracts as the services are performed. Service revenues
also include maintenance revenues, which the Company recognizes ratably over the
terms of the maintenance contracts,  which are usually based upon a twelve-month
period.  For fixed price contracts,  the Company  recognizes  revenues using the
percentage-of-completion  method,  which is based on the  percentage of contract
costs  incurred,  as measured  by labor  hours,  in relation to total  estimated
contract  costs.  The scope and size of the  Company's  system  solutions can be
large  and  complex,  often  requiring  delivery  over  several  quarters.  From
time-to-time,  customers  have  established  payment  milestones,  which  can be
achieved only after completion of the related  services.  In limited cases, some
customers have disputed fees charged for services provided. Although the Company
has been,  and is, under no  obligation to compromise  its billed  amounts,  the
Company has, in certain specific customer cases, reduced its accounts receivable
when such disputes could not be amicably resolved,  and may do so in the future,
if the specific  case  warrants  it.  Additionally,  a portion of the  Company's
revenues has been, and is expected to continue to be, derived from



                                       10
<PAGE>

                                TCSI CORPORATION

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

                                   (Continued)

software  licensing  fees from a limited  number of customers.  The Company also
licenses software to customers under contracts, which do not require significant
production,  modification or customization of software.  The Company  recognizes
revenues under these contracts when a non-cancelable  license agreement has been
signed,  the  product  has been  shipped,  the fees are  fixed or  determinable,
collectibility is probable and vendor-specific  objective evidence of fair value
exists to allocate the total fee to all undelivered elements of the arrangement.

     The  licensing  and  implementation  of  the  Company's  software  products
generally   involve  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 2001
and 2000  quarterly  results for the three and nine months ended  September  30,
have been adversely  affected by delays in the purchase of software licenses and
related services.

     In addition,  a substantial  portion of the  Company's  revenues is derived
from the sale of the Company's  software  products and services to major telecom
service providers and equipment manufacturers.  Due to the complex nature of the
advanced  element,  network,  and service  management  systems being  developed,
successful  deployment  of these systems can contain  significant  technological
risks.  The Company has in the past relied,  and will in the future rely, on its
development  and  implementation   expertise.   Additionally,   development  and
implementation of these systems often occurs over several quarters. There exists
the risk that a change in a customer's  technology or business  strategy  during
such lengthy development and implementation  periods may cause early termination
of a project or discontinuance of future phases. In this regard, the Company, in
limited cases, has experienced, and may continue to experience,  fluctuations in
revenues  and  operating  results  on a  quarterly  basis  due  to  termination,
cancellation,  or non-renewal of  agreements.  Management  believes that revenue
growth is highly  dependent  upon the  development  and  enhancement of software
products that meet market  needs.  Management  intends to target  Company-funded
product  development  spending at levels  consistent  with the Company's  growth
objectives and improvement of its competitive position. Furthermore,  management
expects  that,  from  time to  time,  it may  periodically  acquire  businesses,
products,  or technologies to enhance the Company's  current product  offerings.



                                       11
<PAGE>

                                TCSI CORPORATION

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

                                   (Continued)


Results of Operations

     Revenues.  The Company  generates  revenues  from  licensing  its  software
products to customers in the telecommunications industry and performing services
related to such products.  Total  revenues for the three months ended  September
30, 2001  decreased  21% to $3.0 million,  from $3.8 million for the  comparable
2000  period.  Total  revenues  for the nine  months  ended  September  30, 2001
decreased  36% to $9.4  million,  from $14.6  million  for the  comparable  2000
period.  The decline in total  revenues was the result of the decline in service
revenues  for the three months  ended  September  30, 2001 and the result of the
decreases  in service and  software  licensing  fee revenues for the nine months
ended  September 30, 2001, as described  below.  In addition,  for the three and
nine months ended  September 30, 2001, of the three  separate  Catalant  product
lines,  the  majority of the  Company's  revenues  were  generated  from the OEM
product line.

     Revenues  from  services  for the three  months  ended  September  30, 2001
decreased 37% to $1.7 million, from $2.7 million for the comparable 2000 period.
Revenues  from services for the nine months ended  September 30, 2001  decreased
41% to $5.3  million,  from $9.0 million for the  comparable  2000  period.  The
decreases for both periods  resulted  primarily  from the  completion of several
major  consulting  projects in 2000,  which were not replaced in 2001.  Revenues
from  software  licensing  fees for the three  months ended  September  30, 2001
increased 8% to $1.3 million,  from $1.2 million for the comparable 2000 period.
Revenues from software  licensing  fees for the nine months ended  September 30,
2001 decreased 26% to $4.2 million,  from $5.7 million for the  comparable  2000
period.  Due to the fact that the software  licensing fee revenues for the third
quarter of 2001  increased  compared to the software  licensing fee revenues for
the same  period  last year,  and due to the fact that  software  licensing  fee
revenues in the first quarter of 2001  approximated  those for the first quarter
of 2000, the decrease for the nine months ended September 30, 2001 compared with
the same  period  last  year was  primarily  attributable  to the $1.3  million,
one-time royalty earned from one customer during the second quarter of 2000.

