<PAGE>
===============================================================================
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark one)

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

For the quarterly period ended March 31, 2002

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

For the Transition Period from ________ to ________

COMMISSION FILE NUMBER 0-21366


                              TRICORD SYSTEMS, INC.
             ------------------------------------------------------
             (Exact name of Registrant as specified in its charter)


           DELAWARE                                            41-1590621
-------------------------------                            -------------------
(State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization)                             Identification No.)


          2905 NORTHWEST BOULEVARD, SUITE 20, PLYMOUTH, MINNESOTA 55441
          -------------------------------------------------------------
            (Address of principal executive offices)      (Zip Code)


                                 (763) 557-9005
              ----------------------------------------------------
              (Registrant's telephone number, including area code)


     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.


              YES          X                       NO
                       ---------                            -------

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date.

                                                             Outstanding at
        Class                                                April 30, 2002
   ---------------                                           --------------
    Common Stock,
   $0.01 par value                                             24,949,951

===============================================================================
<PAGE>
                          PART I. FINANCIAL INFORMATION

                          ITEM 1: FINANCIAL STATEMENTS

                              TRICORD SYSTEMS, INC.
                            STATEMENTS OF OPERATIONS
                                   (UNAUDITED)


<TABLE>
<CAPTION>

                                                                    Three Months Ended March 31,
                                                                   -----------------------------
(In thousands, except per share data)                                2002                2001
                                                                   --------             --------
<S>                                                                <C>                  <C>
Revenue:
      Product                                                      $    91              $     -
      Service                                                           13                    -
                                                                   --------             --------
                                                                       104                    -

Cost of sales and service:
      Product                                                          248                    -
      Service                                                           96                    -
                                                                   --------             --------
                                                                       344                    -

Gross loss                                                            (240)                   -
                                                                   --------             --------

Operating expenses:
      Research and development                                       1,974                2,883
      Sales and marketing                                            1,221                2,245
      General and administrative                                     1,101                  844
      Restructuring                                                     69                    -
                                                                   --------             --------
                                                                     4,365                5,972

Operating loss                                                      (4,605)              (5,972)
                                                                   --------             --------

Other income (expense):
      Interest, net                                                     57                  323
      Other, net                                                        (2)                   1
                                                                   --------             --------
                                                                        55                  324

Net loss                                                            (4,550)              (5,648)
                                                                   --------             --------

Beneficial conversion charge, Series E Preferred Stock                (571)                (167)
Premium on Series E Preferred Stock                                   (297)                 (99)
                                                                   --------             --------

Net loss applicable to common shares                               $(5,418)             $(5,914)
                                                                   ========             ========

Net loss per common share - basic and diluted                      $ (0.22)             $ (0.24)
                                                                   ========             ========

Weighted average common shares outstanding
      - basic and diluted                                           24,849               24,326
                                                                   ========             ========
</TABLE>


                 See accompanying notes to financial statements.

                                       1
<PAGE>
                              TRICORD SYSTEMS, INC.
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                     ASSETS


                                                                  March 31,          December 31,
(In thousands, except per share data)                                2002                2001
                                                                 -----------         ------------
                                                                 (unaudited)
<S>                                                               <C>                  <C>
Current assets:
     Cash and cash equivalents                                    $  13,008            $  17,357
     Accounts receivable, net                                            89                   82
     Inventories                                                        264                  321
     Other current assets                                               320                  312
                                                                  ---------            ---------
        Total current assets                                         13,681               18,072

Equipment and improvements, net                                       1,795                2,180

Other assets                                                            194                  194
                                                                  ---------            ---------
        Total Assets                                              $  15,670            $  20,446
                                                                  =========            =========


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                             $     576            $     597
     Accrued payroll, benefits and related taxes                        894                1,126
     Other accrued expenses                                             308                  597
                                                                  ---------            ---------
        Total current liabilities                                     1,778                2,320

Capital lease obligation                                                 36                   64

Convertible, redeemable  Series E Preferred Stock,
     $1,000 par value; 25 shares authorized, 25 issued and
     outstanding (redemption value at March 31, 2002 of
     $26,286)                                                        12,649               11,781

Stockholders' equity:
     Common stock, $0.01 par value; 75,000 shares
        authorized, 24,928 and 24,697 shares
        issued and outstanding                                          249                  247
     Additional paid-in capital                                     127,025              127,688
     Unearned compensation                                             (387)                (524)
     Accumulated deficit                                           (125,680)            (121,130)
                                                                  ---------            ---------
        Total stockholders' equity                                    1,207                6,281
                                                                  ---------            ---------

        Total Liabilities, Convertible, Redeemable Preferred
           Preferred Stock and Stockholders' Equity               $  15,670            $  20,446
                                                                  =========            =========

</TABLE>

                 See accompanying notes to financial statements.

                                        2


<PAGE>
                              TRICORD SYSTEMS, INC.
                            STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                    Three Months Ended March 31,
                                                                    -----------------------------
(In thousands)                                                        2002                 2001
                                                                    --------             --------
<S>                                                                 <C>                  <C>

Cash flows from operating activities:
     Net loss                                                       $(4,550)             $(5,648)
     Adjustments to reconcile net loss to net
       cash used in operating activities:
        Stock compensation                                              160                  151
        Depreciation and amortization                                   398                  508
        Loss on disposal of equipment                                    15                    -
        Provision for losses on accounts receivable                      23                    -
        Provision for losses on inventories                             146                    -
        Changes in operating assets and liabilities:
           Accounts receivable                                          (30)                   -
           Inventories                                                 (133)                (506)
           Other current assets                                          (8)                  55
           Accounts payable                                             (21)                (298)
           Accrued payroll, benefits and related taxes                 (132)                 (32)
           Accrued restructuring expenses                              (198)                   -
           Other accrued expenses                                        34                  (25)
                                                                    -------              -------
              Net cash used in operating activities                  (4,296)              (5,795)
                                                                    -------              -------

Cash flows from investing activities:
     Capital expenditures                                               (28)              (1,006)
                                                                    -------              -------
              Net cash used in investing activities                     (28)              (1,006)
                                                                    -------              -------

Cash flows from financing activities:
     Principal payments on capital lease obligations                    (28)                 (18)
     Stock option and warrant exercises                                   3                   60
     Net proceeds from private placement                                  -               23,400
                                                                    -------              -------
              Net cash provided by financing activities                 (25)              23,442
                                                                    -------              -------

Net increase (decrease) in cash and cash equivalents                 (4,349)              16,641

Cash and cash equivalents at beginning of period                     17,357               16,825
                                                                    -------              -------

Cash and cash equivalents at end of period                          $13,008              $33,466
                                                                    =======              =======

</TABLE>


                 See accompanying notes to financial statements.

                                        3


<PAGE>
                              TRICORD SYSTEMS, INC.

                          NOTES TO FINANCIAL STATEMENTS



1.  BASIS OF PRESENTATION

The accompanying unaudited interim statements of operations, balance sheet and
statements of cash flows reflect all adjustments of a normal recurring nature,
which are, in the opinion of management, necessary for a fair statement of the
financial position at March 31, 2002, and results of operations and cash flows
for the interim periods ended March 31, 2002 and 2001. The unaudited financial
statements should be read in conjunction with the Company's audited financial
statements for the year ended December 31, 2001, which were included in the
Company's 2001 Annual Report on Form 10-K. The year-end balance sheet data
included herein is derived from such audited financial statements, but does not
include all disclosures required by accounting principles generally accepted in
the United States of America. The results of operations for the interim periods
ended March 31, 2002 are not necessarily indicative of the results to be
expected for the full year or any future periods.

