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

                                   FORM 10-QSB

        |X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
                  For the quarterly period ended June 30, 2004

        |_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
                                      ACT
      For the transition period from _________________ to _________________

                         Commission file number 0-49783

                               TCI Solutions, Inc.
        (Exact name of small business issuer as specified in its charter)

                 Delaware                                 33-0537151
          (State of incorporation)             (IRS Employer Identification No.)

                         17752 Skypark Circle, Suite 160
                            Irvine, California 92614
                                 (949) 476-1122
          (Address and telephone number of principal executive offices)


        Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the last 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 |_|

        The number of shares outstanding of the registrant's Common Stock,
$0.001 par value, was 12,822,146 as of July 26, 2004.



                                       1
<PAGE>


PART I -- FINANCIAL INFORMATION

Item 1. Financial Statements.
================================================================================
<TABLE>
<CAPTION>
                               TCI Solutions, Inc.
                            CONDENSED BALANCE SHEETS
                                   (Unaudited)

                              June 30, 2004                   December 31, 2003
                             -------------------------------  ------------------------------
<S>                                        <C>                             <C>
ASSETS
Current assets:
   Cash and cash equivalents               $      2,813,403                $      3,679,331
   Accounts receivable, net
      of allowances of $386,659
      at 6/30/04 and $630,404 at
      12/31/03                                    3,427,513                       3,254,155
   Prepaid expenses and
       other current assets                         221,258                         245,584
                            --------------------------------- -------------------------------
        Total current assets                      6,462,174                       7,179,070
   Property and equipment, net                    1,553,030                       1,722,700
   Goodwill                                         529,031                         529,031
   Other assets                                      19,765                          19,765

                            --------------------------------- -------------------------------
               Total assets                $      8,564,000                $      9,450,566
                            ================================= ===============================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable                        $      1,440,376                $      1,244,847
   Accrued expenses                                 934,065                       1,037,585
   Line of credit                                 1,700,009                       1,604,911
   Current portion of capital
      lease obligations                              24,270                          24,270
   Deferred revenue                               2,179,520                         765,440

                            --------------------------------- -------------------------------
        Total current
          liabilities                             6,278,240                       4,677,053

                            --------------------------------- -------------------------------
Capital lease obligation, net
   of current portion                                23,400                          34,873

                            --------------------------------- -------------------------------
           Total liabilities               $      6,301,640                $      4,711,926

                            --------------------------------- -------------------------------
Commitments and
   contingencies (Note 4)

Stockholders' equity:
   Convertible preferred stock             $     17,850,740                $     17,850,740
   Common stock                                  37,480,013                      37,479,291
   Warrants to purchase
      common stock                                  178,129                         178,129
   Accumulated deficit                          (53,246,522)                    (50,769,520)

                            --------------------------------- -------------------------------
        Net stockholders'
          equity                                  2,262,360                       4,738,640

                            --------------------------------- -------------------------------
Total liabilities and
   stockholders' equity                    $      8,564,000                $      9,450,566
                            ================================= ===============================


            See accompanying notes to condensed financial statements
</TABLE>

                                       2
<PAGE>


================================================================================
<TABLE>
<CAPTION>
                               TCI Solutions, Inc.
                       CONDENSED STATEMENTS OF OPERATIONS
                                   (Unaudited)

                                    Three Months Ended            Six Months Ended
                                         June 30,                      June 30,

                               ----------------------------  -----------------------------
                                   2004          2003            2004           2003
<S>                                 <C>         <C>             <C>            <C>
Revenues:
   Software licenses                $916,086    $2,833,035      $1,982,711     $3,847,025
   Services                        2,940,277     2,196,145       5,417,903      4,247,709
   Maintenance                     1,256,296     1,068,289       2,512,592      1,993,689
   Other                             355,100     1,077,510         598,674      1,599,174

                               ----------------------------- ------------------------------
Total revenues                     5,467,759     7,174,979      10,511,880     11,687,597
Cost of revenues:
   Software licenses                 148,471        59,044         189,555         73,873
   Services                        1,768,880     1,402,719       3,665,657      2,669,793
   Maintenance                       201,062       309,433         555,864        663,213
   Other                             294,913       784,051         459,548      1,041,055

                               ----------------------------- ------------------------------
Total cost of revenues             2,413,326     2,555,247       4,870,624      4,447,934

Gross profit                       3,054,433     4,619,732       5,641,256      7,239,663

Operating expenses:
   Product development               817,880     1,037,823       1,831,160      2,137,483
   Sales and marketing             1,648,546     1,973,687       3,526,328      4,027,978
   General and administrative      1,376,077     1,483,324       2,722,525      2,950,608

                               ----------------------------- ------------------------------
Total operating expenses           3,842,503     4,494,834       8,080,013      9,116,069

                               ----------------------------- ------------------------------
Income(loss) from operations        (788,070)      124,898      (2,438,757)    (1,876,406)

  Other expense, net                 (19,636)      (17,611)        (38,245)       (25,618)

                               ----------------------------- ------------------------------
Income/(loss) before income
  taxes                             (807,706)      107,287      (2,477,002)    (1,902,024)
Provision for income taxes                 --           --               --             --

                               ----------------------------- ------------------------------
Net income/(loss)                  ($807,706)     $107,287     ($2,477,002)   ($1,902,024)

                               ============================= ==============================
Net income/(loss) per share
                      - basic         ($0.06)        $0.01          ($0.19)        ($0.15)
                    - diluted         ($0.06)        $0.00          ($0.19)        ($0.15)
Weighted average common
  shares outstanding

                      - basic     12,822,146    12,819,263      12,821,655     12,819,263
                    - diluted     12,822,146    45,343,474      12,821,655     12,819,263


            See accompanying notes to condensed financial statements.

</TABLE>

                                       3
<PAGE>


================================================================================
<TABLE>
<CAPTION>
                               TCI Solutions, Inc.
                       CONDENSED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                                           Six Months Ended
                                               June 30,
                           ------------------------  -----------------------
                              2004                      2003
                           ------------------------  -----------------------
<S>                                  <C>                       <C>
Operating activities
Net loss                             $  (2,477,002)            $ (1,902,024)
Adjustments to reconcile net
   loss to net cash provided
   by(used in) operating
   activities:
Depreciation and amortization              324,439                  287,763
Provision for doubtful accounts             99,000                  330,000
Changes in operating assets
   and liabilities:
Accounts receivable                       (272,358)               1,436,652
Prepaid expenses and other
   current assets                           24,326                   17,275
Other assets                                     0                   (3,152)
Accounts payable                           195,529                 (348,647)
Accrued expenses                          (103,520)                (730,191)
Deferred revenue                         1,414,080                1,853,939

                           ------------------------  -----------------------
Net cash provided by (used
    in) operating
    activities                            (795,506)                 941,615
Investing activities
Purchases of property and
   equipment                              (154,769)                (538,448)
Financing activities
Proceeds from line of credit               130,918                  500,000
Repayments on line of credit               (35,820)                 (41,791)
Principal payments on
   capital lease obligations               (11,473)                  (3,206)
Proceeds from issuance of
   common stock                                722                        0

                           ------------------------  -----------------------
Net cash provided by
   financing activities                     84,347                  455,003

                           ------------------------  -----------------------
Net increase (decrease) in
   cash and cash equivalents              (865,928)                 858,170
Cash and cash equivalents at
   beginning of period                   3,679,331                5,122,913

                           ------------------------  -----------------------
Cash and cash equivalents
   at end of period                  $   2,813,403             $  5,981,083

                           ========================  ========================


            See accompanying notes to condensed financial statements.

</TABLE>

                                       4
<PAGE>


================================================================================
                               TCI Solutions, Inc.
                NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
                     Six Months Ended June 30, 2004 and 2003

1. Nature of Operations and Summary of Accounting Policies
The accompanying unaudited condensed financial statements included herein have
been prepared by us in conformity with accounting principles generally accepted
in the United States of America and pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC) for interim financial information for
reporting on Form 10-QSB. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations. Our unaudited
condensed financial statements should be read in conjunction with the financial
statements and notes thereto included in our Form 10-KSB for the year ended
December 31, 2003.

In our opinion, the accompanying unaudited condensed financial statements
contain all adjustments (consisting of normal recurring adjustments) necessary
for a fair presentation of our financial position, results of operations and
cash flows.

The results of operations for the three and six months ended June 30, 2004, are
not necessarily indicative of the results of operations that may be reported for
any other interim period or for the entire year ending December 31, 2004. The
balance sheet at December 31, 2003 has been derived from the audited financial
statements at that date, but does not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements, as permitted by SEC rules
and regulations for interim reporting.

Reclassifications

Certain amounts previously reported have been reclassified to conform with the
presentation for the three and six months ended June 30, 2004.

Revenue Recognition

We license software products under non-cancelable perpetual license agreements
and provide related services, including consulting and customer support. We
recognize revenue in accordance with SOP 97-2, Software Revenue Recognition, as
amended and interpreted by SOP 98-9, Modification of SOP 97-2, Software Revenue
Recognition, with respect to certain transactions, as well as Technical Practice
Aids issued from time to time by the American Institute of Certified Public
Accountants and guidance of Staff Accounting Bulletin ("SAB") No. 101, Revenue
Recognition in Financial Statements, which provides further interpretive
guidance for public reporting companies on the recognition, presentation and
disclosure of revenue in financial statements.

Software license revenue is recognized when a license agreement has been signed,
the software product has been delivered, there are no uncertainties surrounding
product acceptance, the fees are fixed and determinable and collection is
considered reasonably assured. If a software license contains an undelivered
element, the fair value of the undelivered element is deferred and the revenue
recognized once the element is delivered. Revenues attributable to undelivered
elements, including consulting services and post-contract support, are based on
the average sales price of those elements when sold separately. In addition, if
a software license contains customer acceptance criteria or a cancellation
right, the software revenue is recognized upon the earlier of customer
acceptance or the expiration of the acceptance period or cancellation right. We
do not offer rights of return. In certain cases, we do offer extended payment
terms to customers, which do not exceed one year from shipment.

Services are separately priced, are generally available from a number of
suppliers and are not essential to the functionality of our software products.
Services, which include project management, system planning, design and
implementation, customer configurations and training, are billed on an hourly
basis. Services revenue billed on an hourly basis is recognized as the work is
performed. Customer support services



                                       5
<PAGE>



include post-contract support and the rights to unspecified upgrades and
enhancements, when and if available. Maintenance revenues from ongoing customer
support services are billed on an annual basis with the revenue being deferred
and recognized ratably over the maintenance period.

