SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

(Mark One)

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

For the quarterly period ended June 30, 2001

                                       or

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

For the transition period from __________________ to __________________

                         Commission file number 0-19377

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

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

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

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

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

Yes   [X]       No   [_]

            23,205,534 shares of common stock of the registrant were
                       outstanding as of August 3, 2001.

<PAGE>

                               TABLE OF CONTENTS

                                                                            Page
                                                                            ----
Part I - Financial Information


Item 1.  Consolidated Financial Statements

         Condensed Consolidated Balance Sheets at
              June 30, 2001 (Unaudited) and December 31, 2000                3

         Consolidated Statements of Operations for the three and six
              Months ended June 30, 2001 and 2000 (Unaudited)                4

         Condensed Consolidated Statements of Cash Flows for the
              Six months ended June 30, 2001 and 2000 (Unaudited)            5

         Notes to Consolidated Financial Statements (Unaudited)              6

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

Item 3.  Market Risk                                                        24


Part II - Other Information


Item 1.  Legal Proceedings                                                  N/A

Item 2.  Changes in Securities                                              N/A

Item 3.  Defaults Upon Senior Securities                                    N/A

Item 4.  Submission of Matters to a Vote of Security Holders                 25

Item 5.  Other Information                                                  N/A

Item 6.  Exhibits and Reports on Form 8-K                                    25

Signature                                                                    26


                                       2
<PAGE>

Part I - Financial Information

Item 1.  Consolidated Financial Statements

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

<TABLE>
<CAPTION>
                                                                                     June 30,    December 31,
                                                                                       2001         2000 *
                                                                                    -----------  ------------
                                                                                    (Unaudited)
<S>                                                                                 <C>            <C>
ASSETS
Current assets:
      Cash and equivalents                                                          $ 10,478       $ 11,886
      Marketable securities                                                           19,602         21,523
      Receivables, net                                                                 2,687          4,827
      Other receivables                                                                  164            191
      Other current assets                                                               938          1,238
                                                                                    --------       --------
           Total current assets                                                       33,869         39,665
Furniture, equipment, and leasehold improvements, net                                  4,493          5,568
Noncurrent equity investment                                                             558            658
Other noncurrent assets                                                                  417            422
                                                                                    --------       --------
              Total assets                                                          $ 39,337       $ 46,313
                                                                                    ========       ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
      Accounts payable and accrued liabilities                                      $  2,501       $  2,777
      Accrued compensation and related costs                                           2,381          2,209
      Deferred revenues                                                                1,691          1,715
      Income taxes payable                                                               355          1,054
                                                                                    --------       --------
           Total current liabilities                                                   6,928          7,755

Shareholders' equity:
      Common stock, par value $0.10 per share; 75,000,000 shares authorized;
           23,205,534 and 23,144,219 shares issued and outstanding, at June 30,
           2001 and December 31, 2000, respectively                                    2,320          2,314
      Additional paid-in capital                                                      52,753         52,654
      Accumulated other comprehensive income                                              10             21
      Accumulated deficit                                                            (22,674)       (16,431)
                                                                                    --------       --------
           Total shareholders' equity                                                 32,409         38,558
                                                                                    --------       --------
              Total liabilities and shareholders' equity                            $ 39,337       $ 46,313
                                                                                    ========       ========
</TABLE>

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


          See accompanying notes to consolidated financial statements.


                                       3
<PAGE>

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

<TABLE>
<CAPTION>
                                                        Three Months Ended       Six Months Ended
                                                             June 30,               June 30,
                                                     --------------------------------------------
                                                       2001        2000        2001        2000
                                                     --------    --------    --------    --------
<S>                                                  <C>         <C>         <C>         <C>
Revenues:
     Services                                        $  2,004    $  3,014    $  3,590    $  6,304
     Software licensing fees                              760       2,426       2,827       4,483
                                                     --------    --------    --------    --------
          Total revenues                                2,764       5,440       6,417      10,787

