TCSI Corporation

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

                                    FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 1998

                                       or

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

For the transition period from __________________ to __________________

Commission file number  0-19377

<TABLE>
<CAPTION>

                                TCSI Corporation
             (Exact name of Registrant as specified in its charter)
<S>                                                          <C>

                        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)

</TABLE>

                        Telephone number (510) 749-8500

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

As of May 13,  1998,  there  were  22,324,648  shares  of  common  stock  of the
Registrant outstanding.

<PAGE>





                                    FORM 10-Q


                                      INDEX


                                                                        Page No.
Part I.  Financial Information

     Item 1.  Consolidated Financial Information

         Consolidated Statements of Operations for the Three Months
              Ended March 31, 1998 and 1997 (Unaudited)........................3

         Consolidated Balance Sheets at March 31, 1998 (Unaudited)
              and December 31, 1997............................................4

         Consolidated Statements of Cash Flows for the Three Months
              Ended March 31, 1998 and 1997 (Unaudited)........................5

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

     Item 2.  Management's Discussion and Analysis of
         Financial Condition and Results of Operations........................11


Part II. Other Information

     Item 1.  Legal Proceedings...............................................26

     Item 6.  Exhibits and Reports on Form 8-K................................27




<PAGE>



PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Information

               CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
             (In thousands, except earnings (loss) per share data)
<TABLE>
<CAPTION>

                                                             Three months ended March 31,
                                                    -----------------------------------------------
                                                            1998                      1997
                                                    ---------------------     ---------------------
<S>                                                 <C>                       <C>

Revenues:
     Services                                             $      8,131              $      7,803
     Software licensing fees                                     2,874                     2,031
                                                    ---------------------     ---------------------
Total revenues                                                  11,005                     9,834

Costs and expenses:
     Services                                                    4,558                     5,143
     Product development                                         2,543                     1,452
     Selling, general, and administrative                        3,810                     4,838
                                                    ---------------------     ---------------------
Income (loss) from operations                                       94                    (1,599)

Interest income                                                    766                       749
                                                    ---------------------     ---------------------
Income (loss) before income taxes                                  860                      (850)

Provision for (benefit from) income taxes                          344                      (289)
                                                    ---------------------     ---------------------

Net income (loss)                                          $       516              $       (561)
                                                    =====================     =====================

Earnings (loss) per share (EPS) - Basic                    $      0.02              $      (0.03)
                                                    =====================     =====================

Shares used in calculation of EPS - Basic                       22,219                    21,343
                                                    =====================     =====================

Earnings (loss) per share (EPS) - Diluted                  $      0.02              $      (0.03)
                                                    =====================     =====================

Shares used in calculation of EPS - Diluted                     22,991                    21,343
                                                    =====================     =====================

</TABLE>

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


<PAGE>


                           CONSOLIDATED BALANCE SHEETS
                                 (In thousands)
<TABLE>
<CAPTION>

                                                  March 31,          December 31, 1997
                                                     1998
                                               -----------------     -----------------
                                                  (Unaudited)
<S>                                            <C>                   <C>

Assets
Current assets:
  Cash and cash equivalents                        $ 39,279              $ 33,566
  Investments in marketable securities               16,928                20,301
  Receivables                                         7,089                11,803
  Other receivables                                     976                   682
  Deferred income taxes                               2,164                 2,164
  Other current assets                                  846                   925
                                               -----------------     -----------------
          Total current assets                       67,282                69,441

Furniture, equipment, and leasehold                   9,687                10,165
improvements, net
Non-current investments in marketable                 5,225                 1,600
securities
Non-current deferred income taxes                     2,430                 2,297
Other non-current assets                                728                   728
                                               -----------------     -----------------
          Total assets                            $  85,352              $ 84,231
                                               =================     =================
Liabilities and Shareholders' Equity
Current liabilities:
  Accounts payable and other accruals            $    1,611             $   2,410
  Accrued compensation and related costs              2,739                 2,880
  Deferred revenue                                    4,458                 3,640
  Income taxes                                        1,306                 1,153
                                               -----------------     -----------------
          Total current liabilities.                 10,114                10,083
                                               -----------------     -----------------

Shareholders' equity:
  Preferred shares, $0.01 par value; 5,000
     shares authorized; none                             --                     --
     Outstanding
  Common shares, $0.10 par value; 75,000
     shares authorized; 22,273 shares issued
     and outstanding - 1998 (22,136 - 1997)           2,228                 2,214
     Issued and outstanding-- 1997 (21,219--
     1996)
  Additional paid-in capital........                 49,795                49,133
  Accumulated other comprehensive loss                 (228)                 (126)


  Retained earnings                                  23,443                22,927
                                               -----------------     -----------------
          Total shareholders' equity                 75,238                74,148
                                               -----------------     -----------------
          Total liabilities and
            shareholders' equity                  $  85,352              $ 84,231
                                               =================     =================

</TABLE>

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


<PAGE>


                CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                                    Three months Ended March 31,
                                                                                      1998                 1997
                                                                               ------------------    -----------------
<S>                                                                            <C>                   <C>

Operating Activities
Net income (loss)                                                                    $     516           $     (561)
Adjustments to reconcile net income (loss) to net cash provided by
  operations:
    Depreciation and amortization                                                        1,089                  963
    Changes in:
       Receivables                                                                       4,714                4,665
       Other current assets                                                               (217)                (187)
       Accounts payable and other accruals                                                (739)              (2,079)
       Accrued compensation and related costs                                             (141)                (899)
       Deferred revenue                                                                    818                    --
       Income taxes                                                                         20                 (435)
                                                                               ------------------    -----------------
         Net cash provided by operating activities                                       6,060                1,467
                                                                               ------------------    -----------------

