<PAGE>

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

                                  FORM 10-QSB/A

(Mark One)

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

         For the quarterly period ended December 31, 1999, as amended on March
         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                        (I.R.S. employer
 of incorporation or organization)                    identification no.)

                      15720 N. GREENWAY HAYDEN LOOP SUITE 1
                            SCOTTSDALE, ARIZONA 85260
                    (Address of principal executive offices)

                                 (480) 451-8575
                           (Issuer's Telephone Number)

               8745 WEST HIGGINS ROAD, SUITE 300 CHICAGO, ILLINOIS 60631
                   (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, 4,145,872 shares outstanding as of February 11, 2000.
<PAGE>

                        HEALTHSTAR CORP. AND SUBSIDIARIES
               FORM 10-QSB FOR THE QUARTER ENDED DECEMBER 31, 1999
                                TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

<TABLE>
<S>                                                                                        <C>
Consolidated Balance Sheet as of December 31, 1999 .........................................3

Consolidated Statements of Operations and Retained Earnings
(Accumulated Deficit) for December 31, 1999 and 1998 .......................................4

Consolidated Statements of Cash Flows for the Nine Months Ended
December 31, 1999 and 1998 .................................................................5

Notes to Unaudited Consolidated Financial Statements........................................6

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
             AND RESULTS OF OPERATIONS ....................................................11

PART II. OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS..........................................17

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................................................20

Signatures ................................................................................21
</TABLE>
<PAGE>


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                        HEALTHSTAR CORP. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                        DECEMBER 31,
                                                                                                            1999
                                                                                                    ---------------------
<S>                                                                                                 <C>
                                     ASSETS
Current Assets:
         Cash and cash equivalents                                                                              $299,783
         Trade accounts receivable, less allowance for doubtful accounts of $140,393                           1,537,176
         Other current assets                                                                                    372,906
                                                                                                                 -------
Total current assets                                                                                          $2,209,865

Property and equipment, net                                                                                   $1,893,835
Goodwill, net of accumulated amortization of                                                                   1,186,762
                                                                                                               7,674,809

Other assets at cost                                                                                             166,179

Total assets                                                                                                 $11,944,688
                                                                                                             ===========

                       LIABILITIES AND SHAREHOLDERS EQUITY

Current Liabilities:
         Accounts payable                                                                                       $509,064
         Accrued expenses                                                                                      1,203,783
         Current portion of long-term debt                                                                     1,525,000
                                                                                                             -----------
                  Total current liabilities                                                                    3,237,847
                                                                                                             -----------
Shareholders equity:
         Common stock, $.001 par value 15,000,000 shares authorized, 4,145,872 shares issued                       4,146
         and outstanding
         Additional paid-in capital                                                                            8,727,428
         Accumulated deficit                                                                                    (24,733)
                                                                                                             -----------
                  Total shareholders' equity                                                                   8,706,841

                  Total liabilities and shareholders' equity                                                 $11,944,688
                                                                                                             ===========
</TABLE>

See accompanying notes to unaudited consolidated financial statements.
<PAGE>

                        HEALTHSTAR CORP. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
                              (ACCUMULATED DEFICIT)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                   THREE MONTHS ENDED                              NINE MONTHS ENDED
                                                      DECEMBER 31,                                   DECEMBER 31,
                                    ---------------------------------------------      ------------------------------------------
                                                 1999                     1998                   1999                     1998
                                                 ----                     ----                   ----                     ----
<S>                                 <C>                        <C>                     <C>                       <C>
Revenues:
Capitated fees                                  $2,035,116             $2,338,476              $6,201,906              $7,354,196
Repricing fees                                   1,234,267              1,783,766               4,294,089               5,322,349
Other fees                                          43,115                121,718                 222,138                 460,017
                                    ----------------------     ------------------      ------------------        ----------------
                                                 3,312,498              4,243,960              10,718,133              13,136,562
Operating expenses:
   Cost of services                                405,060                589,578               1,401,696               1,871,352
   Salaries and wages                            1,793,340              2,162,510               5,570,288               6,228,782
   General and administrative                    1,069,775              1,150,493               3,091,327               3,647,601
   Depreciation and                                296,647                305,497                 937,513                 887,796
   amortization
                                    ----------------------     ------------------      ------------------        ----------------
                                                 3,564,822              4,208,078              11,000,824              12,635,531
                                    ----------------------     ------------------      ------------------        ----------------
Income (loss) from                               (252,324)                 35,882               (282,691)                 501,031
operations
Non-operating income (expense)
   Interest expense                               (89,310)               (83,901)               (230,600)               (333,193)
   Gain on disposition of assets                1,031,210                     --               1,145,748                      --
   Asset impairment charge                       (150,000)                     --               (650,000)                      --
                                    ----------------------     ------------------      ------------------        ----------------
Income (loss) before income taxes                  539,576               (48,019)                (17,543)                 167,838
Income tax expense (benefit)                       243,577                (1,582)                 223,893                  68,418
                                    ----------------------     ------------------      ------------------        ----------------
         Net income (loss)                         295,999               (46,437)               (241,436)                  99,420
Retained earnings
(accumulated deficit)
         at beginning of period                  (320,732)                538,230                 216,703                 392,373
                                    ----------------------     ------------------      ------------------        ----------------
Retained earnings
(accumulated deficit)
         at end of period                        $(24,733)               $491,793               $(24,733)                $491,793
                                                 ========                ========               =========                ========
Earnings (loss) per share-basic                     $0.07                  $(0.01)                 $(0.06)                   $0.03
and diluted
                                    =====================      ==================      ==================        ================
Weighted average shares
outstanding
-basic and diluted                              3,966,850               3,385,089               3,879,378               3,159,979
                                    =====================      ==================      ==================        ================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>

