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, 1996


                                       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)



                 Delaware                            33-0567363
       (State or other jurisdiction of            (I.R.S. Employer
        incorporation or organization)          Identification Number)


          18872 MacArthur Boulevard 
             Irvine, California                         92612
   (Address of principal executive offices)          (Zip code)


                                 (714) 442-4400
              (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, 1997: 
                                   Common Stock:                13,280,569
                                   Series C Preferred Stock:        25,000

Transitional Small Business Disclosure Format:           Yes  |_|     No  |X|



<PAGE>



                              STARBASE CORPORATION

                                TABLE OF CONTENTS


PART I.       FINANCIAL INFORMATION

    ITEM 1.   Financial Statements

              Balance Sheets at December 31, 1996 (Unaudited)
              and March 31, 1996                                              3

              Statements of Operations (Unaudited) for the three
              and nine month periods ended December 31, 1996 and 1995         4

              Statements of Cash Flows (Unaudited) for the nine month
              periods ended December 31, 1996 and 1995                        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

                                     
                                        2
<PAGE>



                                     PART I

                                     ITEM 1
                              FINANCIAL STATEMENTS

                              STARBASE CORPORATION
                          (a development stage company)

                                 BALANCE SHEETS
             (in thousands, except number of shares and par values)
<TABLE>
<CAPTION>

                                                                                 December 31,         March 31,
                                                                                     1996                1996
                                                                                ---------------     ---------------
                                                                                 (unaudited)
<S>                                                                             <C>                 <C>    
     
     ASSETS

     Current Assets:
       Cash and cash equivalents                                                $       4,349       $     1,252
       Accounts receivable, net of allowances of $23 and $44                              187                 3
       Notes and other receivables                                                        112                10
       Prepaid expenses and deferred charges                                              152               137
       Inventories                                                                         36                14
                                                                                ---------------     ---------------

         Total current assets                                                           4,836             1,416

     Property and equipment, net                                                          523               660
     Note receivable from officer                                                          76                76
     Other non-current assets                                                               6                21
                                                                                ---------------     ---------------

     Total assets                                                               $       5,441       $     2,173
                                                                                ===============     ===============


     LIABILITIES AND SHAREHOLDERS' EQUITY

     Current Liabilities:
       Accounts payable and accrued liabilities                                 $         708       $     1,375
       Due to director                                                                      -               280
       Other current liabilities                                                            1               111
       Current portion of notes payable                                                     -               186
                                                                                ---------------     ---------------

         Total current liabilities                                                        709             1,952

     Long-term debt                                                                         -               153
                                                                                ---------------     ---------------

         Total liabilities                                                                709             2,105


     Shareholders' equity:
       Preferred  stock,  $.01 par value;  $150  (December  31, 1996) and $4,456
         (March 31, 1996) liquidation value; authorized 10,000,000; issued
         and outstanding 50,000 (December 31, 1996) and 2,227,946 (March 31,                1                22
         1996)
       Common stock, $.01 par value;  authorized  50,000,000;  issued 13,219,758
         (December 31, 1996) and 7,841,812 (March 31, 1996);
         outstanding, 13,219,758 (December 31, 1996) and 7,835,551 (March                 132                78
         31, 1996)
      Common stock pending authorization                                                   27                27
      Additional paid-in capital                                                       26,661            18,185
      Treasury stock, -0- shares December 31, 1996;  6,261 common shares                    -               (21)
         March 31, 1996
      Deficit accumulated during development stage                                    (22,089)          (18,223)
                                                                                ---------------    ---------------

       Total shareholders' equity                                                       4,732                68
                                                                                ---------------    ---------------

     Total liabilities and shareholders' equity                                 $       5,441       $     2,173
                                                                                ===============     ===============

                      The accompanying notes are an integral part of the financial statements

</TABLE>
                                       3
<PAGE>


                                               STARBASE CORPORATION
                                           (a development stage company)

                                             STATEMENTS OF OPERATIONS
                                                    (Unaudited)
                                      (in thousands, except per share amounts)
<TABLE>
<CAPTION>

