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


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

                               __________________


                                   FORM 10-QSB


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


FOR THE QUARTER ENDED                                     COMMISSION FILE NUMBER
   MARCH 31, 2001                                                 0-12969



                         TOUCHSTONE SOFTWARE CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


          DELAWARE                                               95-3778226
(STATE OR OTHER JURISDICTION OF                               (I.R.S. EMPLOYER
 INCORPORATION OR ORGANIZATION)                              IDENTIFICATION NO.)



            1538 TURNPIKE ST., NORTH ANDOVER, MASSACHUSETTS    01845
            (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)         (ZIP CODE)


                                 (978) 686-6468
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

                                      NONE
                     (FORMER NAME, FORMER ADDRESS AND FORMER
                   FISCAL YEAR, IF CHANGED SINCE LAST REPORT)


     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 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 of Common Stock of the Registrant outstanding as of
May 15, 2001 was 11,440,060 shares.

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<PAGE>
                TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES



                                      INDEX




                                                                           PAGE
                                                                          NUMBER
                                                                          ------
PART I.   FINANCIAL INFORMATION

ITEM 1.   Financial Statements
          Consolidated Balance Sheet -- March 31, 2001.....................    3
          Consolidated Income Statements -- Three Months Ended
              March 31, 2001 and March 31, 2000............................    4
          Consolidated Statements of Cash Flows -- Three Months Ended
              March 31, 2001 and March 31, 2000 ...........................    5
          Notes to Consolidated Financial Statements....................... 6-10


ITEM 2.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations............................................11-18




PART II.  OTHER INFORMATION

ITEM 1.   Legal Proceedings................................................   19

ITEM 6.   Exhibits and Reports on Form 8-K.................................   19


Signatures.................................................................   20



















                                        2
<PAGE>
                TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES

                         PART I - FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS


                           CONSOLIDATED BALANCE SHEETS
                                 MARCH 31, 2001
                                   (UNAUDITED)
ASSETS
------
Current assets:
     Cash and cash equivalents................................      $  153,983
     Restricted cash..........................................          50,000
     Investments marketable securities........................         363,739
     Accounts receivable, net.................................          22,616
     Inventories..............................................           9,092
     Prepaid expenses and other current assets................          90,385
                                                                    ----------
                Total current assets..........................         689,815


Investments, marketable securities............................          76,190
Restricted cash...............................................         350,000
Note receivable, related party................................         169,375
Investments, other............................................         956,500
Property, and equipment, net..................................          65,208
                                                                    ----------
                                                                    $2,307,088
                                                                    ==========

LIABILITIES AND STOCKHOLDERS' INVESTMENT
----------------------------------------
Current liabilities:
     Current maturities of long-term debt.....................      $   66,964
     Accounts payable.........................................         254,687
     Accrued payroll and related expenses.....................          93,051
     Other accrued expenses...................................          92,452
                                                                    ----------
                Total current liabilities.....................         507,154
                                                                    ----------

Long-term debt net of current maturities......................         349,093
Other non-current liabilities.................................          76,190
                                                                    ----------
                Total liabilities.............................         932,437
                                                                    ----------

Shareholders' equity:
     Preferred stock, $.001 par value, 3,000,000 shares
         authorized, none issued or outstanding
     Common stock, $.001 par value, 20,000,000 shares
         authorized, issued and outstanding, 11,440,060 (2001)          11,440
     Accumulated other comprehensive loss, net of taxes.......        (511,974)
     Additional paid-in capital...............................      20,979,684
     Deferred compensation....................................         (56,748)
     Accumulated deficit......................................     (19,047,751)
                                                                    ----------
                Total shareholders' equity....................       1,374,651
                                                                    $2,307,088
                                                                    ==========


                   The accompanying notes are an integral part
                   of these consolidated financial statements.

                                        3
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                TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES

                         CONSOLIDATED INCOME STATEMENTS


<TABLE><CAPTION>
                                                                      THREE MONTHS ENDED
                                                                ------------------------------
                                                                  MARCH 31,         MARCH 31,
                                                                    2001              2000
                                                                ------------      ------------
<S>                                                             <C>               <C>
(UNAUDITED)
Revenues:
    Product sales .........................................     $    505,951      $  1,739,909
    Royalty income ........................................           59,286            47,022
                                                                ------------      ------------
        Net revenues ......................................          565,237         1,786,931
Cost of revenues ..........................................           43,974           177,140
                                                                ------------      ------------
        Gross profit ......................................          521,263         1,609,791
                                                                ------------      ------------

Operating expenses:
    Sales, marketing, general and administrative ..........          559,582         1,152,031
    Research and development ..............................          128,928           461,152
    Amortization of goodwill and acquired intangible assets             --             567,061
                                                                ------------      ------------
        Total operating expenses ..........................          688,510         2,180,244
                                                                ------------      ------------
Loss from operations ......................................         (167,247)         (570,453)
Loss on investment, net ...................................         (183,623)          103,832
Other income, net .........................................            3,376            43,058
                                                                ------------      ------------
Loss before benefit from income taxes .....................         (347,494)         (423,563)
Provision for (benefit from) income taxes .................            2,168          (125,931)
                                                                ------------      ------------
Net loss before minority interest .........................         (349,662)         (297,632)
                                                                ------------      ------------
Minority interest .........................................             --             (36,800)
                                                                ------------      ------------
Net loss ..................................................     $   (349,662)     $   (334,432)
                                                                ============      ============

Basic and diluted loss per share ..........................     $      (0.03)     $      (0.03)
                                                                ============      ============
Basic weighted average shares outstanding .................       11,440,060        11,417,060
                                                                ============      ============
</TABLE>






                   The accompanying notes are an integral part
                   of these consolidated financial statements.