Other revenue consists of the sales of third-party software and hardware
products and is recognized upon delivery and passage of title.

Basic and Diluted Net Income (Loss) Per Share

Net income (loss) per share is calculated in accordance with SFAS No. 128,
"Earnings Per Share." Under the provisions of SFAS No. 128, basic net income
(loss) per share is computed by dividing the net income (loss) for the period by
the weighted average number of common shares outstanding during the period.
Diluted net income (loss) per share is computed by dividing net income (loss)
for the period by the weighted average number of common and common equivalent
shares outstanding during the period if their effect is dilutive. Common
equivalent shares include convertible preferred stock and common stock options.
For the three months ended June 30, 2004 and the six month periods ended June
30, 2003 and 2004, common equivalent shares of 32,469,131 have been excluded
from diluted weighted average common shares as the effect would be
anti-dilutive.

Stock-Based Compensation

We account for employee stock-based compensation in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations and have adopted the
disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation.

SFAS No. 123, Accounting for Stock-Based Compensation, requires the disclosure
of pro forma net income (loss) had we adopted the fair value method. Under SFAS
No. 123, the fair value of stock-based awards to employees is calculated through
the use of option-pricing models, even though such models were developed to
estimate the fair value of freely tradable, fully transferable options without
vesting restrictions, which significantly differ from our stock option awards.
These models also require subjective assumptions, including expected life, which
greatly affect the calculated values. Our calculations were made using the
Black-Scholes option-pricing model (minimum value method) with the following
weighted-average assumptions: expected life of six years; stock volatility, 1%;
risk-free interest rates, 4.0% for the three and six months ended June 30, 2004
and 2003, respectively; and no dividends during the expected term. Our
calculations are based on an option valuation approach, and forfeitures are
recognized as they occur. The effects of applying SFAS No. 123 in this pro forma
disclosure are not necessarily indicative of future amounts.

Had compensation costs been determined based on the fair value of the options
and warrants at the grant dates consistent with the minimum value method of SFAS
No. 123, our net income/(loss) would have been the following in the three and
six months ended June 30, 2004 and 2003:



                                       6
<PAGE>

<TABLE>
<CAPTION>

Three months-ended June 30,                                       2004             2003
---------------------------                                 ---------------- ---------------
<S>                                                              <C>              <C>
Net income(loss):
  As reported                                                    $ (807,706)      $ 107,287
  Add:  Total stock-based employee compensation expense
    determined under fair value based method for all awards         (38,148)         (1,462)
                                                            ---------------- ---------------
  Pro forma                                                      $ (845,854)      $ 105,825
                                                            ================ ===============

Net income(loss) per share--basic:
  As reported                                                        ($0.06)          $0.01
  Pro forma                                                          ($0.07)          $0.01

Net income(loss) per share--diluted:
  As reported                                                        ($0.06)          $0.00
  Pro forma                                                          ($0.07)          $0.00

<CAPTION>

Six months-ended June 30,                                         2004             2003
-------------------------                                  ----------------- ----------------
<S>                                                            <C>              <C>
Net loss:
  As reported                                                  $ (2,477,002)    $ (1,902,024)
  Add:  Total stock-based employee compensation expense
     determined under fair value based method for all awards       (136,352)          (3,315)
                                                           ----------------- ----------------
  Pro forma                                                    $ (2,613,354)    $ (1,905,339)
                                                           ================= ================

Net loss per share--basic and diluted:
  As reported                                                        ($0.19)          ($0.15)
  Pro forma                                                          ($0.20)          ($0.15)

</TABLE>


New Accounting Pronouncements


In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest
Entities. In general, a variable interest entity is a corporation, partnership,
trust or any other legal structure used for business purposes that either (a)
does not have equity investors with voting rights or (b) has equity investors
that do not provide sufficient financial resources for the entity to support its
activities. FIN 46 requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. The consolidation requirements of FIN 46
apply immediately to variable interest entities created after January 31, 2003.
With respect to variable interest entities created before January 31, 2003, in
December 2003, the FASB issued FIN 46R, which, among other things, revised the
implementation date to first fiscal years or interim periods ending after March
15, 2004, with the exception of Special Purpose Entities ("SPE"). The
consolidation requirements apply to all SPE's in the first fiscal year or
interim period ending after December 15, 2003. As we have determined that we do
not have any SPE's to which these interpretations apply, the adoption of FIN 46R
did not have a material impact on our financial statements.


In May 2003, the FASB issued Statement of Financial Accounting Standards No.
150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity (SFAS 150). SFAS 150 establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both debt and equity and requires an issuer to classify the
following instruments as liabilities in it balance sheet:

    o   A financial instrument issued in the form of shares that is mandatorily
        redeemable and embodies an unconditional obligation that requires the
        issuer to redeem it by transferring its assets at a specified or
        determinable date or upon an event that is certain to occur;



                                       7
<PAGE>



    o   A financial instrument, other than an outstanding share, that embodies
        an obligation to repurchase the issuer's equity shares, or is indexed to
        such an obligation, and requires the issuer to settle the obligation by
        transferring assets; and
    o   A financial instrument that embodies an unconditional obligation that
        the issuer must settle by issuing a variable number of its equity shares
        if the monetary value of the obligation is based solely on predominantly
        on (1) a fixed monetary amount, (2) variations in something other than
        the fair value of the issuer's equity shares, or (3) variations
        inversely related to changes in the fair value of the issuer's equity
        shares.


In November 2003, the FASB issued FASB Staff Position (FSB) No. 150-3, which
deferred the effective dates for the applying certain provisions of SFAS No. 150
related to mandatorily redeemable financial instruments of certain nonpublic
entities and certain mandatorily redeemable non-controlling interests for public
and nonpublic entities.


For public entities, SFAS No. 150 is effective for mandatorily redeemable
financial instruments entered into or modified after May 31, 2003 and is
effective for all other financial instruments as of the first interim period
beginning after June 15, 2003.


For mandatorily redeemable non-controlling interests that would not have to be
classified as liabilities by a subsidiary under the exception in paragraph 9 of
SFAS No. 150, but would be classified as liabilities by the parent, the
classification and measurement provisions of SFAS No. 150 are deferred
indefinitely. For other mandatorily redeemable non-controlling interests that
were issued before November 5, 2003, the measurement provisions of SFAS No. 150
are deferred indefinitely. For those instruments, the measurement guidance for
redeemable shares and non-controlling interests in other literature shall apply
during the deferral period.


SFAS No. 150 is to be implemented by reporting the cumulative effect of a change
in accounting principle. We do not believe that the adoption of the deferred
provisions of SFAS No. 150 will have a material impact on our financial
statements.

2.  Segment Information and Customer Concentration

Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by our
chief operating decision-maker, or decision-making group, in deciding how to
allocate resources and in assessing performance. Our operating segments are
managed separately because each segment represents a strategic business unit
that offers different products or services.

Our reportable operating segments include software licenses, maintenance,
services, and other. The software licenses operating segment develops and
markets our software products. The maintenance operating segment includes
post-sale support of our software products and the rights to unspecified
upgrades and enhancements, when and if available. The services segment provides
fee-based implementation and training services related to our products. The
other segment represents third party hardware and software products.

We do not separately allocate operating expenses to these segments, nor do we
allocate specific assets to these segments. Therefore, segment information
reported includes only revenues, cost of sales, and gross profit, as this
information is the only information provided to the chief operating
decision-maker.

Operating segment data for the three and six months ended June 30, 2004 and 2003
is as follows:



                                       8
<PAGE>

<TABLE>
<CAPTION>
                                     Software
                                     Licenses      Services     Maintenance      Other         Total
                                    -----------   -----------   -----------   -----------   -----------
Three months-ended June 30, 2004:
---------------------------------
<S>                                 <C>           <C>           <C>           <C>           <C>
  Revenues                          $   916,086   $ 2,940,277   $ 1,256,296   $   355,100   $ 5,467,759
  Cost of revenues                      148,471     1,768,880       201,062       294,913   $ 2,413,326
                                    -----------   -----------   -----------   -----------   -----------

    Gross profit                    $   767,615   $ 1,171,397   $ 1,055,234   $    60,187   $ 3,054,433
                                    ===========   ===========   ===========   ===========   ===========

Three months-ended June 30, 2003:
---------------------------------
  Revenues                          $ 2,833,035   $ 2,196,145   $ 1,068,289   $ 1,077,510   $ 7,174,979
  Cost of revenues                       59,044     1,402,719       309,433       784,051     2,555,247
                                    -----------   -----------   -----------   -----------   -----------

    Gross profit                    $ 2,773,991   $   793,426   $   758,856   $   293,459   $ 4,619,732
                                    ===========   ===========   ===========   ===========   ===========


Six months-ended June 30, 2004:
-------------------------------
  Revenues                          $ 1,982,711   $ 5,417,903   $ 2,512,592   $   598,674   $10,511,880
  Cost of revenues                      189,555     3,665,657       555,864       459,548   $ 4,870,624
                                    -----------   -----------   -----------   -----------   -----------

    Gross profit                    $ 1,793,156   $ 1,752,246   $ 1,956,728   $   139,126   $ 5,641,256
                                    ===========   ===========   ===========   ===========   ===========

Six months-ended June 30, 2003:
-------------------------------
  Revenues                          $ 3,847,025   $ 4,247,709   $ 1,993,689   $ 1,599,174   $11,687,597
  Cost of revenues                       73,873     2,669,793       663,213     1,041,055     4,447,934
                                    -----------   -----------   -----------   -----------   -----------

    Gross profit                    $ 3,773,152   $ 1,577,916   $ 1,330,476   $   558,119   $ 7,239,663
                                    ===========   ===========   ===========   ===========   ===========
</TABLE>


Two customers accounted for 26.9% and 11.9% of revenues for the three months
ended June 30, 2004 and one customer accounted for 12.0% of revenues for the
three months ended June 30, 2003. Two customers accounted for 24.7% and 15.0% of
revenues for the six months ended June 30, 2004. Two customers accounted for
16.0% and 14.0% of revenues for the six months ended June 30, 2003.
Approximately 52.7% of accounts receivable was due from two customers as of June
30, 2004. All of our customers are in the retail industry.