Investment Activities
Capital expenditures                                                                      (670)              (3,399)
Purchase of marketable securities                                                       (8,243)              (2,084)
Maturity and sale of marketable securities                                               7,890                5,900
Decrease in other non-current assets                                                        --                  480
                                                                               ------------------    -----------------
     Net cash provided by (used in) investing activities                                (1,023)                 897
                                                                               ------------------    -----------------

Financing Activities
Proceeds from exercise of options and from stock purchased under the
     employee stock purchase plan                                                          676                  657

                                                                               ------------------    -----------------
     Net cash provided by financing activities                                             676                  657
                                                                               ------------------    -----------------
Effect of foreign currency exchange rate changes on cash and cash
     equivalents                                                                            --                  (35)
                                                                               ------------------    -----------------

Net increase in cash and cash equivalents                                                5,713                2,986

Cash and cash equivalents at beginning of period                                        33,566               30,880
                                                                               ==================    =================
Cash and cash equivalents at end of period                                            $ 39,279            $  33,866
                                                                               ==================    =================

Supplemental Disclosures of Cash Flow Information
     Cash paid for income taxes, net                                                  $    326            $     146
                                                                               ==================    =================
</TABLE>


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


<PAGE>


             NOTES TO CONSOLIDATED FINANCIAL INFORMATION (Unaudited)

1.   Basis of Presentation

              The accompanying  unaudited consolidated financial information has
     been prepared by TCSI  Corporation  ("TCSI" or the "Company") in accordance
     with  generally  accepted  accounting   principles  for  interim  financial
     statements  and  pursuant  to the  rules  of the  Securities  and  Exchange
     Commission for Form 10-Q.  Accordingly,  certain  information and footnotes
     required by generally accepted accounting principles for complete financial
     statements  have been  omitted.  It is the opinion of  management  that all
     adjustments   considered  necessary  for  a  fair  presentation  have  been
     included,  and that  all such  adjustments  are of a normal  and  recurring
     nature.  Operating  results for the periods  presented are not  necessarily
     indicative of the results that may be expected for any future periods.  For
     further  information,   refer  to  the  audited  financial  statements  and
     footnotes included in the Company's 1997 Annual Report on Form 10-K.

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

2.   Cash, Cash Equivalents, and Marketable Securities

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

3.       Receivables and Credit Risk

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



<PAGE>


Receivables balances are as follows:


(In thousands)                   March 31, 1998       December 31, 1997
                               -----------------     -----------------
Billed receivables                   $   6,345           $   10,366
Unbilled receivables                     1,144                1,837
Reserve for doubtful accounts             (400)                (400)
                               -----------------     -----------------
                                     $   7,089           $   11,803
                               =================     =================

4.   Furniture, Equipment, and Leasehold Improvements

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

              Furniture,  equipment,  and leasehold improvements balances are as
follows:
<TABLE>
<CAPTION>

(In thousands)                                                  March 31, 1998         December 31, 1997
                                                               -----------------     ----------------
<S>                                                            <C>                   <C>

Computer and lab equipment                                            $ 15,278          $   14,814
Furniture and fixtures                                                   3,667               3,613
Leasehold improvements                                                   6,753               6,660
                                                               -----------------     ----------------
                                                                        25,698              25,087
Less accumulated depreciation and amortization                         (16,011)            (14,922)
                                                               -----------------     ----------------
                                                                      $  9,687           $  10,165
                                                               =================     ================
</TABLE>

5.   Income Taxes

              The effective tax rate used in the  calculation  of the income tax
     benefit for the periods ended March 31, 1998 and 1997 was 40 percent and 34
     percent,  respectively.  In  determining  its  effective  tax  rate for the
     quarter, the Company used its estimated effective tax rate for the year. To
     the extent there are differences between planned and actual net income, the
     components thereof,  or changes in the tax laws effecting the Company,  the
     effective tax rate could change.



<PAGE>


              At March 31, 1998, the Company had  approximately  $4.6 million of
     deferred tax assets. Included in this balance is approximately $0.7 million
     associated  with stock  options.  In the event these stock  option  related
     deferred tax assets are not entirely realized, the unrealized balance would
     be reversed to shareholders' equity.  Realization of the remaining deferred
     tax assets is  dependent  upon the Company  generating  sufficient  taxable
     income in future years to obtain the benefit from the reversal of temporary
     differences  and from tax credit carry forwards.  At March 31, 1998,  there
     was no  valuation  for  net  deferred  tax  assets  based  on  management's
     assessment  that  current  levels of  anticipated  taxable  income  will be
     sufficient  to realize the net deferred tax asset.  However,  the amount of
     deferred  tax assets  considered  realizable  is subject to  adjustment  in
     future periods if estimates of future taxable income are reduced.

6.   Stock Based Compensation

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

7.   Per Share Information

              As a result  of FASB No.  128,  "Earnings  Per  Share,"  which was
     issued in February  1997,  earnings  (loss) per share is computed using two
     different  methods,  basic and  diluted  earnings  (loss) per share.  Basic
     earnings  (loss)  per share is  computed  using only the  weighted  average
     number of common shares  outstanding.  Diluted earnings (loss) per share is
     computed  using the  weighted  average  number of  shares  outstanding  and
     dilutive  common stock  equivalents  from the Company's stock option plans,
     calculated using the treasury stock method.  The potential shares resulting
     from the assumed exercise of the employee stock options are not included in
     the diluted  earnings (loss) per share  calculation in 1997 as their effect
     is  anti-dilutive.  All net income (loss) per share amounts  presented have
     been restated to conform to FAS 128 requirements, where appropriate.

