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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
 
                                   FORM 10-K
 
[X]Annual Report Pursuant to Section 13 or 15(d) of the Securities and
   Exchange Act of 1934
 
   For the year ended December 31, 1998
 
[_]Transition report pursuant to Section 13 or 15(d) of the Securities
   Exchange Act of 1934
 
                          Commission File No. 0-16096
 
                              Inprise Corporation
            (Exact name of registrant as specified in its charter)
 
<TABLE>
<S>                                            <C>
                  Delaware                                       94-2895440
        (State or other jurisdiction                          (I.R.S. Employer
      of incorporation or organization)                     Identification No.)
</TABLE>
 
           100 Enterprise Way, Scotts Valley, California 95066-3249
              (Address if principal executive offices) (Zip code)
 
      Registrant's telephone number, including area code: (831) 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, PAR VALUE: $0.01 PER SHARE
                        PREFERRED STOCK PURCHASE RIGHTS
                               (Title of class)
 
   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. [X] Yes  No
 
   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]
 
   The aggregate market value of the voting stock held by non-affiliates of
the registrant as of February 28, 1999 was approximately $266,035,000. 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
February 28, 1999 was 47,889,183.
 
                     DOCUMENTS INCORPORATED BY REFERENCE:
 
(1) Part III--Portions of the registrant's Proxy Statement relating to the
    1999 annual meeting of the stockholders.
 
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Forward-Looking Statements
 
   This Annual Report on Form 10-K and the documents incorporated herein by
reference in addition to historical information contain forward-looking
statements. These statements 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
Inprise's industry, management's beliefs, and certain assumptions made by
Inprise Corporation'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, but are not limited to, those discussed in the sections
entitled "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. The Company undertakes no obligation to revise or publicly release
the results of any revision to these forward-looking statements, whether as a
result of new information, future events or otherwise. Readers should be
advised to read this Form 10-K in its entirety paying careful attention to the
risk factors set forth in this and 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
 
   Inprise Corporation ("Inprise" or the "Company") is a leading provider of
cross-platform software, software development tools and services that simplify
the complexity of application development, integration, deployment and
management.
 
   The Company markets and distributes its products through its direct sales
force, single and two-tier distribution, value added resellers ("VARs"),
independent software vendors ("ISVs") and the Internet. This multiple
distribution approach allows customers to select the channel that addresses
their particular needs and provides the Company with broad coverage of
worldwide markets.
 
   The Company was founded and originally incorporated in California in 1983
and was reincorporated in Delaware in 1989. The Company maintains its
executive offices at 100 Enterprise Way, Scotts Valley, California 95066-3249.
Its main telephone number at that location is 831-431-1000. The Company also
maintains Internet web sites at www.inprise.com and www.borland.com.
 
   In January 1999, the Company announced the formation of two operating
divisions, Inprise and borland.com. Both divisions will report to Delbert W.
Yocam, Inprise chairman of the board of directors and chief executive officer.
The Company intends to maintain, in Scotts Valley, a corporate services staff
for corporate marketing, information systems, finance and accounting, human
resources, legal and other general support functions for each of the
divisions.
 
 borland.com division
 
   borland.com is developing a premier destination Web site and online
community serving software developers' needs. borland.com intends to offer a
wide range of products, services and technical information including advanced
Internet products and technologies. borland.com is adding a significant e-
commerce component to its distribution strategy including offering
complimentary third party products and services in addition to traditional
direct and retail distribution. It expects to distribute and support products
via the Internet and building on the long standing brand awareness that the
Borland name has among developers. John Floisand, formerly senior vice
president of worldwide sales, has been appointed president of borland.com,
which is based in Scotts Valley, California.
 
                                       1
<PAGE>
 
   The division's principal product offerings include Borland C++, Borland
C++Builder, Delphi, MIDAS, Interbase and JBuilder. These software products are
based on programming languages that enable developers to write and deploy
software applications that can be run on Microsoft Windows and other common
corporate computing platforms including those that support Sun Microsystems'
Java. The division's development tools are known for their ease of use and
high developer productivity and support for the latest technologies.
 
   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.
 
   Delphi is a high-performance rapid application software development tool
based on the Pascal programming language. 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.
 
   JBuilder is a visual development tool based on the Java programming
language. It is used for creating multi-platform applications that may be used
by computer users over the Internet or corporate intranets. JBuilder provides
developers with a flexible open architecture to incorporate third-party tools,
add-ins and JavaBean components.
 
   Borland MIDAS (Multi-tier Distributed Application Services Suite) provides
data remoting and synchronization solutions for distributed applications.
MIDAS gives you access to Any Data, Any Time, Anywhere with support for any
distributed computing standard and platform.
 
   MIDAS provides developers with a suite of advanced components, services and
core technologies for multi-tier application development. These services
complement those provided by Microsoft with Windows NT 4.0 and DCOM.
 
   InterBase is a relational database management system that operates on
personal computers, minicomputers and workstations. It is a robust relational
SQL database for embedded business applications requiring stability and
performance. InterBase is known for its relative ease of installation and use,
small footprint and low total cost of ownership.
 
 Inprise division
 
   The Inprise division provides integrated enterprise solutions to Global
1000 corporations. Solutions offered by the Inprise division are sold through
its growing direct sales organization and partner channel. The division's
primary product offerings include VisiBroker, Inprise Application Server, and
Entera. The division expects to continue to expand its professional service
organization to provide comprehensive integration consulting and training
capabilities for the fast growing enterprise integration marketplace. Jim
Weil, formerly the president of InterBase Software Corporation, an Inprise
subsidiary, has been named president of the Inprise division, to be
headquartered in San Mateo, California.
 
   Inprise's VisiBroker is based on the Object Management Group's CORBA
(Common Object Request Broker Archeticture) standard. The Visibroker object
request broker (ORB). Visibroker provides interoperability between
applications on different machines in heterogeneous distributed environments.
It is designed to facilitate the development and deployment of distributed
enterprise applications that are scalable, flexible, and easily maintained.
Key customer's include Oracle Corporation, Sun Microsystems, Hitachi,
Netscape, and other computer industry leaders have played a key role in making
VisiBroker a leading deployed and adopted ORB.
 
   The Inprise Application Server is an integrated, scalable and secure
software solution. It is designed to streamline an organization's computing
processes and entire application lifecycle from development through
 
                                       2
<PAGE>
 
deployment to systems administration and operations support. It is capable of
integrating existing computing systems through a consistent, CORBA-based
foundation. The Inprise Application Server also includes the AppCenter suite
of application management tools--designed specifically to enable corporations
to model, monitor, and manage their large-scale, multi-platform, distributed-
software applications.
 
   Entera is an open and scalable development environment for organizations
creating distributed computing solutions that service large volumes of users
and data. It is based on pre-CORBA standards designed to allow software
developers to build, manage and deliver large scale and robust distributed
multi-tier applications. Overtime, the Company plans to assist its Entera
customers to migrate to the next generation distributed applications platform
based upon VisiBroker.
 
 Consulting, Training and Support Services
 
   The Company offers a wide range of consulting, training and support
services to customers. The Company believes that its ability to provide
quality support services is critical to its future success. The Company's
service offerings include:
 
   Consulting services: The Company offers a variety of both packaged and
custom consulting services which include architectural assessment,
prototyping, legacy migration, application integration, performance
evaluation, application deployment, and data conversions. The Company works
closely with third party consulting firms and systems integrators who provide
reengineering, technology assessments, customization, project management, and
implementation services.
 
   Training services: The Company offers education and training services to
assist customers in learning about the Company's products and current
technology trends. These programs range from introductory seminars to highly
advanced sessions. Training services are offered at customer sites or Company
designated locations and are led by employees or consultants of the Company.
 
   Support services: The Company provides a wide range of support services
that includes on-site, telephone or Internet access. A comprehensive range of
support programs allow customers to choose the level of support for their
business, from personalized support for corporate needs to minimum assistance
levels.
 
Operations
 
 Product Development
 
   The process of developing new high technology products and solutions is
inherently complex and uncertain. It requires, among other things, innovation
and accurate anticipation of customers' changing needs and emerging
technological trends. Without the introduction of new products, services and
enhancements, the Company's products and services can rapidly become
technologically obsolete, in which case revenues would be materially and
adversely affected. There can be no assurance that such new products and
services, if and when introduced, will achieve market acceptance.
 
   The Company is recognized for 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 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.
 
 Marketing and Sales
 
   The Company sells it products to a broad customer base, which includes
businesses, educational institutions, government bodies and individual
software developers. The Company distributes its products domestically and
 
                                       3
<PAGE>
 
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 Inprise 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 sites, Inprise Online and borland.com. Through these web sites, customers
can 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.
 
   The Company conducts operations and sells its products outside the U.S. and
maintains offices in Germany, United Kingdom, France, Netherlands, Russia,
Canada, Japan, Singapore, Taiwan, Hong Kong, and Australia. These subsidiaries
license and support the Company's products both within their local
jurisdictions and certain other foreign countries where the Company does not
operate through a direct sales subsidiary. Additionally, the Company markets
and sells its products through independent distributors, VARs and ISVs in
international territories not covered by its subsidiaries' direct sales
organizations.
 
   International net revenues for the Company (excluding exports from the
U.S.) accounted for approximately 49%, 52%, and 54% of net revenues in the
calendar year ended December 31, 1998, nine months ended December 31, 1997,
and the fiscal year ended March 31, 1997, respectively. See Note 15 of Notes
to Consolidated Financial Statements for a summary of operations by geographic
region.
 
 Manufacturing
 
   The Company contracts with third parties for its manufacturing operations
which includes duplication of disks, assembly of purchased parts, and final
packaging for retail products. 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.
 
   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.
 
Competition
 
   The computer software industry is an intensely competitive industry. 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 or may not be
competitive. The Company's VisiBroker products are targeted at the emerging
markets for standards-based distributed object software
 
                                       4
<PAGE>
 
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 are product quality, performance and
price, vendor and product reputation, product architecture and quality of
support. In the standards-based distributed object market, the VisiBroker
products compete principally against offerings by Iona Technologies, Expersoft
and BEA Systems. 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 for Microsoft
operating systems, which could reduce or eliminate the need for CORBA-
compliant ORBs, such as those offered by Visibroker products.
 
   Many of the foregoing competitors 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. Commercial acceptance of the
Company's products and services could be adversely affected by critical or
negative statements or reports by brokerage firms, industry and financial
analysts, and industry periodicals concerning the Company and its products,
business, or competitors, or the advertising or marketing efforts of
competitors that could affect customer perception. 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.
 
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 the
Company's efforts to protect its intellectual property rights, it may be
possible for unauthorized third parties to copy certain portions of the
Company's products or to reverse engineer or obtain and use technology or
other information that the Company regards as proprietary. In addition, the
laws of certain foreign countries do not protect the proprietary rights to the
same extent as do the laws of the United States. Accordingly, there can be no
assurance the Company will be able to protect its proprietary technology
against unauthorized third party copying or use, which could adversely affect
the Company's competitive position.
 
   Other than the Western Imaging matter discussed in Part II, Item 7
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations--Litigation," 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.
 
   The Company from time to time receives notices from third parties claiming
infringement by the Company's products of third party patent and other
intellectual property rights. The Company expects that software products
 
                                       5
<PAGE>
 
will increasingly be subject to such claims as the number of products and
competitors in the Company's industry segment grows and the functionality of
products overlap. Regardless of its merit, responding to any such claim could
be time consuming, result in costly litigation, and require the Company to
enter into royalty and licensing agreements which may not be offered or
available on terms acceptable to the Company. If a successful claim is made
against the Company and the Company fails to develop or license a substitute
technology, the Company's business, results of operation or financial
condition could be materially adversely effected.
 
Employees
 
   As of December 31, 1998, the Company employed approximately 900 employees.
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.
 
ITEM 2. Properties
 
   The Company's executive offices and primary research and development
facilities are located at 100 Enterprise 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 leases approximately 50,000 square foot research and
development facility in San Mateo, California. This lease ends in June 2004.
 
   The Company owns additional office space located at 1700 and 1800 Green
Hills Road, Scotts Valley, California, and these facilities are leased
principally to third parties. 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 Note
14 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
 
   None.
 
                                    PART II
 
ITEM 5. Market for Registrant's Common Equity and Related Stockholders Matters
 
   Information on the Company's stock price 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 is traded on the Nasdaq National Market.
According to the records of the Company's transfer agent, the Company has
approximately 2,932 stockholders of record of the Company's Common Stock as of
February 28, 1999. 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 beneficial owners represented by these record holders.
 
   The Company has not paid dividends during the last five years. The Company
intends to retain future earnings for use in its business and therefore does
not anticipate paying cash dividends in the foreseeable future.
 
                                       6
<PAGE>
 
Series B Preferred Stock
 
   In December 1998, the Company exercised its right to redeem 32 Series B
shares for total consideration of approximately $1.95 million. The shares had a
par value of $1.6 million. The additional consideration in excess of par value
was charged to paid in capital during the quarter ended December 31, 1998.
 
                                       7
<PAGE>
 
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       Year Ended March 31,
                           Year ended     Ended     --------------------------------
Consolidated Statements   December 31, December 31,
of Operations Data:           1998      1997(a)(b)   1997(b)   1996(b)(c) 1995(b)(c)
-----------------------   ------------ ------------ ---------  ---------- ----------
<S>                       <C>          <C>          <C>        <C>        <C>
Licenses and other
 revenues...............    $166,214     $132,075   $ 152,020   $233,946   $261,535
Service revenues........      22,898       13,861      18,957     17,875     12,481
                            --------     --------   ---------   --------   --------
Net revenues............     189,112      145,936     170,977    251,821    274,016
Cost of licenses and
 other revenues.........      15,683       18,145      24,170     32,914     55,115
Cost of service
 revenues...............      15,402        7,545      11,734     11,480     12,526
                            --------     --------   ---------   --------   --------
Cost of revenues........      31,085       25,690      35,904     44,394     67,641
                            --------     --------   ---------   --------   --------
Gross profit............     158,027      120,246     135,073    207,427    206,375
Selling, general and
 administrative.........     112,781       86,545     155,069    142,365    203,330
Research and
 development............      47,324       38,249      64,670     55,062     66,996
Restructuring and merger
 related charges........      15,848           --      18,944        679     63,070
Other non-recurring
 charges................          --           --      17,100         --         --
Purchased in-process
 product development....          --           --      12,364         --         --
                            --------     --------   ---------   --------   --------
Total operating
 expenses...............     175,953      124,794     268,147    198,106    333,396
                            --------     --------   ---------   --------   --------
Operating income
 (loss).................     (17,926)      (4,548)   (133,074)     9,321   (127,021)
Interest income, net and
 other..................       3,785        1,736       5,488      4,306      3,656
Gain on sale of real
 estate.................       1,135           --          --         --         --
Gain on long-term
 investment.............      16,972           --          --         --         --
Gain on sale of Quattro
 Pro....................          --           --          --         --    109,927
                            --------     --------   ---------   --------   --------
Income (loss) before
 income taxes...........       3,966       (2,812)   (127,586)    13,627    (13,438)
Income tax (benefit)
 provision..............      (4,380)       1,082         642      3,316      2,957
                            --------     --------   ---------   --------   --------
Net income (loss).......    $  8,346     $ (3,894)  $(128,228)  $ 10,311   $(16,395)
                            ========     ========   =========   ========   ========
 
Net income (loss) per
 share--basic...........    $   0.16     $  (0.09)  $   (2.87)  $   0.26   $  (0.48)
Net income (loss) per
 share--diluted.........    $   0.14     $  (0.09)  $   (2.87)  $   0.22   $  (0.48)
Shares used in computing
 basic earnings per
 share..................      50,118       49,640      44,703     38,935     34,218
Shares used in computing
 diluted earnings per
 share..................      57,384       49,640      44,703     46,577     34,218
 
<CAPTION>
                               December 31,(a)                 March 31,
                          ------------------------- --------------------------------
Selected Consolidated
Balance Sheet Date:           1998       1997(b)     1997(b)   1996(b)(c) 1995(b)(c)
---------------------     ------------ ------------ ---------  ---------- ----------
<S>                       <C>          <C>          <C>        <C>        <C>
Cash, cash equivalents
 and short-term
 investments............    $ 84,362     $102,551   $  74,039   $110,269   $ 72,368
Working capital ........      61,485       64,580      21,378     87,340      5,184
Total assets............     253,788      255,824     225,745    297,343    256,665
Total long term
 obligations............      19,138       22,025      22,508     14,583     21,274
Stockholders' equity....    $121,009     $126,558   $ 116,874   $202,537   $128,558
</TABLE>
--------
(a) In July 1997, the Company changed its fiscal year end from March 31 to
    December 31.
(b) Results for the nine months ended December 31, 1997 and years ended March
    31, 1997, 1996, and 1995 and balances as of those dates are restated to
    reflect the acquisition of Visigenic which was accounted for as a pooling
    of interests.
(c) Results for the years ended March 31, 1996 and 1995 and balances as of
    those dates are restated to reflect the acquisition of OEC which was
    accounted for as a pooling of interests.
 
