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

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


                                   FORM 10-QSB


[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

     For the quarterly period ended June 30, 1999

                                       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: 0-2562


                              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 800
          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 July 31, 1999:   Common Stock:     32,136,958
                                                    Preferred Stock:     444,757

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

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

<PAGE>   2

                              STARBASE CORPORATION

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                               Page
                                                                               ----
<S>           <C>                                                              <C>
PART I. FINANCIAL INFORMATION

    ITEM 1.   Financial Statements

              Balance Sheets at June 30, 1999 (Unaudited) and March 31, 1998     3

              Statements of Operations (Unaudited) for the three month
              periods ended June 30, 1999 and 1998                               4

              Statements of Cash Flows (Unaudited) for the three month
              periods ended June 30, 1999 and 1998                               5

              Notes to Financial Statements (Unaudited)                          6

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

PART II.      OTHER INFORMATION

    ITEM 5.   Other Information                                                 15

    ITEM 6.   Exhibits and Reports on Form 8-K                                  16
</TABLE>


                                       2

<PAGE>   3

                                     PART I

                                     ITEM 1
                              FINANCIAL STATEMENTS

                              STARBASE CORPORATION

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

<TABLE>
<CAPTION>
                                                                      June 30,     March 31,
                                                                        1999         1999
                                                                    -----------   ----------
                                                                    (Unaudited)
<S>                                                                  <C>          <C>
ASSETS

Current Assets:
  Cash and cash equivalents                                          $    836     $  1,363
  Restricted cash                                                          39           39
  Marketable securities                                                   121          121
  Accounts receivable, net of allowances of $155 at
    June 30, 1999 and Mar 31, 1999                                      4,245        2,528
  Notes and other receivables                                               4            9
  Inventories                                                              34           51
  Prepaid expenses and other assets                                       186          214
                                                                     --------     --------

    Total current assets                                                5,465        4,325

Property and equipment, net                                             1,004          987
Developed technology, net                                                 922          971
Note receivable from officer                                               95           94
Long-term restricted cash                                                  79           79
Other non-current assets                                                  128          149
                                                                     --------     --------

Total assets                                                         $  7,693     $  6,605
                                                                     ========     ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Accounts payable and accrued liabilities                           $  1,425     $  1,264
  Deferred revenue                                                        930          658
  Current portion of capital lease obligation                             112           95
                                                                     --------     --------

    Total current liabilities                                           2,467        2,017

Long-term liabilities:
  Long-term debt, less current portion                                    135          116
  Other long-term liabilities                                             606           10
                                                                     --------     --------

    Total long-term liabilities                                           741          126

                                                                     --------     --------
    Total liabilities                                                   3,208        2,143

Commitments and contingencies

Stockholders' equity:
  Preferred stock, $.01 par value; 10,000,000 shares authorized,
    444,793 and 588,993 shares issued and outstanding at
    June 30, 1999 and March 31, 1999; liquidation
    preference of $4,137 (June 30, 1999) and $4,916
    (March 31, 1999)                                                        4            6
  Common stock, $.01 par value; 50,000,000 authorized; 29,762,680
    and 28,636,362 shares issued and outstanding at June 30, 1999
    and March 31, 1999                                                    298          286
 Additional paid-in capital                                            57,523       56,208
 Accumulated deficit                                                  (53,340)     (52,038)
                                                                     --------     --------
  Total stockholders' equity                                            4,485        4,462
                                                                     --------     --------
Total liabilities and stockholders' equity                           $  7,693     $  6,605
                                                                     ========     ========
</TABLE>

     The accompanying notes are an integral part of the financial statements

                                       3

<PAGE>   4

                              STARBASE CORPORATION

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

<TABLE>
<CAPTION>
                                                      Three months ended
                                                           June 30,
                                                   ------------------------
                                                       1999         1998
                                                   -----------    ---------
                                                           (Unaudited)
<S>                                                 <C>           <C>
Revenues:
  License                                           $  2,794      $    892
  Maintenance, training and consulting                   521           153
  Royalty                                                178           108
                                                    --------      --------
    Total revenues                                     3,493         1,153