                        HEALTHSTAR CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                     NINE MONTHS ENDED
                                                                       DECEMBER 31,
                                                                --------------------------
                                                                    1999           1998
                                                                -----------    -----------
<S>                                                             <C>            <C>
Operating activities:
  Net income (loss)                                             $  (241,436)   $    99,420
  Adjustments to reconcile net income (loss) to net cash used
  in operating activities:
    Depreciation and amortization                                   937,513        887,796
    Gain on the disposition of assets                            (1,145,748)          --
    Asset impairment charge                                         650,000           --
    Bad debt expense                                                287,654        442,542
    Stock-based compensation                                         27,500         15,000
    Interest expense on debentures                                     --           29,578
  Increase (decrease) in cash resulting from changes in
    operating assets and liabilities:
    Trade accounts receivable                                       (63,727)      (361,639)
    Other current assets                                             20,647        (32,830)
    Accounts payable                                               (519,822)      (222,118)
    Accrued expenses                                               (385,252)      (820,139)
                                                                -----------    -----------
      Net cash provided by (used in) operating activities          (432,671)        37,610
                                                                -----------    -----------
Investing activities:
   Purchases of equipment                                          (181,726)      (371,915)
   Proceeds from the sale of equipment                                 --            5,113
   Proceeds from the disposition of assets                        1,625,000           --
                                                                -----------    -----------
      Net cash provided by (used in) investing activities         1,443,274       (366,802)
                                                                -----------    -----------
Financing activities:
   Decrease (increase) in other assets                               68,119        (96,399)
   Proceeds from borrowings                                         400,000        550,000
   Payments on long term debt                                    (1,800,000)      (300,000)
   Proceeds from issuance of common stock                           549,125           --
                                                                -----------    -----------
      Net cash provided by (used in) by financing activities       (782,756)       153,601
                                                                -----------    -----------
Net increase (decrease) in cash and cash equivalents                227,847       (175,591)
Cash and cash equivalents at beginning of year                       71,936        199,466
                                                                -----------    -----------
Cash and cash equivalents at end of period                      $   299,783    $    23,875
                                                                ===========    ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
<PAGE>


                        HEALTHSTAR CORP. AND SUBSIDIARIES

              Notes To Unaudited Consolidated Financial Statements

(1)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         DESCRIPTION OF BUSINESS

         HealthStar Corp. (the "Company") is a healthcare management company
         dedicated to controlling the costs, improving the quality and enhancing
         the delivery of healthcare services. The Company markets and provides
         programs and services to a variety of payers of medical claims such as
         insurance companies, self-insured businesses and third parties that
         administer employee medical plans. These programs and services assist
         the Company's customers in reducing healthcare costs for group health
         plans, workers' compensation coverage and automobile accident injury
         claims. The Company operates its business through its wholly owned
         subsidiary, HealthStar, Inc. ("HSI").

         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 footnotes required by generally accepted accounting
         principles for complete financial statement presentation. In the
         opinion of management, such unaudited interim 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 Form 10-KSB, for the year ended March 31, 1999.

         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.

         PRINCIPLES OF CONSOLIDATION

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

         CASH EQUIVALENTS

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

         EARNINGS (LOSS) PER SHARE

         The Company adopted Statement of Accounting Standards No. 128 "Earnings
         per Share" (SFAS 128) during 1997. In accordance with SFAS 128, basic
         EPS is computed by dividing net income, after deducting preferred stock
         dividend requirements (if any), by the weighted average number of
         shares of common stock outstanding.
<PAGE>

         Diluted EPS 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. If shares
         are considered anti-dilutive, they are not presented in loss per share
         calculations.

         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. The recorded balance of long-term
         debt approximates fair value, as the terms of the debt are similar to
         rates currently offered to the Company for similar debt instruments.

         REVENUE RECOGNITION

         The Company provides it customers with access to a network of
         healthcare providers which includes physicians, acute care hospitals
         and ancillary providers such as outpatient surgery centers and home
         healthcare agencies. These providers have contractually agreed with the
         Company to provide healthcare services to the Company's customers at a
         discount from billed charges. The Company generates revenue from its
         customer base by charging network access fees. The Company enters into
         contracts with its customers and charges network access fees using
         either of two methods. Customers may choose to pay a capitated fee,
         which is a fixed, monthly fee per eligible subscriber. Initial
         enrollment figures are based on estimates provided by the customer.
         Actual enrollment figures are subsequently provided by the customer and
         are updated periodically at intervals ranging from monthly to
         semi-annually. Capitated revenue is recognized on a monthly basis when
         customers are billed using the most current enrollment figures
         available. Adjustments are made when the customer submits new
         enrollment figures. The other method under which customers may elect to
         pay the Company for network access is called a repricing fee. Under
         this method, the Company receives 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 is determined by contract and varies from
         customer to customer. Repricing fees are recognized as revenue when the
         Company processes the medical claim, calculates the discount and
         notifies the customer of the amount due.

         COST OF SERVICES

         The major components of cost of services are the cost of outsourcing
         the medical case management and utilization review functions, external
         marketing commissions, printing of provider directories and costs
         associated with the electronic transmission of healthcare claims.

         PROPERTY AND EQUIPMENT

         Property and equipment are stated at cost. 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.


         GOODWILL

         Goodwill, which represents the excess of purchase price over the fair
         value of net tangible assets acquired, is amortized on a straight-line
         basis over the expected periods to be benefited, ranging from 10 to 20
         years with a weighted average period of 20 years.

         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
<PAGE>

         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 capital loss carryforward and a
         portion of the net operating loss carryforward that may not be
         recognized in future years.

         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
         undiscounted net cash flows expected to be generated by the asset. If
         such assets are considered to be impaired, the impairment to be
         recognized is measured by the amount by which the carrying amount of
         the assets exceed the fair value of the assets measured using quoted
         market prices when available or the present value of the estimated
         expected future cash flows using a discount rate commensurate with the
         risks involved. In measuring impairment, assets will be 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.

