<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, 1997
or
[ ] 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 0-19377
TCSI CORPORATION
(Exact name of Registrant as specified in its charter)
NEVADA 68-0140975
- ---------------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer identification no.)
incorporation or organization)
1080 Marina Village Parkway, Alameda, CA 94501
- ---------------------------------------- -----------------------------------
(Address of principal executive offices) (Zip code)
Telephone number (510) 749-8500
-------------------
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
------- --------
As of April 30, 1997, there were 21,437,656 shares of common stock of the
Registrant outstanding.
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<PAGE>
FORM 10-Q
INDEX
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL INFORMATION
Consolidated Statements of Income for the Quarters
Ended March 31, 1997 and 1996 (Unaudited)............. 3
Consolidated Balance Sheets at March 31, 1997 (Unaudited)
and December 31, 1996................................. 4
Consolidated Statements of Cash Flows for the Quarters
Ended March 31, 1997 and 1996 (Unaudited)............. 5
Notes to Consolidated Financial Information(Unaudited)..... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............. 9
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS...................................... 25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................... 26
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Information
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Quarter Ended March 31,
-------------------------
1997 1996
--------- ----------
<S> <C> <C>
Revenues:
Services $ 7,803 $ 12,583
Software licensing fees 2,031 3,116
--------- ---------
Total services and licensing fees 9,834 15,699
Equipment, non-telecom -- 2,839
--------- ---------
Total revenues 9,834 18,538
--------- ---------
Costs and expenses:
Services 5,143 6,128
Equipment, non-telecom -- 2,654
Product development 1,452 1,004
Selling, general, and administrative 4,838 5,283
--------- ---------
Total costs and expenses 11,433 15,069
--------- ---------
Income (loss) from operations (1,599) 3,469
Interest income 749 282
--------- ---------
Income (loss) before income taxes (850) 3,751
Provision for (benefit from) income taxes (289) 1,200
--------- ---------
Net income (loss) $ (561) $ 2,551
--------- ---------
--------- ---------
Earnings (loss) per share (EPS) $ (0.03) $ 0.13
--------- ---------
--------- ---------
Shares used in calculation of EPS 21,343 20,348
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of this financial information.
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<PAGE>
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 33,866 $ 30,880
Investments in marketable securities 12,422 14,352
Receivables 7,857 12,522
Other receivables 1,941 2,042
Deferred income taxes 2,178 2,178
Other current assets 2,058 2,308
--------- ---------
Total current assets 60,322 64,282
Furniture, equipment, and leasehold improvements,
net 10,143 9,234
Non-current investments in marketable securities 5,475 7,375
Non-current deferred income taxes 5,000 5,000
Other non-current assets 804 1,284
--------- ---------
Total assets $ 81,744 $ 87,175
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accruals $ 3,119 $ 7,263
Accrued compensation and related costs 3,806 4,705
Income taxes 1,162 1,597
--------- ---------
Total current liabilities 8,087 13,565
--------- ---------
Shareholders' equity:
Preferred shares, $0.01 par value; 5,000
shares authorized; none outstanding -- --
Common shares, $0.10 par value; 75,000 shares
authorized; 21,438 shares issued and
outstanding - 1997 (21,219 - 1996) 2,144 2,122
Additional paid-in capital 46,560 45,939
Retained earnings 24,988 25,549
Foreign currency translation adjustments (35) --
--------- ---------
Total shareholders' equity 73,657 73,610
--------- ---------
Total liabilities and shareholders' equity $ 81,744 $ 87,175
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of this financial information.
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<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Quarter Ended March 31,
-----------------------
1997 1996
-------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (561) $ 2,551
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operations:
Depreciation and amortization 963 646
Deferred income taxes -- 286
Changes in:
Receivables 4,665 (2,756)
Equipment receivables, non-telecom -- (2,836)
Other receivables (437) --
Other current assets 250 118
Accounts payable and other accruals (2,079) 1,473
Accrued compensation and related costs (899) (817)
Income taxes (435) 630
-------- --------
Net cash provided by (used in)
operating activities 1,467 (705)
-------- --------
INVESTMENT ACTIVITIES
Capital expenditures (3,399) (1,793)
Purchase of marketable securities (2,084) (3,991)
Maturity and sale of marketable securities 5,900 2,750
Decrease (increase) in other non-current assets 480 (49)
-------- --------
Net cash provided by (used in)
investing activities 897 (3,083)
-------- --------
FINANCING ACTIVITIES
Issuance of common shares -- 25,900
Proceeds from exercise of options 657 1,855
-------- --------
Net cash provided by financing activities 657 27,755
-------- --------
Effect of foreign currency exchange rate changes on
cash and cash equivalents (35) --
-------- --------
Net increase in cash and cash equivalents 2,986 23,967
Cash and cash equivalents at beginning of period 30,880 16,946
-------- --------
Cash and cash equivalents at end of period $33,866 $ 40,913
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for income taxes $ 146 $ 285
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of this financial information.
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL INFORMATION (Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial information has
been prepared by TCSI Corporation (TCSI or the Company) in accordance with
generally accepted accounting principles for interim financial statements
and pursuant to the rules of the Securities and Exchange Commission for
Form 10-Q. Accordingly, certain information and footnotes required by
generally accepted accounting principles for complete financial statements
have been omitted. It is the opinion of management that all adjustments
considered necessary for a fair presentation have been included, and that
all such adjustments are of a normal and recurring nature. Operating
results for the periods presented are not necessarily indicative of the
results that may be expected for any future periods. For further
information, refer to the audited financial statements and footnotes
included in the Company's 1996 Annual Report on Form 10-K.
2. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES
The Company accounts for its marketable securities under Statement
of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Management determines the
appropriate classification of investments and debt securities at the time
of purchase and reevaluates such designation as of each balance sheet date.
Investments are classified as held-to-maturity when the Company has the
intent and ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost. Investments not classified as
such are classified as available-for-sale. Available-for-sale securities
are stated at fair value, with the unrealized gains and losses, net of tax,
reported in a separate component of shareholder's equity. Realized and
unrealized gains and losses from investments have been insignificant to the
results of operations and financial position of the Company.
