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

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                               -----------------

                                   FORM 10-K

   FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

   For the fiscal year ended December 31, 2001

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

                          Commission File No. 0-16096

                               -----------------

                         BORLAND SOFTWARE CORPORATION
            (Exact name of Registrant as Specified in Its Charter)

                      Delaware                 94-2895440
                   (State or Other          (I.R.S. Employer
                    Jurisdiction           Identification No.)
                 of Incorporation or
                    Organization)

           100 Enterprise Way, Scotts Valley, California 95066-3249
              (Address of Principal Executive Offices) (Zip code)

                                (831) 431-1000
             (Registrant's telephone number, including area code)

                               -----------------

          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. Yes [X]  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 [_]

   The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of our common stock on February
28, 2002 was approximately $941,243,056.10. This calculation does not reflect a
determination that any persons are affiliates for any other purposes.

   The number of shares of our common stock outstanding as of February 28, 2002
was 68,553,755.

                      DOCUMENTS INCORPORATED BY REFERENCE

   The following documents (or parts thereof) are incorporated by reference
into the following parts of this Form 10-K: Certain information required in
Part III of this Form 10-K is incorporated from our Proxy Statement for our
2002 Annual Meeting of Stockholders.

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

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                         BORLAND SOFTWARE CORPORATION

                                   FORM 10-K

                  For the Fiscal Year Ended December 31, 2001

                               TABLE OF CONTENTS

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                                    PART I

ITEM 1.  BUSINESS.........................................................   2

ITEM 2.  PROPERTIES.......................................................  26

ITEM 3.  LEGAL PROCEEDINGS................................................  27

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............  27

                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS..........................................................  28

ITEM 6.  SELECTED FINANCIAL DATA..........................................  29

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS............................................  30

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......  56

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......................  58

ITEM 9.  CHANGES IN AND/OR DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
         AND FINANCIAL DISCLOSURE.........................................  58

                                   PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...............  59

ITEM 11. EXECUTIVE COMPENSATION...........................................  59

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...  59

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................  59

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K..  60

SIGNATURES................................................................  66
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                  A CAUTION ABOUT FORWARD-LOOKING STATEMENTS

   The statements made throughout this Annual Report on Form 10-K ("Form 10-K")
that are not historical facts are forward-looking statements and, accordingly,
involve estimates, projections, goals, forecasts, assumptions and uncertainties
that could cause actual results or outcomes to differ materially from those
expressed or implied in the forward-looking statements.

   These forward-looking statements may relate to, but are not limited to,
future capital expenditures, acquisitions, future revenues, earnings, margins,
costs, demand for our products, market and technological trends in the software
industry, interest rates and inflation and various economic and business
trends. You generally can identify forward-looking statements by the use of
words such as "expect," "estimate," "project," "budget," "forecast,"
"anticipate," "intend," "plan," "may," "will," "could," "should," "believes,"
"predicts," "potential," "continue" and similar expressions or the negative or
other variations thereof. Examples of sections containing forward-looking
statements include the "Strategy," "Strategy in Depth" and other sections of
Part I, Item 1, entitled "Business" and "Our Business and its Evolution" and
Item 7, entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations." These forward-looking statements involve
substantial risks and uncertainties. Examples of such risks and uncertainties
are described under "Factors That May Affect Future Results and Market Price of
Stock" and elsewhere in this report, as well as in our other filings with the
Securities and Exchange Commission or in materials incorporated by reference.
You should be aware that the occurrence of any of these risks and uncertainties
may cause our actual results to differ materially from those anticipated in our
forward-looking statements, which could have a material and adverse effect on
our business, results of operations and financial condition. New factors may
emerge from time to time, and it is not possible for us to predict new factors,
nor can we assess the potential effect of any new factors on us.

   These forward-looking statements are found at various places throughout this
Form 10-K. We caution you not to place undue reliance on these forward-looking
statements, which unless otherwise indicated, speak only as of the date they
were made. We do not undertake any obligation to update or release publicly any
revisions to these forward-looking statements to reflect events or
circumstances after the date of this Form 10-K.

                              GENERAL INFORMATION

   We were incorporated in California in 1983 and reincorporated in Delaware in
1989. We maintain our executive offices at 100 Enterprise Way, Scotts Valley,
California 95066-3249, and our main telephone number at that location is
831-431-1000. We also maintain a Web site on the Internet at www.borland.com
and a community site at http://community.borland.com.

   All Borland brand and product names are trademarks or registered trademarks
of Borland Software Corporation, in the United States and other countries. This
Form 10-K also contains additional trade names, trademarks and service marks of
other companies. We do not intend our use or display of other parties'
trademarks, trade names or service marks to imply a relationship with, or
endorsement or sponsorship of, us by these other parties.

                      WHERE YOU CAN FIND MORE INFORMATION

   You are advised to read this Form 10-K in conjunction with other reports and
documents that we file from time to time with the Securities and Exchange
Commission (the "SEC"). In particular, please read our Quarterly Reports on
Form 10-Q and any Current Reports on Form 8-K that we may file from time to
time. You may obtain copies of these reports directly from us or from the SEC
at the SEC's Public Reference Room at 450 Fifth Street, N.W. Washington, D.C.
20549, and you may obtain information about obtaining access to the Reading
Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains
information for electronic filers (including us) at its web site www.sec.gov.

<PAGE>

                                    PART I

ITEM 1.  BUSINESS

Overview

   We are a leading global provider of software development and application
infrastructure technologies. Our best in class, standards-based products
maintain a large and loyal following of users. Our products address various
dimensions of the software application "lifecycle:" development, deployment,
integration and management. For development, we offer our JBuilder, Delphi,
Kylix and C++Builder products, as well as our recently introduced TeamSource
DSP service. Our deployment and integration products include our Borland
Enterprise Server family of application servers, including AppServer Edition,
VisiBroker Edition and the entry level Web Edition, and our JDataStore and
InterBase databases. To manage applications, we offer our Borland AppCenter
technology. Our professional services organization provides expert consulting,
training and support.

   Our customers are enterprises of many sizes, including individual developers
known as the "Borland Nation," small independent software and services firms as
well as prominent companies worldwide, including leading companies in high
technology, telecommunications and financial services. Many of our customers
use Borland technology so that they themselves can create and ship software and
system products conforming to high performance specifications. Our principal
technology partners include leading technology companies such as Apple,
Ericsson, Hitachi, IBM, Intel, Macromedia, Microsoft, Nokia, Rational, Red Hat
and Sun Microsystems.

   The key strengths and benefits of our products and services include:

  .   Comprehensive Solution.  With products and services for the various
      dimensions of the software application lifecycle--development,
      deployment, integration and management--we give customers the ability to
      implement applications critical to their businesses rapidly and
      effectively, as well as access to one vendor to resolve issues across
      underlying technologies.

  .   Best-in-class and Performance Leadership.  When a Borland product is
      installed, we believe it provides for a user experience that is as good
      or better than anything available in the marketplace. Our products have
      won numerous awards and maintain a large and dedicated following of users.

  .   Freedom of Choice.  Borland products eliminate "lock-in," which is
      prevalent with solutions from major system vendors. Borland products do
      not promote one software platform over another; they simply enable all
      major technology platforms for productive implementation. One key reason
      our products eliminate "lock-in" is that we provide interoperability
      between competing technologies.

  .   Standards-Based.  We aggressively adopt standards whenever possible. As a
      result, Borland products are standards-based when standards exist or are
      emerging. Standards promote interoperability and mass adoption of
      technologies.

  .   Simplicity and Control.  Borland products simplify the process of
      developing and deploying applications, improving efficiency and
      productivity and speeding time to market.

  .   Low Cost of Ownership.  Borland products lower cost of ownership because
      they promote productivity and reduce computing infrastructure investment
      wherever possible. We also accomplish this with small foot-print, highly
      optimized products.

   Our goal is to leverage these strengths to become the dominant provider of
implementation technologies, particularly in areas such as Java and J2EE, .NET,
Web Services, Linux and wireless and mobile computing. Key elements of our
strategy to achieve this goal include:

  .   Widening our lead in Java products;

  .   Promoting platform independence and interoperability, including through
      Web Services;

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  .   Leveraging our strategic relationships and partnerships, including in
      growing areas such as wireless and mobile application development;

  .   Targeting large enterprises with our comprehensive application lifecycle
      management solutions;

  .   Focusing on the needs of our installed base, e.g., the "Borland Nation;"

  .   Capitalizing on the strength of the "Borland" brand, with new product and
      service offerings and through international expansion; and

  .   Undertaking selective strategic acquisitions, including those that extend
      the breadth of our application lifecycle management solutions.

   We support our growth strategy through focused efforts in sales and
marketing, including a sales model that combines strong indirect and direct
sales efforts, as well as through particular attention to our research and
development activities.

Industry Background

   In today's highly competitive business environment, a company's operational
success is greatly dependent on the strength of its information technology
assets, particularly its software. Enterprises strive to stay ahead of the
competition by investing significant resources in new software applications
that enhance the productivity and profitability of their operations.

   Because software is fundamental to an enterprise's business, technology to
help streamline the software implementation process is a requirement for
business success. Software development in particular can be a time-intensive,
frustrating and costly process. Speedy and effective development of
applications not only saves money, but becomes vital when
productivity-enhancing applications are needed to counter the effects of
changing business conditions or emerging competitive threats. In this context,
technology that simplifies and automates the development process--including an
application's design, creation and troubleshooting in one environment--is
invaluable. This type of technology is critical to allowing enterprises to
produce and install robust, productivity-enhancing applications in a timely and
efficient manner. In particular, using multiple, un-integrated development
products for various design and development functions increases the amount of
time needed to complete development projects because information from one
development product must be carried over to another product. Enterprises faced
with a long and costly development process may risk seeing the competition
acquire a critical edge.

   The growth and expansion of the Internet has further increased the pressure
on enterprises to implement new software applications quickly. The Internet has
also increased the challenges involved in doing so. Through a variety of means
such as e-commerce storefronts, online marketplaces and various forms of
Internet communications, the Internet gives corporations the flexibility to
revise their products and service offerings frequently and allows organizations
to keep up with the growing and changing needs of their customers. However,
programming languages best adapted for the creation of e-business applications,
particularly modular or object-oriented programming languages such as Java, are
sophisticated, and many developers lack the requisite skills and tools to use
the power of these languages. In addition, in order to allow applications to
scale to numerous users and to protect the integrity of underlying data,
e-business applications typically require their own dedicated deployment
environments: "application servers" which host a program's core business logic
and reside on a "middle-tier" server within a distributed network, between
front-end computers with a browser-based graphical user interface, or GUI, and
back-end systems including the database. An additional challenge is that
e-business applications need to be integrated seamlessly with existing systems
and data. Technology that simplifies and automates the process of creating and
deploying e-business applications can mean the difference between an enterprise
rapidly exploiting the promise of the Internet or being relegated to a legacy
of lost opportunity and competitive failure.

   In addition to efficient development and deployment, timely and effective
management of applications is also vital to the implementation process.
Monitoring and management technology provides critical insight into

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the responsiveness of applications to the performance demands of the enterprise
and the Internet. Such technology also preserves the integrity of applications
for future modification and extension.

   Several other recent or emerging trends further highlight the overwhelming
need for technology to help streamline application software implementation for
enterprises:

  .   Like the Java platform, the emergence of new platform technologies,
      including Linux as an open and cost-effective alternative to the
      proprietary Windows or Solaris operating systems, has created the need
      for products to simplify these new technologies for use by unfamiliar
      developers. Products that both facilitate development to new platforms
      like Linux as well as provide capabilities for re-purposing existing
      software code for deployment to such platforms are a particularly vital
      resource.

  .   Technology that facilitates interoperability is the essence of the
      emerging paradigm of Web Services. With Web Services, dynamic software
      components and applications from disparate platforms and systems are
      delivered via the Internet, interconnecting businesses. Technology to
      assist in integrating Web Services components, as well as creating them,
      deploying them to particular platforms and sharing them over the
      Internet, is increasingly in demand.

  .   With enterprises implementing mobile strategies and telecommunications
      carriers rolling out new services, sophisticated software applications
      are being extended to mobile and wireless devices. The variety of these
      devices is substantial, creating a need for technology that permits
      companies to develop and deploy mobile and wireless applications
      efficiently without worrying about differing technical and physical
      characteristics.

  .   Increasingly complex software components--such as pre-written, reusable,
      combinable building blocks of Java software code known as Enterprise
      JavaBeans, or EJB--have created a need for technology to ease assembly
      and maintenance of these components. Development, deployment and
      maintenance of scalable enterprise-level applications using EJBs has
      significant potential benefits, but is challenging.

  .   Shifting or evolving technology standards makes compliance challenging,
      creating a need for technology that automatically enables applications in
      development for the latest industry standards. These standards include
      extensible markup language, or XML, for enabling components as Web
      Services, wireless application protocol, or WAP, for wireless
      applications, Java 2 Platform, Enterprise Edition, or J2EE, for
      enterprise applications in Java and the subtly varying approaches to
      these and other standards used by a host of different technology vendors.

  .   With companies seeking to enhance their returns on existing technology
      investments, application and systems integration is necessary but is
      among the most complex and costly parts of the software implementation
      process. Technology facilitating interoperability among new platforms and
      between new platforms and functioning legacy systems helps companies
      overcome these challenges.

   To be effective, implementation solutions must provide simplicity and
control, allowing companies to leverage emerging technologies and standards
rather than be constrained by them. Effective implementation solutions must
also be complete, providing technologies for each of the development,
deployment, integration and management phases of the implementation process.
Effective implementation solutions must be platform-neutral and facilitate
interoperability, allowing for maximum flexibility and freedom of choice in an
increasingly cross-platform world. Effective implementation solutions must also
provide for lower cost of ownership and enhanced return on investment. These
implementation solutions can help enterprises truly realize the
profitability-enhancing potential of innovation.

Our Business and its Evolution

   As a leading global provider of technology for the rapid and effective
implementation of software applications, we enable enterprises to realize the
profitability-enhancing potential of innovation. By delivering comprehensive
"best-in-class" technology solutions dedicated to interoperability, we allow
enterprises of all

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sizes to move into Web-based computing while leveraging their legacy systems.
From Fortune 1000 companies to the Borland Nation, we provide our customers the
freedom to develop applications, deploy them on most major platforms, and
integrate and manage them across the enterprise. Our solutions, including for
the high potential growth areas of Java, Linux, Web Services and wireless, are
designed to enable organizations to increase productivity and deliver higher
performance projects faster and on budget, while lowering total cost of
ownership.

   Our history highlights our long-standing focus on delivering effective and
dependable application software implementation products. We have pioneered many
new product categories and have continually refined our technology and
offerings to meet the evolving demands of business environments. As an early
mover in the software development space, Borland led C and C++ development and
launched one of the first full-featured integrated development environments
("IDE") for the personal computer, or PC, Turbo Pascal. Turbo Pascal made
possible the commercial development of PC applications. Later, in 1993, we were
the first to market with a complete shrink-wrapped client/server development
solution, the Borland Client/Server Pack. In 1995, with the widespread adoption
of the Microsoft Windows operating system, we introduced Delphi, another
pioneering technology. Delphi combined the Rapid Application Development, or
RAD, benefit of visual component-based design with the power of a native code
compiler and scalable database access. Then we combined this RAD feature with
our C/C++ compiler to create the most productive enterprise C++ development
platform, C++Builder. In 1997, we began expanding our offerings to serve a
broader range of customers, including launching our award-winning Java
development environment, JBuilder. JBuilder has become an industry leader for
all categories of Java development. Also in 1997, we acquired Visigenic
Software, Inc., enabling us to extend our application development expertise to
enterprise application deployment. In 2001, we launched Kylix, a software
application development environment for the Linux operating system. Kylix
simplifies the porting of Delphi-based applications for Windows to the Linux
operating system. Within six months, Kylix had become the industry leader in
its market. 2001 also saw us introduce more than 20 other new products and/or
product releases, including JBuilder MobileSet for wireless applications, Web
Services-enabled upgrades to our existing best-in-class development
technologies and our hosted developer services platform TeamSource DSP.

   Our current suite of products includes key pieces now required to rapidly
and effectively implement software applications critical to our customers'
businesses. Our products address the various dimensions of an application's
lifecycle: development, deployment, integration and management. For the
development phase, our award-winning IDEs include JBuilder, Delphi, Kylix and
C++Builder, each focused on a different platform (Java, Windows, Linux and C++,
respectively). Within coherent visual frameworks, our IDEs provide easy-to-use
aides, templates and utilities for developers to rapidly build and troubleshoot
complex software applications. We also offer TeamSource DSP, which includes
hosted infrastructure, utilities and services for collaborative distributed
development teams. For the deployment and integration phase, our products
include the Borland Enterprise Server family of application servers as well as
JDataStore and InterBase, our small-footprint embedded databases. Borland
Enterprise Server is a high-performance environment for the deployment and
integration of e-business applications within distributed networks. Borland
Enterprise Server comes in three versions: our AppServer Edition for EJB-based
enterprise-level deployments, our midrange VisiBroker Edition based on our
award-winning VisiBroker object request broker, or ORB, integration technology,
and our Web Edition designed for effective and reliable deployment of
JavaServer Pages, or JSPs, and servlets. JDataStore is designed to be embedded
in web and mobile applications, while InterBase is intended for desktop and
small server applications. To help manage applications, we offer Borland
AppCenter, a component-level monitoring solution which integrates tightly with
Borland Enterprise Server. Our professional services organization provides
consulting, training and support services for all of our software products.

   Key strengths and benefits of our offerings include:

  .   Comprehensive Solution.  Our portfolio of products and services address
      various dimensions of the software application implementation
      "lifecycle"--development, deployment, integration and management. Our
      IDEs provide developers with frameworks in which to design, build, check,
      test and

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      debug large-scale applications. Borland Enterprise Server offers a highly
      reliable, scalable and secure option for deploying and integrating
      enterprise applications. Borland AppCenter permits our customers to
      effectively monitor the performance and availability of those
      applications. On-going support for our products, as well as expert
      consulting and training, is provided by our own professional services
      organization. As a result, customers who purchase our offerings can
      efficiently design, create, debug, test, deploy and maintain
      applications, with the added benefit of having a single vendor to train
      personnel and resolve problems as they arise across the underlying
      technology. Our recently introduced Borland Software Platform for J2EE
      combines our products into one offering to provide enterprises with a
      single comprehensive solution for the implementation of their enterprise
      applications.

  .   Best-in-class and Performance Leadership.  We believe that the Borland
      brand is synonymous with quality and performance. When a Borland product
      is installed, we believe it provides a user experience that is as good or
      better than anything available in the market place. As a result, our
      products are favored by professionals at other leading software and
      technology companies so they themselves can create, ship and deploy high
      performance products. A critical element of our performance leadership
      and enhanced user experience is our incorporation of new and emerging
      technologies. Our JBuilder MobileSet was chosen in 2001 by two leading
      wireless device manufacturers, Nokia and Siemens, for cutting edge
      wireless application development on the Java 2 Platform, Micro Edition,
      or J2ME. In 2001, we also added Web Services capabilities to all our
      IDEs. Kylix is a pioneering development environment for the emerging
      Linux platform. In turn, our commitment to innovation, quality and
      performance has been honored by industry experts worldwide. Our recent
      product awards include six of the seven JavaPro Reader's Choice Awards at
      JavaOne in 2001 (JBuilder), Java Development Journal's World Class Award
      in 2001 (Borland AppServer) and Show Favorite Award at 2001 LinuxWorld
      Expo (Kylix).

  .   Freedom of Choice.  Our platform-neutral products give our customers
      maximum flexibility in their information technology decisions. Our broad
      line of IDEs allow developers to write to major operating systems,
      whether Windows, Solaris, Linux or Mac OS. These IDEs allow for
      applications to work with major databases, whether Oracle, Microsoft SQL
      Server, Informix, IBM DB2, Sybase and our own JDataStore and InterBase.
      They also support the leading Web servers, including AOL's Netscape,
      Microsoft Internet Information Services (IIS) and Apache. For Java
      implementations, JBuilder supports deployments to all major application
      servers, including BEA WebLogic, IBM WebSphere, Sun Microsystem's iPlanet
      and the Borland Enterprise Server. As a result, in general our customers
      have numerous choices for their systems configurations and are not locked
      into any particular solution, technology or vendor. In addition, with our
      VisiBroker technology, the foundation for Borland Enterprise Server, we
      allow client and server applications to communicate seamlessly across the
      competing hardware, operating systems and development languages. The
      result is both a highly flexible and fully integrated solution for
      software implementation.

  .   Standards-Based.  A deep commitment to open industry standards is a key
      reason we can offer maximum flexibility and interoperability to our
      customers. VisiBroker, for example, is the leading implementation of
      CORBA (Common Object Request Broker Architecture), the industry standard
      for enterprise class distributed systems. Another example is that Delphi
      was the first IDE to provide integral and native support for the Web
      Services interoperability architecture and its associated standards,
      including XML and Simple Object Access Protocol, or SOAP. Standards also
      promote mass adoption of new technologies, and our focus on standards
      allows us to extend the benefits of these technologies to our customers.
      As an executive member of the Java Community Process (JCP), a leading
      standards body, we offered the first EJB compliant implementation through
      our Borland Enterprise Server.

  .   Simplicity and Control.  Our products simplify the process of
      implementing software applications, enhancing control and increasing
      productivity. One key methodology employed by our technology that
      improves efficiency is component-based development. Using a visual "drag
      and drop" interface, developers using our IDEs can combine pre-built,
      reusable components from our extensive component libraries or even import
      them from outside sources, including over the Internet through Web
      Services. Separately, many of the frustrating and time consuming parts of
      the development process can be done

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      automatically in our IDEs, including the creation and editing of complex
      code and documentation. Code that is required based on an application's
      visual design or for particular platform deployments is generated
      automatically. Documenting the complexities of the development process is
      also mechanized. With a coherent visual console, our tightly integrated
      Borland Enterprise Server in turn simplifies deployment, integration and
      management of resulting applications, particularly those using complex
      components.

  .   Low Cost of Ownership.  By enhancing productivity and reducing computing
      infrastructure investment wherever possible, our products lower the cost
      of ownership of technology which then saves our customers money. As a
      result, customers can channel scarce resources on growing their
      businesses. Our comprehensive solution streamlines the implementation
      process through the various dimensions of the application lifecycle. Our
      integration technology helps companies make the most of their past
      investments, enabling new and legacy technologies to co-exist
      productively and allowing our customer to move into Web-based futures
      without having to abandon their past. Finally, our small print, highly
      optimized products fit seamlessly into our customer's environments.

Strategy

   Our goal is to extend our leadership position to become the dominant
provider of technology solutions for the rapid and effective implementation of
software applications, particularly in areas such as Java and J2EE, .NET, Web
Services, Linux and wireless and mobile computing. Key elements of our strategy
to achieve this goal include:

  .   Widening our lead in Java products;

  .   Promoting platform independence and interoperability, including through
      Web Services;

  .   Leveraging our strategic alliances and technology partnerships, including
      in growing areas such as wireless and mobile application development;

  .   Targeting large enterprises with our comprehensive application lifecycle
      management solutions;

  .   Focusing on the needs of our installed base, e.g., the "Borland Nation;"

  .   Capitalizing on the strength of the "Borland" brand, with new product and
      service offerings and through international expansion; and

  .   Undertaking selective strategic acquisitions, including those that extend
      the breadth of our application lifecycle management solutions.

Strategy In Depth

   The following is a detailed overview of our strategy:

   Widen lead in the Java market.  We intend to grow our revenues by focusing
on Java and Java-based implementation technologies. With industry surveys
showing that more than 40% of developers are using JBuilder, we are already a
leading player in this growing market. Still, if we can continue to enhance
JBuilder's performance and functionality and leverage our strong reputation in
the developer community, we believe we can extend JBuilder's leadership
position in this market as well as capture additional new Java developer seats.
New seats are expected to be significant: according to IDC, an independent
research firm, Java developer seats are expected to increase from 1.3 million
in 2001 to 4.4 million in 2003, growing from 13% of the developer universe to
approximately 33% of developers. In addition, based on our experience, numerous
existing Java developers often cling to basic text editors for assistance and
do not use any development technology at all. We believe these developers would
experience dramatic improvements in efficiency and time to market using
JBuilder's integrated suite of productivity tools and wizards. In 2001, we
introduced JBuilder 6, which includes robust new design and testing features,
and also added innovative mobile and Web Services capabilities. We believe that
this additional functionality helps solidify our Java development leadership
relative to the current

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competition, which we believe either lags us technologically, remains more
focused on the non-software parts of their businesses, or has limited financial
resources to keep up with us going forward.

   The fact that Java and Java standards are still evolving is, we believe, a
critical advantage for us as we also target the broader Java implementation
market. We plan to leverage our core competency, development expertise, to spur
demand throughout our comprehensive product line. While high quality upgrades
of JBuilder will be needed to allow developers to capture the benefits of the
language's evolving standards and usability, effectively using these new Java
applications will require products and upgrades throughout the lifecycle,
including tightly linked deployment products facilitating front- and back-end
integration. For example, the recent emergence of J2ME as the programming
platform of choice for wireless application software development gives us the
opportunity to offer wireless capabilities--through our JBuilder MobileSet
plug-in to JBuilder, coupled with a tightly linked Borland Enterprise Server
for deployment--to both current customers as well as an extensive new developer
audience. We envision a future in which implementation technologies will be
necessary to support Java development and deployment to a wide variety of
future devices and appliances. Our active influence on Java's evolution and
direction through our participation in key Java industry groups, including as
an executive member of the Java Community Process (JCP), will help us shape
this future and benefit from Java's spread and proliferation through our
product line.

   Promote platform independence and interoperability, including through Web
Services.  Our focus on Java implementation products underscores our commitment
to technology independence, as Java applications run on most major operating
systems with little additional configuration. By focusing on neutrality and
independence, we believe we maximize our opportunity for success regardless of
which programming platform or operating system emerges as a market leader.
Also, by facilitating cross-platform development and interoperability, we
enable change and are positioned to profit from it as applications are
developed and deployed on new platforms. Our strategic focus on the Linux
market through our Kylix product is consistent with this approach. Linux is an
open source alternative to the proprietary Windows or Solaris operating
systems, with significant potential for cost savings as well as improvements in
speed and stability. Key hardware vendors have endorsed Linux, including IBM
and Sun Microsystems. And with the compiler contained in our Kylix IDE,
developers can more efficiently create single source code applications that run
on both Linux and Windows, capturing the advantages of Linux while leveraging
existing Windows-based applications and systems. We believe that products that
facilitate efficient development on Linux represent a key revenue opportunity,
and we intend to take advantage of this opportunity.

   Our Web Services initiative demonstrates still another important way we
intend to benefit from our commitment to platform independence and
interoperability. Under the Web Services interoperability architecture,
applications and application components residing on disparate platforms and
systems are connected over the Internet. Business processes can be discovered
and run over the Internet using pervasive and standards-based technologies. We
believe that the possibilities offered by Web Services--both business and
technical benefits--are exciting, including improved collaboration between
partners and new uses for legacy systems and applications. By providing the
critical capabilities to build and deploy applications conforming to Web
Services standards, we allow companies to both produce Web Services and to use
them in their applications. And the Web Services shift itself is consistent
with our overall strategy: Web Services remove the technical distinctions
between applications and gives customers flexibility in their information
technology implementation decisions. As a result, we believe our products
occupy a key position in the Web Services shift. With the Gartner Group
estimating that almost 50% of all projects going forward are expected to use
both Java and Microsoft .NET, we believe there is a significant market
opportunity for us to connect these platforms through Web Services. Most major
Borland development and deployment products--JBuilder, Delphi, Kylix,
C++Builder and Borland Enterprise Server--are now shipping with built-in Java
and .NET interoperability through Web Services, and we plan to continue to
enhance the Web Services capabilities of these products to capitalize on this
promising cross platform opportunity.

