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



                                  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
          SEPTEMBER 30, 2000                            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
October 24, 2000 was 11,440,060 shares.



================================================================================
<PAGE>
                         TOUCHSTONE SOFTWARE CORPORATION



                                      INDEX


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


ITEM 1.   Financial Statements

          Consolidated Balance Sheet --  September 30, 2000 ..............   3

          Consolidated Income Statements --  Three Months
          Ended September 30, 2000 and September 30, 1999
          and Nine Months Ended September 30, 2000 and
          September 30, 1999..............................................   4

          Consolidated Statements of Cash Flows -- Nine Months
          Ended September 30, 2000 and September 30, 1999.................   5

          Notes to Consolidated Financial Statements .....................  6-10


ITEM 2.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations ............................ 11-19






PART II.  OTHER INFORMATION


ITEM 1.   Legal Proceedings...............................................  20

ITEM 6.   Exhibits and Reports on Form 8-K ...............................  20

          Signatures......................................................  21







<PAGE>
                         TOUCHSTONE SOFTWARE CORPORATION

                         PART I - FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

                           CONSOLIDATED BALANCE SHEET
                               SEPTEMBER 30, 2000
                                   (UNAUDITED)
<TABLE><CAPTION>
<S>                                                                           <C>
ASSETS
------
Current assets:
     Cash and cash equivalents ............................................   $     97,032
     Restricted cash ......................................................        500,000
     Available-for-sale securities ........................................      1,239,892
     Accounts receivable, net .............................................        304,600
     Inventories, net .....................................................         16,054
     Note receivable ......................................................        150,000
     Prepaid expenses and other current assets ............................        108,041
                                                                              ------------
          Total current assets ............................................      2,415,619
                                                                              ------------

Investments, marketable securities ........................................         69,584
Investments, other ........................................................      1,295,796
Note receivable, shareholders .............................................        393,000
Property, plant and equipment, net ........................................         72,477
Goodwill and other intangibles, net .......................................      1,632,818
Other assets ..............................................................          6,495
                                                                              ------------
                                                                              $  5,885,789
                                                                              ============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
----------------------------------------
Current liabilities:
     Current maturities of long-term debt .................................   $     22,321
     Accounts payable .....................................................        331,562
     Accrued payroll and related expenses .................................        192,055
     Deferred revenue .....................................................        222,925
     Other accrued expenses ...............................................        226,556
                                                                              ------------
          Total current liabilities .......................................        995,419
                                                                              ------------

Long-term debt ............................................................        438,379
Deferred tax liability ....................................................        264,400
Minority interest .........................................................       (113,222)
                                                                              ------------
          Total liabilities ...............................................      1,584,976
                                                                              ------------
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 ....................         11,440
     Accumulated other comprehensive loss .................................       (669,015)
     Additional paid-in capital ...........................................     21,026,934
     Deferred compensation ................................................        (22,791)
     Accumulated deficit ..................................................    (16,045,755)
                                                                              ------------
          Total shareholders' equity ......................................      4,300,813
                                                                              ------------
                                                                              $  5,885,789
                                                                              ============

The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
                                        3
<PAGE>
                         TOUCHSTONE SOFTWARE CORPORATION

                         CONSOLIDATED INCOME STATEMENTS

<TABLE><CAPTION>
                                                                 THREE MONTHS ENDED                     NINE MONTHS ENDED
                                                           -------------------------------       -------------------------------
                                                           SEPTEMBER 30,      SEPTEMBER 30,      SEPTEMBER 30,      SEPTEMBER 30,
                                                               2000               1999               2000               1999
                                                           ------------       ------------       ------------       ------------
<S>                                                        <C>                <C>                <C>                <C>
(UNAUDITED)
Revenues:
     Product sales ..................................      $    775,770       $  1,569,204       $  3,338,877       $  4,713,835
     Royalty income .................................            62,722               --              172,979               --
                                                           ------------       ------------       ------------       ------------
          Net revenues ..............................           838,492          1,569,204          3,511,856          4,713,835
Cost of revenues ....................................           128,425            213,228            557,223            689,742
                                                           ------------       ------------       ------------       ------------
          Gross profit ..............................           710,067          1,355,976          2,954,633          4,024,093
                                                           ------------       ------------       ------------       ------------

