<PAGE>   1
================================================================================


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549



                                   FORM 10-QSB



              [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                For the quarterly period ended December 31, 1998


                                       OR


              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     of the Securities Exchange Act of 1934
                  For the transition period from _____ to _____


                         Commission File Number: 0-25612


                              STARBASE CORPORATION
             (Exact name of Registrant as specified in its charter)


<TABLE>
<S>                                                <C>
                DELAWARE                                33-0567363
     (State or other jurisdiction of                 (I.R.S. Employer
     incorporation or organization)                Identification Number)

    4 Hutton Centre Drive, Suite 800
          Santa Ana, California                            92707
 (Address of principal executive offices)                (Zip code)
</TABLE>

                                 (714) 445-4400
              (Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) been subject to such filing requirements
for the past 90 days.  Yes [X]  No [ ]


Number of shares outstanding as of January 31, 1999: Common Stock:    27,170,589
                                                     Preferred Stock:    772,919

Transitional Small Business Disclosure Format: Yes [ ]  No [X]


================================================================================

<PAGE>   2

                              STARBASE CORPORATION

                                TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION

<TABLE>
<S>                                                                                   <C>
     ITEM 1. Financial Statements

             Balance Sheets at December 31, 1998 (Unaudited) and March 31, 1998        3

             Statements of Operations (Unaudited) for the three and nine month
             periods ended December 31, 1998 and 1997                                  4

             Statements of Cash Flows (Unaudited) for the nine month period ended
             December 31, 1998 and 1997                                                5

             Notes to Financial Statements (Unaudited)                                 6

     ITEM 2. Management's Discussion and Analysis of Financial Condition and
             Results of Operations                                                    10

PART II. OTHER INFORMATION

     ITEM 5. Other Information                                                        13

     ITEM 6. Exhibits and Reports on Form 8-K                                         14
</TABLE>



                                       2
<PAGE>   3

                                     PART I

                                     ITEM 1
                              FINANCIAL STATEMENTS

                              STARBASE CORPORATION

                                 BALANCE SHEETS
             (in thousands, except number of shares and par values)

<TABLE>
<CAPTION>
                                                              December 31,     March 31,
                                                                  1998           1998
                                                              ------------     ---------
                                                              (unaudited)
ASSETS
<S>                                                           <C>             <C>
Current Assets:
  Cash and cash equivalents                                      $     62       $ 4,167
  Restricted cash                                                     118             0
  Accounts receivable, net of allowances of $112 
    (Dec 31, 1998) and $89 (Mar 31, 1998)                           2,133           464
  Notes and other receivables                                         804            45
  Prepaid expenses and deferred charges                               420           113
  Inventories                                                          24            57
                                                                 --------       -------
    Total current assets                                            3,561         4,846

Property and equipment, net                                         1,121           747
Note receivable from officer                                           93            76
Other non-current assets                                               38            13
                                                                 --------       -------
    Total assets                                                 $  4,813       $ 5,682
                                                                 ========       =======

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
  Accounts payable and accrued liabilities                       $  1,527       $   941
  Deferred income                                                     540           263
  Current portion of capital lease obligation                         101            10
                                                                 --------       -------
    Total current liabilities                                       2,168         1,214
                                                                 --------       -------
  Capitalized lease obligation, less current portion                  157            38
                                                                 --------       -------
    Total liabilities                                               2,325         1,252

Shareholders' equity:
  Preferred stock, $.01 par value; $4,922 (December 31, 1998) 
   and $4,716 (March 31, 1998) liquidation value;
   authorized 10,000,000; issued and outstanding 774,468
   shares (December 31, 1998) and 3,772,952 (March 31, 1998)            8            38
  Common stock, $.01 par value; authorized 50,000,000;
   issued and outstanding 23,282,502 (December 31, 1998)
   and 18,580,499 (March 31, 1998)                                    233           186
 Additional paid-in capital                                        51,193        46,287
 Accumulated deficit                                              (48,946)      (42,081)
                                                                 --------       -------
    Total shareholders' equity                                      2,488         4,430
                                                                 --------       -------
    Total liabilities and shareholders' equity                   $  4,813       $ 5,682
                                                                 ========       =======
</TABLE>