                                        4
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                TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
<TABLE><CAPTION>
                                                                              THREE MONTHS ENDED
                                                                        ------------------------------
                                                                          MARCH 31,         MARCH 31,
                                                                            2001              2000
                                                                        ------------      ------------
<S>                                                                     <C>               <C>
Cash flows from operating activities:
     Net loss .....................................................     $   (349,662)     $   (334,432)
     Adjustments to reconcile net loss to net cash provided
     by (used in) operating activities:
          Depreciation ............................................            6,345            12,560
          Amortization of intangibles .............................             --             567,061
          Amortization of deferred compensation ...................           84,945              --
          Stock options issued for consulting services ............             --              43,537
          Minority interest .......................................             --             (36,800)
          Deferred taxes ..........................................             --            (159,400)
          Provision for (benefit from) doubtful accounts ..........           36,244            (2,500)
          Realized (gain) loss on investments .....................          183,623          (103,832)
          Accounts receivable .....................................          135,636            92,493
          Inventories .............................................           (2,091)             (521)
          Prepaid expenses and other current assets ...............           (6,698)           13,312
          Other assets ............................................             --              34,221
          Accounts payable ........................................          (46,869)           62,174
          Deferred revenue ........................................          (76,613)          234,983
          Accrued liabilities .....................................          (36,054)         (229,155)
                                                                        ------------      ------------
                Net cash provided by (used in) operating activities          (71,194)          193,701
                                                                        ------------      ------------

Cash flows from investing activities:
     Purchase and sale of investments, net ........................          134,609          (420,821)
     Advances on notes receivable .................................             --          (1,375,500)
     Purchases of property and equipment ..........................             --              (3,885)
     Proceeds from sale of property and equipment .................             --               1,630
                                                                        ------------      ------------
                Net cash provided by (used in) investing activities          134,609        (1,798,576)
                                                                        ------------      ------------

Cash flows from financing activities:
     Payment on long-term debt ....................................          (22,322)          (22,848)
     Restricted cash released .....................................          100,000              --
     Proceeds from exercise of stock options ......................             --               5,080
                                                                        ------------      ------------
                Net cash provided by (used in) financing activities           77,678           (17,768)
                                                                        ------------      ------------

Net increase (decrease) in cash and cash equivalents ..............          141,093        (1,622,643)
Cash and cash equivalents, beginning of period ....................           12,890         2,157,904
                                                                        ------------      ------------
Cash and cash equivalents, end of period ..........................     $    153,983      $    535,261
                                                                        ------------      ------------

Supplemental disclosure of cash flow information:
     Cash paid during the period for:
          Interest ................................................     $      8,470      $      8,558
                                                                        ------------      ------------
          Income taxes ............................................     $      2,168      $      2,168
                                                                        ------------      ------------
</TABLE>

                   The accompanying notes are an integral part
                   of these consolidated financial statements.

                                        5
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                TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     NATURE OF OPERATIONS. TouchStone Software Corporation and subsidiaries
("TouchStone" or the "Company") markets, and supports a line of computer
problem-solving utility software and supporting products which simplify personal
computer installation, support, and maintenance. TouchStone operates from one
location in the United States. The Company markets its products, domestically
and internationally, directly to original equipment manufacturers and end users,
primarily located in the United States.

     REORGANIZATION. As part of a continued reorganization plan, the Company
reviewed its entity structure during 2000 and created three new subsidiaries.
eSupport.com, Inc. (a New Hampshire Corporation), was created to serve as an
operating company to facilitate the sale and distribution of the Company's
products and services; TouchStone Investments, Inc. ("TSC") (a New Hampshire
corporation) and TSC Investments, LLC (the "LLC") (a New Hampshire Limited
Liability company) were created as part of the Company's plan to strike
strategic alliances with internet-based companies by making minority investments
in them.

     eSupport.com and TouchStone Investments, Inc. are wholly owned
subsidiaries. The Company, through TouchStone Investments, Inc., owns an 80%
interest TSC Investments, LLC, the remainder of which is owned jointly by the
Company's President and Chief Executive Officer, Pierre Narath and Vice
President, Jason Raza.

     TSC Investments, LLC was capitalized with a 5 year promissory note from the
Company in which the Company agreed to loan TSC Investments, LLC up to
$4,000,000 to be used to make strategic investments in internet-based companies.
Terms of the loan call for interest to accrue at the rate of 12% per annum, with
scheduled repayments set to begin in January 2002.

     PRINCIPLES OF CONSOLIDATION. The 2001 and 2000 consolidated financial
statements of the Company include the financial statements of the Company's five
subsidiaries; eSupport.com, Inc., TouchStone Investments, Inc., TSC Investments,
LLC, Unicore Software, Inc., and TouchStone Europe, Ltd,.

     All inter-company transactions and balances have been eliminated. Minority
interest in TSC Investments, LLC has not been recorded as the entity incurred a
net loss for the quarter ended March 31, 2001 and the minority shareholders have
no obligation to fund such losses.

     BASIS OF PRESENTATION. The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a going concern,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The Company has suffered recurring operating
losses, has an accumulated deficit of $19,047,751 at March 31, 2001, and is
largely dependent on its investment portfolio to fund projected future operating
losses, and accordingly, is subject to a number of risks. Principally among
these risks are marketing of its products and services which are susceptible to
competition from other companies and the volatility in the value of the
Company's investment portfolio on which it is dependent to fund its short term
operating cash deficits. These factors, among others, raise substantial doubt
about the Company's ability to continue as a going concern at March 31, 2001.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.

     In order to meet its cash requirements for the next twelve months,
management expects to liquidate marketable securities classified as
available-for-sale as needed. Additional sources of financing, including
additional private debt or equity capital are being explored, while seeking
merger candidates with whom the Company has substantial synergies.

                                        6
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                TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     CASH AND CASH EQUIVALENTS. The Company considers temporary liquid
investments with an original maturity of three months or less to be cash
equivalents.

