<PAGE>

                    U. S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

                                   (MARK ONE)

        /X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000

       / / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

        FOR THE TRANSITION PERIOD FROM ______________ TO _______________

                         COMMISSION FILE NUMBER 0-19499

                                HEALTHSTAR CORP.
        (Exact name of small business issuer as specified in its charter)

                DELAWARE                                   91-1934592
     -------------------------------                   ----------------
     (State or other jurisdiction of                   (I.R.S. employer
      incorporation or organization)                   identification no.)


                        2875 N.E. 191ST STREET, SUITE 601
                             AVENTURA, FLORIDA 33180
                    (Address of principal executive offices)

                                 (305) 933-8779
                           (Issuer's Telephone Number)
         ---------------------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)


Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes / X / No / /

                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the last practicable date: Common Stock, $0.001 par value,
4,345,872 outstanding as of November 13, 2000.


<PAGE>

                        HEALTHSTAR CORP. AND SUBSIDIARIES

              FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 2000


                                TABLE OF CONTENTS

<TABLE>
<S>       <C>                                                            <C>

PART I - FINANCIAL INFORMATION

  Item 1. Financial Statements

          Consolidated Balance Sheet as of September 30, 2000..........   1

          Consolidated Statements of Operations and Retained
            Earnings (Deficit) For the Three and Six Months Ended
            September 30, 2000 and 1999................................   2

          Consolidated Statements of Cash Flows For the Six
              Months Ended September 30, 2000 and 1999.................   3

          Notes to Unaudited Consolidated Financial Statements.........   4

  Item 2. Management's Discussion and Analysis of Financial
                Condition and Results of Operations....................  11


PART II - OTHER INFORMATION

  Item 1. Legal Proceedings............................................  17

  Item 2. Changes in Securities and Use of Proceeds....................  17

  Item 3. Defaults Upon Senior Securities..............................  17

  Item 4. Submission of Matters to a Vote of Security Holders..........  17

  Item 5. Other Information............................................  17

  Item 6. Exhibits and Reports on Form 8-K.............................  17

</TABLE>


<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

                        HEALTHSTAR CORP. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                               September 30, 2000
                                   (Unaudited)
                                  ------------

<TABLE>
<S>                                                                 <C>

ASSETS
    Current assets:
       Cash and cash equivalents ..............................     $ 6,557,044
       Other current assets ...................................          28,165
                                                                    -----------

              Total current assets ............................       6,585,209

    Property and equipment, net ...............................           2,312
    Other assets ..............................................          10,000
                                                                    -----------
              Total assets ....................................     $ 6,597,521
                                                                    ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
    Current liabilities:
       Accounts payable .......................................     $   168,991
       Accrued expenses .......................................         167,866
                                                                    -----------

              Total current liabilities .......................         336,857

SHAREHOLDERS' EQUITY
    Common stock, $.001 par value 15,000,000 shares
       authorized, 4,345,872 shares issued and outstanding ....           4,346
    Additional paid -in- capital ..............................       9,196,428
    Retained earnings (deficit) ...............................      (2,940,110)
                                                                    -----------

              Total shareholders' equity ......................       6,260,664
                                                                    -----------
              Total liabilities and shareholders' equity ......     $ 6,597,521
                                                                    ===========

</TABLE>

     See accompanying notes to unaudited consolidated financial statements.


                                      -1-
<PAGE>

                        HEALTHSTAR CORP. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF OPERATIONS AND
                           RETAINED EARNINGS (DEFICIT)
         For the Three and Six Months Ended September 30, 2000 and 1999
                                   (Unaudited)
                                  ------------

<TABLE>
<CAPTION>

                                                               Three Months Ended                Six Months Ended
                                                                   September 30,                   September 30,
                                                              2000            1999            2000             1999
                                                           -----------     -----------     -----------     -----------
<S>                                                        <C>             <C>             <C>             <C>

REVENUE
  Capitated fees ......................................    $         0     $ 2,071,804     $   667,773     $ 4,166,790
  Repricing fees ......................................              0       1,473,003         248,579       3,059,822
  Other fees ..........................................              0          38,970          27,298         124,075
                                                           -----------     -----------     -----------     -----------
    Total revenue .....................................              0       3,583,777         943,650       7,350,687
                                                           -----------     -----------     -----------     -----------

OPERATING EXPENSES
  Cost of services ....................................              0         463,009          74,813         996,636
  Salaries and wages ..................................         39,469       1,819,389         935,846       3,776,948
  General and administrative ..........................        282,747         943,254         838,667       2,021,552
  Depreciation and amortization .......................            128         322,708          57,003         640,866
                                                           -----------     -----------     -----------     -----------
    Total operating expenses ..........................        322,344       3,548,360       1,906,329       7,436,002
                                                           -----------     -----------     -----------     -----------

Income (loss) from operations .........................       (322,344)         35,417        (962,679)        (85,315)

Non-operating income (expense)
  Interest income .....................................         93,911               0         148,968               0
  Interest expense ....................................              0         (79,791)        (10,305)       (141,290)
  Asset impairment charge .............................              0        (500,000)              0        (500,000)
  Net gain (loss) on dispositions of assets ...........              0               0         (93,105)        114,538
  Gain on settlement of litigation ....................         81,714               0          81,714               0
  Other, net ..........................................              0          14,833               0          54,948
                                                           -----------     -----------     -----------     -----------
Income (loss) before income taxes and
  extraordinary item ..................................       (146,719)       (529,541)       (835,407)       (557,119)