     The accompanying notes are an integral part of the financial statements



                                       3
<PAGE>   4

                              STARBASE CORPORATION

                            STATEMENTS OF OPERATIONS
                                   (Unaudited)
                    (in thousands, except per share amounts)


<TABLE>
<CAPTION>
                                          Three months ended     Nine months ended
                                             December 31,           December 31,
                                         --------------------   ------------------- 
                                          1998        1997       1998        1997
                                         -------     -------    -------     -------
<S>                                      <C>         <C>        <C>         <C>
Revenues:
  Products                               $ 1,536     $   385    $ 3,799     $   889
  Maintenance & training                     214          64        553         158
  License and royalty                        167         208        362         314
                                         -------     -------    -------     -------
    Total revenues                         1,917         657      4,714       1,361

Cost of Sales:
  Products, licenses and other               105          14        441          69
                                         -------     -------    -------     -------
Gross margin                               1,812         643      4,273       1,292

Operating Expenses:
  Research and development                 1,013         817      3,151       1,922
  Selling, general and administrative      2,623       1,372      7,771       3,693
                                         -------     -------    -------     -------
    Total operating expenses               3,636       2,189     10,922       5,615
                                         -------     -------    -------     -------
  Operating loss                          (1,824)     (1,546)    (6,649)     (4,323)

  Interest income                              4          25         57          74
  Interest expense                            (7)       (578)       (11)       (939)
  Other income and expense                    (2)        (25)        (5)        (39)
                                         -------     -------    -------     -------
  Total interest and other
    income and expense                        (5)       (578)        41        (904)

Loss before income taxes                  (1,829)     (2,124)    (6,608)     (5,227)

  Provision for income taxes                  --          --          2           1
                                         -------     -------    -------     -------
Net loss                                  (1,829)     (2,124)    (6,610)     (5,228)

  Non-cash dividend                           57          --        256       1,660

Net loss applicable to common stock      $(1,886)    $(2,124)   $(6,866)    $(6,888)

Per share data:
  Basic and diluted loss per common      
    share                                $ (0.09)    $ (0.15)   $ (0.37)    $ (0.51)
                                         =======     =======    =======     =======
  Weighted average number of
   common shares outstanding              20,555      14,448     18,810      13,365
                                         =======     =======    =======     =======
</TABLE>


     The accompanying notes are an integral part of the financial statements



                                       4
<PAGE>   5
                              STARBASE CORPORATION

                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                 (in thousands)


<TABLE>
<CAPTION>
                                                            Nine months ended
                                                               December 31,
                                                           ---------------------
                                                            1998         1997
                                                           -------       -------
<S>                                                        <C>           <C>
Cash Flows from Operating Activities:
  Net loss                                                 $(6,610)      $(5,228)
  Adjustments to reconcile net loss to
      net cash used in operating activities:
    Depreciation and amortization                              247           168
    Provision for doubtful accounts and sales returns           44            92
    Loss on disposition of property, equipment and
      capital lease                                              3            --
    Write-down of assets                                        --            --
    Recognition of deferred income                             277            --
    Amortization of financing costs                             --            40
    Amortization of debt discount                               --           882
    Other adjustments                                           --            --
    Changes in assets and liabilities, excluding the 
        effect of Non-cash transactions:
      Accounts receivable                                   (1,713)         (296)
      Notes and other receivables                             (759)          (72)
      Inventories                                               33            11
      Prepaid expenses and deferred charges                   (306)           85
      Other assets                                             (46)          (32)
      Accounts payable and accrued liabilities                 809           177
                                                           -------       ------- 
Net cash used by operations                                 (8,021)       (4,173)