    The following table sets forth the computation of basic and diluted earnings
(loss) per share:

<TABLE>
<CAPTION>

                                                       Three Months Ended March 31,
                                                       -------------------------------------
                                                            1998                  1997
                                                       ----------------     ----------------
<S>                                                    <C>                  <C>

Numerator:
   Net income (loss) - numerator for basic and
      diluted earnings (loss) per share                   $      516           $    (561)
                                                       ================     ================
Denominator:
    Denominator for basic earnings (loss) per
       share  --  weighted-average shares                     22,219              21,343

    Effect of dilutive securities:
       Employee stock options                                    772                  --
                                                        ----------------     ----------------

Denominator for diluted earnings (loss) per
   share  --  adjusted weighted average shares                22,991              21,343
                                                        ================     ================
Basic earnings (loss) per share                            $    0.02           $   (0.03)
                                                        ================     ================
Diluted earnings (loss) per share                          $    0.02           $   (0.03)
                                                        ================     ================
</TABLE>

<PAGE>

8.    Comprehensive Income (Loss)

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

              During the first three months of 1998 and 1997 total comprehensive
income (loss)  amounted to $414,000 and $(610,000), respectively.

              The following  table sets forth the  computation of  comprehensive
     income for the three months ended March 31, 1998 (in thousands):

<TABLE>
<CAPTION>

                                                                                Accumulated
                                                                  Additional       Other
                                    Comprehensive  Common Shares   Paid-in     Comprehensive    Retained
                                    Income (loss)                  Capital          Loss        Earnings        Total
                                   --------------------------------------------------------------------------------------
     <S>                           <C>               <C>           <C>            <C>           <C>         <C>

     Balances, December 31, 1997    $         --     $   2,214    $  49,133       $    (126)    $  22,927   $  74,148
     Comprehensive income (loss)
          Net income                         516            --           --              --           516         516
     Other comprehensive losses:
        Unrealized loss on
          securities                        (102)           --           --            (102)           --        (102)
                                   =================
     Comprehensive income              $     414            --           --              --            --          --
                                   =================
     Common stock issued under
        employee stock options and
        purchase plan                                       14          662              --            --         676
                                                   ======================================================================
     Balances, March 31, 1998                        $   2,228    $  49,795       $    (228)    $  23,443   $  75,238
                                                   ======================================================================
</TABLE>


9.   Litigation

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

              On November 20, 1996, a purported  derivative action complaint was
     filed in the Superior Court of the State of California,  Alameda County, by
     Mike  Tinkler  against  the  Company's  Board of  Directors  (the  "Tinkler
     Derivative  Action").  The complaint in the Tinkler  Derivative Action also

<PAGE>
  
     names the  Company as a nominal  defendant.  The  complaint  in the Tinkler
     Derivative  Action  alleges  that as a result of the facts  alleged  in the
     Copperstone State Action, defendants breached their fiduciary duties to the
     Company, violated California law, and were unjustly enriched. The plaintiff
     in the Tinkler Derivative Action seeks damages of an unspecified amount. On
     February 24, 1998,  plaintiff filed a second amended complaint.  Defendants
     will file a demurrer.

              On  September  24, 1997, a purported  class action  complaint  was
     filed in the United  States  District  Court for the  Northern  District of
     California by Copperstone and Siciliano  against the Company and certain of
     its  officers  and  directors  (the  "Copperstone  Federal  Action").   The
     Copperstone Federal Action contains virtually identical factual allegations
     as the Copperstone State Action,  and alleges  violations of Sections 10(b)
     and 20(a) of the  Securities  Exchange Act of 1934 and SEC Rule 10b-5.  The
     plaintiffs  in the  Copperstone  Federal  Action  also seek  damages  of an
     unspecified  amount.  On January 14, 1998,  defendants moved to dismiss the
     Copperstone  Federal  Action.  On April  20,  1998 the Court  ordered  that
     plaintiffs  seek  class  certification  prior to  adjudicating  defendants'
     motion to dismiss.

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

              On April 24, 1998, a former employee served TCSI  Corporation with
     a  complaint  filed in Alameda  County  Superior  Court  alleging  wrongful
     termination.  The  former  employee  seeks  relief  for  pay,  compensatory
     damages,  punitive  damages,  and  attorneys'  fees.  TCSI  Corporation  is
     preparing a response.

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



<PAGE>


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

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

Overview

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

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

<PAGE>

              The  licensing  and   implementation  of  the  Company's  software
     products  generally  involves a  significant  commitment  of  resources  by
     prospective customers.  As a result, the Company's sales process is subject
     to delays associated with lengthy approval processes typically accompanying
     such  significant  capital  expenditures.   Accordingly,   the  Company  is
     substantially  dependent on its  customers'  decisions as to the timing and
     level of  expenditures  and resource  commitments.  The  variability in the
     timing  of such  expenditures  could  cause  material  fluctuations  in the
     Company's business,  operating results,  and financial  condition.  In this
     regard,  the  consistency of the Company's 1998 and 1997 quarterly  results
     have  been  adversely  affected  by  delays  in the  purchase  of  software
     licenses.

