UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549






                                    FORM 10-Q






              |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                For the quarterly period ended September 30, 2001


                                       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)


    4 Hutton Centre Drive, Suite 900
          Santa Ana, California                            92707
(Address of principal executive offices)                (Zip code)


                                 (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 September 30, 2001:
Common Stock:                        69,905,580
Preferred Stock:                            0
<PAGE>


                              STARBASE CORPORATION

                                TABLE OF CONTENTS

<TABLE>

PART I.         FINANCIAL INFORMATION

    ITEM 1.     Financial Statements

<S>             <C>                                                                                           <C>
                Consolidated Balance Sheets at September 30, 2001 (Unaudited) and March 31, 2001              3

                Consolidated Statements of Operations (Unaudited) for the three and six month
                periods ended September 30, 2001 and 2000                                                     4

                Consolidated Statements of Comprehensive Operations (Unaudited) for the three
                and six month periods ended September 30, 2001 and 2000                                       5

                Consolidated Statements of Cash Flows (Unaudited) for the three and six month
                periods ended September 30, 2001 and 2000                                                     6

                Notes to Consolidated Financial Statements (Unaudited)                                        7

    ITEM 2.     Management's Discussion and Analysis of Financial Condition
                and Results of Operations                                                                   13

    ITEM 3.     Quantitative and Qualitative Disclosures about Market Risk                                  25

PART II.        OTHER INFORMATION

    ITEM 6.     Exhibits and Reports on Form 8-K                                                            26

Signatures                                                                                                  27
</TABLE>



                                       2
<PAGE>

                                  PART I ITEM 1
                              FINANCIAL STATEMENTS

                              STARBASE CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)

<TABLE>
<CAPTION>

                                                                                   September 30,      March 31,
                                                                                        2001             2001
                                                                                 ----------------------------------
                                                                                    (Unaudited)
<S>                                                                                  <C>           <C>
Assets
Current Assets:
  Cash and cash equivalents                                                          $   2,930     $  14,075
  Restricted cash                                                                          217           257
  Marketable securities                                                                      3             3
  Accounts receivable, net of allowances of $2,777 at
    Sept. 30, 2001 and $2,166 at March 31, 2001                                         10,505        16,148
  Notes and other receivables, net of allowances of $760 at March 31, 2001                 199           200
  Prepaid expenses and other assets                                                      1,309         1,183
                                                                                     -----------     --------

    Total current assets                                                                15,163        31,866

Property and equipment, net                                                              7,154         7,953
Intangible assets, net                                                                  57,869       107,628
Note receivable from officer                                                               106           104
Other non-current assets                                                                 1,458         1,487
                                                                                     -----------     --------

Total assets                                                                         $  81,750     $ 149,038
                                                                                      =========    =========

Liabilities and Stockholders' Equity
Current Liabilities:
  Line of credit                                                                     $   1,500     $      --
  Accounts payable                                                                       7,254        11,104
  Accrued compensation                                                                   2,449         3,381
  Other accrued liabilities                                                              5,383         6,706
  Deferred revenue                                                                       7,734         8,950
  Current portion of long-term obligations                                                 528           344
                                                                                     -----------     --------

    Total current liabilities                                                           24,848        30,485

Long-term liabilities:
  Long-term obligations, less current portion                                               97           238
  Long-term deferred revenue                                                                --           121
                                                                                     -----------     --------

    Total long-term liabilities                                                             97           359

                                                                                     -----------     --------
    Total liabilities                                                                   24,945        30,844

Commitments and contingencies

Stockholders' equity:
  Preferred stock, $.01 par value; 10,000,000 shares authorized, none
    issued and outstanding at September 30, 2001 and March 31, 2001                         --           --
  Common stock, $.01 par value; 150,000,000 authorized; 69,905,580 and
    69,386,443 shares issued and outstanding at September 30, 2001 and
    March 31, 2001                                                                          699          694
  Additional paid-in capital                                                            194,039      193,321
  Notes receivable                                                                          (71)        (219)
  Deferred non-cash compensation                                                           (530)        (662)
  Accumulated deficit                                                                  (137,214)     (74,857)
  Accumulated other comprehensive loss                                                     (118)         (83)
                                                                                     -----------     --------
    Total stockholders' equity                                                           56,805      118,194



Total liabilities and stockholders' equity                                            $  81,750    $ 149,038
                                                                                      =========    =========


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

                                       3
<PAGE>

                              StarBase Corporation
                      CONSOLIDATED Statements of Operations
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>

                                                                Three months ended               Six months ended
                                                                   September 30,                   September 30,
                                                          -------------------------------- -------------------------------
                                                               2001            2000             2001              2000
                                                          --------------- ---------------- ---------------- --------------
                                                                    (Unaudited)                     (Unaudited)
<S>                                                         <C>             <C>             <C>                 <C>
 Revenues:
  License                                                   $  6,119        $  6,411          $ 13,506          $ 11,526
  Service                                                      4,409           2,033             9,076             3,960
                                                            --------        --------          --------          --------


    Total revenues                                            10,528           8,444            22,582            15,486

Cost of Revenues:
  License                                                        510             195             2,087               301
  Service                                                      1,693           1,046             3,517             1,970
  Amortization and write-down of intangibles                   4,510             503             6,263               908
                                                            --------        --------          --------          --------

    Total cost of revenues                                     6,713           1,744            11,867             3,179
                                                            --------        --------          --------          --------

Gross margin                                                   3,815           6,700            10,715            12,307

Operating Expenses:
  Research and development                                     3,860           2,192             8,316             4,019
  Sales and marketing                                          7,707           4,621            16,346             8,543
  General and administrative                                   2,138           1,981             4,583             3,522
  Non-cash stock based compensation                              148             162               338             1,284
  Amortization and write-down of intangibles                  38,532           1,316            43,508             2,556
                                                            --------        --------          --------          --------

    Total operating expenses                                  52,385          10,272            73,091            19,924
                                                            --------        --------          --------          --------

  Operating loss                                             (48,570)         (3,572)          (62,376)           (7,617)

  Interest and other income                                        9             186               106               344
                                                            --------        --------          --------          --------

Loss before income taxes                                     (48,561)         (3,386)          (62,270)           (7,273)

  Provision for income taxes                                      30              --                87                 1
                                                            --------        --------          --------          --------


Net loss                                                    $(48,591)       $ (3,386)         $(62,357)         $ (7,274)
                                                            ========        ========          ========          ========

Per share data:
  Basic and diluted net loss per common share               $  (0.71)       $  (0.07)         $  (0.91)         $  (0.16)
                                                            ========        ========          ========          ========

  Basic and diluted weighted average common
    shares outstanding                                        68,412          46,231            68,225            45,288
                                                            ========        ========          ========          ========

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

                                       4
<PAGE>


                              STARBASE CORPORATION
               CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
                                 (in thousands)
<TABLE>
<CAPTION>

                                                        Three months ended                         Six months ended
                                                          September 30,                             September 30,
                                               -------------------------------------     -------------------------------------
                                                     2001                 2000                2001                 2000
                                               -----------------     ---------------     ---------------     -----------------
                                                            (Unaudited)                               (Unaudited)

<S>                                                  <C>               <C>                  <C>                  <C>
Net loss                                             $(48,591)         $ (3,386)            $(62,357)            $ (7,274)
Other comprehensive loss:
  Foreign currency translation adjustments                (13)               --                  (35)                  --
  Unrealized loss on available for sale securities         --                (6)                  --                   (8)
                                                     --------          --------             --------             --------

Total comprehensive loss                             $(48,604)         $ (3,392)            $(62,392)            $ (7,282)
                                                     ========          ========             ========             ========

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

                                       5
<PAGE>



                              StarBase Corporation
                      CONSOLIDATED Statements of Cash Flows
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                                        Six months ended
                                                                                          September 30,
                                                                               ------------------------------------
                                                                                     2001              2000
                                                                               ----------------- ------------------
                                                                                       (Unaudited)
<S>                                                                                <C>               <C>
Cash Flows from Operating Activities:
  Net loss                                                                         $(62,357)         $ (7,274)
  Adjustments to reconcile net loss to net cash used in operating activities:
    Depreciation and amortization                                                    15,014             3,796
    Write-down of intangibles                                                        36,300                --
    Provision for doubtful accounts                                                   1,350                49
    Non-cash stock based compensation                                                   338             1,284
    Changes in operating assets and liabilities, net of effects of acquisitions:
      Accounts receivable                                                             4,293                 1
      Notes and other receivables                                                         1              (116)
      Prepaid expenses and other assets                                                 128              (355)
      Other non-current assets                                                           27              (108)
      Accounts payable and accrued liabilities                                       (6,105)               53
      Deferred revenue                                                               (1,337)              187
                                                                                   --------          --------

Net cash used in operations                                                         (12,348)           (2,481)