   Leverage strategic relationships, including in growing areas such as
wireless applications.  Because of our commitment to independence and freedom
of choice and our role as a provider of enabling technology for

                                      8

<PAGE>

development and deployment to a variety of platforms, we believe we also have
another critical advantage: an opportunity to partner with industry leaders who
adroitly view our best-in-class solutions as necessary to promote and enhance
development on their technologies and platforms. As a result, we have access to
a number of additional customer markets that we intend to penetrate, as well as
important emerging technologies. Under our strategic relationship with Nokia,
for example, Nokia is recommending JBuilder as the preferred IDE for the
development of wireless Java applications on its mobile platforms, opening up
numerous additional sales opportunities for us in the potentially high growth
market for wireless application development. Consistent with our goal to
maintain platform independence, including to enable Java and .NET
interoperability, we also maintain close relationships with both Sun
Microsystems and with Microsoft. For example, in addition to maintaining Java
licensing arrangements with Sun, we participate closely with Sun in a number of
Java industry groups, including the Java Community Process and JavaOne. In
addition, since June 1999, when we entered into a comprehensive set of
technology and licensing agreements with Microsoft, Microsoft has been an
important partner for us. For example, we license Microsoft Foundation Classes
and the Windows Software Development Kit, or SDK, for shipment with our C++
products, while Microsoft licenses from us a number of our key patents. Other
highly visible leading technology companies with whom we maintain close working
relationships include Intel and IBM.

   In addition to these relationships, we are entering into joint development
and co-marketing arrangements in order to directly leverage our partners'
technical expertise and strong brand recognition. In 2001, we introduced
JBuilder MobileSet, Nokia Edition, for mobile and wireless Java development on
Nokia's devices and anticipate additional such co-marketed products tailored to
the specifications of particular developer audiences. Similar strategic
partnerships also include bundling arrangements, such as with Rational wherein
we bundle Rational products in our Borland Enterprise Studio offerings.
Combining the best-in-class modeling capabilities of Rational Rose with
JBuilder or with Delphi, gives our Borland Enterprise Studio customers
comprehensive design, development and deployment platforms. Borland Enterprise
Studio for Java also comes with a development license for Borland Enterprise
Server and comes optionally bundled with the award-winning Macromedia
Dreamweaver UltraDev for accelerated Web development. Additionally, we have
original equipment manufacturer, or OEM, arrangements where our products are
incorporated into products marketed by technology leaders including Oracle, I2
Technologies and Business Objects. Many of our OEMs use Borland Enterprise
Server to enhance their own products' scalability. We will continue to seek to
enter into additional such relationships in order to drive revenue and increase
our customer base.

   Target the enterprise with comprehensive solutions.  With a value
proposition premised on IT flexibility and expanding access to a range of large
enterprise customers, including through key recent strategic partnerships, we
also believe that we have a significant opportunity to sell our solutions to
major global enterprises. Our ability to offer large enterprises a
comprehensive, integrated application lifecycle management product set with
robust cross platform support is not our only advantage. Because of our
position in the IDE market and the architecture of our products, we believe we
have other key strategic advantages. For one thing, a number of major global
enterprises are already using our IDEs; as a result, we already have strong
relationships with various global enterprises. Secondly, as the time between
the development and deployment stages of the implementation process is
increasingly compressed, the tight integration between our development and
deployment environments is increasingly attractive to enterprises. Only a
handful of our infrastructure competitors also offer high performance IDEs.
Also, relative to those few major competitors that do offer high performance
IDEs, we pride ourselves on our products' ability to integrate smoothly into
existing environments. As a result, we are in a position to obtain a critical
foothold through our IDEs, even if an enterprise is not yet prepared to upgrade
their remaining application infrastructure software.

   We believe advantages for us also rest with the architecture and performance
of our application infrastructure products, including Borland Enterprise Server
and Borland AppCenter, particularly for deployments of large-scale enterprise
applications constructed using EJBs. EJB is a framework for setting up Java
components that run on a server. Because EJB components can be difficult to
create, deploy and manage, high performance products with advanced capabilities
are critical to achieving the benefits of EJB. Our Borland

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<PAGE>

Enterprise Server product has an innovative EJB container to run EJB
components, along with advanced partitioning and clustering features, while
Borland AppCenter has differentiated EJB component-level monitoring
capabilities. Advanced partitioning enables customers to run multiple EJB
applications at the same time on the same machine--each within a virtual
application server--thereby obviating the need for multiple dedicated servers.
In addition to robust EJB support, our Borland Enterprise Server, including our
VisiBroker Edition, has a strong CORBA foundation, permitting enterprises to
smoothly integrate newly deployed and legacy applications (including those
implemented using our development products). Sanctioned by leading industry
consortia as the standard architecture for distributed objects, CORBA allows
programs at different locations and developed by different vendors to
communicate in a network through an "interface broker" or an Object Request
Broker (ORB). We believe that CORBA technology is rapidly emerging as a
critical and consistent underlying source of J2EE application server
scalability, evidenced in part by the OEM demand for VisiBroker. CORBA
components also integrate smoothly with EJB. We believe that our history and
financial resources--as well as our technology and ability to offer J2EE
compliant upgrades through Borland Enterprise Server, AppServer Edition--give
us significant advantages over the limited competition in the CORBA application
server market.

   In 2001, we had nine revenue transactions of over $1,000,000, including
transactions for Borland Enterprise Server, JBuilder and VisiBroker, which
compares favorably to the five such transactions in 2000. Elements of our
comprehensive strategy to continue to successfully market the range of our
products into large enterprises involve:

  .   tightly linking our products with market leading JBuilder to create a
      "pull through" effect, including demonstrating the performance advantages
      of our deployment products to our loyal developer customers (JBuilder
      Enterprise, for instance, includes a Borland Enterprise Server
      development license to enable developers to develop and test their
      applications in run time environments);

  .   marketing our aggressively-priced Borland Enterprise Server, Web Edition,
      to non-developer decision-makers in order to gain an entry to demonstrate
      to them the strengths of our deployment technologies;

  .   targeting verticals such as financial services, technology and
      telecommunications where we have traditional strength and experience and
      where the performance advantages of our products--including reliability,
      security, scalability and extensibility--are particularly important;

  .   continuing to expand and strengthen our direct sales force;

  .   leveraging key relationships, including with major systems integrators,
      to obtain access to additional new enterprise accounts and verticals,
      including large local, state and federal government accounts;

  .   marketing through our own consulting engagements and professional
      services staff;

  .   strategically utilizing feedback we gain through technical support
      services, including to improve our products;

  .   synchronizing the release cycles for our development and deployment
      products; and

  .   introducing additional complete solution offerings, such as the Borland
      Software Platform for J2EE.

   Focus on the needs of our installed base.  Our strategic focus on the large
enterprise market does not mean we overlook our core individual developer
constituency. To the contrary, we intend to continue to nurture and grow this
constituency--the Borland Nation--which we believe is among the most loyal and
extensive installed bases in the software industry. The basic requirements of
the Borland Nation are dependable high performance products that improve
developer productivity and efficiency. In order to maintain and grow the
Borland Nation, we must listen carefully to its members and address their
needs. This includes both the development of products centered around emerging
technologies, such as the introduction of Kylix or JBuilder MobileSet, as well
as timely, dependable upgrades to our existing products, particularly Delphi
and C++Builder. In 2001, we introduced over 20 new products or upgrades,
including significantly enhancing the quality and flexibility of our

                                      10

<PAGE>

existing technologies with the addition of innovative Web Services
capabilities, and we intend to continue to focus on improving the performance
of our products in order to best serve these loyal customers and grow our
revenues. We have announced, for instance, that our C++ environment is
anticipated to support development to Symbian-based mobile phones and that our
development products will include support for the Microsoft .NET platform.

   We facilitate responsiveness to the Borland Nation through dedicated
personnel--such as our Vice President of Developer Relations, David
Intersimone--as well as our community Web site and our annual user conference
dubbed "BorCon" (Borland Conference). A member of our team since Borland's
earliest days, David I., as he is known, is responsible for the Borland
Community Web site, an online community that allows software developers to
communicate, collaborate and gain access to unique content and feedback. David
I. works closely with professional programmers and user groups, as well as
Fortune 1000 customers, to conduct technical presentations and to ensure that
important needs and requirements are folded into our product plans and
supported through the technical press. David I. also chairs BorCon. BorCon,
which we believe to be one of the best-attended user conferences in the
software industry, is a spectacular display of enthusiasm and excitement for
our products and our product development team. At BorCon, we conduct seminars,
training sessions and certification exams for our products, as well as host a
number of special events on subjects including emerging product initiatives and
industry trends. This keen focus on the installed base actually furthers our
enterprise strategy, in addition to giving us access to the ideas and
creativity of a range of talented developers. As members of the Borland Nation
take positions in Fortune 1000 enterprises, they introduce the products they
are committed to and have been trained on--Borland products--into the
enterprise. This "bottom-up" approach seeds the enterprise and provides a key
advantage over our competitors as we simultaneously pursue a "top-down"
enterprise-level direct sales strategy.

   Capitalize on our brand, including through international
expansion.  Constant attention to our installed developer base and their basic
needs is the reason we believe the Borland brand is among the most respected
brands known to software professionals worldwide. We believe that Borland
stands for quality, performance and innovation, for solutions that enable
developers to increase productivity and deliver high performance projects
faster and on budget, while lowering total cost of ownership. A critical
underpinning of all elements of our strategy--whether delivering high quality
product upgrades to our installed base or providing comprehensive e-business
implementation solutions to large global enterprises--is to capitalize on the
"Borland" brand. Internationally, in particular, we believe we have a
significant and emerging opportunity to capitalize on the strength of our
brand, particularly as our core vertical markets--trained professionals in
industries such as high technology, financial services and
telecommunications--naturally expand with growth and economic development.
While our international sales were $134 million in 2001, accounting for 60% of
our revenue, we intend to continue to focus aggressively on global markets in
order to grow our international sales.

   One approach we are using to grow our international sales is targeted
expansion into particularly promising markets. In 2001, for instance, we opened
our first sales office in China. In addition to being a large market for IT
hardware, software and related services, China recently announced the
conversion of all government systems to the Linux operating system. Our market
leading IDE for development on Linux, Kylix, could potentially provide us with
a significant competitive advantage in China. Improvements in piracy
enforcement in China, while minor compared to the enforcement environment
within the U.S. and other western countries, are encouraging to us as well.
Recently, we have also expanded into the developing high technology markets of
India, South Korea and Sweden. A related approach we are using is to seek close
relationships with foreign governments, such as China, who we believe view
adoption of IDEs such as JBuilder or Kylix in their countries as important to
increasing the productivity and size of their own developing high tech
industries. A third tactic we are employing is to proactively work to augment
opportunities in potentially large international markets by providing key
underlying infrastructure and professional training. To that end, we recently
acquired Advanced Training Center Ltd. (ATC), a Brazilian IT training company,
in order to proactively enhance software development skills in the burgeoning
Latin American market. Finally, where the return on investment is clear to us,
we also intend to undertake increased direct marketing--both internationally as
well as domestically--in

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<PAGE>

order to continue to extend our brand and our brand's reputation to key
decision-makers outside the professional software community.

   Undertake selective strategic acquisitions, particularly those extending the
breadth of our lifecycle solutions.  As highlighted by our acquisitions of ATC
and VMGear, our strategic objectives can be advanced through carefully
considered and opportunistic acquisitions, and we intend to consider additional
such acquisitions that give us resources to grow our company. Acquisitions that
improve the range and depth of our application lifecycle solutions are a key
area of focus, particularly those that extend our leadership and give us access
to promising and complementary new technologies, research and development
talent and customers. Our acquisition in January 2002 of Redline Software,
Inc., or VMGear, is a case in point, allowing us to extend our footprint into
another phase of Java application lifecycle management--performance assurance
tools--as well as strengthening our Java research and development capabilities.
Performance assurance differs from de-bugging in that it provides real time
interactive analysis of the developer's code, proactively searching for and
addressing bottlenecks. By giving developers this critical capability, VMGear's
Optimizeit technology enhances the performance of our own IDEs. This
acquisition fits squarely within our value proposition of increasing developer
efficiency and productivity. For these reasons--and also because it is already
used in a number of enterprise accounts including Borland--we believe that the
addition of VMGear's sophisticated technology directly supports the enterprise
penetration potential for JBuilder.

   Another example of a strategic acquisition that extended the range and
breadth of our application lifecycle management solutions was our acquisition
of Bedouin, Inc., a Chicago-based software company, in November 2000. With our
recently introduced TeamSource DSP, the acquisition enables us to provide
distributed developer teams with critical underlying hosted lifecycle
infrastructure, including source code management and version control, messaging
and security functionality. We view a position in the nascent hosted
development services, or HDS, market as particularly helpful in promoting
further adoption of our IDEs, as distributed development teams look to their
online infrastructure for tools and development support. Going forward, we will
consider acquisitions of appropriately priced, easily integratable targets such
as VMGear, Bedouin and ATC that provide us with additional resources to grow
our company, expand our customer base, leverage the "Borland" brand and meet
our strategic objectives. These could include, for example, strategic
application infrastructure acquisitions as well as the development products
businesses or assets of larger companies whose non-development heritage
prevents such companies from exploiting the full potential of such products.

Recent Initiatives in Web Services and Wireless

   Consistent with our growth strategy, we recently expanded on our initiatives
in Web Services and wireless and mobile computing:

   Web Services.  In 2001, we announced our commitment to the emerging Web
Services architecture and standards. Web Services are business processes that
can be accessed and run over the Internet using pervasive and standards-based
technologies. Using Web Services, all elements of the business supply
chain--employee, customers and suppliers--can be connected seamlessly,
efficiently and flexibly. Web Services interconnect applications from
completely different hardware platforms, such as mainframes, application
servers and Web servers. Web Services also support connections among disparate
software platforms, such as Windows, Linux, Java and Unix.

   As a leader in application development products and platform independent
technologies, we believe we are uniquely positioned to enable the development
of Web Services and therefore to promote and profit from adoption of this
promising technology. In particular, since major commercial proprietary
platform vendors have incorporated Web Services as key parts of their overall
strategies--Microsoft's .NET and Sun Microsystems' ONE--we believe we have a
significant market opportunity to leverage our cross platform strengths to
permit the sharing of Web Services between developers on both of these
platforms. Gartner Group estimates that nearly 50% of all enterprise projects
will involve both Java and .NET. All major Borland development and deployment

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<PAGE>

products currently support Java and .NET interoperability through Web Services,
and additional product announcements furthering this effort are planned for
2002.

   Our Web Services efforts over the last year have included the successful
launch of Delphi 6, providing pioneering support for Web Services for
development on the Windows platform. Delphi 6 helps users build applications
that support Web Services specifications, including XML, SOAP and WSDL (Web
Services Description Language), through a fully integrated set of visual tools
and a library of re-usable Web Services-enabled software components. With
Delphi 6, users can both use, or "consume," Web Services in their applications
under development, as well as create and share, or "expose," components and
applications that themselves are Web Services. The IDE both enables developers
to create Web Services from scratch, as well as Web Services-enable existing
legacy applications. Delphi 6 supports emerging Web Services-based platforms,
..NET and BizTalk from Microsoft and ONE from Sun Microsystems. In October 2001,
Kylix 2 was introduced, providing Web Services support for enterprise-class
applications built on the Linux platform. In December 2001, as part of our Web
Services strategy for the Java platform, we also announced the availability of
the Borland Web Services Kit as a plug-in to JBuilder. Our Web Services
strategy for Java also includes support for Web Services through our Borland
Enterprise Server. Borland Enterprise Server allows developers to both connect
and host newly developed Web Services, as well as extend CORBA and EJB
applications as Web Services. As part of our ongoing commitment to offer best
in class technology solutions and proactive effort to advance promising
markets, in 2001 we also began offering interactive training courses, seminars
and other events specifically covering Web Services development.

   Wireless and Mobile.  Through recent new product introductions and
partnerships with leading technology companies, we have also extended our reach
and expertise into the emerging field of mobile and wireless application
development. We believe that wireless applications are growing in significance
and impact. With increasingly sophisticated applications extended to mobile and
wireless devices, additional services and more compelling user experiences are
now being provided to consumers. In addition, enterprises are increasing
employee productivity by extending data and applications to mobile and wireless
devices.

   The complexity and variety of mobile devices now emerging is, we believe, an
advantage for Borland, as we leverage our development expertise to provide the
products that allow developers to concentrate on rapidly creating compelling
applications rather than on the intricacies of the devices on which those
applications will run. Consistent with our strategic focus on platform
neutrality and interoperability, our ultimate intention is to be able to
provide development environments across the multiple mobile and wireless
platforms now emerging, including Microsoft's Windows CE, Symbian, RIM Wireless
Handhelds, Palm, Linux and others. Announced product introductions to date in
the wireless market have targeted the market for development in Java. An open
standard and a robust platform particularly suitable for the mass market, Java
is a useful approach for carriers to implement and distribute mobile services
in a fast and cost efficient way. The J2ME platform and its related programming
specification for user interface, networking, and messaging support, the Mobile
Information Device Profile, or MIDP, allow developers to create small and
efficient applications for portable devices, often through the reuse of
existing Java code, while providing applications for multiple devices. By
targeting the wireless market in Java, we also believe we can further increase
the installed base of JBuilder and for our Java-based products, including our
deployment products. In addition to Java, we have also announced our intention
to enter the markets for mobile development on other platforms such as C++ and
are currently engaged in R&D activities with respect to additional platforms as
well, including embedded Linux.

   Selected highlights of our recent efforts in the wireless application
development market include:

  .   License of J2ME.  In 2001, we announced our licensing of all currently
      available components of Java 2 Platform, Micro Edition (J2ME )
      technologies from Sun Microsystems. According to the specifics of the
      licensing agreement, we licensed all currently available components of
      Sun's J2ME technology, including the Connected Limited Device
      Configuration (CLDC), Mobile Information Device Profile (MIDP) and
      PersonalJava components. Together, the CLDC and the MIDP provide a

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<PAGE>

      complete J2ME application runtime environment targeted at mobile
      information devices such as cell-phones and two-way pagers. The
      PersonalJava platform targets applications for home, office and mobile
      consumer devices.

  .   Introduction of wireless application IDEs.  In 2001, we announced the
      availability of our first IDE specifically targeted at developers of
      mobile and wireless applications, JBuilder MobileSet. In January 2002, we
      announced JBuilder MobileSet 2. In conjunction with JBuilder, JBuilder
      MobileSet enables companies to more easily build, debug and deploy
      applications to a wide range of Java-enabled devices. Together, the
      products include visual design tools for creating mobile applications, as
      well as all of the standard features offered with JBuilder. Enhancements
      in JBuilder MobileSet 2 include Over the Air (OTA) provisioning
      capabilities and enhanced vendor device support. Mobile IDEs supporting
      development on other platforms, including Borland C++Builder MobileSet,
      are currently intended for release in 2002.

  .   Nokia partnership.  In 2001, we announced a technology partnership with
      Nokia. Under our partnership with Nokia, Nokia has agreed to recommend
      JBuilder as the preferred IDE for the development of wireless Java
      applications on its products. In turn, through JBuilder MobileSet, we
      provide support for application development on Nokia's wireless
      platforms, including the Symbian-based Nokia Series 60 Platform. In
      addition, we are currently planning that our C++Builder MobileSet, when
      released, will support the Nokia Series 60 Platform. Together, we also
      announced the release of JBuilder MobileSet which includes customized
      support for the Nokia Developer's Suite for J2ME and is fully integrated
      with JBuilder 5 and 6, to support software development for Nokia's
      Java-enabled phones, including the Nokia 9210 Communicator. Available for
      download through the Forum Nokia Web site, JBuilder MobileSet, is
      currently being distributed by Nokia to other device manufacturers,
      enabling developers to standardize on one environment for the development
      and deployment of Java applications across devices from multiple
      manufacturers. Our collaboration with Nokia aims to advance the market
      for wireless application development on platforms that expand Java
      technology to mobile and wireless devices. In the wireless area, we also
      established technology partnerships in 2001 with Siemens and Motorola.

Products and Services

   We offer leading products and services for addressing various dimensions of
the software implementation process--development, deployment, integration and
management. Innovation, quality, performance, ease of use and interoperability
are the hallmarks of our products. Our products provide key pieces necessary
for enterprises to implement applications critical to their business rapidly
and effectively. For the development phase, we offer our JBuilder, Delphi,
Kylix and C++Builder IDEs, as well as our hosted TeamSource DSP service. Our
deployment and integration products include our Borland Enterprise Server line
of application servers, including Borland Enterprise Server, AppServer Edition
for high end EJB deployments, VisiBroker Edition to facilitate legacy
integration and our recently introduced Web Edition for JavaServer Pages
(JSP)/Servlet-based application deployments. Our deployment products also
include JDataStore, an embedded database for web and mobile applications, and
InterBase, our high-performance embedded SQL database. To manage applications,
we offer Borland AppCenter, a visual distributed application management
solution.

<TABLE>
<C>                     <S>
Application Development JBuilder family, including Borland Enterprise Studio for Java and Optimizeit
                        Delphi, including Borland Enterprise Studio for Windows
                        Kylix
                        C++Builder
                        TeamSource DSP
Application Deployment  Borland Enterprise Server (AppServer, VisiBroker and Web Editions)
and Integration         JDataStore
                        InterBase
Application Management  Borland AppCenter
</TABLE>

                                      14

<PAGE>

   We also provide expert training, consulting and support services through our
dedicated professional services organization. In addition, we provide service
and support for software developers worldwide through an online developer
community and an e-commerce site, http://community.borland.com, which offers a
range of technical information, value-added services and third-party products.

   The following are descriptions of our key product and service offerings:

Development

   JBuilder Family

   JBuilder.  JBuilder is our award winning comprehensive set of visual
development tools and wizards that enable programmers to rapidly deliver
reliable and scalable applications written entirely in the Java programming
language. JBuilder supports the latest Java technologies and standards,
including applets, servlets, JavaBeans, EJB and distributed CORBA applications
for the Java 2 platform. JBuilder features a two-way visual designer to enable
developers to easily create conventional and Enterprise JavaBeans based on an
application's design. Other features include a project manager, code editor,
advanced debugger and rapid compiler. JBuilder also includes an extensible team
development environment that simplifies the concurrent management of source
code for large distributed teams.

   In November 2001, we began shipping JBuilder 6. Key enhancements available
in JBuilder 6 include capabilities for Unified Modeling Language (UML) code
visualization, refactoring, unit testing and documentation. UML visualization
functionality allows programmers to browse diagrams of their applications to
identify interdependencies in the software code and potential problems.
Refactoring prevents particular physical code alterations from changing the
underlying logic of an application, including ensuring that references to the
altered items are automatically updated. Unit testing functionality allows
developers to create test cases for different parts of applications.
Documentation tools automate the generation and editing of documentation
according to Java standards. JBuilder 6 comes in Enterprise, Professional and
Personal editions. Key features of JBuilder 6 include:

  .   two-way visual EJB designers to easily create reusable Enterprise
      JavaBeans;

  .   UML code visualization, refactoring, unit testing, and documentation
      tools;

  .   productivity features to support extreme programming;

  .   tight integration with Borland Enterprise Server, BEA WebLogic, IBM
      WebSphere, and Sun Microsystem's iPlanet application servers;

  .   Windows, Linux, Solaris, and now Mac OS X platform compatibility; and

  .   standards compliant, including Java 2, Java 2 Swing/JFC, XML, Java2D,
      Java collections, message queue, accessibility APIs, JavaBeans, JDBC,
      EJB, JSP/Servlets, serialization, inner classes, remote method
      invocation, Java native interface, and Java archives.

   Borland Enterprise Studio for Java.  JBuilder is the core technology in our
Borland Enterprise Studio for Java offering, an enterprise-focused suite
combining capabilities for modeling, development and deployment of business and
e-commerce solutions. Borland Enterprise Studio for Java combines JBuilder with
the design and modeling capabilities of Rational Rose and the team productivity
and software best-practices framework of Rational Unified Process. Borland
Enterprise Studio for Java also includes a development license of Borland
Enterprise Server and is optionally bundled with Macromedia Dreamweaver
UltraDev to provide a comprehensive design and development solution.

   Optimizeit.  The Optimizeit Suite of performance assurance solutions, which
we added with our acquisition of VMGear (Redline Software) in January 2002,
integrates with JBuilder. Examples of critical performance assurance
functionality offered by Optimizeit include profiling and memory debugging,
which eliminates

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<PAGE>

performance bottlenecks and loitering objects in Java code; thread debugging,
which detects code deadlocks, stalls and race conditions; and code coverage,
which locates and measures untested Java code and identifies and removes dead
code. The highly scalable, easy-to-use assurance suite also integrates with the
Borland Enterprise Server and other leading Java application servers and
development environments, including the J2EE, J2SE, and J2ME platforms. In
addition to selling Optimizeit separately, we intend to bundle Optimizeit with
Borland Enterprise Studio for Java.

   Web Services Kit for Java.  In 2001, we introduced our Web Services Kit for
Java as a plug-in to JBuilder, for SOAP, UDDI, and WSDL implementations. The
kit includes wizards to generate Java code from WSDL and to generate WSDL from
Java code, a UDDI Explorer, and deployment support to expose Web Services using
Tomcat and the Apache Axis implementation of the SOAP standard. The UDDI
Explorer allows developers to browse UDDI servers to find appropriate Web
Services to consume. The kit does not require a separate runtime environment.

   JBuilder MobileSet.  Fully integrated with JBuilder, JBuilder MobileSet is a
J2ME compliant environment supporting software development for Java-enabled
mobile and wireless devices. Together, JBuilder and JBuilder MobileSet include
visual design tools for creating mobile applications, device emulation and
debugging, as well as all of the standard features offered with JBuilder. The
MobileSet development environment facilitates the building of J2ME applications
using the Mobile Information Device Profile (MIDP) and Connected Limited Device
Configuration (CLDC) platforms. These platforms together provide a complete
J2ME application runtime environment targeted at mobile devices such as phones
and personal digital assistants (PDAs). In January 2002, we introduced JBuilder
MobileSet 2, which includes enhanced vendor device support, over the air (OTA)
provisioning and an enhanced MIDP designer. OTA provisioning capabilities allow
developers to upload files to an FTP server, as well as download, install and
remove MIDlet Suites.

   Delphi, Kylix and C++Builder

   Delphi.  Delphi is a high-performance, rapid application development, or
RAD, tool used to build and deploy cross-platform Windows/Linux GUI, database,
Web server, and Web Services applications that simplify e-business integration
across diverse platforms among customers, suppliers, business partners and
employees worldwide. The Delphi product combines visual productivity tools, a
component library and a high-performance compiler so that software developers
can build high performance software applications more quickly than with
conventional programming tools. Developers can build, customize and reuse
components, or choose from over 200 different components in the Delphi Visual
Component Library (VCL). Delphi also includes over 20 ready-to-use Internet
components to build Internet functions such as Web, ftp, mail and newsgroups
into an application. In May 2001, we began shipping Delphi 6. Selected features
of Delphi 6 include:

  .   XML/SOAP Web Services capabilities;

  .   support of leading Web application servers, including Apache, Netscape
      and Microsoft Internet Information Services (IIS); and

  .   connections with major databases, such as Oracle, Microsoft SQL Server,
      IBM DB2 and Informix, Sybase and our own InterBase, through industry
      standard Web Services and XML, DCOM, or CORBA.

   Borland Enterprise Studio for Windows.  Delphi is the core technology in our
Borland Enterprise Studio for Windows offering, an enterprise-focused suite
combining capabilities for modeling, development and deployment of business and
e-commerce solutions. Borland Enterprise Studio for Windows combines Delphi
with the design and modeling capabilities of Rational Rose and the team
productivity and software best-practices framework of Rational Unified Process.
Bold for Delphi, from Boldsoft, links these technologies, completing the Model
Driven Architecture (MDA) of Borland Enterprise Studio for Windows.