2. DELISTING AND LITIGATION

On March 19, 2002, the Company received a letter from the Nasdaq Stock Market,
Inc., regarding its noncompliance with the qualifications standards for
continued listing of its common stock on the Nasdaq SmallCap Market as a result
of the closing bid price of its common stock being less than $1.00 for thirty
consecutive business days. As a result of this noncompliance, the Company may
lose its listing on the Nasdaq SmallCap Market ("Nasdaq listing") if it does not
achieve a closing bid price for its common stock of at least $1.00 for ten
consecutive trading days during the 180 day period ending September 16, 2002. In
addition, the Company could also lose its Nasdaq listing if the Company does not
continue to meet Nasdaq's other continued listing requirements. If the Company
does not maintain this Nasdaq listing, the holders of its Series E Preferred
Stock will be entitled to monthly penalty payments of at least $250,000
beginning in the month of the delisting and, if the delisting continues for more
than sixty days after August 27, 2002, to require the Company to redeem the
Series E Preferred shares as early as October 27, 2002. Redemption of all Series
E Preferred shares would require the Company to pay holders an amount in excess
of $25 million. The Company's ability to avoid these events is dependent upon
management's ability to avoid the loss of its Nasdaq listing or its ability to
negotiate a more favorable resolution with the preferred stockholders, of which
there can be no assurance. At March 31, 2002, the Company did not have
sufficient cash and cash equivalents to fund a redemption of the Series E
Preferred Stock. Accordingly, if the Company is required to redeem the Series E
preferred shares, the Company would not have sufficient cash to fund the
redemption and continue its operations without raising additional capital and
there can be no assurance that such additional capital will be available on
terms acceptable to the Company or at all.

With respect to the minimum bid price requirement, the Company would maintain
its listing if the closing bid price of its common stock meets or exceeds $1.00
for ten consecutive trading days during the 180 day period ending September 16,
2002 or if the Company is able to obtain an appropriate waiver from Nasdaq and
the Company is in compliance with Nasdaq's other continued listing requirements.
In addition, there can be no assurance that the Company will be able to comply
with other Nasdaq listing requirements, including but not limited to a
requirement to maintain a market capitalization of at least $35.0 million,
stockholders' equity of a least $2.5 million or, until November 1, 2002, net
tangible assets of at least $2.0 million. Based on the Company's balance sheet
as of March 31, 2002 and the Company's current stock price, Management
anticipates receiving a letter from Nasdaq in the near future stating that the
Company does not meet any of the foregoing criteria. Management intends to take
actions to maintain the Company's Nasdaq listing. However, there can be no
assurance that Management will be successful in maintaining the Company's Nasdaq
listing.

On April 5, 2002, the holder of the Series E preferred stock filed a lawsuit
against the Company alleging that the Company breached certain representations
and that the continuation of business by the Company constitutes a waste of its
assets. The shareholder is seeking damages of $25 million plus interest and the
appointment of a receiver to wind up the affairs of the Company. The Company
believes that the lawsuit is without merit and intends to vigorously contest it.
If this matter is not resolved in the Company's favor, it would likely have a
material adverse effect on the Company's financial position and results of
operations and could further jeopardize the Company's ability to continue as a
going concern.

A more detailed discussion of this matter is incorporated by reference from Part
II, Item I of this Form 10-Q "Legal Proceedings" and should be considered an
integral part of these Condensed Consolidated Financial Statements.

                                       4
<PAGE>

3. INVENTORIES

Inventories, which consist primarily of finished units, are stated at the lower
of cost or market. Cost is determined using weighted average costs which
approximate actual costs determined using the first-in, first-out method.
Appropriate consideration is given to deterioration, obsolescence or other
factors in the evaluation of net realizable value.

The Company has a non-exclusive integration agreement with a contract
manufacturer to manufacture, integrate and assemble the Company's Lunar
Flare(TM) NAS server appliance. Under the agreement, the manufacturer supplies
and assembles the hardware components that comprise Lunar Flare appliances,
integrates the Company's Illumina(TM) aggregation software, provides testing
services and drop-ships to the Company's channel partners and customers. All
product purchases by the Company from the manufacturer are through purchase
orders. The Company determines the minimum number of units of server appliances
that the manufacturer builds and holds as finished goods, ready for shipment to
the Company's customers. The Company provides a non-cancelable, non-returnable
purchase order for all such finished goods inventory. In addition, the Company
provides the manufacturer with a non-cancelable, non-returnable purchase order
for unique parts (as defined by the agreement) to be purchased by the
manufacturer for integration into the Company's server appliance. The Company is
also required to reimburse the manufacturer for obsolete, unique and excess
material (as defined) and related supplier cancellation charges because of
actions by the Company, including cancellation of a purchase order, termination
of the agreement or implementation of an engineering change order.

In the first quarter of 2002, the Company recorded a charge of $146,000 to cost
of sales and service to write-down the carrying value of certain excess
inventories and certain inventories that required refurbishment, to
their estimated net realizable values.

As of March 31, 2002, the Company had approximately $90,000 of component-level
and finished goods purchase commitments to its contract manufacturer.

4. RESTRUCTURING AND OTHER CHARGES

In the first quarter of 2002, the Company recorded a restructuring charge of
$69,000 related to a workforce reduction of 5 employees. This restructuring was
implemented in January 2002 and reduced the total number of employees at the
Company to approximately 65. The restructuring charge consists of severance-
related costs including cash payments of $64,000 and non-cash charges of $5,000
for common stock issued to affected employees. All severance-related stock
distributions and payments were made during the first quarter of 2002.

As previously described in the Company's annual report on Form 10-K for the
year ended December 31, 2001, the Company also recorded certain restructuring
accruals during 2001.  The table below reflects the activity during the
quarter inpacting the accrual related to these restructuring activities:

<TABLE>
<CAPTION>

                                                                March 31,
                                                                  2002
                                                           ------------------
<S>                                                        <C>
Restructuring accrual as of December 31, 2001                  $     211,000
2002 Accruals:
  Cash severance                                                      64,000
  Non-cash severance                                                   5,000
2002 Payments:
  Cash severance                                                    (238,000)
  Non-cash severance                                                 (29,000)
                                                           ------------------
Restructuring accrual as of March 31, 2002                     $      13,000
                                                           ==================
</TABLE>

5. CONVERTIBLE, REDEEMABLE SERIES E PREFERRED STOCK

On February 27, 2001 the Company closed a private placement of $25.0 million in
Series E Convertible Preferred Stock. Net cash proceeds from the placement were
approximately $23.4 million, net of approximately $1.6 million of transaction
costs. Under terms of the offering, the Company issued 25,000 shares of 4.75%
Series E


                                       5


<PAGE>

Convertible Preferred Stock ("Preferred Stock"). Each share of Preferred Stock
is convertible into the number of shares of the Company's common stock that is
equal to the stated value ($1,000) of each share plus accrued premium and
default payments (if any) divided by the conversion price, which is currently
$9.50, but is subject to adjustment in certain circumstances. As of March 31,
2002, the Preferred Stock was convertible into approximately 2,770,000 shares of
common stock. In addition, the Company issued warrants to the Preferred
Stockholders with an 18-month term to purchase up to 986,842 additional shares
of the Company's common stock at $12.40 per share, and warrants with a 24-month
term to purchase up to 986,842 additional shares of the Company's common stock
at $14.50 per share. In addition, the Company issued warrants to the placement
agent with a five-year term to purchase up to 110,526 shares of the Company's
common stock at $9.50 per share.

Accounting for the preferred stock conversion feature in accordance with
Emerging Issues Task Force (EITF) issue No. 98-5 "Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Rates" and EITF Issue No. 00-27 "Application of Issue 98-5 to Certain
Convertible Investments" resulted in the allocation of approximately $7.9
million of the net offering proceeds to a "beneficial conversion feature". This
beneficial conversion feature was initially recorded as an increase in
additional paid-in capital and will be amortized using the effective interest
method as a non-cash charge against stockholders' equity over the shorter of
three years or the period during which the Preferred Stock remains outstanding.
These charges will also increase the carrying value of the Preferred Stock. In
addition, the Company will accrue a premium on the stated value of outstanding
Preferred Stock, which is payable to the Preferred Stockholders in additional
common stock upon conversion or in cash upon redemption of the Preferred Stock,
at an annual rate of 4.75%. This premium will also be recorded as a non-cash
charge against stockholders' equity and an increase in the carrying value of
Preferred Stock. The charges against stockholders' equity resulting from the
amortization of the beneficial conversion feature and accrual of the premium
will reduce income (increase the loss) applicable to common stockholders which
will reduce income (increase the loss) per common share reported by the Company.
If the Preferred Shares remain outstanding for their full three-year term,
without adjustment of the conversion price as described below, charges to equity
for amortization of the beneficial conversion feature and accrual of the premium
would total approximately $11.5 million. During the three months ended March 31,
2002 and 2001, respectively, the Company recorded amortization of the beneficial
conversion feature of $571,000 and $167,000, respectively and accrued premium of
$297,000 and $99,000, respectively.