Cost of Revenues:
  Products, licenses and other                           446           239
                                                    --------      --------
Gross margin                                           3,047           914

Operating Expenses:
  Research and development                               975         1,053
  Selling, general and administrative                  2,780         2,182
                                                    --------      --------
    Total operating expenses                           3,755         3,235
                                                    --------      --------
  Operating loss                                        (708)       (2,321)

  Interest and other income (expense)                      3            40
                                                    --------      --------
Loss before income taxes                                (705)       (2,281)

  Provision for income taxes                              --            --
                                                    --------      --------
Net loss                                                (705)       (2,281)

  Non-cash dividend and accretion of beneficial
    conversion feature                                   596           156
                                                    --------      --------
Net loss applicable to common stockholders          $ (1,301)     $ (2,437)
                                                    ========      ========
Per share data:
  Basic and diluted loss per common share           $  (0.05)     $  (0.14)
                                                    ========      ========
  Basic and diluted weighted average number of
   common shares outstanding                          27,924        17,476
                                                    ========      ========
</TABLE>

     The accompanying notes are an integral part of the financial statements

                                       4


<PAGE>   5

                              STARBASE CORPORATION

                            STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                              Three months ended
                                                                   June 30,
                                                            ---------------------
                                                               1999         1998
                                                            -----------   -------
                                                                  (Unaudited)
<S>                                                          <C>          <C>
Cash Flows from Operating Activities:
  Net loss                                                   $  (705)     $(2,281)
  Adjustments to reconcile net loss to net cash used
    in operating activities:
    Depreciation and amortization                                138           90
    Provision for doubtful accounts and sales returns             --           44
    Deferred revenue                                             868           43
    Stock option compensation expense                              9           --
    Changes in operating assets and liabilities:
      Accounts receivable                                     (1,717)        (638)
      Notes and other receivables                                  5          (14)
      Inventories                                                 17          (26)
      Prepaid expenses                                            28          (30)
      Other non-current assets                                    19          (12)
      Accounts payable and accrued liabilities                   161          491
                                                             -------      -------
Net cash used by operations                                   (1,177)      (2,333)

Cash Flows from Investing Activities:
  Capital expenditures                                           (43)        (187)
                                                             -------      -------
Net cash used by investing activities                            (43)        (187)

Cash Flows from Financing Activities:
  Proceeds from issuance of common stock:
    Exercise of options                                          447           23
    Exercise of warrants                                         294           --
  Payment of financing related costs                             (21)          --
  Payments on capitalized lease obligations                      (27)          (5)
                                                             -------      -------
Net cash provided by financing activities                        693           18
                                                             -------      -------
Net decrease in cash                                            (527)      (2,502)

Cash and cash equivalents, beginning of period                 1,363        4,167
                                                             -------      -------
Cash and cash equivalents, end of period                     $   836      $ 1,665
                                                             =======      =======

Supplemental Cash Flow Information:

  Interest paid in cash                                      $     7      $     6
                                                             =======      =======
  Income taxes paid                                          $     0      $     0
                                                             =======      =======

Non-cash investing and financing transactions:
  Non-cash preferred stock and common stock dividends        $    16      $   156
                                                             =======      =======
  Conversion of preferred stock to common stock (Note 4)     $     7      $     0
                                                             =======      =======
  Capitalized lease financing                                $    63      $     0
                                                             =======      =======
</TABLE>

     The accompanying notes are an integral part of the financial statements

                                       5

<PAGE>   6

                              STARBASE CORPORATION

                          NOTES TO FINANCIAL STATEMENTS


1. DESCRIPTION OF BUSINESS


StarBase Corporation, a Delaware corporation (the "Company"), is a leading
provider of advanced Internet and intranet based technical collaboration
products for web site application production and software configuration
management (SCM) tools. The Company develops, markets, and supports
team-oriented development software that targets the evolving needs of corporate
information technology (IT) structures that support projects requiring technical
collaboration on an enterprise level. The Company's current product line
consists of the recently launched products StarTeam(R) 4.1 and Enterprise Suite
as well as StarSweeperTM, RoundTable(R) and Versions(R).