                                                                                            Sept. 6, 1991
                                                                                               through
                                          Three months ended           Nine months ended     December 31,
                                             December 31,                December 31,            1996
                                       --------------------------  --------------------------
                                           1996          1995          1996          1995    (cumulative)
                                                                                             ------------
                                       ------------  ------------  ------------  ------------
<S>                                    <C>           <C>           <C>           <C>         <C> 

Revenues:
  Consulting services                  $      -      $      2      $      -      $    500     $   4,430
  Consulting services-related party           -             -             -             -           281
  Products, licenses and other              385            13           766           228         2,427
                                       ------------  ------------  ------------  ------------  ------------

    Total revenues                          385            15           766           728         7,138

Cost of Sales:
  Consulting services                         -             -             -           625         4,716
  Consulting services-related party           -             -             -             -           289
  Products, licenses and other               24             4            52            77           383
                                       ------------  ------------  ------------  ------------  ------------

    Total cost of sales                      24             4            52           702         5,388
                                       ------------  ------------  ------------  ------------  ------------
Gross margin                                361            11           714            26         1,750

Operating Expenses:
  Research and development                  393           477         1,080         1,973         8,515
  Selling, general and administrative     1,286           579         3,641         2,590        15,629
                                       ------------  ------------  ------------  ------------  ------------

    Total operating expenses              1,679         1,056         4,721         4,563        24,144
                                       ------------  ------------  ------------  ------------  ------------

  Operating loss                         (1,318)       (1,045)       (4,007)       (4,537)      (22,394)

  Interest, other income and                 52            (2)          165           (74)          337
   (expense), net                      ------------  ------------  ------------  ------------  ------------

 Loss before income taxes                (1,266)       (1,047)       (3,842)       (4,611)      (22,057)

  Provision for income taxes                  2             -             3             1            11
                                       ------------  ------------  ------------  ------------  ------------

    Net loss                           $ (1,268)     $ (1,047)     $ (3,845)     $ (4,612)     $(22,068)
                                       ============  ============  ============  ============  ============

Per share data:
  Loss per common share                $  (0.10)     $  (0.13)     $  (0.32)     $  (0.65)
                                       ============  ============  ============  ============

  Weighted average number of
   common shares outstanding             13,210         7,823        12,053         7,045
                                       ============  ============  ============  ============




                      The accompanying notes are an integral part of the financial statements
</TABLE>
                                       4
<PAGE>


                                               STARBASE CORPORATION
                                           (a development stage company)

                                             STATEMENTS OF CASH FLOWS
                                                    (Unaudited)
                                                   (in thousands)
<TABLE>
<CAPTION>
                                                                                                     Sept. 6, 1991
                                                                                                        through
                                                                           Nine months ended          December 31,
                                                                              December 31,                1996
                                                                     -------------------------------
                                                                          1996            1995        (cumulative)
                                                                     --------------- --------------- ---------------
<S>                                                                  <C>             <C>             <C>         
Cash Flows from Operating Activities:
  Net loss                                                           $    (3,845)    $    (4,612)    $   (22,068)
  Adjustments to reconcile net loss to
    net cash used in operating activities:
    Depreciation and amortization                                            177             196             745
    Provision for doubtful accounts and sales returns                         54             (35)            184
    Loss on disposition of property, equipment and capital lease              16              56              90
    Write-down of assets                                                       -              45              50
    Gain on debt restructuring                                                 -               -            (138)
    Recognition of deferred income                                          (108)              -            (343)
    Other adjustments                                                          -               -              75
    Common stock to be issued for professional services                       27               -              27
    Changes in assets and liabilities, excluding
       the effect of non-cash transactions:
      Accounts receivable                                                   (239)            727            (371)
      Notes and other receivables                                           (102)              1            (183)
      Inventories                                                            (22)             25             (36)
      Prepaid expenses and deferred charges                                  (15)             27            (166)
      Other assets                                                            11            (131)            (30)
      Accounts payable and accrued liabilities                              (908)            620           1,197
                                                                     --------------- --------------- ---------------