Cash Flows from Investing Activities:
  Cash paid for acquisitions, net of cash acquired                                       --                30
  Decrease in restricted cash                                                            40                39
  Capital expenditures                                                                 (756)           (1,124)
                                                                                   --------          --------

Net cash used in investing activities                                                  (716)           (1,055)

Cash Flows from Financing Activities:
  Proceeds from issuance of common stock:
    From private placements                                                              --            17,500
    Exercise of options                                                                 665               654
    Exercise of warrants                                                                 --             1,961
  Proceeds from debt financing                                                        1,500                --
  Payment of financing related costs                                                     --            (1,526)
  Payments on capitalized lease obligations                                            (211)             (165)
                                                                                   --------          --------

Net cash provided by financing activities                                             1,954            18,424

Effect of exchange rate changes on cash and cash equivalents                            (35)               --
                                                                                   --------          --------

Net increase (decrease) in cash                                                     (11,145)           14,888

Cash and cash equivalents, beginning of period                                       14,075            11,448
                                                                                   --------          --------

Cash and cash equivalents, end of period                                           $  2,930          $ 26,336

Supplemental Cash Flow Information:

  Interest paid                                                                    $     58          $     21
                                                                                   ========          ========
  Income taxes paid                                                                $     87          $      1
                                                                                   ========          ========

Non-cash investing and financing transactions:
  Capitalized lease and insurance financing                                        $    254          $    171
                                                                                   ========          ========

  Change in unrealized loss on securities available for sale                       $     --          $      8
                                                                                   ========          ========

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

                                       6
<PAGE>

                              STARBASE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.         DESCRIPTION OF BUSINESS

Starbase Corporation, a Delaware corporation (the Company),  provides end-to-end
collaborative  products for the  development  and management of content and code
for  eBusiness  applications.  The Company  develops,  markets,  and  supports a
complete family of user-friendly  software  products that support the continuous
cycle of creating,  linking and managing digital assets,  which comprise complex
eBusiness  applications.  The  Company's  products  enable users with  differing
technical and  functional  backgrounds  to  collaborate on the production of Web
sites  and  eBusiness   initiatives  from  multiple  locations.   The  Company's
professional  services  organization  provides  implementation,  consulting  and
training expertise.

2.    BASIS OF PRESENTATION

The unaudited interim consolidated financial statements as of September 30, 2001
and for the three and six months ended  September 30, 2001, and 2000,  have been
prepared  pursuant to the rules and  regulations  of the Securities and Exchange
Commission.  Accordingly,  certain information and footnote disclosures normally
included  in  consolidated  financial  statements  prepared in  accordance  with
accounting  principles  generally  accepted in the United States of America have
not been presented.  The interim  consolidated  financial statements reflect all
normal recurring  adjustments that 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 periods  presented.  The results of operations
for the  three and six  months  ended  September  30,  2001 are not  necessarily
indicative  of the  operating  results  for  the  full  year.  The  accompanying
unaudited  consolidated  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, for
the year ended March 31, 2001.

GOING CONCERN

Management  believes  based upon  projected  operating  needs that the Company's
working capital is insufficient for the Company to maintain its current level of
operating  activities  through March 31, 2002. The Company has also  experienced
recurring  losses from operations and has negative  working capital at September
30,  2001.  These  factors,  among  others,  raise  substantial  doubt about the
Company's  ability to continue as a going  concern.  The Company is currently in
the process of negotiating additional financing through the private placement of
convertible debentures. The Company believes that proceeds from the sale of debt
and equity securities during fiscal 2002, combined with operating revenues, will
be sufficient to allow the Company to conduct its  operations  during the fiscal
year ending March 31, 2002.  While the Company has  successfully  raised  equity
capital  in the  past,  there  can be no  assurance  that  the  Company  will be
successful in their efforts to obtain additional financing in the future.

NET LOSS PER SHARE

Basic and  diluted  net loss per share  applicable  to  common  stockholders  is
computed using the weighted average number of common shares  outstanding  during
the periods presented. Potentially dilutive shares, stock options, warrants, and
Escrow Shares,  have not been included where  inclusion  would be  antidilutive.
Escrow  Shares  (1,418,638)  will be released  to the  founders  upon  attaining
certain defined cash flow requirements. The release of the Escrow Shares will be
deemed compensatory and,  accordingly,  will result in charges to earnings equal
to the fair  market  value of these  shares  recorded  ratably  over the  period
beginning on the date when management determines that the cash flow requirements
are  probable  of being met and  ending  on the date when the goal is  attained,
causing  the Escrow  Shares to be  released.  At the time the goal is  attained,
previously  unrecognized  compensation  expense  will be  adjusted by a one-time
charge based on the then fair market value of the shares  released  from escrow.
Such charges could substantially reduce the Company's net income or increase the
Company's loss for financial  reporting purposes in the periods such charges are
recorded.  Based upon  historical  results,  the  attainment  of the goal is not
probable at this time.  However,  this does not preclude the  attainment  of the
goal in the future.

                                       7
<PAGE>


                              STARBASE CORPORATION
                   Notes to Consolidated Financial Statements


Potentially dilutive securities,  which consist of options to purchase 8,316,320
shares of common  stock at  prices  ranging  from  $0.625 to $14.63  per  share,
warrants to purchase 893,085 shares of common stock at prices ranging from $0.73
to $6.81 per share and 1,418,638  common shares held in escrow were not included
in the  computation of diluted loss per share because such inclusion  would have
been  antidilutive for the three and six month periods ended September 30, 2001.
Potentially dilutive securities,  which consist of options to purchase 3,702,096
shares of common  stock at  prices  ranging  from  $0.625 to $13.07  per  share,
warrants to purchase  906,246 shares of common stock at prices raging from $0.73
to $6.81 per share, and 1,418,638 common shares held in escrow were not included
in the  computation of diluted loss per share because such inclusion  would have
been antidilutive for the three and six month periods ended September 30, 2000.


3.         COMPOSITION OF CERTAIN BALANCE SHEET CAPTIONS

        (In thousands)                   September 30,          March 31,
                                             2001                 2001
                                        -----------------    ----------------
                                          (Unaudited)
Property and equipment:

Computer hardware                                $   2,564    $   2,498
Furniture and fixtures                               2,141        2,000
Computer software                                    3,820        3,394
Motor vehicle                                           32           32
Leasehold improvements                               1,770        1,735
                                                 ---------    ---------
                                                    10,327        9,659
Less accumulated depreciation and amortization      (3,173)      (1,706)
                                                 ---------    ---------

                                                 $   7,154    $   7,953
                                                 =========    =========

Intangible assets:

Patents and trademarks                           $      20    $      20
Manufacturing license                                  473          470
Developed technology                                19,489       22,233
Customer lists                                       1,969        2,761
Assembled workforce                                  3,171        4,868
Goodwill                                            55,837       86,904
                                                 ---------    ---------


                                                    80,959      117,256

Less accumulated amortization                      (23,090)      (9,628)
                                                 ---------    ---------

                                                 $  57,869    $ 107,628
                                                 =========    =========

4.    EQUITY TRANSACTIONS

WARRANTS
<TABLE>

Warrant activity for the six month period ended September 30, 2001 is as follows:

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

<S>                                                         <C>                    <C>
Outstanding at March 31, 2001 and September 30, 2001         893,085               $0.73 - $6.81
                                                         =============
</TABLE>

                                       8
<PAGE>

                              STARBASE CORPORATION
                   Notes to Consolidated Financial Statements

5.         STOCK OPTION PLAN

The Company's  stock option  plans,  the 1996 Plan and the 2001 Plan provide for
the grant of  non-qualified  and incentive stock options to directors,  officers
and  employees of the Company.  Options are granted at exercise  prices equal to
the fair  market  value of the  common  stock on the date of  grant.  Generally,
twenty-five  percent of the options are available for exercise at the end of one
year,  while the  remainder  of the grant is  exercisable  ratably over the next
thirty-six  month  period,  provided  the  optionee  remains  in  service to the
Company. The weighted-average  remaining contractual life of options outstanding
at September 30, 2001 was 7.8 years. A total of 2,833,333 shares of common stock
have been authorized under the 1996 Plan, of which 1,380,132 were outstanding at
September  30,  2001.  A total of  3,400,000  shares of common  stock  have been
authorized  under the 2001 Plan, of which all were  outstanding at September 30,
2001. In addition, the Company has granted non-qualified stock options, of which
15,870,688  were  outstanding  at  September  30,  2001.  As  a  result  of  the
acquisition of Premia  Corporation,  the Company  assumed all of the outstanding
options  granted  under the Premia ISO stock option plan,  of which 168,801 were
outstanding at September 30, 2001. As a result of the  acquisition of Technology
Builders, Inc., the Company assumed all of the outstanding options granted under
the Technology  Builders,  Inc.  Amended and Restated Stock Option and Incentive
Stock Option Plan, of which 854,134 were outstanding at September 30, 2001.

