UNITED STATES
                       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, 1998

                                       or

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

For the transition period from __________________ to __________________

Commission file number  0-19377

                                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
     ---------           ---------

     22,349,832  shares of Common Stock of the Registrant were outstanding as of
July 31, 1998.


<PAGE>


                                TABLE OF CONTENTS


                                                                            Page

Part I - Financial Information
------------------------------

Item 1.  Consolidated Financial Statements

         Consolidated Balance Sheets at
              June 30, 1998 (Unaudited) and December 31, 1997..................3

         Consolidated Statements of Operations for the three and
              six months ended June 30, 1998 and 1997 (Unaudited)..............4

         Consolidated Statements of Cash Flows for the
              six months ended June 30, 1998 and 1997 (Unaudited)..............5

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

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations..................................12

Part II - Other Information
---------------------------

Item 1.  Legal Proceedings....................................................25

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..................26

Item 5.  Other Information....................................................26

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

Signature.....................................................................28



<PAGE>


Part I - Financial Information
Item 1.  Consolidated Financial Statements

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

<TABLE>
<CAPTION>
                                                                                   June 30,      December 31,
                                                                                     1998            1997
                                                                                 ------------    ------------
                                                                                  (Unaudited)
<S>                                                                              <C>             <C>
ASSETS
Current assets:
     Cash and cash equivalents                                                   $     33,024    $     33,566
     Marketable securities                                                             19,219          20,301
     Receivables                                                                        8,213          11,803
     Other receivables                                                                    839             682
     Deferred tax assets                                                                2,164           2,164
     Other current assets                                                                 800             925
                                                                                 ------------    ------------
         Total current assets                                                          64,259          69,441
Furniture, equipment and leasehold improvements, net                                    9,033          10,165
Noncurrent marketable securities                                                        7,975           1,600
Noncurrent deferred tax assets                                                          1,971           2,297
Other assets                                                                              728             728
                                                                                 ------------    ------------
                                                                                 $     83,966    $     84,231
                                                                                 ============    ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
     Accounts payable                                                            $      1,955    $      2,410
     Accrued liabilities                                                                4,004           2,880
     Deferred revenue                                                                   1,196           3,640
     Income taxes payable                                                                 866           1,153
                                                                                 ------------    ------------
         Total current liabilities                                                      8,021          10,083
                                                                                 ------------    ------------

Shareholders' equity:
     Preferred Stock, par value $0.01 per share;
         5,000,000 shares authorized; none issued
         and outstanding                                                                   --              --
     Common Stock, par value $0.10 per share;
         75,000,000 shares authorized; 22,330,798
         and 22,135,949  shares issued and
         outstanding,  at June 30, 1998 and
         December 31, 1997, respectively                                                2,233           2,214
     Additional paid-in capital                                                        50,172          49,133
     Accumulated other comprehensive loss                                                (392)           (126)
     Retained earnings                                                                 23,932          22,927
                                                                                 ------------    ------------
         Total shareholders' equity                                                    75,945          74,148
                                                                                 ------------    ------------
                                                                                 $     83,966        $ 84,231
                                                                                 ============    ============
</TABLE>

          See accompanying notes to consolidated financial statements.

<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,
                                                                                     --------------------    -------------------
                                                                                       1998        1997        1998        1997
                                                                                     --------    --------    --------    --------
<S>                                                                                  <C>         <C>         <C>         <C>
Revenues:
     Services                                                                        $  8,640    $  9,055    $ 16,771    $ 16,858
     Software licensing fees                                                            2,499         449       5,373       2,480
                                                                                     --------    --------    --------    --------
          Total revenues                                                               11,139       9,504      22,144      19,338
                                                                                     --------    --------    --------    --------

Costs, expenses, and special items:
     Services                                                                           5,056       5,139       9,614      10,282
     Product development                                                                2,902       1,361       5,445       2,813
     Selling, general and administrative                                                3,698       4,306       7,508       8,874
     Nonrecurring special items                                                          (550)        818        (550)      1,088
                                                                                     --------    --------    --------    --------
          Total costs, expenses, and special items                                     11,106      11,624      22,017      23,057
                                                                                     --------    --------    --------    --------

Income (loss) from operations                                                              33      (2,120)        127      (3,719)

Interest income                                                                           782         729       1,548       1,478
                                                                                     --------    --------    --------    --------
Income (loss) before income tax provision (benefit)                                       815      (1,391)      1,675      (2,241)
Income tax provision (benefit)                                                            326        (472)        670        (761)
                                                                                     --------    --------    --------    --------
Net income (loss)                                                                    $    489    $   (919)   $  1,005    $ (1,480)
                                                                                     ========    ========    ========    ========

Basic earnings (loss) per share                                                      $   0.02    $  (0.04)   $   0.04    $  (0.07)
                                                                                     ========    ========    ========    ========
Weighted-average common shares                                                         22,312      21,327      22,266      21,335
                                                                                     ========    ========    ========    ========
Diluted earnings (loss) per share                                                    $   0.02    $  (0.04)   $   0.04    $  (0.07)
                                                                                     ========    ========    ========    ========
Dilutive potential common shares                                                       22,516      21,327      22,605      21,335
                                                                                     ========    ========    ========    ========

</TABLE>

          See accompanying notes to consolidated financial statements.