 Net cash used by operations                                              (4,954)         (3,081)        (20,967)

Cash Flows from Investing Activities:
  Proceeds from disposition of property and equipment                          1               -               5
  Capital expenditures                                                       (53)            (22)         (1,298)
                                                                     --------------- --------------- ---------------

Net cash used by investing activities                                        (52)            (22)         (1,293)

Cash Flows from Financing Activities:
  Proceeds from reverse acquisition                                            -               -           1,402
  Proceeds from sale of preferred stock                                    1,021               -           7,294
  Proceeds from preferred stock subscriptions                                              3,201               -
  Proceeds from issuance of common stock:
    From stock purchase plan                                                   -               -              10
    From public offering                                                       -               -           4,063
    From private placements                                                6,300             304          10,698
    From exercise of options                                                 282             102             548
    From exercise of warrants                                              1,630               -           2,654
  Proceeds from convertible subordinated notes                                 -               -             381
  Proceeds from promissory notes                                               -           1,083           1,083
  Payments on promissory notes                                              (111)            (75)           (274)
  Borrowings on line of credit                                                 -               -             664
  Payments on line of credit                                                   -            (664)           (664)
  Payment of financing related costs                                      (1,019)              -          (1,424)
  Payments on capitalized lease obligations                                    -              (8)            (40)
  Loans from officers/directors                                                -             285             365
  Repayment of loans from officers/directors                                   -             (75)            (75)
  Repayment of (disbursement of) loan to officer                               -              55             (76)
                                                                     --------------- --------------- ---------------

Net cash provided by financing activities                                  8,103           4,208          26,609
                                                                     --------------- --------------- ---------------

Net increase (decrease) in cash                                            3,097           1,105           4,349

Cash and cash equivalents, beginning of period                             1,252           1,972               -
                                                                     --------------- --------------- ---------------

Cash and cash equivalents, end of period                             $     4,349     $     3,077     $     4,349
                                                                     =============== =============== ===============

                      The accompanying notes are an integral part of the financial statements
</TABLE>
                                       5
<PAGE>


                              STARBASE CORPORATION
                          (a development stage company)

                          NOTES TO FINANCIAL STATEMENTS
                                  (Unaudited)


1.    DESCRIPTION OF BUSINESS

StarBase Corporation (the "Company"), a Delaware corporation,  develops, markets
and supports  team-oriented  product  development  software  that  addresses the
evolving  needs of  personal  computer  users  involved  in  projects  requiring
substantial collaboration. StarBase was founded in 1991 to address the inability
of software development projects to deliver software products on time and within
budget,  initially through the improvement of individual programmer productivity
tools.  The Company  was  reorganized  in fiscal  1996 to focus  entirely on the
development  and marketing of software  designed to increase team  productivity,
rather than individual programmer productivity. In line with the reorganization,
the Consulting Division was discontinued.

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-K, as amended, for the year ended March 31, 1996.

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,  1996 are not  necessarily  indicative  of the
operating results for a full year.

EARNINGS PER COMMON SHARE
Earnings  per  common  share  are  calculated  by  dividing  the net loss by the
weighted average shares of common stock  outstanding.  Common stock  equivalents
are considered anti-dilutive and are excluded from this calculation.


                                       6
<PAGE>


                              STARBASE CORPORATION
                          (a development stage company)

                          NOTES TO FINANCIAL STATEMENTS
                                  (Unaudited)


3.   COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
       (In thousands)                           
                                                 December 31,    March 31,
                                                    1996            1996
                                                -------------   -----------
       Accounts receivable
       Trade accounts receivable               $         210    $       47
       Less allowance for doubtful accounts              (23)          (44)
                                                -------------   -----------
                                               $         187    $        3
                                               ===============  ===========


       Property and equipment
       Computer hardware                       $         884    $      869
       Furniture and fixtures                            130           125
       Computer software                                 126           115
       Leasehold improvements                             29            41
                                               ---------------   -----------
                                                       1,169         1,150
       Less accumulated depreciation and
         amortization                                   (646)         (490)
                                               ----------------  -----------
                                               $         523    $      660
                                               ================  ===========