Costs, expenses, and special items:
     Services                                           1,420       2,416       3,056       4,763
     Product development                                1,751       2,201       3,944       5,570
     Selling, general, and administrative               3,417       3,550       6,303       6,733
     Nonrecurring special items, net                      562        --           562         364
                                                     --------    --------    --------    --------
          Total costs, expenses, and special items      7,150       8,167      13,865      17,430
                                                     --------    --------    --------    --------
Loss from operations                                   (4,386)     (2,727)     (7,448)     (6,643)
Interest income and other income (expense), net           362         544         743       1,048
                                                     --------    --------    --------    --------
Loss before income tax benefit                         (4,024)     (2,183)     (6,705)     (5,595)
Income tax benefit                                        615        --           462        --
                                                     --------    --------    --------    --------
Net loss                                             $ (3,409)   $ (2,183)   $ (6,243)   $ (5,595)
                                                     ========    ========    ========    ========
Net loss per share - basic and diluted               $  (0.15)   $  (0.09)   $  (0.27)   $  (0.24)
                                                     ========    ========    ========    ========
Shares used in computing basic and diluted net
per share                                              23,206      23,054      23,195      22,965
                                                     ========    ========    ========    ========
</TABLE>


          See accompanying notes to consolidated financial statements.


                                       4
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                    Six Months Ended
                                                                                         June 30,
                                                                                   --------------------
                                                                                     2001        2000
                                                                                   --------    --------
<S>                                                                                <C>         <C>
Cash flows from operating activities:
    Net loss                                                                       $ (6,243)   $ (5,595)
    Adjustments to reconcile net loss to net cash (used in) provided by
     operating activities:
         Depreciation and amortization                                                1,205       2,273
         Gain on disposal of fixed assets
                                                                                         --         (10)

         Compensation charge associated with grant of stock options to employees         20          45
         Write-down of noncurrent equity investment for other than temporary
              decline in value
                                                                                        100          --
         Net changes in operating assets and liabilities:
             Receivables, net                                                         2,140       7,850
             Other receivables, other current assets and other
                  noncurrent assets, net                                                332          99
             Accounts payable and accrued liabilities                                  (276)       (914)
             Accrued compensation and related costs                                     172         111
             Deferred revenues                                                          (24)       (450)
             Income taxes payable                                                      (699)        440
                                                                                   --------    --------
               Net cash (used in) provided by operating activities                   (3,273)      3,849

Cash flows from investing activities:
    Expenditures for furniture, equipment and leasehold improvements                   (129)       (369)
    Purchases of marketable securities                                               (7,684)     (3,012)
    Redemptions of marketable securities                                              9,593      10,624
                                                                                   --------    --------
               Net cash provided by investing activities                              1,780       7,243

Cash flows from financing activity:
      Proceeds from issuance of common stock                                             85       1,175
Net (decrease) / increase in cash and equivalents                                    (1,408)     12,267
Cash and equivalents at the beginning of the period                                  11,886       8,788
                                                                                   --------    --------
Cash and equivalents at the end of the period                                      $ 10,478    $ 21,055
                                                                                   ========    ========
</TABLE>


          See accompanying notes to consolidated financial statements.


                                       5
<PAGE>

                                TCSI CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



NOTE 1 - BASIS OF PRESENTATION

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

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

NOTE 2 - RECEIVABLES AND CREDIT RISK

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

     Receivables consist of the following:

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

     Billed receivables                             $ 2,008       $ 3,604
     Unbilled receivables                             1,294         1,838
     Less: allowance for doubtful accounts             (615)         (615)
                                                    -------       -------
                                                    $ 2,687       $ 4,827
                                                    =======       =======

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

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


                                       6
<PAGE>

                                TCSI CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

                                   (Continued)

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

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

Computer equipment                                $ 20,122       $ 20,011
Furniture and fixtures                               4,253          4,253
Leasehold improvements                               7,107          7,089
                                                  --------       --------
                                                    31,482         31,353
Less: accumulated depreciation and amortization    (26,989)       (25,785)
                                                  --------       --------
                                                  $  4,493       $  5,568
                                                  ========       ========
NOTE 4 - INCOME TAXES

     Due to  uncertainties  regarding  the amount  and timing of future  taxable
income,  the Company,  as of June 30, 2001 and  December  31,  2000,  had no net
deferred  tax  assets due to the  establishment  of a full  valuation  allowance
against  its  deferred  tax  assets.  In  addition,  due to TCSI  agreeing  to a
settlement  with the  Internal  Revenue  Service  related to a  previous  year's
federal  income tax audit,  the Company  reversed $0.7 million of federal income
tax  liability  in June of 2001,  resulting  in a net income tax benefit for the
three and six months ended June 30, 2001.


