<PAGE>

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

                                 UNITES 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, 2000                                   0-12969

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


                DELAWARE                                  95-3778226
      (STATE OR OTHER JURISDICTION                     (I.R.S. EMPLOYER
    OF 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
April 28, 2000 was 11,440,060 shares.

  ===========================================================================
<PAGE>

               TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES

                                     INDEX
                                                                           Page
                                                                          Number
                                                                          ------

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

         Consolidated Balance Sheet--March 31, 2000.....................     3
         Consolidated Income Statements--Three Months Ended
          March 31, 2000 and March 31, 1999.............................     4
         Consolidated Statements of Cash Flows--Three Months Ended
          March 31, 2000 and March 31, 1999 ............................     5
         Notes to Consolidated Financial Statements.....................  6-10

ITEM 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations...................................... 11-21

PART II. OTHER INFORMATION

ITEM 1.  Legal Proceedings..............................................    22

ITEM 6.  Exhibits and Reports on Form 8-K...............................    22

         Signatures.....................................................    23

                                       2
<PAGE>

               TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES

                        PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                          CONSOLIDATED BALANCE SHEETS
                                MARCH 31, 2000
                                  (unaudited)
<TABLE>
<CAPTION>
ASSETS
------
<S>                                                             <C>
Current assets:
  Cash and cash equivalents.................................... $    535,261
  Restricted cash..............................................      720,000
  Accounts receivable, net.....................................      871,143
  Inventories, net.............................................      199,722
  Note receivable..............................................      925,000
  Deferred tax asset...........................................      412,000
  Prepaid expenses and other current assets....................      208,294
                                                                ------------
     Total current assets......................................    3,871,420

Investments, marketable securities.............................       69,213
Investments, other.............................................    3,112,198
Note receivable, shareholders..................................      700,500
Property, plant and equipment, net.............................      143,143
Goodwill and other intangibles, net............................    2,500,280
Other assets ..................................................       30,053
                                                                ------------
                                                                $ 10,426,807
                                                                ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' INVESTMENT
----------------------------------------
<S>                                                             <C>
Current liabilities:
  Current maturities of long-term debt......................... $     66,964
  Accounts payable.............................................      445,823
  Accrued payroll and related expenses.........................      411,545
  Deferred revenue.............................................      560,740
  Other accrued expenses.......................................      599,716
                                                                ------------
     Total current liabilities.................................    2,084,788
                                                                ------------

Long-term debt.................................................      438,379
Deferred tax liability.........................................      695,000
Minority interest..............................................       36,800
                                                                ------------
     Total liabilities  .......................................    3,254,967
                                                                ------------

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 (2000)..........................................       11,440
  Accumulated other comprehensive income, net of taxes.........      584,898
  Additional paid-in capital...................................   21,026,934
  Deferred compensation........................................      (40,633)
  Accumulated deficit..........................................  (14,410,799)
                                                                ------------
     Total shareholders equity.................................    7,171,840
                                                                $ 10,426,807
                                                                ============
</TABLE>
             The accompanying notes are an integral part of these
                      consolidated financial statements.

                                       3
<PAGE>

               TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES


                        CONSOLIDATED INCOME STATEMENTS

<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED
                                                       ------------------
                                                  MARCH 31,         MARCH 31,
                                                    2000              1999
                                                 -----------       -----------
<S>                                            <C>               <C>
(UNAUDITED)

Revenues:
  Product sales...............................   $  1,739,909       $ 1,295,598
  Royalty income..............................         47,022                 -
                                                 ------------       -----------
     Net revenues.............................      1,786,931         1,295,598
Cost of revenues..............................        177,140           254,109
                                                 ------------       -----------
     Gross profit.............................      1,609,791         1,041,489
                                                 ------------       -----------
Operating expenses:
  Sales and marketing.........................        539,960           508,506
  General and administrative..................        612,071           488,123
  Research and development....................        461,152           277,806
  Amortization of goodwill and acquired
     intangible assets........................        567,061           211,234
  Merger, acquisition and
     restructuring charges....................              -         1,174,730
                                                 ------------       -----------
     Total operating expenses.................      2,180,244         2,660,399
                                                 ------------       -----------
Loss from operations..........................       (570,453)       (1,618,910)
Other income, net.............................        146,890            63,944
                                                 ------------       -----------
Loss before benefit from income taxes.........       (423,563)       (1,554,966)
Benefit from income taxes.....................       (125,931)          (50,233)
                                                 ------------       -----------
Net loss before minority interest.............       (297,632)       (1,504,733)
                                                 ------------       -----------
Minority interest.............................        (36,800)                -
                                                 ------------       -----------
Net loss......................................   $   (334,432)      $(1,504,733)
                                                 ============       ===========
Basic and diluted loss per share..............   $      (0.03)      $     (0.19)
                                                 ============       ===========
Basic weighted average shares
     outstanding..............................     11,417,060         7,963,060
                                                 ============       ===========
</TABLE>
                The accompanying notes are an integral part of
                   these consolidated financial statements.