Stock option  activity for the six month period ended  September  30, 2001 is as
follows:


                                                              Weighted-Average
                                            Shares             Exercise Price
                                     --------------------- ---------------------

Outstanding at March 31, 2001                21,734,769        $   3.95
Granted                                         496,500        $   2.16
Lapsed or canceled                           (3,438,377)       $   5.05
Exercised                                      (519,137)       $   1.00
                                             ----------
Outstanding at September 30, 2001            18,273,755        $   3.78
                                             ==========
Exercisable at September 30, 2001             8,316,320        $   3.13
                                             ==========


Stock option summary information at September 30, 2001 is as follows:

<TABLE>
<CAPTION>

                                             Options Outstanding                                        Options Exercisable
                        ---------------------------------------------------------------     ----------------------------------------
                                               Weighted-
                                                Average                Weighted-                                       Weighted-
Range of                                       Remaining           Average Exercise                                 Average Exercise
Exercise Prices             Shares          Contractual Life             Price                     Shares                Price
----------------------  ----------------  ---------------------  ----------------------     ---------------------- -----------------

<S>                         <C>                <C>                        <C>                       <C>                     <C>
$0.50 - $1.00               1,904,241          6.8 years                  $0.68                     1,520,105               $0.68
$1.01 - $1.50               3,633,279          7.0 years                  $1.32                     2,277,237               $1.31
$1.51 - $2.00               1,647,789          6.9 years                  $1.70                     1,118,104               $1.66
$2.01 - $2.50                 959,950          7.9 years                  $2.12                       376,054               $2.08
$2.51 - $3.00                 908,012          8.1 years                  $2.63                       561,726               $2.61
$3.01 - $3.50               2,154,077          8.6 years                  $3.35                       117,291               $3.39
$3.51 - $4.00               2,860,445          8.9 years                  $3.79                       717,334               $3.85
$4.01 - $4.50                 415,000          7.7 years                  $4.13                       102,811               $4.05
$4.51 - $5.00                 450,000          9.0 years                  $4.69                       290,311               $4.66
$5.01 - $20.00              3,340,962          8.1 years                 $10.16                     1,235,347              $10.50
                        ----------------                                                    ----------------------
                           18,273,755                                                               8,316,320
                        ================                                                    ======================
</TABLE>

                                       9
<PAGE>


                              STARBASE CORPORATION
                   Notes to Consolidated Financial Statements

6.         OPERATING SEGMENT INFORMATION

Operating  segments  are  defined as  components  of an  enterprise  about which
separate financial  information is available that is evaluated  regularly by the
Company's chief operating decision-maker,  or decision-making group, in deciding
how to allocate resources and in assessing  performance.  The operating segments
of the  Company  are  managed  separately  because  each  segment  represents  a
strategic business unit that offers different products or services.

The  Company's  reportable  operating  segments  include  software  licenses and
services.  The  software  licenses  operating  segment  develops and markets the
Company's  end-to-end  collaborative  products for the development of integrated
content and code for  eBusiness  applications.  The  services  segment  provides
after-sale  support for software products and fee-based  training and consulting
services related to the Company products.

The Company does not allocate operating expenses to these segments,  nor does it
allocate  specific  assets to these  segments.  Therefore,  segment  information
reported includes only revenues, cost of revenues and gross margin.

Operating segment data for the three and six months ended September 30, 2001 and
2000 was as follows:

<TABLE>
<CAPTION>

                                                   Software
                                                   licenses               Services                 Total
                                              -------------------    -------------------     -------------------
(In thousands)
<S>                                                <C>                   <C>                        <C>
Three months ended September 30, 2001:
    Revenues                                       $ 6,119               $ 4,409                    $10,528
    Cost of revenues                                 5,020                 1,693                      6,713
                                                   -------               -------                    -------
        Gross margin                               $ 1,099               $ 2,716                    $ 3,815
                                                   =======               =======                    =======

Three months ended September 30, 2000:
    Revenues                                       $ 6,411               $ 2,033                    $ 8,444
    Cost of revenues                                   698                 1,046                      1,744
                                                   -------               -------                    -------
        Gross margin                               $ 5,713               $   987                    $ 6,700
                                                   =======               =======                    =======



<CAPTION>
                                                   Software
                                                   licenses               Services                 Total
                                              -------------------    -------------------     -------------------
(In thousands)
<S>                                                <C>                   <C>                        <C>
Six months ended September 30, 2001:
    Revenues                                       $13,506               $ 9,076                    $22,582
    Cost of revenues                                 8,350                 3,517                     11,867
                                                   -------               -------                    -------

        Gross margin                               $ 5,156               $ 5,559                    $10,715
                                                   =======               =======                    =======

Six months ended September 30, 2000:
    Revenues                                       $11,526               $ 3,960                    $15,486
    Cost of revenues                                 1,209                 1,970                      3,179
                                                   -------               -------                    -------

        Gross margin                               $10,317               $ 1,990                    $12,307
                                                   =======               =======                    =======
</TABLE>

                                       10
<PAGE>


                              STARBASE CORPORATION
                   Notes to Consolidated Financial Statements


7.    LINE OF CREDIT

On June 29, 2001,  the Company  entered into a Loan and Security  Agreement with
Silicon Valley Bank with a committed  revolving line of up to $5.0 million at an
interest rate equal to one-half  percentage point above the Prime Rate but never
lower than seven percent. The line of credit requires that the Company maintains
the following financial  covenants:  on a monthly basis, a ratio of quick assets
to current liabilities less deferred revenue of at least 1.00; and a loss, based
on earnings before interest, taxes, depreciation and other non-cash amortization
expenses  (EBITDA) of no greater than $2.0 million for the fiscal quarter ending
June  30,  2001,  and of no  greater  than  $500,000  for  each  fiscal  quarter
thereafter,  provided  that the Company  shall  attain  positive  EBITDA for the
fiscal year ending March 31, 2002.  As of  September  30, 2001,  the Company had
drawn $1.5 million  against the line of credit.  On July 26,  2001,  the Company
received  notice from Silicon  Valley Bank that is was in default of the line of
credit due to failure to maintain an EBITDA loss of no greater then $2.0 million
for the fiscal  quarter  ended June 30, 2001.  As a result of the  default,  the
following  changes  in the terms of the line of credit  went  into  effect:  the
interest  rate will be  increased  to Prime Rate plus two percent  per annum;  a
monthly  collateral  handling fee of $1,000 will be charged;  and the  borrowing
amount will be capped at $1.5 million.  As of September 30, 2001, the Company is
still in default  under  provisions  of the agreement and received a waiver from
Silicon Valley Bank on November 19, 2001, for its existing default.

8.    INTANGIBLE ASSETS

As discussed in previous quarters, the continuing  deterioration of the economy,
the  resulting  decrease in IT spending  and the lack of demand for the products
obtained in the  worldweb.net  acquisition,  caused the Company to evaluate  the
recoverability of the amounts recorded for developed  technology acquired in the
worldweb.net   acquisition.   The  Company  compared  the  carrying  amounts  of
intangible  assets to current cash flow  forecasts  and the  original  cash flow
forecasts at the date of acquisition  and determined  that the amounts  recorded
for developed  technology  were impaired.  As a result,  during the three months
ended  September  30,  2001,  the  Company  wrote-down  the  value of  developed
technology by $2.7 million. The remaining amount at September 30, 2001, relating
to developed  technology  acquired in the worldweb.net  acquisition is $460,000.
The  Company  will  continue  to assess the  recoverability  of such  intangible
assets.

Also as discussed in previous  quarters,  the  continuing  deterioration  of the
economy,  the decrease in IT spending,  the lack of demand for products obtained
in the worldweb.net  acquisition and the significant  reduction in headcount has
affected the  recoverability  of the amounts  recorded for  goodwill,  assembled
workforce  and  customer  lists  related  to the  acquisitions  of  ObjectShare,
worldweb.net and Technology Builders.  The Company compared the carrying amounts
of intangible  assets to current cash flow  forecasts and the original cash flow
forecasts  at  the  date  of  acquisition  for  ObjectShare,  worldweb.net,  and
Technology  Builders,  and determined that the amounts recorded for goodwill and
customer lists were impaired.  The Company also compared the original  headcount
projections  to current  headcount  related to employees  for  worldweb.net  and
Technology  Builders and  determined  that the amounts  recorded  for  assembled
workforce was impaired. As a result, during the three months ended September 30,
2001, the Company  wrote-down the value of goodwill  related to  worldweb.net by
$23.4 million, and the goodwill related to ObjectShare by $7.7 million.

