<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K

          [_]    Annual Report Pursuant to Section 13 or 15(d)
                   of the Securities and Exchange Act of 1934

          [X]   Transition report pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
                        FOR THE TRANSITION PERIOD FROM
                      April 1, 1997 to December 31, 1997

                          Commission File No. 0-16096

                          BORLAND INTERNATIONAL, INC.
             (Exact name of registrant as specified in its charter)


             DELAWARE                                         94-2895440
    (State or other jurisdiction                           (I.R.S. Employer
  of incorporation or organization)                       Identification No.)

             100 BORLAND WAY, SCOTTS VALLEY, CALIFORNIA 95066-3249
             (Address if principal executive offices)   (Zip code)

       Registrant's telephone number, including area code: (408) 431-1000
        Securities registered pursuant to Section 12(b) of the Act: NONE
  Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK AND
                           PREFERRED PURCHASE RIGHTS

       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) has been
       subject to such filing requirements for the past 90 days.

                         Yes [X]              No [_]

       The aggregate market value of the voting stock held by non-affiliates of
       the registrant as of March 2, 1998 was $465,259,414.  This
       calculation does not reflect a determination that persons are affiliates
       for any other purposes.

       The number of shares of the Registrant's common stock outstanding as of
       March 2, 1998 was 50,987,333.

                      DOCUMENTS INCORPORATED BY REFERENCE:

     (1) Part III - Portions of the registrant's definitive proxy statement to
         be issued in conjunction with the registrant's annual stockholders'
         meeting currently scheduled to be held June 5, 1998.

       Indicate by check mark if disclosure of delinquent filers pursuant to
     Item 405 of Regulation S-K is not contained herein, and will not be
     contained, to the best of registrant's knowledge, in definitive proxy or
     information statements incorporated by reference in Part III of this Form
     10-K or any amendment to this Form 10-K. [X]

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FORWARD-LOOKING STATEMENTS

  This Annual Report on Form 10-K and the documents incorporated herein by
reference contain forward-looking statements that have been made pursuant to the
provisions of the Private Securities Litigation Reform Act of 1995.  Such
forward-looking statements are based on current expectations, estimates and
projections about Borland's industry, management's beliefs, and certain
assumptions made by Borland's management.  Words such as "anticipates",
"expects", "intends", "plans", "believes", "seeks", "estimates", variations of
such words and similar expressions are intended to identify such forward-looking
statements.  These statements are not guarantees of future performance and are
subject to certain risks, uncertainties and assumptions that are difficult to
predict; therefore, actual results may differ materially from those expressed or
forecasted in any such forward-looking statements.  Such risks and uncertainties
include those set forth herein under "Factors That May Affect Future Results and
Market Price of Stock" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" as well as those noted in the documents
incorporated herein by reference. Unless required by law, the Company undertakes
no obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise. However, readers should
carefully review the risk factors set forth in other reports or documents the
Company files from time to time with the Securities and Exchange Commission,
particularly the Quarterly Reports on Form 10-Q and any Current Reports on Form
8-K.

                                     PART I

ITEM 1. BUSINESS

  Borland International, Inc. and its consolidated subsidiaries (collectively
called the "Company") develops, markets and supports software development
tools, intelligent middleware, database management systems, databases, and
application management systems for business enterprises and independent
software developers. The Company has several product lines and additional
complementary products and services that are designed to meet the needs of
software developers and business enterprises developing and using software in
desktop, local area network ("LAN"), client/server, enterprise and
Internet/intranet environments.

  The Company is organized around its major products, a family of interoperable
development tools that include versions for desktop users, professional
developers and large business enterprises.

  The Company's business strategy centers around its Information Network product
strategy. An Information Network is a network of interconnected resources that
cooperate to transform an organization's data into real-time information that is
customized for, and meaningful to, its users, whether they be employees,
customers or suppliers. The Company's Information Network strategy encompasses
all of the Company's products with the objective of providing customers with an
integrated family of component-based development applications and intelligent
middleware that enable customers to develop Information Network applications.
The strategy is designed to allow software developers to scale applications for
both centralized and decentralized information technology ("IT") departments and
to integrate legacy computing systems, new computing systems and emerging
Internet/intranet technologies independent of any underlying network or platform
architecture.

  On February 27, 1998, the Company acquired Visigenic Software, Inc.
("Visigenic").  The product line acquired from Visigenic consists of software
tools for distributed object technologies for the Internet/intranet and
enterprise computing environments. These standards-based products facilitate
the development, deployment and management of distributed business
applications by providing the communication framework for distributed object
applications. The distributed object products, consisting of Common Object
Request Broker Architecture ("CORBA")-compliant object request brokers and
CORBA-based services, provide a communication framework and enable the
development and deployment of reliable, flexible and cost-effective
distributed business applications. The product line also includes a cross-
platform database access product, based on Java Database Connectivity ("JDBC")
interface application programming interface ("API"), which provides Java
developers with database access to the major relational database management
systems ("RDBMS.")

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  The Company markets and distributes its products worldwide primarily through
independent distributors, dealers, value-added resellers ("VARs") and
independent software vendors ("ISVs"). The Company also markets and sells to
corporations, governments, educational institutions and end-user customers
through direct sales and through the Internet.

CHANGE IN FISCAL YEAR END

  In July 1997, the Company resolved to change its fiscal year end from March 31
to December 31.  In accordance with the rules of the Securities and Exchange
Commission, this Form 10-K relates to the nine month period which commenced on
April 1, 1997 and ended December 31, 1997.

PRODUCTS

  The Company develops, markets and supports software development tools,
intelligent middleware, database management systems, databases, and application
management systems for business enterprises and independent software
developers. The Company's family of interoperable tools allow software
developers to create software applications for single desktop computers, larger
networked client/server database systems, corporate intranets, the Internet and
enterprise-wide computing environments.

  The Company's product offerings can be divided into four categories:
Programming tools, Internet/intranet products, Intelligent middleware, and
Databases.

PROGRAMMING TOOLS

  The Company's Windows programming tools include Borland C++, Borland
C++Builder and Delphi. These tools are based on programming languages to enable
developers to write software applications that can be executed by a computer
running Microsoft Windows 3.1, Windows 95 or Windows NT operating systems.

  The Company's language tools are known for their high performance, ease of use
and reliability of generated code. These products are primarily designed for
professional software developers.

  Borland C++ and Borland C++Builder are the Company's software development
tools and compilers in the C and C++ computer languages. C is a programming
language often used by programmers to write operating systems, systems software
and software application programs. C++ is an enhanced version of the C language
that has object-oriented extensions. The newest addition to the product line is
Borland  C++Builder. This product provides software developers with the power of
the C++ programming language combined with the ease-of-use of rapid application
development ("RAD") environment which was pioneered by Borland's Delphi product
described below.

  The Company's Delphi product is a high-performance rapid application software
development tool. The Delphi product combines visual productivity tools and a
high-performance compiler so that software developers can build high-speed
desktop and advanced database systems in less time than would be possible with
conventional programming tools. There are four separate versions of Delphi each
of which is designed for a separate market, of these, the Delphi Client/Server
Suite is an advanced developer tool for building large-scale, high-performance
enterprise applications that can access relational database management system
("RDBMS") servers.

  Consistent with the Company's strategy to provide productivity tools for the
programmer over a wide range of hardware platforms the Company produces and
markets versions of its Delphi and C++Builder software development tools for the
IBM AS/400 hardware platform.  These versions specialized for the AS/400 bring
the Company's award-winning C++ compiler and object-oriented, rapid application
development environments to a group of programmers involved in large scale
applications, electronic commerce and Internet/intranet projects.

INTERNET/INTRANET PRODUCTS

  The Company has developed new products that facilitate software development
for the emerging Internet and intranet environments. In September 1997, the
Company released JBuilder, a family of visual development tools for creating
high-performance, platform-independent applications using the Java programming
language. JBuilder's scalable, component-based environment is designed for all
levels of Information Network development projects

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ranging from applets and applications that require desktop connectivity, to
client/server and enterprise-wide, distributed multi-tier systems. JBuilder also
provides developers with a flexible open architecture to incorporate third-party
tools, add-ins and JavaBean components.

  The Company's DataGateway product provides Java developers with a multi-
tier, database connectivity solution adhering to industry standard JDBC.
Borland Datagateway provides native database connectivity to InterBase,
Oracle, Sybase, DB2, Microsoft SQL Server, Informix, Paradox, Access, dBASE,
and FoxPro.

INTELLIGENT MIDDLEWARE

  The Company added Entera and OLEnterprise to its family of development tools
through the acquisition of Open Environment Corporation ("OEC") in November
1996. These products are described in the computer software industry as
intelligent middleware. They are designed to allow software developers
to build, manage and deploy large-scale and robust enterprise applications in a
multi-tier computing environment. Entera provides an enterprise operating
environment for building flexible integrated information systems. All of the
Company's tools, such as Delphi and Borland C++, can be combined with the Entera
middleware technology to deliver scaleable, multi-tier applications for business
enterprises. This provides customers with a reliable software development
environment that spans from desktop and two-tier client/server computing
environments to multi-tier, enterprise-wide and Internet/intranet computing
environments. OLEnterprise is designed to provide stability and reliability in a
distributed, multi-tier computing environment so that integral business systems
will operate continuously.

  Distributed Object Products

  With the Visigenic acquisition, the Company added software tools for
distributed object technologies for the Internet/intranet and enterprise
computing environments.

  The acquired distributed object products include VisiBroker for Java and
VisiBroker for C++ which are both based on the CORBA standard, and utilize
Internet Inter-ORB Protocol ("IIOP"). The VisiBroker product line also
includes two object services, Events and Naming, that are service
implementations of the Naming and Events CORBA specification. Developers
frequently need these services when implementing distributed object
applications. In addition, these products include VisiBroker Bridge, a bridge
from Microsoft's ActiveX and Distributed Component Object Model ("DCOM"), to
CORBA-based applications. The Company also markets its VisiChannel for JDBC
database access products which provides Java developers with database access to
the major relational database management systems ("DBMS").

DATABASES

  The Company's database management tool, Visual dBASE, is based on the dBASE
programming language. This product enables users to create, save, retrieve and
manipulate databases, as well as to create both standard and customized reports.
The latest version of Visual dBASE includes a set of utilities that allows dBASE
developers to create interactive database applications for the Internet and
intranets.

  InterBase is a relational database management system that operates on personal
computers, minicomputers and workstations. InterBase provides unique solutions
for creating new software applications or converting existing software
applications to take advantage of expanding Internet/intranet technology.

PRODUCT DEVELOPMENT

  The Company is recognized for consistently providing high-quality and
innovative software tools for customers seeking greater productivity. The
Company's research and development programs are designed to develop new products
and improve existing products so as to maintain and improve the Company's
competitive position in the software development and application management
tools business. The Company's research and development efforts also support its
Information Network strategy which is designed to provide software tools that
bridge between

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enterprise and Internet/intranet architectures, decentralized and centralized IT
departments and that provide interoperability between competing technology
standards. In addition to internal development, the Company from time to time
acquires new products and enhancements through acquisitions or licensing from
third parties.

  The Company believes that its ability to develop innovative and successful
products depends in large part upon successfully executing product planning
strategies and research and development activities and upon its ability to
attract, hire and retain highly qualified engineers.

  Although the Company believes that its product planning strategy and
development processes will result in the successful development of technology
innovations in the future, due to the inherent uncertainties of software
development, there can be no assurance that the Company will be successful, or
if successful, such innovations will result in increased revenues or profits.

MARKETING AND DISTRIBUTION

  The Company's products are sold to a broad customer base, which includes
businesses, educational institutions, government bodies and individual software
developers. The Company distributes its products domestically and
internationally, primarily through distributors, dealers, ISVs and VARs. The
Company also sells through a direct sales force and via the Internet. Because
the Company generally ships products upon receipt of orders, backlog is neither
significant nor an important measure of revenue for any future period.

  The Company offers a number of marketing programs to assist its distributors,
retailers and resellers in their sales efforts. These programs include corporate
marketing and advertising and special sales incentives to retailers. In
addition, the Company permits its distributors to balance their inventories by
periodically returning contractually limited amounts of products in exchange for
other Borland products. The Company includes an estimate for returns in its
reserves for the amount of product which may be exchanged in accordance with
this policy.

  The Company is investing in communicating with its customers by electronic
means, and the Company has established a presence on the Internet through its
web- site, Borland Online. Through Borland Online, customers may access
information regarding the Company's products, participate in online discussion
forums, download trial versions of certain products and purchase some of the
Company's products.

  In January 1998 approximately forty former employees of the Company formed
Frontline Now!, an independent sales and marketing company. Frontline Now!,
through an agreement with the Company, will have exclusive rights to represent
and market the Company's development tools, including Delphi, C++Builder and
JBuilder to distributors and resellers in the Company's traditional two-tier
sales channel in the U.S.

PRODUCT SUPPORT

  The Company offers free installation support to the purchasers of its
products, including access to its technical support personnel through a special
telephone support line, through national electronic bulletin board services and
through the Internet. End-users also receive further support and information
from the Company and dealers through their local end-user groups. Support
requirements have increased in recent years as product offerings have become
more complicated. The Company is addressing these increased support requirements
in numerous ways, including making its products easier to install and offering
multiple kinds of support programs, including, but not to limited to,  paid-for
support programs.

  Through the acquisition of Visigenic, the Company broadened its consulting
services to include application design and development, strategy assessments,
project mentoring and technology transfer, thereby enabling its customers to
choose the level of service that fits its development needs. The professional
services organization is experienced in distributed objects and application
architecture. The Company currently intends to complement its consulting
services with a training curriculum that covers product training and
complementary technologies, such as COBRA, Java and JDBC.

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  The professional services organization provides product training, various
consulting services, and product support. These services are designed to promote
the successful development and deployment of distributed business applications
built with the Company's distributed object and database access products.

INTERNATIONAL SALES AND OPERATIONS

  International net revenues for the Company (including exports from the U.S.)
accounted for approximately 63%, 62% and 51% of net revenues in the nine
months ended December 31, 1997, and the fiscal years ended March 31, 1997 and
1996, respectively.

  A significant portion of the Company's business is conducted in currencies
other than the U.S. dollar.  Changes in the value of major foreign currencies
relative to the value of the U.S. dollar therefore could adversely affect future
revenues and operating results.

  The Company believes that its international diversification not only
increases revenues but also provides stability to its business and reduces the
impact on the Company of adverse economic changes in any single country. There
are certain risks inherent in doing business on an international level, such
as unexpected changes in regulatory requirements, export restrictions, tariffs
and other trade barriers, difficulties in staffing and managing foreign
operations, longer payment cycles, problems in collecting accounts receivable,
political instability, fluctuations in currency exchange rates, seasonal
reductions in business activity during the summer months in Europe and certain
other parts of the world and potentially adverse tax consequences, any of
which could adversely impact the success of the Company's international
operations. In addition, many software companies have recently experienced
adverse effects relating to declining sales as a result of the Asian financial
crisis. There can be no assurance that one or more of such factors will not
have a material adverse effect on the Company's future international
operations and, consequently, on the Company's business, operating results and
financial condition.

COMPETITION

  The Company is in an extremely competitive industry, which has been, and
will continue to be, subject to continual and rapid change. The pace of change
has recently accelerated due to the Internet/intranet and new programming
languages, such as Java. The Company competes with a number of other
companies, including Microsoft, Computer Associates, Oracle, Sybase and
Symantec. Certain of its competitors have substantially greater financial,
management, marketing and technical resources. In the past, competitors have
utilized their greater resources to provide substantial signing bonuses and
other inducements to lure away the Company's management and other key
personnel. In addition, Microsoft is the developer of the Windows operating
environments. To the extent that the Company is unable to obtain information
regarding existing and future operating systems from the developer of such
systems, the release of the Company's products for such systems may be
delayed. The Company's product line acquired from Visigenic is targeted at the
emerging markets for standards-based distributed object software products. The
markets for these products are intensely competitive, subject to rapid change
and significantly affected by new product introductions and other market
activities of industry participants. The Company's principal competitive
factors in these markets will be product quality, performance and price,
vendor and product reputation, product architecture and quality of support. In
addition, current and potential competitors may make strategic acquisitions or
establish cooperative relationships, thereby increasing the ability of their
products to address the needs of the Company's current and prospective
customers. Accordingly, it is possible that new competitors may emerge, or
alliances among current and new competitors may be formed, that may rapidly
gain significant market share. Certain competitors have been known to license
software for free to gain competitive advantage. Such competition could
materially adversely affect the Company's ability to sell additional licenses
and maintenance and support renewals on terms favorable to the Company.
Further, competitive pressures could require the Company to reduce the price
of its products and related services, which could materially adversely affect
the Company's business, operating results and financial condition. There can
be no assurance that the Company will be able to compete successfully against
current and future competition, and the failure to do so would have a material
adverse effect upon the Company's business, operating results and financial
condition.

  The Company also faces constant competition from software pirates who
unlawfully copy and distribute the Company's products, which are protected by
various intellectual property rights.

MANUFACTURING

  The Company out-sources its manufacturing support. The Company's products are
principally sold in CD ROM format together with user manuals. The Company
believes that there are adequate supplies of and sources for the raw materials
for its products and that there are multiple sources available for CD ROM
replication and printing of manuals.

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<PAGE>

  The Company has final quality control tests performed on its products which
the Company believes effectively accomplish its product quality assurance goals.
There can be no assurance that the Company's quality control efforts will always
be successful.

PATENTS, COPYRIGHT AND TRADEMARKS

  The Company relies on a combination of patent, copyright, trademark and
trade secret laws, non-disclosure agreements and other intellectual property
protection methods to protect its proprietary technology. Despite these
efforts to protect its proprietary rights, unauthorized parties may copy
aspects of its products or obtain and use information that the Company
regards as proprietary. Policing unauthorized use of its products is
difficult, and while it is difficult to determine the extent to which piracy
of its software products exists, software piracy can be expected to be a
persistent problem. In addition, the laws of many foreign countries do not
protect the Company's proprietary rights as fully as do the laws of the United
States. There can be no assurance that the Company's means of protecting its
proprietary rights in the United States or abroad will be adequate or that
competitors will not independently develop similar technology.

  Other than the Western Imaging matter discussed in Item 7 of this Form 10-K,
there are no pending material lawsuits against the Company regarding
infringement of any existing patents or other intellectual property rights or
any material notices that the Company is infringing the intellectual property
rights of others. However, there can be no assurance that such infringement
claims will not be asserted by third parties in the future. If any such claims
are asserted and determined to be valid, there can be no assurance that the
Company will be able to obtain licenses of the intellectual property rights in
question on reasonable terms. The Company's involvement in any patent dispute
or other intellectual property dispute or action to protect proprietary rights
may have a material adverse effect on the Company's business, operating
results and financial condition. Adverse determinations in any litigation may
subject the Company to significant liabilities to third parties, require the
Company to seek licenses from third parties and prevent the Company from
manufacturing and selling its products. Any of these situations can have a
material adverse effect on the Company's business, operating results and
financial condition.

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<PAGE>

EMPLOYEES

  As of March 20, 1998, the Company employed approximately 821 employees. The
Company believes that its success is highly dependent upon its ability to
recruit, retain and motivate qualified employees. The Company is subject to
regular, intense and at times extraordinary competition for such employees and
has taken actions that it has determined to be necessary or appropriate to
attract and retain such employees in light of such competition and recruiting
efforts. There can be no assurance, however, that the Company will continue to
be successful in doing so in the future.

  None of the Company's U.S. employees are represented by a labor union.
Employees of certain of the Company's subsidiaries may be represented by
worker's councils or other similar organizations as required by local
regulations. The Company believes that its relations with its employees are
good.