<PAGE>



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

<TABLE>
<CAPTION>
                                                                                        Six Months Ended
                                                                                             June 30,
                                                                               ------------------------------
                                                                                  1998                1997
                                                                               ----------          ----------
   <S>                                                                         <C>                 <C>

   Cash flows from operating activities:
        Net income (loss)                                                      $    1,005          $   (1,480)
        Adjustments to reconcile net income (loss) to net cash provided by
          operating activities:
            Depreciation and amortization                                           1,951               1,755
            Deferred tax assets                                                       326              (1,816)
            Changes in assets and liabilities:
                      Receivables                                                   3,590               3,707
                      Other receivables                                              (157)               (810)
                      Other current assets                                            125               1,048
                      Accounts payable                                               (455)             (2,594)
                      Accrued liabilities                                           1,124              (1,548)
                      Deferred revenue                                             (2,444)                 --
                      Income taxes payable                                           (287)              3,981
                                                                               ----------          ----------
                     Net cash provided by operating activities                      4,778               2,243
                                                                               ----------          ----------

   Cash flows from investing activities:
        Capital and leasehold improvement expenditures, net                          (916)             (5,329)
        Purchases of marketable securities                                        (21,237)             (9,090)
        Maturities and sales of marketable securities                              15,944              11,500
        Decrease in other noncurrent assets                                             _                 595
                                                                               ----------          ----------
                     Net cash used in investing activities                         (6,209)             (2,324)
                                                                               ----------          ----------

   Cash flows from financing activities:
        Proceeds from issuance of Common Stock                                      1,057                 752
                                                                               ----------          ----------
                     Net cash provided by financing activities                      1,057                 752
                                                                               ----------          ----------
   Effect of exchange rate changes on cash and cash equivalents                      (168)                (86)
                                                                               ----------          ----------
   Net change in cash and cash equivalents                                           (542)                585
   Cash and cash equivalents at the beginning of the period                        33,566              30,880
                                                                               ----------          ----------
   Cash and cash equivalents at the end of the period                          $   33,024          $   31,465
                                                                               ==========          ==========

   Supplemental disclosures of cash flow information:
   Cash paid (refunds received) during the period for income taxes             $      630          $   (2,928)
                                                                               ==========          ==========

</TABLE>

          See accompanying notes to consolidated financial statements.

<PAGE>

                                TCSI CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

         In the opinion of the  management  of TCSI  Corporation  ("TCSI" or the
"Company"),  the unaudited  consolidated  interim financial  statements included
herein have been  prepared on the same basis as the  December  31, 1997  audited
consolidated  financial  statements and include all  adjustments,  consisting of
normal recurring  adjustments,  necessary for a fair presentation of the interim
period  results.  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, 1997  included in the  Company's  Annual
Report on Form 10-K (File No. 0-19377).

         The  preparation of financial  statements in conformity  with generally
accepted  accounting  principles  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 from those estimates.

Recent Accounting Pronouncements

         In June 1997, the Financial Accounting Standards Board issued Statement
of Financial  Accounting  Standards No. 131,  "Disclosures  about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards
for  reporting  information  about  operating  segments  in annual  and  interim
financial  statements  and also  establishes  standards for related  disclosures
about products and services,  geographic areas and major customers.  SFAS 131 is
effective for fiscal years  beginning  after December 15, 1997. The Company will
adopt SFAS 131 for 1998 and is currently  studying its provisions which need not
be  applied  to  interim  financial  statements  in  the  initial  year  of  its
application. The Company does not expect the provisions of SFAS 131 to result in
a  material  future  change  in  the  presentation  of  its  segment   financial
information  nor does it expect a material  future change in its current segment
groupings.

         In March 1998, the American  Institute of Certified Public  Accountants
finalized  Statement  of Position  ("SOP")  98-1,  "Accounting  for the Costs of
Computer  Software  Developed or Obtained for Internal  Use",  which defines the
types of  costs  that are  capitalizable  for  computer  software  projects  and
requires  all other  costs to be expensed  in the period  incurred.  The new SOP
requires  that in order for costs to be  capitalizable  they must be intended to
create a new system or add  identifiable  functionality  to an existing  system.
This SOP is effective for fiscal years  beginning  after December 15, 1998, with
earlier application  permitted.  Although the Company has not fully assessed the
implications  of this new statement,  the Company does not believe that adoption
of this statement will have a material impact on its financial statements.

         In June 1998, the Financial Accounting Standards Board issued Statement
of  Financial   Accounting   Standards  No.  133,   "Accounting  for  Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes standards
for reporting  information about derivative  instruments and hedging activities,
requires that an entity recognize all derivative instruments as either assets or
liabilities  in the  statement of financial  position,  and requires  that those
instruments be measured at fair value. SFAS 133 is effective for fiscal quarters
beginning  after  June  15,  1999.  The  Company  does  not  currently  have any
derivative  instruments nor is it currently involved in hedging.  If the Company
begins to enter into such  transactions in the future, it will assess the impact
that the provisions of SFAS 133 will have on its financial statements.

<PAGE>

                                TCSI CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (Continued)

Reclassifications

         Certain 1997 balances have been  reclassified to conform to the current
year  presentation  with no effect on net income (loss) and retained earnings as
previously reported.

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 from potential credit losses.

Receivables consist of the following:

                                                   June 30,         December 31,
                                                    1998               1997
                                                 ----------         -----------
                                                        (In thousands)
                                                 (Unaudited)

Billed receivables                               $    5,067          $   10,366
Unbilled receivables                                  3,546               1,837
Allowance for doubtful accounts                        (400)               (400)
                                                 ----------          ----------
                                                 $    8,213          $   11,803
                                                 ==========          ==========

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

         Furniture,  equipment,  and leasehold  improvements are stated at cost.
Straight-line  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 three to five years.  Amortization  is provided for
leasehold  improvements  over a five-year  period  utilizing  the  straight-line
method.

Furniture,   equipment,  and  leasehold  improvement  balances  consist  of  the
following:

                                                   June 30,         December 31,
                                                    1998               1997
                                                 ----------         -----------
                                                        (In thousands)
                                                 (Unaudited)

 Computer and lab equipment                      $   15,685          $   14,814
 Furniture and fixtures                               3,700               3,613
 Leasehold improvements                               6,464               6,660
                                                 ----------          ----------
                                                     25,849              25,087
 Accumulated depreciation and amortization          (16,816)            (14,922)
                                                 ----------          ----------
                                                 $    9,033              10,165
                                                 ==========          ==========

<PAGE>

                                TCSI CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (Continued)


NOTE 4 - INCOME TAXES

         The Company  recorded an income tax  provision for the six months ended
June 30, 1998 of $0.7 million and an income tax benefit for the six months ended
June 30, 1997 of $0.8 million. During the quarters ended June 30, 1998 and 1997,
respectively,  the Company  recorded an income tax provision of $0.3 million and
an income tax benefit of $0.5  million,  based on effective tax rates of 40% and
34%,  respectively.  In determining its effective tax rate for the quarter,  the
Company  considered  its estimated  annual  effective tax rate for the year. The
effective tax rate could change to the extent that there are differences between
planned  and actual net income or the  components  thereof or changes in the tax
laws affecting the Company.