                                       4
<PAGE>

               TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                             Three months ended
                                                                 ------------------------------------
 <S>                                                            <C>                   <C>
                                                                     March 31,             March 31,
                                                                       2000                  1999
                                                                   -----------           -----------
Cash flows from operating activities:
  Net loss.....................................................  $  (334,432)             $(1,504,733)
  Adjustments to reconcile net loss to net cash
   provided by (used in) operating activities:
    Depreciation...............................................       12,560                   51,776
    Amortization of intangibles................................      567,061                  211,234
    Stock options issued for consulting services...............       43,537                        -
    Minority interest..........................................      (36,800)
    Deferred taxes.............................................     (159,400)
    Provision for doubtful accounts............................       (2,500)                  44,841
    Realized gains on investments..............................     (103,832)                       -
    Change in deferred lease obligation........................            -                   34,555
    Accounts receivable........................................       92,493                 (646,767)
    Inventories................................................         (521)                 126,507
    Prepaid expenses and other current assets..................       13,312                 (196,395)
    Other assets...............................................       34,221                  134,888
    Accounts payable...........................................       62,174                  520,477
    Deferred revenue...........................................      234,983                  646,042
    Accrued liabilities........................................     (229,155)                (183,810)
                                                                 -----------              -----------
       Net cash provided by (used in) operating activities           193,701                 (761,385)
                                                                 -----------              -----------

Cash flows from investing activities:
  Purchase and sale of investments, net.......................      (420,821)                 762,695
  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....    (1,798,576)                 762,695
                                                                 -----------              -----------

Cash flows from financing activities:
  Payment on long-term debt...................................       (22,848)                  (7,440)
  Proceeds from exercise of stock options.....................         5,080                        -
                                                                 -----------              -----------
       Net cash used in financing activities...................      (17,768)                  (7,440)
                                                                 -----------              -----------

Net decrease in cash and cash equivalents......................   (1,622,643)                  (6,130)
Cash and cash equivalents, beginning of period.................    2,157,904                  946,438
                                                                 -----------              -----------
Cash and cash equivalents, end of period.......................  $   535,261              $   940,308
                                                                 -----------              -----------

Supplemental disclosure of cash flow information:
  Cash paid during the period for:
    Interest...................................................  $     8,558              $     7,324
                                                                 -----------              -----------
    Income taxes...............................................  $     2,168              $       800
                                                                 -----------              -----------
</TABLE>

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

                                       5
<PAGE>

               TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Nature of Operations.  TouchStone Software Corporation ("TouchStone" or the
"Company") designs, develops, 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 two
locations in the United States and from a branch in Germany.  The Company
markets its products, domestically and internationally through software
distributors, for resale through the retail channel, and directly to original
equipment manufacturers and end users, primarily located in the United States.

     At the end of 1999 the Company began the process of implementing a new
business plan of investing as a minority shareholder, in a group of internet-
based companies. The Company's plan envisions the Company managing a diverse
network of internet-based companies and providing support and assistance to
these companies. In March 2000, the Company announced a plan to change its name
to TouchStone Capital Group. In March, 1999, the Company acquired Unicore
Software, Inc., a Massachusetts corporation ("Unicore"), and contributed the
assets, products and operations of its computer diagnostic software business to
Unicore. In January 2000, the Company created e.Support.com, Inc., a New
Hampshire corporation ("e.Support.com"), as its wholly-owned subsidiary to
handle the day-to-day activities of the Company's operational business not
already in Unicore. Unicore and e.Support.com conduct the day-to-day operations
of the Company's business.

     Basis of Presentation.  The 2000 consolidated financial statements of the
Company include the financial statements of the Company's five wholly owned
subsidiaries, e.Support.com, Inc., Unicore Software, Inc., TouchStone Europe,
Ltd, TSC Investments, LLC and TouchStone Investments, Inc (80%).  The 1999
consolidated financial statements of the Company include the financial
statements of the Company's two wholly owned subsidiaries, Unicore Software,
Inc. and TouchStone Europe Ltd.  All intercompany transactions and balances have
been eliminated.

     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's marketable investment securities consists
of a portfolio of certificates of deposits, commercial paper, corporate bonds
and government notes.  The Company accounts for 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, 2000 the allowance for doubtful accounts was
$197,000.

     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. At March 31, 2000  the allowance for obsolete inventories was $20,000.

                                       6
<PAGE>

               TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     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.  At March
31, 2000, the balance of goodwill, net of accumulated amortization was
$1,073,194.

     Intangible Assets.  Intangible assets consist of developed technology
purchased by the Company in business acquisitions 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.  At March 31, 2000, the
balance of intangible assets, net of accumulated amortization was $1,427,087.