   Kylix.  Kylix is the number one Linux IDE according to Evans Data Developer
Survey 2001 for building rapid application development solutions for the Linux
operating environment. The implementation mirrors our

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<PAGE>

Delphi and C++Builder development paradigms, but is implemented to generate
native code and native look-and-feel applications for the Linux operating
environment. A pioneering product, Kylix was announced in January 2001, and, in
October 2001, we began shipping Kylix 2. When paired with Delphi 6, Kylix users
can build single-source applications for both Windows and Linux; Kylix's
Component Library for Cross-platform development (CLX) allows applications to
compile as easily for Windows (using Delphi 6) as for Linux (using Kylix 2).
Also, if existing legacy applications have been developed with the Visual
Component Library (VCL) of Delphi, minimal redevelopment is required to move
applications to CLX. Selected features of Kylix 2 include:

  .   XML/SOAP Web Services capabilities;

  .   interoperability with e-business solutions, such as Oracle, IBM DB2 and
      Informix, MySQL, PostgreSQL/Red Hat Database, and InterBase, through
      industry standard Web Services and XML, DCOM or CORBA; and

  .   CORBA support for building high-performance, rich GUI clients for Borland
      VisiBroker.

   C++Builder.  C++Builder delivers REAL ANSI/ISO C++ for the power and
performance developers need to build and deploy cross-platform-ready
Windows/Linux GUI, database, Web server, and Web Services applications that
simplify e-business integration across diverse platforms among customers,
suppliers, business partners, and employees worldwide. The C++Builder product
combines visual productivity tools, a component library and a high performance
compiler so that software developers can build e-business applications more
quickly than with conventional programming tools. As part of our partnership
with Nokia, in 2002 we will be releasing C++Builder MobileSet, a C++
development environment for Nokia's Series 60 Symbian OS-based mobile platform.
Selected features of C++Builder include:

  .   XML/SOAP Web Services capabilities;

  .   support of leading Web application servers, including Apache, Netscape
      and Microsoft Internet Information Services (IIS); and

  .   connections with major databases, such as Oracle, MS-SQL Server, IBM DB2
      and Informix, Sybase and InterBase, through industry standard Web
      Services and XML, DCOM, or CORBA.

   Developer Services Platform

   TeamSource DSP.  Introduced in November 2001, TeamSource DSP is our hosted
developer services platform, intended to speed application development by
bridging teams distributed across functions, locations and companies.
TeamSource DSP enables development teams to save time and money as they
collaborate on enterprise applications while worrying less about security and
overhead costs. TeamSource fully integrates with our award-winning development
and infrastructure solutions.

Deployment and Integration

   Borland Enterprise Server.  Our Borland Enterprise Server family of
application servers offers a range of functionality to effectively and reliably
manage e-business application implementations. The Borland Enterprise Server
family includes our AppServer Edition for the large-scale EJB-centric
application deployments, as well as our mid-level VisiBroker Edition and entry
level Web Edition. The Borland Enterprise Server family integrates tightly with
JBuilder, our market leading IDE for Java.

   Borland Enterprise Server, AppServer Edition.  The core of Borland
Enterprise Server is an application server we formerly marketed as Borland
AppServer. Borland AppServer was the industry's first application server
product to combine the benefits of J2EE, EJB and COBRA. The highly scalable
product provides a strong foundation for deploying enterprise grade
applications. It includes support for distributed transactions, security, and
messaging, in combination with clustering, load-balancing, and fail-over
capabilities. Unique features include advanced Application Server Partitioning
technology that enables a server to run multiple programs

                                      17

<PAGE>

while optimizing the resources to run each program individually, and an
innovative EJB container. Based on COBRA, Borland Enterprise Server, AppServer
Edition, integrates heterogeneous back-office systems comprised of ERP, supply
chain, database management and legacy systems. In February 2001, we began
shipping Borland AppServer 4.5, the latest version of this product.

   In November 2001, we announced the availability of the Borland Software
Platform for J2EE, an enterprise-targeted implementation solution combining
Borland Enterprise Studio, JBuilder and Borland Enterprise Server. The Borland
Software Platform for J2EE provides our customers with a complete solution for
the development and the deployment of large-scale enterprise and e-business
applications.

   Borland Enterprise Server, VisiBroker Edition.   Borland Enterprise Server,
VisiBroker Edition, is a complete COBRA runtime and supporting environment for
developing, deploying and managing distributed, interoperable enterprise
applications. The product is founded on VisiBroker, our award-winning Object
Request Broker (ORB), and is based on COBRA, which is intended to facilitate
development and deployment of distributed enterprise applications that are
scalable, flexible and easily maintained. Borland Enterprise Server, VisiBroker
Edition, enables Web clients to communicate with software modules, known as
objects, written in different programming languages running on different
platforms no matter where they reside. Using the product, developers can
develop in either the C++ or Java programming language, and all product
features are compliant with COBRA 2.4. VisiBroker Edition provides the option
to license advanced security features based on industry standards. VisiBroker
Edition includes the functionality of our Web Edition with additional COBRA
connectivity.

   Borland Enterprise Server, Web Edition.  The Web Edition is our Web
application server based on the Apache 1.3 Web Server, for effective and
reliable development on Servlet and JSP applications. It includes
Borland-enhanced versions of the Apache Web Server and the Tomcat Web
container, as well as our own JDataStore, a Java database, for caching, session
management, and general database needs. Web Server's Web Engine, which
integrates the Borland Web Server and Borland Web Container, is also built on
VisiBroker. This provides industry-proven load balancing and fault tolerance in
a development environment for JSP/servlets, Web applications, and Web Services
developed with Delphi.

   InterBase.  InterBase is a powerful, high-performance SQL database designed
to be embedded into applications running on the Windows, Linux and Solaris
platforms. InterBase provides robust relational database solutions to meet the
business-critical embedded database needs for value-added resellers and
application developers. In July 2000, we open-sourced InterBase software
version 6.0. In March 2001, we released commercial versions of InterBase 6, for
Linux, Windows and Solaris environments, and in December 2001, released
InterBase 6.5. Selected new features on InterBase 6.5 include a security
feature that protects the metadata from modification by unauthorized users,
VLDB (Very Large Database) support, and a feature which allows InterBase
developers to generate XML documents directly from InterBase. InterBase 6.5
also adds IBConsole, an integrated GUI front-end for InterBase command line
tools. InterBase 6.5 comes bundled with our IDEs, and is also available in
commercial server, desktop and open-source versions.

   JDataStore.  JDataStore is a Database Management System written entirely in
Java offering true platform independence and scalability in a fully integrated
development environment. JDataStore features replication/synchronization with
any database, SQL and direct navigational access, as well as transaction
management and crash recovery. Delivering high performance, a small footprint
and virtually zero administration, JDataStore is suitable for embedded, Web and
mobile database applications.

Management

   Borland AppCenter.  Borland AppCenter is our management solution designed to
enable customers to model, monitor and manage component-based application
servers, including managing complex applications down to the component level.
Borland AppCenter's application-centric model allows the monitoring of the
various interactions between objects and components and understands
relationships such as dependency,

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<PAGE>

containment, grouping, scalability and fault tolerance. Borland AppCenter can
perform actions on objects, such as remote start, stop and ping, and can start
up all of an applications' various components on all the necessary machines in
the network in the correct order, with only one command. Borland AppCenter
provides robust management capabilities for CORBA- and EJB-based applications,
including fail-over, auto-recovery and load-balancing support and performance
metrics. Borland AppCenter tightly integrates with Borland Enterprise Server,
AppServer Edition.

Product Awards and Honors

   The following are some of the awards and honors we have received for our
products over the last three years:

JBuilder
Reader Award 2001, Visual Systems Journal
Reader's Choice 2001, Java Pro
Editors' Choice 2001, Java World
Excellence Awards 2001, eWeek
Reader's Choice 2000, Java Pro
Editor's Choice Award, 1999, Java Developers Journal
Readers' Choice 1999, Java World

Borland AppServer
World Class Award for Borland AppServer 4.5, April 2001, Java Developers Journal

Delphi
Award for Excellence 1999, Application Development Tool, Quality Award, Data
  News

C++Builder
Best Development Tool 1999 for C++Builder 4, PC Plus

Kylix
Best Developer Tool, LinuxWorld Expo, 2002
Show Favorite Award for Best Development Tool, LinuxWorld Expo, 2001

VisiBroker
Reader's Choice Award 2000, Java Developers Journal
Software Development Product Excellence Award 2000

Optimizeit
Java Report 4 Cup Rating 2001
Editor's Choice Award 2001, Java Developers Journal
Reader's Choice Award 2001(runner up), Java Developers Journal

   A more comprehensive list of our awards and honors can be found on our web
site at www.borland.com.

Professional Services

   In addition to our award winning products, we offer expert consulting and
training services, as well as comprehensive technical support capabilities. We
also offer certification services. Service offerings provided by our
Professional Sales Organization include:

   Consulting services.  We offer a variety of both packaged and custom
consulting services that include architectural assessment, prototyping, legacy
migration, application integration, performance evaluation, application
deployment and data conversions. We work closely with third party consulting
firms and systems integrators who provide reengineering, technology
assessments, customization, project management and implementation services.

   Training services.  We offer education and training services to assist
customers in learning about our products and current technology trends. These
programs range from introductory sessions to highly advanced seminars. Training
services are offered at either customer sites or locations designated by us and
are led by our employees or consultants.

   Support services.  We provide a wide range of support services covering
application development, deployment and integration issues. We offer such
services on-site or through the telephone or the Internet from our three major
worldwide support centers in the U.S., Singapore and the Netherlands. A
comprehensive range of support programs allow customers to choose the adequate
level of support for their business, from personalized

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<PAGE>

support for corporate needs to minimum assistance levels for small businesses.
Qualified technical support engineers are prepared to handle support needs on a
case-by-case basis or in an ongoing partnership with our customers.

   Certification services.  Our certification program permits individuals and
companies to become Borland Product Certified or a Certified Borland
Instructor. The Borland Product Certification Exam tests for knowledge of a
Borland product's advanced features and their use in developing software
applications. The exam concentrates on the advanced features of the product's
core language, integrated development environment, visual components, debugging
techniques and deployment products.

Customers

   Our customers range from leading Fortune 1000 companies worldwide to
individual developers. We have for some time targeted the enterprise markets of
financial services, high technology and telecommunications. We believe that our
products have been widely adopted in these markets because their performance
benefits, including their scalability, extensibility and reliability, are
particularly important for these customers. Also, in the fourth quarter of
2001, we were added to the United States General Services Administration
schedule. As a result, we are now specifically targeting the public sector
vertical, where we believe the market opportunity for our products is
significant. We also intend to target other vertical markets where our
extensive relationships and partnerships can be leveraged effectively.

   As we generally ship products upon receipt of orders, backlog is neither
significant nor should it be detrimental to our future revenues. Ingram Micro,
a reseller, accounted for approximately 13%, 12% and 11% of our total revenue
for the years ended December 31, 2001, 2000 and 1999, respectively. No other
customer accounted for over 10% of revenue in 2001, 2000 or 1999.

Strategic Alliances and Technology Partnerships

   We have strategic alliances and technology partnerships with many leading
technology companies, including co-marketing, licensing, bundling and OEM
arrangements. In addition to providing us direct revenue, these relationships
open up additional sales channels for us and give us access to valuable
technology and expertise. Besides leading technology companies, we also
maintain relationships with systems integrators and with channel partners.
Integrators and channel partners help bolster our service capabilities, provide
additional expertise to our customers, and open up new revenue opportunities
for us. We anticipate increasing our focus on developing and expanding
strategic relationships, particularly those, such as technology vendors with
large installed bases and systems integrators, that will enable us to penetrate
broader and more lucrative customer markets.

   The following represent several of our more significant strategic alliances
and technology partnerships:

   Nokia.  In 2001, we announced a technology partnership with Nokia, a leading
wireless device company. Under our partnership with Nokia, JBuilder is being
recommended by Nokia as the preferred IDE for the development of wireless Java
applications. In return, JBuilder MobileSet provides support for development to
Nokia wireless platforms, including the Nokia Series 60 Platform--a Symbian
operating system-based mobile platform licensable to other device
manufacturers. In addition, it is currently planned that our C++Builder
MobileSet, if released as anticipated in 2002, will support Nokia Series 60.
Borland and Nokia together also announced the release of JBuilder MobileSet
which includes customized support for the Nokia Developer's Suite for J2ME and
is fully integrated with JBuilder 5 and 6 to support software development for
Nokia's Java-enabled phones, including the Nokia 9210 Communicator. Together,
JBuilder 5 and 6 and JBuilder MobileSet, include visual design tools for
creating mobile applications, device emulation and debugging, as well as all
the other standard features offered with JBuilder. Available for download
through the Forum Nokia Web site, JBuilder MobileSet, Nokia Edition, is being
distributed to other manufacturers, enabling developers to standardize on one

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<PAGE>

environment for the development and deployment of Java applications across
wireless and mobile devices from multiple manufacturers.

   Sun Microsystems.  Close collaboration with Sun Microsystems continues to be
a key element of our Java strategy and our efforts to keep our Java-based
products, including JBuilder and Borland Enterprise Server, at the cutting edge
of Java development and deployment. In addition to our licensing arrangements
with Sun for Java technologies, we participate with Sun in a number of industry
groups and consortia. For example, along with Sun, we are an Executive Member
of the Java Community Process (JCP), a consortium of J2EE server vendors and an
important standards setting body for the Java platform. In October 2001, in
conjunction with our JCP role, we became the first company to publish results
for ECperf, the new JCP benchmark to measure the performance and scalability of
J2EE application servers. The primary goal of the ECperf benchmark is to model
the workload of a real-world system that would include manufacturing, supply
chain management and order/inventory. We conducted successful ECperf tests of
the Borland Enterprise Server at Sun Microsystems benchmarking facility and
were instrumental in providing these results for the launch of Sun's new 8 Way
Sun Fire V880 server. In addition to our close technological and industry
collaboration, we have also worked closely with Sun on a number of customer
opportunities.

   Microsoft.  In June 1999, we entered into a strategic alliance with
Microsoft Corporation. As part of that arrangement, Microsoft paid us $100
million for the rights to use certain Borland-patented technology in Microsoft
products and to settle a number of long-standing patent and technology
licensing issues with us. As part of this arrangement, we agreed to:

  .   support the Microsoft Windows 2000 operating system, including the COM+
      and the Windows Distributed interNet Applications (Windows DNA)
      architecture;

  .   enhance our development products for Windows to support this Windows 2000
      as well as the Windows-based DNA architecture, and to conform to the
      Windows 2000 Application Specification;

  .   license Microsoft Foundation Classes (MFC), the standard C++ class
      library for developing applications for Windows, for shipment with our
      C++Builder; and

  .   license the latest version of the Windows platform software development
      kit (SDK) through the Microsoft Open Tools licensing program.

   In addition to licensing arrangements, we also work closely with Microsoft
on key initiatives, including most recently with the Microsoft .NET Frameworks
group to support .NET applications through our development products.

Sales and Marketing

   Our sales strategy combines a strong indirect sales channel with a growing
direct sales organization. This balanced effort allows us to target both
small-to-medium size businesses and individuals with our existing products, as
well as large enterprises with our comprehensive solutions. In 2001, our direct
sales force closed nine revenue transactions of $1 million or greater. In
addition to direct sales, we market and distribute products worldwide through a
strong network of independent distributors, dealers, value-added resellers, or
VARs, specialty catalogue vendors and independent software vendors, or ISVs.
Our VARs include 20 major independent software vendors such as Siebel, Oracle
and i2. We also market our products through our own e-commerce Internet site.

   We permit our distributors to balance their inventories by periodically
returning contractually limited amounts of products in exchange for other
products from us. Accordingly, we include an estimate for returns in our
reserves for the amount of product that may be exchanged in accordance with
this policy.

   We conduct operations and sell products outside the U.S. and maintain
overseas offices in a number of foreign countries: Australia, Brazil, Canada,
China, France, Germany, Hong Kong, India, Italy, Japan,

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<PAGE>

Netherlands, Russia, Singapore, South Korea, Spain, Sweden, Taiwan and the
United Kingdom. As part of our on-going global expansion, we opened up new
offices in China, India, Italy and South Korea in 2001. All of these foreign
offices license and support our products both within their local jurisdictions
and other foreign countries where we do not directly operate. Additionally, we
market and sell our products in international territories not covered by any of
our foreign offices through independent distributors, VARs and ISVs.

   Our activities in support of our direct and indirect sales efforts both
domestically and internationally and our on-going efforts to improve the
visibility of our brand include, among other things:

  .   creation of sales brochures and other marketing materials;

  .   extensive sales training;

  .   user conferences, including our own Borland Users' Conference (BorCon);

  .   appearances at industry trade shows such as Comdex and JavaOne;

  .   technical seminars;

  .   cooperative marketing programs;

  .   advertising in trade and technical publications;

  .   public relations, including with general interest, financial and
      technical press;

  .   industry analyst briefings;

  .   trade and industry association activities, including active participation
      in both the Business Software Alliance (BSA) and the Software and
      Information Industry Association (SIIA);

  .   anti-piracy enforcement efforts;

  .   sales promotions;

  .   targeted mailings to current and potential customers;

  .   trade missions; and

  .   book publishing arrangements, which may include book evaluation copies of
      our software products.

Product Licensing

   Our software licenses are generally perpetual, fully paid-up named user or
machine per processor licenses. Our IDE products are generally licensed on a
named user basis. A named user means one named individual for whom the product
was licensed. The total number of named users may not exceed the total number
of licenses acquired. Only named users may access the product over a network.

   Our enterprise products are generally licensed on a named user basis for
development purposes and licensed on a machine per processor basis for
deployment purposes. Machine per processor means a specific hardware system, on
which the enterprise product is running and is licensed according to the number
of processors in the machine.

   We also offer a support program with several options. Customers may choose a
support program that entitles a licensee to receive either (i) all enhancements
and upgrades to the licensed product that are released in the succeeding
12-month period, (ii) certain other support services, or both (i) and (ii).

   Our packaged training courses are offered in the form of open-enrollment
public courses and in-house courses at customer facilities. Additionally, we
offer consulting services that are generally priced on a time-and-materials
basis.

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<PAGE>

Research and Development

   We believe that our success will continue to depend heavily on our ability
to develop new products and upgrades to meet the requirements of our customers
and the market. We pride ourselves on the depth, quality and consistency of our
research and development effort and will continue to place significant focus
and spend significant resources on this effort. Current research and
development efforts are directed at enhancing our current technology and
products, developing new products, testing, quality assurance and
documentation. Research and development expenses for the years ended December
31, 2001, 2000 and 1999 were $47.0 million, $42.5 million, and $42.3 million,
representing 21%, 22% and 24% of our total revenues in those years.

   Our research and development activities are organized principally by product
group, with each of our respective product groups assuming responsibility for
development efforts. The approaches within each group tend to be highly
collaborative, with developers acting collectively to advance promising,
commercially viable technologies that extend the range and breadth of our
lifecycle solutions. Close communication with a talented installed base of
customers also gives us access to new ideas, concepts and technologies as well.
We also use our customer base to derive critical feedback on product
development and new release efforts, including feedback we gain through our
professional services engagements. We are paying particular attention to
research and development efforts in promising growth markets, including Java,
Linux, Web Services and wireless, as those markets impact our traditional
development business and our emerging application infrastructure business. The
principal products we use for our development efforts are our own products.

   In addition to research and development facilities in Scotts Valley,
California, San Mateo, California and Chicago, Illinois, we currently maintain
research and development facilities in Japan and Singapore.

Competition

   The software industry is an intensely competitive industry characterized by
rapid change, new and emerging technologies and fierce competition. The pace of
change has accelerated due to the emergence of the Internet, corporate
Intranets and new programming languages. We face intense competition in the
development and marketing of our software products and services.

   With respect to JBuilder, we compete primarily with the IDEs offered by IBM
and Sun and, to a lesser extent, those offered by WebGain. With respect to our
Optimizeit performance assurance tools for Java, we compete primarily with
Sitraka and Rational. With respect to our Delphi and C++Builder products, we
compete primarily with Microsoft. With respect to our TeamSource service,
potential competitors may include Merant and Rational. With respect to Borland
Enterprise Server, AppServer Edition, we compete primarily with BEA, Oracle and
IBM. With respect to Borland Enterprise Server, VisiBroker Edition, we compete
primarily with Iona. With respect to Borland Enterprise Server, Web Edition, we
compete primarily with Microsoft, IBM, BEA and Sun. At this time, we have no
significant competitors to our Borland AppCenter and Kylix products.

   All of our markets are intensely competitive. However, we believe that our
product quality, performance and price, Borland brand, vendor and product
reputation, product architecture, quality of technical support and 19-year
history make us competitive in all of our markets. In particular, we believe
that our platform independent positioning and interoperability capabilities,
including our ability to integrate with many existing technologies and systems
(including, in some cases, those of our competitors), give us an important
source of competitive strength.

Manufacturing

   Our product development groups produce a set of master CD-ROMs or diskettes
and documentation for each of our products which are then sent to
manufacturing. All of our manufacturing and order fulfillment are performed by
outside contractors, under the supervision of our domestic logistics
organization, and includes replication of CD-ROMs or diskettes, printing and
production of documentation and packaging materials and

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<PAGE>

assembly of final product packages for shipment to customers. Our products are
principally sold in CD-ROM format together with user documentation. We believe
that there are adequate supplies and sources for the raw materials used in our
products and that there are multiple sources available for CD-ROM replication,
printing and production of packaging materials and printing of documentation.

   We deliver some of our products directly to our customers via electronic
download from the Internet. Our TeamSource service is provided on a third-party
hosted server that is accessed by our customers via the Internet. While we are
dependent on having access to adequate bandwidth to deliver these downloads at
acceptable transmission speeds, we believe that there is adequate availability
of necessary bandwidth and multiple vendors available to us to purchase
necessary bandwidth or to deliver these downloads on our behalf.

   We have final quality control tests performed internally on our products
that we believe effectively accomplish our product quality assurance goals.

Intellectual Property

   We regard our software as proprietary. We rely on a combination of patent,
copyright, trademark, trade secret laws, non-disclosure and other contractual
agreements to protect our intellectual property. We have 98 issued U.S.
patents, 10 issued foreign patents and additional pending applications for U.S.
and foreign patents. Despite our efforts to protect our intellectual property
rights, it may be possible for an unauthorized third party to copy certain
portions of our products or to reverse-engineer or obtain and use technology or
other information that we regard as proprietary. In addition, the laws of many
foreign countries do not protect rights in intellectual property to the same
extent as do the laws of the United States. Accordingly, there can be no
assurance that we will be able to protect our intellectual property against
unauthorized third-party copying or use which could adversely affect our
competitive position.

   From time to time we receive notices from third parties claiming
infringement by our products of third-party patent, trademark and other
intellectual property rights. Regardless of the merit of any such claim,
responding to these claims could be time consuming and expensive, and may
require us to enter into licensing or royalty agreements which may not be
offered or available on terms acceptable to us. If a successful claim is made
against us and we fail to develop or license a substitute technology, our
business could be materially and adversely affected. We expect that our
software products will increasingly be subject to such claims as the number of
products and competitors in our industry segment increases, the functionality
of products overlap and industry participants become more aggressive in using
patents offensively.

   Our Java products require proprietary technology made available by Sun
Microsystems, Inc. We license the Java 2 Platform, Standard Edition
specification, the Java 2 Platform, Enterprise Edition specification and the
Java 2 Platform, Micro Edition specification from Sun Microsystems under a
license agreement that provides for a five-year term and that expires on
December 28, 2005. While we would expect to renew this agreement, Sun is not
obligated to do so. Upon expiration of this license, we will continue to have
the right to distribute our software products containing the version of Java
technology incorporated at the time of expiration. However, in the event of
termination of the license upon material breach of the terms of the license or
upon an action for infringement of intellectual property rights relating to the
Java technology by us against Sun Microsystems or any of its other licensees,
we are required to return or destroy all copies of the Java technology,
including derivative works. Furthermore, if Sun Microsystems stops making this
proprietary technology available to us on commercially reasonable terms, and we
are unable to develop or otherwise identify effective alternatives to licensing
this technology, our business could be harmed.

Seasonality

   We do not consider our business as a whole to be seasonal to any significant
degree.

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<PAGE>

Employees

   As of February 28, 2002, we employed approximately 1,158 employees,
approximately 575 in the United States and 583 in foreign countries. From time
to time, we have also engaged temporary contract employees both in foreign
countries and within the United States. As of February 28, 2002, we engaged
approximately 57 temporary contract employees, approximately 14 in the United
States and 43 in foreign countries. None of our U.S. employees are represented
by a labor union and we have experienced no work stoppages. Employees of some
of our foreign subsidiaries are represented by workers' councils or other
similar organizations as required by local law. We believe that relations with
our employees are good.

Executive Officers

   Our executive officers are appointed annually by the Board of Directors of
Borland (the "Board") and serve at the discretion of the Board. Set forth below
is certain information regarding our current executive officers:

<TABLE>
<CAPTION>
Name               Position                                                 Age
----               --------                                                 ---
<S>                <C>                                                      <C>
Dale L. Fuller     President and Chief Executive Officer                    43
Frederick A. Ball  Executive Vice President and Chief Financial Officer     39
Douglas W. Barre   Senior Vice President and Chief Operating Officer        57
Keith E. Gottfried Senior Vice President-Law and Corporate Affairs, General
                   Counsel, Corporate Secretary and Chief Legal Officer     35
Edward M. Shelton  Senior Vice President-Business Development and Chief
                   Strategy Officer                                         35
Roger A. Barney    Senior Vice President-Corporate Services and Chief
                   Administrative Officer                                   62
</TABLE>

   Dale L. Fuller.  Mr. Fuller has served as President and Chief Executive
Officer since December 2000, and as Interim President and Chief Executive
Officer from April 1999 to December 2000. He has been a director of Borland
since April 1999. Prior to joining Borland, Mr. Fuller was a private investor
from 1998 to 1999. From 1996 to 1998, Mr. Fuller served as Chief Executive
Officer at WhoWhere? Inc., a leading Internet site, which was sold to Lycos in
1998. From 1995 to 1996, Mr. Fuller served as General Manager and Vice
President of the PowerBooks Division at Apple Computer, Inc., a personal
computer manufacturer. Prior to joining Apple Computer, Mr. Fuller served as
General Manager and Vice President of the Portables Division at NEC
Corporation, a personal computer manufacturer, from 1993 to 1995. Mr. Fuller is
a member of the Board of Directors of the Software and Information Industry
Association, a trade association representing companies in the software and
information industries.

   Frederick A. Ball.  Mr. Ball joined Borland in September 1999 as Senior Vice
President and Chief Financial Officer. In June 2001, Mr. Ball was promoted to
Executive Vice President and Chief Financial Officer. Prior to joining Borland,
Mr. Ball served as the Vice President of Mergers and Acquisitions for
KLA-Tencor Corporation, the world's leading supplier of process control and
yield management solutions for the semiconductor industry, since June 1999.
Prior to his position in the M&A department at KLA-Tencor Corporation, Mr. Ball
was the Vice President of Finance for KLA-Tencor Corporation following the
merger with Tencor Instruments in 1997. Mr. Ball joined Tencor Instruments as
Corporate Controller in March 1995 and was promoted to Corporate Vice President
and appointed Corporate Secretary in January of 1996. Mr. Ball was employed
with PricewaterhouseCoopers LLP from September 1984 to March 1995.

   Douglas W. Barre.  Mr. Barre joined Borland in May 2000 as Senior Vice
President and Chief Operating Officer. Prior to joining Borland, Mr. Barre was
Senior Vice President of Enterprise Software at Compuware Corporation since
April 1997, and prior to that position served as Vice President and General
Manager of Compuware Corporation's European Operations since October 1995.
Prior to Compuware Corporation, Mr. Barre was Vice President of Business
Transformation and Chief Information Officer of Bell Mobility since April 1994.
Mr. Barre has also held senior management positions at AT&T/Cantel, Imperial
Oil Ltd. and Texaco Canada Inc.

                                      25

<PAGE>

   Keith E. Gottfried.  Mr. Gottfried joined Borland in June 2000 and currently
serves as Senior Vice President-Law and Corporate Affairs, General Counsel,
Corporate Secretary and Chief Legal Officer. Prior to joining Borland, Mr.
Gottfried was a corporate attorney in the New York office of the law firm
Skadden, Arps, Slate, Meagher & Flom LLP where he advised public and private
companies on mergers and acquisitions, joint ventures, federal securities
registrations and compliance and general corporate matters. Mr. Gottfried holds
a law degree, cum laude, from Boston University's School of Law where he was
named an Edward F. Hennessey Distinguished Scholar of Law and a G. Joseph Tauro
Scholar of Law, an M.B.A. with high honors from Boston University's Graduate
School of Management, and a Bachelor of Science in Economics from the
University of Pennsylvania's Wharton School. Mr. Gottfried is also a Certified
Public Accountant and, prior to attending law school, was employed as an
accountant and auditor with the accounting firm of Arthur Young & Company, a
predecessor firm to Ernst & Young LLP. Mr. Gottfried is admitted to the
practice of law by the state bars of California, New York, Pennsylvania, New
Jersey and Massachusetts. Mr. Gottfried is a member of the Board of Directors
of the Business Software Alliance, a trade association of leading software
companies.

