<PAGE>   1

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

                                  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 December 31, 2000


                                       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 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 December 31, 2000: Common Stock:   50,374,052
                                                   Preferred Stock:            0

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

<PAGE>   2

                              STARBASE CORPORATION

                                TABLE OF CONTENTS


<TABLE>
<S>           <C>                                                                                     <C>

PART I.       FINANCIAL INFORMATION

    ITEM 1.   Financial Statements

              Consolidated Balance Sheets at December 31, 2000 (Unaudited) and March 31, 2000          3

              Consolidated Statements of Operations (Unaudited) for the three and nine month
              periods ended December 31, 2000 and 1999                                                 4

              Consolidated Statements of Comprehensive Operations (Unaudited) for the three
              and nine month periods ended December 31, 2000 and 1999                                  5

              Consolidated Statements of Cash Flows (Unaudited) for the three and nine month
              periods ended December 31, 2000 and 1999                                                 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.   Qualitative and Quantitative Disclosures about Market Risk                              23

PART II.      OTHER INFORMATION

    ITEM 6.   Exhibits and Reports on Form 8-K                                                        24

Signatures                                                                                            25
</TABLE>


                                       2
<PAGE>   3

                                     PART I

                                     ITEM 1
                              FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
                                                           December 31,   March 31,
                                                               2000         2000
                                                           ------------   ---------
                                                           (Unaudited)
<S>                                                        <C>            <C>
ASSETS
Current Assets:
  Cash and cash equivalents                                 $  23,594     $ 11,448
  Restricted cash                                                  39           39
  Marketable securities                                             1           11

  Accounts receivable, net of allowances of
   $607 at Dec. 31, 2000 and $202 at March 31, 2000             7,472        6,696

  Notes and other receivables, net of allowances
   of $747 at Dec. 31, 2000 and $707 at March 31, 2000            995           26

  Prepaid expenses and other assets                               983          568
                                                            ---------     --------

    Total current assets                                       33,084       18,788

Property and equipment, net                                     2,901        1,526
Intangible assets, net                                         29,513       21,074
Note receivable from officer                                      103           99
Long-term restricted cash                                          --           39
Other non-current assets                                          185          687
                                                            ---------     --------

Total assets                                                $  65,786     $ 42,213
                                                            =========     ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Accounts payable                                          $   1,795     $  1,358
  Accrued compensation                                          2,096        1,475
  Other accrued liabilities                                       449          390
  Deferred revenue                                              4,815        4,017
  Current portion of long-term obligations                        133          119
                                                            ---------     --------

    Total current liabilities                                   9,288        7,359

Long-term liabilities:
  Long-term obligations, less current portion                      58           49
  Long-term deferred revenue                                      224          535
                                                            ---------     --------

    Total long-term liabilities                                   282          584

                                                            ---------     --------
    Total liabilities                                           9,570        7,943

Commitments and contingencies

Stockholders' equity:
  Preferred stock, $.01 par value; 10,000,000 shares
   authorized, none issued and outstanding at
   December 31, 2000 and March 31, 2000                            --           --
  Common stock, $.01 par value; 100,000,000 authorized;
    50,374,052 and 44,315,610 shares issued and
    outstanding at December 31, 2000 and March 31, 2000           504          443
  Additional paid-in capital                                  124,316       92,242
  Accumulated deficit                                         (68,484)     (58,305)
  Accumulated other comprehensive loss                           (120)        (110)
                                                            ---------     --------

    Total stockholders' equity                                 56,216       34,270
                                                            ---------     --------

Total liabilities and stockholders' equity                  $  65,786     $ 42,213
                                                            =========     ========
</TABLE>

               The accompanying notes are an integral part of the
                        consolidated financial statements


                                       3
<PAGE>   4

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

<TABLE>
<CAPTION>
                                                      Three months ended         Nine months ended
                                                          December 31,              December 31,
                                                     ---------------------     ---------------------
                                                       2000         1999         2000         1999
                                                     --------     --------     --------     --------
                                                          (Unaudited)               (Unaudited)
<S>                                                  <C>          <C>          <C>          <C>

Revenues:
  License                                            $  7,124     $  3,379     $ 18,650     $  9,491
  Service                                               2,416          754        6,376        1,848
                                                     --------     --------     --------     --------