         STOCK BASED COMPENSATION

         The Company applies SFAS No. 123, ACCOUNTING FOR STOCK-BASED
         COMPENSATION, 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 provisions of 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.

         OTHER FEES

         Other fees consists of revenue generated from the Company's pharmacy
         management and case management programs, as well as from the sale of
         provider directories that are generated for use by enrollees of the
         Company's clients. Other fees are recognized when realized, which is
         generally when users are billed.

         COMPREHENSIVE INCOME

         In June 1997, the Financial Accounting Standards Board issued Statement
         of Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE
         INCOME (SFAS 130) which established standards for reporting and
         displaying comprehensive income and its components in a full set of
         general-purpose financial statements. Adoption of this standard
         required no additional disclosures for the Company. Comprehensive
         income (loss) was the same as net income (loss) for all periods
         presented.

         RECLASSIFICATIONS

         Certain reclassifications have been made to the prior period financial
         statements to conform to the current period presentation.
<PAGE>

(2)  ASSET IMPAIRMENT CHARGE

         The Company's 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.

         On December 16, 1999, the Company and Beyond Benefits entered into an
         amendment to the Stock Purchase Agreement to provide that the cash
         portion of the purchase price be increased to $10,850,000 from
         $10,000,000 and to remove from the purchase price 303,943 shares of
         Beyond Benefits' non-voting common stock which was to have represented
         5% of the common equity of Beyond Benefits. Accordingly, the Company
         has adjusted the carrying value of HSI's goodwill to an estimated fair
         value of approximately $7,674,809, resulting in a non-cash impairment
         charge of $150,000 ($0.04 loss per basic and diluted share) in the
         current quarter and $650,000 ($0.17 loss per basic and diluted share)
         for the nine months ended December 31, 1999. The fair value was
         estimated based on a sales price of $10,850,000 less direct and
         incremental costs to dispose of approximately $300,000.

         On February 29, 2000 the Company and Beyond Benefits executed a second
         amendment to the Stock Purchase Agreement which reduced the purchase
         price of HSI to $8,880,000 in cash, as discussed in "--Recent
         Developments." As a result of this change, the sale of HSI is expected
         to create a loss of approximately $1,600,000. The Company expects to
         take this loss as an additional asset impairment charge in the quarter
         ending March 31, 2000.

(3)  BUSINESS SEGMENTS AND MAJOR CUSTOMERS

         The Company's operations are in one operating business segment, the
         marketing and provision of programs and services to insurance
         companies, self-insured businesses, health and welfare funds and third
         parties that administer employee medical plans.

         The Company operates in a very competitive market. The Company's
         success is dependent upon the ability of its sales and marketing group
         to identify and contract with businesses and organizations nationwide,
         and to administer its networks. Changes in the insurance and healthcare
         industries, including the regulation thereof by federal and state
         agencies, may significantly affect management's estimates of the
         Company's performance.

(4)  DEBT

         Debt consists of the following at December 31, 1999:

<TABLE>
<S>                                                             <C>
Note payable to Harris Trust and Savings Bank, due
APRIL 28, 2000 secured by substantially all the
Assets of the Company                                           $1,325,000

Unsecured note payable to the seller of HSI, interest
payable monthly at 8.0%, currently due                             200,000
                                                                ----------
                                                                $1,525,000
                                                                ==========
</TABLE>
<PAGE>

         The Company anticipates using a portion of the cash proceeds from the
         sale of HSI to Beyond Benefits, Inc. to repay the remaining term loan
         balance of $1,325,000. The Company and Harris Bank executed a letter
         agreement, dated as of March 3, 2000, which extended the maturity date
         of the term loan to the earlier of (i) April 28, 2000 or (ii) the sale
         of HSI to Beyond Benefits (the "Target Date"). Specifically, the letter
         agreement acknowledged that the Company was in default under the terms
         of its loan agreement with Harris Bank because (i) it did not comply
         with the financial covenant regarding the applicable fixed charges
         coverage ratio (during the months of November and December 1999) and
         with the financial covenant regarding the applicable minimum EBITDA
         (during the month of December 1999), and (ii) it failed to pay the
         principal amount of $1,325,000 outstanding and owed to the bank on
         February 29, 2000. Under the terms of such letter agreement, the Bank
         waived the defaults described above, only with respect to the
         referenced periods, subject to the following conditions: (i) the
         principal amount outstanding under the applicable note must be paid in
         full by the Target Date; (ii) payment of a $10,000 fee; (iii) all
         things necessary to effect the sale of HSI and repayment must be done
         by the Target Date; and (iv) there must not occur any change in the
         condition or prospects of the Company, financial or otherwise, that
         Harris Bank deems material and adverse. If the Company is unable to
         consummate the sale of HSI to Beyond Benefits on or before April 28,
         2000, the Company would need to raise additional capital from outside
         sources in order to meet its obligation to the bank. There can be no
         assurances that the Company will be able to secure the necessary
         funding required to repay the term loan if such funding should be
         required.

(5)  RELATED PARTY TRANSACTIONS

         On June 7, 1999, the Company sold its vision program for cash
         consideration of $125,000 to an immediate family member of a former
         officer of the Company. The Company recognized a gain on the sale of
         approximately $114,000.

(6)  SALE OF NHBC

         On December 30, 1999, the Company sold all of the assets of its wholly
         owned subsidiary National Health Benefits and Casualty Corp. ("NHBC")
         to Carlmont Capital Group, Inc., a California based company. 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 over the next 18 months. The Company used
         $1,350,000 of the cash proceeds to pay down indebtedness owed to Harris
         Bank.


