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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2002

OR

o 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
incorporation or organization) |  | (I.R.S. Employer
Identification Number)

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

(714) 445-4400
(Registrants telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) been subject to such
filing requirements for the past 90 days.

Yes þ  No o Number of shares outstanding as of October 31, 2002:
        Common Stock:
Preferred Stock:
        
        8,736,690
0






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|               |                                                                                              |                                                     |  |  |  |  |  | 
|-------------- | -------------------------------------------------------------------------------------------- | --------------------------------------------------- |  |  |  |  |  | 
|               |                                                                                              | CONSOLIDATED BALANCE SHEETS                        
|               |                                                                                              | CONSOLIDATED STATEMENTS OF OPERATIONS              
|               |                                                                                              | CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
|               |                                                                                              | CONSOLIDATED STATEMENTS OF CASH FLOWS              
|               |                                                                                              | Notes to Consolidated Financial Statements         
|               | ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|               | ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|               | ITEM 4 CONTROLS AND PROCEDURES                                                              
|PART II       
|               | ITEM 5 OTHER INFORMATION                                                                    
|               | ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES    
|CERTIFICATIONS
|EXHIBIT INDEX 
|EXHIBIT 99.1  
|EXHIBIT 99.2  
|EXHIBIT 99.3  



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##### Table of Contents



STARBASE CORPORATION

TABLE OF CONTENTS

|               |         |  |                                                                                      |  |                                                                                                                                      |    |  |   |  |  | 
|-------------- | ------- |  | ------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------ | -- |  | - |  |  | 
|PART I.        |         |  |                                                                                      |  | FINANCIAL INFORMATION                                                                                                                |    |  |   | 
|              
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|              
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|               | ITEM 1. |  | Financial Statements                                                                 |  |                                                                                                                                      |    | 
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|               |         |  |                                                                                      |  | Consolidated Balance Sheets (Unaudited) at September 30, 2002 and March 31, 2002                                                     |    |  | 3 | 
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|               |         |  |                                                                                      |  | Consolidated Statements of Operations (Unaudited) for the three and six monthperiods ended September 30, 2002 and 2001               |    |  | 4 | 
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|               |         |  |                                                                                      |  | Consolidated Statements of Comprehensive Operations (Unaudited) for the threeand six month periods ended September 30, 2002 and 2001 |    |  | 5 | 
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|               |         |  |                                                                                      |  | Consolidated Statements of Cash Flows (Unaudited) for the six monthperiods ended September 30, 2002 and 2001                         |    |  | 6 | 
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|               |         |  |                                                                                      |  | Notes to Consolidated Financial Statements (Unaudited)                                                                               |    |  | 7 | 
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|               | ITEM 2. |  | Management's Discussion and Analysis of Financial Conditionand Results of Operations |  |                                                                                                                                      | 16 | 
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|               | ITEM 3. |  | Quantitative and Qualitative Disclosures about Market Risk                           |  |                                                                                                                                      | 29 | 
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|               | ITEM 4. |  | Controls and Procedures                                                              |  |                                                                                                                                      | 30 | 
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|PART II.       |         |  |                                                                                      |  | OTHER INFORMATION                                                                                                                    |    |  |   | 
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|               | ITEM 5. |  | Other Information                                                                    |  |                                                                                                                                      | 31 | 
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|               | ITEM 6. |  | Exhibits and Reports on Form 8-K                                                     |  |                                                                                                                                      | 32 | 
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|Signatures     |         |  | 33                                                                                   | 
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|Certifications |         |  | 34                                                                                   | 

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PART I ITEM 1
FINANCIAL STATEMENTS




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

|                                           |                                                                                                                                                      |                             |        |               |        |           |        |          |        | 
|------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | ------ | ------------- | ------ | --------- | ------ | -------- | ------ | 
|                                           |                                                                                                                                                      |                             |        | September 30, |        | March 31,
|                                           |                                                                                                                                                      |                             |        | 2002          |        | 2002     
|                                           |                                                                                                                                                      |                             |        |               |        |          
|                                           |                                                                                                                                                      |                             |        | (Unaudited)  
|Assets                                     |                                                                                                                                                      |                             |        |               |        |           |        |         
|Current Assets:                            |                                                                                                                                                      |                             |        |               |        |           |        |         
|                                           | Cash and cash equivalents                                                                                                                            |                             | $      | 1,401         |        |           | $      | 1,530    |       
|                                           | Restricted cash                                                                                                                                      |                             |        | 62            |        |           |        | 62       |       
|                                           | Marketable securities                                                                                                                                |                             |        | 8             |        |           |        | 9        |       
|                                           | Accounts receivable, net of allowances of $766 at September 30, 2001 and $1,561 at March 31,
2002                                                    |                             |        | 5,841         |        |           |        | 7,980    |       
|                                           | Notes and other receivables, net of allowances of $150 at September 30, 2001 and March 31, 2002                                                      |                             |        |              |        |           |        | 14       |       
|                                           | Prepaid expenses and other assets                                                                                                                    |                             |        | 817           |        |           |        | 704      |       
|                                           |                                                                                                                                                      |                             |        |               |        |           |        |         
|                                           |                                                                                                                                                      | Total current assets        |        |               | 8,129  |           |        |          | 10,299 | 
|Property and equipment, net                |                                                                                                                                                      |                             | 3,273  |               |        |           | 4,503  |         
|Intangible assets, net                     |                                                                                                                                                      |                             | 8,334  |               |        |           | 13,319 |         
|Goodwill                                   |                                                                                                                                                      |                             | 9,557  |               |        |           | 7,637  |         
|Note receivable from officer               |                                                                                                                                                      |                             | 111    |               |        |           | 109    |         
|Other non-current assets                   |                                                                                                                                                      |                             | 369    |               |        |           | 620    |         
|                                           |                                                                                                                                                      |                             |        |               |        |           |        |         
|Total assets                               |                                                                                                                                                      | $                           | 29,773 |               |        | $         | 36,487 |         
|                                           |                                                                                                                                                      |                             |        |               |        |           |        |         
|Liabilities and Stockholders Equity       |                                                                                                                                                      |                             |        |               |        |           |        |         
|Current Liabilities:                       |                                                                                                                                                      |                             |        |               |        |           |        |         
|                                           | Accounts payable                                                                                                                                     |                             | $      | 3,003         |        |           | $      | 2,953    |       
|                                           | Accrued compensation                                                                                                                                 |                             |        | 1,953         |        |           |        | 2,344    |       
|                                           | Other accrued liabilities                                                                                                                            |                             |        | 991           |        |           |        | 1,267    |       
|                                           | Deferred revenue                                                                                                                                     |                             |        | 6,898         |        |           |        | 6,598    |       
|                                           | Current portion of long-term obligations                                                                                                             |                             |        | 326           |        |           |        | 144      |       
|                                           |                                                                                                                                                      |                             |        |               |        |           |        |         
|                                           |                                                                                                                                                      | Total current liabilities   |        |               | 13,171 |           |        |          | 13,306 | 
|Long-term liabilities:                     |                                                                                                                                                      |                             |        |               |        |           |        |         
|                                           | Long-term obligations, less current portion                                                                                                          |                             |        | 6             |        |           |        | 42       |       
|                                           | Convertible debentures                                                                                                                               |                             |        |              |        |           |        | 1,632    |       
|                                           |                                                                                                                                                      |                             |        |               |        |           |        |         
|                                           |                                                                                                                                                      | Total long-term liabilities |        |               | 6      |           |        |          | 1,674  | 
|                                           |                                                                                                                                                      |                             |        |               |        |           |        |         
|                                           |                                                                                                                                                      | Total liabilities           |        |               | 13,177 |           |        |          | 14,980 | 
|Commitments and contingencies              |                                                                                                                                                      |                             |        |               |        |           |        |         
|Stockholders equity:                      |                                                                                                                                                      |                             |        |               |        |           |        |         
|                                           | Preferred stock, $.01 par value; 10,000,000 shares authorized, none issued and outstanding at
September 30, 2002 and March 31, 2002                  |                             |        |              |        |           |        |         |       
|                                           | Common stock, $.01 par value; 150,000,000 authorized; 8,736,690 and 7,965,548 shares issued
and outstanding at September 30, 2002 and March 31, 2002 |                             |        | 87            |        |           |        | 80       |       
|                                           | Additional paid-in capital                                                                                                                           |                             |        | 203,404       |        |           |        | 201,747  |       
|                                           | Accumulated deficit                                                                                                                                  |                             |        | (186,468      | )      |           |        | (179,770 | )     
|                                           | Deferred non-cash compensation                                                                                                                       |                             |        | (265          | )      |           |        | (397     | )     
|                                           | Notes receivable                                                                                                                                     |                             |        | (36           | )      |           |        | (36      | )     
|                                           | Accumulated other comprehensive loss                                                                                                                 |                             |        | (126          | )      |           |        | (117     | )     
|                                           |                                                                                                                                                      |                             |        |               |        |           |        |         
|                                           |                                                                                                                                                      | Total stockholders equity  |        |               | 16,596 |           |        |          | 21,507 | 
|                                           |                                                                                                                                                      |                             |        |               |        |           |        |         
|Total liabilities and stockholders equity |                                                                                                                                                      | $                           | 29,773 |               |        | $         | 36,487 |         
|                                           |                                                                                                                                                      |                             |        |               |        |           |        |         

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

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

|                         |                                                              |                          |        |                    |       |                  |         |         |        |      |        |        |        |   |         |         |        | 
|------------------------ | ------------------------------------------------------------ | ------------------------ | ------ | ------------------ | ----- | ---------------- | ------- | ------- | ------ | ---- | ------ | ------ | ------ | - | ------- | ------- | ------ | 
|                         |                                                              |                          |        | Three months ended |       | Six months ended
|                         |                                                              |                          |        | September 30,      |       | September 30,   
|                         |                                                              |                          |        |                    |       |                 
|                         |                                                              |                          |        | 2002               |       | 2001             |         | 2002    |        | 2001
|                         |                                                              |                          |        |                    |       |                  |         |         |        |     
|                         |                                                              |                          |        | (Unaudited)        |       | (Unaudited)     
|Revenues:                |                                                              |                          |        |                    |       |                  |         |         |        |      |        |        |        |   |         |        
|                         | License                                                      |                          | $      | 4,997              |       |                  | $       | 6,119   |        |      | $      | 10,088 |        |   | $       | 13,506  |       
|                         | Maintenance                                                  |                          |        | 2,640              |       |                  |         | 2,457   |        |      |        | 5,070  |        |   |         | 5,073   |       
|                         | Service                                                      |                          |        | 1,576              |       |                  |         | 1,952   |        |      |        | 3,147  |        |   |         | 4,003   |       
|                         |                                                              |                          |        |                    |       |                  |         |         |        |      |        |        |        |   |         |        
|                         |                                                              | Total revenues           |        |                    | 9,213 |                  |         |         | 10,528 |      |        |        | 18,305 |   |         |         | 22,582 | 
|Cost of Revenues:        |                                                              |                          |        |                    |       |                  |         |         |        |      |        |        |        |   |         |        
|                         | License                                                      |                          |        | 703                |       |                  |         | 510     |        |      |        | 872    |        |   |         | 2,087   |       
|                         | Service                                                      |                          |        | 991                |       |                  |         | 1,693   |        |      |        | 2,319  |        |   |         | 3,517   |       
|                         | Amortization and write-down of intangibles                   |                          |        | 1,291              |       |                  |         | 4,510   |        |      |        | 2,583  |        |   |         | 6,263   |       
|                         |                                                              |                          |        |                    |       |                  |         |         |        |      |        |        |        |   |         |        
|                         |                                                              | Total cost of revenues   |        |                    | 2,985 |                  |         |         | 6,713  |      |        |        | 5,774  |   |         |         | 11,867 | 
|                         |                                                              |                          |        |                    |       |                  |         |         |        |      |        |        |        |   |         |        
|Gross margin             |                                                              |                          | 6,228  |                    |       |                  | 3,815   |         |        |      | 12,531 |        |        |   | 10,715  |        
|Operating Expenses:      |                                                              |                          |        |                    |       |                  |         |         |        |      |        |        |        |   |         |        
|                         | Research and development                                     |                          |        | 2,395              |       |                  |         | 3,860   |        |      |        | 5,041  |        |   |         | 8,316   |       
|                         | Sales and marketing                                          |                          |        | 5,019              |       |                  |         | 6,857   |        |      |        | 10,116 |        |   |         | 14,996  |       
|                         | General and administrative                                   |                          |        | 1,517              |       |                  |         | 2,988   |        |      |        | 2,943  |        |   |         | 5,933   |       
|                         | Non-cash equity based compensation                           |                          |        | 122                |       |                  |         | 148     |        |      |        | 298    |        |   |         | 338     |       
|                         | Amortization and write-down of intangibles                   |                          |        | 240                |       |                  |         | 38,532  |        |      |        | 480    |        |   |         | 43,508  |       
|                         |                                                              |                          |        |                    |       |                  |         |         |        |      |        |        |        |   |         |        
|                         |                                                              | Total operating expenses |        |                    | 9,293 |                  |         |         | 52,385 |      |        |        | 18,878 |   |         |         | 73,091 | 
|                         |                                                              |                          |        |                    |       |                  |         |         |        |      |        |        |        |   |         |        
|                         | Operating loss                                               |                          |        | (3,065             | )     |                  |         | (48,570 | )      |      |        | (6,347 | )      |   |         | (62,376 | )     
|                         | Interest and other income (expense)                          |                          |        | (29                | )     |                  |         | 9       |        |      |        | (333   | )      |   |         | 106     |       
|                         |                                                              |                          |        |                    |       |                  |         |         |        |      |        |        |        |   |         |        
|Loss before income taxes |                                                              |                          | (3,094 | )                  |       |                  | (48,561 | )       |        |      | (6,680 | )      |        |   | (62,270 | )      
|                         | Provision for income taxes                                   |                          |        | 10                 |       |                  |         | 30      |        |      |        | 18     |        |   |         | 87      |       
|                         |                                                              |                          |        |                    |       |                  |         |         |        |      |        |        |        |   |         |        
|Net loss                 |                                                              | $                        | (3,104 | )                  |       | $                | (48,591 | )       |        | $    | (6,698 | )      |        | $ | (62,357 | )      
|                         |                                                              |                          |        |                    |       |                  |         |         |        |      |        |        |        |   |         |        
|Per share data:          |                                                              |                          |        |                    |       |                  |         |         |        |      |        |        |        |   |         |        
|                         | Basic and diluted net loss per common share                  |                          | $      | (0.36              | )     |                  | $       | (7.10   | )      |      | $      | (0.78  | )      |   | $       | (9.14   | )     
|                         |                                                              |                          |        |                    |       |                  |         |         |        |      |        |        |        |   |         |        
|                         | Basic and diluted weighted average common shares outstanding |                          |        | 8,595              |       |                  |         | 6,841   |        |      |        | 8,580  |        |   |         | 6,822   |       
|                         |                                                              |                          |        |                    |       |                  |         |         |        |      |        |        |        |   |         |        