Income tax expense (benefit) ..........................              0         (10,405)              0         (19,684)
                                                           -----------     -----------     -----------     -----------
    (Loss) before extraordinary item ..................       (146,719)       (519,136)       (835,407)       (537,435)

Extraordinary gain on extinguishment of debt
  (net of income taxes - $0) ..........................        200,000               0         200,000               0
                                                           -----------     -----------     -----------     -----------
    Net income (loss) .................................         53,281        (519,136)       (635,407)       (537,435)

Retained earnings (deficit) at beginning of period ....     (2,993,391)        198,404      (2,304,703)        216,703
                                                           -----------     -----------     -----------     -----------
Retained earnings (deficit) at end of period ..........    $(2,940,110)    $  (320,732)    $(2,940,110)    $  (320,732)
                                                           ===========     ===========     ===========     ===========
Earnings (loss) per share - Basic and Diluted:
  (Loss) before extraordinary item ....................    $     (0.04)    $     (0.13)    $     (0.20)    $     (0.14)
  Extraordinary item ..................................           0.05            0.00            0.05            0.00
                                                           -----------     -----------     -----------     -----------
    Net income (loss) .................................    $      0.01     $     (0.13)    $     (0.15)    $     (0.14)
                                                           ===========     ===========     ===========     ===========
Weighted average shares outstanding -
  Basic and Diluted ...................................      4,345,872       3,850,713       4,345,872       3,835,402
                                                           ===========     ===========     ===========     ===========

</TABLE>

     See accompanying notes to unaudited consolidated financial statements.


                                      -2-
<PAGE>

                        HEALTHSTAR CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              For the Six Months Ended September 30, 2000 and 1999
                                   (Unaudited)

                                  ------------

<TABLE>
<CAPTION>

                                                                              Six Months Ended
                                                                                September 30,
                                                                             2000          1999
                                                                          -----------     ---------
<S>                                                                       <C>             <C>

OPERATING ACTIVITIES
    Net (loss) .......................................................    $  (635,407)    $(537,435)
    Adjustments to reconcile net (loss) to net cash
     (used in) operating activities:
       Depreciation and amortization .................................         57,003       640,866
       Asset impairment charge .......................................              0       500,000
       Bad debt expense ..............................................              0       197,654
       Stock-based compensation ......................................              0        27,500
       (Gain) loss on dispositions of assets .........................         93,105      (114,538)
       Extraordinary gain on extinguishment of debt ..................       (200,000)            0
       Gain on settlement of litigation ..............................        (81,714)            0
    Increase (decrease) in cash resulting from changes
     in operating assets and liabilities:
       Trade accounts receivable .....................................        133,281        26,435
       Other current assets ..........................................          1,324       (40,840)
       Accounts payable ..............................................        460,538      (248,185)
       Accrued expenses ..............................................       (482,808)     (872,181)
                                                                          -----------     ---------
              Net cash (used in) operating activities ................       (654,678)     (420,724)
                                                                          -----------     ---------
INVESTING ACTIVITIES
    Net proceeds from dispositions of assets .........................      8,201,861       125,000
    Proceeds from settlement of litigation ...........................         19,827             0
    Purchases of equipment ...........................................              0       (36,936)
                                                                          -----------     ---------
              Net cash provided by (used in) investing activities ....      8,221,688        88,064
                                                                          -----------     ---------
FINANCING ACTIVITIES
    Decrease (increase) in other assets ..............................         10,000       (37,144)
    Net proceeds from line of credit .................................              0       400,000
    Payments on long-term debt .......................................     (1,325,000)     (150,000)
    Proceeds from the issuance of stock options ......................              0       162,875
                                                                          -----------     ---------
              Net cash (used in) provided by financing activities ....     (1,315,000)      375,731
                                                                          -----------     ---------

Net increase in cash and cash equivalents ............................      6,252,010        43,071

Cash and cash equivalents at beginning of year .......................        305,034        71,936
                                                                          -----------     ---------
Cash and cash equivalents at end of period ...........................    $ 6,557,044     $ 115,007
                                                                          ===========     =========
Supplemental data:
    Non-cash transactions:
       Cancellation of subordinated promissory note payable
        due to the previous owner of HealthStar, Inc., and
        related accrued interest and other liabilities as
        a result of settlement of litigation .........................    $   261,887     $       0
                                                                          ===========     =========

</TABLE>

     See accompanying notes to unaudited consolidated financial statements.


                                      -3-
<PAGE>

                        HEALTHSTAR CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                                  ------------

Note 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

           A.     Description of the Business

                  Prior to April 28, 2000, HealthStar Corp. (the "Company") was
                  a healthcare management company dedicated to controlling the
                  cost, improving the quality and enhancing the delivery of
                  healthcare services. The Company provided related products and
                  services designed to reduce healthcare costs. The Company
                  marketed and provided programs and services to insurance
                  companies, self-insured businesses for their medical plans,
                  and third parties that administer employee medical plans.
                  These programs and services assisted clients in reducing
                  healthcare costs for group health plans and for workers'
                  compensation coverage and automobile accident injury claims.
                  The Company operated its business in one segment through its
                  two wholly-owned subsidiaries, HealthStar, Inc. ("HealthStar")
                  and National Health Benefits & Casualty Corporation ("NHBC").
                  The Company is a registrant with the Securities and Exchange
                  Commission and its shares are publicly traded on the
                  Over-The-Counter Bulletin Board.

