<PAGE>

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

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

For the quarterly period ended March 31, 1997

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

For the transition period from __________________ to __________________

Commission file number  0-19377

                                           
                                   TCSI CORPORATION
                (Exact name of Registrant as specified in its charter)
                                           

           NEVADA                                   68-0140975
----------------------------------------  -----------------------------------
(State or other jurisdiction of           (I.R.S. Employer identification no.)
incorporation or organization)         
         
1080 Marina Village Parkway, Alameda, CA         94501
----------------------------------------  -----------------------------------
(Address of principal executive offices)         (Zip code)

                       Telephone number    (510) 749-8500
                                         -------------------
                                           
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.        Yes    X     No
                                              -------     --------

As of April 30, 1997, there were 21,437,656 shares of common stock of the
Registrant outstanding.



                                     -1-
<PAGE>

                                           
                                      FORM 10-Q
                                           
                                           
                                        INDEX
                                           

                                                                    Page No.
PART I.  FINANCIAL INFORMATION

    ITEM 1.  CONSOLIDATED FINANCIAL INFORMATION
    
         Consolidated Statements of Income for the Quarters
              Ended March 31, 1997 and 1996 (Unaudited).............    3

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

         Consolidated Statements of Cash Flows for the Quarters
              Ended March 31, 1997 and 1996 (Unaudited).............    5

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

    ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
         FINANCIAL CONDITION AND RESULTS OF OPERATIONS..............    9


PART II. OTHER INFORMATION

    ITEM 1.  LEGAL PROCEEDINGS......................................   25

    ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.......................   26



                                     -2-

<PAGE>


PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Information

                    CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
                        (In thousands, except per share data)
                                           
<TABLE>
<CAPTION>
                                                Quarter Ended March 31,
                                               -------------------------
                                                  1997           1996
                                               ---------      ----------
<S>                                            <C>            <C>
Revenues:               
    Services                                   $   7,803      $  12,583
    Software licensing fees                        2,031          3,116
                                               ---------      ---------
        Total services and licensing fees          9,834         15,699
    Equipment, non-telecom                            --          2,839
                                               ---------      ---------
        Total revenues                             9,834         18,538
                                               ---------      ---------
              
Costs and expenses:               
    Services                                       5,143          6,128
    Equipment, non-telecom                            --          2,654
    Product development                            1,452          1,004
    Selling, general, and administrative           4,838          5,283
                                               ---------      ---------
        Total costs and expenses                  11,433         15,069
                                               ---------      ---------
              
Income (loss) from operations                     (1,599)         3,469
              
Interest income                                      749            282
                                               ---------      ---------
Income (loss) before income taxes                   (850)         3,751
              
Provision for (benefit from) income taxes           (289)         1,200
                                               ---------      ---------
              
Net income (loss)                              $    (561)     $   2,551
                                               ---------      ---------
                                               ---------      ---------
              
Earnings (loss) per share (EPS)                $   (0.03)     $    0.13
                                               ---------      ---------
                                               ---------      ---------
              
Shares used in calculation of EPS                 21,343         20,348
                                               ---------      ---------
                                               ---------      ---------
</TABLE>

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


                                    -3-

<PAGE>
                             CONSOLIDATED BALANCE SHEETS
                        (In thousands, except per share data)
                                           
                                           
<TABLE>
<CAPTION>
                                                       March 31,        December 31,
                                                         1997               1996
                                                     -----------        ------------
                                                     (Unaudited)
<S>                                                  <C>                <C>
ASSETS
Current assets:
    Cash and cash equivalents                         $  33,866           $  30,880
    Investments in marketable securities                 12,422              14,352
    Receivables                                           7,857              12,522
    Other receivables                                     1,941               2,042
    Deferred income taxes                                 2,178               2,178
    Other current assets                                  2,058               2,308
                                                      ---------           ---------
         Total current assets                            60,322              64,282

Furniture, equipment, and leasehold improvements,
    net                                                  10,143               9,234
Non-current investments in marketable securities          5,475               7,375
Non-current deferred income taxes                         5,000               5,000
Other non-current assets                                    804               1,284
                                                      ---------           ---------
         Total assets                                 $  81,744           $  87,175
                                                      ---------           ---------
                                                      ---------           ---------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Accounts payable and other accruals               $   3,119           $   7,263
    Accrued compensation and related costs                3,806               4,705
    Income taxes                                          1,162               1,597
                                                      ---------           ---------
         Total current liabilities                        8,087              13,565
                                                      ---------           ---------