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

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STARBASE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(in thousands)

|                          |                                                  |   |                    |    |                  |   |         |     |      |   |        |    |   |   |         |     |  
|------------------------- | ------------------------------------------------ | - | ------------------ | -- | ---------------- | - | ------- | --- | ---- | - | ------ | -- | - | - | ------- | --- | -
|                          |                                                  |   | Three months ended |    | Six months ended
|                          |                                                  |   | September 30,      |    | September 30,   
|                          |                                                  |   |                    |    |                 
|                          |                                                  |   | 2002               |    | 2001             |   | 2002    |     | 2001
|                          |                                                  |   |                    |    |                  |   |         |     |     
|                          |                                                  |   | (Unaudited)        |    | (Unaudited)     
|Net loss                  |                                                  | $ | (3,104             | )  |                  | $ | (48,591 | )   |      | $ | (6,698 | )  |   | $ | (62,357 | )  
|Other comprehensive loss: |                                                  |   |                    |    |                  |   |         |     |      |   |        |    |   |   |         |    
|                          | Foreign currency translation adjustments         |   |                    | (5 | )                |   |         | (13 | )    |   |        | (8 | ) |   |         | (35 | )
|                          | Unrealized loss on available for sale
securities |   |                    |   |                  |   |         |    |      |   |        | (1 | ) |   |         |    |  
|                          |                                                  |   |                    |    |                  |   |         |     |      |   |        |    |   |   |         |    
|Total comprehensive loss  |                                                  | $ | (3,109             | )  |                  | $ | (48,604 | )   |      | $ | (6,707 | )  |   | $ | (62,392 | )  
|                          |                                                  |   |                    |    |                  |   |         |     |      |   |        |    |   |   |         |    

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

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STARBASE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

|                                                             |                                                                                           |                                                                              |                                          |        |                  |       |         |         |        |        |  
|------------------------------------------------------------ | ----------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ---------------------------------------- | ------ | ---------------- | ----- | ------- | ------- | ------ | ------ | -
|                                                             |                                                                                           |                                                                              |                                          |        | Six months ended
|                                                             |                                                                                           |                                                                              |                                          |        | September 30,   
|                                                             |                                                                                           |                                                                              |                                          |        |                 
|                                                             |                                                                                           |                                                                              |                                          |        | 2002             |       | 2001   
|                                                             |                                                                                           |                                                                              |                                          |        |                  |       |        
|                                                             |                                                                                           |                                                                              |                                          |        | (Unaudited)     
|Cash Flows from Operating Activities:                        |                                                                                           |                                                                              |                                          |        |                  |       |         |        
|                                                             | Net loss                                                                                  |                                                                              | $                                        | (6,698 | )                |       | $       | (62,357 | )     
|                                                             | Adjustments to reconcile net loss to net cash provided by (used in)
operating activities: |                                                                              |                                          |        |                  |       |         |         |       
|                                                             |                                                                                           | Depreciation and amortization                                                |                                          |        | 4,322            |       |         |         | 15,014 |       
|                                                             |                                                                                           | Write-down of intangibles                                                    |                                          |        |                 |       |         |         | 36,300 |       
|                                                             |                                                                                           | Provision for doubtful accounts                                              |                                          |        | (234             | )     |         |         | 1,350  |       
|                                                             |                                                                                           | Non-cash equity based compensation                                           |                                          |        | 298              |       |         |         | 338    |       
|                                                             |                                                                                           | Non-cash interest expense                                                    |                                          |        | 272              |       |         |         |       |       
|                                                             |                                                                                           | Changes in operating assets and liabilities, net of effects of
acquisitions: |                                          |        |                  |       |         |         |        |       
|                                                             |                                                                                           |                                                                              | Accounts receivable                      |        |                  | 2,373 |         |         |        | 4,293  |  
|                                                             |                                                                                           |                                                                              | Notes and other receivables              |        |                  | 14    |         |         |        | 1      |  
|                                                             |                                                                                           |                                                                              | Prepaid expenses and other assets        |        |                  | 157   |         |         |        | 128    |  
|                                                             |                                                                                           |                                                                              | Other non-current assets                 |        |                  | 6     |         |         |        | 27     |  
|                                                             |                                                                                           |                                                                              | Accounts payable and accrued liabilities |        |                  | (778  | )       |         |        | (6,105 | )
|                                                             |                                                                                           |                                                                              | Deferred revenue                         |        |                  | 300   |         |         |        | (1,337 | )
|                                                             |                                                                                           |                                                                              |                                          |        |                  |       |         |        
|Net cash provided by (used in) operations                    |                                                                                           |                                                                              | 32                                       |        |                  |       | (12,348 | )      
|Cash Flows from Investing Activities:                        |                                                                                           |                                                                              |                                          |        |                  |       |         |        
|                                                             | Decrease in restricted cash                                                               |                                                                              |                                          |       |                  |       |         | 40      |       
|                                                             | Capital expenditures                                                                      |                                                                              |                                          | (29    | )                |       |         | (756    | )     
|                                                             |                                                                                           |                                                                              |                                          |        |                  |       |         |        
|Net cash used in investing activities                        |                                                                                           |                                                                              | (29                                      | )      |                  |       | (716    | )      
|Cash Flows from Financing Activities:                        |                                                                                           |                                                                              |                                          |        |                  |       |         |        
|                                                             | Borrowings under line of credit                                                           |                                                                              |                                          |       |                  |       |         | 1,500   |       
|                                                             | Proceeds from issuance of common stock:                                                   |                                                                              |                                          |        |                  |       |         |         |       
|                                                             |                                                                                           | Exercise of options                                                          |                                          |        |                 |       |         |         | 665    |       
|                                                             | Payments on capitalized lease obligations                                                 |                                                                              |                                          | (124   | )                |       |         | (211    | )     
|                                                             |                                                                                           |                                                                              |                                          |        |                  |       |         |        
|Net cash (used in) provided by financing activities          |                                                                                           |                                                                              | (124                                     | )      |                  |       | 1,954   |        
|Effect of exchange rate changes on cash and cash equivalents |                                                                                           |                                                                              | (8                                       | )      |                  |       | (35     | )      
|                                                             |                                                                                           |                                                                              |                                          |        |                  |       |         |        
|Net decrease in cash and cash equivalents                    |                                                                                           |                                                                              | (129                                     | )      |                  |       | (11,145 | )      
|Cash and cash equivalents, beginning of period               |                                                                                           |                                                                              | 1,530                                    |        |                  |       | 14,075  |        
|                                                             |                                                                                           |                                                                              |                                          |        |                  |       |         |        
|Cash and cash equivalents, end of period                     |                                                                                           | $                                                                            | 1,401                                    |        |                  | $     | 2,930   |        
|                                                             |                                                                                           |                                                                              |                                          |        |                  |       |         |        
|Supplemental Cash Flow Information:                          |                                                                                           |                                                                              |                                          |        |                  |       |         |        
|                                                             | Interest paid                                                                             |                                                                              | $                                        | 90     |                  |       | $       | 58      |       
|                                                             |                                                                                           |                                                                              |                                          |        |                  |       |         |        
|                                                             | Income taxes paid                                                                         |                                                                              | $                                        | 18     |                  |       | $       | 87      |       
|                                                             |                                                                                           |                                                                              |                                          |        |                  |       |         |        
|Non-cash investing and financing transactions:               |                                                                                           |                                                                              |                                          |        |                  |       |         |        
|                                                             | Capitalized lease and insurance financing                                                 |                                                                              | $                                        | 270    |                  |       | $       | 254     |       
|                                                             |                                                                                           |                                                                              |                                          |        |                  |       |         |        
|                                                             | Common stock issued in satisfaction of liabilities                                        |                                                                              | $                                        | 202    |                  |       | $       |        |       
|                                                             |                                                                                           |                                                                              |                                          |        |                  |       |         |        
|                                                             | Conversion of convertible debentures to common stock                                      |                                                                              | $                                        | 1,701  |                  |       | $       |        |       
|                                                             |                                                                                           |                                                                              |                                          |        |                  |       |         |        
|                                                             | Change in unrealized loss on securities available for sale                                |                                                                              | $                                        | (1     | )                |       | $       |        |       
|                                                             |                                                                                           |                                                                              |                                          |        |                  |       |         |        

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

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##### Table of Contents






STARBASE CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)

1. Basis of presentation

The accompanying unaudited interim consolidated financial statements of
Starbase Corporation, a Delaware corporation (the Company), as of September 30,
2002, and for the three and six months ended September 30, 2002, and 2001, have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and footnote disclosures
normally included in the annual 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 six months ended September 30, 2002 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 consolidated financial statements and the notes thereto
included in the Companys annual report filed with the Securities and Exchange
Commission on Form 10-K, for the year ended March 31, 2002.

On July 29, 2002, the stockholders of the Company approved a one-for-ten
reverse split of the Companys common stock effective on July 31, 2002. The
consolidated financial statements and accompanying notes to the consolidated
financial statements have been adjusted to reflect the effect of the
one-for-ten reverse split for all periods presented.

Certain reclassifications have been made to the prior years consolidated
financial statements to conform with current years presentation. Allowance for
doubtful accounts expense previously classified as a sales and marketing
expense is now classified as a general and administrative expense. As a result,
for the three months ended September 30, 2001, sales and marketing expense
decreased by $850,000 and general and administrative expense increased by
$850,000. For the six months ended September 30, 2001, sales and marketing
expense decreased by $1.4 million and general and administrative expense
increased by $1.4 million.

Management plans and going concern

The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. Management
believes, based upon projected operating needs, that the Companys working
capital is insufficient for the Company to maintain its current level of
operating activities through March 31, 2003. As shown in the consolidated
financial statements, the Company has also experienced recurring losses from
operations and has negative working capital at September 30, 2002. These
factors, among others, raise substantial doubt about the Companys ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.

The Companys continuation as a going concern is dependant upon its ability to
generate sufficient cash flow to meet its obligations on a timely basis, to
obtain additional financing, and ultimately, to obtain successful operations.
On May 22, 2002, the Company entered into a definitive purchase agreement to
raise approximately $12.0 million through the sale of convertible preferred
stock and warrants to institutional investors in a private placement. On July
29, 2002, the Companys stockholders approved the financing and a one-for-ten
reverse stock split at a special meeting of stockholders called for those
purposes. Proceeds of the financing would have been used for working capital.
In August 2002, the Company received notification from some investors that they
were terminating their obligations under the purchase agreement, which was
scheduled to close on August 13, 2002. As a result of the pending merger with
Borland Software Corporation (Note 9), the Company terminated the private
placement.

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STARBASE CORPORATION
Notes to the Consolidated Financial Statements (Continued)
(Unaudited)

On October 8, 2002, the Company entered into an Agreement and Plan of Merger
(Merger Agreement) with Borland Software Corporation, a Delaware corporation
(Borland), and Galaxy Acquisition Corp., a Delaware corporation and wholly
owned subsidiary of Borland (Purchaser). Pursuant to the Merger Agreement, on
October 8, 2002, Purchaser commenced a tender offer (Offer) for all outstanding
shares of the Companys common stock at a price of $2.75 per share, net to the
seller in cash, without interest, subject to certain conditions, including the
tender, without withdrawal prior to the expiration of the Offer, of at least a
majority of the Companys outstanding shares of common stock, including shares
subject to the Companys stock options with an exercise price per share less
than $2.75 (Note 9).

In connection with the Merger Agreement, Borland also agreed to provide the
Company a bridge loan of up to $2 million. In October 2002, the Company
borrowed $750,000 against the bridge loan.

The initial expiration date of the Offer was November 8, 2002. In accordance
with the Merger Agreement, the Offer has been extended until November 22, 2002.
At the time of the initial expiration of the Offer, 6,674,933 shares of the
Companys common stock, or approximately 76.3% of the outstanding common
shares, had been tendered and not withdrawn in the Offer.