    Total revenues                                      9,540        4,133       25,026       11,339

Cost of Revenues:
  License                                                 279          256          579          931
  Service                                               1,067          354        3,037          914
  Amortization of intangibles                             503           --        1,412           --
                                                     --------     --------     --------     --------

    Total cost of revenues                              1,849          610        5,028        1,845
                                                     --------     --------     --------     --------

Gross margin                                            7,691        3,523       19,998        9,494

Operating Expenses:
  Research and development                              2,400        1,132        6,419        3,075
  Sales and marketing                                   5,440        2,129       13,983        5,806
  General and administrative                            1,689          814        5,210        2,733
  Non-cash stock based compensation                       101          425        1,385          415
  Amortization of intangibles                           1,316           50        3,872          148
                                                     --------     --------     --------     --------

    Total operating expenses                           10,946        4,550       30,869       12,177
                                                     --------     --------     --------     --------

  Operating loss                                       (3,255)      (1,027)     (10,871)      (2,683)

  Interest and other income (expense)                     372           53          715         (162)
                                                     --------     --------     --------     --------

Loss before income taxes                               (2,883)        (974)     (10,156)      (2,845)

  Provision for income taxes                               21           --           22            1
                                                     --------     --------     --------     --------

Net loss                                               (2,904)        (974)     (10,178)      (2,846)

  Non-cash dividend and accretion of
    beneficial conversion feature                          --           --           --          549
                                                     --------     --------     --------     --------

Net loss applicable to common stockholders           $ (2,904)    $   (974)    $(10,178)    $ (3,395)
                                                     ========     ========     ========     ========

Per share data:
  Basic and diluted net loss per common share        $  (0.06)    $  (0.03)    $  (0.22)    $  (0.11)
                                                     ========     ========     ========     ========

  Basic and diluted weighted average common
    shares outstanding                                 48,913       34,268       46,500       30,859
                                                     ========     ========     ========     ========
</TABLE>


               The accompanying notes are an integral part of the
                        consolidated financial statements


                                       4
<PAGE>   5

                              STARBASE CORPORATION
                CONSOLIDATED STATEMENTS OF COMPRENSIVE OPERATIONS
                                 (in thousands)

<TABLE>
<CAPTION>
                                           Three months ended     Nine months ended
                                              December 31,           December 31,
                                           ------------------    --------------------
                                            2000       1999        2000        1999
                                           -------     -----     --------     -------
                                              (Unaudited)             (Unaudited)
<S>                                        <C>         <C>       <C>          <C>

Net loss                                   $(2,904)    $(974)    $(10,178)    $(2,846)
Other comprehensive loss:
  Unrealized loss on available for sale
    securities                                  (8)       --          (10)         --
                                           -------     -----     --------     -------

Total comprehensive loss                   $(2,912)    $(974)    $(10,188)    $(2,846)
                                           =======     =====     ========     =======
</TABLE>


               The accompanying notes are an integral part of the
                        consolidated financial statements


                                       5
<PAGE>   6

                              STARBASE CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                Nine months ended
                                                                   December 31,
                                                               --------------------
                                                                 2000         1999
                                                               --------     -------
                                                                    (Unaudited)
<S>                                                            <C>          <C>

Cash Flows from Operating Activities:
  Net loss                                                     $(10,178)    $(2,846)
  Adjustments to reconcile net loss to net cash
   used in operating activities:
    Depreciation and amortization                                 5,837         439
    Provision for doubtful accounts and sales returns               365         634
    Stock option compensation expense                             1,385         415
    Loss on disposition of property and equipment                    --          41
    Equity in loss of investee                                       --         250
    Changes in operating assets and liabilities, net
     of effects of acquisitions:
      Accounts receivable                                          (957)     (1,677)
      Notes and other receivables                                (1,017)       (693)
      Prepaid expenses and other assets                            (244)        (54)
      Other non-current assets                                        2        (223)
      Accounts payable and accrued liabilities                      280         379
      Deferred revenue                                              479       2,312
                                                               --------     -------

Net cash used by operations                                      (4,048)     (1,023)