Cash Flows from Investing Activities:
  Increase in restricted cash                                 (118)           --
  Capital expenditures                                        (624)         (256)
                                                           -------       ------- 
Net cash used by investing activities                         (742)         (256)

Cash Flows from Financing Activities:
  Proceeds from sale of preferred stock                      4,650            --
  Proceeds from  sale of convertible debentures                 --         3,100
  Proceeds from issuance of common stock:
    From stock purchase plan                                    --            --
    From private placements                                    152            --
    From exercise of options                                    23            12
    From exercise of warrants                                   --            --
  Payment of financing related costs                          (131)         (331)
  Payments on capitalized lease obligations                    (36)           (5)
  Loans from officers/directors                                 --            --
  Repayment of loans from officers/directors                    --            --
  Repayment of (disbursement of) loan to officer                --            --
                                                           -------       ------- 
Net cash provided (used) by financing activities             4,658         2,776
                                                           -------       ------- 
Net increase (decrease) in cash                             (4,105)       (1,653)

Cash and cash equivalents, beginning of period               4,167         2,722
                                                           -------       -------
Cash and cash equivalents, end of period                   $    62       $ 1,069
                                                           =======       =======
</TABLE>


     The accompanying notes are an integral part of the financial statements



                                       5
<PAGE>   6

                              STARBASE CORPORATION

                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

1.   DESCRIPTION OF BUSINESS

StarBase Corporation, a Delaware corporation (the "Company"), is a leading
provider of advanced Internet and intranet based technical collaboration and
software configuration management (SCM) tools. The Company develops, markets and
supports team-oriented development software that targets the evolving needs of
corporate info-structures which support projects requiring technical
collaboration on an enterprise level. The Company's current product line
consists of the recently launched products StarTeam(R) 3.0 and StarTeam(R) 2000,
as well as RoundTable(R) and Versions(R). StarTeam 3.0 has been recognized in
the industry as the only product to effectively integrate the essential
components of SCM tools in one easy-to-use and intuitive interface built on top
of a collaborative framework. The Company has chosen to focus on technical
collaboration and team productivity since the wide usage of the Internet has
created a tremendous potential market for distributed project teams needing
secure, remote access to projects. Additionally, StarTeam 2000 is specifically
designed to address the complex and mission critical issues involved with the
management, asset tracking and reporting issues surrounding Year 2000 compliance
projects. The Company has also practically eliminated the barriers to entry for
current users of other SCM tools by inter-operating with the leading Windows
based SCM products. Furthermore, the Company's products utilize and are tightly
integrated with various Microsoft technologies, a market leader in technology
software.

2.   BASIS OF PRESENTATION

The unaudited interim financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Accordingly,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have not been presented. The accompanying unaudited financial statements should
be read in conjunction with the financial statements and the notes thereto
included in the StarBase Corporation report to the Securities and Exchange
Commission on Form 10-KSB/A, for the year ended March 31, 1998.

The interim financial statements reflect all normal recurring adjustments which
are, in the opinion of management, necessary for a fair presentation of the
Company's financial position, results of operations and cash flows for the
period presented. Certain prior period balances have been reclassified to
conform to current period classifications. The results of operations for the
nine months ended December 31, 1998 are not necessarily indicative of the
operating results for a full year.

BASIC AND DILUTED LOSS PER COMMON SHARE

Earnings per common share is calculated by dividing the net loss by the weighted
average shares of common stock outstanding excluding 1,418,638 outstanding
common shares held in escrow. Common stock equivalents are considered
anti-dilutive and are excluded from this calculation.

In February 1997, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"). FAS
128 establishes standards for computing and presenting earnings per share
("EPS"). It replaces the presentation of primary EPS with a presentation of
basic EPS. Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. It also requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. Diluted EPS is computed similarly to fully diluted
EPS pursuant to Accounting Principles Board Opinion No. 15. This statement was
adopted by the Company beginning with its quarterly period ended December 31,
1997 and, since the Company is considered a simple capital structure for
reporting EPS, previously reported loss per common share data were not affected.