       Accounts payable and accrued
         liabilities
       Trade accounts payable                  $         225     $      910
       Accrued professional fees                         184            135
       Accrued wages and bonuses                          96             70
       Other accrued expenses                            203            260
                                                ---------------  -----------
                                               $         708     $    1,375
                                                ===============  ===========




4.   EQUITY TRANSACTIONS

PRIVATE PLACEMENTS
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. Of the preferred
stock,  2,500,000  shares have been  designated as Series B Preferred  Stock, of
which no shares are issued and  outstanding  at December 31,  1996,  and 366,666
shares have been designated as Series C Preferred  Stock, of which 50,000 shares
are outstanding at December 31, 1996.

On May 13, 1996, a private  placement  of common  stock was  completed.  In this
private  placement,  2,099,832  Units were issued,  each Unit  consisting of one
share of common stock and one non-transferable  warrant to purchase one share of
common stock.  The warrants are  exercisable at $2.00 per share through  January
31, 1997 and thereafter exercisable at $2.50 per share through January 31, 1998,
after which date the warrants expire. In addition,  warrants to purchase 120,000
shares of the Company's common stock were issued as a placement agent fee.

As a result of the May 13, 1996 private placement of common stock, the 2,227,946
shares of the  Company's  Series B  Preferred  Stock,  issued  in a fiscal  1996
private  placement,   automatically  converted  into  2,227,946  shares  of  the
Company's common stock.

                                       7
<PAGE>


                              STARBASE CORPORATION
                          (a development stage company)

                          NOTES TO FINANCIAL STATEMENTS
                                  (Unaudited)


During  June  1996,  the  private  placement  of  Series C  Preferred  Stock was
completed.  In this private  placement,  365,496  Units were  issued,  each Unit
consisting  of one share of Series C  Preferred  Stock and one  non-transferable
warrant to purchase one share of common stock.  The warrants are  exercisable at
$2.00 per share through January 31, 1997 and thereafter exercisable at $2.50 per
share through January 31, 1998, after which date the warrants expire. The Series
C Preferred  Stock is not redeemable  and has a liquidation  preference of $3.00
per share.  The holders of Series C 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 C Preferred  Stock is  convertible,  at the option of the holder,  at any
time into the  Company's  common  stock,  of which the  conversion  rate will be
determined by dividing $3.00 by the Conversion Price. The Conversion Price shall
be the lesser of (a) $3.00 per share or (b) 80% of the average closing bid price
of the common  stock as reported by  Bloomberg,  L.P.  for shares  traded in the
United States for the five  consecutive  trading days  preceding the  conversion
date. At December 31, 1996,  315,496 shares of Series C Preferred Stock had been
converted into 382,609 shares of common stock.

CONVERSION OF NOTE PAYABLE
A promissory note payable with a face value of $75,000 was converted into Series
C Preferred  Stock at a price of $3.00 per Unit.  Long-term notes payable to two
directors   and  one  director   with  face  values   totaling  $80K  and  $73K,
respectively,  were  converted to common stock at a price of $3.18 and $2.19 per
share, respectively.

COMMON STOCK PENDING AUTHORIZATION
Common stock  pending  authorization  represents  common  shares to be issued in
payment for consulting fees to an independent consultant.

TREASURY SHARES
On November 8, 1996,  the Company  retired  6,261 shares of common stock held in
treasury.