Cash Flows from Investing Activities:
  Cash paid for acquisitions, net of cash acquired                   30          --
  Decrease in restricted cash                                        39          40
  Investment in equity investee                                      --        (250)
  Capital expenditures                                           (2,313)       (342)
                                                               --------     -------

Net cash used in investing activities                            (2,244)       (552)

Cash Flows from Financing Activities:
  Proceeds from issuance of common stock:
    From private placements                                      17,500       4,225
    Exercise of options                                             773       1,529
    Exercise of warrants                                          1,961       4,363
  Payment of financing related costs                             (1,542)       (569)
  Payments on capitalized lease obligations                        (254)        (96)
                                                               --------     -------

Net cash provided by financing activities                        18,438       9,452
                                                               --------     -------

Net increase in cash                                             12,146       7,877

Cash and cash equivalents, beginning of period                   11,448       1,363
                                                               --------     -------

Cash and cash equivalents, end of period                       $ 23,594     $ 9,240
                                                               ========     =======

Supplemental Cash Flow Information:

  Interest paid                                                $     30     $    25
                                                               ========     =======
  Income taxes paid                                            $     22     $     1
                                                               ========     =======

Non-cash investing and financing transactions:
  Non-cash preferred stock and common stock dividends          $     --     $   549
                                                               ========     =======
  Conversion of preferred stock to common stock                $     --     $    47
                                                               ========     =======
  Capitalized lease and insurance financing                    $    171     $    90
                                                               ========     =======
  Change in unrealized loss on securities
   available for sale                                          $     10     $    --
                                                               ========     =======
</TABLE>


               The accompanying notes are an integral part of the
                        consolidated financial statements


                                       6
<PAGE>   7

                              STARBASE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS

Starbase Corporation, a Delaware corporation (the Company), is a leading
provider of collaboration products for the creation and management of integrated
code and content eBusiness applications. Collaboration is the simultaneous
coordination, management and communication of geographically dispersed
contributors of both code and content 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. The Company's current product
line consists of StarTeam(R) and StarTeam(R) Enterprise, StarDisk(R),
StarGate(R), StarSweeperTM, StarTeam Web Edition(R), StarTeam Web Approval(R),
StarFlow(R), StarEstimator(R), StarSync(R), RoundTable(R), and Versions(R) as
well as the product lines acquired through acquisitions: CodeWright(R),
CostWright(R)/Surveyor(R) and SpyWright(R).

2. BASIS OF PRESENTATION

The unaudited interim consolidated financial statements as of December 31, 2000
and for the three and nine months ended December 31, 2000, and 1999, 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 period presented. The results of operations
for the three and nine months ended December 31, 2000 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, 2000.

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 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.

For the three months ended December 31, 2000, net loss and net loss applicable
to common stockholders was $2,904,000. For the three months ended December 31,
1999, net loss applicable to common stockholders was $974,000.

For the nine months ended December 31, 2000, net loss and net loss applicable to
common stockholders was $10,178,000. For the nine months ended December 31,
1999, net loss applicable to common stockholders was $3,395,000 representing net
loss of $2,846,000 plus non-cash dividend and accretion of beneficial conversion
feature of $549,000 consisting of $501,000 associated with the Series H
Preferred Stock and $48,000 associated with the Series I Preferred Stock.


                                       7
<PAGE>   8

                              STARBASE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Potentially dilutive securities, which consist of options to purchase 4,816,172
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 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 nine month periods ended December 31, 2000.
Common stock equivalents, which consist of options to purchase 2,482,968 shares
of common stock at prices ranging from $0.625 to $3.44 per share, warrants to
purchase 1,258,379 shares of common stock at prices raging from $0.73 to $3.88
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 nine month periods ended December 31, 1999.

3. COMPOSITION OF CERTAIN BALANCE SHEET CAPTIONS

<TABLE>
<CAPTION>
       (In thousands)                                     December 31,   March 31,
                                                              2000         2000
                                                          ------------   ---------
                                                          (Unaudited)
<S>                                                       <C>            <C>

          Property and equipment:

          Computer hardware                                 $  1,648     $  1,836
          Furniture and fixtures                                 902          628
          Computer software                                    1,142          239
          Motor vehicle                                           32           32
          Leasehold improvements                                 378          251
                                                            --------     --------
                                                               4,102        2,986
          Less accumulated depreciation and amortization      (1,201)      (1,460)
                                                            --------     --------