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<PAGE>

ITEM 2. PROPERTIES

  The Company's executive offices and primary research and development
facilities are located at 100 Borland Way, Scotts Valley, California, and
comprise approximately 495,000 square feet of space, approximately half of
which is currently being utilized by the Company. The remainder is available for
lease. The executive offices were constructed in 1993 and are owned by the
Company. The Company owns additional office space located at 1700 and 1800 Green
Hills Road, Scott Valley, California, and these facilities are leased
principally to third parties and are currently listed for sale. Such facilities
comprise approximately 135,000 square feet of space and were constructed in
1988. The Company leases office space in other cities in the United States as
well as locations in Europe, Canada and the Pacific Rim.

ITEM 3. LEGAL PROCEEDINGS

  Information with respect to this Item is incorporated by reference to Item
7, Litigation, and Note 12 of Notes to Consolidated Financial Statements in
Part IV, Item 14 of this Form 10-K.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

  No matters were submitted to a vote of security holders of the Company during
the quarter ended December 31, 1997.


                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS

  Information on the Company's stock prices is detailed in the table entitled
"Selected Quarterly Data" located within "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in Item 7.

  The Company's Common Stock has been traded on the over-the-counter market and
the NASDAQ National Market since December, 1989.  As of March 2, 1998 there
were approximately 3,150 stockholders of record of the Company's Common Stock
and approximately 50,987,333 shares outstanding. Because many of such shares are
held by brokers and other institutions on behalf of stockholders, the Company is
unable to estimate the total number of stockholders represented by these record
holders.

  The Company paid no dividends during the nine months ended December 31, 1997
or the fiscal years ended March 31, 1997 and 1996. The Company intends to retain
future earnings for use in its business and therefore does not anticipate paying
cash dividends in the foreseeable future.


RECENT SALES OF UNREGISTERED SECURITIES

  Series B Preferred Stock Financing

  On December 19, 1997, the Company completed the second closing (the "Second
Closing") of a privately placed equity financing pursuant to a series of
subscription agreements (the "Financing Agreements") with 22 investors (the
"Investors").  The Financing Agreements contemplate several closings of sales of
Series B Preferred Stock (the "Series B Shares") and warrants to purchase Common
Stock (the "Warrants")  which closings are subject to various conditions.  At
the initial closing, the Company raised proceeds of approximately $25 million
through the sale of 495 Series B Shares and Warrants to purchase up to 198,000
shares of the Company's Common Stock.  After the satisfaction of certain holding
periods, each Series B Share is convertible, at the option of its holder, into
shares of Common Stock of the Company based upon a conversion price equal to the
lower of the lowest closing market price of the Company's Common Stock during
the seven trading days before the conversion date or $6.94.  The Warrants

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have an exercise price of $8.67 per share. As part of the Second Closing,
Company issued an additional 55 Series B Shares and Warrants to purchase 22,000
shares of the Company's Common Stock for net proceeds of approximately $2.5
million.

  Subject to various additional conditions, the Company has the option
("Company Put Option") to require the Investors to purchase additional Series
B Shares and Warrants and the Investors have the right to require that the
Company sell to them additional Series B Shares and Warrants ("Investor Call
Options"). The Company is in discussions with the holders of the Series B
Shares to extend the expiration date of the Company Put Option beyond March
31, 1998. The maximum number of additional Series B Shares and Warrants which
the Company may require the Investors to purchase is 500 Series B Shares, for
an additional purchase price of approximately $25 million, and Warrants to
purchase 200,000 shares of the Company's Common Stock. Assuming that the
Company exercises its right to sell the maximum number of shares under the
Company Put Option, the maximum number of additional Series B Shares which the
Investors may require that the Company sell to them under the Investor Call
Options is 420 Series B Shares, for a purchase price of approximately $21
million, (220 Series B Shares, for a purchase price of approximately $11
million, if the Company does not exercise the Company Put Option) and the
number of shares subject to additional Warrants would be 168,000 (88,000 if
the Company does not exercise the Company Put Option). The Series B Shares and
Warrants issued upon exercise of the Company Put Option or the Investor Call
Options will have the same terms and rights as the Series B Shares and
Warrants issued at the Initial Closing except that the maximum conversion
price and exercise price, respectively, will be based upon the market price of
the Company's Common Stock at the time of the subsequent issuance of such
Series B Shares and Warrants.

  Each of the above issuances were not and will not be registered under the
Securities Act of 1933, as amended (the "1933 Act") in reliance upon the
exemptions provided by Section 4(2) of the 1933 Act and/or Regulation D
promulgated thereunder as a transaction by an issuer not involving a public
offering.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

  The following selected consolidated financial data are derived from the
Company's consolidated financial statements. Historical results should not be
taken as necessarily indicative of the results that may be expected for any
future period. This data should be read in conjunction with the consolidated
financial statements and related notes, which are included herein.  Amounts in
thousands, except per share data.

<TABLE>
<CAPTION>
                                                   Nine Months
                                                      Ended                              Year Ended
                                                   December 31,                           March 31,
                                                   -----------     ---------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:          1997 (a)(c)     1997 (c)     1996 (b)(c)   1995 (b)(c)   1994 (b)(c)
                                                   -----------     ----------     --------     ---------      --------
<S>                                                <C>             <C>            <C>           <C>           <C>
Net revenues                                          $127,485     $ 151,376      $245,087     $ 272,185      $406,682
Cost of revenues                                        18,167        29,450        38,157        59,739       113,270
                                                      --------     ---------      --------     ---------      --------
Gross profit                                           109,318       121,926       206,930       212,446       293,412
Selling, general and administrative                     74,529       143,289       141,744       207,942       267,722
Research and development                                30,716        55,173        50,714        63,836        67,332
Restructuring and merger related charges                   ---        18,944           679        63,070        14,042
Other non-recurring charges                                ---        17,100           ---           ---           ---
Write-down of real estate held for sale                    ---           ---           ---           ---         8,234
                                                      --------     ---------      --------     ---------      --------
Total operating expenses                               105,245       234,506       193,137       334,848       357,330
Operating income (loss)                                  4,073      (112,580)       13,793      (122,402)      (63,918)
Interest income, net and other                           1,112         5,137         4,221         3,562         1,910
Gain on sale of Quattro Pro                                ---           ---           ---       109,927           ---
                                                      --------     ---------      --------     ---------      --------
Income (loss) before income taxes                        5,195      (107,443)       18,014        (8,913)      (62,008)
Income tax provision (benefit)                             771           517         3,295         2,914         7,061
                                                      --------     ---------      --------     ---------      --------
Net income (loss)                                     $  4,424     $(107,960)     $ 14,719     $ (11,827)     $(69,069)
                                                      ========     =========      ========     =========      ========

Earnings per share  basic                                $0.10        $(2.96)        $0.43        $(0.37)       $(2.23)
Earnings per share  diluted                              $0.10        $(2.96)        $0.40        $(0.37)       $(2.23)

Shares used in computing basic earnings per share       37,977        36,512        33,968        32,228        31,042
Shares used in computing diluted earnings per share     39,765        36,512        37,167        32,228        31,042
</TABLE>

                                       10
<PAGE>

<TABLE>
<CAPTION>
SELECTED CONSOLIDATED BALANCE SHEET DATE:               1997 (a)(c)    1997(c)     1996 (b)(c)   1995 (b)(c) 1994 (b)(c)
                                                      --------      ---------      --------     ---------    --------
<S>                                                   <C>           <C>            <C>          <C>          <C>
Cash, cash equivalents and short-term
   investments                                        $ 87,012      $  54,360      $107,836     $  70,597    $ 68,612
Working capital (deficit)                               48,790         (1,289)       86,628         4,652     (42,116)
Total assets                                           229,822        192,702       292,234       254,472     302,392
Total long term obligations                             22,025         22,508        14,583        21,101      19,943
Stockholders' equity                                   107,201         89,876       200,295       121,483     121,346
</TABLE>

(a)  In July 1997, the Company resolved to change its fiscal year end from March
     31 to December 31.

(b)  Results for the years ended and balances at March 31, 1996, 1995 and 1994
     are restated to reflect the acquisition of OEC which was accounted for as a
     pooling of interests.

(c)  Results for the nine month period ended December 31, 1997, and the years
     ended March 31, 1997, 1996, 1995 and 1994 do not reflect the impact of the
     Company's acquisition of Visigenic Software, Inc. which was completed on
     February 27, 1998 and was accounted for as a pooling of interests.
     Commencing with the quarter ending March 31, 1998, the Company's historical
     financial statements will be restated to reflect such acquisition. See Note
     14 of Notes to Consolidated Financial Statements.

                                       11
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

  The following discussion contains forward-looking statements that are subject
to significant risks and uncertainties. There are several important factors that
could cause actual results to differ materially from historical results and
percentages and results anticipated by the forward-looking statements. Such
factors and risks include, but are not limited to, risk that are inherent in
software development and specific risks relating to the competitive environment
in which the Company operates. The Company has sought to identify the most
significant risks to its business, but cannot predict whether or to what extent
any of such risks may be realized nor can there be any assurance that the
Company has identified all possible risks that might arise. Investors should
carefully consider all such risks before making an investment decision with
respect to the Company's stock. In particular, investors should refer to the
section titled "Factors That May Affect Future Results and Market Price of
Stock".

  The following Management's Discussion and Analysis of Financial Condition
and Results of Operations does not include a discussion of the operating
results of Visigenic Software, Inc., which was acquired by the Company on
February 27, 1998.

  The following tables set forth certain data derived from the Consolidated
Statements of Operations expressed as a percentage of net revenues for the nine
months ended December 31, 1997 and each of the fiscal years ended March 31, 1997
and 1996:

<TABLE>
<CAPTION>
                                                                            Nine Months
                                                                               Ended                     Year Ended
                                                                            December 31,                  March 31,
                                                                            ------------           ---------------------------
Percentage of net revenues                                                       1997               1997                 1996
                                                                                -------            -------              ------

<S>                                                                       <C>                       <C>                 <C>
Net revenues                                                                      100.0%             100.0%              100.0%
Cost of revenues                                                                   14.3               19.5                15.6
                                                                                -------            -------              ------
Gross margin                                                                       85.7               80.5                84.4
                                                                                -------            -------              ------
Selling, general and administrative                                                58.5               94.7                57.8
Research and development                                                           24.1               36.4                20.7
Restructuring and merger related charges                                            ---               12.5                 0.3
Other non-recurring charges                                                         ---               11.3                 ---
                                                                                -------            -------              ------
Total operating expenses                                                           82.6              154.9                78.8
                                                                                -------            -------              ------
Operating income (loss)                                                             3.1              (74.4)                5.6
Interest income, net and other                                                      0.9                3.4                 1.8
                                                                                -------            -------              ------
Income (loss) before income taxes                                                   4.0              (71.0)                7.4
Income tax provision                                                                0.6                0.3                 1.4
                                                                                -------            -------              ------
Net income (loss)                                                                   3.4%             (71.3)  %             6.0%
                                                                                =======            =======              ======

Percentage of net revenues:
United States                                                                        37%                38%                 49%
Non-US (includes US export sales)                                                    63                 62                  51
                                                                                -------            -------              ------
                                                                                    100%               100%                100%
                                                                                =======            =======              ======
</TABLE>

OVERVIEW

  Founded in 1983, the Company develops, markets and supports software
development tools, intelligent middleware, database management systems,
databases, and application management systems for business enterprises and
independent software developers. The Company has several product lines and
additional complementary products and services that are designed to meet the
needs of software developers and business enterprises developing and using
software in desktop, local area network ("LAN"), client/server, enterprise and
Internet/intranet environments.  The Company is organized around its major
products, a family of interoperable development tools that include versions for
desktop users, professional developers and large business enterprises.

                                       12
<PAGE>

CHANGE IN FISCAL YEAR END

  In July 1997, the Company resolved to change its fiscal year end from March 31
to December 31.  In accordance with the rules of the Securities and Exchange
Commission, this Management's Discussion and Analysis of Financial Condition and
Results of Operations discusses and compares the transition period which
commenced on April 1, 1997 and ended December 31, 1997 with the fiscal years
ended March 31, 1997 and 1996.

ACQUISITIONS

  On November 18, 1996, in connection with its acquisition of OEC, the Company
issued approximately 4,975,000 shares of its common stock and assumed options
for the purchase of approximately 786,000 shares of the Company's Common Stock.
The acquisition was accounted for as a pooling of interests, and accordingly,
the Company's consolidated financial statements have been restated to include
OEC for all periods presented. For the year of acquisition, the Company
reported its financial results on a March 31 fiscal year end basis, whereas
OEC reported its financial results on a December 31 calendar year basis. For
purposes of pooling of interests accounting, the balance sheet of the Company
as of March 31, 1996 has been combined with that of OEC as of December 31,
1995. The statements of operations of the Company for the years ended March
31, 1996 and 1995 have been combined with those of OEC for the years ended
December 31, 1995 and 1994, respectively. OEC's statement of operations for
the three months ended March 31, 1996 have not been combined with any of the
Company's statements of operations. Instead, OEC's net income for that period
has been credited to retained earnings. See Note 4 of Notes to Consolidated
Financial Statements.

  On February 27, 1998, in connection with its acquisition of Visigenic, the
Company issued approximately 12,118,060 shares of Common Stock and assumed
options for the purchase of approximately 2,527,284 shares of the Company's
Common Stock. The transaction, which will be accounted for as a pooling of
interests. As a result, the Company's consolidated financial statements will be
restated, commencing with the Company's Form 10-Q for the quarter ending March
31, 1998, for all periods prior to the merger to include the operations of
Visigenic, adjusted to conform with the Company's accounting policies and
presentation. See Note 14 of Notes to Consolidated Financial Statements.

NET REVENUES

  The Company distributes its products domestically and internationally
primarily through independent distributors, dealers, ISVs and VARs and also
via the Internet by direct marketing and sales to corporations, government
bodies, educational institutions and end-user customers. The Company offers
certain return privileges to some of its customers and also offers its
distributors certain limited product exchange privileges and rebates. The
Company recognizes revenue upon shipment; and allowances for estimated future
returns, exchanges and rebates are recorded as a reduction of revenue at that
time.

  Net revenues were $127.5 million, $151.4 million and $245.1 million for the
nine months ended December 31, 1997 and the fiscal years ended March 31, 1997
and 1996, respectively. Included in net revenues for the fiscal years ended
March 31, 1997 and 1996 are revenues of $8.2 million and $29.9 million,
respectively, related to OEC.   During the past several years, an increasing
percentage of the Company's revenues have been derived from client/server and
enterprise products as compared to desktop products.  This shift in revenue is
consistent with the Company's overall product strategy and focus on
client/server and enterprise products.  For the nine months ended December 31,
1997, the percentage of revenues associated with the Company's desktop products
constituted 56% of the Company's revenue as compared with 67% for the fiscal
year ended March 31, 1997.  In contrast, the Company's revenues from the sale of
client/server and enterprise products increased to 44% for the nine months ended
December 31, 1997, as compared with 33% for the fiscal year ended March 31,
1997. In absolute dollars, the Company has experienced a decline in its database
desktop business, principally in revenues from the sale of the Paradox product
line. This revenue decline was offset by an increase in revenues from
client/server and enterprise products. If the Company continues to experience
declines in sales of its desktop products beyond those levels already
experienced, which are not offset by increases in sales of other products, the
Company's operating results and financial condition would be materially and
adversely affected.

                                       13
<PAGE>

  Net revenues for the fiscal year ended March 31, 1996 and 1995, include $7.9
million and $27.1 million, respectively, related to the sale of licenses of
Paradox for Windows to Novell, Inc. Exclusive of such license revenue for the
fiscal year ended March 31, 1996 and March 31, 1995, the fiscal year ended March
31, 1996 revenue declined from  the fiscal year ended March 31, 1995 by $7.9
million. Such revenues declined for several reasons. These include an
increasingly competitive marketplace, including offerings by competitors of
product suites at lower prices, and declines in revenues from DOS product
versions.

  The Company's non-U.S. revenues represented approximately 63%, 62% and 51% of
total net revenues for the nine months ended December 31, 1997 and the fiscal
years ended March 31, 1997 and 1996, respectively. The increase in the
percentage of non-U.S. revenues for the nine months ended December 31, 1997 and
the fiscal year ended March 31, 1997 was caused by aggressive pricing in the
U.S. retail channel, the timing of releases of foreign language versions of
products and the slower decline in revenues from desktop database products in
non-U.S. markets. Fluctuations in currency exchange rates did not have a
material impact on total net revenues or operating results for the nine months
ended December 31, 1997 for the fiscal years ended March 31, 1997 or 1996.
However, there can be no assurance that fluctuations in currency exchange rates
will not have a material impact on the Company's future net revenues, operating
results, or financial condition.

Inflation

  Inflation has not had a significant impact on the Company's revenues or
operations.

GROSS MARGINS

  Gross margins were 86%, 81% and 84% for the nine months ended December 31,
1997 and for the fiscal years ended March 31, 1997 and 1996, respectively.
Included in  the fiscal year ended March 31, 1996 is deferred license revenue of
$7.9 million associated with Paradox licenses granted to Novell in fiscal year
ended March 31, 1995 in connection with the Company's sale of its Quattro Pro
product line to Novell. Without this revenue, gross margins for  the fiscal year
ended March 31, 1996 would have been 84%. Gross margins in the fiscal year ended
December 31, 1997 improved principally due to lower manufacturing costs. Gross
margins were also positively impacted by the shift to client server and
enterprise products which have a higher average selling price and, in many
cases, do not require additional documentation or carrier medium.  Gross margins
for the fiscal year ended March 31, 1997 were negatively impacted by lower
revenues, resulting from lower volumes and lower selling prices. This also
resulted in certain fixed costs being spread across lower revenues, as well as
by charges related to the write-off of excess inventory. Favorable gross margins
are dependent upon the Company's ability to successfully manage its outsourcing
arrangements and its ability to sustain a higher percentage of revenues from
products with relatively higher margins.

  Gross margins for the fiscal year ended March 31, 1996 benefited from a cost
reduction achieved as a result of the outsourcing of the Company's manufacturing
operations which commenced in April 1995. In addition, gross margins for the
fiscal year ended March 31, 1996 were favorably affected as a higher percentage
of revenues were generated from products with relatively higher margins.
Specifically, the increased business from site licenses and OEM arrangements
contributed to this favorable product mix.

  Amortization of acquired technology rights and capitalized software
development costs was $0.2 million, $0.5 million, and $0.9 million in  the nine
months ended December 31, 1997 and for the fiscal years ended March 31, 1997 and
1996, respectively.

SELLING, GENERAL AND ADMINISTRATIVE

  Selling, general and administrative expenses were $74.5 million, $143.3
million and $141.7 million for the nine months ended December 31, 1997 and the
fiscal years ended March 31, 1997 and 1996, respectively. Such expenses were
59%, 95% and 58% of revenues for the nine months ended December 31, 1997 and the
fiscal years ended March 31, 1997 and 1996, respectively.  Selling, general and
administrative expenses were reduced from prior years principally due to
reductions in employee and marketing costs resulting from the Company's
restructuring efforts in the fiscal year ended March 31, 1997.

                                       14
<PAGE>

  Selling, general and administrative expenses increased in the fiscal year
ended March 31, 1997 from the fiscal year ended March 31, 1996 in the areas of
marketing, employee costs, facilities and outside services.  These increases
primarily resulted from the acquisition of OEC in November 1996. Excluding the
costs associated with OEC, the fiscal year ended March 31, 1997 selling, general
and administrative costs were $133.4 million, or 88.1% of revenue excluding
revenue associated with OEC. Exclusive of OEC, selling, general and
administrative expenses as a percentage of revenue in the fiscal year ended
March 31, 1997 increased due to the costs associated with recruiting new
employees and costs associated with retention and motivation of existing
employees.  See Note 10 of Notes to Consolidated Financial Statements.