WARRANTS
Warrant  activity  for the nine  month  period  ended  December  31,  1996 is as
follows:

                                                                Warrant Price
                                                Shares            Per Share
                                           ------------------- ----------------

Outstanding at March 31, 1996                        2,949,595

Issued in connection with stock offerings            2,580,328           $2.00
Exercised                                             (441,383)    $2.00-$5.67
Expired                                                 (5,006)          $5.67
                                            -------------------
 Outstanding at December 31, 1996                    5,083,534
                                            ===================


                                       8
<PAGE>


                              STARBASE CORPORATION
                          (a development stage company)

                          NOTES TO FINANCIAL STATEMENTS
                                  (Unaudited)


5.   SUPPLEMENTAL CASH FLOW INFORMATION

                                                              Nine months
                                                           ended December 31,
                                                         ----------------------
(In thousands)                                             1996          1995
                                                         ---------    ---------

Interest paid                                            $      20    $     28
Income taxes paid                                                1           1

Non-cash investing and financing transactions:
  Conversion of Series A Preferred Stock to
     common stock                                                -       2,710
  Conversion of Series B Preferred Stock to
     common stock (Note 4)                                      22           -
  Conversion of Series C Preferred Stock to
     common stock (Note 4)                                       3           -
  Conversion of promissory notes to Series C Preferred
     Stock (Note 4)                                             75           -
  Conversion of notes payable to equity (Note 4)               153         745
  Common Stock issued for non-cash consideration                28           -
  Conversion of loans from officers to equity                    -         137
  Treasury stock retired, 6,261 common shares (Note 4)          21           -
  Common stock issued as finder's fees                           -          39


6.   COMMITMENTS AND CONTINGENCIES

There have been no other  significant  subsequent  developments  relating to the
commitments and  contingencies  reported on the Company's most recent Form 10-K,
as amended.


                                       9
<PAGE>


                                     PART I

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



FORWARD-LOOKING STATEMENTS

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  positioning  of the Company's  products in those
segments,  price pressures and the rapidly changing  competitive  environment in
the  software  industry,  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, 1996 on Form 10-K,
as amended, on file with the Securities and Exchange Commission.


REVENUES

In the spring of 1995 the  management of StarBase made the decision to focus the
Company's  business on the  development  and  marketing of software  designed to
increase team productivity,  rather than individual programmer productivity. The
Company was  reorganized  in fiscal  1996 to reflect  this change in product and
market  focus and,  in line with the  reorganization,  the 26 person  Consulting
Division was discontinued. Thus, consulting services revenue for the quarter and
nine month  period ended  December 31, 1996  decreased to nil compared to $2,000
for the quarter and $500,000 for the nine months of the previous  year.  Revenue
from  products  and  licenses  for the quarter and nine months was  $385,000 and
$766,000  compared to $13,000 and  $228,000 for the same periods of the previous
year.  Revenue from  products and licenses for the quarter and nine months ended
December  31, 1996  consisted  primarily  of license fee income and sales of the
StarTeam and Versions products.

Product  revenue to date has been limited by a number of factors,  including the
introductory cycle for new software development tools such as StarTeam. StarTeam
1.0 was  introduced in January 1996,  followed by StarTeam 2.0 in late August of
1996.  Sufficient  working capital was not available to support a major StarTeam
1.0  marketing  and sales  program.  The  StarTeam  1.0  marketing  strategy was
therefore to sell the product to  strategic  customers,  who,  with a successful
initial  experience,  had  the  potential  to  generate  significant  additional
business.  In June 1996, sufficient working capital was raised through a private
placement  to support a major  marketing  and sales  program for  StarTeam  2.0.
Commercial  shipments  of  StarTeam  2.0 began in the final week of  August.  In
addition, Versions 2.0 sales commenced during the final week of December 1996.

StarTeam  is a new  software  product  line  whose  target  market  consists  of
technical   software   professionals   (developers).   Marketing   to  technical
professionals is an educational process. In the typical sales cycle, the product
is purchased as a pilot test  program,  installed and evaluated on a small scale
(3-10 seats),  and, if the evaluation is  satisfactory,  implemented on a larger
project which may involve 10 to 25 developers.  Successful implementation in the
project may lead to broader  acceptance within the  organization.  The time span
from  an  initial  test  order  to  implementation   throughout  the  customer's
organization   varies   depending   on  the   organization   and  the  level  of
standardization within the individual company, but in very large companies,  may
take 6 months to a year.