Shareholders' equity:
    Preferred shares, $0.01 par value; 5,000 
       shares authorized; none outstanding                   --                  --
    Common shares, $0.10 par value; 75,000 shares
       authorized; 21,438 shares issued and 
       outstanding - 1997 (21,219 - 1996)                 2,144               2,122
    Additional paid-in capital                           46,560              45,939
    Retained earnings                                    24,988              25,549
    Foreign currency translation adjustments                (35)                 --
                                                      ---------           ---------
         Total shareholders' equity                      73,657              73,610
                                                      ---------           ---------

         Total liabilities and shareholders' equity   $  81,744           $  87,175
                                                      ---------           ---------
                                                      ---------           ---------
</TABLE>

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


                                   -4-

<PAGE>

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

<TABLE>
<CAPTION>
                                                             Quarter Ended March 31,
                                                             -----------------------
                                                               1997           1996
                                                             --------      ---------
<S>                                                          <C>           <C>
OPERATING ACTIVITIES
Net income (loss)                                            $  (561)      $  2,551
Adjustments to reconcile net income (loss) 
  to net cash provided by (used in)
  operations:
    Depreciation and amortization                                963            646
    Deferred income taxes                                         --            286
    Changes in:
      Receivables                                              4,665         (2,756)
      Equipment receivables, non-telecom                          --         (2,836)
      Other receivables                                         (437)            --
      Other current assets                                       250            118
      Accounts payable and other accruals                     (2,079)         1,473
      Accrued compensation and related costs                    (899)          (817)
      Income taxes                                              (435)           630
                                                             --------      --------
         Net cash provided by (used in) 
            operating activities                               1,467           (705)
                                                             --------      --------

INVESTMENT ACTIVITIES
    Capital expenditures                                      (3,399)        (1,793)
    Purchase of marketable securities                         (2,084)        (3,991)
    Maturity and sale of marketable securities                 5,900          2,750
    Decrease (increase) in other non-current assets              480            (49)
                                                             --------      --------
         Net cash provided by (used in) 
            investing activities                                 897         (3,083)
                                                             --------      --------

FINANCING ACTIVITIES
    Issuance of common shares                                     --         25,900
    Proceeds from exercise of options                            657          1,855
                                                             --------      --------
         Net cash provided by financing activities               657         27,755
                                                             --------      --------

    Effect of foreign currency exchange rate changes on
      cash and cash equivalents                                  (35)            --
                                                             --------      --------

Net increase in cash and cash equivalents                      2,986         23,967

Cash and cash equivalents at beginning of period              30,880         16,946
                                                             --------      --------
Cash and cash equivalents at end of period                   $33,866       $ 40,913
                                                             --------      --------
                                                             --------      --------

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
    Cash paid for income taxes                               $   146       $    285
                                                             --------      --------
                                                             --------      --------
</TABLE>

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



                                    -5-

<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 1996 Annual Report on Form 10-K.

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.

            Receivables balances are as follows:

            (In thousands)                         March 31,     December 31,
                                                     1997            1996
                                                   ---------     -----------
            Billed receivables                     $  7,434       $  10,433
            Unbilled receivables                        823           2,489
            Reserve for doubtful accounts              (400)           (400)
                                                   ---------      ----------
                                                   $  7,857       $  12,522
                                                   ---------      ----------
                                                   ---------      ----------

                                      -6-

<PAGE>

4.  FURNITURE, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS

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

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

            (In thousands)                       March 31,     December 31,
                                                   1997           1996
                                                 ---------     ------------
            Computer and lab equipment           $  13,005       $  12,856
            Furniture and fixtures                   3,401           3,307
            Leasehold improvements                   5,823           4,194
                                                 ---------       ---------
                                                    22,229          20,357

            Less accumulated depreciation 
              and amortization                     (12,086)        (11,123)
                                                 ---------       ---------
                                                 $  10,143        $  9,234
                                                 ---------       ---------
                                                 ---------       ---------

5.  INCOME TAXES

            The effective tax rate used in the calculation of the income tax
    provision (benefit) for the periods ended March 31, 1997 and 1996 was 34
    percent and 32 percent, respectively.  In determining its effective tax
    rate for the quarter, the Company used its estimated effective tax rate for
    the year.  To the extent there are differences between planned and actual
    net income, the components thereof, or changes in the tax laws effecting
    the Company, the effective tax rate could change. 

