UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


                                   FORM 10-QSB


              |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                For the quarterly period ended December 31, 1997


                                       OR


              |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the transition period from _____ to _____




                         Commission File Number: 0-25612


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



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


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


                                 (714) 442-4400
              (Registrant's telephone number, including area code)


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


Number of shares outstanding as of January 31, 1998: Common Stock:    17,758,431
                                                     Preferred Stock:  1,326,324

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




                                       1
<PAGE>


                                                     
                              STARBASE CORPORATION

                                TABLE OF CONTENTS


PART I.       FINANCIAL INFORMATION

    ITEM 1.   Financial Statements

              Balance Sheets at December 31, 1997 (Unaudited)
              and March 31, 1997                                             3

              Statements of Operations (Unaudited) for the three and
              nine month periods ended December 31, 1997 and 1996            4

              Statements of Cash Flows (Unaudited) for the nine month
              period ended December 31, 1997 and 1996                        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                                             14

    ITEM 6.   Exhibits and Reports on Form 8-K                              15




                                       2
<PAGE>
 



                                     PART I

                                     ITEM 1
                              FINANCIAL STATEMENTS

                              STARBASE CORPORATION
                          (a development stage company)

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

<TABLE>
<CAPTION>
                                                                                 December 31,         March 31,
                                                                                     1997                1997
                                                                                ---------------     ---------------
                                                                                 (unaudited)
     <S>                                                                        <C>                 <C> 


     ASSETS

     Current Assets:
       Cash and cash equivalents                                                $       1,069       $     2,722
       Accounts receivable, net of allowances of $65 and $65                              322               118
       Notes and other receivables                                                        155                83
       Prepaid expenses and deferred charges                                              214               312
       Inventories                                                                         23                34
                                                                                ---------------     ---------------
         Total current assets                                                           1,783             3,269

     Property and equipment, net                                                          681               524
     Note receivable from officer                                                          76                76
     Other non-current assets                                                             152                 7
                                                                                ---------------     ---------------
     Total assets                                                               $       2,692       $     3,876
                                                                                ===============     ===============


     LIABILITIES AND SHAREHOLDERS' EQUITY

     Current Liabilities:
       Accounts payable and accrued liabilities                                 $       1,038       $       885
       Current portion of capital lease obligation                                          9                 -
                                                                                ---------------     ---------------
         Total current liabilities                                                      1,047               885

     Long-term debt:
       Capitalized lease obligation, less current portion                                  40                 -
        6% Convertible Debentures, net of discount of $32                               1,411                 -
                                                                                ---------------     ---------------
         Total long-term debt                                                           1,451                 -

         Total liabilities                                                              2,498               885


     Shareholders' equity:
       Preferred  stock,  $.01 par value;  $0 (December 31, 1997) and $75 (March
         31, 1997) liquidation value; authorized 10,000,000; issued
         and outstanding -0- shares (December 31, 1997) and 25,000 (March                   -                 -
         31, 1997)
       Common stock, $.01 par value; authorized 50,000,000; issued and
         outstanding 16,651,428 (December 31, 1997) and 13,319,487 (March                 166               133
         31, 1997)
      Additional paid-in capital                                                       29,203            26,805
      Deficit accumulated during development stage                                    (29,175)          (23,947)
                                                                                ---------------     ---------------
       Total shareholders' equity                                                         194             2,991
                                                                                ---------------     ---------------
     Total liabilities and shareholders' equity                                 $       2,692       $     3,876
                                                                                ===============     ===============

</TABLE>



        The accompanying notes are an integral part of the financial statements



                                       3
<PAGE>




                              STARBASE CORPORATION
                          (a development stage company)

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

<TABLE>
<CAPTION>

                                                                                              Sept. 6, 1991
                                                                                                through
                                          Three months ended          Nine months ended        December 31,
                                             December 31,                December 31,            1997
                                       --------------------------  --------------------------
                                           1997          1996          1997          1996     (CUMULATIVE)
                                                                                             
                                       ------------- ------------  ------------  ------------ -------------
<S>                                    <C>           <C>           <C>           <C>          <C>

Revenues:
  Consulting services                  $      -      $      -     $      -       $     -      $   4,430
  Consulting services-related party           -             -             -             -           281
  Products                                  449           307         1,047           456         3,005
  License and royalty                       208            78           314           310           992
  Other                                       -             -             -             -            64
                                       ------------- ------------  ------------  ------------  ------------
    Total revenues                          657           385         1,361           766         8,772