3. RECEIVABLES AND CREDIT RISK
Receivable balances are primarily from large, credit-worthy
customers in the telecommunications industry and are unsecured. The Company
performs ongoing credit evaluations of its customers and generally does not
require collateral. The Company does not anticipate any significant
default from a customer's inability to make a payment for products and/or
services received. Reserves are maintained for potential credit losses.
Receivables balances are as follows:
(In thousands) March 31, December 31,
1997 1996
--------- -----------
Billed receivables $ 7,434 $ 10,433
Unbilled receivables 823 2,489
Reserve for doubtful accounts (400) (400)
--------- ----------
$ 7,857 $ 12,522
--------- ----------
--------- ----------
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4. FURNITURE, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS
Furniture, equipment, and leasehold improvements are stated at
cost. Depreciation is provided for furniture and equipment in amounts
sufficient to relate the cost of depreciable assets to operations over
their estimated service lives of five years and three years, respectively,
utilizing the straight-line method. Amortization is provided for leasehold
improvements in amounts sufficient to relate the cost over the shorter of
the term of the related office lease or ten years utilizing the
straight-line method.
Furniture, equipment, and leasehold improvements balances are as
follows:
(In thousands) March 31, December 31,
1997 1996
--------- ------------
Computer and lab equipment $ 13,005 $ 12,856
Furniture and fixtures 3,401 3,307
Leasehold improvements 5,823 4,194
--------- ---------
22,229 20,357
Less accumulated depreciation
and amortization (12,086) (11,123)
--------- ---------
$ 10,143 $ 9,234
--------- ---------
--------- ---------
5. INCOME TAXES
The effective tax rate used in the calculation of the income tax
provision (benefit) for the periods ended March 31, 1997 and 1996 was 34
percent and 32 percent, respectively. In determining its effective tax
rate for the quarter, the Company used its estimated effective tax rate for
the year. To the extent there are differences between planned and actual
net income, the components thereof, or changes in the tax laws effecting
the Company, the effective tax rate could change.
At March 31, 1997, the Company had approximately $7.2 million of
deferred tax assets. Included in this balance is approximately $3.8
million associated with stock options. In the event these stock option
related deferred assets are not entirely realized, the unrealized balance
would be reversed to shareholders' equity. Realization of the remaining
deferred tax assets is dependent upon the Company generating sufficient
taxable income in future years to obtain the benefit from the reversal of
temporary differences and from tax credit carry forwards.
6. STOCK BASED COMPENSATION
The Company grants stock options for a fixed number of shares to
employees, consultants, and directors with an exercise price equal to the
fair value of the shares at the date of grant. The Company accounts for
stock option grants in accordance with APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and, accordingly, recognizes no compensation
expense for the stock option grants.
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<PAGE>
7. PER SHARE INFORMATION
Earnings per share is computed using the weighted average number of
shares outstanding and dilutive common stock equivalents from the Company's
stock option plans, calculated using the treasury stock method. Such
common stock equivalents are excluded from the loss per share calculation
as their effect is anti-dilutive for the period ending March 31, 1997.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share," which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change
the method currently used to compute earnings per share and to restate all
prior periods. Under the new requirements for calculating primary earnings
per share, the dilutive effect of stock options will be excluded. The
impact is expected to result in no change in primary earnings (loss) per
share for the periods ended March 31, 1997 and March 31, 1996. The impact
of Statement 128 is not expected to be material.
8. LITIGATION
In late 1996, two class action lawsuits on behalf of certain
shareholders were filed against the Company and various of its officers and
directors. The suits allege violations of state securities laws during
1995 and 1996. Management believes that the claims contained in the suits
are without merit and is vigorously defending such suits. In the opinion
of management, resolution of this litigation is not expected to have a
material adverse effect on the financial position of the Company. However,
depending on the amount and timing, an unfavorable resolution of this
matter could materially affect the Company's future results of operations
or cash flows in a particular period.
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
IN ADDITION TO HISTORICAL INFORMATION CONTAINED HEREIN, THIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS. THE FORWARD-LOOKING
STATEMENTS CONTAINED HEREIN ARE SUBJECT TO CERTAIN FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN THE
FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE, BUT ARE NOT LIMITED TO,
THOSE DISCUSSED BELOW AND IN THE COMPANY'S FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1996.
OVERVIEW
TCSI Corporation provides integrated software products and services
for the global telecommunications industry. Since its inception in 1983, a
significant portion of the Company's revenues has been earned from
telecommunications service providers and equipment manufacturers. Since
1993, the Company's revenues have resulted primarily from sales of related
object-oriented software products and services. During the second half of
1996, the Company divested its non-telecom product lines by licensing its
embedded software product lines and terminating its final transportation
-related development agreement. As a result, the Company has focused on
offering software solutions to the telecommunications industry.
A significant portion of the Company's revenues and operating
income has been, and is expected to continue to be, derived from software
licensing fees from a limited number of customers. The Company recognizes
revenues from software licensing fees only after delivery of software
products and if there are no remaining significant post-delivery
obligations. The Company recognizes revenues from software licensing fees
with significant post-delivery obligations associated with the related
services contract on a percentage of completion basis. The Company also
provides services to customers under level-of-effort and fixed price
contracts. Service revenues are recognized on the percentage-of-completion
method based on the percentage of contract costs incurred in relation to
total estimated contract costs. Changes to total estimated contract costs,
if any, are recognized in the period such changes are determined. The
scope and size of many of the Company's system solutions are large and
complex, typically requiring delivery over several quarters. From time to
time, customers have established payment milestones which can be achieved
only after completion of the related services. In some cases, customers
have disputed fees charged for services provided. The Company may write
off receivable amounts if such disputes cannot be resolved.
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<PAGE>
The licensing and implementation of the Company's software products
generally involves a significant commitment of resources by prospective
customers. As a result, the Company's sales process is subject to delays
associated with lengthy approval processes typically accompanying such
significant capital expenditures. Accordingly, the Company is
substantially dependent on its customers' decisions as to the timing and
level of expenditures and resource commitments. The variability in the
timing of such expenditures could cause material fluctuations in the
Company's business, operating results, and financial condition. In this
regard, the consistency of the Company's 1996 and 1997 quarterly results
were adversely affected by customer delays in the purchase of software
licenses.