<TABLE>
<CAPTION>
                                     Three Months Ended                                      Nine Months Ended
    REVENUE                             September 30,                                           September 30,
   BREAKDOWN         -----------------------------------------------------   ----------------------------------------------------
   BY REGION:                            (in millions)                                           (in millions)
  ----------
                     -----------------------------------------------------   ----------------------------------------------------
                                                               Dollar                                                  Dollar
                        2001         %        2000       %     Change           2001         %        2000       %     Change
                        ----        ---       ----      ---    ------           ----        ---       ----      ---    ------
<S>                     <C>         <C>       <C>       <C>    <C>              <C>         <C>       <C>        <C>   <C>
Americas                $0.8        27        $1.9      50     $(1.1)           $3.5        37        $6.2       43    $(2.7)
Asia-Pacific             1.2        40         0.7      18       0.5             3.1        33         4.3       29     (1.2)
European                 1.0        33         1.2      32      (0.2)            2.8        30         4.1       28     (1.3)
                     -----------------------------------------------------   ----------------------------------------------------
   Total revenues       $3.0       100        $3.8     100     $(0.8)           $9.4       100        $14.6     100    $(5.2)
                     ============================================================================================================
</TABLE>

     Revenues  outside of the United  States/Americas  accounted  for 73% of the
Company's  total revenues for the three months ended September 30, 2001 compared
to  50%  for  the  comparable  2000  period.  Revenues  outside  of  the  United
States/Americas  accounted for 63% of the Company's  total revenues for the nine
months  ended  September  30, 2001  compared to 57% for the  comparable  period.

     Americas:  the decrease in revenues  for the Americas  region for the three
months ended  September  30, 2001 was due to a general  decline in  professional
consulting  services and a decline in license fee



                                       12
<PAGE>

                                TCSI CORPORATION

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

                                   (Continued)


revenues from two  customers.  The decrease in revenues for the Americas  region
for the nine  months  ended  September  30,  2001  resulted  from a  decline  in
professional  services work and license fee revenues due to (i) a reduced demand
for these services,  resulting from a general  downturn in the domestic  economy
and, in particular, the telecommunications industry, and (ii) to the decrease in
maintenance  revenues from two customers who deferred their renewal contracts to
future periods.

     Asia-Pacific: The increase in revenues from the Asia-Pacific region for the
three  months  ended  September  30, 2001 was  primarily  due to the increase in
run-time  license fee revenues from one  customer.  The decline in revenues from
the  Asia-Pacific  region for the nine  months  ended  September  30,  2001 were
primarily  due to a $1.3  million,  one-time  royalty  earned from one  customer
during the second quarter of 2000.

     European:  The drop in  revenues  from the  European  region  for the three
months ended  September 30, 2001 was  primarily the result of the  completion of
several major projects in year 2000 without follow-on work in 2001. The decrease
in revenues  from the European  region for the nine months ended  September  30,
2001 was due to (i) the  completion  of  several  major  projects  in year  2000
without  follow-on  work in 2001,  (ii)  the  discontinuance  of one  customer's
service  revenues  and  another  customer's  maintenance  revenues in the second
quarter of the current year and (iii) the decline of one customer's  maintenance
support in the second quarter of year 2001.

     The Company  expects that  international  revenues will continue to account
for a significant portion of its total revenue in future periods and 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 portion of revenues has been concentrated among a limited number
of customers.  Three customers each individually  accounted for more than 10% of
the Company's  revenue  during the three months ended  September 30, 2001,  with
NEC,  Motorola  and  3Com  contributing  26%,  17%  and 12% of  total  revenues,
respectively. Two customers each individually accounted for more than 10% of the
Company's  revenue during the nine months ended September 30, 2001, with NEC and
Italtel contributing 24% and 18% of total revenues,  respectively. For the three
and nine months ended September 30, 2001, the concentration of revenues from the
Company's  five largest  customers in aggregate  was 70% and 67%,  respectively,
compared to 55% and 56% for the comparable 2000 periods. 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 continue to
place  orders  with the  Company  equal to or  exceeding  the  levels  for prior
periods.  (See "Certain  Factors That May Affect Future Results and Market Price
of Stock - Customer Concentration" section.)