  Although certain selling, general and administrative expenses can be managed
or controlled on a short-term basis, a substantial portion of such expenses are
essentially fixed on a quarter to quarter basis. As a result, when the Company
suffers adverse impacts on its net revenues or margins because of delays in new
product introductions, price competition or other competitive factors, the
Company generally is unable to take actions in the short term to substantially
reduce expenses. As part of its efforts to attract and retain key employees, the
Company has adopted certain special bonus and other severance retention
programs.  Such programs may have the effect of increasing the Company's
selling, general and administrative expenses.

RESEARCH AND DEVELOPMENT

  Research and development expenses for the nine months ended December 31, 1997
and for the fiscal years ended March 31, 1997 and 1996 were $30.7 million, $55.2
million, and  $50.7 million, respectively. Such expenses were 24%, 36% and 21%
of revenues for the nine months ended December 31, 1997 and for the fiscal years
ended March 31, 1997 and 1996, respectively. The Company's investment in
research and development resulted in several new products and new versions of
products including JBuilder, C++Builder/400, Delphi/400, 32-bit Visual dBASE
7, IntraBuilder Client/Server 1.5, Delphi/Connect for SAP, InterClient, a Java
Database Connectivity driver, InterBase 5.0 and Delphi Enterprise. The Company
reduced its research and development expenses as part of its restructuring
efforts in the fiscal year ended March 31, 1997 in an effort to target research
and development efforts on key strategic products.

  The Company incurs substantial development expenses in connection with the
introductions of a new product and generally significant portions of such costs
are incurred before the release of the new product. As a result, in addition to
the general risks associated with the ultimate success of the Company's new
products, results for any quarter may be materially and adversely affected to
the extent significant expenses are incurred to develop a new product, but
significant revenues from the new product are not recognized until later
quarters.

  The Company has historically offered technical support to the purchasers of
its products. Support requirements continue to increase as product offerings
increase in sophistication, the Company's client/server and enterprise business
increases and the client/server and enterprise markets expands to more
sophisticated users and developers. Such markets require an overall higher level
of technical support expertise, which could translate into higher levels of
personnel costs. The combination of increasing support requirements and
lower gross margins for the Company's support products may have a material
adverse effect on the Company's operating results and financial condition. As
part of its efforts to attract and retain key employees, the Company has adopted
certain special bonus and other severance retention programs. Such programs may
have the effect of increasing the Company's research and development
expenses.

  In addition, the Company has had and may continue to be required to
substantially increase the compensation, stock options or other benefits offered
to employees in order to attract and retain management and other key personnel.
The loss of management and other key personnel, and the delays which may be
experienced in recruiting new management and other personnel as well as the
additional costs which may be incurred in retaining or attracting new personnel,
may have a material adverse affect on the Company, its product launches and its
operating results.

                                       15
<PAGE>

RESTRUCTURING, MERGER AND OTHER NON-RECURRING CHARGES

  During the fiscal year ended March 31, 1997, the Company recorded
restructuring and merger related charges totaling $18.9 million.  OEC recorded a
provision for restructuring charges of $1.1 million in the quarter ended June
30, 1996. Charges included write-off of inventory, prepaid royalties and
facilities related to discontinued education centers, and severance. In
response to significant losses from operations in the three and six months
ended September 30, 1996, the Company implemented a world-wide restructuring
and realignment of its corporate structure during October 1996, which resulted
in a 15% reduction in workforce. In connection with this restructuring, the
Company recorded a $2.9 million restructuring charge in the quarter ended
December 31, 1996 primarily for severance costs and lease terminations.

  Based on the results of the October 1996 restructuring and the results of the
quarter ended December 31, 1996, the Company implemented an additional worldwide
restructuring and realignment and recorded the related charge of $6.0 million
during the quarter ended March 31, 1997.  The fourth quarter  restructuring plan
involved significant reductions in operational expenses as well as the
implementation of new programs aimed at increasing the Company's revenues.  The
restructuring included measures to achieve a reduction in employees and
contractors of approximately 300 personnel worldwide, or a reduction of
approximately 30 percent.  The Company also implemented new marketing and
support programs to replace programs no longer integral to Borland's core
business or strategic focus.

  In connection with the acquisition of OEC, during fiscal 1997, the Company
incurred merger related costs of $8.9 million.  See Note 5 to the Notes to
Consolidated Financial Statements.  The charge for merger related costs included
in the Consolidated Statements of Operations consists principally of severance
costs, write-offs of certain assets and professional fees.

  During the fourth quarter of fiscal year ended March 31, 1997 the Company
incurred non-recurring charges of $17.1 million relating to professional fees
and settlement costs.

  In connection with its acquisition of Visigenic, the Company anticipates
incurring approximately $10-20 million of merger and consolidation charges for
the quarter ending March 31, 1998.

INCOME TAXES

  On a consolidated basis, the Company generated a pre-tax profit of
approximately $5.2 million for the nine months ending December 31, 1997, pre-
tax loss of approximately $107.4 million in for the year ended March 31, 1997,
pre-tax profit of approximately $18.0 million for the year ended March 31,
1996. Income tax expense was approximately $0.8 million, $0.5 million and $3.3
million for the nine months ended December 31, 1997, and the years ended March
31, 1997 and 1996, respectively.

  For U.S. federal income tax purposes, the Company has net operating loss
carryforwards of approximately $191.0 million at December 31, 1997. There are
also available U.S. federal tax credit carryforwards of approximately $22.0
million. These loss and credit carryforwards expire between 1998 and 2013, if
not utilized. The Company also has an Alternative Minimum Tax (AMT) credit
carryforwards of approximately $2.0 million, which does not expire.
Additionally, the Company has approximately $28.0 million of net operating
loss carryforwards in various foreign jurisdictions. Certain of these loss
carryforwards will expire beginning in 1998, if not utilized.

  At December 31, 1997, the Company had a net deferred tax asset of
approximately $133 million.  This asset is comprised of the tax effect of the
above described loss and credit carryforwards, plus the tax effect of future

                                       16
<PAGE>

reversing temporary differences. The Company believes sufficient uncertainty
exists regarding the realizability of the deferred tax assets such that a full
valuation allowance has been provided. Deferred tax assets and related valuation
allowances of approximately $37.0 million relate to certain U.S. operating loss
carryforwards resulting from the exercise of employee stock options, the tax
benefit of which, when recognized, will be accounted for as a credit to
additional paid-in capital rather than a reduction of the income tax provision.

  During the year ended March 31, 1997 the Company recorded an income tax
benefit of approximately $2.1 million resulting from a settlement reached with
the U.S. Internal Revenue Service ("IRS").  The settlement resolved differences
regarding certain disputed deductions related to the years ending in 1986-1991
for its former subsidiary Ashton-Tate Corporation.  Without the settlement
benefit, the Company would have incurred an income tax expense of approximately
$2.6 million.

  At December 31, 1997 the Company had unresolved deficiency notices or proposed
adjustments from IRS and various state governments for additional taxes and
interest of approximately $5.0 million.  The Company is protesting these
assessments or adjustments with the appellate divisions of the respective tax
authorities.  The Company believes that the ultimate outcome of the above
assessment will not have a material adverse impact on the Company's financial
position or results of operations.

LITIGATION

  Western Imaging, Inc. ("Western Imaging") filed a complaint in the U.S.
District Court for the Northern District of California in April 1997 against
Visigenic (prior to the acquisition of Visigenic by the Company) and Corel
Corporation ("Corel"), a licensee of Visigenic, alleging breach of contract
and other claims relating to the sale by Visigenic of certain technology to
Western Imaging. Western Imaging is seeking injunctive relief, unspecified
damages, impoundment of the disputed software during the pendency of the
litigation, and punitive damages. Prior to its acquisition by the Company,
Visigenic had not sold or marketed the disputed software products since
January 1995 and the Company does not utilize this technology in any current
product offering. Visigenic agreed to defend Corel pursuant to the terms of
its license to Corel. In August 1997, Visigenic and Corel filed an answer to
the complaint denying Western Imaging's allegations. Following a case
management conference held on February 20, 1998, the parties have been ordered
by the Court to complete mediation on or before July 17, 1998. In addition, a
further case management conference is scheduled for August 14, 1998. The
Company believes it has meritorious defenses to such claims and intends to
defend the litigation vigorously. Because the results of the litigation,
including any potential settlement, are uncertain, there can be no assurance
that they will not have a material adverse effect on the Company's business,
operating results and financial condition.

  Additional information with respect to litigation is incorporated by reference
to Note 12 of Notes to Consolidated Financial Statements in Part IV, Item 14 of
this Form 10-K.

LIQUIDITY AND CAPITAL RESOURCES

  Cash, cash equivalents and short-term investments were $87.0 million at
December 31, 1997, an increase of $32.6 million from a balance of $54.4 million
as of March 31, 1997.  Working capital increased from a deficit of $1.3 million
as of March 31, 1997 to $48.8 million as of December  31, 1997.

  Net cash used by the Company for operating activities during the nine months
ended December 31, 1997 was $5.0 million. The primary use of cash was to fund
ongoing operations.  Net cash paid for severance and facilities costs associated
with prior restructurings was approximately $3.5 million.

  Net cash used by the Company for investing activities during the nine months
ended December 31, 1997 was $1.0 million.  The Company used $3.5 million for
acquisitions of property and equipment which was offset by $2.4 million provided
by the sale of fixed assets.

  Cash provided by financing activities of $39.4 million consisted primarily of
$27.4 million, net of issuance costs, from the private placement of mandatorily
redeemable convertible preferred stock (see Note 9 of Notes to Consolidated
Financial Statements) and exercises of employee stock options which provided
net cash of $12.2 million.

  Included in the Company's cash flows for the fiscal year ended March 31, 1997
is $1.5 million, which represents the net cash provided by OEC for the three
months ended March 31, 1996.

  Currency fluctuations have had an insignificant impact on the Company's cash
flow during the nine months ended December 31, 1997, or the two years ended
March 31, 1997. The Company cannot predict the impact such fluctuations might
have on its future cash flows and there can be no assurance that foreign
exchange rates will not have a material impact on future cash flows.

  The Company believes that its existing cash balances and funds expected to be
provided by operations will be sufficient to finance its working capital
requirements at least through calendar 1998.

                                       17
<PAGE>

FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK

  History of Operating Losses. Although the Company had a profit for the nine
month period ended December 31, 1997, the Company has had operating losses on
an annual basis for five of the past six fiscal years, including a loss of
approximately $108 million for the year ended March 31, 1997. The Company's
revenues have declined in each year since fiscal 1993 as a result of
declines in the sales of the Company's desktop products. In recent years, such
declines were in part offset by sales of the Company's client/server and
enterprise products. The Company's ability to achieve revenue growth and
profitability are substantially dependent upon the success of the Company's
client/server and enterprise product strategies, and upon its ability to
successfully complete and introduce new products, to successfully implement
restructuring and cost control measures adopted during the quarter ended March
31, 1997 and to stem the loss of management and other key personnel. There can
be no assurance that the Company will be able to successfully accomplish the
foregoing or to maintain profitability in future periods. There can be no
assurance that the Company will be successful with this strategy, that the
Company will achieve revenue growth on an annual basis or that the Company
will maintain or increase profitability. The Company believes that its
existing capital resources will enable it to fund its operations through at
least the end of calendar year 1998. Notwithstanding the foregoing, if the
Company determines to seek additional capital through the issuance of
additional shares of Series B Preferred Stock pursuant to its existing
arrangements with current holders of Series B Preferred Stock or by seeking
other sources of capital, such issuance could result in dilution to the
holders of the Company's Common Stock. There can be no assurance that the
Company will be able to obtain such capital on acceptable terms or at all.

  Significant Fluctuations in Quarterly Operating Results and Seasonally.  The
strength and profitability of the Company's business depends on the overall
demand for computer software and growth in the computer industry.  Additionally,
the Company's business also partly depends on general economic and business
conditions. The Company's quarterly operating results have varied significantly
in the past and the Company expects that such results are likely to vary
significantly from time to time in the future. Such variations result from,
among other matters, the following: the size and timing of significant orders
and their fulfillment; demand for the Company's products; the number, timing and
significance of product enhancements and new product announcements by the
Company and its competitors; changes in pricing policies by the Company or its
competitors; changes in the level of operating expenses; changes in the
Company's sales incentive plans; budgeting cycles of its customers; customer
order deferrals in anticipation of enhancements or new products offered by the
Company or its competitors; product life cycles; product defects and other
product quality problems; personnel changes; seasonal trends and general
domestic and international economic and political conditions. Operating results
can also be adversely impacted by deferrals of customer orders in light of
customer uncertainty regarding the Company's short- and long-term prospects. As
an increasing percentage of the Company's revenues are from client/server and
enterprise products, the Company expects that an increasing percentage of its
revenues will be from large orders. The timing of such orders and their
fulfillment may cause material fluctuations in the Company's operating results,
particularly on a quarterly basis. In addition, the Company intends to continue
to expand its domestic and international direct sales force. The timing of such
expansion and the rate at which new sales people become productive could also
cause material fluctuations in the Company's quarterly operating results.

  Due to the foregoing factors, quarterly revenues and operating results are
difficult to forecast. Revenues are also difficult to forecast because the
market for client/server and enterprise application development software is
rapidly evolving, and the Company's sales cycle for client/server products, from
initial evaluation to purchase and the provision of support services, is lengthy
and varies substantially from customer to customer. Because the Company normally
ships products within a short time after it receives an order, it typically does
not have any material backlog. As a result, to achieve its quarterly revenue
objectives, the Company is dependent upon obtaining orders in any given quarter
for shipment in that quarter. Furthermore, because many customers place orders
toward the end of a quarter, the Company generally recognizes a substantial
portion of its revenues at the end of a quarter. As the Company's expense levels
are based in significant part on the Company's expectations as to future
revenues and are therefore relatively fixed in the short term, if revenue levels
fall below expectations, net income is likely to be disproportionately adversely
affected. There can be no assurance that the Company will be able to achieve or
maintain profitability on a quarterly or annual basis in the future. Due to the
foregoing factors, it is likely that in

                                       18
<PAGE>

some future quarter the Company's operating results will be below the
expectations of public market analysts and investors. In such event, the price
of the Company's Common Stock would likely be materially adversely affected.

  Integration of Visigenic.  The Company's success will depend, in
substantial part, upon whether the Company can integrate the operations, retain
and integrate key management sales, marketing, engineering and other technical
employees of Visigenic in an efficient and effective manner. The combination
of the two companies will require, among other things, integration of the
companies' respective product offerings and technology and coordination of
their research and development, sales and marketing, and financial reporting
efforts. There can be no assurance that such integration will be accomplished
smoothly or successfully. If significant difficulties are encountered in the
integration of the existing product lines and technology, resources could be
diverted from new product development, resulting in delays in new product
introductions. The integration of the product lines could also cause confusion
or dissatisfaction among existing customers. The integration of certain
operations will require the dedication of management and other personnel
resources which may distract attention from the day-to-day business of the
Company. Failure to successfully accomplish the integration of the two
companies' operations and personnel (including the retention of key personnel)
could have a material adverse effect on the Company's business, financial
condition or results of operations.

  Restructurings.  In response to the significant losses from operations, the
Company implemented restructurings and realignments of its operations in October
1996 and February 1997.  These restructurings resulted in significant reductions
in workforce and other ongoing costs.  Given the extent of the restructurings
which the Company has undertaken, there can be no assurance that the remaining
resources are sufficient for the Company to return to consistent revenue growth
or profitability, nor can there be any assurance that the Company will realize
the cost savings which the restructurings have been designed to produce.

  Dependence on Key Personnel and Changes in Management. The success of the
Company depends in large part upon the ability of the Company to recruit and
retain qualified employees, particularly highly skilled engineers. The
competition for such personnel is intense, and there can be no assurance that
the Company will be successful in retaining or recruiting such personnel. In
prior years, certain management and other key personnel were hired away by
competitors who offered very substantial signing bonuses and compensation
packages that would have been very difficult for the Company to match. There
can be no assurance that the Company will not be subject to further losses of
management and other key personnel. In addition, the Company has had and may
continue to be required to substantially increase the compensation, bonuses,
stock options or other fringe benefits offered to employees in order to
attract and retain management and other key personnel. Further, new government
regulations, poor stock performance, or other factors could diminish the value
of the stock option program and force the Company to pay more cash
compensation. The loss of management and other key personnel, and the delays
which may be experienced in recruiting new management and other personnel as
well as the additional costs which may be incurred in retaining or attracting
new personnel, may have a material adverse affect on the Company, its product
launches and its operating results.

  New Business Areas. The Company's strategy will be to focus on software
developers, enterprise customers and the Internet/intranet markets.
Accordingly, revenues derived from the Company's products, particularly its
distributed object products, will depend in large part upon the rate of
adoption by businesses and end-users of the Internet and intranets for
commerce and communications. Critical issues concerning the Internet and
intranets, including security, reliability, cost, ease of use and access and
quality of service, remain unresolved at this time, inhibiting adoption by
many enterprises and end-users. To the extent the Internet and intranets are
not widely used by businesses and end-users, there would be a corresponding
material adverse effect on the Company's business, operating results and
financial condition. The Company's relatively recent entry into these markets
is subject to a number of risks, including among others, their inexperience in
these markets; the new and evolving nature of the markets themselves; the
Company's need to make choices regarding the operating systems, database
management systems and server software on which to focus; the ongoing
transition of and investment of resources for this segment by the Company; the
Company's limited credibility in this area; and, the presence of several very
large and well-established businesses, as well as a number of smaller very
successful companies, already competing in this market. There can be no
assurance that sales in these markets will meet the Company's

                                       19
<PAGE>

objectives, in which case the Company's business, operating results or financial
condition could be materially adversely affected.

  Dependence on Java; Risks Associated with Encryption Technology Certain of the
Company's products are based on Java, an object-oriented programming language
developed by JavaSoft, a subsidiary of Sun Microsystems. Java was developed
primarily for Internet/intranet applications. Java was only recently introduced
and does not yet have sufficient history to establish its reliability, thereby
inhibiting adoption of Java. To date, there have been only a very limited
number of commercially significant Java-based products, and it is too early to
determine whether Java will become a significant technology. Alternatives to
Java have been announced by several companies, including Microsoft. If Java is
not adopted or is adopted more slowly than anticipated, there could be a
material adverse effect on the Company's business, operating results or
financial condition.

  The Company plans to use encryption technology in certain of its future
products to provide the security required for the exchange of confidential
information. Encryption technologies have been breached in the past. There can
be no assurance that there will not be a compromise or breach of the security
technology used by the Company. If any such compromise or breach were to occur,
it could have a material adverse effect on the Company's business, results of
operations or financial condition. Additionally, the export of encryption
technology is subject to government regulation. The inability to obtain approval
for the export of such technology could have a material adverse effect on the
Company's business, operating results or financial condition.

  Decline in Revenue from Desktop Products. Most of the Company's revenues to
date have been attributable to its desktop products. Revenues derived from
desktop products accounted for approximately 56% and 67%, of total revenues
for the Company for the nine months ended December 31, 1997 and the fiscal
year ended March 31,1997, respectively. Revenues derived from the sale of
these products, particularly the Company's desktop database products, have
declined over the last three fiscal years. The decline in revenues has been
caused by a number of factors, including, among others, the success of product
"suites" offered by competitors which have had an adverse impact on the sale
of individual products; the sale by the Company of its Quattro Pro and Paradox
product lines; and continued competitive pricing pressures that have resulted
in lower average sales prices for desktop products.