                                       7
<PAGE>

                                TCSI CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

                                   (Continued)

NOTE 5 - NET LOSS PER SHARE

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

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

<TABLE>
<CAPTION>
                                                      Three Months Ended      Six Months Ended
                                                           June 30,                June 30,
                                                     --------------------    --------------------
                                                       2001        2000        2001        2000
                                                     --------    --------    --------    --------
                                                        (In thousands, except per share amounts)
<S>                                                  <C>         <C>         <C>         <C>
Numerator
   Numerator for basic net loss per share            $ (3,409)   $ (2,183)   $ (6,243)   $ (5,595)
                                                     ========    ========    ========    ========

Denominator
  Denominator for basic and diluted loss per share
    -- weighted average common shares                  23,206      23,054      23,195      22,965
                                                     ========    ========    ========    ========
  Net loss per share-basic and diluted               $  (0.15)   $  (0.09)   $  (0.27)   $  (0.24)
                                                     ========    ========    ========    ========
</TABLE>

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


                                       8
<PAGE>

                                TCSI CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

                                   (Continued)

NOTE 6 - COMPREHENSIVE LOSS

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

<TABLE>
<CAPTION>
                                                         Three Months Ended     Six Months Ended
                                                              June 30,              June 30,
                                                         ------------------    ------------------
                                                           2001       2000       2001       2000
                                                         -------    -------    -------    -------
                                                                      (In thousands)
<S>                                                      <C>        <C>        <C>        <C>
Net loss                                                 $(3,409)   $(2,183)   $(6,243)   $(5,595)
Unrealized (losses) / gains on marketable securities         (11)        30        (11)        31
                                                         -------    -------    -------    -------
Comprehensive loss                                       $(3,420)   $(2,153)   $(6,254)   $(5,564)
                                                         =======    =======    =======    =======
</TABLE>


                                       9
<PAGE>

                                TCSI CORPORATION

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

                                   (Continued)


     In addition to historical  information  contained herein, this Management's
Discussion  and  Analysis  of  Financial  Condition  and  Results of  Operations
contains forward-looking  statements.  The forward-looking  statements contained
herein are subject to certain  factors that could cause actual results to differ
materially from those reflected in the forward-looking  statements. Such factors
include,  but are not limited to, those discussed  below under "Certain  Factors
That May Affect  Future  Results And Market Price Of Stock" and in the Company's
Form 10-K for the fiscal year ended December 31, 2000.

Overview

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

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


                                       10
<PAGE>

                                TCSI CORPORATION

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

                                   (Continued)


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

     The  licensing  and  implementation  of  the  Company's  software  products
generally   involve  a  significant   commitment  of  resources  by  prospective
customers.  As a result,  the  Company's  sales  process  is  subject  to delays
associated  with  lengthy  approval   processes   typically   accompanying  such
significant  capital  expenditures.  Accordingly,  the Company is  substantially
dependent on its customers' decisions as to the timing and level of expenditures
and resource  commitments.  The  variability in the timing of such  expenditures
could cause material  fluctuations in the Company's business,  operating results
and financial  condition.  In this regard, the consistency of the Company's 2001
and 2000 quarterly results for the three and six months ended June 30, have been
adversely  affected by delays in the  purchase of software  licenses and related
services.

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

     Backlog and Bookings.  At June 30, 2001, the Company's  backlog amounted to
approximately  $10.8  million  compared to  approximately  $5.3 million and $5.8
million at March 31, 2001 and December 31, 2000, respectively.  During the three
months ended June 30, 2001,  contract  bookings  amounted to approximately  $8.3
million  (representing  the highest contract  bookings in two years) compared to
$4.3 million for the three  months  ended June 30, 2000,  and for the six months
ended June 30, 2001,  contract bookings amounted to approximately  $11.4 million
compared to $9.6  million for the six months  ended June 30,  2000.  The Company
estimates that  approximately $3.9 million included in the June 30, 2001 backlog
amount is not expected to be realized within the next twelve months.