     INVESTMENTS. The Company accounts for marketable securities under Statement
of Financial Accounting Standards No. 115, "ACCOUNTING FOR CERTAIN INVESTMENTS
IN DEBT AND EQUITY SECURITIES" (SFAS 115). SFAS 115 establishes the accounting
and reporting requirements for all debt securities and for investments in equity
securities that have readily determinable fair values. All marketable securities
must be classified as one of the following: held-to-maturity,
available-for-sale, or trading. Under SFAS 115, marketable security investments
classified as available for sale are carried at fair value, with unrealized
holding gains and losses, reported as a separate component of shareholders'
equity. The Company accounts for held to maturity and nonmarketable investments
using the cost method. Realized gains and losses from the sale of investments
are determined on a specific identification basis.

     ACCOUNTS RECEIVABLE. An allowance for doubtful accounts is provided for
those accounts receivable considered to be uncollectible, based upon historical
experience and management's evaluation of outstanding accounts receivable at the
end of the year. At March 31, 2001 and 2000, the allowance for doubtful accounts
was $5,000 and $197,000 respectively.

     INVENTORIES. Inventories are stated at the lower of first-in, first-out
cost, or market, and consist mainly of finished goods, media, and packaging
supplies.

     PROPERTY AND EQUIPMENT. Property and equipment is stated at cost and
depreciated using the straight-line method based on the estimated useful lives
of the assets (two to five years). Leasehold improvements are amortized over the
shorter of the useful life or the life of the related lease.

     GOODWILL. Goodwill, which represents the excess of purchase price over fair
value of net assets acquired, is amortized on a straight-line basis over the
expected periods to be benefited of three years. The Company evaluates whether
changes have occurred that would require revision of the remaining estimated
useful life or impact the recoverability of the goodwill. If such changes occur,
the Company would use an estimate of the undiscounted future operating cash
flows to determine the recoverability of the goodwill (see note 3).

     INTANGIBLE ASSETS. Intangible assets consist of developed technology
purchased by the Company in its business acquisition and software acquired from
third parties. At the date of acquisition, the Company evaluates the components
of the purchase price of each acquisition and assesses the net realizable value
of the acquired technology. In assessing net realizable value, the Company
relies on several factors including historical results, projections, product
cycles, customer relationships, consumer buying patterns, and other financial
and nonfinancial data. Intangible assets are reported at cost, net of
accumulated amortization, and are being amortized on a straight-line basis over
their estimated useful life of twelve to thirty months (see note 3).

     LONG-LIVED ASSETS. The Company evaluates long-lived assets under Statement
of Financial Accounting Standards No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF" (SFAS 121). This
statement requires that long-lived assets and certain identifiable intangibles
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.


                                        7
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                TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES




1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     REVENUE RECOGNITION. Product sales are recorded at the time products are
shipped. Software license fees are recognized upon delivery of the product
fullfillment of acceptance terms, if any, and satisfaction of significant
support obligations, if any. Engineering services are recognized as the services
are performed. The Company incurs shipping, packaging and holding costs which
are recorded in costs of revenues.

     RESEARCH AND DEVELOPMENT. Research and development expenses resulting from
the design, development, and testing of new software and software maintenance
and enhancement costs are expensed as incurred, until technological feasibility
has been established and costs are considered recoverable. Thereafter, certain
costs such as coding and testing are capitalized in accordance with Statement of
Financial Accounting Standards No. 86, "ACCOUNTING FOR COSTS OF COMPUTER
SOFTWARE TO BE SOLD, LEASED OR OTHERWISE MARKETED" (SFAS 86), until the product
is available for sale. During 2001 and 2000, software has been substantially
completed concurrently with the establishment of technological feasibility; and,
accordingly, no costs have been capitalized.

     ADVERTISING COSTS. The Company expenses advertising costs as incurred.
Advertising expense was approximately $4,000 and $107,852 for the quarter ended
March 31, 2001 and 2000, respectively.

     INCOME TAXES. The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "ACCOUNTING FOR INCOME TAXES" (SFAS
109), which requires the recognition of deferred tax assets and liabilities at
tax rates expected to be in effect when these balances reverse. Future tax
benefits attributable to temporary differences are recognized to the extent that
realization of such benefits is more likely than not.
















                                        8
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                TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES



1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     STOCK-BASED COMPENSATION. The Company accounts for stock-based employee
compensation arrangements using the intrinsic value method of accounting
prescribed in accordance with Accounting Principles Board ("APB") Opinion No.
25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES". The Company provides proforma
disclosures of net income (loss) and income (loss) per share as required under
Statement of Financial Accounting Standards No. 123, "ACCOUNTING FOR STOCK-BASED
COMPENSATION" (SFAS 123). SFAS 123 encourages, but does not require companies to
recognize compensation expense for grants of stock, stock options, and other
equity instruments based on the fair value method of accounting. The Company
accounts for stock options granted to consultants, independent representatives
and other non-employees in accordance with SFAS No. 123 and EITF 96-18,
"Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services.

     EARNINGS PER SHARE. Pursuant to Statement of Financial Accounting Standards
No. 128, "EARNINGS PER SHARE" (SFAS 128), the Company provides dual presentation
of "Basic" and "Diluted" EPS, replacing "Primary" and "Fully diluted" EPS
formerly under Accounting Principals Board ("APB") Opinion No. 15. Basic EPS
excludes dilution from common stock equivalents and is computed by dividing
income available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
from common stock equivalents, similar to fully diluted EPS, but uses only the
average stock price during the period as part of the computation.

     FAIR VALUE OF FINANCIAL INSTRUMENTS. The recorded amounts of financial
instruments, including cash equivalents, investments, accounts and notes
receivable, accounts payable, accrued liabilities and deferred revenues,
approximate their fair value because of the short maturity of these instruments.
The fair value of the Company's long-term debt approximates its carrying value.

     USE OF ESTIMATES. The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions. Such estimates and assumptions
affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the periods then ended. Actual results
could differ from management's estimates.

     SEGMENT REPORTING. In 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION", (SFAS 131). SFAS 131 supersedes SFAS No. 14, FINANCIAL
REPORTING FOR SEGMENTS OF A BUSINESS ENTERPRISE. Under the new standard, the
Company is required to use the management approach to reporting its segments.
The management approach designates that the internal organization that is used
by management for making operating decisions and assessing performance as the
source of the Company's segments. The adoption of SFAS 131 had no impact on the
Company's net loss, balance sheet, or shareholders' equity. The accounting
policies of the segments are the same as those described elsewhere in Note 1.