     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.  During 1999, the Company
evaluated its property and equipment and recorded $52,000  of write-down in
property and equipment to be disposed and $229,000  of accrual of lease expense
on vacated facilities as part of merger, acquisition and restructuring charges.

     Revenue Recognition. Product sales are recorded at the time products are
shipped, but the Company records a reserve for product returns at each period-
end which covers 100% of inventory in the retail channel.  The reserves for such
inventory are classified as deferred revenue on the Company's balance sheet.
The Company's operations are subject to substantial and unpredictable risk of
product returns from distributors and retailers either through the exercise by
the Company's customers of contractual return rights or as a result of the
Company's policy of assisting customers in balancing and updating inventories.
Although the Company attempts to monitor and manage the volume of its sales to
its customers, large shipments in anticipation of demand which is subsequently
unrealized, can lead to overstocking by the distributors and substantial product
returns.  Certain of the Company's customer agreements also provide for rebates
to customers should the price of the Company's products decline subsequent to
shipment. The Company accrues for such rebates when such price declines are
known or become anticipated. Ongoing customer evaluations are performed with
respect to the Company's receivables, and collateral is generally not required.

     Translation of Foreign Currencies.  In accordance with Statement of
Financial Accounting Standards No. 52, "Foreign Currency Translation" (SFAS 52),
the assets and liabilities of the Company's foreign operations are translated at
exchange rates as of the balance sheet date.  Revenues and expenses are
translated at average rates of exchange in effect during the year.  Under SFAS
52, resulting translation adjustments are reflected as a separate

                                       7
<PAGE>

               TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

component of shareholders' equity.  The functional currency of the Company's
German branch is the German Deutsche Mark, while the functional currency of the
Company's European subsidiary is the U.S. dollar.  Transaction gains and losses
were not significant in 2000 and 1999 and have been included in results of
operations.

     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  2000 and 1999, software has been substantially
completed concurrently with the establishment of technological feasibility; and,
accordingly, no costs have been capitalized.

     Merger, Acquisition, and Restructuring Charges.  The primary components of
the Company's merger,  acquisition and restructuring charges include severance
for terminated employees, the write-down of property and equipment, the write-
down of facilities expense, legal expenses and costs associated with a lawsuit
settlement.  Severance expenses include salaries and benefits related to all
employees terminated as a result of the acquisition and cost reduction efforts.
For the year ending December 31, 1999, the Company wrote down its property and
equipment to the salvage value of the assets.  In addition, during that period,
the Company accrued lease expenses related to facilities it vacated.  These
expenses are attributable to the Company's intention to dispose of the assets
based on its decision to relocate its facilities and its decision to reduce its
workforce

     Advertising Costs.  The Company expenses advertising costs as incurred.
Advertising expense was approximately $107,852 and $127,055 for the quarters
ended March 31, 2000 and 1999, 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.

     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. For options or other stock-based compensation issued to
nonemployees, the Company recognizes compensation expense under the fair value
method.

     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.
Common stock equivalents consisted of outstanding stock options and warrants for
the years ended December 31, 1999, but have not been included in the calculation
of diluted EPS as their effect would have been antidilutive on both periods.  At
December 31, 1999, the number of outstanding stock options and warrants were
1,525,383.

                                       8
<PAGE>

               TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     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 carry 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 income, include foreign currency translation adjustment and unrealized
gains and losses on available-for-sale securities.  For the quarters ended March
31, 2000 and 1999, there were no differences between the Company's comprehensive
loss and the net loss reported on the statement of operations.

     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 currently expects to adopt SFAS 133, as amended by SFAS 137, for the
year ending December 31, 2000.  Management expects 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.

     Reclassifications.  Certain items previously reported in specific financial
captions have been reclassified to conform with the 2000 presentation

2.   EARNINGS (LOSS) PER YEAR

     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

                                       9
<PAGE>

               TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   EARNINGS (LOSS) PER YEAR (CONTINUED)

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,

                                                   2000       1999
                                               ----------   ----------

Weighted average number of shares outstanding:
  Basic                                        11,417,060   7,963,060

                                       10
<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, 1999 on file with the Securities and Exchange
Commission.

OVERVIEW

     TouchStone Software Corporation (the "Company" or "TouchStone") is a
developer and publisher of utility software used to set up, maintain and manage
personal computers and networks.  The Company's utility software can be
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 products, utilizing the Company's core technology, have continued to
evolve since they were first introduced in 1988.  New versions are released
periodically to provide updated hardware tests for the latest technology.  The
CheckIt products are sold worldwide through retail channels with some
penetration into  the OEM market.

     The newest additions to the Company's diagnostic product line are CheckIt
F/E7.0, WinCheckIt  V6.5 and FastMove!2000. CheckIt 7.0 Factory Edition is a
modular PC testing and diagnostics tool specifically designed for computer OEMs,
resellers and repair centers. WinCheckIt collects system information, tests
system components, pinpoints problems, locates hidden conflicts and restores
critical system files for PC troubleshooting. FastMove 2000 is a file
synchronization and transfer program that keeps the files and directories on
desktop PCs, laptops and networks synchronized and up-to-date. The Company's
file transfer utility, marketed under the name of FastMove!, is primarily a
retail product.