     Costs of Services.  The Company incurs direct costs in the  development and
deployment of its customers' software solutions.  The major components of direct
costs are employee  compensation,  subcontractor fees, training costs, and other
direct costs, including travel expenses. Direct costs also include an allocation
for benefits,  facilities,  telephone  expenses,  information  systems  support,
depreciation,  and amortization of intangibles.  Costs of services for the three
months ended September 30, 2001 decreased 22% to $1.4 million, from $1.8 million
for the  comparable  2000  period.  Costs of services  for the nine months ended
September  30, 2001  decreased  33% to $4.4  million,  from $6.6 million for the
comparable  2000  period.  The  declines  for both  periods  were due to reduced
headcount and related expenses, and to the implementation of strong cost control
measures in the current and prior quarters. Included in the first quarter of the
current year, was a $100,000  one-time charge incurred in January related to the
write-off of license fees.  Had this charge not occurred,  costs of services for
the nine months ended  September  30, 2001 would have  decreased



                                       13
<PAGE>

                                TCSI CORPORATION

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

                                   (Continued)


35% compared to the comparable 2000 period. As a percentage of service revenues,
costs of services  for the three  months  ended  September  30, 2001 were 82% of
service  revenues  compared to 67% of service  revenues for the comparable  2000
period.  As a  percentage  of service  revenues,  costs of services for the nine
months ended September 30, 2001 were 83% of service revenues  compared to 73% of
service revenues for the comparable 2000 period.  The cost of service percentage
may fluctuate from the third quarter 2001 level as existing and future customers
increase or decrease their development efforts.

     Product   Development.   Product  development   expenses  include  employee
compensation,  subcontractor fees, training costs, and other product development
costs for existing and  potential new  products,  along with an  allocation  for
benefits,  facilities,  telephone  expenses,  information  systems support,  and
depreciation.  For the three  months  ended  September  30,  2001,  the  Company
invested  $1.4  million,  or  47%  of  revenues,  in  internally-funded  product
development  compared with $1.9 million, or 50% of revenues for the three months
ended  September 30, 2000.  For the nine months ended  September  30, 2001,  the
Company invested $5.4 million, or 57% of revenues, in internally-funded  product
development  compared with $7.4 million,  or 51% of revenues for the nine months
ended September 30, 2000. During the third quarter of 2001, product  development
spending  decreased  26% compared to the third  quarter of 2000 and for the nine
months ended  September 30, 2001,  product  development  spending  decreased 27%
compared to the  comparable  2000 period.  The decreases in product  development
expenses in 2001 were due primarily to management's  expense reduction  efforts,
resulting in the combined  factors of staff reductions in the Americas region in
the quarter ended September 30, 2001, reduced headcount in the prior quarters of
the current year related to the  IncomeConnect  product line,  and a decrease in
the related costs  associated with the reduced staff level.  The Company expects
to  continue  to invest  in new  component-based  applications.  There can be no
assurance,  however, that the Company's product development spending will result
in the successful introduction of new products.

     Selling,  General,  and Administrative  Expenses.  Selling expenses include
sales and marketing,  employee compensation,  promotional material, trade shows,
travel, and facilities  expenses.  General and  administrative  expenses include
compensation costs related to executive management,  finance, and administrative
personnel along with the other administrative costs including recruiting,  legal
and  accounting  fees,  insurance,  and bad debt expense.  Selling,  general and
administrative  expenses for the three months ended September 30, 2001 increased
6% to $3.6  million,  from $3.4  million for the  comparable  2000  period.  The
increase in selling,  general and administrative  expenses from the prior to the
current year's quarter was due to the  restructuring  costs related to the sales
department  in the third  quarter of 2001.  In  contrast,  selling,  general and
administrative expenses for the nine months ended September 30, 2001 declined 3%
to $9.9 million, from $10.2 million for the comparable 2000 period. The decrease
from the nine month  period of the prior  year to the nine  month  period of the
current  year  was  due to a  combination  of  overall  reductions  in  employee
headcount and related  personnel  costs,  lower rent expense in 2001 compared to
2000 resulting from the consolidation of the Company's operations, and a decline
in  amortization  costs due to the December  2000  write-off  of the  intangible
assets and goodwill  associated with the acquisition of GTE-NMO,  as a result of
impairment.  In an on-going  effort to reduce expenses and focus its operations,
the Company  closed its Bothell,  Washington  office in early April of 2001. The
facility  had  primarily   supported  the  WorldWin  product  line,  which  TCSI
transitioned  away from in the fourth quarter of 2000, due primarily to its poor
historical  results.  In addition,  to further  reduce costs,  in the second and
third quarters of 2001,  the Company  subleased out the third and fourth floors,
respectively,  of its primary business location in Alameda. Selling, general and
administrative  expenses as a percentage  of revenues for the three months ended
September  30, 2001 were 120% of  revenues,  compared to 89% of revenues for the
comparable  2000  period.  Selling,  general  and  administrative  expenses as a
percentage of revenues for the nine months ended September 30, 2001 were 105% of
revenues,  compared to 70% of  revenues  for the  comparable  2000  period.  The
increase in selling,  general,  and  administrative  expenses as a percentage of
revenues from the prior to the current  year's quarter



