<PAGE>   1
                                  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 June 30, 2001

                 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.

<TABLE>
<CAPTION>

                                                           Outstanding at
       Class                                                July 31, 2001
       -----                                               --------------
<S>                                                        <C>
   Common Stock,
   $0.01 par value                                            24,382,084

</TABLE>

<PAGE>   2

                          PART I. FINANCIAL INFORMATION

                          ITEM 1: FINANCIAL STATEMENTS

                              TRICORD SYSTEMS, INC.
                            STATEMENTS OF OPERATIONS
                                   (unaudited)
<TABLE>
<CAPTION>

                                                             Three Months Ended June 30,    Six Months Ended June 30,
                                                            -----------------------------  --------------------------
(In thousands, except per share data)                          2001              2000        2001             2000
                                                            ----------      -------------  --------       -----------
<S>                                                         <C>             <C>            <C>            <C>
Revenue                                                     $     94             --             94             --
Cost of sales and service                                        175             --            175             --
                                                            --------         ------       --------        -------
      Gross Margin                                               (81)            --            (81)            --
                                                            --------         ------       --------        -------
Operating expenses:
      Research and development                                 2,990          1,655          5,873          2,895
      Sales and marketing                                      2,545            762          4,790          1,137
      General and administrative                                 750            986          1,594          1,640
                                                            --------         ------       --------        -------
                                                               6,285          3,403         12,257          5,672
                                                            --------         ------       --------        -------
Operating loss                                                (6,366)        (3,403)       (12,338)        (5,672)
                                                            --------         ------       --------        -------
Other income (expense):
      Interest, net                                              344            258            667            292
      Other, net                                                   5             (1)             6             (3)
                                                            --------         ------       --------        -------
                                                                 349            257            673            289
                                                            --------         ------       --------        -------
Loss from continuing operations                               (6,017)        (3,146)       (11,665)        (5,383)
                                                            --------         ------       --------        -------
Gain on disposal of discontinued operations                       --             40             --             84
                                                            --------         ------       --------        -------
Net loss                                                      (6,017)        (3,106)       (11,665)        (5,299)
                                                            --------         ------       --------        -------
Beneficial conversion charge, Series E Preferred Stock          (493)            --           (660)            --
Premium on Series E Preferred Stock                             (297)            --           (396)            --
                                                            --------         ------       --------        -------
Net loss applicable to common shares                        $ (6,807)        (3,106)       (12,721)        (5,299)
                                                            ========         ======       ========        =======
Loss per common share from continuing operations -
      basic and diluted                                     $  (0.28)         (0.13)         (0.52)         (0.24)
                                                            ========         ======       ========        =======
Net loss per common share - basic and diluted               $  (0.28)         (0.13)         (0.52)         (0.24)
                                                            ========         ======       ========        =======
Weighted average common shares outstanding
      - basic and diluted                                     24,380         23,793         24,353         22,084
                                                            ========         ======       ========        =======
</TABLE>

                 See accompanying notes to financial statements.

                                       1

<PAGE>   3

                              TRICORD SYSTEMS, INC.
                                 BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                     ASSETS

                                                                             June 30,         December 31,
(In thousands, except per share data)                                          2001              2000
                                                                            -----------      -------------
                                                                            (unaudited)
<S>                                                                         <C>              <C>
Current assets:
     Cash and cash equivalents                                              $  27,172          16,825
     Accounts receivable, net                                                      72              --
     Inventories                                                                  570              --
     Other current assets                                                         332             194
                                                                            ---------         -------
        Total current assets                                                   28,146          17,019

Equipment and improvements, net                                                 3,782           3,114
                                                                            ---------         -------
        Total Assets                                                        $  31,928          20,133
                                                                            =========         =======

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable                                                       $     760           1,521
     Accrued payroll, benefits and related taxes                                1,396           1,065
     Deferred revenue                                                              18              --
     Other accrued expenses                                                       206             123
                                                                            ---------         -------
        Total current liabilities                                               2,380           2,709

Capital lease obligations                                                         131             112