                                       8
<PAGE>
 
   The following tables set forth certain data derived from the Consolidated
Statements of Operations expressed as a percentage of net revenues for the
year ended December 31, 1998, the nine months ended December 31, 1997 and the
fiscal year ended March 31, 1997:
 
<TABLE>
<CAPTION>
                                      Year ended  Nine Months ended Year ended
                                     December 31,   December 31,    March 31,
                                         1998           1997           1997
                                     ------------ ----------------- ----------
<S>                                  <C>          <C>               <C>
Percentage of net revenues:
Licenses and other revenues.........     87.9 %          90.5 %        88.9 %
Service revenues....................     12.1             9.5          11.1
                                        -----           -----         -----
Net revenues........................    100.0           100.0         100.0
Cost of licenses and other
 revenues...........................      8.3            12.4          14.1
Cost of service revenues............      8.1             5.2           6.9
                                        -----           -----         -----
Cost of revenues....................     16.4            17.6          21.0
                                        -----           -----         -----
Gross margin........................     83.6            82.4          79.0
                                        -----           -----         -----
Selling, general and
 administrative.....................     59.6            59.3          90.7
Research and development............     25.1            26.2          37.8
Restructuring and merger related
 charges............................      8.4              --          11.1
Other non-recurring charges.........       --              --          10.0
Purchased in-process product
 development........................       --              --           7.2
                                        -----           -----         -----
Total operating expenses............     93.1            85.5         156.8
                                        -----           -----         -----
Operating loss......................     (9.5)           (3.1)        (77.8)
Interest income, net and other......      2.0             1.2           3.2
Gain on sale of real estate.........      0.6              --            --
Gain on long term investment........      9.0              --            --
                                        -----           -----         -----
Income (loss) before income taxes...      2.1            (1.9)        (74.6)%
Income tax (benefit) provision......     (2.3)            0.7           0.4
                                        -----           -----         -----
Net income (loss)...................      4.4 %          (2.6)%       (75.0)%
                                        =====           =====         =====
Percentage of net revenues:
United States (includes US export
 sales).............................     50.6 %          43.2 %        46.2 %
Non-US..............................     49.4            56.8          53.8
                                        -----           -----         -----
                                        100.0 %         100.0 %       100.0 %
</TABLE>
 
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
 
   This Annual Report on Form 10-K and the documents incorporated herein by
reference in addition to historical information contain forward-looking
statements. These statements 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
Inprise's industry, management's beliefs, and certain assumptions made by
Inprise Corporation'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, but are not limited to, those discussed in the sections
entitled "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. The Company undertakes no obligation to revise or publicly release
the results of any revision to these forward-looking statements, whether as a
result of new information, future events or otherwise. Readers should be
advised
 
                                       9
<PAGE>
 
to read this Form 10-K in its entirety paying careful attention to the risk
factors set forth in this and 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.
 
Change in Fiscal Year End
 
   In July 1997, the Company changed its fiscal year end from March 31 to
December 31. In accordance with the rules of the Securities and Exchange
Commission, this Management Discussion and Analysis of Financial Conditions
and Results of Operations discusses and compares the transition period which
commenced on April 1, 1997 and ended December 31, 1997 with the calendar year
ended December 31, 1998 and fiscal year ended March 31, 1997.
 
Name Change
 
   On June 5, 1998, the Company changed its name from Borland International,
Inc. to Inprise Corporation. The Company's stock symbol has been changed to
"INPR."
 
Acquisitions
 
   The Company's results of operation have been restated to reflect the
acquisition of Visigenic and Open Environment Corporation which were accounted
as a pooling of interests. See Note 4 of the Notes to Consolidated Financial
Statements in Part IV, Item 14 of this Form 10-K.
 
Net Revenues
 
   Net revenues were $189.1 million, $145.9 million and $171.0 million for the
year ended December 31, 1998, nine months ended December 31, 1997 and the
fiscal year ended March 31, 1997, respectively. Included in net revenues for
the year ended December 31, 1998, the nine months ended December 31, 1997 and
the year ended March 31, 1997 are revenues of $4.7 million, $18.5 million and
$27.8 million, respectively, related to OEC and Visigenic.
 
   The Company's non-U.S. revenues (excluding exports from the U.S.)
represented approximately 49%, 57% and 54% of total net revenues for the year
ended December 31, 1998, nine months ended December 31, 1997 and the fiscal
year ended March 31, 1997, respectively. The decrease in the percentage of
non-U.S. revenues for the year ended December 31, 1998 was principally due to
a decrease in sales in certain Asia Pacific regions, including Japan, caused
by the economic slowdown within those regions. Fluctuations in currency
exchange rates did not have a material impact on total net revenues or
operating results for the year ended December 31, 1998, nine months ended
December 31, 1997 or for the fiscal year ended March 31, 1997. However,
international revenues would be adversely affected if the U.S. dollar were to
strengthen against certain major international currencies.
 
   Licenses and other revenues. Licenses and other revenues represent amounts
earned for granting customers licenses to use the Company's software products.
Licenses and other revenues were $166.2 million, $132.1 million and $152.0
million for the year ended December 31, 1998, nine months ended December 31,
1997 and the fiscal year ended March 31, 1997, respectively. Licenses and
other revenues represented 88%, 91% and 89% of total revenue for the year
ended December 31, 1998, nine months ended December 31, 1997 and the fiscal
year ended March 31, 1997, respectively. The Company has experienced a decline
in its database desktop business, principally following the sale of Paradox to
Corel Corporation during the year ended March 31, 1997. This revenue decline
was offset by an increase in the revenue from client server and enterprise
products. For the year ended December 31, 1998, the percentage of the licenses
and other revenues associated with the Company's desktop products constituted
30% of the licenses and other revenues as compared with 45% and 62% for the
nine months ended December 31, 1997 and fiscal year ended March 31, 1997,
respectively. In contrast, the Company's revenues from the sale of
client/server and enterprise products increased as a percentage of the
 
                                      10
<PAGE>
 
licenses and other revenues to 70% for the year ended December 31, 1998, as
compared with 55% and 38% for the nine months ended December 31, 1997 and
fiscal year ended March 31, 1997, respectively.
 
   In January 1999 the Company announced a new business structure with the
formation of two divisions, Inprise and borland.com. The Inprise division will
focus on providing integrated enterprise solutions to Global 1000
corporations. Borland.com is developing a premier destination Web site and
online community serving individual developers' needs.
 
   Service revenues. Service revenue represents amounts earned for support,
consulting and education services for the Company's software products. Net
service revenues were $22.9 million, $13.9 million and $19.0 million for the
year ended December 31, 1998, nine months ended December 31, 1997 and the year
ended March 31, 1997, respectively. Service revenue represented 12%, 9% and
11% of total net revenue for the year ended December 31, 1998, nine months
ending December 31, 1997 and fiscal year ending March 31, 1997, respectively.
Service revenue attributable to client/server and enterprise markets
represented 91%, 85%, and 82% of total service revenue for the year ended
December 31, 1998, nine months ended December 31, 1997 and the year ended
March 31, 1997, respectively. This increase of client/server and enterprise
service revenue is consistent with the Company's emphasis on premium support
and consulting services to enterprise and large corporate customers.
 
Gross Margins
 
   Gross margins were 84%, 82% and 79% for the year ended December 31, 1998,
nine months ended December 31, 1997 and for the fiscal year ended March 31,
1997, respectively. Gross margins in the fiscal year ended December 31, 1998
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.
 
Selling, General and Administrative
 
   Selling, general and administrative expenses were $112.8 million, $86.5
million and $155.1 million for the year ended December 31, 1998, nine months
ended December 31, 1997 and the fiscal year ended March 31, 1997,
respectively. Such expenses were 60%, 59% and 91% of revenues for the year
ended December 31, 1998, nine months ended December 31, 1997 and the fiscal
year ended March 31, 1997, respectively. Selling, general and administrative
expenses were reduced from prior years principally due to lower employee
headcount. These reductions in company personnel during the year ended
December 31, 1998 and nine months ended December 31, 1997 were attributable to
the restructuring efforts of the Company in the fiscal year ended March 31,
1997. Although the selling, general and administrative expenses have decreased
from the levels during the year ended March 31, 1997, the Company expects
future selling, general and administrative expenses to increase over the
current year levels as it continues to invest in its enterprise sales force.
 
   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 year ended December 31, 1998,
nine months ended December 31, 1997 and for the fiscal year ended March 31,
1997 were $47.3 million, $38.2 million, and $64.7
 
                                      11
<PAGE>
 
million, respectively. Such expenses were 25%, 26% and 38% of revenues for the
year ended December 31, 1998, nine months ended December 31, 1997 and for the
fiscal year ended March 31, 1997, respectively. The Company's investment in
research and development resulted in several new products and new versions of
products including Inprise Application Server, VisiBroker SSL Pack for Java
and C++, DCE CORBA Bridge, VisiBroker Integrated Transaction Server (ITS),
Delphi 4.0, JBuilder 2.0, C++ Builder Enterprise, C++ Builder 3.0, and Entera
4.0. In the year ended December 31, 1998 and the nine month period ended
December 31, 1997, by focusing its research and development efforts on key
strategic products, the Company reduced its research and development expenses.
 
Restructuring, Merger and Other Non-Recurring Charges
 
   In conjunction with the acquisition of Visigenic, the Company implemented a
worldwide realignment of its corporate structure. In the year ended December
31, 1998, the Company recorded a $19.3 million restructuring and merger
related charge of which $9.9 million related to severance costs associated
with the elimination of duplicate workforce, $3.2 million to termination of
certain lease agreements and the write-off of certain fixed assets and $2.5
million to other costs associated with the restructuring. Additionally, the
Company charged to income approximately $3.7 million in expenses associated
with the merger. As part of the first quarter restructure, the Company had
recorded a restructuring charge of approximately $3.4 million for severance
costs associated to the anticipated closure of certain operations. At December
31, 1998, Company did not anticipate any further severance costs associated to
these operations. Accordingly, the Company reversed the charge during the
quarter ended December 31, 1998.
 
   During the fiscal year ended March 31, 1997, the Company recorded
restructuring and merger related charges totaling $18.9 million. These charges
included $6.2 million related to severance costs, $1.8 million for the
termination of certain lease agreements and $2.0 million for other costs
associated with the restructuring. In connection with the merger with OEC
during fiscal year 1997, the Company incurred merger related costs of $8.9
million. See Note 4 to Consolidated Financial Statements. The charge for
merger related costs included in the Consolidated Statements of Operations
consist principally of severance costs, write-offs of certain assets and
professional fees.
 
   During the fiscal year ended March 31, 1997, Visigenic completed the
acquisition of PostModern, a supplier of distributed object technology. In the
acquisition Visigenic issued 3,099,821 shares of its common stock and paid a
total of $2.3 million in exchange for all of PostModerns' outstanding shares.
In connection with the purchase price allocation, Visigenic received an
appraisal of the intangible assets which indicated that approximately $12.0
million of the acquired intangible assets consisted of in-process product
development which had not reached technological feasibility and, in the
opinion of management, had no alternative future use. The acquired in process
development was charged to expense in the Company's 1997 Statement of
Operations.
 
Gain on Sale of Corporate Assets
 
   During the year ended December 31, 1998, Starfish Software, Inc. was merged
with Motorola, Inc. and the Company's minority interest in Starfish Software,
Inc. was exchanged for cash and common stock consideration. The Company
recorded a gain of approximately $16.6 million upon the completion of the
transaction. In addition, during the year ended December 31, 1998 the Company
recorded approximately $1.1 million gain on sale of certain real estate
holdings.
 
Income Taxes
 
   On a consolidated basis, the Company generated a pre-tax profit of
approximately $3.9 million for the year ended December 31, 1998, a pre-tax
loss of approximately $2.8 million and for the nine months ended December 31,
1997 and a pre-tax loss of approximately $127.6 million for the year ended
March 31, 1997. The Company's income tax benefit for the year ended December
31, 1998 was approximately $4.4 million and income tax expense for the nine
months ended December 31, 1997 and year ended March 31, 1997 was $1.1 million
and $0.6 million, respectively.
 
                                      12
<PAGE>
 
   During the year ended December 31, 1998 the Company recorded an income tax
benefit of approximately $8.0 million resulting from a settlement reached with
the U.S. Internal Revenue Service ("IRS") and the conclusion of certain non-
U.S. tax audits for the years ending in 1984 through 1992. Excluding the tax
benefits of $7.9 the Company would have incurred an income tax expense of
approximately $3.6 million.
 
   For U.S. federal income tax purposes, the Company has net operating loss
carryforwards of approximately $208 million at December 31, 1998. There are
also available U.S. federal tax credit carryforwards of approximately $23
million. These loss and credit carryforwards expire between 1999 and 2014, if
not utilized. The Company also has Alternative Minimum Tax (AMT) credit
carryforwards for U.S. federal income tax purposes of approximately $2
million, which does not expire. Utilization of federal and state net operating
loss and tax credit carryforwards may be subject to a substantial annual
limitation due to the ownership change limitations provided by the Internal
Revenue Code of 1986, as amended, and similar state provisions. The annual
limitation may result in the expiration of net operating loss and tax credit
carryforwards before full utilization. Additionally, the Company also has
approximately $19 million of net operating loss carryforwards in various
foreign jurisdictions. Certain of these loss carryforwards will expire
beginning in 1999, if not utilized.
 
   At December 31, 1998, the Company had a net deferred tax asset of
approximately $134 million. This asset is comprised of the tax effect of the
above described loss and credit carryforwards, plus the tax effect of future
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.
 
Litigation
 
   Information with respect to this subject may be found in Note 14 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 $84.4 million at
December 31, 1998, a decrease of $18.2 million from a balance of $102.6
million as of December 31, 1997. Working capital decreased from $64.6 million
as of December 31, 1997 to $61.5 million as of December 31, 1998.
 
   Net cash used by the Company for operating activities during the year ended
December 31, 1998 was $16.8 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 $7.1 million.
 
   Net cash provided from investing activities during the year ended December
31, 1998 was $2.0 million. The Company used $18.2 million for acquisitions of
property and equipment which was offset by $16.6 million from the sale of
certain long term investments and $5.0 million provided by the sale of certain
real estate holdings.
 
   Cash used by financing activities of $6.8 million in 1998 consisted
primarily of the repurchase of 3.5 million shares of the Company's common
stock for $20.4 million offset by the private placement of an additional 220
shares of mandatorily redeemable preferred stock for $11.0 million and the
exercises of employee stock options for $4.6 million.
 
   Currency fluctuations increased the Company's cash position (U.S. dollar)
during the year ended December 31, 1998 by $2.1 million due to the devaluation
of the U.S. dollar against certain foreign currencies including the Dutch
Guilder and the Japanese Yen. 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.
 
                                      13
<PAGE>
 
   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 1999.
 