                  On December 30, 1999, the Company sold all of the assets of
                  NHBC to Carlmont Capital Group, Inc. and received as
                  consideration $1,500,000 in cash at closing and an earn-out
                  agreement that may provide up to an additional $300,000 in
                  cash, based on cash flows of NHBC, over the 18 months
                  following the closing of the transaction.

                  On April 28, 2000, the Company sold all of the capital stock
                  of HealthStar to Beyond Benefits, Inc. and received
                  consideration of $8,880,000 in cash at closing. The capital
                  stock of HealthStar constituted substantially all of the
                  assets of the Company. As a result of this sale, the Company
                  no longer operates in the managed healthcare industry and
                  currently does not have any ongoing revenue generating
                  operations. See Note 2, "Gains and Losses on Dispositions of
                  Assets," for further details of the sale of HealthStar and its
                  impact on future operations.


                                      -4-
<PAGE>

                        HEALTHSTAR CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                                  ------------

Note 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

           B.     Basis of Presentation

                  The accompanying unaudited consolidated financial statements
                  of HealthStar Corp. and Subsidiaries have been prepared in
                  accordance with generally accepted accounting principles for
                  interim financial information and pursuant to rules and
                  regulations of the Securities and Exchange Commission.
                  Accordingly, they do not include all of the information and
                  notes required by generally accepted accounting principles for
                  a complete financial statement presentation. In the opinion of
                  management, such unaudited interim financial information
                  reflects all adjustments, consisting only of normal recurring
                  adjustments, necessary to present the Company's financial
                  position and results of operations for the periods presented.
                  The results of operations for interim periods are not
                  necessarily indicative of the results to be expected for a
                  full fiscal year. It is suggested that these consolidated
                  financial statements be read in conjunction with the Company's
                  audited consolidated financial statements included in the
                  Company's Annual Report on Form 10-KSB for the year ended
                  March 31, 2000.

           C.     Use of Estimates

                  Management of the Company has made a number of estimates and
                  assumptions relating to the reporting of assets and
                  liabilities and the disclosure of contingent assets and
                  liabilities to prepare these financial statements in
                  conformity with generally accepted accounting principles.

           D.     Principles of Consolidation

                  The consolidated financial statements include the financial
                  statements of the Company and its two wholly-owned
                  subsidiaries. All significant intercompany balances and
                  transactions have been eliminated in consolidation.

           E.     Cash Equivalents

                  The Company considers all highly liquid instruments with
                  original maturities of three months or less to be cash
                  equivalents.

           F.     Earnings (Loss) per Share

                  In accordance with Statement of Financial Accounting Standards
                  No. 128, "Earnings per Share," basic earnings (loss) per share
                  is computed by dividing net income (loss) by the weighted
                  average number of shares of common stock outstanding.


                                      -5-
<PAGE>

                        HEALTHSTAR CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                                  ------------

Note 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

           F.     Earnings (Loss) per Share (Continued)

                  Diluted earnings (loss) per share reflects the maximum
                  dilution that would result after giving effect to dilutive
                  stock options and warrants and to the assumed conversion of
                  all dilutive convertible securities and stock. Outstanding
                  options to purchase common shares were not included in the
                  computation of diluted earnings (loss) per share because they
                  were considered anti-dilutive.

           G.     Fair Value of Financial Instruments

                  The fair value of a financial instrument is the amount at
                  which the instrument could be exchanged in a current
                  transaction between willing parties. Management believes that
                  the recorded amounts of current assets and current liabilities
                  approximate fair value because of the short maturity of these
                  instruments.

           H.     Revenue Recognition

                  The Company provided its customers with access to a network of
                  healthcare providers which included physicians, acute care
                  hospitals and ancillary providers such as outpatient surgery
                  centers and home healthcare agencies. These providers
                  contractually agreed with the Company to provide healthcare
                  services to the Company's customers at a discount from billed
                  charges. The Company generated revenue from its customer base
                  by charging network access fees. The Company entered into
                  contracts with its customers and charged network access fees
                  using either of two methods. Customers could choose to pay a
                  capitated fee, which is a fixed, monthly fee per eligible
                  subscriber. Initial enrollment figures were based on estimates
                  provided by the customer. Actual enrollment figures were
                  subsequently provided by the customer and updated periodically
                  at intervals ranging from monthly to semi-annually. Capitated
                  revenue was recognized on a monthly basis when customers were
                  billed using the most current enrollment figures available.
                  Adjustments were made when new enrollment figures were
                  submitted by the customer. The other method under which
                  customers could have elected to pay the Company for network
                  access was called a repricing fee. Under this method, the
                  Company received a percentage of the dollar amount of the
                  discount granted by the healthcare provider for services
                  rendered to an enrolled subscriber. The Company's percentage
                  of the dollar amount of the discount was determined by
                  contract and varied from customer to customer. Repricing fees
                  were recognized as revenue when the Company processed the
                  medical claim, calculated the discount and notified the
                  customer of the amount due.