  While the Company expects the decline in revenues associated with the
Company's desktop products to continue, revenues from the sales of the Company's
desktop products currently continue to represent an important portion of the
Company's revenues. Although the Company plans to invest in the development,
sales, marketing and support of such products on a limited basis, there can be
no assurance that revenues from desktop products will not decline faster than
expected. If revenues from such products decline materially or at a more rapid
rate than currently anticipated, the Company's business, operating results and
financial condition would be materially adversely affected.

                                       20
<PAGE>

  Dependence on Third-Party Licenses. The Company is dependent on licenses from
third-party suppliers for certain of its products. In particular, the Company is
dependent upon certain licenses from Microsoft which is both a licensor to the
Company and its most significant competitor. If any such third-party licenses
were terminated or not renewed or if these third parties fail to develop new
products in a timely manner, the Company could be required to develop an
alternative approach to developing its products which could require payment of
substantial fees to third parties or additional internal development costs and
delays. Furthermore, such products may not be successful in providing the same
level of functionality. Such delays, increased costs or reduced functionality
could materially adversely affect the Company's business, operating results and
financial condition.

  New Product Introductions. The Company's future sales will depend
substantially on its ability to continue to successfully design and market new
products and upgrades of current products for existing and new personal computer
platforms and operating environments. There can be no assurances that sales of
such new products and versions will meet the Company's expectations, due to
various factors. For example, the Company may introduce certain of such
products later to market than expected or later to market than competitors'
introductions, or competitors may introduce competitive products at lower
prices. In addition, product upgrades (which enable users to upgrade from
earlier versions of the Company's products or competitor's products) have
lower prices and margins than new products. The acceptance of the Company's
new products is dependent in part on the adoption of the Internet as a new
computing paradigm and the adoption of the Java programming language.

  From time to time, the Company has made and expects to make, announcements to
its customers with respect to the time frames within which new products are
expected to be shipped. Such announcements are made for the purpose of providing
customers with a general idea of the expected availability of products for
planning purposes, are based only upon estimates and are not a prediction of the
exact availability date for such products. In the past, certain of the Company's
products shipped later, and in some cases substantially later, than the
time frame within which the Company originally anticipated that the products
would be available. Some of the product line acquired from Visigenic is based
on technology from third parties, and the Company has limited control over
whether and when these technologies are enhanced. The failure or delay in
enhancements of technology from third parties could have a material adverse
effect on the ability to develop and enhance the Company's products. Due to
the inherent uncertainties of software development, it is likely that such
situations will occur from time to time in the future as well. Moreover, the
loss of key employees may increase the risk of delays in product availability
from timeframes originally anticipated. Consequently, announcements regarding
the Company's expectations of when products may ship should not be considered
a prediction by the Company that the products will ship in any particular
quarter or otherwise be relied upon by investors as a basis for predicting the
Company's results for any future period. Delays in the shipment of such
products and product enhancements will have a material adverse impact on the
Company. Without the introduction of such new products and product
enhancements, the Company's products may become technologically obsolete, and
as a result the Company's business, operating results and financial condition
could be materially adversely affected. There can be no assurance that the
future development and marketing efforts by the Company will be successful.

  Year 2000 Issues.  Many companies are currently expending significant
resources in order to address the "Year 2000 issue."  Expenditures to address
the Year 2000 issue often involve the modification of legacy and other existing
software systems rather than the development of new systems.  Because of the
size of such expenditures, companies may defer or cancel other new software
development projects for which such companies might otherwise have purchased
products from the Company.  Any reductions in revenues to the Company resulting
from such the Year 2000 issue could have a material adverse effect on the
Company's business, results of operations and financial condition.

  The Company has commenced a review of its internal information systems.
The objective of the review is to address necessary code changes, testing
and implementation with the objective of taking corrective action based on the
results of such review.

  The Year 2000 issue could affect the products that the Company sells.  The
Company is reviewing its current product offerings and based upon its review to
date, believes that its products are Year 2000 compliant.  However, to the
extent that the Company's products prove to be non-compliant, or in the event of
any dispute with any customer regarding whether the Company's products are
compliant, the Company's business, results of operations and financial condition
could be materially and adversely affected.

  In addition, the Company could be materially and adversely affected by costs
or complications relating to code changes, testing and implementation for its
own systems or similar issues faced by its distributors, suppliers, customers,
vendors and the financial service organizations with which the Company
interacts. At this time, the Company has not yet determined the cost related
to achieving Year 2000 compliance.

  Evolving Markets. In light of the changing market in which the Company
competes, it is uncertain whether the Company's historical product life cycle
will continue. The Company has, in the past, experienced declining sales of
certain of its products in anticipation of the release of new products.
Furthermore, it cannot be determined whether the increasing price competition
in the industry, the timing of competitors' product releases or other factors
will have an adverse effect upon the product upgrade revenue that has
historically been a significant component of the Company's revenue. Finally, a
greater portion of the Company's revenues are expected to be derived from the
licensing of client/server products to enterprise customers, which
transactions are characterized by longer sales cycles and increased
transaction values. As a result, such revenues may be subject to increased
variability over time.

                                       21
<PAGE>

  The Company's current distributed object products acquired from Visigenic
are based on several standards, including CORBA and Internet Inter-ORB
Protocol ("IIOP"). These standards are intended to facilitate the management
and communication of applications created in object-oriented programming
languages such as C + + and Java. These standards are new, are just beginning
to gain widespread acceptance, and compete with proprietary solutions such as
Microsoft's ActiveX and DCOM. The distributed object software market is
relatively young, and there are few proven products. Further, some of the
distributed object products acquired from Visigenic are designed specifically
for use in applications for the Internet and intranets. Because critical
issues concerning the Internet and intranets, including security, reliability,
cost, ease of use and access and quality of service remain unresolved, the
growth of applications targeted at the Internet/Intranets is uncertain and
difficult to predict.

  The Company's VisiChannel for JDBC database access product acquired from
Visigenic is based on the JDBC standard, which was developed to enable
applications to access data from JDBC-compliant data sources. While the JDBC
standard is supported by most of the major database and software vendors, it
is a recent standard that has not yet gained widespread acceptance and
currently it co-exists with proprietary database access solutions from many of
these same database and software vendors.

  Because the markets for the Company's products are new and evolving, it is
difficult to assess or predict with any assurance the size or growth rate, if
any, of these markets. There can be no assurance that the markets for the
Company's products will develop, or that the Company's products will be adopted.
If these markets fail to develop, develop more slowly than expected or attract
new competitors, or if the Company's products do not achieve market acceptance,
the Company's business, operating results and financial condition could be
materially adversely affected. Because the Company's strategy is to develop
standards-based products and these standards are relatively new, not widely
accepted and compete with other emerging standards, to the extent that these
standards are not commercially successful, this will have a material adverse
affect on the Company's business, operating results and financial condition.
Competing or alternative technologies are being or are likely in the future to
be promoted by current and potential competitors of the Company, some of which
have well-established relationships with current and potential customers of the
Company and have extensive knowledge of the markets served by the Company,
better name recognition and more extensive development, sales and marketing
resources than the Company.

  Reliance on VARs and ISVs. A significant element of the strategy employed by
Visigenic prior to its acquisition by the Company was to embed the technology
in products offered by value-added reseller ("VAR") and independent software
vendor ("ISV") customers, such as Cisco, Compuware, Healtheon, Hewlett-
Packard, Microsoft, Netscape, Novell, Oracle, Platinum technology and Sybase.
Historically, relatively small number of VAR and ISV customers have accounted
for a significant percentage of Visigenic's revenues. In fiscal 1996, ten VAR
and ISV customers accounted for approximately 65% of Visigenic's revenues and
in fiscal 1997, ten VAR and ISV customers accounted for approximately 48% of
the Visigenic's revenues. The Company intends to seek similar distribution
arrangements with other VARs and ISVs to embed Visigenic technology in their
products. To date, the terms and conditions, including prices and discounts,
of agreements relating to the product line acquired from Visigenic with VAR
and ISV customers have been highly negotiated and vary significantly among
customers; however, substantially all agreements are non-exclusive and do not
require the VAR or ISV to make minimum purchases. Many of the markets for the
VAR and ISV products in which technology acquired from Visigenic is being
embedded are new and evolving and, therefore, will be subject to the same
risks faced by the Company in the markets for its other products. Furthermore,
certain of the companies with which Visigenic maintained or would have
otherwise sought to establish VAR or ISV relationships are competitors of the
Company, and accordingly, the acquisition of Visigenic could adversely affect
the Company's ability to maintain or secure such relationships. If the Company
is unsuccessful in maintaining its current relationships and securing license
agreements with additional VARs and ISVs on commercially reasonable terms or

                                       22
<PAGE>

at all, or if the Company's VAR and ISV customers are unsuccessful in selling
their products, the Company's business, financial condition or results of
operations could be materially adversely affected.

  Extreme Volatility of Stock Price. Like the stock of other high technology
companies, the market price of the Company's Common Stock has been and may
continue to be extremely volatile. During the past three fiscal years, the
market price of the Company's Common Stock has ranged from a high of $21.25 to a
low of $4.75. Factors such as quarterly fluctuations in the Company's results of
operations, the announcement of technological innovations or the introduction of
new products by the Company or its competitors, and general conditions in the
computer hardware and software industries may have a significant impact on the
market price of the Company's Common Stock.

  Extremely Competitive Industry. The software industry is extremely
competitive. Rapid change, uncertainty due to new and emerging technologies and
fierce competition characterize the industry. The pace of change has recently
accelerated due to the Internet/intranet and new programming languages, such
as Java. The Company competes with a number of other companies, including
Microsoft, Computer Associates, Oracle, Sybase and Symantec. Certain of its
competitors have substantially greater financial, management, marketing and
technical resources than the Company. In the past, competitors have utilized
their greater resources to provide substantial signing bonuses and other
inducements to lure away the Company's management and other key personnel. In
addition, Microsoft is the developer of the Windows operating environments. To
the extent that the Company is unable to obtain information regarding existing
and future operating systems from the developer of such systems, the release
of the Company's products for such systems may be delayed. The product line
acquired from Visigenic is targeted at the emerging markets for standards-
based distributed object software products. The markets for these products are
intensely competitive, subject to rapid change and significantly affected by
new product introductions and other market activities of industry
participants. The Company's principal competitive factors in these markets
will be product quality, performance and price, vendor and product reputation,
product architecture and quality of support. In the standards-based
distributed object market, the products acquired from Visigenic compete
principally against offerings by Iona Technologies, Expersoft and BEA. These
products also compete against existing or proposed distributed object
solutions from hardware vendors such as Hewlett-Packard, ICL, IBM and Sun. In
addition, because there are relatively low barriers to entry in the software
market and because the products are based on publicly available standards, the
Company expects to experience additional competition in the future from other
established and emerging companies if the market for distributed object
software continues to develop and expand. In particular, operating system
vendors such as ICL, Hewlett-Packard, IBM, Microsoft and Sun may offer
standards-based distributed object products bundled with their operating
systems. For instance, Microsoft has introduced DCOM, which could reduce or
eliminate the need for CORBA-compliant ORBs, such as those offered by the
products acquired from Visigenic, for Microsoft operating systems. Many of
these current and potential competitors have well-established relationships
with current and potential customers of the Company, have extensive knowledge
of the markets serviced by the Company's customers, more extensive
development, sales and marketing resources and are capable of offering single
vendor solutions. Increased competition could result in price reductions,
fewer customer orders, reduced gross margins and loss of market share, any one
of which could materially adversely affect the Company's business, operating
results and financial condition. In addition, current and potential
competitors may make strategic acquisitions or establish cooperative
relationships, thereby increasing the ability of their products to address the
needs of the Company's current and prospective customers. Accordingly, it is
possible that new competitors may emerge, or alliances among current and new
competitors may be formed, that may rapidly gain significant market share.
Certain competitors have been known to license software for free to gain
competitive advantage. Such competition could materially adversely affect the
Company's ability to sell additional licenses and maintenance and support
renewals on terms favorable to the Company. Further, competitive pressures
could require the Company to reduce the price of its products and related
services, which could materially adversely affect the Company's business,
operating results and financial condition. There can be no assurance that the
Company will be able to compete successfully against current and future
competition, and the failure to do so would have a material adverse effect
upon the Company's business, operating results and financial condition.

  The advent of the Internet/intranet as a computing, communication and
collaboration platform as well as a low cost and efficient distribution vehicle,
on-line services, and electronic commerce increases competition and creates
uncertainty as to future technology directions. The Company faces intense
competition in the development and marketing of Internet/intranet and Java
development software from a wide variety of companies. There can be no
assurances that the Company will be able to compete effectively for business
opportunities as they arise on the Internet/intranet, on-line services,
electronic commerce and other emerging areas.

  Risks Associated with International Operations and Sales. Revenues derived
from international operations accounted for approximately 63%, 62% and 51% of
total revenues for the Company for the nine months ended December 31, 1997 and
the fiscal years ended March 31, 1997 and 1996, respectively. There are certain
risks inherent in doing business on an international level, such as unexpected
changes in regulatory requirements, export

                                       23
<PAGE>

restrictions, tariffs and other trade barriers, difficulties in staffing and
managing foreign operations, longer payment cycles, problems in collecting
accounts receivable, political instability, fluctuations in currency exchange
rates, seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world and potentially adverse tax
consequences, any of which could adversely impact the success of the Company's
international operations. In addition, many software companies have recently
experienced adverse effects relating to declining sales as a result of the Asian
financial crisis. There can be no assurance that one or more of such factors
will not have a material adverse effect on the Company's future international
operations and, consequently, on the Company's business, operating results and
financial condition. In addition, the Company's subsidiaries in Europe and Japan
operate in local currencies, and their results are translated monthly into US
dollars. If the value of the US dollar increases relative to foreign currencies,
the Company's business, operating results and financial condition could be
materially adversely affected.

  Anti-takeover Provisions.  The Company's Stockholders' Rights Plan and certain
provisions of the Company's Certificate of Incorporation may discourage or
prevent certain types of transactions involving an actual or potential change in
control of the Company, including transactions in which the stockholders might
otherwise receive a premium for their shares over then current market prices,
and may limit the ability of stockholders to approve transactions that they may
deem to be in their best interests. In addition, the Company Board of Directors
has the authority to fix the rights and preferences of and issue shares of
Preferred Stock without action by the stockholders, which may have the effect of
delaying or preventing a change in control of the Company.

  Software Defects and Liability Claims. Software products frequently contain
errors or defects, especially when first introduced or when new versions or
enhancements are released. Although the Company has not experienced any material
adverse effects resulting from any such defects or errors to date, there can be
no assurance that, despite testing by the Company and by current and potential
customers, defects and errors will not be found in current versions, new
versions or enhancements after  commencement of commercial shipments, resulting
in the loss of revenues, delay in market acceptance or unexpected re-programming
costs, which could have a material adverse effect upon the Company's business,
operating results and financial condition.

  The Company's license agreements with its customers typically contain
provisions designed to limit the Company's exposure to potential product
liability claims. It is possible, however, that the limitation of liability
provisions contained in the Company's license agreements may not be effective as
a result of existing or future federal, state or local laws or ordinances or
unfavorable judicial decisions. A successful product liability claim brought
against the Company could have a material adverse effect upon the  Company's
business, operating results and financial condition.

  Superior Rights and Preferences of Borland Series B Preferred Stock. The
Company has authorized the issuance of up to 1,470 shares of its Series B
Preferred Stock, of which 550 shares are currently outstanding. The Series B
Preferred Stock has certain rights and preferences which are superior to those
of Common Stock. In particular, each share of Series B Preferred Stock is
entitled to vote the number of shares of Common Stock into which such share of
Series B Preferred Stock is convertible, or 7,207 votes for each currently
outstanding share of Series B Preferred Stock, on matters on which all
stockholders of the Company are entitled to vote as compared to one vote per
share of Common Stock. In addition, upon any liquidation, dissolution or winding
up of the Company, each share of Series B Preferred Stock is entitled to be paid
the original purchase price per share, or $50,000, from the assets of the
Company prior to any payments to the holders of Common Stock. The Company's
Board of Directors, without stockholder approval, is authorized to issue up
1,000,000 shares of the Company Preferred Stock (including the 1,470 authorized
shares of Series B Preferred Stock) with voting, conversion or other rights that
could adversely affect the voting power and other rights of the holders of
Common Stock or the market price of the Common Stock.

  Potential Dilutive Effect of Conversion and Additional Issuance of Series B
Preferred Stock. The number of shares of Common Stock which may be issued upon
conversion of the Series B Preferred Stock is dependent upon the trading price
of Common Stock at the time of conversion. To the extent that the trading
price of Common Stock is lower than $6.94 per share at the time of any
conversion of the currently outstanding shares of Series B Preferred Stock,
the number of shares of Common Stock issuable upon such conversion will
increase. Until March 31, 1998, the Company has the option, subject to
certain conditions, to require all existing holders of Series B Preferred
Stock to purchase in the aggregate up to 500 additional shares of Series B
Preferred Stock. The Company is in discussions with the holders of the Series
B Preferred Stock to extend the date on which the Company may exercise this
otion. In the event the Company exercises this option and additional shares of
Series B Preferred Stock are issued, existing holders of Common Stock could be
subject to dilution. Commencing June 30, 1998 and extending through June 30,
2000, holders of Series B Preferred Stock have the option to purchase in the
aggregate of up to an additional 198 shares of Series B Preferred Stock. In
the event some or all existing holders of Series B Preferred Stock exercise
this option and additional shares of Series B Preferred Stock are issued,
existing stockholders of the Company would be subject to dilution at that
time.

  Risks Associated with Potential Acquisitions. As a part of the Company's
business strategy, the Company will review acquisition prospects that would
complement the Company's existing product offerings, augment the Company's
market coverage or enhance its technological capabilities, or that may otherwise
offer growth opportunities. Although the Company does not have current
agreements or negotiations underway with respect to any such acquisitions, the
Company may make acquisitions of businesses, products or technologies in the
future. Future acquisitions by the Company could result in potentially dilutive
issuances of equity securities, the
                                       24
<PAGE>

incurrence of debt and contingent liabilities and amortization expenses related
to goodwill and other intangible assets, any of which could materially adversely
affect the Company's operating results and/or the market price of the Common
Stock. Acquisitions entail numerous risks, including difficulties in the
assimilation of acquired operations, technologies and products, diversion of
management's attention to other business concerns, risks of entering markets in
which the Company has no or limited prior experience and potential loss of key
employees of acquired organizations. No assurance can be given as to the ability
of the Company to successfully integrate any businesses, products, technologies
or personnel that might be acquired in the future, and the failure of the
Company to do so could have a material adverse effect on the Company's business,
financial condition and operating results.


                                       25
<PAGE>

RECENT ACCOUNTING PRONOUNCEMENTS

  In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
130, "Reporting Comprehensive Income" ("SFAS 130").  SFAS 130 establishes
standards for reporting comprehensive income and its components in financial
statements.  Comprehensive income as defined includes all changes in equity (net
assets) during a period from nonowner sources.  Examples of items to be included
in comprehensive income which are excluded from net income include foreign
currency translation adjustment and unrealized gain/loss on available-for-sale
securities.  The disclosures prescribed by SFAS 130 will be effective for the
year ending December 31, 1998.

  In June 1997 FASB issued SFAS 131, "Disclosure about Segments of an Enterprise
and Related Information." This statement establishes standards for the way
companies report information about operating segments in annual financial
statements.  It also establishes standards for related disclosures about
products and services, geographic areas and major customers.  The disclosures
prescribed by SFAS 131 will be effective the year ending December 31, 1998.