                                                            $  2,901     $  1,526
                                                            ========     ========

          Intangible assets:

          Patents and trademarks                            $     20     $     20
          Manufacturing/sales license                            385           --
          Developed technology                                 9,533        7,073
          Customer lists                                         161          161
          Assembled workforce                                    368          368
          Goodwill                                            24,837       13,959
                                                            --------     --------

                                                              35,304       21,581
          Less accumulated amortization                       (5,791)        (507)
                                                            --------     --------

                                                            $ 29,513     $ 21,074
                                                            ========     ========
</TABLE>


                                       8
<PAGE>   9

                              STARBASE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. EQUITY TRANSACTIONS

WARRANTS

Warrant activity for the nine month period ended December 31, 2000 is as
follows:

<TABLE>
<CAPTION>
                                                         Warrant Price
                                           Shares          Per Share
                                          --------       -------------
<S>                                       <C>            <C>

Outstanding at March 31, 2000              239,669        $0.73-$2.00
Granted                                    884,910        $3.88-$6.81
Exercised                                 (218,333)       $1.25-$2.00
                                          --------
Outstanding at December 31, 2000           906,246        $0.73-$6.81
                                          ========
</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 December
31, 2000 was 8.2 years. A total of 2,833,333 shares of common stock have been
authorized under the 1996 Plan, of which 1,440,536 were outstanding at December
31, 2000. In addition, the Company has granted non-qualified stock options, of
which 12,570,526 were outstanding at December 31, 2000. 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 205,303 were
outstanding at December 31, 2000.

Stock option activity for the nine month period ended December 31, 2000 is as
follows:

<TABLE>
<CAPTION>
                                                       Weighted-Average
                                             Shares     Exercise Price
                                           ----------  ----------------
<S>                                        <C>         <C>

Outstanding at March 31, 2000              11,836,123        $4.16
Granted                                     4,224,657        $4.80
Lapsed or canceled                           (995,900)       $5.64
Exercised                                    (848,515)       $2.73
                                           ----------
Outstanding at December 31, 2000           14,216,365        $4.33
                                           ==========
Exercisable at December 31, 2000            4,816,172        $1.73
                                           ==========
</TABLE>


                                       9
<PAGE>   10

                              STARBASE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Stock option summary information at December 31, 2000 is as follows:

<TABLE>
<CAPTION>
                                     Options Outstanding                      Options Exercisable
                        -----------------------------------------------   ----------------------------
                                    Weighted-Average
Range of                               Remaining       Weighted-Average               Weighted-Average
Exercise Prices          Shares     Contractual Life    Exercise Price     Shares      Exercise Price
---------------         ---------   ----------------   ----------------   ---------   ----------------
<S>                     <C>         <C>                <C>                <C>         <C>

 $0.50-$1.00            1,772,196       7.7 years           $ 0.67        1,037,474        $ 0.67
 $1.01-$1.50            3,787,157       7.7 years           $ 1.31        1,881,407        $ 1.30
 $1.51-$2.00            1,583,799       7.5 years           $ 1.69          946,951        $ 1.66
 $2.01-$2.50              572,011       8.6 years           $ 2.12          310,922        $ 2.08
 $2.51-$3.00              232,543       5.3 years           $ 2.71          153,996        $ 2.70
 $3.01-$3.50              190,252       7.3 years           $ 3.44           72,292        $ 3.45
 $3.51-$4.00            1,142,945       8.9 years           $ 3.89           73,447        $ 3.88
 $4.01-$4.50              345,000       8.1 years           $ 4.13           58,750        $ 4.05
 $4.51-$10.00           2,016,300       9.1 years           $ 5.79          215,938        $ 4.87
$10.01-$20.00           2,574,162       9.1 years           $12.68           64,995        $10.99
                       ----------                                         ---------
                       14,216,365                                         4,816,172
                       ==========                                         =========
</TABLE>


                                       10
<PAGE>   11

                              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 eBusiness collaboration 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.