                                      -6-
<PAGE>

                        HEALTHSTAR CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                                  ------------

Note 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

           I.     Cost of Services

                  The major components of cost of services consists of
                  utilization review, case management, external marketing
                  commissions, and costs associated with electronic transmission
                  of customers' healthcare claims.

           J.     Property and Equipment

                  Property and equipment are stated at cost, net of accumulated
                  depreciation. Depreciation is calculated using the
                  straight-line method over the estimated useful lives of the
                  assets, which approximates three years for equipment to seven
                  years for furniture and fixtures. Computer software is
                  amortized over three to five years.

           K.     Goodwill

                  Goodwill, which represents the excess of purchase price over
                  the fair value of net tangible assets acquired, was amortized
                  on a straight-line basis over the expected period to be
                  benefited of 20 years.

           L.     Income Taxes

                  The Company accounts for income taxes under the asset and
                  liability method. Deferred tax assets and liabilities are
                  recognized for the future tax consequences attributable to
                  differences between the financial statement carrying amounts
                  of existing assets and liabilities and their respective tax
                  bases and operating loss and tax credit carryforwards.
                  Deferred tax assets and liabilities are measured using enacted
                  tax rates expected to apply to taxable income in the years in
                  which those temporary differences are expected to be recovered
                  or settled. The effect on deferred tax assets and liabilities
                  of a change in tax rates is recognized in income in the period
                  that includes the enactment date.

                  A valuation allowance must be established to reduce deferred
                  income tax benefits if it is more likely than not that a
                  portion of the deferred income tax benefits will not be
                  realized. It is management's opinion that the entire deferred
                  tax benefit may not be recognized in future years. Therefore,
                  a valuation allowance equal to the deferred tax benefit has
                  been established for the portion of the net operating loss
                  carryforward and other deferred tax assets which may not be
                  recognized in future years.


                                      -7-
<PAGE>

                        HEALTHSTAR CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                                  ------------

Note 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

           M.     Impairment of Long-Lived Assets

                  Management reviews the possible impairment of long-lived
                  assets and certain identifiable intangible assets whenever
                  events or changes in circumstances indicate that the carrying
                  amount of an asset may not be recoverable. Recoverability of
                  assets to be held and used is measured by a comparison of the
                  carrying amount of an asset to future net undiscounted cash
                  flows expected to be generated by the asset. If such assets
                  are considered to be impaired, the impairment to be recognized
                  is measured by the amount by which the carrying amount of the
                  assets exceed the fair value of the assets measured using
                  quoted market prices when available or the present value of
                  estimated expected future cash flows using a discount rate
                  commensurate with the risks involved. In measuring impairment,
                  assets are grouped at the lowest level for which there are
                  identifiable cash flows that are largely independent of the
                  cash flows of other groups of assets.

           N.     Stock Based Compensation

                  The Company applies Statement of Financial Accounting
                  Standards No. 123, "Accounting for Stock-Based Compensation"
                  (SFAS No. 123), which permits entities to recognize as expense
                  over the vesting period the fair value of all stock-based
                  awards on the date of grant. Alternatively, SFAS No. 123 also
                  allows entities to continue to apply the provisions of APB
                  Opinion No. 25 and provide pro forma net earnings and pro
                  forma earnings per share disclosures for employee stock option
                  grants made in 1995 and future years as if the
                  fair-value-based method defined in SFAS No. 123 had been
                  applied. The Company has elected to continue to apply the
                  provisions of APB Opinion No. 25 and provide the pro forma
                  disclosure required by SFAS No. 123. In accordance with APB
                  Opinion No. 25, compensation expense is recorded on the date
                  an option is granted only if the current market price of the
                  underlying stock exceeds the exercise price.

           O.     Comprehensive Income

                  Statement of Financial Accounting Standards No. 130,
                  "Reporting Comprehensive Income" (SFAS No. 130), established
                  standards for reporting and displaying comprehensive income
                  and its components in a full set of general-purpose financial
                  statements. Comprehensive income (loss) was the same as net
                  income (loss) for all periods presented.


                                      -8-
<PAGE>

                        HEALTHSTAR CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                                  ------------

Note 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

           P.     Segment Reporting

                  Until April 28, 2000, the Company had one operating business
                  segment, healthcare cost containment, which involved the
                  marketing and provision of programs and services to insurance
                  companies, self-insurance businesses for their medical plans
                  and third parties who administer employee medical plans.

Note 2.    GAINS AND LOSSES ON DISPOSITIONS OF ASSETS

           On April 28, 2000, the Company completed the sale of the stock of its
           wholly owned subsidiary, HealthStar, Inc. to Beyond Benefits, Inc.
           The Company received $8,880,000 in cash at closing and used
           $1,325,000 to repay the outstanding principal balance of the Harris
           Bank term loan. This sale, which constituted the sale of
           substantially all the assets of the Company, was approved by the
           shareholders of the Company on April 25, 2000. The sale resulted in a
           pre-tax loss of $93,105 primarily as a result of additional
           transaction costs incurred during April 2000. HealthStar, Inc.
           incurred a pre-tax loss from operations of $173,748 during April
           2000. Following this sale, the Company no longer operates in the
           managed healthcare industry and currently does not have any ongoing
           revenue generating operations. The Company intends to utilize the
           remaining net proceeds from the sale to acquire an Internet business
           or other business or businesses.