Cost of Sales:
  Consulting services                         -             -             -             -         4,716
  Consulting services-related party           -             -             -             -           289
  Products, licenses and other               14            24            69            52           496
                                       ------------- ------------  ------------  ------------  ------------

    Total cost of sales                      14            24            69            52         5,501
                                       ------------- ------------  ------------  ------------  ------------
Gross margin                                643           361         1,292           714         3,271

Operating Expenses:
  Research and development                  767           393         1,780         1,080        10,836
  Selling, general and administrative     1,422         1,286         3,835         3,641        21,043
                                       ------------- ------------  ------------  ------------  ------------

    Total operating expenses              2,189         1,679         5,615         4,721        31,879
                                       ------------- ------------  ------------  ------------  ------------

  Operating loss                         (1,546)       (1,318)       (4,323)       (4,007)      (28,608)

  Interest income                            25            64            74           186           463
  Interest expense                         (578)           (1)         (939)           (5)       (1,024)
  Other income and expense                  (25)          (11)          (39)          (16)           27
                                       ------------- ------------  ------------  ------------  ------------
  Total interest and other income    
    and expense                            (578)           52          (904)          165          (534)

Loss before income taxes                 (2,124)       (1,266)       (5,227)       (3,842)      (29,142)

  Provision for income taxes                  -             2             1             3            12
                                       ------------- ------------  ------------  ------------  ------------

    Net loss                           $ (2,124)     $ (1,268)     $ (5,228)     $ (3,845)     $ 29,154)
                                       ============= ============  ============  ============  ============

Per share data:
  Basic and diluted loss per common   
    share                              $   (0.15)    $   (0.10)    $   (0.39)    $   (0.32)
 
                                       ============= ============  ============  ============

  Weighted average number of
   common shares outstanding             14,448        13,210        13,365        12,053
                                       ============= ============  ============  ============
</TABLE>



        The accompanying notes are an integral part of the financial statements


                                       4
<PAGE>



                              STARBASE CORPORATION
                          (a development stage company)

                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                                                     Sept. 6, 1991
                                                                                                        through
                                                                           Nine months ended          December 31,
                                                                              December 31,                1997
                                                                     -------------------------------
                                                                          1997            1996        (cumulative)
                                                                     --------------- --------------- ---------------
<S>                                                                  <C>             <C>             <C>

Cash Flows from Operating Activities:
  Net loss                                                           $    (5,228)    $    (3,845)    $   (29,154)
  Adjustments to reconcile net loss to
    net cash used in operating activities:
    Depreciation and amortization                                            168             177             972
    Provision for doubtful accounts and sales returns                         92              54             319
    Loss on disposition of property, equipment and                            
     capital lease                                                             -              16              99
    Write-down of assets                                                       -               -              50
    Gain on debt restructuring                                                 -               -            (138)
    Recognition of deferred income                                             -            (108)           (370)
    Amortization of financing costs                                           40               -              40
    Amortization of debt discount                                            882               -             882
    Other adjustments                                                          -              27              87
    Changes in assets and liabilities, excluding the effect
     of Non-cash transactions:
      Accounts receivable                                                   (296)           (239)           (640)
      Notes and other receivables                                            (72)           (102)           (226)
      Inventories                                                             11             (22)            (23)
      Prepaid expenses and deferred charges                                   85             (15)           (178)
      Other assets                                                           (32)             11             (63)
      Accounts payable and accrued liabilities                               177            (908)          1,651
                                                                     --------------- --------------- ---------------
Net cash used by operations                                               (4,173)         (4,954)        (26,692)

Cash Flows from Investing Activities:
  Proceeds from disposition of property and equipment                          -               1               7
  Capital expenditures                                                      (256)            (53)         (1,625)
                                                                     --------------- --------------- ---------------
Net cash used by investing activities                                       (256)            (52)         (1,618)