2. BASIS OF PRESENTATION

The unaudited interim financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Accordingly,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have not been presented. The accompanying unaudited financial statements should
be read in conjunction with the financial statements and the notes thereto
included in the StarBase Corporation report to the Securities and Exchange
Commission on Form 10-KSB, for the year ended March 31, 1999.

The interim 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
period presented. The results of operations for the three months ended June 30,
1999 are not necessarily indicative of the operating results for a full year.

NET LOSS PER SHARE

Basic loss per share applicable to common stockholders is computed using the
weighted average number of common shares outstanding during the periods
presented. Diluted loss per share applicable to common stockholders is computed
using the weighted average number of common and common equivalent shares
outstanding during the periods presented assuming the exercise of the Company's
stock options, warrants, and potential shares (Escrow Shares). Common equivalent
shares have not been included where inclusion would be antidilutive. Escrow
Shares can 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 a 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 with future
results.


                                       6

<PAGE>   7

                              STARBASE CORPORATION

                          NOTES TO FINANCIAL STATEMENTS


FOR THE THREE MONTHS ENDED JUNE 30, 1999
(in thousands except per-share amounts)

<TABLE>
<CAPTION>
                                                              Net Loss             Shares            Per-Share
                                                             (Numerator)       (Denominator)          Amount
                                                             -----------       -------------         ---------
<S>                                                          <C>               <C>                   <C>
BASIC AND DILUTED LOSS PER SHARE
Net loss                                                      $  (705)
Non-cash dividend                                                (596)
                                                              -------
BASIC LOSS TO COMMON STOCKHOLDERS PER SHARE                    (1,301)             27,926             $(0.05)
                                                                                                       ======
Effect of Dilutive Securities                                      --                  --
                                                              -------              ------
DILUTIVE LOSS TO COMMON STOCKHOLDERS PER SHARE                $(1,301)             27,926             $(0.05)
                                                              =======              ======              ======
</TABLE>


FOR THE THREE MONTHS ENDED JUNE 30, 1998
(in thousands except per-share amounts)

<TABLE>
<CAPTION>
                                                              Net Loss             Shares            Per-Share
                                                             (Numerator)       (Denominator)          Amount
                                                             -----------       -------------         ---------
<S>                                                          <C>               <C>                   <C>
BASIC AND DILUTED LOSS PER SHARE
Net loss                                                      $(2,281)
Non-cash dividend                                                (156)
                                                              -------
BASIC LOSS TO COMMON STOCKHOLDERS PER SHARE                    (2,437)             17,476             $(0.14)
                                                                                                       ======
Effect of Dilutive Securities                                      --                  --
                                                              -------              ------
DILUTIVE LOSS TO COMMON STOCKHOLDERS PER SHARE                $(2,437)             17,476             $(0.14)
                                                              =======              ======              ======
</TABLE>


Common stock equivalents, which consist of options to purchase 2,095,476 shares
of common stock at prices ranging from $0.625 to $3.44 per share, warrants to
purchase 2,678,657 shares of common stock at prices ranging from $0.59 to $3.25
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 month period ended June 30, 1999. Common stock
equivalents, which consist of options to purchase 1,214,473 shares of common
stock at prices ranging from $0.84 to $3.44 per share, warrants to purchase
2,177,722 shares of common stock at prices ranging from $1.25 to $1.80 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 month period ended June 30, 1998.