     TouchStone introduced CheckIt NetOptimizer in June of 1998 to address the
growing need for enhanced Internet performance of everyday modem users.  The
product optimizes Internet settings in Windows and on the user's modem to
increase throughput and download speeds.

     On March 8, 1999, the Company acquired Unicore Software, Inc. (Unicore), a
Massachusetts corporation. The acquisition of Unicore was accomplished through
the merger of Unicore with and into a newly formed and wholly owned subsidiary
of the Company.  Immediately prior to the acquisition, the Company contributed
all of the assets, products and operations of its personal computer diagnostic
software business to this newly formed corporation.  As a consequence, since the
closing of the Unicore acquisition, the Company has served as a holding company,
with the business and activities that previously were separately conducted by
both the Company and Unicore now being conducted by Unicore and, as of January,
2000, also by e.Support.com, another wholly-owned subsidiary of the Company.

     Unicore is a provider of system management software, which includes basic
input/output ("BIOS") software upgrades, personal computer ("PC") diagnostics
and Year 2000 Solutions 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.

     Unicore 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.

                                       11
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               TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES

     During the past several years, Unicore has grown into an engineering
company supplying not only BIOS software upgrades, but also PC diagnostics
software, Year 2000 solutions, PC Card software and custom engineering services.
As the evolution of software and hardware has become more complex, the need for
compatibility has increased in importance.  Unicore 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.

     Unicore's customers include primarily end-users, enterprises such as
Fortune 500 corporations, government agencies, 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.

     In January 2000, the Company formed a new wholly owned subsidiary
eSupport.com, Inc., a New Hampshire corporation ("e.Support.com"), which
currently conducts certain of the operations of Unicore and the day-to-day
operations formerly conducted by the Company and not transferred to Unicore.
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 the
Company.

     In January 2000, TSC Investments, LLC, a New Hampshire limited liability
company, ("TSC") was formed to engage in the business of making investments.
Under its initial Operating Agreement, TSC's sole member was TouchStone
Investments, Inc., which was issued 100 membership units and appointed manager
of TSC. In an amendment to the operating agreement, Pierre Narath was designated
as the manager of TSC.. Subsequent to this first amendment, on March 29, 2000,
the operating agreement was amended in its entirety. Under the March 29th
amendment to the operating agreement, Pierre Narath remains the sole manager of
TSC and TouchStone Investments, Inc., a wholly-owned susidiary of the  holds 80
membership units. Pierre A. Narath, the Chief Executive Officer of TouchStone
Software Corporation holds 17.5 units and Jason Raza, the Vice President of
TouchStone Software Corporation holds 2.5 units.

     TouchStone Investments, Inc., a New Hampshire corporation, was formed in
January 2000 for the principal purpose of engaging in the business of making
investments and serving as a member of TSC. 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.

     On March 3, 2000 the Company entered into an amended license agreement with
Compaq Computer ("Compaq") that grants an unlimited paid up license for CardWare
5.x and 6.x for as long as Compaq supports CardWare for NT 4.0.

     Effective March 6, 2000, the Company entered into a non-binding Letter of
Intent with Phoenix Technologies, Ltd. ("Phoenix") whereby Phoenix proposed to
acquire $3,300,000 of the Company's preferred stock and certain assets of the
Company, Unicore and e.Support.com relating to utility, diagnostic and
optimization software in exchange for $4,500,000 in cash and the equivalent of
$4,500,000 in Phoenix common stock. As of May 12, 2000 the Companies were unable
to reach a definitive agreement within the timeframe specified in the "LOI", and
have ceased its discussions and negotiations related to the acquisition.

At the end of April, 2000, the Company became aware (and advised Phoenix) of the
unauthorized publication of Company software (CheckIt 98 and NetOptimizer) in
two personal computer magazines in the United Kingdom. The Company has made
demand on the magazines to cease and desist such publication and intends to

                                       12
<PAGE>

               TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES

pursue its remedies with respect thereto.

     In March 2000, TouchStone Software Corporation announced a board resolution
to change its name to TouchStone Capital Group.

     As of March 31, 2000, the Company had made investments in the following
companies:

     A $663,000 investment for 260,000 shares of Series A convertible preferred
stock of PartsBase.com, a provider of Internet business-to-business e-commerce
services for the aviation industry.  In March 2000, PartsBase.com completed an
initial public offering and is currently traded on the Nasdaq: PRTS.

     A $178,500 investment for 116,667 shares of Series A convertible preferred
stock of SupplyAcces, Inc., a provider of Internet business-to-business, e-
commerce services for Fortune 1000 and government customers.  SupplyAccess, Inc.
is a  subsidiary of En Pointe Technologies, Inc., Nasdaq: ENPT.