3.  Credit Facility

We have an existing credit facility, which as amended, provides for a $3,000,000
revolving line of credit and a $500,000 equipment line of credit. Borrowings
under the revolving line of credit are limited to 80% of eligible accounts
receivable, as defined, and bear interest at 0.50% above the prime rate (4.00%
at June 30, 2004). The revolving line of credit matures in February 2005.

The equipment line of credit bears interest at 0.75% above the prime rate and is
payable monthly. On November 27, 2004, outstanding borrowings under the
equipment line of credit shall be payable in 30 equal monthly installments, plus
interest at 0.75% above the prime rate through the maturity date in June 2007.
At the time of maturity, all outstanding borrowings shall be immediately due and
payable.

As of June 30, 2004, we have outstanding borrowings against the credit facility
of $1,700,009, consisting of $226,439 under the equipment line of credit and
$1,473,570 under the revolving line of credit. As of June 30, 2004, available
unused borrowings under the revolving line of credit were $19,708.



                                       9
<PAGE>



Borrowings under the credit facility are secured by substantially all of our
assets and we are required to comply with certain financial covenants and
conditions, including quick ratio percentages. As of June 30, 2004, we were in
compliance with all financial covenants under our credit facility.


4.  Commitments and Contingencies

We lease certain facilities and equipment under non-cancelable agreements that
expire at various times through October 2007, which are accounted for as
operating leases.

Future minimum lease payments under non-cancelable operating leases consist of
the following:

     Year ending December 31:
        2004 (July 1 through December 31)             $308,754
        2005                                           633,306
        2006                                           603,941
        2007                                           596,294
                                                 --------------
     Future minimum lease payments                  $2,142,294
                                                 ==============

Guarantees and Indemnifications - During our normal course of business, we have
made certain indemnities, commitments and guarantees under which it may be
required to make payments in relation to certain transactions. These indemnities
include intellectual property indemnities to our customers in connection with
the sales of our products, indemnities to various lessors in connection with
facility leases for certain claims arising from such facility or lease, and
indemnities to our directors and officers. The duration of these indemnities,
commitments and guarantees varies and, in certain cases, is indefinite. The
majority of these indemnities, commitments and guarantees do not provide for any
limitation of the maximum potential future payments we could be obligated to
make. Generally, a maximum obligation arising out of these types of agreements
is not explicitly stated, and therefore, the overall maximum amount of these
obligations cannot be reasonably estimated. Historically, we have not been
obligated to make significant payments for these obligations and thus no
liabilities have been recorded for these obligations on our balance sheet at
June 30, 2004.

Litigation - In the normal course of business, we are subject to various legal
matters. In the opinion of management, the resolution of these matters will not
have a material adverse effect on our operations, cash flows and financial
position.



                                       10
<PAGE>



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

We begin Management's Discussion and Analysis of Financial Condition and Results
of Operations (MD&A) with "Our Strategy" to give the reader an overview of
business goals and the direction in which our business and products are moving.
This is followed by a discussion of the "Critical Accounting Estimates" that we
believe are important to understanding the assumptions and judgments
incorporated in our reported financial results. We then discuss our "Results of
Operations," beginning with an Overview, followed by an analysis of changes in
our balance sheet and cash flows. We conclude this MD&A with our "Business
Outlook" section wherein we discuss the outlook for the remainder of 2004.


Forward Looking Statements


This MD&A should be read in conjunction with the other sections of this
Quarterly Report on Form 10-QSB, including "Item 1: Financial Statements". The
various sections of this MD&A contain a number of forward-looking statements,
all of which are based on our current expectations and could be affected by
uncertainties and risk factors described throughout this filing and particularly
in the "Business Outlook" section. Forward-looking statements generally can be
identified by the use of forward-looking terminology such as "may," "will,"
"expect," "intend," "estimate," "anticipate," "plan," "seek," or "believe". We
believe that the expectations reflected in such forward-looking statements are
accurate. However, we can not assure you that such expectations will occur. Our
actual results may differ materially, and you should not unduly rely on these
forward-looking statements, which speak only as of the date of this report.
These forward-looking statements do not reflect the potential impact of any
business activities not completed as of August 13, 2004.


Our Strategy


We provide strategic pricing and inventory management solutions that enable
grocers to increase top and bottom lines by speeding decisions into action. By
helping grocers to automate complex pricing strategies, streamline inventory
management processes, and execute consistently across the retail enterprise -
from Headquarters to the Store - we empower grocery retailers and wholesalers to
connect with their customers, respond rapidly to market changes and dramatically
improve customer image. Our customers gain competitive advantage in their
markets using our strategic pricing and inventory management solutions, while
growing top-line revenues and improving chain and store profits. We service more
than 400 chains and have over 15,000 installations worldwide. TCI is a market
leader for strategic pricing and inventory management solutions within grocery
retail.


We intend to solidify our presence in grocery retail and wholesale, broaden our
product offering with new and complimentary products developed internally and
through partnerships, and focus on the critical elements of operational
execution. Our goal is to enhance retail operations and execution with high
quality solutions that retain and add valuable customers. Key elements of our
strategy to fulfill our vision are outlined in the points that follow:

    o   Operational Efficiency - Subsequent to a strategic review launched
        earlier this year by management, we reorganized in order to increase the
        allocation of resources to critical markets and products. Additionally,
        we more clearly defined our business strategy and core business
        activities. As a result, we have developed a new operating structure
        designed to help boost software license revenues and shrink operating
        costs in order to improve operational efficiency and enhance customer
        satisfaction. The actions we have taken include:

           o   New Market Definitions - Our focus began with clearly defining
               our targeted customer base within grocery retail and the related
               alignment of resources with the following market definitions:



                                       11
<PAGE>



                  o   Mainstream & Enterprise Marketplace - For this
                      marketplace, we focus on delivering high quality,
                      strategic pricing and inventory management solutions that
                      deliver rich and flexible functionality. This marketplace
                      also has the following attributes:

                         o   Retailers with greater than or equal to 10 stores.
                         o   Sophisticated functional requirements.
                         o   Sales occur primarily through our direct sales
                             force.
                         o   Implementations range from simplistic to
                             sophisticated and may be supported through
                             strategic implementation partners.

                  o   Packaged Marketplace - Within this marketplace we offer a
                      competitively priced solution with the benefits of
                      pre-defined functionality, rapid implementation and
                      minimal support requirements. Additionally, this
                      marketplace has the following characteristics:

                         o   Retailers with less than 10 stores.
                         o   Minimal functional requirements.
                         o   Dealers are our primary sale and delivery mechanism
                             for product sales.

           o   Develop and Leverage Strategic Relationships - We continue to
               establish strategic business relationships that enhance the
               delivery of our products, professional services and the
               development of our products that complement our current software
               solutions. We believe these relationships can provide greater
               market presence, greater opportunity to increase sales, improve
               operational efficiencies and provide greater access to other
               retail sectors and international markets. Additionally, within
               our packaged marketplace, software is now primarily going to be
               sold and serviced through our reseller network.

    o   Customer Satisfaction - We are continuing to further develop initiatives
        designed to focus our organization on delivering more value to new and
        existing customers by improving quality, satisfaction and the efficiency
        of our customers' experience with us. The initiatives we are cultivating
        for the benefit of our customers are as follows:

           o   Product Delivery Process - We continue to implement new processes
               for operational improvement around product development. Initially
               addressing market requirements, the Product Delivery Process
               includes formality around functional and technical
               specifications. These processes and procedures insure that we
               remain in touch with delivering high quality solutions that meet
               the functional needs of our customers.
           o   Engagement Management - Engagement Management is an initiative
               complete with governances and processes that have aided in the
               creation of great customer experiences both during and beyond our
               software implementations. Our goal is to optimize the project and
               satisfy our customer. It begins with understanding our customer's
               expectations. Engagement management transcends the implementation
               and improves the depth of our win-win customer relationships
               throughout our organization.
           o   Quality and Customer Centricity - A critical component to our
               success as a developer of technology products starts with
               listening to user concerns and understanding their requirements
               from the beginning. We put the customer at the center of our
               organizational structure and it is very important to us that the
               customer always has a single integrated view of our company. Our
               quality and customer centricity initiatives are focused on
               continuously improving in these areas.




                                       12
<PAGE>

Critical Accounting Estimates


Our discussion and analysis of results of operations and financial condition are
based upon financial statements that we prepared in accordance with accounting
principles generally accepted in the United States of America.


We have identified the following policies as critical to the understanding of
our financial statements and results of operations. The impact and any
associated risks related to these policies on our business operations is
discussed throughout our Management's Discussion and Analysis where such
policies affect our reported and expected financial results. For a detailed
discussion on the application of these and other accounting policies, see Note 1
in the Notes to our Financial Statements included in our annual Form 10-KSB
filed on March 30th, 2004.


The preparation of our financial statements requires us to make estimates and
assumptions that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of our financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates. The
significant accounting policies which we believe are the most critical to aid in
fully understanding and evaluating our reported financial results include the
following:


Revenue recognition - Our revenue recognition policy is significant because our
revenue is a key component to our results of operations. In addition, our
revenue recognition determines the timing of certain expenses such as
commissions and royalties. We follow specific detailed guidelines in measuring
revenue; however, certain judgments affect the application of our revenue
policy.


We license software products under non-cancelable perpetual license agreements
and provide related services, including consulting and customer support. We
recognize revenue in accordance with SOP 97-2, Software Revenue Recognition, as
amended and interpreted by SOP 98-9, Modification of SOP 97-2, Software Revenue
Recognition, with respect to certain transactions, as well as Technical Practice
Aids issued from time to time by the American Institute of Certified Public
Accountants and guidance of Staff Accounting Bulletin ("SAB") No. 101, Revenue
Recognition in Financial Statements, which provides further interpretive
guidance for public reporting companies on the recognition, presentation and
disclosure of revenue in financial statements.


Software license revenue is recognized when a license agreement has been signed,
the software product has been delivered, there are no uncertainties surrounding
product acceptance, the fees are fixed and determinable and collection is
considered reasonably assured. If a software license contains an undelivered
element, the fair value of the undelivered element is deferred and that revenue
is recognized once the element is delivered. Revenues attributable to
undelivered elements, including services and post-contract support, are based on
the average sales price of those elements when sold separately. In addition, if
a software license contains customer acceptance criteria or a cancellation
right, the software revenue is recognized upon the earlier of customer
acceptance or the expiration of the acceptance period or cancellation right. We
do not offer rights of return.