         At June 30,  1998,  the  Company  had  approximately  $4.1  million  of
deferred  tax  assets.  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 carryforwards. At June 30, 1998, there was no valuation allowance for net
deferred  tax assets based on  management's  assessment  that current  levels of
anticipated  taxable  income will be  sufficient to realize the net deferred tax
assets.  However,  the amount of deferred tax assets  considered  realizable  is
subject to adjustment in future  periods if estimates of future  taxable  income
are reduced.

NOTE 5 - NET INCOME (LOSS) PER SHARE

         The Company  adopted  Statement of Financial  Accounting  Standards No.
128,  "Earnings Per Share"  ("SFAS 128") during the first quarter of 1998.  This
statement  simplifies  the  standards for  computing  earnings  (loss) per share
("EPS") as  previously  defined in Accounting  Principles  Board Opinion No. 15,
"Earnings  Per  Share".  All  prior-period  EPS  data  have  been  presented  in
accordance  with SFAS 128. SFAS 128 requires  presentation of both basic EPS and
diluted EPS on the face of the statements of  operations.  Basic EPS is computed
by dividing net income (loss)  available to common  stockholders  (numerator) by
the weighted-average  common shares (denominator) during the period. Diluted EPS
gives effect to all dilutive  potential  common  shares  outstanding  during the
period  (including stock options) using the treasury stock method.  In computing
diluted EPS, the average stock price for the period is used in  determining  the
number of shares assumed to be purchased from the exercise of stock options.

The following is a  reconciliation  of the  numerators and  denominators  of the
basic and diluted earnings (loss) per share computations under SFAS 128:

<TABLE>
<CAPTION>

                                           Three Months Ended            Six Months Ended
                                                June 30,                     June 30,
                                       -------------------------     -------------------------
                                          1998           1997           1998           1997
                                       ----------     ----------     ----------     ----------
                                              (In thousands, except per share amounts)
                                                            (Unaudited)
<S>                                    <C>            <C>            <C>           <C>

Basic EPS Computation
Net income (loss)                      $      489     $     (919)    $    1,005     $   (1,480)
                                       ==========     ==========     ==========     ==========
Weighted-average common shares             22,312         21,327         22,266         21,335
                                       ==========     ==========     ==========     ==========
Basic earnings (loss) per share        $     0.02     $    (0.04)    $     0.04     $    (0.07)
                                       ==========     ==========     ==========     ==========
</TABLE>


<PAGE>

                                TCSI CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (Continued)

<TABLE>
<CAPTION>
                                           Three Months Ended            Six Months Ended
                                                June 30,                     June 30,
                                       -------------------------     -------------------------
                                          1998           1997           1998           1997
                                       ----------     ----------     ----------     ----------
                                              (In thousands, except per share amounts)
                                                            (Unaudited)
<S>                                    <C>            <C>            <C>            <C>

Diluted EPS Computation
Net income (loss)                      $      489     $     (919)    $    1,005     $   (1,480)
                                       ==========     ==========     ==========     ==========
Weighted-average common shares             22,312         21,327         22,266         21,335
 Effect of dilutive options                   204             --            339             --
                                       ----------     ----------     ----------     ----------
Dilutive potential common shares           22,516         21,327         22,605         21,335
                                       ==========     ==========     ==========     ==========
Diluted earnings (loss) per share      $     0.02     $    (0.04)    $     0.04     $    (0.07)
                                       ==========     ==========     ==========     ==========

Antidilutive Securities
Options outstanding at end of period        1,074          2,005            256          1,479
                                       ==========     ==========     ==========     ==========
Weighted-average exercise price        $     6.95     $     6.98     $     8.16     $     7.13
                                       ==========     ==========     ==========     ==========

</TABLE>

 Antidilutive  securities  consist of options not included in the computation of
 diluted  earnings per share because the exercise price of each of these options
 was greater than the average market price of the Company's  Common Stock during
 the period.

 Antidilutive  options outstanding during the three- and six-month periods ended
 June 30, 1998 expire during the years 2000 through 2004.  Antidilutive  options
 outstanding  during the three- and six-month periods ended June 30, 1997 expire
 during the years 2000 through 2003.


NOTE 6 - COMPREHENSIVE INCOME (LOSS)

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

The  following is a summary of  comprehensive  income  (loss) for the three- and
six-month periods ended June 30, 1998 and 1997, respectively:

<PAGE>

                                TCSI CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (Continued)

<TABLE>
<CAPTION>
                                           Three Months Ended            Six Months Ended
                                                June 30,                     June 30,
                                       -------------------------     -------------------------
                                          1998           1997           1998           1997
                                       ----------     ----------     ----------     ----------
                                              (In thousands, except per share amounts)
                                                            (Unaudited)
<S>                                    <C>            <C>            <C>            <C>

Net income (loss)                      $      489     $     (919)    $    1,005     $   (1,480)
Translation gains (losses)                   (169)           (51)          (169)          (100)
Unrealized gains (losses) on securities         5            110            (97)           110
                                       ==========     ==========     ==========     ==========
Comprehensive income (loss)            $      325     $     (860)    $      739     $   (1,470)
                                       ==========     ==========     ==========     ==========

</TABLE>


NOTE 7 - LITIGATION

         On November 4, 1996, a purported  class action  complaint  was filed in
the Superior  Court of the State of  California,  Alameda  County,  by Albert J.
Copperstone and Joseph  Siciliano  against the Company,  certain of its officers
and directors,  and certain  underwriters (the "Copperstone State Action").  The
complaint in the Copperstone  State Action alleges that during a purported class
period of October 11, 1995 to September  25, 1996,  defendants  made  materially
false and misleading  statements concerning the Company's business condition and
prospects,  in violation of California  law. The  plaintiffs in the  Copperstone
State Action seek damages of an unspecified amount. On July 23, 1997, plaintiffs
voluntarily dismissed the underwriter  defendants without prejudice.  On June 5,
1998, plaintiffs filed a second amended complaint.  A demurrer to that complaint
is  expected  to be filed on or about  August 21,  1998.  Oral  argument of that
demurrer is scheduled for November 5, 1998.