2. New accounting pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued two new
pronouncements: Statement of Financial Accounting Standards (SFAS) No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS No. 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Goodwill and intangible
assets with indefinite lives will remain on the balance sheet and not be
amortized. On an annual basis, or when there is reason to suspect that their
values have been diminished or impaired, these assets must be tested for
impairment, and write-downs may be necessary. The Company implemented SFAS No.
141 on July 1, 2001. Such adoption had no impact on the Companys consolidated
financial position or results of operations though September 30, 2002. The
Company adopted SFAS No. 142 on April 1, 2002. As a result, the Company has
reclassified assembled workforce into goodwill and has ceased amortization of
goodwill, reducing annual amortization expense by approximately $10.4 million.
The Company will continue to amortize developed technology and customer lists
over their remaining lives. SFAS No. 142 also required the Company to perform a
transition impairment test for goodwill by determining if the fair value of the
Companys reporting units is less than the carrying value of the reporting
units. The Company completed the transition impairment testing during the
quarter ended September 30, 2002 and determined that it did not have a
transition impairment of goodwill. The Company will perform subsequent annual
impairment reviews during the fourth fiscal quarter of each year, or earlier if
indicators of potential impairment exists. Future impairment reviews may result
in charges against earnings to write-down the value of intangible assets.

A reconciliation of previously reported net loss and net loss per share to the
amounts adjusted for the exclusion of goodwill amortization is as follows:

|                                                             |  |                    |        |                  |  |      |         |      |  |   |        |   |  |   |         |  
|------------------------------------------------------------ |  | ------------------ | ------ | ---------------- |  | ---- | ------- | ---- |  | - | ------ | - |  | - | ------- | -
|(In thousands, except per share amounts)                     |  | Three months ended |        | Six months ended
|                                                             |  | September 30,      |        | September 30,   
|                                                             |  |                    |        |                 
|                                                             |  | 2002               |        | 2001             |  | 2002 |         | 2001
|                                                             |  |                    |        |                  |  |      |         |     
|Reported net loss                                            |  | $                  | (3,104 | )                |  | $    | (48,591 | )    |  | $ | (6,698 | ) |  | $ | (62,357 | )
|Goodwill amortization                                        |  |                    |       |                  |  |      | 4,593   |      |  |   |       |   |  |   | 9,185   |  
|                                                             |  |                    |        |                  |  |      |         |      |  |   |        |   |  |   |         |  
|Adjusted net loss                                            |  | $                  | (3,104 | )                |  | $    | (43,998 | )    |  | $ | (6,698 | ) |  | $ | (53,172 | )
|                                                             |  |                    |        |                  |  |      |         |      |  |   |        |   |  |   |         |  
|Reported basic and diluted net loss per share                |  | $                  | (0.36  | )                |  | $    | (7.10   | )    |  | $ | (0.78  | ) |  | $ | (9.14   | )
|Goodwill amortization                                        |  |                    |       |                  |  |      | 0.67    |      |  |   |       |   |  |   | 1.35    |  
|                                                             |  |                    |        |                  |  |      |         |      |  |   |        |   |  |   |         |  
|Adjusted basic and diluted net loss per share                |  | $                  | (0.36  | )                |  | $    | (6.43   | )    |  | $ | (0.78  | ) |  | $ | (7.79   | )
|                                                             |  |                    |        |                  |  |      |         |      |  |   |        |   |  |   |         |  
|Basic and diluted weighted average common
shares outstanding |  |                    | 8,595  |                  |  |      | 6,841   |      |  |   | 8,580  |   |  |   | 6,822   |  
|                                                             |  |                    |        |                  |  |      |         |      |  |   |        |   |  |   |         |  

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STARBASE CORPORATION
Notes to the Consolidated Financial Statements (Continued)
(Unaudited)

The components of amortizing intangible assets as of September 30, 2002 are as
follows:

|                             |  |                      |        |                         |  |   |        | 
|---------------------------- |  | -------------------- | ------ | ----------------------- |  | - | ------ | 
|(In thousands)               |  | Gross CarryingAmount |        | AccumulatedAmortization
|                             |  |                      |        |                        
|Amortizing intangible assets |  |                      |        |                         |  |   |        | 
|Patents and trademarks       |  | $                    | 20     |                         |  | $ | 20     | 
|Manufacturing license        |  |                      | 385    |                         |  |   | 139    | 
|Developed technology         |  |                      | 19,489 |                         |  |   | 11,773 | 
|Customer lists               |  |                      | 1,969  |                         |  |   | 1,597  | 
|                             |  |                      |        |                         |  |   |        | 
|Total                        |  | $                    | 21,863 |                         |  | $ | 13,529 | 
|                             |  |                      |        |                         |  |   |        | 

All identified intangible assets required to be amortized under SFAS No. 142
are amortized on a straight-line basis over their estimated lives. Estimated
future amortization expense relating to these identified intangible assets is
as follows:

|                          |  |   |       | 
|------------------------- |  | - | ----- | 
|(In thousands)            |  |   |       | 
|For years ended March 31, |  |   |       | 
|2003                      |  | $ | 6,029 | 
|2004                      |  | $ | 4,707 | 
|2005                      |  | $ | 560   | 
|2006                      |  | $ | 82    | 

Changes to goodwill during the six months ended September 30, 2002, including
the effects of adopting SFAS No. 141 and SFAS No. 142, are as follows:

|                                             |  |   |       | 
|-------------------------------------------- |  | - | ----- | 
|(In thousands)                               |  |   |       | 
|Balance at March 31, 2002                    |  | $ | 7,637 | 
|Assembled workforce reclassified to goodwill |  |   | 1,920 | 
|                                             |  |   |       | 
|Balance at September 30, 2002                |  | $ | 9,557 | 
|                                             |  |   |       | 

In August 2001, the FASB issued SFAS No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets.SFAS No. 144 addresses financial accounting and
reporting for the impairment of long-lived assets and for the disposal of
long-lived assets. SFAS No. 144 supersedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
and is effective for fiscal year beginning after December 15, 2001. The Company
adopted SFAS No. 144 effective April 1, 2002. The adoption of this statement
did not have a material impact on the Companys consolidated financial position
or results of operations.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities, which addresses financial accounting and
reporting for costs associated with the exit or disposal activities and
supersedes Emerging Issues Task Force (EITF) Issue 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in Restructuring). SFAS No. 146 requires that
a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. Under EITF Issue 94-3, a liability
for an exit cost, as defined in EITF 94-3, was recognized at the date of the
entitys commitment to an exit plan. SFAS No. 146 also establishes that the
liability should be measured and recorded at fair value. The Company will adopt
the provisions of SFAS No. 146 for exit or disposal activities that are
initiated after March 31, 2002.

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STARBASE CORPORATION
Notes to the Consolidated Financial Statements (Continued)
(Unaudited)

3. Composition of certain balance sheet captions

|                                               |  |               |         |           |  |   |         |  
|---------------------------------------------- |  | ------------- | ------- | --------- |  | - | ------- | -
|(In thousands)                                 |  | September 30, |         | March 31,
|                                               |  | 2002          |         | 2002     
|                                               |  |               |         |          
|Property and equipment:                        |  |               |         |           |  |   |         |  
|Computer hardware                              |  | $             | 2,552   |           |  | $ | 2,527   |  
|Furniture and fixtures                         |  |               | 1,335   |           |  |   | 1,330   |  
|Computer software                              |  |               | 3,976   |           |  |   | 3,970   |  
|Leasehold improvements                         |  |               | 707     |           |  |   | 707     |  
|                                               |  |               |         |           |  |   |         |  
|                                               |  |               | 8,570   |           |  |   | 8,534   |  
|Less accumulated depreciation and amortization |  |               | (5,297  | )         |  |   | (4,031  | )
|                                               |  |               |         |           |  |   |         |  
|                                               |  | $             | 3,273   |           |  | $ | 4,503   |  
|                                               |  |               |         |           |  |   |         |  
|Intangible assets:                             |  |               |         |           |  |   |         |  
|Patents and trademarks                         |  | $             | 20      |           |  | $ | 20      |  
|Manufacturing license                          |  |               | 385     |           |  |   | 385     |  
|Developed technology                           |  |               | 19,489  |           |  |   | 19,489  |  
|Customer lists                                 |  |               | 1,969   |           |  |   | 1,969   |  
|Assembled workforce                            |  |               |        |           |  |   | 2,907   |  
|                                               |  |               |         |           |  |   |         |  
|                                               |  |               | 21,863  |           |  |   | 24,770  |  
|Less accumulated amortization                  |  |               | (13,529 | )         |  |   | (11,451 | )
|                                               |  |               |         |           |  |   |         |  
|                                               |  | $             | 8,334   |           |  | $ | 13,319  |  
|                                               |  |               |         |           |  |   |         |  

Amounts recorded for non-cash equity based compensation for the three and six
months ended September 30, 2002 and 2001 relate to the following consolidated
statement of operations categories:

|                           |                    |                    |     |  |  |   |     | 
|-------------------------- | ------------------ | ------------------ | --- |  |  | - | --- | 
|                           |                    | Three months ended
|                           |                    |                   
|(in thousands)             | September 30, 2002 | September 30, 2001
|                           |                    |                   
|Research and development   |                    | $                  |    |  |  | $ | 24  | 
|Sales and marketing        |                    |                    | 15  |  |  |   | 18  | 
|General and administrative |                    |                    | 107 |  |  |   | 106 | 
|                           |                    |                    |     |  |  |   |     | 
|                           |                    | $                  | 122 |  |  | $ | 148 | 
|                           |                    |                    |     |  |  |   |     | 

|                           |  |                    |     |                    |  |   |     | 
|-------------------------- |  | ------------------ | --- | ------------------ |  | - | --- | 
|                           |  | Six months ended  
|                           |  |                   
|(in thousands)             |  | September 30, 2002 |     | September 30, 2001
|                           |  |                    |     |                   
|Research and development   |  | $                  |    |                    |  | $ | 48  | 
|Sales and marketing        |  |                    | 34  |                    |  |   | 36  | 
|General and administrative |  |                    | 264 |                    |  |   | 254 | 
|                           |  |                    |     |                    |  |   |     | 
|                           |  | $                  | 298 |                    |  | $ | 338 | 
|                           |  |                    |     |                    |  |   |     | 

4. Net loss per share

Basic and diluted net loss per share is computed by dividing net loss by 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 (141,863) would have been released to the

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STARBASE CORPORATION
Notes to the Consolidated Financial Statements (Continued)
(Unaudited)

founders upon attainment of certain defined cash flow requirements by October
21, 2002. The release of the Escrow Shares would have been deemed compensatory
and, accordingly, would have resulted in charges to earnings equal to the fair
market value of these shares recorded ratably over the period beginning on the
date when management determined that the cash flow requirements were probable
of being met and ending on the date when the goal was attained, causing the
Escrow Shares to be released. Such charges could have substantially reduced the
Companys net income or increased the Companys loss for financial reporting
purposes in the periods such charges were recorded. Based upon historical and
expected results, the Company has determined that the goal will not be met. On
October 21, 2002, the Escrow shares were returned to the Company.

On July 29, 2002, the stockholders of the Company approved a one-for-ten
reverse split of the Companys common stock effective on July 31, 2002. Net
loss per share for the periods presented reflect the one-for-ten reverse split.

Potentially dilutive securities, which consist of options to purchase 1,183,546
shares of common stock at prices ranging from $4.60 to $146.30 per share,
warrants to purchase 383,691 shares of common stock at prices ranging from
$3.20 to $68.13 per share and 141,863 common shares held in escrow were not
included in the computation of diluted loss per share because such inclusion
would have been antidilutive for the three and six month periods ended
September 30, 2002. Potentially dilutive securities, which consist of options
to purchase 831,632 shares of common stock at prices ranging from $6.25 to
$146.30 per share, warrants to purchase 89,308 shares of common stock at prices
ranging from $7.30 to $68.13 per share and 141,863 common shares held in escrow
were not included in the computation of diluted loss per share because such
inclusion would have been antidilutive for the three and six month periods
ended September 30, 2001.

5. Equity transactions

On July 29, 2002, the stockholders of the Company approved a one-for-ten
reverse split of the Companys common stock. The reverse stock split was
effective on July 31, 2002.

Warrants

Warrant activity for the six month period ended September 30, 2002 is as
follows:

|                                  |  |        |         |           |  |               |             | 
|--------------------------------- |  | ------ | ------- | --------- |  | ------------- | ----------- | 
|                                  |  |        |         |           |  | Warrant Price
|                                  |  | Shares |         | Per Share
|                                  |  |        |         |          
|Outstanding at March 31, 2002     |  |        | 367,078 |           |  | $             | 6.53-$68.13 | 
|Issued                            |  |        | 31,250  |           |  | $             | 3.20        | 
|Expired                           |  |        | 14,637  |           |  | $             | 38.80       | 
|                                  |  |        |         |           |  |               |             | 
|Outstanding at September 30, 2002 |  |        | 383,691 |           |  | $             | 3.20-$68.13 | 
|                                  |  |        |         |           |  |               |             | 

6. Stock option plans

1996 Plan

In September 1996, the stockholders of the Company approved the 1996 Stock
Option Plan (1996 Plan) as amended and restated. The 1996 Plan provides for the
grant of non-qualified and incentive stock options to employees, directors,
officers and consultants. 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. A total of 283,333 shares of common stock have been authorized under
the 1996 Plan, of which 126,773 were outstanding and none are available for
future grants at September 30, 2002.

2001 Plan

In September 2001, the stockholders of the Company approved the 2001 Stock Plan
(2001 Plan). The 2001 Plan provides for the grant of non-qualified and
incentive stock options to employees, directors, officers and consultants.
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

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STARBASE CORPORATION
Notes to the Consolidated Financial Statements (Continued)
(Unaudited)

exercisable ratably over the next thirty-six month period, provided the
optionee remains in service to the Company. A total of 340,000 shares of common
stock have been authorized under the 2001 Plan, of which 265,807 were
outstanding and 74,193 are available for future grants at September 30, 2002.