                                       11
<PAGE>

                                TCSI CORPORATION

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

                                   (Continued)


Results of Operations

     Revenues.  The Company  generates  revenues  from  licensing  its  software
products and performing related services to the telecom industry. Total revenues
for the three months ended June 30, 2001  decreased  48% to $2.8  million,  from
$5.4 million for the comparable  2000 period.  Total revenues for the six months
ended June 30, 2001  decreased 41% to $6.4  million,  from $10.8 million for the
comparable 2000 period. The decline in total revenues was the result of declines
in service revenues and software licensing fee revenues described below.

     Revenues from  services for the three months ended June 30, 2001  decreased
33% to $2.0 million, from $3.0 million for the comparable 2000 period.  Revenues
from  services  for the six months  ended June 30,  2001  decreased  43% to $3.6
million,  from $6.3 million for the  comparable  2000 period.  The decreases for
both periods resulted primarily from the completion of several major projects in
2000, which were not replaced in 2001. Revenues from software licensing fees for
the three months ended June 30, 2001  decreased 67% to $0.8  million,  from $2.4
million for the comparable  2000 period.  Revenues from software  licensing fees
for the six months ended June 30, 2001 decreased 38% to $2.8 million,  from $4.5
million  for the  comparable  2000  period.  Due to the fact  that the  software
licensing fee revenues for the first quarter of 2001  approximated  the software
licensing  fee revenues for the first  quarter of 2000,  the  decreases for both
periods were primarily attributable to the $1.3 million, one-time royalty earned
from one customer during the second quarter of 2000.

     Revenues  outside of the United  States  accounted for 54% of the Company's
total  revenues for the three months ended June 30, 2001 compared to 61% for the
comparable 2000 period.  Revenues outside of the United States accounted for 58%
of the Company's  total revenues for the six months ended June 30, 2001 compared
to 60% for the comparable period.  Revenues from the Asia-Pacific region for the
three  months  ended June 30,  2001  decreased  67% to $0.8  million,  from $2.4
million for the comparable 2000 period.  Revenues from the  Asia-Pacific  region
for the six months ended June 30, 2001 decreased 47% to $1.9 million,  from $3.6
million for the  comparable  2000 period.  The  decreases  for both periods were
primarily due to the $1.3  million,  one-time  royalty  earned from one customer
during the second  quarter of 2000.  Revenues  from the European  region for the
three  months  ended June 30,  2001  decreased  22% to $0.7  million,  from $0.9
million for the  comparable  2000  period.  The  decrease  was the result of the
discontinuance  of one major  customer's  professional  service  revenues in the
current quarter,  the discontinuance of a maintenance contract for another major
customer  in the second  quarter of 2001,  and the  downgrading  of the level of
maintenance  support for a third major  customer  during the three  months ended
June 30, 2001.  Revenues from the European  region for the six months ended June
30, 2001  decreased  36% to $1.8 million,  from $2.8 million for the  comparable
2000 period.  The decrease was due to the combined  reasons of the completion of
several  major   projects  in  2000  without   follow-on   work  in  2001,   the
discontinuance  of one  customer's  service  revenues  and a  second  customer's
maintenance  revenues  in  the  current  quarter,  and  the  downgrading  of one
customer's  maintenance  support in the  second  quarter  of the  current  year.
Revenues  from the Americas  for the three months ended June 30, 2001  decreased
38% to $1.3  million,  from $2.1 million for the  comparable  2000  period.  The
decline was due to the  discontinuance of professional  consulting  services for
two major  customers in the second  quarter of 2001.  Revenues from the Americas
for the six months ended June 30, 2001 decreased 39% to $2.7 million,  from $4.4
million for the  comparable  2000  period.  The  decrease  was the result of the
combined  reasons of the  decline  in  professional  services  work in the first
quarter of 2001 due to that customer's severe financial hardships,  the decrease
in  maintenance  revenues  in the  first  quarter  of 2001 for two  other  major
customers due to the deferral of their renewal contracts to future periods,  and
the  discontinuance  of two  customers'  professional  services  in the  current
quarter.  The Company  expects  that  international  revenues  will  continue to
account for a  significant  portion of its total  revenue in future  periods and
expects the  geographical  mix of revenues to vary from period to period,  as it
responds  to  global  buying  habits  and  develops  relationships  with new and
existing partners and channels.