Cash Flows from Financing Activities:
  Proceeds from reverse acquisition                                            -               -           1,402
  Proceeds from sale of preferred stock                                        -           1,021           7,294
  Proceeds from  sale of convertible debentures                            3,100               -           3,100
  Proceeds from issuance of common stock:
    From stock purchase plan                                                   -               -              10
    From public offering                                                       -               -           4,063
    From private placements                                                    -           6,300          10,698
    From exercise of options                                                  12             282             560
    From exercise of warrants                                                  -           1,630           2,654
  Proceeds from convertible subordinated notes                                 -               -             381
  Proceeds from promissory notes                                               -               -           1,083
  Payments on promissory notes                                                 -            (111)           (274)
  Borrowings on line of credit                                                 -               -             664
  Payments on line of credit                                                   -               -            (664)
  Payment of financing related costs                                        (331)         (1,019)         (1,761)
  Payments on capitalized lease obligations                                   (5)              -             (45)
  Loans from officers/directors                                                -               -             365
  Repayment of loans from officers/directors                                   -               -             (75)
  Repayment of (disbursement of) loan to officer                               -               -             (76)
                                                                     --------------- --------------- ---------------
Net cash provided (used) by financing activities                           2,776           8,103          29,379
                                                                     --------------- --------------- ---------------
Net increase (decrease) in cash                                           (1,653)          3,097           1,069
Cash and cash equivalents, beginning of period                             2,722           1,252               -
                                                                     --------------- --------------- ---------------
Cash and cash equivalents, end of period                             $     1,069     $     4,349     $     1,069
                                                                     =============== =============== ===============
</TABLE>

        The accompanying notes are an integral part of the financial statements




                                       5
<PAGE>



                              STARBASE CORPORATION
                          (a development stage company)

                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)


1.    DESCRIPTION OF BUSINESS

StarBase Corporation (the "Company"), a Delaware corporation,  develops, markets
and supports  team-oriented  product  development  software  that  addresses the
evolving  needs of  personal  computer  users  involved  in  projects  requiring
substantial collaboration. StarBase was founded in 1991 to address the inability
of software development projects to deliver software products on time and within
budget,  initially through the improvement of individual programmer productivity
tools.  During  fiscal  1994,  however,  the  Company  determined  that  a  next
generation of individual  productivity  tools would not be a lasting solution to
the  software  productivity  problem.  Based on focus  group  studies and market
research, StarBase decided to focus entirely on the development and marketing of
software  designed  to  increase  team  productivity,   rather  than  individual
programmer  productivity.  The Company was reorganized in fiscal 1996 to reflect
this change in product and market focus. In line with the reorganization, the 26
person Consulting Division was discontinued.

2.   BASIS OF PRESENTATION

The unaudited  interim  financial  statements have been prepared pursuant to the
rules and  regulations of the Securities and Exchange  Commission.  Accordingly,
certain  information  and footnote  disclosures  normally  included in financial
statements prepared in accordance with generally accepted accounting  principles
have not been presented.  The accompanying unaudited financial statements should
be read in  conjunction  with the  financial  statements  and the notes  thereto
included in the  StarBase  Corporation  report to the  Securities  and  Exchange
Commission on Form 10-KSB, for the year ended March 31, 1997.

The interim financial statements reflect all normal recurring  adjustments which
are, in the opinion of  management,  necessary  for a fair  presentation  of the
Company's  financial  position,  results  of  operations  and cash flows for the
period  presented.  Certain  prior period  balances  have been  reclassified  to
conform to current  period  classifications.  The results of operations  for the
nine months  ended  December  31,  1997 are not  necessarily  indicative  of the
operating results for a full year.

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

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



                                       6
<PAGE>



                              STARBASE CORPORATION
                          (a development stage company)

                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

3.   COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
       (In thousands)                           December 31,        March 31,
                                                    1997               1997
                                               ----------------    -------------
       ACCOUNTS RECEIVABLE
       Trade accounts receivable               $      387          $      183
       Less allowance for doubtful accounts           (65)                (65)
                                               ----------------    -------------
                                               $      322          $      118
                                               ================    =============


       PROPERTY AND EQUIPMENT
       Computer hardware                       $    1,004          $      888
       Furniture and fixtures                         237                 164
       Computer software                              267                 132
       Leasehold improvements                          29                  29
                                               ----------------   -------------
                                                    1,537               1,213
       Less accumulated depreciation and
        amortization                                 (856)               (689)
                                               ----------------   -------------
                                               $      681         $       524
                                               ================   =============


       ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
       Trade accounts payable                  $      393          $     431
       Accrued professional fees                      148                179
       Accrued wages and bonuses                      179                139
       Other accrued expenses                         318                136
                                               ----------------    -------------
                                               $    1,038          $     885
                                               ================    =============