            At March 31, 1997, the Company had approximately $7.2 million of
    deferred tax assets.  Included in this balance is approximately $3.8
    million associated with stock options.  In the event these stock option
    related deferred 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.

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-

<PAGE>

7.  PER SHARE INFORMATION

            Earnings per share is computed using the weighted average number of
    shares outstanding and dilutive common stock equivalents from the Company's
    stock option plans, calculated using the treasury stock method.  Such
    common stock equivalents are excluded from the loss per share calculation
    as their effect is anti-dilutive for the period ending March 31, 1997.

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

8.  LITIGATION

            In late 1996, two class action lawsuits on behalf of certain
    shareholders were filed against the Company and various of its officers and
    directors.  The suits allege violations of state securities laws during
    1995 and 1996.  Management believes that the claims contained in the suits
    are without merit and is vigorously defending such suits.  In the opinion
    of management, resolution of this litigation 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 this
    matter could materially affect the Company's future results of operations
    or cash flows in a particular period.


                                      -8-

<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, 1996. 

    OVERVIEW

            TCSI Corporation provides integrated software products and services
    for the global telecommunications industry.  Since its inception in 1983, a
    significant portion of the Company's revenues has been earned from
    telecommunications service providers and equipment manufacturers.  Since
    1993, the Company's revenues have resulted primarily from sales of related
    object-oriented software products and services.  During the second half of
    1996, the Company divested its non-telecom product lines by licensing its
    embedded software product lines and terminating its final transportation
    -related development agreement.  As a result, the Company has focused on
    offering software solutions to the telecommunications industry. 

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



                                      -9-

<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 1996 and 1997 quarterly results
    were adversely affected by customer delays in the purchase of software
    licenses. 

            A substantial portion of the Company's revenues are derived from
    the sale of the Company's software products and services to major
    telecommunications service providers and equipment manufacturers.  Due to
    the complex nature of the advanced element, network, and service management
    systems being developed, successful deployment of these systems often
    contains significant technological risks.  The Company has in the past
    relied and will in the future rely on its development and implementation
    expertise.  Additionally, development and implementation of these systems
    often occurs over several quarters. There exists the risk that a change in
    the customer's technology or business strategy during such lengthy
    development and implementation periods may cause early termination of the
    project or discontinuance of future phases.  In this regard, the Company
    has experienced and expects to continue to experience significant
    fluctuations in revenues and operating results on a quarterly basis due to
    termination, cancellation, or non-renewal of agreements.

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



                                      -10-

<PAGE>

RESULTS OF OPERATIONS

            REVENUES.  The Company generates revenues from the sale of its 
    software products and related services to the telecommunications 
    industry. For the periods ended March 31, 1997 and 1996, revenues were as 
    follows:

                                      March 31, 1997        March 31, 1996
                                    ------------------     -----------------
     Services                       $  7,803       79%     $12,583       68%
     Software licensing fees           2,031       21        3,116       17
     Equipment, non-telecom               --       --        2,839       15
                                    --------      ----     -------      ----
          Total revenues            $  9,834      100%     $18,538      100%
                                    --------      ----     -------      ----
                                    --------      ----     -------      ----

                                      March 31, 1997        March 31, 1996
                                    ------------------     -----------------
     TELECOM:
     Services                       $  7,741       83%     $ 9,068       78%
     Software licensing fees           1,610       17        2,517       22
                                    --------      ----     -------      ----
          Total telecom revenues    $  9,351      100%     $11,585      100%
                                    --------      ----     -------      ----
                                    --------      ----     -------      ----
                       
          The Company's total revenues decreased 47 percent, from $18.5 
    million in the quarter ended March 31, 1996 to $9.8 million in the 
    quarter ended March 31, 1997, due primarily to the non-recurrence of 
    approximately $7.0 million of 1996 first quarter revenues generated by 
    non-telecom business units which were discontinued in late 1996.  The 19 
    percent decline in total telecom revenues (from $11.6 million in the 
    first quarter of 1996 to $9.4 million in the first quarter of 1997) is 
    primarily attributable to a decrease in telecom software licensing fees 
    due to delays in customer's deployments.  In addition, telecom services 
    revenues decreased in the first period of 1997 due to a decline in North 
    America bookings in late 1996 and continued discounts with a number of 
    strategically important customers.  The Company expects software 
    licensing fees to continue to decline in the near term and to vary from 
    period to period.*



_______________________________
*  This statement is a forward-looking statement reflecting current
   expectations.  There can be no assurance that the Company's actual future
   performance will meet the Company's current expectations.  The Company
   strongly encourages review of the section entitled "Factors Affecting
   Operating Results and Market Price of Stock" commencing on page 15 for a
   discussion of factors that could affect future performance.