Operating segment data for the three and nine months ended December 31, 2000 and
1999 was as follows:

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

Three months ended December 31, 2000:
    Revenues                                 $ 7,124        $2,416        $ 9,540
    Cost of revenues                             782         1,067          1,849
                                             -------        ------        -------

        Gross margin                         $ 6,342        $1,349        $ 7,691
                                             =======        ======        =======

Three months ended December 31, 1999:
    Revenues                                 $ 3,379        $  754        $ 4,133
    Cost of revenues                             256           354            610
                                             -------        ------        -------

        Gross margin                         $ 3,123        $  400        $ 3,523
                                             =======        ======        =======

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

Nine months ended December 31, 2000:
    Revenues                                 $18,650        $6,376        $25,026
    Cost of revenues                           1,991         3,037          5,028
                                             -------        ------        -------

        Gross margin                         $16,659        $3,339        $19,998
                                             =======        ======        =======

Nine months ended December 31, 1999:
    Revenues                                 $ 9,491        $1,848        $11,339
    Cost of revenues                             931           914          1,845
                                             -------        ------        -------

        Gross margin                         $ 8,560        $  934        $ 9,494
                                             =======        ======        =======
</TABLE>


                                       11
<PAGE>   12

                              STARBASE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


7. RELATED PARTY TRANSACTIONS

During the quarter ended December 31, 2000, the Company, eCollatoratory, and
OpenAvenue, Inc. entered into a portal development and license agreement where
OpenAvenue granted to eCollaboratoy and the Company a software license for it's
OAsis portal software and and exclusive right to the Company to sell it's OAsis
portal software. In consideration of the licenses granted, eCollaboratory will
pay OpenAvenue $1.0 million. In addition the Company agrees to apply $250,000 as
a credit against amounts owed by OpenAvenue from a short-term loan. As of
December 31, 2000, the amount outstanding from the loan was $746,838. The loan
balance is fully reserved for as of December 31, 2000. As of December 31, 2000
the Company has $637,200 in accounts receivable from OpenAvenue consisting of
$500,000 of license fee, $90,000 of maintenance and $47,200 of sales tax.
Deferred revenue related to these amounts was $500,000. In addition, the Company
agreed to loan funds to eCollaboratory Corporation on a short-term basis until
eCollaboratory's financing arrangements are completed. eCollaboratory is a
Delaware company incorporated to, among other things, be a showcase for the
promotion and marketing of product integration solutions using the Company's
proprietary StarTeam software and products of other companies. As of December
31, 2000, the amount outstanding from the loan was $875,246.


                                       12
<PAGE>   13

                                     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 statement 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, 2000 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 nine months ended December 31, 2000 and 1999.

<TABLE>
<CAPTION>
                                                   Three months ended      Nine months ended
                                                      December 31,            December 31,
                                                   ------------------      ------------------
                                                    2000        1999        2000        1999
                                                   ------      ------      ------      ------
<S>                                                <C>         <C>         <C>         <C>

Revenues:
  License                                            74.7%       81.8%       74.5%       83.7%
  Service                                            25.3        18.2        25.5        16.3
                                                   ------      ------      ------      ------

    Total revenues                                  100.0       100.0       100.0       100.0

Cost of revenues:
  License                                             2.9         6.2         2.3         8.2
  Service                                            11.2         8.6        12.1         8.1
  Amortization of intangibles                         5.3          --         5.6          --
                                                   ------      ------      ------      ------

    Total cost of revenues                           19.4        14.8        20.1        16.3
                                                   ------      ------      ------      ------

Gross profit                                         80.6        85.2        79.9        83.7

Operating expenses:
  Research and development                           25.1        27.4        25.6        27.1
  Sales and marketing                                57.0        51.5        55.9        51.2
  General and administrative                         17.7        19.7        20.8        24.1
  Non-cash stock based compensation                   1.1        10.3         5.5         3.7
  Amortization of intangibles                        13.8         1.2        15.5         1.3
                                                   ------      ------      ------      ------

    Total operating expenses                        114.7       110.1       123.3       107.4
                                                   ------      ------      ------      ------

Loss from operation                                 (34.1)      (24.9)      (43.4)      (23.7)

Other income (expense), net                           3.9         1.3         2.8        (1.4)
                                                   ------      ------      ------      ------

Loss before income taxes                            (30.2)      (23.6)      (40.6)      (25.1)
Provision for income taxes                            0.2         0.0         0.1         0.0
                                                   ------      ------      ------      ------