  In October 1997, the American Institute of Certified Public Accountants issued
Statement of Position No. 97-2 ("SOP 97-2"), "Software Revenue Recognition",
which the Company currently intends to adopt for transactions entered into in
the fiscal year beginning January 1, 1998.  SOP 97-2 provides guidance on
recognizing revenue on software transactions and supersedes SOP 91-1, "Software
Revenue Recognition".  The Company believes that the adoption of SOP 97-2 will
not have a significant impact on its current licensing or revenue recognition
practices.  However, should the Company adopt new or change its licensing
practices, the Company's revenue recognition practices may be subject to change
to comply with the accounting guidance provided in SOP 97-2.

                                       26
<PAGE>

SELECTED QUARTERLY DATA

Amounts in thousands, except per share amounts, percentages and stock prices:

<TABLE>
<CAPTION>
                                                                                   Three Months Ended
                                                                            --------------------------------
                                                                             Dec. 31,   Sept. 30.   June 30,
                                                                               1997        1997       1997
                                                                            ----------  ----------  ---------
<S>                                                                         <C>         <C>         <C>
Net revenues                                                                  $43,015     $42,500    $41,970
Cost of revenues                                                                5,436       6,375      6,356
                                                                              -------     -------    -------
Gross profit                                                                   37,579      36,125     35,614
                                                                              -------     -------    -------
Selling, general and administrative                                            24,505      25,095     24,929
Research and development                                                       10,235       9,905     10,576
Restructuring and merger related charges                                            -           -          -
Other non-recurring charges                                                         -           -          -
                                                                              -------     -------    -------
Operating income (loss)                                                         2,839       1,125        109
                                                                              -------     -------    -------
Net income (loss)                                                               2,827       1,518         79
                                                                              =======     =======    =======

Earnings (loss) per share -- basic                                            $  0.07     $  0.03    $  0.00
Earnings (loss) per share -- diluted                                          $  0.06     $  0.03    $  0.00
Shares used in computing basic earnings per share                              38,702      38,200     37,108
Shares used in computing diluted earnings per share                            45,135      40,228     39,016

Percentage of net revenues:
Gross profit                                                                     87.4%       85.0%      84.9%
Operating income (loss)                                                           6.6%        2.6%       0.3%
Net income (loss)                                                                 6.6%        3.6%       0.2%

Stock prices:
High                                                                          $   7.63    $ 10.25    $  7.00
Low                                                                           $   7.25    $ 10.06    $  6.75
</TABLE>

<TABLE>
<CAPTION>
                                                                                 Three Months Ended
                                                                   ----------------------------------------------
                                                                   March 31,    Dec. 31,   Sept. 30,    June 30,
                                                                      1997        1996        1996        1996
                                                                   ----------  ----------  ----------  ----------
<S>                                                                <C>         <C>         <C>         <C>
Net revenues                                                        $ 37,168    $ 36,756    $ 39,306    $ 38,146
Cost of revenues                                                       6,032       6,961       7,559       8,898
                                                                    --------    --------    --------    --------
Gross profit                                                          31,136      29,795      31,747      29,248
                                                                    --------    --------    --------    --------
Selling, general and administrative                                   37,493      33,986      32,575      39,235
Research and development                                              13,276      14,038      14,679      13,180
Restructuring and merger related charges                               5,976      11,885           -       1,083
Other non-recurring charges                                           17,100           -           -           -
                                                                    --------    --------    --------    --------
Operating income (loss)                                              (42,709)    (30,114)    (15,507)    (24,250)
                                                                    --------    --------    --------    --------
Net income (loss)                                                   $(42,470)   $(29,371)   $(14,310)   $(21,809)
                                                                    ========    ========    ========    ========

Earnings (loss) per share -- basic                                  $  (1.15)   $  (0.81)   $  (0.40)   $  (0.60)
Earnings (loss) per share -- diluted                                $  (1.15)   $  (0.81)   $  (0.40)   $  (0.60)
Shares used in computing basic earnings per share                     37,006      36,429      36,319      36,268
Shares used in computing diluted earnings per share                   37,006      36,429      36,319      36,268

Percentage of net revenues:
Gross profit                                                            83.8%       81.1%       80.8%       76.7%
Operating income (loss)                                              (114.9)%     (81.9)%     (39.5)%     (63.6)%
Net income (loss)                                                    (114.3)%     (79.9)%     (36.4)%     (57.2)%

Stock prices:
High                                                               $   8.56     $  8.44     $  9.25     $ 20.00
Low                                                                $   5.69     $  4.75     $  6.38     $  9.13
</TABLE>

                                       27
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

  The Company's financial statements included with this Form 10-K are set forth
under Item 14 hereof.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

  None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

  The information regarding directors and executive officers required by Item 10
is incorporated by reference from the Company's definitive proxy statement for
its annual stockholders' meeting to meeting be held on June 5, 1998.

ITEM 11.  EXECUTIVE COMPENSATION

   The information required by Item 11 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to
be held on June 5, 1998.  The information specified in Item 402(k) and
(l) of Regulation S-K and set forth in the Company's definitive proxy statement
for its annual stockholders' meeting to be held on June 5, 1998 is not
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  The information required by Item 12 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to
be held on June 5, 1998.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  The information required by Item 13 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to
be held on June 5, 1998.

                                       28
<PAGE>

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K

(a)  The following documents are filed as part of this report:

1.  Consolidated Financial Statements

     Report of Independent Accountants for Borland International, Inc.
     Report of Independent Auditors for Open Environment Corporation

     Consolidated Balance Sheets at December 31, 1997 and March 31, 1997

     Consolidated Statements of Operations for the nine months ended December
     31, 1997 and fiscal years ended March 31, 1997 and 1996

     Consolidated Statements of Stockholders' Equity for the nine months ended
     December 31, 1997 and   fiscal years ended March 31, 1997 and 1996

     Consolidated Statements of Cash Flows for the nine months ended December
     31, 1997 and fiscal years ended March 31, 1997 and 1996

     Notes to Consolidated Financial Statements

2. Consolidated Financial Statement Schedule

    Schedule II--Valuation and Qualifying Accounts

     All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.

3.  Exhibits
<TABLE>
Exhibit
Number                                       Description
----------      ------------------------------------------------------------------------

<C>             <S>
    2.1(1)      Agreement and Plan of Merger among Borland International, Inc., Aspen
                Acquisition Corporation and Open Environment Corporation
                dated May 11, 1996
    2.2(2)      Agreement and Plan of Merger among Borland International, Inc., Vixen
                Acquisition Corporation and Visigenic Software, Inc. dated as of
                November 17, 1997
    3.1(3)      Restated Certificate of Incorporation of the Registrant
    3.2(3)      Amended Bylaws of the Registrant
    4.1(3)      Restated Certificate of Incorporation and Bylaws of the
                Registrant
    4.2(13)     Rights Agreement dated as of December 23, 1991 between Borland
                International, Inc. and Manufacturers Hanover Trust
                Company of California
   10.1(4)      Loan commitment secured by a mortgage entered into with Sanwa Bank
                California, Wells Fargo Bank, and Pacific Trust Fund Company dated
                September 17, 1987 and amendment thereto dated April 27, 1988
   10.2(5)      Form of Convertible Securities Subscription Agreement for Registrant's
                Series B Preferred Stock
   10.3(5)      Form of Registration Rights Agreement for Registrant's Series B
                Preferred Stock
   10.4(6)      Form of Indemnity Agreement
   10.5(14)     Employment Agreement with Delbert W. Yocam, as amended
   10.6(7)      Third Addendum to Employment Agreement with Delbert W. Yocam
   10.7(8)      1990 Employee Stock Purchase Plan
   10.8(9)      Non-Employee Directors' Stock Option Plan
   10.9(10)     1992 Stock Option Plan
   10.10(11)    1993 Stock Option Plan
   10.11(12)    1997 Stock Option Plan
   10.12(12)    1997 Employee Stock Purchase Plan
   21           Subsidiaries of the Registrant
   23.1         Consent of Price Waterhouse LLP, Independent Accountants
   23.2         Consent of Ernst & Young LLP, Independent Auditors
   24.1         Powers of Attorney
   27.1         Financial Data Schedule
</TABLE>
---------------------------------

 (1)   Previously filed as an exhibit to Registrant's Registration Statement on
       Form S-4 (filed with the Commission on October 11, 1996) and incorporated
       herein by reference.

 (2)   Previously filed as an exhibit to Registrant's Current Report on Form 8-K
       (filed with the Commission on November 21, 1997) and incorporated herein
       by reference.

 (3)   Previously filed as an exhibit to Registrant's Quarterly Report for the
       fiscal quarter ended September 30, 1997 (filed with the Commission on
       November 14, 1997) and incorporated by reference.

 (4)   Previously filed as an exhibit to Registrant's Amendment No. 1 to
       Registration Statement on Form S-1 (filed with the Commission on December
       12, 1989) and incorporated herein by reference.

 (5)   Previously filed as an exhibit to Registrant's Current Report on Form 8-K
       (filed with the Commission on July 14, 1997) and incorporated herein by
       reference.

 (6)   Previously filed as an exhibit to Registrant's Registration Statement on
       Form S-8 (filed with the Commission on September 26, 1990) and
       incorporated herein by reference.

 (7)   Previously filed as an exhibit to Registrant's Quarterly Report for the
       fiscal quarter ended September 30, 1997 (filed with the Commission on
       November 14, 1997) and incorporated by reference.

 (8)   Previously filed as an exhibit to Registrant's Annual Report on Form 10-K
       for the year ended March 31, 1993 (filed with the Commission on July 2,
       1993) and incorporated herein by reference.

 (9)   Previously filed as an exhibit to Registrant's Current Report on Form 8-K
       (filed with the Commission on December 27, 1991) and incorporated herein
       by reference.

(10)   Previously filed as an exhibit to Registrant's Registration Statement on
       Form S-8 (filed with the Commission on July 24, 1992) and incorporated
       herein by reference.

(11)   Previously filed as an exhibit to Registrant's Registration Statement on
       Form S-8 (filed with the Commission on March 11, 1993) and incorporated
       herein by reference.

(12)   Previously filed as an exhibit to Registrant's Registration Statement on
       Form S-8 (filed with the Commission on December 19, 1997) and
       incorporated herein by reference.

(13)   Previously filed as an exhibit to Registrant's Annual Report on Form 10-K
       for the year ended March 31, 1990 and incorporated herein by reference.

(14)   Previously filed as an exhibit to Registrant's Annual Report on Form 10-K
       for the year ended March 31, 1997 and incorporated herein by reference.


A copy of any exhibit will be furnished (at a reasonable cost) to any
stockholder of the Company upon receipt of a written request.  Such request
should be sent to Borland International, Inc. 100 Borland Way, Scotts Valley,
California USA 95066-3249, Attn: Secretary.

(a)  Reports on Form 8-K

  Report on Form 8-K dated November 21, 1997.

                                       29


<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Scotts
Valley, California, on the 30th day of March, 1998.

                                          BORLAND INTERNATIONAL, INC.
                                                  (Registrant)


                                          /s/ Kathleen M. Fisher
                                 By  ____________________________________
                                              Kathleen M. Fisher,
                                            Chief Financial Officer
                                           Vice President of Finance

Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities as indicated on the 30th day of March, 1998.

<TABLE>
<CAPTION>
            Signature                                                 Title
<S>                                    <C>
           *
--------------------------             Chairman of the Board and Chief Executive Officer (principal
DELBERT W. YOCAM                       executive officer

 /s/ Kathleen M. Fisher
--------------------------             Vice President of Finance and Chief Financial Officer (principal
KATHLEEN M. FISHER                     financial and accounting officer)

           *
--------------------------             Director
HARRY SAAL

           *
--------------------------             Director
GEORGE HARA

           *
--------------------------             Director
DAVID HELLER

           *
--------------------------             Director
STEPHEN LEWIS

           *
--------------------------             Director
WILLIAM MILLER
----------------------------------------------------------------------------------------------------------
</TABLE>

                  /s/ Hobart McK. Birmingham
*By: ___________________________________________________________
                    (HOBART McK. BIRMINGHAM,
                        Attorney in Fact)

                                       30
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS
                        FOR BORLAND INTERNATIONAL, INC.



To the Board of Directors and Stockholders of
Borland International, Inc.

  In our opinion, based upon our audits and the report of other auditors, the
consolidated financial statements listed in the index appearing under Item
14(a)1 and 2 on page 29 present fairly, in all material respects, the financial
position of Borland International, Inc. and its subsidiaries at December 31,
1997 and March 31, 1997, and the results of their operations and their cash
flows for the nine months ended December 31, 1997 and for each of the two years
in the period ended March 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the consolidated
financial statements of Open Environment Corporation, a wholly-owned subsidiary,
as of and for the year ended December 31, 1995 which statements reflect total
assets of $36,647,000 at December 31, 1995 and total revenues of $29,881,000 for
the year then ended. Those statements were audited by other auditors whose
report thereon has been furnished to us, and our opinion expressed herein,
insofar as it relates to the amounts included for Open Environment Corporation
as of December 31, 1995 and for the year then ended, is based solely on the
report of the other auditors. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for the opinion expressed above.

/s/ Price Waterhouse LLP

San Jose, California
January 28, 1998, except for the first and fifth paragraphs of Note 14
which are as of February 27, 1998

                                       31
<PAGE>

               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
                        FOR OPEN ENVIRONMENT CORPORATION


The Board of Directors
Open Environment Corporation and Subsidiaries

  We have audited the accompanying consolidated balance sheet of Open
Environment Corporation and subsidiaries as of December 31, 1995 and the
related consolidated statement of income, stockholders' equity, and cash flows
for the year then ended (not separately presented herein). Our audit also
included the financial statement schedule listed in the Index at Item 14(a). The
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements and schedule based on our audit.

  We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

  In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Open Environment Corporation and subsidiaries at December 31, 1995, and the
consolidated results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.


                                      /s/ Ernst & Young LLP


Boston, Massachusetts
March 27, 1996, except as to
the fourth paragraph of
Note 1, as to which the
date is October 4, 1996

                                       32
<PAGE>

                          BORLAND INTERNATIONAL, INC.

                          CONSOLIDATED BALANCE SHEETS
                    (in thousands, except par value amounts)


<TABLE>
<CAPTION>
                                                 ASSETS
                                                                         December 31,              March 31,
                                                                             1997                    1997
                                                                        ----------------         ---------------
<S>                                                                     <C>                      <C>
Current assets:
   Cash and cash equivalents                                                    $ 85,169                $ 52,359
   Short-term investments                                                          1,843                   2,001
   Accounts receivable, net of allowances of $11,264 and $16,118                  28,195                  17,785
   Inventories                                                                       787                   1,047
   Other current assets                                                            6,034                   5,837
                                                                        ----------------         ---------------
      Total current assets                                                       122,028                  79,029
Property and equipment, net                                                      101,722                 106,563
Other non-current assets                                                           6,072                   7,110
                                                                        ----------------         ---------------
      Total assets                                                              $229,822                $192,702
                                                                        ================         ===============
<CAPTION>
                        LIABILITIES AND STOCKHOLDERS' EQUITY

                                                                         December 31,               March 31,
                                                                             1997                      1997
                                                                        ----------------         ---------------
<S>                                                                     <C>                      <C>
Current liabilities:
   Accounts payable                                                            $  11,087               $  14,574
   Accrued expenses                                                               36,454                  37,724
   Short-term restructuring                                                        1,278                   4,740
   Income taxes payable                                                            4,054                   4,463
   Other current liabilities                                                      20,365                  18,817
                                                                        ----------------         ---------------
      Total current liabilities                                                   73,238                  80,318
Long-term debt and other                                                          22,025                  22,508
Commitments and contingencies (Notes 6, 8 and 12)

Mandatorily redeemable convertible preferred stock (Note 9)                       27,358                     ---

Stockholders' equity:
   Preferred stock; $.01 par value; 1,000 shares authorized;                         ---                     ---
      none issued or outstanding
   Common stock; $.01 par value; 100,000 shares authorized;                          390                     371
      38,812 and 37,119 issued and outstanding
   Additional paid-in capital                                                    322,587                 309,800
   Accumulated deficit                                                          (219,642)               (223,497)
Cumulative translation adjustment                                                  3,866                   3,202
                                                                        ----------------         ---------------
      Total stockholders' equity                                                 107,201                  89,876
                                                                        ----------------         ---------------
         Total liabilities and stockholders' equity                            $ 229,822               $ 192,702
                                                                        ================         ===============
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       33
<PAGE>

                          BORLAND INTERNATIONAL, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (in thousands, except per share data)


<TABLE>
<CAPTION>
                                                                            Nine Months
                                                                               Ended                   Year Ended
                                                                            December 31,                March 31,
                                                                            -----------        ------------------------------
                                                                                1997              1997                1996
                                                                             --------          ----------            --------
<S>                                                                          <C>               <C>                   <C>
Net revenues                                                                 $127,485           $ 151,376            $245,087
Cost of revenues                                                               18,167              29,450              38,157
                                                                             --------          ----------            --------
Gross profit                                                                  109,318             121,926             206,930

Selling, general and administrative                                            74,529             143,289             141,744
Research and development                                                       30,716              55,173              50,714
Restructuring and merger related charges                                          ---              18,944                 679
Other non-recurring charges                                                       ---              17,100                 ---
                                                                             --------          ----------            --------
      Total operating expenses                                                105,245             234,506             193,137

Operating income (loss)                                                         4,073            (112,580)             13,793
Interest income, net and other                                                  1,122               5,137               4,221
                                                                             --------          ----------            --------
Income (loss) before income taxes                                               5,195            (107,443)             18,014
Income tax provision                                                              771                 517               3,295
                                                                             --------          ----------            --------
Net income (loss)                                                            $  4,424           $(107,960)           $ 14,719
                                                                             ========          ==========            ========
Earnings per share  basic                                                    $   0.10           $   (2.96)           $   0.43
Earnings per share  diluted                                                  $   0.10           $   (2.96)           $   0.40

Shares used in computing basic earnings per share                              37,977              36,512              33,968
Shares used in computing diluted earnings per share                            39,765              36,512              37,167
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       34
<PAGE>

                          BORLAND INTERNATIONAL, INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                  Common Stock
                                               ---------------------------------------------------
                                                Number                  Additional
                                                 of                      Paid-In        Accumulated
                                                Shares      Amount       Capital         (Deficit)
                                               -------      ------      ---------       -----------
<S>                                            <C>          <C>         <C>             <C>
Balance at March 31, 1995                       30,740      $  306       $244,088       $(125,150)
Employee stock options, employee stock
 purchase plan and other, net                    3,958          41         37,357              --
Issuance of common stock                         1,122          11         22,862              --
Other                                              661           7          5,498            (142)
Net income                                          --          --             --          14,719
                                               -------      ------      ---------       ---------
Balance at March 31, 1996                       36,481         365        309,805        (110,573)
Adjustment to reflect the change in
 year end for OEC (see Note 4)                      --          --             --          (4,967)
Employee stock options, employee stock
 purchase plan and other, net                      638           6             23             --
Translation adjustment                              --          --             --             --
Other                                               --          --            (28)              3
Net loss                                            --          --             --        (107,960)
                                               -------      ------      ---------       ---------
Balance at March 31, 1997                       37,119         371        309,800        (223,497)
Employee stock options, employee stock
 purchase plan and other, net                    1,693          19         12,076              --
Translation adjustment                              --          --             --              --
Value attributable to warrants issued
 in connection with preferred stock                 --          --            711              --
Accretion of warrant value attributable
 to preferred stock                                 --          --             --           (569)
Net income                                          --          --             --          4,424
                                               -------      ------      ---------       ---------
Balance at December 31, 1997                    38,812      $  390       $322,587       $(219,642)
                                               -------      ------      ---------       ---------