                                   -11-

<PAGE>

          The following summarizes revenues by geographic location: 

                                            March 31,      March 31,
                                              1997           1996
                                            ---------      ---------
          North America                        31%            60%
          Asia and the Pacific Rim             40             27
          Europe                               29             13
                                             ------         ------
                                              100%           100%
                                             ------         ------
                                             ------         ------

                                            March 31,      March 31,
                                              1997           1996
                                            ---------      ---------
          TELECOM:
          North America                        30%            50%
          Asia and the Pacific Rim             40             29
          Europe                               30             21
                                             ------         ------
                                              100%           100%
                                             ------         ------
                                             ------         ------
                       
          Telecom revenues from Asia and the Pacific Rim and Europe increased 
    to $6.6 million for the quarter ended March 31, 1997 compared to $5.7 
    million for the quarter ended March 31, 1996. The increase is 
    attributable to increased references from customers resulting in recent 
    follow-on contracts.  The Company generally realizes service revenues 
    over 12 to 18 month design, development, and deployment periods.  Low 
    North America-based telecom bookings during 1996 resulted in North 
    American telecom revenues declining approximately 50 percent to $2.8 
    million for the quarter ended March 31, 1997 from $5.8 million for the 
    same period in 1996.  The Company anticipates that revenues from Asia and 
    the Pacific Rim and European customers will continue to account for a 
    significant portion of its total revenue in future periods.*

          Historically, a significant portion of the Company's revenues has 
    been concentrated among a limited number of customers.  For the periods 
    ended March 31, 1997 and 1996, the concentration of total revenue from 
    the Company's five largest customers remained relatively unchanged at 61 
    percent and 64 percent, respectively.  The concentration of revenue from 
    the Company's five largest telecom customers declined to 64 percent for 
    the quarter ended March 31, 1997 from 72 percent for the same quarter in 
    1996. Two telecom customers each represented 15 to 20 percent of total 
    revenues for the quarter ended March 31, 1997.  No telecom customer 
    represented more than 15 percent of total revenues for the same period in 
    1996.  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."


_______________________________
*  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 15 for a
   discussion of factors that could affect future performance.


                                   -12-

<PAGE>

          COSTS OF SERVICES.  The Company incurs costs in the design, 
    development, and deployment of its customer's software solutions.  The 
    major cost components are employee compensation, subcontractor fees, 
    training costs, and other billable direct costs, including travel 
    expenses. Cost of services also include an allocation for benefits, 
    facilities, and depreciation.  For the quarter ended March 31, 1997, 
    costs of services declined 16 percent to $5.1 million from $6.1 million 
    for the same period in 1996.  The decrease is primarily due to the 
    divestiture of the Company's non-telecom business units in late 1996.  As 
    a percentage of services revenues, cost of services were 66 percent for 
    the quarter ended March 31, 1997 compared to 49 percent for the quarter 
    ended March 31, 1996.  The increase is due primarily to a number of 
    ongoing strategically important relationships where services continue to 
    be provided at a discount.  The Company anticipates that such additional 
    investments will decrease as a percentage of revenue for the remainder of 
    1997.* 

          PRODUCT DEVELOPMENT.  Product development includes employee 
    compensation, subcontractor fees, training costs, and other product 
    development costs, including an allocation for benefits, depreciation, 
    and facilities.  In 1996, the Company began internally funding its 
    product development costs.  Prior to 1996, such product development had 
    been primarily funded by customers as part of the development of software 
    applications for the customer.  In the first quarter of 1997, the Company 
    invested $1.5 million (approximately 15 percent of revenues) on 
    internally funded product development compared with $1.0 million or 5 
    percent of revenues for the first quarter of 1996.  In the first quarter 
    of 1997, the funds were used primarily on the development of the 
    Company's SolutionCore-TM- product line, which includes the fifth release 
    of Object Services Package (OSP) and new releases of related development 
    tools.  The Company expects to continue to invest in its SolutionCore-TM- 
    product line, as well as its new SolutionSuites-TM- product line 
    throughout 1997, in amounts generally consistent with the current 
    period's spending levels.*

          SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES.  Selling expenses 
    include sales, sales support, 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 
    other administrative costs including recruiting, legal and accounting 
    fees, and insurance.  Selling, general, and administrative expenses 
    decreased 8 percent to $4.8 million for the quarter ended March 31, 1997 
    from $5.3 million in the comparable 1996 period.  The decrease is due to 
    the discontinuance of non-telecom business groups in late 1996, as well 
    as the Company's efforts to reduce general and administrative costs 
    through efficiencies and the consolidation of its facilities.  The 
    Company plans to continue to maintain the 1996 level of resources devoted 
    to sales and marketing, but intends to continue to reduce 1997 general 
    and administrative costs relative to 1996 levels.*  As a percent of 
    revenue, selling, general, and administration expense was 49 percent for 
    the quarter ended March 31, 1997 and 28 percent for the same period in 
    1996.  The increase is primarily attributed to the 47 percent decline in 
    revenues in the first period of 1997 over the first period in 1996.


_______________________________
*  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 15 for a
   discussion of factors that could affect future performance.


                                     -13-

<PAGE>

          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 rates were 34 percent and 32 
    percent for the quarters ended March 31, 1997 and 1996, respectively.  
    The Company realized a tax benefit of $0.3 million on a pre-tax loss of 
    $0.9 million for the quarter ended March 31, 1997 compared to income tax 
    expense of $1.2 million on pre-tax income of $3.8 million for the same 
    period in 1996.

          EARNINGS PER SHARE (EPS).  Shares used in the calculation of 
    earnings (loss) per share  increased to 21.3 million for the quarter 
    ended March 31, 1997 compared to 20.3 million for the same quarter in 
    1996, resulting in earnings (loss) per share of $(0.03) and $0.13, 
    respectively. The increase in shares was due to option exercises and 1.5 
    million shares of Common Stock issued in the Company's  follow-on public 
    offering in March 1996.  The increase was partially offset by the 
    exclusion of unexercised option shares in the 1997 calculation of EPS, as 
    such shares would be anti-dilutive as a result of the net loss for the 
    current period. 

    LIQUIDITY AND CAPITAL RESOURCES

          The Company generated cash of $1.5 million from operating 
    activities for the quarter ended March 31, 1997 compared to cash used in 
    operations of $0.7 million for the comparable period in 1996.  The 
    increase in cash generated from operations is primarily due to a decline 
    in the Company's accounts receivable.  In the first period of 1996, 
    accounts receivable balances included a significant amount related to 
    customers in the now discontinued transportation and wireless product 
    lines.  As in the past, the Company's operating cash flows in the future 
    may be affected by fluctuating receivable balances.*  The Company's 
    receivables are primarily from large, credit-worthy customers and, as a 
    result, the Company does not anticipate any significant default from a 
    customer's inability to make a payment for products and/or services 
    received.*

          Cash provided by financing activities decreased $27.1 million for 
    the period ended March 31, 1997 to $0.7 million compared to $27.8 million 
    for the same period in 1996.  In the first quarter of 1996, the Company 
    raised funds through a follow-on public offering, with net proceeds of 
    approximately $25.9 million.  During the period ended March 31, 1997, 
    $0.9 million was provided by investing activities compared to $3.1 
    million used in investing activities for the period ended March 31, 1996. 
    The current quarter ended March 31, 1997 included the purchase of $2.1 
    million of marketable securities and $5.9 million of maturities of 
    marketable securities compared to the purchase of $4.0 million of 
    marketable securities and $2.8 million of maturities for the comparable 
    period in 1996.  The net increase in cash provided by such investing 
    activities in 1997 was offset by $3.4 million of cash used for capital 
    expenditures during the first period of 1997 compared to $1.8 million of 
    cash used for capital expenditures for the same period in 1996.  The $1.6 
    million increase in capital expenditures is primarily related to the 
    consolidation of the Company's facilities in Northern California.  The 
    Company expects such expenditures to be significantly lower in the near 
    term.*  The Company currently has no significant commitments for capital 
    expenditures, although management intends to support operational needs as 
    necessary.


_______________________________
*  This statement is a forward-looking statement reflecting current
   expectations.  There can be no assurance that the Company's actual future
   performance will meet the Company's current expectations.  The Company
   strongly encourages review of the section entitled "Factors Affecting
   Operating Results and Market Price of Stock" commencing on page 15 for a
   discussion of factors that could affect future performance.