A substantial portion of the Company's revenues are derived from
the sale of the Company's software products and services to major
telecommunications service providers and equipment manufacturers. Due to
the complex nature of the advanced element, network, and service management
systems being developed, successful deployment of these systems often
contains significant technological risks. The Company has in the past
relied and will in the future rely on its development and implementation
expertise. Additionally, development and implementation of these systems
often occurs over several quarters. There exists the risk that a change in
the customer's technology or business strategy during such lengthy
development and implementation periods may cause early termination of the
project or discontinuance of future phases. In this regard, the Company
has experienced and expects to continue to experience significant
fluctuations in revenues and operating results on a quarterly basis due to
termination, cancellation, or non-renewal of agreements.
Management believes that revenue growth is highly dependent upon
the development and enhancement of software products that meet market
needs. Prior to 1996, the Company's product development was primarily
funded by customers as part of the development of software applications for
such customers. The Company typically retained certain rights to developed
software products. In certain circumstances, however, the Company agreed
to restrict its use of such products to certain markets and during certain
time periods. During 1996, the Company began funding a larger portion of
its product development costs internally. Management intends to target
product development spending at amounts consistent with other software
companies. Furthermore, management expects that from time to time it may
acquire businesses, products, or technologies to enhance the Company's
current product offerings. To date, the Company has not consummated any
such acquisitions and the Company has no current agreements to effect any
such acquisitions. The failure to successfully evaluate, negotiate, and
effect such an acquisition could have a material adverse effect on the
Company's business, operating results, and financial condition.
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<PAGE>
RESULTS OF OPERATIONS
REVENUES. The Company generates revenues from the sale of its
software products and related services to the telecommunications
industry. For the periods ended March 31, 1997 and 1996, revenues were as
follows:
March 31, 1997 March 31, 1996
------------------ -----------------
Services $ 7,803 79% $12,583 68%
Software licensing fees 2,031 21 3,116 17
Equipment, non-telecom -- -- 2,839 15
-------- ---- ------- ----
Total revenues $ 9,834 100% $18,538 100%
-------- ---- ------- ----
-------- ---- ------- ----
March 31, 1997 March 31, 1996
------------------ -----------------
TELECOM:
Services $ 7,741 83% $ 9,068 78%
Software licensing fees 1,610 17 2,517 22
-------- ---- ------- ----
Total telecom revenues $ 9,351 100% $11,585 100%
-------- ---- ------- ----
-------- ---- ------- ----
The Company's total revenues decreased 47 percent, from $18.5
million in the quarter ended March 31, 1996 to $9.8 million in the
quarter ended March 31, 1997, due primarily to the non-recurrence of
approximately $7.0 million of 1996 first quarter revenues generated by
non-telecom business units which were discontinued in late 1996. The 19
percent decline in total telecom revenues (from $11.6 million in the
first quarter of 1996 to $9.4 million in the first quarter of 1997) is
primarily attributable to a decrease in telecom software licensing fees
due to delays in customer's deployments. In addition, telecom services
revenues decreased in the first period of 1997 due to a decline in North
America bookings in late 1996 and continued discounts with a number of
strategically important customers. The Company expects software
licensing fees to continue to decline in the near term and to vary from
period to period.*
_______________________________
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. The Company
strongly encourages review of the section entitled "Factors Affecting
Operating Results and Market Price of Stock" commencing on page 15 for a
discussion of factors that could affect future performance.
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<PAGE>
The following summarizes revenues by geographic location:
March 31, March 31,
1997 1996
--------- ---------
North America 31% 60%
Asia and the Pacific Rim 40 27
Europe 29 13
------ ------
100% 100%
------ ------
------ ------
March 31, March 31,
1997 1996
--------- ---------
TELECOM:
North America 30% 50%
Asia and the Pacific Rim 40 29
Europe 30 21
------ ------
100% 100%
------ ------
------ ------
Telecom revenues from Asia and the Pacific Rim and Europe increased
to $6.6 million for the quarter ended March 31, 1997 compared to $5.7
million for the quarter ended March 31, 1996. The increase is
attributable to increased references from customers resulting in recent
follow-on contracts. The Company generally realizes service revenues
over 12 to 18 month design, development, and deployment periods. Low
North America-based telecom bookings during 1996 resulted in North
American telecom revenues declining approximately 50 percent to $2.8
million for the quarter ended March 31, 1997 from $5.8 million for the
same period in 1996. The Company anticipates that revenues from Asia and
the Pacific Rim and European customers will continue to account for a
significant portion of its total revenue in future periods.*
Historically, a significant portion of the Company's revenues has
been concentrated among a limited number of customers. For the periods
ended March 31, 1997 and 1996, the concentration of total revenue from
the Company's five largest customers remained relatively unchanged at 61
percent and 64 percent, respectively. The concentration of revenue from
the Company's five largest telecom customers declined to 64 percent for
the quarter ended March 31, 1997 from 72 percent for the same quarter in
1996. Two telecom customers each represented 15 to 20 percent of total
revenues for the quarter ended March 31, 1997. No telecom customer
represented more than 15 percent of total revenues for the same period in
1996. There can be no assurance that such customers will continue to
place orders with the Company which equal or exceed the comparable levels
for prior periods. See "Factors Affecting Operating Results and Market
Price of Stock -- Customer Concentration."
_______________________________
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. The Company
strongly encourages review of the section entitled "Factors Affecting
Operating Results and Market Price of Stock" commencing on page 15 for a
discussion of factors that could affect future performance.
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<PAGE>
COSTS OF SERVICES. The Company incurs costs in the design,
development, and deployment of its customer's software solutions. The
major cost components are employee compensation, subcontractor fees,
training costs, and other billable direct costs, including travel
expenses. Cost of services also include an allocation for benefits,
facilities, and depreciation. For the quarter ended March 31, 1997,
costs of services declined 16 percent to $5.1 million from $6.1 million
for the same period in 1996. The decrease is primarily due to the
divestiture of the Company's non-telecom business units in late 1996. As
a percentage of services revenues, cost of services were 66 percent for
the quarter ended March 31, 1997 compared to 49 percent for the quarter
ended March 31, 1996. The increase is due primarily to a number of
ongoing strategically important relationships where services continue to
be provided at a discount. The Company anticipates that such additional
investments will decrease as a percentage of revenue for the remainder of
1997.*
PRODUCT DEVELOPMENT. Product development includes employee
compensation, subcontractor fees, training costs, and other product
development costs, including an allocation for benefits, depreciation,
and facilities. In 1996, the Company began internally funding its
product development costs. Prior to 1996, such product development had
been primarily funded by customers as part of the development of software
applications for the customer. In the first quarter of 1997, the Company
invested $1.5 million (approximately 15 percent of revenues) on
internally funded product development compared with $1.0 million or 5
percent of revenues for the first quarter of 1996. In the first quarter
of 1997, the funds were used primarily on the development of the
Company's SolutionCore-TM- product line, which includes the fifth release
of Object Services Package (OSP) and new releases of related development
tools. The Company expects to continue to invest in its SolutionCore-TM-
product line, as well as its new SolutionSuites-TM- product line
throughout 1997, in amounts generally consistent with the current
period's spending levels.*
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES. Selling expenses
include sales, sales support, and marketing employee compensation,
promotional material, trade shows, travel, and facilities expenses.