         On November 20, 1996, a purported derivative action complaint was filed
in the  Superior  Court of the  State of  California,  Alameda  County,  by Mike
Tinkler  against the  Company's  Board of  Directors  (the  "Tinkler  Derivative
Action").  The complaint in the Tinkler Derivative Action also names the Company
as a nominal  defendant.  The complaint in the Tinkler Derivative Action alleges
that  as a  result  of the  facts  alleged  in  the  Copperstone  State  Action,
defendants  breached their fiduciary duties to the Company,  violated California
law, and were unjustly enriched.  The plaintiff in the Tinkler Derivative Action
seeks damages of an unspecified amount. On February 24, 1998,  plaintiff filed a
second amended  complaint.  On May 13, 1998 defendants  filed a demurrer to that
complaint. Oral argument of that demurrer is scheduled for September 10, 1998.

         On September 24, 1997, a purported class action  complaint was filed in
the United  States  District  Court for the Northern  District of  California by
Copperstone  and  Siciliano  against the Company and certain of its officers and
directors (the  "Copperstone  Federal Action").  The Copperstone  Federal Action
contains  virtually  identical  factual  allegations  as the  Copperstone  State
Action,  and alleges  violations of Sections  10(b) and 20(a) of the  Securities
Exchange  Act of 1934 and SEC Rule  10b-5.  The  plaintiffs  in the  Copperstone
Federal Action also seek damages of an unspecified  amount. On January 14, 1998,
defendants  moved to dismiss the Copperstone  Federal Action.  On April 20, 1998
the Court ordered that plaintiffs seek class certification prior to adjudication
of defendants' motion to dismiss. Pursuant to that order, the parties stipulated
to the  conditional  certification  of a plaintiff  class,  and plaintiffs  sent
notice to the putative class members.  The notice  explained that putative class
members  had until  August  28,  1998 to opt out of the  plaintiff  class.  Oral
argument of the motion to dismiss is scheduled for September 29, 1998.

<PAGE>

                                TCSI CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (Continued)

         On May 16, 1997,  Atmel  Corporation  made a claim under the TCSI/Atmel
Corporation  Purchase  Agreement  dated  November  14,  1996.  Pursuant  to that
Agreement,  $1.0  million of the sale price was  escrowed  to be  available  for
claims arising from the transaction.  Atmel estimated  damages in excess of $3.0
million.  In the  second  quarter  of 1998,  management  obtained  an  equitable
settlement of this matter with the escrow agent releasing $550,000 plus interest
to TCSI,  and the  remaining  $450,000  less fees to Atmel.  The  settlement  is
reported as a nonrecurring special gain in the statements of operations.

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

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

<PAGE>

                                TCSI CORPORATION

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

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

Overview

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

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

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

         A  substantial  portion of the  Company's  revenues is derived from the
sale of the Company's  software  products and services to major telecom  service
providers and equipment manufacturers. Due to the complex nature of the advanced
element,  network,  and service management  systems being developed,  successful
deployment of these systems can contain  significant  technological  risks.  The
Company has in the past relied,  and will in the future rely, on its development
and implementation  expertise.  Additionally,  development and

<PAGE>

                                TCSI CORPORATION

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

                                  (Continued)

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. For example, in the third quarter of
fiscal 1996, the Company experienced  fluctuations in revenues due to a delay in
a substantial follow-on contract with a regional bell operating company ("RBOC")
and due to termination of a development  agreement to deploy a software solution
for a transportation company.

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

Results of Operations

     Revenues.  The Company  generates  revenues  from the sale of its  software
products and related  services to the telecom  industry.  Total revenues for the
quarter ended June 30, 1998 increased 17% to $11.1  million.  Total revenues for
the six months ended June 30, 1998 increased 15% to $22.1 million.  NEC,  Lucent
Technologies ("Lucent"),  Bell Atlantic and Motorola, Inc. ("Motorola") were the
largest customers during the 1998 second quarter.  NEC and Lucent each accounted
for more than 10% of the  Company's  total 1998  revenue.  Revenue from software
licensing fees ("license  revenues")  improved by 457% from $0.5 million to $2.5
million,  or 22% of 1998 second quarter  revenues.  License revenues improved to
$5.4 million,  or 24% of total 1998 revenues.  The Company  expects that runtime
license revenues will continue to vary from quarter to quarter. License revenues
for the  quarter  were split  almost  equally  between  development  and runtime
licenses.  Bell Atlantic,  Siemens Nixdorf Information Systems,  Ltd., Motorola,
and Lucent accounted for 82% of TCSI's 1998 second quarter license revenues.