   Edward M. Shelton.  Mr. Shelton joined Borland in May 2000 as Senior Vice
President of Business Development and Chief Strategy Officer. Prior to joining
Borland, Mr. Shelton was Chief Executive Officer and co-founder of drspock.com,
Inc., a parenting web site, since August 1999. Prior to drspock.com, he was
Chief Executive Officer of Neta 4, Ltd., an e-commerce technology company,
since February 1999. Mr. Shelton has also held senior management positions at
WhoWhere? Inc., a leading Internet site which was sold to Lycos in 1998 (from
December 1996 to November 1998), CMP Media, a high-tech media company (from
March 1996 to December 1996), and IT Solutions, Inc., a systems integrator
(from January 1990 to March 1996).

   Roger A. Barney.  Mr. Barney joined Borland in June 2000 as Senior Vice
President-Corporate Services and Chief Administrative Officer. Prior to joining
Borland, Mr. Barney served as the Senior Vice President-Corporate Services for
Network Equipment Technologies, Inc. (NET), a worldwide supplier of
multi-service wide area networks, since 1985. Prior to his position at NET, Mr.
Barney spent several years as a management consultant for Roger A. Barney &
Associates, where he helped companies solve business issues ranging from real
estate and insurance to human resources. Prior to Roger A. Barney & Associates,
Mr. Barney served as president and co-owner of Peter James Coffee Ltd., a
wholesale gourmet coffee business. Barney holds a Bachelor of Science in
business administration from Shepherd College in Shepherdstown, West Virginia.

ITEM 2.  PROPERTIES

   Our headquarters, executive offices and primary research and development
facilities are located at 100 Enterprise Way, Scotts Valley, California. This
facility was constructed in 1993 and comprises approximately 495,000 square
feet of space. On December 30, 1999, we entered into an agreement to sell the
facility to the ScanlanKemperBard Companies for $47 million. The sale to
Enterprise Way Associates, LLC, as assignee of ScanlanKemperBard, closed on
March 17, 2000. We received approximately $44.1 million in consideration for
the facility. Consideration in the transaction was net of $2.5 million to cover
costs to improve the building and $0.4 million in other disposal costs. As part
of this agreement, we have entered into a long-term lease of approximately 44%
of the facility. On September 30, 2000, we entered into an amendment to our
lease with ScanlanKemperBard which decreased the space leased to us to
approximately 41% of the facility. The initial term of the lease will expire in
2010. We have two options to extend the lease term, provided that we are not in
default of any term or provision of the lease and have not assigned the lease,
sublet more than 50% of the premises or agreed to do so in the future. Each
option is for an additional 5 years at the then-current market rate but not
less than the rent for the last month of the previous term. Each extension
option must be exercised by notice to landlord of at least 12 months and no
more than 15 months prior to expiration of the then-current lease term.

   In addition, we lease approximately 50,000 square feet for a research and
development facility in San Mateo, California. This lease ends in June 2004.
Provided that we have not been in default on our obligations under the lease,
we have the option to extend the lease term for one term of five years at the
landlord's estimate

                                      26

<PAGE>

of the then-current market rent, but not less than the rent for the last month
of the previous term. We must provide notice of our intent to exercise the
option at least 180 days but not more than 270 days prior to expiration of the
lease.

   We also own additional office space located at 1700-1800 Green Hills Road,
Scotts Valley, California, and these facilities are leased to third parties.
These facilities comprise approximately 135,000 square feet of space and were
constructed in 1988. We lease office space in other cities in the United States
as well as in Europe, Canada, Latin America and various countries in the
Pacific Rim. We also lease approximately 8,116 square feet of research and
development office space in Singapore. Our existing facilities are adequate to
meet our current and projected needs.

ITEM 3.  LEGAL PROCEEDINGS

   Although litigation is subject to inherent uncertainties, we do not believe
that the ultimate outcome of any of our legal proceedings will have a material
adverse effect on our financial position or overall trends in results of
operations. However, if an unfavorable ruling were to occur in any specific
period, there exists the possibility of a material adverse impact on the
results of operations of that period. We believe that, given our current
liquidity and cash and investment balances, even were we to receive an adverse
judgment with respect to litigation that we are currently a party to, such a
judgment would not have a material impact on cash and investments or liquidity.

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

   No matters were submitted to a vote of stockholders, through a solicitation
of proxies or otherwise, during the quarter ended December 31, 2001.

                                      27

<PAGE>

                                    PART II

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

   Our common stock is traded on The Nasdaq Stock Market under the symbol
"BORL." According to the records of our transfer agent and registrar, Mellon
Investor Services, L.L.C., we had approximately 2,411 stockholders of record of
our common stock as of February 28, 2002. Because many of such shares are held
by brokers, institutions and other nominees on behalf of stockholders, we are
unable to estimate the total number of beneficial owners represented by these
record holders.

   We have not paid dividends since 1988. We intend to retain future earnings
for use in our business, and therefore, do not anticipate paying cash dividends
in the foreseeable future.

   The following table sets forth the high and low sales price per share of our
common stock as reported on The Nasdaq Stock Market for the calendar quarters
presented below:

<TABLE>
<CAPTION>
                                                         High   Low
                                                        ------ ------
          <S>                                           <C>    <C>
          Fiscal Year Ended December 31, 2000
             First Quarter ended March 31, 2000........ $16.94 $ 6.09
             Second Quarter ended June 30, 2000........ $ 7.63 $ 4.03
             Third Quarter ended September 30, 2000.... $ 6.63 $ 5.00
             Fourth Quarter ended December 31, 2000.... $ 6.97 $ 4.16

          Fiscal Year Ended December 31, 2001
             First Quarter ended March 31, 2001........ $11.50 $ 5.41
             Second Quarter ended June 30, 2001........ $15.75 $ 6.25
             Third Quarter ended September 30, 2001.... $16.39 $ 6.75
             Fourth Quarter ended December 31, 2001.... $17.49 $ 7.76

          Interim Period ended February 28, 2002....... $18.40 $12.69
</TABLE>

   As of March 27, 2002, the most recent practicable date prior to the filing
of this Form 10-K, the closing sale price of a share of our common stock was
$12.55.

                                      28

<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

   The following selected consolidated financial data are derived from our
consolidated financial statements. Historical results should not be taken as
indicative of the results that may be expected for any future period. This data
should be read in conjunction with our consolidated financial statements and
related notes, which are included elsewhere in this Form 10-K.

                               FIVE YEAR SUMMARY
              (In thousands, except net income (loss) per share)

<TABLE>
<CAPTION>
                                                                                            Nine Months
                                                        Year Ended December 31,                Ended
                                            -------------------------------------------     December 31,
                                              2001     2000         1999         1998        1997(a)(b)
                                            -------- --------     --------     --------     ------------
<S>                                         <C>      <C>          <C>          <C>          <C>
Selected Consolidated Statements of
Operations Data
Net revenues............................... $221,711 $191,067     $174,806     $189,112       $145,936
Restructure and other one-time charges..... $     -- $   (562)(c) $ 49,900 (d) $ 15,848 (e)   $     --
Operating income (loss) excluding one-time
  items.................................... $ 17,834 $ 11,870     $(32,924)    $ (2,078)      $ (4,548)
Unusual income (charge) items.............. $     -- $ (1,540)(f) $108,002 (g) $ 18,107 (h)   $     --
Net income (loss).......................... $ 23,106 $ 20,726     $ 22,684     $  8,346       $ (3,894)
Net income (loss) per share--basic......... $   0.34 $   0.32     $   0.40     $   0.16       $  (0.09)
Net income (loss) per share--diluted....... $   0.31 $   0.30     $   0.35     $   0.14       $  (0.09)
Shares used in computing basic earnings per
  share....................................   66,494   61,357       54,810       50,118         49,640
Shares used in computing diluted earnings
  per share................................   74,136   69,874       63,408       57,384         49,640

                                                                    December 31,
                                            -----------------------------------------------------------
                                              2001     2000         1999         1998        1997(a)(b)
                                            -------- --------     --------     --------     ------------
Selected Consolidated Balance Sheet Data
Cash and short-term investments............ $294,370 $262,559     $197,693     $ 84,362       $102,551
Total assets............................... $375,823 $340,903     $313,016     $253,788       $255,824
Total long-term obligations................ $ 10,469 $ 19,315     $ 19,462     $ 19,138       $ 22,025
Mandatorily redeemable convertible
  preferred stock.......................... $     -- $     --     $     --     $ 36,873       $ 27,358
</TABLE>
--------
(a) In July 1997, we changed our fiscal year-end from March 31 to December 31.
(b) Results and balances for the nine months ended December 31, 1997 have been
    restated to reflect the acquisition of Visigenic Software, Inc. which was
    accounted for as a pooling-of-interests.
(c) Unusual charges for the year ended December 31, 2000 consist primarily of
    merger-related expenses of $3.6 million related to the terminated merger
    with Corel Corporation and restructuring costs of $1.5 million, offset by
    reversal of certain reserves totaling $5.7 million that were deemed no
    longer necessary.
(d) Restructuring and other one-time charges for the year ended December 31,
    1999 include a write-down on the sale of real estate of $29.7 million,
    restructuring and merger-related expenses of $12.1 million and other
    non-recurring charges of $8.2 million.
(e) Unusual charges for the year ended December 31, 1998 consist primarily of
    merger-related expenses of $3.7 million related to the merger with
    Visigenic and restructuring costs of $12.2 million.
(f) Unusual charge items for the fiscal year ending December 31, 2000 consists
    principally of loss on the sale of real estate.
(g) Unusual income items for the fiscal year ended December 31, 1999 consist
    primarily of income of $100 million from a patent cross-license agreement
    entered into by Borland with Microsoft Corporation.
(h) Unusual income items for the fiscal year ended December 31, 1998 consist
    primarily of a gain on sale of long-term investment of $17.0 million.

                                      29

<PAGE>

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

   The following discussion includes a number of forward-looking statements
and, with respect to this section, the cautionary language applicable to such
forward-looking statements described above in "A Caution About Forward-Looking
Statements" found before Item 1 of this Form 10-K is incorporated by reference
into this Item 7.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

   Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, including
those related to product returns, bad debts, investments, income taxes and
contingencies and litigation. We base our estimates on historical experience
and on various other assumptions that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates under different
assumptions or conditions.

   We believe the following are critical accounting policies and estimates used
in the preparation of our consolidated financial statements.

Revenue Recognition

   Borland derives revenues from licenses of its software and sales of its
related services, which include assistance in implementation and integration,
post-contract customer support, training and consulting.

   On contracts involving significant implementation or integration essential
to the functionality of our products, license and service revenues are
recognized when the services are completed. We classify revenues from these
arrangements as license and services revenues, based upon the estimated fair
value of each element. Provisions for estimated contract losses are recognized
in the period in which the loss becomes probable and can be reasonably
estimated.

   On contracts that do not involve significant implementation or integration
essential to the functionality of our products, license fees are recognized
upon shipment when there is persuasive evidence of an arrangement, the fee is
fixed or determinable and collection of the receivable is probable. We assess
collection based on a number of factors, including past transaction history
with the customer and the credit-worthiness of the customer. We do not
generally request collateral from our customers. If we determine that
collection of a fee is not reasonably assured, we defer the fee and recognize
revenue at the time collection becomes reasonably assured, which is generally
upon receipt of cash. For arrangements with multiple elements of fair value, we
determine the value for services and post-contract customer support based upon
vendor specific objective evidence, or VSOE. VSOE for the services element is
based upon the standard hourly rates we charge for services, given the
complexity of the services and experience of the professional performing the
services, or the amount charged on similar transactions. VSOE for annual
post-contract customer support is established with the stated future renewal
rates included in the contracts or the amount charged on a similar transaction.
We recognize revenue for the license portion of a multiple element arrangement
based upon the residual contract value as prescribed by Statement of Position
No. 98-9, "Modification of SOP No. 97-2 with Respect to Certain Transactions."

   Revenues from reseller arrangements are recognized upon shipment to the
reseller, with allowances for estimated future returns and exchanges provided
based upon our return policy. We maintain allowances for product returns from
end-user and channel customers that are based upon historical return rates of
end-user customers current economic trends, and changes in customer demand and
acceptance of our products and the

                                      30

<PAGE>

type and quantity of inventory held by channel customers. Significant
management judgments and estimates must be made and used in connection with
establishing the sales returns and other allowances in any accounting period.
Material differences may result in the amount and timing of our revenue for any
period if management made different judgments or utilized different estimates.
The provision for sales returns and rebates amounted to $14.1 million in 2001,
as compared to $12.5 million in 2000, reflecting an increase in estimated
future product returns due to higher level of sales to channel customers during
2001. If future returns increase over historical levels, additional allowances
may be required.

   Other service revenues from consulting and training services are recognized
as such services are performed. Service revenues from post-contract customer
support are recognized ratably over the support period, generally one year.
Revenues from our hosted services are recognized ratably over the contractual
period.

Concentration of Credit Risk

   Financial instruments that potentially subject us to significant
concentrations of credit risk consist principally of cash, cash equivalents,
short-term investments and trade accounts receivable. We place our cash, cash
equivalents and short-term investments in a variety of financial instruments
such as commercial paper. By policy, we limit the amount of our credit exposure
to any one commercial issuer to no more than $5.0 million.

   We offer credit terms on the sale of our software products to distributors,
retail dealers and certain end-user customers. We perform ongoing credit
evaluations of our customers' financial condition and, generally, require no
collateral from our customers. We maintain an allowance for uncollectable
accounts receivable based upon the expected collectability of all accounts
receivable. As compared to total revenues, such allowance has increased from
2000 to 2001, reflecting an increase in estimated uncollectable accounts due to
higher account receivable balances. One customer, Ingram Micro, accounted for
approximately 14% and 13% of total accounts receivable as of December 31, 2001
and 2000, respectively. No other single group or customer represents greater
than 10% of total accounts receivable. For the years ended December 31, 2001,
2000, 1999, sale to Ingram Micro Inc. and its subsidiaries accounted for
approximately 13%, 12% and 11% of our net revenues, respectively.

   We are exposed to credit loss in case of non-performance by counterparties
to foreign exchange contracts, but we do not anticipate non-performance by
these counterparties.

Allowances for Doubtful Accounts

   We maintain allowances for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments. If the financial
condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required.
Management specifically analyzes accounts receivable and analyzes historical
bad debts, customer concentrations, customer credit-worthiness, current
economic trends and changes in our customer payment terms when evaluating the
adequacy of the allowance for doubtful accounts. Our accounts receivable
balance was $53.6 million, net of allowance for doubtful accounts of $3.7
million as of December 31, 2001, as compared to an accounts receivable balance
of $47.2 million, net of allowance for doubtful accounts of $3.3 million as of
December 31, 2000.

Investments

   We hold minority interests in companies having operations or technology in
areas within our strategic focus, some of which are publicly traded and have
highly volatile share prices. We record an investment impairment charge when we
believe an investment has experienced a decline in value that is other than
temporary. Future adverse changes in market conditions or poor operating
results of underlying investments could result in losses or an inability to
recover the carrying value of the investments that may not be reflected in an
investment's current carrying value, thereby possibly requiring an impairment
charge in the future.

                                      31

<PAGE>

Valuation Allowance for Deferred Tax Assets

   Deferred income taxes are recorded, in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes." Under SFAS 109, deferred tax assets and liabilities are determined
based on the differences between financial reporting and the tax basis of
assets and liabilities using the tax rates and laws in effect when the
differences are expected to reverse. SFAS 109 provides for the recognition of
deferred tax assets if realization of such assets are more likely than not to
occur. Realization of our net deferred tax assets is dependent upon our
generating sufficient taxable income in future years in appropriate tax
jurisdictions to realize benefit from the reversal of temporary differences and
from net operating loss carryforwards. Based on the weight of the available
evidence, we have provided a valuation allowance against substantially all of
our net deferred tax asset. Management will continue to evaluate the
realizability of the deferred tax asset and its related valuation allowance.

Contingencies

   Our current estimated range of liability related to some of the pending
litigation is based on claims for which our management can estimate the amount
and range of loss. We have recorded the minimum estimated liability related to
those claims, where there is a range of loss. Because of the uncertainties
related to both the amount and range of loss on the remaining pending
litigation, management is unable to make a reasonable estimate of the liability
that could result from an unfavorable outcome. As additional information
becomes available, we will assess the potential liability related to our
pending litigation and revise our estimates. Such revisions in our estimates of
the potential liability could materially impact our results of operation and
financial position. As of December 31, 2001, we have accrued approximately $6.6
million for professional service fees and other settlement costs.

Determining Functional Currencies for the Purpose of Consolidation

   We have several foreign subsidiaries which together account for
approximately 60% of our net revenues, 11% of our assets and 34% of our total
liabilities as of December 31, 2001.

   In preparing our consolidated financial statements, we are required to
translate the financial statements of the foreign subsidiaries from the
currency in which they keep their accounting records, generally the local
currency, into United States dollars. This process results in exchange gains
and losses which, under the relevant accounting guidance are either included
within the statement of operations or as a separate part of our net equity
under the caption "cumulative translation adjustment."

   Under the relevant accounting guidance the treatment of these translation
gains or losses is dependent upon our management's determination of the
functional currency of each subsidiary. The functional currency is determined
based on management judgment and involves consideration of all relevant
economic facts and circumstances affecting the subsidiary. Generally, the
currency in which the subsidiary transacts a majority of its transactions,
including billings, financing, payroll and other expenditures is considered the
functional currency but any dependency upon the parent and the nature of the
subsidiary's operations is also considered.

   If any subsidiary's functional currency is deemed to be the local currency,
then any gain or loss associated with the translation of that subsidiary's
financial statements is included in cumulative translation adjustments.
However, if the functional currency is deemed to be the United States dollar
then any gain or loss associated with the translation of these financial
statements would be included within our statement of operations. If we dispose
of any of our subsidiaries, any cumulative translation gains or losses would be
realized into our statement of operations. If we determine that there has been
a change in the functional currency of a subsidiary to the United States
dollar, any translation gains or losses arising after the date of change would
be included within our statement of operations.

   Based on our assessment of the factors discussed above, we consider the
relevant subsidiary's local currency to be the functional currency for each of
our international subsidiaries. Accordingly we had cumulative

                                      32

<PAGE>

translation gains of approximately $4.0 million and $4.9 million which were
included as part of cumulative comprehensive gain within our balance sheet at
December 31, 2001 and 2000, respectively. During 2001, 2000 and 1999,
translation adjustments of ($2.3) million, ($0.4) million and ($0.9) million,
respectively, were included under cumulative comprehensive gain. Had we
determined that the functional currency of our subsidiaries was the United
States dollar, these gains and losses would have been included in our results
of operation for each of the years presented.

   The magnitude of these gains or losses is dependent upon movements in the
exchange rates of the foreign currencies in which we transact business against
the United States dollar and the significance of the assets, liabilities,
revenues and expenses denominated in foreign currencies. These currencies
include the Japanese Yen, the Euro, the United Kingdom Pound Sterling and
Australian and Canadian dollars. Any future translation gains or losses could
be significantly higher than those noted in each of these years. In addition,
if we determine that a change in the functional currency of one of our
subsidiaries has occurred at any point in time we would be required to include
any translation gains or losses from the date of change in our statement of
operations.

RESULTS OF OPERATIONS

Net Revenues

   Net revenues were $221.8 million, $191.1 million and $174.8 million for the
years ended December 31, 2001, 2000 and 1999, respectively. Revenues from
sources outside the United States, or non-U.S. revenues, represented
approximately 60%, 55% and 56% of total net revenues for the years ended
December 31, 2001, 2000 and 1999, respectively. The increase in the percentage
of non-U.S. revenues for the year ended December 31, 2001, as compared to the
years ended December 31, 2000 and 1999, was principally due to the growing
adoption of the Java language in Europe and the Asia/Pacific region and the
decline in our Enterprise business in the U.S. due to the downturn in the U.S.
economy. We expect non-U.S. revenues to continue to be a significant percentage
of total net revenues in future periods. Fluctuations in foreign currency
exchange rates did not have a material impact on our total net revenues or
operating results for the years ended December 31, 2001, 2000 and 1999.
However, our non-U.S. revenues would be adversely affected if the U.S. dollar
were to strengthen against major foreign currencies including Japanese Yen,
United Kingdom Pound Sterling and the Euro.

   Licenses and other revenues represent amounts earned for granting customers
licenses to use our software products. Licenses and other revenues were $187.0
million, $163.7 million and $150.6 million for the years ended December 31,
2001, 2000 and 1999, respectively. Licenses and other revenues represented 84%,
86% and 86% of total revenues for the years ended December 31, 2001, 2000 and
1999, respectively. Licenses and other revenues from our Java, RAD, Enterprise
and other products group represented 41%, 31%, 23% and 5%, respectively, of
total licenses and other revenues for the year ended December 31, 2001. This is
compared to 31%, 33%, 28% and 8% for the year ended December 31, 2000. Our Java
product group consists of JBuilder, Borland Enterprise Studio for Java and
other JBuilder and Java development products, including JBuilder MobileSet. Our
RAD product group consists of Delphi, Kylix and C++Builder. Our Enterprise
product group consists of our Borland Enterprise Server family, including
AppServer Edition, VisiBroker Edition, Web Edition and Borland AppCenter. Our
other products group consists primarily of InterBase. Total license revenues
increased in the current year primarily due to an increase in sales of our Java
development products. During the year ended December 31, 2001, the sales from
our Java product group increased 51% when compared to the previous year,
primarily due to both growth in the market and a continuation of our leading
position. The increased revenues from this product group were partially offset
by a decrease in our Enterprise product group, which decreased approximately 7%
from the prior year, principally due to the impact of the economic conditions
in the United States that resulted in a decreased demand from our U.S.
customers. If economic conditions in the United States were to decline, we
would expect our revenues from the Enterprise group to be negatively affected.
Revenues from our RAD product group increased slightly from the previous year.

   Service revenues represent amounts earned for support, consulting and
education services for software products. Net service revenues were $34.7
million, $27.3 million and $24.3 million for the years ended

                                      33

<PAGE>

December 31, 2001, 2000 and 1999, representing 16%, 14% and 14% of total net
revenues for those years. Service revenues grew as a result of an increase in
technical support revenues, which were primarily related to our Enterprise
products. Technical support represented 65%, 58%, and 54% of total service
revenues for the years ended December 31, 2001, 2000, and 1999, respectively.
The growth in the technical support revenues was due to increased sales of our
enterprise-level support offerings, and we expect this trend to continue should
we have success selling into larger enterprises.

Gross Margins

   Gross margins were 84%, 83% and 76% for the years ended December 31, 2001,
2000 and 1999, respectively. Gross margins on license revenues were 93%, 93%
and 87% for the years ended December 31, 2001, 2000, and 1999, respectively.
The increase in gross margins on license revenues in 2001 and 2000 was
primarily due to an increase in enterprise-level sales which generally carry a
higher average selling price and lower direct materials cost. Gross margins
from service revenues were 35%, 27% and 7% for the years ended December 31,
2001, 2000 and 1999, respectively. This increase in gross margin from service
revenues from 2000 to 2001 was primarily due to a larger percentage of our
service revenue generated by our greater installed base of customers entering
into support contracts. The increase in gross margin from 1999 to 2000 was due
to elimination of under-utilized consultant headcount at the end of 1999 and as
well as the support contracts from a larger installed base of customers.

Research and Development Expenses

   Research and development expenses for the years ended December 31, 2001,
2000 and 1999, were $47.0 million, $42.5 million and $42.3 million,
respectively. Such expenses were 21%, 22% and 24% of revenues for the years
ended December 31, 2001, 2000 and 1999, respectively. While research and
development as a percentage of net revenues remained flat in the current year,
we released a number of new products and product upgrades, including Delphi 6,
JBuilder 5 and 6, JBuilder MobileSet, Borland AppCenter 4.1, Borland Enterprise
Studio for Java and Kylix 2. Additionally, we launched the TeamSource DSP
hosted development service. We expect total dollars spent on research and
development to increase during the year ending December 31, 2002, but to remain
consistent as a percentage of net revenue. We expect to use our research and
development resources to develop Java, Linux, Web Services and wireless market
applications.

Selling, General and Administrative Expenses

   Selling, general and administrative expenses were $121.0 million, $104.8
million and $123.5 million for the years ended December 31, 2001, 2000 and
1999, respectively. Such expenses were 55%, 55% and 71% of revenues for the
years ended December 31, 2001, 2000 and 1999, respectively. During the year
ended December 31, 2001, selling, general and administrative expenses increased
due to the continued expansion of our direct sales force and strategic
marketing organization. We expect the future expansion of our sales and
marketing organization to be dependent on our ability to generate future
meaningful revenue growth. To the extent our direct sales increase, we expect
our selling, general and administrative expenses to increase as a result of
variable compensation from our new sales incentive plans. General and
administrative expenses declined in 2001 as a percentage of SGA and operating
expenses when compared with 2000 and 1999.

Restructuring, Merger and Other Non-Recurring Charges

   During 2000, we reversed approximately $2.7 million in restructure and
severance reserves and $3.0 million in legal reserves established in prior
periods that were determined to be no longer necessary. The restructure and
severance reserves were reversed primarily because the individuals identified
in the restructure were not terminated. The legal reserve was reversed because
we did not incur the originally expected settlement costs associated with
several legal actions against us. This reversal was offset by expenses
associated with the proposed merger with Corel Corporation (which was
terminated in May 2000) of $3.6 million and restructuring charges of $1.5
million in connection with the termination of 30 employees.

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<PAGE>

   During December 1999, we recorded a restructuring charge of $34.8 million.
The restructuring charge consisted primarily of a write-down for the sale of
our Scotts Valley headquarters facility of $29.7 million, which was consummated
on March 17, 2000, a $3.1 million charge for discontinuation of our European
information system implementation and other miscellaneous restructuring related
charges of $3.1 million. In addition, we recorded a charge of $3.0 million for
severance costs associated with a reduction in force implemented during the
fourth quarter. Terminations represented approximately 5% of the total employee
workforce as of December 31, 1999. These charges were offset, in part, by the
reversal of restructuring charges totaling $4.1 million, that were recorded in
both the first quarter of 1999 and 1998, which were not utilized. The
restructure reserves were reversed primarily because the individuals identified
in the restructure were not terminated.

   In January 1999, we announced the restructuring of our corporate operations.
A restructuring charge of $7.0 million was recorded during the quarter ended
March 31, 1999, of which $6.7 million related to severance costs associated
with the elimination of duplicate workforce and $0.3 million related to
termination of certain lease agreements.

Cross-Patent and Technology License

   In June 1999, we entered into a technology cross-license agreement with
Microsoft. In connection with that cross-license, Microsoft paid us $100
million for the rights to use certain of our patented technology in Microsoft
products and in settlement of a number of long-standing patent and technology
licensing disputes.

Gain on Sale of Corporate Assets

   We held a minority common stock interest in Starfish Software. On September
23, 1998, Motorola, completed the acquisition of Starfish Software. 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 received or released from escrow, we recorded gains of
approximately $0.4 million, $0.7 million and $2.9 million during the years
ended December 31, 2001, 2000 and 1999, respectively.

   On March 17, 2000, we completed the sale of our headquarters facility at 100
Enterprise Way in Scotts Valley to Enterprise Way Associates, LLC as assignee
of the ScanlanKemperBard Companies. We received approximately $44.1 million in
consideration for the facility. Consideration in the transaction was net of
$2.5 million to cover costs to improve the facility and $0.4 million in other
disposal costs. We recorded a write-down of the facility of $29.7 million
during the quarter ended December 31, 1999. In conjunction with the sale of the
facility, we entered into a long-term lease arrangement to use approximately
44% of the facility for corporate purposes. On September 30, 2000, we entered
into an amendment to our lease with ScanlanKemperBard which decreased the space
leased by us to approximately 41% of the facility.