     COMPREHENSIVE INCOME. In 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "REPORTING COMPREHENSIVE INCOME" (SFAS 130). This
statement establishes standards for the reporting and display of comprehensive
income and its components in the financial statements. Comprehensive income, as
defined, includes all changes in equity during a period from non-owner sources.
Examples of items to be included in comprehensive income, which are excluded
from net


                                        9
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                TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES



1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

income, include foreign currency translation adjustment and unrealized gains and
losses on available-for-sale securities. The total comprehensive loss for the
first quarter amounted to ($575,537) and is comprised on an unrealized loss on
available-for-sale securities of ($225,875) and a net loss of ($349,662).

     RECENTLY ISSUED ACCOUNTING STANDARDS. In June 1998, the Financial
Accounting Standards Board issued SFAS No. 133, "ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES" (SFAS 133). The new standard requires
companies to record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives will be reported in the statement of operations or as a
deferred item, depending on the use of the derivatives and whether they qualify
for hedge accounting. The key criterion for hedge accounting is that the
derivative must be highly effective in achieving offsetting changes in fair
value or cash flows of the hedged items during the term of the hedge. The
Company adopted SFAS 133, as amended by SFAS 137, for the year ending December
31, 2001. Management has determined there will be no impact on its results of
operations or financial position resulting from the adoption of SFAS 133 because
the Company currently does not hold derivative instruments.

     In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements"
("SAB 101") which provides guidance related to revenue recognition based on
interpretations and practices followed by the SEC. SAB 101A was released on
March 24, 2000 and deferred the effective date to no later than the second
fiscal quarter beginning after December 15, 1999. In June 2000, the SEC issued
SAB 101B which delays the implementation date of SAB 101 until no later than the
fourth fiscal quarter of fiscal years beginning after December 15, 1999. SAB 101
requires companies to report any changes in revenue recognition as a cumulative
change in accounting principle at the time of implementation in accordance with
Accounting Principles Board Opinion No. 20, "Accounting Changes". Management has
accessed the implementation and determined that there is no significant impact
on the consolidated financial statements of the Company.

     In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation - an Interpretation of APB
Opinion No. 25" ("FIN 44"). FIN 44 is generally effective for transactions
occurring after July 1, 2000 but applies to repricings and some other
transactions after December 15, 1998. The Company believes this interpretation
will not have a significant effect on its consolidated financial statements.

     RECLASSIFICATIONS. Certain items previously reported in specific financial
captions have been reclassified to conform with the 2001 presentation.









                                       10
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                TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES

2.   EARNINGS (LOSS) PER SHARE

     The Company has adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share," ("EPS") which replaces the presentation of "primary"
earnings per share with "basic" earnings per share and the presentation of
"fully diluted" earnings per share with "diluted" earnings per share. All
previously reported EPS amounts have been restated based on the provisions of
the new standard. Basic EPS amounts are based upon the weighted average number
of common shares outstanding. Diluted EPS amounts are based upon the weighted
average number of common and common equivalent shares outstanding. Common
equivalent shares include stock options using the treasury stock method. Common
equivalent shares are excluded from the calculation of diluted EPS in loss
years, as the impact is anti-dilutive. There was no difference between basic and
diluted EPS for each period presented. The number of shares used in computing
EPS is as follows:
                                                       FOR THE THREE MONTHS
                                                          ENDED MARCH 31,
                                                       2001             2000
                                                    ----------       ----------
Weighted average number of shares outstanding:
     Basic                                          11,440,060       11,417,060

3.   IMPAIRMENT OF GOODWILL AND OTHER INTANGIBLE ASSETS

     As a result of the Company continuing to operate at a significant loss, an
impairment review of goodwill and other intangible assets was performed during
the fourth quarter of 2000. An operating plan was developed to project future
revenue by product line. These projections were used as a basis in measuring the
asset impairment charge. The Company concluded that the remaining portion of
both the goodwill and the other intangible assets with respect to the present
value of expected cash flow was fully impaired and recorded an impairment loss
in the amount of $1,119,920 at December 31, 2000. This amount represented the
remaining capitalized portion of the goodwill and acquired intangible assets at
December 31, 2000.

4.   REALIZED LOSSES ON INVESTING ACTIVITIES

     During the first quarter of 2000, the Company advanced $150,000 in bridge
financing to a publicly traded internet company. The advance is supported by a
promissory note, bearing interest at a rate of 12% and convertible into common
stock. The note bears a scheduled maturity date of July 6, 2000, and was
extended to November 3, 2000, subject to certain fees and conditions. In further
consideration of the advance the Company received 41,584 shares of the
borrower's common stock, with a market value of approximately $150,000 at
December 31, 2000.

     The borrower had defaulted on the loan and had proposed a recapitialization
plan under which the Company would receive preferred stock of the borrower.
Although the Company had accepted the proposal, an agreement could not be
finalized until other creditors were also in agreement. Management had assessed
the realizability of the loan balance based on the borrower's financial
condition and recorded a reserve of $100,000 as of December 31, 2000.

     On May 10, 2001 TSC Investments, LLC was notified that eNucleus filed
voluntary petition under Chapter 11 of the bankruptcy code. As a result of this
filing the remaining $50,000 of the original note was expensed to bad debt and
the $150,000 or 41, 584 shares were written-off to loss on investments. Also
included in loss on investments is a realized loss of $33,623 from the sale of
marketable securities, resulting in a total realized loss on investments of
$183,623.

                                       11
<PAGE>
                TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES


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

     THIS QUARTERLY REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21A OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE FORWARD-LOOKING STATEMENTS ARE MADE AS OF THE DATE HEREOF,
AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE THESE STATEMENTS. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET
FORTH BELOW AND THOSE DISCUSSED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 2000 ON FILE WITH THE SECURITIES AND EXCHANGE
COMMISSION.