                                       7

<PAGE>   8

                              STARBASE CORPORATION

                          NOTES TO FINANCIAL STATEMENTS

3. COMPOSITION OF CERTAIN BALANCE SHEET CAPTIONS

       (In thousands)

<TABLE>
<CAPTION>
                                                   June 30,     March 31,
                                                     1999         1999
                                                 -----------    --------
                                                 (Unaudited)
<S>                                              <C>            <C>
Property and equipment:

Computer hardware                                  $ 1,408      $ 1,337
Furniture and fixtures                                 315          315
Computer software                                      199          199
Leasehold improvements                                 233          198
                                                   -------      -------
                                                     2,155        2,049
Less accumulated depreciation and amortization      (1,151)      (1,062)
                                                   -------      -------
                                                   $ 1,004      $   987
                                                   =======      =======
Accounts payable and accrued liabilities:

Trade accounts payable                             $   466      $   640
Accrued professional fees                               85           86
Accrued wages and bonuses                              596          493
Other accrued expenses                                 278           45
                                                   -------      -------

                                                   $ 1,425      $ 1,264
                                                   =======      =======
</TABLE>

4. EQUITY TRANSACTIONS

During the quarter ending June 30, 1999, 143,600 shares of Series E Preferred
Stock and 600 shares of Series H Preferred Stock were converted into 143,600 and
522,109 shares of common stock. As of June 30, 1999, 441,208 shares of Series E
Preferred Stock, 2,585 shares of Series H Preferred Stock, and 1,000 shares of
Series I Preferred Stock were outstanding.

WARRANTS

Warrant activity for the three month period ended June 30, 1999 is as follows:

<TABLE>
<CAPTION>
                                                       Warrant Price
                                       Shares            Per Share
                                      ---------        -------------
<S>                                   <C>               <C>
Outstanding at March 31, 1999         2,984,388         $0.59-$3.25
Exercised                              (305,731)        $0.75-$1.80
                                      ---------
Outstanding at June 30, 1999          2,678,657         $0.59-$3.25
                                      =========
</TABLE>

5. STOCK OPTION PLAN

The Company's stock option plan (the "1996 Plan") provides 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 June 30,
1999 was nine years. A total of 2,833,333 shares of common stock have been
authorized under the 1996 Plan, of which 2,317,560 were outstanding at June 30,
1999. In addition, the Company has granted non-qualified stock options, of which
3,956,473 were outstanding at June 30, 1999.



                                       8
<PAGE>   9

                              STARBASE CORPORATION

                          NOTES TO FINANCIAL STATEMENTS

Stock option activity for the three month period ended June 30, 1999 is as
follows:

<TABLE>
<CAPTION>
                                                       Weighted-
                                                       Average
                                                       Exercise
                                       Shares           Price
                                      ---------        --------
<S>                                   <C>               <C>
Outstanding at March 31, 1999         6,547,411         $1.23
Granted                                 125,000         $2.32
Lapsed or canceled                     (129,900)        $2.07
Exercised                              (268,478)        $1.66
                                      ---------
Outstanding at June 30, 1999          6,274,033         $1.21
                                      =========
Exercisable at June 30, 1999          2,095,476         $1.32
                                      =========
</TABLE>

Stock option summary information at June 30, 1999 is as follows:

<TABLE>
<CAPTION>
                             Options Outstanding                   Options Exercisable
                 ------------------------------------------       ----------------------
                                  Weighted-
                                   Average         Weighted-                   Weighted-
                                  Remaining         Average                    Average
Range of                         Contractual       Exercise                    Exercise
Exercise Prices   Shares            Life            Price         Shares        Price
---------------  ---------       -----------       --------       -------      --------
<S>              <C>              <C>               <C>           <C>           <C>
$0.50-$1.00      2,572,702        9.3 years         $0.68         405,723       $1.23
$1.01-$1.50      1,524,829        7.3 years         $1.26         926,710       $2.32
$1.51-$2.00      1,781,002        8.6 years         $1.65         684,468       $2.07
$2.01-$2.50        147,500        9.5 years         $2.20          15,625       $1.66
$2.51-$3.00        228,000        7.1 years         $2.64          56,910       $1.21
$3.01-$3.50         20,000        8.7 years         $3.34           6,040       $1.32
                 ---------                                      ---------
                 6,274,033                                      2,095,476
                 =========                                      =========
</TABLE>

6. OPERATING SEGMENT INFORMATION

The Company's reportable operating segments include software licenses and
services. The software licenses operating segment develops and markets the
Company's web site application production and software configuration management
products. 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.