Operating expenses:
     Sales, general and administrative ..............           674,057          1,512,459          2,787,360          3,711,460
     Research and development .......................           278,815            526,141          1,076,328          1,105,288
     Amortization of goodwill and acquired
       intangible assets ............................           433,731            633,732          1,434,523          1,478,698
     Merger and restructuring charges, net ..........           (61,520)              --              (61,520)         1,174,730
                                                           ------------       ------------       ------------       ------------
          Total operating expenses ..................         1,325,083          2,672,332          5,236,691          7,470,176
                                                           ------------       ------------       ------------       ------------
Loss from operations ................................          (615,016)        (1,316,356)        (2,282,058)        (3,446,083)


Gain on sale of product line ........................           319,872               --              319,872               --
Other income, net ...................................            (9,655)            86,119            173,766            176,868
                                                           ------------       ------------       ------------       ------------
Loss before provision for (benefit) from income taxes          (304,799)        (1,230,237)        (1,788,420)        (3,269,215)
Provision for (benefit) from income taxes ...........           (72,100)          (360,500)           142,968           (618,000)
                                                           ------------       ------------       ------------       ------------
Net loss before minority interest ...................          (232,699)          (869,737)        (1,931,388)        (2,651,215)
                                                           ------------       ------------       ------------       ------------
Minority interest ...................................              (300)              --              (38,000)              --
                                                           ------------       ------------       ------------       ------------
Net loss ............................................      $   (232,999)      $   (869,737)      $ (1,969,388)      $ (2,651,215)
                                                           ============       ============       ============       ============

Basic and diluted loss per share ....................      $      (0.02)      $      (0.09)      $      (0.17)      $      (0.31)
                                                           ============       ============       ============       ============

Basic weighted average shares outstanding ...........        11,440,060          9,663,744         11,440,060          8,552,306
                                                           ============       ============       ============       ============




The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


                                        4
<PAGE>
                         TOUCHSTONE SOFTWARE CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
<TABLE><CAPTION>
                                                                             NINE MONTHS ENDED
                                                                       -----------------------------
                                                                       SEPTEMBER 30,    SEPTEMBER 30,
                                                                           2000             1999
                                                                       -----------       -----------
<S>                                                                    <C>               <C>
Cash flows from operating activities:
     Net loss ...................................................      $(1,969,388)      $(2,651,215)
     Adjustments to reconcile net loss to net cash provided by
       (used in) operating activities:
          Depreciation ..........................................           46,731           100,367
          Amortization of intangibles ...........................        1,434,524         1,478,708
          Stock options issued for consulting services ..........           83,315               992
          Minority interest .....................................          113,222              --
          Deferred taxes ........................................          140,800           618,000
          Provision for doubtful accounts .......................         (135,805)           96,645
          Gains on sale of product line .........................         (319,872)             --
          Realized gains on investments .........................         (110,156)             --
          Accounts receivable ...................................          659,036          (374,037)
          Inventories ...........................................          183,147            96,351
          Prepaid expenses and other current assets .............          102,596          (302,617)
          Other assets ..........................................           57,779               439
          Accounts payable ......................................          (52,087)         (398,645)
          Deferred revenue ......................................         (102,832)         (161,224)
          Accrued liabilities ...................................         (638,372)          543,990
                                                                       -----------       -----------
              Net cash used in operating activities .............         (507,362)         (952,246)
                                                                       -----------       -----------
Cash flows from investing activities:
     Purchase and sale of investments, net ......................       (1,192,144)        3,470,105
     Advances on notes receivable ...............................         (293,000)             --
     Purchases of property and equipment ........................           (7,585)             --
     Proceeds from sale of property and equipment ...............            1,630              --
                                                                       -----------       -----------
              Net cash provided by (used in) investing activities       (1,491,099)        3,470,105
                                                                       -----------       -----------
Cash flows from financing activities:
     Payment on long-term debt ..................................          (67,491)          (52,080)
     Proceeds from exercise of stock options ....................            5,080            16,740
                                                                       -----------       -----------
              Net cash used in financing activities .............          (62,411)          (35,340)
                                                                       -----------       -----------