Factors That May Affect Future Results and Market Price of Stock
 
   The Company operates in a rapidly changing environment that involves
numerous risks, some of which are beyond the Company's control. The following
discussion highlights some of these risks.
 
 History of Operating Losses
 
   Although the Company had a net profit for the year ended December 31, 1998,
the Company had an operating loss in the year ended December 31, 1998 and has
had net losses in four of the past six fiscal years, including a net loss of
approximately $128.0 million for the year ended March 31, 1997. The Company's
net revenues have declined each year from fiscal 1993 through 1997. Although
the Company's net revenues for the twelve months ended December 31, 1998 are
approximately 10% higher than the twelve months ended March 31, 1997, such
revenues were essentially flat as compared to the twelve months ended December
31, 1997. The Company's ability to achieve revenue growth and profitability
are substantially dependent upon the success of the Company's enterprise,
Internet/intranet and client/server product strategies, upon its ability to
successfully complete and introduce new products and services, market
acceptance of such products and services, to successfully implement
restructuring and cost control measures from time to time and to successfully
integrate products and operations of acquired companies. There can be no
assurance that the Company will be able to successfully accomplish the
foregoing or to maintain or improve profitability in future periods.
 
 Significant Fluctuations in Quarterly Operating Results and Seasonality
 
   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; timing of revenue
recognition related to license fees; 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;
the timing and extent of sales and marketing organizations within OEM
customers and resellers becoming familiar with and endorsing the Company's
products for resale; changes in 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 deferral 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 enterprise, Internet/intranet and client/server 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.
 
   Enterprise sales, which are principally generated by the Inprise division,
typically contain multiple elements, including license for development and
deployment products, technical support, maintenance, consulting and training
services. Often enterprise sales will include a license and deployment fee
paid upon signing of the
 
                                      14
<PAGE>
 
contracts and may include current and future payments for technical support
and consulting services. Most of these elements, including the technical
support, maintenance, consulting and training, are not delivered upon signing
of the contract, and therefore, revenue associated to these elements must be
deferred until delivery or the services rendered. By contrast, the Company's
desktop sales historically have included only a license for the current
version of the product with an option to purchase technical support and
maintenance. With the growth of the Company's enterprise sales, a significant
portion of the fees may relate to undelivered elements, requiring a portion of
the revenue from the fees to be deferred. As the Company expects that an
increasing percentage of its business will be from the sale of enterprise
products and services, the Company expects a larger percentage of revenue may
be deferred. The amount of revenue associated to these undelivered elements
and the timing of recognition of the revenue may have a material affect on the
Company's business, operating results and financial position.
 
   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 and
enterprise 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 shipments 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 maintain
profitability on a quarterly or annual basis in the future. Due to the
foregoing factors, it is likely that in 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.
 
 Restructuring
 
   In connection with the Company's acquisitions and in response to the
significant losses from operations, the Company implemented a restructuring
and realignment of its operations in March 1998 and January 1999,
respectively. 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 were designed to produce.
 
 Regulation of the Internet and Electronic Commerce
 
   The electronic commerce market, particularly over the Internet, is new,
rapidly evolving and intensely competitive. The Company intends to expand over
time its operations by promoting new or complementary products and by
expanding the breadth and depth of its product and service offerings. There
can be no assurance that the Company will be able to expand its operations in
a cost-effective or timely manner or such expansion will be successful.
Currently, there are few laws or regulations that directly apply to access or
commerce on the Internet. The Company could be materially adversely affected
by encryption technology and access charges for Internet service providers, as
well as the continuing deregulation of the telecommunication industry. The
adoption of such measures could decrease demand for the Company's products,
and at the same time increase the Company's cost of selling its products.
Changes in laws or regulations governing the Internet and electronic commerce
could have a material adverse effect on the Company's business, operating
results and financial condition.
 
                                      15
<PAGE>
 
 Entering New or Developing Business Areas; Transition to Direct Sales
 Strategy
 
   New Business Area. The Company's strategy is to focus on enterprise
customers, software developers, 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 distributed object technology for
information processing and 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 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, 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 experience 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
objectives, in which case the Company's business, operating results or
financial condition could be materially adversely affected.
 
   The Company's VisiBroker products are based on several standards, including
Common Object Request Broker Architecture ("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 new standards 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
VisiBroker products are designed specifically for use in applications for the
Internet and intranets. If CORBA or IIOP are not adopted or are adopted more
slowly than anticipated or if product offerings from competitors are chosen in
lieu of the Company's products, there could be a material adverse effect on
the Company's business, operating results or financial condition.
 
   The Company's VisiChannel for Java Database Connectivity ("JDBC") database
access product based on the JDBC standard 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 it currently co-
exists with proprietary database access solutions from many of these same
database and software vendors. If JDBC is not adopted or is adopted more
slowly than anticipated or if product offerings from competitors are chosen in
lieu of the Company's products, there could be a material adverse effect on
the Company's business, operating results or financial condition.
 
   Transition To Direct Sales Strategy. In order for the Inprise division
enterprise software products to achieve market acceptance, the Company will
need to continue to adjust to longer sales cycles and successfully transition
from the channel sales model for its traditional desktop products to a direct
sales model for its enterprise software products. Sales of these enterprise
products are expected to be made predominately to large companies,
institutions, and government entities. These types of customers generally
commit significant resources to an evaluation of enterprise software and
require the vendor to expend substantial time, effort, and money educating
them about the value of the vendor's solution. As a result, sales to these
types of customers generally require an extensive sales effort throughout the
customer's organization, and often require final approval by an executive
officer or senior level employee.
 
   The Company has experienced and will likely continue to experience delays
following initial contact with a prospective customer and expend substantial
funds and management effort in connection with these sales. As the Company has
relatively little experience with these types of sales, there can be no
assurance that the Company can successfully transition to the direct sales
model. In order to complete these types of sales, the Company will be required
to restructure its direct sales force, extensively train and effectively
manage its sales personnel, invest greater resources in the sales effort, and
educate the authorized resellers. The Company may not be able to
 
                                      16
<PAGE>
 
accomplish any of the foregoing on a timely and cost-effective basis. Failure
to do so could have a material adverse effect on the Company's business,
operating results, or financial condition. Additionally, the Company will need
to add trained technical personnel to help it implement solutions for its
enterprise software customers relating to enterprise software products.
Personnel with the sufficient level of expertise and experience for these
positions are in great demand, and the Company may not be able to hire and
retain a sufficient number of qualified personnel for these purposes. Failure
to do so could have a material adverse effect on the Company's business,
operating results, or financial condition.
 
   In 1998 and early 1999, the Company made changes to its sales compensation
programs. Although such changes are intended to enhance overall revenues, such
changes could have a material adverse impact on revenues and sales related
expenses.
 
 Decline In Revenue From Desktop Products
 
   A significant portion of the borland.com division's revenues to date has
been attributable to its desktop products. Revenues derived from the sale of
these products, particularly the Company's desktop database products, have
declined over the last six 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 the 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
borland.com desktop products to continue, revenues from the sales of the
borland.com desktop products currently continue to represent an important
portion of the Company's revenue. 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.
 
 Extremely Competitive Industry
 
   The computer software industry is an intensely competitive industry. 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 or may not be
competitive. The VisiBroker products are 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 are
product quality, performance and price, vendor and product reputation, product
architecture and quality of support. In the standards-based distributed object
market, the VisiBroker products compete principally against offerings by Iona
Technologies, Expersoft and BEA Systems. 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-
 
                                      17
<PAGE>
 
Packard, IBM, Microsoft and Sun may offer standards-based distributed object
products bundled with their operating systems. For instance, Microsoft has
introduced DCOM for Microsoft operating systems, which could reduce or
eliminate the need for CORBA-compliant ORBs, such as those offered by the
products acquired from Visigenic.
 
   Many existing competitors 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. Commercial acceptance of the
Company's products and services could be adversely affected by critical or
negative statements or reports by brokerage firms, industry and financial
analysts, and industry periodicals concerning the Company and its products,
business, or competitors, or the advertising or marketing efforts of
competitors that could affect customer perception. 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.
 
 New Product Introduction; Rapid Technological and Market Change
 
   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 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 continued 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 timeframes 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 timeframe within which the Company originally
anticipated that the products would be available. Some of the VisiBroker
products are based on technology licensed from third parties, and the Company
has limited control over whether and when these technologies are updated. The
failure or delay in enhancements of technology licensed from third parties
could have a material adverse effect on the Company's ability to develop and
enhance
 
                                      18
<PAGE>
 
its products. Due to the inherent uncertainties of software development, it is
likely that such situations will occur from time to time in the future.
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 could 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.
 
 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 to date
has a limited history, thereby inhibiting adoption of Java on a wide spread
basis. Additionally, there is 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.
 
 Risks Associated With International Operations and Sales
 
   A substantial portion of the Company's revenue is derived from
international sales. These sales are subject to risks inherent in doing
business on an international level, including the general economic conditions
in each country, overlap of different tax structures, the difficulty of
managing an organization spread over various countries, changes in regulatory
requirements, compliance with a variety of laws and regulations, longer
payment cycles in certain countries, export restrictions, tariffs and other
trade barriers, political instability, fluctuations in currency exchange
rates, and seasonal reductions in business activity during the summer months
in Europe and certain other parts of the world. The Company experienced a
large decline in revenue in Asia Pacific during 1998 in part, due to the
economic difficulties that have occurred throughout this region. There can be
no assurance that these economies will recover in the near term or that the
Company's net revenues from this geographic region will return to previous
levels if a recovery occurs. 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 generally 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.
 
 Hiring and retention of employees
 
   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
 
                                      19
<PAGE>
 
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, its operating
results and financial condition.
 
 Reliance on VAR & ISV
 
   A significant element of the Company's strategy is to embed and bundle the
technology in products offered by VAR and ISV customers, such as Cisco,
Compuware, Healtheon, Hewlett-Packard, Microsoft, Hitachi, Netscape, Novell,
Oracle, Platinum Technology and Sybase. Historically, a relatively small
number of VAR and ISV customers accounted for a significant percentage of
Visigenic's revenues. The Company continues to secure similar distribution
arrangements with other VARs and ISVs to embed distributed object technology
in their products. To date, the terms and conditions, including prices and
discounts, of agreements with VAR and ISV customers have been highly
negotiated and vary significantly among customers. Substantially all such
agreements are non-exclusive and do not require the VAR or ISV to make minimum
purchases. The Company has no control over the shipping dates or volumes of
systems shipped by its VAR and ISV customers, and there can be no assurance
that the VARs and ISVs will ship products incorporating the Company's products
in the future. Furthermore, the Company's license agreements with its VAR and
ISV customers generally do not require the VARs and ISVs to recommend or offer
the Company's products exclusively.
 
   Many of the markets for the VAR and ISV products in which technology 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.
 
   If the Company is unsuccessful in maintaining its current relationships and
continuing to secure license agreements with additional VARs and ISVs on
commercially reasonable terms or at all, or if the Company's VAR and ISV
customers are unsuccessful in selling their products, the Company's business,
financial condition and results of operations could be materially adversely
affected.
 
   Retail Distribution Channel. A significant portion of the borland.com
division's sales are made through the retail distribution channel, which is
subject to fluctuations in customer demand. The Company's retail distribution
customers also carry the products of competitors. These retail distributors
may have limited capital to invest in inventory, and their decisions to
purchase borland.com products is partly a function of pricing, terms and
special promotions offered by borland.com. Competitors also offer such pricing
terms and marketing incentives over which the Company has no control and which
it cannot predict.
 
   The Company's pattern of net revenues and earnings may be affected by
"channel fill." Distributors may fill their distribution channels in
anticipation of price changes, sales promotions or incentives. Distributors
purchases may be decreased between the date borland.com announces a new
version or new product and the date of release, because distributors, dealers
and end users often delay purchases, cancel orders or return products in
anticipation of availability of new version or new product. The impact of
channel fill is somewhat mitigated by the Company's deferral of revenue
associated with distributors and resellers inventories which are estimated to
be in excess of appropriate levels; however, net revenues may still be
materially affected favorably or adversely by the effects of channel fill,
particularly in periods where a large number of new products are
simultaneously introduced.
 
   Product returns can occur when borland.com introduces upgrades and new
versions of products or when distributors or retailers have excess
inventories. The Company's return policy allows its distributors, subject to
certain limitations, to return purchased products in exchange for new products
or for credit towards future purchases. End users may return products through
dealers and distributors within a reasonable period from the date of purchase
for a full refund, and retailers may return older versions of the products.
The Company estimates
 
                                      20
<PAGE>
 
and maintains reserves for product returns. However, future returns could
exceed the reserves established by the Company, which could have a material
adverse affect on the operating results of the Company.
 
 Impact of the Year 2000
 
   The information provided below constitutes a "Year 2000 Readiness
Disclosure" for purposes of the Year 2000 Information and Readiness Disclosure
Act.
 
   The "Year 2000" issue is pervasive and complex, since many currently
installed computer systems and software products are coded to accept only two
digit entries in the date code field. As the Year 2000 approaches, these code
fields will need to accept four digit entries to distinguish years beginning
with a "19" from those beginning with a "20". This, as well as other date
related processing issues, may cause systems to fail or malfunction unless
corrected. As a result, in less than one year, computer systems and/or
software products used by many companies may need to be upgraded to comply
with such Year 2000 issues. The Company has organized a corporate-wide
initiative led by executives from information systems, research & development,
marketing, legal and finance. The initiative includes the identification of
Year 2000 issues in the following three areas: (1) product readiness, which
concerns product functionality; (2) internal infrastructure readiness, which
concerns internal hardware and software, including both information technology
such as financial and order entry systems and non-information technology
systems such as phones and facilities; and (3) third party readiness, which
concerns the preparedness of third party's with whom the Company has business
relationships.
 
   Product Readiness. The Company is in the process of gathering, testing, and
producing information about its products with respect to Year 2000 readiness.
The Company has classified its main products into categories of Year 2000
readiness: ready, ready with issues, not ready and will not be tested. The
Company generally believes the most recent versions of its products are Year
2000 ready. Older versions of the Company's products may not be Year 2000
ready and the Company continues to sell some of these older versions. Where
possible the Company has been encouraging customers to migrate to current
product versions. The Company's products are subject to ongoing review and
analysis with respect to Year 2000 readiness issues. Despite such analysis and
review the Company's products may contain undetected errors or defects
associated with Year 2000 date functions, that may result in material costs to
the Company. Furthermore, use of the Company's products in connection with
other products, which may or may not be Year 2000 ready, including hardware,
software and firmware, may result in the inaccurate exchange of date data
resulting in performance issues and system failures. To the extent the
Company's products or third party products that include the Company's
products, prove not to be Year 2000 ready or in the event of disputes with
customers regarding whether the Company's products are ready, the Company's
business, results of operations and financial condition could be materially
adversely affected. Moreover, the Company's customers could choose to convert
to other Year 2000 ready products or to develop their own products in order to
avoid such malfunctions, and such actions by customers could have a material
adverse effect on the Company's business, financial condition or results of
operations. To date, the cost of the readiness program for products are
primarily costs of existing internal resources largely absorbed within
existing engineering spending levels. These costs have not been reported
separately from other product engineering costs.
 
   Year 2000 readiness issues may give rise to legal claims against the
Company, notwithstanding standard provisions in the Company's license
agreements with its customers which disclaims all express and implied
warranties for such defects and/or which limit the Company's obligations with
respect to such issues. The Company is aware of a growing number of lawsuits
against software vendors. Because of the unprecedented nature of such
litigation, it is uncertain to what extent the Company may be affected by it.
Such legal claims could have a materially adverse impact on the Company's
business, financial condition or results of operations.
 
   It is unknown how Year 2000 issues may affect customer-spending patterns.
As customers focus their attention and capital budgets in the near term on
preparing their business for the Year 2000, they may either delay or
accelerate software and related purchases. Any reductions in the Company's
revenues resulting from such delayed purchases could have a material adverse
effect on the Company's business, results of operations and financial
condition.
 