                                       12
<PAGE>

                                TCSI CORPORATION

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

                                   (Continued)


     To date, a portion of revenues has been concentrated among a limited number
of customers. Two customers each individually accounted for more than 10% of the
Company's  revenue  during the three months  ended June 30,  2001,  with NEC and
Italtel contributing 27% and 22% of total revenues,  respectively. For the three
and six months  ended June 30,  2001,  the  concentration  of revenues  from the
Company's  five largest  customers in aggregate  was 76% and 72%,  respectively,
compared to 70% and 57% for the comparable 2000 periods. The Company anticipates
that it will continue to experience  significant customer  concentration.  There
can be no assurance that such customers or any other  customers will continue to
place orders with the Company equal or exceeding the comparable levels for prior
periods.  (See "Certain  Factors That May Affect Future Results and Market Price
of Stock - Customer Concentration" section.)

     Costs of Services.  The Company incurs direct costs in the  development and
deployment of its customers' software solutions.  The major components of direct
costs are employee  compensation,  subcontractor fees, training costs, and other
billable direct costs,  including travel expenses.  Direct costs also include an
allocation for benefits,  facilities,  telephone  expenses,  information systems
support,  depreciation,  and amortization of intangibles.  Costs of services for
the three months ended June 30, 2001  decreased 42% to $1.4  million,  from $2.4
million for the  comparable  2000  period.  Costs of services for the six months
ended June 30, 2001  decreased  35% to $3.1  million,  from $4.8 million for the
comparable  2000  period.  The  decreases  for both  periods were due to reduced
headcount and related expenses, and to the implementation of strong cost control
procedures  in the current and prior  quarter.  Included in the first quarter of
the current year, was a $100,000  one-time charge incurred in January related to
the write-off of license fees.  Had this charge not occurred,  costs of services
for the six months ended June 30, 2001 would have  decreased 38% compared to the
comparable 2000 period. As a percentage of service  revenues,  costs of services
for the three months ended June 30, 2001 were 70% of service  revenues  compared
to 80% of service  revenues for the comparable  2000 period.  As a percentage of
service revenues,  costs of services for the six months ended June 30, 2001 were
86% of service  revenues  compared to 76% of service revenues for the comparable
2000  period.  The cost of  service  percentage  may  fluctuate  from the second
quarter 2001 level as existing and future  customers  increase or decrease their
development efforts.

     Product   Development.   Product  development   expenses  include  employee
compensation,  subcontractor fees, training costs, and other product development
costs for existing and  potential new  products,  along with an  allocation  for
benefits,  facilities,  telephone  expenses,  information  systems support,  and
depreciation.  For the three months ended June 30,  2001,  the Company  invested
$1.8  million,  or 64% of revenues,  in  internally-funded  product  development
compared with $2.2  million,  or 41% of revenues for the three months ended June
30,  2000.  For the six months ended June 30, 2001,  the Company  invested  $3.9
million, or 61% of revenues,  in internally-funded  product development compared
with $5.6  million,  or 52% of revenues  for the six months ended June 30, 2000.
During the second quarter of 2001,  product  development  spending decreased 18%
compared  to the second  quarter  of 2000 and for the six months  ended June 30,
2001, product development spending decreased 30% compared to the comparable 2000
period. The decreases in product development  expenses in 2001 was due primarily
to management's  expense reduction  efforts,  resulting in both staff reductions
related to the  IncomeConnect  product line and a decrease in the related  costs
associated with the reduced headcount. The Company expects to continue to invest
in new component-based  applications.  There can be no assurance,  however, that
the  Company's  product  development  spending  will  result  in the  successful
introduction of new products.