Commitments

Convertible, redeemable Series E Preferred Stock, $1,000 par value;
   25 shares authorized, 25 issued and outstanding (redemption value
   at June 30, 2001 of $25,396)                                                10,108              --

Stockholders' equity:
     Common stock, $0.01 par value; 75,000 shares authorized, 24,382
       and 24,278 shares issued and outstanding                                   244             243
     Additional paid-in capital                                               129,014         115,704
     Unearned compensation                                                       (800)         (1,151)
     Accumulated deficit                                                     (109,149)        (97,484)
                                                                            ---------         -------
        Total stockholders' equity                                             19,309          17,312
                                                                            ---------         -------
        Total Liabilities, Convertible, Redeemable Preferred Stock and
          Stockholders' Equity                                              $  31,928          20,133
                                                                            =========         =======
</TABLE>

                 See accompanying notes to financial statements


                                       2

<PAGE>   4

                              TRICORD SYSTEMS, INC.
                            STATEMENTS OF CASH FLOWS
                                   (unaudited)

<TABLE>
<CAPTION>

                                                                                         Six Months Ended June 30,
                                                                                     ---------------------------------
(In thousands)                                                                           2001                 2000
                                                                                     -----------          ------------
<S>                                                                                  <C>                   <C>
Cash flows from operating activities:
     Net loss                                                                         $(11,665)               (5,299)
     Adjustments to reconcile net loss to net cash used in operating activities:
        Stock compensation                                                                 268                 1,815
        Depreciation and amortization                                                    1,122                   111
        Changes in operating assets and liabilities:
           Accounts receivable                                                             (72)                   --
           Inventories                                                                    (570)                   --
           Other current assets                                                           (138)                 (172)
           Accounts payable                                                               (761)                  200
           Accrued payroll, benefits and related taxes                                     331                   152
           Deferred revenue                                                                 18                    --
           Other accrued expenses                                                           12                    61
                                                                                      ---------              -------
              Net cash used in operating activities                                    (11,455)               (3,132)
                                                                                      ---------              -------
Cash flows from investing activities:

     Capital expenditures                                                               (1,656)                 (476)
                                                                                      ---------              -------
              Net cash used in investing activities                                     (1,656)                 (476)
                                                                                      ---------              -------
Cash flows from financing activities:

     Principal payments on capital lease obligations                                       (44)                   --
     Proceeds from private placement, net                                                   --                24,378
     Stock option and warrant exercises                                                    102                 1,039
     Proceeds from issuance of preferred stock and warrants, net                        23,400                    --
                                                                                      --------               -------
              Net cash provided by financing activities                                 23,458                25,417
                                                                                      --------               -------
Net increase in cash and cash equivalents                                               10,347                21,809
Cash and cash equivalents at beginning of period                                        16,825                 3,082
                                                                                      --------               -------
Cash and cash equivalents at end of period                                            $ 27,172                24,891
                                                                                      ========               =======
</TABLE>

                 See accompanying notes to financial statements.

                                       3
<PAGE>   5

                              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 presentation of
the financial position at June 30, 2001, and results of operations and cash
flows for the interim periods ended June 30, 2001 and 2000. The unaudited
financial statements should be read in conjunction with the Company's audited
financial statements for the year ended December 31, 2000, which were included
in the Company's 2000 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 June 30, 2001 are not necessarily indicative of the results to be
expected for the full year or any future periods.

2. REVENUE RECOGNITION

In accordance with Statement of Position ("SOP") 97-2, "Software Revenue
Recognition," the Company recognizes revenue when persuasive evidence of an
arrangement exists, delivery has occurred, the fee is fixed or determinable,
collectibility is probable and vendor specific objective evidence exists to
allocate a portion of the total fee to any undelivered elements of the
arrangement. This generally occurs at the time of shipment or upon customer
acceptance of units evaluated pursuant to our try-before-you-buy program.
Revenues from service subscriptions, which entitle customers to software updates
and technical services, are recognized over the terms of the related contractual
periods.

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

                                       4
<PAGE>   6

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.