                                       6
<PAGE>   7

                              STARBASE CORPORATION

                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

RESTRICTED CASH

On September 17, 1998, the Company pledged $118,000 of cash for an irrevocable
letter of credit related to the lease of new office space and was classified as
restricted cash on the balance sheet. The letter of credit will be reduced by
33.33% each year and will expire on July 2, 2001.


3.   COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS

<TABLE>
<CAPTION>
      (In thousands)                                        December 31,     March 31,
                                                               1998            1998
                                                           --------------  ------------
<S>                                                        <C>             <C>   
      ACCOUNTS RECEIVABLE
      Trade accounts receivable                              $ 2,245         $  553
      Less allowance for doubtful accounts                      (112)           (89)
                                                             -------         ------
                                                             $ 2,133         $  464
                                                             =======         ======
      PROPERTY AND EQUIPMENT
      Computer hardware                                      $ 1,472         $1,110
      Furniture and fixtures                                     303            255
      Computer software                                          282            269
      Leasehold improvements                                     209             40
                                                             -------         ------
                                                               2,266          1,674
      Less accumulated depreciation and amortization          (1,145)          (927)
                                                             =======         ======
                                                             $ 1,121         $  747
                                                             =======         ======
      ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
      Trade accounts payable                                 $   840         $  390
      Accrued professional fees                                  117            255
      Accrued wages and bonuses                                  496            205
      Other accrued expenses                                      74             91
                                                             -------         ------
                                                             $ 1,527         $  941
                                                             =======         ======
</TABLE>


4.   RESTATEMENT OF PRIOR PERIOD RESULTS

The Company has restated the results of the first quarter of fiscal 1998 to
recognize a non-cash dividend aggregating $1,660,000 as a result of common stock
issued in exchange for warrants to acquire shares of the Company's common stock.
This dividend represents the excess of the fair value of the Company's common
stock on the offer date over the estimated fair value of the warrants exchanged.
The estimated fair value of the warrants was determined using the Black-Scholes
method. This dividend did not change overall shareholders' equity.

The Company offered the holders of the Company's outstanding warrants the option
to exchange all issued and outstanding warrants for shares of the Company's
common stock. Each warrant holder who accepted the offer by midnight, Pacific
Standard Time, on June 30, 1997, the expiration date of the offer, received one
share of common stock for every three warrants held. The warrants which remained
unexchanged subsequent to the expiration date of the offer continued under the
original terms of each warrant. At June 30, 1997, 4,734,534 warrants were
converted and 1,581,150 common shares had been issued upon conversion of such
warrants.



                                       7
<PAGE>   8

                              STARBASE CORPORATION

                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

There are certain overhead expenses, such as facility and insurance expenses,
that have been reclassified from Selling, general & administrative to Research &
development. For the three month and nine month periods ended December 31, 1997,
the amounts totaled approximately $50,000 and $142,000, respectively.

5.   EQUITY TRANSACTIONS

The Company has authorized 50,000,000 shares of common stock and 10,000,000
shares of preferred stock with a par value of $0.01 per share. During the
quarter ending December 31, 1998, 150,000 shares of Series D Preferred Stock,
721,094 shares of Series E Preferred Stock, and 890 shares of Series G Preferred
Stock were converted into 269,480, 721,094 and 1,355,678 shares of common stock,
respectively.