     Selling,  General,  and Administrative  Expenses.  Selling expenses include
sales and marketing,  employee compensation,  promotional material, trade shows,
travel, and facilities  expenses.  General and  administrative  expenses include
compensation costs related to executive management,  finance, and administrative
personnel along with the other administrative costs including recruiting,  legal
and  accounting  fees,  insurance,  and bad debt expense.  Selling,  general and
administrative expenses for the three months


                                       13
<PAGE>

                                TCSI CORPORATION

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

                                   (Continued)


ended June 30, 2001  decreased  6% to $3.4  million,  from $3.6  million for the
comparable 2000 period. Selling, general and administrative expenses for the six
months ended June 30, 2001 also declined 6% to $6.3  million,  from $6.7 million
for the  comparable  2000 period.  The  decreases for both periods were due to a
combination  of reductions in employee  headcount and related  personnel  costs,
lower rent expense in 2001 compared to 2000 resulting from the  consolidation of
the  Company's  operations,  and a  decline  in  amortization  costs  due to the
December 2000 write-off of the intangible  assets and goodwill  associated  with
the acquisition of GTE-NMO, as a result of impairment.  In an on-going effort to
reduce  expenses  and focus its  operations,  the  Company  closed its  Bothell,
Washington  office in early April of 2001. The facility had primarily  supported
the  WorldWin  product  line,  which TCSI  transitioned  away from in the fourth
quarter of 2000, due primarily to its poor historical results.  In addition,  to
further  reduce  costs,  in the second and third  quarters of 2001,  the Company
subleased out the third and fourth floors, respectively, of its primary business
location  in  Alameda.   Selling,  general  and  administrative  expenses  as  a
percentage  of revenues  for the three  months  ended June 30, 2001 were 121% of
revenues,  compared to 67% of revenues for the comparable 2000 period.  Selling,
general and  administrative  expenses as a  percentage  of revenues  for the six
months ended June 30, 2001 were 98% of revenues, compared to 62% of revenues for
the comparable 2000 period. The increase in selling, general, and administrative
expenses  as a  percentage  of  revenues  in 2001  resulted  primarily  from the
reduction  of such  costs at a rate  less than  that of the  reduction  in total
revenues.

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

     Income Tax Benefit.  For the three and six months ended June 30, 2001,  the
Company  recorded  net income tax  benefits of $0.6  million  and $0.5  million,
respectively,  primarily as a result of TCSI  agreeing to a settlement  with the
Internal  Revenue  Service in June,  related to a previous year's federal income
tax audit.  For the three and six  months  ended  June 30,  2000,  no income tax
benefit or provision was recorded by the Company.

Liquidity and Capital Resources

Operating Activities

     Net cash used in operating  activities  was $3.3 million for the six months
ended June 30, 2001  compared to net cash  provided by operating  activities  of
$3.8 million for the comparable  2000 period.  The decrease in net cash provided
by  operations  was  principally  the result of the  decline in  collections  of
accounts  receivable in 2001 compared to collections of accounts  receivable for
the comparable 2000 period,  due to the decrease in revenues,  and reductions in
accounts payable and income taxes payable.  The $0.7 million net decrease in the
latter  category  was  principally  the  result  of the  Company  agreeing  to a
settlement with the Internal Revenue Service in the current quarter related to a
previous year's federal income tax audit.


                                       14
<PAGE>

                                TCSI CORPORATION

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

                                   (Continued)


Investing Activities

     Net cash  provided by  investing  activities  was $1.8  million for the six
months ended June 30, 2001 compared to net cash provided by investing activities
of $7.2 million for the comparable 2000 period. During the six months ended June
30, 2001, the purchases of marketable securities were $7.7 million,  compared to
$3.0 million of marketable  securities  for the  comparable  2000 period and the
redemptions of marketable  securities  during the six months ended June 30, 2001
were $9.6 million  compared to $10.6  million of marketable  securities  for the
comparable 2000 period.

Financing Activities

     Net cash  provided by  financing  activities  was $0.1  million for the six
months  ended June 30, 2001  compared to $1.2  million for the  comparable  2000
period. The decrease was the result of decreased stock purchases pursuant to the
Company's  Employee  Stock  Purchase Plan  ("ESPP"),  and the result of no stock
option  exercises for the six months ended June 30, 2001, which is a function of
market conditions and investment decisions made by employees.  The proceeds from
ESPP  purchases  for the six  months  ended  June 30,  2001 were  $0.1  million,
compared to proceeds  from stock  option  exercises  and ESPP  purchases of $1.0
million and $0.2 million, respectively, for the comparable 2000 period.