General and administrative costs include compensation costs related to
executive management, finance, and administrative personnel along with
other administrative costs including recruiting, legal and accounting
fees, and insurance. Selling, general, and administrative expenses
decreased 8 percent to $4.8 million for the quarter ended March 31, 1997
from $5.3 million in the comparable 1996 period. The decrease is due to
the discontinuance of non-telecom business groups in late 1996, as well
as the Company's efforts to reduce general and administrative costs
through efficiencies and the consolidation of its facilities. The
Company plans to continue to maintain the 1996 level of resources devoted
to sales and marketing, but intends to continue to reduce 1997 general
and administrative costs relative to 1996 levels.* As a percent of
revenue, selling, general, and administration expense was 49 percent for
the quarter ended March 31, 1997 and 28 percent for the same period in
1996. The increase is primarily attributed to the 47 percent decline in
revenues in the first period of 1997 over the first period in 1996.
_______________________________
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. The Company
strongly encourages review of the section entitled "Factors Affecting
Operating Results and Market Price of Stock" commencing on page 15 for a
discussion of factors that could affect future performance.
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<PAGE>
INCOME TAXES. The Company records income taxes in accordance with
Statement of Financial Accounting Standards No. 109, " Accounting for
Income Taxes." The Company's effective tax rates were 34 percent and 32
percent for the quarters ended March 31, 1997 and 1996, respectively.
The Company realized a tax benefit of $0.3 million on a pre-tax loss of
$0.9 million for the quarter ended March 31, 1997 compared to income tax
expense of $1.2 million on pre-tax income of $3.8 million for the same
period in 1996.
EARNINGS PER SHARE (EPS). Shares used in the calculation of
earnings (loss) per share increased to 21.3 million for the quarter
ended March 31, 1997 compared to 20.3 million for the same quarter in
1996, resulting in earnings (loss) per share of $(0.03) and $0.13,
respectively. The increase in shares was due to option exercises and 1.5
million shares of Common Stock issued in the Company's follow-on public
offering in March 1996. The increase was partially offset by the
exclusion of unexercised option shares in the 1997 calculation of EPS, as
such shares would be anti-dilutive as a result of the net loss for the
current period.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash of $1.5 million from operating
activities for the quarter ended March 31, 1997 compared to cash used in
operations of $0.7 million for the comparable period in 1996. The
increase in cash generated from operations is primarily due to a decline
in the Company's accounts receivable. In the first period of 1996,
accounts receivable balances included a significant amount related to
customers in the now discontinued transportation and wireless product
lines. As in the past, the Company's operating cash flows in the future
may be affected by fluctuating receivable balances.* The Company's
receivables are primarily from large, credit-worthy customers and, as a
result, the Company does not anticipate any significant default from a
customer's inability to make a payment for products and/or services
received.*
Cash provided by financing activities decreased $27.1 million for
the period ended March 31, 1997 to $0.7 million compared to $27.8 million
for the same period in 1996. In the first quarter of 1996, the Company
raised funds through a follow-on public offering, with net proceeds of
approximately $25.9 million. During the period ended March 31, 1997,
$0.9 million was provided by investing activities compared to $3.1
million used in investing activities for the period ended March 31, 1996.
The current quarter ended March 31, 1997 included the purchase of $2.1
million of marketable securities and $5.9 million of maturities of
marketable securities compared to the purchase of $4.0 million of
marketable securities and $2.8 million of maturities for the comparable
period in 1996. The net increase in cash provided by such investing
activities in 1997 was offset by $3.4 million of cash used for capital
expenditures during the first period of 1997 compared to $1.8 million of
cash used for capital expenditures for the same period in 1996. The $1.6
million increase in capital expenditures is primarily related to the
consolidation of the Company's facilities in Northern California. The
Company expects such expenditures to be significantly lower in the near
term.* The Company currently has no significant commitments for capital
expenditures, although management intends to support operational needs as
necessary.
_______________________________
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. The Company
strongly encourages review of the section entitled "Factors Affecting
Operating Results and Market Price of Stock" commencing on page 15 for a
discussion of factors that could affect future performance.
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<PAGE>
FACTORS AFFECTING OPERATING RESULTS AND MARKET PRICE OF STOCK
The Company operates in a rapidly changing environment that
involves numerous risks, some of which are beyond the Company's
control. The following discussion highlights some of the risks the
Company faces.
POTENTIAL FLUCTUATIONS IN FUTURE OPERATING RESULTS
The Company has experienced and expects to continue to experience
significant fluctuations in revenues and operating results on an annual
or quarterly basis as a result of a number of factors, many of which are
beyond the control of the Company. These factors include the
cancellation, modification, or non-renewal of service, license, or
maintenance agreements; the size and timing of significant customer
engagements and license fees; the relative proportion of services and
software licensing fees; personnel changes; capital spending patterns of
the Company's customers; concentration of the Company's customers; the
lengthy sales cycles of the Company's products and services; industry
acceptance of the Company's products and services; changes in operating
expenses; new product introductions and product enhancements by the
Company or its competitors; the ability of the Company to develop,
introduce, and market new products and product enhancements on a timely
basis; changes in pricing policies by the Company or its competitors;
regulatory changes, currency fluctuations, and general economic factors.
These factors are difficult to forecast, and these or other factors could
have a material adverse effect on the Company's business, operating
results, and financial condition.