                                       9

<PAGE>   10

                              STARBASE CORPORATION

                          NOTES TO FINANCIAL STATEMENTS

Operating segment data for the three month ended June 30, 1999 and 1998 was as
follows:

<TABLE>
<CAPTION>
                                        Software
                                        licenses      Services       Total
                                        --------      --------      --------
<S>                                     <C>           <C>           <C>
(In thousands)

Three months ended June 30, 1999:

    Revenues                             $2,794        $  699        $3,493
    Cost of revenues                        164           282           446
                                         ------        ------        ------
        Gross margin                     $2,630        $  417        $3,047
                                         ======        ======        ======

Three months ended June 30, 1998:
    Revenues                             $  892        $  261        $1,153
    Cost of revenues                        239             0           239
                                         ------        ------        ------
        Gross margin                     $  653        $  261        $  914
                                         ======        ======        ======
</TABLE>

7. SUBSEQUENT EVENTS

In July 1999, the Company entered into agreements to complete a private
placement of 2,349,437 shares of Common Stock for $4,000,031. In conjunction,
the Company issued 1,824,578 warrants to purchase 1,824,578 shares of common
stock. Each warrant is exercisable through January 26, 2000, after which the
warrants will expire. The fair value of these warrants using the Black-Scholes
pricing model at the date of grant was $2,749,637.



                                       10

<PAGE>   11
                                     PART I

                                     ITEM 2

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

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents as of June 30, 1999 were $836,000 and $1,363,000 as of
March 31, 1999. At June 30, 1999 the Company had working capital of $2,998,000,
compared to $2,308,000 at March 31, 1999.

During the three months ended June 30, 1999, the Company used $1,177,000 in cash
for operations, a decrease of approximately $1,156,000 over the amount used for
operations in the same period of the prior year. The decrease was primarily due
to the reduced net loss from operations. Capital expenditures were approximately
$43,000 and $187,000 during the three months ended June 30, 1999 and June 30,
1998, respectively. During the three months ended June 30, 1999, financing
activities provided $693,00 compared to $18,000 in the same period of the prior
year. Exercise of options provided $447,000 and exercise of warrants provided
$294,000.

The Company warrants products against defects for 90 days and has a policy
permitting the return of products within 30 days. Warranty costs and returns,
which are not significant, have historically been within management's
expectations. The Company has reserved approximately $155,000 at June 30, 1999
for future returns and other collection issues, no change from March 31, 1999.

RESULTS OF OPERATIONS

Total revenue increased in the three month period ended June 30, 1999 by
$2,340,000 or 203%, to $3,493,000, from $1,153,000 in the same three month
period of the previous year due to the increase in license revenue, $1,902,000,
combined with the increase in maintenance, training and consulting revenue,
$368,000, and royalty revenue $70,000. The increase in product revenue was due
to the February 1999 release of the StarTeam 4.0 family of products.

Cost of revenues consists primarily of manufacturing and related costs such as
media, documentation, product assembly and costs related to the training and
consulting revenue. The Company out-sources manufacturing for all software
products, with the exception of the Company's Roundtable product. Cost of
Revenues increased to $446,000 from $239,000 in the three month period ended
June 30, 1999 over the same quarter of the previous year due to the increase in
product shipments and the increase in training and consulting costs.

Operating expenses in the three month period ended June 30, 1999 increased to
$3,755,000 from $3,235,000 in the same quarter of the previous year. The
increase was primarily due to the continued building of the sales and marketing
infrastructure to support the increased level of sales. At June 30, 1999, the
Company had 95 full-time employees, which consisted of 42 in sales and
marketing, 33 in research and development and 20 in general and administrative.
At June 30, 1998, the Company had 82 employees, which consisted of 28 in sales
and marketing, 41 in research and development and 13 in general and
administrative.