                                   -14-

<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.

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

                                    -15-

<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 license of the Company's products is often lengthy 
    (averaging approximately nine to twelve months) and subject to a number 
    of significant delays over which the Company has little or no control. In 
    addition, the Company does not recognize service revenues until the 
    services are rendered. The time required to implement the Company's 
    products can vary significantly with the needs of its customers and is 
    generally a process that extends for several months. Because of their 
    complexity, larger implementations may take multiple quarters to 
    complete. From time to time Company has provided services to implement 
    certain large projects, and, although no contractual basis exists for the 
    customer to do so, certain customers have delayed payment of a portion of 
    service fees and in some cases have disputed the fees charged. There can 
    be no assurance the Company will not experience additional delays or 
    disputes regarding payment in the future, particularly if the Company 
    receives orders for large, complex installations. Therefore, the Company 
    believes that its quarterly and annual operating results and financial 
    condition are likely to vary significantly in the future.

    ACCEPTANCE OF THE COMPANY'S PRODUCTS; PRODUCT DEVELOPMENT RISKS

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

                                    -16-

<PAGE>


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

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

    CUSTOMER CONCENTRATION

          To date, a significant portion of the Company's revenues have been 
    concentrated among a limited number of customers. 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.

                                    -17-

<PAGE>

    PRODUCT DEFECTS

          The Company provides complex object-oriented 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 discovered software defects in certain of its products. There 
    can be no assurance that errors will not be found in existing or new 
    products or releases after commencement of commercial licensing, which 
    may result in delay or loss of revenue, loss of market share, failure to 
    achieve market acceptance, or may otherwise adversely impact the 
    Company's business, operating results, and financial condition.

    IMPLEMENTATION RISKS

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

    INTERNATIONAL SALES

          Revenues outside of North America accounted for approximately 70 
    percent of the Company's total revenues for the first quarter of 1997. 
    The Company expects that international revenues will continue to account 
    for a significant portion of its total revenue in future periods. The 
    Company intends to penetrate additional international markets and to 
    further expand its existing international operations. The Company's 
    international business involves a number of inherent risks, including 
    longer receivables collection periods and greater difficulty in accounts 
    receivable collection, difficulty in staffing and managing foreign 
    operations, a longer sales cycle than with domestic customers, 
    potentially unstable political and economic conditions, language 
    barriers, cultural differences in the conduct of business, seasonality 
    due to the slowdown in European business activity during the Company's 
    third fiscal quarter, unexpected changes in regulatory requirements, 
    including a slowdown in the rate of privatization of telecom service 
    providers, reduced protection for intellectual property rights in some 
    countries, potentially adverse tax consequences, tariffs, and other trade 
    barriers. In addition, access to foreign markets is often difficult due 
    to the established relationships between government owned or controlled 
    communications companies and local suppliers of communications products. 
    There can be no assurance the Company will be able to successfully 
    penetrate such foreign markets. In addition, there can be no assurance 
    that the Company will be able to sustain or increase revenue derived from 
    international licensing and services or that the foregoing factors will 
    not have a material adverse effect on the Company's future international 
    business, and consequently, on the Company's business, operating results, 
    and financial condition.

                                    -18-

<PAGE>

          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. 
    Fluctuations in currency exchange rates could cause the Company's 
    products to become relatively more expensive to foreign customers, 
    leading to a reduction in sales or profitability. Furthermore, future 
    international activity may result in foreign currency denominated sales, 
    and, in such event, gains and losses on the conversion to U.S. dollars of 
    accounts receivable and accounts payable arising from international 
    operations may contribute to fluctuations in the Company's operating 
    results. In order to reduce the risk of exchange rate losses from foreign 
    currency denominated sales, the Company may engage in hedging 
    transactions. There can be no assurance that such hedging transactions 
    will not have a material adverse effect on the Company's business, 
    operating results, and financial condition.

    DEPENDENCE ON TELECOMMUNICATIONS CARRIERS; GOVERNMENT REGULATION

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

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

                                    -19-

<PAGE>

    COMPETITION

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

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

                                    -20-

<PAGE>

    RAPID TECHNOLOGICAL CHANGE; NEED TO MANAGE PRODUCT TRANSITIONS

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

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

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

                                    -21-

<PAGE>

    PROTECTION OF INTELLECTUAL PROPERTY

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

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

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

                                    -22-

<PAGE>

          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.