                                       14
<PAGE>


                                TCSI CORPORATION

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

                                   (Continued)


resulted  primarily  from the increase in those costs quarter over quarter.  The
increase in selling,  general,  and  administrative  expenses as a percentage of
revenues  from the nine months  ended of the prior year to the nine months ended
of the current year  resulted  primarily  from the  reduction of such costs at a
rate less than that of the reduction in total revenues.

     Nonrecurring  Special Items.  For the three months ended September 30, 2001
and 2000, the Company did not record any nonrecurring  special item charges. For
the nine  months  ended  September  30,  2001 and 2000,  $0.6  million  and $0.4
million,  respectively,  were recorded as nonrecurring special item charges. The
costs  recorded  in the  current  year were due  primarily  to  severance  costs
associated  with  downsizing  activities,  which  were  the main  result  of the
Company's closing of its Bothell,  Washington office in early April of 2001. The
costs  recorded in the prior year were  related  primarily  to  severance  costs
associated with the Company's reorganization of its operations.

     Income Tax Benefit. For the three months ended September 30, 2001 and 2000,
the  Company did not record any income tax  benefit or  provision.  For the nine
months  ended  September  30, 2001 net income tax  benefits of $0.5  million was
recorded  due  primarily  to TCSI  agreeing to a  settlement  with the  Internal
Revenue Service in June of 2001, related to a previous year's federal income tax
audit, resulting in the Company having to pay less than what had been previously
provided  for.  For the nine months  ended  September  30,  2000,  no income tax
benefit or provision was recorded by the Company.

Liquidity and Capital Resources

Operating Activities

     Net cash used in operating  activities was $7.9 million for the nine months
ended  September 30, 2001 compared to net cash provided by operating  activities
of $3.1  million  for the  comparable  2000  period.  The  decrease  in net cash
provided  by  operations  for the  nine  months  ended  September  30,  2001 was
principally  the result of a decline in accounts  receivable in 2001 compared to
accounts  receivable  for the  comparable  2000  period due to the  decrease  in
revenues,  as well as reductions in accounts  payable,  deferred  revenues,  and
income taxes payable.  The $0.7 million net decrease in the latter  category was
principally the result of the Company agreeing to a settlement with the Internal
Revenue Service in the prior quarter related to a previous year's federal income
tax audit. The decrease in net cash provided by operations for the third quarter
was  principally  due to a decrease  in accounts  receivable  and the decline in
deferred  revenue.

     One of the  adjustments  to operating  activities  was the add-back for the
write-down related to the Company's equity investment in Zaffire, Inc.: $250,000
was written  down in the nine  months  ended  September  30,  2001,  including a
$150,000  write-off  in the  current  quarter.  Due to the July 5,  2001  Merger
Agreement between Centerpoint Broadband  Technologies,  Inc. and Zaffire,  Inc.,
Zaffire  was to  become  a  wholly-owned  subsidiary  of  Centerpoint  Broadband
Technologies,  Inc. in the third quarter of 2001. Due to that pending event, the
Company re-evaluated its investment,  which was to be in Centerpoint stock. This
resulted in TCSI  recording  an  additional  $150,000  write-down  in its equity
investment in the current quarter.  On October 22, 2001,  Centerpoint  announced
that it had completed its acquisition of Zaffire,  Inc.,  acquiring Zaffire in a
private,  all-stock transaction.  The Company will continue its procedure, on an
on-going quarterly basis, to evaluate its investment in Centerpoint.