Net loss                                            (30.4)      (23.6)      (40.7)      (25.1)
Non-cash dividend and accretion of beneficial
 conversion feature                                    --          --          --         4.8
                                                   ------      ------      ------      ------

Net loss applicable to common stockholders          (30.4)%     (23.6)%     (40.7)%     (29.9)%
                                                   ======      ======      ======      ======
</TABLE>


                                       13
<PAGE>   14

THREE MONTHS ENDED DECEMBER 31, 2000 AND 1999

REVENUES

Revenues were $9.5 million and $4.1 million for the three month periods ended
December 31, 2000 and 1999, respectively, representing an increase of $4.4
million or 131%. International revenues accounted for less than 10% of total
revenue in the three months ended December 31, 2000 and 1999.

License - License revenues were $7.1 million and $3.4 million for the three
month periods ended December 31, 2000 and 1999, respectively, representing an
increase of $3.3 million or 111%. License revenues represented 74.7% and 81.8%
of total revenues for the three months ended December 31, 2000 and 1999,
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 Premia
acquisition. The acquired products were CodeWright, Surveyor/CostWright, and
SpyWright.

Service - Service revenues were $2.4 million and $754,000 for the three month
periods ended December 31, 2000 and 1999, respectively, representing an increase
of $1.7 million or 220%. Service revenues represented 25.3% and 18.2% of total
revenues for the three months ended December 31, 2000 and 1999, 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. The Company
out-sources manufacturing for all software products, with the exception of the
Company's Roundtable product. License cost of revenues was $279,000 and $256,000
for the three month periods ended December 31, 2000 and 1999, respectively,
representing an increase of $23,000 or 9%. License cost of revenues as a
percentage of total revenue was 2.9% and 6.2% for the three months ended
December 31, 2000 and 1999, respectively.

Service - Service cost of revenues consists of the costs associated with
performing training and consulting services. Service cost of revenues were $1.1
million and $354,000 for the three month periods ended December 31, 2000 and
1999, respectively, representing an increase of $713,000 or 201%. Service cost
of revenues as a percentage of total revenue was 11.2% and 8.6% for the three
months ended December 31, 2000 and 1999, respectively. The increases were due to
the increases in the training and consulting organization.

Amortization of intangibles - Amortization of intangibles consists of the
amortization of developed technology associated with the Premia and Genitor
acquisitions. Amortization of intangibles was $503,000 for the three months
ended December 31, 2000 and was 5.3% of total revenues. There was no
amortization of intangibles for the three months ended December 31, 1999.

OPERATING EXPENSES

Research and development expenses - Research and development expenses were $2.4
million and $1.1 million for the three months ended December 31, 2000 and 1999,
respectively, representing an increase of $1.3 million or 112%. The increase was
primarily related to an increase in salaries and related expenses associated
with an increase in software developers and quality assurance personnel compared
to the same period in the prior year.

Sales and marketing - Sales and marketing expenses were $5.4 million and $2.1
million for the three months ended December 31, 2000 and 1999, respectively,
representing an increase of $3.3 million or 156%. The increase was primarily
related to the increase in salaries and related expenses incurred in expanding
the sales and marketing staff.

General and administrative - General and administrative expenses were $1.7
million and $814,000 for the three months ended December 31, 2000 and 1999,
respectively, representing an increase of $875,000 or 107%. The increase was
primarily due an increase in salaries and related expenses incurred in building
our infrastructure.


                                       14
<PAGE>   15

Non-cash stock based compensation - Non-cash stock based compensation was
$101,000 and $425,000 for the three months ended December 31, 2000 and 1999,
respectively, representing a decrease of $324,000. 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 of intangibles - Amortization of intangibles was $1.3 million and
$50,000 for the three months ended December 31, 2000 and 1999, respectively.
This includes amortization of goodwill, customer list and assembled workforce
associated with the SITE, Premia, and ObjectShare acquisitions.

Interest and other income (expense) - Interest and other income (expense) was
$372,000 and $53,000 for the three months ended December 31, 2000 and 1999,
respectively, representing an increase of $319,000. The increase is due to
higher interest income resulting from more cash being available to invest.

Provision for income taxes - Provision for income taxes was $21,000 for the
three months ended December 31, 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.