Additionally,   during  the  quarter  ended  September  30,  2001,  the  Company
substantially   decreased  the  services  offered  related  to  the  ObjectShare
acquisition.  The  Company  reduced  the  value of  customer  lists  related  to
Technology Builders by $792,000. The Company also wrote-down the values recorded
for assembled  workforce  related to  worldweb.net  and  Technology  Builders by
$859,000 and $838,000,  respectively,  to reflect the  substantial  reduction in
workforce.  The remaining amounts at September 30, 2001, for goodwill related to
worldweb.net is $3.0 million,  for goodwill  related to ObjectShare is zero, for
customer  lists  related to Technology  Builders is $1.0 million,  for assembled
workforce  for  worldweb.net  is  $180,000  and  for  assembled   workforce  for
Technology  Builders is $2.0  million.  The Company will  continue to assess the
recoverability of such intangible assets.

                                       11
<PAGE>


                              STARBASE CORPORATION
                   Notes to Consolidated Financial Statements


9.         NEW ACCOUNTING STANDARDS

In June 2001,  the Financial  Accounting  Standards  Board (FASB) issued two new
pronouncements:  Statement of  Financial  Accounting  Standards  (SFAS) No. 141,
Business  Combinations,  and SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS 141  requires  that  the  purchase  method  of  accounting  be used for all
business  combinations  initiated  after June 30,  2001.  Goodwill  and  certain
intangible  assets will remain on the balance sheet and not be amortized.  On an
annual  basis,  and when there is reason to suspect  that their values have been
diminished  or  impaired,  these  assets  must be  tested  for  impairment,  and
write-downs may be necessary.  The Company is required to implement SFAS No. 141
on  July 1,  2002  and it has not  determined  the  impact,  if any,  that  this
statement  will  have  on its  consolidate  financial  position  or  results  of
operations.  SFAS 142 is effective for fiscal years beginning after December 15,
2001 and changes the accounting for goodwill from an  amortization  method to an
impairment-only approach.  Amortization of goodwill, including goodwill recorded
in past business combinations,  will cease upon adoption of this statement.  The
Company  is  currently  evaluating  the  provisions  of SFAS  142 and it has not
determined the impact, if any, that this statement will have on its consolidated
financial position or results of operations.

                                       12
<PAGE>

                                     PART I

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

The discussion in this Form 10-Q contains forward-looking statements that
involve risks and uncertainties. The statements that are not purely historical
are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as
amended, and Sections 21E of the Securities Exchange Act of 1934, as amended. We
have based these forward-looking statements on currently available information
and our current beliefs, expectation and projections about future events,
including, among other things: successfully implementing our business strategy;
maintaining and expanding market acceptance of the products we offer; and our
ability to successfully compete in our marketplace. All forward-looking
statements included in this document are based on the information available to
the Company on the date hereof, and the Company assumes no obligation to update
any such forward-looking statements. Actual results could differ materially from
the results discussed herein. Factors that might cause or contribute to such
differences include, but are not limited to, those discussed under the caption
"Risk Factors" of this document and in the Company's other filings with the
Securities and Exchange Commission, including the Company's Annual Report for
the year ended March 31, 2001 on Form 10-K.

The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto.

RESULTS OF OPERATIONS

The following table summarizes our results of operations as a percentage of
total revenue for the three and six months ended September 30, 2001 and 2000.


<TABLE>
<CAPTION>

                                           Three months ended September         Six months ended September
                                                        30,                                30,
                                          --------------------------------     -----------------------------
                                              2001               2000             2001             2000
                                          --------------     -------------     ------------     ------------
<S>                                             <C>              <C>              <C>              <C>
Revenues:
  License                                       58.1%            75.9%            59.8%            74.4%
  Service                                       41.9             24.1             40.2             25.6
                                                ----             ----             ----             ----

    Total revenues                             100.0            100.0            100.0            100.0

Cost of revenues:
  License                                        4.8              2.3              9.2              1.9
  Service                                       16.1             12.4             15.6             12.7
  Amortization of intangibles                   42.8              6.0             27.7              5.9
                                                ----             ----             ----             ----

    Total cost of revenues                      63.7             20.7             52.5             20.5
                                                ----             ----             ----             ----

Gross profit                                    36.3             79.3             47.5             79.5

Operating expenses:
  Research and development                      36.7             26.0             36.8             26.0
  Sales and marketing                           73.2             54.7             72.4             55.2
  General and administrative                    20.3             23.4             20.3             22.7
  Non-cash stock based compensation              1.4              1.9              1.5              8.3
  Amortization of intangibles                  366.0             15.6            192.7             16.5
                                                ----             ----             ----             ----

    Total operating expenses                   497.6            121.6            323.7            128.7
                                                ----             ----             ----             ----

Loss from operation                           (461.3)           (42.3)          (276.2)           (49.2)

Interest and other income                        0.0              2.2              0.5              2.2
                                                ----             ----             ----             ----

Loss before income taxes                      (461.3)           (40.1)          (275.7)           (47.0)
Provision for income taxes                       0.2              0.0              0.4              0.0
                                                ----             ----             ----             ----

Net loss                                      (461.5)%          (40.1)%         (276.1)%          (47.0)%
                                              ======            =====           ======            =====
</TABLE>

                                       13
<PAGE>


THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000

REVENUES

Revenues were $10.5 million and $8.4 million for the three month periods ended
September 30, 2001 and 2000, respectively, representing an increase of $2.1
million or 25%. International revenues accounted for 28% of total revenue in the
three months ended September 30, 2001 and less than 10% of total revenue in the
three months ended September 30, 2000.

LICENSE - License revenues were $6.1 million and $6.4 million for the three
month periods ended September 30, 2001 and 2000, respectively, representing a
decrease of $292,000 or 5%. License revenues represented 58.1% and 75.9% of
total revenues for the three months ended September 30, 2001 and 2000,
respectively. The decrease in license revenues was a result of reduced sales due
primarily to the continuing slowdown in the economy, particularly information
technology (IT) spending.

SERVICE - Service revenues were $4.4 million and $2.0 million for the three
month periods ended September 30, 2001 and 2000, respectively, representing an
increase of $2.4 million or 117%. Service revenues represented 41.9% and 24.1%
of total revenues for the three months ended September 30, 2001 and 2000,
respectively. The increase in service revenues was due to an increase in the
demand for the Company's training and consulting services from new and existing
customers along with services related to products acquired through acquisition.

COST OF REVENUES

LICENSE - License cost of revenues consists primarily of manufacturing and
related costs such as media, documentation, product assembly and royalties.
License cost of revenues was $510,000 and $195,000 for the three month periods
ended September 30, 2001 and 2000, respectively, representing an increase of
$315,000 or 162%. License cost of revenues as a percentage of total revenue was
4.8% and 2.3% for the three months ended September 30, 2001 and 2000,
respectively. The increases were due to royalty expenses relating to the
acquired Caliber product line along with the lower margin on third party
products (Mercury) that the Company now resells.

SERVICE - Service cost of revenues consists of the costs associated with
performing training and consulting services. Service cost of revenues was $1.7
million and $1.0 million for the three month periods ended September 30, 2001
and 2000, respectively, representing an increase of $647,000 or 62%. Service
cost of revenues as a percentage of total revenue was 16.1% and 12.4% for the
three months ended September 30, 2001 and 2000, respectively. The increases were
due to the increases in the training and consulting organization along with
costs related to the increase in personnel.

AMORTIZATION AND WRITE-DOWN OF INTANGIBLES - Amortization of intangibles
consists of the amortization of developed technology associated with the Premia,
Genitor, worldweb.net and Technology Builders acquisitions. Amortization of
intangibles was $1.8 million and $503,000 for the three months ended September
30, 2001 and 2000, respectively, representing and increase of $1.3 million.
Amortization and write-down of intangibles as a percentage of total revenue was
42.8% and 6.0% for the three months ended September 30, 2001 and 2000,
respectively. As discussed in previous quarters, the continuing deterioration of
the economy, the resulting decrease in IT spending and the lack of demand for
the products obtained in the worldweb.net acquisition, caused the Company to
evaluate the recoverability of the amounts recorded for developed technology
acquired in the worldweb.net acquisition. The Company compared the carrying
amounts of intangible assets to current cash flow forecasts and the original
cash flow forecasts at the date of acquisition and determined that the amounts
recorded for developed technology were impaired. As a result, during the three
months ended September 30, 2001, the Company wrote-down the value of developed
technology by $2.7 million. The remaining amount at September 30, 2001, relating
to developed technology acquired in the worldweb.net acquisition is $460,000.
The Company will continue to assess the recoverability of such intangible
assets.


                                       14
<PAGE>

OPERATING EXPENSES

RESEARCH AND DEVELOPMENT EXPENSES - Research and development expenses were $3.9
million and $2.2 million for the three months ended September 30, 2001 and 2000,
respectively, representing an increase of $1.7 million or 76%. The increase was
primarily related to an increase in salaries and related expenses associated
with an increase in software developers and quality assurance personnel as a
result of our acquisitions.

SALES AND MARKETING - Sales and marketing expenses were $7.7 million and $4.6
million for the three months ended September 30, 2001 and 2000, respectively,
representing an increase of $3.1 million or 67%. The increase was primarily
related to the increase in salaries and related expenses incurred in expanding
our sales teams, through acquisitions and new hires, from twelve to twenty-four.