                                       15
<PAGE>

                                TCSI CORPORATION

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

                                   (Continued)


Investing Activities

     Net cash  provided by  investing  activities  was $3.8 million for the nine
months  ended  September  30, 2001  compared to net cash  provided by  investing
activities  of $10.3  million for the  comparable  2000 period.  During the nine
months ended  September 30, 2001,  purchases of marketable  securities were $8.5
million, compared to $4.5 million for the comparable 2000 period and redemptions
of marketable  securities  during the nine months ended  September 30, 2001 were
$12.7 million,  compared to $15.2 million for the comparable 2000 period. During
the third  quarter of 2001,  the Company  purchased  $0.8 million of  marketable
securities,  compared to purchases of $1.5 million in the comparable period last
year,  and the Company  redeemed  $3.1 million of  marketable  securities in the
third quarter of 2001, compared to $4.6 million of redemptions in the comparable
period last year.

Financing Activities

     Net cash  provided by a financing  activity  was $0.1  million for the nine
months ended September 30, 2001 compared to $1.3 million for the comparable 2000
period. The decrease was the result of decreased stock purchases pursuant to the
Company's  Employee  Stock  Purchase Plan  ("ESPP"),  and the result of no stock
option  exercises  for the nine months  ended  September  30,  2001,  which is a
function of market  conditions and investment  decisions made by employees.  The
proceeds from ESPP  purchases for the nine months ended  September 30, 2001 were
$0.1  million,  compared  to  proceeds  from  stock  option  exercises  and ESPP
purchases of $1.0 million and $0.3  million,  respectively,  for the  comparable
2000 period.

Additional Information on Liquidity and Capital Resources

     As of  September  30,  2001,  the  Company  had  cash and  equivalents  and
short-term  marketable  securities  totaling  $25.3  million,  which was an $8.1
million,  or 24%  decrease,  from the balance of $33.4  million at December  31,
2000.  The  Company  believes  that  existing  cash  balances   (including  cash
equivalents  and  marketable  securities),  together  with  existing  sources of
liquidity, including cash flows from operating activities, will provide adequate
cash to fund its operations for at least the next twelve months.

     As of September  30,  2001,  the Company  continued to have no  outstanding
debt.

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

     All statements contained herein that are not statements of historical facts
constitute "forward-looking statements" and are made pursuant to the Safe Harbor
provisions  of the  Private  Securities  Litigation  Reform  Act of 1995.  These
forward-looking  statements  include  statements  relating  to our  expectations
regarding the results of our  operations,  the  development and direction of the
Company's  product  strategy,  expectations  regarding  new services and product
offerings,  future customers and future business strategies.  Any one or more of
our  expectations may not be realized.  Although TCSI Corporation  believes that
the  expectations  reflected in its  forward-looking  statements are reasonable,
such forward-looking  statements involve certain risks,  uncertainties and other
factors that could cause the actual results of TCSI Corporation to be materially
different  from the historical  results or from any future results  expressed or
implied by such  forward-looking  statements.  TCSI  Corporation  undertakes  no
obligation   to  publicly   release  the  results  of  any   revisions  to



                                       16
<PAGE>

                                TCSI CORPORATION

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

                                   (Continued)


such  forward-looking  statements,  which  may be  made  to  reflect  events  or
circumstances   after  the  date  hereof  or  to  reflect  the   occurrence   of
unanticipated events.

Potential Fluctuations in Future Operating Results

     The  Company  has   experienced  and  expects  to  continue  to  experience
significant  fluctuations in revenues and operating results on a quarterly or an
annual  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 portion of the  Company's  revenue has been  derived  from
software  licensing  and  service  fees  from a  limited  number  of  customers.
Variability  in the timing of such license and service fees has caused,  and may
continue to cause,  material  fluctuations in the Company's business,  operating
results, and financial condition.  The Company's products and services generally
require significant capital  expenditures by customers as well as the commitment
of resources to implement,  monitor, and test the Company's enhancements to such
systems.  Accordingly,  the Company is substantially dependent on its customers'
decisions  as to  the  timing  and  level  of  such  expenditures  and  resource
commitments.

     In  addition,  the  Company  typically  realizes a  significant  portion of
license revenues in the last weeks or even days of a quarter.  As a result,  the
magnitude of quarterly  fluctuations  may not become  evident  until late in, or
after the close of, a particular  quarter.  The Company's  expenses are based in
part on the Company's  expectations  as to future  revenue levels and to a large
extent are fixed in the short-term.  If revenues do not meet  expectations,  the
Company's business,  operating results, and financial condition are likely to be
materially  adversely affected.  In particular,  because only a small portion of
the  Company's  expenses  varies with  revenues,  results of  operations  may be
disproportionately affected by a reduction in revenues. As a result, the Company
believes that  period-to-period  comparisons  of its  operating  results are not
necessarily  meaningful  and should not be relied upon as  indications of future
performance.