The fair value of the warrants was measured using the Black-Scholes
option-pricing model. The recorded value of the warrants of approximately $6.5
million, initially recorded as an increase in additional paid-in capital,
reflects an allocation of the net proceeds of the offering based upon the
relative fair values of the Preferred Stock and the warrants issued with the
Preferred Stock.

Key terms of the Preferred Stock include the following:

Voting Rights. The holders of the Preferred Stock have no voting rights except
as may be required by Delaware law.


                                       6

<PAGE>

Dividends. The holders of Preferred Stock are not entitled to the payment of
dividends other than the 4.75% premium. The Company is prohibited from paying
dividends to any other stockholders or from repurchasing or redeeming any other
class of stock without the prior approval of the majority of the Preferred
Stockholders.

Liquidation Preference. Upon any liquidation, dissolution or winding up of the
affairs of the Company or any change in control of the Company, as defined, the
holder of each share of Preferred Stock shall be entitled to be paid $1,000 per
share plus all accrued premium amounts and any default payments due (as defined)
(the "Liquidation Preference Amount") prior and in preference to any payment to
holders of common stock. If the assets of the Company upon such event are
insufficient to make such payment in full, then the holders of the Preferred
Stock shall be entitled to pro rata distribution of all the assets of the
Company.

Conversion. The holders of Preferred Stock may convert such stock into shares of
common stock at any time until maturity (also see Forced Conversion at Maturity
below).

Conversion Rate. The stated value of each share of the Preferred Stock ($1,000)
plus any premium accrued at 4.75% and any default payments due (as defined) is
convertible into common stock at $9.50 per share, subject to adjustment in
certain circumstances ("Conversion Rate").

Adjustments to Conversion Rate. The Conversion Rate is subject to adjustment at
maturity or upon certain future issuances of common stock or rights to acquire
common stock (as defined) at a price less than $9.50 per share. Any adjustment
to the conversion rate will result in an increase in the amount ascribed to the
beneficial conversion feature discussed above.

Forced Conversion or Redemption at Maturity. Subject to certain limitations (as
defined), any Preferred Stock remaining outstanding at February 27, 2004 shall
be subject to a forced conversion unless the Company elects to redeem such
outstanding Preferred Stock for the Liquidation Preference Amount. The
conversion rate for the forced conversion shall be based upon the lowest average
trading price of the Company's common stock for 10 of the last 15 trading days
preceding February 27, 2004. Most rights, including the right to earn the 4.75%
annual premium, shall cease for any shares of Preferred Stock remaining
outstanding after February 27, 2004.

Early Forced Conversion. If the Company's common stock trades at an average
price of at least $19 for at least 20 consecutive trading days and the Company
has fulfilled certain registration requirements, the Company may require the
holders of the Preferred Stock to convert their shares at the Conversion Rate.

Optional Redemption. At any time, if the Company has fulfilled certain
registration requirements, the Company may elect to redeem any outstanding
shares of Preferred Stock at a price per share equal to 115% of the Liquidation
Preference Amount.

Potential Penalties. In the event that the company fails to maintain its Nasdaq
SmallCap


                                       7

<PAGE>

Market listing, the Company would be required to pay to the holders of
the Series E Preferred Stock a fee of approximately $250,000 or more per month
for each month that the Company was not listed on the Nasdaq SmallCap Market.

Required Redemption. In the event of certain defaults by the Company, which such
defaults include, but are not limited to, a failure by the Company to issue
shares of common stock upon conversion of the Preferred Stock, a failure to use
the proceeds for permitted purposes, as defined, a failure to file all required
SEC reports on a timely basis, or, the failure of the Company to maintain the
listing of its common stock on the Nasdaq SmallCap Market (or other required
trading market) for any 60-day period any time after August 27, 2002, the
holders of the Preferred Stock may require the Company to redeem the Preferred
Stock at the Liquidation Preference Amount or such other amount (as defined) to
be determined at the date of the redemption. Also, under certain circumstances
the Company may be required to obtain stockholders' approval to allow for
issuance of additional shares of common stock upon conversion of the Preferred
Stock. If such approval is not obtained, the Company may be required to redeem
the portion of shares of Preferred Stock which cannot be converted into common
stock due to the lack of stockholder consent. As discussed in Note 2, the
Company does not presently meet the minimum requirements to maintain the listing
of its common stock on the Nasdaq SmallCap Market and, accordingly, if this
listing is not maintained, the Preferred Stock holders will be entitled to
require redemption as discussed above. If future events permit the Preferred
Stock holders to elect to exercise such redemption rights, the carrying value of
the Preferred Stock would be increased from its carrying value ($12,649,000 at
March 31, 2002) to its redemption value ($26,300,000 at March 31, 2002) by
making a charge against stockholders' equity. Such a charge would also increase
the net loss available to common stockholders. If this charge were required as
of March 31, 2002, it would be $13,651,000.

Registration Rights. The Company is required to maintain an effective
registration statement with the Securities and Exchange Commission (SEC) to
cover the resale of the Company's common stock issuable upon the conversion of
the Preferred Stock and the exercise of the warrants issued with the Preferred
Stock.

6.  SUPPLEMENTAL CASH FLOW INFORMATION

During the three months ended March 31, 2002 and 2001, expenses for outside
directors meeting fees of $23,000 and $20,000 were settled through the issuance
of 28,909 and 2,171 shares of common stock, respectively.

During the three months ended March 31, 2002, $181,000 of accrued payroll
obligations were settled through the issuance of 197,037 shares of common stock.
During the three months ended March 31, 2001, the Company acquired $111,000 of
equipment pursuant to terms of capital leases.

7. INCOME (LOSS) PER SHARE

Net loss per common share is computed by dividing net loss applicable to common
shares by the weighted average number of common shares outstanding during each
period. Potentially dilutive common shares are


                                       8

<PAGE>
excluded from the calculation of net loss per common share as their impact is
antidilutive. Net loss per common share does not reflect common stock options
and warrants ultimately exercisable for the purchase of approximately 16,100,000
shares for the three month period ended March 31, 2002 and approximately
14,300,000 shares for the three month period ended March 31, 2001. The net loss
per common share for the three months ended March 31, 2002 does not reflect the
approximately 2,800,000 common shares into which the Series E Preferred Stock
could be converted as of March 31, 2002 because the effect would be
antidilutive.

8. COMPREHENSIVE INCOME (LOSS)

The Company has no significant comprehensive income (loss) items other than net
loss.

9. NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board approved Statements of
Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and No.
142, "Goodwill and Other Intangible Assets". The statements eliminate the
pooling-of-interests method of accounting for business combinations and require
that goodwill and intangible assets with indefinite useful lives not be
amortized. Instead, these assets will be reviewed for impairment annually with
any related losses recognized when incurred. SFAS No. 141 is generally effective
for business combinations completed after June 30, 2001. SFAS No. 142 was
effective for the Company beginning January 1, 2002. Adoption of this standard
did not affect the Company's financial position or results of operations.

In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." This standard requires that obligations associated with the
retirement of tangible long-lived assets be recorded as liabilities when those
obligations are incurred, with the amount of the liability initially measured at
fair value. SFAS No. 143 is effective for the Company in 2003. The Company does
not expect adoption of this standard to affect its financial position or its
results of operations.

In May 2002, the FASB has also issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44,and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement rescinds SFAS No. 4, "Reporting Gains and Losses
from Extinguishment of Debt", and an amendment of that Statement, SFAS No. 64,
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements". This
Statement also rescinds SFAS No. 44, "Accounting for Intangible Assets of Motor
Carriers". This Statement amends SFAS No. 13, "Accounting for Leases", to
eliminate an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions. This
Statement also amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe their applicability
under changed conditions. The provisions of this Statement are required to be
applied starting with fiscal years beginning after May 15, 2002. The Company
does not expect adoption of this standard to affect its financial condition or
results of operations.

10. SUBSEQUENT EVENT

Subsequent to March 31, 2002, the Company had additional workforce reductions of
19 employees which will result in an additional restructuring charge of
approximately $350,000 in the second quarter of 2002.



                                       9
<PAGE>


                                     ITEM 2:

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


GENERAL

Tricord Systems, Inc. designs, develops and markets clustered server appliances
for content-intensive applications. The core of our technology is our patented
Illumina(TM) software that aggregates multiple appliances into a single cluster,
managed as a single resource.

Before focusing our efforts exclusively on the development of Illumina, we had
historically engaged in the business of designing, manufacturing, marketing and
supporting high-performance enterprise servers for use in mission critical
applications principally running on Microsoft(R) Windows NT(R) and Novell(R)
NetWare(R).