Since mid-May of 1996, when additional  working  capital became  available,  the
Company has been focused on strengthening its sales and marketing effort. Due to
the  technical  nature of the  product  line,  the Company  determined  that its
primary  sales effort  would be through  direct  tele-sales  as well as targeted
programs toward original equipment manufacturers (OEM) and large accounts. Prior
to the  availability  of  additional  working  capital in May 1996,  several key
positions in sales and  marketing  were not filled.  As of December 31, 1996 the
Company has filled the open sales and marketing positions.


                                       10
<PAGE>

COST OF SERVICES AND PRODUCTS

There was no consulting  service  revenue or cost of service  revenue during the
quarter  and  for  the  nine  months   ended   December  31,  1996  due  to  the
discontinuation of the Company's Consulting Division.  The negative gross margin
resulting  from  services  for the quarter  ended  December  31,  1995  reflects
decreased  consulting staff  utilization as the Company reduced the scope of its
consulting operations.

Cost of products  consists  primarily of manufacturing and related costs such as
media,  documentation,  product assembly and third party royalties.  The Company
currently  outsources  manufacturing for all software products.  The decrease in
cost of products as a percentage of product  revenues is primarily the result of
increased  license  and  maintenance  revenue  for which no  related  costs were
incurred.

OPERATING EXPENSES

Compared to the same  quarter in the prior year,  operating  expenses  increased
approximately  $623,000,  59%,  due  to a  significant  increase  in  sales  and
marketing  expenditures  offset  by  a  decrease  in  research  and  development
expenses.  During the quarter ended December 31, 1995, the company experienced a
severe  cash  shortage  which  resulted  in a  dramatic  cut-back  in  operating
expenses, including substantial personnel reductions. For the comparable quarter
in the current year, as additional working capital became available and, coupled
with the completion and introduction of StarTeam 2.0 into the market, additional
operating  expenses were incurred.  The increase in sales and marketing expenses
for the quarter is due to increased promotional  activities as well as increased
headcount.   Research  and  development  expenses  decreased  due  to  headcount
reductions during the quarter ended December 31, 1995. At December 31, 1996, the
Company had 40 full-time employees,  14 in sales and marketing, 7 in general and
administrative,  and 19 in  research  and  development.  During 1995 the Company
embarked on a dramatic  headcount  reduction,  moving  from an employee  base of
approximately  90 persons to where,  as of December 31, 1995, the Company had 28
full-time employees,  5 in sales and marketing, 7 in general and administrative,
and 16 in research and development.

RESEARCH AND DEVELOPMENT EXPENSES.  While StarBase continues to make significant
investments in research and development intended to bring its products to market
and to support existing products, overall research and development expenses have
been reduced.  The Company has not  capitalized any software  development  costs
since inception.  For the current quarter research and development expenses were
reduced by $84,000, approximately 18% of total research and development expenses
for the same quarter in the prior year. For the nine month period,  research and
development  expenses decreased $893,000 over the same period in the prior year.
The primary cause for the decrease is the reduction in headcount  which resulted
in a reduction of compensation expense of approximately $675,000, reflecting the
Company's  shift  to  the development of software  designed to  increase  team
productivity.  In addition, the Company's  research  and development  resources
have  also  been re-allocated  between on-going projects as well as conceptual, 
future-business projects.

SELLING,   GENERAL   AND   ADMINISTRATIVE   EXPENSES.   Selling,   general   and
administrative  expenses for the quarter and nine months ended December 31, 1996
compared  to the  same  periods  of  1995  increased  $707,000  and  $1,051,000,
respectively.  For the nine month period the greatest increase occurred in sales
and marketing,  approximately $714,000. Of this amount approximately $80,000 was
due to headcount,  with the  remainder  due to marketing  programs such as media
space, trade  shows, direct  mail  and  promotional  materials.  The quarterly 
increase was due to similar items.

INTEREST, OTHER INCOME AND (EXPENSE), NET

Interest and other income and  (expense),  net  consisted  primarily of interest
income generated by placing available funds in short-term US Treasury Bills. For
the  comparative  periods in the prior year,  the amounts  consisted of interest
expense payable on the credit line and promissory notes.