         Revenues from the  Asia-Pacific  regions  increased to $6.0 million and
$12.1  million for the three and six months ended June 30,  1998,  respectively,
compared to $4.8 million and $8.7 million for the comparable  1997 periods.  The
increases are attributable to continued  relationships with existing  customers,
particularly  through  ICONET and NEC, which resulted in revenues from follow-on
contracts. Revenues from the Americas increased to $3.9 million and $7.0 million
for the three and six months ended June 30, 1998, respectively, compared to $2.6
million and $5.4 million for the comparable 1997 periods.  The increase  results
from the deployment of the Data Network  Management System for Bell Atlantic and
continued strong follow-on contract revenues with Lucent and Motorola.  Revenues
from Europe  decreased  to $1.2  million and

<PAGE>

                                TCSI CORPORATION

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

                                  (Continued)

     $3.0   million  for  the  three  and  six  months   ended  June  30,  1998,
respectively,  compared to $2.1 million and $5.0 million for the comparable 1997
periods.  The decreases were due to delays in contract  negotiation with some of
the major  telecom  equipment  manufacturers  in Europe.  The Company  generally
recognizes   service  revenues  involving  design,   development,   testing  and
deployment  over a twelve- to  eighteen-month  period.  The Company expects that
Europe  revenue  will  improve and account for  approximately  25% of total 1998
revenues but there can be no assurance that this  percentage will be attained or
exceeded.  The  Company  expects the  geographical  mix of revenues to vary from
period  to  period  as  it  responds  to  global   buying  habits  and  develops
relationships with new and existing partners and channels.

         To date,  a portion of revenues has been  concentrated  among a limited
number of customers.  For the six months ended June 30, 1998, the  concentration
of revenues from the Company's five largest customers  increased to 79% from 61%
for the comparable 1997 period. The revenues from these customers represent many
separate and distinct projects that are geographically  dispersed throughout the
world.  There can be no assurance  that such  customers  will  continue to place
orders with the  Company  which will equal or exceed the  comparable  levels for
prior periods. (See the "Factors That May Affect Future Results and Market Price
of  Stock-Customer  Concentration"  section  at the end of this  discussion  and
analysis.)

         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,  and  depreciation.  Direct  costs of services for the quarter
ended June 30, 1998 remained consistent at $5.1 million with the comparable 1997
period. For the six months ended June 30, 1998, costs of services declined 7% to
$9.6 million from $10.3 million for the comparable 1997 period.  As a percentage
of service  revenues,  costs of services were 59% for the quarter ended June 30,
1998 compared to 57% for the comparable 1997 period.  Costs of services were 57%
for six months  ended June 30,  1998  compared  to 61% for the  comparable  1997
period. The cost of service percentage  remained  consistent for the quarter and
lower for the six months  ended June 30, 1998  compared to the  comparable  1997
period due to improved  utilization and efficiency of resources,  which resulted
in lower costs.  The Company  plans to continue its efforts to control costs and
expenses.

     Product   Development.   Product  development   expenses  include  employee
compensation,  subcontractor fees, training costs, and other product development
costs,  including an allocation for benefits,  facilities,  telephone  expenses,
information  systems support,  and depreciation.  For the quarter ended June 30,
1998, the Company invested $2.9 million or 26% of revenues on  internally-funded
product  development  compared  with $1.4  million  or 14% of  revenues  for the
quarter ended June 30, 1997. For the six months ended June 30, 1998, the Company
invested  $5.5  million  or  25%  of  revenues  on   internally-funded   product
development  compared  with $2.8  million or 15% of revenues  for the six months
ended June 30, 1997.  Product  development  spending increased as planned during
the second quarter and six-month  period of 1998 compared to the same periods of
1997,  reflecting the Company's continuing  commitment to become a true software
product supplier. In 1997, product development funds were used primarily for the
development of the Company's  SolutionCore(TM) product, which included the fifth
release  of  Object  Services  Package  ("OSP")  and  new  releases  of  related
development tools. The Company expects to continue to invest in SolutionCore, as
well as its new components-based applications,  SolutionSuites(TM). 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

<PAGE>

                                TCSI CORPORATION

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

                                  (Continued)

     administrative   personnel  along  with  the  other   administrative  costs
including  recruiting,  legal  and  accounting  fees,  insurance,  and bad  debt
expense.   For  the  quarter  ended  June  30,  1998,  selling,   general,   and
administrative  expenses decreased 16% to $3.7 million from $4.3 million for the
comparable  1997  period.  For the six  months  ended  June 30,  1998,  selling,
general,  and  administrative  expenses  decreased 18% to $7.5 million from $8.9
million for the comparable 1997 period.  Selling,  general,  and  administrative
expenses  were 33% of revenues for the quarter  ended June 30, 1998  compared to
45% of revenues in the second quarter of 1997. For the six months ended June 30,
1998,  selling,  general,  and  administrative  expenses  were  34% of  revenues
compared to 46% of revenues  in the  comparable  1997  period.  The  decrease in
spending  is  due  to  lower  headcount  and a  reallocation  of  telephone  and
information  systems support expenses to their  corresponding  user departments.
Telephone and information  systems support  expenses were charged to general and
administrative expense in prior periods.

     Nonrecurring  special  items.  During the quarter ended June 30, 1998,  the
Company settled litigation relating to the sale of a non-telecom  business unit.
This settlement resulted in a nonrecurring gain of $550,000.

         The  Company  incurred a charge to  operations  of $1.1  million in the
first two quarters of 1997  resulting  from  adjustments  to the market value of
equipment  held  for  resale  related  to the  termination  of a  transportation
contract in the third  quarter of 1996.  The Company  concluded  the sale of the
equipment in the third quarter of 1997.

         Income Taxes. The Company's  effective tax rate was 40% and 34% for the
quarters ended June 30, 1998 and 1997, respectively.  The Company incurred a tax
provision  of $0.3  million on pre-tax  income of $0.8  million  for the quarter
ended June 30, 1998  compared to a tax benefit of $0.5 million on a pre-tax loss
of $1.4 million for the second  quarter ended June 30, 1997.  For the six months
ended June 30,  1998,  the Company  incurred a tax  provision of $0.7 million on
pre-tax  income of $1.7  million  compared to a tax benefit of $0.8 million on a
pre-tax loss of $2.2 million for the comparable 1997 period.