See "Factors That May Affect Future Results" at the end of this section for a
discussion regarding forward-looking statements contained herein.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

For discussion of critical accounting policies and estimates, see our 2001
Annual Report on Form 10-K.

RESULTS OF OPERATIONS

Revenues

Revenues from sales of our Lunar Flare NAS server appliances were $104,000 for
the first quarter ended March 31, 2002. The Company had no revenues from product
sales for the first quarter ended March 31, 2001.

Cost of Sales and Service

Cost of sales and service, which consists primarily of the costs of units sold
and costs of the Company's customer care functions, was $344,000 for the first
quarter ended March 31, 2002. The Company had no cost of sales and service in
the first quarter ended March 31, 2001 because it had no product sales in that
quarter.

The $344,000 cost of sales and services included charges of $146,000 to
write-down the carrying value of certain excess inventories and certain
inventories that required refurbishment, to their estimated net realizable
values.


Gross Loss

We incurred a gross loss of $240,000 for the first quarter of 2002 primarily due
to insufficient revenues to absorb the fixed components of cost of sales and
service, product discounts given to customers, costs incurred to refurbish units
and a charge related to write-down of excess inventories. Gross loss was also
attributable to customer support expenses associated with product installations
and upgrades as well as proactive efforts by the Company to ensure customer


                                       10

<PAGE>

satisfaction with the product. The Company expects that the cost of sales and
services, as a percentage of revenues, to decrease over the long term as
customers become more familiar with the Company's products and the Company is
able to leverage its accumulating experience on product installations and
upgrades.

Research and Development

Research and development expenses decreased to $1,974,000 for the first quarter
ended March 31, 2002, from $2,883,000 for the first quarter ended March 31,
2001. The decrease was primarily due to headcount reductions from restructuring
actions taken in September and December 2001. Although the Company considers
research and development expenditures to be a key component in its long term
strategy, the Company expects that research and development costs will continue
to decrease in the short term as the Company continues to pursue cost
containment measures. As part of these measures, the Company reduced the number
of persons employed in research and development by an additional 15 persons in
April and May 2002.

Sales and Marketing

Sales and marketing expenses decreased to $1,221,000 for the first quarter ended
March 31, 2002 from $2,245,000 for the first quarter ended March 31, 2001. The
decrease was primarily due to headcount reductions from restructuring actions
taken in September and December 2001. Management expects sales and marketing
expenses in future quarters to approximate the level of this expense in this
quarter.

General and Administrative

General and administrative expenses increased to $1,101,000 for the first
quarter ended March 31, 2002 from $844,000 for the first quarter ended March 31,
2001. The increase was primarily due to $315,000 of severance payments made to
our former Chief Executive Officer. Management expects general and
administrative expenses in future quarters to approximate the level of this
expense in this quarter, excluding the effects of the severance payments made to
our former Chief Executive Officer.

Restructuring and Other Charges

In the first quarter of 2002, we recorded a restructuring charge of $69,000
related to a workforce reduction of 5 employees. This restructuring was
implemented in January 2002 and reduced the total number of employees to
approximately 65. The restructuring charge consisted of severance-related costs
including cash payments of $64,000 and non-cash charges of $5,000 for common
stock issued to affected employees. All severance-related stock distributions
and payments related to this restructuring were made in the first quarter of
2002.

Stock-Based Compensation

Stock-based compensation was $160,000 and $151,000, respectively, for the first
quarter March 31, 2002 and 2001. These amounts do not affect our net
stockholders' equity. These non-cash expenses increased operating expenses, loss
from continuing operations and net loss applicable to common shares as follows:


                                       11

<PAGE>

Non-Cash Stock Compensation Expense
(in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                          Three Months Ended
                                               March 31,
                                        ----------------------
                                         2002            2001
                                        ------          ------
<S>                                     <C>             <C>
Research and development                $  111          $  109
Sales and marketing                         12              12
General and administrative                  37              30
                                        ------          ------
                                        $  160          $  151
                                        ======          ======

Impact per common share                 $(0.01)         $(0.01)
                                        ======          ======
</TABLE>


Other Income, Net

Other income, net decreased to $55,000 for the first quarter of 2002 from
$324,000 for the first quarter of 2001, primarily due to lower interest income
as a result of lower cash investments and lower interest rates in first quarter
2002.

Series E Convertible Preferred Stock Charges

Preferred stock charges during the first quarter ended March 31, 2002 reflected
charges against stockholders' equity that consist of the beneficial conversion
charge of $571,000 and the accrual of the 4.75% premium related to the Series E
Preferred Stock of $297,000. The beneficial conversion charge reflected
amortization of the beneficial conversion feature related to the preferred
stock. These non-cash charges reduced stockholders' equity and increased the net
loss applicable to common shares. If the preferred stock remains outstanding,
the beneficial conversion charge will be approximately $600,000 and the premium
will be approximately $300,000, for the second quarter of 2002. See Note 5 in
Notes to Financial Statements for further discussion of the Series E Convertible
Preferred Stock Charges.


LIQUIDITY AND CAPITAL RESOURCES

The net decrease in cash and cash equivalents during the first quarter of 2002
was $4,349,000, due primarily to the net loss of $4,550,000 for the first three
months of 2002. We made minimal capital expenditures in the first quarter, and
currently anticipate that capital expenditures for second quarter will not be
significantly larger than in first quarter 2002.

As of March 31, 2002, we had approximately $90,000 of component-level and
finished goods purchase commitments to our contract manufacturer.

As of March 31, 2002, we had $13,008,000 in cash and cash equivalents. Based on
currently anticipated levels of revenue, cost of sales and service and


                                       12

<PAGE>
operating expenses, we believe these cash and cash equivalents should be
sufficient to fund our operations through the end of the year. There can be no
assurance, however, that these current plans will be achievable. We will adjust
our plans as necessary if currently anticipated revenues do not meet our
expectations or if our costs are higher than we anticipate, and these
adjustments could include implementing further expense reductions.

Although, based on our current plans, we believe that we have sufficient cash to
fund our operations through the end of the year, we do not have enough funds to
fulfill obligations that we will have if we fail to maintain the listing of our
common stock on the Nasdaq SmallCap Market.

To maintain the listing of our common stock on the Nasdaq SmallCap Market, we
must (i) maintain a minimum bid price for our common stock of $1.00 and (ii)
have stockholders equity of $2.5 million, a market capitalization of $35.0
million or net income of $500,000 in two of our last three most recently
completed fiscal years. However, prior to November 1, 2002, so long as we
maintain net tangible assets of at least $2.0 million, we will not be required
to satisfy any of the criteria set forth in the preceding clause (ii) to
maintain our listing.

On March 19, 2002, we received a notice from Nasdaq due to our noncompliance
with the minimum bid price requirement. Based on our balance sheet as of March
31, 2002 and our current stock price, we anticipate receiving another notice
from Nasdaq in the near future stating that we do not meet any of the criteria
described in clause (ii) above and do not have $2.0 million in net tangible
assets. We intend to take all possible actions to maintain the listing of our
common stock on the Nasdaq SmallCap Market, including requesting that Nasdaq
treat our Series E Preferred Stock as equity for purposes of satisfying the net
tangible assets test, engaging in strategic acquisitions, raising additional
capital, and attempting to restructure the terms of our Series E Preferred
Stock.

Although we will take all possible actions to maintain the listing of our common
stock on the Nasdaq SmallCap Market, such efforts may not prove successful. If
we fail to maintain such listing, we will be required to pay the holders of the
Series E Preferred Stock $250,000 per month and, if the failure to maintain the
listing were to continue for a period of more than 60 days after August 27,
2002, the holders of the Series E Preferred Stock could require us to redeem
such shares for an amount in excess of $25 million. We do not currently have
sufficient cash and cash equivalents to fund redemption of all of our Series E
Preferred Stock. Accordingly, if such situation were to occur, unless we were to
raise additional capital or restructure the terms of the Series E Preferred
Stock, we may not be able to continue our operations and may be forced to seek
protection under U.S. bankruptcy laws. See "Factors That May Affect Future
Results" below.