              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  continued  revenue  growth  is  highly
     dependent upon the development  and  enhancement of software  products that
     meet market needs.* Prior to 1996, the Company's  product  development  was
     primarily  funded  by  customers  as part of the  development  of  software
     applications  for such customers.  The Company  typically  retained certain
     rights to developed software products. In certain  circumstances,  however,
     the Company agreed to restrict its use of such products to certain  markets
     and during  certain time periods.  During 1996, the Company began funding a
     larger  portion  of its  product  development  costs.  Although  management
     intends to target product  development  spending at levels  consistent with
     other software  companies,  from  time-to-time,  spending may be greater or
     less than these amounts, as circumstances dictate.* Furthermore, management
     expects  that from time to time it may  acquire  businesses,  products,  or
     technologies to enhance the Company's current product  offerings.* To date,
     the Company has not consummated any such  acquisitions  and the Company has
     no current  agreements  to effect  any such  acquisitions.  The  failure to
     successfully evaluate, negotiate, and effect such an acquisition could have
     a material adverse effect on the Company's business, operating results, and
     financial condition.*

------------------------------------------------------------
*    This  statement  is  a   forward-looking   statement   reflecting   current
     expectations.  There can be no assurance  that the Company's  actual future
     performance  will meet the  Company's  current  expectations.  The  Company
     strongly  encourages  review of the  section  entitled  "Factors  Affecting
     Operating  Results and Market Price of Stock"  commencing  on page 16 for a
     discussion of factors that could affect future performance.


<PAGE>


Results of Operations

              Revenues.  The  Company  generates  revenues  from the sale of its
     software  products  and related  services to the  telecom  industry.  Total
     Company  revenues for the three  months  ended March 31, 1998  increased 12
     percent to $11.0 million,  while telecom revenues increased 18 percent from
     $9.4 million to $11.0 million.  NEC,  Lucent,  and Italtel were the largest
     customers  for the  quarter,  accounting  for 39,  13,  and 13  percent  of
     quarterly revenues,  respectively. Sales to NEC during the quarter resulted
     from work  performed  under five  separate and distinct  projects.  License
     revenue  improved to $2.9 million,  26 percent of quarterly  revenues.  The
     Company  expects that runtime  license  revenue will  continue to vary from
     quarter to quarter.  License  revenues  for the quarter  were split  almost
     equally  between  development  and  runtime  licenses.   Italtel,   Hughes,
     Motorola, and Lucent accounted for 75 percent of TCSI's license revenues.*

              Revenues from the Asia-Pacific  and European regions  increased to
     $7.9  million for the three  months  ended March 31, 1998  compared to $6.8
     million for the comparable  1997 period.  The increase is  attributable  to
     continued relationships with existing customers, resulting in revenues from
     follow-on contracts.  Revenues from the Americas for the three months ended
     March 31, 1998 were  consistent  with revenues for the same period in 1997.
     The Company expects the geographical mix of revenues to vary from period to
     period as it responds to global  buying  habits and develops  relationships
     with new and existing partners and channels.*

              To date,  a portion  of  revenues  has been  concentrated  among a
     limited number of customers. For the three months ended March 31, 1998, the
     concentration  of  revenue  from  the  Company's  five  largest   customers
     increased  to 77 percent  from 61 percent for the same period in 1997.  The
     revenue from these customers  represent many separate and distinct projects
     that are  geographically  dispersed  throughout the world.  There can be no
     assurance  that such  customers  will  continue  to place  orders  with the
     Company which equal or exceed the comparable levels for prior periods.* See
     "Factors  Affecting  Operating Results and Market Price of Stock - Customer
     Concentration."

              Direct Costs of Services.  The Company  incurs direct costs in the
     development and deployment of its customers' software solutions.  The major
     components of direct costs are employee  compensation,  subcontractor fees,
     training costs, and other billable direct costs, including travel expenses.
     Direct  costs also  include an  allocation  for  benefits,  facilities,  IS
     support,  and  depreciation.  Costs of services declined 11 percent to $4.6
     million for the three months ended March 31, 1998 from $5.1 million for the
     same period in 1997. As a percentage of service revenues, costs of services
     were 56 percent for the three  months  ended March 31, 1998  compared to 66
     percent  for the same  period  in  1997.  The  cost of  service  percentage
     declined  due to increased  service  revenues  and better  utilization  and
     efficiency of resources  which resulted in lower cost. The Company plans to
     continue its efforts to control costs and expenses.*

------------------------------------------------------------
*    This  statement  is  a   forward-looking   statement   reflecting   current
     expectations.  There can be no assurance  that the Company's  actual future
     performance  will meet the  Company's  current  expectations.  The  Company
     strongly  encourages  review of the  section  entitled  "Factors  Affecting
     Operating  Results and Market Price of Stock"  commencing  on page 16 for a
     discussion of factors that could affect future performance.