GENERAL AND ADMINISTRATIVE - General and administrative expenses were $2.1
million and $2.0 million for the three months ended September 30, 2001 and 2000,
respectively, representing an increase of $157,000 or 8%. The increase was
primarily due to an increase in salaries and related expenses incurred as a
result of our acquisitions along with building our infrastructure.

NON-CASH STOCK BASED COMPENSATION - Non-cash stock based compensation was
$148,000 and $162,000 for the three months ended September 30, 2001 and 2000,
respectively, representing a decrease of $14,000. Non-cash stock based
compensation expense represents the difference between the exercise price of
stock options and warrants granted to non-employees and the deemed fair market
value of the Company's common stock at the date of the grant amortized over the
vesting period.

AMORTIZATION AND WRITE-DOWN OF INTANGIBLES - Amortization of intangibles was
$5.0 million and $1.3 million for the three months ended September 30, 2001 and
2000, respectively. This includes amortization of goodwill, customer list and
assembled workforce associated with the SITE, Premia, and ObjectShare,
worldweb.net and Technology Builders acquisitions.

Also as discussed in previous quarters, the continuing deterioration of the
economy, the decrease in IT spending, the lack of demand for products obtained
in the worldweb.net acquisition and the significant reduction in headcount has
affected the recoverability of the amounts recorded for goodwill, assembled
workforce and customer lists related to the acquisitions of ObjectShare,
worldweb.net and Technology Builders. The Company compared the carrying amounts
of intangible assets to current cash flow forecasts and the original cash flow
forecasts at the date of acquisition for ObjectShare, worldweb.net, and
Technology Builders, and determined that the amounts recorded for goodwill and
customer lists were impaired. The Company also compared the original headcount
projections to current headcount related to employees for worldweb.net and
Technology Builders and determined that the amounts recorded for assembled
workforce was impaired. As a result, during the three months ended September 30,
2001, the Company wrote-down the value of goodwill related to worldweb.net by
$23.4 million, and the goodwill related to ObjectShare by $7.7 million.

Additionally, during the quarter ended September 30, 2001, the Company
substantially decreased the services offered related to the ObjectShare
acquisition. The Company reduced the value of customer lists related to
Technology Builders by $792,000. The Company also wrote-down the values recorded
for assembled workforce related to worldweb.net and Technology Builders by
$859,000 and $838,000, respectively, to reflect the substantial reduction in
workforce. The remaining amounts at September 30, 2001, for goodwill related to
worldweb.net is $3.0 million, for goodwill related to ObjectShare is zero, for
customer lists related to Technology Builders is $1.0 million, for assembled
workforce for worldweb.net is $180,000 and for assembled workforce for
Technology Builders is $2.0 million. The Company will continue to assess the
recoverability of such intangible assets.

INTEREST AND OTHER INCOME - Interest and other income was $9,000 and $186,000
for the three months ended September 30, 2001 and 2000, respectively,
representing a decrease of $177,000. The decrease was due to lower interest
income resulting from less cash being available to invest.

PROVISION FOR INCOME TAXES - Provision for income taxes was $30,000 for the
three months ended September 30, 2001. This represents the minimum amount
required for state taxes. The Company has not recorded any deferred taxes
because of the losses incurred since its inception.


                                       15
<PAGE>

SIX MONTHS ENDED SEPTEMBER 30, 2001 AND 2000

REVENUES

Revenues were $22.6 million and $15.5 million for the six month periods ended
September 30, 2001 and 2000, respectively, representing an increase of $7.1
million or 46%. International revenues accounted for 17% of total revenue for
the six months ended September 30, 2001 and less than 10% of total revenue in
the six months ended September 30, 2000.

LICENSE - License revenues were $13.5 million and $11.5 million for the six
month periods ended September 30, 2001 and 2000, respectively, representing an
increase of $2.0 million or 17%. License revenues represented 59.8% and 74.4% of
total revenues for the six months ended September 30, 2001 and 2000,
respectively. The increase in license revenues was due to an increase in the
Company's sales force along with the new products available through the
worldweb.net and Technology Builders, Inc. acquisition. The acquired products
were eXpressroom, CaliberRM, CaliberRBT, and CaliberRM Pro.

SERVICE - Service revenues were $9.1 million and $4.0 million for the six month
periods ended September 30, 2001 and 2000, respectively, representing an
increase of $5.1 million or 129%. Service revenues represented 40.2% and 25.6%
of total revenues for the six months ended September 30, 2001 and 2000,
respectively. The increase in service revenues was due to an increase in the
Company's training and consulting organization along with an increase in the
number of software licenses sold with maintenance agreements.

COST OF REVENUES

LICENSE - License cost of revenues consists primarily of manufacturing and
related costs such as media, documentation, product assembly and royalties.
License cost of revenues was $2.1 million and $301,000 for the six month periods
ended September 30, 2001 and 2000, respectively, representing an increase of
$1.8 million or 593%. License cost of revenues as a percentage of total revenue
was 9.2% and 1.9% for the six months ended September 30, 2001 and 2000,
respectively. The increases were due to royalty expenses relating to the
acquired Caliber product line along with the lower margin on the third party
products (Mercury and Business Objects) that the Company now resells.

SERVICE - Service cost of revenues consists of the costs associated with
performing training and consulting services. Service cost of revenues were $3.5
million and $2.0 million for the six month periods ended September 30, 2001 and
2000, respectively, representing and increase of $1.5 million or 79%. Service
cost of revenues as a percentage of total revenue was 15.6% and 12.7% for the
six months ended September 30, 2001 and 2000, respectively. The increases were
due to the increases in the training and consulting organization and the costs
related to the increase in personnel.

AMORTIZATION AND WRITE-DOWN OF INTANGIBLES - Amortization of intangibles
consists of the amortization of developed technology associated with the Premia,
Genitor, worldweb.net and Technology Builders acquisitions. Amortization of
intangibles was $3.6 million and $908,000 for the six months ended September 30,
2001 and 2000, respectively, representing an increase of $2.7 million.
Amortization and write-down of intangibles as a percentage of total revenue was
27.7% and 5.9% for the six months ended September 30, 2001 and 2000,
respectively. As discussed in previous quarters, the continuing deterioration of
the economy, the resulting decrease in IT spending and the lack of demand for
the products obtained in the worldweb.net acquisition, caused the Company to
evaluate the recoverability of the amounts recorded for developed technology
acquired in the worldweb.net acquisition. The Company compared the carrying
amounts of intangible assets to current cash flow forecasts and the original
cash flow forecasts at the date of acquisition and determined that the amounts
recorded for developed technology were impaired. As a result, during the three
months ended September 30, 2001, the Company wrote-down the value of developed
technology by $2.7 million. The remaining amount at September 30, 2001, relating
to developed technology acquired in the worldweb.net acquisition is $460,000.
The Company will continue to assess the recoverability of such intangible
assets.

                                       16
<PAGE>

OPERATING EXPENSES

RESEARCH AND DEVELOPMENT EXPENSES - Research and development expenses were $8.3
million and $4.0 million for the six months ended September 30, 2001 and 2000,
respectively, representing an increase of $4.3 million or 107%. The increase was
primarily related to an increase in salaries and related expenses associated
with an increase in software developers and quality assurance personnel as a
result of our acquisitions.

SALES AND MARKETING - Sales and marketing expenses were $16.3 million and $8.5
million for the six months ended September 30, 2001 and 2000, respectively,
representing an increase of $7.8 million or 91%. The increase was primarily
related to the increase in salaries and related expenses incurred in expanding
our sales teams, through acquisitions and new hires, from twelve to twenty-four.

GENERAL AND ADMINISTRATIVE - General and administrative expenses were $4.6
million and $3.5 million for the six months ended September 30, 2001 and 2000,
respectively, representing an increase of $1.1 million or 30%. The increase was
primarily due to an increase in salaries and related expenses incurred as a
result of our acquisitions along with building our infrastructure.

NON-CASH STOCK BASED COMPENSATION - Non-cash stock based compensation was
$338,000 and $1.3 million for the six months ended September 30, 2001 and 2000,
respectively, representing a decrease of $946,000. Non-cash stock based
compensation expense represents the difference between the exercise price of
stock options and warrants granted to non-employees and the deemed fair market
value of the Company's common stock at the date of the grant amortized over the
vesting period.

AMORTIZATION AND WRITE-DOWN OF INTANGIBLES - Amortization of intangibles was
$10.0 million and $2.6 million for the six months ended September 30, 2001 and
2000, respectively. This includes amortization of goodwill, customer list and
assembled workforce associated with the SITE, Premia, ObjectShare, worldweb.net
and Technology Builders acquisitions.