Lengthy Sales and Implementation Cycles

     The Company's  products are typically intended for use in applications that
may be critical to a customer's  business.  The licensing and  implementation of
the Company's software products  generally involves a significant  commitment of
resources by prospective  customers.  Historically,  the Company's sales process
has been subject to delays  associated  with  lengthy  approval  processes  that
typically accompany  significant capital  expenditures.  However,  the Company's
latest  products  are  intended to reduce the time and  resources  required  for
delivery to customers,  and,  therefore reduce the sales cycle.  Still, 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,



                                       17
<PAGE>


                                TCSI CORPORATION

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

                                   (Continued)


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.  The Company
continues to develop software products that reduce the  customization  necessary
to fully integrate customers' systems. There can be no assurance,  however, that
the Company will continue to  successfully  develop and market such products or,
even if successful,  that the 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.

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

Customer Concentration

     To  date,  a  significant  portion  of  the  Company's  revenues  has  been
concentrated among a limited number of customers.  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 levels for
prior periods.  In addition,  the Company's  customers  typically  designate one
individual to procure network management  software.  If any of these individuals
were terminated,  transferred,  or replaced,  the Company would be vulnerable to
cancellation  of an  order  if,  for  example,  the  Company's  competitors  had
preexisting  relationships  with the  individual's  replacement.  As a result of
these  factors,  the  Company's  business,   operating  results,  and  financial
condition could be materially adversely affected.

Product Defects

     The Company provides complex software  products for major telecom equipment
manufacturers,  systems integrators,  and service providers. The development and
enhancement  of such  complex  software  entails  substantial  risks of  product
defects.  The Company has in the past identified  software defects in certain of
its  products.  There  can be no  assurance  that  errors  will  not be found in
existing or new products or releases



                                       18
<PAGE>


                                TCSI CORPORATION

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

                                   (Continued)


after commencement of commercial licensing, which may result in delay or loss of
revenues,  loss of market share,  failure to achieve market  acceptance,  or may
otherwise  adversely  impact the  Company's  business,  operating  results,  and
financial condition.

Implementation Risks

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

International Sales

     Revenues outside of the United  States/Americas  accounted for 73% and 63%,
respectively,  of the  Company's  total  revenues  for the three and nine months
ended September 30, 2001. The Company expects that  international  revenues will
continue to account for a  significant  portion of its total  revenues in future
periods. The Company intends to penetrate additional  international  markets and
to  further  expand  its  existing  international   operations.   The  Company's
international  business  involves a number of inherent risks,  including greater
difficulty in accounts  receivable  collection and,  therefore,  longer accounts
receivable  collection  periods;  difficulty  in staffing and  managing  foreign
operations;  a longer  sales  cycle than with  domestic  customers;  potentially
unstable  political  and  economic  conditions;   language  barriers;   cultural
differences  in the  conduct of  business;  seasonality;  unexpected  changes in
regulatory  requirements,  including a slowdown in the rate of  privatization of
telecom service providers;  reduced protection for intellectual  property rights
in some countries; potentially adverse tax consequences; tariffs and other trade
barriers.  Access to foreign  markets is often  difficult due to the established
relationships  between government owned or controlled  communications  companies
and local suppliers of  communications  products.  There can be no assurance the
Company  will  be  able to  successfully  penetrate  such  foreign  markets.  In
addition,  there can be no assurance that the Company will be able to sustain or
increase revenues derived from international  licensing and services or that the
foregoing  factors  will not have a  material  adverse  effect on the  Company's
future  international  business,  and consequently,  on the Company's  business,
operating results, and financial condition.

     International   sales  also   entail   risks   associated   with   currency
fluctuations.  The Company has attempted to reduce the risk of  fluctuations  in
currency  exchange rates associated with  international  revenues by pricing its
products and services in United States dollars whenever  possible.  The Company,
however,  generally pays the expenses of its  international  operations in local
currencies and generally does not engage in hedging transactions with respect to
such obligations. Upward fluctuations in currency exchange rates could cause the
Company's  products to become  relatively  more expensive to foreign  customers,
leading  to  a  reduction  in  sales  or  profitability.   Furthermore,   future
international activity may result in foreign currency denominated sales, and, in
such  event,  gains and losses on the  conversion  to U.S.  dollars of  accounts
receivable  and accounts  payable  arising  from  international  operations  may
contribute to fluctuations in the Company's operating results.