<PAGE>

              Product   Development.   Product  development   includes  employee
     compensation,   subcontractor  fees,  training  costs,  and  other  product
     development  costs,  including an allocation for benefits,  facilities,  IS
     support,  and depreciation.  For the three months ended March 31, 1998, the
     Company  invested  $2.5  million or 23 percent of  revenues  on  internally
     funded product development in 1998 compared with $1.5 million or 15 percent
     of  revenues  in 1997.  In 1997,  the  funds  were used  primarily  for the
     development of the Company's  SolutionCore(a)  product,  which included the
     fifth release of Object Services  Package (OSP) and new releases of related
     development   tools.   The  Company   expects  to  continue  to  invest  in
     SolutionCore,   as   well  as  its   new   components-based   applications,
     SolutionSuites(a), throughout 1998.*

              Selling,  General, and Administrative  Expenses.  Selling expenses
     include sales and marketing employee  compensation,  promotional  material,
     trade shows,  travel, and facilities  expenses.  General and administrative
     costs include compensation costs related to executive management,  finance,
     and  administrative  personnel  along with the other  administrative  costs
     including recruiting,  legal and accounting fees,  insurance,  and bad debt
     expense.  For the three months ended March 31, 1998, selling,  general, and
     administrative  expenses  decreased  20 percent to $3.8  million  from $4.8
     million for the same period in 1997. As a percentage  of revenue,  selling,
     general,  and  administrative  expense was 35 percent for the three  months
     ended March 31, 1998 compared to 49 percent of revenue in the first quarter
     of  1997.  The  decrease  in  spending  is due  to  lower  headcount  and a
     reallocation  of  telephone  and  Information  Service  expenses  to  their
     corresponding  user  departments.  Telephone and Information  Services were
     charged to general and administrative expense in prior periods.

              Income Taxes.  The Company records income taxes in accordance with
     Statement of Financial Accounting Standards No. 109, "Accounting for Income
     Taxes." The Company's  effective tax rate was 40 percent and 34 percent for
     the three months ended March 31, 1998 and 1997,  respectively.  The Company
     incurred a tax provision of $0.3 million on pre-tax  income of $0.9 million
     for the  quarter  ended  March 31,  1998  compared to a tax benefit of $0.3
     million on a pre-tax loss of $0.9  million for the quarter  ended March 31,
     1997.

              Earnings Per Share.  As a result of the new Statement of Financial
     Accounting Standards (SFAS) No. 128 "Earnings Per Share" issued in February
     1997,  earnings  (loss) per share (EPS) is computed  using both,  basic and
     diluted  earnings per share.  Basic EPS is computed using only the weighted
     average number of common shares outstanding.  Diluted EPS is computed using
     the weighted average number of common shares outstanding and dilutive stock
     equivalents from the Company's stock option plans.

              Liquidity and Capital Resources.  For the three months ended March
     31, 1998, net cash  generated  from  operating  activities was $6.1 million
     compared to $1.5 million for the same period in 1997.  The increase in cash
     generated  from  operations  is  primarily  due to net  income  in 1998 and
     changes in accounts payable,  accrued  compensation,  and deferred revenue.
     The increase is primarily due to payment of year-end liabilities related to
     the  build-out  of the Alameda  facility  in the first  quarter of 1997 and
     reduction in the bonus and  commission  payout in the first quarter of 1998


------------------------------------------------------------
*    This  statement  is  a   forward-looking   statement   reflecting   current
     expectations.  There can be no assurance  that the Company's  actual future
     performance  will meet the  Company's  current  expectations.  The  Company
     strongly  encourages  review of the  section  entitled  "Factors  Affecting
     Operating  Results and Market Price of Stock"  commencing  on page 16 for a
     discussion of factors that could affect future performance.

<PAGE>

     compared  to the  same  period  in  1997.  As in the  past,  the  Company's
     operating  cash  flows  in  the  future  may  be  affected  by  fluctuating
     receivable  balances.  The Company's  receivables are primarily from large,
     credit-worth  customers  and, as a result,  the Company does not anticipate
     any significant default due to a customer's inability to make a payment for
     products and/or services received.*

              For the  three  months  ended  March 31,  1998,  net cash used for
     investment  activities was $1.0 million compared to $0.9 million  generated
     from  investment  activities  for the comparable  1997 period.  The Company
     purchased  $8.2  million of  marketable  securities  while $7.9  million of
     marketable securities matured, compared to the purchase of $2.0 million and
     $5.9 million of maturities for the comparable period in 1997. Cash provided
     by  financing  activities  remained  the same at $0.7 million for the three
     months  ended  March  31,  1998  and  1997 and was the  result  of  options
     exercised or stock purchased under the Employee Stock Purchase Plan.


------------------------------------------------------------
*    This  statement  is  a   forward-looking   statement   reflecting   current
     expectations.  There can be no assurance  that the Company's  actual future
     performance  will meet the  Company's  current  expectations.  The  Company
     strongly  encourages  review of the  section  entitled  "Factors  Affecting
     Operating  Results and Market Price of Stock"  commencing  on page 16 for a
     discussion of factors that could affect future performance.


<PAGE>


Factors Affecting Operating Results and Market Price of Stock

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

     Potential Fluctuations in Future Operating Results

              The Company has  experienced and expects to continue to experience
     significant  fluctuations in revenues and operating results on an annual or
     quarterly  basis as a result  of a number  of  factors,  many of which  are
     beyond the control of the Company.  These factors include the cancellation,
     modification,   or   non-renewal  of  service,   license,   or  maintenance
     agreements;  the size and timing of significant  customer  engagements  and
     license fees;  the relative  proportion of services and software  licensing
     fees;  personnel  changes;  capital  spending  patterns  of  the  Company's
     customers;  concentration  of the  Company's  customers;  the lengthy sales
     cycles of the Company's products and services;  industry  acceptance of the
     Company's products and services; changes in operating expenses; new product
     introductions  and product  enhancements by the Company or its competitors;
     the ability of the Company to develop,  introduce,  and market new products
     and product  enhancements on a timely basis; changes in pricing policies by
     the Company or its competitors;  regulatory changes, currency fluctuations,
     and general economic factors.  These factors are difficult to forecast, and
     these  or  other  factors  could  have a  material  adverse  effect  on the
     Company's business, operating results, and financial condition.