Research and development expenses. Research and development expenses include
personnel and other direct and overhead expenses incurred in the development of
the Company's products. StarBase continues to make significant investments in
research and development intended to bring its products to market and to support
existing products. In the three month period ended June 30, 1999 overall
research and development expenses decreased to $975,000 compared to $1,053,000
for the same period in the prior year as a result of the decrease in the
development staff.

Selling, general and administrative expenses. Selling, general and
administrative expenses for the three months ended June 30, 1999 increased
approximately $598,000 over the same period in the prior year. The increase was
mainly the result of additional sales and marketing personnel coupled with the
advertising and promotion programs to support the StarTeam 4.0 family of
products.


                                       11


<PAGE>   12

INTEREST INCOME/EXPENSE

Interest income for the three month period ended June 30, 1999 decreased to
$10,000 compared to $42,000 for the same period in the prior year due to less
cash being available to invest.

Interest expense for the three month period ended June 30, 1999 increased to
$7,000 compared to $2,000 for the same period in the prior year.

INCOME TAXES

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

NON-CASH DIVIDEND AND ACCRETION OF BENEFICIAL CONVERSION FEATURE

Non-cash dividend and accretion of beneficial conversion feature for the three
month period ended June 30, 1999 was $596,000 due to the beneficial conversion
feature of the Series H Preferred Stock, Series I Preferred Stock and the
warrants issued with each share of preferred stock. Non-cash dividend and
accretion of beneficial conversion feature for the three month period ended June
30, 1998 was $156,000.

FORWARD LOOKING STATEMENTS AND FACTORS THAT MAY EFFECT FUTURE RESULTS

The following discussion contains forward-looking statements within the meaning
of Sections 21E and 27A of the Securities Exchange Act of 1934. These forward
looking statements are subject to risks and uncertainties. There are several
important factors that could cause actual results to differ materially from
those anticipated by the forward-looking statements contained in the following
discussion. Such factors include, but are not limited to, the growth rates of
certain market segments, the timing of software product introductions, market
acceptance of product introductions, the positioning of the Company's products
in those segments, price pressures and the rapidly changing competitive
environment in the software industry, success in technological advances and
their implementation, business conditions and the general economy, the Company's
ability to manage its business in its evolution from a development stage
company, and the Company's ability to establish strategic alliances. Additional
information on these and other risk factors which could affect the Company's
financial results is included in the Company's Annual Report for the fiscal year
ended March 31, 1999 on Form 10-KSB on file with the Securities and Exchange
Commission.

THE YEAR 2000

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

State of Readiness
The Company is dependent on the operation of numerous systems that could
potentially be affected by Year 2000 related problems. Those systems include,
among others:

o   The software products sold to customers;

o   Hardware and software systems used for internal operations, including
    proprietary software systems as well as software supplied by third parties;

o   Communications networks such as the client/server Network, the Internet and
    the internal intranet;

o   The hardware and software systems of our customers and suppliers;

o   Non-information technology systems and services, such as utilities,
    telephone systems and building systems.


                                       12

<PAGE>   13

The Company has completed a Year 2000 review program for the hardware, software
and systems the Company depends on to run its operation. The phases of the Year
2000 program consist of:

o   Assignment of responsibility for issues, such as systems, facilities,
    equipment, software and legal audit;

o   Inventory of all aspects of the Company's operations and relationships
    subject to the Year 2000 problem;

o   Communication as necessary with significant supplier to determine the
    readiness of their products and systems;

o   Comprehensive analysis, including impact analysis and cost analysis of the
    Company's Year 2000 readiness;

o   Testing and remediation.

To date, the Company has not encountered any material Year 2000 problems with
the hardware and software systems in its operations. In the event that any such
third parties' products, services or systems do not meet the Year 2000
requirements on a timely basis, the Company could be materially adversely
affected.

Based on the Company's review of the use of dates within its products, each
version of its products was found to be Year 2000 compliant - that is, they are
capable of adequately distinguishing the 21st century dates from the 20th
century dates when used in accordance with the related documentation, and used
in conjunction with the Company's products.