Premia Plan

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
(Premia Plan). At the date of acquisition, there were 27,008 options
outstanding at a weighted-average exercise price of $14.80, of which 21,345
were exercisable at a weighted-average exercise price of $14.80. As of
September 30, 2002, there were 16,025 options outstanding at a weighted-average
exercise price of $14.80, of which 15,439 were exercisable at a weighted
average exercise price of $14.80. No further options will be granted under the
Premia Plan.

TBI Plan

As a result of the acquisition of Technology Builders, Inc., the Company
assumed all of the outstanding options granted under the Technology Builders,
Inc. Amended and Restated Stock Option and Incentive Stock Option Plan (TBI
Plan). At the date of acquisition, there were 122,049 options outstanding at a
weighted-average exercise price of $12.40, of which 78,795 were exercisable at
a weighted-average exercise price of $8.90. As of September 30, 2002, there
were 58,743 options outstanding at a weighted-average exercise price of $13.41,
of which 49,194 were exercisable at a weighted-average exercise price of
$11.64. No further options will be granted under the TBI Plan.

NSO Stock Option Program

The NSO Stock Option Program (NSO Program) allows the Company to grant
nonstatutory stock options for employees, directors and consultants. 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. As of September 30, 2002, there
were 1,549,777 options issued and outstanding at a weighted-average exercise
price of $27.63, of which 891,567 were exercisable at a weighted-average price
of $31.12.

Stock option activity for all plans for the six months ended September 30, 2002
was as follows:

|                                  |  |        |           |       |  |                  |       | 
|--------------------------------- |  | ------ | --------- | ----- |  | ---------------- | ----- | 
|                                  |  |        |           |       |  | Weighted-       
|                                  |  |        |           |       |  | Average Exercise
|                                  |  | Shares |           | Price
|                                  |  |        |           |      
|Outstanding at March 31, 2002     |  |        | 2,440,462 |       |  | $                | 25.32 | 
|Granted                           |  |        | 16,200    |       |  | $                | 1.72  | 
|Lapsed or canceled                |  |        | (439,537  | )     |  | $                | 33.65 | 
|                                  |  |        |           |       |  |                  |       | 
|Outstanding at September 30, 2002 |  |        | 2,017,125 |       |  | $                | 23.32 | 
|                                  |  |        |           |       |  |                  |       | 
|Exercisable at September 30, 2002 |  |        | 1,183,546 |       |  | $                | 26.04 | 
|                                  |  |        |           |       |  |                  |       | 

Stock option summary information for stockholder approved plans (1996 Plan and
2001 Plan) at September 30, 2002 is as follows:

|                |  |                     |         |                     |  |           |  |                  |       |       |  |  |         |                  |  |   |       |  |  | 
|--------------- |  | ------------------- | ------- | ------------------- |  | --------- |  | ---------------- | ----- | ----- |  |  | ------- | ---------------- |  | - | ----- |  |  | 
|                |  | Options Outstanding |         | Options Exercisable
|                |  |                     |         |                    
|                |  |                     |         |                     |  | Weighted- |  |                  |       |       |  |  |         |                  |  |   |       | 
|                |  |                     |         |                     |  | Average   |  | Weighted-        |       |       |  |  |         | Weighted-       
|Range of        |  |                     |         |                     |  | Remaining |  | Average Exercise |       |       |  |  |         | Average Exercise
|Exercise Prices |  | Shares              |         | Contractual Life    |  | Price     |  | Shares           |       | Price
|                |  |                     |         |                     |  |           |  |                  |       |      
|$0.00-$5.00     |  |                     | 124,891 |                     |  | 9.3 years |  | $                | 4.82  |       |  |  | 42,018  |                  |  | $ | 4.90  | 
|$5.01-$10.00    |  |                     | 154,116 |                     |  | 8.5 years |  | $                | 6.55  |       |  |  | 71,755  |                  |  | $ | 6.84  | 
|$10.01-$15.00   |  |                     | 72,495  |                     |  | 3.5 years |  | $                | 12.47 |       |  |  | 72,495  |                  |  | $ | 12.47 | 
|$15.01-$20.00   |  |                     | 41,078  |                     |  | 4.3 years |  | $                | 16.35 |       |  |  | 41,078  |                  |  | $ | 16.35 | 
|                |  |                     |         |                     |  |           |  |                  |       |       |  |  |         |                  |  |   |       |  |  | 
|                |  |                     | 392,580 |                     |  | 7.4 years |  | $                | 8.12  |       |  |  | 227,346 |                  |  | $ | 10.00 | 
|                |  |                     |         |                     |  |           |  |                  |       |       |  |  |         |                  |  |   |       |  |  | 

12



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##### Table of Contents



STARBASE CORPORATION
Notes to the Consolidated Financial Statements (Continued)
(Unaudited)

Stock option summary information for assumed plans (Premia Plan and TBI Plan)
at September 30, 2002 is as follows:

|                |  |                     |        |                     |  |           |  |                  |       |       |  |  |        |                  |  |   |       |  |  | 
|--------------- |  | ------------------- | ------ | ------------------- |  | --------- |  | ---------------- | ----- | ----- |  |  | ------ | ---------------- |  | - | ----- |  |  | 
|                |  | Options Outstanding |        | Options Exercisable
|                |  |                     |        |                    
|                |  |                     |        |                     |  | Weighted- |  |                  |       |       |  |  |        |                  |  |   |       | 
|                |  |                     |        |                     |  | Average   |  | Weighted-        |       |       |  |  |        | Weighted-       
|Range of        |  |                     |        |                     |  | Remaining |  | Average Exercise |       |       |  |  |        | Average Exercise
|Exercise Prices |  | Shares              |        | Contractual Life    |  | Price     |  | Shares           |       | Price
|                |  |                     |        |                     |  |           |  |                  |       |      
|$5.01-$10.00    |  |                     | 23,750 |                     |  | 4.4 years |  | $                | 6.90  |       |  |  | 25,750 |                  |  | $ | 6.90  | 
|$10.01-$15.00   |  |                     | 34,147 |                     |  | 6.1 years |  | $                | 14.27 |       |  |  | 33,448 |                  |  | $ | 14.26 | 
|$20.01-$25.00   |  |                     | 15,064 |                     |  | 7.7 years |  | $                | 20.70 |       |  |  | 6,984  |                  |  | $ | 20.70 | 
|$30.01-$35.00   |  |                     | 1,807  |                     |  | 8.3 years |  | $                | 34.30 |       |  |  | 451    |                  |  | $ | 34.30 | 
|                |  |                     |        |                     |  |           |  |                  |       |       |  |  |        |                  |  |   |       |  |  | 
|                |  |                     | 74,768 |                     |  | 5.9 years |  | $                | 13.71 |       |  |  | 64,633 |                  |  | $ | 12.39 | 
|                |  |                     |        |                     |  |           |  |                  |       |       |  |  |        |                  |  |   |       |  |  | 

Stock option summary information for the plan not approved by stockholders (NSO
Program) at September 30, 2002 is as follows:

|                |  |        |                     |                  |                     |           |           |                  |           |       |  |  |         |                  |           |   |        |  |  |  | 
|--------------- |  | ------ | ------------------- | ---------------- | ------------------- | --------- | --------- | ---------------- | --------- | ----- |  |  | ------- | ---------------- | --------- | - | ------ |  |  |  | 
|                |  |        | Options Outstanding |                  | Options Exercisable
|                |  |        |                     |                  |                    
|                |  |        |                     |                  |                     |           | Weighted- |                  |           |       |  |  |         |                  |           |   |        |  | 
|                |  |        |                     |                  |                     |           | Average   |                  | Weighted- |       |  |  |         |                  | Weighted-
|Range of        |  |        |                     |                  |                     | Remaining |           | Average Exercise |           |       |  |  |         | Average Exercise
|Exercise Prices |  | Shares |                     | Contractual Life |                     | Price     |           | Shares           |           | Price
|                |  |        |                     |                  |                     |           |           |                  |           |      
|$0.00-$5.00     |  |        | 64,700              |                  |                     | 6.4 years |           | $                | 3.73      |       |  |  | 22,400  |                  |           | $ | 4.70   | 
|$5.01-$10.00    |  |        | 636,754             |                  |                     | 8.3 years |           | $                | 6.33      |       |  |  | 279,302 |                  |           | $ | 6.37   | 
|$10.01-$15.00   |  |        | 199,132             |                  |                     | 6.8 years |           | $                | 13.20     |       |  |  | 146,033 |                  |           | $ | 13.20  | 
|$15.01-$20.00   |  |        | 83,099              |                  |                     | 6.3 years |           | $                | 17.21     |       |  |  | 68,812  |                  |           | $ | 17.05  | 
|$20.01-$25.00   |  |        | 43,250              |                  |                     | 6.6 years |           | $                | 21.80     |       |  |  | 31,671  |                  |           | $ | 21.37  | 
|$25.01-$30.00   |  |        | 57,764              |                  |                     | 7.3 years |           | $                | 26.01     |       |  |  | 52,448  |                  |           | $ | 25.90  | 
|$30.01-$35.00   |  |        | 125,465             |                  |                     | 8.2 years |           | $                | 33.43     |       |  |  | 51,543  |                  |           | $ | 33.36  | 
|$35.01-$40.00   |  |        | 105,811             |                  |                     | 6.7 years |           | $                | 38.15     |       |  |  | 87,839  |                  |           | $ | 38.18  | 
|$40.01-$45.00   |  |        | 10,000              |                  |                     | 7.9 years |           | $                | 40.96     |       |  |  | 5,217   |                  |           | $ | 40.91  | 
|$45.01-$161.25  |  |        | 223,802             |                  |                     | 6.6 years |           | $                | 104.60    |       |  |  | 146,302 |                  |           | $ | 105.54 | 
|                |  |        |                     |                  |                     |           |           |                  |           |       |  |  |         |                  |           |   |        |  |  | 
|                |  |        | 1,549,777           |                  |                     | 7.5 years |           | $                | 27.63     |       |  |  | 891,567 |                  |           | $ | 31.12  | 
|                |  |        |                     |                  |                     |           |           |                  |           |       |  |  |         |                  |           |   |        |  |  | 

7. 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 Starbase product licenses,
third party product licenses, maintenance and services. The Starbase product
licenses operating segment develops and markets the Companys software
management tools for managing the development of software projects from
beginning to end (Application Lifecycle Management). The third party product
licenses operating segment resells other companies products. The maintenance
operating segment provides after-sale support for software licenses. The
services operating segment provides fee-based training and consulting services
related to the Companys 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.

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STARBASE CORPORATION
Notes to the Consolidated Financial Statements (Continued)
(Unaudited)

Operating segment data for the three and six months ended September 30, 2002
and 2001 was as follows:

|                                       |                  |              |   |          |       |             |   |             |     |          |   |       |       |  |   |       |     |  |   |        |       | 
|-------------------------------------- | ---------------- | ------------ | - | -------- | ----- | ----------- | - | ----------- | --- | -------- | - | ----- | ----- |  | - | ----- | --- |  | - | ------ | ----- | 
|                                       |                  |              |   | Starbase |       | Third party |   |             |     |          |   |       |       |  |   |       |     | 
|                                       |                  |              |   | product  |       | product     |   |             |     |          |   |       |       |  |   |       |     | 
|                                       |                  |              |   | licenses |       | licenses    |   | Maintenance |     | Services |   | Total
|(In thousands)                         |                  |              |   |          |       |             |   |             |     |         
|Three months ended September 30,
2002: |                  |              |   |          |       |             |   |             |     |          |   |       |       |  |   |       |     |  |   |       
|                                       | Revenues         |              | $ | 4,450    |       |             | $ | 547         |     |          | $ | 2,640 |       |  | $ | 1,576 |     |  | $ | 9,213  |      
|                                       | Cost of revenues |              |   | 1,452    |       |             |   | 436         |     |          |   | 106   |       |  |   | 991   |     |  |   | 2,985  |      
|                                       |                  |              |   |          |       |             |   |             |     |          |   |       |       |  |   |       |     |  |   |       
|                                       |                  | Gross margin |   | $        | 2,998 |             |   | $           | 111 |          |   | $     | 2,534 |  |   | $     | 585 |  |   | $      | 6,228 | 
|                                       |                  |              |   |          |       |             |   |             |     |          |   |       |       |  |   |       |     |  |   |       
|Three months ended September 30,
2001: |                  |              |   |          |       |             |   |             |     |          |   |       |       |  |   |       |     |  |   |       
|                                       | Revenues         |              | $ | 5,574    |       |             | $ | 545         |     |          | $ | 2,457 |       |  | $ | 1,952 |     |  | $ | 10,528 |      
|                                       | Cost of revenues |              |   | 4,741    |       |             |   | 216         |     |          |   | 63    |       |  |   | 1,693 |     |  |   | 6,713  |      
|                                       |                  |              |   |          |       |             |   |             |     |          |   |       |       |  |   |       |     |  |   |       
|                                       |                  | Gross margin |   | $        | 833   |             |   | $           | 329 |          |   | $     | 2,394 |  |   | $     | 259 |  |   | $      | 3,815 | 
|                                       |                  |              |   |          |       |             |   |             |     |          |   |       |       |  |   |       |     |  |   |       