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 Sources of
Capital" 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, and other risks detailed
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 financial statements and
footnotes for the quarter ended December 31, 1999 contained herein and for the
year ended March 31, 1999 contained in the Company's Form 10-KSB filed with the
Securities and Exchange Commission on June 29, 1999.
<PAGE>


OVERVIEW

     HealthStar Corp. (the "Company") is a healthcare management company
dedicated to controlling the costs, improving the quality and enhancing the
delivery of healthcare services. The Company markets and provides programs and
services to a variety of payers of medical claims such as insurance companies,
self-insured businesses and third parties that administer employee medical
plans. These programs and services assist the Company's customers in reducing
healthcare costs for group health plans, workers' compensation coverage and
automobile accident injury claims.

     Through its wholly owned subsidiary, HealthStar, Inc. ("HSI"), the Company
provides its customers with access to a nationwide network of healthcare
providers. The Company owns and operates the HealthStar Preferred Provider
Organization (the "PPO"). At December 31, 1999, the HealthStar PPO network
consisted of direct contracts with over 2,000 acute care hospitals,
approximately 125,000 physicians and approximately 5,000 ancillary healthcare
providers such as outpatient surgery facilities and home healthcare agencies.
The Company also provides access to medical cost containment services such as
implementing and coordinating case management procedures, managing and reviewing
the utilization of healthcare services and comprehensive medical bill review.

RECENT DEVELOPMENTS

     On September 23, 1999, the Company and HSI entered into a Stock Purchase
Agreement with Beyond Benefits, Inc., a privately held managed healthcare
Company, pursuant to which the Company proposes to sell all of the capital stock
of HSI to Beyond Benefits. Under the terms of the agreement, the Company would
receive $10,000,000 in cash at closing and 303,943 shares of Beyond Benefits'
non-voting series B common stock, which represents 5% of the issued and
outstanding common stock of Beyond Benefits. Further, the Company may receive up
to an additional $1,250,000 in cash pursuant to an earn-out provision if
predetermined HSI revenue figures are realized during the 18 month period
following the closing.

     The proposed transaction constitutes the sale of substantially all of the
Company's assets for the purpose of Delaware law applicable to the Company. The
Company is required to obtain the affirmative vote of a majority of the
outstanding shares of its common stock prior to consummating the proposed
transaction. On August 19, 1999, the Board of Directors of the Company
unanimously approved the proposed transaction subject to the approval by the
shareholders. The vote will take place in conjunction with the Company's Annual
Shareholders' Meeting, which is expected to be held in March 2000.

     On December 16, 1999, the Company and Beyond Benefits entered into an
amendment to the Stock Purchase Agreement to provide that the cash portion of
the purchase price be increased to $10,850,000 from $10,000,000 and to remove
from the purchase price 303,943 shares of Beyond Benefits' non-voting common
stock which was to have represented 5% of the common equity of Beyond Benefits.
The amended agreement expired on February 20, 2000.

     On December 30, 1999, the Company sold all of the assets of its wholly
owned subsidiary National Health Benefits and Casualty Corp. ("NHBC") to
Carlmont Capital Group, Inc., a California based company. 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 over the
next 18 months. The Company used $1,350,000 of the cash proceeds to pay down
indebtedness owed to Harris Trust and Savings Bank, which has now been reduced
to $1,325,000.

     On or about January 20, 2000, the Company requested an extension of the
February 20, 2000 closing date under the Beyond Benefits Agreement because
additional time was required to obtain shareholder approval of the proposed
transaction. In late January, 2000 the Company received notice from its largest
client that such client would be terminating its relationship with the Company
effective May 1, 2000. Beyond Benefits was promptly notified of the loss of that
client. The percentages of revenues accounted for by the Company's largest
client during the periods set forth below are as follows: (a) 8.3 % of the
Company's revenues (9.9% of HSI's revenues) during the 3 months ended December
31, 1999; (b) 7.9% of the Company's revenues (9.5% of HSI's revenues) during the
3 months ended December 31, 1998; (c) 8.6% of the Company's revenues (10.2% of
HSI's revenues) during the 9 months ended December 31, 1999; and (d) 7.8% of the
Company's revenues (9.1% of HSI's revenues) during the 9 months ended December
31, 1998. On February 7, 2000, Beyond Benefits requested a teleconference or
meeting with the Company
<PAGE>

to discuss the Company's request for an amendment of the Agreement (including
an extension of the proposed closing date) and Beyond Benefits' concerns
regarding certain material changes in HSI's business (the loss of HSI's
largest client). On February 8, 2000, Beyond Benefits submitted a letter to
senior management of the Company which stated its request to revise the
purchase price downward to $7,000,000 in cash as a result of the loss of the
Company's largest client. As an alternative, the February 8, 2000 letter
proposed cash consideration of $6,000,000 subject to an amended earn-out
schedule conditioned upon saving the account of the Company's largest client
or the Company's sale of additional business with no other loss of existing
business prior to the closing of the sale of HSI. In a letter dated February
9, 2000, the Company's President, Edward Chism, rejected the Beyond Benefits
offer and request for a reduction of the purchase price. In a letter dated
February 10, 2000, Beyond Benefits requested a meeting with the Company as
soon as would be possible. Following the exchange of such letters, the
Company's management, together with a consultant acting on its behalf,
conducted discussions with Beyond Benefits' management to reach a mutually
agreeable revised purchase price for HSI. While the Company did acknowledge
the circumstances underlying such request (including the Company's
significant claims backlog, the loss of its largest client and continued loss
of sales and account management staff), the Company believed that the
proposed price reduction to $7,000,000 was excessive. It also concluded that
the alternative offer of $6,000,000 in cash and an amended earn-out schedule
was not a viable alternative for the Company in view of its inability to
compete effectively in the changing and highly competitive managed health
care industry. The Company subsequently negotiated a revised purchase price
of $8,880,000 and Beyond Benefits submitted a draft of a proposed Second
Amendment to the Agreement to the Company on February 21, 2000.