Interest Income, Net and Other

   Interest income, net and other for the year was $11.1 million, $14.1 million
and $6.2 million for the years ended December 31, 2001, 2000 and 1999,
respectively. The decline in interest income, net and other during 2001 when
compared with 2000 reflects a decrease in interest income of $3.2 million,
despite higher cash balances, due to a decline in prevailing interest rates.
Changes in interest rates will continue to impact our interest income
performance in future periods. The increase in interest income, net and other
in 2000 when compared with 1999 reflects an increase in interest income of $8.2
million, due to higher average cash balances and an increase in prevailing
interest rates.

Income Taxes

   On a consolidated basis, we generated a pre-tax profit of approximately
$28.9 million, $25.7 million and $31.4 million for the years ended December 31,
2001, 2000 and 1999, respectively. We recorded an income tax

                                      35

<PAGE>

provision of approximately $5.8 million, $5.0 million and $8.7 million for the
years ended December 31, 2001, 2000 and 1999, which equaled 20%, 19% and 28% of
our pre-tax profit. The decrease from 1999 to 2001 is principally related to
reduction in state taxes and utilization of net operating losses.

   Our effective tax rate is primarily dependent on the location of taxable
profits, if any, by us, due to our net operating loss carryforwards in certain,
but not all, jurisdictions, and the imposition of withholding taxes on revenue
regardless of our profitability. We currently expect our effective tax rate
will remain approximately 20% in 2002.

   Our income tax provision for the year ended December 31, 2001 differs from
the statutory tax rate principally due to our limited utilization of net
operating losses in the U.S., income taxes in certain non-U.S. jurisdictions
and withholding taxes on certain payments we receive from non-U.S. persons that
are imposed regardless of our profitability.

   For U.S. federal income tax purposes, we had net operating loss
carryforwards of approximately $193 million and U.S. federal income tax credit
carryforwards of approximately $23 million at December 31, 2001. These loss and
credit carryforwards expire between 2006 and 2021, if not utilized. We also
have Alternative Minimum Tax credit carryforwards for U.S. federal income tax
purposes of approximately $1 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. We
also have approximately $22 million of net operating loss carryforwards in
various foreign jurisdictions. Certain of these loss carryforwards will expire
beginning in 2002, if not utilized.

   Deferred tax assets and related valuation allowances of approximately $44
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.

Liquidity and Capital Resources

   Cash, cash equivalents and short-term investments were $294.4 million at
December 31, 2001, an increase of $31.8 million from a balance of $262.6
million as of December 31, 2000. Working capital increased to $258.6 million at
December 31, 2001 from $230.1 million at December 31, 2000.

   As of December 31, 2001, we have no long term debt, and we have other long
term liabilities of approximately $10.5 million, which consisted principally of
deferred tax liabilities and non-current restructuring accruals. At December
31, 2001, we had operating lease commitments of approximately $59.3 million.
These contractual lease payments will be paid over the following period
(amounts in thousands):

<TABLE>
<CAPTION>
                                                     Operating
                  Calendar year:                      Leases
                  --------------                     ---------
                  <S>                                <C>
                  2002..............................  $ 7,662
                  2003..............................    8,961
                  2004..............................    8,245
                  2005..............................    7,994
                  2006..............................    6,906
                  Thereafter........................   19,546
                                                      -------
                                                      $59,314
                                                      =======
</TABLE>

   Net cash provided by operating activities during the year ended December 31,
2001 was $35.2 million, which included $23.1 million in net income, $7.5
million in non-cash expenses such as depreciation and

                                      36

<PAGE>

amortization and $5.0 million in changes in working capital. Net cash paid for
severance and facilities costs associated with prior restructuring was
approximately $1.2 million.

   Net cash provided by investment activities during the year ended December
31, 2001 was $27.2 million. For the year ended December 31, 2001, we had net
sales of short-term investments of approximately $32.0 million offset by
acquisitions of $2.6 million in computers and equipment and $2.3 million in
leasehold improvements and other equipment.

   Cash provided by financing activities during the year ended December 31,
2001 was $3.7 million, consisting primarily of $16.1 million received for the
issuance of shares of our common stock offset by $8.8 million for the
re-payment of a mortgage note related to an office building in Scotts Valley,
California and $3.6 million for the repurchase of our common stock.

   Net cash provided by operating activities during the year ended December 31,
2000 was $25.7 million, which included $20.7 million in net income, $9.6
million in non-cash expenses such as depreciation and amortization offset by
$5.4 million in changes in working capital. Net cash paid for severance and
facilities costs associated with prior restructuring was approximately $3.1
million.

   Net cash used by investment activities during the year ended December 31,
2000 was $5.2 million, which was principally related to the cash received from
the sale of our Scotts Valley, California headquarters facility of $39.7
million offset by the net purchases of short-term investments of $40.2 million.
Proceeds from the sale of our Scotts Valley headquarters facility were net of
$3.7 million for a security deposit on the long-term lease, $2.5 million in
costs for improvements to the building and $1.1 million in tenant rental
prepayments and other closing costs. For the year ended December 31, 2000, we
invested approximately $2.8 million in equity investments and purchased $2.5
million in computers and equipment.

   Cash provided by financing activities during the year ended December 31,
2000 consisted primarily of $6.0 million for shares of our common stock issued
under our Employee Stock Option and Employee Stock Purchase Plans.

   Net cash provided by operating activities during the year ended December 31,
1999 was $82.4 million. Cash from operating activities primarily related to the
Microsoft patent cross license agreement signed in 1999 totaled $100 million.
Net cash paid for severance and facilities costs associated with prior
restructuring was approximately $5.7 million.

   Net cash used by investment activities during the year ended December 31,
1999 was $7.3 million, which was principally related to the acquisition of
property and equipment. Cash provided by financing activities of $35.9 million
in 1999 consisted primarily of the issuance of Series C preferred stock for
$25.0 million and the issuance of common stock in connection with the exercise
of employee stock options of $15.8 million. This was offset by the repurchase
of 1.0 million shares of common stock for $4.9 million.

   Currency fluctuations did not have a significant impact on our cash position
during the year ended December 31, 2001. Although we partially hedge our
foreign currency exchange rate risk, strengthening of the U.S. dollar against
the Euro, United Kingdom Pound Sterling, Australian and Singapore dollars and
Japanese Yen would harm our business. We cannot predict currency exchange rate
fluctuations and there can be no assurance that foreign currency exchange rates
will not have a material adverse impact on our future cash flows and operating
results. See further discussion of foreign currency risk in Item 7A.
"Quantitative and Qualitative Disclosures About Market Risk."

   In the past, we have invested significantly in our operations. For the next
year, we expect that operating expenses will decrease slightly as a percentage
of revenue. We anticipate that operating expenses and planned capital
expenditures will continue to constitute a material use of our cash resources.
We expect that our capital

                                      37

<PAGE>

expenditures in the next year to be greater than fiscal year 2001. In addition,
we may utilize cash resources to fund acquisitions or investments in other
businesses, technologies or products lines. We believe that our available cash
and cash equivalents will be sufficient to meet our working capital and
operating expense requirements for at least the next twelve months. At some
point in the future we may require additional funds to support our working
capital and operating expense requirements or for other purposes and may seek
to raise the additional funds through public or private debt or equity
financings. If we ever needed to seek additional financing, there is no
assurance that this additional financing will be available, or if available,
will be on reasonable terms and not dilutive to our stockholders.

Recent Accounting Pronouncements

   In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business
Combinations." SFAS 141 requires the purchase method of accounting for business
combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. We believe the adoption of SFAS 141 will not have
a significant impact on our financial statements.

   In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets," which is
effective for fiscal years beginning after March 15, 2001. SFAS 142 requires,
among other things, the discontinuance of goodwill amortization. In addition,
the standard includes provisions upon adoption for the reclassification of
certain existing recognized intangibles, reclassification of certain
intangibles out of previously reported goodwill and the testing for impairment
of existing goodwill and other intangibles. We believe the adoption of SFAS 142
will not have a significant impact on our financial statements.

   In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses
significant issues relating to the implementation of SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," and develops a single accounting method under which long-lived
assets that are to be disposed of by sale are measured at the lower of book
value or fair value less cost to sell. Additionally, SFAS No. 144 expands the
scope of discontinued operations to include all components of an entity with
operations that (1) can be distinguished from the rest of the entity and (2)
will be eliminated from the ongoing operations of the entity in a disposal
transaction. SFAS No. 144 is effective for financial statements issued for
fiscal years beginning after December 15, 2001 and its provisions are to be
applied prospectively. We are currently assessing the impact of SFAS No. 144 on
our financial position and results of operations.

   In November 2001, the FASB Emerging Issues Task Force (EITF) reached a
consensus on EITF Issue 01-09, Accounting for Consideration Given by a Vendor
to a Customer or a Reseller of the Vendor's Products, which is a codification
of EITF 00-14, 00-22 and 00-25. This issue presumes that consideration from a
vendor to a customer or reseller of the vendor's products to be a reduction of
the selling prices of the vendor's products and, therefore, should be
characterized as a reduction of revenue when recognized in the vendor's income
statement and could lead to negative revenue under certain circumstances.
Revenue reduction is required unless consideration relates to a separate
identifiable benefit and the benefit's fair value can be established. This
issue should be applied no later than in annual or interim financial statements
for periods beginning after December 15, 2001, which is our first quarter ended
March 31, 2002. Upon adoption we are required to reclassify all prior period
amounts to conform to the current period presentation. We have not yet
evaluated the effects of these changes on our consolidated financial statements.

FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK

   We operate in a rapidly changing environment that involves many risks, some
of which are beyond our control. The following is a discussion that highlights
some of these risks. Additional risks and uncertainties not

                                      38

<PAGE>

presently known to us or that we currently deem immaterial also may impair our
business operations or results. If any of these risks actually occur, our
business operations or results could be harmed.

Our success is dependent on the broad adoption of certain programming languages
and standards, particularly Java.

   Many of our most popular products are focused on Java, and we continue to
invest heavily in Java and Java standards, including enterprise-focused
standards such as Java 2 Platform, Enterprise Edition, or J2EE, and Enterprise
JavaBeans, or EJB, to enhance the performance and functionality of these
products. Java, however, is a relatively new language and was developed
primarily for the Internet and corporate Intranet applications. While we
believe that Java is making significant inroads with respect to its adoption
for enterprise applications, it is still too early to determine whether Java
will achieve widespread acceptance as a programming language and platform for
enterprise applications. For example, EJB and J2EE implementations have not yet
been widely adopted and in particular are only sparingly and partially used in
enterprise class processing environments, and our deployment and management
products are principally focused on these standards. Additionally, several of
the distinguishing features of JBuilder, our integrated development
environment, or IDE, for Java, are geared for J2EE and EJB development. If
Java, including EJB and J2EE, does not become widely adopted, our business
could be adversely impacted.

   In addition, our infrastructure products, including Borland Enterprise
Server, are based on Common Object Request Broker Architecture, or CORBA, in
addition to EJB and J2EE. CORBA is a standard from the Object Management Group
(OMG) for communicating between distributed objects (objects are self-contained
software modules). CORBA provides a way to execute programs (objects) written
in different programming languages running on different platforms no matter
where they reside in the network. While we believe that CORBA has achieved
widespread acceptance as a software-based communications interface through
which objects are located and accessed, critics contend that it is a highly
complex technology requiring significant investments to implement it, as well
as in training and support. If CORBA is displaced or its popularity diminished,
our business would be impacted.

If we are unable to maintain our license to Java technology, we may not be able
to license our Java products to third parties, which will harm our business.

   Our Java products require proprietary technology made available by Sun
Microsystems in order to operate. Pursuant to license agreements with Sun
Microsystems, we license the Java 2 Platform, Standard Edition specification,
the Java 2 Platform, Enterprise Edition specification and the Java 2 Platform,
Micro Edition specification. The principal agreement provides for a five-year
term and will terminate on December 28, 2005. While we would expect to renew
this agreement, Sun is not obligated to do so. Upon expiration of this license,
we will continue to have the right to distribute our software products
containing the version of Java technology incorporated at the time of
expiration. However, if the agreement is terminated by Sun due to material
breach of the terms of the license or upon an action for infringement of
intellectual property rights relating to the Java technology by us against Sun
Microsystems or any of its other licensees, we are required to return or
destroy all copies of the Java technology, including derivative works. If Sun
Microsystems fails to renew the license agreement or otherwise stops making
this proprietary technology available on commercially reasonable terms, and we
are unable to develop or otherwise identify effective alternatives to licensing
this technology, our business will be harmed. Alternatively, if Sun
Microsystems makes significant changes to the Java language or its proprietary
technology, or fails to correct defects and limitations in these products, our
ability to continue improving and shipping our products could be impaired.

We are relatively new to the software application infrastructure market, and
may not be able to successfully compete in that market.

   The software application infrastructure market is relatively new and
evolving. While we believe we maintain strong relationships with the
information technology, or IT, organizations in large enterprises through

                                      39

<PAGE>

our developer network, we do not have extensive experience in this market. For
example, we entered this market for the first time as the result of our
acquisition of Visigenic in 1997 and are now marketing comprehensive
implementation solutions to enterprises including development and
infrastructure products. There can be no assurance that the software
application infrastructure market will grow or that we will be able to compete
successfully in it. To compete successfully in the software application
infrastructure market we will need to:

  .   successfully select the operating platforms, database management systems
      and server software which ultimately achieve market acceptance;

  .   successfully and efficiently invest significant resources in direct
      sales, marketing and product development;

  .   compete with several very large and well-established companies with
      significant "mindshare," as well as a number of smaller successful
      companies, that are already competing in these markets;

  .   develop stronger relationships with systems integrators and other
      strategic partners with access to enterprise accounts and "C"-level
      decision-makers on software application infrastructure products; and

  .   coordinate the activities of our various product organizations to provide
      fully integrated products, including synchronizing release cycles.

We have a relatively new direct sales force and our limited experience in
managing them may impair our ability to expand sales and generate increased
revenue, particularly with regard to our application infrastructure products.

   We have been rapidly expanding our direct sales force and plan to hire
additional sales personnel. Because a significant percentage of our sales force
are relatively new to our company, there is a limited history on which to
evaluate their performance. There can be no assurance that our expanded sales
force will succeed in increasing or sustaining our revenue or improving our
competitive position or that our newly-hired employees will achieve desired
levels of productivity. In addition, while we have experienced sales management
personnel, our company has limited experience in managing a large,
geographically-dispersed sales force. For example, we may experience difficulty
in integrating the new members of our sales team into our operations. Our
failure to successfully manage our sales force may impair our ability to
increase sales and grow our revenue.

If our efforts to motivate and train our sales and technical personnel are
unsuccessful or are not cost-effective, our operating results would be harmed.

   We need to extensively train and motivate our sales personnel and invest
additional resources in our sales efforts as well as educate our authorized
resellers. Our software products and services require a sophisticated sales
effort, including efforts targeted at the senior management and information
technology departments of our prospective customers. In addition, we believe
our products, including both our development and application infrastructure
products, compare well against our competition's products on the basis of our
products' technical and performance benefits, increasing our particular need to
have well trained, technically savvy sales personnel in order to communicate
these advantages to prospective customers. We have made significant investments
in training our direct sales force and implemented new sales compensation
programs for 2002 in an effort to improve and motivate our sales force and
increase sales. There can be no assurance, however, that these programs will be
successful in achieving this result in the long term, and such changes and
additional investments could significantly increase our sales-related expenses
and impact operating results.

Our increasing focus on enterprise customers may increase fluctuations in our
financial results.

   As we increasingly seek to license software products directly to our
customers, particularly large enterprises, we have experienced sales cycles
that are substantially more lengthy and uncertain than those associated with
our traditional business of licensing software through indirect and retail
channels. We expect that

                                      40

<PAGE>

a significant percentage of our future revenue will be from enterprises,
including large global organizations. These transactions typically contain
multiple elements, including licenses for development and deployment products,
technical support, maintenance, consulting and training services. As a result,
these customers generally commit significant time and resources to evaluating
our software, and they require us to expend substantial time, effort and money
in establishing the enterprise relationship and in educating them about our
software products and solutions, which can sometimes result in lower operating
margins. Also, sales to these types of customers generally require an extensive
sales effort throughout the customer's organization and often require final
approval by the customer's Chief Information Officer or other senior or
"C"-level employee. In particular, while our strategy includes leveraging the
loyalty of our developer network to sell our software application
infrastructure products within their enterprises, we believe that purchase
decisions on software application infrastructure technology often involve more
senior level employees than sales of development products. All of these factors
substantially extend the sales cycle and increase the uncertainty of whether a
sale will be made in any particular quarter, or at all. We have experienced and
expect to continue to experience delays and uncertainty in the sales cycle as
well as increased up front expenses in connection with enterprise sales. The
timing of the execution of enterprise volume licenses, or their nonrenewal or
reregistration by large customers, could cause our results of operations to
vary significantly from quarter to quarter and could have a material adverse
impact on our results of operations.

Our international operations and sales could be harmed by factors outside our
control.

   A substantial portion of our revenue is from international sales.
International sales accounted for approximately 60% of our revenues in the year
ended December 31, 2001. Given our focus on international markets and the
market potential for our products in such markets, we anticipate increased
international sales going forward. However, there are inherent risks in doing
business internationally, including:

  .   the difficulty of staffing and managing an organization spread over
      various countries and continents;

  .   potentially reduced or less certain protection for intellectual property
      rights than is available under the laws of the United States;

  .   seasonal reductions in business activity during the summer months in
      Europe and other parts of the world;

  .   longer payment cycles in some countries and greater difficulty in
      collecting accounts receivable;

  .   fluctuations in foreign currency exchange rates;

  .   restrictions on the expatriation of currency from a particular country;

  .   export restrictions, tariffs, duties and other trade barriers;

  .   changes in regulatory requirements;

  .   compliance with various conflicting laws and regulations;

  .   overlap of different tax structures; and

  .   political or economic instability in certain parts of the world.

   One or more of these risk factors could have a material adverse effect on
our future international operations and sales and, consequently, on our
business, operating results and financial condition. In addition, our
subsidiaries generally operate in local currencies, and their results are
translated monthly into U.S. dollars. If the value of the U.S. dollar increases
significantly relative to foreign currencies, there could be a material adverse
effect on our business, operating results and financial condition.

Our business may suffer if international trade is hindered, disrupted, or
economically disadvantaged.

   Political and economic conditions abroad may adversely affect international
sales of our products. Protectionist trade legislation in either the United
States or foreign countries, such as a change in the current

                                      41

<PAGE>

tariff structures, export or import compliance laws, or other trade policies,
could adversely affect our ability to sell our software products and services
in foreign markets. Changes in policies by the U.S. or foreign governments
resulting in, among other things, higher taxation, currency conversion
limitations, restrictions on the transfer of funds or the expropriation of
private enterprises also could have a material adverse effect on us. Any
actions by countries in which we conduct business to reverse policies that
encourage foreign investment or foreign trade also could adversely affect our
operating results.

The success of our Linux-based products is dependent upon increased future
adoption of Linux.

   We are investing time and resources in developing products, such as Kylix,
for the Linux operating system. Linux is a relatively new operating system that
runs on a variety of hardware platforms. Linux has yet to be adopted on a
widespread basis, though major hardware vendors like IBM and Sun Microsystems
are supporting it. If Linux is not adopted, or is adopted more slowly than we
anticipate, our investments in Linux compatible products may not generate their
anticipated return.

The success of our Web Services enabled products is dependent upon the adoption
of Web Services.

   We have recently enhanced our existing products with Web Services
capabilities, including providing for the development of Web Services-enabled
components and the integration of Web Services-enabled components. We believe
that the popularity of using and making available Web Services for software
development could be substantial. However, the Web Services-based development
market is young and only now emerging, and we cannot predict whether this
market will develop as we anticipate. If the market does not develop as we
anticipate, our growth may not be as strong as we expect. In particular, we are
anticipating a significant market opportunity to bridge the Microsoft .NET and
Java platforms through Web Services. If the Web Services market does not
develop as we anticipate or if one of these platforms achieves significantly
greater market acceptance than the other, the opportunity to bridge the two
platforms through Web Services may not be as significant as we expect and we
will not be able to benefit from this opportunity through our development and
deployment products. Alternatively, if we are unable to enhance our products to
remain current with technological advances in the respective platforms, we will
not be in a position to capitalize on this cross-platform Web Services
opportunity.

We may not be able to successfully compete against current and potential
competitors.

   Our markets are intensely competitive. Rapid change, new and emerging
technologies and fierce competition characterize these markets. The pace of
change has accelerated due to the emergence of the Internet, and related
programming platforms and languages, including Sun Microsystem's Java and
Microsoft's .NET and C#, as well as new operating systems such as Linux.

   With respect to our JBuilder product, we compete primarily with the Java
IDEs offered by IBM, Sun Microsystems and WebGain. With respect to our
integrated Java performance assurance tools such as Optimizeit, we compete with
Rational Software and Sitraka. With respect to our Delphi and C++Builder
products, we compete primarily with Microsoft. With respect to our TeamSource
DSP service, our potential competitors may include Merant, Microsoft, Oracle
and Rational Software. With respect to our Borland Enterprise Server, AppServer
Edition, we compete primarily with BEA and IBM. With respect to our Borland
Enterprise Server, VisiBroker Edition and our VisiBroker middleware product, we
compete primarily with Iona. With respect to Borland Enterprise Server, Web
Edition, we compete primarily with Microsoft. At this time we have no
significant competitors to our Borland AppCenter and Kylix products. In the
markets for our development products, we also compete with platform vendors
such as Microsoft, Sun Microsystems, Hewlett-Packard, IBM, Red Hat and Apple
Computer.

   We differentiate our products from our competitors' products based on
scalability, functionality, interoperability, cost of ownership, performance
and reliability as well as their effectiveness in addressing our customers'
needs. There can be no assurance that we will be able to successfully
differentiate our products from

                                      42

<PAGE>

those of our competitors in the future or be able to continue to enhance our
product lines to meet the needs of our customers. In addition, many of our
competitors have substantially greater financial, management, marketing and
technical resources than we have. Many of our competitors have well established
relationships with our current and potential customers, extensive knowledge of
the market and extensive product development, sales and marketing resources.
These competitors may be more successful than us at developing and marketing
products in our markets.

   Because there are relatively low barriers to entry in a number of our
markets, we also can expect additional new competition from other established
and emerging companies. Increased competition in our markets, including from
companies with substantial resources, could result in price reductions, fewer
customer orders, reduced gross margins and loss of market share. Any one of
these results could adversely affect our business. For example, given the
growth and adoption of Java, we are already observing increased attention on
the market for Java development technologies, and expect additional new
entrants. Certain vendors, for example, which have heretofore not focused
significant resources on the Java development market, have altered their
product strategies to incorporate Java development offerings. Similarly, the
market for development technologies to enable Web Services is receiving
increased attention as well. Because we are dependent on the market for Java
development for a substantial portion of our revenue, going forward, increased
competition in this market could damage our competitive position and
significantly affect our operating results.

Bundling arrangements or product give-aways by our competitors, including
freely available development technologies, may diminish demand for our products
or pressure us to reduce our prices.

   Certain of our competitors, such as those that are primarily hardware
vendors or platform providers, generate a substantially greater proportion of
their sales in markets in which we do not directly compete. In addition, we
believe a number of such competitors view sales of products such as development
technologies as important for enhancing the functionality of their core
products, as well as the demand for such products. As a result, certain such
companies may offer products that compete with our offerings bundled with their
other products, such as application servers, work stations, personal computers,
operating systems and databases. In such event, the effective price for
products that compete with our products may be heavily discounted or offered at
no charge. Such competitive pressures could require us to reduce the price of
our products and related services and adversely affect our operating results.
Similarly, certain industry alliances and arrangements exist or may be formed
in the future under which companies in markets in which we do not compete ally
with companies in our markets to bundle products in order to help increase
respective market shares. Such arrangements may result in lower effective
prices for products that compete with our offerings than our own prices,
putting pressure on us and diminishing our competitive position.

   In addition to bundled offerings and bundling arrangements, certain
competitors make available or have begun making available for no charge to
their customers products that compete with our products, including our
development technologies such as JBuilder. While we believe that products made
available at minimal or no cost are not able to compete with our offerings on
the basis of quality, performance, reliability and cost of ownership, among
other things, freely available competitive technologies are a risk to our
business. At a minimum, technologies offered at no charge increase pricing
pressure and threaten to impact our results. IBM's open source Eclipse
initiative, for example, is an example of a model under which products that are
competitive with our offerings may eventually become available at minimal or no
cost. IBM Eclipse is attempting to create an open source toolkit in which
customers can access and create development technologies at no charge. If this
type of model is widely adopted, our business will be harmed.

If we are unable to meet rapid changes in technology and introduce competitive
products, our existing products could become technologically obsolete.

   The market for our products is highly competitive and is characterized by
continuous technological advancement, evolving industry standards and changing
customer requirements. While we believe that to date we

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have successfully developed products that incorporate the latest technologies
and standards, we cannot be certain that we will successfully design and market
new products and upgrades of our current products that are competitive and work
with existing and new computer platforms and operating environments.

   Additionally, we face a number of competitive risks in the software market,
including, but not limited to, the following:

  .   we may introduce products later than we expect or later than competitors'
      introductions;

  .   competitors may introduce competing products at lower prices or
      potentially at no cost;

  .   our products may not meet customers' expectations regarding features and
      performance;

  .   competitors' products based on new technologies or new industry standards
      may quickly render our existing products obsolete;

  .   the free availability of certain core new technologies may lower barriers
      to entry and minimize our competitive advantages on the basis of price
      and performance; and

  .   in order to match actions by competitors, we may need to provide product
      upgrades at lower prices which may result in lower margins and decreased
      operating results.

   We may not successfully address these risks. If we do not successfully
address these risks, our business and operating results could be seriously
harmed.

Our strategic relationships and partnerships may not achieve their objectives,
and the failure to do so could impede our growth.

   We currently maintain a number of important strategic alliances and
technology partnerships with industry leaders such as Microsoft, Sun
Microsystems and Nokia. Our current technology partners give us, among other
things, early access to emerging technologies, additional resources to market
our products, as well as an entry point to meet potential customers. Our
relationships with systems integrators and resellers also provide additional
expertise to our customers and bolster our service capabilities, among other
things. In the future, we anticipate exploring additional strategic alliances,
technology partnerships and other arrangements designed to further all of these
goals. Our current or prospective strategic alliances and technology
partnerships may not achieve their intended objectives however, and parties to
our strategic alliances and technology partnerships may not perform as
contemplated. Additionally, our partners may choose to terminate their
arrangements with us in situations where no binding contractual arrangements
exist. Under our relationships with Nokia and SAP, for instance, these
companies are currently recommending JBuilder as their preferred IDE for Java
development to their customers and/or vendors of ancillary products. These
arrangements are not binding however, and either company may choose not to
recommend JBuilder at some future date or to recommend a competitor's products.
The failure to develop or maintain our strategic alliances and technology
partnerships, or our partners' inability to perform or decision not to perform
or to opt out of their arrangements with us, may impede our ability to
introduce new products or enter new markets. As a result, our operating results
could be materially affected.

If the wireless and mobile application market does not develop as anticipated
or if our products for the wireless or mobile market are not widely accepted,
our growth may be negatively impacted.

   We have recently introduced new Java-based products targeted for development
applications for mobile and wireless devices, including our JBuilder MobileSet.
We have also entered into strategic relationships or technology partnerships
with wireless device manufacturers, including Nokia, in order to enhance our
position in this market. If the market for mobile and wireless applications
does not develop as we anticipate or as quickly as we anticipate, the demand
for our wireless products will be adversely impacted. The failure of the
wireless market to develop as we expect, or our failure to penetrate this
market, will impede our anticipated sales growth and could result in
substantially reduced earnings from those we anticipate.