|                                     |                  |              |   |          |       |             |   |             |     |          |   |       |       |  |   |       |     |  |   |        |        | 
|------------------------------------ | ---------------- | ------------ | - | -------- | ----- | ----------- | - | ----------- | --- | -------- | - | ----- | ----- |  | - | ----- | --- |  | - | ------ | ------ | 
|                                     |                  |              |   | Starbase |       | Third party |   |             |     |          |   |       |       |  |   |       |     | 
|                                     |                  |              |   | product  |       | product     |   |             |     |          |   |       |       |  |   |       |     | 
|                                     |                  |              |   | licenses |       | licenses    |   | Maintenance |     | Services |   | Total
|(In thousands)                       |                  |              |   |          |       |             |   |             |     |         
|Six months ended September 30, 2002: |                  |              |   |          |       |             |   |             |     |          |   |       |       |  |   |       |     |  |   |       
|                                     | Revenues         |              | $ | 9,391    |       |             | $ | 697         |     |          | $ | 5,070 |       |  | $ | 3,147 |     |  | $ | 18,305 |       
|                                     | Cost of revenues |              |   | 2,859    |       |             |   | 459         |     |          |   | 137   |       |  |   | 2,319 |     |  |   | 5,774  |       
|                                     |                  |              |   |          |       |             |   |             |     |          |   |       |       |  |   |       |     |  |   |       
|                                     |                  | Gross margin |   | $        | 6,532 |             |   | $           | 238 |          |   | $     | 4,933 |  |   | $     | 828 |  |   | $      | 12,531 | 
|                                     |                  |              |   |          |       |             |   |             |     |          |   |       |       |  |   |       |     |  |   |       
|Six months ended September 30, 2001: |                  |              |   |          |       |             |   |             |     |          |   |       |       |  |   |       |     |  |   |       
|                                     | Revenues         |              | $ | 11,777   |       |             | $ | 1,729       |     |          | $ | 5,073 |       |  | $ | 4,003 |     |  | $ | 22,582 |       
|                                     | Cost of revenues |              |   | 6,749    |       |             |   | 1,263       |     |          |   | 338   |       |  |   | 3,517 |     |  |   | 11,867 |       
|                                     |                  |              |   |          |       |             |   |             |     |          |   |       |       |  |   |       |     |  |   |       
|                                     |                  | Gross margin |   | $        | 5,028 |             |   | $           | 466 |          |   | $     | 4,735 |  |   | $     | 486 |  |   | $      | 10,715 | 
|                                     |                  |              |   |          |       |             |   |             |     |          |   |       |       |  |   |       |     |  |   |       

8. Accounts receivable purchase agreement

On April 19, 2002, the Company entered into an Accounts Receivable Purchase
Agreement with Silicon Valley Bank. The term of the Agreement is for one year
and it allows the Company to sell up to $4.0 million of its accounts receivable
with a finance charge equal to 5.0% above Prime Rate for the gross average
daily outstanding balance and a collateral handling fee equal to 0.5% per month
of the average daily outstanding balance. There is a minimum finance charge of
$15,000 per month. In connection with this agreement, the Company issued to
Silicon Valley Bank warrants to purchase 31,250 shares of its common stock at
$3.20 per share. The fair value of these warrants, using the Black-Scholes
model at the date of grant, was $78,000 and was recorded as non-cash equity
compensation during the three months ended June 30, 2002. At September 30,
2002, the Company had not sold any of its accounts receivables to Silicon
Valley Bank.

9. Subsequent events

On October 8, 2002, the Company entered into an Agreement and Plan of Merger
(Merger Agreement) with Borland Software Corporation, a Delaware corporation
(Borland), and Galaxy Acquisition Corp., a Delaware corporation and wholly
owned subsidiary of Borland (Purchaser). Pursuant to the Merger Agreement, on
October 8, 2002, Purchaser commenced a tender offer (Offer) for all outstanding
shares of the Companys common stock at a price of $2.75 per share, net to the
seller in cash, without interest, subject to certain conditions, including the
tender, without withdrawal
14Table of Contents

STARBASE CORPORATION
Notes to the Consolidated Financial Statements (Continued)
(Unaudited)

prior to the expiration of the Offer, of at least a majority of the Companys
outstanding shares of common stock, including shares subject to the Companys
stock options with an exercise price per share less than $2.75.

In connection with the Merger Agreement, Borland also agreed to provide the
Company a bridge loan of up to $2 million. In October 2002, the Company
borrowed $750,000 against the bridge loan.

Additionally, in connection with the Merger Agreement, James Harrer, the
Companys President and CEO, and certain other the Companys stockholders
entered into agreements pursuant to which such stockholders agreed to tender
shares of the Company held by them, which represent in the aggregate
approximately 0.94% percent of the outstanding shares of the Companys common
stock as of October 8, 2002.

Borland and Purchaser commenced the Offer on October 11, 2002. The Offer and
withdrawal rights were scheduled to expire at 12:00 midnight, New York City
time, on November 8, 2002. On November 11, 2002, Borland extended its offer
until 12:00 midnight, Eastern Standard Time, on Friday, November 22, 2002 in
accordance with the Merger Agreement to obtain tenders of at least 90% of the
outstanding shares of the Companys common stock so that the Merger may be
completed without a vote of the Companys shareholders under applicable law.

As of midnight, Eastern Standard Time, on November 8, 2002, approximately
6,674,993 shares of the Companys common stock, or approximately 76.3% of the
outstanding shares had been tendered.

The Merger Agreement also provides that following consummation of the Offer and
the satisfaction or waiver of certain conditions, Purchaser will be merged with
and into the Company (Merger) with the Company surviving the Merger as a wholly
owned subsidiary of Borland, and all remaining publicly held outstanding shares
of the Companys common stock (other than common shares held by stockholders
who properly exercise appraisal right under applicable Delaware law) will be
converted into the right to receive $2.75 per share, net, in cash, without
interest.

On October 8, 2002, the Company entered into a Settlement Agreement and Release
(Agreement) with World Web Investors, LLC (LLC) and ABN AMRO CAPITAL USA (ABM
AMRO) to resolve certain claims and disputes relating to the Companys
acquisition of worldweb.net, Inc. Within 30 days following the execution of the
Agreement the Company agreed to pay the LLC $50,000 in full settlement of legal
fees. In addition, within 180 days of the Agreement, the Company agrees to pay
the LLC $500,000 for full settlement of any and all claims by the LLC or any of
its members, and ABN AMRO.

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PART I




ITEM 2MANAGEMENT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
us on the date hereof, and we assume 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 our other filing with the Securities and
Exchange Commission, including our Annual Report for the year ended March 31,
2002 on Form 10-K.

Overview

We provide software management tools and professional consulting services to
assist our customers in managing their development projects from beginning to
end (Application Lifecycle Management) and allowing them to develop their
software solutions and applications in a more efficient manner. Our tools
enable geographically dispersed software developers to work as a team over
corporate intranets and the Internet. Our flagship product, StarTeam, focuses
primarily on supporting joint development efforts regardless of the developers
location. Our Caliber products provide requirements management capabilities
that help customers define their software projects and meet end-user needs. Our
CodeWright product helps our customers developers edit their software code
with ease. In addition, we provide or resell other products to assist our
customers with their software projects. Our customers include management
information systems executives, software developers, sales and marketing
personnel, graphic designers and Webmasters.

Significant accounting policies

Revenue recognition

Revenue is recognized if the criteria of Statement of Position (SOP) 97-2,
Software Revenue Recognition,as amended, are met. If the arrangement does not
require significant production, modification, or customization of software,
revenue is recognized when all of the following criteria are met:



| |  |  | Persuasive evidence of an arrangement exists.
| | - |  | ---------------------------------------------
|
| |  |  | Delivery (passage of title) has occurred.    
|
| |  |  | The vendors fee is fixed or determinable.   
|
| |  |  | Collectibility is probable.                  

License revenues from sales of software licenses are recognized upon shipment
of the related products and transfer of title. Maintenance revenue is deferred
and recognized ratably over the contractual maintenance period, generally one
year. Service revenue from training and consulting is recognized after the
related services have been performed.

If the requirements of SOP 97-2, including evidence of an arrangement,
delivery, fixed or determinable fee, collectibility, or vendor-specific
objective evidence about the value of an element are not met at the date of
shipment, revenue recognition is deferred until such elements are known or
resolved.

License revenues from sales of software licenses through indirect channels are
recorded upon shipment when an end-user purchase order has been obtained and
collectibility is assured on standard payment terms. No provision for estimated
returns is recorded, as historically such returns have been minimal.

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Accounts Receivable

We sell our products worldwide. We perform ongoing credit evaluations of our
customers and generally do not require collateral. We maintain allowances for
doubtful accounts for estimated losses resulting from the inability of our
customers to make required payments. The amount of our reserves is based on
historical experience and our analysis of the accounts receivable balances
outstanding. If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required which would result in an additional general and
administrative expense in the period such determination was made. While such
credit losses have historically been within our expectations and the provisions
established, we cannot guarantee that we will continue to experience the same
credit loss rates that we have in the past.

Intangible Assets

In June 2001, the Financial Accounting Standards Board (FASB) issued two new
pronouncements: Statement of Financial Accounting Standards (SFAS) No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS No. 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Goodwill and intangible
assets with indefinite lives will remain on the balance sheet and not be
amortized. On an annual basis, or when there is reason to suspect that their
values have been diminished or impaired, these assets must be tested for
impairment, and write-downs may be necessary. We implemented SFAS No. 141 on
July 1, 2001. Such adoption had no impact on our consolidated financial
position or results of operations though September 30, 2002. We adopted SFAS
No. 142 on April 1, 2002. As a result, the Company has reclassified assembled
workforce into goodwill and has ceased amortization of goodwill, reducing
annual amortization expense by approximately $10.4 million. We will continue to
amortize developed technology and customer lists over their remaining lives.
SFAS No. 142 also required the Company to perform a transition impairment test
for goodwill by determining if the fair value of the Companys reporting units
is less than the carrying value of the reporting units. The Company completed
the transition impairment testing during the quarter ended September 30, 2002
and determined that it did not have a transition impairment of goodwill. The
Company will perform subsequent annual impairment reviews during the fourth
fiscal quarter of each year, or earlier if indicators of potential impairment
exists. Future impairment reviews may result in charges against earnings to
write-down the value of intangible assets.

A reconciliation of previously reported net loss and net loss per share to the
amounts adjusted for the exclusion of goodwill amortization is as follows:

|                                                             |  |                    |        |                  |  |      |         |      |  |   |        |   |  |   |         |  
|------------------------------------------------------------ |  | ------------------ | ------ | ---------------- |  | ---- | ------- | ---- |  | - | ------ | - |  | - | ------- | -
|(In thousands, except per share amounts)                     |  | Three months ended |        | Six months ended
|                                                             |  | September 30,      |        | September 30,   
|                                                             |  |                    |        |                 
|                                                             |  | 2002               |        | 2001             |  | 2002 |         | 2001
|                                                             |  |                    |        |                  |  |      |         |     
|Reported net loss                                            |  | $                  | (3,104 | )                |  | $    | (48,591 | )    |  | $ | (6,698 | ) |  | $ | (62,357 | )
|Goodwill amortization                                        |  |                    |       |                  |  |      | 4,593   |      |  |   |       |   |  |   | 9,185   |  
|                                                             |  |                    |        |                  |  |      |         |      |  |   |        |   |  |   |         |  
|Adjusted net loss                                            |  | $                  | (3,104 | )                |  | $    | (43,998 | )    |  | $ | (6,698 | ) |  | $ | (53,172 | )
|                                                             |  |                    |        |                  |  |      |         |      |  |   |        |   |  |   |         |  
|Reported basic and diluted net loss per share                |  | $                  | (0.36  | )                |  | $    | (7.10   | )    |  | $ | (0.78  | ) |  | $ | (9.14   | )
|Goodwill amortization                                        |  |                    |       |                  |  |      | 0.67    |      |  |   |       |   |  |   | 1.35    |  
|                                                             |  |                    |        |                  |  |      |         |      |  |   |        |   |  |   |         |  
|Adjusted basic and diluted net loss per share                |  | $                  | (0.36  | )                |  | $    | (6.43   | )    |  | $ | (0.78  | ) |  | $ | (7.79   | )
|                                                             |  |                    |        |                  |  |      |         |      |  |   |        |   |  |   |         |  
|Basic and diluted weighted average common
shares outstanding |  |                    | 8,595  |                  |  |      | 6,841   |      |  |   | 8,580  |   |  |   | 6,822   |  
|                                                             |  |                    |        |                  |  |      |         |      |  |   |        |   |  |   |         |  

Research and development costs

We expense research and development costs as incurred as the technological
feasibility of the new software products and the enhancements of existing
software products is not established until all product development is
substantially completed.