     On February 29, 2000, following negotiations with Beyond Benefits, the
Company executed a Second Amendment to the Beyond Benefits Stock Purchase
Agreement which reduced the purchase price to $8,880,000 cash; removed the
earn-out provision; provided that the transaction would close by April 30, 2000;
and provided that the Company would consult with and coordinate operations and
management of HSI with Beyond Benefits until the transaction closed.

     The Company and Harris Bank executed a letter agreement dated as of March
3, 2000, which extended the maturity date of the term loan to the earlier of (i)
April 28, 2000 or (ii) the sale of HSI to Beyond Benefits. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
<PAGE>

RESULTS OF OPERATIONS

THREE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1998

     The Company derives the majority of its revenue from fees paid by its
customers for access to the Company's PPO network of contracted healthcare
providers. These providers have contractually agreed with the Company to provide
healthcare services to the Company's customers at a discount from billed
charges. The Company's customer base consists of a variety of payers of medical
claims such as insurance companies, third-party administrators and self-insured
employers. The Company enters into contracts with its customers and charges
network access fees using either of two methods. Customers may choose to pay a
capitated fee, which is a fixed, monthly fee per eligible subscriber. The other
method that customers may elect to choose to pay the Company for network access
is called a repricing fee. Under this method, the Company receives 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 is determined by contract and varies from customer
to customer

     Total revenue decreased $932,000 or 22% to $3,312,000 in 1999 compared to
$4,244,000 in 1998. Revenue for HSI decreased $754,000 to $2,792,000 in 1999
from $3,546,000 in 1998, a decrease of 21%. The majority of the decrease was
attributable to the loss of four significant customers that were active during
the comparable period in 1998. Revenue for NHBC decreased $177,000 or 25% from
$698,000 in 1998 to $521,000 in 1999. Overall, capitated fees declined 13% and
repricing fees declined approximately 31% from the year ago period. See
"--Recent Developments."

     Other fees include charges to customers for medical case management,
utilization review and revenue generated from the sale of provider directories.
Other fees decreased $79,000 or 65% from $122,000 in 1998 to $43,000 in 1999.
Approximately $27,000 of the decrease is due to the termination of a Company
administered pharmacy benefit program in June 1999. Revenue from case management
decreased approximately $25,000 from the prior year period.

     Cost of services includes 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 providers not contracted
directly with the Company, the cost of electronic claims processing and the cost
of printing provider directories. Included in the prior year period are costs
associated with administering the Company's pharmacy benefit program. Cost of
services decreased $185,000 or 31% to $405,000 in 1999 from $590,000 in the
comparable period in 1998. Approximately $26,000 of the decrease is due to the
termination of the pharmacy benefit program. The remaining reduction is due
primarily to a decrease in access fees paid to other PPO networks and lower
commissions paid to outside brokers as a result of the overall decrease in
revenue. As a percentage of total revenue, cost of services decreased from 13.9%
at December 31, 1998 to 12.2% at December 31, 1999.

     Salaries and wages include all employee compensation, payroll taxes, health
insurance and other employee benefits. Also included in this category are the
commissions paid to in-house sales and marketing personnel. For the three months
ended December 31, 1999, salaries and wages were $1,793,000 compared to
$2,163,000 for the three months ended December 31, 1998, a decrease of $370,000
or 17%. The decrease is attributable to a reduction in staffing levels as a
result of departmental reorganizations that were recently implemented. In
addition, sales commissions have decreased as a result of the decline in
revenue.

     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. For the
three months ended December 31, 1999, general and administrative expenses were
$1,070,000 compared to $1,150,000 for the comparable period in 1998, a decrease
of $80,000 or 7%. Bad debt expense for the quarter was $90,000 compared to
$106,000 in the comparable period in 1998, a decrease of approximately $16,000
or 15%. The decrease is a result of the lower revenue in the current year period
and better collection efforts. The decrease in bad debt expense accounted for
approximately 20% of the overall decrease in general and administrative
expenses. The remainder of the decrease is due to tighter cost controls
throughout the various operating expense categories and the effect of the
closing of a regional office in Dallas, Texas in June 1999.

     Depreciation and amortization decreased $8,000 or 3%, to $297,000 in 1999
from $305,000 in 1998. The decrease is due to lower amortization expense as a
result of the impairment charge of $500,000 that was taken on September 30,
1999. At December 31, 1999, gross property and equipment was $3,365,474.
<PAGE>

     Interest expense for the quarter was $89,000 compared to $84,000 for the
comparable period in 1998, an increase of $5,000 or 6%. The increase in interest
expense is due to higher interest rates during the current year period.

     On December 16, 1999, the Company and Beyond Benefits entered into an
amendment to the Stock Purchase Agreement to provide that the cash portion of
the purchase price be increased to $10,850,000 from $10,000,000 and to remove
from the purchase price 303,943 shares of Beyond Benefits' non-voting common
stock which was to have represented 5% of the common equity of Beyond Benefits.
Accordingly, the Company adjusted the carrying value of HSI's goodwill to an
estimated fair value of approximately $7,674,809, resulting in a non-cash
impairment charge of $150,000 ($0.04 loss per basic and diluted share) in the
current quarter and $650,000 ($0.17 loss per basic and diluted share) for the
nine months ended December 31, 1999. The fair value was estimated based on a
sales price of $10,850,000 less direct and incremental costs to dispose of
approximately $300,000. See "--Recent Developments."

     On December 30, 1999, the Company sold all of the assets of its wholly
owned subsidiary National Health Benefits and Casualty Corp. ("NHBC") to
Carlmont Capital Group, Inc., a California based company. 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 over the
next 18 months. This transaction resulted in a pretax gain of approximately
$1,031,000.