During November 1998, the Company entered into agreements to complete a three
tranche private placement consisting of 3,185 shares of Series H Preferred Stock
for $3,000,000. The first tranche closed in November 1998, the second tranche
closed in December 1998 and the third tranche is scheduled to close in February
1999. As of December 31, 1998, 1,749 shares of Series H Preferred Stock had been
issued for $1,650,000. The Series H Preferred Stock is not redeemable and has a
liquidation preference of $1,000 per share. The holders of Series H Preferred
Stock are not entitled to receive any dividends nor, except as provided by law,
vote upon any matter relating to the business or affairs of the Company or for
any other purpose. Each share of Series H Preferred Stock is convertible, after
the holding period, into the Company's common stock, at a conversion rate which
is determined by dividing $1,000 by the Conversion Price. The Conversion Price
shall be the lesser of (a) 110% of the average of the closing bid prices of the
common stock for the five-day trading period on the trading date immediately
preceding the Closing Date or (b) the average of the two (2) lowest closing bid
prices of the common stock over the thirty (30) trading days immediately
preceding the Conversion. In addition, the Company issued 213,575 warrants
related to the Series H Preferred Stock. One half of the warrants is exercisable
for one share of common stock at $0.95 through November 24, 2003 and one-half of
the warrants is exercisable for one share of common stock at $0.73 through
December 20, 2003, after which the warrants will expire.

As of December 31, 1998, 770,509 shares of Series E Preferred Stock, 2,210
shares of Series G Preferred Stock and 1,749 shares of Series H Preferred Stock
were outstanding.

WARRANTS

Warrant activity for the nine month period ended December 31, 1998 is as
follows:

<TABLE>
<CAPTION>
                                                                      Warrant Price
                                                          Shares         Per Share
                                                         ---------    -------------
<S>                                                      <C>          <C> 
Outstanding at March 31, 1998                            2,177,722    $1.25 - $1.80
Granted                                                    809,934    $0.73 - $0.95
Exercised (converted)                                           --          -
Expired                                                         --          -
                                                         ---------
Outstanding at December 31, 1998                         2,987,655
                                                         =========
</TABLE>



                                       8
<PAGE>   9

                              STARBASE CORPORATION

                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)


6.   SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                  Nine months
                                                               Ended December 31,
                                                              -------------------
 (In thousands)                                                1998        1997
                                                              ------      -------
<S>                                                           <C>         <C>    
Interest paid                                                 $  11       $     6
Income taxes paid                                                 2             1

Non-cash investing and financing transactions:
  Non-cash preferred stock and common stock dividends          (256)       (1,660)
  Conversion of preferred  stock to common stock (Note 5)        45             2
  Common stock issued in 3-for-1 warrant conversion
     (Note 4)                                                    --            15
  Equipment purchased under capitalized lease                    12            54
</TABLE>


7.   COMMITMENTS AND CONTINGENCIES

In July 1998, the Company entered into a sub-lease for new office space located
at 4 Hutton Centre Drive, Santa Ana, CA 92707. The new offices consist of 17,000
square feet costing approximately $27,000 per month through February 22, 2000.
Simultaneously, the Company also entered into a lease agreement for 4,100
contiguous square feet beginning February 1999 through September 2003 at a rate
of approximately $8,000 per month. In addition, the Company entered into a lease
agreement for the 17,000 square feet beginning February 23, 2000 through
September 2003 at a rate of approximately $41,000 per month.

8.   SUBSEQUENT EVENTS

Effective January 26, 1999, the Company completed a private placement of 37,736
shares of restricted Common Stock for $60,000 to Company executives. In
addition, the Company issued 7,548 warrants with each warrant exercisable for
one share of common stock at $1.59 through January 26, 2000, after which the
warrants will expire.



                                       9
<PAGE>   10

                                     PART I

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


RESULTS OF OPERATIONS

Total revenue increased in the three month period ended December 31, 1998 by
$1,260,000 or 192%, to $1,917,000, from $657,000 in the same three month period
of the previous year. This was due to an increase in product, maintenance and
training revenue ($1,302,000), partially offset by a slight decrease in license
and royalty revenue from the Company's Roundtable product ($42,000). Total
revenue for the nine month period ended December 31, 1998, increased to
$4,714,000 from $1,361,000 in the same period of the prior year. The increase in
product revenue has been favorably affected by the February 1998 release of the
StarTeam 3.0 family of products.