                                      21
<PAGE>
 
   In addition, certain countries where the Company either operates or sells
its products may impose requirements in connection with the Year 2000 which
are in addition to or different from those in the United States. Such
requirements could have a material adverse effect on the Company's business,
financial condition and results of operations.
 
   Internal Infrastructure Readiness. The Company is assessing the readiness
of its internal systems for handling the Year 2000. These systems include
software products provided by third-party vendors, the Company's own internal
software and hardware supplied by third party vendors. The Company is
implementing new internal systems and as part of the implementation is testing
its new systems for Year 2000 readiness. The Company currently plans to have
its review and testing substantially completed by mid-1999. Although the
assessment is still underway, the Company does not believe that it will incur
any material costs or experience material disruptions in its business
associated with preparing its internal systems for the Year 2000, but there
can be no assurances that the Company will not experience serious
unanticipated negative consequences and/or material costs caused by undetected
errors or defects in its internal systems, which are composed of third-party
software, hardware and the Company's own software products. In addition to
application and information technology systems, the Company is in the process
of assessing, testing and remediating its non-information technology systems,
including embedded systems, facilities and other operations, such as its
financial, banking, security and utility systems. A contingency plan
addressing issues related to the Company's internal infrastructure will be
developed when ongoing testing and remediation activities are complete.
 
   Material Third- Party Relations Readiness. The Company has initiated formal
communications with its key suppliers, contract manufacturers, distributors,
vendors and partners in order to determine whether their operations and the
products and services they provide are Year 2000 ready and to monitor the
progress of their remediation efforts toward Year 2000 readiness. Based on the
Company's assessment of each third party's progress to adequately address Year
2000 issues, the Company expects to develop a third party action list and
contingency plans by mid-1999. In the event any such third party cannot
provide in a timely manner the Company with products, services, or systems
that are Year 2000 ready, this event could have material adverse effect on the
Company's business, financial condition and results of operations. The Company
could be materially adversely affected by costs or complications arising from
Year 2000 issues 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 does
business. The Company is working to identify and analyze the most reasonably
likely worst case scenarios for third party relationships affected by the Year
2000. These scenarios could possibly include possible infrastructure collapse,
the failure of power and water supplies, major transportation disruptions,
unforeseen product shortages and failures of communications and financial
systems, any of which could have a material adverse effect on the Company's
business, results of operations and financial condition.
 
   Costs related to our efforts to address Year 2000 issues have been expended
as incurred and have not been material to date. The Company expects to fund
the Year 2000 related costs through funds provided by operations and does not
expect these costs to have a material adverse impact on the Company's
operations. The Company's estimates of the cost of Year 2000 readiness issues
is based partially on numerous assumptions about future events. There can be
no assurance that these estimates will be correct, and actual costs could
differ materially from these estimates.
 
   Contingency plans will be developed if it appears the Company or its key
suppliers and vendors will not be Year 2000 ready, if such condition is likely
to have a material adverse impact on the Company's operations. It is expected
that assessment, remediation and contingency planning activities will be on
going through 1999 with the goal of resolving all material internal systems
and third party issues.
 
   Although the Company is dedicating resources toward becoming Year 2000
ready, there is no assurance it will be successful in its efforts to identify
and address all Year 2000 issues. Even if the Company acts in a timely manner
to complete its assessments, identify, develop and implement its remediation
plans (if necessary) some problems may not be identified or corrected in time
to prevent material adverse consequences to the Company. The discussion above
regarding estimated completion dates, costs, risks and other forward-looking
statements
 
                                      22
<PAGE>
 
regarding the Year 2000 is based on the Company's best estimates given
information that is currently available and is subject to change. As the
Company continues to make progress with its Year 2000 initiative, it may
discover that actual results will differ materially from these estimates. The
impact of the Year 2000 issue on future results of the Company is difficult to
discern but is a risk which should be considered in evaluating future
prospects for this Company.
 
 European Monetary Union (EMU)
 
   The Company is implementing new internal systems in Europe, and as part of
the implementation, is testing its new system for EMU compliance. The Company
currently plans to have its review and testing substantially completed by mid
1999. Although the assessments is still underway, the Company does not believe
that it will incur material cost or experience material disruption in its
business associated with preparing its internal systems for EMU compliance,
but there can be no assurance that the Company will not experience serious
unanticipated negative consequences or material costs caused by undetected
errors or defects.
 
 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, which could result in delay or
loss of revenue, delay in market acceptance, diversion of development
resources, damage to the Company's reputation, increased service and warranty
costs, any of 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.
 
 Dependence on Third Party Licenses
 
   The Company is dependent on licenses from third-party suppliers for certain
elements of its products. In particular, the Company is dependent upon certain
licenses from Microsoft, which is both a licensor to the Company and a
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 would be unable to redistribute certain components of its
products and would be required to develop an alternative approach to
developing its products. 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.
 
 Enforcement Of The Company's Intellectual Property Rights
 
   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 the
Company's efforts to protect its intellectual property rights, it may be
possible for unauthorized third parties to copy certain portions of the
Company's products or to reverse engineer or obtain and use technology or
other information that the Company regards as proprietary. In addition, the
laws of certain foreign countries do not protect the proprietary rights to the
same extent as do the laws of the United States. Accordingly, there can be no
assurance the Company will be able to protect its proprietary technology
against unauthorized third party copying or use, which could adversely affect
the Company's competitive position.
 
                                      23
<PAGE>
 
   The Company from time to time receives notices from third parties claiming
infringement by the Company's products of third party patent and other
intellectual property rights. The Company expects that software products will
increasingly be subject to such claims as the number of products and
competitors in the Company's industry segment grows and the functionality of
products overlap. Regardless of its merit, responding to any such claim could
be time consuming, result in costly litigation, and require the Company to
enter into royalty and licensing agreements which may not be offered or
available on terms acceptable to the Company. If a successful claim is made
against the Company and the Company fails to develop or license a substitute
technology, the Company's business, results of operation or financial
condition could be materially adversely effected.
 
 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's 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.
 
 Superior rights and preferences of Series B Preferred Stock
 
   The Company has authorized the issuance of up to 1,470 shares of its Series
B Preferred Stock, of which 738 shares were outstanding as of December 31,
1998. 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, 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's 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 (or $6.88 per share for the Series
B shares purchased on July 27, 1998) 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.
 
   Upon at least twenty trading days' written notice, the Company may elect to
redeem, on the date which is the second, third, or fourth anniversary of
effectiveness of the registration statement, all of the outstanding Series B
Shares, at 110% of par. Subject to certain conditions, the Company also has a
right to call for redemption for all or a portion of the Series B Shares if
the Conversion Rate is less than $6.00 per share.
 
 Risks Associated with Potential Business Combinations
 
   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. The Company
may make acquisitions of businesses, products or technologies in the future.
Future acquisitions by the Company could
 
                                      24
<PAGE>
 
result in potentially dilutive issuances of equity securities, the 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 materially adversely effect the
Company's business, financial condition and operating results.
 
 Extreme Volatility Of Stock Price
 
   Like the stock of other high technology companies, the market price of the
Company's Common Stock has experienced significant fluctuations and may
continue to be extremely volatile. During the period from January 1, 1996 to
March 15, 1999, the closing market price of the Company's Common Stock has
ranged from a high of $20.00 to a low of $4.53. The market price of the Common
Stock may be significantly affected by factors such as the announcement of new
products or product enhancements by the Company or its competitors,
technological innovation by the Company or its competitors, quarterly
variations in the Company's or competitors' results of operations, changes in
prices of the Company's or its competitors' products and services, changes in
revenue and revenue growth rates for the Company as a whole or for specific
geographic areas, business units, products or product categories, changes in
earnings estimates by market analysts, speculation in the press or analyst
community, and general market conditions or market conditions specific to
particular industries. Such fluctuations may have a significant impact on the
market price of the Company's Common Stock.
 
 Natural Disaster
 
   The Company's corporate headquarters, including most of its research and
development operations, are located in Northern California, a region known for
seismic activity. A natural disaster, such as an earthquake, could have a
material adverse impact on the Company's business, financial condition and
operating results.
 
                                      25
<PAGE>
 
Selected Quarterly Data
 
   Amounts in thousands, expect per share amounts, percentages and stock
prices:
 
<TABLE>
<CAPTION>
                                             Three Months Ended
                               ------------------------------------------------
                               December 31, September  30, June 30,   March 31,
                                   1998          1998        1998       1998
                               ------------ -------------- --------   ---------
<S>                            <C>          <C>            <C>        <C>
Licenses and other revenues..    $41,518       $42,481     $41,172    $ 41,043
Service revenues.............      6,622         5,482       5,351       5,443
                                 -------       -------     -------    --------
Net revenues.................     48,140        47,963      46,523      46,486
Cost of licenses and other
 revenues....................      4,613         3,857       4,287       2,926
Cost of service revenues.....      4,318         4,180       3,446       3,458
                                 -------       -------     -------    --------
Cost of revenues.............      8,931         8,037       7,733       6,384
                                 -------       -------     -------    --------
Gross profit.................     39,209        39,926      38,790      40,102
                                 -------       -------     -------    --------
Selling, general and
 administrative..............     31,055        28,450      25,974      27,302
Research and development.....     12,737        11,509      11,907      11,171
Restructuring and merger
 related charges.............     (3,434)           --          --      19,282
                                 -------       -------     -------    --------
Operating income (loss)......     (1,149)          (33)        909     (17,653)
                                 -------       -------     -------    --------
Net income (loss)............    $ 3,499       $16,405     $ 1,884    $(13,442)
                                 =======       =======     =======    ========
Income (loss) per share--
 basic.......................    $  0.07       $  0.32     $  0.04    $  (0.27)
Income (loss) per share--
 diluted.....................    $  0.06       $  0.29     $  0.03    $  (0.27)
 
Shares used in computing
 basic income (loss) per
 share.......................     47,987        50,509      51,166      50,863
Shares used in computing
 diluted income (loss) per
 share.......................     55,233        56,812      57,572      50,863
Percentage of net revenue:
 Gross profit................       81.4 %        83.2 %      83.4%       86.3 %
 Operating (loss) income.....       (2.4)%        (0.1)%       2.0%      (38.0)%
 Net income (loss)...........        7.3 %        34.2 %       4.0%      (28.9)%
Stock Price:
 High........................    $  6.81       $  8.44     $ 11.38    $   9.81
 Low.........................    $  4.94       $  5.13     $  6.94    $   6.69
 
<CAPTION>
                                             Three Months Ended
                               ------------------------------------------------
                               December 31, September 30,  June 30,   March 31,
                                   1997          1997        1997       1997
                               ------------ -------------- --------   ---------
<S>                            <C>          <C>            <C>        <C>
Licenses and other revenues..    $44,855       $43,267     $43,953    $ 38,224
Service revenues.............      4,837         4,797       4,227       5,197
                                 -------       -------     -------    --------
Net revenues.................     49,692        48,064      48,180      43,421
Cost of licenses and other
 revenues....................      5,481         6,100       6,564       5,405
Cost of service revenues.....      2,553         2,373       2,619       2,277
                                 -------       -------     -------    --------
Cost of revenues.............      8,034         8,473       9,183       7,682
                                 -------       -------     -------    --------
Gross profit.................     41,658        39,591      38,997      35,739
                                 -------       -------     -------    --------
Selling, general and
 administrative..............     28,613        29,763      28,169      41,448
Research and development.....     12,386        12,446      13,417      16,123
Restructuring and merger
 related charges.............         --            --          --       5,976
Other non-recurring charges..         --            --          --      17,100
                                 -------       -------     -------    --------
Operating income (loss)......        659        (2,618)     (2,589)    (44,908)
                                 -------       -------     -------    --------
Net income (loss)............    $   730       $(2,098)    $(2,526)   $(44,536)
                                 =======       =======     =======    ========
Loss per share basic.........    $  0.01       $ (0.05)    $ (0.05)   $  (0.97)
Loss per share diluted.......    $  0.01       $ (0.05)    $ (0.05)   $  (0.97)
 
Shares used in computing
 basic income (loss) per
 share.......................     50,428        49,869      48,702      45,966
Shares used in computing
 diluted income (loss) per
 share.......................     57,738        49,869      48,702      45,966
Percentage of net revenue:
 Gross profit................       83.8%         82.4 %      80.9 %      82.3 %
 Operating income (loss).....        1.3%         (5.4)%      (5.4)%    (103.4)%
 Net income (loss)...........        1.5%         (4.4)%      (5.2)%    (102.6)%
Stock Price:
 High........................    $  7.63       $ 10.25     $  7.00    $   8.56
 Low.........................    $  7.25       $ 10.06     $  6.75    $   5.69
</TABLE>
 
                                       26
<PAGE>
 
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
 
   Market risks relating to the Company's operations result primarily from
changes in interest rates and foreign exchange rates, as well as credit risk
concentrations. To address the foreign exchange rate risk the Company enters
into various hedging transactions as described below. The Company does not use
financial instruments for trading purposes.
 
   Foreign Currency Risk. The Company transacts business in various foreign
countries, including Japan, Canada and certain countries within Europe and
South East Asia. The Company has established a foreign currency hedging
program utilizing foreign currency forward exchange contracts to hedge
intercompany balances and other monitory assets denominated in foreign
currencies. The goal of the hedging program is to offset the earnings impact
of foreign denominated balances. The Company does not use foreign currency
forward exchange contracts for trading purposes. At month end, the foreign
denominated balances and the forward exchange contracts are marked-to-market
and unrealized gains and losses are included in current period net income.
 
   During the year ending December 31, 1998, the Company has recorded foreign
exchanges losses on intercompany receivables due to the dollar strengthening
against many foreign currencies including Japanese Yen, Australia Dollar and
Singapore Dollar during the first quarter and several European currencies
decreasing value against the Dutch Guilder during the third quarter. Such
losses have been mostly offset by the Company's foreign exchange contracts. It
is uncertain that these currencies trends will continue. If these currencies
trends continue, the Company will continue to experience foreign exchange
losses on their intercompany receivables to the extent that the Company has
not hedged the exposure with foreign currency forward exchange contracts. Such
foreign exchange losses could have a materially adverse affect on the
Company's operating results and cash flows.
 
   The table below provides information about the Company's derivative
financial instruments, comprised of foreign currency forward exchange
contracts. The information is provided in U.S. Dollar equivalents amounts, as
presented in the Company's financial statements. For foreign currency forward
exchange contracts, the table presents the notional amounts (at the contract
exchange rates) and the weighted average contractual foreign currency exchange
rates. All instruments mature within twelve months.
 
<TABLE>
<CAPTION>
                                                                  December 31,
                                                                      1998
                                        Notional       Average     Estimated
                                         Amount     Contract Rate  Fair Value
                                       -----------  ------------- ------------
<S>                                    <C>          <C>           <C>
Foreign currency forward exchange
 contracts:
Australian Dollar.....................   5,606,327        0.62      (56,127)
Canadian Dollar.......................   1,300,259        1.54       10,712
Italian Lira..........................   1,195,876     1635.77      (10,168)
Hong Kong Dollar......................   4,698,635        7.77       10,867
Dutch Guilder.........................  (4,351,866)       1.86       35,415
New Taiwan Dollar.....................   1,509,265       32.38        2,334
Others................................   3,234,208                   24,837
                                       -----------                  -------
  Total............................... $13,192,704                  $17,870
                                       ===========                  =======
</TABLE>
 
   Interest Rate Risk. The Company's exposure to market risk for changes in
interest rates relates primarily to the Company's investment portfolio. The
Company does not use derivative financial instruments in its investment
portfolio. The Company places its 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 mitigates default risk by investing in only the safe and high
credit quality securities and by constantly positioning its portfolio to
respond appropriately to a significant reduction in the credit rating of any
investment issuer. The portfolio includes only marketable securities with
active secondary and resale markets to ensure portfolio liquidity.
 