     A $535,500 investment for 262,500 shares of Series A convertible preferred
stock of Fuher and Associates, Inc, (FAI),  a provider of integrated technology
products and operational solutions to the insurance industry.

     A $255,000 investment for 50,000 shares of Series A convertible preferred
stock of Ragula Systems Development Company (FatPipe),  a provider of integrated
technology products and operational solutions to the insurance industry.

     A $295,800 investment for 82,858 shares of Series C convertible preferred
stock of FastPoint Communications Inc., a network access provider ("NAP") of
internet, data and communications services.  This company's service offerings
include high-speed Internet access, such as didicated access, digital subscriber
line ("DSL"); and dial-up Internet access; data center services such as co-
location, access and monitoring services; and web hosting and design.

     Two bridge financing agreements, in which the Company made loans in the
aggregate principal amount of $775,000 to Entertainment Boulevard, Inc. ("EBI")
and received an aggregate of 310,000 warrants to purchase EBI common stock.  EBI
owns Vidnet, which is a provider of streaming entertainment related media on the
Internet and a media encoding service provider.  EBI's common stock currently
trades on the OTC BB: EBLD.

     A bridge financing agreement, in which the Company made a $150,000 loan to,
and received 41,584 shares of common stock of, Nucleus, Inc. Nucleus, Inc,
delivers the digital building blocks for businesses to conduct electronic
commerce over the Internet. It's product, eNucleus Platform Solution (eNPS)
provides an integrated environment which delivers high speed Internet transport,
licensed e-business enabling software and web hosting. Nucleus, Inc. currently
trades on the OTC BB: NCLS.

     TouchStone's operating model is to combine the talents of its management
team with those of its portfolio companies. Each of these companies holds niche
positions, with leadership potential, in Internet sectors. 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
      potential of the Internet.

                                       13
<PAGE>

               TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES

  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.

                                       14
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               TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES


PRODUCTS

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

<TABLE>
<CAPTION>
                                                                                                          INITIAL RELEASE
--------------------------------------------------------------------------------------------------------------------------
Product Title                                            DESCRIPTION                                            DATE
--------------------------------------------------------------------------------------------------------------------------


<S>                      <C>                                                                              <C>
CHECKIT F/E(R) 7.0       CheckIt 7.0 Factory Edition is a modular PC testing and diagnostics tool         January 2000
Factory Edition          expressly designed for computer OEMs, 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 FE was developed for use by PC manufacturers and after-market
                         professionals - at varying levels and with varying technical requirements.

WINCHECKIT(R) V6.5       WinCheckIt collects system information, tests system components, pinpoints       December 1999
                         problems, locates hidden conflicts and restores system files for PC
                         troubleshooting. WinCheckIt automatically detects problems and guides the
                         user to the information and tests needed to fix the problem.  Included
                         also are programs to test and fix Y2K hardware problems, find and remove
                         software viruses, and better manage data on your hard drives. Finally, a
                         newsletter is included that focuses on explaining new and emerging
                         technologies. Windows 95, 98 and NT4.0 are supported.

FASTMOVE!(R) 2000        FastMove! 2000 Is a file synchronization and transfer program that keeps         December 1999
WITH CLEAN&ZIP           the files and directories on desktop PCs, laptops and networks
                         synchronized and up-to-date.  Clean&Zip is a file management utility
                         designed to clean up and organize stored data. It identifies duplicate and
                         orphaned files spanned across multiple drives, and provides tools to
                         remove or archive them into a standard compressed format.

CARDWARE(R)  6.0         CardWare enables PCs and other electronic devices to recognize, install,         November 1999
                         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.

CheckIt 98               The CheckIt 98 Diagnostic Suite features the portable, self-booting              August 1998
DIAGNOSTIC SUITE(R)      diagnostics of CheckIt for DOS, CheckIt 98 for Windows 95, FastMove! file
                         transfer utility and Bigelow's PC Technician's Troubleshooting Pocket
                         Reference.  Professional technicians use this product to troubleshoot PC
                         problems, test hardware components, diagnose setup conflicts, optimize
                         modem configuration, calibrate video components, benchmark PC performance
                         and conduct burn-in and certification tests.  The CheckIt Diagnostic Suite
                         also includes a Y2K hardware test and fix feature.

</TABLE>

                                       15
<PAGE>

               TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES
<TABLE>
<S>                      <C>                                                                              <C>

CHECKIT                  CheckIt NetOptimizer gives Internet users a safe way to fine-tune their          May 1998
NETOPTIMIZER(R)          Internet connections through an automatic or manual tune-up selection.  In
                         addition, NetOptimizer performs diagnostic tests and corrects some common
                         port and modem problems.  It includes a detailed troubleshooter's guide
                         with suggestions on how to fix problems identified by the test.  In
                         addition to the tests, a list of details and specifications about the
                         consumer's modem and the current driver in use is available at the touch
                         of a button.  NetOptmimizer's benchmark utility provides the means for
                         Internet users to evaluate the current and past performance of their ISP
                         connections.