As of June 30, 2001, the Company had approximately $400,000 of component-level
and finished goods purchase commitments to its contract manufacturer.

4. 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 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. 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

                                       5
<PAGE>   7

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 and six month periods
ended June 30, 2001, the Company recorded amortization of the beneficial
conversion feature of $493,000 and $660,000, respectively, and accrued premium
of $297,000 and $396,000, respectively.

The fair value of the warrants was measured using the Black-Scholes
option-pricing model. The recorded value of the warrants of approximately $5.6
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.

For a complete description of the rights and preferences of the Preferred Stock,
please see the Certificate of Designation, Preferences and Rights of the
Preferred Stock and other documents attached as exhibits to the Current Report
on Form 8-K as filed by the Company on February 28, 2001. 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.

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

                                       6
<PAGE>   8

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. At any time after February 27, 2002, if the Company's
Common Stock trades at an average price of at least $19 for 20 consecutive 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.

Required Redemption. In the event of certain defaults by the Company, which such
defaults primarily relate to a failure by the Company to issue shares of Common
Stock upon conversion of the Preferred Stock, 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. 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.

Registration Rights. The Company was obligated to file a 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. The Company has
filed the required registration statement and it has been declared effective by
the SEC.

5. DISCONTINUED OPERATIONS

In August 1999, the Company sold all remaining assets related to the server line
of business (sometimes referred to as the "legacy business"). The Company has
reported results of operations of the legacy business as discontinued operations
for all periods presented. Terms of the asset sale required the buyer to pay the
Company up to $200,000 of additional cash consideration based upon levels of
revenues generated from the legacy business through December 31, 2000 and any
such cash received has been reported as a

                                       7

<PAGE>   9
gain on disposal of discontinued operations. As of June 30, 2001, no further
consideration is due to the Company.

6.  SUPPLEMENTAL CASH FLOW INFORMATION

During the six months ended June 30, 2001, expenses for outside directors
meeting fees of $20,000 were settled through the issuance of 2,171 shares of
common stock.

During the six months ended June 30, 2001, the Company acquired $134,000 of
equipment pursuant to terms of capital leases.

7. INCOME (LOSS) PER SHARE

Loss per common share from continuing operations is computed by dividing loss
from continuing operations applicable to common shares by the weighted average
number of common shares outstanding during each period. 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 excluded from the calculation of loss per
common share from continuing operations and net loss per common share as their
impact is antidilutive. Loss per common share from continuing operations and net
loss per common share do not reflect common stock options and warrants
ultimately exercisable for the purchase of approximately 15,200,000 shares for
the three and six month periods ended June 30, 2001 and approximately 10,100,000
shares for the three and six month periods ended June 30, 2000. The net loss per
common share does not reflect the approximately 2,650,000 common shares into
which the Series E Preferred Stock could be converted as of June 30, 2001
because the effect would be antidilutive.

8. COMPREHENSIVE INCOME (LOSS)

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

                                       8
<PAGE>   10


                                     ITEM 2:

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

GENERAL

Tricord Systems, Inc. designs, develops and markets innovative server appliances
for content-hungry applications. The core of our technology is our patented
Illumina(TM) software that aggregates multiple appliances into a cluster,
managed as a single resource. During 2000, we continued developing our
aggregation software and began beta testing our initial Lunar Flare server
appliance for the network attached storage (NAS) market segment. In December
2000, we announced our first server appliance, Lunar Flare(TM) NAS, a general
file serving storage device for Windows(R) users designed to offer seamless
growth and ease of management. During the first quarter ended March 31, 2001 and
into the second quarter of 2001, we continued testing of our initial Lunar Flare
NAS appliance. In late April 2001, we began shipping Lunar Flare NAS in limited
availability. In late June 2001, we announced general availability of Lunar
Flare NAS. During the quarter ended June 30, 2001, we recognized initial
revenues from the sale of Lunar Flare NAS.

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.

RESULTS OF OPERATIONS

Revenues

During the quarter ended June 30, 2001, the Company recorded initial revenues of
$94,000 from sales of its Lunar Flare NAS server appliance.