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##### Table of Contents



Results of Operations

The following table summarizes our results of operations as a percentage of
total revenue for the three and six months ended September 30, 2002 and 2001.

|                                    |                                            |                          |       |                    |       |                  |        |       |       |      |       |      |       |  |        |       |       | 
|----------------------------------- | ------------------------------------------ | ------------------------ | ----- | ------------------ | ----- | ---------------- | ------ | ----- | ----- | ---- | ----- | ---- | ----- |  | ------ | ----- | ----- | 
|                                    |                                            |                          |       | Three months ended |       | Six months ended
|                                    |                                            |                          |       | September 30,      |       | September 30,   
|                                    |                                            |                          |       |                    |       |                 
|                                    |                                            |                          |       | 2002               |       | 2001             |        | 2002  |       | 2001
|                                    |                                            |                          |       |                    |       |                  |        |       |       |     
|Revenues:                           |                                            |                          |       |                    |       |                  |        |       |       |      |       |      |       |  |        |      
|                                    | License                                    |                          |       | 54.2               | %     |                  |        | 58.2  | %     |      |       | 55.1 | %     |  |        | 59.8  | %    
|                                    | Maintenance                                |                          |       | 28.7               |       |                  |        | 23.3  |       |      |       | 27.7 |       |  |        | 22.5  |      
|                                    | Service                                    |                          |       | 17.1               |       |                  |        | 18.5  |       |      |       | 17.2 |       |  |        | 17.7  |      
|                                    |                                            |                          |       |                    |       |                  |        |       |       |      |       |      |       |  |        |      
|                                    |                                            | Total revenues           |       |                    | 100.0 |                  |        |       | 100.0 |      |       |      | 100.0 |  |        |       | 100.0 | 
|Cost of revenues:                   |                                            |                          |       |                    |       |                  |        |       |       |      |       |      |       |  |        |      
|                                    | License                                    |                          |       | 7.6                |       |                  |        | 4.8   |       |      |       | 4.8  |       |  |        | 9.2   |      
|                                    | Service                                    |                          |       | 10.8               |       |                  |        | 16.1  |       |      |       | 12.7 |       |  |        | 15.6  |      
|                                    | Amortization and write-down of intangibles |                          |       | 14.0               |       |                  |        | 42.9  |       |      |       | 14.0 |       |  |        | 27.8  |      
|                                    |                                            |                          |       |                    |       |                  |        |       |       |      |       |      |       |  |        |      
|                                    |                                            | Total cost of revenues   |       |                    | 32.4  |                  |        |       | 63.8  |      |       |      | 31.5  |  |        |       | 52.6  | 
|                                    |                                            |                          |       |                    |       |                  |        |       |       |      |       |      |       |  |        |      
|Gross margin                        |                                            |                          | 67.6  |                    |       |                  | 36.2   |       |       |      | 68.5  |      |       |  | 47.4   |      
|Operating expenses:                 |                                            |                          |       |                    |       |                  |        |       |       |      |       |      |       |  |        |      
|                                    | Research and development                   |                          |       | 26.0               |       |                  |        | 36.7  |       |      |       | 27.5 |       |  |        | 36.8  |      
|                                    | Sales and marketing                        |                          |       | 53.4               |       |                  |        | 73.2  |       |      |       | 54.0 |       |  |        | 72.4  |      
|                                    | General and administrative                 |                          |       | 17.6               |       |                  |        | 20.3  |       |      |       | 17.4 |       |  |        | 20.3  |      
|                                    | Non-cash equity based compensation         |                          |       | 1.3                |       |                  |        | 1.4   |       |      |       | 1.6  |       |  |        | 1.5   |      
|                                    | Amortization and write-down of intangibles |                          |       | 2.6                |       |                  |        | 365.9 |       |      |       | 2.6  |       |  |        | 192.7 |      
|                                    |                                            |                          |       |                    |       |                  |        |       |       |      |       |      |       |  |        |      
|                                    |                                            | Total operating expenses |       |                    | 100.9 |                  |        |       | 497.5 |      |       |      | 103.1 |  |        |       | 323.7 | 
|                                    |                                            |                          |       |                    |       |                  |        |       |       |      |       |      |       |  |        |      
|Loss from operations                |                                            |                          | (33.3 | )                  |       |                  | (461.3 | )     |       |      | (34.7 | )    |       |  | (276.3 | )    
|Interest and other income (expense) |                                            |                          | (0.3  | )                  |       |                  | 0.0    |       |       |      | (1.8  | )    |       |  | 0.5    |      
|                                    |                                            |                          |       |                    |       |                  |        |       |       |      |       |      |       |  |        |      
|Loss before income taxes            |                                            |                          | (33.6 | )                  |       |                  | (461.3 | )     |       |      | (36.5 | )    |       |  | (275.8 | )    
|Provision for income taxes          |                                            |                          | 0.1   |                    |       |                  | 0.2    |       |       |      | 0.1   |      |       |  | 0.3    |      
|                                    |                                            |                          |       |                    |       |                  |        |       |       |      |       |      |       |  |        |      
|Net loss                            |                                            |                          | (33.7 | )%                 |       |                  | (461.5 | )%    |       |      | (36.6 | )%   |       |  | (276.1 | )%   
|                                    |                                            |                          |       |                    |       |                  |        |       |       |      |       |      |       |  |        |      

Three Months Ended September 30, 2002 and 2001

Revenues

Revenues were $9.2 million and $10.5 million for the three month periods ended
September 30, 2002 and 2001, respectively, representing a decrease of $1.3
million or 12%. International revenues accounted for less than 10% of total
revenue in the three months ended September 30, 2002 and 28% of total revenue
in the three months ended September 30, 2001.

License License revenues were $5.0 million and $6.1 million for the three
month periods ended September 30, 2002 and 2001, respectively, representing a
decrease of $1.1 million or 18%. License revenues represented 54.2% and 58.2%
of total revenues for the three months ended September 30, 2002 and 2001,
respectively. The decrease in license revenues was due to decreased demand for
our CaliberRM products.

Maintenance Maintenance revenues were $2.6 million and $2.5 million for the
three month periods ended September 30, 2002 and 2001, respectively,
representing an increase of $183,000 or 7%. Maintenance revenues represented
28.7% and 23.3% of total revenues for the three months ended September 30, 2002
and 2001, respectively. The increase in maintenance revenues was due to
increased renewal maintenance contracts sold.

Service Service revenues were $1.6 million and $2.0 million for the three
month periods ended September 30, 2002 and 2001, respectively, representing a
decrease of $376,000 or 19%. Service revenues represented 17.1% and 18.5% of

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total revenues for the three months ended September 30, 2002 and 2001,
respectively. The decrease in service revenues was due to fewer billable
headcount available to perform training and consulting.

Cost of Revenues

License License cost of revenues consists primarily of manufacturing and
related costs such as media, documentation, product assembly and royalties.
License cost of revenues was $703,000 and $510,000 for the three month periods
ended September 30, 2002 and 2001, respectively, representing an increase of
$193,000 or 38%. License cost of revenues as a percentage of license revenue
was 14.1% and 8.3% for the three months ended September 30, 2002 and 2001,
respectively. The increase in license cost of revenues was due to lower margin
sales of third party products resulting in higher license cost of revenues.

Service Service cost of revenues consists of the costs associated with
performing training and consulting services. Service cost of revenues was
$991,000 and $1.7 million for the three month periods ended September 30, 2002
and 2001, respectively, representing a decrease of $702,000 or 41%. Service
cost of revenues as a percentage of service revenue was 62.9% and 86.7% for the
three months ended September 30, 2002 and 2001, respectively. The decrease in
service costs of revenues was due to lower salary expense as a result of lower
headcount in the services organization along with the lower costs related to
the decrease in personnel.

Amortization and write-down of intangibles Amortization of intangibles
consists of the amortization of developed technology associated with the
Premia, Genitor, worldweb.net and Technology Builders acquisitions.
Amortization of intangibles was $1.3 million and $4.5 million for the three
months ended September 30, 2002 and 2001, respectively, representing a decrease
of $3.2 million or 71%. Amortization and write-down of intangibles as a
percentage of total revenue was 14.0% and 42.9% for the three months ended
September 30, 2002 and 2001, respectively. As a result of the continuing
deterioration of the economy, the resulting decrease in IT spending and the
lack of demand for the products obtained in the weoldweb.net acquisition,
during the three months ended September 30, 2001, we evaluated the
recoverability of the amounts recorded for developed technology acquired in the
worldweb.net acquisition. We compared the carrying amounts of intangible assets
to current cash flow forecasts and the original cash flow forecasts at the date
of acquisition and determined that the amount recorded for developed technology
was impaired. As a result, during the quarter ended September 30, 2001, we
wrote down the value of developed technology by $2.7 million.

Gross Margin

Gross margin was $6.2 million and $3.8 million for the three months ended
September 30, 2002 and 2001, respectively, representing an increase of $2.4
million or 63%. Gross margin was 67.6% and 36.2% of total revenues for the
three months ended September 30, 2002 and 2001, respectively. The increase in
gross margin was due to lower amortization and write-down of intangibles
partially offset by lower margin on third party products we resell.

Operating Expenses

Research and development expenses Research and development expenses include
salaries and other expenses related to the development of new products and the
enhancements of our current products. Research and development expenses were
$2.4 million and $3.9 million for the three months ended September 30, 2002 and
2001, respectively, representing a decrease of $1.5 million or 38%. The
decrease in research and development expenses was due to lower salary and other
personnel expenses associated with a 38% reduction in research and development
headcount from the prior year.

Sales and marketing Sales and marketing expenses were $5.0 million and $6.9
million for the three months ended September 30, 2002 and 2001, respectively,
representing a decrease of $1.9 million or 27%. The decrease in sales and
marketing expenses was due to lower salary and other personnel expenses
associated with a 32% reduction in sales and marketing headcount from the prior
year.

General and administrative General and administrative expenses were $1.5
million and $3.0 million for the three months ended September 30, 2002 and
2001, respectively, representing a decrease of $1.5 million or 49%. The
decrease in general and administrative expenses was due to lower salary and
other personnel expenses associated with a 14% reduction in general and
administrative headcount from the prior year along with lower legal and
allowance for doubtful accounts expenses.

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Non-cash equity based compensation Non-cash equity based compensation was
$122,000 and $148,000 for the three months ended September 30, 2002 and 2001,
respectively, representing a decrease of $24,000. Non-cash equity based
compensation expense represents the fair market value at the date of grant of
stock options and warrants to purchase our common stock granted to
non-employees amortized over the vesting period.

Amounts recorded for non-cash equity based compensation for the three months
ended September 30, 2002 and 2001 relate to the following consolidated
statement of operations categories:

|                           |  |                    |     |                    |  |   |     | 
|-------------------------- |  | ------------------ | --- | ------------------ |  | - | --- | 
|                           |  | Three months ended
|                           |  |                   
|(in thousands)             |  | September 30, 2002 |     | September 30, 2001
|                           |  |                    |     |                   
|Research and development   |  | $                  |    |                    |  | $ | 24  | 
|Sales and marketing        |  |                    | 15  |                    |  |   | 18  | 
|General and administrative |  |                    | 107 |                    |  |   | 106 | 
|                           |  |                    |     |                    |  |   |     | 
|                           |  | $                  | 122 |                    |  | $ | 148 | 
|                           |  |                    |     |                    |  |   |     | 

Amortization and write-down of intangibles Amortization of intangibles was
$240,000 and $38.5 million for the three months ended September 30, 2002 and
2001, respectively. On April 1, 2002, we adopted SFAS No. 142. As a result, we
ceased amortization of goodwill and subsumed assembled workforce assets of $1.9
million into goodwill. The remaining balance of unamortized goodwill is $9.6
million at September 30, 2002. As a result of the continuing deterioration of
the economy, the resulting decrease in IT spending and the lack of demand for
the products obtained in the worldweb.net acquisition, during the quarter ended
September 30, 2001, we compared the carrying amounts of goodwill acquired in
the worldweb.net and ObjectShare acquisitions to current cash flow forecasts
and the original cash flow forecasts at the date of acquisitions and determined
that the amounts recorded for goodwill were impaired. As a result, we
wrote-down the value of goodwill related to worldweb.net by $23.4 million and
the value of goodwill related to ObjectShare by $7.7 million. We compared the
carrying amount of customer lists acquired in the TBI acquisition to current
cash flow forecasts and the original cash flow forecasts at the date of
acquisition and determined that the amount recorded for customer lists was
impaired. As a result, we wrote down the value of customer lists related to TBI
by $792,000. We also wrote-down the values recorded for assembled workforce
related to worldweb.net and TBI by $859,000 and $838,000, respectively, to
reflect the substantial reduction in workforce.

Interest and other income (expense) Interest and other income was $(29,000)
and $9,000 for the three months ended September 30, 2002 and 2001,
respectively, representing a decrease of $38,000. The decrease was due to
lower interest income resulting from less cash being available to invest.

Provision for income taxes Provision for income taxes was $10,000 and $30,000
for the three months ended September 30, 2002 and 2001, respectively,
representing a decrease of $20,000. This represents the minimum amount required
for state taxes. The Company has not recorded a current or deferred provision
for deferral income taxes for any period to date, as a result of losses
incurred since its inception.

Six Months Ended September 30, 2002 and 2001

Revenues

Revenues were $18.3 million and $22.6 million for the six month periods ended
September 30, 2002 and 2001, respectively, representing a decrease of $4.3
million or 19%. International revenues accounted for less than 10% of total
revenue for the six months ended September 30, 2002 and 17% of total revenue in
the six months ended September 30, 2001.

License License revenues were $10.1 million and $13.5 million for the six
month periods ended September 30, 2002 and 2001, respectively, representing a
decrease of $3.4 million or 25%. License revenues represented 55.1% and 59.8%
of total revenues for the six months ended September 30, 2002 and 2001,
respectively. The decrease in license revenues was due to decreased demand for
our CaliberRM, CodeWright and eXpressroom products and a decrease in the amount
of third party products we resold.

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Maintenance Maintenance revenues were $5.1 million for the six month periods
ended September 30, 2002 and 2001. Maintenance revenues represented 27.7% and
22.5% of total revenues for the six months ended September 30, 2002 and 2001,
respectively.

Service Service revenues were $3.1 million and $4.0 million for the six month
periods ended September 30, 2002 and 2001, respectively, representing a
decrease of $856,000 or 21%. Service revenues represented 17.2% and 17.7% of
total revenues for the six months ended September 30, 2002 and 2001,
respectively. The decrease in service revenues was due to fewer billable
headcount available to perform training and consulting.