Services are separately priced, are generally available from a number of
suppliers and are not essential to the functionality of our software products.
Services, which include project management, system planning, design and
implementation, customer configurations and training, are billed on an hourly
basis. Services revenue billed on an hourly basis is recognized as the work is
performed.


Customer support services include post-contract support and the rights to
unspecified upgrades and enhancements, when and if available. Maintenance
revenues from ongoing customer support services are billed on an annual or
quarterly basis with the revenue being deferred and recognized ratably over the
maintenance period.


Other revenue is recognized when the third-party software and hardware products
have been shipped and title has passed.




                                       13
<PAGE>



Accounts Receivable - We typically extend credit to our customers. Payments for
software licenses generally include payment terms with installments due within
one year of the date of shipment. Billings for customer support and professional
services performed on a time and material basis are due on net 30-day terms. We
review past due accounts and provide specific reserves based upon the
information we gather from sources including customers, subsequent cash
receipts, professional services, and credit rating services such as Dunn &
Bradstreet. We estimate the probability of collection of the receivable balances
and provide an allowance for doubtful accounts based upon an evaluation of our
customers' ability to pay and general economic conditions. While our losses have
historically been within our estimates, we cannot guarantee that we will
continue to experience the same collection experience. A loss of any significant
customer could have a material adverse effect on our operations. We expect that
revenues from a limited number of new customers will continue to account for a
large percentage of total revenues in future periods. If actual bad debts are
greater than the reserves calculated based on historical trends and known
customer issues, we may be required to record additional bad debt expense which
could have a material adverse impact on our results of operations and financial
position for the periods in which such additional expense occurs.


Goodwill - Our business combinations have resulted in goodwill. We review the
recoverability of the carrying value of goodwill on an annual basis or more
frequently when an event occurs or circumstances change to indicate that an
impairment of goodwill has possibly occurred. While we have not experienced
impairment of goodwill assets in prior periods, we cannot guarantee that there
will not be impairment in the future.

Income Taxes - We recognize deferred tax assets and liabilities based on the
differences between the financial statement carrying amounts and the tax bases
of assets and liabilities. We regularly review our deferred tax assets for
recoverability and establish a valuation allowance based on historical taxable
income, projected future taxable income and the expected timing of the reversals
of existing temporary differences. If we operate at a profit in the future and
generate sufficient future taxable income, we could be required to reverse the
current valuation allowance against the deferred tax assets which would result
in a substantial income tax benefit.


Stock-Based Compensation - We do not record compensation expense for options
granted to our employees as all options granted under our stock option plans
have an exercise price equal to the estimated fair market value of the
underlying common stock on the date of grant. As permitted under Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
("SFAS No. 123"), we have elected to continue to apply the provisions of
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and provide pro forma disclosure on a quarterly and annual basis of
net income (loss) and net income (loss) per common share for employee stock
option grants made, and shares issued under our employee stock purchase plan, as
if the fair-value method defined in SFAS No. 123 had been applied. If proposals
currently under consideration by various accounting standard organizations are
adopted, such as the Financial Accounting Standards Board Proposed Statement of
Financial Accounting Standard, "Share-Based Payment, an amendment of FASB
Statements No. 123 and 95", we may be required to treat the value of stock-based
awards granted to employees as compensation expense in the future, which could
have a material adverse effect on our reported operating results.

Three and Six Months Ended June 30, 2004 Compared to Three and Six Months Ended
June 30, 2003.

Revenues consist of software license revenues, services, maintenance and other
revenues, which represents 16.7%, 53.8%, 23.0% and 6.5%, respectively, of total
revenues for the three months ended June 30, 2004 compared to 39.5%, 30.6%,
14.9% and 15.0%, respectively, for the three months ended June 30, 2003.
Additionally, revenues from these sources represented 18.9%, 51.5%, 23.9% and
5.7%, respectively, of total revenues for the six months ended June 30, 2004
compared to 32.9%, 36.3%, 17.1% and 13.7%, respectively, for the six months
ended June 30, 2003. Total revenues for the three months ended June 30, 2004
were $5.5 million, a decrease of $1.7 million, or 23.8%, from the $7.2 million
reported for the three months ended June 30, 2003. Additionally, total revenues
for the six months ended June 30, 2004 were



                                       14
<PAGE>



$10.5 million, a decrease of $1.2 million or 10.1% from the $11.7 million
reported for the six months ended June 30, 2003.

Revenues

Software Licenses. Software license revenue for the three months ended June 30,
2004, as compared to the same period in the prior year, decreased 67.7% to $0.9
million from $2.8 million. Software license revenue for the six months ended
June 30, 2004, as compared to the same period in the prior year, decreased 48.5%
to $2.0 million from $3.8 million. The decrease in software license revenue
results from the timing of customer purchase decisions. Software license revenue
represented 16.7% of total revenues, for the three months ended June 30, 2004
compared to 39.5% for the three months ended June 30, 2003. Software license
revenue represented 18.9% of total revenues, for the six months ended June 30,
2004 compared to 32.9% for the six months ended June 30, 2003.

Services. Services revenue for the three and six months ended June 30, 2004, as
compared to the same periods in the prior year, increased 33.9% and 27.6%
respectively, to $2.9 million and $5.4 million from $2.2 million and $4.2
million. The increase in services revenue is directly attributed to
implementation services associated with the larger sales and sophisticated
implementations of our TCI Retail products. Services revenue represented 53.8%
and 51.5% of total revenues, for the three and six months ended June 30, 2004
compared to 30.6% and 36.3% for the three and six months ended June 30, 2003.

Maintenance. Maintenance revenue for the three and six months ended June 30,
2004, as compared to the same periods in the prior year, increased 17.6% and
26.0%, respectively, to $1.3 million and $2.5 million from $1.1 million and $2.0
million , respectively. The increase in maintenance revenue primarily results
from $6.5 million in new software licenses sold for the fifteen-month period
ended June 30, 2004, resulting in an increase in the number of customers under
maintenance contracts. Maintenance revenue represented 23.0% and 23.9% of total
revenues, for the three and six months ended June 30, 2004 compared to 14.9% and
17.1% for the three and six months ended June 30, 2003.

Other. Other revenue for the three and six months ended June 30, 2004, as
compared to the same periods in the prior year, decreased 67.0% and 62.6%
respectively, to $0.4 million and $0.6 million from $1.1 million and $1.6
million. The decrease in other revenue results from our efforts to reduce the
sale of third party hardware. Alternatively we have developed a referral program
with a limited number of hardware vendors that have the ability to deliver top
quality sales, service and support for our customers, filling our customer's
needs for hardware solutions. The referral program will allow us to direct our
customers to trusted resellers who work closely with TCI to ensure that they
receive quality products at competitive prices. We believe that this program
will allow us to focus sales and product management efforts on improving the
quality of our core software products. Other revenue represented 6.5% and 5.7%
of total revenues for the three and six months ended June 30, 2004 compared to
15.0% and 13.7% for the three and six months ended June 30, 2003.





Gross Profit

Gross profit dollars for the three and six months ended June 30, 2004, as
compared to the same periods in the prior year, decreased 33.9% and 22.1% to
$3.1 million and $5.6 million from $4.6 million and $7.2 million, respectively.
The decrease in gross profit dollars is primarily from the decrease in total
revenue of $1.7 million and $1.2 million for the three and six months ended June
30, 2004 and 2003. Gross profit percent for the three and six months ended June
30, 2004, as compared to the same periods in the prior year, decreased 8.5% and
8.2% respectively, to 55.9% and 53.7% respectively, from 64.4% and 61.9%. The
decrease in gross profit percentage for the three and six months ended June 30,
2004 is primarily due to a decrease of 23.8% and 10.1% respectively, in software
sales over the same period in the prior year.



                                       15
<PAGE>



Software License Margins. Software license margins for the three months ended
June 30, 2004, as compared to the same period in the prior year, decreased 72.3%
to $0.8 million from $2.8 million. Software license margins for the six months
ended June 30, 2004, as compared to the same period in the prior year, decreased
52.5% to $1.8 million from $3.8 million. The decrease in software license
margins for the three and six months ended June 30, 2004 is primarily due to
decreased software sales of 67.7% and 48.5%, as compared to the same periods in
the prior year. Software license margins as a percentage of software license
revenue were 83.8% and 90.4 % for the three and six months ended June 30, 2004,
compared to 97.9% and 98.1 % for the three and six months ended June 30, 2003.

Services Margins. Services revenue margins for the three and six months ended
June 30, 2004, as compared to the same period in the prior year, increased 47.6%
and 47.1% respectively, to $1.2 million and $1.8 million from $0.8 million and
$1.6 million, respectively. The increase in services revenue margins for the
three and six months ended June 30, 2004, as compared to the same periods in the
prior year, is primarily due to the increases in services revenues of 33.9% and
27.6% respectively, combined with increased staffing and billable utilization
within our professional services staff. Services revenue margins as a percentage
of services revenue were 39.8% and 32.3% for the three and six months ended June
30, 2004, compared to 36.1% and 37.2% for the three and six months ended June
30, 2003.


Maintenance Margins. Maintenance revenue margins for the three and six months
ended June 30, 2004, as compared to the same periods in the prior year,
increased 39.1% and 47.1% respectively, to $1.1 million and 2.0 million from
$0.8 million and $1.3 million for the three and six months ended June 30, 2003.
Maintenance revenue margins as a percentage of maintenance revenue were 84.0%
and 77.9% for the three and six months ended June 30, 2004, compared to 71.3%
and 66.7% for the three and six months ended June 30, 2003. The increase in
maintenance revenue margins as a percentage of maintenance revenue for the three
and six months ended June 30, 2004 is primarily due to an increase in
maintenance revenue of 17.6% and 26.0%, resulting from $6.5 million in new
software licenses sold and an increase in the number of customers under
maintenance contracts for the 15 month period ended June 30, 2004. Maintenance
costs decreased in 2004 due to the closure of a regional office used for
customer support that will now be housed within our Tucson facility.


Other Margins. Other revenue margins for the three and six months ended June 30,
2004, as compared to the same periods in the prior year, decreased 79.5% and
75.1% to $0.06 million and $0.1 million from $0.3 million and $0.6 million.
Other revenue margins as a percentage of other revenue were 17.0% and 23.2% for
the three and six months ended June 30, 2004 compared to 27.2% and 34.9% for the
three and six months ended June 30, 2003. The decrease in other revenue margins
as a percentage of other revenue for the three and six months ended June 30,
2004 was primarily related to our planned decrease in sales of third party
hardware.