                                       19
<PAGE>

                                TCSI CORPORATION

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

                                   (Continued)


Dependence on Telecommunications Carriers; Government Regulation

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

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

Competition

     The Company offers products and services in the evolving market for telecom
software.  The telecom industry is intensely  competitive,  subject to extremely
rapid technological  change and is characterized by evolving industry standards,
changing  regulatory  requirements,  frequent  product  introductions  and rapid
changes  in  customer  requirements.  These  market  factors  represent  both an
opportunity  and a competitive  threat to TCSI. The rapid pace of  technological
change continually creates new opportunities for existing and new competitors.

     The Catalant  products  compete in the equipment  manufacturer  and service
provider markets,  providing solutions for next generation telecom  applications
and platforms.  The Company  competes with numerous  vendors in the OEM, SFS and
SQM  Catalant  product  categories.  TCSI  expects  that the  overall  number of
competitors providing next generation network solutions will increase due to the
market's attractive growth.

     TCSI's competitors include Dorado Systems,  AdventNet and Lumos for the OEM
Catalant product line; the company's  competitors  include Syndesis and Astracon
for the SFS Catalant product line; and TCSI's competitors  include MicroMuse and
Objective  Systems  Integrators  (a  subsidiary of Agilent) for the SQM Catalant
product line.  Several of the Company's  current and potential  competitors have
greater  financial,   marketing  and  technical   resources  than  the  Company.
Additionally, several of TCSI's competitors may be involved in joint ventures or
strategic  alliances  with  other  businesses  to  expand  their  services.  The
principal  competitive  factors in the  markets in which the  Company  presently
competes and may compete in the future are quality, price, performance, customer
support,   corporate  reputation  and  product  features  such  as  scalability,
interoperability, functionality, customizability and ease of use.

                                       20
<PAGE>

                                TCSI CORPORATION

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

                                   (Continued)


     The Company also faces  competition in each of the three  functional  areas
that the Company  believes are necessary for the delivery of network  management
software solutions:  development  environments,  turnkey applications and custom
services. The Company's Catalant product lines enable the Company to provide its
customers with  development  environments and turnkey  applications,  as well as
custom services.  Because certain of the Company's competitors focus only on one
functional  area, such  competitors may be in a position to develop  competitive
products targeted solely at the segment they serve.

     There  can  be  no  assurance  that  the  Company's  current  or  potential
competitors will not develop products  comparable or superior to those developed
by the  Company  or adapt more  quickly  than the  Company to new  technologies,
evolving  industry  standards,  new product  introductions or changing  customer
requirements.

Rapid Technological Change; Need to Manage Product Transitions

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

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

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


                                       21
<PAGE>

                                TCSI CORPORATION

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

                                   (Continued)


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 eight  patents.  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 steps may
not preclude competitors from developing products with functionality or features
similar to the Company's  products.  In addition,  effective patent,  copyright,
trademark,  and trade secret protection may be unavailable or limited in certain
foreign  countries.  The  failure  of the  Company to  protect  its  proprietary
information  could have a material  adverse  effect on the  Company's  business,
operating results, and financial condition.

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

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

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


                                       22
<PAGE>


                                TCSI CORPORATION

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

                                   (Continued)


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
its ability to attract and retain  qualified  managerial,  sales,  and  software
engineering  personnel.  The Company has at times  experienced  and continues to
experience  difficulty in  attracting  and retaining  qualified  personnel.  The
Company's  future  success  will also  depend on the  ability of its current and
future management personnel to operate effectively,  both independently and as a
group.  The  Company  recently  experienced  changes  in  members  of its senior
management and has undergone changes in other managerial  personnel from time to
time. Competition for the hiring of talented officers and other personnel in the
software  industry is intense,  and there can be no  assurance  that the Company
will be  successful  in locating  candidates  with  appropriate  qualifications.
Failure to attract and retain key personnel could have a material adverse effect
on the Company's business, operating results, and financial condition.

Risks Associated with Acquisitions

     The Company periodically  evaluates potential acquisitions of complementary
businesses, products, and technologies. To support its growth plans, the Company
may acquire companies that have a significant installed base of products not yet
offered  by the  Company,  have  strategic  distribution  channels  or  customer
relationships,  or otherwise  present  opportunities  which management  believes
enhance the Company's competitive position.