           On June 7, 1999, the Company sold its First American Vision Services
           program for cash consideration of $125,000 to an immediate family
           member of a former officer of the Company, which resulted in a
           pre-tax gain of $114,538. The vision program accounted for
           approximately $14,000 in revenue during the six month period ended
           September 30, 1999.

Note 3.    GAIN ON SETTLEMENT OF LITIGATION AND EXTRAORDINARY GAIN ON
           EXTINGUISHMENT OF DEBT

           The Company was involved in litigation asserted by the previous owner
           (the "plaintiff") of HealthStar. In this litigation, the plaintiff
           filed a complaint for breach of contract on December 4, 1998 seeking
           damages. On September 15, 2000, the plaintiff agreed to settle the
           lawsuit under certain terms, including waiving his right to collect
           principal and interest under the subordinated promissory note that
           the Company issued to him in connection with the acquisition of
           HealthStar. In return, the Company authorized the release to the
           plaintiff of certain moneys and interest held in escrow under the
           terms of a stock purchase agreement entered into in connection with
           the acquisition of HealthStar. The settlement resulted in an
           extraordinary gain, net of related income tax effects, of $200,000
           resulting from the cancellation of the subordinated promissory note.
           Additionally, a pre-tax non-operating gain of $81,714 was recognized
           as a result of the waiver of accrued interest on the subordinated
           note as well as reimbursement of certain professional fees from the
           plaintiff.


                                      -9-
<PAGE>

                        HEALTHSTAR CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                                  ------------

Note 4.    ASSET IMPAIRMENT CHARGE

           The acquisition of HealthStar in fiscal 1998 resulted in allocating a
           substantial portion of the purchase price to goodwill. Pursuant to
           SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and
           for Long Lived Assets to be Disposed Of", management evaluated the
           recoverability of the long-lived assets, including goodwill. While
           management originally believed that revenues and profits could grow
           after HealthStar's operations were fully integrated into the Company,
           management also explored strategic mergers and acquisitions that
           would complement HealthStar's operations. In May 1999, management
           received an offer to sell HealthStar to Beyond Benefits, Inc. a
           privately held managed healthcare company. The original offer was for
           $15,500,000 in cash. However, in subsequent negotiations, that offer
           was reduced to $10,000,000 in cash, 5% of the common equity of Beyond
           Benefits, Inc. and an earn out provision for up to an additional
           $1,250,000. The offer was accepted and approved by the Board of
           Directors on August 19, 1999, subject to shareholder approval.

           Accordingly, at September 30, 1999, the Company adjusted the carrying
           value of HealthStar's goodwill to an estimated fair value of
           approximately $7,932,635 resulting in a non-cash impairment loss of
           approximately $500,000 ($0.13 loss per basic and diluted share). The
           fair value was estimated based on a sales price of $11,000,000 less
           direct and incremental costs to dispose of approximately $300,000.

           Subsequent to September 30, 1999, the offer was reduced in final form
           to $8,880,000 in cash. The offer was accepted and approved by the
           Board of Directors and was approved by the shareholders on April 25,
           2000.


                                      -10-
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
          OF OPERATIONS

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION:

           This document includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements other
than statements of historical fact included in this document, including, without
limitation, the statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Liquidity and Capital
Resources" regarding the Company's strategies, plans, objectives, expectations,
and future operating results are forward-looking statements. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable at this time, it can give no assurance that such
expectations will prove to have been correct. Actual results could differ
materially based upon a number of factors including, but not limited to, history
of losses, leverage and debt service, competition, no dividends, limited public
market and liquidity, shares eligible for future sale, delays in or failure to
identify and consummate a suitable acquisition, realization of the earn-out
provision related to cash flows of NHBC for the 18 months following the December
1999 sale of NHBC's assets to Carlmont Capital Group, Inc. and other risks
detailed from time to time in the Company's Securities and Exchange Commission
filings.

           Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the unaudited financial
statements and notes for the six months ended September 30, 2000 contained
herein and the audited financial statements and notes for the year ended March
31, 2000 contained in the Company's Form 10-KSB filed with the Securities and
Exchange Commission on June 29, 2000.

RECENT DEVELOPMENTS

           On April 28, 2000, the Company sold all of the issued and outstanding
stock of its wholly owned subsidiary HealthStar, Inc. ("HSI") to Beyond
Benefits, Inc., a Long Beach, California based managed healthcare company. The
sale was made pursuant to a Stock Purchase Agreement dated September 23, 1999,
as amended, by and among the Company, HealthStar, Inc., and Beyond Benefits,
Inc. The Company received $8,880,000 in cash at closing, of which, $1,325,000
was used to repay the entire amount outstanding under the Company's Term Loan
and Credit Facility with Harris Trust and Savings Bank ("Harris Bank"). As a
result of the completion of this transaction, the Company is no longer engaged
in the managed healthcare business and currently has no revenue generating
operations. The Company intends to utilize the remaining proceeds from this sale
to acquire an internet-related business or businesses or other business or
businesses.