     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. In May 1999, management received an offer to sell HSI to Beyond
Benefits, Inc. a privately held managed healthcare company. The original offer
was $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 Board of
Directors approved the offer on August 19, 1999, subject to shareholder
approval.

     Income tax expense (benefit) has been recognized at the Company's effective
income tax rate, which, subject to various credits and adjustments, generally
approximates 30%. Management believes that there will be no tax benefit related
to the asset impairment charge of $150,000.

NINE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1998

     Total revenue decreased $2,419,000 or 18% to $10,718,000 in 1999 compared
to $13,137,000 in 1998. Revenue for HSI decreased $2,235,000 to $8,951,000 in
1999 from $11,186,000 in 1998, a decrease of 20%. A majority of the decrease was
attributable to the loss of four significant customers that were active during
the comparable period in 1998. Revenue for NHBC decreased $184,000 or 9% from
$1,951,000 in 1998 to $1,767,000 in 1999. Overall, capitated fees declined 16%
and repricing fees declined approximately 19% from the year ago period. See
"--Recent Developments."

     Other fees include charges to customers for medical case management,
utilization review and revenue generated from the sale of provider directories.
Other fees decreased $238,000 or 52% from $460,000 in 1998 to $222,000 in 1999.
Approximately $180,000 of the decrease is due to the termination of a Company
administered pharmacy benefit program in June 1999.

     Cost of services includes 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 providers not contracted
directly with the Company, the cost of electronic claims processing and the cost
of printing provider directories. Included in the prior year period are costs
associated with administering the Company's pharmacy benefit program. Cost of
services decreased $469,000 or 25% to $1,402,000 in 1999 from $1,871,000 in the
comparable period in 1998. Approximately $175,000 of the decrease is due to the
termination of the pharmacy benefit program. The remaining reduction is due
primarily to a decrease in access fees paid to other PPO networks and lower
commissions paid to outside brokers as a result of the overall decrease in
revenue. As a percentage of total revenue, cost of services decreased from 14.2%
at December 31, 1998 to 13.1% at December 31, 1999.
<PAGE>

     Salaries and wages include all employee compensation, payroll taxes, health
insurance and other employee benefits. Also included in this category are the
commissions paid to in-house sales and marketing personnel. For the nine months
ended December 31, 1999, salaries and wages were $5,570,000 compared to
$6,229,000 for the nine months ended December 31, 1998, a decrease of $659,000
or 11%. The decrease is attributable to a reduction in staffing levels as a
result of departmental reorganizations that were recently implemented. In
addition, sales commissions have decreased as a result of the decline in
revenue.

     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. For the nine months ended December 31, 1999, general and
administrative expenses were $3,091,000 compared to $3,648,000 for the
comparable period in 1998, a decrease of $556,000 or 15%. Bad debt expense
for the nine months ended December 31, 1999 was $288,000 compared to $443,000
in the comparable period in 1998, a decrease of approximately $155,000 or
35%. The decrease is a result of the lower revenue in the period and better
collection efforts. The decrease in bad debt expense accounted for
approximately 28% of the overall decrease in general and administrative
expenses. The remainder of the decrease in is due to tighter cost controls
throughout the various operating expense categories and the effect of the
closing of a regional office in Dallas, Texas in June 1999.

     Depreciation and amortization increased $50,000 or approximately 6% to
$938,000 in 1999 from $888,000 in 1998. The increase is due to higher
depreciation expense related to the purchase of new computer hardware and
software during the last nine months. At December 31, 1999, gross property
and equipment was $3,365,474.

     Interest expense decreased $102,000 or 31% to $231,000 in 1999 compared to
$333,000 in 1998. The decrease is attributable to lower levels of indebtedness
during 1999.

     On December 16, 1999, the Company and Beyond Benefits entered into an
amendment to the Stock Purchase Agreement to provide that the cash portion of
the purchase price be increased to $10,850,000 from $10,000,000 and to remove
from the purchase price 303,943 shares of Beyond Benefits' non-voting common
stock which was to have represented 5% of the common equity of Beyond
Benefits. Accordingly, the Company adjusted the carrying value of HSI's
goodwill to an estimated fair value of approximately $7,674,809, resulting in
a non-cash impairment charge of $150,000 ($0.04 loss per basic and diluted
share) in the current quarter and $650,000 ($0.17 loss per basic and diluted
share) for the nine months ended December 31, 1999. The fair value was
estimated based on a sales price of $10,850,000 less direct and incremental
costs to dispose of approximately $300,000. See "--Recent Developments."

     On December 30, 1999, the Company sold all of the assets of its wholly
owned subsidiary National Health Benefits and Casualty Corp. ("NHBC") to
Carlmont Capital Group, Inc., a California based company. 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 over the next 18 months. This transaction resulted in a pretax gain
of approximately $1,031,000.

     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. In May 1999, management received an
offer to sell HSI to Beyond Benefits, Inc. a privately held managed
healthcare company. The original offer was $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 Board of Directors approved the offer on
August 19, 1999, subject to shareholder approval.

     Income tax expense (benefit) has been recognized at the Company's effective
income tax rate, which, subject to various credits and adjustments, generally
approximates 30%. Management believes that there will be no tax benefit related
to the asset impairment charge of $150,000.

LIQUIDITY AND CAPITAL RESOURCES

     At December 31, 1999, the Company had approximately $300,000 in cash and
cash equivalents compared to $24,000 at December 31, 1998. The Company had a
working capital deficiency of $1,028,000 at December 31, 1999,
<PAGE>

compared to a deficiency of $2,910,000 at March 31, 1999, an improvement of
approximately $1,882,005. The Company has historically funded its working
capital requirements from cash generated by operations supplemented by
borrowings under a line of credit facility.