Liquidity and Capital Resources

Operating Activities

         Net cash provided by operating  activities was $4.8 million for the six
months ended June 30, 1998,  compared to $2.2  million for the  comparable  1997
period.  Cash flows from operating  activities for the six months ended June 30,
1998  primarily   reflected  net  income  of  $1.0  million,   depreciation  and
amortization of $2.0 million,  and decreases in receivables and deferred revenue
of $3.6  million  and $2.4  million,  respectively.  Cash flows  from  operating
activities for the six months ended June 30, 1997 primarily reflected a net loss
of $1.5 million, depreciation and amortization of $1.8 million, and decreases in
receivables  of $3.7  million.  The  increase  in  cash  provided  by  operating
activities  over 1997 is primarily due to the decrease in accounts  payable from
the  payment of  year-end  liabilities  related to the  buildout  of the Alameda
facility  in the  first  quarter  of 1997  and  from  the  decrease  in  accrued
liabilities  resulting from reductions in bonus and commission  payments in 1998
compared to 1997.

<PAGE>

                                TCSI CORPORATION

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

                                  (Continued)

Investing Activities

     Net cash used in investing  activities was $21.2 million for the six months
ended June 30, 1998 compared to $2.3 million for the comparable 1997 period. The
Company purchased $21.2 million of marketable  securities while $15.9 million of
marketable  securities  matured,  compared to the  purchase of $9.1  million and
$11.5 million of maturities for the comparable  period in 1997. The net decrease
in cash used in such  investing  activities  also  included $5.3 million of cash
used for capital  expenditures and leasehold  improvements  during the first six
months of 1997  compared to $0.9  million of cash used for capital  expenditures
for the  comparable  period of 1998. The capital  expenditures  during the first
half of  1997  are  primarily  related  to the  consolidation  of the  Company's
facilities in Northern  California and to the establishment of the Company's new
office in the United Kingdom.

Financing Activities

         Net cash provided by financing  activities was $1.1 million for the six
months  ended June 30, 1998  compared to $0.8  million for the  comparable  1997
period.  The  increase  was the  result  of stock  options  exercised  and stock
purchased pursuant to the Employee Stock Purchase Plan.

         As of June 30,  1998,  the  Company had cash and cash  equivalents  and
marketable  securities of $60.2 million. 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

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

         Statements  in this  report  which  are  prefaced  with  words  such as
"expects,"  "anticipates,"  "believes" and similar words and other statements of
similar sense, are forward-looking statements. These statements are based on the
Company's  current  expectations  and  estimates  as to  prospective  events and
circumstances  which may or may not be within the  Company's  control  and as to
which there can be no firm assurances given. These  forward-looking  statements,
like any other forward-looking statements,  involve risks and uncertainties that
could  cause  actual  results  to differ  materially  from  those  projected  or
anticipated.

         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

<PAGE>

                                TCSI CORPORATION

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

                                  (Continued)

products and product enhancements on a timely basis; changes in pricing policies
by the Company or its competitors;  regulatory changes,  currency  fluctuations,
and general economic factors. These factors are difficult to forecast, and these
or other factors could have a material adverse effect on the Company's business,
operating results, and financial condition.

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


  Lengthy Sales and Implementation Cycles

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

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

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

Customer Concentration

         To date,  a  significant  portion of the  Company's  revenues  has been
concentrated among a limited number of customers. In particular,  in 1997 and in
the first  quarter  of 1998,  a large  portion  of  revenues  was  derived  from
contracts  negotiated through a large equipment  manufacturer in Asia. While the
recent  economic  crisis  in Asia  has not  materially  adversely  affected  the
Company,  there can be no  assurance  that it will not do so in the  future.  In
addition,   the  Company   anticipates  that  it  will  continue  to  experience
significant  customer  concentration.  There  can  be  no  assurance  that  such
customers  or any other  customers  will in the future  continue to place orders
with the Company which equal or exceed the comparable  levels for prior periods.
In addition,  the Company's  customers  typically  designate  one  individual to
procure network management software. If any of such individuals were terminated,
transferred,  or replaced, the Company would be vulnerable to cancellation of an
order if, for example, the Company's competitors had pre-existing  relationships
with such individual's replacement.  As a result of these factors, the Company's
business,  operating  results,  and  financial  condition  could  be  materially
adversely affected.

Product Defects

         The Company provides complex software products for major  corporations.
The  development and enhancement of such complex  software  entails  substantial
risks of  product  defects.  The  Company  has in the past  identified  software
defects in certain of its products.  There can be no assurance  that errors will
not be

<PAGE>

                                TCSI CORPORATION

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

                                  (Continued)

found in existing or new products or releases 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  characteristic  of companies  providing  software  solutions to the
telecom  industry,  the  complexities  involved in  implementing  the  Company's
software  solutions  entail risks of performance  shortfalls.  In some cases the
Company  has  agreed to accept  some  financial  responsibility,  in the form of
negotiated   penalty   amounts,   should  the   Company's   products   not  meet
specifications or cause customer system downtime. There can be no assurance that
the  Company  will  not  encounter  delays  or  other  difficulties  due to such
complexities.  Because the  Company's  customer  base  consists of a  relatively
limited number of customers,  the product defects or implementation errors would
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 Americas  accounted  for 68% of the  Company's
total revenues for the six months ended June 30, 1998. 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 longer receivables collection periods and greater difficulty in
accounts  receivable  collection,  difficulty  in staffing and managing  foreign
operations,  a longer  sales  cycle than with  domestic  customers,  potentially
unstable  political  and  economic  conditions,   language  barriers,   cultural
differences  in the  conduct of  business,  seasonality  due to the  slowdown in
European  business  activity  during the Company's third fiscal quarter of 1997,
unexpected changes in regulatory requirements,  including a slowdown in the rate
of  privatization  of  telecom  service   providers,   reduced   protection  for
intellectual  property  rights  in  some  countries,   potentially  adverse  tax
consequences,  tariffs, and other trade barriers. In addition,  while the recent
economic crisis in Asia has not materially adversely affected the Company, there
can be no  assurance  that it will  not do so in the  future.  Also,  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

<PAGE>

                                TCSI CORPORATION

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

                                  (Continued)

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

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

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

Competition

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

         The Company's  current and prospective  competitors  offer a variety of
solutions to address OSS needs.  The Company  faces  competition  in each of the
three  functional  areas the Company  believes are necessary for the delivery of
complete OSS software telecom applications platform,  configurable applications,
and custom services. The Company's SolutionCore and SolutionSuites product lines
enable the Company to provide its customers  with both  application  development
software and telecom applications.