CHECKIT DOS              CheckIt for DOS provides diagnostics that run even when Windows is               August 1998
PORTABLE                 inoperable. Offering portability for technicians and advanced users, it
DIAGNOSTICS              provides detailed information that shows how a system's hardware, software
                         and setup files are configured, and tests PC subsystems. Users can
                         generate custom batch tests and configure individual test applets for
                         burn-in and troubleshooting.

BIOS                     The BIOS is the control center of any PC or compatible. Without a properly       Current
UPGRADE SOLUTIONS        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.

POSTCARD                 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.

MILLENIUM/PRO            Millenium/Pro is a plug-in hardware card that offers a cost-effective
                         solution to bring older PCs into Year 2000 compliance.
</TABLE>











Results of Operations

                                       16
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               TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES

     The following is a preliminary discussion of the financial condition and
results of operations of the Company as of March 31, 2000 and March 31, 1999 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, 1999, 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.

<TABLE>
<S>                                      <C>                   <C>
                                                2000                  1999
                                           -------------         -------------

Revenues:
   Product sales                                  97 %                 100 %
   Royalty income                                  3                     -
Net revenues                                     100                   100
Cost of revenues                                  10                    20
Gross profit                                      90                    80
Operating expenses:
    Sales and marketing                           30                    39
    General and administrative                    34                    38
    Research and development                      26                    21
    Amortization of goodwill and
      acquired intangible assets                  32                    16
    Merger, acquisition and
      restructuring charges                        -                    91
                                           -------------         -------------

          Total operating expenses               122                   205
Loss from operations                             (32)                 (125)
Other income, net                                  8                     5
Loss before provision for (benefit
      from) income taxes                         (24)                 (120)
Provision for (benefit from)
   income taxes                                   (7)                   (4)
                                           -------------         -------------
Net loss                                         (17)%                (116)%
                                           =============         =============
</TABLE>

COMPARISON OF THREE MONTH PERIODS ENDED MARCH 31, 2000  AND 1999

     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, but the Company records a reserve for product
returns at each period-end which covers 100% of inventory in the sales channel.
The reserves for such inventory are classified as deferred revenue on the
Company's balance sheet.  The Company's operations are subject to substantial
and unpredictable risk of product returns from distributors and retailers either
through the exercise by the Company's customers of contractual return rights or
as a result of the Company's policy of assisting customers in balancing and
updating inventories.  Although the Company attempts to monitor and manage the
volume of its sales to its customers, large shipments in anticipation of demand,
which is subsequently unrealized, can lead to overstocking by the distributors
and substantial product returns.

                                       17
<PAGE>

               TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES

     Certain of the Company's customer agreements also provide for rebates to
customers should the price of the Company's products decline subsequent to
shipment.  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.  Revenues decreased by approximately
6%, for the three month period ended March 31, 2000, from the same period of the
prior year on a pro-forma basis. The decrease in revenues is primarily due from
the reduction in year 2000 products and a decline in BIOS upgrades.

     COST OF REVENUES. Cost of revenues consists of the cost of materials,
freight expenses, inventory obsolescence reserves, fees paid to an outsource-
production fulfillment house, 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 10% of revenues for the
three-month period ended March 31, 2000, as compared to 20% 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 in part from the Compaq Computer and Sun Mircro Systems
agreements signed during the quarter ended March 31, 2000.

     SALES AND MARKETING.  Sales and marketing expenses consist primarily of
advertising personnel and related expenses, sales commissions, travel costs,
retail product merchandising and promotions.  Sales and marketing expenses
increased by approximately $31,454, or 6%, for the three month period ended
March 31, 2000, from the same period of the prior year primarily due to the
increased marketing efforts associated with the release of WINCHECKIT V6.5 and
FASTMOVE! 2000.

     General and Administrative.  General and administrative expenses consist
primarily of personnel and related expenses, professional services and
facilities costs.  General and administrative expenses increased by
approximately $123,948, or 20%, for the three month period ended March 31, 2000
from the same period of the prior year due primarily from an increase in
executive travel related expenses.

     RESEARCH AND DEVELOPMENT.  Research and development expenses consist
primarily of engineering personnel and related expenses and equipment costs.
Research and development expenses increased by approximately $183,346, or 40%,
for the three month period ended March 31, 2000, from the same period of the
prior year primarily due to the effect of additional engineers acquired through
the Unicore acquisition.

     INTEREST INCOME, NET.  Interest income, net consists primarily of interest
expense associated with a note outstanding and interest income on cash and cash
equivalents, net of expenses.  Interest income, net increased by approximately
$82,946, or 56% for the three month period ended March 31 2000, from the same
period of the prior year due primarily to increased holdings of investments.