OVERVIEW

     TouchStone Software Corporation, Inc. and its consolidated subsidiaries,
("TouchStone" or "the Company") is a provider of system management software,
which includes basic input/output ("BIOS") software upgrades, personal computer
("PC") diagnostics for personal computers and embedded systems. System
management software is one of the fundamental layers in any microprocessor-based
system (including PCs) architecture and provides an essential interface between
the system's operating software and hardware. Organized in 1982 as a California
corporation, the Company reincorporated in Delaware in January 1997. The
Company's executive offices are located at 1538 Turnpike Street, North Andover,
Massachusetts 01845, and its telephone number is (978) 686-6468.

     The Company was formerly a developer and publisher of utility software used
to set up, maintain and manage personal computers and networks. The Company's
utility software was classified into three areas: diagnostic software, Internet
optimization software and file transfer software. The CheckIt product line, a
family of system diagnostics, is designed to meet the needs of consumers and
service technicians. The CheckIt product line was sold as part of the asset
purchase agreement with Smith Micro Software, Inc (SMSI) dated September 30,
2000. Effective as of the close of business on September 22, 2000, TouchStone
Software Corporation (the "Company") completed the sale of the assets and
intellectual property relating to the Company's CheckIt line of retail software
products (all versions) known as CheckIt, FastMove (including Clean & Zip),
WinCheckIt and CheckIt Net Optimizer. The assets were sold to Smith Micro
Software, Inc. ("Smith Micro") of Aliso Viejo, California. In the sale, the
Company received cash in the amount of $25,000 and 108,000 shares of Smith Micro
common stock. The Smith Micro shares were issued to the Company in a sale exempt
from registration under Section 3(a)(10) of the Securities Act of 1933.
Accordingly, such shares are not subject to restrictions on resale by the
Company. Along with the Asset purchase agreement the Company entered into an
exclusive software distribution license for all existing versions as well as
future versions for CheckIt PE(R) 7.0 Portable Edition.

     In January 2000, the Company formed eSupport.com, Inc. (a New Hampshire
Corporation), a wholly-owned subsidiary, which currently conducts the day to day
operations formerly conducted by TouchStone Software Corporation. Pursuant to
its' articles of incorporation, eSupport.com is authorized to issue 20,000,000
shares of common stock, par value $.01 per share, and 10,000,000 shares of
preferred stock, par value $.01 per share. eSupport.com was capitalized through
the issuance of 5,000,000 shares of its common stock to TouchStone Software
Corporation. ESupport currently conducts the day to day operations similar to
that of the way Unicore Software once did. Unicore, now a wholly-owned
non-operating subsidiary was founded in 1989 and supplied primarily BIOS
software upgrades. The BIOS, which is the software initially executed after the
system is turned on, tests and initializes hardware components, initiates the
operating system and then provides advanced interface functions. BIOS software
upgrades allow end-users of desktop PCs to extend the life of their systems and
reduce the overall ownership cost of a PC.

     During the past several years, eSupport (formerly Unicore) has grown into a
full-service engineering company supplying not only BIOS software upgrades, but
also PC diagnostics software, PC Card software and NRE (non-recurring
engineering) services to both end-users and OEM customers. As the evolution of
software and hardware has become more complex, the need for compatibility has
increased in importance. ESupport believes that its experience and customer
focus allow it to quickly identify solutions and market products compatible with
the array of operating systems, application programs, utilities and hardware
products available.

                                       12
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                TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES

     Esupport's customers include primarily end-users, government agencies,
major educational and financial institutions, designers and manufacturers of
motherboards, PC systems and other microprocessor-based or embedded devices.
Unicore markets and licenses its products and services worldwide.

     During 2000 the Company continued investing a significant amount of its
cash, in a group of internet-based companies, its portfolio companies, as
minority shareholders. The Company's plan envisions it acting, assisting and
managing a diverse network of internet-based companies.

     TouchStone Investments, Inc. (a New Hampshire corporation) a wholly-owned
subsidiary of TouchStone Software Corporation was formed during January 2000 for
the principal purpose engaging in the business of managing the investment
portfolio, by serving as a member of TSC Investments, LLC. Under its articles of
incorporation, TouchStone Investments, Inc., is authorized to issue 100,000
shares of common stock, par value $.01 per share, no other classes of stock have
been authorized. TouchStone Investments, Inc. was capitalized through the
issuance of 10,000 shares of its common stock to TouchStone Software
Corporation.

     In January 2000, TSC Investments, LLC (a New Hampshire Limited Liability
Company) was formed to engage in the business of making investments. Under its
operating agreement, TSC's sole member was TouchStone Investments, Inc., which
was issued 100 membership units and appointed manager of the LLC. In a
subsequent amendment to the operating agreement, Pierre Narath was designated as
the manager of TSC Investment, LLC. The operating agreement was amended in its
entirety on March 29, 2000. Under the amended operating agreement, TouchStone
Investments, Inc. holds 80 membership units, Pierre A. Narath, the Chief
Executive Officer of TouchStone Software Corporation holds 17.5 units and Jason
Raza, a Vice President of TouchStone Software Corporation holds 2.5 units.

     In connection with the establishment of TSC Investments, LLC, the Company
entered into a promissory note in which they agreed to loan TSC Investments, LLC
up to $4,000,000 to be used to make strategic investments in high tech related
companies. Terms of the loan call for interest to accrue at the rate of 12% per
annum, with scheduled repayments set to begin in January 2002.

     TSC Investments, LLC entered into a promissory note in which they agreed to
advance Metro Investments, LLC up to $500,000. Terms of the loan call for
interest to accrue at the rate of 12% per annum, with scheduled repayments set
to begin in January 2002. Metro is owned 100% by Pierre Narath and Jason Raza.