           On December 30, 1999, the Company sold the assets of its wholly owned
subsidiary National Health Benefits & Casualty Corporation ("NHBC") to Carlmont
Capital Group, Inc. ("Carlmont"), a privately held company based in Chula Vista,
California. This sale was made pursuant to the terms of an Asset Purchase
Agreement dated December 28, 1999, by and among the Company, NHBC and Carlmont.
The Company received $1,500,000 in cash at closing and an earnout agreement that
may provide up to an additional $300,000 in cash, based on the actual cash flows
of NHBC during the 18 month period after closing.


                                      -11-
<PAGE>

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999

           As a result of the completion of the sale of HSI to Beyond Benefits
on April 28, 2000 and the completion of the sale of the assets of NHBC to
Carlmont on December 30, 1999, the Company is no longer engaged in the managed
healthcare business and had no revenue generating operations for the three
months ended September 30, 2000. The Company's only source of cash is interest
income generated from the investment of the remaining proceeds from the sale of
HSI in a money market account. It should be noted that the operating results for
the three months ended September 30, 1999 include the operating results for both
HSI and NHBC for the entire period.

REVENUE

           Prior to the sale of its two wholly owned subsidiaries, HSI and NHBC,
the Company derived the majority of its revenue from fees paid by its customers
for access to the Company's PPO network of contracted healthcare providers. The
Company had no revenue from operations for the three months ended September 30,
2000. Total revenue for the three months ended September 30, 1999 was
$3,583,777.

OPERATING EXPENSES

           Prior to the sales of HSI and NHBC, cost of services included the
cost of outsourcing the medical case management and utilization review
functions, commissions paid to outside brokers, fees paid to other PPO networks
for access to healthcare providers which were not directly contracted with the
Company, the cost of electronic claims processing and the cost of printing
provider directories. There was no cost of services in the current quarter as a
result of the sales of HSI and NHBC. Cost of services for the three months ended
September 30, 1999 was $463,009.

           Salaries and wages includes all employee compensation, payroll taxes,
health insurance and other employee benefits. Salaries and wages were $39,469
for the three months ended September 30, 2000 compared to $1,819,389 in the
comparable period last year. The Company currently has two full-time employees,
its President/Chief Executive Officer and its Vice President/Chief Financial
Officer.

           General and administrative expenses include all other operating
expenses, such as telecommunications, office supplies, postage, travel and
entertainment, professional fees, bad debt expense, insurance, rent and
utilities. General and administrative expenses were $282,747 for the three
months ended September 30, 2000 versus $943,254 for the comparable period last
year. In the current quarter, approximately $200,000 or 70% of the total general
and administrative expenses were related to legal, accounting and consulting
costs incurred in connection with the Company's investigation of possible
acquisition candidates.

           Depreciation and amortization was $128 for the three months ended
September 30, 2000 versus $322,708 for the three months ended September 30,
1999. The overall decrease in depreciation and amortization expense was
primarily due to a decrease in fixed assets and goodwill as a result of the
sales of HSI and NHBC.


                                      -12-
<PAGE>

NON-OPERATING INCOME (EXPENSE)

           Interest income for the three months ended September 30, 2000 was
$93,911. Interest income was generated from the investment of the net proceeds
from the sale of HSI into a money market account that currently yields
approximately 5.5%. The Company did not have any interest income in the
comparable period last year.

           There was no interest expense in the current quarter as a result of
the payoff of the remaining $1,325,000 owed to Harris Bank from the proceeds of
the sale of HSI on April 28, 2000. Interest expense for the three months ended
September 30, 1999 was $79,791.

           The Company was involved in litigation asserted by the previous owner
(the "plaintiff") of HSI. In this litigation, the plaintiff filed a complaint
for breach of contract on December 4, 1998 seeking damages. During the current
quarter, the plaintiff agreed to settle the lawsuit under certain terms,
including waiving his right to collect principal and interest under the
subordinated promissory note that the Company issued to him in connection with
the acquisition of HSI. In return, the Company authorized the release to the
plaintiff of certain moneys and interest held in escrow under the terms of a
stock purchase agreement entered into in connection with the acquisition of HSI.
The settlement resulted in an extraordinary gain, net of related income tax
effects, of $200,000 resulting from the cancellation of the subordinated
promissory note. Additionally, a pre-tax non-operating gain of $81,714 was
recognized as a result of the waiver of accrued interest on the subordinated
note as well as reimbursement of certain professional fees from the plaintiff.

INCOME TAX EXPENSE

           The Company recorded no income tax expense in the current quarter due
to the level of year-to-date losses incurred. A tax benefit of $10,405 was
recorded in the comparable period last year.

NET LOSS

           The Company had net income of $53,281 for the three months ended
September 30, 2000 compared to a net loss of $519,136 for the three months ended
September 30, 1999. Without the effect of the extraordinary gain and the
non-operating gain related to the cancellation of the subordinated promissory
note and related accrued interest and the reimbursement of certain professional
fees, the Company would have reported a net loss of $228,433, principally as a
result of the costs incurred during the current quarter to investigate possible
acquisition candidates.

SIX MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1999

           As a result of the completion of the sale of HSI to Beyond Benefits
on April 28, 2000 and the completion of the sale of the assets of NHBC to
Carlmont on December 30, 1999, the Company is no longer engaged in the managed
healthcare business and has no revenue generating operations. It should be noted
that the operating results for the six months ended September 30, 2000 only
include the operating results of HSI for the first 28 days of the month of April
2000, and do not include any operating results for NHBC. Conversely, the
Company's operating results for the six months ended September 30, 1999 include
the operating results for both HSI and NHBC for the entire period.