     AMORTIZATION OF GOODWILL AND ACQUIRED INTANGIBLES. The Company continues to
amortize the goodwill and other acquired intangibles primarily resulting from
the acquisition of Unicore on a straight-line basis over approximately two
years.  Amortization expense increased $355,827, or 63% for the three month
period ended March 31, 2000 from the same period of the prior year, in which
included only one month of amortization expense.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's cash and cash equivalents, restricted cash, and investments
totaled $1.3 million at March 31, 2000.  Working capital decreased from
approximately $3.7 million at December 31, 1999 to approximately $2.5 million at
March 31, 2000.  Cash and cash equivalents decreased from $2,157,904 at December
31, 1999 to $535,261 at March 31, 2000.  The decrease in working capital was in
part  due primarily from the decreased holding of short-term investments and
cash used in investing activities.

     In November 1998, Unicore negotiated a bank line of credit, which provides
for borrowings up to $100,000 and bears interest at 2% over the cash collateral
certificate of deposit rate (6.51% at March 31, 2000). The line of credit, which
expires in November 2000, is secured by a $110,000 certificate of deposit, held
at the bank, which has been classified as restricted cash at December 31, 1999.
There were no borrowings outstanding under this line of credit at March 31,
2000.


                                       18
<PAGE>

               TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES


     Management believes that the Company's existing cash and periodic
borrowings under the line of credit will be sufficient to fund the Company's
operations at currently anticipated levels through the next twelve months.  The
Company plans to use its cash resources to finance new product development and
existing product enhancements, expand internationally, expand the direct sales
force for corporate customers and make strategic acquisitions of, or investments
in, businesses, products or technologies.

RISK FACTORS

Competition

     The Company competes against many other software vendors both directly, in
the form of competing products, and indirectly, in the form of limited shelf
space, for software products at retailers and distributors. To a large extent,
the Company's success in this regard will be a function of the Company's ability
to develop new products or new versions of existing products, along with market
acceptance of the Company's products currently being sold at retail.  As other
software developers provide greater functionality, features, user value and
performance in their products that eliminate or reduce the need for the
Company's BIOS Upgrades, the market for the Company's products could be
materially diminished.  There can be no assurance that other participants in the
software and PC industries will not develop products and solutions that reduce
the demand or obviate the need for the Company's products.

ABILITY TO RESPOND TO RAPID TECHNOLOGICAL CHANGE; NEW PRODUCT DEVELOPMENT

     The market for utility and system management software is characterized by
rapidly changing technology, evolving industry standards and frequent new
product introductions.  The general trend in the software and PC industries is
toward shorter product life cycles, resulting in rapid product and technology
obsolescence.  The ability of the Company to grow 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.  There can
be no assurance that the Company will be successful in developing such
enhancements or new software, or, even if successful, that it will not
experience delays in achieving such developments.  Any failure or delay by the
Company to develop such enhancements or new software or the failure of its
software to achieve market acceptance would adversely affect the Company's
business, financial condition and results of operations.  In addition, there can
be no assurance that products or technologies developed by others will not
render the Company's software or technologies non-competitive or obsolete.

POTENTIAL CHANGE IN THE NATURE OF THE COMPANY'S BUSINESS

     In March 2000, the Company announced a plan to change its name to
TouchStone Capital Group. At the end of 1999, the Company had also begun the
process of implementing a new business plan of investing as a minority
shareholder, in a group of technology companies. The Company's plan envisions it
providing management assistance and support to a diverse network of internet-
based companies.

                                       19
<PAGE>

               TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES


FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

     The Company has experienced and expects to continue to experience
fluctuations in its quarterly results of operations.  The Company's revenues are
affected by a number of factors, including the demand for the Company's
products, the demand for PCs, timing of new product introductions, product mix,
volume and timing of customer orders, activities of competitors and the ability
of the Company to penetrate new markets.  Quarterly revenues and results of
operations therefore depend on the volume and timing of orders received during
the quarter, which are difficult to forecast.  Because the Company's staffing
and other operating expenses are based on anticipated revenues, delays in the
receipt of orders can cause significant variations in results of operations from
quarter to quarter.  The Company also may choose to reduce prices, increase
spending in response to competition or pursue new market opportunities, each of
which decisions may adversely affect the Company's business, financial condition
and results of operations.

     Due to all of the foregoing factors, it is likely that in some future
quarters the Company's operating results will be below the expectations of
public market analysts and investors.  Regardless of the general outlook for the
Company's business, the announcement of quarterly results of operations below
analyst and investor expectations is likely to result in a decline in the
trading price of the Company's Common Stock.