Risks

Year 2000 related errors or defects that affect the operation of the Company's
software could result in:

o   Delay or loss of revenue;

o   Cancellation of customer contracts;

o   Diversion of development resources;

o   Damage to the Company's reputation;

o   Increased customer support and warranty costs;

o   Litigation costs.

Success of the Company's Year 2000 compliance efforts may also depend on the
success of its customers in dealing with their Year 2000 issues. The Company's
products are generally integrated into enterprise systems involving
sophisticated hardware and complex software products which may not be Year 2000
compliant. In addition, third party applications in which the Company's products
are embedded, or for which the Company's products are separately licensed, may
not comply with Year 2000 requirements, which may have an adverse impact on
software, while compatible with earlier, non Year 2000 compliant versions of
other software providers. While the Company does not believe they have any
obligation under these circumstances given that these customers are using older
versions of the Company's software products, there can be no assurance that the
Company will not be subject to claims or complaints by its customers.

In addition, the Company believes that purchasing patterns of customers and
potential customers may be affected by Year 2000 issues as companies expend
significant resources to correct or upgrade their current software systems for
Year 2000 compliance or defer additional software purchases until after 2000. As
a result, some customers and potential customers may have more limited budgets
available to purchase software products such as those offered by the Company,
and others may choose to refrain from changes in their information technology
environment until after 2000. Still other companies are accelerating purchases
of software products prior to 2000, causing an increase in short-term demand
which may, in turn, cause a corresponding decrease in long-term demand for
software products. To the extent Year 2000 issues cause significant change in,
delay in, or cancellation of, the decision to purchase the Company's products or
services, the Company's business could be materially adversely affected.

Contingency Plan

The Company could experience material adverse effects in its business if it
fails to identify all Year 2000 dependencies in its systems and the systems of
is suppliers, customers and financial institutions. Therefore, the Company is
currently in the process of developing plans for handling Year 2000 problems
that are not detected and corrected prior to their occurrence and should be
completed by October 31, 1999.


                                       13

<PAGE>   14

Costs

To date, the Company has not incurred any material costs directly associated
with its Year 2000 compliance efforts, except for compensation expense
associated with its salaried employees who have devoted some time to its Year
2000 assessment and remediation efforts. The Company does not expect the total
cost of Year 2000 problems to be material to its business, financial condition
and operating results. The Company will continue to evaluate its products,
software provided by third parties and infrastructure systems that it relies on.
Despite its efforts, the Company may not identify and remediate all significant
Year 2000 problems on a timely basis, remediation efforts may involve
significant time and expense, and unremeditated problems may have a material
adverse effect on its business.

NEW ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which the Company
is required to adopt effective in its fiscal year 2000. SFAS No. 133 will
require the Company to record all derivatives on the balance sheet at fair
value. The Company does not currently engage in hedging activities but will
continue to evaluate the effect of adopting SFAS No. 133. The Company will adopt
SFAS No. 133 in its fiscal year 2000.



                                       14

<PAGE>   15

                                     PART II

                                     ITEM 5

                                OTHER INFORMATION

None.



                                       15


<PAGE>   16
                                     ITEM 6

                        EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

  Exhibit                                                            Ref./
  Number             Description Of Document                         Page
------------   ------------------------------------------------   ----------
    4.1        Form of Registration Rights Agreement
   10.1        Form of Securities Purchase Agreement
   10.2        Form of Warrant
   27          Financial data schedule


(b) Reports on Form 8-K

    None.


                                       16

<PAGE>   17

                                   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)

August 16, 1999                               /s/ DOUGLAS S. NORMAN
---------------                               ----------------------------------
    Date                                          Douglas S. Norman
                                                  Director of Finance
                                                  Chief Accounting Officer




                                       17

<PAGE>   18

                                 EXHIBIT INDEX

  Exhibit
  Number             Description Of Document
------------   ------------------------------------------------
    4.1        Form of Registration Rights Agreement
   10.1        Form of Securities Purchase Agreement
   10.2        Form of Warrant
   27          Financial data schedule