Cost of Sales increased to $105,000 from $14,000 in the three month period ended
December 31, 1998 over the same quarter of the previous year and to $441,000
from $69,000 for the nine month period ended December 31, 1998 over the same
period of the previous year due to the increase in product shipments. Cost of
sales consists primarily of manufacturing and related costs such as media,
documentation, product assembly and third party royalties. The Company
out-sources manufacturing for all software products, with the exception of the
Company's Roundtable product.

Operating expenses in the three month period ended December 31, 1998 increased
to $3,636,000 from $2,189,000 in the same quarter of the previous year. For the
nine month period ended December 31, 1998, operating expenses increased to
$10,922,000 from $5,615,000. These increases were primarily due to the building
of the sales & marketing and research & development infrastructures. At December
31, 1998, the Company had 90 full-time employees, which consisted of 29 in sales
& marketing, 46 in research & development and 15 in general & administrative. At
December 31, 1997, the Company had 54 employees, which consisted of 15 in sales
& marketing, 30 in research & development and 9 in general & administrative.

Research and development expenses. Research & development expenses include
personnel and other such direct and overhead expenses incurred in the
development of the Company's products. StarBase continues to make significant
investments in research and development intended to bring its products to market
and to support existing products. In the three month period ended December 31,
1998 overall research and development expenses increased to $1,013,000 compared
to $817,000 for the same period in the prior year and for the nine month period
ended December 31, 1998 increased to $3,151,000 compared to $1,922,000 for the
same period in the prior year primarily as a result of the increase in
development staff.

Selling, general and administrative expenses. Selling, general & administrative
expenses for the three months ended December 31, 1998 increased approximately
$1,251,000 over the same period in the prior year. For the nine month period
ended December 31, 1998 selling, general & administrative expenses increased to
$7,771,000 from $3,693,000 in the corresponding period of the prior year. The
increase was mainly the result of additional sales and marketing personnel
coupled with the advertising and promotion programs to launch the StarTeam 3.0
family of products.

INTEREST INCOME/EXPENSE

Interest income for the three month period ended December 31, 1998 decreased to
$4,000 compared to $25,000 for the same period in the prior year.

Interest expense for the three month period ended December 31, 1998 decreased to
$7,000 compared to $578,000 for the same period in the prior year. Prior
period's interest expense was a result of the non-cash accrued interest and debt
discount amortization on convertible debentures issued in August and September
1997.



                                       10
<PAGE>   11

INCOME TAXES

The Company has not recorded a current or deferred provision for federal income
taxes for any period to date, as a result of losses incurred since its
inception. Any provision for income taxes represents the minimum required for
state taxes.

NON-CASH DIVIDEND

Non-cash dividend for the three month period ended December 31, 1998 was $57,000
due to the beneficial conversion feature of the Series G Preferred Stock and
warrants issued. There was no non-cash dividend for the three month period ended
December 31, 1997.

FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY EFFECT FUTURE RESULTS

The following discussion contains forward-looking statements within the meaning
of Sections 21E and 27A of the Securities Exchange Act of 1934. These forward-
looking statements are subject to risks and uncertainties. There are several
important factors that could cause actual results to differ materially from
those anticipated by the forward-looking statements contained in the following
discussion. Such factors include, but are not limited to, the growth rates of
certain market segments, the timing of software product introductions, market
acceptance of product introductions, the positioning of the Company's products
in those segments, price pressures and the rapidly changing competitive
environment in the software industry, success in technological advances and
their implementation, business conditions and the general economy, the Company's
ability to manage its business in its evolution from a development stage
company, and the Company's ability to establish strategic alliances. Additional
information on these and other risk factors which could affect the Company's
financial results is included in the Company's Annual Report for the fiscal year
ended March 31, 1998 on Form 10-KSB/A on file with the Securities and Exchange
Commission.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents on hand as of December 31, 1998 totaled $62,000 and
$4,167,000 as of March 31, 1998. At December 31, 1998 the Company had positive
working capital of $1,393,000, compared to $3,632,000 at March 31, 1998.