Also as discussed in previous quarters, the continuing deterioration of the
economy, the decrease in IT spending, the lack of demand for products obtained
in the worldweb.net acquisition and the significant reduction in headcount has
affected the recoverability of the amounts recorded for goodwill, assembled
workforce and customer lists related to the acquisitions of ObjectShare,
worldweb.net and Technology Builders. The Company compared the carrying amounts
of intangible assets to current cash flow forecasts and the original cash flow
forecasts at the date of acquisition for ObjectShare, worldweb.net, and
Technology Builders, and determined that the amounts recorded for goodwill and
customer lists were impaired. The Company also compared the original headcount
projections to current headcount related to employees for worldweb.net and
Technology Builders and determined that the amounts recorded for assembled
workforce was impaired. As a result, during the three months ended September 30,
2001, the Company wrote-down the value of goodwill related to worldweb.net by
$23.4 million, and the goodwill related to ObjectShare by $7.7 million.

Additionally, during the quarter ended September 30, 2001, the Company
substantially decreased the services offered related to the ObjectShare
acquisition. The Company reduced the value of customer lists related to
Technology Builders by $792,000. The Company also wrote-down the values recorded
for assembled workforce related to worldweb.net and Technology Builders by
$859,000 and $838,000, respectively, to reflect the substantial reduction in
workforce. The remaining amounts at September 30, 2001, for goodwill related to
worldweb.net is $3.0 million, for goodwill related to ObjectShare is zero, for
customer lists related to Technology Builders is $1.0 million, for assembled
workforce for worldweb.net is $180,000 and for assembled workforce for
Technology Builders is $2.0 million. The Company will continue to assess the
recoverability of such intangible assets.

INTEREST AND OTHER INCOME - Interest and other income was $106,000 and $344,000
for the six months ended September 30, 2001 and 2000, respectively, representing
a decrease of $238,000. The decrease was due to lower interest income resulting
from less cash being available to invest.

                                       17
<PAGE>

PROVISION FOR INCOME TAXES - Provision for income taxes was $87,000 and $1,000
for the six months ended September 30, 2001 and 2000. This represents the
minimum amount required for state taxes. The Company has not recorded any
deferred taxes because of the losses incurred since its inception.

INFLATION

Inflation has not had a significant effect on our results of operations of
financial position for the three and six month periods ended September 30, 2001
and 2000.

LIQUIDITY AND CAPITAL RESOURCES

We have funded our business, to date, primarily from the issuance of equity
securities. Cash and cash equivalents as of September 30, 2001 were $2.9 million
and $14.1 million as of March 31, 2001. At September 30, 2001 the Company had
negative working capital of $9.7 million, compared to positive working capital
of $1.4 million at March 31, 2001.

Net cash used in operating activities was $12.3 million and $2.5 million for the
six months ended September 30, 2001 and 2000, respectively. The increase in cash
used in operating activities was primarily due to an increase in net loss and a
decrease in accounts payable partially offset by an increase in depreciation and
amortization expense and decrease in accounts receivable.

Net cash used in investing activities was $716,000 and $1.1 million for the six
months ended September 30, 2001 and 2000, respectively. The decrease was
primarily due to a decrease in capital expenditures.

Net cash provided from financing activities was $2.0 million and $18.4 million
for the six months ended September 30, 2001 and 2000, respectively. In September
2000, the Company raised $16.0 million, net, through a private placement of
common stock. For the six months ended September 30, 2001, exercise of options
provided $665,000.

On June 29, 2001, the Company entered into a Loan and Security Agreement with
Silicon Valley Bank with a committed revolving line of up to $5.0 million at an
interest rate equal to one-half percentage point above the Prime Rate but never
lower than seven percent. The line of credit requires that the Company maintains
the following financial covenants: on a monthly basis, a ratio of quick assets
to current liabilities less deferred revenue of at least 1.00; and a loss, based
on earnings before interest, taxes, depreciation and other non-cash amortization
expenses (EBITDA) of no greater than $2.0 million for the fiscal quarter ending
June 30, 2001, and of no greater than $500,000 for each fiscal quarter
thereafter, provided that the Company shall attain positive EBITDA for the
fiscal year ending March 31, 2002. As of September 30, 2001, the Company had
drawn $1.5 million against the line of credit. On July 26, 2001, the Company
received notice from Silicon Valley Bank that is was in default of the line of
credit due to failure to maintain an EBITDA loss of no greater then $2.0 million
for the fiscal quarter ended June 30, 2001. As a result of the default, the
following changes in the terms of the line of credit went into effect: the
interest rate will be increased to Prime Rate plus two percent per annum; a
monthly collateral handling fee of $1,000 will be charged; and the borrowing
amount will be capped at $1.5 million. As of September 30, 2001, the Company is
still in default under provisions of the agreement and received a waiver from
Silicon Valley Bank on November 19, 2001, for its existing default.

Management believes based upon projected operating needs that the Company's
working capital is insufficient for the Company to maintain its current level of
operating activities through March 31, 2002. The Company has also experienced
recurring losses from operations. These factors, among others, raise substantial
doubt about the Company's ability to continue as a going concern. The Company is
currently in the process of negotiating additional financing through the private
placement of convertible debentures. The Company believes that proceeds from the
sale of debt and equity securities during fiscal 2002, combined with future
operating revenues, will be sufficient to allow the Company to conduct its
operations during the fiscal year ending March 31, 2002. While the Company has
successfully raised equity capital in the past, there can be no assurance that
the Company will be successful in their efforts to obtain additional financing
in the future.


                                       18
<PAGE>


NEW ACCOUNTING STANDARDS

In June 2001, the Financial Accounting Standards Board (FASB) issued two new
pronouncements: Statement of Financial Accounting Standards (SFAS) No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Goodwill and certain
intangible assets will remain on the balance sheet and not be amortized. On an
annual basis, and when there is reason to suspect that their values have been
diminished or impaired, these assets must be tested for impairment, and
write-downs may be necessary. The Company is required to implement SFAS No. 141
on July 1, 2002 and it has not determined the impact, if any, that this
statement will have on its consolidate financial position or results of
operations. SFAS 142 is effective for fiscal years beginning after December 15,
2001 and changes the accounting for goodwill from an amortization method to an
impairment-only approach. Amortization of goodwill, including goodwill recorded
in past business combinations, will cease upon adoption of this statement. The
Company is currently evaluating the provisions of SFAS 142 and it has not
determined the impact, if any, that this statement will have on its consolidated
financial position or results of operations.



                                       19
<PAGE>

RISK FACTORS

Our business is subject to a variety of risks and special considerations. As a
result, our prospective investors should carefully consider the risks described
below and the other information in this document before deciding to invest in
the shares.

Our business, financial condition and results of operations could be adversely
affected by any of the following risks. If we are adversely affected by such
risks, then the trading price of our common stock could decline, and you could
lose all or part of your investment.

OUR QUARTERLY REVENUES AND OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY, WHICH
MAY CAUSE THE PRICE OF OUR COMMON STOCK TO DECLINE

Our revenues and operating results for any quarter are not necessarily
indicative of results to be expected in future periods. We expect our common
stock price to vary with our operating results and, consequently, any adverse
fluctuations in our operating results could have an adverse effect on our stock
price. Our operating results have in the past been, and will continue to be,
subject to quarterly fluctuations as a result of a number of factors. These
factors include:

     o    the size and timing of customer orders and the recognition of revenue
          from those orders;
     o    changes in budgets or purchasing patterns of our customers;
     o    increased pricing pressure from competitors in the software and
          Internet industries;
     o    the introduction and market acceptance of new technologies and
          standards;
     o    the integration of people, operations, and products from acquired
          businesses and technologies;
     o    changes in operating expenses and personnel; and
     o    changes in general and specific economic conditions in the software
          and Internet industries.

WE HAVE A HISTORY OF LOSSES AND EXPECT TO INCUR FUTURE LOSSES WHICH RAISE GOING
CONCERN CONSIDERATIONS

Since our inception, we have had a history of losses and as of September 30,
2001, we had an accumulated deficit of $137,214,000. Further, our cash
requirements to run our business have been and will continue to be significant.
In the past, we have had negative cash flow from operations. We anticipate
incurring additional losses until we can successfully develop, market and
distribute our products. Developing software products is difficult and time
consuming and requires the coordinated participation of various technical and
marketing personnel and, at times, independent third-party suppliers. This
development process often encounters unanticipated delays and expenses. The
likelihood of the success of our business must be considered in light of the
problems, expenses, difficulties, complications and unforeseen delays frequently
encountered in connection with the development of new software technologies.
Further, our ability to achieve or sustain our revenue or profit goals depends
on a number of factors outside of our control, including the extent to which:

     o    there is market acceptance of commercial services utilizing our
          products;
     o    our competitors announce and develop competing products or
          significantly lower their prices; and
     o    our customers promote our product.

We may not be able to achieve our goals and become profitable.