                                                  Treasury Stock
                                               --------------------
                                                                        Cumulative
                                                                        Translation
                                                Shares      Amount      Adjustment        Total
                                               -------     --------      -----------     ----------
<S>                                            <C>         <C>          <C>             <C>
Balance at March 31, 1995                          385     $(3,500)       $  5,720       $121,464
Employee stock options, employee stock
 purchase plan and other, net                       --          --             --          37,398
Issuance of common stock                                                                   22,873
Other                                               --          --         (1,522)          3,841
Net income                                          --          --             --          14,719
                                               -------      -------      ---------       ---------
Balance at March 31, 1996                          385       (3,500)        4,198         200,295
Adjustment to reflect the change in
 year end for OEC (see Note 4)                      --          --             --          (4,967)
Employee stock options, employee stock
 purchase plan and other, net                       --          --             --              29
Translation adjustment                              --          --           (996)           (996)
Other                                             (385)       3,500                         3,475
Net loss                                            --           --            --        (107,960)
                                               -------      -------      ---------       ---------
Balance at March 31, 1997                           --           --         3,202          89,876
Employee stock options, employee stock
 purchase plan and other, net                       --           --            --          12,095
Translation adjustment                              --           --           664             664
Value attributable to warrants issued
 in connection with preferred stock                 --           --            --             711
Accretion of warrant value attributable
 to preferred stock                                 --           --            --           (569)
Net income                                          --           --            --          4,424
                                               -------      -------      ---------       ---------
Balance at December 31, 1997                        --      $    --       $  3,866       $107,201
                                               -------      -------      ---------       ---------

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

                                       35
<PAGE>

                          BORLAND INTERNATIONAL, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                Increase (Decrease) in Cash and Cash Equivalents
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                          Nine Months
                                                                             Ended                      Year Ended
                                                                          December 31,                   March 31,
                                                                         -------------           -----------------------------
                                                                              1997                 1997                1996
                                                                            --------             ---------           ---------
Cash flows from operating activities:
<S>                                                                         <C>                  <C>                  <C>
Net income (loss)                                                           $  4,424             $(107,960)           $ 14,719
Adjustments to reconcile net income (loss) to net cash used in operating
 activities:
  Depreciation and amortization                                                7,502                12,054              17,918
  Non-cash restructuring costs                                                   162                   883                 ---
  Write-off of purchased technology                                              ---                   ---                 353
Changes in assets and liabilities:
  Accounts receivable, net                                                   (10,410)               19,540             (20,554)
  Inventories                                                                    260                   551               3,794
  Other current assets                                                          (197)                6,690              (4,463)
  Accounts payable, accrued expenses and short-term restructuring             (8,381)                9,600             (27,475)
  Income taxes payable                                                          (409)               (4,782)              2,115
  Other (primarily deferred revenue and long-term restructuring)               2,056                 7,185              (8,109)
                                                                            --------             ---------           ---------
Cash used in operating activities                                             (4,993)              (56,239)            (21,702)
                                                                            --------             ---------           ---------

Cash flows from investing activities:
  Acquisition of property and equipment, net                                  (3,529)               (4,935)             (5,795)
  Acquisition of product rights                                                  ---                   ---                (726)
  Sale of fixed assets and real estate held for sale                           2,360                 4,603               5,041
  Investment in and advances to joint venture                                    ---                  (137)               (737)
  Net change in short-term investments                                           158                22,350             (24,437)
                                                                            --------             ---------           ---------
Cash (used in) by provided investing activities                               (1,011)               21,881             (26,654)
                                                                            --------             ---------           ---------

Cash flows from financing activities:
  Proceeds from issuance of common stock, net                                 12,095                 3,239              60,550
  Proceeds from issuance of mandatorily redeemable preferred stock            27,500                   ---                 ---
  Redemption of common stock                                                     ---                   ---                (789)
  Borrowings of short term debt                                                  ---                   355               1,546
  Repayment of capital lease obligations and other debt activity                (156)                   (9)               (974)
                                                                            --------             ---------           ---------
Cash provided by financing activities                                         39,439                 3,585              60,333
                                                                            --------             ---------           ---------

                                                                            --------             ---------           ---------
Effect on exchange rate changes on cash                                         (625)                  (34)               (169)
                                                                            --------             ---------           ---------
Net change in cash and cash equivalents                                       32,810               (30,807)             11,808
Net cash adjustment to conform the year end of OEC (Note 4)                      ---                 1,472                 ---
Beginning cash and cash equivalents                                           52,359                81,694              69,886
                                                                            --------             ---------           ---------
Ending cash and cash equivalents                                            $ 85,169             $  52,359            $ 81,694
                                                                            ========             =========           =========
Cash paid during the year for:
  Interest                                                                  $    811             $   1,057            $  1,356
  Income taxes                                                                   792                 1,616               2,244
</TABLE>

   The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       36
<PAGE>

                          BORLAND INTERNATIONAL, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

  Borland International, Inc. (the "Company" or "Borland") develops, markets and
supports software development tools, intelligent middleware database management
systems, and application management systems for business enterprises and
independent software developers.

Principles of Consolidation

  The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly-owned. All significant intercompany
accounts and transactions have been eliminated.

Change in Fiscal Year End

  During 1997, the Company changed its year end from March 31 to December 31 for
financial reporting purposes. As a result of this change, the accompanying
consolidated financial statements include the nine month transition period from
April 1, 1997 to December 31, 1997.  The unaudited condensed results of
operations for the comparable period of the prior year are summarized below,
amounts in thousands:

Condensed consolidated statement of                  Nine Months Ended
        operations data                              December 31, 1996
-----------------------------------            -----------------------------
                                                       (unaudited)
Net revenues                                            $114,208
Gross profit                                            $ 90,790
Income tax provision                                    $    177
Net loss                                                $(65,490)

Earnings per share  basic                               $  (1.80)
Earnings per share  diluted                             $  (1.80)

Revenue Recognition

   Revenue from the sale of software products, including sales to distributors
and retail dealers, is recognized upon shipment when no significant vendor
obligations remain and collection of the receivable is probable.  In instances
where a significant vendor obligation exists, revenue recognition is delayed
until the obligation has been satisfied.  Allowances for estimated future
returns and exchanges are provided at that time based on the Company's return
policies.  Service revenues from customer maintenance fees for ongoing customer
support and product updates, including maintenance bundled with software
licenses, is recognized ratably over the period of the contract and revenue from
other services, including training, are recognized as performed.  The Company
has recognized revenues for all periods presented in accordance with Statement
of Position 91-1 ("SOP 91-1"), "Software Revenue Recognition."

  In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position No. 97-2 ("SOP 97-2"), "Software Revenue
Recognition", which the Company currently intends to adopt for transactions
entered into in the year beginning January 1, 1998. SOP 97-2 provides guidance
on recognizing revenue on software transactions and supersedes SOP 91-1. The
Company believes that the adoption of SOP 97-2 will not have

                                       37
<PAGE>

a significant impact on its current licensing or revenue recognition practices.
However, should the Company adopt new or change its licensing practices, the
Company's revenue recognition practices may be subject to change to comply with
the accounting guidance provided in SOP 97-2.

Cash, Cash Equivalents and Short-Term Investments

  The Company considers all highly liquid investments with a maturity of three
months or less when acquired to be cash equivalents.  Short-term investments are
held as securities available for sale under the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities."  The securities are carried at fair market value
with the unrealized gains and losses, net of tax, reported as a separate
component of stockholders' equity.  Unrealized gains and losses have been
insignificant for all periods presented.

  Short-term investments, consisting principally of commercial paper, at
December 31, 1997 and March 31, 1997 were $1.8 million and $2.0 million,
respectively.

Foreign Exchange Contracts

  The Company enters into forward exchange contracts to manage its exposure to
currency fluctuations. The Company has outstanding short-term forward exchange
contracts to exchange various foreign currencies  (principally Japanese yen,
Australian dollars, Canadian dollars and German marks) for U.S. dollars in the
amount of $11.0 million and $19.3 at December 31, 1997 and March 31, 1997,
respectively. The Company's accounting policy for these instruments is based on
the Company's designation of such instruments as hedging transactions.  Gains
and losses on forward currency contracts that are designated and effective as
hedges of existing transactions, for which a firm commitment has been attained,
are recognized in income in the same period as losses and gains on the
underlying transactions are recognized.  By their nature, these transactions
generally offset.  The net gain or loss on such foreign currency contracts and
underlying transactions have been insignificant for all periods presented.

Concentration of Credit Risk

  Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, cash equivalents,
short-term investments and trade accounts receivable. The Company places its
cash, cash equivalents and short-term investments in a variety of financial
instruments such as commercial paper. The Company, by policy, limits the amount
of credit exposure to any one financial institution or commercial issuer.

  The Company offers credit terms on the sale of its software products to
distributors, retail dealers and certain end-user customers. The Company
performs ongoing credit evaluations of its customers' financial condition and,
generally, requires no collateral from its customers. The Company maintains an
allowance for uncollectible accounts receivable based upon the expected
collectibility of all accounts receivable.

  The Company is exposed to credit loss in case of non-performance by
counterparties to foreign exchange contracts, but the Company does not
anticipate non-performance by these counterparties.

Inventories

  Inventories consist primarily of completed product and are stated at the lower
of cost or market value. Cost is determined on a first-in, first-out basis.

Property and Equipment

  Property and equipment is stated at cost and depreciated using the straight-
line method based on the following estimated useful lives:

                                       38
<PAGE>

Buildings                                                         31.5 years
Computer equipment                                               3 to 5 years
Furniture, fixtures and equipment                                  5 years
Leasehold improvements                                            Lease term

  Depreciation expense for the nine months ended December 31, 1997 and the
fiscal years ended March 31, 1997 and 1996 was $7.3 million, $11.1 million and
$16.7 million, respectively. Maintenance and repairs are expensed as incurred.
The cost of assets and related accumulated depreciation are removed from the
accounts upon retirement or other disposition; any resulting gain or loss is
reported as income or expense.

  The Company evaluates the recoverability of its property and equipment and
intangible assets in accordance with Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("SFAS No. 121"). SFAS No. 121 requires
recognition of impairment of long-lived assets in the event the net book value
of such assets exceeds the future undiscounted cash flows attributable to such
assets.

Stock-Based Compensation Plans

  The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No.25, "Accounting for
Stock Issued to Employees," ("APB 25") and related Interpretations. Under APB
25, compensation cost is measured as the excess, if any, of the quoted market
price of the Company's stock at the date of grant over the exercise price of the
option granted. Compensation cost for stock options, if any, is recognized
ratably over the vesting period. The Company's policy is to grant options with
an exercise price equal to the quoted market price of the Company's stock on the
grant date. Accordingly, no compensation has been recognized for its stock
option plans. The Company provides additional pro forma disclosures as required
under Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"). See Note 10.

Product Rights and Intangibles

  The Company capitalizes certain product rights acquired from others and
internal software development costs incurred after technological feasibility has
been demonstrated.  Such capitalized amounts are amortized commencing with
product introduction at the greater of the straight-line basis utilizing the
estimated economic lives, which range from two to four years, or the ratio of
actual revenues achieved to the total anticipated revenues over the lives of the
products.

  No internal development costs were capitalized during the nine months ended
December 31, 1997 or the fiscal years ended March 31, 1997 and 1996.
Amortization of product rights charged to cost of revenues during the nine
months ended December 31, 1997 and the fiscal years ended March 31, 1997 and
1996 was $203,000, $522,000 and $853,000, respectively. At December 31, 1997
and March 31, 1997 unamortized product rights and capitalized development
costs were none and $203,000, respectively.

Goodwill

  Goodwill represents the excess of the aggregate purchase price over the fair
market value of the tangible and intangible assets acquired in various
acquisitions and is being amortized over the estimated useful life of seven
years. Amortization of goodwill charged to operating expenses during the nine
months ended December 31, 1997 and the fiscal years ended March 31, 1997 and
1996 was none, $447,000 and $702,000, respectively. At December 31, 1997 and
March 31, 1997, the Company had no unamortized goodwill.

                                       39
<PAGE>

Advertising Costs

  The Company expenses the production costs of advertising, including direct
response, the first time the advertising takes place. Advertising expense was
$10.1 million, $14.7 million and $14.2 during the nine months ended December 31,
1997 and the fiscal years ended March 31, 1997 and 1996, respectively.

Income Taxes

  The Company accounts for income taxes using the asset and liability method.
Under the asset and liability method, deferred income tax assets and liabilities
are determined based on the differences between the financial reporting and tax
basis of assets and liabilities and are measured using currently enacted tax
rates and laws.

  No U.S. federal income taxes are provided on undistributed earnings of the
non-U.S. subsidiaries as these earnings are considered permanently invested in
non-U.S. operations.

Foreign Currency Translation

  The Company's non-U.S. subsidiaries' balance sheet accounts are translated
into U.S. dollars at the exchange rate as of the balance sheet date. Revenues,
costs and expenses are translated using an average rate. Resulting exchange
gains and losses are reported as a component of stockholders' equity.

Earnings (Loss) Per Share

  In the quarter ended December 31, 1997, the Company adopted Statement of
Financial Accounting Standards, "Earnings Per Share" ("SFAS 128"). SFAS 128
requires the presentation of basic earnings per share (EPS) and diluted EPS,
for companies with potentially dilutive securities, such as options. Earnings
per share data for all prior periods have been restated to conform with the
provisions of SFAS 128.

  Basic earnings per share is computed using the weighted average number of
shares of common stock outstanding during the period.  Diluted earnings per
share is computed using the weighted average number of shares of common stock
and common equivalent shares outstanding during the period.  Common equivalent
shares consist of mandatorily redeemable convertible preferred stock (using the
if converted method) and stock options and warrants (using the treasury stock
method).  Common equivalent shares are excluded from the computation if their
effect is antidilutive.  See Note 3.

Management Estimates and Assumptions

  The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period.  Actual results could differ from those estimates.

Reclassifications

  Certain reclassifications have been made to the prior year consolidated
financial statements to conform to the current year presentation.

Recent Accounting Pronouncements

  In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 establishes standards for reporting comprehensive
income and its components in financial statements. Comprehensive income as
defined includes all changes in equity (net assets) during a period from
nonowner sources. Examples of items to be included in comprehensive income
which are excluded from net income include foreign currency translation
adjustments and unrealized gains/losses on available-for-sale securities.

                                       40
<PAGE>

  For comparative purposes reclassification of financial statements for
earlier periods is required. The Company will adopt SFAS 130 beginning in 1998
and does not expect such adoption to have a material effect on the
consolidated financial statements.

  In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes
standards for the way companies report information about operating segments in
annual financial statements. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
The disclosures prescribed by SFAS 131 will be effective the year ending
December 31, 1998. The Company has not evaluated the impact that adopting SFAS
131 will have on its notes to the consolidated financial statements.

NOTE 2. CONSOLIDATED BALANCE SHEET COMPONENTS

Details of certain balance sheet captions are as follows:
<TABLE>
<CAPTION>
                                                            December 31, 1997          March 31, 1997
                                                            -----------------          --------------
Property and equipment, including capitalized leases:
<S>                                                         <C>                        <C>

   Buildings                                                        $  99,198               $  99,101
   Computer equipment                                                  55,370                  58,360
   Furniture, fixtures and equipment                                   24,160                  25,261
   Leasehold improvements                                               2,798                   3,135
                                                            -----------------          --------------
                                                                      181,526                 185,857
   Less accumulated depreciation and amortization                    (104,329)               (103,819)
                                                            -----------------          --------------
                                                                       77,197                  82,038
   Land and improvements                                               24,525                  24,525
                                                            -----------------          --------------
   Total                                                            $ 101,722               $ 106,563
                                                            =================          ==============
Accrued expenses:
   Employee related expenses                                        $   5,727               $   8,900
   Advertising and customer sales incentives                            1,807                   2,548
   Professional fees and settlement costs                              18,283                  18,708
   Other                                                               10,637                   7,568
                                                            -----------------          --------------
   Total                                                            $  36,454               $  37,724
                                                            =================          ==============
Other current liabilities:
   Deferred revenue                                                 $   9,683               $   8,028
   Deferred and other taxes                                             1,954                   1,841
   Other                                                                8,728                   8,948
                                                            -----------------          --------------
   Total                                                            $  20,365               $  18,817
                                                            =================          ==============
Long-term debt and other non-current liabilities:
   Non-current portion of accrued
     restructuring charges                                          $   3,307               $   3,634
   Mortgage notes payable                                               9,249                   9,348
   Deferred and other taxes                                             9,404                   9,404
   Other                                                                   65                     122
                                                            -----------------          --------------
   Total                                                            $  22,025               $  22,508
                                                            =================          ==============
</TABLE>

                                       41
<PAGE>

NOTE 3. EARNINGS PER SHARE

  The following is a reconciliation of the computation of basic and diluted
earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
                                                                             Nine Months              Year Ended
                                                                                Ended                   March 31,
                                                                             December 31,    -----------------------------
                                                                                 1997             1997             1996
                                                                           --------------    -------------    ------------
Numerator:
<S>                                                                        <C>               <C>              <C>
Net income (loss) before accretion charge to the mandatorily redeemable
    convertible preferred stock relating to warrants                             $ 4,424        $(107,960)         $14,719
Accretion charge relating to the warrants issued in connection with the
    mandatorily redeemable convertible preferred stock                               569              ---              ---
                                                                                 -------        ---------          -------
Income (loss) available to common stockholders for basic and
    diluted earnings per share                                                   $ 3,855        $(107,960)         $14,719
                                                                                 =======        =========          =======
Denominator:
Denominator for basic earnings per share - weighted average shares                37,977           36,512           33,968
Effect of dilutive securities - employee stock options                             1,788              ---            3,199
                                                                                 -------        ---------          -------
Denominator for diluted earnings per share - adjusted weighted average
    shares and assumed conversions                                                39,765           36,512           37,167
                                                                                 =======        =========      ===========
Earnings per share - basic                                                       $  0.10        $   (2.96)         $  0.43
Earnings per share - diluted                                                     $  0.10        $   (2.96)         $  0.40
</TABLE>

  The 550 shares of Series B mandatorily redeemable convertible preferred stock
and 220,000 warrants to purchase common shares outstanding at December 31, 1997
were not included in the computation of diluted EPS because the inclusion of
mandatorily redeemable convertible preferred stock would have been antidilutive
and the warrant's exercise price exceeded the average market price of the common
stock.

  Additionally, options to purchase 8,866,000 shares of common stock were
outstanding at March 31, 1997, but were not included in the computation of
diluted EPS because either the options' exercise prices were greater than the
average market price of common stock or inclusion of such options would have
been antidilutive.

NOTE 4. MERGER WITH OPEN ENVIRONMENT CORPORATION

  On November 18, 1996, Borland issued 4,975,000 shares of its common stock for
all of the outstanding stock of Open Environment Corporation ("OEC") and issued
options to purchase 1,190,216 shares of Borland common stock in exchange for all
the outstanding options to purchase common stock. The merger has been accounted
for as a pooling of interests and, accordingly, the consolidated financial
statements have been restated for all periods prior to the combination to
include the operations of OEC. OEC develops, markets and supports software that
enables companies to create applications for distributed, client/server-
computing systems.

  Prior to the merger, OEC's year end was December 31. Accordingly, OEC's year
end was conformed to Borland's March year end for fiscal year 1997. For periods
prior to fiscal year 1997, the combined financial statements of Borland and OEC
include OEC's December year end consolidated financial statements, with OEC's
results of operations for the quarter ended March 31, 1996, reported as an
adjustment to the combined accumulated deficit. OEC's statement of operations
for the three months ended March 31, 1996 have not been combined with any of the
Company's statements of operations. Rather, OEC's net loss for that period has
been credited to retained earnings. Net revenues and net loss for the three
months ended March 31, 1996, were $3.2 million and $5.0 million respectively.