4.   LONG-TERM DEBT

CONVERTIBLE DEBENTURES
In August and September of 1997,  the Company  issued,  in the  aggregate,  $3.1
million of its 6%  Convertible  Debentures,  $1.5 million of which is due August
18,  1999  and $1.6  million  is due  September  5,  1999.  In  addition  to the
Debentures,  the  purchasers  received  non-transferable  warrants to purchase a
total of  82,667  shares  of the  Company's  common  stock,  40,000 of which are
exercisable  at $1.58 per share  through  August 18, 2000 and the  remainder  at
$1.80 per share through  September 5, 2000,  after which dates the warrants will
expire. The holders of the Debentures may convert,  at their option, at any time
after October 6, 1997, the effective date of the  Registration  Statement  filed
pursuant to the Registration  Rights  Agreement,  at a conversion price for each
share of common stock equal to the lesser of (a) 100% of the Market Price on the
Issuance Date; and (b)(i) 84% of the Market Price on the Conversion Date if such
date is between 90 and 120 days from the Issuance  Date;  (ii) 80% of the Market
Price if the date is between 121 days and 150 days from the  Issuance  Date,  or
(iii) 78% of the Market Price thereafter.  The Market Price shall be the average
closing  bid  price  of the  common  stock  on the 5  trading  days  immediately
preceding  the  Issuance  Date or  Conversion  Date,  as may be  applicable,  as
reported by the NASD, or the closing bid price on the over-the-counter market on
such date or, in the event the common stock is listed on a stock  exchange,  the
Market  Price  shall be the  closing  price on the  exchange  on such  date,  as
reported in the Wall Street  Journal.  The holders of 6% Convertible  Debentures
are not entitled to receive any dividends nor receive notice as a shareholder in
respect of any meeting of shareholders or any rights whatsoever as a shareholder
of the Company,  unless and to the extent converted in accordance with the terms
of the Debenture.



                                       7
<PAGE>



                              STARBASE CORPORATION
                          (a development stage company)

                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

The unamortized debt discount, consists of the estimated value of the conversion
feature of the Debentures, which is the difference between the fair market value
at issuance and the  conversion  price which is most  favorable to the investor,
$870  thousand,  and the estimated  value of the  warrants,  utilizing the Black
Sholes   Model,   $85   thousand,   net  of   the   related   amortization   and
reclassifications to additional paid in capital to date, $883 thousand and $40K,
respectively.  The debt discount  related to the conversion  feature and warrant
value is being  amortized as interest  expense over a 90-day period and two-year
period,  respectively,  which  commenced on the issuance date of the  respective
debentures. The face value of the 6% Convertible Debentures and unamortized debt
discount at December 31, 1997 are as follows:

                                                          Unamortized
   (in thousands)                        Principal          Discount
                                      --------------     --------------
   6% Convertible Debentures 
      (due August 18, 1999)            $        -        $        -
                                   
   6% Convertible Debentures 
      (due September 5, 1999)               1,443                32
                                       --------------    --------------
          Total                        $    1,443        $       32
                                       ==============    ==============

As of December 31, 1997, $1.7M face value of the 6% Convertible  Debentures plus
interest has been converted into 1,596,820 shares of the Company's common stock.


5.   EQUITY TRANSACTIONS

PRIVATE PLACEMENTS
The Company has  authorized  50,000,000  shares of common  stock and  10,000,000
shares of preferred  stock with a par value of $0.01 per share. Of the preferred
stock,  2,500,000  shares have been  designated as Series B Preferred  Stock, of
which no shares are issued and  outstanding  at December 31,  1997,  and 366,666
shares have been designated as Series C Preferred  Stock, of which no shares are
outstanding at December 31, 1997.