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 $175,000 for the quarter
ended June 30, 2001.

                                       9
<PAGE>   11

Gross Margin

The Company incurred a negative gross margin ($81,000) for the second quarter of
2001 primarily due to the small volume of initial sales of its Lunar Flare NAS
which did not generate sufficient revenue to absorb certain fixed components of
cost of sales and service, as well as product discounts given to customers who
participated in beta testing.

Research and Development

Research and development expenses increased to $2,990,000 and $5,873,000,
respectively, for the second quarter and six months ended June 30, 2001,
from $1,655,000 and $2,895,000, respectively, for the second quarter and six
months ended June 30, 2000. The increase is primarily due to headcount additions
and development and testing of the Company's initial network-attached storage
server appliance. The Company currently anticipates that significant levels of
research and development costs will continue to be incurred during the remainder
of 2001 due to ongoing product development efforts.

Sales and Marketing

Sales and marketing expenses increased to $2,545,000 and $4,790,000,
respectively, for the second quarter and six months ended June 30, 2001 from
$762,000 and $1,137,000, respectively, for the second quarter and six months
ended June 30, 2000. The increase is primarily due to headcount additions and
increased expenditures related to the Company's efforts to market and sell its
initial Lunar Flare NAS server appliance. The Company currently anticipates that
sales and marketing expenses will continue to be higher than 2000 levels during
the remainder of 2001 due to the Company's plans to increase marketing and sales
of its server appliance products.

General and Administrative

General and administrative expenses decreased to $750,000 and $1,594,000,
respectively, for the second quarter and six months ended June 30, 2001 from
$986,000 and $1,640,000, respectively, for the second quarter and six months
ended June 30, 2000. The decline is primarily due to a decrease in non-cash
stock compensation expense related to options granted to non-employee
contractors, partially offset by an increase in headcount and costs associated
with expanding the Company's general and administrative infrastructure.

Stock-Based Compensation

Stock-based compensation decreased to $117,000 and $268,000, respectively, for
the second quarter and six months ended June 30, 2001 from $1,032,000 and
$1,815,000, respectively, for the second quarter and six months ended June 30,
2000. The decline is primarily due to a decrease in the market value of the
Company's common stock, which resulted in a lower charge for stock compensation
related to options granted to non-employee contractors. These amounts do not
affect the Company's net stockholders'

                                       10
<PAGE>   12

equity. These non-cash expenses increased operating expenses, loss from
continuing operations and net loss applicable to common shares as follows:

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

<TABLE>
<CAPTION>

                                     Three Months Ended             Six Months ended
                                          June 30,                      June 30,
                                ------------------------    --------------------------
                                   2001         2000           2001          2000
                                ---------   -----------    ---------    -------------
<S>                             <C>         <C>            <C>          <C>

Research and development        $   100      $   469       $   209       $   862
Sales and marketing                  12           47            24           156
General and administrative            5          516            35           797
                                -------      -------       -------       -------
                                $   117      $ 1,032       $   268       $ 1,815
                                =======      =======       =======       =======
Impact per common share         $    --      $ (0.04)      $ (0.01)      $ (0.08)
                                =======      =======       =======       =======
</TABLE>

Other Income, Net

Other income, net increased to $349,000 and $673,000, respectively, for the
second quarter and six months ended June 30, 2001 from $257,000 and $289,000,
respectively, for the second quarter and six months ended June 30, 2000. The
increase is primarily due to higher interest income as a result of investing the
net proceeds from the private placements in April 2000 and February 2001.