     Through minority interests, TouchStone's portfolio is comprised of
well-managed, late stage technology companies with market presence in
e-commerce, content, community and enabling technologies. TouchStone owns and
invests currently in business-to-business and business-to-consumer companies
that fall into one of four core areas of the Internet economy:

     Marketing companies offering technologies, products and services for
computer diagnostic tools and advanced software solutions. E-commerce companies
offering products and services for consumers and businesses, connecting
consumers to products and products to consumers, as well as businesses to
products and products to businesses. Content and community companies with
comprehensive sources of information and systems to connect geographically
dispersed individuals and groups. Enabling technology companies that deliver
strategy, services and technologies to help dot.com and traditional corporations
exploit the full potential of the Internet

     Effective September 30, 2000 the Company closed its German office located
at Sonnenstrasse 26B, 85622 Feldkirchen, Germany. TouchStone Software
Corporation (the "Company") entered into an Assumption and Settlement Agreement
with Alexei A. Piatetsky ("Piatetsky"), former General Manager, TouchStone
Europe, for certain of its assets and liabilities. The company and Piatetsky
have agreed to terminate his employment contract, he will acquire all rights to
the Software product CardWare(R) 6.0, the assets related to the office and all
the company's obligations and liabilities arising out of the office and or
related to the use and ownership of the software. The agreement grants the
Company an exclusive software distribution license for all existing versions as
well as future versions in the United Sates and Canada.


                                       13
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                TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES


INDUSTRY OVERVIEW

During the last decade, the personal computer industry has grown rapidly -
fueled most recently by the Internet. The Company believes that the market will
continue to expand in the future as technological advances and increased
functionality, combined with lower pricing, will increasingly make personal
computers common for use in both homes and businesses. Future changes in the
operating systems that run personal computers may contain some of the
functionality of certain utility software of the kind marketed by the Company.
The software industry, including the utility market, is increasingly being
dominated by a few very large competitors. However, the Company believes that
the complexities created by the Internet, multimedia and connectivity utilizing
enhanced video, storage, animation, and audio capabilities will continue to
drive the demand for new, sophisticated, separately installed utility software.

PRODUCTS

The following table sets forth the products currently marketed by the Company:

================================================================================
PRODUCT TITLE       DESCRIPTION
================================================================================

BIOS                The BIOS is the control center of any PC or compatible.
UPGRADE SOLUTIONS   Without a properly functioning one, the operating system
                    will not run correctly, devices will not configure, and the
                    system will fail. The Company's BIOS upgrades solutions
                    (known as firmware), allow end-users to keep their systems
                    current by enabling the latest technology, such as large
                    drive support, increased RAM size, processor upgrades, etc.
                    Once the BIOS upgrade is installed the operating system
                    (Windows, Linux, etc) will then be able to manage new
                    technology add-ons.

LBA PRO             The LBA Pro provides the ability to support large EIDE hard
                    drives without needing to upgrade the system BIOS. The LBA
                    Pro allows will break the various BIOS imposed limits on a
                    system without having to rely on disk overlays or software
                    drivers. The LBA Pro card is a small plug-in card designed
                    to fit into a standard 8-bit XT/AT slot.

DUAL PRO            The Dual Pro combines the capabilities of both the LBA Pro
                    and Millennium Pro cards. The Dual Pro offers the ability to
                    recognize large EIDE hard drives, as well as compliance for
                    the Year 2000 rollover. The Dual Pro card is a small plug-in
                    card designed to fit into a standard 8-bit XT/AT slot.

CARDWARE(R)6.0      CardWare enables PCs and other electronic devices to
                    recognize, install, configure and operate peripheral devices
                    that comply with PCMCIA standards. CardWare provides a
                    number of benefits over traditional PC Card software,
                    including the efficient use of system memory, greater
                    portability, ease of maintenance and a more modular design.
                    CardWare can be tailored to an OEM's needs to work with the
                    OEM's power management and plug and play specifications.
                    CardWare is also available in a single user version. A
                    software development kit is available for designers who wish
                    to use our tools to help design their PC Card products.
                    CardWare was designed to operate with Windows NT4.0, DOS &
                    OS/2 solutions.

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                TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES


CHECKIT PE(R) 7.0   CheckIt 7.0 Portable Edition is a modular PC testing and
PORTABLE EDITION    diagnostics tool expressly designed for computer
                    manufacturers, resellers and repair centers. Designed to
                    meet the requirements of demanding professional users, it
                    brings the power of a professional testing laboratory to
                    anyone who installs, checks, develops, refurbishes, or
                    repairs PC hardware. CheckIt 7.0 PE was developed for use by
                    PC manufacturers and after-market professionals - at varying
                    levels and with varying technical requirements.

ISA POSTCARD        The ISA Postcard is a plug-in diagnostic card to aid MIS
                    professionals and PC end-users alike to determine the causes
                    of their system failures. It requires no operating system to
                    run and works on any PC or compatible. The ISA POSTcard can
                    be plugged into any XT, AT, ISA or EISA compatible expansion
                    slot and in seconds POSTcard is displaying test results,
                    often pinpointing the exact bad component. The POSTcard V3
                    user's manual lists the BIOS POST codes of all major BIOS
                    vendors.

PCI POSTCARD        The PCI Postcard is a plug-in diagnostic card to aid MIS
                    professionals and PC end-users alike to determine the causes
                    of their system failures. It requires no operating system to
                    run and works on any PC or compatible. The PCI POSTcard can
                    be plugged into any PCI expansion slot and in seconds
                    POSTcard is displaying test results, often pinpointing the
                    exact bad component. The PCI POSTcard user's manual lists
                    the BIOS POST codes of all major BIOS vendors.

POSTCARD V3         The POSTcard V3 is a plug-in diagnostic card to aid MIS
                    professionals and PC end-users alike to determine the causes
                    of their system failures. The POSTcard V3 does not require
                    an operating system to operate. Simply plug the POSTcard V3
                    into any 8 or 16 bit slot to begin troubleshooting the
                    system. In seconds the POSTcard V3 is monitoring the BIOS
                    POST (Power-On-Self-Test) sequence. Each BIOS POST test is
                    displayed on the easy to read LED display on the POSTcard
                    V3. The POSTcard V3 will help you pinpoint and resolve IRQ
                    and DMA conflicts by monitoring actual activity on DMA and
                    IRQ lines. The POSTcard V3 user's manual lists the BIOS POST
                    codes of all major BIOS vendors.