Operating Expenses

Operating expenses for the three and six months ended June 30, 2004 and 2003
decreased $0.7 million and $1.0 million to $3.8 million and $8.1 million from
$4.5 million and $9.1 million, respectively. Operating expenses represented
70.3% and 76.9% of total revenues for the three and six months ended June 30,
2004 compared to 62.6% and 78.0% for the three and six months ended June 30,
2003.

Product Development. Product development expenses for the three and six months
ended June 30, 2004, as compared to the same periods in the prior year,
decreased 21.2% and 14.3% respectively, to $0.8 million and $1.8 million from
$1.0 million and $2.1 million. The decrease in product development expense
primarily results from efforts to improve development efficiencies through
process improvement and through the reduction of expenses associated with fewer
development resources required to support our heritage product, IMS. Product
development expenses represented 15.0% and 17.4% of total revenues for the three
and six months ended June 30, 2004 compared to 14.5% and 18.3% for the three and
six months ended June 30, 2003.



                                       16
<PAGE>



Sales and Marketing. Sales and marketing expenses for the three and six months
ended June 30, 2004, as compared to the same periods in the prior year,
decreased 16.5% and 12.5% respectively, to $1.6 million and $3.5 million from
$2.0 million and $4.0 million. The decrease in sales and marketing expenses
during the three and six months ended June 30, 2004 is primarily due to the
reorganization of our sales force that occurred during the last half of 2003 and
focused cost control efforts. Sales and marketing expenses represented 30.2% and
33.6% of total revenues for the three and six months ended June 30, 2004
compared to 27.5% and 34.5 % for the three and six months ended June 30, 2003.

General and Administrative. General and administrative expenses for the three
and six months ended June 30, 2004, as compared to the same periods in the prior
year, decreased 7.2% and 7.7% respectively, to $1.4 million and $2.7 million
from $1.5 million and $3.0 million. The decrease in general and administrative
expenses during the three and six months ended June 30, 2004 is due to focused
cost control efforts. General and administrative expenses represented 25.2% and
25.9% of total revenues for the three and six months ended June 30, 2004
compared to 20.7% and 25.3% for the three and six months ended June 30, 2003.


Liquidity and Capital Resources

Historically, we have financed our operations primarily through private sales of
equity securities and borrowings from our credit facility. We expect to finance
future operations through existing cash, working capital and private sales of
equity securities. We had working capital of $0.2 million at June 30, 2004
compared with $2.5 million at December 31, 2003. Cash and cash equivalents at
June 30, 2004 were $2.8 million, a decrease of $0.9 million from the $3.7
million reported at December 31, 2003. Cash balances decreased in the six months
ended June 30, 2004 primarily as a result of a net loss and an increase in
accounts receivable, partially offset by the increase in deferred revenue
attributed to our annual maintenance billing recorded for the six months ended
June 30, 2004.

Operating activities used cash of $0.8 million in the six months ended June 30,
2004. Cash used by operating activities in the six months ended June 30, 2004
results primarily from a net loss of $2.4 million, a $0.3 million increase in
accounts receivable and a $1.4 million increase in deferred revenue relating to
our annual maintenance billing. We had net receivables of $3.4 million at June
30, 2004 compared to $3.3 million at December 31, 2003.

Investing activities used cash of $0.2 million in the six months ended June 30,
2004. Cash used by investing activities in the six months ended June 30, 2004
results from the purchase of computer equipment and office furnishings. We
expect capital expenditures to be approximately $0.3 million for the remainder
of 2004, which will be paid using existing cash and cash equivalents and our
equipment line of credit.

Financing activities provided cash of $0.08 million during the six months ended
June 30, 2004. Cash provided by financing activities for the period ending June
30, 2004 results from the use of our equipment line of credit for computer
equipment.

We believe that our cash and cash equivalents, collections of annual maintenance
billings, cash generated from operations and availability under our credit
facility, will provide adequate liquidity to meet our anticipated operating
requirements for at least the next twelve months.

Business Outlook


As we look ahead to the rest of 2004, we are planning for growth. Our financial
results however, are substantially dependent upon sales of TCI Retail software.
Revenue is partly a function of the mix of software, services, maintenance and
other third party hardware and software sales. Our margins are highest for
software and maintenance and significantly lower for our services and other
revenue categories. Our margins are also affected by the product mix within the
various markets we serve. Margins are higher in the



                                       17
<PAGE>



Enterprise/Mainstream market than in Packaged due to the fact that the overall
sale in the Enterprise/Mainstream market is weighted towards our higher margin
offerings of software and maintenance. Our gross margin as a result, varies with
revenue levels from the various markets and the revenue mix.


We further believe that we have the product offerings, personnel, competitive
and financial resources for business success. Future revenues, gross margins and
profits however, are all influenced by a number of factors, including those
discussed above, all of which are inherently difficult to forecast. As a result,
there are no assurances that we will achieve these objectives. See 'Certain
Risks that May Affect Future Results' herein for a more detailed discussion of
the risks that may affect our business.


New Accounting Pronouncements


In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest
Entities. In general, a variable interest entity is a corporation, partnership,
trust or any other legal structure used for business purposes that either (a)
does not have equity investors with voting rights or (b) has equity investors
that do not provide sufficient financial resources for the entity to support its
activities. FIN 46 requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. The consolidation requirements of FIN 46
apply immediately to variable interest entities created after January 31, 2003.
With respect to variable interest entities created before January 31, 2003, in
December 2003, the FASB issued FIN 46R, which, among other things, revised the
implementation date to first fiscal years or interim periods ending after March
15, 2004, with the exception of Special Purpose Entities ("SPE"). The
consolidation requirements apply to all SPE's in the first fiscal year or
interim period ending after December 15, 2003. As we have determined that we do
not have any SPE's to which these interpretations apply, the adoption of FIN 46R
did not have a material impact on our financial statements.


In May 2003, the FASB issued Statement of Financial Accounting Standards No.
150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity (SFAS 150). SFAS 150 establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both debt and equity and requires an issuer to classify the
following instruments as liabilities in it balance sheet:

    o   A financial instrument issued in the form of shares that is mandatorily
        redeemable and embodies an unconditional obligation that requires the
        issuer to redeem it by transferring its assets at a specified or
        determinable date or upon an event that is certain to occur;
    o   A financial instrument, other than an outstanding share, that embodies
        an obligation to repurchase the issuer's equity shares, or is indexed to
        such an obligation, and requires the issuer to settle the obligation by
        transferring assets; and
    o   A financial instrument that embodies an unconditional obligation that
        the issuer must settle by issuing a variable number of its equity shares
        if the monetary value of the obligation is based solely on predominantly
        on (1) a fixed monetary amount, (2) variations in something other than
        the fair value of the issuer's equity shares, or (3) variations
        inversely related to changes in the fair value of the issuer's equity
        shares.


In November 2003, the FASB issued FASB Staff Position (FSB) No. 150-3, which
deferred the effective dates for the applying certain provisions of SFAS No. 150
related to mandatorily redeemable financial instruments of certain nonpublic
entities and certain mandatorily redeemable non-controlling interests for public
and nonpublic entities.


For public entities, SFAS No. 150 is effective for mandatorily redeemable
financial instruments entered into or modified after May 31, 2003 and is
effective for all other financial instruments as of the first interim period
beginning after June 15, 2003.




                                       18
<PAGE>



For mandatorily redeemable non-controlling interests that would not have to be
classified as liabilities by a subsidiary under the exception in paragraph 9 of
SFAS No. 150, but would be classified as liabilities by the parent, the
classification and measurement provisions of SFAS No. 150 are deferred
indefinitely. For other mandatorily redeemable non-controlling interests that
were issued before November 5, 2003, the measurement provisions of SFAS No. 150
are deferred indefinitely. For those instruments, the measurement guidance for
redeemable shares and non-controlling interests in other literature shall apply
during the deferral period.

SFAS No. 150 is to be implemented by reporting the cumulative effect of a change
in accounting principle. We do not believe that the adoption of the deferred
provisions of SFAS No. 150 will have a material impact on our financial
statements.


Certain Risks That May Affect Future Results


Investors evaluating our business should carefully consider the factors
described below and all other information contained in this Form 10-QSB. While
management is optimistic about our long-term prospects, we do operate in a
dynamic and rapidly changing environment that involves numerous risks and
uncertainties that we believe may adversely affect our business, operating
results and financial condition. Additional factors and uncertainties not
currently known to us or that we currently consider immaterial could also harm
our business, operating results and financial condition. Investors could lose
all or part of their investment as a result of these factors. This section
should be read in conjunction with the audited Financial Statements and Notes
thereto for the periods ended June 30, 2004 and 2003 contained elsewhere in this
Form 10-QSB.


Changes in Economic, Political and Market Conditions Could Cause Decreases in
Demand for Our Software and Related Services Which Could Negatively Affect Our
Revenue and Operating Results and The Price of Our Stock. Our revenue and
profitability depend on the overall demand for our software and related
services. A regional and/or global change in the economy and financial markets
could result in delay or cancellation of customer purchases. If demand for our
software and related services decrease, our revenues would decrease our
operating results would be adversely affected and the fair market value of our
stock could also decrease.


Our Stock Price Has Been And May Remain Volatile. The price of our common stock
has in the past and may in the future be subject to fluctuations. Examples of
factors that we believe have caused fluctuations in our stock price in the past
include the following:

    o   Delayed purchasing decisions and/or elongated sales cycles;
    o   Increased competition;
    o   A limitated number of reference accounts with implementations in the
        early years of product release; and
    o   Lack of desired features or functionality.


Our Quarterly Operating Results May Fluctuate Significantly and Economic
Conditions Could Impair Our Ability to Execute Our Business Plan and Thereby,
Negatively Impact Our Financial Condition. Our quarterly operating results have
varied in the past and are expected to continue to vary in the future.
Significant fluctuations in our quarterly operating results may harm our
business operations by making it difficult to implement our business plan.
Factors, many of which are outside of our control, which could cause our
operating results to fluctuate include:

    o   the demand for and market acceptance of our software solutions;
    o   changes in the length of our sales cycle;
    o   the size and timing of customer orders, which can be affected by
        customer budgeting and purchasing cycles;



                                       19
<PAGE>



    o   lower than anticipated consumption and/or utilization of our
        professional services group as a result of reduced levels of software
        sales, reduced implementation times for our products, changes in the mix
        of demand for our software products;
    o   competitors' announcements or introductions of new software solutions,
        services or technological innovations;
    o   our ability to develop, introduce and market new products on a timely
        basis;
    o   customer deferral of material contracts in anticipation of new releases
        or new product introductions;
    o   our success in expanding our sales and marketing programs;
    o   technological changes or problems in computer systems; and
    o   general economic conditions which may affect our customers' capital
        investment levels.