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   The growth in the market for mobile and wireless applications will depend on
a number of factors, any of which may impact our ability to derive substantial
revenue from this market in the future. These factors include:

  .   rate of adoption of mobile devices by enterprises and consumers,
      including personal digital assistants, handheld computers, smart phones,
      pagers and other mobile devices;

  .   rate of adoption of wireless applications and services available on such
      devices by enterprises and consumers;

  .   aggressive and successful marketing of wireless applications and services
      by a limited number of communication service providers, including pricing;

  .   the rate of build out of and upgrades to existing wireless networks,
      including: availability of rights to cell and switch sites as well as
      zoning variances and other approvals for network construction; completion
      of cell site design, frequency planning and network optimization;
      completion of fixed network implementation; expansion of customer care,
      network management and billing systems; and vendor equipment availability;

  .   availability of additional spectrum capacity to enable service providers
      to expand existing wireless data services and develop third generation
      services; and

  .   health issues, including as they relate to radio frequency emissions or
      the use of devices while driving automobiles, and potential state law
      restrictions and/or litigation in conjunction therewith.

   In addition to the development and growth of the market itself, our ability
to generate significant revenue in the wireless application implementation
market will depend on our ability to adapt to the rapid technological shifts in
this market to keep our products viable and competitive. Technological factors
that may impact our ability to generate substantial revenue in the wireless
market include:

  .   failure of Java to gain in popularity as a programming platform for
      wireless and mobile application development;

  .   emergence of a dominant programming language or platform or operating
      system for mobile and wireless devices and our corresponding ability to
      develop technologies that facilitate software development and deployment
      for such technologies;

  .   failure of a dominant platform or operating system to emerge and our
      corresponding ability to develop technologies that facilitate software
      development and deployment across the range of such technologies or a
      significant subset thereof;

  .   increasing proliferation of mobile or wireless devices with varying
      technical specifications and form factors, and our corresponding ability
      to develop products capable of facilitating development and deployment to
      the range of devices with varying such requirements;

  .   evolving standards and other technological changes; and

  .   pace of overall technological change in the mobile and wireless markets.

   If the wireless and mobile market does not develop as we anticipate or if we
are unable to respond to technological shifts in the market, our anticipated
sales and operating results could be adversely impacted. In addition, even if
the wireless market does develop and we have competitive products, our failure
to market and sell these products to our customers will impact our anticipated
sales and operating results.

Because competition for qualified personnel is intense, we may not be able to
recruit or retain qualified personnel, which could negatively impact the
development and license of our products.

   We believe that our ability to successfully grow and manage our business and
to develop new products will depend, in large part, on our ability to recruit
and retain qualified employees, particularly highly skilled software engineers
and management personnel. Over the last few years, we have increased
compensation, bonuses, stock

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<PAGE>

options and other fringe benefits in order to attract and retain key personnel.
In the past, some of our competitors have utilized their greater resources to
provide substantial signing bonuses and other inducements to lure key personnel
away from us. As a result, we may be required to further increase compensation
and benefits. We are not certain that these efforts will succeed in retaining
our key employees, and our failure to attract and retain key personnel could
significantly harm our business. Even if we succeed in attracting and retaining
key personnel, these increased compensation costs may not be offset through
either improved productivity or higher revenue.

   Furthermore, we do not maintain key person insurance on any of our employees
or management team members, including Dale L. Fuller, our President and Chief
Executive Officer. If we lose one or more of the members of our management
team, including Mr. Fuller or other key employees, we will not receive
insurance or other proceeds to help offset the loss to us of unique skills and
talents or the potentially high cost of replacement personnel, and our business
and operating results could be seriously harmed.

If our products do not operate with the wide variety of hardware, software and
operating platforms, environments and programming languages used by our
customers, our revenues would be harmed.

   Our customers use a wide variety of constantly changing hardware, software
and operating platforms. We invest and will continue to invest a significant
amount to develop products for new or emerging software and hardware platforms
in the server, desktop, personal digital assistant, mobile, wireless and other
environments that may develop from time to time. However, there is a risk that
a new hardware or software platform that we do not provide products for could
rapidly grow in popularity. In particular, we believe that this risk is
substantial with regard to particular proprietary platforms and languages for
which we may not be given preferential access or access at all. As a result, we
may not be in position to develop products for such platforms or may be late in
doing so. If we fail to introduce new products that address the needs of
emerging market segments, or if our new products do not achieve market
acceptance, including because they are late in development, our future growth
and profitability could suffer. In addition, we may incur significant
expenditures to develop products for emerging platforms that do not ultimately
become large or profitable market segments.

   For example, Microsoft has recently introduced a new operating environment
for Web-based applications called Microsoft .NET. While we are releasing
development products that support the .NET environment, our business would be
harmed if we are unable to develop an effective development product for the
..NET environment that addresses the needs of our customers, or if our
competitors, particularly Microsoft, do so more effectively than we do.
Similarly, if certain emerging programming languages, such as Microsoft's C#,
gain significantly in popularity and we do not offer a development technology
to facilitate development in such languages, our competitiveness could be
diminished and our results adversely impacted. An alternative to Java, C# is an
object-oriented programming language that was recently introduced by Microsoft
and is based on C++. We believe that C# is gaining in market acceptance. We do
not, however, currently offer a development product for the C# programming
language. In addition, it is possible that certain platforms may emerge for
which Java implementations are not possible or feasible on a cost-effective
basis. Because we are focused on Java products, we could lose customers if this
happens.

Our research and development efforts may be costly and may not produce
successful new products and product upgrades.

   Our future success will depend upon our ability to enhance our current
products and develop and introduce new products on a timely basis, particularly
if new technology or new industry standards render any existing products
obsolete. We believe that we will need to incur significant research and
development expenditures to remain competitive, particularly since many of our
competitors have substantially greater resources. The products that we are
currently developing or may develop in the future may not be technologically
successful or may not be accepted in our market. In addition, the length of our
product development cycle may be greater than we expect. If the resulting
products are not introduced in a timely manner, or do not compete effectively
with products of our competitors, our business will be harmed.

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Delays in the introduction of new products may cause us to lose customers to
our competitors or harm our reputation.

   From time to time, we announce when we expect to introduce a new product. We
also attempt to maintain a consistent release schedule for upgrades of existing
products. In the past, some of our products have shipped later, sometimes
substantially later, than when we originally expected. The loss of key
employees may increase the risk of these delays. Some of our products are based
on technology licensed from third parties. We have limited control over when
and whether these technologies are upgraded. The failure to receive adequate
notice of, the delay in release of, or the inadequacy of enhancements to
technology licensed from third parties could have a material adverse effect on
our ability to develop and enhance our products. Due to these uncertainties
inherent in software development, it is likely that these risks will
materialize from time to time in the future. We could lose customers as a
result of substantial delays in the shipment of new products or product
upgrades.

We depend on technologies licensed to us by third parties, particularly that of
Sun Microsystems and Microsoft, and the loss or inability to maintain these
licenses could prevent or delay sales or shipments of certain of our products.

   We are dependent on licenses from third-party suppliers for some elements of
our products such as various file libraries. In particular, we are dependent on
technology licenses from Sun Microsystems with respect to our Java products and
we are dependent on licenses from Microsoft with respect to our Delphi and
C++Builder products. If any of these licenses were terminated or were not
renewed, or if these third parties failed to develop new technology products or
failed to notify us in a timely manner of any new or updated technology, we
might not be able to ship such products. We would then have to seek an
alternative to the third party's technology and, in some cases, it is possible
that an alternative may not exist. This could result in delays in releasing
and/or shipping our products, increased costs or reduced functionality of our
products and could have a material and adverse effect on our business,
operating results and financial condition.

Open source technologies both lower barriers to entry in our markets and have
the potential to harm our ability to sell our products and services on
profitable terms.

   The free availability of technology, such as Linux, may allow competitors to
enter our markets more easily and at lower cost. For example, our ability to
enhance our development technologies is based on access to technologies we
obtain through costly licenses with Sun Microsystems and Microsoft, among
others, providing a potential barrier to entry in our markets. If key
technologies are made freely available, the advantages we derive from our
industry relationships and financial position could be diminished. In turn, our
competitive position, our revenues and growth could be negatively impacted.

   In addition, some of our competitors are offering to license software for
free or effectively offering competing software for free as part of a bundled
solution to gain competitive advantage. If broadly and successfully adopted,
this type of competition, particularly open and free access to development
technologies, could materially adversely affect our ability to sell additional
licenses and maintenance and support renewals on profitable terms.

The relative immaturity of Java could negatively impact our growth and
operating results

   Because Java is, in part, a relatively new programming language and still
evolving in functionality, we believe that the demand for development
technologies, particularly for upgrades that facilitate the tailoring of
applications to the latest Java standards, is currently strong. However, should
Java and Java standards stop evolving, the need for new, upgraded development
technologies may weaken and our ability to sell upgrades of our Java
development technologies may be impacted. Since our operating results are
dependent, in part, on selling upgrades to our existing customer base, our
operating results would be adversely affected. In addition, in the event that
Java matures to the point where vendors are able to have success selling
broadly applicable

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<PAGE>

packaged Java software without fear of obsolescence, the need for extensive
in-house Java development could be curtailed. If in-house development is
curtailed, the need for our development technologies will be impacted and our
operating results would be adversely affected.

Our historical financial information relating to a number of our development
technologies is based on sales of development applications for legacy languages
and traditional hardware platforms, and as such may not be indicative of our
future performance in developing and marketing software for emerging languages
and emerging hardware platforms.

   Our historical financial information relating to a number of our development
technologies is based on sales of software designed to develop applications for
legacy platforms (e.g., Windows and C++) as well as traditional computer
hardware platforms (e.g., mainframes, work stations, applications servers,
desktop personal computers, notebook computers, etc.). While we continue to
enhance the functionality of these products and expect sales of these
technologies to continue to generate a significant percentage of our revenue,
we expect to derive an increasing percentage of our revenue from sales of our
development technologies for emerging platforms such as Java and .NET, as well
as emerging hardware platforms such as wireless and mobile computing devices
and personal digital assistants, or PDA, devices. Relative to our traditional
business, we do not have a lengthy operating history in these markets upon
which to evaluate our prospects, which may make it difficult to predict our
actual results in future periods. Accordingly, actual results of our future
operations may differ materially from our anticipated results.

The customers for our application infrastructure products are, and we expect
our customers will continue to be, highly concentrated in a small number of
vertical markets, so a continued downturn in these markets would significantly
harm our revenues.

   A large portion of our revenue with respect to our application
infrastructure products is derived from customers in a small number of vertical
markets such as the technology, telecommunications and financial markets. While
we believe that customers in these markets are attracted to the performance
advantages of our products, continuation or deepening of the current downturn
in any of these markets could have a significant impact on our revenues with
respect to our application infrastructure products. Our infrastructure business
was adversely affected in 2001 by the downturn in these markets. Our failure to
broaden our base of customers outside these vertical markets would reduce our
future revenues with respect to our application infrastructure products if an
extended downturn occurs in our targeted vertical markets.

If we cannot increase market awareness of our products and services our
business could be harmed.

   We continue to expand our marketing operations to increase market awareness
of our products and services, market our products and services to a greater
number of customers and generate increased revenue. Our products and services
increasingly require strong marketing efforts to address the various
departments of an enterprise, as well as the developer community at large, and
our inability to effectively market our products could impede our ability to
compete effectively.

The number of factors that affect our revenues makes our future results for a
particular period difficult to predict and therefore we may not meet
expectations for a particular period.

   We believe that our revenues have the potential to vary significantly from
time to time. These fluctuations could cause our stock price to fluctuate
significantly. We believe that these variations may result from many factors
including:

  .   timing, and any delay in the introduction, of upgrades to existing
      products or new products;

  .   the mix of channels through which we sell our products;

  .   the relative mix of demand for our various products and services;

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  .   the size and timing of significant orders and their fulfillment;

  .   the number, timing and significance of product upgrades and new product
      announcements by us and our competitors;

  .   changes in pricing policies by us or our competitors;

  .   customer order deferrals in anticipation of upgrades or new products
      offered by us or our competitors;

  .   product release cycles for our products and those of our competitors;

  .   product defects that may be discovered from time to time and other
      product quality problems;

  .   general domestic and international economic and political conditions; and

  .   information technology budgets and overall capital expenditure budgets of
      our customers and prospective customers.

   A significant portion of our customers place orders toward the end of a
given quarter. Revenue may also fluctuate based on our customers' fiscal year
budgeting cycles. Therefore, revenues may be difficult to predict, and any
revenue shortfall for a quarterly period may not be known until late in the
quarter. Additionally, our costs are based on projected revenues and are
relatively fixed in the short term. Therefore, if our revenue levels fall below
projections, net income may be significantly reduced, and, accordingly, we may
experience a loss. As a result, we believe that quarterly revenues and
operating results will continue to be difficult to forecast and
period-to-period comparisons of our results of operations are not necessarily
meaningful and should not be relied upon as indications of trends or our future
performance.

We depend on a small number of distributors like Ingram Micro for a significant
portion of our revenue; if we lose one or any of our major distributors our
revenue could suffer.

   Ingram Micro, one of our major distributors, accounted for approximately 13%
of our total revenue during the year ended December 31, 2001 and 12% of total
revenue during the year ended December 31, 2000. We expect that Ingram Micro
will continue to be a significant customer and a small number of distributors
will continue to account for a significant portion of our revenue for the
foreseeable future. Our inability to increase the number of our distributors or
the loss of any one major distributor like Ingram Micro could limit our ability
to maintain or increase our market share, or could cause our revenue to drop
quickly and unexpectedly.

Because we rely on independent software vendors, value-added resellers, system
integrators and other channel partners to compliment our direct sales, if we
cease doing business with one or more of these parties, our revenue could
suffer.

   We rely on independent software vendors, value-added resellers, systems
integrators and other channel partners to compliment our direct sales. A part
of our strategy is also to bundle our software in the products offered by
value-added resellers, or VARs, or independent software vendors, or ISVs. The
pricing, terms and conditions of our agreements with these partners are
individually negotiated and vary among partners. These agreements are
non-exclusive. Many of our agreements do not require our customers to make a
minimum number of purchases. We have virtually no control over the shipping
dates or volumes of systems shipped by our customers. Although we believe our
relationships with our channel partners have been successful to date, we cannot
guarantee that these relationships will continue to be successful or to grow or
that the channel partners will continue to purchase our products in the future.
If we do not continue to get referrals from third parties or if we are unable
to secure license agreements with these parties on profitable terms, our
business may suffer.

We are dependent upon certain retail distribution channels.

   A significant portion of our sales is made through retail distribution
channels, which is subject to events that cause unpredictability in customer
demand. Our retail distributors also carry the products of our competitors.

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Some of our retail distributors have limited shelf space and limited capital to
invest in inventory. Their decision to purchase our products is based on a
combination of demand for our products, our pricing, the terms and special
promotions we offer and other factors that we do not control and cannot
predict. Our agreements with retail distributors are generally nonexclusive and
may be terminated by them or us without cause. Accordingly, there can be no
assurance that our distributors will continue to carry our products.

Failure to expand or grow our professional services offerings and enlist others
to provide services for our products could harm our business and results of
operations.

   We believe that growth in our product sales and license revenue will depend
on our ability to provide our customers with comprehensive professional
services and to enlist other parties to provide similar services, including
independent software vendors, systems integrators, distributors and other
channel partners. These professional services include maintenance,
architectural consulting, training, education and project management. If we
fail to attract, train and retain skilled personnel to deliver professional
services, our business and operating results could be seriously harmed. We plan
to increase the number of our professional services personnel to meet these
needs. However, competition for qualified professional services personnel is
intense, and we may be unable to attract, train and retain the number of highly
qualified professional services personnel that we need.

   As part of our growth strategy, we have also embarked on an effort to
utilize our professional services more aggressively, including using them as a
means to market our products or to obtain feedback which we can then
incorporate into our product plans. A decline in the price of or demand for our
professional services offerings may harm our business and operating results and
negatively impact our growth strategy.

Consolidation in our industry may impede our ability to compete effectively.

   Consolidation continues to occur among companies that compete in our markets
as firms seek to offer more extensive suites of software products and broader
arrays of software solutions and take advantage of efficiencies and economies
of scale. Additionally, a number of major hardware companies have sought to
expand their software and services offerings through acquisitions. Changes
resulting from this consolidation may negatively impact our competitive
condition, particularly as certain products, when offered as part of a bundled
suite, are offered for free or are given away to sell more hardware components.
In addition, as we seek to expand our product lines, skills and capacity
through acquisitions, a trend toward consolidation may result in our
encountering increased competition for attractive targets, and having to pay
higher prices for those targets.

We may not be able to successfully complete business combinations or integrate
combined businesses into our existing business.

   As a part of our business strategy, we may make acquisitions of businesses,
products or technologies in the future. However, there may not be suitable
businesses, products or technologies available for acquisition on terms
acceptable to us. There may be substantial costs associated with acquisitions
including the potential dilution to our earnings per share, the incurrence or
assumption of debt, the assumption of contingent liabilities, the amortization
of expenses related to intangible assets and the legal and other fees
associated with the negotiation and consummation of the acquisition.
Acquisitions entail numerous risks, including the difficulty in the integration
of operations, technologies, products and personnel, as well as difficulties
and uncertainties in our ability to maintain key business relationships that
the business entities have established. Acquisitions also divert the attention
of management from other business concerns. We may make acquisitions in new
markets where we have limited or no prior experience. Further, there is no
guarantee that any acquisition we complete will result in earnings accretion,
cost efficiencies or synergies. We may expend resources to acquire products and
technologies that we are not ultimately able to commercialize. Furthermore,
acquired businesses may bring with them unanticipated or undisclosed
liabilities and risks. Any one of these risks, if realized, could negatively
affect our business, financial condition and operating results.

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If our encryption technology does not satisfy our potential customers' needs
for the confidential transfer of information, sales of certain of our
application infrastructure products could suffer.

   We use and will continue to use encryption technology licensed by third
parties in some of our products, such as in Borland Enterprise Server,
VisiBroker Edition, to provide security for the exchange of our customers'
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 our security technology. If such a breach were to occur, it could have a
material adverse effect on our reputation and sales of our application
infrastructure products.

If the license of our products that contain encryption technology is delayed by
export regulations, revenues from licensing our application infrastructure
products in foreign markets could be harmed.

   There are numerous regulations regarding the export of encryption technology
from the United States. In the past, some of our sales have been delayed while
we have awaited regulatory clearance to export our encryption technology,
especially to countries outside the European Union. Similar delays in the
future would negatively impact our revenues.

Our products may contain unknown defects that could result in a loss of
revenues, decreased market acceptance, injury to our reputation and product
liability claims.

   Software products occasionally contain errors or defects, especially when
they are first introduced or when new versions are released. We have not
experienced any substantial problems to date from potential defects and errors,
but we cannot assure you that our products are or in the future will be
completely free of defects and errors. Errors in our software may be caused by
defects in third-party software incorporated into our software. If so, we may
be unable to fix these defects without the cooperation of these software
providers. Because these defects may not be as significant to our software
providers as they are to us, we may not receive the full and timely cooperation
that we may require. In addition, we may not have the contractual right to
access the source code of third-party software and, even if we access the
source code, we may be unable to detect and fix the defect. The discovery of a
defect or error in a new version or product may result in the following
consequences, among others:

  .   delayed shipping of the product;

  .   immediate loss of revenue;

  .   delay in market acceptance;

  .   diversion of development resources;

  .   damage to our reputation; and

  .   increased service and warranty costs.

   These consequences could materially and adversely affect our business,
operating results and financial condition.

   Our products also interoperate with many components of complicated computer
system implementations, such as mainframes, application servers, personal
computers, application software, databases, operating systems and data
transformation software. Failure of any one of these components could cause all
or large portions of computer systems to fail. In such circumstances, it may be
difficult to determine which software or hardware component failed, and it is
likely that customers would bring a lawsuit against several companies,
including us. Regardless of its merits, responding to any claim can be time
consuming and costly and divert the efforts of our technical and management
personnel. In addition, we may not have insurance coverage for these types of
claims or our insurance coverage for these types of claims may not be adequate.

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   Many of our license agreements contain provisions designed to limit our
liability for potential product liability claims. It is possible, however, that
these provisions may not protect us because of existing or future federal,
state, local or foreign laws or ordinances or judicial decisions. A successful
product liability claim for large damages brought against us could have a
material adverse effect on our business, operating results and financial
condition.

Intentional efforts to harm or disrupt the functioning of our software or web
site could harm our reputation and result in significant unexpected costs.

   Our products or services may be the target of intentional disruptions, such
as software viruses specifically designed to impede the performance of our
products. Similarly, experienced computer programmers or hackers may attempt to
penetrate our network security or the security of our web site and
misappropriate proprietary information or cause interruptions to the delivery
of our services or products. Our activities could be substantially disrupted,
and our reputation and future sales could be harmed if these efforts were
successful.

If we fail to effectively manage our growth, our infrastructure, management and
resources could be strained, our ability to effectively manage our business
could be diminished and our operating results could suffer.

   Our future success is dependent on growing our company. The failure to
manage our growth effectively could strain our resources, which would impede
our ability to increase revenues. During the past two years, we have increased
the number of product releases we make each year and have introduced a number
of new products and services. We plan to continue to expand further the number
and diversity of our software solutions and their use in the future. Our
ability to manage our planned growth effectively will require us to:

  .   successfully hire, train, retain and motivate additional employees;

  .   enhance our operational, financial and management systems; and

  .   expand our research and development capacity.

   As we expand and diversify our product and customer base, we may be required
to increase our selling, general and administrative expenses. We also may be
required to increase staffing and other expenditures in order to meet the
anticipated demands of our customers. Our customers, however, do not commit to
license our software for more than a short time in advance. Any increase in
expenses in anticipation of future orders that do not materialize would
adversely affect our profitability. If we cannot manage our growth effectively,
our business and results of operations could be negatively impacted.

The price of our common stock could fluctuate significantly.

   Like the publicly-traded securities of other high technology companies, the
market price of our common stock has experienced significant fluctuations and
may continue to fluctuate significantly. During the period from January 1, 2001
to December 31, 2001, the price of our common stock has ranged from a low of
$5.41 on January 3, 2001 to a high of $17.49 on December 10, 2001. On March 27,
2002, the most recent practicable date prior to the filing of this Form 10-K,
the closing price of a share of our common stock on The Nasdaq Stock Market was
$12.55. From time to time, the market price of our common stock may be
significantly affected by a number of factors, including, but not limited to,
the following:

  .   announcements of new products or product upgrades by us or our
      competitors;

  .   technological innovation by us or our competitors;

  .   quarterly variations in our results of operations or those of our
      competitors;

  .   changes in the prices of our products or those of our competitors;

  .   changes in actual or projected revenue and revenue growth rates for us as
      a whole or for specific geographic areas, business units, products or
      product categories;

                                      52

<PAGE>

  .   changes in the price-to-earnings, price-to-sales and other multiples used
      to value companies in the software industry;

  .   changes in revenue, earnings or other estimates by research analysts who
      cover our stock;

  .   actual or anticipated changes in information technology spending;

  .   a decision by a respected research analyst to initiate or drop coverage
      on our stock or upgrade or downgrade our stock;

  .   speculation by the press, product analysts or research analysts about us
      and our products, revenues and/or earnings including the growth rate of
      each;

  .   the relatively low trading volume in our stock;

  .   stock sales from time to time by our executive officers and members of
      our board of directors;

  .   actual or anticipated changes in interest rates; and

  .   general market conditions or market conditions specific to the software
      industry.

   The stock prices for many companies in the technology sector have
experienced wide fluctuations which, at times, have been unrelated to the
operating performance of such companies.

Sales of our common stock by significant stockholders may cause the price of
our common stock to decrease.

   Several outside investors in Borland own significant portions of our common
stock, or preferred stock that is convertible into common stock, though, to our
knowledge based on Schedule 13G filings made with the SEC, none individually
own in excess of 8% of our common stock, even on an as converted basis, as of
March 27, 2002, the most recent practicable date prior to the filing of this
Form 10-K. If these stockholders were to sell significant amounts of their
Borland stock, then the market price of our stock could be negatively impacted.
Moreover, because of current levels of liquidity in our stock, the effect of
such sales, or of significant portions of our stock being offered or made
available for sale, could result in particularly strong downward pressure on
our stock. Investors should be aware that they could experience significant
short-term volatility in our stock if such stockholders decide to sell a
substantial amount of their Borland stock at one time.

The conversion of our Series C Preferred Stock ("Series C Stock") may have a
dilutive effect.

   Each share of our Series C Stock is convertible, at the option of the holder
into fully paid and non-assessable shares of Borland common stock based upon a
fixed conversion ratio. In the event of a reorganization, reclassification or
other change (other than a stock dividend, stock split or reverse stock split),
each share of Series C Stock would be convertible, at the option of the holder,
into the kind and amount of shares of stock and other securities and property
receivable upon such events. Upon transfer by the holder to an unaffiliated
third party, each share of Series C Stock would automatically convert into
fully-paid and non-assessable shares of our common stock based upon a fixed
conversion ratio. In the event of a merger, consolidation, tender offer,
agreement to sell, or sale of all or substantially all of our assets, each
share of Series C Stock would automatically convert into the right to receive
the same consideration as if the Series C Stock had been converted into common
stock immediately prior to such events. In the event of liquidation,
dissolution or winding up of Borland, the holders of shares of Series C Stock
would receive the same consideration as if the Series C Stock had been
converted into common stock immediately prior to such event. The conversion
ratio is subject to certain adjustments in the event of a stock split and other
capital reorganizations. As of March 27, 2002, the 115 shares of Series C Stock
not previously submitted for conversion were convertible into 1,236,595 shares
of our common stock.

We may become subject to costly and time-consuming class action litigation
following significant changes in our stock price.

   In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against such companies. Were such litigation to be commenced against

                                      53

<PAGE>

us, we would incur substantial costs and there would be diversion of our
management's attention and resources, which could materially adversely affect
our business, results of operations and financial condition.

If we are unable to protect our intellectual property, we may lose a valuable
asset.

   As a software company, our intellectual property rights are among our most
valuable assets. We rely on a combination of patent, copyright, trademark,
trade secret laws, confidentiality agreements and other contractual
arrangements, domain name registrations and other methods to protect our
intellectual property rights, but these measures may provide only limited
protection. The protective steps we have taken may be inadequate to deter
misappropriations of our intellectual property rights. In addition, it may be
possible for an unauthorized third party to reverse-engineer or decompile our
software products. We may be unable to detect the unauthorized use of, or take
appropriate steps to enforce, our intellectual property rights, particularly in
certain international markets. Litigation may be necessary to protect our
intellectual property rights, and such litigation can be time consuming and
expensive. We have 98 issued U.S. patents, 10 issued foreign patents and
additional pending applications for U.S. and foreign patents. It is possible
that some or all of our patents may be challenged, invalidated or circumvented.
It is also possible that our pending patent applications may never result in
issued patents, and if they do result in issued patents, those patents may be
invalidated. In addition, effective protection of intellectual property rights
is unavailable or limited in some foreign countries, making the possibility of
misappropriation of our intellectual property more likely. Current laws in the
United States that prohibit copying give us only limited practical protection
from software "pirates," and the laws of many other countries provide very
little protection. Policing unauthorized use of our products is difficult,
expensive and time consuming and we expect that software piracy will be a
persistent problem for our software products. In addition, the unique
technology of the Internet may tend to increase, and provide new methods for,
illegal copying. Accordingly, we cannot be certain that we will be able to
protect our intellectual property rights against unauthorized third-party
copying or use. This could materially and adversely affect our competitive
position.

We may incur substantial expenses and divert management resources in
prosecuting others for their unauthorized use of our intellectual property
rights.

   In the future, we may need to file lawsuits to enforce our intellectual
property rights, to protect our trade secrets, or to determine the validity and
scope of the proprietary rights of others. This litigation, whether successful
or unsuccessful, could result in substantial costs and diversion of resources,
which could have a material adverse effect on our business, financial condition
and results of operations. In addition, should any of our competitors file
patent applications or obtain patents that claim inventions also claimed by us,
we may choose to participate in an interference proceeding to determine the
right to a patent for these inventions because if we fail to enforce and
protect our intellectual property rights, our business could be harmed. Even if
the outcome is favorable, this proceeding could result in substantial cost to
us and disrupt our business.