NEW ACCOUNTING STANDARDS

In June 2001, the Financial Accounting Standards Board approved Statements of
Financial Accounting Standards ( SFAS ) No. 141, "Business Combinations" and No.
142, "Goodwill and Other Intangible Assets". The statements eliminate the
pooling-of-interests method of accounting for business combinations and require
that goodwill and intangible assets with indefinite useful lives not be
amortized. Instead, these assets will be reviewed for impairment annually with
any related losses recognized when incurred. SFAS No. 141 is generally effective
for business combinations completed after June 30, 2001. SFAS No. 142 was
effective for us beginning January 1, 2002. Adoption of this standard did not
affect our financial position or results of operations.

In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." This standard requires that obligations associated with the
retirement of tangible long-lived assets be recorded as liabilities when those
obligations are incurred, with the amount of the liability initially measured at
fair value. SFAS No. 143 is effective for us in 2003. We do not expect adoption
of this standard to affect its financial position or its results of operations.

In May 2002, the FASB has also issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement rescinds SFAS No. 4, "Reporting Gains and Losses
from Extinguishment of Debt", and an amendment of that Statement, SFAS No. 64,
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements". This
Statement also rescinds SFAS No. 44, "Accounting for Intangible Assets of Motor
Carriers". This Statement amends SFAS No. 13, "Accounting for Leases", to
eliminate an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions. This
Statement also amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe their applicability
under changed conditions. The provisions of this Statement are required to be
applied starting with fiscal years beginning after May 15, 2002. We do not
expect adoption of this standard to affect its financial condition or results of
operations.

FACTORS THAT MAY AFFECT FUTURE RESULTS

This Quarterly Report on Form 10-Q contains certain forward-looking statements
within the meaning of the Private Securities Reform Act of 1995. When used in
this report, the words "anticipates," "believes," "expects," "intends,"
"forecasts," "plans," "future," "strategy," or words of similar import are
intended to identify forward-looking


                                       13

<PAGE>

statements. Other statements of the Company's plans and objectives may also be
considered to be forward-looking statements. Such statements are subject to
certain risks and uncertainties, which could cause actual results to differ
materially from those expressed in the forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. The Company undertakes no obligation to
publish revised forward-looking statements to reflect the occurrence of
unanticipated events or circumstances after the date hereof. The risks and
uncertainties described below are not the only ones that we face. Additional
risks and uncertainties not presently known to us, or that are currently deemed
immaterial, may also impair our business operations. If any of these risks
actually occur, our financial condition and operating results could be
materially adversely affected. Readers are urged to carefully review and
consider the various disclosures made in this Quarterly Report by the Company as
well as the Company's other filings with the Securities and Exchange Commission.

OUR COMMON STOCK MAY BE DELISTED FROM THE NASDAQ SMALLCAP MARKET WHICH, IF SUCH
DELISTING WERE TO OCCUR, WOULD MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS AND
THE PRICE AND LIQUIDITY OF OUR COMMON STOCK, AS WELL AS GIVE THE HOLDERS OF
SERIES E PREFERRED STOCK CERTAIN RIGHTS TO RECEIVE PAYMENTS AND, IF WE FAIL TO
MAINTAIN SUCH LISTING FOR MORE THAN SIXTY DAYS AFTER AUGUST 27, 2002, THEN THE
HOLDERS OF THE OUTSTANDING SHARES OF SERIES E PREFERRED STOCK COULD REQUIRE US
TO REDEEM SUCH SHARES.

On March 19, 2002, we received a letter from the Nasdaq Stock Market, Inc.
regarding our noncompliance with the qualification standards for continued
listing of our common stock on the Nasdaq SmallCap Market as a result of the
closing bid price of our common stock being less than $1.00 for thirty
consecutive business days. Continued inclusion on the Nasdaq SmallCap Market
requires us to meet several criteria, including (i) maintaining a minimum bid
price for our common stock of $1.00 and (ii) that we either have stockholders
equity of $2.5 million, a market capitalization of $35.0 million or net income
of $500,000 in two of our last three most recently completed fiscal years.
However, prior to November 1, 2002, so long as we maintain net tangible assets
of at least $2.0 million, we will not be required to satisfy any of the criteria
set forth in the preceding clause (ii) to maintain our listing.

With respect to the minimum bid price requirement, we will be able to maintain
our listing (assuming that we are able to comply with the criteria set forth in
clause (ii) above) if the closing bid price of our common stock meets or exceeds
$1.00 for ten consecutive trading days during the 180 day period ending
September 16, 2002 or if we are able to obtain an appropriate waiver from
Nasdaq, although such a waiver can be difficult to obtain.

With respect to the market capitalization, net income, net tangible assets or
stockholders' equity requirement, because our net income has been less than
$500,000 in each of our last three fiscal years, we must maintain a market
capitalization of at least $35.0 million, stockholders' equity of at least $2.5
million or, until November 1, 2002, net tangible assets of at least $2.0 million
or we will be subject to delisting regardless of the price of our common stock.
Based on our balance sheet as of March 31, 2002 and our current


                                       14

<PAGE>

stock price, we anticipate receiving a letter from Nasdaq in the near future
stating that we do not meet any of the foregoing criteria. We intend to take all
possible actions to maintain the listing of our common stock, including
requesting that Nasdaq treat our Series E Preferred Stock as equity for purposes
of satisfying the net tangible assets test, attempting to raise additional
capital, engaging in one or more acquisitions of technologies or businesses, and
attempting to restructure the Series E Preferred Stock, but we can not assure
you that we will be successful in such efforts. Moreover, even if we are able to
complete such a transaction, there can be no assurance that such a transaction
will have a positive impact on our financial condition.

Although we intend to take aggressive action to maintain the listing of our
common stock on the Nasdaq SmallCap Market, we can not assure you that we will
be successful. If our common stock is delisted from the Nasdaq SmallCap Market,
we will be in violation of certain covenants that we have with the holders of
our outstanding shares of Series E Preferred Stock which will give the holders
of these shares certain rights. If our common stock were to be delisted, we will
be required to pay to the holders of shares of Series E Preferred Stock a fee of
approximately $250,000 or more per month for each month that we are not listed
on the Nasdaq SmallCap Market. In addition, if we fail to continue to have our
common stock listed on the Nasdaq SmallCap Market for more than sixty days after
August 27, 2002, then the holders of the outstanding shares of Series E
Preferred Stock could require us to redeem all or a portion of such shares. If
we were required to redeem all of such outstanding shares, we would have to pay
to the holders of these shares an amount in excess of $25.0 million in
connection with this redemption. If such a redemption was required, we would
need to raise additional capital to satisfy this obligation and there is no
assurance we would be able to do so on terms acceptable to us, if at all. If we
were not able to raise sufficient capital to effect a required redemption of our
Series E Preferred Stock or restructure the terms of the Series E Preferred
Stock, we may be forced to cease operations and/or seek protection under
bankruptcy laws which would materially and adversely affect the price of our
common stock.

In addition, if our common stock is delisted from the Nasdaq SmallCap Market,
any trading in our common stock would thereafter be conducted in the
over-the-counter market in what are commonly referred to as the "pink sheets" or
the National Association of Securities Dealers' "Electronic Bulletin Board."
Consequently, the liquidity of our common stock would likely be impaired, not
only in the number of shares which could be bought and sold, but also through
delays in the timing of the transactions and a reduction in securities analyst
and news media coverage, if any, that we receive. As a result, prices for the
shares of our common stock may be lower than might otherwise prevail.

RGC INTERNATIONAL INVESTORS, LDC ("ROSE GLEN") HAS FILED A LAWSUIT AGAINST US
AND IF THEY WERE TO PREVAIL IN SUCH LAWSUIT, WE MAY BE REQUIRED TO PAY ROSE GLEN
A SIGNIFICANT AMOUNT OF MONEY.

On April 5, 2002, Rose Glen filed a lawsuit against us, our board of directors
and Joan Wrabetz, a former director and our former chief executive officer. Rose
Glen alleges in the lawsuit that we breached certain representations made to
Rose Glen when it purchased shares of our Series E Preferred Stock in February
2001 and that our continuation of business constitutes a waste of our assets.
Rose Glen is seeking damages of $25 million


                                       15

<PAGE>

plus interest and the appointment of a receiver to wind-up our affairs. We are
taking all appropriate actions to defend ourselves against Rose Glen's claims.
Rose Glen's motion for expedited proceedings on this matter was rejected by the
court on April 29, 2002.