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

<PAGE>

     Lengthy Sales and Implementation Cycles

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

     Acceptance of the Company's Products; Product Development Risks

              A substantial  portion of the Company's  revenues are derived from
     the sale of the  Company's  products and services  which  provide  software
     solutions  to major  corporations  in the  worldwide  telecom  services and
     equipment  industries.  Although many telecom  companies  currently seek to
     integrate their business  operation systems and network operation  systems,
     there  can be no  assurance  that  these or other  service  providers  will
     continue to seek the  integration  of such  systems or that such  companies
     will use the Company's products.  Due to the complex nature of the advanced
     element,  network, and service management systems developed by the Company,
     the  Company  has in the past  relied  and will in the  future  rely on its
     development and implementation  expertise. The Company continues to develop
     software  products  that  reduce  the  customization   necessary  to  fully
     integrate customers' systems. There can be no assurance,  however, that the
     Company will continue to successfully  develop and market such products or,
     if successful,  that the revenue from such products will compensate for any
     concurrent loss of development and  implementation  service  revenues.  The
     failure by the Company to successfully develop and market such products and
     technologies  would  have  a  material  adverse  effect  on  its  business,
     operating results, and financial condition.

              Revenues  attributable  to the  Company's  software  products  and
     services  have in the past  accounted  for and are  expected to continue to
     account for a substantial majority of the Company's revenues.  Accordingly,
     the Company's future business,  operating results,  and financial condition
     are  significantly  dependent upon the continued  market  acceptance of its
     portfolio of products  and  services.  There can be no  assurance  that the
     Company's technology will continue to achieve market acceptance or that the
     Company  will  be  successful  in  developing,  introducing,  or  marketing

<PAGE>

     improvements  to its  products.  Moreover,  the life  cycle of  distributed
     object  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 technology as a
     result of new or existing  competing  technologies,  or other factors would
     have a  material  adverse  effect  on  the  Company's  business,  operating
     results, and financial condition.

              Prior to 1996,  the Company's  product  development  was primarily
     funded by customers as part of the development of software applications for
     such customers.  The Company typically retained certain rights to developed
     software products. In certain circumstances, however, the Company agreed to
     restrict  its use of such  products to certain  markets and during  certain
     time periods.  Management  believes that continued revenue growth is highly
     dependent upon the development  and  enhancement of software  products that
     meet market needs.  Prior to 1996,  internally  funded product  development
     costs  were  nominal.  Management  intends  to target  product  development
     spending at amounts consistent with other software companies.  There can be
     no  assurance,  however,  that such funding  will result in the  successful
     introduction of new products.

     Customer Concentration

              To date, a significant  portion of the Company's revenues has been
     concentrated  among a limited number of customers.  In particular,  in 1997
     and in the first  quarter of 1998, a large  portion of revenues was derived
     from contracts  negotiated through a large equipment  manufacturer in Asia.
     The Company  anticipates  that it will continue to  experience  significant
     customer  concentration.  There can be no assurance  that such customers or
     any other  customers  will in the future  continue to place orders with the
     Company which equal or exceed the comparable  levels for prior periods.  In
     addition,  the Company's  customers  typically  designate one individual to
     procure  network  management  software.  If any of  such  individuals  were
     terminated,  transferred,  or replaced,  the Company would be vulnerable to
     cancellation  of an order if, for example,  the Company's  competitors  had
     pre-existing relationships with such individual's replacement.  As a result
     of these factors, the Company's business,  operating results, and financial
     condition could be materially adversely affected.

     Product Defects

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


<PAGE>


     Implementation Risks

              As 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,  should the  Company's  products not meet
     specifications or cause customer system downtime. There can be no assurance
     that the Company will not  encounter  delays or other  difficulties  due to
     such  complexities.  Because  the  Company's  customer  base  consists of a
     relatively  limited number of customers,  the  reputational  harm resulting
     from  product  defects or  implementation  errors  would be damaging to the
     Company.  Any such occurrence could have a material adverse effect upon the
     Company's business, operating results, and financial condition.

     International Sales

              Revenues  outside of the Americas  accounted for 72 percent of the
     Company's  total  revenues for the period ended March 31, 1998. The Company
     expects  that  international  revenues  will  continue  to  account  for  a
     significant  portion of its total  revenue in future  periods.  The Company
     intends to penetrate additional international markets and to further expand
     its existing international operations. The Company's international business
     involves  a  number  of  inherent  risks,   including  longer   receivables
     collection   periods  and  greater   difficulty   in  accounts   receivable
     collection,  difficulty  in staffing and  managing  foreign  operations,  a
     longer  sales  cycle than with  domestic  customers,  potentially  unstable
     political and economic conditions,  language barriers, cultural differences
     in the conduct of  business,  seasonality  due to the  slowdown in European
     business  activity  during  the  Company's  third  fiscal  quarter of 1997,
     unexpected changes in regulatory requirements,  including a slowdown in the
     rate of privatization of telecom service providers,  reduced protection for
     intellectual  property  rights in some countries,  potentially  adverse tax
     consequences,  tariffs,  and other trade barriers.  In addition,  access to
     foreign  markets is often  difficult due to the  established  relationships
     between government owned or controlled  communications  companies and local
     suppliers of communications products. There can be no assurance the Company
     will be able to successfully  penetrate such foreign markets.  In addition,
     there can be no  assurance  that the  Company  will be able to  sustain  or
     increase revenue derived from international  licensing and services or that
     the  foregoing  factors  will not have a  material  adverse  effect  on the
     Company's future international business, and consequently, on the Company's
     business, operating results, and financial condition.