Additional Information on Liquidity and Capital Resources

     As of June 30, 2001,  the Company had cash and  equivalents  and short-term
marketable  securities  of  $30.1  million,  which  was a $3.3  million,  or 10%
decrease,  from the balance of $33.4  million at December 31, 2000.  The Company
believes that existing cash balances  (including cash equivalents and marketable
securities),  together with existing sources of liquidity,  including cash flows
from operating activities, will provide adequate cash to fund its operations for
at least the next twelve months.

     As of June 30, 2001, the Company had no outstanding debt.

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

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


                                       15
<PAGE>

                                TCSI CORPORATION

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

                                   (Continued)


Potential Fluctuations in Future Operating Results

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

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

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

Lengthy Sales and Implementation Cycles

     The Company's  products are typically intended for use in applications that
may be critical to a customer's  business.  The licensing and  implementation of
the Company's software products  generally involves a significant  commitment of
resources by prospective  customers.  Historically,  the Company's sales process
has been subject to delays  associated  with  lengthy  approval  processes  that
typically accompany  significant capital  expenditures.  However,  the Company's
latest  products  are  intended to reduce the time and  resources  required  for
delivery to customers,  and,  therefore reduce the sales cycle.  Still, the time
required to implement the  Company's  products can vary  significantly  with the
needs of its  customers  and is  generally  a process  that  extends for several
months.  Because of their complexity,  larger  implementations may take multiple
quarters to complete.  From time to time,  the Company has provided  services to
implement certain large projects,  and, 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.


                                       16
<PAGE>

                                TCSI CORPORATION

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

                                   (Continued)


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

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

Customer Concentration

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

Product Defects

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


                                       17
<PAGE>

                                TCSI CORPORATION

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

                                   (Continued)


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

Implementation Risks

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

International Sales

     Revenues   outside  of  the  United  States  accounted  for  54%  and  58%,
respectively, of the Company's total revenues for the three and six months ended
June 30, 2001. The Company expects that international  revenues will continue to
account for a significant  portion of its total revenues in future periods.  The
Company  intends to penetrate  additional  international  markets and to further
expand  its  existing  international  operations.  The  Company's  international
business involves a number of inherent risks,  including  greater  difficulty in
accounts  receivable  collection  and,  therefore,  longer  accounts  receivable
collection periods;  difficulty in staffing and managing foreign  operations;  a
longer sales cycle than with domestic customers;  potentially unstable political
and economic conditions;  language barriers; cultural differences in the conduct
of  business;  seasonality;   unexpected  changes  in  regulatory  requirements,
including a slowdown in the rate of privatization of telecom service  providers;
reduced   protection  for  intellectual   property  rights  in  some  countries;
potentially adverse tax consequences;  tariffs and other trade barriers.  Access
to  foreign  markets is often  difficult  due to the  established  relationships
between  government  owned or  controlled  communications  companies  and  local
suppliers of communications products. There can be no assurance the Company will
be able to successfully  penetrate such foreign markets. In addition,  there can
be no assurance  that the Company  will be able to sustain or increase  revenues
derived from international  licensing and services or that the foregoing factors
will not have a material  adverse effect on the Company's  future  international
business,  and consequently,  on the Company's business,  operating results, and
financial condition.

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


                                       18
<PAGE>

                                TCSI CORPORATION

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

                                   (Continued)


Dependence on Telecommunications Carriers; Government Regulation

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

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

Competition

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

     The Catalant  product  competes in the equipment  manufacturer  and service
provider markets,  providing solutions for next generation telecom  applications
and platforms.  The Company  competes with numerous  vendors in the OEM, SFS and
SQM  Catalant  product  category.  TCSI  expects  that  the  overall  number  of
competitors providing next generation network solutions will increase due to the
market's attractive growth. On the other hand, the Company expects the number of
vendors  supplying OSS solutions for basic  telephone  services  solutions  will
decrease,  due to  maturity of this  market and the rapid  introduction  of more
cost-effective technologies.