<PAGE>

                                TCSI CORPORATION

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

                                  (Continued)

Because certain of the Company's  competitors  focus only on one functional area
of OSS software,  such  competitors may be in a position to develop  competitive
products targeted solely at the segment they serve.  These  competitors  include
major  communications  service  providers,  RBOCs,  and  equipment  and computer
manufacturers,   each  of  which  may  have  substantially   greater  financial,
manufacturing,  technical,  marketing,  distribution,  greater name recognition,
longer-standing   relationships  with  customers  than  the  Company  and  other
resources.  Furthermore,  many of the Company's current and potential  customers
continuously  evaluate whether to design,  develop,  and support  internally the
software  solutions  provided by the  Company,  thereby  obviating  the need for
relying on an outside vendor such as the Company. There can be no assurance that
the  Company's  current  or  potential  competitors  will not  develop  products
comparable  or superior to those  developed by the Company or adapt more quickly
than the Company to new technologies,  evolving industry standards,  new product
introductions, or changing customer requirements.

Rapid Technological Change; Need to Manage Product Transitions

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

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

<PAGE>

                                TCSI CORPORATION

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

                                  (Continued)

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

Protection of Intellectual Property

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

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

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

         The Company  relies on certain  software  that it  licenses  from third
parties,  including  software  that  is  integrated  with  internally  developed
software and used in the Company's products to perform key functions.  There can
be no assurance  that these third party  software  licenses  will continue to be
available to the Company on commercially  reasonable terms or that such licenses
will not be terminated.  Although the

<PAGE>

                                TCSI CORPORATION

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

                                  (Continued)

Company believes that alternative  software is available from other  third-party
suppliers,  the loss of or inability to maintain any of these software  licenses
or the inability of the third parties to enhance their  products in a timely and
cost-effective  manner could result in delays or reductions in product shipments
by the Company  until  equivalent  software  could be  developed  internally  or
identified, licensed, and integrated, which would have a material adverse effect
on the Company's business, operating results, and financial condition.

Dependence on Key Personnel

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

Risks Associated with Acquisitions

         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.

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

<PAGE>

                                TCSI CORPORATION

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

                                  (Continued)

Common Stock. In the past,  following  periods of volatility in the market price
of a company's  securities,  securities  class action  litigation has often been
initiated  against such company.  Such  litigation  could result in  substantial
costs and a diversion of management's attention and resources,  which could have
a material adverse effect upon the Company's  business,  operating results,  and
financial  condition.  In this regard,  in late 1996,  two lawsuits on behalf of
certain of the Company's shareholders were filed against the Company and various
of its officers and directors.  In late  September  1997, a class action lawsuit
was filed in U.S.  Federal Court on behalf of certain  shareholders  against the
Company and various of its  officers and  directors.  The state  actions  allege
violations of state securities laws during 1995 and 1996, and the federal action
alleges violations of the federal securities laws.  Management believes that the
lawsuits are without merit and is contesting them.

Year 2000 Compliance

     While the Company believes its products are Year 2000 compliant, it has not
concluded  its  final  assessments  of the Year  2000  problem.  Many  currently
installed  computer  systems  and  software  products  are coded to accept  only
two-digit entries in the date code field. Beginning in the year 2000, these date
code fields will need to accept  four-digit  entries to distinguish 21st century
dates from 20th century  dates.  As a result,  in less than two years,  computer
systems and software  used by many  companies  may need to be upgraded to comply
with such  "Year  2000"  requirements.  In early  1998,  the  Company  developed
procedures for evaluating and managing the risks and costs  associated with Year
2000 problems.  TCSI believes it is devoting the necessary resources to identify
and modify its systems  and  products  impacted by the Year 2000  problem and to
implement  new systems  and  release  new  product  versions to become Year 2000
compliant in a timely manner.

     The Company  believes that its costs  associated  with  implementing  these
procedures will not have a material  adverse effect on the results of operations
or financial condition of the Company.  However,  there can be no assurance that
unexpected  delays or increased costs  associated with  implementation  will not
have an adverse effect on the Company's operations. In addition, there can be no
assurance that the Company's  software  contains all date code changes necessary
to prevent  processing errors  potentially  arising from calculations  using the
Year 2000 date. Any  disruptions in product  development or other  operations of
the Company as a result of Year 2000  noncompliance  would materially  adversely
affect the Company's business, financial condition and results of operations.

         TCSI believes that the  purchasing  patterns of customers and potential
customers  may  also be  affected  by  Year  2000  issues  as  companies  expend
significant  resources to upgrade their current  software  systems for Year 2000
compliance. These expenditures may result in reduced funds available to purchase
products  such as those  offered by the  Company.  Furthermore,  there can be no
assurance  that the  Company's  customers and suppliers are or will be Year 2000
compliant.  Failure of the Company's customers and suppliers to address the Year
2000 issues at all,  sufficiently,  or in a timely manner, could have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.

<PAGE>

                                TCSI CORPORATION

Part II - Other Information

Item 1.  Legal Proceedings

         On November 4, 1996, a purported  class action  complaint  was filed in
the Superior  Court of the State of  California,  Alameda  County,  by Albert J.
Copperstone and Joseph  Siciliano  against the Company,  certain of its officers
and directors,  and certain  underwriters (the "Copperstone State Action").  The
complaint in the Copperstone  State Action alleges that during a purported class
period of October 11, 1995 to September  25, 1996,  defendants  made  materially
false and misleading  statements concerning the Company's business condition and
prospects,  in violation of California  law. The  plaintiffs in the  Copperstone
State Action seek damages of an unspecified amount. On July 23, 1997, plaintiffs
voluntarily dismissed the underwriter  defendants without prejudice.  On June 5,
1998, plaintiffs filed a second amended complaint.  A demurrer to that complaint
is  expected  to be filed on or about  August 21,  1998.  Oral  argument of that
demurrer is scheduled for November 5, 1998.