Net decrease in cash and cash equivalents .......................       (2,060,872)        2,482,519
Cash and cash equivalents, beginning of period ..................        2,157,904           825,255
                                                                       -----------       -----------
Cash and cash equivalents, end of period ........................      $    97,032       $ 3,307,774
                                                                       -----------       -----------
Supplemental disclosure of cash flow information:
     Cash paid during the period for:
              Interest ..........................................      $    25,219       $    26,342
                                                                       -----------       -----------
              Income taxes ......................................      $     2,168       $       800
                                                                       -----------       -----------

The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                        5
<PAGE>
                         TOUCHSTONE SOFTWARE CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         NATURE OF OPERATIONS. TouchStone Software Corporation ("TouchStone" or
the "Company") develops, markets, and supports a line of computer
problem-solving software products designed to simplify personal computer
installation, support, and maintenance. TouchStone is also actively investing in
B-2-B, and B-2-C e-commerce companies. As of September 30, 2000 the company held
through its subsidiary TSC Investments LLC, equity interest in seven technology
companies. TouchStone operates from one location in the United States. The
Company markets its products, domestically and internationally through software
distributors, directly to original equipment manufacturers and end users,
primarily located in the United States and Canada

         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. To date the company still operates as
TouchStone Software Corporation. In March 1999, the Company acquired Unicore
Software, Inc., a Massachesetts corporation ("Unicore"), and contributed the
assets, products and operations of its computer diagnostic software business to
Unicore. In January 2000, the Company created eSupport.com, Inc., a New
Hampshire corporation ("eSupport.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 eSupport.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 subsidiaries,
eSupport.com, Inc., Unicore Software, Inc., TouchStone Europe, Ltd, TSC
Investments, LLC and TouchStone Investments, Inc 80% owned. 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 on a
quarterly basis. During the quarter management reduced the allowance for
doubtful accounts based on the reduction in accounts receivable. At September
30, 2000 the allowance for doubtful accounts was $27,000.

         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.

                                        6
<PAGE>
                         TOUCHSTONE SOFTWARE CORPORATION

                   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 were to occur, the Company would use an estimate of the undiscounted
future operating cash flows to determine the recoverability of the goodwill. At
September 30, 2000, the balance of goodwill, net of accumulated amortization was
$793,230.

         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 September 30, 2000,
the balance of intangible assets, net of accumulated amortization was $839,591.

         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
accrued 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.

                                        7
<PAGE>
                         TOUCHSTONE SOFTWARE CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         AVAILABLE-FOR-SALE SECURITIES. Available-for-sale securities are
reported at fair value, based on quoted market prices, with the net unrealized
gain or loss reported as a component of accumulated other comprehensive income
(loss) in stockholders' equity.

         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 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.

         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

                                        8
<PAGE>
                         TOUCHSTONE SOFTWARE CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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.

         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 quarter ended September 30, 2000 the difference between the net loss
reported on the statement of operations and the comprehensive loss was $669,015,
for 1999 there was no difference.

         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.

                                        9
<PAGE>
                         TOUCHSTONE SOFTWARE CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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 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 NINE MONTHS
                                                        ENDED SEPTEMBER 30,

                                                        2000          1999
                                                        ----          ----
Weighted average number of shares outstanding:
         Basic ...................................   11,440,060     8,552,306























                                       10
<PAGE>
                         TOUCHSTONE SOFTWARE CORPORATION



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 ("TouchStone" or the "Company")
develops, markets, and supports a line of computer problem-solving software
products designed to simplify personal computer installation, support, and
maintenance. TouchStone is also actively investing in B-2-B, and B-2-C
e-commerce companies. As of September 30, 2000 the company held through its
subsidiary TSC Investments LLC, equity interest in seven technology companies.
TouchStone operates from one location in the United States. The Company markets
its products, domestically and internationally through software distributors and
directly to original equipment manufacturers and end users, primarily located in
the United States and Canada

         In January 2000, the Company formed a new wholly-owned subsidiary
eSupport.com, Inc., a New Hampshire corporation ("eSupport.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., the wholly-owned susidiary
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.

         In May, 2000, the Company and Phoenix Technologies, Ltd. terminated the
non-binding letter of intent dated as of March 6, 2000, that contemplated the
transfer by the Company of its wholly-owned subsidiary, eSupport.com, Inc. along
with certain other assets of the Company and its wholly-owned subsidiary,
Unicore Software, Inc.