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

     The Company also faces  competition in each of the three  functional  areas
that the Company  believes are necessary for the delivery of network  management
software solutions: development environments, turnkey


                                       19
<PAGE>

                                TCSI CORPORATION

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

                                   (Continued)


applications  and custom services.  The Company's  Catalant product lines enable
the Company to provide its customers with  development  environments and turnkey
applications,  as well as custom  services.  Because  certain  of the  Company's
competitors  focus only on one functional  area,  such  competitors  may be in a
position to develop  competitive  products  targeted  solely at the segment they
serve.

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

Rapid Technological Change; Need to Manage Product Transitions

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

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

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


                                       20
<PAGE>

                                TCSI CORPORATION

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

                                   (Continued)

Protection of Intellectual Property

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

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

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

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


                                       21
<PAGE>

                                TCSI CORPORATION

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

                                   (Continued)


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 experienced  changes in management in the second quarter
of 2001.  In June  2001,  the  Company  hired a new  Vice  President  of  Global
Marketing  after the  position was vacated in April 2001.  In addition,  in July
2001,  the  position of Corporate  Controller  was filled.  Competition  for the
hiring of such personnel in the software  industry is intense,  and there can be
no assurance  that the Company will be  successful in locating  candidates  with
appropriate  qualifications.  Failure to attract and retain key personnel  could
have a material adverse effect on the Company's business, operating results, and
financial condition.

Risks Associated with Acquisitions

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

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

Volatility of Stock Price

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


                                       22
<PAGE>

                                TCSI CORPORATION

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

                                   (Continued)


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.


                                       23
<PAGE>

                                TCSI CORPORATION

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

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


                                       24
<PAGE>

                                TCSI CORPORATION

Part II - Other Information

Item 4. Submission of Matters to Vote of Security Holders

     An annual meeting of shareholders was held at the Company's headquarters in
Alameda,  California,  on May 10, 2001. The following matters were voted upon by
the shareholders:

     1) The following  persons,  who were the only nominees for directors,  were
re-elected  as  directors  of the Company to hold  office  until the next annual
meeting or until  their  respective  successors  are  elected or  appointed  and
received the following number of votes:

                                              For       Withheld
                                           ----------   ---------
               John C. Bolger              19,313,364   1,757,483
               Norman E. Friedmann, Ph.D   19,313,214   1,757,633
               Donald Green                19,313,364   1,757,483
               William A. Hasler           19,313,214   1,757,633
               Yasushi Furukawa            16,213,489   4,857,358

     2) A proposal to approve the adoption of the 2001 Stock  Incentive Plan for
the Company was approved by the  shareholders.  The following votes were cast as
to such proposal: For: 4,770,193; Against: 2,241,918; Abstain: 47,440.

     3) A proposal to ratify the appointment of Ernst & Young LLP as independent
auditors  for the  Company  for the fiscal  year  ending  December  31, 2001 was
approved by the shareholders. The following votes were cast as to such proposal:
For: 20,919,498; Against: 124,492; Abstain: 26,857.

Item 6. Exhibits and Reports on Form 8-K

(a)  The following exhibit is filed herewith:

        Exhibit No.     Description
        -----------     -----------

        10.34           Sublease between eiStream,  Inc. and the Company,  dated
                        May 25, 2001, concerning the sublease of the third floor
                        of the  Company's  facilities  located  at  1080  Marina
                        Village Parkway, Alameda, California.

        10.35           Sublease between METRO PCS and the Company, dated August
                        4, 2001,  concerning the sublease of the fourth floor of
                        the Company's  facilities located at 1080 Marina Village
                        Parkway, Alameda, California.

(b)  Reports on Form 8-K.

     There were no reports on Form 8-K filed  during the three months ended
     June 30, 2001.


                                       25
<PAGE>

                                TCSI CORPORATION

SIGNATURE

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

                              TCSI CORPORATION
                              (Registrant)

August 13, 2001               By: /s/ Kenneth E. Elmer
                                  --------------------
                              Kenneth E. Elmer
                              Chief Financial Officer, Secretary, and Treasurer
                              (Principal Financial Officer and Principal
                                  Accounting Officer)


                                       26