Third party claims of intellectual property infringement may subject us to
costly litigation or settlement terms or limited sales of our products.

   From time to time, we have received notices claiming that we have infringed
a third party's patent or other intellectual property right. We expect that
software products in general will increasingly be subject to these claims as
the number of products and competitors increase, the functionality of products
overlap and as the patenting of software functionality becomes more widespread.
Further, the receipt of a notice alleging infringement may require in some
situations that a costly opinion of counsel be obtained to prevent an
allegation of intentional infringement. Regardless of its merits, responding to
any claim can be time consuming and costly and divert the efforts of our
technical and management personnel from productive tasks. In the event of a
successful claim against us, we may be required to pay significant monetary
damages, including treble damages if we are held to have willfully infringed,
discontinue use and sale of the infringing products, expend significant
resources to develop non-infringing technology and/or enter into royalty and
licensing agreements that might not be offered or available on acceptable
terms. If a successful claim were made against us and we failed to

                                      54

<PAGE>

commercially develop or license a substitute technology, our business could be
materially harmed. In addition, we may not have insurance coverage for these
types of claims or our insurance coverage for these types of claims may not be
adequate.

Increasing regulation of the Internet, imposition of sales and other taxes on
products sold or distributed over the Internet and privacy concerns relating to
the Internet could harm our business.

   We intend to expand our business through, among other channels, electronic
commerce on the Internet. The electronic commerce market on the Internet is
relatively new and rapidly evolving. While this is an evolving area of the law
in the United States and overseas, currently there are relatively few laws or
regulations that directly apply to commerce on the Internet. Changes in laws or
regulations governing the Internet and electronic commerce, including, without
limitation, those governing an individual's privacy rights, pricing, content,
encryption, security, acceptable payment methods and quality of products or
services could have a material adverse effect on our business, operating
results and financial condition. Taxation of Internet commerce, or other
charges imposed by government agencies or by private organizations may also be
imposed. Laws and regulations applying to the solicitation, collection and
processing of personal or consumer information could also be enacted. Any of
these regulations could result in a decline in the use or popularity of the
Internet as a medium for commerce, which could have an adverse effect on our
future sales and revenue growth.

   Our future sales and any future profits will be substantially dependent upon
the continued widespread acceptance and use of the Internet by consumers and
businesses as an effective medium for exchanging information and conducting
business. To be successful, consumers and businesses that historically have
used traditional means of commerce to transact business must continue to accept
and utilize the Internet as a medium for conducting business and exchanging
information. Consumers and businesses may eventually reject the Internet as a
viable commercial medium for a number of reasons, including potentially
inadequate network infrastructure, slow development of enabling technologies
such as broadband or other technologies that enable rapid download of purchased
products, insufficient commercial support and privacy and security concerns. In
addition, delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity could cause the
Internet to lose its viability as a commercial medium.

Our charter documents and Delaware law could discourage an acquisition of our
company, even if an acquisition might be viewed as beneficial to our
stockholders.

   Our stockholder rights plan, and certain provisions in each of our Restated
Certificate of Incorporation, Amended and Restated Bylaws and the Delaware
General Corporation Law may discourage, delay or prevent an actual or potential
change in control of our company even if that change in control would be
beneficial to and in the best interests of our stockholders. This could limit
our stockholders' ability to approve a transaction that they may deem to be in
their best interests. In addition, our Board of Directors has the authority,
without stockholder approval, to fix the rights and preferences of, and issue
shares of one or more series of preferred stock.

   In October 2001, we adopted a new stockholder rights plan, which replaced an
existing plan that expired in December 2001, to protect our stockholders in the
event of a proposed takeover that has not been recommended or approved by our
Board of Directors. Under our current stockholder rights plan, each share of
our outstanding common stock has attached to it one preferred share purchase
right. Each preferred share purchase right entitles the holder, other than the
acquiring person or entity, under certain circumstances, to purchase shares of
our common stock at a 50% discount from its then-current market price.

Our corporate headquarters is located in northern California, which is
susceptible to earthquakes.

   Our corporate headquarters and most of our research and development
operations are located in northern California, an area known for significant
seismic activity. Seismic activity, such as a major earthquake, could have a
material adverse effect on our business, financial condition and operating
results. We currently do not

                                      55

<PAGE>

have a formal disaster recovery plan. Additionally, we may not carry sufficient
business interruption and other types of insurance to compensate us for any
losses that we may sustain as a result of any seismic activity.

Our business operations may be adversely affected by the California energy
crisis.

   California has recently experienced an energy crisis that resulted in
disruptions in power supply and increases in utility costs to consumers and
businesses throughout the state. As a result, many companies in California have
experienced rolling power outages as capacity has failed to satisfy demand.
Should the energy crisis reoccur, we may experience power interruptions and
shortages along with many other California companies and be subject to
significantly higher costs of energy. Although we have not experienced any
material disruption to our business to date, if the energy crisis reoccurs and
power interruptions or shortages occur in the future, any inability to continue
operations at our California executive and/or research and development offices
could delay the development of our products and disrupt communications with our
customers and partners and thereby adversely affect our business.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   Market risks relating to our operations result primarily from changes in
interest rates and foreign currency exchange rates, as well as credit risk
concentrations. To address the foreign currency exchange rate risk we enter
into various hedging transactions as described below. We do not use financial
instruments for trading purposes.

Foreign Currency Risk

   We transact business in various foreign countries and have established a
foreign currency hedging program utilizing foreign currency forward exchange
contracts to hedge intercompany balances and other monetary assets denominated
in foreign currencies. The goal of the hedging program is to offset the
earnings impact of foreign denominated balances. We do not use foreign currency
forward exchange contracts for trading purposes. At month-end, short-term
foreign currency 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, 2001, we recorded net foreign exchange
losses of $1.0 million. The foreign exchange losses were generated primarily
due to the strength of the dollar relative to the Euro and Japanese Yen. It is
uncertain whether these currency trends will continue. If these currency trends
continue, we will continue to experience foreign exchange losses on our
intercompany receivables to the extent that we have not hedged the exposure
with foreign currency forward exchange contracts. These foreign exchange losses
could have a materially adverse affect on our operating results and cash flows.

   During the year ending December 31, 2001, we recorded a foreign currency
loss of approximately $0.7 million as a part of other comprehensive income due
to foreign currency movements on our long-term intercompany balances. As of
December 31, 2001, the company had $8.6 million and $2.9 million in long-term
intercompany balances that will be settled in Australian dollars and Singapore
dollars, respectively.

                                      56

<PAGE>

   The table below provides information about our derivative financial
instruments, comprised of foreign currency forward exchange contracts. The
information is provided in U.S. dollar equivalent amounts, as presented in our
financial statements. For foreign currency forward exchange contracts, the
table presents the notional amounts (at the contract exchange rates), the
weighted average contractual foreign currency exchange rates and the estimated
fair value of the contract as of December 31, 2001. All instruments mature
within twelve months (dollar amounts in thousands).

<TABLE>
<CAPTION>
                                                                 December 31,
                                                        Average      2001
                                               Notional Contract  Estimated
                                                Amount    Rate    Fair Value
                                               -------- -------- ------------
  <S>                                          <C>      <C>      <C>
  Foreign currency forward exchange contracts:
     Euro..................................... $(1,556)  .9153       $ 40
     New Zealand Dollar.......................    (733)  .4185        (17)
     Hong Kong Dollar.........................   1,410   .1282         --
     New Taiwan Dollar........................     775   .0287         (3)
                                               -------               ----
         Total................................ $  (104)              $ 20
                                               =======               ====
</TABLE>

Interest Rate Risk

   Our exposure to market risk for changes in interest rates relates primarily
to our investment portfolio. We do not use derivative financial instruments in
our investment portfolio. We place our cash equivalents and short-term
investments in a variety of financial instruments such as commercial paper. By
corporate policy, we limit the amount of our credit exposure to $5 million to
any one commercial issuer.

   We mitigate default risk by investing in securities rated at least A2/P2 as
published by Standard and Poors and Moodys and by constantly positioning our
portfolio to respond appropriately to a significant reduction in the credit
rating of any investment issuer. Our portfolio includes only marketable
securities with active secondary and resale markets to ensure portfolio
liquidity.

   The table below presents principal (or notional) amounts and related
weighted average interest rates by year of maturity for our investment
portfolio (dollar amounts in thousands).

<TABLE>
<CAPTION>
                             2002     2003  2004 2005 2006 Thereafter  Total
                           --------  ------ ---- ---- ---- ---------- --------
                                              (In thousands)
 <S>                       <C>       <C>    <C>  <C>  <C>  <C>        <C>
 Cash equivalents
    Fixed rate............ $280,467      --   --   --   --      --    $280,467
    Average interest rate.     3.71%     --   --   --   --      --        3.71%
 Short-term investments
    Fixed rate............ $ 13,903      --   --   --   --      --    $ 13,903
    Average interest rate.     2.52%     --   --   --   --      --        2.52%
</TABLE>

   As of December, 31, 2001, short-term investments included $4.6 million
invested by our Japan subsidiary. This investment earns an average interest
rate of 0.6%.

Credit Risks

   Our financial instruments that are exposed to concentrations of credit risk
consist primarily of cash equivalents and trade receivables. Our 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. We perform periodic credit evaluations of
our customers' financial condition and generally do not require collateral. One
customer, Ingram Micro, accounts for approximately 14% and 13% of total
accounts receivable as of December 31, 2001 and 2000, respectively. No other
single group or customer represents greater than 10% of total accounts
receivable.

                                      57

<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                            SELECTED QUARTERLY DATA

   We believe that period-to-period comparisons of our financial results should
not be relied upon as an indication of future performance. Our revenues and
results of operations have been subject to significant fluctuations,
particularly on a quarterly basis, and our revenues and results of operations
could fluctuate significantly quarter to quarter and year to year. Significant
quarterly fluctuations in revenues will cause significant fluctuations in our
cash flows and the cash and cash equivalents, accounts receivable and deferred
revenue accounts on our balance sheet. Causes of such fluctuations may include
the volume and timing of new orders and renewals, the sales cycle for our
products, the introduction of new products, return rates, inventory levels,
product upgrades or updates by us or our competitors, changes in product mix,
changes in product prices and pricing models, trends in the computer industry,
general economic conditions (such as the recent economic slowdown),
extraordinary events such as acquisitions or litigation and the occurrence of
unexpected events. Amounts in thousands, except per share amounts:

<TABLE>
<CAPTION>
                                                                Three Months Ended (Unaudited)
                                                         --------------------------------------------
                                                         December 31, September 30, June 30, March 31,
                                                             2001         2001        2001     2001
                                                         ------------ ------------- -------- ---------
<S>                                                      <C>          <C>           <C>      <C>
Net revenues............................................   $59,030       $55,033    $56,012   $51,696
Gross profit............................................   $49,631       $46,023    $46,533   $43,684
Loss on sale of real estate.............................   $    --       $    --    $    --   $    --
Gain on long-term investment............................   $    --       $   383    $    --   $    --
Other non-recurring charges.............................   $    --       $    --    $    --   $    --
Net income (loss).......................................   $ 6,167       $ 4,673    $ 6,414   $ 5,853
Income (loss) per share basic...........................   $  0.09       $  0.07    $  0.10   $  0.09
Income (loss) per share diluted.........................   $  0.08       $  0.06    $  0.09   $  0.08
Shares used in computing basic income (loss) per share..    67,382        65,233     62,577    61,863
Shares used in computing diluted income (loss) per share    75,564        75,093     73,879    71,890

                                                                Three Months Ended (Unaudited)
                                                         --------------------------------------------
                                                         December 31, September 30, June 30, March 31,
                                                             2000         2000        2000     2000
                                                         ------------ ------------- -------- ---------
Net revenues............................................   $50,294       $47,557    $46,716   $46,500
Gross profit............................................   $42,565       $40,112    $38,969   $37,501
Loss on sale of real estate.............................   $    --       $    --    $(1,040)  $  (500)
Gain on long-term investment............................   $    --       $   723    $    --   $    --
Other non-recurring charges.............................   $(1,151)      $(2,967)   $ 2,014   $ 1,542
Net income (loss).......................................   $ 8,426       $11,444    $ 2,002   $(1,146)
Income (loss) per share basic...........................   $  0.13       $  0.18    $  0.03   $ (0.02)
Income (loss) per share diluted.........................   $  0.12       $  0.17    $  0.03   $ (0.02)
Shares used in computing basic income (loss) per share..    61,600        61,506     61,464    61,080
Shares used in computing diluted income (loss) per share    69,021        68,983     69,165    61,080
</TABLE>

   Our financial statements included with this Form 10-K are set forth under
Item 14 hereof.

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

   None.

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<PAGE>

                                   PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

   Information concerning our directors will be set forth in the Proxy
Statement to be provided to stockholders in connection with our 2002 Annual
Meeting of Stockholders (the "Proxy Statement") under the heading "Election of
Directors," which information is incorporated herein by reference. Information
concerning compliance with Section 16 of the Securities Exchange Act of 1934,
as amended, by persons subject to such Section, will be set forth in the Proxy
Statement under the heading "Section 16(a) Beneficial Ownership Reporting
Compliance," which information is incorporated herein by reference. The name,
age and position of each of our executive officers are set forth in Item 1 of
this Form 10-K under the heading "Executive Officers," which information is
incorporated herein by reference.

ITEM 11.   EXECUTIVE COMPENSATION

   Information concerning executive compensation will be set forth in the Proxy
Statement under the headings "Executive Officer Compensation" and "Election of
Directors," which information is incorporated herein by reference. Information
contained in the Proxy Statement under the caption "Organization and
Compensation Committee Report on Executive Compensation," "Audit Committee
Report and Disclosures" and "Stock Performance Graph" is not incorporated
herein by reference.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   Information concerning security ownership of certain beneficial owners and
management will be set forth in the Proxy Statement under the heading "Security
Ownership of Certain Beneficial Owners and Management," which information is
incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   Information concerning certain relationships and related transactions will
be set forth in the Proxy Statement under the headings "Organization and
Compensation Committee Interlocks and Insider Participation" and "Certain
Relationships and Related Transactions," which information is incorporated
herein by reference.

                                      59

<PAGE>

                                    PART IV

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

   Upon written request, we will provide, without charge, a copy of our Annual
Report on Form 10-K, including the consolidated financial statements and
financial statement schedules for our most recent fiscal year. All requests
should be sent to:

       Borland Software Corporation
       100 Enterprise Way
       Scotts Valley, California 95066-3249
       USA
       (831) 431-1000
       Attention: Corporate Secretary

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

    1. Consolidated Financial Statements

       Report of Independent Accountants

       Consolidated Balance Sheets at December 31, 2001 and 2000

       Consolidated Statements of Operations for the years ended December 31,
       2001, 2000 and 1999

       Consolidated Statements of Comprehensive Income for the years ended
       December 31, 2001, 2000 and 1999

       Consolidated Statements of Stockholders' Equity for the years ended
       December 31, 2001, 2000 and 1999

       Consolidated Statements of Cash Flows for the years ended December 31,
       2001, 2000 and 1999

       Notes to Consolidated Financial Statements

    2. Consolidated Financial Statement Schedule

       Schedule II--Valuation and Qualifying Accounts

   All other schedules are omitted because they are either not required, not
applicable or the required information is otherwise included.

    3. Exhibits

    The following exhibits are filed as part of, or incorporated by reference
into, this Form 10-K.

<TABLE>
<CAPTION>
Exhibit
Number  Description
------  -----------
<C>     <S>

   3.1  Restated Certificate of Incorporation of Borland Software Corporation. *

   3.2  Amended and Restated Bylaws of Borland Software Corporation. *

   4.1  Stockholder Rights Agreement, dated as of October 26, 2001, between Borland Software
        Corporation and Mellon Investor Services, L.L.C. (previously filed with the Commission on
        October 31, 2001 as an exhibit to Borland's Registration Statement on Form 8A and incorporated
        herein by reference).

   4.2  Specimen Stock Certificate of Borland Software Corporation. *
</TABLE>

                                      60

<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number  Description
------  -----------
<C>     <S>

  10.1  Preferred Stock Purchase Agreement between Borland Software Corporation and Microsoft
        Corporation, dated as of June 7, 1999 (previously filed with the Commission on July 6, 1999 as an
        exhibit to Borland's Current Report on Form 8-K and incorporated herein by reference).

  10.2  Investor Rights Agreement between Borland Software Corporation and Microsoft Corporation,
        dated as of June 7, 1999 (previously filed with the Commission on July 6, 1999 as an exhibit to
        Borland's Current Report on Form 8-K and incorporated herein by reference).

  10.3  Form of Indemnity Agreement (previously filed with the Commission on September 26, 1990 as an
        exhibit to Borland's Registration Statement on Form S-8 and incorporated herein by reference).

  10.4  Board of Directors Compensatory Plan, as described under "Director Compensation" in Borland's
        Definitive Proxy Statement for our 2002 Annual Meeting of Stockholders (which information is
        incorporated herein by reference). ++

  10.5  Non-Employee Directors' Stock Option Plan (previously filed with the Commission on
        December 27, 1991 as an exhibit to Borland's Current Report on Form 8-K and incorporated herein
        by reference). ++

  10.6  1992 Stock Option Plan (previously filed with the Commission on July 4, 1992 as an exhibit to
        Borland's Registration Statement on Form S-8 and incorporated herein by reference). ++

  10.7  1993 Stock Option Plan (previously filed with the Commission on March 11, 1993 as an exhibit to
        Borland's Registration Statement on Form S-8 and incorporated herein by reference). ++

  10.8  1997 Stock Option Plan (previously filed with the Commission on December 19, 1997 as an
        exhibit to Borland's Registration Statement on Form S-8 and incorporated herein by reference). ++

  10.9  Amendment to the 1997 Stock Option Plan (previously filed with the Commission on September 1,
        2000 as an exhibit to Borland's Registration Statement on Form S-8 and incorporated herein by
        reference). ++

  10.10 Second Amendment to the 1997 Stock Option Plan (previously filed with the Commission on
        June 1, 2001 as an exhibit to Borland's Registration Statement on Form S-8 and incorporated
        herein by reference). ++

  10.11 1997 Employee Stock Purchase Plan (previously filed with the Commission on December 19, 1997
        as an exhibit to Borland's Registration Statement on Form S-8 and incorporated herein by
        reference).

  10.12 1999 Employee Stock Purchase Plan (previously filed with the Commission on May 11, 1999 as an
        exhibit to Borland's Definitive Proxy Statement and incorporated herein by reference). ++

  10.13 Borland Software Corporation Dale Fuller Individual Stock Option Plan (previously filed with the
        Commission on April 4, 2000 as an exhibit to Borland's Annual Report on Form 10-K for the year
        ended December 31, 1999 and incorporated herein by reference). ++

  10.14 Employment Agreement between Dale L. Fuller and Borland Software Corporation dated as of
        December 29, 2000 (previously filed with the Commission on March 29, 2001 as an exhibit to
        Borland's Annual Report on Form 10-K for the year ended December 31, 2000 and incorporated
        herein by reference). ++

  10.15 Stock Option Agreement between Dale L. Fuller and Borland Software Corporation dated as of
        December 29, 2000 (previously filed with the Commission on March 29, 2001 as an exhibit to
        Borland's Annual Report on Form 10-K for the year ended December 31, 2000 and incorporated
        herein by reference). ++

  10.16 Employment Agreement between Frederick A. Ball and Borland Software Corporation dated as of
        September 16, 1999 (previously filed with the Commission on November 15, 1999 as an exhibit to
        Borland's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 and
        incorporated herein by reference). ++
</TABLE>

                                      61

<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number  Description
------  -----------
<C>     <S>
  10.17 Letter Agreement between Frederick A. Ball and Borland Software
        Corporation dated as of
        May 30, 2000 amending Mr. Ball's Employment Agreement with Borland
        Software Corporation dated as of September 16, 1999 (previously filed
        with the Commission on August 11, 2000 as an exhibit to Borland's
        Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 and
        incorporated herein by reference). ++

  10.18 Second Amendment to Employment Agreement between Frederick A. Ball and
        Borland Software Corporation dated as of December 17, 2001. *++

  10.19 Change in Control Agreement between Frederick A. Ball and Borland
        Software Corporation dated as of May 31, 2000 (previously filed with the
        Commission on March 29, 2001 as an exhibit to Borland's Annual Report on
        Form 10-K for the year ended December 31, 2000 and incorporated herein by
        reference). ++

  10.20 Employment Agreement between Keith E. Gottfried and Borland Software
        Corporation dated as of May 16, 2000 (previously filed with the
        Commission on August 11, 2000 as an exhibit to Borland's Quarterly Report
        on Form 10-Q for the quarter ended June 30, 2000 and incorporated herein
        by reference). ++

  10.21 Amendment to Employment Agreement between Keith E. Gottfried and Borland
        Software Corporation dated as of April 25, 2001 (previously filed with
        the Commission on May 4, 2001 as an exhibit to Borland's Quarterly Report
        on Form 10-Q for the quarter ended March 31, 2001 and incorporated herein
        by reference). ++

  10.22 Second Amendment to Employment Agreement between Keith E. Gottfried and
        Borland Software Corporation dated as of December 17, 2001. *++

  10.23 Written Description of Compensatory Plan for Keith E. Gottfried (approved
        by the Organization and Compensation Committee of the Board of Directors
        of Borland Software Corporation on December 19, 2000) (previously filed
        with the Commission on March 29, 2001 as an exhibit to Borland's Annual
        Report on Form 10-K for the year ended December 31, 2000 and incorporated
        herein by reference). ++

  10.24 Employment Agreement between Roger A. Barney and Borland Software
        Corporation dated as of June 5, 2000 (previously filed with the
        Commission on August 11, 2000 as an exhibit to Borland's Quarterly Report
        on Form 10-Q for the quarter ended June 30, 2000 and incorporated herein
        by reference). ++

  10.25 Amendment to Employment Agreement between Roger A. Barney and Borland
        Software Corporation dated as of September 11, 2000 (previously filed
        with the Commission on November 14, 2000 as an exhibit to Borland's
        Quarterly Report on Form 10-Q for the quarter ended September 30, 2000
        and incorporated herein by reference). ++

  10.26 Employment Agreement between Douglas W. Barre and Borland Software
        Corporation dated as of May 17, 2000 (previously filed with the
        Commission on August 11, 2000 as an exhibit to Borland's Quarterly Report
        on Form 10-Q for the quarter ended June 30, 2000 and incorporated herein
        by reference). ++

  10.27 Amendment to Employment Agreement between Douglas W. Barre and Borland
        Software Corporation dated as of December 27, 2000 (previously filed with
        the Commission on March 29, 2001 as an exhibit to Borland's Annual Report
        on Form 10-K for the year ended December 31, 2000 and incorporated herein
        by reference). ++

  10.28 Second Amendment to Employment Agreement between Douglas W. Barre and
        Borland Software Corporation dated as of December 17, 2001. *++

  10.29 Secured Promissory Note dated as of June 26, 2000 from Douglas W. Barre
        and his spouse to Borland Software Corporation (previously filed with the
        Commission on August 11, 2000 as an exhibit to Borland's Quarterly Report
        on Form 10-Q for the quarter ended June 30, 2000 and incorporated herein
        by reference). ++

  10.30 Amendment to Secured Promissory Note dated as of March 26, 2002 from
        Douglas W. Barre and his spouse to Borland Software Corporation.*++
</TABLE>

                                      62

<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number  Description
------  -----------
<C>     <S>

  10.31 Employment Agreement between Frank Slootman and Borland Software Corporation dated as of
        July 7, 2000 (previously filed with the Commission on August 11, 2000 as an exhibit to Borland's
        Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 and incorporated herein by
        reference). ++

  10.32 Amendment to Employment Agreement between Frank Slootman and Borland Software
        Corporation dated as of November 22, 2000 (previously filed with the Commission on March 29,
        2001 as an exhibit to Borland's Annual Report on Form 10-K for the year ended December 31,
        2000 and incorporated herein by reference). ++

  10.33 Employment Agreement between Edward M. Shelton and Borland Software Corporation dated as
        of May 15, 2000 (previously filed with the Commission on August 11, 2000 as an exhibit to
        Borland's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 and incorporated
        herein by reference). ++

  10.34 Agreement of Purchase and Sale and Joint Escrow Instructions, dated as of December 30, 1999, by
        and between Borland Software Corporation and ScanlanKemperBard Companies (previously filed
        with the Commission on March 2, 2000 as an exhibit to Borland's Current Report on Form 8-K and
        incorporated herein by reference).

  10.35 First Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions, dated as of
        January 27, 2000, by and between Borland Software Corporation and ScanlanKemperBard
        Companies (previously filed with the Commission on March 2, 2000 as an exhibit to Borland's
        Current Report on Form 8-K and incorporated herein by reference).

  10.36 Second Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions, dated as of
        February 8, 2000, by and between Borland Software Corporation and ScanlanKemperBard
        Companies (previously filed with the Commission on March 2, 2000 as an exhibit to Borland's
        Current Report on Form 8-K and incorporated herein by reference).

  10.37 Third Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions, dated as of
        February 11, 2000, by and between Borland Software Corporation and ScanlanKemperBard
        Companies (previously filed with the Commission on March 2, 2000 as an exhibit to Borland's
        Current Report on Form 8-K and incorporated herein by reference).

  10.38 Fourth Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions, dated as of
        February 15, 2000, by and between Borland Software Corporation and ScanlanKemperBard
        Companies (previously filed with the Commission on March 2, 2000 as an exhibit to Borland's
        Current Report on Form 8-K and incorporated herein by reference).

  10.39 Fifth Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions, dated as of
        February 16, 2000, by and between Borland Software Corporation and ScanlanKemperBard
        Companies (previously filed with the Commission on March 2, 2000 as an exhibit to Borland's
        Current Report on Form 8-K and incorporated herein by reference).

  10.40 Sixth Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions, dated as of
        February 17, 2000, by and between Borland Software Corporation and ScanlanKemperBard
        Companies (previously filed with the Commission on March 2, 2000 as an exhibit to Borland's
        Current Report on Form 8-K and incorporated herein by reference).

  10.41 Lease Agreement by and between Borland Software Corporation and ScanlanKemperBard
        Companies dated as of February 17, 2000 (previously filed with the Commission on March 29,
        2001 as an exhibit to Borland's Annual Report on Form 10-K for the year ended December 31,
        2000 and incorporated herein by reference).

  10.42 First Amendment to Lease Agreement by and between Borland Software Corporation and
        ScanlanKemperBard Companies as dated as of September 30, 2000 (previously filed with the
        Commission on March 29, 2001 as an exhibit to Borland's Annual Report on Form 10-K for the
        year ended December 31, 2000 and incorporated herein by reference).
</TABLE>

                                      63

<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number  Description
------  -----------
<C>     <S>

  10.43 Technology License and Distribution Agreement between Sun Microsystems, Inc. and Borland
        Software Corporation, dated as of October 31, 1995 (previously filed with the Commission on
        August 13, 2001 as an exhibit to Borland's Quarterly Report on Form 10-Q for the quarter ended
        June 30, 2001 and incorporated herein by reference).

  10.44 Addendum Number 1 to Technology License and Distribution Agreement between Sun
        Microsystems, Inc. and Borland Software Corporation, dated as of June 25, 1998 (previously filed
        with the Commission on August 13, 2001 as an exhibit to Borland's Quarterly Report on Form
        10-Q for the quarter ended June 30, 2001 and incorporated herein by reference). +

  10.45 Addendum Number 3 to Technology License and Distribution Agreement between Sun
        Microsystems, Inc. and Borland Software Corporation, dated as of June 15, 2000 (previously filed
        with the Commission on August 13, 2001 as an exhibit to Borland's Quarterly Report on Form
        10-Q for the quarter ended June 30, 2001 and incorporated herein by reference).

  10.46 Letter Agreement between Sun Microsystems, Inc. and Borland Software Corporation, dated as of
        November 7, 1995 (previously filed with the Commission on August 13, 2001 as an exhibit to
        Borland's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 and incorporated
        herein by reference).

  10.47 Letter Agreement between Sun Microsystems, Inc. and Borland Software Corporation, dated as of
        March 9, 1998 (previously filed with the Commission on August 13, 2001 as an exhibit to
        Borland's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 and incorporated
        herein by reference).