                                      27
<PAGE>
 
   The Company has no interest rate exposure due to rate changes for long-term
debt obligations. The Company primarily enters into debt and capital lease
obligations to financial capital expenditures. Such debt and capital lease
obligations have a fixed rate of interest.
 
   The table below presents principal (or notional) amounts and related
weighted average interest rates by year of maturity for the Company's
investment portfolio and debt obligations.
 
<TABLE>
<CAPTION>
In thousands                       1999    2000 2001 2002 2003 Thereafter Total
------------                      -------  ---- ---- ---- ---- ---------- ------
<S>                               <C>      <C>  <C>  <C>  <C>  <C>        <C>
ASSETS
Cash Equivalents................. $81,137
  Fixed rate.....................    4.87%
Short-term investments........... $ 3,225
  Fixed rate.....................    1.00%
LONG-TERM DEBT................... $   145  $161 $180 $200 $222   $8,341   $9,249
  Fixed Rate.....................   10.75%
</TABLE>
 
   The short term investment balances are primarily invested in non-U.S.
countries, principally Japan.
 
   Credit Risks. The Company's financial instruments that are exposed to
concentrations of credit risk consist primarily of cash equivalents and trade
receivables. The Company's cash equivalents are in high quality securities
placed with major banks and financial institutions. Concentrations of credit
risk with respect to receivables are limited due to the large number of
customers and their dispersion across geographic areas. The Company performs
periodic credit evaluations of its customers' financial condition and
generally does not require collateral. One customer located in United States
accounts for approximately 11% of total receivable. No other single group or
customer represents greater than 10% of total accounts receivable.
 
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 or Disagreements with Accountants on Accounting and
Financial Disclosure
 
   None.
 
                                      28
<PAGE>
 
                                    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.
 
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.
 
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.
 
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.
 
                                       29
<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 Inprise Corporation
 
     Report of Independent Public Accountants for Visigenic Software, Inc.
 
     Consolidated Balance Sheets at December 31, 1998 and December 31, 1997
 
     Consolidated Statements of Operations for the year ended December 31,
     1998, nine months ended December 31, 1997 and fiscal year ended March
     31, 1997
 
     Consolidated Statement of Comprehensive Income for the year ended
     December 31, 1998, nine months ended December 31, 1997, and the fiscal
     year ended March 31, 1997
 
     Consolidated Statements of Stockholders' Equity for the year ended
     December 31, 1998, nine months ended December 31, 1997 and fiscal year
     ended March 31, 1997
 
     Consolidated Statements of Cash Flows for the year ended December 31,
     1998, nine months ended December 31, 1997 and fiscal year ended March
     31, 1997
 
     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>
<CAPTION>
     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
 
</TABLE>
 
 
                                      30
<PAGE>
 
<TABLE>
     <S>        <C>
     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
 
     21.1       Subsidiaries of the Registrant
 
     23.1       Consent of PricewaterhouseCoopers LLP, Independent Accountants
 
     23.2       Consent of Arthur Andersen LLP, Independent Public Accountants
 
     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 the Registrant's Registration Statement
     on Form S-8 (filed with the Commission on August 13, 1998) and
     incorporated herein 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 an 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 4, 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 Inprise Corporation, 100 Enterprise Way, Scotts Valley,
  California USA 95066-3249, Attn: Secretary.
 
   (a) Reports on Form 8-K
 
     None.
 
                                      31
<PAGE>
 
                                   SIGNATURE
 
   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, 1999.
 
                                          INPRISE CORPORATION
                                          (Registrant)
 
                                          By      /s/ Kathleen M. Fisher
                                            -----------------------------------
                                                    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, 1999.
 
 
<TABLE>
<CAPTION>
                 Signature                                   Title
                 ---------                                   -----
 
<S>                                              <C>                           <C>
        /s/ Delbert W. Yocam                     Chairman, President and
    ____________________________________         Chief Executive Officer
       Delbert W. Yocam
 
         /s/ Harry Saal                          Director
    ____________________________________
       Harry Saal
 
         /s/ George Hara                         Director
    ____________________________________
       George Hara
 
         /s/ David Heller                        Director
    ____________________________________
       David Heller
 
        /s/ Stephen J. Lewis                     Director
    ____________________________________
       Stephen J. Lewis
 
        /s/ William F. Miller                    Director
    ____________________________________
       William F. Miller
 
      /s/ Hobart Mck. Birmingham
    ____________________________________
      (Hobart McK. Birmingham, Attorney in Fact)
 
</TABLE>
 
                                      32
<PAGE>
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
                            FOR INPRISE CORPORATION
 
To the Board of Directors and Stockholders of
Inprise Corporation
 
   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 present fairly, in all material respects, the financial position
of Inprise Corporation and its subsidiaries at December 31, 1998 and 1997, and
the results of their operations and their cash flows for the year ended
December 31, 1998, the nine months ended December 31, 1997, and the year 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
Visigenic Software Inc., a wholly-owned subsidiary, which statements reflect
total assets of $26,002,000 and $33,043,000 at December 31, 1997 and March 31,
1997, respectively, and total revenues of $18,451,000 and $19,601,000 for the
nine months ended December 31, 1997 and the year ended March 31, 1997,
respectively. 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 Visigenic Software Inc., 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 reports
of other auditors provide a reasonable basis for the opinion expressed above.
 
PricewaterhouseCoopers LLP
 
San Jose, California
January 27, 1999
 
                                      33
<PAGE>
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                         FOR VISIGENIC SOFTWARE, INC.
 
To Visigenic Software, Inc.:
 
   We have audited the accompanying consolidated balance sheet of Visigenic
Software, Inc. and subsidiaries (a Delaware corporation and wholly-owned
subsidiary of Inprise Corporation) as of December 31, 1997 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the nine-month period ended December 31, 1997 and the year ended March 31,
1997 (not separately presented herein). 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 conducted our audits 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 audits provide a reasonable basis
for our opinion.
 
   In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Visigenic Software, Inc.
and subsidiaries as of December 31, 1997 and the results of their operations
and their cash flows for the nine-month period ended December 31, 1997 and the
year ended March 31, 1997 in conformity with generally accepted accounting
principles.
 
                                          /s/ Authur Andersen LLP
 
San Jose, California
April 1, 1998
 
                                      34
<PAGE>
 
                              INPRISE CORPORATION
 
                          CONSOLIDATED BALANCE SHEETS
               (in thousands, except par value and share amounts)
 
<TABLE>
<CAPTION>
                                                      December 31, December 31,
                                                          1998         1997
                                                      ------------ ------------
<S>                                                   <C>          <C>
                       ASSETS
Current assets:
  Cash and cash equivalents .........................   $ 81,137     $100,708
  Short-term investments.............................      3,225        1,843
  Accounts receivable, net of allowances of $8,293
   and $11,996.......................................     43,515       34,664
  Inventories........................................        763          787
  Other current assets...............................      9,613        6,461
                                                        --------     --------
    Total current assets.............................    138,253      144,463
Property and equipment, net..........................    111,149      104,944
Other non-current assets.............................      4,386        6,417
                                                        --------     --------
    Total assets.....................................   $253,788     $255,824
                                                        ========     ========
 
        LIABILITIES AND STOCKHOLDERS' EQUITY
 
<CAPTION>
                                                      December 31, December 31,
                                                          1998         1997
                                                      ------------ ------------
<S>                                                   <C>          <C>
Current liabilities:
  Accounts payable...................................   $ 12,280     $ 11,686
  Accrued expenses...................................     35,954       38,424
  Short-term restructuring...........................      3,274        1,278
  Income taxes payable...............................      2,983        4,054
  Deferred revenue...................................     14,513       12,429
  Other current liabilities..........................      7,764       12,012
                                                        --------     --------
Total current liabilities............................     76,768       79,883
Long-term debt and other.............................     19,138       22,025
 
Commitments and contingencies (Notes 6, 8 and 13)
Mandatorily redeemable convertible preferred stock;
 $50,000 par value; 1,470 shares authorized, 738
 shares issued and outstanding.......................     36,873       27,358
 
Stockholders' equity:
  Preferred stock; $.01 par value; 1,000,000 shares
   authorized; none issued or outstanding ...........         --           --
  Common stock; $.01 par value; 100,000,000 shares
   authorized; 48,140,000 and 50,745,000 issued and
   outstanding.......................................        481          508
  Additional paid-in capital ........................    386,468      381,894
  Accumulated deficit ...............................   (251,751)    (259,691)
Cumulative comprehensive income......................      6,155        3,847
                                                        --------     --------
                                                         141,353      126,558
 
Less common stock in treasury at cost 3,472,000
 shares at December 31, 1998.........................    (20,344)        ----
                                                        --------     --------
    Total liabilities and stockholders' equity.......   $253,788     $255,824
                                                        ========     ========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       35
<PAGE>
 
                              INPRISE CORPORATION
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (in thousands, except per share data)
 
<TABLE>
<CAPTION>
                                                       Nine Months    Year
                                           Year ended     Ended       Ended
                                          December 31, December 31, March 31,
                                              1998         1997       1997
                                          ------------ ------------ ---------
<S>                                       <C>          <C>          <C>
Licenses and other revenue...............   $166,214     $132,075   $ 152,020
Service revenue..........................     22,898       13,861      18,957
                                            --------     --------   ---------
  Net revenues...........................    189,112      145,936     170,977
Cost of licenses and other revenue.......     15,683       18,145      24,170
Cost of service revenue..................     15,402        7,545      11,734
                                            --------     --------   ---------
  Cost of revenues.......................     31,085       25,690      35,904
                                            --------     --------   ---------
Gross profit.............................    158,027      120,246     135,073
 
Selling, general and administrative......    112,781       86,545     155,069
Research and development.................     47,324       38,249      64,670
Restructuring and merger related
 charges.................................     15,848           --      18,944
Other non-recurring charges..............         --           --      17,100
Purchased in process product
 development.............................         --           --      12,364
                                            --------     --------   ---------
    Total operating expenses.............    175,953      124,794     268,147
                                            --------     --------   ---------
 
Operating loss...........................    (17,926)      (4,548)   (133,074)
Interest income, net and other...........      3,785        1,736       5,488
Gain on sale of real estate..............      1,135           --          --
Gain on long-term investment.............     16,972           --          --
                                            --------     --------   ---------
Income (loss) before income taxes........      3,966       (2,812)   (127,586)
Income tax (benefit) provision...........     (4,380)       1,082         642
                                            --------     --------   ---------
 
Net income (loss)........................   $  8,346     $ (3,894)  $(128,228)
                                            ========     ========   =========
Income (loss) per share--basic (See Note
 3)......................................   $   0.16     $  (0.09)  $   (2.87)
Income (loss) per share--diluted (See
 Note 3).................................   $   0.14     $  (0.09)  $   (2.87)
 
Shares used in computing basic income
 (loss) per share........................     50,118       49,640      44,703
Shares used in computing diluted income
 (loss) per share.......................      57,384       49,640      44,703
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       36
<PAGE>
 
                              INPRISE CORPORATION
 
                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                 (in thousands)
 
<TABLE>
<CAPTION>
                                                        Nine Months
                                            Year ended     Ended     Year ended
                                           December 31, December 31, March 31,
                                               1998         1997        1997
                                           ------------ ------------ ----------
<S>                                        <C>          <C>          <C>
Net income (loss).........................   $  8,346     $ (3,894)  $ (128,288)
Other comprehensive income (loss):
  Foreign currency translation
   adjustments............................      2,308          637         (992)
                                             --------     --------   ----------
Comprehensive income (loss)...............   $ 10,654     $ (3,257)  $ (129,280)
                                             ========     ========   ==========
</TABLE>
 
 
 
   See accompanying notes to the condensed consolidated financial statements.
 
                                       37
<PAGE>
 
                              INPRISE CORPORATION
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (in thousands)
 
<TABLE>
<CAPTION>
                                              Common Stock
                                    --------------------------------
                                     Number            Additional    Accumulated
                                    of shares Amount Paid in capital  (deficit)
                                    --------- ------ --------------- -----------
<S>                                 <C>       <C>    <C>             <C>
Balance at March 31, 1996 ........   42,110    $420     $323,467      $(122,052)
Issuance of common stock .........    3,267      33       31,070             --
Issuance of common stock in
 connection with the acquisition
 of PostModern Computing
 Technologies, Inc................    2,542      26       10,356             --
Issuance of common stock in
 connection with the acquisition
 of CustomWare, Inc...............      102       1        1,499             --
Conversion of notes...............      222       2        2,031             --
Adjustment to reflect the change
 in year end for OEC..............       --      --           --         (4,967)
Employee stock option, employee
 stock purchase plan and other,
 net..............................      638       6           25             --
Translation adjustment ...........       --      --           --             --
Other ............................       --      --          (28)             3
Net loss..........................       --      --           --       (128,228)
                                     ------    ----     --------      ---------
Balance at March 31, 1997.........   48,881     488      368,420       (255,244)
Issuance of common stock..........      171       1          687             --
Employee stock option, employee
 stock purchase plan and other,
 net..............................    1,693      19       12,076             --
Value attributable to warrants
 issued in connection with
 preferred stock..................       --      --          711             --
Accretion of warrant value
 attributable to preferred stock..       --      --           --           (569)
Adjustment to reflect the change
 in year end for iO...............       --      --           --             16
Translation adjustment............       --      --           --             --
Net loss .........................       --      --           --         (3,894)
                                     ------    ----     --------      ---------
Balance at December 31, 1997 .....   50,745     508      381,894       (259,691)
Employee stock option, employee
 stock purchase plan and other,
 net..............................      867       8        4,634             --
Repurchase of common stock........   (3,472)    (35)          --             --
Premium on repurchase of preferred
 stock............................       --      --         (351)            --
Value attributable to warrants
 issued in connection with
 preferred stock..................       --      --          291             --
Accretion of warrant value
 attributable to preferred stock..       --      --           --           (406)
Translation adjustment............       --      --           --             --
Net income........................     ----    ----         ----          8,346
                                     ------    ----     --------      ---------
Balance at December 31, 1998......   48,140    $481     $386,468      $(251,751)
                                     ======    ====     ========      =========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       38
<PAGE>
 
                              INPRISE CORPORATION
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (in thousands)
 
<TABLE>
<CAPTION>
                                       Treasury Stock     Cumulative
                                       ----------------  Comprehensive
                                       Shares  Amounts      Income       Total
                                       ------  --------  ------------- ---------
<S>                                    <C>     <C>       <C>           <C>
Balance at March 31, 1996............    385   $ (3,500)    $4,202     $ 202,537
Issuance of common stock.............    --         --         --         31,103
Issuance of common stock in
 connection with the acquisition of
 PostModern Computing Technologies,
 Inc.................................    --         --         --         10,382
Issuance of common stock in
 connection with the acquisition of
 CustomWare, Inc. ...................    --         --         --          1,500
Conversion of notes..................    --         --         --          2,033
Adjustment to reflect the changes in
 year end for OEC....................    --         --         --         (4,967)
Employee stock option, employee stock
 purchase plan and other, net........    --         --         --             31
Translation adjustment ..............    --         --        (992)         (992)
Other ...............................   (385)     3,500        --          3,475
Net loss ............................    --         --         --       (128,228)
                                       -----   --------     ------     ---------
Balance at March 31, 1997 ...........    --         --       3,210       116,874
Issuance of common stock ............    --         --         --            688
Employee stock option, employee stock
 purchase plan and other, net .......    --         --         --         12,095
Value attributable to warrants issued
 in connection with preferred stock
 ....................................    --         --         --            711
Accretion of warrant value
 attributable to Preferred Stock ....    --         --         --           (569)
Adjustment to reflect the changes in
 year end for iO ....................    --         --         --             16
Translation adjustment ..............    --         --         637           637
Net loss ............................    --         --         --         (3,894)
                                       -----   --------     ------     ---------
Balance at December 31, 1997 ........    --         --       3,847       126,558
                                       -----   --------     ------     ---------
Employee stock option, employee stock
 purchase plan and other, net........    --         --         --          4,642
Repurchase of common stock ..........  3,472    (20,344)       --        (20,379)
Premium on repurchase of preferred
 stock ..............................    --         --         --           (351)
Value attributable to warrants issued
 in connection with preferred stock..    --         --         --            291
Accretion of warrant value
 attributable to preferred stock ....    --         --         --           (406)
Translation adjustment ..............    --         --       2,308         2,308
Net income ..........................    --         --         --          8,346
                                       -----   --------     ------     ---------
Balance at December 31, 1998.........  3,472   $(20,344)    $6,155     $ 121,009
                                       =====   ========     ======     =========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       39
<PAGE>
 