Additionally, our market activity in target markets has increased in recent
years and we have made more large sales than in past periods. Because of this,
sales we expect to make in a particular period, that do not occur, or sales made
in a particular period that were not expected, can affect our results of
operations in a given period more so now than in the past when the size of the
average order was smaller. As a result of these and other factors,
period-to-period comparisons of financial results may not be meaningful.
Historical results of operations are not necessarily indicative of future
results, and interim results are not necessarily indicative of future annual
results. Although our primary market of grocery and drug store retailers may be
less susceptible to cyclical shifts in the economy, this segment of the retail
industry may experience downturns due to macroeconomic pressures that could, in
turn, have a material adverse effect on our business, results of operations or
financial condition.


Changes in Market Size and Dynamics Could Have a Material Adverse Effect on Our
Ability to Generate Sales and Our Future Prospects for Growth. A sluggish U.S.
economy, consolidations and the entry of large mass merchants such as Wal-Mart
may have a long-lasting, detrimental effect on the market for our products as
retailers scale back on their expenditures or are forced to go out of business.
In addition, reductions or allocations of retail information technology budgets,
due to economic conditions could affect retailers' demand for our products. A
significant reduction in the number of customers or purchases made by customers
as a result of these conditions could have a material adverse effect on our
sales and prospects for growth.


We also believe that the retail industry may be consolidating and that the
industry is, from time to time, subject to increased competition and weakening
economic conditions that could negatively impact the industry and our customers'
ability to pay for our products and services which have and could potentially
lead to an increased number of bankruptcy filings. Such consolidation and
weakening economic conditions have in the past, and may in the future,
negatively impact our revenues, reduce the demand for our products and may
negatively impact our business, operating results and financial condition.


Decreases in Demand From Grocery Retailers Could Hurt Our Ability to Generate
Revenues. Historically, we have derived almost 100% of our revenues from the
licensing of software products and the performance of related services to the
grocery retail industry. Our future growth is critically dependent on increased
sales to grocery and similar retail sectors within the retail industry. The
success of our customers is directly linked to economic conditions in the retail
industry, which in turn are subject to intense competitive pressures and are
affected by overall economic conditions. In addition, we believe that the
license of our software products generally involves a large capital expenditure,
which is often accompanied by large-scale hardware purchases or commitments. As
a result, demand for our products and services could decline in the event of
instability or downturns. Such downturns may cause customers to exit the
industry or delay, cancel or reduce any planned expenditure for information
management systems and software products.


The Industries Rapid Pace of Change Could Render our Technology Unmarketable and
Result in a Decrease in Revenue. If we are unable to develop new software
solutions or enhancements to our existing products on a timely and
cost-effective basis, or if new products or enhancements do not achieve market
acceptance, our sales may decline. The life cycles of our products are difficult
to predict because the market for our products is characterized by rapid
technological change and changing customer needs. The



                                       20
<PAGE>



introduction of products employing new technologies could render our existing
products or services obsolete and unmarketable. In developing new products and
services, we may:

    o   fail to respond to technological changes in a timely or cost-effective
        manner;
    o   encounter products, capabilities or technologies developed by others
        that render our products and services obsolete or noncompetitive or that
        shorten the life cycles of our existing products and services;
    o   experience difficulties that could delay or prevent the successful
        development, introduction and marketing of these new products and
        services; or
    o   fail to achieve market acceptance of our products and services.


We May Introduce New Lines of Business and Channel Distribution Strategies Where
We are Less Experienced and Unable to Successfully Sell That Could Negatively
Impact Revenues and Our Results of Operations. We may introduce new lines of
business and channel sale/distribution strategies that are outside our
traditional focus on software licenses, related maintenance and professional
services. Introducing new lines of business involves a number of uncertainties,
including a lack of internal resources and expertise to operate and grow new
lines of business, manage new distribution systems, immature internal processes
and controls, predicting revenues and expenses for the new lines of business,
and the possibility that such new lines of business will divert management
attention and resources from our traditional business. The inability of
management to effectively develop and operate these new lines of business could
have a material adverse effect on our business, operating results and financial
condition. Moreover, we may not be able to gain acceptance of any new lines of
business in our markets or channel strategies or obtain the anticipated or
desired benefits of such new lines or channel sale/distribution strategies.


We Have Only Deployed Certain of Our Software Products On a Limited Basis, And
We Have Not Yet Deployed Some Software Products That Are Important To Our
Growth. Certain of our software products, including inStore Host and ThinStore
are still either under development, in beta or have been recently commercially
released. The markets for these products are new and evolving, and we believe
that retailers may be cautious in adopting web-based and other new technologies.
Consequently, we can not predict the growth rate, if any, and size of the
markets of our new products or that these markets will continue to develop.
Potential and existing customers may find it difficult, or be unable, to
successfully implement our products, or may not purchase our products for a
variety of reasons, including their inability or unwillingness to deploy
sufficient internal personnel and computing resources for a successful
implementation. If the markets of our newer products fail to develop, develop
more slowly or differently than expected, or become saturated with competitors,
or if our products are not accepted in the marketplace or are technically
flawed, our business, operating results and financial condition will decline.


It May Be Difficult to Profitably Identify, Adopt and Develop Product
Architecture That is Compatible With Emerging Industry Standards That Could
Negatively Impact Our Ability to Generate Future Revenues. The markets for our
software products are characterized by rapid technological change, evolving
industry standards, changes in customer requirements and frequent new product
introductions and enhancements. If we fail in our product development efforts to
accurately address evolving industry standards or important third-party
interfaces or product architectures, sales of our products and services will
suffer.


Our software products can be licenses with a variety of popular industry
standard platforms, and are authored in various development environments using
different programming languages and underlying architectures. There may be
future or existing platforms that achieve popularity in the marketplace that may
not be compatible with our software product design. Developing and maintaining
consistent software product performance across various technology platforms
could place a significant strain on our resources and product release schedules,
which could adversely affect our results of operations.


Changes in Technology Could Render Our Products Obsolete and Negatively Impact
Our Results of Operations. Technological changes in computer operating systems
and hardware could render our products obsolete or unmarketable and may require
us to modify existing applications to be marketable or develop



                                       21
<PAGE>



new applications to be competitive with products from competitors. These changes
may cause us to have to make changes to existing applications or to create new
applications, resulting in additional development and other costs beyond those
currently anticipated. We can provide no assurances that our software
applications will be compatible with new or modified operating systems or
hardware, or that we will be able to modify its applications or create new
applications to keep pace with new or changed operating systems or hardware that
may be purchased by our customers. In addition, if we are unable to modify
existing applications or develop new applications on a timely and cost effective
basis, or if new applications or enhancements do not achieve market acceptance,
our sales may decline.


An Inability to Build Relationships with Systems Integrators Could Result in a
Damaged Reputation That Could Negatively Impact Our Ability to Generate Future
Revenues. Systems integrators assist our customers with the installation and
deployment of our products, in addition to those of our competitors, and perform
custom integration of computer systems and software. In the future, we intend to
increase our reliance on system integrators to help customers with the
implementation of our products. If we are unable to develop and maintain
relationships with systems integrators, we would be required to hire additional
personnel to install and maintain products, which would result in lower margins
due to the higher expenses associated with systems integrators. Additionally, in
the event that system's integrators are not able to provide an adequate level of
services, we may be required to deploy unexpected resources to provide
integration services and avoid potential damage to our reputation.


The Sales Cycle for Our TCI Retail Products is Long and Costly and May Not
Result in Revenues. The licensing of our products is often an enterprise-wide
decision by our customers that involves a significant commitment of resources by
the customer and us. Prospective customers generally consider a wide range of
issues and competitive products before committing to purchase our products.
These issues may include product benefits, cost, time of implementation, ability
to operate with existing and future computer systems, ability to accommodate
increased transaction volume and product reliability. The period between initial
contact with a prospective customer and sale of our products and services
varies, but typically ranges from three months to twenty-four months. As part of
the sales process, we spend a significant amount of resources informing
prospective customers about the use and benefits of our products and these sales
efforts may not result in a sale.


In instances where the terms of delivery for our software does not conform to
revenue recognition criteria, we record as deferred revenues, advance payments
from our customers. Since only a portion of our revenue each quarter is
recognized from deferred revenues, our quarterly results will depend primarily
upon entering into new contracts that generate revenues for that quarter. New
contracts may not result in revenues in the quarter in which the contract is
signed, and we may not be able to predict accurately when revenues from these
contracts will be recognized.


Generating the Appropriate Mix of Revenues from Software and Services is
Critical to Generating Acceptable Profit Margins and Operating Results. Because
our gross margins on product revenues (software licenses and maintenance
services) are significantly greater than our gross margins on services and
hardware, our combined gross margin has fluctuated from quarter to quarter, and
it may continue to fluctuate significantly based on revenue mix and service
utilization rates. Services revenues are to a significant extent dependent upon
new software license sales and effective utilization of professional service
resources. Although there can be no assurance, we expect that our utilization
rates and service margins will gradually improve if we experience a substantial
increase in demand for our software products. However, in the event that
software license revenues fail to meet our expectations or there is a decline in
demand for our software or services, our consulting service revenue would be
adversely impacted.


Competition Could Seriously Impede Our Ability to Profitably Sell Our Solutions.
The markets for our software products are highly competitive. We believe the
principal competitive factors in our markets are feature and functionality,
product reputation and reference accounts, grocery retail expertise, total
solution cost and quality of customer support. We believe that pricing pressure
has increased in response to market and macroeconomic factors, which could cause
us to offer more significant discounts, or in some cases to




                                       22
<PAGE>



lose potential business to competitors willing to offer what we believe to be
overly aggressive discounts. Competition could seriously impede our ability to
sell additional products and services on favorable terms. Competitive pressures
could reduce our market share or require us to reduce prices, which could reduce
our revenues and/or operating margins. Many of our competitors have
substantially greater financial, marketing or other resources, and greater name
recognition than us. Our competitors may also be able to respond more quickly
than we can to new or emerging technologies and changes in customer
requirements. Our current and potential competitors may:

    o   Develop and market new technologies that render our existing or future
        products obsolete, unmarketable or less competitive;

    o   Make strategic acquisitions or establish cooperative relationships among
        themselves or with other solution providers, which could increase the
        ability of their products to address the needs of our customers; and

    o   Establish or strengthen cooperative relationships with our current or
        future strategic partners, which could limit our ability to sell
        products through these channels.