Cost of Revenues

License License cost of revenues consists primarily of manufacturing and
related costs such as media, documentation, product assembly and royalties.
License cost of revenues was $872,000 and $2.1 million for the six month
periods ended September 30, 2002 and 2001, respectively, representing a
decrease of $1.2 million or 58%. License cost of revenues as a percentage of
license revenue was 8.6% and 15.5% for the six months ended September 30, 2002
and 2001, respectively. The decrease in license cost of revenues was due to
lower third party product sales resulting in a reduction of license cost of
revenues.

Service Service cost of revenues consists of the costs associated with
performing training and consulting services. Service cost of revenues were $2.3
million and $3.5 million for the six month periods ended September 30, 2002 and
2001, respectively, representing a decrease of $1.2 million or 34%. Service
cost of revenues as a percentage of service revenue was 73.7% and 87.9% for the
six months ended September 30, 2002 and 2001, respectively. The decrease in
service costs of revenues was due to lower salary expense as a result of lower
headcount in the services organization along with the lower costs related to
the decrease in personnel.

Amortization and write-down of intangibles Amortization of intangibles
consists of the amortization of developed technology associated with the
Premia, Genitor, worldweb.net and Technology Builders acquisitions.
Amortization of intangibles was $2.6 million and $6.3 million for the six
months ended September 30, 2002 and 2001, respectively, representing a decrease
of $3.7 million. Amortization and write-down of intangibles as a percentage of
total revenue was 14.0% and 27.8% for the six months ended September 30, 2002
and 2001, respectively. As a result of the continuing deterioration of the
economy, the resulting decrease in IT spending and the lack of demand for the
products obtained in the worldweb.net acquisition, during the three months
ended September 30, 2001, we evaluated the recoverability of the amounts
recorded for developed technology acquired in the worldweb.net acquisition. We
compared the carrying amounts of intangible assets to current cash flow
forecasts and the original cash flow forecasts at the date of acquisition and
determined that the amount recorded for developed technology was impaired. As a
result, during the quarter ended September 30, 2001, we wrote down the value of
developed technology by $2.7 million.

Gross Margin

Gross margin was $12.5 million and $10.7 million for the six months ended
September 30, 2002 and 2001, respectively, representing an increase of $1.8
million or 17%. Gross margin was 68.5% and 47.4% of total revenues for the six
months ended September 30, 2002 and 2001, respectively. The increase in gross
margin was a result of lower amortization and write-down of intangible expense
partially offset by lower margin on third party product we resell.

Operating Expenses

Research and development expenses Research and development expenses include
salaries and other expenses related to the development of new products and the
enhancements of our current products. Research and development expenses were
$5.0 million and $8.3 million for the six months ended September 30, 2002 and
2001, respectively, representing a decrease of $3.3 million or 39%. The
decrease in research and development expenses was due to lower salary and other
personnel expenses associated with a 38% reduction in research and development
headcount from the prior year.

Sales and marketing Sales and marketing expenses were $10.1 million and $15.0
million for the six months ended September 30, 2002 and 2001, respectively,
representing a decrease of $4.9 million or 33%. The decrease in sales and
marketing expenses was due to lower salary and other personnel expenses
associated with a 32% reduction in sales and marketing headcount from the prior
year.

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General and administrative General and administrative expenses were $2.9
million and $5.9 million for the six months ended September 30, 2002 and 2001,
respectively, representing a decrease of $3.0 million or 50%. The decrease in
general and administrative expenses was due to lower salary and other personnel
expenses associated with a 14% reduction in general and administrative
headcount from the prior year along with lower legal and allowance for doubtful
accounts expenses.

Non-cash equity based compensation Non-cash equity based compensation was
$298,000 and $338,000 for the six months ended September 30, 2002 and 2001,
respectively, representing a decrease of $40,000. Non-cash equity based
compensation expense represents the fair market value at the date of grant of
stock options and warrants to purchase our common stock granted to
non-employees amortized over the vesting period.

Amounts recorded for non-cash equity based compensation for the six months
ended September 30, 2002 and 2001 relate to the following consolidated
statement of operations categories:

|                           |  |                    |     |                    |  |   |     | 
|-------------------------- |  | ------------------ | --- | ------------------ |  | - | --- | 
|                           |  | Six months ended  
|                           |  |                   
|(in thousands)             |  | September 30, 2002 |     | September 30, 2001
|                           |  |                    |     |                   
|Research and development   |  | $                  |    |                    |  | $ | 48  | 
|Sales and marketing        |  |                    | 34  |                    |  |   | 36  | 
|General and administrative |  |                    | 264 |                    |  |   | 254 | 
|                           |  |                    |     |                    |  |   |     | 
|                           |  | $                  | 298 |                    |  | $ | 338 | 
|                           |  |                    |     |                    |  |   |     | 

Amortization and write-down of intangibles Amortization and write-down of
intangibles was $480,000 and $43.5 million for the six months ended September
30, 2002 and 2001, respectively. This includes amortization of goodwill,
customer list and assembled workforce associated with the SITE, Premia,
ObjectShare, worldweb.net and Technology Builders acquisitions.

As a result of the continuing deterioration of the economy, the resulting
decrease in IT spending and the lack of demand for the products obtained in the
worldweb.net acquisition, during the quarter ended September 30, 2001, we
compared the carrying amounts of goodwill acquired in the worldweb.net and
ObjectShare acquisitions to current cash flow forecasts and the original cash
flow forecasts at the date of acquisitions and determined that the amounts
recorded for goodwill were impaired. As a result, we wrote-down the value of
goodwill related to worldweb.net by $23.4 million and the value of goodwill
related to ObjectShare by $7.7 million. We compared the carrying amount of
customer lists acquired in the TBI acquisition to current cash flow forecasts
and the original cash flow forecasts at the date of acquisition and determined
that the amount recorded for customer lists was impaired. As a result, we wrote
down the value of customer lists related to TBI by $792,000. We also wrote-down
the values recorded for assembled workforce related to worldweb.net and TBI by
$859,000 and $838,000, respectively, to reflect the substantial reduction in
workforce.

Interest and other income (expense) Interest and other income (expense) was
$(333,000) and $106,000 for the six months ended September 30, 2002 and 2001,
respectively, representing a decrease of $439,000. The decrease was due to
lower interest income resulting from less cash being available to invest.

Provision for income taxes Provision for income taxes was $18,000 and $87,000
for the six months ended September 30, 2002 and 2001. This represents the
minimum amount required for state taxes. The Company has not recorded a current
or deferred provision for deferral income taxes for any period to date, as a
result of losses incurred since its inception.

Inflation

Inflation has not had a significant effect on our results of operations of
financial position for the three and six month periods ended September 30, 2002
and 2001.

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Liquidity and Capital Resources

We have funded our business, to date, primarily from the issuance of equity and
debt securities. Cash and cash equivalents as of September 30, 2002 were $1.4
million and as March 31, 2002 were $1.5 million. At September 30, 2002 we had
negative working capital of $5.0 million, compared to negative working capital
of $3.0 million at March 31, 2002.

Net cash provided by operating activities was $32,000 for the six months ended
September 30, 2002 and net cash used in operating activities was $12.3 million
for the six months ended September 30, 2001. The increase in cash provided by
operating activities was due to a lower net loss, an increase in deferred
revenue and a decrease in accounts payable partially offset by an increase in
write-down of intangibles and depreciation and amortization expense and
decrease in accounts receivable.

Net cash used in investing activities was $29,000 and $716,000 million for the
six months ended September 30, 2002 and 2001, respectively. The decrease was
due to a decrease in capital expenditures.

Net cash used in financing activities was $124,000 for the six months ended
September 30, 2002 and net cash provided by financing activities was $2.0
million for the six months ended September 30, 2001.

Accounts receivable, net of allowances decreased to $5.8 million at September
30, 2002 from $8.0 million at March 31, 2002. The decrease was a result of
lower sales volume along with an improvement in our collection efforts as our
Days Sales Outstanding (DSO) improved to 59 days at September 30, 2002 from 66
days at March 31, 2002.

Minimum rental commitments under lease agreements at September 30, 2002 are as
follows:

|                      |      |                  |                |       | 
|--------------------- | ---- | ---------------- | -------------- | ----- | 
|                      |      |                  | Non-cancelable
|Year ending March 31, |      | Operating Leases
|                      |      |                 
|                      |      |                  | (In thousands)
|                      | 2003 |                  | $              | 2,476 | 
|                      | 2004 |                  |                | 2,310 | 
|                      | 2005 |                  |                | 2,352 | 
|                      | 2006 |                  |                | 1,431 | 
|                      |      |                  |                |      
|Total payments        |      | $                | 8,569          |      
|                      |      |                  |                |      

Management believes, based upon projected operating needs, that our working
capital is insufficient for us to maintain our current level of operating
activities through March 31, 2003. We have also experienced recurring losses
from operations and have negative working capital at September 30, 2002. These
factors, among others, raise substantial doubt about our ability to continue as
a going concern. On May 22, 2002, we entered into a definitive purchase
agreement to raise approximately $12.0 million through the sale of convertible
preferred stock and warrants to institutional investors in a private placement.
On July 29, 2002, our stockholders approved the financing and a one-for-ten
reverse stock split at a special meeting of stockholders called for those
purposes. Proceeds of the financing would have been be used for working
capital. In August 2002, we received notification from some investors that they
were terminating their obligations under the purchase agreement, which was
scheduled to close on August 13, 2002. As a result of the pending merger with
Borland Software Corporation, we terminated the private placement.

In connection with the Merger Agreement, Borland also agreed to provide the
Company a bridge loan of up to $2 million. In October 2002, the Company
borrowed $750,000 against the bridge loan.

New Accounting Standards

In June 2001, the Financial Accounting Standards Board (FASB) issued two new
pronouncements: Statement of Financial Accounting Standards (SFAS) No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS No. 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Goodwill and intangible
assets with indefinite lives will remain on the balance sheet and not be
amortized. On an annual basis, or when there is reason to suspect that their
values have been diminished or impaired, these assets must be tested for
impairment, and write-downs may be necessary. We implemented SFAS No.

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141 on July 1, 2001. Such adoption had no impact on our consolidated financial
position or results of operations though June 30, 2002. We adopted SFAS No. 142
on April 1, 2002. As a result, the Company has reclassified assembled workforce
into goodwill and has ceased amortization of goodwill, reducing annual
amortization expense by approximately $10.4 million. We will continue to
amortize developed technology and customer lists over their remaining lives.
SFAS No. 142 also required the Company to perform a transition impairment test
for goodwill by determining if the fair value of the Companys reporting units
is less than the carrying value of the reporting units. The Company completed
the transition impairment testing during the quarter ended September 30, 2002
and determined that it did not have a transition impairment of goodwill. The
Company will perform subsequent annual impairment reviews during the fourth
fiscal quarter of each year, or earlier if indicators of potential impairment
exists. Future impairment reviews may result in charges against earnings to
write-down the value of intangible assets.

In August 2001, the FASB issued SFAS No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets.SFAS No. 144 addresses financial accounting and
reporting for the impairment of long-lived assets and for the disposal of
long-lived assets. SFAS No. 144 supersedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
and is effective for fiscal year beginning after December 15, 2001. We adopted
SFAS No. 144 effective April 1, 2002. The adoption of this statement did not
have a material impact on our consolidated financial position or results of
operations.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities, which addresses financial accounting and
reporting for costs associated with the exit or disposal activities and
supersedes Emerging Issues Task Force (EITF) Issue 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in Restructuring). SFAS No. 146 requires that
a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. Under EITF Issue 94-3, a liability
for an exit cost, as defined in EITF 94-3, was recognized at the date of the
entitys commitment to an exit plan. SFAS No. 146 also establishes that the
liability should measured and recorded at fair value. We will adopt the
provisions of SFAS No. 146 for exit or disposal activities that are initiated
after March 31, 2002.

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.

RISKS ASSOCIATED WITH THE COMPANY

WE HAVE A HISTORY OF LOSSES AND WE EXPECT TO INCUR FUTURE LOSSES IF WE ARE
UNABLE TO SUCCESSFULLY AND COST EFFECTIVELY DEVELOP, MARKET AND DISTRIBUTE OUR
PRODUCTS

Since our inception, we have had a history of losses and, as of September 30,
2002, we had an accumulated deficit of $186.5 million. Further, the cash
requirements to run our business have been and will continue to be significant.
In the past, we had negative cash flow from operations. We anticipate incurring
additional losses until we can successfully develop, market and distribute our
products. Developing our 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. If our personnel
and third parties are unable to work together and coordinate their efforts in
order to quickly and cost-efficiently develop our products, the development
process may encounter delays, which could lead to increased operating expenses
and future losses. 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:



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

24



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IF WE ARE UNABLE TO ACHIEVE POSITIVE OPERATING RESULTS OR OUR PENDING MERGER
WITH BORLAND SOFTWARE CORPORATION IS NOT COMPLETED, WE MAY NEED TO RAISE
ADDITIONAL CAPITAL AND MAY NOT BE ABLE TO CONTINUE TO OPERATE AS A GOING
CONCERN

In the past, we have used cash from outside financing to fund our operations.
If we cannot achieve positive operating results and positive cash flow, we may
need to raise additional funds. There can be no assurances that funds may be
raised on acceptable terms or when needed, 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. If
we are unable to achieve positive operating results and are unable to raise
additional funds, we may need, among other things, to sell our assets, to
further reduce our workforce or to close facilities.