     The Company has experienced a net loss of $241,436, a net use of cash in
operating activities of $432,671 and a loss from operations of $282,691 for the
nine months ended December 31, 1999. In addition, the Company was notified in
late January 2000 that its largest customer will be terminating its relationship
with the Company effective May 1, 2000. This will result in a continued decline
in the profitability and cash flow of HSI. Management believes that a
deterioration in operating results will continue as the efforts to sell HSI
proceed. A return to profitable and positive cash flow will occur when sales
increase, which will be driven by acquiring significant customers. This process
will not begin until the Company's sales force becomes more successful.
Management is currently evaluating that function. In addition, the customer
service personnel will focus on increasing the customer satisfaction of our
existing base to ensure that attrition of customers over customer service issues
ceases. At this time, management cannot estimate when any sales and customer
service improvements may generate positive results.

     Under the terms of the credit facility, the Company is required to be in
compliance with a series of financial covenants such as a minimum current ratio,
maximum leverage ratio and a minimum fixed charge coverage ratio. At March 31,
1999, the Company was not in compliance with two of the three covenants which
caused an event of default under the credit agreement. On June 8, 1999, the bank
agreed to a waiver and reset the covenant levels. As a condition to granting the
waiver, the bank amended the terms of the credit facility whereby it required
the Company to payoff all outstanding indebtedness no later than November 30,
1999. The interest rate on both the term loan and line of credit was increased
to prime plus 1.5% and a minimum earnings covenant was added.

     At September 30, 1999, the total amount owed to the bank was $2,975,000.
The debt consisted of $1,925,000 on the term loan and $1,050,000 outstanding on
the line of credit. On September 30, 1999, the Company was required to make a
$150,000 principal payment on the term loan, however, the Company did not have
the cash available to make the payment. On October 19, 1999, the Company
prepared its monthly borrowing base report for September and it indicated that
the Company was required to make a payment of $100,000 on the line of credit.
The Company did not have the cash available to make the payment and the bank was
notified. These events constituted a default under the credit facility and the
bank exercised its right to raise the interest rate on the term loan and line of
credit to prime plus 3.5%, which equated to 12.0% as of November 17, 1999.

     On November 19, 1999, the Company and the bank entered into an amendment to
the credit agreement pursuant to which: (i) the Company made a payment of
$100,000 on the line of credit concurrent with entering into the agreement; (ii)
on November 30, 1999, the Company made the $150,000 principal payment which was
due on September 30, 1999; (iii) the bank extended the maturity date of the term
loan and line of credit to January 31, 2000; (iv) the bank reset the interest
rate on the term loan and line of credit to prime plus 1.0% on November 30, 1999
and (v) the Company could no longer make any borrowings under the line of
credit.

     On November 24 1999, the Company raised $300,000 through the issuance of
240,000 shares of common stock in a private placement offering. The Company
used $200,000 of the proceeds to fund the November 30, 2000 $150,000 payment
and the December 7, 2000 $50,000 payment to Harris Bank.

     At November 30, 1999, the total indebtedness owed to Harris Bank was
$2,725,000. The total amount outstanding on the line of credit was $950,000 and
the amount outstanding on the term loan was $1,775,000. On December 7, 1999, the
Company made an additional payment of $50,000 on the line of credit to remain in
compliance with the borrowing base.

     On December 30, 1999, the Company sold all of the assets of its wholly
owned subsidiary National Health Benefits and Casualty Corp. ("NHBC") to
Carlmont Capital Group, Inc., a California based company. 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 over the
next 18 months. The Company used $1,350,000 of the cash proceeds to payoff the
line of credit and paydown the term loan to $1,325,000. In connection with this
reduction in debt, Harris agreed to extend the maturity date of the term loan to
February 29, 2000.
<PAGE>

     The Company anticipates using a portion of the $8,880,000 cash proceeds
from the sale of HSI to Beyond Benefits, Inc. to repay the remaining term loan
balance of $1,325,000 to Harris Bank. See "--Recent Developments." The Company
and Harris Bank executed a letter agreement, dated as of March 3, 2000, which
extended the maturity date of the term loan to the earlier of (i) April 28,
2000 or (ii) the Target Date. Specifically, the letter agreement acknowledged
that the Company was in default under the terms of its loan agreement with
Harris Bank because (i) it did not comply with the financial covenant regarding
the applicable fixed charges coverage ratio (during the months of November and
December 1999) and with the financial covenant regarding the applicable minimum
EBITDA (during the month of December 1999), and (ii) it failed to pay the
principal amount of $1,325,000 outstanding and owed to the bank on February 29,
2000. Under the terms of such letter agreement, the Bank waived the defaults
described above, only with respect to the referenced periods, subject to the
following conditions: (i) the principal amount outstanding under the applicable
note must be paid in full by the Target Date; (ii) payment of a $10,000 fee;
(iii) all things necessary to effect the sale of HSI and repayment must be done
by the Target Date; and (iv) there must not occur any change in the condition or
prospects of the Company, financial or otherwise, that Harris Bank deems
material and adverse. If the Company is unable to consummate the sale of HSI to
Beyond Benefits on or before April 28, 2000, the Company would need to raise
additional capital from outside sources in order to meet its obligation to the
bank. There can be no assurances that the Company will be able to secure the
necessary funding required to repay the term loan if such funding should be
required. If that funding is not available and the loan cannot be repaid, then
the remedies available to Harris Bank may be initiated and all of the secured
assets of the Company may necessarily be transferred to the bank. If it became
clear that this course of action were likely, then the Company may decide to
seek protection under law until it is able to reorganize. Management, however,
believes that the bank will accommodate the Company in the near-term.