                                       42
<PAGE>

  Separate pre-combination net revenues and net income (loss) of Borland and OEC
are as follows (amounts in thousands):

                    April 1, 1996 to               Year Ended
                   November 18, 1996             March 31, 1996
                   -----------------             --------------
Net revenues
Borland               $  88,947                     $215,206
OEC                       8,161                       29,881
                      ---------                     --------
Combined              $  97,108                     $245,087
                      =========                     ========

Net income (loss)
Borland               $(43,808)                     $ 14,285
OEC                    (13,991)                          434
                      ---------                     --------
Combined              $(57,799)                     $ 14,719
                      =========                     ========

NOTE 5. RESTRUCTURING AND MERGER RELATED CHARGES

  During the year ended March 31, 1997, the Company recorded restructuring,
merger and other non-recurring charges totaling $18.9 million.  OEC recorded a
provision for restructuring charges of $1.1 million in the quarter ended June
30, 1996. Charges included the write-off of inventory and prepaid royalties and
facilities related to the discontinued education centers and severance payments.
In response to the significant losses from operations in the three and six
months ended September 30, 1996, the Company implemented a worldwide
restructuring and realignment of its corporate structure during October 1996,
which resulted in a 15% reduction in workforce. In connection with this
restructuring, the Company recorded a $2.9 million restructuring charge in the
quarter ended December 31, 1996 primarily for severance costs and lease
terminations.

  Based on the results of the October 1996 restructuring and the results of the
quarter ended December 31, 1996, the Company implemented an additional worldwide
restructuring and realignment and recorded the related charge of $6.0 million
during the quarter ended March 31, 1997. The fourth quarter restructuring plan
involved significant reductions in operational expenses as well as the
implementation of new programs aimed at growing the Company's revenues.

  During fiscal 1995, the Company recorded restructuring charges of $50.0
million.  The restructuring charges were incurred for the reduction of worldwide
headcount by approximately 40%, the centralization of certain marketing and
development activities to improve efficiency, the outsource of manufacturing
operations in the U.S. and in Europe and the write-down of facilities and
certain purchased technology costs.  In addition, several international
operations were closed, sales efforts in those areas are now conducted through
authorized distributors.

                                       43
<PAGE>

  The following table summarizes the Company's restructuring activity for the
nine months ended December 31, 1997 and the two years ended March 31, 1997,
amounts in thousands:

<TABLE>
<CAPTION>
                                     Severance         Other Asset
                                    and Benefits         Charges          Facilities          Other          Total
                                   -------------       -----------        ----------         -------        --------
<S>                                <C>                 <C>                <C>                <C>            <C>
Accrual as of March 31, 1995            $ 4,580            ---             $ 4,678           $ 2,299          $11,557
Cash paid in fiscal 1996                 (4,278)           ---              (2,437)           (1,353)          (8,068)
                                        -------      ---------             -------           -------          -------
Accrual as of March 31, 1996                302            ---               2,241               946            3,489
1997 restructuring                        6,228            562               1,777             1,477           10,044
Cash paid in fiscal 1997                 (4,483)           ---              (1,959)           (1,471)          (7,913)
Non-cash costs                              ---           (562)               (100)              ---             (662)
                                        -------      ---------             -------           -------          -------
Accrual as of March 31, 1997              2,047            ---               1,959               952            4,958
Cash paid during the nine months
    ended December 31, 1997              (1,904)           ---              (1,387)             (155)          (3,446)
Non cash costs                              ---            ---                 ---              (162)            (162)
                                        -------      ---------             -------           -------          -------
Accrual as of December 31, 1997         $   143            ---             $   572           $   635          $ 1,350
                                        =======      =========             =======           =======          =======
</TABLE>

  The Company also incurred restructuring charges prior to March 31, 1995 for
personnel reductions and the closing of facilities related to significant
changes in its product and distribution strategy. The cash and non-cash charges
during the nine months ended December 31, 1997 and year ended March 31, 1997
were insignificant. The restructuring accruals related to these actions were
$3.2 million and $3.3 million at December 31, 1997 and March 31, 1997,
respectively. The remaining accrual relates primarily to long-term lease
obligations.

  Pursuant to the merger with OEC (see Note 4) the Company incurred merger
related costs of $8.9 million. The charge for the merger related costs, included
in the Consolidated Statements of Operations, consist principally of severance
costs, write-off of certain assets and professional fees.

NOTE 6. LONG-TERM DEBT

  Long-term debt at December 31, 1997 represents outstanding mortgage notes. The
10.75% mortgage notes, secured by certain land, buildings and improvements, are
repayable in equal monthly installments over a thirty-year term ending in 2018.

Minimum annual repayments of these notes at December 31, 1997 are as follows,
amounts in thousands:

<TABLE>
<CAPTION>
                       Calendar year:
                       --------------
<S>                    <C>                                 <C>
                          1998                              $  131
                          1999                                 145
                          2000                                 161
                          2001                                 180
                          2002                                 200
                       Thereafter                            8,563
                                                            ------
                                                             9,380
                       Less current portion                   (131)
                                                            ------
                       Long-term portion                    $9,249
                                                            ======
</TABLE>

  Interest expense for all obligations was $811,000, $1,186,000 and $1,256,000
for the nine months ended December 31, 1997 and the years ended March 31, 1997
and 1996, respectively.



                                       44
<PAGE>
NOTE 7. INCOME TAXES

     Income (loss) before income taxes consisted of the following, amounts in
thousands:


                                           Year Ended March 31
                Nine Months Ended     --------------------------------
                December 31, 1997          1997              1996
                -----------------     --------------    --------------

U.S.                $(2,180)            $(100,458)         $ 3,127
Non-U.S.              7,375                (6,985)          14,887
                    -------             ---------          -------
                    $ 5,195             $(107,443)         $18,014
                    =======             =========          =======

     The provision for income taxes consisted of the following, amounts in
thousands:

<TABLE>
<CAPTION>
                                                                            Year Ended March 31,
                                       Nine Months Ended     ---------------------------------------------------
                                       December 31, 1997               1997                      1996
                                    -----------------------  ------------------------  -------------------------
<S>                                 <C>                      <C>                       <C>
Current:
 Federal                                   $       --                  $(2,136)                    $  662
 State                                             --                       --                        487
 Non-U.S.                                         771                    2,653                      2,938
                                            ---------                  -------                     ------
                                                  771                      517                      4,087
                                            ---------                  -------                     ------
Deferred:
 Federal                                           --                       --                       (417)
 State                                             --                       --                       (128)
 Non-U.S.                                          --                       --                       (247)
                                            ---------                  -------                     ------
                                                   --                       --                       (792)
                                            ---------                  -------                     ------
Income tax provision                             $771                  $   517                     $3,295
                                            =========                  =======                     ======
</TABLE>

     The following is a reconciliation of the difference between the actual
provision for income taxes and the provision computed by applying the federal
statutory rate on income (loss) before income taxes, amounts in thousands:

<TABLE>
<CAPTION>
                                                                                      Year Ended
                                                      Nine Months Ended   --------------------------------
                                                      December 31, 1997   March 31, 1997   March 31, 1996
                                                      ------------------  ---------------  ---------------
<S>                                                   <C>                 <C>              <C>
Tax provision (benefit) at
  U.S. statutory rate                                     $ 1,818         $(37,605)         $ 6,305
Limitation/(benefit) on
  utilization of non-U.S. losses                           (2,600)           4,214           (4,557)
Limitation/(benefit) on
  utilization of U.S. losses                                  763           33,024             (770)
State income taxes                                            ---              ---              356
Non-U.S. withholding taxes                                    790              884            2,060
Other                                                         ---              ---              (99)
                                                          -------         --------          -------
Income tax provision                                      $   771         $    517          $ 3,295
                                                          =======         ========          =======
</TABLE>

     Under SFAS 109, deferred tax assets and liabilities are recognized for the
expected future tax consequences of differences between the carrying amounts of
assets and liabilities and their respective tax bases using enacted tax rates in
effect for the year in which the differences are expected to reverse.  Deferred
tax assets are comprised of the following, amounts in thousands:

                                       45
<PAGE>

<TABLE>
<CAPTION>
                                                       Nine Months Ended              Year Ended
                                                       December 31, 1997            March 31, 1997
                                                   --------------------------  -------------------------
<S>                                                <C>                         <C>
Accrued expenses                                            $  15,125                  $  17,370
Accounts receivable reserves                                    1,253                      2,096
Inventory valuation                                             1,251                      1,089
Depreciation, amortization and other                            9,617                      9,595
U.S. federal, state loss and credit carryforwards              93,422                     90,038
Non-U.S. loss carryforwards                                    12,652                     16,087
                                                            ---------                  ---------
Gross deferred tax assets                                     133,320                    136,275
Deferred tax assets valuation allowance                      (133,320)                  (136,275)
                                                            ---------                  ---------
Total net deferred tax assets                               $     ---                  $     ---
                                                            =========                  =========
</TABLE>

     At December 31, 1997 and March 31, 1997, the Company had reserved for all
of its deferred tax assets.  The Company believes sufficient uncertainty exists
regarding the realizability of the deferred tax assets such that a valuation
allowance has been provided.

     For U.S. federal income tax purposes, the Company has net operating loss
carryforwards of approximately $191 million at December 31, 1997.  There are
also available U.S. federal tax credit carryforwards of approximately $22
million.  These loss and credit carryforwards expire between 1998 and 2013, if
not utilized.  The Company also has approximately $28 million of net operating
loss carryforwards in various foreign jurisdictions.  Certain of these loss
carryforwards will expire beginning in 1998, if not utilized.  The Company also
has an Alternative Minimum Tax (AMT) credit carryforwards of approximately $2
million, which does not expire.

  Deferred tax assets and related valuation allowances of approximately $37
million relate to certain U.S. operating loss carryforwards resulting from the
exercise of employee stock options, the tax benefit of which, when recognized,
will be accounted for as a credit to additional paid-in capital rather than a
reduction of the income tax provision.

  During the tax year ended March 31, 1997 the Company recorded an income tax
benefit of approximately $2.1 million resulting from a settlement reached with
the U.S. Internal Revenue Service (IRS).  The settlement resolved differences
regarding certain disputed deductions related to the tax years ending in 1986-
1991 for its former subsidiary Ashton-Tate Corporation.  Excluding the
settlement benefit, the Company would have incurred an income tax expense of
approximately $2.6 million.

  At December 31, 1997 the Company had unresolved deficiency notices or proposed
adjustments from IRS and various state governments for additional taxes and
interest of approximately $5.0 million. The Company is protesting these
assessments or adjustments with the appellate divisions of the respective tax
authorities. The Company believes that the ultimate outcome of the above
assessments will not have a material adverse impact on the Company's financial
position or results of operations.

  Applicable U.S. income and non-U.S. withholding taxes have not been provided
on undistributed earnings of approximately $6.0 million of the Company's foreign
subsidiaries as such earnings are considered to be permanently invested in
foreign operations.

NOTE 8.  LEASES

  The Company leases certain of its office and operating facilities, and certain
furniture and equipment under various operating and capital leases. Lease terms
range from one to sixteen years.

                                       46
<PAGE>

  Minimum annual lease commitments at December 31, 1997 are as follows, amounts
in thousands:

<TABLE>
<CAPTION>
                                                        Operating                       Capital
Calendar year:                                            Leases                        Leases
                                                   --------------------            ----------------
<S>                                                <C>                             <C>
   1998                                                  $ 3,701                        $376
   1999                                                    2,968                         280
   2000                                                    2,499                         131
   2001                                                    1,907                          39
   2002                                                    1,624                          --
   Thereafter                                             10,156                          --
                                                         -------                        ----
                                                         $22,855                         826
                                                         =======
   Less amount representing interest                                                     (50)
                                                                                        ----
                                                                                        $776
                                                                                        ====
</TABLE>

  Rent expenses for all operating leases was $2.3 million, $3.3 million and $4.2
million for the nine months ended December 31, 1997 and the years ended March
31, 1997 and 1996, respectively.

NOTE 9. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK

  During the nine months ended December 31, 1997, the Company issued pursuant to
a private placement 550 shares of Series B mandatorily redeemable convertible
stock ("Series B Shares") at a purchase price of $50,000 per share for
aggregate proceeds of $27.5 million. The Series B Shares do not pay or accrue
dividends. For each purchased share of its Series B Shares, the Company also
issued to the purchaser a warrant to purchase 400 shares of the Company's
common stock at a per share price equal to 125% of the closing price of the
common stock on the issuance date. The warrants have a four year term. The fair
value of the warrants has been treated as a distribution to the holders of the
Series B Shares. Accordingly, the fair value of the warrants has been recognized
as a reduction to net income for earnings per shares purposes on a pro rata
basis over the period that the Series B Shares can be converted. The fair value
of the warrants was estimated at the date of issuance using the Black-Scholes
pricing model and was treated as a charge to accumulated deficit.

  The Series B Shares have certain rights with respect to voting, liquidation,
and conversion as follows:

Voting

  Series B Shares have voting rights equal to the shares of common stock into
which they may be converted.

Liquidation

  In the event of liquidation and to the extent assets are available, the
holders of the Series B Shares are entitled to receive, prior to and in
preference to any distribution to the holders of common stock, the amount of
$50,000 per preferred share.

Conversion

  The Series B Shares are convertible at the option of the holder, after the
satisfaction of certain holding periods into fully paid and non-assessable
shares of common stock based upon a conversion price equal to the lower of the
lowest closing market price of a shares of the Company's common stock during the
seven trading days before the conversion date or $6.94.  The Series B Shares are
automatically converted five years from the date of issuance.

  The Series B Shares contain a clause whereby if the Company does not have a
sufficient number of shares of common stock to satisfy the Company's obligation
upon the conversion of the Series B Shares, the Company must pay the holder of
Series B Shares the greater of (i) 110% of the

                                       47
<PAGE>

Series B Shares liquidation preference or (ii) the product of the conversion
rate and the market price of the common stock on the date of conversion.
Consequently, the Series B Shares are considered mandatorily redeemable
preferred stock and have been classified as temporary equity in the Consolidated
Balance Sheet.

  At December 31, 1997 6,135,000 shares of Borland common stock were reserved
for issuance upon the conversion of the Series B Shares.

  Subject to various additional conditions, the Company has the option
("Company Put Option") to require the Series B shareholders to purchase
additional Series B Shares and warrants and the Series B shareholders have the
right to require that the Company sell to them additional Series B Shares and
warrants ("Series B Call Options"). The maximum number of additional Series B
Shares and warrants which the Company may require the Series B shareholders to
purchase is 500 Series B Shares for an additional purchase price of
approximately $25 million, and warrants to purchase 200,000 shares of the
Company's common stock. Assuming that the Company exercises its right to sell
the maximum number of shares under the Company Put Option, the maximum number
of additional Series B Shares which the Series B shareholders may require that
the Company sell to them under the Series B Call Options is 420 Series B
Shares, for a purchase price of approximately $21 million, (220 Series B
Shares, for a purchase price of approximately $11 million, if the Company does
not exercise the Company Put Option) and the number of shares subject to
additional warrants would be 168,000 (88,000 if the Company does not exercise
the Company Put Option). The Series B Shares and warrants issued upon exercise
of the Company Put Option or the Series B Call Options will have the same
terms and rights as the Series B Shares and warrants initially issued, except
that the maximum conversion price and exercise price, respectively, will be
based upon the market price of the Company's common stock at the time of the
subsequent issuance of such Series B Shares and warrants. The Company's Put
Option expires on March 31, 1998 and Borland is in discussions with the Series
B shareholders to extend the expiration date.

NOTE 10.  EMPLOYEE BENEFIT PLANS

Stock Option Plan

  As of December 31, 1997, the Company had four stock-based compensation
plans. The Company applies APB 25 and related interpretations in
accounting for its plans. Accordingly, no compensation costs have been
recognized for its three stock option plans and its stock purchase plan. The
Employee Option Plans ("EOP") allow for the grant of both incentive stock
options and nonstatutory options. The exercise price of options granted under
the EOP may not be less than 85% of the fair market value of the common stock at
the date of the grant for nonstatutory options, and 100% of the fair market
value of the Company's common stock on the date of grant for incentive stock
options. However, in the case of options granted to an optionee who owns stock
representing more than 10% of the voting power of all classes of the Company's
stock, the exercise price must not be less than 110% of the fair market value on
the grant date and the maximum term of such options may not exceed five years.
Certain stock option grants made during the nine months ended December 31, 1997
and the years ended March 31, 1997 and  1996 have accelerated vesting features
that become effective under certain conditions in the event that there is a
change of control of the Company. Options generally vest 25% one year from the
date of grant and ratably over the remaining three years either on a daily or a
monthly basis.  Certain options have been granted that vest daily or monthly
over a specified vesting period from the date of grant.  Options expire at the
earlier of either three months after termination of employment or ten years
after the date of grant.

  The Company also grants options to non-employee directors. Each non-employee
director, on the date of his election to the Board, is granted an option for the
purchase of 30,000 shares of the Company's common stock. Upon the election of a
non-employee director as Chairman of the Board such person is granted a further
stock option of 30,000 shares of the Company's common stock.  Additionally, at
the annual stockholders' meeting each non-employee director is granted options
of 7,500 shares (15,000 for a non-employee Chairman of the Board) of the
Company's common stock.  All such shares vest one-year from the date of grant.

  In February 1997, substantially all outstanding options with a share price in
excess of $6.44 were amended to an exercise price of $6.44 per share, the fair
market value as of the date the amendment was announced.  A total of 4,718,355
options were amended.

  The following table summarizes the Company's stock option activity and related
weighted average exercise prices within each category for the nine months ended
December 31, 1997 and the years ended March 31, 1997 and 1996 relating to the
Company's stock option plans, amounts in thousands except share price:

                                       48
<PAGE>

<TABLE>
<CAPTION>
                                                                               Years Ended March 31,
                                       Nine Months Ended     --------------------------------------------------------
                                       December 31, 1997                  1997                        1996
                                   --------------------------  --------------------------  --------------------------
                                       Shares        Price        Shares         Price         Shares        Price
                                   --------------  ----------  -------------  -----------  --------------  ----------
<S>                                <C>             <C>         <C>            <C>          <C>             <C>
Options outstanding at
  beginning of period                      8,866        $7.59         7,357        $10.88         11,106       $ 9.99
Stock options:
 Granted                                   3,437        $8.46        10,074        $ 6.52          2,513       $12.23
 Exercised                                (1,722)       $6.67          (321)       $ 7.77         (3,874)      $ 9.22
 Canceled                                 (1,233)       $7.49        (8,244)       $ 9.26         (2,388)      $10.82
                                          ------        -----        ------        ------         ------       ------

Options outstanding at end of
 period                                    9,348        $8.12         8,866        $ 7.59          7,357       $10.88
                                          ======        =====        ======        ======         ======       ======

Exercisable                                3,832                      3,846                        2,353
                                          ======                     ======                       ======
</TABLE>

  At December 31, 1997, 183,558 shares were available for future grant under the
option plans. All options granted under the plan for the nine months ended
December 31, 1997 and the years ended March 31, 1997 and 1996 were priced at
market value at the time of grant.