At September 30, 2002, our current capital resources were $7.2 million and
consisted of $1.4 million of cash and $5.8 million of accounts receivable. We
also had $6.3 million in liabilities that will need to be paid with cash and
negative working capital of $5.0 million.

Our independent auditors report from Deloitte and Touche LLP dated May 28,
2002 indicated a substantial doubt about our ability to continue as a going
concern. Management also believes, based upon projected operating needs, that
our working capital is insufficient for us to maintain our current level of
operating activities through March 31, 2003. We have also experienced recurring
losses from operations and have negative working capital at September 30, 2002.
These factors, among others, raise substantial doubt about our ability to
continue as a going concern. On May 22, 2002, we entered into a definitive
purchase agreement to raise approximately $12.0 million through the sale of
convertible preferred stock and warrants to institutional investors in a
private placement. On July 29, 2002, our stockholders approved the financing
and a one-for-ten reverse stock split at a special meeting of stockholders
called for those purposes. Proceeds of the financing would have been used for
working capital. In August, we received notification from some investors that
they were terminating their obligations under the purchase agreement, which was
scheduled to close on August 13, 2002. As a result of the pending merger with
Borland Software Corporation we terminated the private placement.

In connection with the Merger Agreement, Borland also agreed to provide the
Company a bridge loan of up to $2 million. In October 2002, the Company
borrowed $750,000 against the bridge loan.

WE HAVE PREVIOUSLY INCURRED AND MAY INCUR FUTURE IMPAIRMENT LOSSES RELATED TO
INTANGIBLE ASSETS FROM PRIOR ACQUISITIONS WHICH COULD NEGATIVELY AFFECT OUR
FUTURE OPERATING RESULTS

During the year ended March 31, 2002, we had an impairment write-down of $64.8
million related to intangible assets from prior acquisitions. If our operating
performance and the overall market environment do not improve, we may incur
additional write-downs of our remaining intangible assets that could adversely
affect our financial position, our operating results and our ability to raise
additional financing.

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

For the quarter ended September 30, 2002, we generated 47% of our total
revenues and 57% of our licensing revenues from licenses of our StarTeam
product line. We believe that revenues generated from StarTeam will continue to
account for a large percentage of our revenues for the foreseeable future. A
decline in the price of, or demand for, StarTeam would have a material adverse
effect on our business, operating results and financial condition. The
following events may reduce the demand for StarTeam:



| |  |  | competition from other products;                                                                 
| | - |  | -------------------------------------------------------------------------------------------------
|
| |  |  | flaws in our software products or incompatibility with third-party hardware or software products;
|
| |  |  | negative publicity or evaluation of our company; or                                              
|
| |  |  | 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.

25



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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.

IF WE ARE UNABLE TO FURTHER INTEGRATE THE OPERATIONS OF TECHNOLOGY BUILDERS,
INC., WE MAY NOT BE ABLE TO SUCCESSFULLY CONTINUE TO DEVELOP AND MARKET
TECHNOLOGY BUILDERS PRODUCTS AND OUR REVENUES MAY SUFFER

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



| |  |  | successfully integrate and manage its technology and operations;                          
| | - |  | ------------------------------------------------------------------------------------------
|
| |  |  | retain its software developers;                                                           
|
| |  |  | develop and market new products and enhance existing products based on its technology; and
|
| |  |  | retain its customer base.                                                                 

Our failure to successfully address the risks associated with our acquisition
of Technology Builders could hurt our ability to develop and market products
based on Technology Builders technology.

RISKS ASSOCIATED WITH THE INDUSTRY

WE FACE INTENSE COMPETITION FOR APPLICATION SOFTWARE WHICH COULD MAKE IT
DIFFICULT FOR US TO ACQUIRE AND RETAIN CUSTOMERS AND ADVERSELY AFFECT OUR
OPERATING RESULTS

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

Competitive pressures may make it difficult for us to acquire and retain
customers and may require us to reduce the price of our software in order to
attract new customers and keep existing customers. If we have to reduce the
purchase price of our software, our revenues may decrease. 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.

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

To date, the majority of our revenue came from our direct sales efforts. 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

26



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##### Table of Contents



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 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:



| |  |  | costs of customizing products for foreign countries;                                 
| | - |  | -------------------------------------------------------------------------------------
|
| |  |  | foreign currency risks;                                                              
|
| |  |  | dependence on local vendors;                                                         
|
| |  |  | compliance with multiple, conflicting and changing governmental laws and regulations;
|
| |  |  | longer sales cycles; and                                                             
|
| |  |  | 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.

IF WE FAIL TO EFFECTIVELY MANAGE AND SUPPORT OUR ANTICIPATED GROWTH IN
OPERATIONS, WE MAY NOT ACHIEVE FUTURE REVENUE GROWTH AND PROFITABILITY

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:



| |  |  | continue to implement and improve our operational, financial and management information systems;              
| | - |  | --------------------------------------------------------------------------------------------------------------
|
| |  |  | hire, train and retain qualified personnel;                                                                   
|
| |  |  | continue to expand and upgrade core technologies; and                                                         
|
| |  |  | 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,
the anticipated growth in revenues and our profitability may not be achieved.

WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, WHICH
COULD RESULT IN THE USE OF OUR TECHNOLOGY BY COMPETITORS OR OTHER THIRD PARTIES
RESULTING IN LOWER SALES OF OUR PRODUCTS

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, patents,
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 infringe such
patent when it is issued in the future. To address any patent infringement
claims, we may have to enter into royalty or licensing agreements on commercial
terms that are not favorable to us. A successful claim of patent 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.

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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.

RISKS ASSOCIATED WITH OUR COMMON STOCK

IF OUR OUTSTANDING WARRANTS AND OPTIONS ARE EXERCISED, THERE WILL BE FURTHER
DILUTION TO OUR COMMON STOCKHOLDERS

As of September 30, 2002, we had 383,691 warrants to purchase the equivalent
number of shares of our common stock outstanding at prices ranging from $3.20
to $68.13. In addition, as of September 30, 2002, we had 2,017,125 stock
options granted outstanding with a weighted-average exercise price of $23.32,
of which 1,183,546 are exercisable at a weighted-average exercise price of
$26.04. Exercise of either the outstanding warrants or granted stock options
will dilute the position of our common stockholders.

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##### Table of Contents






ITEM 3QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not use derivative financial instruments for our investment purposes, nor
do we have any foreign exchange hedging contracts.

Exchange Rate Risk

We have minimal risk related to currency fluctuations. Less than 10% of our
revenues are from sources outside the United States and all sales are
denominated in U.S. dollars. We have subsidiaries in Canada and the United
Kingdom; therefore, we are subject to exchange rate risk related to the
translation and consolidation of our subsidiaries financial statements.

Interest Rate Risk

We may be exposed to interest rate risk related to the Accounts Receivable
Purchase Agreement that we entered into with Silicon Valley Bank in April 2002,
which allows us to sell up to $4.0 million of our accounts receivable with a
finance charge equal to 5.0% above Prime Rate.

Intangible Asset Risk

We have a substantial amount of intangible assets. During the 2002 fiscal year,
as a result of the deterioration of the economy, the decrease in information
technology spending, the lack of demand for the products obtained in the
worldweb.net acquisition and the significant reduction in headcount, we
recorded a write-down of intangible assets of $64.8 million. Future
deterioration of the economy could result in further impairment of our
intangible assets, requiring us to record an additional write down expense.

29



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ITEM 4CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have evaluated the
effectiveness of our disclosure controls and procedures (as such term is
defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of
1934, as amended (Exchange Act)) as of a date within 90 days prior to the
filing date of this quarterly report (Evaluation Date). Based on such
evaluation, such officers have concluded that, as of the Evaluation Date, our
disclosure controls and procedures are effective in alerting them on a timely
basis to material information relating to us (including our consolidated
subsidiaries) required to be included in our periodic filings under the
Exchange Act.

Changes in Internal Controls

Since the Evaluation Date, there have not been any significant changes in our
internal controls or in other factors that could significantly affect such
controls.

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PART II




ITEM 5OTHER INFORMATION

On October 8, 2002, the Company entered into an Agreement and Plan of Merger
(Merger Agreement) with Borland Software Corporation, a Delaware corporation
(Borland), and Galaxy Acquisition Corp., a Delaware corporation and wholly
owned subsidiary of Borland (Purchaser). The Merger Agreement provides for
Purchaser commencing a tender offer (Offer) for all outstanding shares of the
Companys common stock at a price of $2.75 per share, net to the seller in
cash, without interest, subject to certain conditions, including the tender,
without withdrawal prior to the expiration of the Offer, of at least a majority
of the Companys outstanding shares of common stock, including shares subject
to the Companys stock options with an exercise price per share less than
$2.75.

In connection with the Merger Agreement, Borland also agreed to provide the
Company a bridge loan of up to $2 million. In October 2002,
the Company borrowed $750,000 against the bridge loan.

Additionally, in connection with the Merger Agreement, James Harrer, the
Companys President and CEO, and certain other the Companys stockholders
entered into agreements pursuant to which such stockholders agreed to tender
shares of the Company held by them, which represent in the aggregate
approximately 0.94% percent of the outstanding shares of the Companys common
stock as of October 8, 2002.

Borland and Purchaser commenced the Offer on October 11, 2002. The Offer and
withdrawal rights were scheduled to expire at 12:00 midnight, New York City
time, on November 8, 2002. On November 11, 2002, Borland extended its offer
until 12:00 midnight, Eastern Standard Time, on Friday, November 22, 2002 in
accordance with the Merger Agreement to obtain tenders of at least 90% of the
outstanding shares of the Companys common stock so that the Merger may be
completed without a vote of the Companys shareholders under applicable law.

As of midnight, Eastern Standard Time, on November 8, 2002, approximately
6,674,993 shares of the Companys common stock, or approximately 76.3% of the
outstanding shares had been tendered.

The Merger Agreement also provides that following consummation of the Offer and
the satisfaction or waiver of certain conditions, Purchaser will be merged with
and into the Company (Merger) with the Company surviving the Merger as a wholly
owned subsidiary of Borland, and all remaining outstanding shares of the
Companys common stock will be converted into the right to receive $2.75 per
share, net, in cash, without interest.

For further information refer to the Companys Solicitation/Recommendation
Statement on Schedule 14D-9 filed with the Securities and Exchange Commission
on October 11, 2002, as amended.

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ITEM 6EXHIBITS AND REPORTS ON FORM 8-K



|(a) |  | Exhibits
|--- |  | --------

|        |  |                                                                                                                                                    |  |       |  | 
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----- |  | 
|Exhibit |  |                                                                                                                                                    |  | Ref./
|Number  |  | Description Of Document                                                                                                                            |  | Page 
|        |  |                                                                                                                                                    |  |      
|99.1    |  | Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|       
|       
|       
|       
|99.2    |  | Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|       
|       
|       
|       
|99.3    |  | Settlement Agreement and Release with World Web
Investors, LLC and ABN AMRO CAPITAL USA.                                                          



---



|(b) |  | Reports on Form 8-K
|--- |  | -------------------

In a report filed on Form 8-K, dated October 8, 2002, the Company reported the
Agreement and Plan of Merger with Borland Software Corporation

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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)
| | ---------------------------------



|November 19 , 2002Date | /s/ James A. Harrer
     James A. Harrer
     Chief Executive Officer
|---------------------- | ---------------------------------------------------------------------



| | /s/ Douglas S. Norman
    Douglas S. Norman
    Chief Financial Officer
| | -----------------------------------------------------------------------

33



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CERTIFICATIONS

I, James A. Harrer, certify that:



| | 1. |  | I have reviewed this quarterly report on Form 10-Q of Starbase
Corporation;                                                                                                                                                                                                                                                   
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;                   
|
| | 4. |  | The registrants other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:                                                                                                     



| |  | a) | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared;
| |  | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the Evaluation
Date); and                                                                                                  
|
| |  | c) | presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;                                                                                                                        



| | 5. |  | The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of registrants board of directors (or persons
performing the equivalent function):
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | a) | all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data
and have identified for the registrants auditors any material
weaknesses in internal controls; and
| |  | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                        



| | 6. |  | The registrants other certifying officers and I have indicated
in this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

/s/ James A. Harrer
Chief Executive Officer

Date: November 19, 2002

34



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##### Table of Contents



I, Douglas S. Norman, certify that:



| | 1. |  | I have reviewed this quarterly report on Form 10-Q of Starbase
Corporation;                                                                                                                                                                                                                                                   
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;                   
|
| | 4. |  | The registrants other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:                                                                                                     



| |  | a) | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared;
| |  | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the Evaluation
Date); and                                                                                                  
|
| |  | c) | presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;                                                                                                                        



| | 5. |  | The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of registrants board of directors (or persons
performing the equivalent function):
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | a) | all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data
and have identified for the registrants auditors any material
weaknesses in internal controls; and
| |  | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                        



| | 6. |  | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

/s/ Douglas S. Norman
Chief Financial Officer

Date: November 19, 2002

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##### Table of Contents






EXHIBIT INDEX



|        |  |                                                                                                                                                    |  |       |  | 
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----- |  | 
|Exhibit |  |                                                                                                                                                    |  | Ref./
|Number  |  | Description Of Document                                                                                                                            |  | Page 
|        |  |                                                                                                                                                    |  |      
|99.1    |  | Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|       
|       
|       
|       
|99.2    |  | Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|       
|       
|       
|       
|99.3    |  | Settlement Agreement and Release with World Web
Investors, LLC and ABN AMRO CAPITAL USA.