                                       11
<PAGE>
                         TOUCHSTONE SOFTWARE CORPORATION


         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 $25,000.00 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.

         During the quarter the company closed its German office located at
Sonnenstrasse 26B, 85622 Feldkirchen, Germany. Effective September 30, 2000,
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 version in the United Sates and Canada.

         As of September 30, 2000, the Company has equity 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 trading on Nasdaq under the ticker
symbol PRTS. As of Septenber 30, 2000 the investment was valued at $910,000.

         A $178,500 investment for 116,667 shares of Series A convertible
preferred stock of SupplyAccess, 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 Xdimensional formerly (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.
During the quarter the loans were converted, the Company received 128,438 and
265,927 shares of Entertainment Boulevard's common stock, in lieu of repayment
of the $250,000 and $525,000 cash and interest payable on the two notes. The
Company received an additional 155,000 warrants to purchase EBI common stock in
lieu of a cash repayment. EBI owns Vidnet, which is a provider of streaming
entertainment related media on the Internet and a media encoding service
provider. During the quarter Mr. Narath was named the acting CEO for
Entertainment Boulevard. As of September 30, 2000 the shares held in EBLD were
valued at $49,296. EBI's common stock currently trades on the OTC BB: EBLD.

                                       12
<PAGE>
                         TOUCHSTONE SOFTWARE CORPORATION


         A bridge financing agreement, in which the Company made a $150,000 loan
to, and received 41,584 shares of common stock of, eNucleus, Inc. 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, delivers the digital building blocks for
businesses to conduct electronic commerce over the Internet. The note originally
called for repayment on July 6, 2000, which the management of eNucleus extended
until November 3, 2000. To date the Company has not received repayment and has
submitted a letter to the CEO of eNucleus claiming default on the loan. As of
September 30, 2000 the shares held in eNucleus were valued at $22,092. eNucleus,
Inc. currently trades on the OTC BB: ENCS

         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:

o    Marketing companies offering technologies, products and services for
     computer diagnostic tools and advanced software solutions.

o    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.

o    Content and community companies with comprehensive sources of information
     and systems to connect geographically dispersed individuals and groups.

o    Enabling technology companies that deliver strategy, services and
     technologies to help dot.com and traditional corporations exploit the
     potential of the Internet.

     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.















                                       13
<PAGE>
                         TOUCHSTONE SOFTWARE CORPORATION

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>
BIOS                  The BIOS is the control center of any PC or compatible.        Current
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.


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


CHECKIT PE(R) 7.0     CheckIt 7.0 Portable Edition is a modular PC testing and       January 2000
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.


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.

</TABLE>






                                       14
<PAGE>
                         TOUCHSTONE SOFTWARE CORPORATION


RESULTS OF OPERATIONS

         The following is a discussion of the financial condition and results of
operations of the Company as of September 30, 2000 and September 30, 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><CAPTION>
                                               THREE MONTHS ENDED       NINE MONTHS ENDED
                                                  SEPTEMBER 30,           SEPTEMBER 30,
                                                 2000        1999        2000        1999
<S>                                             <C>         <C>         <C>         <C>

Revenues:
    Product sales                                 93%        100%         95%        100%
    Royalty income                                 7          --           5          --
Net revenues                                     100         100         100         100
Cost of revenues                                  15          14          16          15
Gross profit                                      85          86          84          85
Operating expenses:
    Sales, general and administrative             80          96          79          79
    Research and development                      33          34          31          23
    Amortization of goodwill and
      acquired intangible assets                  52          40          41          31
    Merger and restructuring charges, net         (7)         --          (2)         25
                                                 ---------------------------------------
                  Total operating expenses       158         170         149         158

Loss from operations                             (73)        (84)        (65)        (73)
Gain on sale of product line                      38          --           9          --
Other income, net                                 (1)          5           5           4
Loss before provision for (benefit from)
    income taxes                                 (36)        (78)        (51)        (69)
Provision for (benefit from) income taxes         (9)        (23)          4         (13)
Minority Interest                                 --          --           1          --
                                                 ---------------------------------------
Net loss                                         (28)%       (55)%       (56)%       (56)%
                                                 =======================================
</TABLE>

COMPARISON OF THREE MONTH PERIODS ENDED SEPTEMBER 30, 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

                                       15
<PAGE>
                         TOUCHSTONE SOFTWARE CORPORATION


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. 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
47%, for the three month period ended September 30, 2000, from the same period
of the prior year. The decrease in revenues is primarily due to the company's
departure from the retail industry.