Management believes based upon projected operating needs that the Company's
working capital is insufficient for the Company to maintain its current level of
operating activities through March 31, 2002. The Company has also experienced
recurring losses from operations and has negative working capital at September
30, 2001. These factors, among others, raise substantial doubt about the
Company's ability to continue as a going concern. The Company is currently in
the process of negotiating additional financing through the private placement of
convertible debentures. The Company believes that proceeds from the sale of debt
and equity securities during fiscal 2002, combined with operating revenues, will
be sufficient to allow the Company to conduct its operations during the fiscal
year ending

                                       20
<PAGE>

March 31, 2002. While the Company has successfully raised equity capital in the
past, there can be no assurance that the Company will be successful in their
efforts to obtain additional financing in the future.

WE RELY HEAVILY ON SALES OF STARTEAM AND IF IT DOES NOT SUSTAIN OR INCREASE
MARKET ACCEPTANCE, WE ARE LIKELY TO EXPERIENCE LARGER LOSSES

For the three months ended September 30, 2001, we generated 41% of our total
revenues and 49% of our licensing revenues from licenses of our StarTeam product
line. We believe that revenues generated from StarTeam will continue to account
for a large percentage of our revenues for the foreseeable future. A decline in
the price of, or demand for, StarTeam would have a material adverse effect on
our business, operating results and financial condition. The following events
may reduce the demand for StarTeam:

     o    competition from other products;
     o    flaws in our software products or incompatibility with third-party
          hardware or software products;
     o    negative publicity or evaluation of our company; or
     o    obsolescence of the hardware platforms or software environments in
          which our systems run.

In addition, our future financial performance will depend upon successfully
developing and selling enhanced versions of StarTeam. If we fail to deliver
product enhancements or new products for our customers it will be difficult for
us to succeed.


WE FACE INTENSE COMPETITION FOR EBUSINESS SOFTWARE, WHICH COULD MAKE IT
DIFFICULT TO ACQUIRE AND RETAIN CUSTOMERS

The eBusiness software market is intensely competitive and rapidly evolving. Our
customer's requirements and the technology available to satisfy those
requirements continually change. We expect competition to intensify in the
future. Our principal competitors include in-house development efforts by
potential customers or partners, vendors of code management software, and
vendors of content management software. Many of these companies have longer
operating histories and significantly greater financial, technical, marketing
and other resources than we do. Many of these companies can also leverage
extensive customer bases and adopt aggressive pricing policies to gain market
share. Potential competitors may bundle their products in a manner that may
discourage users from purchasing our products. In addition, it is possible that
new competitors or alliances among competitors may emerge and rapidly acquire
significant market share.

Competitive pressures may make it difficult for us to acquire and retain
customers and may require us to reduce the price of our software. If we fail to
compete successfully against current or future competitors, we could lose
customers and our business, operating results and financial condition would
suffer.

THE SALES CYCLE FOR OUR PRODUCTS CAN BE LONG AND MAY HARM OUR OPERATING RESULTS

The period of time between initial customer contact and an actual sales order
may span several months. This long sales cycle increases the risk that we will
not forecast our revenue accurately and adjust our expenditures accordingly. The
longer the sales cycle, the more likely a customer is to decide not to purchase
our products or to scale down its order of our products for various reasons,
including changes in our customers' budgets and purchasing priorities and
actions by competitors, including introduction of new products and price
reductions. In addition, we often must provide a significant level of education
to our prospective customers regarding the use and benefit of our products,
which may cause additional delays during the evaluation process.


WE MUST ATTRACT AND RETAIN QUALIFIED PERSONNEL, WHICH IS PARTICULARLY DIFFICULT
FOR US BECAUSE WE COMPETE WITH OTHER SOFTWARE COMPANIES WHERE COMPETITION FOR
PERSONNEL IS EXTREMELY INTENSE

Our success depends on our ability to attract and retain qualified, experienced
employees. We compete in a relatively new market and there are a limited number
of people who have acquired the skills needed to provide the services that

                                       21
<PAGE>

our clients demand. We compete for experienced engineering, sales and consulting
personnel with Internet professional services firms, software vendors,
consulting firms and professional services companies. Since we may issue options
as compensation to recruit employees, the volatility of the market price of our
common stock may make it difficult for us to attract and retain highly qualified
employees.

In addition, our customers that license our software generally engage our
professional services organization to assist with support, training, consulting
and implementation of their Web solutions. While we have recently established
relationships with some third-party service providers, we continue to be the
primary provider of these services. Competition for qualified services personnel
with the appropriate Internet specific knowledge is intense. We could also
experience deterioration in service levels or decreased customer satisfaction.
Any of these events could disrupt our business and have a materially adverse
effect on our business, operating results and financial condition.

IF WE DO NOT DEVELOP OUR INDIRECT SALES CHANNEL, OUR REVENUES MAY DECLINE

Domestic and international resellers and original equipment manufacturers may be
able to reach new customers more quickly or more effectively than our direct
sales force. Although we are currently investing and plan to continue to invest
significant resources to develop these indirect sales channels, we may not
succeed in establishing a channel that can market our products effectively and
provide timely and cost-effective customer support and services. In addition, we
may not be able to manage conflicts across our various sales channels, and our
focus on increasing sales through our indirect channel may divert management
resources and attention from our direct sales efforts.

IF WE DO NOT CONTINUE TO RECEIVE REPEAT BUSINESS FROM EXISTING CUSTOMERS, OUR
REVENUE WILL SUFFER

We generate a significant amount of our software license revenues from existing
customers. Most of our current customers initially purchase a limited number of
licenses as they implement and adopt our products. Even if the customer
successfully uses our products, customers may not purchase additional licenses
to expand the use of our products. Purchases of expanded licenses by these
customers will depend on their success in deploying our products, their
satisfaction with our products and support services and their use of competitive
alternatives. A customer's decision to widely deploy our products and purchase
additional licenses may also be affected by factors that are outside of our
control or which are not related to our products or services. In addition, as we
deploy new versions of our products or introduce new products, our current
customers may not require the functionality of our new products and may decide
not to license these products.

OUR PRODUCTS COULD BECOME OBSOLETE IF WE ARE UNABLE TO ADAPT TO THE RAPID
CHANGES IN THE EBUSINESS MARKET

Rapidly changing Internet technology and standards may impede market acceptance
of our products. The continued success of our products will require us to
develop and introduce new technologies and to offer functionality that we do not
currently provide. We may not be able to quickly adapt our products to new
Internet technology. If Internet technologies emerge that are incompatible with
StarTeam or other new Internet products that we develop, our products may become
obsolete and existing and potential new customers may seek alternatives. The
following factors characterize the markets for our products:

     o    rapid technological advances;
     o    evolving industry standards, including operating systems;
     o    changes in end-user requirements; and
     o    frequent new product introductions and enhancements.

To succeed, we will need to enhance our current products and develop new
products on a timely basis to stay current with developments related to Internet
technology and to satisfy the increasingly sophisticated requirements of our
customers. Internet commerce technology, particularly eBusiness software
technology, is complex and new products and product enhancements can require
long development and testing periods. Any delays in developing and releasing
enhanced or new products could cause us to lose market share and have a material
adverse effect on our business, operating results and financial condition.


                                       22
<PAGE>

IF WE FAIL TO ESTABLISH AND MAINTAIN STRATEGIC RELATIONSHIPS, THE MARKET
ACCEPTANCE OF OUR PRODUCTS AND OUR FINANCIAL PERFORMANCE MAY SUFFER

To offer products and services to a larger customer base our direct sales force
depends on strategic partnerships and marketing alliances to obtain customer
leads, referrals and distribution. If we are unable to maintain our existing
strategic relationships or fail to enter into additional strategic
relationships, our ability to increase our sales will be harmed. We would also
lose anticipated customer introductions and co-marketing benefits. In addition,
our strategic partners may not regard us as significant for their own
businesses. Therefore, they could reduce their commitment to us or terminate
their relationships with us, pursue other partnerships or relationships, or
attempt to develop or acquire products or services that compete with our
products and services. Even if we succeed in establishing these relationships,
they may not result in additional customers or revenues.

WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE OUR RECENT ACQUISITION OF
TECHNOLOGY BUILDERS, INC.

We acquired Technology Builders, Inc. on February 23, 2001. The success of this
acquisition will depend on our ability to:

     o    successfully integrate and manage Technology Builders' technology and
          operations;
     o    retain Technology Builders' software developers;
     o    develop and market new products and enhance existing products based on
          Technology Builders' technology; and
     o    retain Technology Builders' customer base.

Our failure to successfully address the risks associated with our acquisition of
Technology Builders could hurt our ability to develop and market products based
on Technology Builder's technology. Additionally, during second quarter of
fiscal 2002, we had an impairment write-down of intangible assets related to
prior acquisitions. Future impairment write-downs may be necessary.