YEAR  2000

     Many computer programs and equipment with embedded chips or processors use
two rather than four digits to represent the year and may be unable to
accurately process dates after December 31, 1999. This, as well as certain other
date-related programming issues, may result in miscalculations or system
failures that can disrupt the businesses which rely on them. The term "Year 2000
Issue" is used to refer to all difficulties the turn of the century may bring to
computer users.

     The Company determined that many of its internal computer programs and some
items of its equipment were susceptible to potential Year 2000 system failures
or processing errors. The Company has modified and replaced the impacted
programs or equipment. Remediation efforts are underway using both internal and
external resources, with priority given to the systems whose failure might have
a material impact on the Company. To date all required changes have been
identified and made and testing of the changes is complete.

     The Company is also dependent on its contracted medical providers and payer
customers to successfully address their respective Year 2000 technology issues
in connection with their claims processing functions. An important part of the
Year 2000 program involves working with those third parties to determine the
extent to which the Company may be vulnerable to their failure to address their
own Year 2000 issues. The Company has communicated with those third parties to
ascertain whether their Year 2000 issues, which might impact the Company, are
being addressed. Where practical and appropriate, the Company has verified the
information or assurances they provide with testing, particularly with regard to
mission critical relationships. At present, the Company has not been advised by
any third party of any Year 2000 issue likely to materially interfere with the
Company's business. However, not all third parties have been responsive to the
Company's inquiries and there may be providers of significant services on which
the Company relies, such as utilities, which are unwilling or unable to provide
information concerning their Year 2000 readiness. To the extent that outside
vendors do not provide satisfactory responses, the Company will consider
changing to vendors who have demonstrated Year 2000 readiness. However, there
are no assurances that the Company will be able to do so.

     The Company began to develop contingency plans to minimize any Year 2000
disruptions in the event that an internal or third party mission critical system
did not function properly. The contingency plans called for isolation of the
failing component and taking the appropriate corrective action, which may
include modification or replacement of the faulty hardware, software or
non-information system, manual processing of transactions, use of alternative
service providers, relocation to temporary facilities, and other measures as
deemed necessary. These contingency plans will be continually refined as
additional information becomes available.
<PAGE>

     The consequences of an uncorrected Year 2000 issue could include business
interruption, exposure to monetary claims by customers and others and loss of
business goodwill. The likelihood of these events and the possible financial
impact if they occur cannot be predicted.

     The Company has upgraded equipment to be Year 2000 compliant and total
expenditures relating to the upgrade for the year are approximately $45,000.

     The estimates and conclusions set forth above contain forward-looking
statements and are based on management's best estimate of future events. Risks
to completing the plan include the availability of resources, the Company's
ability to discover and correct material Year 2000 issues, and other third
parties on which the Company relies to bring their systems into Year 2000
compliance.
<PAGE>

                           PART II. OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

     On November 24, 1999, the Company issued 240,000 shares of its Common Stock
in a private placement transaction. The shares were issued to accredited
investors for consideration of $300,000. The Company did not pay any commissions
or fees with respect to such transaction. The shares were issued pursuant to
Section 4(2) of the Securities Act of 1933, as amended, because the transaction
did not involve any public offering of shares by the Company, and did not
involve any general solicitation of the public or advertising with respect to
the offer and sale of such securities. In addition, each investor acknowledged
that such investor was acquiring the shares for their own account, as principal,
for investment and not with a view to the resale or distribution of all or any
part of the shares. The Company used $250,000 of the proceeds to fund the
payments to Harris Bank.

       On March 20, the Company issued 200,000 shares of its Common Stock in
a private placement transaction. The shares were issued to an accredited
investor for consideration of $300,000. The Company did not pay any commissions
or fees with respect to such transaction. The shares were issued pursuant to
Section 4(2) of the Securities Act of 1933, as amended, because the transaction
did not involve any public offering of shares by the Company, and did not
involve any general solicitation of the public or advertising with respect to
the offer and sale of such securities. In addition, the investor acknowledged
acquiring the shares for such investor's own account, as principal, for
investment and not with a view to the resale or distribution of all or any part
of the shares. The Company intends to use the proceeds of such transaction for
general corporate purposes, including payment of account's payable.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

         10.1 Compensation Agreement between the Company and Darren Horndasch
              dated July 1, 1999.

         10.2 Compensation Agreement between the company and Denise Nedza dated
              July 1, 1999.

         10.3 Letter Agreement dated as of March 3, 2000 by and between the
              Company and Harris Bank incorporated by reference to Exhibit
              10.1 of the Company's Current Report on Form 8-K as filed with
              the Commission on March 15, 2000.

         10.4 Second Amendment dated as of February 29, 2000 to the Stock
              Purchase Agreement by and between the Company and Beyond
              Benefits Incorporated by reference to Exhibit 99.1 of the
              Company's Current Report on Form 8-K/A as filed with the
              Commission on March 14, 2000.

         27   Financial Data Schedule

     (b) Reports on Form 8-K

     A report on Form 8-K (Item 5) was filed with the Securities and Exchange
commission on October 13, 1999, relating to the Company entering into a
Definitive Agreement to sell the stock of its wholly owned subsidiary,
Healthstar, Inc., to Beyond Benefits, Inc.

     A report on Form 8-K (Item 5) was filed with the Securities and Exchange
Commission on November 22, 1999 relating to the termination of an agreement
whereby the Company was to have acquired a 49% interest in Physiciansite.com,
Inc.
<PAGE>

                                  SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report on Form 10-QSBA to be signed on its
behalf by the undersigned thereunto duly authorized, this 30th day of
March, 2000.

                                    HEALTHSTAR CORP.

                                    By: /s/ Steven A. Marcus

                                    Steven A. Marcus
                                    Vice President and Chief Financial Officer
                                    (Principal Financial and Accounting
                                    Officer)