During  June  1996,  the  private  placement  of  Series C  Preferred  Stock was
completed.  In this private  placement,  365,496  Units were  issued,  each Unit
consisting  of one share of Series C  Preferred  Stock and one  non-transferable
warrant to purchase one share of common stock.  The warrants are  exercisable at
$2.50 per share through January 31, 1998,  after which date the warrants expire.
The Series C Preferred Stock is not redeemable and has a liquidation  preference
of $3.00 per share.  The holders of Series C Preferred Stock are not entitled to
receive any  dividends  nor,  except as  provided  by law,  vote upon any matter
relating to the  business  or affairs of the  Company or for any other  purpose.
Each  share of Series C  Preferred  Stock is  convertible,  at the option of the
holder,  at any time into the Company's  common stock,  of which the  conversion
rate  will  be  determined  by  dividing  $3.00  by the  Conversion  Price.  The
Conversion  Price  shall be the  lesser of (a) $3.00 per share or (b) 80% of the
average closing bid price of the common stock as reported by Bloomberg, L.P. for
shares  traded  in the  United  States  for the five  consecutive  trading  days
preceding the  conversion  date. As of December 31, 1997,  all 365,496 shares of
Series C Preferred Stock issued had been converted into 572,851 shares of common
stock.

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



                                       8
<PAGE>




                              STARBASE CORPORATION
                          (a development stage company)

                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

WARRANTS
Warrant  activity  for the nine  month  period  ended  December  31,  1997 is as
follows:

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

Outstanding at March 31, 1997                      4,833,534

Granted                                              199,835        US$1.58-
                                                                      $1.80
Exercised (converted)                             (4,743,534)      CDN$2.51-
                                                                    US$2.00
Expired                                              (10,000)      CDN$3.51
                                             -------------------
Outstanding at December 31, 1997                     279,835
                                             ===================


6.   SUPPLEMENTAL CASH FLOW INFORMATION

                                                             Nine months
                                                          Ended December 31,
                                                     ---------------------------
  (In thousands)                                        1997             1996
                                                     -----------    ------------

  Interest paid                                      $      6       $       20
Income taxes paid                                           1                1

Non-cash investing and financing transactions:
  Conversion of Series B Preferred Stock to
     common stock                                           -               22
  Conversion of Series C Preferred Stock to
     common stock (Note 5)                                  2                3
  Conversion of promissory notes to Series C
     Preferred  Stock                                       -               75
  Conversion of notes payable to equity                     -              153
  Common stock issued in 3-for-1 warrant 
     conversion  (Note 5)                                  15                -
  Common stock issued for non-cash consideration            -               28
  Treasury stock retired, 6,261 commons shares              -               21
  Equipment purchased under capitalized lease              54                -


                                       9
<PAGE>

7.   COMMITMENTS AND CONTINGENCIES

The Company  leases its office space,  under a  non-cancelable  operating  lease
expiring in February 1999, as well as certain of its office  equipment.  Minimum
rental commitments under lease agreements at December 31, 1997 are as follows:

                                                   Non-cancelable
Year ending March 31,                             Operating Leases
                                                 --------------------
                                                    (in thousands)
1998                                             $              67
1999                                                           197
2000                                                            23
2001                                                            22
2002                                                            19
2003                                                             -
                                                 ====================
Total payments                                   $             328
                                                 ====================



8.    SUBSEQUENT EVENTS

During January 1998,  five  investors  converted $973 thousand and $500 thousand
face value of the 6% Convertible Debentures plus accrued interest into 1,107,003
shares of the  Company's  common  stock  and  384,715  shares  of the  Company's
preferred stock.

On January 8, 1998, two investors  purchased  600,000 Units and 341,609 Units of
the  Company's   Series  D  Preferred  Stock  and  Series  E  Preferred   Stock,
respectively,  at $1.25 per share.  Each Series D Preferred Unit consists of one
share of the Company's Series D Preferred Stock and one non-transferable warrant
to purchase a 0.4166 share of the Company's  common stock,  exercisable at $1.25
per share through  January 8, 2003. Each Series E Preferred Unit consists of one
share of the Company's Series E Preferred Stock and one non-transferable warrant
to purchase a 0.5 share of the Company's common stock,  exercisable at $1.80 per
share  through the first  anniversary  of the issuance  date of the warrants and
thereafter  at $2.00 per share  through the second  anniversary  of the issuance
date of the warrants





                                       10
<PAGE>



                                     PART I

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




RESULTS OF OPERATIONS

Total  revenue  increased  in the nine month  period  ended  December  31,  1997
$595,000 or 78%, to  $1,361,000,  from $766,000 in the same nine month period of
the previous year due to the increase in product revenue,  $591,000 or 130%, and
license and royalty revenue from the Company's Roundtable product, $4,000 or 1%.
The increase in product  revenue has been  favorably  affected by the April 1997
release of the StarTeam 2.1 family of products, which include enhanced security,
encryption capability across the Internet and advanced configuration management.