                              INPRISE CORPORATION
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                Increase (Decrease) in Cash and Cash Equivalents
                                 (in thousands)
 
<TABLE>
<CAPTION>
                                           Nine Months    Year
                               Year Ended     Ended       Ended
                              December 31, December 31, March 31,
                                  1998         1997       1997
                              ------------ ------------ ---------
<S>                           <C>          <C>          <C>        <C> <C> <C>
Cash flows from operating
 activities:
Net income (loss)............   $ 8,346      $ (3,894)  $(128,228)
Adjustments to reconcile net
 income (loss) to net cash
 used in operating
 activities:
 Depreciation and
  amortization...............     9,304         9,155      13,443
 Non-cash restructuring costs
  ...........................     2,943           162         883
 Write-off of purchased
  technology.................       --            --       12,364
 Gain on sale of real
  estate.....................    (1,135)          --          --
 Gain on sale of long term
  investment.................   (16,972)
Changes in assets and
 liabilities, net of
 acquisition of PostModern
 and CustomWare:
 Accounts receivable.........    (7,829)       (8,555)     12,433
 Inventories.................        24           260         551
 Other assets................    (4,481)           85       6,359
 Accounts payable and accrued
  expenses...................    (7,292)       (4,573)     12,909
 Income taxes payable........    (1,071)         (409)     (4,782)
 Short-term restructuring....     2,014        (3,462)     (2,056)
 Deferred revenue............     2,084         1,932       2,586
 Other.......................    (2,730)          351       5,734
                                -------      --------   ---------
Cash used in operating
 activities..................   (16,795)       (8,948)    (67,804)
                                -------      --------   ---------
Cash flows from investing
 activities:
 Acquisition of property and
  equipment, net.............   (18,214)       (4,418)     (7,312)
 Sale of fixed assets and
  real estate................     5,043         2,360       4,603
 Proceed from sale of long-
  term investment............    16,567           --          --
 Investment in and advances
  to joint venture...........       --            --         (137)
 Payment for purchase of
  PostModern and CustomWare,
  net of cash acquired ......       --            --       (1,919)
 Net change in short-term
  investments ...............    (1,382)          158      22,350
                                -------      --------   ---------
Cash provided by (used in)
 investing activities........     2,014        (1,900)     17,585
                                -------      --------   ---------
Cash flows from financing
 activities:
 Proceeds from issuance of
  common stock, net..........     4,642        12,673      34,346
 Proceeds from issuance of
  mandatorily redeemable
  preferred stock, net.......    11,000        27,500         --
 Redemption of common stock..   (20,379)          --          --
 Redemption of mandatorily
  redeemable preferred
  stock......................    (1,951)          --          --
 Borrowings of short term
  debt.......................       --            --          355
 Proceeds from issuance of
  convertible notes..........       --            --        2,000
 Repayment of capital lease
  obligations and other debt
  activity...................      (157)         (156)         (9)
                                -------      --------   ---------
Cash (used in) provided by
 financing activities........    (6,845)       40,017      36,692
                                -------      --------   ---------
Effect on exchange rate
 changes on cash.............     2,055          (625)        (34)
                                -------      --------   ---------
Net change in cash and cash
 equivalents.................   (19,571)       28,544     (13,561)
Net cash adjustment to
 conform the year end of
 acquired companies (Note
 4)..........................       --            126       1,472
Beginning cash and cash
 equivalents.................   100,708        72,038      84,127
                                -------      --------   ---------
Ending cash and cash
 equivalents.................   $81,137      $100,708   $  72,038
                                =======      ========   =========
Cash paid during the year
 for:
 Interest....................   $ 1,016      $    811   $   1,057
 Income taxes................   $   697      $  1,092   $   1,741
</TABLE>
 
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       40
<PAGE>
 
                              INPRISE CORPORATION
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Business
 
   Inprise Corporation ("Inprise" or the "Company") is a leading provider of
cross-platform software, software development tools and services that simplify
the complexity of application development, integration, deployment and
management.
 
   The Company markets and distributes its products through its direct sales
force, single and two-tier distribution, value added resellers ("VARs"),
independent software vendors ("ISVs") and the Internet. This multiple
distribution approach allows customers to select the channel that addresses
their particular needs and provides the Company with broad coverage of
worldwide markets.
 
 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:
 
<TABLE>
<CAPTION>
                                                               Nine Month Period
                                                                     Ended
   Condensed consolidated statement of operations data         December 31, 1996
   ---------------------------------------------------         -----------------
                                                                  (unaudited)
   <S>                                                         <C>
   Net revenues...............................................     $127,556
   Gross profit...............................................     $ 99,337
   Income tax provision.......................................     $    274
   Net loss...................................................     $(83,692)
   Loss per share--basic......................................     $  (1.89)
   Loss per share--diluted....................................     $  (1.89)
</TABLE>
 
 Name Change
 
   In June 1998, the Company's changed its name from Borland International,
Inc. to Inprise Corporation. The Company's stock symbol has been changed to
"INPR."
 
 Acquisition
 
   On February 27, 1998, the Company completed the acquisition of Visigenic
Software, Inc. ("Visigenic") in a transaction accounted for as a pooling of
interests and, as a result, the Company's previously issued financial
statements for the periods presented in this Form 10-K have been restated to
include the assets, liabilities and operating results of Visgenic in
accordance with generally accepted accounting principles and the instructions
in Regulation S-X.
 
 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
 
                                      41
<PAGE>
 
                              INPRISE CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
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 ending prior to January 1,
1998 in accordance with Statement of Position 91-1, "Software Revenue
Recognition."
 
   In October 1997 and March 1998, the American Institute of Certified Public
Accountants issued Statement of Position 97-2 "Software Revenue Recognition"
("SOP97-2") and Statement of Position 98-4, "Deferral of the Effective Date of
the Provisions of SOP97-2, Software Revenue Recognition" ("SOP98-4"), which
the Company currently is required to adopt for transactions entered into in
the fiscal year beginning January 1, 1998. SOP97-2 and SOP98-4 provide
guidance on recognizing revenue on software transactions and supersedes issued
Statements of Position 91-1 "Software Revenue Recognition" ("SOP91-1"). The
Company believes that the adoption of SOP97-2 and SOP98-4 has not had a
significant impact on its current licensing or revenue recognition practices
for the period beginning after January 1, 1998. Should the Company modify its
licensing practices, application of the requirements under SOP97-2 and SOP98-4
may require different revenue recognition treatment.
 
 Cash, Cash Equivalents and Short-Term Investments
 
   The Company considers all highly liquid investments 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 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, 1998 and 1997 were $3.2 million and $1.8 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 $13.2 million and $11.0 million at December 31, 1998
and 1997, respectively. The Company's accounting policy for these instruments,
which do not qualify as accounting hedges, is based upon the guidance of
Statement of Financial Accounting Standard No. 8, "Accounting for the
Translation of Foreign Currency Transactions and Foreign Currency Financial
Statements" ("FAS No. 8"). The forward exchange contracts are marked-to-market
and unrealized gains and losses are included in current period net income. The
net gain or loss on such foreign currency contracts and underlying
transactions have been insignificant for all periods presented.
 
   In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133 "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting
standards for derivative instruments, embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and
measure those instruments at fair value. The accounting for changes in the
fair value of the derivative depends on the intended use of the derivative and
the resulting designation. SFAS 133 is effective for all fiscal quarters
 
                                      42
<PAGE>
 
                              INPRISE CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
of fiscal years beginning after June 15, 1999. The Company will adopt SFAS 133
in the first quarter of the fiscal year ending December 31, 2000 and has not
yet evaluated the impact of the adoption on the Company's results of
operations, financial position, capital resources or liquidity.
 
 Financial Instruments
 
   The fair value of the Company's financial instruments, including cash and
cash equivalents, accounts and notes receivable, accounts and notes payable,
and long-term debt, is based upon the present value of the cash flows or
securities with similar terms, and approximates carrying value.
 
 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:
 
<TABLE>
             <C>                                                <S>
             Buildings                                           31.5 years
             Computer equipment                                 3 to 5 years
             Furniture, fixtures and equipment                     5 years
             Leasehold improvements                              Lease term
</TABLE>
 
   Depreciation expense for the year ended December 31, 1998, the nine months
ended December 31, 1997 and the fiscal year ended March 31, 1997 was $9.2
million, $8.0 million and $11.8 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
 
                                      43
<PAGE>
 
                              INPRISE CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
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 closing
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 closing 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 12.
 
 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 year ended
December 31, 1998, the nine months ended December 31, 1997 or the fiscal year
ended March 31, 1997. Amortization of internal software development costs
charged to cost of revenues during the year ended December 31, 1998, nine
months ended December 31, 1997 and the fiscal year ended March 31, 1997 was
none, $203,000 and $522,000, respectively. There were no unamortized product
rights and capitalized development costs recorded at December 31, 1998 and
1997.
 
 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 year
ended December 31, 1998, the nine months ended December 31, 1997 and the
fiscal year ended March 31, 1997 was $87,000, $859,000 and $1,114,000,
respectively. At December 31, 1998 and 1997, the Company had approximately
$1,425,000 and $217,000 of unamortized goodwill, respectively.
 
 Advertising Costs
 
   The Company expenses the production costs of advertising, including direct
response, the first time the advertising takes place. Advertising expense was
$4.0 million, $10.1 million and $14.7 million during the year ended December
31, 1998, the nine months ended December 31, 1997 and the fiscal year ended
March 31, 1997, 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.
 
                                      44
<PAGE>
 
                              INPRISE CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
   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 functional currency of the Company's non-U.S. subsidiaries' is the
local currency. The balance sheet accounts of these subsidiaries 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 has adopted Statement
of Financial Accounting Standards No. 128, "Earnings Per Share"(SFAS No. 128).
SFAS No. 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 for all prior periods have been restated to
conform with the provision of SFAS No. 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 potentially dilutive securities outstanding during the period. Potentially
dilutive securities consist of mandatorily redeemable convertible preferred
stock (using the if-converted method) and stock options and warrants (using
the treasury stock method). Potentially dilutive securities 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 April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP98-1"). SOP98-1 provides
guidance for determining whether computer software is internal-use software
and on accounting for the proceeds of computer software originally developed
or obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer
software developed or obtained for internal use. The disclosures prescribed by
SOP98-1 will be effective for the year ending December 31, 1999 consolidated
financial statements. The Company has not yet determined the impact, if any,
of adopting this statement.
 
   In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133 "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting
standards for derivative instruments, embedded in other contracts, and for
hedging activities. It requires
 
                                      45
<PAGE>
 
                              INPRISE CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
that an entity recognizes all derivatives as either assets or liabilities in
the statement of financial position and measure those instruments at fair
value. The accounting for changes in the fair value of the derivative depends
on the intended use of the derivative and the resulting designation. The
Company will adopt SFAS 133 in the first quarter of the fiscal year ending
December 31, 2000 and has not yet evaluated the impact of the adoption on the
Company's results of operations, financial position, capital resources or
liquidity.
 
NOTE 2. CONSOLIDATED BALANCE SHEET COMPONENTS
 
   Details of certain balance sheet captions are as follows (amounts in
thousands):
 
<TABLE>
<CAPTION>
                                                    December 31, December 31,
                                                        1998         1997
                                                    ------------ ------------
   <S>                                              <C>          <C>
   Property and equipment, including capitalized
    leases:
     Buildings.....................................   $ 99,703     $ 99,198
     Computer equipment............................     72,217       59,569
     Furniture, fixtures and equipment.............     28,207       24,905
     Other.........................................      3,026        2,940
                                                      --------     --------
                                                       203,153      186,612
     Less accumulated depreciation and
      amortization.................................   (116,529)    (106,193)
                                                      --------     --------
                                                        86,624       80,419
     Land..........................................     24,525       24,525
                                                      --------     --------
       Total.......................................   $111,149     $104,944
                                                      ========     ========
   Accrued expenses:
     Employee related expenses.....................   $  9,600     $  7,697
     Advertising and customer sales incentives.....      1,017        1,807
     Professional fees and settlement costs........     14,851       18,283
     Other.........................................     10,486       10,637
                                                      --------     --------
       Total.......................................   $ 35,954     $ 38,424
                                                      ========     ========
   Long-term debt and other non-current
    liabilities:
     Non-current portion of accrued
      restructuring charges........................   $  2,907     $  3,307
     Mortgage notes payable........................      9,104        9,249
     Deferred and other taxes......................      5,700        9,404
     Long-term deferred revenue and other..........      1,427           65
                                                      --------     --------
       Total.......................................   $ 19,138     $ 22,025
                                                      ========     ========
</TABLE>
 
                                      46
<PAGE>
 
                              INPRISE CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
NOTE 3. EARNINGS PER SHARE
 
   The following is a reconcilation of the computation of basic and diluted
earnings per share (in thousands, except per share data):
 
<TABLE>
<CAPTION>
                                        Year ended                    Year Ended
                                       December 31, Nine Months Ended March 31,
                                           1998     December 31, 1997    1997
                                       ------------ ----------------- ----------
   <S>                                 <C>          <C>               <C>
   Numerator:
   Net income (loss) before accretion
    charge to the mandatorily
    redeemable convertible preferred
    stock............................     $8,346         $(3,894)     $(128,228)
   Accretion charge relating to the
    warrants issued in connection
    with the mandatorily redeemable
    convertible preferred stock......        406             569             --
                                          ------         -------      ---------
   Income (loss) available to common
    stockholders for basic and
    diluted earnings per share.......      7,940         $(4,463)     $(128,228)
                                          ======         =======      =========
 
   Denominator:
   Denominator for basic income
    (loss) per share weighted average
    shares...........................     50,118          49,640         44,703
   Effect of dilutive securities
     Series B Manditorily Convertible
      Preferred Stock................      5,846              --             --
     Employee stock options..........      1,420              --             --
                                          ------         -------      ---------
   Denominator for diluted income
    (loss) per share adjusted
    weighted average shares and
    assumed conversions..............     57,384          49,640         44,703
                                          ======         =======      =========
   Income (loss) per share--basic....     $ 0.16         $ (0.09)     $   (2.87)
   Income (loss) per share--diluted..     $ 0.14         $ (0.09)     $   (2.87)
</TABLE>
 
   The 550 shares of Series B mandatorily redeemable convertible preferred
stock outstanding at December 31, 1997 were not included in the computation of
diluted EPS for the nine months ended December 31, 1997, as the inclusion of
the mandatorily redeemable convertible preferred stock would have been
antidilutive. The 308,000 and 220,000 warrants to purchase common shares
outstanding at December 31, 1998 and 1997, respectively, were not included in
the computation of diluted EPS for the year ended December 31, 1998 and the
nine months ended December 31, 1997, as the inclusion of the warrants would
have been antidilutive.
 
   Additionally, options to purchase 10,789,000, 11,871,000 and 10,621,000
shares of common stock were outstanding at December 31, 1998 and 1997 and
March 31, 1997, respectively, 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. ACQUISITIONS
 
 Visigenic Software, Inc.
 
   On February 27, 1998, the Company issued approximately 12,118,060 shares of
Inprise Common Stock in exchange for all of the outstanding common stock of
Visigenic. The Company also reserved approximately 2,527,284 shares for
issuance in connection with Visigenic's outstanding employee stock options.
The merger was accounted for as a pooling of interests and, accordingly, the
Company's consolidated financial statements have been restated for all periods
prior to the merger to include the operations of Visigenic.
 