A significant portion of the Company's operating income has been,
and is expected to continue to be, derived from software licensing fees
from a limited number of customers. Variability in the timing of such
license fees has caused and may continue to cause material fluctuations
in the Company's business, operating results, and financial condition.
The Company's products and services generally require significant capital
expenditures by customers as well as the commitment of resources to
implement, monitor, and test the Company's enhancements to such customers
systems. Accordingly, the Company is substantially dependent on its
customers' decisions as to the timing and level of such expenditures and
resource commitments. In addition, the Company typically realizes a
significant portion of license revenues in the last weeks or even days of
a quarter. As a result, the magnitude of quarterly fluctuations may not
become evident until late in, or after the close of, a particular
quarter. The Company's expenses are based in part on the Company's
expectations as to future revenue levels and to a large extent are fixed
in the short-term. If revenues do not meet expectations, the Company's
business, operating results, and financial condition are likely to be
materially adversely affected. In particular, because only a small
portion of the Company's expenses varies with revenues, net income may be
disproportionately affected by a reduction in revenues. As a result, the
Company believes that period-to-period comparisons of its operating
results are not necessarily meaningful and should not be relied upon as
indications of future performance. Due to the foregoing factors, it is
likely that in some future period, as in the past nine months, the
Company's revenues or operating results will be below the expectations of
public market analysts and investors. In such event the price of the
Company's common stock could be materially adversely affected.
-15-
<PAGE>
LENGTHY SALES AND IMPLEMENTATION CYCLES
The Company's products are typically intended for use in
applications that may be critical to a customer's business. The licensing
and implementation of the Company's software products generally involves
a significant commitment of resources by prospective customers. As a
result, the Company's sales process is often subject to delays associated
with lengthy approval processes that typically accompany significant
capital expenditures. For these and other reasons, the sales cycles
associated with the license of the Company's products is often lengthy
(averaging approximately nine to twelve months) and subject to a number
of significant delays over which the Company has little or no control. In
addition, the Company does not recognize service revenues until the
services are rendered. The time required to implement the Company's
products can vary significantly with the needs of its customers and is
generally a process that extends for several months. Because of their
complexity, larger implementations may take multiple quarters to
complete. From time to time Company has provided services to implement
certain large projects, and, although no contractual basis exists for the
customer to do so, certain customers have delayed payment of a portion of
service fees and in some cases have disputed the fees charged. There can
be no assurance the Company will not experience additional delays or
disputes regarding payment in the future, particularly if the Company
receives orders for large, complex installations. Therefore, the Company
believes that its quarterly and annual operating results and financial
condition are likely to vary significantly in the future.
ACCEPTANCE OF THE COMPANY'S PRODUCTS; PRODUCT DEVELOPMENT RISKS
A substantial portion of the Company's revenues are derived from
the sale of the Company's products and services which provide software
solutions to major corporations in the worldwide telecom services and
equipment industries. Although many telecom companies currently seek to
integrate their business operation systems and network operation systems,
there can be no assurance that these or other service providers will
continue to seek the integration of such systems or that such companies
will use the Company's products. Due to the complex nature of the
advanced element, network, and service management systems developed by
the Company, the Company has in the past relied and will in the future
rely on its development and implementation expertise. The Company
continues to develop distributed object software products that reduce the
customization necessary to fully integrate customers' systems. There can
be no assurance, however, that the Company will continue to successfully
develop and market such products or, if successful, that the revenue from
such products will compensate for any concurrent loss of development and
implementation service revenues. The failure by the Company to
successfully develop and market such products and technologies would have
a material adverse effect on its business, operating results, and
financial condition.
-16-
<PAGE>
Revenues attributable to the Company's distributed object software
products and services have in the past accounted for and are expected to
continue to account for a substantial majority of the Company's revenues.
Accordingly, the Company's future business, operating results, and
financial condition are significantly dependent upon the continued market
acceptance of distributed object software products and services in
general and the Company's portfolio of products and services in
particular. There can be no assurance that distributed object technology
will continue to achieve market acceptance or that the Company will be
successful in developing, introducing, or marketing improvements to its
distributed object products. Moreover, the life cycle of distributed
object products is difficult to estimate due in large part to the recent
emergence of many of the Company's markets, the effect of future product
enhancements, and competition. A decline in the demand for distributed
object technology as a result of new or existing competing technologies,
or other factors would have a material adverse effect on the Company's
business, operating results, and financial condition.
Prior to 1996, the Company's product development was primarily
funded by customers as part of the development of software applications
for such customers. The Company typically retained certain rights to
developed software products. In certain circumstances, however, the
Company agreed to restrict its use of such products to certain markets
and during certain time periods. Management believes that continued
revenue growth is highly dependent upon the development and enhancement
of software products that meet market needs. Prior to 1996, internally
funded product development costs were nominal. Management intends to
target product development spending at amounts consistent with other
software companies. There can be no assurance, however, that such funding
will result in the successful introduction of new products.
CUSTOMER CONCENTRATION
To date, a significant portion of the Company's revenues have been
concentrated among a limited number of customers. The Company anticipates
that it will continue to experience significant customer concentration.
There can be no assurance that such customers or any other customers will
in the future continue to place orders with the Company which equal or
exceed the comparable levels for prior periods. In addition, the
Company's customers typically designate one individual to procure network
management software. If any of such individuals were terminated,
transferred, or replaced, the Company would be vulnerable to cancellation
of an order if, for example, the Company's competitors had pre-existing
relationships with such individual's replacement. As a result of these
factors, the Company's business, operating results, and financial
condition could be materially adversely affected.
-17-
<PAGE>
PRODUCT DEFECTS
The Company provides complex object-oriented software products for
major corporations. The development and enhancement of such complex
software entails substantial risks of product defects. The Company has in
the past discovered software defects in certain of its products. There
can be no assurance that errors will not be found in existing or new
products or releases after commencement of commercial licensing, which
may result in delay or loss of revenue, loss of market share, failure to
achieve market acceptance, or may otherwise adversely impact the
Company's business, operating results, and financial condition.