Net loss applicable to common stockholders - Net loss applicable to common
stockholders for the three months ended December 31, 2000 was $2.9 million
consisting of our net loss for the period. Net loss applicable to common
stockholders for the three months ended December 31, 1999 was $974,000
consisting of our net loss for the period.


NINE MONTHS ENDED DECEMBER 31, 2000 AND 1999

REVENUES

Revenues were $25.0 million and $11.3 million for the nine month periods ended
December 31, 2000 and 1999, respectively, representing an increase of $13.7
million or 121%. International revenues accounted for less than 10% of total
revenue in the nine months ended December 31, 2000 and 1999.

License - License revenues were $18.7 million and $9.5 million for the nine
month periods ended December 31, 2000 and 1999, respectively, representing an
increase of $9.2 million or 97%. License revenues represented 74.5% and 83.7% of
total revenues for the nine months ended December 31, 2000 and 1999,
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 Premia
acquisition. The acquired products were CodeWright, Surveyor/CostWright, and
SpyWright.

Service - Service revenues were $6.4 million and $1.8 million for the nine month
periods ended December 31, 2000 and 1999, respectively, representing an increase
of $4.6 million or 245%. Service revenues represented 25.5% and 16.3% of total
revenues for the nine months ended December 31, 2000 and 1999, 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. The Company
out-sources manufacturing for all software products, with the exception of the
Company's Roundtable product. License cost of revenues was $579,000 and $931,000
for the nine month periods ended December 31, 2000 and 1999, respectively,
representing a decrease of $352,000 or 38%. License cost of revenues as a
percentage of total revenue was 2.3% and 8.2% for the nine months ended December
31, 2000 and 1999, respectively. The decrease in cost of revenues was a result
of an increase in the average size of the Company's sales thus requiring a fewer
number of manuals and media to be shipped. Also, license cost of revenues for
the nine months ended December 31, 1999 included costs for an exchange of
technology of $471,000.

Service - Service cost of revenues consists of the costs associated with
performing training and consulting services. Service cost of revenues were $3.0
million and $914,000 for the nine month periods ended December 31, 2000 and
1999, respectively, representing and increase of $2.1 million or 232%. Service
cost of revenues as a percentage of total


                                       15
<PAGE>   16

revenue was 12.1% and 8.1% for the nine months ended December 31, 2000 and 1999,
respectively. The increases were due to the increases in the training and
consulting organization.

Amortization of intangibles - Amortization of intangibles consists of the
amortization of developed technology associated with the Premia and Genitor
acquisitions. Amortization of intangibles was $1.4 million for the nine months
ended December 31, 2000 and was 5.6% of total revenues. There was no
amortization of intangibles for the nine months ended December 31, 1999.

OPERATING EXPENSES

Research and development expenses - Research and development expenses were $6.4
million and $3.1 million for the nine months ended December 31, 2000 and 1999,
respectively, representing an increase of $3.3 million or 109%. The increase was
primarily related to an increase in salaries and related expenses associated
with an increase in software developers and quality assurance personnel compared
to the same period in the prior year.

Sales and marketing - Sales and marketing expenses were $14.0 million and $5.8
million for the nine months ended December 31, 2000 and 1999, respectively,
representing an increase of $8.2 million or 141%. The increase was primarily
related to the increase in salaries and related expenses incurred in expanding
the sales and marketing staff.

General and administrative - General and administrative expenses were $5.2
million and $2.7 million for the nine months ended December 31, 2000 and 1999,
respectively, representing an increase of $2.5 million or 91%. The increase was
primarily due an increase in salaries and related expenses incurred in building
our infrastructure.

Non-cash stock based compensation - Non-cash stock based compensation was $1.4
million and $415,000 for the nine months ended December 31, 2000 and 1999,
respectively, representing an increase of $1.0 million. 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 of intangibles - Amortization of intangibles was $3.9 million and
$148,000 for the nine months ended December 31, 2000 and 1999, respectively.
This includes amortization of goodwill, customer list and assembled workforce
associated with the SITE, Premia, and ObjectShare acquisitions.