It is Difficult for Us to Accurately Predict the Timing of Software Licenses
Revenue and Our Results of Operations Could be Negatively Impacted. Software
license revenues in any quarter depend substantially upon contracts signed and
the related shipment and transfer of title of software in that quarter. It is
therefore difficult for us to accurately predict software license revenues.
Because of the timing of our sales, we typically recognize the substantial
majority of our software license revenues in the last weeks or days of the
quarter, and we may derive a significant portion of our quarterly software
license revenues from a small number of relatively larger sales. In addition, it
is difficult to forecast the timing of large individual software license sales
with a high degree of certainty due to the extended length of the sales cycle
and generally more complex contractual terms that may be associated with such
licenses that could result in the deferral of some or all of the revenue to
future periods. Accordingly, large individual sales have sometimes occurred in
quarters subsequent to when we anticipate. We expect these aspects of our
business to continue. If we receive any significant cancellation or deferral of
customer contracts, or we are unable to continue license negotiations by the end
of a fiscal quarter, our operating results may be lower than planned. In
addition, any weakening or uncertainty in the economy may make it more difficult
for us to predict quarterly results in the future, and could negatively impact
our business, operating results and financial condition for an indefinite
period.


A Loss of Important Customers May Result in a Loss of Revenues. Two customers
accounted for 26.9% and 11.9% of revenues for the three months ended June 30,
2004 and one customer accounted for 12.0% of revenues for the three months ended
June 30, 2003. Two customers accounted for 24.7% and 15.0% of revenues for the
six months ended June 30, 2004. Two customers accounted for 16.0% and 14.0% of
revenues for the six months ended June 30, 2003. No other single customer
accounted for more than 10% of the three and six months ended June 30, 2004 and
2003. A loss of any significant customer could have a material adverse effect on
our operations. We expect that revenues from a limited number of new customers
will continue to account for a large percentage of total revenues in future
quarters. Our ability to attract new customers will depend on a variety of
factors, including the performance, quality, features and price of our current
and future products. A failure to add new customers that make significant
purchases of our products and services could impair future revenues.


A Loss of Existing Resellers Could Harm Our Financial Position and Results of
Operations. A portion of our product sales and recurring maintenance contracts
are driven or influenced by the recommendation of marketing partners, consulting
firms and other third parties. Our inability to obtain the support of these
third parties may limit our ability to penetrate existing and targeted markets.
These third parties are under no obligation to recommend or support our products
and could recommend or give higher priority to the products and services of
other companies or to their own products. A decision by these companies to favor
competing products could negatively affect our software and service revenues.


If we are unable to establish relationships with marketing partners, we will
have to devote substantially more resources to the sales and marketing of our
products. In many cases, these parties have extensive



                                       23
<PAGE>



relationships with our existing and potential customers and influence the
decisions of these customers. A number of our competitors have long and
established relationships with these same systems integrators, and as a result,
these marketing partners may be more likely to recommend competitors' products
and services.


There May Be an Increase in Customer Bankruptcies Due to Weak Regional Economic
or Other Conditions that Could Result in Uncollectible Accounts Receivable
Balances. We have in the past and may in the future be impacted by customer
bankruptcies that occur in periods subsequent to the software license sale.
During weak economic conditions, such as those being experienced in some
geographic regions we serve, there is an increased risk that certain of our
customer will file bankruptcy. When our customers file bankruptcy, we may be
required to forego collection of pre-petition amounts owed and to repay amounts
remitted to us during the 90-day preference period preceding the filing.
Accounts receivable balances related to pre-petition amounts may in certain of
these instances be large due to extended payment terms for software license
fees, and significant billings for professional services on large projects. The
bankruptcy laws, as well as the specific circumstances of each bankruptcy, may
severely limit our ability to collect pre-petition amount, and may force us to
disgorge payments made during the preference period. We also face risk from
international customers that file for bankruptcy protection in foreign
jurisdictions, in that the application of foreign bankruptcy laws may be less
certain or harder to predict. Although we believe that we have sufficient
reserves to cover anticipated customer bankruptcies, there can be no assurance
that such reserves will be adequate, and if they are not adequate, our business,
operating results and financial condition would be adversely affected.


We May Not Be Able to Generate Positive Cash Flows or Profits Sufficient to
Sustain Our Operations. We have experienced net losses and negative cash flows
from operating activities in recent periods. Although our long-term business
strategy is intended to turn such net losses into net profits, net losses and
negative cash flows are expected to occur for at two months. In the long-term,
if we are unable to generate positive cash flows and net income, we may be
required to change our business plan and/or seek additional financing. If
unsuccessful in either case, we may be required to sell our assets, discontinue
operations or dissolve.


If We Lose Key Personnel or are Unable to Attract and Retain Additional
Personnel, Our Ability to Grow Our Business Could be Harmed. Our performance
depends in large part on the continued performance of our executive officers and
other key employees. All of our key personnel have employment contracts with us.
The contracts are generally described in Item 6, Executive Compensation, within
our annual Form 10-KSB. The loss of the services of these executive officers or
other significant employees could negatively impact our business. Please refer
to Part II, Item 5 titled "Other Information" for information regarding the July
21, 2004 dismissal of our Chief Technology Officer, David Berg.


We must also attract, integrate and retain skilled sales, research and
development, marketing and management personnel. Competition for these types of
employees is intense, particularly in our industry. Failure to hire and retain
qualified personnel would harm our ability to grow the business.


An Inability for Us to Protect Our Intellectual Property Rights Could Negatively
Impact Our Business and Operating Results. We depend on our ability to develop
and maintain the proprietary aspects of our technology. To protect proprietary
technology, we rely on a combination of copyright, trade secret, patent and
trademark laws, common law rights and license agreements. We also seek to
protect our software documentation and other written materials under trade
secret and copyright laws, which afford only limited protection.


Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy aspects of our products or obtain and use information that we
regard as proprietary. Policing unauthorized use of our products is difficult
and expensive. There can be no assurance that the steps taken by us to protect
our proprietary technology will be adequate to prevent misappropriation of our
technology or to provide an adequate remedy in the event of a breach by others.
In addition, the laws of some foreign countries do not protect our proprietary
rights to the same extent as do the laws of the United States. We intend to
vigorously protect intellectual property rights through litigation and other
means. However, such litigation



                                       24
<PAGE>



can be costly to prosecute and we cannot be certain that we will be able to
enforce our rights or prevent other parties from developing similar technology,
duplicating our products or designing around our intellectual property.


We May Face Liability If Our Products Are Defective Or If We Make Errors
Implementing Our Products That Could Negatively Impact Our Ability to Meet Our
Customers Needs and Thereby, Negatively Impact Our Financial Position and
Results of Operations. Our products are highly complex and sophisticated. As a
result, they may occasionally contain design defects or software errors that
could be difficult to detect and correct. This may result in loss of, or delay
in, market acceptance of our products and could cause us to incur significant
costs to correct errors or failures or to pay damages suffered by customers as a
result of such errors or failures. In the past, we have discovered software
errors in new releases and new products after their introduction. We have
incurred costs during the period required to correct these errors, although to
date such costs, including costs incurred on specific contracts, have not been
material. We may in the future discover errors in new releases or new products
after the commencement of commercial shipping.


In addition, implementation of our products may involve customer-specific
configuration by third parties, or us and my involve integration with systems
developed by third parties. Errors in the product or integration process may not
be discovered until the implementation is complete.


Errors in our products may be caused by defects in third-party software
incorporated into our products. If so, we may not be able to fix these defects
without the cooperation of these software providers. Since these defects may not
be as significant to the software provider as they are to us, we may not receive
the rapid cooperation that it requires. We may not have the contractual right to
access the source code of third-party software and, even if we have the right to
access the source code, we may not be able to fix the defect. Our customers
could seek significant compensation from us for their losses resulting from
defects in our products. Even if unsuccessful, a product liability claim brought
against us could be time consuming and costly.


We believe that significant investments in research and development are required
to remain competitive, and that speed to market is critical to our success. Our
future performance will depend in large part on our ability to produce and
enhance quality products through internal development , strategic partnerships
and internal develop to leverage new and existing customers. If clients
experience significant problems with implementation of our products or are
otherwise dissatisfied with their functionality or performance or if they fail
to achieve market acceptance for any reason, our business, operating results and
financial condition would suffer.


Infringement Claims May Allow Competitors to Gain Access To Our Technology and
We May Lose Customers. We do not have any knowledge that our products infringe
on the proprietary rights of any other parties. However, there can be no
assurance that other parties will not assert infringement claims against us in
the future with respect to current or future products. Assertion of an
infringement claim may result in costly litigation or may require us to obtain
license or royalty agreements to use another party's intellectual property.
There can be no assurance that any such license or royalty agreement would be
available on reasonable terms, if available at all. As the number of our
software products in our segment of the software industry increases and the
functionality of these products increasingly overlaps, we believe that software
developers may become increasingly subject to infringement claims. Any such
claims, with or without merit, could be time-consuming and expensive to defend.


Shareholders Cannot Expect to Be Able to Liquidate Any or All of Their
Investment. No public market exists for our common stock. Common shareholders
must be prepared to hold their investment indefinitely and cannot expect to be
able to liquidate any or all of their investment even in case of an emergency.
All of our outstanding shares of common stock are subject to rights of first
refusal in our favor, pursuant to our bylaws. The right of first refusal is
triggered in the event a stockholder desires to sell or otherwise transfer any
shares of our stock to a third party upon which we will have 30 days from
receipt of the notice of the proposed transaction to purchase all of the shares
proposed to be sold at the price and upon the terms proposed to be sold. Certain
exceptions exist to this right of first refusal including the transfer of shares
to



                                       25
<PAGE>



members of a stockholder's immediate family or to a trustee for the account of a
stockholder or such stockholder's immediate family.