  The fair value of each option grant, as defined by SFAS 123, is estimated on
the date of grant using the Black-Scholes pricing model.  The Black-Scholes
pricing model, as well as other currently accepted option valuation models, was
developed to estimate the fair value of freely tradable, fully transferable
options without vesting restrictions, which significantly differ from the
Company's stock option awards.  These models also require highly subjective
assumptions, including future stock price volatility and expected time until
exercise, which greatly affect the calculated fair value on the grant date.  The
fair value of each stock option grant is estimated on the date of grant using
the Black-Scholes pricing model with the following weighted average assumptions:

<TABLE>
<CAPTION>
                                       Nine Months                  Years Ended March 31,
                                          Ended           -----------------------------------------
                                    December 31, 1997             1997                  1996
                                 -----------------------  --------------------  --------------------
<S>                              <C>                      <C>                   <C>
Expected life                           2.6 years              2.5 years             2.5 years
Risk-free interest rate                   5.71%                 6.57%                 6.31%
Volatility                                66.4%                 70.0%                 63.0%
Dividend yield                            0.00%                 0.00%                 0.00%
</TABLE>

The following table summarizes information about fixed stock options outstanding
at December 31, 1997:

<TABLE>
<CAPTION>
                                                    Options Outstanding                       Options Exercisable
                                       -------------------------------------------------------------------------------------
 Range of Exercise                          Weighted-Average     Weighted-Average          Number          Weighted-Average
      Prices         Number Outstanding     Contractual Life      Exercise Price        Exercisable         Exercise Price
 -----------------   ------------------     ----------------     ----------------   --------------------   -----------------
                       (in thousands)          (in years)                              (in thousands)
<S>                  <C>                    <C>                  <C>                <C>                     <C>
  $0.31 - $ 6.06           1,915                   8.86              $ 5.59                1,073               $ 5.47
  $6.31 - $ 6.38             244                   9.10              $ 6.36                   40               $ 6.31
  $6.44 - $ 6.44           2,540                   7.44              $ 6.44                1,567               $ 6.44
  $6.56 - $ 8.88           2,577                   9.39              $ 7.60                  239               $ 7.48
  $9.09 - $49.00           2,072                   8.14              $13.36                  913               $16.80
                           -----                                                           -----
                           9,348                                                           3,832
                           =====                                                           =====
</TABLE>

                                       49
<PAGE>

Employee Stock Purchase Plan

  The Company has adopted an Employee Stock Purchase Plan ("ESPP"), which allows
eligible employees of the Company and its subsidiaries to purchase shares of
common stock through payroll deductions. Purchases are limited to 15% of the
employee's compensation, subject to a maximum annual employee contribution
limited to a $25,000 market value (calculated as the employee's enrollment price
multiplied by the purchased shares) but limited to no more than 2,500 shares of
stock. The ESPP shares may be purchased by participants at the lower of 85% of
the fair market value at the beginning of the offering period or the purchase
date. Of the 1,050,000 shares of common stock that have been reserved for
issuance under the ESPP,  849,951 shares were issued through December 31, 1997.
Sales under the ESPP during the nine months ended December 31, 1997 and the
years ended March 31, 1997 and 1996 were 77,426, 142,573 and 105,753 shares of
common stock at an average price of $6.04, $5.67 and $9.55 per share,
respectively. Compensation cost (included in pro forma net income and net income
per share amounts) is recognized for the fair value of the employees' purchase
rights, which was estimated using the Black-Scholes pricing model with the
following weighted-average assumptions for the nine months ended December 31,
1997 and the years ended March 31, 1997 and 1996, respectively:  an expected
life of six months; expected volatility of 66%, 70% and 63%; risk-free interest
rates of 5.71%, 6.57% and 6.31%; and dividend yields of 0%. The weighted-average
fair value of those purchase rights granted during the nine months ended
December 31, 1997 and the years ended March 31, 1997 and 1996, as defined by
SFAS 123, was $4.60, $3.24 and $3.74, respectively.

Pro Forma Net Income and Net Income Per Share

  Had the Company recorded compensation costs based on the estimated grant date
fair value, as defined by SFAS 123, for awards granted under its stock option
and stock purchase plans, the Company's pro forma net income and earnings per
share for the nine months ended December 31, 1997 and the years ended March 31,
1997 and 1996 would have been as follows (amounts in thousands, expect per share
data):

<TABLE>
<CAPTION>
                                                                               Years Ended March, 31
                                              Nine Months Ended       ------------------------------------
                                              December 31, 1997           1997                   1996
                                              -----------------       ------------           -------------
<S>                                           <C>                     <C>                    <C>
Net income (loss):
 As reported                                      $  4,424              $(107,960)                $14,719
 Pro Forma                                          (7,608)             $(122,941)                $10,103

Net income (loss) per share:
 As reported  basic                               $   0.10              $   (2.96)                $  0.43
 As reported  diluted                             $   0.10              $   (2.96)                $  0.40

 Pro Forma  basic                                 $  (0.20)             $   (3.37)                $  0.30
 Pro Forma  diluted                               $  (0.20)             $   (3.37)                $  0.27
</TABLE>

  The pro forma amounts include compensation expense related to the nine months
ended December 31, 1997 and the years ended March 31, 1997 and 1996 stock option
grants and stock purchase rights.  In future years, the annual compensation
expense will increase relative to the fair value of stock options and stock
purchase rights granted in those future years.

Profit Sharing Plan and Bonus Plans

  The Company has several bonus plans, which provide for additional compensation
to most U.S. and certain non-U.S. employees. Charges to income for the plans
were approximately $2.8 million, $12.7 million, and $2.9 million during the nine
months ended December 31, 1997 and the years ended March 31, 1997 and 1996,
respectively.

                                       50
<PAGE>

NOTE 11. STOCKHOLDER RIGHTS PLAN

  In December 1991, the Company implemented a Stockholder Rights Plan ("Rights
Plan") to protect the stockholders in the event of a proposed takeover of the
Company which has not been recommended or approved by the Board of Directors.

  Under the Rights Plan, each share of the Company's outstanding common stock
carries one Preferred Share Purchase Right ("Right"). The Right entitles the
holder under certain circumstances, to purchase common stock of the Company at a
50% discount from its then current market price. The Rights are redeemable by
the Company at a nominal price and expire in 2001.

NOTE 12. LITIGATION

  The Company is a party to a lawsuit, Kaplan, et al vs. Kahn, et al, originally
filed in the United States District Court for the Northern District of
California in 1993 and 1995, respectively. The lawsuits allege certain
securities law violations by the Company and certain of its officers and
directors relating to periods between 1991 and 1994. In 1996, the parties
entered into a stipulation to settle both lawsuits, the stipulation was
submitted for court approval and monies were deposited in escrow to fund the
settlement. At the time, the Company recorded a charge in the amount of its
contribution to the settlement to be paid by the Company. On March 18, 1998,
the Court preliminarily approved a revised settlement plan which did not
involve any further contribution by the Company. The plan remains subject to
comment from class members and there can be no assurance that the settlement
will receive final approval by the Court. If these lawsuits are not settled
and the cases are litigated, an adverse decision in either case could have a
material adverse effect on the Company's financial condition and results of
operations.

  In January, 1996, in the case of Lotus Development Corp. vs. Borland
International, Inc., the U.S. Supreme Court affirmed the judgment of the U.S.
Court of Appeals for the First Circuit that the Company did not infringe the
copyright of Lotus's spreadsheet product, Lotus 1-2-3. The Company initiated
proceedings in the U.S. District Court in Massachusetts for a determination of
what attorneys fees and costs, if any, the Company may recover. In February
1997, the U.S. District Court in Massachusetts denied the Company's request
for attorneys fees but awarded costs to the Company in a small amount. The
Company has appealed the U.S. District Court's denial of attorneys fees and
payment of full costs and a hearing was held in January 1998 in the U.S. Court
of Appeals for the First Circuit. The appeal is under submission.

  Three securities class action lawsuits have been filed against the Company's
OEC subsidiary, certain former officers and directors of OEC, and OEC's
outside auditors which lawsuits allege certain securities laws violations
prior to the Company's acquisition of OEC. These three lawsuits have been
consolidated in the United States District Court for the District of
Massachusetts under the name Zeid, et al. v. Open Environment Corp., et al.
The Company and other defendants filed a motion to dismiss the consolidated
complaint on December 16, 1997. The motion was granted in part and denied in
part. The case will now proceed to the discovery phase. No trial date has been
set. The Company's OEC subsidiary intends to defend this lawsuit vigorously.
If this lawsuit is not settled and the case is litigated, an adverse decision
could have a material adverse effect on the Company's financial condition and
results of operations.


  In addition, the Company is involved in various other legal actions arising
in the normal course of business. The Company believes that the probability is
remote that the financial consequence of judgments, if any, arising from any of
the above actions would have a materially adverse impact on its financial
condition or results of operations. However, due to the inherent uncertainties
of litigation, the outcome of any of these actions could be unfavorable and the
Company may choose to make payments, or enter into other arrangements, to settle
such actions or may be required to pay damages or other expenses. Such an
outcome in certain of these matters could have a material adverse effect on
Borland's financial condition or results of operations.

                                       51
<PAGE>

NOTE 13. WORLDWIDE OPERATIONS

  The Company operates in a single industry segment, and has various wholly
owned subsidiaries, which develop and/or market the Company's products in other
countries. In certain international markets not covered by the Company's non-
U.S. subsidiaries, the Company generally sells through independent distributors.

  Summary information regarding the Company's geographic operations follows,
amounts in thousands:

<TABLE>
<CAPTION>
                                                                                 Year Ended March 31,
                                              Nine Months Ended          ------------------------------------
                                              December 31, 1997                 1997                1996
                                              -----------------          ----------------    ----------------
<S>                                           <C>                        <C>                 <C>
Net revenues from unaffiliated customers:
   U.S. operations                                $  47,417               $  61,936                 $135,944
   European operations                               42,269                  47,632                   56,767
   Japan operations                                  20,075                  26,366                   30,682
   Other international operations                    17,724                  15,442                   21,694
                                                  ---------               ---------                 --------
Net revenues                                      $ 127,485               $ 151,376                 $245,087
                                                  =========               =========                 ========

Operating results:
   U.S. operations                                $(21,492)               $(125,873)                $(13,649)
   European operations                               17,473                   9,818                   15,413
   Japan operations                                   6,541                   5,700                    6,706
   Other international operations                     1,551                  (2,225)                   5,323
                                                  ---------               ---------                 --------
Operating income (loss)                           $   4,073               $(112,580)                $ 13,793
                                                  =========               =========                 ========

Identifiable assets:
   U.S. operations                                $ 117,058               $ 116,738                 $153,377
   European operations                               12,962                   8,527                   14,081
   Japan operations                                   8,148                   7,058                    8,694
   Other international operations                     4,642                   6,019                    8,246
                                                  ---------               ---------                 --------
Identifiable assets                                 142,810                 138,342                  184,398
   General corporate assets (cash, cash              87,012                  54,360                  107,836
    equivalents, and short-term investments)
                                                  ---------               ---------                 --------
Total assets                                      $ 229,822               $ 192,702                 $292,234
                                                  =========               =========                 ========
</TABLE>

  Other international operations include activities of subsidiaries in
Australia, Canada, Singapore and Hong Kong.

  Revenues, operating results and identifiable assets are classified by location
of the Company's facilities rather than by customer location. Revenues related
to product transfers between geographic areas were not significant. Export
revenues from the U.S. represented $6.3 million, $3.9 million and $16.3 million
during the nine months ended December 31, 1997 and the year ended March 31, 1997
and 1996, respectively.

  At December 31, 1997 and March 31, 1997, foreign liabilities (excluding
intercompany balances) were $17.8 million and $18.5 million, respectively.

                                       52
<PAGE>

  For the nine months ended December 31, 1997 and the years ended March 31, 1997
and 1996 sales to one customer, Ingram Micro and its subsidiaries, accounted for
approximately 11%, 12% and 15% of the Company's net revenues, respectively.

NOTE 14. SUBSEQUENT EVENTS

Acquisition

  On February 27, 1998, the Company issued approximately 12,118,060 shares of
Borland Common Stock in exchange for all of the outstanding common stock of
Visigenic Software, Inc. ("Visigenic").  The Company also reserved approximately
2,527,284 shares for issuance in connection with Visigenic's outstanding
employee stock options.  The merger, which will be accounted for as a pooling of
interests and, accordingly, the Company's consolidated financial statements will
be restated in the first quarter of 1998 for all periods prior to the merger to
include the operations of Visigenic.

  Visigenic designs, develops and markets of distributed direct and database
access software products. Additionally, Visigenic's professional services
organization provides product training, various consulting services, and
product support. These services are designed to promote the successful
development and deployment of distributed business applications built with
Visigenic's distributed object and database access products.

  Pursuant to the merger Visigenic's year end will be conformed to the Company's
newly adopted year end of December 31 (see Note 1).  The following unaudited pro
forma combined financial information assumes that the merger occurred on the
first day of the earliest period presented (in thousands of dollars, except per
share amounts).

<TABLE>
<CAPTION>
Nine Months Ended                                                                             Proforma
December 31, 1997 (unaudited)                       Borland             Visigenic             Combined
-----------------------------                 -------------------  -------------------  --------------------
<S>                                           <C>                  <C>                  <C>
Net revenues                                           $ 127,485             $ 18,451             $ 145,936
Net income (loss)                                      $   4,424             $ (8,382)            $  (3,958)
Earnings per share -- basic                            $    0.10             $  (0.58)            $   (0.09)
Earnings per share -- diluted                          $    0.10             $  (0.58)            $   (0.09)

Year Ended
March 31, 1997 (unaudited)
--------------------------
Net revenues                                           $ 151,376             $ 19,601             $ 170,977
Net loss                                               $(107,960)            $(20,268)            $(128,228)
Earnings per share -- basic                            $   (2.96)               (1.58)                (2.73)
Earnings per share -- diluted                          $   (2.96)               (1.58)                (2.73)

Year Ended
March 31, 1996 (unaudited)
--------------------------
Net revenues                                           $ 245,087             $  6,734             $ 251,821
Net income (loss)                                      $  14,719             $ (4,408)            $  10,311
Earnings per share -- basic                            $    0.43             $  (1.57)            $    0.28
Earnings per share -- diluted                          $    0.40             $  (1.57)            $    0.24
</TABLE>

This pro forma combined financial information is provided for comparative
purposes only and does not purport to be indicative of the results which
actually would have been obtained if the merger had been effected for the
periods indicated, or of the results which my be obtained in the future.

                                       53
<PAGE>

Employee Benefit Plans

  On February 27, 1998, the Company's stockholders approved (i) an amendment to
the Company's 1997 Stock Option Plan to increase the aggregate number of shares
of Borland common stock reserved for issuance thereunder from 1.6 million shares
to 3.3 million shares and (ii) an amendment to the Company's 1997 Employee Stock
Purchase Plan to increase the number of shares of Borland common stock available
for purchase thereunder from 200,000 share to 400,000 shares.

                                       54
<PAGE>

                                                                     SCHEDULE II

                          BORLAND INTERNATIONAL, INC.

                       VALUATION AND QUALIFYING ACCOUNTS

 For the Nine Months Ended December 31, 1997 and the Years Ended March 31, 1997
                                    and 1996
                                 (in thousands)


<TABLE>
<CAPTION>
                                                                 Balance at        Charged to           Deductions       Balance at
                                                                 Beginning        Statements of           From              End of
                                                                 Of Period         Operations             Reserves          Period
                                                                 -----------      -------------       -------------     ------------

<S>                                                              <C>              <C>                 <C>               <C>
December 31, 1997:
Allowance for sales returns, rebates and doubtful accounts        $16,118          $13,073              $17,927           $11,264
March 31, 1997:
Allowance for sales returns, rebates and doubtful accounts        $22,730          $28,298              $34,910           $16,118
March 31, 1996:
Allowance for sales returns, rebates and doubtful accounts        $30,741          $32,659              $40,670           $22,730
</TABLE>

                                       55
<PAGE>

                          BORLAND INTERNATIONAL, INC.

                               INDEX TO EXHIBITS

<TABLE>
Exhibit
Number                                       Description
----------      ------------------------------------------------------------------------

<C>             <S>
    2.1(1)      Agreement and Plan of Merger among Borland International, Inc., Aspen
                Acquisition Corporation and Open Environment Corporation
                dated May 11, 1996
    2.2(2)      Agreement and Plan of Merger among Borland International, Inc., Vixen
                Acquisition Corporation and Visigenic Software, Inc. dated as of
                November 17, 1997
    3.1(3)      Restated Certificate of Incorporation of the Registrant
    3.2(3)      Amended Bylaws of the Registrant
    4.1(3)      Restated Certificate of Incorporation and Bylaws of the
                Registrant
    4.2(13)     Rights Agreement dated as of December 23, 1991 between Borland
                International, Inc. and Manufacturers Hanover Trust
                Company of California
   10.1(4)      Loan commitment secured by a mortgage entered into with Sanwa Bank
                California, Wells Fargo Bank, and Pacific Trust Fund Company dated
                September 17, 1987 and amendment thereto dated April 27, 1988
   10.2(5)      Form of Convertible Securities Subscription Agreement for Registrant's
                Series B Preferred Stock
   10.3(5)      Form of Registration Rights Agreement for Registrant's Series B
                Preferred Stock
   10.4(6)      Form of Indemnity Agreement
   10.5(14)     Employment Agreement with Delbert W. Yocam, as amended
   10.6(7)      Third Addendum to Employment Agreement with Delbert W. Yocam
   10.7(8)      1990 Employee Stock Purchase Plan
   10.8(9)      Non-Employee Directors' Stock Option Plan
   10.9(10)     1992 Stock Option Plan
   10.10(11)    1993 Stock Option Plan
   10.11(12)    1997 Stock Option Plan
   10.12(12)    1997 Employee Stock Purchase Plan
   21           Subsidiaries of the Registrant
   23.1         Consent of Price Waterhouse LLP, Independent Accountants
   23.2         Consent of Ernst & Young LLP, Independent Auditors
   24.1         Powers of Attorney
   27.1         Financial Data Schedule
</TABLE>
---------------------------------

 (1)   Previously filed as an exhibit to Registrant's Registration Statement on
       Form S-4 (filed with the Commission on October 11, 1996) and incorporated
       herein by reference.

 (2)   Previously filed as an exhibit to Registrant's Current Report on Form 8-K
       (filed with the Commission on November 21, 1997) and incorporated herein
       by reference.

 (3)   Previously filed as an exhibit to Registrant's Quarterly Report for the
       fiscal quarter ended September 30, 1997 (filed with the Commission on
       November 14, 1997) and incorporated by reference.

 (4)   Previously filed as an exhibit to Registrant's Amendment No. 1 to
       Registration Statement on Form S-1 (filed with the Commission on December
       12, 1989) and incorporated herein by reference.

 (5)   Previously filed as an exhibit to Registrant's Current Report on Form 8-K
       (filed with the Commission on July 14, 1997) and incorporated herein by
       reference.

 (6)   Previously filed as an exhibit to Registrant's Registration Statement on
       Form S-8 (filed with the Commission on September 26, 1990) and
       incorporated herein by reference.

 (7)   Previously filed as an exhibit to Registrant's Quarterly Report for the
       fiscal quarter ended September 30, 1997 (filed with the Commission on
       November 14, 1997) and incorporated by reference.

 (8)   Previously filed as an exhibit to Registrant's Annual Report on Form 10-K
       for the year ended March 31, 1993 (filed with the Commission on July 2,
       1993) and incorporated herein by reference.

 (9)   Previously filed as an exhibit to Registrant's Current Report on Form 8-K
       (filed with the Commission on December 27, 1991) and incorporated herein
       by reference.

(10)   Previously filed as an exhibit to Registrant's Registration Statement on
       Form S-8 (filed with the Commission on July 24, 1992) and incorporated
       herein by reference.

(11)   Previously filed as an exhibit to Registrant's Registration Statement on
       Form S-8 (filed with the Commission on March 11, 1993) and incorporated
       herein by reference.

(12)   Previously filed as an exhibit to Registrant's Registration Statement on
       Form S-8 (filed with the Commission on December 19, 1997) and
       incorporated herein by reference.

(13)   Previously filed as an exhibit to Registrant's Annual Report on Form 10-K
       for the year ended March 31, 1990 and incorporated herein by reference.

(14)   Previously filed as an exhibit to Registrant's Annual Report on Form 10-K
       for the year ended March 31, 1997 and incorporated herein by reference.

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