Product  revenue to date has been limited by a number of factors,  including the
introductory cycle for new software development tools such as StarTeam. StarTeam
is a new  software  product  line whose  target  market  consists  of  technical
software  professionals  (developers,  testers,  etc.).  Marketing  to technical
professionals  is an educational  process.  The typical sales cycle,  commencing
with  an  initial  test  order  to  implementation   throughout  the  customer's
organization,  may take 6 months to a year or more, depending on the size of the
organization.  Although StarTeam 1.0 was introduced in January 1996, followed by
StarTeam  2.0 in  late  August  of  1996.  Sufficient  working  capital  was not
available to support a StarTeam 1.0  marketing and sales  program.  The StarTeam
1.0 marketing strategy was therefore to sell the product to strategic customers,
who,  with a  successful  initial  experience,  had the  potential  to  generate
significant  additional business.  In June 1996,  sufficient working capital was
raised through a private  placement to support a marketing and sales program for
StarTeam  2.0 that focused on seeding the market by  targeting  several  hundred
companies  for initial sales of StarTeam.  Commercial  shipments of StarTeam 2.0
and  StarTeam  2.1  began in the  final  week of  August  1996 and  April  1997,
respectively. In addition, Versions 2.0 sales commenced during the final week of
December 1996.

Gross profit  increased in the third  quarter of fiscal 1998 $282,000 or 78%, to
$643,000,  from $361,000 in the same quarter of the previous year chiefly due to
the increase in royalty  revenue and product sales.  Product cost of sales, as a
percentage of revenues,  decreased from the same period in the prior year due to
an increase in the average  revenue per seat for  StarTeam  Workstation  2.1 and
StarTeam  Pro Edition 2.1 over  StarTeam  2.0,  from which  product  revenue was
derived in the prior year.

Cost of products  consists  primarily of manufacturing and related costs such as
media,  documentation,  product assembly and third party royalties.  The Company
out-sources  manufacturing for all software products,  with the exception of the
Company's Roundtable product.

There was no consulting  service  revenue or cost of service  revenue during the
nine months ended  December 31, 1997 or for the same period in the previous year
due to the discontinuation of the Company's Consulting Division.

Operating expenses increased by approximately $510 thousand or 30% from the same
quarter in the  previous  year.  This  increase was  primarily  due to increased
research &  development  efforts,  as well as increased  product  sales  efforts
related to the market  introduction  of the StarTeam 2.1 family of products (the
ITE product line). At December 31, 1996, the Company had 40 full-time employees,
which  consisted of 14 in sales & marketing,  19 in research & development and 7
in general & administrative. At December 31, 1997, the Company had 54 employees,
which  consisted of 15 in sales & marketing,  30 in research & development and 9
in general & administrative.

RESEARCH AND  DEVELOPMENT  EXPENSES.  Research &  development  expenses  include
personnel  and  other  such  direct  and  overhead   expenses  incurred  in  the
development of the Company's  products.  StarBase  continues to make significant
investments in research and development intended to bring its products to market

                                       11
<PAGE>

and to support  existing  products.  Overall  research and development  expenses
increased $374 thousand or 95% of the total research & development  expenses for
the same  quarter in the prior year as a result of the  increase in  development
staff. For the nine month period,  research and development  expenses  increased
$700  thousand  or 65%  over the same  period  in the  prior  year.  Research  &
development  staff  increased from 19 at December 31, 1996 to 30 at December 31,
1997. In addition,  the Company has increased its  utilization of  organizations
providing  development  services.  As a result,  compensation  related expenses,
contract  programming  costs and recruiting costs increased  approximately  $498
thousand,  $89  thousand,  and $56 thousand,  respectively,  from the nine month
period ended December 31, 1996.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general & administrative
expenses  for the  three and nine  months  ended  December  31,  1997  increased
approximately $136 thousand or 11% and $194 thousand or 5%,  respectively,  over
the same period in the prior year which was mainly the result of the increase in
sales and marketing personnel coupled with commissions paid on increased product
sales offset by a decrease in marketing and public relations expenses. Marketing
expenses include advertising, trade shows and other promotional expenses.

INTEREST INCOME
Interest  income for Q3 1998  decreased by $39 thousand or 61% from quarter that
ended  December 31, 1996 due to a decrease in the amount of cash available for
investment.