IMPLEMENTATION RISKS
As characteristic of companies providing software solutions to the
telecommunications industry, the complexities involved in implementing
the Company's software solutions entail risks of performance failures. In
some cases the Company has agreed to accept some financial
responsibility, in the form of negotiated penalty amounts, should the
Company's products not meet specifications or cause customer system
downtime. There can be no assurance that the Company will not encounter
delays or other difficulties due to such complexities. Because the
Company's customer base consists of a relatively limited number of
customers, the reputational harm resulting from product defects or
implementation errors would be damaging to the Company. Any such
occurrence could have a material adverse effect upon the Company's
business, operating results, and financial condition.
INTERNATIONAL SALES
Revenues outside of North America accounted for approximately 70
percent of the Company's total revenues for the first quarter of 1997.
The Company expects that international revenues will continue to account
for a significant portion of its total revenue in future periods. The
Company intends to penetrate additional international markets and to
further expand its existing international operations. The Company's
international business involves a number of inherent risks, including
longer receivables collection periods and greater difficulty in accounts
receivable collection, difficulty in staffing and managing foreign
operations, a longer sales cycle than with domestic customers,
potentially unstable political and economic conditions, language
barriers, cultural differences in the conduct of business, seasonality
due to the slowdown in European business activity during the Company's
third fiscal quarter, unexpected changes in regulatory requirements,
including a slowdown in the rate of privatization of telecom service
providers, reduced protection for intellectual property rights in some
countries, potentially adverse tax consequences, tariffs, and other trade
barriers. In addition, access to foreign markets is often difficult due
to the established relationships between government owned or controlled
communications companies and local suppliers of communications products.
There can be no assurance the Company will be able to successfully
penetrate such foreign markets. In addition, there can be no assurance
that the Company will be able to sustain or increase revenue derived from
international licensing and services or that the foregoing factors will
not have a material adverse effect on the Company's future international
business, and consequently, on the Company's business, operating results,
and financial condition.
-18-
<PAGE>
International sales also entail risks associated with currency
fluctuations. The Company has attempted to reduce the risk of
fluctuations in currency exchange rates associated with international
revenue by pricing its products and services in United States dollars
whenever possible. The Company, however, generally pays the expenses of
its international operations in local currencies and generally does not
engage in hedging transactions with respect to such obligations.
Fluctuations in currency exchange rates could cause the Company's
products to become relatively more expensive to foreign customers,
leading to a reduction in sales or profitability. Furthermore, future
international activity may result in foreign currency denominated sales,
and, in such event, gains and losses on the conversion to U.S. dollars of
accounts receivable and accounts payable arising from international
operations may contribute to fluctuations in the Company's operating
results. In order to reduce the risk of exchange rate losses from foreign
currency denominated sales, the Company may engage in hedging
transactions. There can be no assurance that such hedging transactions
will not have a material adverse effect on the Company's business,
operating results, and financial condition.
DEPENDENCE ON TELECOMMUNICATIONS CARRIERS; GOVERNMENT REGULATION
The Company's principal customers are concentrated among major
telecom carriers, including regional bell operating companies ("RBOCs").
Such companies operate within the telecom industry, which has recently
been characterized by intense competition in the development of new
technology, equipment, and customer services. The Company believes that
large telecom carriers have become increasingly cautious in making
significant capital expenditures, due in part to increased competition
from smaller, rapidly developing alternative carriers, decreasing prices
for telecom services and equipment, and regulatory rate structures that
have become less dependent on the level of carriers' capital
expenditures. These and other factors have in the past and may in the
future cause such customers to experience significant fluctuations in
capital expenditures for network management software solutions.
The telecom industry is subject to extensive regulation in the
United States and other countries, and the Company's customers generally
must receive regulatory approvals in conducting their businesses.
Although the telecom industry has recently been characterized by
government deregulation, there can be no assurance that deregulatory
trends will continue or that reregulation will not occur. Government
regulatory policies are likely to continue to have a major impact on the
Company's ability to attract and retain customers. For example,
regulatory authorities may continue to oversee the pricing of new and
existing telecom services, which, in turn impact carriers' ability to
make significant capital expenditures. The enactment by federal, state,
or foreign governments of new laws or regulations or change in the
interpretation of existing regulations could adversely affect the
Company's customers, and thereby affect the Company's business, operating
results, and financial condition.
-19-
<PAGE>
COMPETITION
The Company offers products and services in the evolving markets
for telecom network management software and distributed object
technology. Competition in this market is intense and is characterized by
rapidly changing technologies, evolving industry standards, changing
regulatory requirements, frequent new product introductions, and rapid
changes in customer requirements. To maintain and improve its competitive
position, the Company must continue to develop and introduce, in a timely
and cost-effective manner, new services, products, and product features
that keep pace with competitive offerings by telecom companies and
independent software vendors, technological developments, and emerging
industry standards in the development of software solutions. The
principal competitive factors in the Company's market are quality,
performance, price, customer support, corporate reputation, and product
features such as scalability, interoperability, functionality,
customizability, and ease of use.
The Company's current and prospective competitors offer a variety
of solutions to address telecom software needs. The Company faces
competition in each of the three functional areas the Company believes
are necessary for the delivery of complete network management software
solutions: development environments, object frameworks, and customized
applications. Because certain of the Company's competitors focus only on
one of these functional areas, such competitors may be in a position to
develop competitive products targeted solely at the segment they serve.
These competitors include major communications service providers, RBOCs,
and equipment and computer manufacturers, each of which has substantially
greater financial, manufacturing, technical, marketing, distribution, and
other resources, greater name recognition, and longer-standing
relationships with customers than does the Company. Furthermore, many of
the Company's current and potential customers continuously evaluate
whether to design, develop, and support internally the software solutions
provided by the Company, thereby obviating the need for relying on an
outside vendor, such as the Company. There can be no assurance that the
Company's current or potential competitors will not develop products
comparable or superior to those developed by the Company or adapt more
quickly than the Company to new technologies, evolving industry
standards, new product introductions, or changing customer requirements.