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

<PAGE>

     risk of exchange rate losses from foreign currency  denominated  sales, the
     Company may engage in hedging transactions.  There can be no assurance that
     such hedging  transactions  will not have a material  adverse effect on the
     Company's business, operating results, and financial condition.

     Dependence on Telecommunications Carriers; Government Regulation

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

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

     Competition

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

<PAGE>

              The Company's current and prospective  competitors offer a variety
     of solutions to address OSS needs. The Company faces competition in each of
     the three  functional  areas the Company  believes  are  necessary  for the
     delivery  of  complete  OSS   software   telecom   applications   platform,
     configurable applications,  and custom services. The Company's SolutionCore
     and  SolutionSuites  product  lines  enable  the  Company  to  provide  its
     customers   with  both   application   development   software  and  telecom
     applications.  Because certain of the Company's  competitors  focus only on
     one functional area of OSS software,  such competitors may be in a position
     to develop competitive  products targeted solely at the segment they serve.
     These competitors include major  communications  service providers,  RBOCs,
     and  equipment  and  computer   manufacturers,   each  of  which  may  have
     substantially  greater  financial,  manufacturing,   technical,  marketing,
     distribution, greater name recognition,  longer-standing relationships with
     customers than the Company and other  resources.  Furthermore,  many of the
     Company's current and potential customers  continuously evaluate whether to
     design,  develop, and support internally the software solutions provided by
     the Company,  thereby  obviating the need for relying on an outside  vendor
     such as the Company.  There can be no assurance that the Company's  current
     or potential  competitors will not develop products  comparable or superior
     to those developed by the Company or adapt more quickly than the Company to
     new technologies,  evolving industry standards,  new product introductions,
     or changing customer requirements.

     Rapid Technological Change; Need to Manage Product Transitions

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

              The  Company's  products  are  designed to operate on a variety of
     hardware and software platforms and with a variety of databases employed by
     its customers in their networks.  The Company must  continually  modify and
     enhance its  products to keep pace with  changes in hardware  and  software
     platforms and database technology.  As a result,  uncertainties  related to
     the  timing  and  nature of new  product  announcements,  introductions  or

<PAGE>

     modifications by systems vendors,  particularly Sun Microsystems,  Inc. and
     Hewlett Packard Company,  and by vendors of relational  database  software,
     particularly Oracle Corporation,  Sybase,  Inc., and Informix  Corporation,
     could  materially  adversely  impact  the  Company's  business,   operating
     results, and financial condition. In addition, the failure of the Company's
     products to operate  across the various  existing and evolving  versions of
     hardware  and software  platforms  and  database  environments  employed by
     consumers would have a material  adverse effect on the Company's  business,
     operating results, and financial condition.

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

     Protection of Intellectual Property

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

              While the Company  believes that its products and  trademarks  and
     their use by customers  does not infringe  upon the  proprietary  rights of
     third parties,  there can be no assurance that the Company will not receive
     future  communications  from third  parties  asserting  that the  Company's
     products  or  their  use  by  customers  infringe,  or  may  infringe,  the
     proprietary rights of such third parties. The Company expects that software
     product developers will be increasingly  subject to infringement  claims as
     the numbers of products and competitors in the Company's  industry  segment
     grows and the  functionality  of products in  different  industry  segments
     overlaps.  Any such claims,  including  meritless  claims,  could result in
     costly,   time-consuming   litigation,   and  diversion  of  technical  and

<PAGE>

     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  object-oriented  software  products,  there  can be no
     assurance that the prohibition or restrictions imposed by certain customers
     on the use of certain  intellectual  property will not adversely affect the
     Company's business, operating results, and financial condition.

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

     Dependence on Key Personnel

              The Company's  future growth and success  depends to a significant
     extent on its ability to attract and retain  qualified  managerial,  sales,
     and software  engineering  personnel.  The Company has at times experienced
     and  continues  to  experience   difficulty  in  attracting  and  retaining
     qualified  personnel.  The Company's future success will also depend on the
     ability  of  its  current  and  future  management   personnel  to  operate
     effectively,  both  independently  and as a group. The Company has recently
     experienced changes in its executive management personnel. For example, the
     Company's  current Chief  Financial  Officer joined the Company in November
     1997. Competition for the hiring of such personnel in the software industry
     is  intense,  and  there  can be no  assurance  that  the  Company  will be
     successful in locating candidates with appropriate qualifications.  Failure
     to attract and retain key personnel could have a material adverse effect on
     the Company's business,  operating results, and financial condition.  Risks
     Associated with Acquisitions
     
     Risks Associated with Acquisitions

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

<PAGE>

     position.  Such  acquisitions  would subject the Company to numerous risks,
     including risks  associated  with the  integration  into the Company of new
     employees and technology. Moreover, the negotiation and acquisition of such
     transactions involve the diversion of substantial  management resources and
     the  evaluation of such  opportunities  requires  substantial  diversion of
     engineering  and  technological   resources.   In  addition,   transactions
     involving  the issuance by the Company of common stock or other  securities
     could  result  in  immediate  and  substantial  dilution  to the  Company's
     existing  shareholders,  large  one-time  write-offs,  or the  creation  of
     goodwill  or other  intangible  assets  that could  result in  amortization
     expenses.   To  date,  the  Company  has  not  consummated  an  acquisition
     transaction.  The failure to successfully evaluate,  negotiate,  and effect
     acquisition  transactions  could  have a  material  adverse  effect  on the
     Company's business, operating results, and financial condition.