If Rose Glen was to ultimately prevail in the litigation and was awarded all of
the damages it seeks, we would likely need to raise additional capital to pay
such damages. Additional financing may not be available on terms that are
acceptable to us or at all and if we were unable to obtain financing in an
amount sufficient to satisfy a judgment, we may not be able to continue our
operations and may be forced to seek protection under U.S. bankruptcy laws which
could adversely and materially affect the price of our common stock.

HOLDERS OF SHARES OF OUR COMMON STOCK ARE SUBJECT TO POTENTIAL DILUTION THROUGH
THE CONVERSION OF SERIES E PREFERRED STOCK.

The outstanding shares of Series E Preferred Stock are currently convertible
into shares of our common stock at a conversion price of $9.50 per share of
common stock. However, the conversion price of the Series E Preferred Stock may
be decreased in certain circumstances (which would result in an increase in the
number of shares of common stock issued upon conversion of the Series E
Preferred stock), including if we sell shares of our common stock in certain
circumstances below the current conversion price of $9.50 or if we issue
securities that are convertible into shares of common stock at an effective
price of less than $9.50 per share. Because the current price of our common
stock is well below $9.50 per share, if we raise additional capital by selling
equity securities or instruments that are convertible into equity securities,
such sales will likely be at an effective price below $9.50 per share, which
would result in immediate and substantial dilution to the holders of our common
stock.

In addition, if the Series E Preferred Stock is not converted into shares of our
common stock prior to February 27, 2004, then unless the Company elects to
redeem such shares of preferred stock at an aggregate price of approximately
$28.6 million, it will automatically convert to common stock on that date at a
conversion price based on the average market price of our common stock during
ten of the fifteen trading days preceding that date. If the average market price
of our common stock is lower than $9.50 during ten out these fifteen days, the
conversion price will be lower than $9.50 and the number of shares of common
stock into which the Series E Preferred Stock is convertible will increase,
possibly by a substantial amount, which would dilute the percentage ownership of
our existing shareholders.

If the conversion price results in the Series E Preferred Stock being converted
into a number of shares of common stock in excess of 19.99% of the number of
shares of common stock that were outstanding on February 27, 2001, we either
have to receive the approval of our stockholders for this transaction or we will
be required to redeem the portion of the Series E Preferred Stock that was
convertible into a number of shares of common stock in excess of such 19.99%
number. Any increase in the number of shares issued or issuable upon conversion
of the Series E Preferred stock could adversely affect the market price of our
common stock.


                                       16


<PAGE>

THE TERMS OF OUR SERIES E PREFERRED STOCK PROVIDE THE HOLDERS OF SUCH SHARES
WITH REDEMPTION RIGHTS SHOULD CERTAIN COVENANTS BE BREACHED AND ALSO MAY
RESTRICT OUR ABILITY TO ENGAGE IN CERTAIN TRANSACTIONS AND MAY OTHERWISE
ADVERSELY AFFECT OUR BUSINESS AND THE PRICE OF OUR COMMON STOCK.

The terms of the Series E Preferred Stock require us to comply with certain
covenants. If we breach certain of these covenants, the holder of the shares of
Series E Preferred Stock could require us to redeem all or a portion of these
shares. A breach of any of the following covenants gives the holder of the
outstanding shares of Series E Preferred Stock a redemption right with respect
to such shares:

     o    Keeping reserved at all times at least 200% of the number of shares of
          common stock that may be issuable upon the conversion of the shares of
          Series E Preferred Stock and exercise of the warrants that we issued
          in connection with the issuance of the Series E Preferred Stock;

     o    Filing all reports that we are required to file under the Exchange Act
          on a timely basis;

     o    Maintaining the registration of our common stock under the Exchange
          Act; and

     o    Using the proceeds that we received from the issuance of the Series E
          Preferred Stock only for permitted purposes.

The terms of the Series E Preferred Stock may also limit our ability to engage
in certain transactions. We cannot merge, consolidate or sell substantially all
of our assets except where the surviving corporation or acquiring entity, as
applicable, assumes all of our obligations with respect to the Series E
Preferred Stock. In the event we were to engage in a transaction and these
obligations were not so assumed, the holders of the Series E Preferred Stock
could treat such a transaction as a liquidation event and receive upon the
consummation of such transaction an aggregate amount in excess of $25 million.
This restriction, and the other terms of the Series E Preferred Stock, may make
us a less attractive acquisition target for another company which could result
in lower prices for the shares of our common stock than might otherwise prevail.

WE WILL LIKELY NEED TO RAISE ADDITIONAL CAPITAL THAT MIGHT NOT BE AVAILABLE TO
US AND, IF RAISED, MAY DILUTE OUR EXISTING INVESTORS' OWNERSHIP INTEREST IN US.

As discussed in the risk factor above entitled "Our common stock may be delisted
from the Nasdaq SmallCap Market..." we will likely need to engage in certain
activities to maintain the listing of our common stock on Nasdaq. To the extent
that we are required to use existing cash resources in connection with such
activities, we will likely be required to raise additional capital to, among
other things:

     o    Fund continued operations;

     o    Further develop or enhance our software and server appliances;

     o    Respond to competitive pressures or acquire complementary products and
          technologies; and

     o    Develop relationships with licensed manufacturers, original equipment
          manufacturers and channel partners.


                                       17

<PAGE>

If we are not successful in maintaining our Nasdaq listing, we will have to pay
the holders of the Series E Preferred Stock $250,000 per month and, if the
failure to maintain the listing were to continue for a period of more than 60
days after August 27, 2002, such holders could require us to redeem such shares
for an amount in excess of $25 million. If this were to occur, we would need to
raise additional capital to fund these obligations, and such additional
financing may not be available on terms that are acceptable to us or at all. In
addition, the terms of our Series E Preferred Stock place restrictions on our
ability to raise capital and any capital raising activity we engage in may
result in substantial dilution to the holders of our common stock (see the risk
factor entitled "Holders of shares of our common stock are subject to potential
dilution through the conversion of Series E Preferred Stock" above). If we raise
additional funds through the issuance of equity or convertible debt securities,
these securities may have rights, preferences and privileges senior to those of
our current stockholders which may adversely impact current stockholders. If
adequate funds are not available on acceptable terms, our ability to fund our
operations, take advantage of opportunities, develop or enhance products or
services, expand or otherwise respond to competitive pressures would be
significantly limited.

WE CANNOT  ASSURE YOU THAT WE WILL BE ABLE TO GENERATE  REVENUES AT A LEVEL THAT
IS SUFFICIENT TO SUPPORT OUR BUSINESS.

With sales of our initial Lunar Flare NAS server appliance, we generated
revenues from the sale of our products in the second quarter of 2001 for the
first time since we sold the remaining assets associated with our enterprise
server line of business in August 1999. For the three months ended March 31,
2002, we generated a total of $104,000 in revenue, as compared to $94,000,
$110,000 and $66,000 for the quarters ended June 30, September 30 and December
31, 2001, respectively. Although we currently anticipate additional revenues in
2002 from sales and service of Lunar Flare NAS, potential customers may choose
not to purchase products as a result of our current financial condition and our
ongoing litigation with Rose Glen or for other reasons. Accordingly, we cannot
assure you that we will be able to generate revenues at a level that is
sufficient to support our business after existing cash and cash equivalents are
utilized.



SOFTWARE ERRORS OR FAILURES FOUND IN OUR PRODUCTS MAY RESULT IN A DELAY IN
DELIVERY OF OUR PRODUCTS OR LOSS OF, OR DELAY IN, MARKET ACCEPTANCE OF OUR
PRODUCTS, WHICH COULD MATERIALLY ADVERSELY AFFECT OUR OPERATING RESULTS.

Software errors or failures found in our products may result in a delay in
delivery of our products and increase the cost of our sales and service.
Although we perform a significant amount of testing of our Illumina software and
our Lunar Flare server appliances before we ship our products, they may still
contain software errors or failures which are not detected or remedied until
after we ship such products or commence product installations and



                                       18

<PAGE>

upgrades, which could result in loss of, or delay in, market acceptance and
continued negative gross margins. Moreover, because of the way customers may use
our products, we may be subject to significant liability claims if our products
do not work properly. Although we have not experienced any such claims to date
and the agreements we use to sell our Illumina-based products contain provisions
designed to limit our exposure to potential product liability claims, we may
experience such claims in the future and it is possible that such
limitation-of-liability provisions may not be effective as a result of existing
or future laws or unfavorable judicial decisions. If we are found to be liable
to defective product claims, such liability may have a harmful effect on our
business and financial condition.