-20-
<PAGE>
RAPID TECHNOLOGICAL CHANGE; NEED TO MANAGE PRODUCT TRANSITIONS
The market for the Company's products is characterized by rapidly
changing technologies, evolving industry standards, changing regulatory
environments, frequent new product introductions, and rapid changes in
customer requirements. The introduction of products embodying new
technologies and the emergence of new industry standards and practices
can render existing products obsolete and unmarketable. As a result, the
life cycles of the Company's products are difficult to estimate. This
poses substantial risks for the Company because the Company's products
and software solutions typically have lengthy development and sales
cycles. The Company's future success will depend on its ability to
enhance its existing products and to develop and introduce, on a timely
and cost-effective basis, new products and product features that keep
pace with technological developments and emerging industry standards and
address the evolving needs of its customers. There can be no assurance
that the Company will be successful in developing and marketing new
products or product features that respond to technological change or
evolving industry standards, that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction, and marketing of these new products and features, or that
its new products or product features will adequately meet the
requirements of the marketplace and achieve market acceptance. If the
Company is unable, for technological or other reasons, to develop and
introduce enhancements of existing products or new products in a timely
manner, the Company's business, operating results, and financial
condition will be materially adversely affected.
The Company's products are designed to operate on a variety of
hardware and software platforms and with a variety of databases employed
by its customers in their networks. The Company must continually modify
and enhance its products to keep pace with changes in hardware and
software platforms and database technology. As a result, uncertainties
related to the timing and nature of new product announcements,
introductions or modifications by systems vendors, particularly Sun
Microsystems, Inc. and Hewlett Packard Company, and by vendors of
relational database software, particularly Oracle Corporation, Sybase,
Inc., and Informix Corporation, could materially adversely impact the
Company's business, operating results, and financial condition. In
addition, the failure of the Company's products to operate across the
various existing and evolving versions of hardware and software platforms
and database environments employed by consumers would have a material
adverse effect on the Company's business, operating results, and
financial condition.
The introduction or announcement of products by the Company or one
or more of its competitors embodying new technologies, or changes in
industry standards or customer requirements, could render the Company's
software products and solutions obsolete or unmarketable. The
introduction of new or enhanced versions of its products requires the
Company to manage the transition from older products in order to minimize
disruption in customer ordering. There can be no assurance that the
introduction or announcement of new product offerings by the Company or
one or more of its competitors will not cause customers to defer
licensing of existing Company products or engaging the Company's
services. Any deferral of license or service revenues could have a
material adverse effect on the Company's business, operating results, and
financial condition.
-21-
<PAGE>
PROTECTION OF INTELLECTUAL PROPERTY
The Company's success and ability to compete is dependent in part
upon its proprietary software technology. The Company relies on a
combination of patent, trade secret, copyright and trademark laws,
nondisclosure and other contractual agreements, and technical measures to
protect its proprietary rights. To date, the Company has patents and
patents pending related to its telecom products. The Company expects to
continue to file patent applications where it believes it is appropriate
to protect its proprietary technologies. Despite the Company's efforts to
protect its proprietary rights, unauthorized parties may attempt to copy
aspects of the Company's products or to obtain and use information that
the Company regards as proprietary. There can be no assurance that the
steps taken by the Company to protect its proprietary technology will
prevent misappropriation of such technology, and such protections may not
preclude competitors from developing products with functionality or
features similar to the Company's products. In addition, effective
patent, copyright, trademark, and trade secret protection may be
unavailable or limited in certain foreign countries. The failure of the
Company to protect its proprietary information could have a material
adverse effect on the Company's business, operating results, and
financial condition.
While the Company believes that its products and trademarks and
their use by customers does not infringe upon the proprietary rights of
third parties, there can be no assurance that the Company will not
receive future communications from third parties asserting that the
Company's products or their use by customers infringe, or may infringe,
the proprietary rights of such third parties. The Company expects that
software product developers will be increasingly subject to infringement
claims as the numbers of products and competitors in the Company's
industry segment grows and the functionality of products in different
industry segments overlaps. Any such claims, including meritless claims,
could result in costly, time-consuming litigation, and diversion of
technical and management personnel. In the event any third party were to
make a valid claim and a license were not made available on commercially
reasonable terms, or if the Company were unable to develop non-infringing
alternative technology, the Company's business, operating results, and
financial condition could be materially adversely affected.
In addition, certain of the Company's customers regard the
solutions provided by the Company to be proprietary to such customers and
may attempt to prohibit the Company from using or otherwise benefiting
from certain of the advances made in developing such solutions. Although
the Company intends to increasingly standardize its integration solutions
through the use of object-oriented software products, there can be no
assurance that the prohibition or restrictions imposed by certain
customers of the use of certain intellectual property will not adversely
affect the Company's business, operating results, and financial condition.
-22-
<PAGE>
The Company relies on certain software that it licenses from third
parties, including software that is integrated with internally developed
software and used in the Company's products to perform key functions.
There can be no assurance that these third party software licenses will
continue to be available to the Company on commercially reasonable terms
or that such licenses will not be terminated. Although the Company
believes that alternative software is available from other third-party
suppliers, the loss of or inability to maintain any of these software
licenses or the inability of the third parties to enhance their products
in a timely and cost-effective manner could result in delays or
reductions in product shipments by the Company until equivalent software
could be developed internally or identified, licensed, and integrated,
which would have a material adverse effect on the Company's business,
operating results, and financial condition.
RISKS ASSOCIATED WITH ACQUISITIONS
The Company from time to time evaluates potential acquisitions of
complementary businesses, products, and technologies. To support its
growth plans, the Company may acquire companies that have a significant
installed base of products not yet offered by the Company, have strategic
distribution channels or customer relationships, or otherwise present
opportunities which management believes enhance the Company's competitive
position. Such acquisitions would subject the Company to numerous risks,
including risks associated with the integration into the Company of new
employees and technology. Moreover, the negotiation and acquisition of
such transactions involve the diversion of substantial management
resources and the evaluation of such opportunities requires substantial
diversion of engineering and technological resources. In addition,
transactions involving the issuance by the Company of common stock or
other securities could result in immediate and substantial dilution to
the Company's existing shareholders, large one-time write-offs, or the
creation of goodwill or other intangible assets that could result in
amortization expenses. To date, the Company has not consummated an
acquisition transaction. The failure to successfully evaluate, negotiate,
and effect acquisition transactions could have a material adverse effect
on the Company's business, operating results, and financial condition.