Fluctuations in Our Operating Results Could Cause Investors to Lose All of Their
Investment and We Provide No Assurance of Future Share Values. We provide no
assurances regarding the value of our outstanding capital stock. Investors in
our capital stock may lose all or part of their investment in our capital stock.


If We Fail to Obtain Additional Capital, Should the Need Arise, Our Business
Could be Harmed. We have expended and will continue to expend substantial funds
on the development of our products and services. Consequently, we may require
additional funds to finance our operations. The precise amount and timing of our
funding needs cannot be determined at this time, and will depend upon a number
of factors, including the market demand for our products and services, the
progress of our development efforts and our management of cash, accounts payable
and other working capital items. There can be no assurance that if required by
us, funds will be available on terms satisfactory to us, if at all. If
additional funds are raised through the issuance of equity or convertible debt
securities, the percentage ownership of our existing stockholders will be
reduced, the existing stockholders may experience additional dilution and such
securities may have rights, preferences or privileges senior to those of the
holders of our common stock. Although we believe that our cash and cash
equivalents, collections of annual maintenance billings, cash generated from
operations and availability under our credit facility, will provide adequate
liquidity to meet our anticipated operating requirements for at least the next
twelve months, should we require additional capital, an inability to obtain the
needed funding on satisfactory terms may require us to terminate our operations
and sell our assets and dissolve. No assurances can be made that we will be able
to obtain financing for our future operations.


We Are Controlled by Institutional Investors Who May Not Act in the Best
Interests of Our Other Shareholders. Institutional investors hold 99.8% of our
outstanding Series A Preferred Stock and in excess of 95.8% of our outstanding
Series B Preferred Stock. The preferred stock votes on an as-converted to common
stock basis and the preferred stock and common stock vote together as a single
class. Currently, the outstanding preferred stock held by institutional
investors represents approximately 73% of our outstanding capital stock on an
as-converted basis. As a result, the institutional investors, as a group, hold
controlling interests in us and will be able to make decisions in their own
interest which may not be in the best interests of other stockholders. This
would include decisions to sell some or all of our assets, merge with another
entity, commence an initial public offering or dissolve. Our institutional
investors have certain anti-dilutive and preemptive rights, as more particularly
described in Part I, Item 8, "Description of Securities" Registration Statement
on our Form 10-SB as amended. Our institutional investors also have senior
rights in the event of our liquidation. In the event a liquidation were to
occur, common stockholders would not be entitled to any proceeds of such
liquidation until the liquidation rights of our institutional investors were
fully satisfied. As a result, we can provide no assurances that common
stockholders will receive any proceeds in the event of our liquidation or sale
to the extent that the liquidation rights of our institutional investors are not
fully paid.

Item 3.  Controls and Procedures.

Evaluation of Disclosure Controls and Procedures - We maintain a system of
disclosure controls and procedures that are designed for the purposes of
ensuring that information required to be disclosed in our SEC reports is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to our Chief Executive Officer (CEO) and Chief Financial Officer
(CFO) as appropriate to allow timely decisions regarding required disclosures.


As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our CEO and CFO,
of the effectiveness of our disclosure controls and procedures as defined in
Exchange Act Rule 13a-15(e). Based on that evaluation, our CEO and CFO concluded
that



                                       26
<PAGE>



our disclosure controls and procedures are effective and timely in alerting them
to material information related to us that is required to be included in our
annual and periodic SEC filings.


Changes in Internal Controls - There have been no significant changes in our
internal controls, or in other factors that could significantly affect our
internal controls subsequent to the date of our CEO and CFO completing their
evaluation.




                          PART II -- OTHER INFORMATION

Item 5. Other Information

David R. Butler was appointed as TCI's Chief Executive Officer, effective July
1, 2004, by our Board of Directors. He will replace Lance C. Jacobs, TCI's CEO
and Chairman of the Board since 1996 and 1995, respectively. Mr. Jacobs'
position as Chairman of the Board remains unchanged, and he will work directly
with David Butler to accelerate TCI's growth strategy.

Our Chief Technology Officer, David N. Berg terminated his duties as an officer
and employee effective July 21, 2004. In connection with his termination, we
will provide Mr. Berg with severance benefits including continued payment of his
base salary through July 21, 2005, payment of premiums of a life insurance
policy and other benefits as defined by his Employment Agreement incorporated by
reference to Exhibit 10.8 within our annual Form 10-KSB filed on March 30, 2004.
In addition, Mr. Berg has agreed not to engage or become financially interested
in, be employed by, or have any connection with, any business competing with
TCI.

Item 6. Exhibits and Reports on Form 8-K












                                       27
<PAGE>

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------
 Exhibit No.                                             Description
----------------------------------------------------------------------------------------------------------------
<S>            <C>
3.1***         Certificate of Amendment of the Fourth Amended and Restated Certificate of Incorporation of TCI
               Solutions, Inc.
----------------------------------------------------------------------------------------------------------------
3.2*           Fourth Amended and Restated Certificate of Incorporation of TCI Solutions, Inc.
----------------------------------------------------------------------------------------------------------------
3.3*           Bylaws of TCI Solutions, Inc. and Amendments thereto
----------------------------------------------------------------------------------------------------------------
4.1*           Amended and Restated Stockholders Agreement dated December 21, 2001 among TCI Solutions, Inc. and
               the Stockholders listed on Schedule I thereto
----------------------------------------------------------------------------------------------------------------
4.2*           First Amendment to Amended and Restated Stockholders Agreement dated April 10, 2002 among TCI
               Solutions, Inc. and the Stockholders listed on Schedule I thereto
----------------------------------------------------------------------------------------------------------------
4.3*           Second Amendment to Amended and Restated Stockholders Agreement dated April 2002, among TCI
               Solutions, Inc. and the Stockholders listed on Schedule I thereto.
----------------------------------------------------------------------------------------------------------------
4.4*           Second Amended and Restated Registration Rights Agreement dated April 10, 2002 among TCI
               Solutions, Inc. and the persons identified on Schedule I thereto
----------------------------------------------------------------------------------------------------------------
4.5*           Management Rights Letter in favor of InnoCal II, L.P. dated December 21, 2001
----------------------------------------------------------------------------------------------------------------
4.6*           Management Rights Letter in favor of Productivity Fund IV dated December 21, 2001
----------------------------------------------------------------------------------------------------------------
4.7**          Warrant to Purchase a 125,000 shares of Common Stock of TCI Solutions, Inc. in favor of Comerica
               Bank-California dated August 6, 2002
----------------------------------------------------------------------------------------------------------------
10.1**         Loan and Security Agreement dated August 6, 2002 between TCI Solutions, Inc. and Comerica Bank,
               N.A.
----------------------------------------------------------------------------------------------------------------
10.2***        First Amendment to Loan and Security Agreement dated August 5, 2003 between TCI Solutions, Inc.
               and Comerica Bank, N.A.
----------------------------------------------------------------------------------------------------------------
10.3***        Second Amendment to Loan and Security Agreement dated January 28, 2004 between TCI Solutions,
               Inc. and Comerica Bank, N.A.
----------------------------------------------------------------------------------------------------------------
10.4***        Third Amendment to Loan and Security Agreement dated February 28, 2004 between TCI Solutions,
               Inc. and Comerica Bank-California
----------------------------------------------------------------------------------------------------------------
10.5***        Warrant to Purchase 35,000 shares of Common Stock of TCI Solutions, Inc. in favor of Comerica
               Bank-California dated February 27, 2004
----------------------------------------------------------------------------------------------------------------
10.6***        Employment Agreement dated January 1, 2003 between TCI Solutions, Inc. and Lance Jacobs
----------------------------------------------------------------------------------------------------------------
10.7***        Employment Agreement dated January 1, 2003 between TCI Solutions, Inc. and Stephen DeSantis
----------------------------------------------------------------------------------------------------------------
10.8***        Employment Agreement dated January 1, 2003 between TCI Solutions, Inc. and David Berg
----------------------------------------------------------------------------------------------------------------
10.9*          2001 Equity Incentive Plan of TCI Solutions, Inc. and Amendments thereto
----------------------------------------------------------------------------------------------------------------
10.10*         2001 Non-Employee Directors' Stock Option Plan of TCI Solutions, Inc.
----------------------------------------------------------------------------------------------------------------
10.11*         1993 Equity Incentive Plan of TCI Management, Inc. (now TCI Solutions, Inc.)
----------------------------------------------------------------------------------------------------------------
10.12*         1993 Non-Employee Directors' Stock Option Plan of TCI Management, Inc. (now TCI Solutions, Inc.)
----------------------------------------------------------------------------------------------------------------
10.13          Employment Agreement dated May 27, 2004 between TCI Solutions, Inc. and David R. Butler
----------------------------------------------------------------------------------------------------------------
31.1           Section 302 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-a4(a) under
               the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
               of 2002
----------------------------------------------------------------------------------------------------------------
31.2           Section 302 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-a4(a) under
               the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
               of 2002
----------------------------------------------------------------------------------------------------------------
32.1****       Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as adopted Pursuant to
               Section 906 of the Sarbanes-Oxley Act of 2002.
----------------------------------------------------------------------------------------------------------------

</TABLE>

* Incorporated by reference to the registrant's Form 10-SB filed with the
Commission on April 30, 2002.


** Incorporated by reference to the registrant's Quarterly Report on Form 10-QSB
filed on November 14, 2003.


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<PAGE>



*** Incorporated by reference to the registrant's Annual Report on Form 10-KSB
filed on March 30, 2004.


**** Pursuant to Commission Release No. 33-8238, this certification will be
treated as 'accompanying' this Quarterly Report on Form 10-QSB and not 'filed'
as part of such report for purposes of Section 18 of the Exchange Act, or
otherwise subject to the liability of Section 18 of the Exchange Act and this
certification will not be deemed to be incorporated by reference into any filing
under the Securities Act of 1933, as amended, or the Exchange Act, except to the
extent that the registrant specifically incorporates by reference.


Reports on Form 8-K


None









                                       29
<PAGE>



                                   SIGNATURES

        In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.




                                                         TCI SOLUTIONS, INC.


Dated: August 13, 2004                              By:  /s/ David R. Butler
                                                         -------------------
                                                         David R. Butler
                                                         Chief Executive Officer

Dated: August 13, 2004                              By:  /s/ Stephen P. DeSantis
                                                         -----------------------
                                                         Stephen P. DeSantis
                                                         Chief Financial Officer








                                       30