    RISKS ASSOCIATED WITH ACQUISITIONS

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

                                    -23-

<PAGE>

    POTENTIAL VOLATILITY OF STOCK PRICE

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

                                    -24-

<PAGE>

Item 1.  Legal Proceedings

          On November 4, 1996, a securities class action complaint, 
    Copperstone et al. v. TCSI Corporation, et al., No. 0775199-2, was filed 
    in the Superior Court of California, County of Alameda, against the 
    Company and certain of its directors and current and former officers.  
    The complaint alleged that, between October 11, 1995, and September 25, 
    1996, the defendants violated California state law by making false or 
    misleading statements of material fact about the Company's prospects, and 
    by failing to follow certain generally accepted accounting principles.  
    Specifically, the complaint alleged causes of actions for violation of 
    Sections 25400 and 25500 of the California Corporations Code, Sections 
    1709-1710 of the California Civil Code, and Section 17200 of the 
    California Business & Professions Code.  The complaint sought an 
    unspecified amount of damages. Defendants filed a motion to dismiss the 
    claims; in April 1997 the court dismissed with leave to amend as to the 
    Corporations Code and Civil Code claims and the Court dismissed the 
    Business & Professions Code claim with prejudice.  Plaintiffs will file 
    an amended complaint by May 17, 1997.  The Company believes there is no 
    merit to the case and intends to defend the case vigorously.

          On November 20, 1996, a putative shareholder derivative complaint, 
    Tinkler v. Hasler et al. and TCSI Corporation, No. 776206-4, was filed in 
    the Superior Court of California, County of Alameda, against certain 
    officers and directors of the Company and, nominally, against the 
    Company. The derivative complaint is based on the allegations of the 
    Copperstone action, and alleges that, if the individual defendants 
    engaged in the wrongdoing alleged in Copperstone, they also violated 
    their duties to the Company.  Specifically, the derivative complaint 
    alleged causes of action for breach of fiduciary duty, violations of 
    Sections 25402 and 25502.5 of the California Corporations Code, and 
    unjust enrichment.  The derivative complaint sought an unspecified amount 
    of damages, a declaration that the individual defendants violated their 
    duties to the Company, and other remedies purportedly on behalf of the 
    Company.  On March 21, 1997, the Company and the individual defendants 
    demurred to the derivative complaint. The Company believes there is no 
    merit to the case and intends to defend the case vigorously.

                                    -25-

<PAGE>

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
      -----------------------------------------------------------------------
      -----------------------------------------------------------------------
      
           11.1       Statement re: computation of per share
                         earnings                                      28
      
           27         Financial Data Schedule                          29
      

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

      (i)  Press release dated March 10, 1997, "TCSI Appoints Lee Lucca as Vice
           President of Corporate Affairs; Leading Telecom Software
           Solutions Provider Selects Key Executive to Help Manage Migration
           Towards Product-Focused Business."
           
      (ii) Press release dated February 18, 1997, "TCSI Announces
           SolutionsSuites-TM- - The Industry's First Comprehensive Set of
           Field-Proven, Standards-Based, Telecom Management Applications; 
           First Application in Family is Broadband SolutionSuite - Lowering
           Costs and Technology Barriers Associated with Rapidly Introducing
           Applications."
           
      (iii) Press release dated February 3, 1997, "Telecom Leaders to Converge
           at Global TMN Summit  97; Co-Sponsors TCSI and Vertel Welcome Twelve
           Leading Telecom Solutions Providers to Demonstrate Latest TMN
           Solutions at the Conference."
           
      (iv) Press release dated January 29, 1997, "TCSI's SolutionCore-TM-
           Licensed by Anritsu, One of Japan's Largest Equipment
           Manufacturers; Telecom Software Supplier Continues to Broaden its
           Pacific Rim Customer Base."
           
      (v)  Press release dated January 23, 1997, "TCSI Corporation Reports 1996
           Revenues and Earnings."
           
      (vi) Press release dated January 14, 1997, "TCSI Announces 
           SolutionCore-TM- Raising The Bar For Scalability and 
           Interoperability in Telecom Network Management Software; New 
           Software Product From TCSI Is First To Conform To Both CORBA 
           and TMN Standards."
                                           


                                    -26-

<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 9, 1997                /s/ Paul A. Farmer  
------------------------------       ----------------------------------------
               Date                  Paul A. Farmer, Chief Financial Officer, 
                                     Secretary, and Treasurer



                                    -27-