         On November 20, 1996, a purported derivative action complaint was filed
in the  Superior  Court of the  State of  California,  Alameda  County,  by Mike
Tinkler  against the  Company's  Board of  Directors  (the  "Tinkler  Derivative
Action").  The complaint in the Tinkler Derivative Action also names the Company
as a nominal  defendant.  The complaint in the Tinkler Derivative Action alleges
that  as a  result  of the  facts  alleged  in  the  Copperstone  State  Action,
defendants  breached their fiduciary duties to the Company,  violated California
law, and were unjustly enriched.  The plaintiff in the Tinkler Derivative Action
seeks damages of an unspecified amount. On February 24, 1998,  plaintiff filed a
second amended  complaint.  On May 13, 1998 defendants  filed a demurrer to that
complaint. Oral argument of that demurrer is scheduled for September 10, 1998.

         On September 24, 1997, a purported class action  complaint was filed in
the United  States  District  Court for the Northern  District of  California by
Copperstone  and  Siciliano  against the Company and certain of its officers and
directors (the  "Copperstone  Federal Action").  The Copperstone  Federal Action
contains  virtually  identical  factual  allegations  as the  Copperstone  State
Action,  and alleges  violations of Sections  10(b) and 20(a) of the  Securities
Exchange  Act of 1934 and SEC Rule  10b-5.  The  plaintiffs  in the  Copperstone
Federal Action also seek damages of an unspecified  amount. On January 14, 1998,
defendants  moved to dismiss the Copperstone  Federal Action.  On April 20, 1998
the Court ordered that plaintiffs seek class certification prior to adjudication
of defendants' motion to dismiss. Pursuant to that order, the parties stipulated
to the  conditional  certification  of a plaintiff  class,  and plaintiffs  sent
notice to the putative class members.  The notice  explained that putative class
members  had until  August  28,  1998 to opt out of the  plaintiff  class.  Oral
argument of the motion to dismiss is scheduled for September 29, 1998.

         On May 16, 1997,  Atmel  Corporation  made a claim under the TCSI/Atmel
Corporation  Purchase  Agreement  dated  November  14,  1996.  Pursuant  to that
Agreement,  $1.0  million of the sale price was  escrowed  to be  available  for
claims arising from the transaction.  Atmel estimated  damages in excess of $3.0
million.  In the  second  quarter  of 1998,  management  obtained  an  equitable
settlement of this matter with the Escrow Agent releasing $550,000 plus interest
to TCSI,  and the  remaining  $450,000  less fees to Atmel.  The  settlement  is
reported as a nonrecurring special gain in the statements of operations.

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

<PAGE>

                                TCSI CORPORATION

Item 1.  Legal Proceedings (Continued)


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

Item 4.  Matters Submitted to a Vote of Security Holders

An annual meeting of shareholders of the Company was held at Alameda, California
on May 5, 1998. The following matters were voted upon by the shareholders:

The following persons,  who were only nominees,  were re-elected as directors to
hold  office to serve 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                                  19,965,016              166,672
Ram A. Banin                                    19,962,516              169,172
Norman E. Friedmann, Ph.D.                      19,959,276              172,412
William A. Hasler                               19,965,166              166,522
David G. Messerschmitt, Ph.D.                   19,955,166              176,522
Harvey E. Wagner                                19,952,034              179,654

A proposal to ratify the selection of Ernst & Young LLP as independent  auditors
for the Company for the fiscal year ending December 31, 1998 was approved by the
shareholders.   The  following  votes  were  cast  as  to  such  proposal:  For:
20,112,088; Against: 11,440; Abstain: 8,160.

Item 5.  Other Information

         Pursuant to Rule 14a-4(c)(1) under the Securities Exchange Act of 1934,
in  connection  with  the  Company's  annual  meeting  of  stockholders,   if  a
stockholder  of the Company  fails to notify the Company of a proposal that such
stockholder  intends to raise at the Company'  annual meeting of stockholders at
least 45 days prior to April 6, 1999,  then the proxies of  management  would be
allowed  to use their  discretionary  voting  authority  with  respect to such a
non-Rule 14a-8  stockholder  proposal raised at the Company's  annual meeting of
stockholders,  without  any  discussion  of the  matter in the  Company's  proxy
statement.

<PAGE>

Item 6.  Exhibits and Reports on Form 8-K

(a)      The following exhibits are filed herewith:

Exhibit No.        Description
-----------        -----------
       27          Financial Data Schedule.

See Exhibit Index on page 29.

(b)      Reports on Form 8-K.


There were no reports on Form 8-K filed during the quarter  ended June 30, 1998.
During the quarter ended March 31, 1998, the Company filed the following reports
on Form 8-K:

Report on Form 8-K dated  February 25, 1998  reporting the  appointment  of John
Bolger to Chairman of the Board and of Dr.  Norman E.  Friedmann to the Board as
reported in the press release of same date

Report on Form 8-K dated January 30, 1998 reporting an exclusive  agreement with
Ameritech to market  advanced  wholesale  billing  technology as reported in the
press release of same date

Report on Form 8-K dated January 29, 1998  reporting 1997 results as reported in
the press release of same date


<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, on August 12, 1998.


                                TCSI CORPORATION
                                (Registrant)


                                     By /s/ Arthur H. Wilder
                                        ---------------------------------------
                                        Arthur H. Wilder
                                        Chief Financial Officer, Secretary, and
                                        Treasurer
                                        (Principal Financial Officer and
                                         Principal Accounting Officer)

<PAGE>

                                TCSI CORPORATION

                                INDEX OF EXHIBITS

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

      27            Financial Data Schedule