Series E Convertible Preferred Stock Charges

Preferred stock charges during the second quarter and six months ended June 30,
2001 reflect charges against stockholders' equity that consist of the beneficial
conversion charge of $493,000 and $660,000, respectively, and the accrual of the
4.75% premium related to the Series E Preferred Stock of $297,000 and $396,000,
respectively. The beneficial conversion charge reflects 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 between $500,000 and $600,000 and the premium will be
approximately $300,000, for each remaining quarter of 2001. Also see Note 4 in
Notes to Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

The net increase in cash and cash equivalents during the first six months of
2001 was $10,347,000, due primarily to $23,400,000 received from the net
proceeds of the private placement of Series E Convertible Preferred Stock in
February 2001, partially offset by net cash used of $11,455,000 in operating
activities and capital expenditures of $1,656,000. Cash used in operating
activities was due primarily to the net loss of

                                       11
<PAGE>   13

$11,665,000 for the first six months of 2001. Capital expenditures were made to
acquire equipment, expand facilities and implement systems to support the
expanding infrastructure of the Company. The Company currently anticipates that
total capital expenditures for all of 2001 will approximate $2,000,000 as the
Company continues to build its infrastructure to support the development,
marketing, selling and delivery of its server appliance products.

As of June 30, 2001, the Company had $27,172,000 in cash and cash equivalents.
The Company currently believes that its cash and cash equivalents are sufficient
to fund its operations for at least the next twelve months.

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 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.

WHILE WE GENERATED INITIAL REVENUES IN THE SECOND QUARTER OF 2001 FROM SALES OF
OUR FIRST LUNAR FLARE NAS SERVER APPLIANCE, WE CANNOT ASSURE YOU THAT WE WILL BE
ABLE TO GENERATE ADDITIONAL REVENUES AT A LEVEL THAT MEETS EXPECTATIONS.

With sales of our initial Lunar Flare NAS server appliance, we generated
revenues in the second quarter of 2001 for the first time since we sold the
remaining assets associated with our server line of business in August 1999.
Although we currently anticipate additional revenues from sales of Lunar Flare
NAS, we cannot assure you that we will be able to generate revenues at a level
that meets expectations.

Further, Lunar Flare NAS utilizes Illumina, our patented clustering software,
and all other products we currently plan to develop will be designed utilizing
Illumina. Because Illumina is a new type of software technology, we cannot be
sure that we will sell a significant number of Lunar Flare NAS appliances, nor
can we be sure that anyone will buy our other Illumina-based products that we
may develop. If demand for Lunar Flare

                                       12

<PAGE>   14

NAS and any other Illumina-based products that we may develop fails to
materialize, we will not be able to generate revenues at a level that meets
expectations.

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. Further, even though we have performed a significant
amount of testing of our Illumina software and our Lunar Flare NAS server
appliance, they may still contain software errors or failures that may be
discovered by customers after shipment, which could result in loss of, or delay
in, market acceptance, which could in turn materially adversely affect our
operating results. Similarly, other products we develop may contain software
errors or failures which may result in a delay in delivery of such products or
which are not detected or remedied until after we ship such products. The
occurrence of such errors in either the Lunar Flare NAS or other Illumina-based
products could result in:

o   The delay in delivery of these products;
o   The loss of, or delay in, market acceptance and sales of these products;
o   Diversion of development resources;
o   Injury to our reputation; or
o   Increased maintenance and warranty costs.

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
the agreements we use to sell our Illumina-based products contain provisions
designed to limit our exposure to potential product liability claims, 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.

Due to the fact that we have been focusing nearly all of 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

                                       13

<PAGE>   15

    products and technologies; and
o   Successful development of our relationships with licensed manufacturers,
    original equipment manufacturers and channel partners.

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.

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. These current conditions and
possible further adverse changes in the economy or in customer IT spending may
delay or limit market acceptance of our products and technology.

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.

IF GROWTH IN THE NETWORK-ATTACHED-STORAGE ("NAS") MARKET DOES NOT MEET OUR
EXPECTATIONS, OUR FUTURE FINANCIAL PERFORMANCE COULD BE NEGATIVELY IMPACTED.

We believe our future financial performance depends in large part upon the
continued growth in the NAS market. We expect that any revenues that we are able
to generate from product sales in 2001 will come almost exclusively from
Illumina-based products that are sold in the NAS marketplace. The market for NAS
products, however, may not continue to grow at its historical rate and could
possibly decline. Long-term trends in storage technology may change and
competing technologies, such as storage area networks, may emerge as the
preferred storage solution. If the NAS market grows more slowly than anticipated
or declines, our operating results could be materially adversely affected.