THE SUCCESS OF OUR LUNAR FLARE NAS SERVER APPLIANCES AND OTHER ILLUMINA-BASED
PRODUCTS DEPENDS UPON MARKET ACCEPTANCE OF OUR TECHNOLOGY AND PRODUCTS.

Due to the fact that we have been focusing our resources on developing products
that utilize Illumina, our future financial performance will be largely
dependent on the acceptance of our Illumina clustering software. We cannot
assure you that the server appliance market, our target market for our
clustering software, will accept Illumina or products utilizing it. Factors that
may affect market acceptance of our products, some of which are beyond our
control, include the following:

     o    Growth and changing requirements of the server appliance market;

     o    Availability, performance, quality, price, and total cost of ownership
          of our products;

     o    Availability, performance, quality, price, and total cost of ownership
          of competing products and technologies;

     o    Market acceptance of Linux, Windows NT(R) and UNIX(R) operating
          systems, which our products utilize or may utilize in the future; and

     o    Successful development of relationships with licensed manufacturers,
          original equipment manufacturers and channel partners.

Our selling efforts to date have indicated that we will need to add additional
features to our products, such as NFS file/folder permission support to allow
for integration of our products in UNIX(R) environments, in order to gain
broader market acceptance of such products. While we are in the process of
implementing such features which we believe will increase demand for our
products, we can not assure you that will be able to do so on a timely basis or
that any features we do add will result in an increase in sales of our products.

In addition, our products are designed to work in specific operating software
environments. Because we have no control over the market acceptance of any of
this operating software or the companies who manufacture this software, our
ability to generate revenues will be largely dependent on the ability and desire
of such manufacturers to continue to offer quality products that fulfill market
demand. If customers do not purchase Lunar Flare NAS or our other Illumina-based
products for any reason, our revenues and operating results will be adversely
affected because we currently have no other products to sell.


                                       19

<PAGE>

ECONOMIC CONDITIONS MAY NEGATIVELY IMPACT MARKET ACCEPTANCE OF OUR PRODUCTS AND
TECHNOLOGY.

General economic conditions and market conditions specific to the technology,
server appliance and network attached storage markets may negatively impact
market acceptance of our products and technology. Current economic conditions
have resulted in overall reduced IT spending and increased price and product
competition within the server appliance market which we believe has negatively
impacted the market acceptance of our technology. Should these current
conditions continue, or should further adverse changes in the economy or in
customer IT spending occur, the market acceptance of our products and technology
would be negatively impacted.

WE OPERATE IN AN EXTREMELY COMPETITIVE AND RAPIDLY CHANGING MARKETPLACE, AND
MANY OF OUR COMPETITORS HAVE GREATER RESOURCES THAN US WHICH MAY ALLOW THEM TO
MORE QUICKLY REACT TO CHANGES IN THE MARKETPLACE.

We operate in an extremely competitive and rapidly changing marketplace, and we
cannot assure you that we can establish and maintain a competitive position
against current and potential competitors, especially those with greater
financial, marketing, service, support, technical and other resources. In
addition, we expect that the market for Lunar Flare NAS, our initial server
appliance targeting the network-attached storage market, will become
consolidated with larger companies possibly being in a better position than us
to compete in this rapidly changing marketplace. As the server appliance market
continues to develop, a number of companies which have greater resources than us
could attempt to increase their presence in this market by acquiring or forming
strategic alliances with our competitors or potential business partners, which
may better position these companies to take advantage of market conditions and
increase their market share.



WE HAVE A HISTORY OF LOSSES AND EXPECT TO EXPERIENCE LOSSES IN THE FUTURE.

Over the last five years, we have incurred significant net losses, including net
losses of $23.6, $13.6 million and $7.6 million in 2001, 2000 and 1999,
respectively. Our loss for the first quarter of 2002 was $4.6 million. We expect
to continue to have losses in the future. In addition, we had an accumulated
deficit of $125.7 million as of March 31, 2002. We believe that our future
growth depends upon the success and market acceptance of our Lunar Flare server
appliances and other Illumina-based products, as well as our ability to develop
new products and adopt successful marketing and sales strategies, all of which
will require us to incur significant product development and sales and marketing
expenses. We anticipate that we will continue to incur significant expenses in
2002 as we:

     o    Continue our product development activities;

     o    Enhance our existing products to satisfy market demand;

     o    Market and sell our products;



                                       20

<PAGE>

     o    Expand our distribution channels;

     o    Develop strategic partnerships and alliances with third parties;

     o    Create and market additional server appliance products based on
          Illumina;

     o    Defend the litigation initiated by Rose Glen; and

     o    Adjust our infrastructure.

As a result of our incurring these expenses, we will need to generate
significant revenues to achieve profitability. If we do not significantly
increase our revenues or if we fail to control our costs as we implement our
business strategies, we may be unable to achieve and maintain profitability
which would negatively impact the price of our common stock.



WE MAY BE UNABLE TO HIRE AND RETAIN REQUIRED, HIGHLY SKILLED MANAGERIAL AND
TECHNICAL PERSONNEL.

Our future success depends, in significant part, upon retaining the continued
service and performance of our senior management, team members, consultants and
other key personnel as well as our continued ability to attract and recruit
qualified personnel. Losing the services of any member of our management team
could impair our ability to effectively manage our company and to carry out our
business plan. If we are unable retain these employees, our business and
operations would be adversely affected. In addition, we may need to hire
additional personnel in the future in order to grow our business. Competition
for people with the skills we require is intense, and, given our current
financial situation and the litigation commenced by Rose Glen, we cannot assure
you that we will be able to retain our current employees or hire new people or
that we will be able to do so without offering these people retention bonuses or
salaries that are significantly higher than we have historically paid.

WE RELY ON CONTRACT MANUFACTURERS/INTEGRATORS TO PRODUCE OUR PRODUCTS AND, IF
OUR MANUFACTURERS FAIL TO MEET OUR REQUIREMENTS OR IF WE ARE UNABLE TO PROVIDE
OUR MANUFACTURERS WITH THE NECESSARY INVENTORY TO PRODUCE OUR PRODUCTS , WE MAY
BE UNABLE TO MEET CUSTOMER REQUIREMENTS AND OUR BUSINESS COULD BE MATERIALLY
ADVERSELY AFFECTED.

We are responsible for ensuring the supply to our contract manufacturer of
certain components necessary to build our product. Suppliers of such components
or our contract manufacturer may cease doing business with us due to concerns
about our financial situation. In addition, our arrangement with our contract
manufacturer to produce our products currently does not guarantee production
levels or manufacturing prices. This manufacturer may not have additional
capacity available when we need it, which would cause delays in the production
of our products.



If it became necessary to find new or additional vendors to accommodate an
increase in

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<PAGE>

the demand of our products in higher volume or to replace vendors who cease
doing business with us, we may not be able to find such new or replacement
vendors or, if we are able to find such vendors, we may experience an
interruption in our supply of products as we transition to such vendors, all of
which would prevent us from satisfying our contractual obligations and meeting
customer expectations, and result in lost sales or customers.

OUR RELIANCE UPON PATENTS, DOMESTIC TRADEMARK LAWS AND CONTRACTUAL PROVISIONS TO
PROTECT OUR PROPRIETARY RIGHTS MAY NOT BE SUFFICIENT TO PROTECT OUR INTELLECTUAL
PROPERTY FROM OTHERS WHO MAY SELL SIMILAR PRODUCTS.

Our products are differentiated from those of our competitors because we utilize
Illumina, our internally developed software. If we fail to protect Illumina and
our other intellectual property, other vendors could develop and sell products
with features similar to ours, and this could reduce demand for our products. We
have been granted two U.S. patents related to Illumina and we currently have six
additional United States patent applications pending with respect to Illumina to
protect our intellectual property rights. We also rely on a combination of trade
secret and other intellectual property law, nondisclosure agreements and other
protective measures to establish and protect our proprietary rights in our
intellectual property.

We believe that the steps we have taken to safeguard our intellectual property
afford only limited protection. Others may develop technologies that are similar
or superior to our technology or design around the patents and trade secrets we
own. Despite the precautions we have taken, laws and contractual restrictions
may not be sufficient to prevent misappropriation of our technology or deter
others from developing similar technologies.