INCOME TAXES

The Company has incurred minimal income taxes due to its cumulative  losses. The
provision for income taxes for the quarter  represented  minimum state franchise
taxes.

                                       11
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash  equivalents on hand totaled $4.3 million at December 31, 1996 and
$1.3 million at March 31, 1996.  During the nine months ended  December 31, 1996
the Company  generated  $8.1 million  (net) in cash from  financing  activities,
including  $8.2 million  (net) from the sale of additional  equity.  The Company
completed a private  placement of preferred stock for proceeds of  approximately
$1.0  million,  a private  placement  of common  stock  for  approximately  $6.3
million, exercise of options for $0.3 million, and exercise of warrants for $1.6
million.  Offsetting the proceeds from financings,  the Company made payments on
financing related costs of $1.0 million and on promissory notes of approximately
$0.1 million.

During the past nine months,  the Company used $5.0 million for  operations,  an
increase of approximately $1.9 million over the amount used by operations in the
same  nine  month  period  of the  prior  year.  The  increase  in cash used for
operations  was primarily due to the  substantial  pay down of accounts  payable
compared to the same period in the prior year when accounts payable were allowed
to cumulate due a cash shortage. Capital expenditures were approximately $53,000
for the nine months ended December 31, 1996.

The Company  believes  that proceeds  from the sale of equity  securities  since
March  31,  1996 and the cash  balance  at  December  31,  1996 will at least be
sufficient to allow the Company to conduct its  operations  through August 1997.
Continuing  operations  thereafter  will  depend  on  increased  cash  flow from
operations or the Company's  ability to raise  additional  funds through equity,
including  conversion of warrants;  debt;  or other financing.  There can be no
assurance, however, that such funds will be available.


                                       12
<PAGE>


                                    PART II


                                     ITEM 5
                                OTHER INFORMATION

On November 4, 1996, a  registration  statement on Form S-3 filed by the Company
was  declared  effective  by  the  Securities  and  Exchange   Commission.   The
registration  statement  covered 9,853,295 shares of common stock of the Company
(including  3,800,945  shares  issuable under  outstanding  warrants held by the
investors) which were issued to investors in eligible private placements.  Other
than proceeds  represented by the exercise price of the warrants if exercised by
the investors, the Company will not receive any of the proceeds from the sale of
the shares of common stock by the investors.


                                     ITEM 6
                        EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>

(a)      Exhibits

  Exhibit                                                                                                   Ref./
  Number                                       Description Of Document                                      Page
------------   ----------------------------------------------------------------------------------------   ----------
<S>            <C>                                                                                          <C>    

    1.1        Underwriting Agreement between the Company and Dabney/ Resnick, Inc.                          (F)
    3.1        Amended and Restated Certificate of Incorporation of the Company.                             (B)
    3.2        Amended and Restated Bylaws of the Company.                                                   (A)
    3.3        Certificate of Designation, Series C Preferred Stock.                                         (F)
    3.4        Certificate of Amendment of Certificate of Designation,  Series C Preferred Stock.            (F)
    4.1        Investor's  Rights  Agreement  date  September  16,  1994 among the Company and certain
               investors.                                                                                    (B)
    4.2        Registration Rights Agreement dated December 15, 1994.                                        (B)
    4.3        Registration Rights Agreement dated December 1995.                                            (E)
    4.4        Registration Rights Agreement dated May 1996.                                                 (D)
    4.5        Registration Rights Agreement dated June 1996.                                                (F)
   10.1        Form of Indemnity Agreement for Directors.                                                    (A)
   10.2        Form of Indemnity Agreement for Officers.                                                     (A)
   10.3        Performance  Share Escrow  Agreement,  as amended,  among the Company,  Montreal  Trust
               Company of Canada as Escrow Agent, and certain of the Company's stockholders.                 (A)
   10.4        Sublease dated December 2, 1993 between  McDonnell  Douglas Travel Company and StarBase
               Corporation, for the Company's Irvine, California facilities.                                 (B)
   10.5        1996 Stock Option Plan, as amended. (*)                                                       (G)
   10.6        Form of Restricted Stock Issuance Agreement.                                                  (A)
   10.7        Form of Restricted Stock Purchase Agreement.                                                  (A)
   10.8        Forms of Common Stock Subscription Agreements and Warrants used from time to time
               between the Company and certain of its stockholders in connection with certain equity
               financings, together with a list of equity investors.                                         (A)
   10.9        Forms of Common Stock Subscription Agreement and Warrants used in November 1994
               Private Placement.                                                                            (B)
   10.10       Forms of Common Stock  Subscription  Agreement  and Warrants used in March 1995 Private
               Placement.                                                                                    (C)
   10.11       Regional Prototype Defined Contribution Plan and Trust of the Company. (*)                    (A)
   10.12       Fiscal Agency Agreement between the Company and Canaccord Capital Corporation.                (B)
   10.13       Form of Agents' Warrant.                                                                      (B)
   10.14       Silicon Valley Bank Warrant dated December 15, 1994.                                          (B)
   10.15       Secured Promissory Note dated July 1, 1995 from William R. Stow III.                          (E)
   10.16       Forms of Preferred  Stock  Subscription  Agreements  and Warrants  used in January 1996
               Private Placement, together with a list of equity investors.                                  (E)
   