                                      -13-
<PAGE>

REVENUE

           Prior to the sale of its two wholly owned subsidiaries, HSI and NHBC,
the Company derived the majority of its revenue from fees paid by its customers
for access to the Company's PPO network of contracted healthcare providers.
Total revenue for the six months ended September 30, 2000 was $943,650 versus
$7,350,687 for the six months ended September 30, 1999. Total revenue in the
current year period is equal to the total revenue for HSI for the 28-day period
in April 2000, prior to the Company's sale of HSI, which was consummated on
April 28, 2000.

OPERATING EXPENSES

           Prior to the sales of HSI and NHBC, cost of services included the
cost of outsourcing the medical case management and utilization review
functions, commissions paid to outside brokers, fees paid to other PPO networks
for access to healthcare providers which are not directly contracted with the
Company, the cost of electronic claims processing and the cost of printing
provider directories. For the six months ended September 30, 2000, cost of
services was $74,813 versus $996,636 for the comparable period last year. Cost
of services in the current six month period is equal to the cost of services for
HSI for the 28-day period in April 2000.

           Salaries and wages includes all employee compensation, payroll taxes,
health insurance, other employee benefits, and temporary labor. Prior to the
sales of HSI and NHBC, this category also included commissions paid to in-house
sales and marketing personnel. Salaries and wages were $935,846 for the six
months ended September 30, 2000 compared to $3,776,948 in the comparable period
last year. In the current six month period, salaries and wages were $688,345 at
HSI for the 28-day period. The remaining salaries and wages expense for the six
months ended September 30, 2000 of $247,501 is related to the compensation of
the Company's two executive officers. Of this amount, $150,000 represents a
bonus for the Company's Vice President and Chief Financial Officer, which was
earned in connection with the closing of the sale of HSI.

           General and administrative expenses include all other operating
expenses, such as telecommunications, office supplies, postage, travel and
entertainment, professional fees, bad debt expense, insurance, rent and
utilities. General and administrative expenses were $838,667 for the six months
ended September 30, 2000 versus $2,021,552 for the comparable period last year.
In the current six month period, general and administrative expenses were
$298,604 for HSI for the 28-day period. The remaining general and administrative
expenses of $540,063 are primarily related to professional fees, including legal
and accounting fees, consulting fees related to the Company's investigation of
possible acquisition candidates and other general overhead items such as travel
and insurance.

           Depreciation and amortization was $57,003 for the six months ended
September 30, 2000 versus $640,866 for the six months ended September 30, 1999.
The overall decrease in depreciation and amortization expense was primarily due
to a decrease in fixed assets and goodwill as a result of the sales of HSI and
NHBC.

NON-OPERATING INCOME (EXPENSE)

           Interest income for the six months ended September 30, 2000 was
$148,968. Interest income was generated from the investment of the net proceeds
from the sale of HSI into a money market account that currently yields
approximately 5.5%. The Company did not have any interest income in the
comparable period last year.


                                      -14-
<PAGE>

NON-OPERATING INCOME (EXPENSE) (CONTINUED)

           Interest expense for the six months ended September 30, 2000 was
$10,305 versus $141,290 for the six months ended September 30, 1999. The overall
decrease was a result of the payoff of the remaining $1,325,000 owed to Harris
Bank from the proceeds of the sale of HSI on April 28, 2000.

           The acquisition of HSI in fiscal 1998 resulted in allocating a
substantial portion of the purchase price to goodwill. Pursuant to SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long Lived Assets to
be Disposed Of", management evaluated the recoverability of the long-lived
assets, including goodwill. While management originally believed that revenues
and profits could grow after HSI's operations were fully integrated into the
Company, management also explored strategic mergers and acquisitions that would
complement HSI's operations. In May 1999, management received an offer to sell
HSI to Beyond Benefits, Inc. a privately held managed healthcare company. The
original offer was for $15,500,000 in cash. However, in subsequent negotiations,
that offer was reduced to $10,000,000 in cash, 5% of the common equity of Beyond
Benefits, Inc. and an earn out provision for up to an additional $1,250,000. The
offer was accepted and approved by the Board of Directors on August 19, 1999,
subject to shareholder approval.

           Accordingly, at September 30, 1999, the Company adjusted the carrying
value of HSI's goodwill to an estimated fair value of approximately $7,932,635
resulting in a non-cash impairment loss of approximately $500,000 ($0.13 loss
per basic and diluted share). The fair value at September 30, 1999 was estimated
based on a sales price of $11,000,000 less direct and incremental costs to
dispose of approximately $300,000.

           Subsequent to September 30, 1999, the offer was reduced in final form
to $8,880,000 in cash. The offer was accepted and approved by the Board of
Directors and was approved by the shareholders on April 25, 2000.

           The Company recorded a pretax loss of $93,105 on the sale of HSI
during the current six month period. The Company also recorded a pre-tax gain of
$114,538 on the sale of its vision program during the six months ended September
30, 1999.