ABILITY TO ATTRACT AND RETAIN KEY EMPLOYEES

     The Company believes that its future success will depend in large part upon
its ability to attract and retain highly skilled technical, management and sales
and marketing personnel. The loss of services of one or more of these key
employees, particularly Pierre A. Narath, the Company's President and Chief
Executive Officer and Chairman of the Company's Board of Directors, Jason K.
Raza, a Vice President of the Company and a member of the Company's Board of
Directors and Christopher J. Gaudette, the Controller,  Principal Accounting
Officer and Assistant Secretary, could have a material adverse effect on the
Company's business, financial condition and results of operations. Moreover,
because the development of the Company's software requires knowledge of computer
hardware, diagnostic software, operating system software, system management
software and application software, key technical personnel must be proficient in
a number of disciplines.  Competition for such technical personnel is intense,
and the failure of the Company to hire and retain talented technical personnel
or the loss of one or more key employees could have an adverse effect on the
Company's business, financial condition and results of operations.

     Future growth, if any, of the Company will require additional engineering,
sales and marketing, and financial and administrative personnel to expand
customer services and support and to expand operational and financial systems.
There can be no assurance that the Company will be able to attract and retain
the necessary personnel to accomplish its growth strategies or that it will not
experience constraints that will adversely affect its ability to satisfy
customer demand in a timely fashion.  If the Company's management is unable to
manage growth effectively, the Company's business, financial condition and
results of operations could be adversely affected.

MANAGEMENT

     The Company's ability to compete effectively and manage future growth, if
any, will require the Company to continue to improve its financial and
management controls, reporting systems and procedures on a timely basis, and to
expand, train and manage its work force.  There can be no assurance that the
Company will be able to do so successfully, and the failure to do so would have
a material adverse effect upon the Company's business, financial condition and
results of operations.  The Company's success will depend to a significant
degree on the ability of its executive officers and other members of its senior
management, none of whom has prior experience managing public companies in their
current roles, to manage future growth, if any.

                                       20
<PAGE>

               TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

     The Company's success depends in significant part on the development,
maintenance and protection of its intellectual property.  The Company regards
all of its software as proprietary and attempts to protect it with a combination
of patents, copyrights, trademarks and trade secrets, employee and third-party
nondisclosure agreements and other methods of protection.  Despite these
precautions and the protection of copyright laws, it may be possible for
unauthorized third parties to copy the Company's software or to reverse engineer
or obtain and use information that the Company regards as proprietary. The
Company licenses its object and source code under written license agreements.
Certain provisions of such licenses, including provisions protecting against
unauthorized use, copying, transfer and disclosure of the licensed programs, may
be unenforceable under the laws of certain jurisdictions.  In addition, the laws
of some foreign jurisdictions do not protect the Company's proprietary rights to
the same extent as do the laws of the United States.  There can be no assurance
that the protections put in place by the Company will be adequate. At the end of
April, 2000, the Company became aware of the unauthorized publication of Company
software (CheckIt 98 and NetOptimizer) in two personal computer magazines in the
United Kingdom.  The Company has made demand on the magazines to cease and
desist such publication and intends to pursue its remedies with respect thereto.

     The Company believes that its software does not presently infringe the
copyrights of any third parties.  However, there can be no assurance that other
parties will not make allegations of infringement in the future.  Such
assertions could require the Company to discontinue the use of certain software
codes or processes, to cease the manufacture, use and sale of infringing
products, to incur significant litigation costs and expenses and to develop non-
infringing technology or to obtain licenses to the alleged infringing
technology.  Although the Company has been able to acquire licenses from third
parties in the past, there can be no assurance that the Company would be able to
develop alternative technologies or to obtain such licenses or, if a license
were obtainable, that the terms would be commercially acceptable to the Company
in the event such assertions are made in the future.

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.

                                       21
<PAGE>

               TOUCHSTONE SOFTWARE CORPORATION AND SUBSIDIARIES

                           PART II OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     In March 1999, the Company was served with a Complaint and Summons
("Complaint") filed against the Company by Otto Legerer and GSV Immobilien
Ges.m.b.H. ("GSV").  Mr. Legerer had formerly served as the Company's Managing
Director of European Operations.  The Complaint alleged, among other items,
breach of contract in regards to his termination and sought compensatory and
certain other damages.  This matter was settled in December 1999, in part
through a settlement payment to Mr. Legerer and GSV Immobilien Ges m.b.H. in the
amount of $300,000.

     In April 2000, the Company learned of a pending Complaint and Summons
("Complaint") filed against the Company by former CEO and president, Lawrence
Jordan. As of May 10, 2000, service of the Complaint on the Company has yet to
be effected.  However, the Company has entered into discussions with Mr. Jordon
in an attempt to resolve the matter before it is joined.

     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)  Exhibits
          27  Financial Data Schedule

     (b)  Reports on Form 8-K
          No reports on Form 8-K were filed by the Company during the quarter
          ended March 31, 2000.

                                       22
<PAGE>

               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 15, 2000
--------------------            Chief Executive Officer and President
    PIERRE A. NARATH

/s/ Christopher J. Gaudette     Controller, Principal Accounting                May 15, 2000
---------------------------     Officer, and Assistant Secretary
    CHRISTOPHER J. GAUDETTE
</TABLE>


                                       23