                                       14
<PAGE>   16



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 $13.6 million, $7.6 million and $2.1 million in 2000, 1999 and 1998
respectively. We also incurred a net loss of $11.7 million for the first six
months of 2001. We expect to continue to have losses in the future. In addition,
we had an accumulated deficit of $109.1 million as of June 30, 2001. We believe
that our future growth depends upon the success and market acceptance of Lunar
Flare NAS 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
2001 as we:

o   Market and sell our products;
o   Expand our distribution channels;
o   Expand our Lunar Flare product line;
o   Continue our product development activities;
o   Develop strategic partnerships and alliances with third parties;
o   Create and market additional server appliance products based on Illumina;
    and
o   Adjust our infrastructure to support our growth.

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.
If we do not achieve and maintain profitability, the market price of our common
stock may decline substantially.

IF WE FAIL TO ESTABLISH SUFFICIENT DIRECT AND INDIRECT SALES CHANNELS FOR OUR
PRODUCTS, OUR ABILITY TO GENERATE REVENUE MAY BE LIMITED.

We currently plan to sell our products directly to end users as well as through
indirect sales channels, including value added resellers, agents and original
equipment manufacturers. In order to grow our business, it will be necessary to
further enhance and expand our recently-established direct and indirect sales
channels. We cannot assure you that we will be able to successfully market and
sell our products directly to end users or that we will be able to do so
profitably. To sell our Illumina-based products through distribution
partnerships and other indirect sales channels, we will need to establish
additional new relationships and significantly expand recently-established
relationships. Our failure to effectively establish new relationships or expand
existing relationships on acceptable terms or in sufficient numbers could
adversely affect our ability to introduce, market and

                                       15
<PAGE>   17
 sell our products successfully. Even if we do establish such distribution
relationships, using other businesses to sell the products we are developing
presents several risks to our business. These risks include our inability to
control these distributors, our dependence upon their continued commercial
success and financial stability, our ability to provide sufficient incentives to
promote and sell our products, and the possibility that they may be unable to
market or sell our products effectively. In addition, we anticipate our
agreements with distribution partners will typically be non-exclusive, so they
could carry competing product lines, devote their efforts to other products in
different markets, reduce or discontinue sales of our products, fail to devote
the resources necessary to provide effective sales and marketing support of our
products or develop their own competing product lines.

WE FACE RISKS OF TECHNOLOGICAL CHANGES THAT MAY RENDER OUR PRODUCTS OBSOLETE.

The markets we serve are characterized by rapid technological change, changing
customer needs, frequent new product introductions and evolving industry
standards. The introduction of products embodying new technologies and the
emergence of new industry standards could render our products and software,
including Lunar Flare NAS and Illumina, obsolete and unmarketable. Our future
success will depend upon our ability to develop and introduce new products,
including new software releases and enhancements, on a timely basis that keep
pace with technological developments and emerging industry standards and address
the increasingly sophisticated needs of our customers. We cannot assure you that
we will be successful in developing and marketing new products that respond to
technological changes or evolving industry standards. If we are unable, for
technological or other reasons, to develop and introduce new products in a
timely manner in response to changing market conditions or customer
requirements, our operating results will be materially adversely affected.

OUR BUSINESS DEPENDS ON THE ACCEPTANCE OF OPERATING SYSTEM SOFTWARE FOR WHICH WE
HAVE NO RESPONSIBILITY OR CONTROL.

Our initial Lunar Flare NAS server appliance utilizes Linux as its operating
system, which is not designed or manufactured by us. We anticipate that Lunar
Flare NAS may in the future, after we further modify and enhance it, utilize
Windows NT(R) and UNIX(R) operating systems, both of which are designed and
manufactured by parties over whom we have no control. Similarly, we anticipate
future Illumina-based products may also be designed to be used with the Windows
NT(R), Linux and UNIX(R) operating systems. Therefore, our business depends on
the market acceptance of Windows NT(R), Linux and UNIX(R) to run computer
networks and the willingness of the manufacturers of these operating systems to
continue to offer a quality product. Because we have no control over the market
acceptance of any of this operating software or their manufacturers to continue
to offer quality products that fulfill market demand, 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.