INTEREST EXPENSE
Interest  expense for Q3 1998 increased  significantly  from the same quarter in
the prior year due to the 6% Convertible  Debenture debt discount  amortization,
$542  thousand,  and  interest  accrued on the 6%  Convertible  Debentures,  $34
thousand.

OTHER INCOME AND EXPENSE
Other income and expense  consists  primarily of the  amortization  of financing
costs.  The costs of issuing the 6%  Convertible  Debentures  during the quarter
which  ended  September  30,  1997  are  being  amortized  over  the term of the
Debentures.

INCOME TAXES

The Company  incurred  minimal  income taxes in the last two fiscal years due to
its cumulative  losses.  The Company adopted  Statement of Financial  Accounting
Standards  No. 109,  "Accounting  for Income Taxes" ("SFAS 109") in fiscal 1994.
SFAS 109 requires that deferred taxes be calculated using an asset and liability
approach  at  currently   enacted  tax  rates.   SFAS  109  also   requires  the
establishment of a valuation  allowance to reflect the likelihood of realization
of deferred tax assets.  Upon adoption of SFAS 109, the Company did not record a
net benefit from income taxes resulting from net operating loss carryforwards; a
valuation  allowance  of equal  amount was  provided  for the deferred tax asset
which would have been otherwise recorded.

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, 1997 on Form 10-KSB on file with the  Securities  and  Exchange
Commission.

                                       12
<PAGE>


The Company  continues  its efforts to gain broad market  exposure and, in turn,
revenue opportunities through, among others, OEM bundling agreements,  licensing
agreements,  and value  added  reseller  ("VAR")  and  distribution  agreements.
Management  believes  that  in  doing  so,  the  Company  will be  provided  the
opportunity  to leverage  off the market  strength  of its  partners at both the
entry level and high end of the market,  while selling to the rest of the market
through its direct and existing channel sales organizations.  During the current
quarter the Company signed a sales and distribution agreement with Ingram Micro,
Inc., an international  distribution agreement with Direct Solution LTD, as well
as a  bundling  agreement  for  Versions  2.0,  its entry  level  product,  with
NetDynamics Corporation.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash  equivalents  on hand as of December 31, 1997 totaled $1.1 million
and $4.3 million as of December  31, 1996.  At December 31, 1997 the Company had
positive  working capital of $0.7 million,  compared to $4.1 million at December
31, 1996.  During the nine months ended December 31, 1997, the Company generated
$2.8 million from financing  activities,  including net proceeds of $2.8 million
from the private  placement of 6%  Convertible  Debentures and $12 thousand from
the exercise of stock options.

During the nine months ended  December  31, 1997,  the Company used $4.2 million
for operations,  a decrease of  approximately  $0.8 million over the amount used
for operations in the prior year. The decrease was primarily due to the pay down
of accounts  payable during the nine months ended  December 31, 1996,  which had
accumulated in the prior year.  Capital  expenditures  were  approximately  $256
thousand and $53  thousand  during the nine months  ended  December  31,1997 and
December 31, 1996, respectively.

StarBase's  distributors and direct purchasers are generally  permitted a 30-day
right to return the software  purchased  by them.  The Company may, on occasion,
grant more liberal rights of return to its distributors,  particularly where new
products or major upgrades are  introduced  and sales do not meet  expectations.
Although  such returns are generally  exchanged  for other  products or credited
against future orders,  StarBase may be required to accept major product returns
for cash or a credit  against  accounts  receivable.  The Company  has  reserved
approximately  $65,000  at  December  31,  1997 for  future  returns  and  other
collection issues.

The Company  anticipates  raising  additional  funds,  between $3 million and $5
million,  during the fourth quarter of the fiscal year that ends March 31, 1998,
through a combination of debt and equity  securities.  The Company believes that
proceeds  from  the sale of debt  and  equity  securities  during  fiscal  1998,
combined  with  operating  revenues,  will be sufficient to allow the Company to
conduct  its  operations  during  the  fiscal  year  that ends  March 31,  1998.
Continuing operations thereafter will depend on cash flow from operations or the
Company's  ability to raise  additional  funds  through  equity,  debt, or other
financing.  There  can  be no  assurance,  however,  that  such  funds  will  be
available.