In addition, the laws of the countries in which we may market our services and
solutions may offer little or no effective protection of our proprietary
technology. Reverse engineering, unauthorized copying or other misappropriation
of our patented, proprietary technology or disclosure as a result of the use of
open source software, could enable third parties to benefit from our technology
without paying us for it, which would significantly harm our business.

OTHERS MAY ASSERT INTELLECTUAL PROPERTY CLAIMS AGAINST US AND OUR OPERATING
RESULTS WOULD SUFFER IF WE WERE SUBJECT TO A PROTRACTED INFRINGEMENT CLAIM OR IF
WE BECOME OBLIGATED TO PAY A SIGNIFICANT DAMAGE AWARD.

Substantial litigation regarding intellectual property rights and brand names
exists in our industry. We expect that server appliance products may be
increasingly subject to third-party infringement claims as the number of
competitors in our industry segment grows and the functionality of products in
different industry segments overlaps. We do not believe that our products employ
technology that infringes any proprietary rights of third parties. However,
third parties may claim that we infringe their intellectual property rights and
such claims may be found to be valid. Any claims, with or without merit, could:


                                       22

<PAGE>

     o    Be time-consuming to defend;

     o    Result in costly litigation;

     o    Divert our management's attention and resources;

     o    Cause product shipment delays; and

     o    Require us to enter into royalty or licensing agreements.

If we are found to be infringing upon the rights of others, we could be forced
to develop a non-infringing alternative that could be costly and time-consuming.
We may also be required, if we are found to be infringing on the intellectual
rights of others, to enter into royalty or licensing agreements with a third
party, which agreements may not be available on terms acceptable to us. A valid
claim by a third party of product infringement against us or our failure or
inability to license the infringed or similar technology could adversely affect
our business because we would not be able to sell the impacted product without
redeveloping it or incurring significant additional expenses.

THE ACCOUNTING TREATMENT FOR THE SERIES E PREFERRED STOCK CONVERSION FEATURE
WILL RESULT IN SIGNIFICANT, NON-CASH CHARGES AGAINST INCOME APPLICABLE TO COMMON
STOCKHOLDERS.

Accounting for the preferred stock conversion feature in accordance with
Emerging Issues Task Force (EITF) issue No. 98-5 "Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Rates" and EITF Issue No. 00-27 "Application of Issue 98-5 to Certain
Convertible Investments" resulted in the allocation of approximately $7.9
million of the net offering proceeds to a "beneficial conversion feature". This
beneficial conversion feature will be amortized as a non-cash charge against
stockholders' equity over the shorter of three years or the period during which
the Preferred Stock remains outstanding. In addition, the Company will accrue a
premium on the stated value of outstanding Preferred Stock, which is payable to
the Preferred Stockholders in additional common stock upon conversion or in cash
upon redemption of the Preferred Stock, at an annual rate of 4.75%. This premium
will also be recorded as a non-cash charge against stockholders' equity. The
charges against stockholders' equity resulting from the amortization of the
beneficial conversion feature and accrual of the premium will reduce income
(increase the loss) applicable to common stockholders, which will reduce income
(increase the loss) per common share reported by the Company. If the Preferred
Shares remain outstanding for their full three-year term, without adjustment of
the conversion price as described above, charges to equity for amortization of
the beneficial conversion feature and accrual of the premium would total
approximately $11.5 million. If the conversion price is adjusted as described
above, an increase in the number of shares issued or issuable upon conversion of
the Series E Preferred Stock could result in increased charges against income
applicable to common stockholders and could have a material adverse effect on
the market price of our common stock. Additionally, if we fail to maintain our
Nasdaq SmallCap Market listing, the period of time over which the charges for
amortization of the beneficial conversion feature will be recorded will be much
shorter and therefore much larger in the near-term.



THE MARKET PRICE OF OUR COMMON STOCK HAS FLUCTUATED SIGNIFICANTLY IN THE PAST
AND


                                       23

<PAGE>

WILL LIKELY CONTINUE TO DO SO IN THE FUTURE AND ANY BROAD MARKET FLUCTUATIONS
MAY MATERIALLY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK.

The market price of our common stock has been volatile in the past, and several
factors could cause the price to fluctuate substantially in the future. These
factors include:

     o    Successful and timely development and introduction of our products or
          enhancements to our products;

     o    The continued listing, or lack thereof, of our common stock on the
          Nasdaq SmallCap Market;

     o    Fluctuations in our operating results;

     o    Fluctuations in the valuation of companies perceived by investors to
          be comparable to us;

     o    Announcements of new products, applications or product enhancements by
          us or our competitors; and

     o    The outcome of the litigation with Rose Glen.

In the past, companies that have experienced volatility in the market price of
their stock have been the subject of securities class action litigation. If we
were the subject of securities class action litigation, it could result in
substantial costs and a diversion of management's attention and resources.




                                       24


<PAGE>
                                     ITEM 3:

                          QUANTITATIVE AND QUALITATIVE
                          DISCLOSURES ABOUT MARKET RISK


FINANCIAL INSTRUMENTS

The Company invests excess funds not required for current operations in cash
equivalents, primarily money market funds or high-grade commercial paper. Market
risk was estimated as the potential decrease in interest income resulting from a
hypothetical one percent decrease in interest rates for the cash equivalents,
which would have resulted in a decrease in interest income for the three months
ended March 31, 2002 of approximately $40,000.





                                       25
<PAGE>



                           PART II. OTHER INFORMATION


Item 1. Legal Proceedings

On April 5, 2002, preferred shareholder Rose Glen International Investors LDC
("Rose Glen") filed a lawsuit against the Company, its board of directors and
Joan Wrabetz, a former director and chief executive officer of the company, (RGC
International Investors, LDC vs. Tricord Systems, Inc., et al Civil Action No.
19535 (Delaware Chancery Court)), Rose Glen alleges in the lawsuit that the
company breached certain representations made to Rose Glen when it invested in
the company in February 2001 and that the continuation of business by the
company constitutes a waste of its assets. Rose Glen is seeking damages of $25
million plus interest and the appointment of a receiver to wind up the affairs
of the company.

On April 23, 2002, the Company moved to dismiss the complaint filed by preferred
shareholder Rose Glen. The dismissal motion states that, among other things,
Rose Glen has not asserted a claim for which relief may be granted.

On April 29, 2002, the Delaware Chancery Court rejected Rose Glen's motion for
expedited proceedings on its claims against the Company. The Company believes,
based on comments made by the Delaware Court, that trial will not get underway
earlier than December of this year.

Item 5. Other Information

In April and May 2002, the Company completed workforce reductions totaling 19
employees in order to properly align and manage cost levels commensurate with
current and projected revenues levels of the Company. Certain employees whose
employment was terminated in connection with these reductions will continue to
work through May and June. Once these reductions take full effect, the Company
will have 44 employees and expects to realize an annualized decrease in expenses
of approximately $2 million as a result of such reductions. However, this
anticipated annualized $2 million expense reduction will be partially offset
with severance related expenses of approximately $350,000.

Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits

     3.1  Bylaws, as amended February 27, 2002

(b)  Reports on Form 8-K

     On January 28, 2002, the Company furnished a report on Form 8-K under Item
     5,


                                       26

<PAGE>

     Other, related to a press release announcing financial results for the
     fourth quarter and year ended December 31, 2001 and related to a press
     release announcing that COO Keith Thorndyke was named President and CEO of
     the Company and that Joan Wrabetz has resigned as President, CEO and
     director.

     On March 19, 2002, the Company furnished a report on Form 8-K under Item 5,
     Other, related to a press release announcing that the Company had received
     a letter from Nasdaq indicating that for the last thirty consecutive
     trading days, the price of the Company's common stock closed below the
     $1.00 minimum bid price per share requirement for continued inclusion on
     the Nasdaq SmallCap Market under Nasdaq Marketplace Rule 4310(c)(4).




                                       27
<PAGE>



                                    SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                              TRICORD SYSTEMS, INC.

                                  (REGISTRANT)



                              By: /s/ Keith T. Thorndyke
                                  ----------------------------------------------
                                  Keith T. Thorndyke, President and Chief
                                  Executive Officer and Chief Financial Officer
                                  (Principal Executive, Financial and Accounting
                                  Officer)



                              Date: May 13, 2002





                                       28

<PAGE>

<TABLE>
<CAPTION>

Exhibit                                                        Page
Number                                                        Number
-------                                                       ------
  <S>     <C>                                                   <C>

  3.1     Bylaws, as amended on February 27, 2002               30


</TABLE>


                                       29