                                       13
<PAGE>

   10.17       Amendment  No. 1 to the  Sublease  dated  December 1, 1994  between  McDonnell  Douglas
               Travel  Company  and  StarBase  Corporation,   for  the  Company's  Irvine,  California
               facilities.                                                                                   (E)
   10.18       Amendment  No. 2 to the Sublease  dated  September 1, 1995  between  McDonnell  Douglas
               Travel  Company  and  StarBase  Corporation,   for  the  Company's  Irvine,  California
               facilities.                                                                                   (E)
   10.19       Forms of Common Stock  Subscription  Agreement  and Warrants  used in July 1995 Private
               Placement, together with a list of equity investors.                                          (E)
   10.20       Form of Warrant used in the May 13, 1996 Private Placement.                                   (D)
   10.21       Form of Subscription Agreement used in the May 13, 1996 Private Placement.                    (D)
   10.22       Form of  Preferred  Stock  Subscription  Agreement  and  Warrant  used in the June 1996
               Private Placement, together with a list of equity investors and placement agent.              (F)
   10.23       Lease dated  November 22, 1996 between The Provider Fund and StarBase  Corporation, for       16
               the Company's Irvine, California facilities.
    27         Financial data schedule

-------------------------
 <FN>
    (A)        Incorporated  herein by reference to the  Company's  Registration
               Statement  on Form SB-2  (file  number  33-68228)  filed with the
               Commission on November 2, 1993.

    (B)        Incorporated  herein by reference to the  Company's  Registration
               Statement  on  Form 10  (file  number  0-25612)  filed  with  the
               Commission on February 23, 1995.

    (C)        Incorporated herein by reference to the Company's Form 10-K (file
               number 0-25612) filed with the Commission on July 14, 1995.

    (D)        Incorporated  herein by reference to the Company's Form 8-K (file
               number 0-25612) filed with the Commission on May 16, 1996.

    (E)        Incorporated  herein by reference to the Company's  Form 10-K, as
               amended,  (file number 0-25612) filed with the Commission on July
               1, 1996.

    (F)        Incorporated  herein by  reference to the  Company's  Form 10-QSB
               (file number  0-25612)  filed with the  Commission  on August 14,
               1996.

    (G)        Incorporated  herein by  reference  to the  Company's  Definitive
               Proxy  Statement  (file number 0-25612) filed with the Commission
               on July 29, 1996.

           *  Denotes a management contract or compensatory plan or arrangement.
</FN>
</TABLE>


(b)      Reports on Form 8-K

There were no reports on Form 8-K filed during the quarter.

                                       14
<PAGE>


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 7, 1997                            /s/ Donald R. Farrow
---------------------                    -------------------------
Date                                        Donald R. Farrow
                                            President


                                       15
<PAGE>