           The Company was involved in litigation asserted by the previous owner
(the "plaintiff") of HSI. In this litigation, the plaintiff filed a complaint
for breach of contract on December 4, 1998 seeking damages. On September 15,
2000, the plaintiff agreed to settle the lawsuit under certain terms, including
waiving his right to collect principal and interest under the subordinated
promissory note that the Company issued to him in connection with the
acquisition of HSI. In return, the Company authorized the release to the
plaintiff of certain moneys and interest held in escrow under the terms of a
stock purchase agreement entered into in connection with the acquisition of HSI.
The settlement resulted in an extraordinary gain, net of related income tax
effects, of $200,000 resulting from the cancellation of the subordinated
promissory note. Additionally, a pre-tax non-operating gain of $81,714 was
recognized as a result of the waiver of accrued interest on the subordinated
note as well as reimbursement of certain professional fees from the plaintiff.

INCOME TAX EXPENSE

           The Company recorded no income tax expense in the current six month
period due to the level of operating losses incurred. A tax benefit of $19,684
was recorded in the comparable period last year.


                                      -15-
<PAGE>

NET LOSS

           The Company incurred a net loss of $635,407 for the six months ended
September 30, 2000 compared to a net loss of $537,435 for the six months ended
September 30, 1999. Components of the net loss in the current year period are
net interest income of $138,663, a net loss from the operations of HSI of
$173,747, the loss on the sale of HSI of $93,105, corporate overhead expenses of
$788,932, and the extraordinary gain and non-operating gain totaling $281,714
resulting from the cancellation of the subordinated promissory note and related
accrued interest and the reimbursement of certain professional fees.

LIQUIDITY AND CAPITAL RESOURCES

           On April 28, 2000, in connection with the sale of HSI to Beyond
Benefits, the Company received $8,880,000 in cash at the closing of the sale.
The Company incurred $595,491 in transaction costs related to the sale. The
Company used $1,325,000 of the cash proceeds to repay the entire principal
balance on its term loan owed to Harris Bank. The remaining proceeds were
invested in a money market account which currently yields approximately 5.5%.

           At September 30, 2000, the Company had cash and cash equivalents of
$6,557,044 and total liabilities of $336,857, which equates to net working
capital of $6,220,187. Included in total liabilities is a $150,000 bonus payable
to the Company's Chief Financial Officer, which was earned in connection with
the completion of the sale of HSI. The remaining liabilities include costs
related to general corporate overhead items.

           As of April 28, 2000, the Company no longer has any revenue
generating operations. The Company's only source of cash is interest income
generated from the investment of the remaining proceeds from the sale of HSI in
a money market account. The Company will continue to invest substantially all of
its cash in a money market account until such time that it is needed in
connection with the Company's plan to acquire a business or businesses. There
can be no assurance that the Company will be able to consummate an acquisition
of a business or businesses in accordance with the Company's current business
plan or in a timely manner.

           The Company's principal use of cash will be the payment of general
corporate overhead items including the payment of salaries to its two employees,
both of whom are executive officers of the Company. The Company will also use
cash to execute its plan to acquire a business or businesses. These costs may
include the compensation of consultants, attorneys and other professionals whose
services are required in connection with effecting an acquisition.

           To the extent the Company continues to hold its cash in a money
market account, the net effect of reductions in interest rates, the advent of
inflation, an increase in corporate overhead and the passage of time--or a
combination of two or more of these factors--could result in a reduction of the
Company's cash or its purchasing power, which, in turn, could adversely affect
the Company's prospects and financial condition.


                                      -16-
<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

           The Company was involved in litigation asserted by the previous
           owner of HealthStar, Thomas A. Stateman (the "Plaintiff"). In this
           litigation, the plaintiff filed a complaint for breach of contract
           in the Circuit Court of Cook County, Illinois on December 4, 1998
           (Thomas A. Stateman vs. Champion Financial Corporation) seeking
           damages. On September 15, 2000, the plaintiff agreed to settle the
           lawsuit under certain terms, including waiving his right to
           collect principal and interest under the subordinated promissory
           note that the Company issued to him in connection with the
           acquisition of HealthStar. In return, the Company authorized the
           release to the plaintiff of certain moneys and interest held in
           escrow under the terms of a stock purchase agreement entered into
           in connection with the acquisition of HealthStar. The settlement
           resulted in an extraordinary gain, net of related income tax
           effects, of $200,000 resulting from the cancellation of the
           subordinated promissory note. Additionally, a pre-tax
           non-operating gain of $81,714 was recognized as a result of the
           waiver of accrued interest on the subordinated note as well as
           reimbursement of certain professional fees from the plaintiff.

ITEM 2.    CHANGES IN SECURITIES AND USE OF PROCEEDS

           None.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

           None.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

           None.

ITEM 5.    OTHER INFORMATION

           None.

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

           (A)    EXHIBITS

                  Exhibit 27.1 Financial Data Schedule.

           (B)    REPORTS ON FORM 8-K

                  None.


                                      -17-
<PAGE>

                                   SIGNATURES



           Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report on Form 10-QSB to be signed on its
behalf by the undersigned thereunto duly authorized, this 13th day of November,
2000.

                                HEALTHSTAR CORP.



                                By:  /s/ STEVEN A. MARCUS
                                   --------------------------------------------
                                    Steven A. Marcus
                                    Vice President and Chief Financial Officer
                                    (Principal Financial and Accounting Officer)



                                      -18-