During the nine months ended December 31, 1998, the Company used $8,021,000 for
operations, an increase of approximately $3,848,000 over the amount used for
operations in the prior year. The increase was primarily due to the building of
the Company's infrastructure. Capital expenditures were approximately $624,000
and $256,000 during the nine months ended December 31,1998 and December 31,
1997, respectively.

The Company warrants products against defects for 90 days and has a policy
permitting the return of products within 30 days. Warranty costs and returns,
which are not significant, have historically been within management's
expectations. The Company has reserved approximately $112,000 at December 31,
1998 compared to $89,000 at March 31, 1998 for future returns and other
collection issues. The increase is due to greater revenue.



                                       11
<PAGE>   12

THE YEAR 2000

The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any computer programs
that have date-sensitive software may recognize a date using "00" as the
calendar year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.

The Company believes that it has no exposure to Year 2000 issues for the
products it has sold, as the products were designed with four digit year
recognition.

The Company has begun its assessment of its internal systems affected by the
Year 2000 Issue and anticipates that it will not be required to modify or
replace significant portions of its software so that its computer systems will
properly utilize dates past December 31, 1999.

The Company has initiated communications with its significant suppliers and
customers to determine the extent to which the Company is vulnerable to those
third parties' failure to remediate their own Year 2000 Issue. There can be no
guarantee that the systems of other companies on which the Company's systems
rely will be timely converted, or that a failure to convert by another company,
or a conversion that is incompatible with the Company's systems, would not have
a material adverse effect on the Company.

NEW ACCOUNTING STANDARDS

In October 1997 and March 1998, the Accounting Standards Executive Committee
("AcSEC") issued Statement of Position ("SOP") 97-2, "Software Revenue
Recognition" and SOP 98-4, "Deferral of the Effective Date of a Provision of SOP
97-2, Software Revenue Recognition," respectively, which provide guidance on
applying generally accepted accounting principles in recognizing revenue on
software transactions and is effective for the Company's transactions entered
into subsequent to March 31, 1998. AcSEC is currently deliberating the potential
permanent deferral of certain provisions of SOP 97-2. The Company does not
believe that implementation of SOP 97-2 and SOP 98-4 will have a material
adverse affect on expected revenues or earnings.



                                       12
<PAGE>   13

                                     PART II


                                     ITEM 5
                                OTHER INFORMATION


None.



                                       13
<PAGE>   14

                                     ITEM 6
                        EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

<TABLE>
<CAPTION>
Exhibit                                                                                Ref./
Number               Description Of Document                                           Page
----------  --------------------------------------------------------------------       -----
<S>         <C>                                                                        <C>
 10.1       Form of Securities Purchase Agreement                            
 10.2       Certificate of Designation for Series H Preferred Stock   
 10.3       Form of Registration Rights                
 10.4       Form of Warrant                     
 27         Financial data schedule
</TABLE>


(b)  Reports on Form 8-K

None.



                                       14
<PAGE>   15

SIGNATURES


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

                                        STARBASE CORPORATION
                                        (Registrant)

February 12, 1998                       /s/ Douglas S. Norman
                                        ----------------------------------------
Date                                    Douglas S. Norman
                                        Director of Finance
                                        Chief Accounting Officer



                                       15
<PAGE>   16

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit                                                                                Ref./
Number               Description Of Document                                           Page
----------  --------------------------------------------------------------------       -----
<S>         <C>                                                                        <C>
 10.1       Form of Securities Purchase Agreement                                        
 10.2       Certificate of Designation for Series H Preferred Stock                      
 10.3       Form of Registration Rights                                                  
 10.4       Form of Warrant                                                              
 27         Financial data schedule
</TABLE>



                                       16