CBROM               An AwardBIOS combination utility. CB ROM allows an OEM to
                    combine third-party firmware and other ROM-resident files
                    with the AwardBIOS in a flash memory chip. CBROM supports
                    1-MB and 2-MB flash memory chips. MODBIN is an executable
                    program that offers many customization features for
                    AwardBIOS for IBM Personal Computer and compatible systems.

MODBIN              MODBIN is a menu driven program that will take you menu by
                    menu through the customization process.



                                       15
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                TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES


SERVICES

The following table sets forth the services currently marketed by the Company:

================================================================================
PRODUCT TITLE       DESCRIPTION
================================================================================

BIOS ENGINEERING    For over a decade TouchStone Software has worked closely
AND OEM SERVICES    with industry leaders, Phoenix Technologies and Award
                    Software. TouchStone Software is a full-service engineering
                    company with software and hardware engineers that have
                    extensive experience in BIOS development, embedded designs,
                    and all aspects of the system management software design and
                    development. As an independent authorized distributor of
                    Award/Phoenix, TouchStone Software has access to the very
                    latest source code and development techniques. With hundreds
                    of successful project completions, TouchStone Software is
                    uniquely suited to engineer BIOS solutions. Working together
                    with customers to deliver quality products to market ON TIME
                    is our goal.

































                                       16
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                TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES



RESULTS OF OPERATIONS

     The following is a preliminary discussion of the financial condition and
results of operations of the Company as of March 31, 2001 and March 31, 2000 and
should be read in conjunction with the accompanying consolidated financial
statements and notes thereto and the Company's audited consolidated financial
statements and notes thereto for the year ended December 31, 2000, included in
the Company's Annual Report on Form 10-KSB and is qualified in its entirety by
reference thereto.

     The following table sets forth, for the periods indicated certain
consolidated statement of operations information as a percentage of the
Company's total revenues represented by each item. The Company's historical
results are not necessarily indicative of results in any future period.

                                               2001           2000
                                             --------       --------
Revenues:
     Product sales                                 90%            97%
     Royalty income                                10              3
Net revenues                                      100            100
Cost of revenues                                    8             10
Gross profit                                       92             90
Operating expenses:
     Sales, marketing, general
        and administrative                         99             64
     Research and development                      23             26
     Amortization of goodwill and
       acquired intangible assets                --               32
                                             --------       --------
       Total operating expenses                   122            122

Loss from operations                              (30)           (32)
Loss on investment, net                           (32)          --
Other income (expense), net                      --                8
Loss before provision for (benefit
  from) income taxes                              (62)           (24)
Provision for (benefit from)
  income taxes                                    --              (7)
                                             --------       --------
Net loss                                          (62)%          (17)%
                                             ========       ========


COMPARISON OF THREE MONTH PERIODS ENDED MARCH 31, 2001  AND 2000

     REVENUES. The Company's revenues consist of product sales, software license
fees and engineering services revenues. Product revenues are recorded at the
time products are shipped. Software license fees are recognized upon delivery of
the product, fulfillment of acceptance terms, if any, and satisfaction of
significant support obligations, if any. Engineering service revenues generally
consist of amounts charged for customization of the software prior to delivery
and are generally recognized as the services are performed. Product revenues
decreased by approximately 71%, for the three month period ended March 31, 2001,
from the same period of the prior year. The decrease in revenues is primarily
due from the sale of the retail product line, along with a significant decline
in the demand for Cardware, as this product becomes obsolete. During the quarter
The Company recognized approximately $76,000 dollars in revenue, that which was
previously recorded as deferred revenue. This recognizes the remaining portion
of deferred revenue from the sale of the retail product line.

                                       17
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                TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES



     COST OF REVENUES. Cost of revenues consists of the cost of materials,
freight expenses, inventory obsolescence reserves, royalties paid to other
software development companies and direct costs associated with engineering
services revenues. Cost of revenues as a percentage of revenue decreased to 8%
of revenues for the three-month period ended March 31, 2001, as compared to 10%
of revenues for the same period of the prior year, due primarily from a decrease
in sales of the year 2000 products and an increase in revenue recognized from
software licensing and engineering services.

     SALES, MARKETING, GENERAL AND ADMINISTRATIVE. Sales, marketing, general and
administrative expenses consist primarily, sales salaries & commissions, travel
costs, retail personnel and related expenses, professional services and
facilities costs. Sales, marketing, general and administrative expenses
decreased by approximately $592,000, or 51%, for the three month period ended
March 31, 2001, from the same period of the prior year primarily due to the
decreased marketing efforts that had been associated with the retail line of
products and the German office.

     RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of engineering personnel and related expenses and equipment costs.
Research and development expenses decreased by approximately $332,000, or 72%,
for the three month period ended March 31, 2001, from the same period of the
prior year primarily due to a decrease in head count and an overall decline in
development projects.

     LOSS ON INVESTMENT, NET. Loss on investement of $183,623, is due to the
write-off of the eNucleus investment for $150,000. A bridge financing agreement,
in which the Company made a $150,000 loan to, and received 41,584 shares of
common stock of, eNucleus, Incorporated. Also included in loss on investments is
a loss of approximately $34,000 on the sale of 46,500 shares of Smith Micro
Software (SMSI) sold during the quarter at various prices (see note 4).

     OTHER INCOME,(EXPENSE), NET. Other income, (expense) net consists primarily
of interest expense associated with a note outstanding and interest income on
cash and cash equivalents.

     AMORTIZATION OF GOODWILL AND ACQUIRED INTANGIBLES. The remaining balance of
goodwill and other acquired intangibles primarily resulting from the acquisition
of Unicore were impaired and expensed as of December 31, 2000 (see note 3).