Interest and other income (expense) - Interest and other income (expense) was
$715,000 and $(162,000) for the nine months ended December 31, 2000 and 1999,
respectively, representing an increase of $877,000. The increase is due to
higher interest income resulting from more cash being available to invest.
Interest and other income (expense) for the nine months ended December 31, 1999
included an expense of $250,000 as a result of equity loss from investee
(OpenAvenue).

Provision for income taxes - Provision for income taxes was $22,000 and $1,000
for the nine months ended December 31, 2000 and 1999. 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.

Net loss applicable to common stockholders - Net loss applicable to common
stockholders for the nine months ended December 31, 2000 was $10.2 million
consisting of our net loss for the period. Net loss applicable to common
stockholders for the nine months ended December 31, 1999 was $3.4 million
consisting of our net loss for the period of $2.8 million and $549,000 of
non-cash dividend and accretion of beneficial conversion feature of preferred
stock.


INFLATION

Inflation has not had a significant effect on our results of operations of
financial position for the three and nine month periods ended December 31, 2000
and 1999.


                                       16
<PAGE>   17

LIQUIDITY AND CAPITAL RESOURCES

We have funded our business, to date, primarily from the issuance of equity
securities. Cash and cash equivalents as of December 31, 2000 were $23.6 million
and $11.4 million as of March 31, 2000. At December 31, 2000 the Company had
working capital of $23.8 million, compared to $11.4 million at March 31, 2000.

Net cash used in operating activities was $4.0 million and $1.0 million for the
nine months ended December 31, 2000 and 1999, respectively. The increase in cash
used in operating activities was primarily due to an increase in net loss
partially offset by an increase in non-cash stock option compensation expense
and depreciation and amortization expense.

Net cash used in investing activities was $2.2 million and $552,000 for the nine
months ended December 31, 2000 and 1999, respectively. The increase was
primarily due to an increase in capital expenditures.

Net cash provided from financing activities was $18.4 million and $9.5 million
for the nine months ended December 31, 2000 and 1999, respectively. In September
2000, the Company raised $16.0 million, net, through a private placement of
common stock. For the nine months ended December 31, 2000, exercise of options
provided $773,000 and exercise of warrants provided $2.0 million.

The Company believes that our existing cash balances and cash equivalents and
cash from operations will be sufficient to finance our operations through at
least the next twelve months. If additional financing is needed, there can be no
assurance that such financing will be available to us on commercially reasonable
terms or at all.

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 $607,000 at December 31,
2000 for future returns and other collection issues, an increase $225,000 from
March 31, 2000.


NEW ACCOUNTING STANDARDS

In December 1999, Staff Accounting Bulletin No. 101 was issued to provide to
staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. SAB 101, is effective no later than the
fourth fiscal quarter of fiscal years beginning after December 15, 1999. The
Company is currently evaluating the impact this bulletin may have on its
financial statements.

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 2002. 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 and the
effect of adopting SFAS No. 133 is not presently determinable.


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


                                       17
<PAGE>   18

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

Since our inception, we have had a history of losses and as of December 31,
2000, we had an accumulated deficit of $68,484,000. 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.

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

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.


                                       18
<PAGE>   19

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 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.


                                       19
<PAGE>   20

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.

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 PREMIA
CORPORATION

We acquired Premia Corporation on March 8, 2000. The success of this acquisition
will depend on our ability to:

     o    successfully integrate and manage Premia's technology and operations;

     o    retain Premia's software developers;

     o    develop and market new products and enhance existing products based on
          Premia's technology; and

     o    retain Premia's customer base.

Our failure to successfully address the risks associated with our acquisition of
Premia could hurt our ability to develop and market products based on Premia's
technology.

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:


                                       20
<PAGE>   21

     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

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,


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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
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

We expect cash on hand, cash equivalents, our line of credit and cash from
future operations to meet our current working capital and capital expenditure
needs. We may need to raise additional funds for other purposes and we cannot be
certain that we would be able to obtain additional financing on favorable terms,
if at all. 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.


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                                     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 December 31, 2000.

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 do not have any material debt, so we do not have interest rate risk
from a liability perspective. We do have a significant amount of 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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                                     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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SIGNATURES


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

                                      STARBASE CORPORATION
                                      (Registrant)

February 9, 2001                      /s/  Douglas S. Norman
----------------------                ------------------------------------------
Date                                  Douglas S. Norman
                                      Chief Financial Officer


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