     Potential Volatility of Stock Price

              The market price of the shares of the  Company's  Common Stock has
     been  and  is  likely  to  continue  to  be  highly  volatile  and  may  be
     significantly   affected   by  factors   such  as  actual  or   anticipated
     fluctuations in the Company's  business,  operating results,  and financial
     condition, announcements of technological innovations, new products, or new
     contracts by the Company or its competitors,  developments  with respect to
     proprietary  rights,  adoption of new  accounting  standards  affecting the
     software  industry,  general  market  conditions,  and  other  factors.  In
     addition,  the stock market has from time to time  experienced  significant
     price and volume  fluctuations that have  particularly  affected the market
     prices for the common stocks of technology companies.  These types of broad
     market  fluctuations may adversely affect the market price of the Company's
     Common Stock.  In the past,  following  periods of volatility in the market
     price of a company's  securities,  securities  class action  litigation has
     often been initiated against such company.  Such litigation could result in
     substantial costs and a diversion of management's  attention and resources,
     which could have a material  adverse  effect upon the  Company's  business,
     operating results, and financial  condition.  In this regard, in late 1996,
     two lawsuits on behalf of certain of the Company's  shareholders were filed
     against  the Company and various of its  officers  and  directors.  In late
     September  1997, a class action lawsuit was filed in U.S.  Federal Court on
     behalf of certain  shareholders  against  the  Company  and  various of its
     officers  and  directors.  The state  actions  allege  violations  of state
     securities  laws  during  1995 and 1996,  and the  federal  action  alleges
     violations of the federal  securities  laws.  Management  believes that the
     lawsuits are without merit and is contesting them.

     Impact of Year 2000

              Many currently  installed  computer systems and software  products
     are coded to accept only two digit  entries in the date code  field.  These
     date code fields will need to accept four digit entries to distinguish 21st
     century dates from 20th century dates. As a result, in less than two years,
     computer  systems  and/or  software  used by many  companies may need to be
     upgraded  to comply  with such "Year  2000"  requirements.  Currently,  the
     Company  believes  there  are  no  material  operational  issues  or  costs
     associated with preparing its internal systems for the year 2000. There can
     be no  assurance,  however,  that the Company will not  experience  serious
     unanticipated   negative  consequences  and/or  material  costs  caused  by
     undetected  errors  or  defects  in the  technology  used  in its  internal

<PAGE>

     systems,  which include third party  software and hardware  technology.  In
     addition,  there can be no assurance that the Company's customers will have
     completed the same assessment of their internal systems.

              The  Company  believes  that its  products  are  fully  Year  2000
     compliant  assuming four digit entries are acceptable to  distinguish  21st
     century dates from 20th century dates.  The Company's  fifth release of OSP
     and the prior release,  OSP 4.X,  manage and manipulate  dates greater than
     December 31, 1999, and will not cause an abnormal  ending  scenario  within
     the application or result in the generation of incorrect  values  involving
     such dates.  Additionally,  the software will not allow errors or incorrect
     calculations caused by "wrapping" the century date, by failure to recognize
     the year 2000 as a leap year, or errors in computing dates. Currently, only
     the time module of OSP is  time-dependent,  and it can represent time to an
     upper limit of February 5, 2106.

              It is not expected that the  Company's  products will be adversely
     affected  by date  changes  in the  year  2000.  However,  there  can be no
     assurance that the Company's products contain and will contain features and
     functionality  considered  necessary  for its  customers  to be  Year  2000
     compliant



<PAGE>


              Item 1.  Legal Proceedings

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

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

              On  September  24, 1997, a purported  class action  complaint  was
     filed in the United  States  District  Court for the  Northern  District of
     California by Copperstone and Siciliano  against the Company and certain of
     its  officers  and  directors  (the  "Copperstone  Federal  Action").   The
     Copperstone Federal Action contains virtually identical factual allegations
     as the Copperstone State Action,  and alleges  violations of Sections 10(b)
     and 20(a) of the  Securities  Exchange Act of 1934 and SEC Rule 10b-5.  The
     plaintiffs  in the  Copperstone  Federal  Action  also seek  damages  of an
     unspecified  amount.  On January 14, 1998,  defendants moved to dismiss the
     Copperstone  Federal  Action.  On April  20,  1998 the Court  ordered  that
     plaintiffs  seek  class  certification  prior to  adjudicating  defendants'
     motion to dismiss.

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

              On April 24, 1998, a former employee served TCSI  Corporation with
     a  complaint  filed in Alameda  County  Superior  Court  alleging  wrongful
     termination.  The  former  employee  seeks  relief  for  pay,  compensatory
     damages,  punitive  damages,  and  attorneys'  fees.  TCSI  Corporation  is
     preparing a response.



<PAGE>


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




Item 6.  Exhibits and Reports on Form 8-K

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

Exhibit Number     Document Description                     Page Number
==============================================================================
      27           Financial Data Schedule                       29


(b) Reports on Form 8-K filed in the first quarter of 1998.

         None.


<PAGE>



                                   SIGNATURES

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



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

  May 13, 1998         /s/ Arthur H. Wilder
----------------       --------------------
      Date             Arthur H. Wilder, Chief Financial Officer, Secretary, and
                       Treasurer (Principal Accounting Officer)