-23-
<PAGE>
POTENTIAL VOLATILITY OF STOCK PRICE
The market price of the shares of the Company's common stock has
been and is likely to continue to be highly volatile and may be
significantly affected by factors such as actual or anticipated
fluctuations in the Company's business, operating results, and financial
condition, announcements of technological innovations, new products, or
new contracts by the Company or its competitors, developments with
respect to proprietary rights, adoption of new accounting standards
affecting the software industry, general market conditions, and other
factors. In addition, the stock market has from time to time experienced
significant price and volume fluctuations that have particularly affected
the market prices for the common stocks of technology companies. These
types of broad market fluctuations may adversely affect the market price
of the Company's common stock. In the past, following periods of
volatility in the market price of a company's securities, securities
class action litigation has often been initiated against such company.
Such litigation could result in substantial costs and a diversion of
management's attention and resources, which could have a material adverse
effect upon the Company's business, operating results, and financial
condition. In this regard, in late 1996, two class action lawsuits on
behalf of certain of the Company's shareholders were filed against the
Company and various of its officers and directors. The suits allege
violations of state securities laws during 1995 and 1996. Management
believes that the lawsuits are without merit and is contesting them.
-24-
<PAGE>
Item 1. Legal Proceedings
On November 4, 1996, a securities class action complaint,
Copperstone et al. v. TCSI Corporation, et al., No. 0775199-2, was filed
in the Superior Court of California, County of Alameda, against the
Company and certain of its directors and current and former officers.
The complaint alleged that, between October 11, 1995, and September 25,
1996, the defendants violated California state law by making false or
misleading statements of material fact about the Company's prospects, and
by failing to follow certain generally accepted accounting principles.
Specifically, the complaint alleged causes of actions for violation of
Sections 25400 and 25500 of the California Corporations Code, Sections
1709-1710 of the California Civil Code, and Section 17200 of the
California Business & Professions Code. The complaint sought an
unspecified amount of damages. Defendants filed a motion to dismiss the
claims; in April 1997 the court dismissed with leave to amend as to the
Corporations Code and Civil Code claims and the Court dismissed the
Business & Professions Code claim with prejudice. Plaintiffs will file
an amended complaint by May 17, 1997. The Company believes there is no
merit to the case and intends to defend the case vigorously.
On November 20, 1996, a putative shareholder derivative complaint,
Tinkler v. Hasler et al. and TCSI Corporation, No. 776206-4, was filed in
the Superior Court of California, County of Alameda, against certain
officers and directors of the Company and, nominally, against the
Company. The derivative complaint is based on the allegations of the
Copperstone action, and alleges that, if the individual defendants
engaged in the wrongdoing alleged in Copperstone, they also violated
their duties to the Company. Specifically, the derivative complaint
alleged causes of action for breach of fiduciary duty, violations of
Sections 25402 and 25502.5 of the California Corporations Code, and
unjust enrichment. The derivative complaint sought an unspecified amount
of damages, a declaration that the individual defendants violated their
duties to the Company, and other remedies purportedly on behalf of the
Company. On March 21, 1997, the Company and the individual defendants
demurred to the derivative complaint. The Company believes there is no
merit to the case and intends to defend the case vigorously.
-25-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Required by Item 601 of Regulation S-K.
Exhibit Number Document Description Page Number
-----------------------------------------------------------------------
-----------------------------------------------------------------------
11.1 Statement re: computation of per share
earnings 28
27 Financial Data Schedule 29
(b) Reports on Form 8-K filed in the first quarter of 1997.
(i) Press release dated March 10, 1997, "TCSI Appoints Lee Lucca as Vice
President of Corporate Affairs; Leading Telecom Software
Solutions Provider Selects Key Executive to Help Manage Migration
Towards Product-Focused Business."
(ii) Press release dated February 18, 1997, "TCSI Announces
SolutionsSuites-TM- - The Industry's First Comprehensive Set of
Field-Proven, Standards-Based, Telecom Management Applications;
First Application in Family is Broadband SolutionSuite - Lowering
Costs and Technology Barriers Associated with Rapidly Introducing
Applications."
(iii) Press release dated February 3, 1997, "Telecom Leaders to Converge
at Global TMN Summit 97; Co-Sponsors TCSI and Vertel Welcome Twelve
Leading Telecom Solutions Providers to Demonstrate Latest TMN
Solutions at the Conference."
(iv) Press release dated January 29, 1997, "TCSI's SolutionCore-TM-
Licensed by Anritsu, One of Japan's Largest Equipment
Manufacturers; Telecom Software Supplier Continues to Broaden its
Pacific Rim Customer Base."
(v) Press release dated January 23, 1997, "TCSI Corporation Reports 1996
Revenues and Earnings."
(vi) Press release dated January 14, 1997, "TCSI Announces
SolutionCore-TM- Raising The Bar For Scalability and
Interoperability in Telecom Network Management Software; New
Software Product From TCSI Is First To Conform To Both CORBA
and TMN Standards."
-26-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto authorized.
TCSI Corporation
----------------------------------------
(Registrant)
May 9, 1997 /s/ Paul A. Farmer
- ------------------------------ ----------------------------------------
Date Paul A. Farmer, Chief Financial Officer,
Secretary, and Treasurer
-27-
<PAGE>
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
COMPUTATION OF SHARES USED IN PER SHARE CALCULATIONS
Quarter Ended March 31,
-------------------------
(In thousands, except per share data) 1997 1996
-------- ----------
Weighted average shares of common stock 21,343 18,981
Common stock equivalents -- 1,367
-------- ---------
Shares used in calculation of earnings (loss)
per share 21,343 20,348
-------- ---------
-------- ---------
Net income (loss) $ (561) $ 2,551
-------- ---------
-------- ---------
Earnings (loss) per share $ (0.03) $ 0.13
-------- ---------
-------- ---------
-28
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENT AS OF MARCH 31, 1997 OF TCSI CORPORATION AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 33,866
<SECURITIES> 17,897
<RECEIVABLES> 9,798
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 60,322
<PP&E> 10,143
<DEPRECIATION> 0
<TOTAL-ASSETS> 81,744
<CURRENT-LIABILITIES> 8,087
<BONDS> 0
0
0
<COMMON> 2,144
<OTHER-SE> 71,513
<TOTAL-LIABILITY-AND-EQUITY> 81,744
<SALES> 0
<TOTAL-REVENUES> 9,834
<CGS> 0
<TOTAL-COSTS> 11,433
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (850)
<INCOME-TAX> (289)
<INCOME-CONTINUING> (561)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (561)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