         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 increased to 15% of
revenues for the three-month period ended September 30, 2000, as compared to 14%
of revenues for the same period of the prior year.

         SALES, GENERAL AND ADMINISTRATIVE. Sales, general and admistrative
expenses consist primarily of advertising, personnel and related expenses, sales
commissions, travel costs, retail product merchandising, promotions,
professional services and facilities costs. Sales, general and administrative
expenses decreased by approximately $838,402 or 55%, for the three month period
ended September 30, 2000, from the same period of the prior year. This decerease
results primarily from the second quarter closing of the direct sales operations
located in Alta Loma, CA along with the closure of the Huntington Beach, CA
location where the retail channel manager and an engineer were located.

         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 $247,326, or 47%,
for the three month period ended September 30, 2000, from the same period of the
prior year primarily attributable from a reduction in engineering staff.

         MERGER AND RESTRUCTURING CHARGES, NET. During the first quarter of
1999, the Company recorded an accrual for merger and restructuring charges in
connection with the Unicore acquisition. During the quarter ended September 30,
2000 the company's merger and restructuring activities were completed and all
related costs expended. As a result, income in the amount of $61,520 has been
recognized for the difference between the actual expenses incurred and the
original accrual.

         OTHER 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 decreased approximately
$95,774, or 111% for the three month period ended September 30, 2000, from the
same period of the prior year due primarily to decreased holdings of
investments.

         GAIN ON SALE OF PRODUCT LINE. The recognized gain of $319,872
represents 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
$25,000.00 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.

         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

                                       16
<PAGE>
                         TOUCHSTONE SOFTWARE CORPORATION


approximately two years. Amortization expense decreased $200,000 or 32% for the
three month period ended September 30, 2000 from the same period of the prior
year due to the portion of the asset purchase allocation from the Unicore
aqcuisition known as the Millenium Products, which was fully amortized at the
end of the quarter ended March 2000. The quarterly effects of the goodwill and
intangible amortization expense will decrease after the first quarter ended 2001
and then again after the third quarter ended 2001. The remaining goodwill and
intangible will be expensed, assuming no new acquisitions take place, through
the first quarter of 2002.

LIQUIDITY AND CAPITAL RESOURCES

         The Company's cash,cash equivalents, retricted cash and
available-for-sale securities totaled $1.8 million at September 30, 2000.
Working capital decreased from approximately $3.7 million at December 31, 1999
to approximately $1.4 at September 30, 2000. Cash and cash equivalents decreased
from $2,157,904 at December 31, 1999 to $97,032 at September 30, 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.

         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 the next twelve months.

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
providing management assistance and support to a diverse network of
internet-based companies.

                                       17
<PAGE>
                         TOUCHSTONE SOFTWARE CORPORATION


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 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
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.

                                       18
<PAGE>
                         TOUCHSTONE SOFTWARE CORPORATION


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.

         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, 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 invests in or competes
with could have an immediate and adverse effect on the market price of the
Company's stock.














                                       19
<PAGE>
                         TOUCHSTONE SOFTWARE CORPORATION

                           PART II--OTHER INFORMATION



ITEM 1.  LEGAL PROCEEDINGS

         In April, 2000, former CEO and president, Lawrence Jordan initiated a
suit 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.

         In response to the unauthorized publication of Company software
(CheckIt 98 and NetOptimizer) in two personal computer magazines in the United
Kingdom in or around April, 2000, the Company made demand on the magazines to
cease and desist. The Company does not intend to pursue further action in this
matter.

         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 September 30, 2000.















                                       20
<PAGE>
                         TOUCHSTONE SOFTWARE CORPORATION





                                   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,                  November 14, 2000
---------------------------------       President and Chief Executive Officer
        PIERRE A. NARATH




   /s/  Christopher J. Gaudette         Controller, Principal Accounting Officer,            November 14, 2000
---------------------------------       and Assistant Secretary
        CHRISTOPHER J. GAUDETTE




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