WE MAY ACQUIRE ADDITIONAL TECHNOLOGIES OR COMPANIES IN THE FUTURE AND THESE
ACQUISITIONS COULD RESULT IN DILUTION TO OUR STOCKHOLDERS AND/OR DISRUPT OUR
BUSINESS

We may acquire additional technologies or companies in the future through a
merger, acquisition, joint venture or other structure. We may not be able to
identify, acquire, profitably manage or successfully integrate any acquired
business without substantial expense, delay or other operational or financial
problems. Entering into an acquisition entails many risks, including:

     o    diversion of management's attention from other business concerns;
     o    failure to integrate and manage the combined company's business;
     o    potential loss of key employees, including software developers and
          other information technology, or IT, professionals, from either our
          business or an acquired business;
     o    dilution to our existing stockholders as a result of issuing common
          stock or other securities; and
     o    assumption of liabilities of an acquired company.

Any of these risks could significantly harm our business, operating results or
financial condition or result in dilution to our stockholders.

WE HAVE LIMITED EXPERIENCE CONDUCTING OPERATIONS INTERNATIONALLY, WHICH MAY MAKE
OVERSEAS EXPANSION MORE DIFFICULT AND COSTLY



                                       23
<PAGE>

To date, we have derived most of our revenues from sales to North American
customers. We plan to expand our international operations in the future. There
are many barriers and risks to competing successfully in the international
marketplace, including:

     o    costs of customizing products for foreign countries;
     o    foreign currency risks;
     o    dependence on local vendors;
     o    compliance with multiple, conflicting and changing governmental laws
          and regulations;
     o    longer sales cycles; and
     o    import and export restrictions and tariffs.

As a result of these competitive barriers to entry and risks, we cannot assure
you that we will be able to successfully market, sell and deliver our products
and services in international markets.

WE MAY FAIL TO EFFECTIVELY MANAGE AND SUPPORT OUR ANTICIPATED GROWTH IN
OPERATIONS

To succeed in the implementation of our business strategy, we must rapidly
execute our sales strategy, further develop and enhance products and expand our
service capabilities. To manage anticipated growth resulting from this strategy,
we must:

     o    continue to implement and improve our operational, financial and
          management information systems;
     o    hire, train and retain qualified personnel;
     o    continue to expand and upgrade core technologies; and
     o    effectively manage multiple relationships with our customers,
          applications developers and other third parties.

If we fail to manage and support our growth as planned, our business strategy
and the anticipated growth in revenues and our profitability may not be
achieved.

WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS

Our success depends significantly on our ability to protect our proprietary
technologies. If we are not adequately protected, our competitors could use the
intellectual property that we have developed to enhance their products and
services to our detriment. We rely on a combination of trade secrets,
confidentiality provisions and other contractual provisions to protect our
proprietary rights, but these legal means provide only limited protection.

OUR PRODUCTS USE TECHNOLOGY THAT MAY INFRINGE ON THE PROPRIETARY RIGHTS OF THIRD
PARTIES, WHICH MAY EXPOSE US TO LITIGATION AND OTHER COSTS

As the number of entrants into our market increases, the possibility of a patent
infringement claim against us grows. For example, we inadvertently may be
infringing a patent of which we are unaware. In addition, because patent
applications can take many years to issue, there may be a patent application now
pending of which we are unaware, which will cause us to be infringing such
patent when it issues in the future. To address any patent infringement claims,
we may have to enter into royalty or licensing agreements on commercial terms
that are not favorable to us. A successful claim of product infringement against
us, or our failure to license the infringed or similar technology, may cause us
to delay or cancel shipment of our products or result in significant costs. This
could hurt our revenues and profitability and result in a material adverse
effect on our business, operating results and financial condition. In addition,
any infringement claims, with or without merit, would be time-consuming and
expensive to litigate or settle and could divert management attention from
administering our core business.

OUR FAILURE TO DELIVER DEFECT-FREE SOFTWARE COULD RESULT IN GREATER LOSSES AND
HARMFUL PUBLICITY

Our software products are complex and may contain defects or failures. Moreover,
third parties may develop and spread computer viruses that may damage the
functionality of our software products. Any of these events may result in


                                       24
<PAGE>

delayed or lost revenues, loss of market share, failure to achieve market
acceptance, reduced customer satisfaction, diversion of development resources,
product liability or warranty claims against us, and damage to our reputation.
Although we maintain liability insurance, this insurance coverage may not be
adequate to cover losses from claims against us. Further, defending a product
liability lawsuit, regardless of its merits, could harm our business because it
entails substantial expense and diverts the time and attention of key management
personnel.

OUR PERFORMANCE WILL DEPEND ON THE GROWTH OF THE INTERNET FOR EBUSINESS

Our future success depends heavily on the Internet being accepted and widely
used for commerce. If Internet commerce does not continue to grow or grows more
slowly than expected, our business, operating results and financial condition
would be materially adversely affected. Consumers and businesses may reject the
Internet as a viable commercial medium for a number of reasons, including
potentially inadequate network infrastructure, slow development of enabling
technologies or insufficient commercial support. The Internet infrastructure may
not be able to support the demands placed on it by increased Internet usage and
bandwidth requirements. Enterprises that have already invested substantial
resources in other methods of conducting eBusiness may be reluctant or slow to
adopt a new approach that may replace, limit or compete with their existing
systems. Any of these factors could inhibit the growth of eBusiness solutions
and in particular the market's acceptance of our products and services. In
addition, delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity, or increased
government regulation, could cause the Internet to lose its viability as a
commercial medium. Even if the required infrastructure, standards, protocols or
complementary products, services or facilities are developed, we may incur
substantial expenses adapting our solutions to changing or emerging
technologies.

THERE IS SUBSTANTIAL RISK THAT FUTURE REGULATIONS COULD BE ENACTED THAT EITHER
DIRECTLY RESTRICT OUR BUSINESS OR INDIRECTLY IMPACT OUR BUSINESS BY LIMITING THE
GROWTH OF INTERNET COMMERCE

As Internet commerce evolves, we expect that federal, state or foreign agencies
will adopt new legislation or regulations covering issues such as user privacy,
pricing, content and quality of products and services. If enacted, these laws,
rules or regulations could directly or indirectly harm us to the extent that
they impact our business, customers and potential customers. We cannot predict
if or how any future legislation or regulations would impact our business.
Although many of these regulations may not apply to our business directly, we
expect that laws regulating or affecting commerce on the Internet could
indirectly harm our business.

WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS

To meet our current working capital and capital expenditure requirements, we
need to raise additional funds and we cannot be certain that we would be able to
obtain additional financing on favorable terms, if at all. We have also
experienced defaults on our line of credit agreement in the past but have
received waivers related to such defaults. If we continue to experience such
defaults, we may not continue to receive waivers related to the defaults, which
would cause the amounts due on the line of credit to become immediately
repayable. Such immediate repayment could severely impact our cash flow
requirements. If we cannot raise necessary funds on acceptable terms, we may not
be able to develop or enhance our products, take advantage of future
opportunities or respond to competitive pressures or unanticipated capital
requirements, which could have a material adverse effect on our business,
operating results and financial condition.



                                       25
<PAGE>

                                     ITEM 3
           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

It is our current policy to not enter into derivative financial instruments. We
do not currently have any significant foreign currency exposure since we do not
transact business in foreign currencies. Due to this, we do not have any
significant overall currency exposure at September 30, 2001.

We are exposed to a number of market risks in the ordinary course of business.
These risks, which include interest rate risk, foreign currency exchange risk
and commodity price risk, arise in the normal course of business rather than
from trading. We have examined our exposures to these risks and concluded that
none of our exposures in these areas is material to fair values, cash flows or
earnings. We regularly review these risks to determine if we should enter into
active strategies, such as hedging, to help manage the risks. At the present
time, we do not have any hedging programs in place and we are not trading in any
financial or derivative instruments.

We currently have a line of credit with a balance at September 30, 2001, of $1.5
million bearing an interest rate of prime rate plus two percent which we are
currently in default but have received a waiver for that default. Because of our
operating performance, we may not be able to renew the line of credit under its
current terms and conditions. We have cash and short-term investments with
maturities less than three months. This cash portfolio exposes us to interest
rate risk as short-term investment rates can be volatile. Given the short-term
maturity structure of our investment portfolio, and the high-grade investment
quality of our portfolio, we believe that we are not subject to principal
fluctuations and the effective interest rate of our portfolio tracks closely to
various short-term money market interest rate benchmarks.

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<PAGE>


                                     PART II

                                     ITEM 6
                        EXHIBITS AND REPORTS ON FORM 8-K


(a)        Exhibits

   Exhibit                                                        Ref./
   Number        Description Of Document                          Page
   ---------     ---------------------------                     ------

                 None



(b)        Reports on Form 8-K

None



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<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)



November 19, 2001                            /s/  Douglas S. Norman
-----------------                            ----------------------
Date                                         Douglas S. Norman
                                             Chief Financial Officer



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