LIQUIDITY AND CAPITAL RESOURCES

     During the quarter ended March 31, 2001, the Company used cash resources of
$71,000 for operating activities.

     The Company's cash and cash equivalents, restricted cash, and investments
totaled $1.9 million at March 31, 2001. Working capital decreased from
approximately $350,000 at December 31, 2000 to approximately $133,000 at March
31, 2001. Cash and cash equivalents increased from $12,890 at December 31, 2000
to $153,983 at March 31, 2001. The increase in cash and cash equivalent was a
result of the sale 46,500 shares of Smith Micro Software sold during the quarter
at various prices, along with the release of $100,000 from the restricted cash.
The decrease in working capital continues to be primarily from the decreased
holding of available-for-sale securities and the overall decline in the
fairmaket value of these investments along with the cash used to continue
operations.

     Management believes that the Company's existing cash and available-for-sale
securities will be sufficient to fund the Company's operations at currently
anticipated levels through December 31, 2001. The Company plans to use its cash
resources while attempting to enhance existing products and to expand its direct
sales force related directly towards end-users and OEM customers. The execution
of such plans may include strategic acquisitions of, or investments in,
businesses, products or technologies. In order to meet its cash requirements for
the next twelve months, management expects to liquidate marketable securities
classified as available-for-sale as needed. Additional sources of financing,
including additional private debt or equity capital are being explored, while
seeking merger candidates with whom the Company has substantial synergies.

                                       18
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                TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES



BUSINESS RISKS

     This report on Form 10-QSB contains forward-looking statements that involve
risks and uncertainties. The actual future results of the Company could differ
materially from those statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below and elsewhere
in this report

     These risk factors include the risk that products under development prove
more difficult to develop than currently anticipated resulting in delays in
reaching the market, significantly greater development costs, or even in planned
products having to be abandoned. Moreover, with or without delays in bringing
new products to market, it is possible that the Company's competitors will bring
to market successful competing products which reduce the size of, or eliminate
altogether, the market for the Company's planned products. In addition, rapid
change and technological advancement characterize the software industry,
including a trend by hardware manufacturers to feature pre-loaded software
packages in computers. This could reduce demand for the Company's products, if
such pre-loaded software performs many of the same functions as the Company's
currently marketed product or technology currently under development.

     The Company has suffered recurring operating losses, has an accumulated
deficit of $19,047,751 at March 31, 2001, and is largely dependent on its
investment portfolio to fund projected future operating losses, and accordingly,
is subject to a number of risks. Principally among these risks are marketing of
its products and services which are susceptible to competition from other
companies and the volatility in the value of the Company's investment portfolio
on which it is dependent to fund its short term operating cash deficits. These
factors, among others, raise substantial doubt about the Company's ability to
continue as a going concern at December 31, 2000.

     The Company has disposed of both its German branch, which was responsible
for nearly all sales of its CardWare products and its retail suite of CheckIt
products during 2000. Although the Company has retained rights to sell and/or
distribute these products, sales related to these product lines are expected to
be significantly less in the future. Accordingly, the Company is largely
dependent on a single supplier for its future revenue related to its Bios line
of products.

INDUSTRY RISKS

     The software industry is part of a fast-changing industry and the ability
of the Company to grow or to predict future revenue is dependent to a large
extent on the ability of the Company to develop new products and new versions of
existing products. Given the results of the last two years, and the competitive
factors affecting this industry, as discussed elsewhere in this report,
management is unable to predict at this time whether the Company can be
successful at designing and developing products that can compete profitably in
this industry. Furthermore, some of the products currently under consideration
involve complicated diagnostic technologies, which are more complex than those
previously encountered in the development of the Company's products. This may
result in significant delays and greater expense than normally encountered by
the Company in the development of its products.

VOLATILE MARKET FOR STOCK

     The market for the Company's stock is highly volatile. The trading price of
the Company's Common Stock has been and will continue to be subject to
fluctuations in response to financial condition and results of operations,
announcements of technological innovations or new products by the Company and
its competitors, changes in the Company's or its competitors' product mix or
product direction, changes in the Company's revenue mix and revenue growth
rates, changes in expectations of growth for the PC industry, as well as other
events or factors which the Company may not be able to influence or control.
Statements or changes in opinions, ratings or earnings estimates made by
brokerage firms and industry analysts relating to the market in which the
Company does business, companies with which the Company competes or relating to
the Company specifically could have an immediate and adverse effect on the
market price of the Company's stock.


                                       19
<PAGE>
                TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES



                           PART II--OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS

     In April 2000, a former CEO and president, of TouchStone Software
Corporation initiated a lawsuit against the Company in federal district court in
California. The Complaint alleges, among other things, violations by the Company
and its principals of federal and California securities laws, breach of
fiduciary duty and negligent misrepresentation. The Company filed responsive
motions to dismiss and to change venue. Both motions were denied. Although the
Company continues to attempt to achieve a settlement of the action, the Company
intends to vigorously defend itself.

     The Company is also subject to other legal proceedings and claims, which
arise, in the ordinary course of its business. Although occasional adverse
decisions (or settlements) may occur, the Company believes that the final
disposition of such matters will not have a material adverse effect on the
financial position or results of operations of the Company.




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        (a)  Reports on Form 8-K
             No reports on Form 8-K were filed by the Company during the
             quarter ended March 31, 2001.























                                       20
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                TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES






                                   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.

                                                TOUCHSTONE SOFTWARE CORPORATION
                                                          (Registrant)



<TABLE><CAPTION>


          NAME                                   TITLE                             DATE
          ----                                   -----                             ----
<S>                                <C>                                          <C>


/s/  Pierre A. Narath              Chairman of the Board of Directors           May 22, 2001
----------------------------       Chief Executive Officer and President
     PIERRE A. NARATH




/s/  Christopher J. Gaudette       Controller, Principal Accounting             May 22, 2001
----------------------------       Officer, and Assistant Secretary
     CHRISTOPHER J. GAUDETTE




</TABLE>













                                       21