                                      47
<PAGE>
 
                              INPRISE CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
   Following the merger Visgenic's year end has been conformed to the
Company's 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>
                                                                     Proforma
   Nine Months Ended December 31, 1997          Borland   Visigenic  Combined
   -----------------------------------         ---------  ---------  ---------
   <S>                                         <C>        <C>        <C>
   Net revenues............................... $ 127,485  $ 18,451   $ 145,936
   Net income (loss).......................... $   4,424  $ (8,318)  $  (3,894)
   Income (loss) per share--basic............. $    0.10  $  (0.58)  $   (0.09)
   Income (loss) per share--diluted........... $    0.10  $  (0.58)  $   (0.09)
 
<CAPTION>
   Year Ended March 31, 1997
   -------------------------
   <S>                                         <C>        <C>        <C>
   Net revenues............................... $ 151,376  $ 19,601   $ 170,977
   Net income (loss).......................... $(107,960) $(20,268)  $(128,228)
   Income (Loss) per share--basic............. $   (2.96) $  (1.58)  $   (2.87)
   Income (loss) per share--diluted........... $   (2.96) $  (1.58)  $   (2.87)
</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 may be obtained in the future.
 
 Apogee Information Systems, Inc.
 
   On November 30 1998, the Company completed its acquisition of Apogee
Information Systems, Inc. ("Apogee"). Apogee provides application design and
development consulting services to clients primarily in the United States. The
Company purchased all of Apogee's outstanding shares of common stock for
approximately $4.0 million in cash of which approximately $1.6 million has
been paid. The remaining consideration is payable upon Apogee reaching certain
revenue levels. The transaction was accounted for as a purchase. As a result
of a purchase price allocation, the excess of the purchase price over net
assets acquired is $1.5 million, which is being amortized on a straight-line
basis over a period of approximately two years.
 
 Open Environment
 
   On November 18, 1996, the Company issued 4,975,000 shares of its common
stock for all of the outstanding common stock of Open Environment Corporation
("OEC") and issued options to purchase 1,190,216 shares of Inprise 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 developed, marketed
and supported software that enabled 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 the Company's March year end for fiscal year 1997.
For periods prior to fiscal year 1997, the combined financial statements of
the Company 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.
 
 
                                      48
<PAGE>
 
                              INPRISE CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 PostModern
 
   In May 1996, Visigenic completed the acquisition of PostModern, a supplier
of distributed object technology. In the acquisition, Visigenic issued
2,541,481 shares of its common stock, valued at $3.66 per share based on an
independent appraisal of Visigenic's common stock, and paid a total of $2.3
million in exchange for all of PostModern's outstanding shares. Visigenic also
incurred acquisition-related costs of approximately $450,000, resulting in a
total purchase price of approximately $13.1 million. The acquisition of
PostModern was accounted for as a purchase in the quarter ended June 30, 1996.
The acquired in-process product development totaling $12.0 million was charged
to expense in the fiscal year ended March 31, 1997 based upon an independent
appraisal. As a result of the purchase prices allocation, the excess of the
purchase price over net assets acquired is $1.1 million, which is being
amortized on a straight-line basis over a period of two years.
 
NOTE 5. RESTRUCTURING AND MERGER RELATED CHARGES
 
   In connection with the acquisition of Visigenic, the Company implemented a
worldwide realignment of its corporate structure. In the quarter ended March
31, 1998, the Company recorded a $19.3 million restructuring and merger
related charge of which $9.9 million related to severance costs associated
with the elimination of duplicate workforce, $3.2 million to terminate certain
lease agreements and the write-off of certain fixed assets and $2.5 million
for other costs associated with the restructuring. Additionally, the Company
charged to income approximately $3.7 million in expenses associated with the
merger. As part of the first quarter restructure, the Company had recorded a
restructuring charge of approximately $3.4 million for severance costs
associated to the anticipated closure of certain operations. At December 31,
1998, Company did not anticipate any further severance costs associated with
these operations. Accordingly, the Company reversed the charge during the
quarter ended December 31, 1998.
 
   During the fiscal year ended March 31, 1997, the Company recorded
restructuring and merger related charges totaling $18.9 million. These charges
included $6.2 million related to severance costs, $1.8 million for the
termination of certain lease agreements and $2.0 million for other costs
associated with the restructuring. In connection with the merger with OEC
during fiscal year 1997, the Company incurred merger related costs of $8.9
million.
 
   The following table summarizes the Company's restructuring activity for the
year ended December 31, 1998, nine months ended December 31, 1997 and the year
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,
    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......    (1,976)         --      (1,387)    (155) (3,518)
   Non-cash costs..........        --          --        ----     (162)   (162)
                               ------      ------      ------   ------  ------
   Accrual as of December
    31, 1997...............        71          --         572      635   1,278
   1998 restructuring......     9,863       2,900         336    2,482  15,581
   Cash paid during the
    1998...................    (4,275)         --          --   (2,719) (6,994)
   Non-cash costs..........        --      (2,748)       (195)      --  (2,943)
   Reversal of previous
    restructure............    (3,356)         --          --     (292) (3,648)
                               ------      ------      ------   ------  ------
   Accrual at December 31,
    1998...................    $2,303      $  152      $  713   $  106  $3,274
                               ======      ======      ======   ======  ======
</TABLE>
 
                                      49
<PAGE>
 
                              INPRISE CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
   The Company also incurred restructuring charges during the year ended 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 year ended December 31, 1998, nine months ended
December 31, 1997 and the year ended March 31, 1997 were insignificant. The
restructuring accruals related to these actions were $2.9 million and $3.2
million at December 31, 1998 and 1997, respectively. The remaining accrual
relates primarily to long-term lease obligations.
 
NOTE 6. LONG-TERM DEBT
 
   Long-term debt at December 31, 1998 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, 1998 are as
follows, amounts in thousands:
 
<TABLE>
<CAPTION>
             Calendar year:
             --------------
             <S>                                <C>
             1999.............................. $  145
             2000..............................    161
             2001..............................    180
             2002..............................    200
             2003..............................    222
             Thereafter........................  8,341
                                                ------
                                                 9,249
             Less current portion..............   (145)
                                                ------
             Long-term portion................. $9,104
                                                ======
</TABLE>
 
   Interest expense for all obligations was $1,016,000, $811,000 and
$1,186,000 for the year ended December 31, 1998, nine months ended December
31, 1997 and the year ended March 31, 1997, respectively.
 
NOTE 7. INCOME TAXES
 
   Income (loss) before income taxes consisted of the following, amounts in
thousands:
 
<TABLE>
<CAPTION>
                                 Year Ended     Nine Months Ended   Year Ended
                              December 31, 1998 December 31, 1997 March 31, 1997
                              ----------------- ----------------- --------------
     <S>                      <C>               <C>               <C>
     U.S.....................      $(2,366)         $(10,673)       $(120,788)
     Non U.S.................        6,332             7,861           (6,798)
                                   -------          --------        ---------
                                   $ 3,966          $ (2,812)       $(127,586)
                                   =======          ========        =========
</TABLE>
 
                                      50
<PAGE>
 
                              INPRISE CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
   The provision (benefit) for income taxes consisted of the following,
amounts in thousands:
 
<TABLE>
<CAPTION>
                                 Year Ended     Nine Months Ended   Year Ended
                              December 31, 1998 December 31, 1997 March 31, 1997
                              ----------------- ----------------- --------------
     <S>                      <C>               <C>               <C>
     Current:
     Federal.................      $(3,800)          $   --          $(2,136)
     State...................         (981)              --               --
     Non U.S.................          198            1,082            2,778
                                   -------           ------          -------
                                   (4,583)            1,082              642
     Deferred:
     Federal.................           --               --               --
     State...................           --               --               --
     Non U.S.................          203               --               --
                                   -------           ------          -------
                                       203
     Income tax provision
      (benefit)..............      $(4,380)          $1,082          $   642
                                   =======           ======          =======
</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>
                                                        Nine Months
                                            Year Ended     Ended     Year Ended
                                           December 31, December 31, March 31,
                                               1998         1997        1997
                                           ------------ ------------ ----------
   <S>                                     <C>          <C>          <C>
   Tax provision (benefit) at U.S.
    statutory rate.......................    $ 1,388      $  (984)    $(44,655)
   Limitation (benefit) on utilization of
    non-U.S. losses......................        (55)      (2,771)       4,706
   Limitation (benefit) on utilization of
    U.S. losses..........................        828        3,736       39,707
   Resolution of certain prior year's
    non-U.S. tax exposures...............     (3,175)          --           --
   Resolution of certain prior year's
    U.S. tax exposures...................     (4,781)          --           --
   Non-U.S. withholding taxes............      1,415        1,101          884
                                             -------      -------     --------
   Income tax provision (benefit)........    $(4,380)     $ 1,082     $    642
                                             =======      =======     ========
</TABLE>
 
   Under FASB Statement No. 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:
 
<TABLE>
<CAPTION>
                                              Year Ended     Nine Months Ended
                                           December 31, 1998 December 31, 1997
                                           ----------------- -----------------
   <S>                                     <C>               <C>
   Accrued expenses.......................     $  11,660         $  15,125
   Accounts receivable reserves...........         1,274             1,253
   Inventory valuation....................         1,242             1,251
   Depreciation, amortization and other...        10,682            11,764
   U.S. federal, state loss and credit
    carryforwards.........................       101,136           102,990
   Non-U.S. loss carryforwards............         8,689            12,652
                                               ---------         ---------
   Gross deferred tax assets..............       134,683           145,035
   Deferred tax assets valuation
    allowance.............................      (134,480)         (145,035)
                                               ---------         ---------
   Total net deferred tax assets..........     $     203         $       0
                                               =========         =========
</TABLE>
 
 
                                      51
<PAGE>
 
                              INPRISE CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
   At December 31, 1998 and December 31, 1997, the Company had reserved a
substantial portion 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 $208 million at December 31, 1998. There are
also available U.S. federal tax credit carryforwards of approximately $23
million. These loss and credit carryforwards expire between 1999 and 2014, if
not utilized. The Company also has Alternative Minimum Tax (AMT) credit
carryforwards for U.S. federal income tax purposes of approximately $2
million, which does not expire. Utilization of federal and state net operating
loss and tax credit carryforwards may be subject to a substantial annual
limitation due to the ownership change limitations provided by the Internal
Revenue Code of 1986, as amended, and similar state provisions. The annual
limitation may result in the expiration of net operating loss and tax credit
carryforwards before full utilization. The Company also has approximately $19
million of net operating loss carryforwards in various foreign jursidictions.
Certain of these loss carryforwards will expire beginning in 1999, if not
utilized.
 
   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 December 31, 1998 the Company recorded an income
tax benefit of approximately $4.8 million resulting from a settlement reached
with the U.S. Internal Revenue Service (IRS). This settlement resolved
differences concerning certain disputed deductions related to the tax years
ending 1984-1992. In addition, the Company recorded an income tax benefit of
approximately $3.2 million related to the resolution of certain non-U.S. tax
issues which were previously provided for. Excluding the tax benefits of
$4.8 million and $3.2 million, the Company would have incurred an income tax
expense of approximately $3.6 million.
 
   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.
 
   Applicable U.S. income and non-U.S. withholding taxes have not been
provided on undistributed earnings of approximately $15.0 million of the
Company's foreign subsidiaries as such earnings are considered to be
permanently invested in foreign operations.
 
                                      52
<PAGE>
 
                              INPRISE CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
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 seventeen years.
 
   Minimum annual lease commitments and minimum future sublease income at
December 31, 1998 are as follows, amounts in thousands:
 
<TABLE>
<CAPTION>
                                                     Operating Sublease Capital
       Calendar year:                                 Leases    Income  Leases
       --------------                                --------- -------- -------
       <S>                                           <C>       <C>      <C>
       1999........................................  $  3,568   $1,879  $   484
       2000........................................     2,735    1,831      295
       2001........................................     2,601    1,079      310
       2002........................................     3,111      655       18
       2003........................................     3,159      498        0
       Thereafter..................................     9,831       --        0
                                                     --------   ------  -------
                                                     $ 25,005   $5,942    1,107
                                                     ========   ======  =======
       Less amount representing interest...........                          67
                                                                        -------
                                                                        $ 1,040
                                                                        =======
</TABLE>
 
   Rent expense for all operating leases was $3.6 million, $3.3 million and
$4.2 million for the year ended December 31, 1998, nine months ended December
31, 1997 and the year ended March 31, 1997, respectively. Minimum sublease
income was $2.1 million, $1.5 million and $0.9 million for the year ended
December 31, 1998, nine months ended December 31, 1997 and the year ended
March 31, 1997, respectively.
 
NOTE 9. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
 
   In 1997, the Company issued 550 shares of Series B mandatorily redeemable
convertible preferred 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 Series B Share, 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 share 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.
 
   On July 27, 1998, the holders of the Series B Shares exercised their rights
to purchase an additional 220 Series B Shares and 88,000 Warrants to purchase
Inprise Common Stock. Total proceeds to the Company were approximately $11.0
million. The warrants have an exercise price of $8.59 per share. The Company
recorded a charge of approximately $0.4 million to the income available to
common stockholders for the value of the Warrants during the year ended
December 31, 1998 (see Note 3. Earnings (Loss) per Share).
 
   In December 1998, the Company exercised its right to redeem 32 Series B
Shares for total consideration of approximately $1.95 million. The shares had
a par value of $1.6 million. The additional consideration in excess of par
value was charged to paid in capital during the quarter ended December 31,
1998.
 
                                      53
<PAGE>
 
                              INPRISE CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
   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 number of 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 Series B 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 of a share of the Company's common stock during the
seven trading days before the conversion date or $6.94 ($6.88 for Series B
Shares issued on July 27, 1998). The Series B Shares are automatically
converted five years from the date of issuance.
 
   At December 31, 1998, 6,135,000 shares of Inprise Common Stock were
reserved for issuance upon the conversion of the Series B Shares.
 
NOTE 10. COMMON SHARES RESERVE FOR FUTURE ISSUANCE
 
   Shares of common stock of the Company reserved for future issuance at
December 31, 1998 are as follows (in thousands):
 
<TABLE>
       <S>                                                           <C>
       Employee Stock Purchase Plan.................................    201,636
       Stock Options................................................ 15,026,483
       Manditorily Redeemable Convertible Preferred Stock...........  6,135,000
       Warrants.....................................................  1,265,000
                                                                     ----------
       Total........................................................ 22,628,119
                                                                     ==========
</TABLE>
 
NOTE 11. STOCK REPURCHASE PROGRAM
 
   On July 21, 1998, the Company's Board of Directors authorized the Company
to repurchase up to one million of Company's common stock for up to $10.0
million. On September 21, 1998, the Company's Board of Directors extended the
program to 10% of the Company's outstanding share of common stock on a fully
diluted basis, or approximately 5,900,000 shares, inclusive of the 1,000,000
share under the original program. The Company has repurchased approximately
3.5 million shares at an average price of $5.87 per share.
 
                                      54
<PAGE>
 
                              INPRISE CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
NOTE 12. EMPLOYEE BENEFIT PLANS
 
 Stock Option Plan
 
   As of December 31, 1998, the Company has various stock-based compensation
plans. The Company applies APB 25 and related interpretations in accounting
for its plans. 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.
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 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.
 
   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 Inprise 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 Inprise
Common Stock available for purchase thereunder from 200,000 share to 400,000
shares.
 
   On June 5, 1998, the Company's stockholders approved (i) an amendment to
the Company's 1997 Stock Option Plan to increase the number of shares of
Inprise Common Stock reserved for issuance thereunder by 2.4 million and (ii)
an amendment to the Company's 1997 Employee Stock Purchase Plan to increase
the number of shares of Inprise Common Stock reserved for issuance thereunder
by 100,000.
 
   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 repricing. A total of 4,718,355 options
were amended.
 