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

                                       16
<PAGE>   18


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. We also may need to hire additional sales, marketing,
engineering, service and administrative personnel to grow our business and
generate revenues. If we are unable to hire and retain these employees, our
business and operations would be adversely affected. Competition for people with
the skills we require is intense, and we cannot assure you that we will be able
to hire such people or that we will be able to do so without offering these
people salaries that are significantly higher than we have historically paid.
Additions of new personnel and departures of existing personnel could disrupt
our business and may result in the departure of other employees. We also depend
on the continued service of our key personnel and even though we have entered
into employment agreements with key management personnel, these agreements
cannot prevent their departure.

WE RELY ON CONTRACT MANUFACTURERS/INTEGRATORS TO PRODUCE OUR PRODUCTS AND, IF
OUR MANUFACTURERS FAIL TO MEET OUR REQUIREMENTS, WE MAY BE UNABLE TO MEET
CUSTOMER REQUIREMENTS AND OUR BUSINESS COULD BE MATERIALLY ADVERSELY AFFECTED.

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 and they may
experience shortages in supply of key components for an extended time, which
would cause delays in the production of our products, prevent us from satisfying
our contractual obligations and meeting customer expectations, and result in
lost sales or customers. Also, commencing volume production or expanding
production to another facility they operate may be expensive and time-consuming.
In addition, commencement of the manufacturing of our products at additional
manufacturing sites we may need in the future may cause transitional problems,
including delays and quality control issues, which could cause us to lose sales
and impair our ability to achieve profitability. We may need to find new or
additional outside manufacturers to manufacture our products in higher volume
and at lower cost to meet increased demand and competition. If we are required
or choose to change outside manufacturers, we may lose sales and our business
could be materially adversely affected.

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 one U.S. patent related to Illumina and we currently have
eight 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

                                       17

<PAGE>   19

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:

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.

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

                                       18

<PAGE>   20

We may need to raise additional funds to further develop or enhance our software
and server appliances, fund operations, respond to competitive pressures or
acquire complementary products, businesses or technologies. Additional financing
may not be available on terms that are acceptable to us or at all. If we raise
additional funds through the issuance of equity or convertible debt securities,
the percentage ownership of our stockholders would be reduced and 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
expansion, take advantage of unanticipated opportunities, develop or enhance
products or services, or otherwise respond to competitive pressures would be
significantly limited.

OUR STOCK IS SUBJECT TO POTENTIAL DILUTION THROUGH THE CONVERSION OF SERIES E
PREFERRED STOCK, AND THE ACCOUNTING TREATMENT FOR THE SERIES E PREFERRED STOCK
CONVERSION FEATURE WILL RESULT IN SIGNIFICANT, NON-CASH CHARGES AGAINST INCOME
APPLICABLE TO COMMON STOCKHOLDERS.

The shares of Series E Preferred Stock issued in February 2001 are 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 could 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 initial conversion price of $9.50 or issue securities
that are convertible into shares of common stock at an effective price of less
than $9.50 per share. In addition, if the Series E Preferred Stock is not
converted to our common stock prior to February 27, 2004 (unless the Company
elects to redeem the Preferred stock), it will automatically convert to common
stock on that date, and the conversion price will be based on the average market
price of our common stock during the fifteen trading days preceding that date.
If the average market price of our common stock is lower than $9.50 during these
fifteen days, the conversion price will be lower that $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. An increase in the number of
shares issued or issuable upon conversion of the Series E Preferred stock could
have a material adverse effect on the market price of our common stock.
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

                                       19
<PAGE>   21

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.

WE CURRENTLY DO NOT ANTICIPATE PAYING ANY CASH DIVIDENDS.