     Such  acquisitions  could subject the Company to numerous risks,  including
risks  associated  with the  integration  into the Company of new  employees and
technology.  Moreover,  the  negotiation  and  acquisition of such  transactions
involve the diversion of substantial  management resources and the evaluation of
such   opportunities   requires   substantial   diversion  of  engineering   and
technological resources. In addition, transactions involving the issuance by the
Company  of common  stock or other  securities  could  result in  immediate  and
substantial  dilution to the Company's  existing  shareholders,  large  one-time
write-offs,  or the creation of goodwill or other  intangible  assets that could
result in amortization expenses. 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.

Risks Related to Nasdaq Listing

     The Company's  common stock currently  trades on the Nasdaq National Market
under  the  ticker  symbol  "TCSI".  Nasdaq  has a number  of  requirements  for
continued  listing,  including the requirement  that issuers  maintain a minimum
"bid" price greater than $1.00.  The Company's  common stock has recently traded
below $1.00 for significant periods, creating the risk that the Company's common
stock will no longer be eligible for listing on Nasdaq.  However,  in September,
as a response to the  extraordinary  market  conditions  following the events of
September  11, 2001,  Nasdaq  announced  that the minimum bid price  requirement
would be suspended  until January 2, 2002.  When this  suspension  is over,  the
Company's  common  stock may no longer be eligible  for trading on Nasdaq if its
common stock continues to trade below $1.00. Delistment from Nasdaq could have a
material  adverse  effect upon the  Company's  business,  operating  results and
financial condition, including, without limitation, the market price of, and the
efficiency of the



                                       23
<PAGE>


                                TCSI CORPORATION

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

                                   (Continued)


trading market for, the Company's common stock,  the Company's  ability to raise
capital in the public equity markets,  the loss of certain federal preemption of
state  securities laws, loss of confidence by suppliers,  customers,  employees,
and  institutional  and other  investor  interest,  fewer  business  development
opportunities and greater difficulty in obtaining financing generally.

Volatility of Stock Price

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


                                       24
<PAGE>

                                TCSI CORPORATION


Item 3.  Quantitative and Qualitative Disclosures about Market Risk

     Interest  Rate Risk.  As of September  30,  2001,  the  Company's  cash and
investment portfolio included only fixed-income securities. These securities are
subject  to  interest  rate  risk and may  decline  in value if  interest  rates
increase.  However,  due to the  short  duration  of  the  Company's  investment
portfolio,  an immediate 100 basis points increase or decrease in interest rates
would not have a  material  effect  on the fair  market  value of the  Company's
portfolio.  The  Company has the  ability to hold its fixed  income  investments
until maturity, and therefore the Company would not expect its operating results
or cash flows to be affected to any significant degree by the effect of a sudden
change in market interest rates in its investment portfolio.

     Foreign Currency Exchange Risk. The majority of the Company's  revenues are
denominated in U.S. dollars and, as a result,  the Company has relatively little
exposure to foreign currency  exchange risk. The Company  currently does not use
derivative financial instruments for trading or speculative purposes.



                                       25
<PAGE>

                                TCSI CORPORATION


Part II - Other Information

Item 6.  Exhibits and Report on Form 8-K.

     (a) Exhibits filed for the third quarter of 2001:

                                 EXHIBIT INDEX

Exhibit
Number                        Exhibit Description

4.2       Second Amended and Restated  Preferred Shares Rights Agreement,  dated
          October  17th,  2001,  between the Company and  Registrar and Transfer
          Agent, as Rights Agent,  incorporated herein by reference to Exhibit 7
          of the Form 8-A filed on November 13, 2001.

10.36     Form of  Indemnification  Agreement between the Company and certain of
          its directors, dated August 22, 2001.

10.37     Non-Disclosure  Agreement between the Company and Russell L. Skibsted,
          dated October 15, 2001.

10.38     Form of  Non-Disclosure  Agreement  between the Company and certain of
          its directors, dated November 9, 2001.


          (b)  Report on Form 8-K in the third  quarter  of 2001:  On August 31,
2001,  the Company  filed a current  report on Form 8-K,  dated August 24, 2001,
reporting the appointments of Messrs.  Garrett Garrettson and Philip McKinney to
the Company's  Board of Directors,  effective  August 22, 2001, in order to fill
the vacancies created as a result of the retirements of Messrs.  John Bolger and
William Hasler.



                                       26
<PAGE>

                                TCSI CORPORATION

SIGNATURE

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


                               TCSI CORPORATION
                               (Registrant)


November 13, 2001          By: /s/ Kenneth E. Elmer
                               --------------------
                               Kenneth E. Elmer
                               Chief Financial Officer, Secretary and Treasurer.

                                       27