   In August 1998, substantially all outstanding options with a share price in
excess of $6.50 were amended to an exercise price of $6.50 per share, the fair
market value as of the date of the repricing. A total of 6,452,541 options
were amended.
 
                                      55
<PAGE>
 
                              INPRISE CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
   The following table summarizes the Company's stock option activity and
related weighted average exercise prices within each category for the year
ended December 31, 1998, the nine months ended December 31, 1997 and the year
ended March 31, 1997 relating to the Company's stock option plans. Amounts are
in thousands, except share price:
 
<TABLE>
<CAPTION>
                             Year ended
                            December 31,   Nine Months Ended    Year Ended
                                1998       December 31, 1997  March 31,1997
                            -------------- ------------------ ---------------
                            Shares  Price   Shares    Price   Shares   Price
                            ------  ------ --------- -------- ------  -------
   <S>                      <C>     <C>    <C>       <C>      <C>     <C>
   Options outstanding at
    beginning of period....  9,348  $ 8.12    8,866    $ 7.59  7,357  $ 10.88
   Stock options:
     Granted or assumed.... 13,134  $ 7.02    3,437  $   8.46 10,074  $  6.52
     Exercised.............   (559) $ 4.52   (1,722) $   6.67   (321) $  7.77
     Canceled.............. (9,066) $ 9.10   (1,233) $   7.49 (8,244) $  9.26
                            ------  ------ --------  -------- ------  -------
   Options outstanding at
    end of period.......... 12,857  $ 6.43    9,348  $   8.12  8,866  $  7.59
                            ======  ====== ========  ======== ======  =======
   Exercisable.............  6,952            3,832            3,846
                            ======         ========           ======
</TABLE>
 
   At December 31, 1998, approximately 2,169,000 shares were available for
future grant under the option plans. All options granted under the plan for
the year ended December 31, 1998, nine months ended December 31, 1997 and the
year ended March 31, 1997 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>
                                 Year Ended     Nine Months Ended   Year Ended
                              December 31, 1998 December 31, 1997 March 31, 1997
                              ----------------- ----------------- --------------
     <S>                      <C>               <C>               <C>
     Expected life...........     2.3 years         3.0 years       2.7 years
     Risk-free interest
      rate...................         4.64%             5.72%           6.60%
     Volatility..............         66.7%             68.6%           70.6%
     Dividend yield..........         0.00%             0.00%           0.00%
</TABLE>
 
   The weighted-average fair value of the stock options granted under the
EOP's during the year ended December 31, 1998, the nine months ended December
31, 1997 and the year ended March 31, 1997, as defined by SFAS 123, was $3.88,
$4.81 and $3.20, respectively.
 
                                      56
<PAGE>
 
                              INPRISE CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
   The following table summarizes information about fixed stock options
outstanding at December 31, 1998. Amounts are in thousands, except share
price:
 
<TABLE>
<CAPTION>
                                      Options Outstanding             Options Exercisable
                                -------------------------------  -----------------------------
   Range of          Number                        Weighted-         Number       Weighted-
   Exercise       Outstanding   Weighted-Average    Average      Exercisable at    Average
   Prices         at 12/31/98   Contractual Life Exercise Price     12/31/98    Exercise Price
   --------       -----------   ---------------- --------------  -------------- --------------
   (in thousands)  (in years)                    (in thousands)
   <C>            <S>           <C>              <C>             <C>            <C>
   $ 0.29-$ 6.06      2,739           8.12           $ 5.03          1,726          $ 4.94
   $ 6.25-$ 6.44      2,281           6.60           $ 6.43          1,828          $ 6.43
   $ 6.50-$ 6.50      6,569           8.88           $ 6.50          1,465          $ 6.50
   $ 6.56-$41.88      1,208           7.60           $11.61            902          $13.14
   $49.00-$49.00         60           2.81           $49.00             60          $49.00
                     ------                                          -----
                     12,857                                          5,981
                     ======                                          =====
</TABLE>
 
 InterBase Stock Option Plan
 
   In October 1998, the board of directors of InterBase approved the proposal
to establish the InterBase Software Corporation 1998 Stock Option Plan
("InterBase Option Plan"). A total of 10,000,000 options were authorized for
issuance under the InterBase Option Plan. Options granted under the InterBase
Option Plan have a ten year term. The exercise price of options granted under
the InterBase Option Plan 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
year ended December 31, 1998 have accelerated vesting features that become
effective under certain conditions in the event that there is a change of
control of the Company. During the quarter ended December 31, 1998, InterBase
granted approximately 8,024,000 options under the plan. The weighted average
exercise price of these options was $0.075 per share.
 
 Stock Purchase Plans
 
   In April 1993 and August 1994, Visigenic adopted the Stock Purchase Plans
(the "Stock Plans") and authorized the issuance of 780,936 shares thereunder
to employees and consultants. Stock purchased under these Stock Plans
generally vests ratably over a five year period. Unvested shares may be
repurchased by Visigenic at the original issuance price in the event of the
employee's or consultant's termination. Upon the consummation of the merger,
these shares were converted into shares of the Company's common stock. As of
December 31, 1998, 13,600 shares issued and outstanding under these Stock
Plans were subject to repurchase. As of December 31, 1998, no further shares
were available for issuance under the Stock Plans.
 
 Employee Stock Purchase Plan
 
   The Company has two Employee Stock Purchase Plans, the 1990 Employee Stock
Purchase Plan (the "1990 ESPP") and the 1997 Employee Stock Purchase Plan (the
"1997 ESPP"). The 1990 ESPP is not currently in use and will terminate in July
2000. The 1997 ESPP 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
 
                                      57
<PAGE>
 
                              INPRISE CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
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 1,350,000 shares of common stock that have
been reserved for issuance under the two plans, 1,148,315 shares were issued
through December 31, 1998. Sales under the two plans during the year ended
December 31, 1998, the nine months ended December 31, 1997 and the year ended
March 31, 1997 were 298,364, 77,426 and 142,573 shares of common stock at an
average price of $5.63, $6.04 and $5.67 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 model with the following weighted average
assumptions for the year ended December 31, 1998, the nine months ended
December 31, 1997 and the year ended March 31, 1997, respectively: an expected
life of six months; expected volatility of 67%, 69% and 71%; risk-free
interest rates of 4.64%, 5.72% and 6.63%; and dividend yields of 0%. The
weighted average fair value of those purchase rights granted during the year
ended December 31, 1998, the nine months ended December 31, 1997 and the year
ended March 31, 1997, as defined by SFAS 123, was $2.24, $4.60 and $3.24,
respectively.
 
   Visigenic adopted an Employee Stock Purchase Plan (the "Visigenic ESPP") in
June 1996. A total of 450,000 shares of common stock were reserved for
issuance under the Visigenic ESPP. The Visigenic ESPP permitted eligible
employees to purchase common stock at 85% of the lower of the fair market
value of Visigenic common stock on the first day or the last day of each six-
month period. A total of 122,421 shares were issued under the Visigenic ESPP.
The common stock issued under this plan were converted into common stock of
the Company upon the consummation of the merger, see Note 4.
 
 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 FAS 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 year ended December 31, 1998, nine months ended
December 31, 1997 and the year ended March 31, 1997 would have been as follows
(amounts in thousands, expect per share data):
 
<TABLE>
<CAPTION>
                               Year ended     Nine Months ended   Year ended
                            December 31, 1997 December 31, 1997 March 31, 1996
                            ----------------- ----------------- --------------
   <S>                      <C>               <C>               <C>
   Net income (loss):
     As reported...........     $  8,346          $ (3,894)       $(128,228)
     Pro Forma.............     $(12,982)         $(18,719)       $(144,512)
 
   Net income (loss) per
    share:
     As reported basic.....     $   0.16          $  (0.09)       $   (2.87)
     As reported diluted...     $   0.14          $  (0.09)       $   (2.87)
 
     Pro Forma basic.......     $  (0.26)         $  (0.38)       $   (3.23)
     Pro Forma diluted.....     $  (0.26)         $  (0.38)       $   (3.23)
</TABLE>
 
   The pro forma amounts include compensation expense related to the year
ended December 31, 1998, the nine months ended December 31, 1997 and the year
ended March 31, 1997 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 $5.7 million, $2.8 million, and $12.7 million
during the year ended December 31, 1998, nine months ended December 31, 1997
and the year ended March 31, 1997, respectively.
 
                                      58
<PAGE>
 
                              INPRISE CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
NOTE 13. 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 14. LITIGATION
 
   The Company and certain of its former officers and directors were named
defendants in two lawsuits, Kaplan, et al vs. Kahn, et al, and, Crook, 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
former 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. Notice of the
settlement and the revised plan for allocating the settlement fund has been
mailed to the members of the settlement class. The date for objections to the
settlement has passed, and no member of the settlement class has served any
objection to the settlement itself or the revised plan of allocation. A
hearing is scheduled for April 29, 1999, and at that time, the court is
expected to determine whether the stipulation of settlement should be
approved. In the interim, the previously-established discovery cut-off and
pretrial conferences dates remain vacated. The Company continues to believe
that the revised settlement plan ultimately will be approved, but is unable to
predict the outcome of this matter at this time. 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.
 
   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 parties have agreed to a settlement of the case subject to final
documentation and court approval. If the settlement does not became final and
the case is litigated, an adverse decision could have a material adverse
effect on the Company's financial condition and results of operations.
 
   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. Pursuant to the Court's
February 20, 1998 order, the parties completed a non-binding mediation on July
17, 1998. No settlement was reached. The parties have agreed to participate in
a second mediation following discovery and a motion for
 
                                      59
<PAGE>
 
                              INPRISE CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
summary judgement, or, in the alternative, summary adjudication which
Visigenic and Corel intend to file. A further case management conference took
place on August 14, 1998 at which time discovery and motion cutoffs were set,
and the trial was scheduled for April 5, 1999. The trial date has since been
continued to August 21, 1999. The Company will file a motion for summary
judgment which will be heard in April or May. 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.
 
   The Company is involved in various 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 such
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
the Company's financial condition or results of operations.
 
                                      60
<PAGE>
 
                              INPRISE CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
NOTE 15. WORLDWIDE OPERATIONS
 
   The Company 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.
 
                                      61
<PAGE>
 
                              INPRISE CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
 
   In June 1997 FASB issued Statement No. 131, "Disclosure about Segments of
an Enterprise and Related Information" ("SFAS 131"). This statement
establishes standards for reporting financial information about operating
segments in annual financial statements. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. Reportable segments, as defined by SFAS 131, were identified based
upon the internal reporting structure of the Company. Each reportable segment
is responsible for marketing and selling all the Company's products and
services within their predetermined geographical region. Intercompany
transactions are recorded and either cost or applicable transfer price, as
appropriate. Intercompany transactions and balances are eliminated upon
consolidation. Summary financial information from the Company's reportable
segments follows (amounts in thousands):
 
<TABLE>
<CAPTION>
                                 Year ended     Nine Months Ended   Year Ended
                              December 31, 1998 December 31, 1997 March 31, 1997
                              ----------------- ----------------- --------------
<S>                           <C>               <C>               <C>
Net revenues from
 unaffiliated customers:
  U.S. operations (including
   exports).................      $ 95,712          $ 63,037        $  78,954
  European operations.......        63,654            45,100           50,215
  Japan operations..........        16,924            20,075           26,366
  Other international
   operations...............        12,822            17,724           15,442
                                  --------          --------        ---------
Net revenues................      $189,112          $145,936        $ 170,977
                                  ========          ========        =========
Intercompany revenues U.S...      $  8,527          $  8,225        $  10,799
Eliminations................        (8,527)           (8,225)         (10,799)
                                  --------          --------        ---------
Reported intercompany
 revenue....................      $     --                --        $      --
                                  ========          ========        =========
Depreciation and
 amortization expense
  U.S. operations...........      $  8,013          $  8,021        $  11,617
  European operations.......           671               514              871
  Japan operations..........           384               378              578
  Other international
   operations...............           236               242              377
                                  --------          --------        ---------
Depreciation and
 amortization expense.......      $  9,304          $  9,155        $  13,443
                                  ========          ========        =========
Operating results:
  U.S. operations...........      $(50,452)         $(30,600)       $(146,554)
  European operations.......        26,757            17,960           10,005
  Japan operations..........         3,471             6,541            5,700
  Other international
   operations...............         2,298             1,551           (2,225)
                                  --------          --------        ---------
Operating loss..............      $(17,926)         $ (4,548)       $(133,074)
                                  ========          ========        =========
Long-lived assets:
  U.S. operations...........      $109,096          $105,866        $ 110,629
  European operations.......         1,427             1,436            1,783
  Japan operations..........         4,643             3,649            4,887
  Other International
   operations...............           369               410              705
                                  --------          --------        ---------
Long-lived assets ..........      $115,535          $111,361        $ 118,004
                                  ========          ========        =========
Identifiable assets:
  U.S. operations...........      $141,996          $126,426        $ 129,626
  European operations.......        13,937            14,058            9,003
  Japan operations..........         8,513             8,148            7,058
  Other international
   operations...............         4,981             4,641            6,019
                                  --------          --------        ---------
Identifiable assets.........       169,427           153,273          151,706
  General corporate assets
   (cash, cash equivalents,
   and short term
   investments).............        84,361           102,551           74,039
                                  --------          --------        ---------
Total assets................      $253,788          $255,824        $ 225,745
                                  ========          ========        =========
</TABLE>
 
                                      62
<PAGE>
 
                              INPRISE CORPORATION
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
   Other international operations include activities of subsidiaries in
Australia, Canada, Singapore, Tiawan 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 $7.3 million, $10.0
million, $6.0 million during the year ended December 31, 1998, the nine months
ended December 31, 1997 and the year ended March 31, 1997, respectively.
 
   For the year ended December 31, 1998, the nine months ended December 31,
1997 and the year ended March 31, 1997 sales to one customer, Ingram Micro and
its subsidiaries, accounted for approximately 10%, 10%, and 11% of the
Company's net revenues, respectively.
 
NOTE 16. INVESTMENT IN STARFISH SOFTWARE, INC.
 
   The Company had a minority common stock interest in Starfish Software, Inc.
("Starfish"). On September 23, 1998 ("Closing Date"), Motorola, Inc.
("Motorola") completed the acquisition of Starfish. The acquisition involved a
combination of cash and Motorola common stock, part of which was withheld in
escrow. Based upon the cash and common stock consideration not subject to
escrow, the Company recorded a gain of approximately $16.6 million during the
year ended December 31, 1998.
 
 
                                      63
<PAGE>
 
                                                                     SCHEDULE II
 
                              INPRISE CORPORATION
 
                       VALUATION AND QUALIFYING ACCOUNTS
 
 For the Year ended December 31, 1998, The Nine Months ended December 31, 1997
                       and the Year ended March 31, 1997
                                 (in thousands)
 
<TABLE>
<CAPTION>
                               Balance at  Charged to   Deductions Balance at
                               Beginning   Statements      From      End of
                               of Period  of Operations  Reserves    Period
                               ---------- ------------- ---------- ----------
<S>                            <C>        <C>           <C>        <C>
December 31, 1998:
Allowance for sales returns,
 rebates and doubtful
 accounts.....................  $11,996      $22,613     $26,316    $ 8,293
December 31, 1997:
Allowance for sales returns,
 rebates and doubtful
 accounts.....................  $16,262      $13,661     $17,927    $11,996
March 31, 1997:
Allowance for sales returns,
 rebates and doubtful
 accounts.....................  $22,790      $28,382     $34,910    $16,262
</TABLE>
<PAGE>
 
                               INDEX TO EXHIBITS
 
<TABLE>
<CAPTION>
  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
 
 22.1      Subsidiaries of the Registrant
 
 23.1      Consent of PricewaterhouseCoopers LLP, Independent Accountants
 
 23.2      Consent of Arthur Andersen LLP, Independent Public Accountants
 
 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 the Registrant's Registration Statement
     on Form S-8 (filed with the Commission on August 13, 1998) and
     incorporated herein 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.
<PAGE>
 
 (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 an 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 4, 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.