                                       13
<PAGE>


                                     PART II


                                     ITEM 5
                                OTHER INFORMATION

On October 6, 1997,  a  registration  statement on Form S-3 filed by the Company
was  declared  effective  by  the  Securities  and  Exchange   Commission.   The
registration  statement  covered 3,104,233 shares of common stock of the Company
(including  279,835  shares  issuable  under  outstanding  warrants  held by the
investors)  which were issued to investors in eligible private  placements.  The
Company  did not  receive  any of the  proceeds  from the sale of the  shares of
common stock by the investors.




                                       14
<PAGE>




                                     ITEM 6
                        EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

<TABLE>
<CAPTION>


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

    1.1        Underwriting Agreement between the Company and Dabney/ Resnick, Inc.                          (D)
    3.1        Amended and Restated Certificate of Incorporation of the Company.                             (B)
    3.2        Amended and Restated Bylaws of the Company.                                                   (A)
    3.3        Certificate of Designation, Series D Preferred Stock, dated January 8, 1998.                  (H)
    3.4        Certificate of Designation, Series E Preferred Stock, dated January 8, 1998.                  (H)
    4.1        Investor's  Rights  Agreement  date  September  16,  1994 among the Company and certain
               investors.                                                                                    (B)
    4.2        Registration Rights Agreement dated August 18, 1997.                                          (G)
    4.3        Registration Rights Agreement dated September 5, 1997.                                        (G)
    4.4        Registration Rights Agreement (Series D Units).                                               (H)
    4.5        Registration Rights Agreement (Series E Units).                                               (H)
   10.1        Form of Indemnity Agreement for Directors.                                                    (A)
   10.2        Form of Indemnity Agreement for Officers.                                                     (A)
   10.3        Performance  Share Escrow  Agreement,  as amended,  among the Company,  Montreal  Trust
               Company of Canada as Escrow Agent, and certain of the Company's stockholders.                 (A)
   10.4        1996 Stock Option Plan, as amended. (*)                                                       (E)
   10.5        Form of Restricted Stock Issuance Agreement.                                                  (A)
   10.6        Form of Restricted Stock Purchase Agreement.                                                  (A)
   10.7        Regional Prototype Defined Contribution Plan and Trust of the Company. (*)                    (A)
   10.8        Secured Promissory Note dated July 1, 1995 from William R. Stow III.                          (C)
   10.9        Forms of Preferred  Stock  Subscription  Agreements  and Warrants  used in January 1996
               Private Placement, together with a list of equity investors.                                  (C)
   10.10       Lease dated November 22, 1996 between The Provider Fund and StarBase  Corporation,  for
               the Company's Irvine, California facilities.                                                  (F)
   10.11       Form of Warrant dated August 18, 1997.                                                        (G)
   10.12       Form of Debenture dated August 18, 1997.                                                      (G)
   10.13       Form of Warrant dated September 5, 1997.                                                      (G)
   10.14       Form of Debenture dated September 5, 1997.                                                    (G)
   10.15       Form of Subscription Agreement, Series D Preferred Stock.                                     (H)
   10.16       Form of Warrant (Series D Units)                                                              (H)
   10.17       Form of Securities Purchase Agreement (Series E Units)                                        (H)
   10.18       Form of Warrant (Series E Units)                                                              (H)
    27         Financial data schedule

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

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

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

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

                                       15
<PAGE>



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

    (F)        Incorporated  herein by  reference to the  Company's  Form 10-KSB
               (file number 0-25612) filed with the Commission on June 30, 1997.

    (G)        Incorporated  herein by reference to the Company's Form 8-K (file
               number 0-25612) filed with the Commission on September 16, 1997.

    (H)        Incorporated  herein by reference to the Company's Form 8-K (file
               number 0-25612) filed with the Commission on January 12, 1998.


           *  Denotes a management contract or compensatory plan or arrangement.

</FN>
</TABLE>



(b)      Reports on Form 8-K

In a report filed on Form 8-K dated January 12, 1998,  the Company  reported the
commencement of two private  placements  offering up to 2.8 million units,  each
unit consisting of either of the Company's  Series D or Series E preferred stock
and warrants to purchase shares of the Company's common stock.


                                       16
<PAGE>



SIGNATURES


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

                                                    STARBASE CORPORATION
                                                       (Registrant)

FEBRUARY 12, 1997                                   /S/ DONALD R. FARROW
------------------                                   -------------------------
Date                                                 Donald R. Farrow
                                                     President and
                                                     Chief Operating Officer




                                       17
<PAGE>