We currently intend to retain any future earnings for use in our business and do
not anticipate paying any cash dividends in the foreseeable future. Therefore,
any gains from your investment in our common stock will have to come from an
increase in its market price.

THE MARKET PRICE OF OUR COMMON STOCK HAS FLUCTUATED SIGNIFICANTLY IN THE PAST
AND 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   Fluctuations in our operating results;
o   Fluctuations in the valuation of companies perceived by investors to be
    comparable to us;
o   A shortfall in revenues or earnings compared to securities analysts'
    expectations;
o   Changes in analysts' recommendations or projections;
o   Announcements of new products, applications or product enhancements by us
    or our competitors; and
o   Changes in our relationships with our suppliers, channel partners and
    customers.

In addition, the stock market has recently experienced volatility that has
particularly affected the market prices of equity securities of many technology
companies and that often has been unrelated to the operating results of such
companies. As a result, the market price of our common stock may fluctuate
significantly in the future and any broad market fluctuations may materially
adversely affect the market price of common stock. 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.

                                       20
<PAGE>   22


                                     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 six months
ended June 30, 2001 of approximately $130,000.

                                       21

<PAGE>   23

                           PART II. OTHER INFORMATION

Item 4.  Submission of Matters to a Vote of Security Holders

The Company's annual stockholders meeting was held on May 10, 2001, during which
the following items were voted on and approved under applicable law:

1.   Election of Directors: Mr. Yuval Almog was elected as a Class B Director,
     with 21,404,968 votes cast for Mr. Almog and 206,109 votes withheld; Mr.
     Louis C. Cole was elected as a Class B Director, with 21,410,268 votes cast
     for Mr. Cole and 200,809 votes withheld; and Ms. Joan M. Wrabetz was
     elected as a Class B Director, with 21,122,731 votes cast for Ms Wrabetz
     and 488,346 votes withheld.

2.   On the proposal to amend the Company's 1998 Stock Incentive Plan to
     increase the number of shares of Common Stock reserved for issuance
     thereunder by 3,000,000 shares to a total of 11,000,000 shares (plus any
     shares reserved, but not issued, under the Company's 1995 Stock Incentive
     Plan), 7,007,817 shares were cast for, 3,154,799 shares were cast against,
     and 73,660 shares abstained from voting on such proposal. Broker non-votes
     were 11,374,801.

3.   On the proposal to approve an amendment to the Company's Employee Stock
     Purchase Plan to increase the number of shares of Common Stock reserved for
     issuance thereunder from 250,000 to 500,000 shares, 9,178,722 shares were
     cast for, 983,319 shares were cast against, and 74,235 shares abstained
     from voting on such proposal. Broker non-votes were 11,374,801.

Item 6.  Exhibits and Reports on Form 8-K

(b) Reports on Form 8-K

     On April 27, 2001, the Company furnished a report on Form 8-K under Item 5,
     Other, related to a press release announcing immediate availability of its
     Lunar Flare(TM) NAS server appliance, now shipping in limited availability
     to customers and channel partners.

     On April 30, 2001, the Company furnished a report on Form 8-K under Item 5,
     Other, related to a press release announcing financial results for the
     first quarter ended March 31, 2001.

     On June 22, 2001, the Company furnished a report on Form 8-K under Item 5,
     Other, related to a press release announcing a revenue update for the
     second quarter ending June 30, 2001 and for the full year 2001.

     On June 28, 2001, the Company furnished a report on Form 8-K under Item 5,
     Other, related to a press release announcing general availability of its
     Lunar Flare(TM) NAS server appliance.

                                       22
<PAGE>   24

                                    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/ Joan M. Wrabetz
                                         --------------------------
                                         Joan M. Wrabetz, President and
                                         Chief Executive Officer (Principal
                                         Executive Officer)


                                     By: /s/ Steven E. Opdahl
                                         ---------------------------
                                         Steven E. Opdahl,
                                         Chief Financial Officer
                                         (Principal Financial Officer and
                                         Principal Accounting Officer)

                                     Date:  August 14, 2001


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