  10.48 Letter Agreement between Sun Microsystems, Inc. and Borland Software Corporation, dated as of
        November 5, 1998 (previously filed with the Commission on August 13, 2001 as an exhibit to
        Borland's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 and incorporated
        herein by reference).

  10.49 Letter Agreement between Sun Microsystems, Inc. and Borland Software Corporation, dated as of
        February 1, 1999 (previously filed with the Commission on August 13, 2001 as an exhibit to
        Borland's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 and incorporated
        herein by reference).

  10.50 Master Support Agreement between Sun Microsystems, Inc. and Borland Software Corporation,
        dated as of June 15, 2000 (previously filed with the Commission on August 13, 2001 as an exhibit
        to Borland's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 and incorporated
        herein by reference).

  10.51 Amendment Number 1 to the Master Support Agreement between Sun Microsystems, Inc. and
        Borland Software Corporation, dated as of December 29, 2000 (previously filed with the
        Commission on August 13, 2001 as an exhibit to Borland's Quarterly Report on Form 10-Q for the
        quarter ended June 30, 2001 and incorporated herein by reference).

  10.52 Software License Agreement between Sun Microsystems, Inc. and Borland Software Corporation,
        dated as of December 29, 2000 (previously filed with the Commission on August 13, 2001 as an
        exhibit to Borland's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 and
        incorporated herein by reference).

  10.53 Trademark License for Java Powered between Sun Microsystems, Inc. and Borland Software
        Corporation, dated as of December 29, 2000 (previously filed with the Commission on August 13,
        2001 as an exhibit to Borland's Quarterly Report on Form 10-Q for the quarter ended June 30,
        2001 and incorporated herein by reference).

  10.54 Trademark License for PersonalJava Compatible between Sun Microsystems, Inc. and Borland
        Software Corporation, dated as of December 29, 2000 (previously filed with the Commission on
        August 13, 2001 as an exhibit to Borland's Quarterly Report on Form 10-Q for the quarter ended
        June 30, 2001 and incorporated herein by reference).
</TABLE>

                                      64

<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number  Description
------  -----------
<C>     <S>

  10.55 Trademark License between Sun Microsystems, Inc. and Borland Software Corporation, dated as
        of January 4, 2001 (previously filed with the Commission on August 13, 2001 as an exhibit to
        Borland's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 and incorporated
        herein by reference).

  21.1  Subsidiaries of Borland Software Corporation. *

  23.1  Consent of PricewaterhouseCoopers LLP, Independent Accountants.*
</TABLE>
--------
*  Filed herewith.
+  To the best of our knowledge, no executed document titled "Addendum Number
   2" exists.
++ Management contract or compensatory plan or arrangement.

   A copy of any exhibit will be furnished (at a reasonable cost) to any of our
stockholders upon receipt of a written request. Such request should be sent to
Borland Software Corporation, 100 Enterprise Way, Scotts Valley, California USA
95066-3249, Attn: Corporate Secretary.

(b)  Reports on Form 8-K

   During the quarter ended December 31, 2001, Borland filed the following
Current Reports on Form 8-K with the Securities and Exchange Commission:

   Form 8-K filed on October 31, 2001 announcing that, on October 26, 2001,
Borland's board of directors adopted a successor stockholder rights plan.

   Form 8-K filed on December 13, 2001 announcing Dale L. Fuller's entry into a
stock trading plan in accordance with Rule 10b5-1 of the Securities Exchange
Act of 1934.

                                      65

<PAGE>

                                  SIGNATURES

   Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, Borland Software Corporation has duly caused
this Form 10-K to be signed on our behalf by the undersigned, thereunto duly
authorized, in the City of Scotts Valley, California, on the 18th day of March
2002.

                                               BORLAND SOFTWARE CORPORATION
                                                 (Registrant)

                                               By:    /s/   FREDERICK A. BALL
                                                   -----------------------------
                                                         Frederick A. Ball
                                                   Executive Vice President and
                                                      Chief Financial Officer
                                                     (principal financial and
                                                        accounting officer)


   KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Dale L. Fuller, Frederick A. Ball and Keith E.
Gottfried his attorney-in-fact, each with the power of substitution, for him in
any and all capacities, to sign any amendments to this Annual Report on Form
10-K, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and conforming all that said attorney-in-fact, or his substitute or
substitutes, any do or cause to be done by virtue hereof.

   Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of Borland Software Corporation and in the capacities as indicated on the 18th
day of March 2002.


 /s/  WILLIAM F. MILLER   Chairman of the Board and Director
-------------------------
    William F. Miller

   /s/  ROBERT H. KOHN    Vice Chairman and Director
-------------------------
     Robert H. Kohn

   /s/  DALE L. FULLER    President, Chief Executive Officer and Director
-------------------------   (principal executive officer)
     Dale L. Fuller

 /s/  FREDERICK A. BALL   Executive Vice President and Chief Financial Officer
-------------------------   (principal financial and accounting officer)
    Frederick A. Ball

  /s/  ROBERT DICKERSON   Director
-------------------------
    Robert Dickerson

 /s/  WILLIAM K. HOOPER   Director
-------------------------
    William K. Hooper

                                      66

<PAGE>

                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                               Page
                                                                                               ----
<S>                                                                                            <C>
Report of Independent Accountants............................................................. F-1

Consolidated Balance Sheets as of December 31, 2001 and 2000.................................. F-2

Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999.... F-3

Consolidated Statements of Comprehensive Income for the years ended December 31, 2001,
  2000 and 1999............................................................................... F-4

Consolidated Statements of Stockholders' Equity for the years ended December 31, 2001,
  2000 and 1999............................................................................... F-5

Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999.... F-8

Notes to Consolidated Financial Statements.................................................... F-9
</TABLE>


<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of BORLAND SOFTWARE CORPORATION:

   In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)1 on page 60 present fairly, in all material
respects, the financial position of Borland Software Corporation (formerly
Inprise Corporation) and its subsidiaries at December 31, 2001 and 2000, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statements schedule listed in the index appearing
under Item 14(a)2 on page 60 presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of Borland's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in
the United States of America, 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 provide a reasonable basis for our opinion.

PRICEWATERHOUSECOOPERS LLP

San Jose, California
January 23, 2002


                                      F-1

<PAGE>

                         BORLAND SOFTWARE CORPORATION

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

<TABLE>
<CAPTION>
                                                                                December 31, December 31,
                                                                                    2001         2000
                                                                                ------------ ------------
                                    ASSETS
                                    ------
<S>                                                                             <C>          <C>
Current assets:
   Cash and cash equivalents...................................................  $ 280,467    $ 216,634
   Short-term investments......................................................     13,903       45,925
   Accounts receivable, net of allowances of $15,179 and $13,669...............     38,405       33,495
   Other current assets........................................................     14,348       12,935
                                                                                 ---------    ---------
       Total current assets....................................................    347,123      308,989
Property and equipment, net....................................................     18,994       20,438
Other non-current assets.......................................................      9,706       11,476
                                                                                 ---------    ---------
       Total assets............................................................  $ 375,823    $ 340,903
                                                                                 =========    =========

                     LIABILITIES AND STOCKHOLDERS' EQUITY
                     ------------------------------------
Current liabilities:
   Accounts payable............................................................  $   9,936    $  12,873
   Accrued expenses............................................................     37,143       32,880
   Short-term restructuring....................................................        901        2,172
   Income taxes payable........................................................      8,915        5,337
   Deferred revenue............................................................     23,859       18,765
   Other current liabilities...................................................      7,815        6,881
                                                                                 ---------    ---------
       Total current liabilities...............................................     88,569       78,908
Long-term debt.................................................................         --        8,764
Other long-term liabilities....................................................     10,469       10,551
                                                                                 ---------    ---------
                                                                                    99,038       98,223
                                                                                 ---------    ---------
Commitments and contingencies (Notes 9 and 16)
Stockholders' equity:
   Preferred stock; $.01 par value; 1,000,000 shares authorized; 285 and
     625 shares issued and outstanding.........................................         --           --
   Common stock; $.01 par value; 200,000,000 shares authorized; 68,028,526 and
     61,966,879 shares issued and outstanding..................................        680          620
   Additional paid-in capital..................................................    488,744      472,902
   Accumulated deficit.........................................................   (187,012)    (209,721)
   Deferred compensation.......................................................     (1,123)      (1,527)
   Cumulative comprehensive income.............................................      3,687        5,611
                                                                                 ---------    ---------
                                                                                   304,976      267,885
Less common stock in treasury at cost, 4,835,900 and 4,473,800 shares..........    (28,191)     (25,205)
                                                                                 ---------    ---------
                                                                                   276,785      242,680
                                                                                 ---------    ---------
       Total liabilities and stockholders' equity..............................  $ 375,823    $ 340,903
                                                                                 =========    =========
</TABLE>

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

                                      F-2

<PAGE>

                         BORLAND SOFTWARE CORPORATION

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

<TABLE>
<CAPTION>
                                                       Year Ended December 31,
                                                     ---------------------------
                                                       2001     2000      1999
                                                     -------- --------  --------
<S>                                                  <C>      <C>       <C>
Licenses and other revenues......................... $187,044 $163,730  $150,550
Service revenues....................................   34,727   27,337    24,256
                                                     -------- --------  --------
   Net revenues.....................................  221,771  191,067   174,806
                                                     -------- --------  --------
Cost of licenses and other revenues.................   13,447   12,004    19,267
Cost of service revenues............................   22,454   19,916    22,676
                                                     -------- --------  --------
   Cost of revenues.................................   35,901   31,920    41,943
                                                     -------- --------  --------
Gross profit........................................  185,870  159,147   132,863
                                                     -------- --------  --------
Selling, general and administrative.................  121,056  104,793   123,530
Research and development............................   46,980   42,484    42,257
Restructuring and merger-related charges............       --     (562)   12,090
Other non-recurring charges.........................       --       --     8,193
Write-down on sale of real estate...................       --       --    29,677
                                                     -------- --------  --------
       Total operating expenses.....................  168,036  146,715   215,747
                                                     -------- --------  --------
Operating income (loss).............................   17,834   12,432   (82,884)
Interest income, net and other......................   11,117   14,093     6,232
Loss on sale of real estate.........................       --   (1,540)       --
Income from patent cross-license agreement and other       --       --   105,065
Gain on long-term investment........................       --      723     2,937
                                                     -------- --------  --------
Income before income taxes..........................   28,951   25,708    31,350
Income tax provision................................    5,845    4,982     8,666
                                                     -------- --------  --------
Net income.......................................... $ 23,106 $ 20,726  $ 22,684
                                                     ======== ========  ========
Income per share--basic (See Note 4)................ $   0.34 $   0.32  $   0.40
Income per share--diluted (See Note 4).............. $   0.31 $   0.30  $   0.36
Shares used in computing basic income per share.....   66,494   61,357    54,810
Shares used in computing diluted income per share...   74,136   69,874    63,408
</TABLE>


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

                                      F-3

<PAGE>

                         BORLAND SOFTWARE CORPORATION

                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                (in thousands)

<TABLE>
<CAPTION>
                                                                    Year Ended December 31,
                                                                   -------------------------
                                                                    2001     2000     1999
                                                                   -------  -------  -------
<S>                                                                <C>      <C>      <C>
Net income........................................................ $23,106  $20,726  $22,684
Other comprehensive income:
   Fair market value adjustment for available for sale securities.     372      757       --
   Foreign currency translation adjustments.......................  (2,296)    (446)    (855)
                                                                   -------  -------  -------
Comprehensive income.............................................. $21,182  $21,037  $21,829
                                                                   =======  =======  =======
</TABLE>




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

                                      F-4

<PAGE>

                         BORLAND SOFTWARE CORPORATION

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                (in thousands)

<TABLE>
<CAPTION>
                                                                                Preferred Stock
                                                                                ---------------
                                                                                Shares  Amounts
                                                                                ------  -------
<S>                                                                             <C>     <C>
Balance at December 31, 1998...................................................   --      $--
   Employee stock option, employee stock purchase plan and other, net..........   --       --
   Repurchase of common stock..................................................   --       --
   Conversion of Series B mandatorily redeemable convertible preferred stock...   --       --
   Issuance of Series C preferred stock........................................    1       --
   Accretion attributable to preferred stock...................................   --       --
   Foreign currency translation adjustment.....................................   --       --
   Net income..................................................................   --       --
                                                                                  --      ---

Balance at December 31, 1999...................................................    1      $--
                                                                                  ==      ===
   Employee stock option, employee stock purchase plan and other, net..........   --       --
   Common stock issued in connection with Bedouin, Inc. acquisition, net of
     amortization of $33.......................................................   --       --
   Fair market value adjustment for available for sale securities..............   --       --
   Accretion attributable to preferred stock...................................   --       --
   Foreign currency translation adjustment.....................................   --       --
   Net income..................................................................   --       --
                                                                                  --      ---

Balance at December 31, 2000...................................................    1      $--
                                                                                  ==      ===
   Employee stock option, employee stock purchase plan and other, net..........   --       --
   Repurchase of common stock..................................................   --       --
   Common stock issued upon exercise of Series B warrants......................   --       --
   Conversion of Series C preferred stock......................................   (1)      --
   Issuance of common stock in connections with ATC acquisition................   --       --
   Amortization of deferred compensation.......................................   --       --
   Fair market value adjustment for available for sale securities..............   --       --
   Accretion attributable to preferred stock...................................   --       --
   Foreign currency translation adjustment.....................................   --       --
   Net income..................................................................   --       --
                                                                                  --      ---

Balance at December 31, 2001...................................................   --      $--
                                                                                  ==      ===
</TABLE>


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

                                      F-5

<PAGE>

                         BORLAND SOFTWARE CORPORATION

         CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY--(Continued)
                                (in thousands)

<TABLE>
<CAPTION>
                                                                Common Stock
                                                              ---------------
                                                              Number of          Additional    Accumulated
                                                               Shares   Amount Paid in Capital  (Deficit)
                                                              --------- ------ --------------- -----------
<S>                                                           <C>       <C>    <C>             <C>
Balance at December 31, 1998.................................  48,140    $481     $386,468      $(251,751)
   Employee stock option, employee stock purchase plan
     and other, net..........................................   2,703      27       15,763             --
   Repurchase of common stock................................  (1,001)    (10)          --             --
   Conversion of Series B mandatorily redeemable
     convertible preferred stock.............................  10,831     109       36,791             --
   Issuance of Series C preferred stock......................      --      --       25,000             --
   Accretion attributable to preferred stock.................      --      --          505           (505)
   Foreign currency translation adjustment...................      --      --           --             --
   Net income................................................      --      --           --         22,684
                                                               ------    ----     --------      ---------
Balance at December 31, 1999.................................  60,673    $607     $464,527      $(229,572)
   Employee stock option, employee stock purchase plan
     and other, net..........................................   1,044      10        5,943             --
   Common stock issued in connection with Bedouin, Inc.
     acquisition, net amortization of $33....................     250       3        1,557             --
   Fair market value adjustment for available for sale
     securities..............................................      --      --           --             --
   Accretion attributable to preferred stock.................      --      --          875           (875)
   Foreign currency translation adjustment...................      --      --           --             --
   Net income................................................      --      --           --         20,726
                                                               ------    ----     --------      ---------
Balance at December 31, 2000.................................  61,967    $620     $472,902      $(209,721)
   Employee stock option, employee stock purchase plan
     and other, net..........................................   2,611      26       14,675             --
   Repurchase of common stock................................    (423)     (4)        (578)            --
   Common stock issued upon exercise of Series B warrants....     185       2        1,384             --
   Conversion of Series C preferred stock....................   3,656      36          (36)            --
   Issuance of common stock in connections with ATC
     acquisition.............................................      32      --           --             --
   Amortization of deferred compensation.....................      --      --           --             --
   Fair market value adjustment for available for sale
     securities..............................................      --      --           --             --
   Accretion attributable to preferred stock.................      --      --          397           (397)
   Foreign currency translation adjustment...................      --      --           --             --
   Net income................................................      --      --           --         23,106
                                                               ------    ----     --------      ---------
Balance at December 31, 2001.................................  68,028    $680     $488,744      $(187,012)
                                                               ======    ====     ========      =========
</TABLE>


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


                                      F-6

<PAGE>

                         BORLAND SOFTWARE CORPORATION

         CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY--(Continued)
                                (in thousands)

<TABLE>
<CAPTION>
                                                 Treasury Stock
                                               ------------------
                                                                    Cumulative
                                               Number of           Comprehensive   Deferred
                                                Shares   Amounts      Income     Compensation  Total
                                               --------- --------  ------------- ------------ --------
<S>                                            <C>       <C>       <C>           <C>          <C>
Balance at December 31, 1998..................   3,472   $(20,344)    $ 6,155      $    --    $121,009
   Employee stock option, employee stock
     purchase plan and other, net.............      --         --          --           --      15,790
   Repurchase of common stock.................   1,001     (4,861)         --           --      (4,871)
   Conversion of Series B mandatorily
     redeemable convertible preferred stock...      --         --          --           --      36,900
   Issuance of Series C preferred stock.......      --         --          --           --      25,000
   Accretion attributable to preferred stock..      --         --          --           --          --
   Foreign currency translation adjustment....      --         --        (855)          --        (855)
   Net income.................................      --         --          --           --      22,684
                                                 -----   --------     -------      -------    --------
Balance at December 31, 1999..................   4,473   $(25,205)    $ 5,300      $    --    $215,657
   Employee stock option, employee stock
     purchase plan and other, net.............      --         --          --           --       5,953
   Common stock issued in connection with
     Bedouin, Inc. acquisition, net of
     amortization of $33......................      --         --          --       (1,527)         33
   Fair market value adjustment for available
     for sale securities......................      --         --         757           --         757
   Accretion attributable to preferred stock..      --         --          --           --          --
   Foreign currency translation adjustment....      --         --        (446)          --        (446)
   Net income.................................      --         --          --           --      20,726
                                                 -----   --------     -------      -------    --------
Balance at December 31, 2000..................   4,473   $(25,205)    $ 5,611      $(1,527)   $242,680
   Employee stock option, employee stock
     purchase plan and other, net.............      --         --          --           --      14,701
   Repurchase of common stock.................     363     (2,986)         --           --      (3,568)
   Common stock issued upon exercise of
     Series B warrants........................      --         --          --           --       1,386
   Conversion of Series C preferred stock.....      --         --          --           --          --
   Issuance of common stock in connections
     with ATC acquisition.....................      --         --          --           --          --
   Amortization of deferred compensation......      --         --          --          404         404
   Fair market value adjustment for available
     for sale securities......................      --         --         372           --         372
   Accretion attributable to preferred stock..      --         --          --           --          --
   Foreign currency translation adjustment....      --         --      (2,296)          --      (2,296)
   Net income.................................      --         --          --           --      23,106
                                                 -----   --------     -------      -------    --------
Balance at December 31, 2001..................   4,836   $(28,191)    $ 3,687      $(1,123)   $276,785
                                                 =====   ========     =======      =======    ========
</TABLE>

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

                                      F-7

<PAGE>

                         BORLAND SOFTWARE CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)

<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                                          ----------------------------
                                                                            2001      2000      1999
                                                                          --------  --------  --------
<S>                                                                       <C>       <C>       <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income.............................................................. $ 23,106  $ 20,726  $ 22,684
   Adjustments to reconcile net income to net cash provided by operating
     activities:
     Depreciation and amortization.......................................    7,499     9,557    15,331
     Write-off on sale of real estate....................................       --        --    29,677
     Loss on sale of fixed assets and real estate........................       40     1,515       698
     Gain on sale of long-term investments...............................     (383)     (723)   (2,937)
   Changes in assets and liabilities:
     Accounts receivable, net............................................   (5,514)   (7,314)   15,175
     Other assets........................................................     (223)   (5,055)      (88)
     Accounts payable and accrued expenses...............................    1,612     4,636    (6,060)
     Income taxes payable................................................    6,516    (1,646)    4,000
     Short-term restructuring............................................   (1,271)   (3,198)    6,728
     Deferred revenue....................................................    5,094     5,481    (1,229)
     Other...............................................................   (1,227)    1,696    (1,507)
                                                                          --------  --------  --------
       Cash provided by operating activities.............................   35,249    25,675    82,472
                                                                          --------  --------  --------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Acquisition of property and equipment.................................   (4,885)   (2,525)   (7,754)
   Sale of fixed assets and real estate..................................       --    39,651        --
   Proceed from sale of long-term investments............................      383       723     2,937
   Cash payment for acquisition of Bedouin...............................       --    (1,900)       --
   Cash payment for acquisition of ATC...................................     (290)       --        --
   Purchases of short-term investments...................................  (25,438)  (60,844)  (15,980)
   Sales of short-term investments.......................................   57,460    17,799    13,525
                                                                          --------  --------  --------
       Cash provided by (used in) investing activities...................   27,230    (7,096)   (7,272)
                                                                          --------  --------  --------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of common stock, net...........................   16,087     5,954    15,790
   Proceeds from issuance of Series C convertible preferred stock, net...       --        --    25,000
   Repurchase of common stock............................................   (3,567)       --    (4,871)
   Repayment of long-term debt and other.................................   (8,764)     (179)     (149)
                                                                          --------  --------  --------
       Cash provided by financing activities.............................    3,756     5,775    35,770
                                                                          --------  --------  --------
       Effect of exchange rate changes on cash...........................   (2,402)      267       (94)
                                                                          --------  --------  --------
Net change in cash and cash equivalents..................................   63,833    24,621   110,876
Beginning cash and cash equivalents......................................  216,634   192,013    81,137
                                                                          --------  --------  --------
Ending cash and cash equivalents......................................... $280,467  $216,634  $192,013
                                                                          ========  ========  ========
Cash paid during the year for:
   Interest.............................................................. $    820  $  1,071  $    906
   Income taxes.......................................................... $  4,437  $  2,541  $  6,463
Supplemental disclosure of non-cash transactions:
   Common stock issued for acquisition of Bedouin........................ $     --  $  1,593  $     --
</TABLE>

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

                                      F-8

<PAGE>

                         BORLAND SOFTWARE CORPORATION

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  THE COMPANY

   Borland was incorporated in California in 1983 and reincorporated in
Delaware in 1989. We maintain our executive offices at 100 Enterprise Way,
Scotts Valley, California 95066-3249, and our main telephone number at that
location is 831-431-1000. We also maintain an Internet web site at
www.borland.com.

   We are a provider of software development technologies and application
infrastructure software. Our products address various dimensions of the
software application "lifecycle:" development, deployment, integration and
management. For development, we offer our JBuilder, Delphi, Kylix and
C++Builder products, as well as our recently introduced TeamSource DSP service.
Our deployment and integration products include our Borland Enterprise Server
family of application servers, including AppServer Edition, VisiBroker Edition
and the entry level Web Edition, and our JDataStore and InterBase databases. To
manage applications, we offer our Borland AppCenter technology. Our
professional services organization provides expert consulting, training and
support. This comprehensive portfolio includes many of the major elements
required to implement rapidly and effectively software applications critical to
our customers' businesses.

   Effective January 22, 2001, the corporation's name was changed from Inprise
Corporation to Borland Software Corporation. The change in name was effected in
accordance with the provisions of Section 253(b) of the Delaware General
Corporation Law. Also, effective January 22, 2001, the corporation's trading
symbol on The Nasdaq Stock Market was changed from "INPR" to "BORL."

NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

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

Management Estimates and Assumptions

   The preparation of 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

   We have reclassified certain prior years' information for current financial
statement disclosure presentation.

Revenue Recognition

   Borland derives revenues from licenses of its software and sales of its
related services, which include assistance in implementation and integration,
post-contract customer support, training and consulting.

   On contracts involving significant implementation or integration essential
to the functionality of our product, license and service revenues are
recognized when the services are completed. We classify revenues from these
arrangements as license and services revenues, based upon the estimated fair
value of each element. Provisions for estimated contract losses are recognized
in the period in which the loss becomes probable and can be reasonably
estimated.

   On contracts that do not involve significant implementation or integration
essential to the functionality of our product, license fees are recognized upon
shipment when there is persuasive evidence of an arrangement, the fee is fixed
or determinable and collection of the receivable is probable. We assess
collection based on a number of factors, including past transaction history
with the customer and the credit-worthiness of the customer. We do not request
collateral from our customers. If we determine that collection of a fee is not
reasonably assured, we defer the fee and recognize revenue at the time
collection becomes reasonably assured, which is generally upon receipt of cash.
For arrangements with multiple elements of fair value, we determine the value
for services and post-contract customer support based upon vendor specific
objective evidence (VSOE). VSOE for the services

                                      F-9

<PAGE>

                         BORLAND SOFTWARE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

element is based upon the standard hourly rates we charge for services, given
the complexity of the services and experience of the professional performing
the services, or the amount charged on similar transactions. VSOE for annual
post-contract customer support is established with the stated future renewal
rates included in the contracts or the amount charged on a similar transaction.
We recognize revenue for the license portion of a multiple element arrangement
based upon the residual contract value as prescribed by Statement of Position
No. 98-9, "Modification of SOP No. 97-2 with Respect to Certain Transactions."

   Revenues from reseller arrangements are recognized upon shipment to the
reseller, with allowances for estimated future returns and exchanges provided
based upon our return history. We maintain allowances for product returns from
customers that is based upon historical return rates of end user customers
current economic trends, and changes in customer demand and acceptance of our
products and the type and quantity of inventory held by channel customers.
Significant management judgments and estimates must be made and used in
connection with establishing the sales returns and rebate reserves in any
accounting period. Material differences may result in the amount and timing of
our revenue for any period if management made different judgments or utilized
different estimates. The provision for sales returns and rebates amounted to
$14.1 million in 2001. If future returns increase over historical levels,
additional allowances may be required.

   Other service revenues from consulting and training services are recognized
as such services are performed. Service revenues from post-contract customer
support are recognized ratably over the support period, generally one year.
Revenues from our hosted development services are recognized ratably over the
contractual period.

Cash, Cash Equivalents and Short-Term Investments

   We consider all highly liquid investments having an original maturity of
three months or less to be cash equivalents. Short-term investments are
classified as securities available for sale. Securities are carried at fair
market value with the unrealized gains and losses, net of tax, reported as a
component of comprehensive income.

Foreign Exchange Gains and Losses

   We enter into forward exchange contracts to manage our exposure to currency
fluctuations for our short-term, non-functional currency monetary assets and
liabilities. These assets and liabilities principally consist of our
intercompany balances with our wholly owned subsidiaries and trade receivables
with certain non-U.S. customers. We have outstanding short-term forward
exchange contracts to exchange various foreign currencies (principally the New
Zealand dollar, Hong Kong dollar, New Taiwan dollar and the Euro) for U.S.
dollars in the amount of $4.5 million and $17.3 million at December 31, 2001
and 2000, respectively. These forward exchange contracts do not qualify as
hedging instruments as defined by Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). The forward exchange contracts and the underlying assets and liabilities
are marked-to-market and unrealized gains and losses are included in current
period net income to the extent that they are short term in nature. The net
loss recorded on the consolidated statements of operations on such foreign
currency contracts and underlying transactions was $1.0 million, $1.0 million
and $0.6 million for the years ended December 31, 2001, 2000 and 1999,
respectively. Foreign exchange gains and losses are included in interest
income, net and other on the Consolidated Statement of Operations.

   Certain intercompany balances are designated as long term. Exchange gains
and losses associated with these long-term intercompany balances are recorded
as a component of comprehensive income. During the year ended December 31,
2001, currency loss on long-term intercompany balances and their related
foreign currency contracts in the amount of $0.7 million was included in other
comprehensive income. As of December 31, 2001, intercompany balances in the
amount of $11.5 million were designated long-term.

                                     F-10

<PAGE>

                         BORLAND SOFTWARE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Financial Instruments

   The fair value of our 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 of securities
with similar terms, and approximates carrying value.

Concentration of Credit Risk

   Financial instruments that potentially subject us to significant
concentrations of credit risk consist principally of cash, cash equivalents,
short-term investments and trade accounts receivable. We place our cash, cash
equivalents and short-term investments in a variety of financial instruments
such as commercial paper. By policy, we limit the amount of our credit exposure
to any one financial institution or commercial issuer.

   We offer credit terms on the sale of our software products to distributors,
retail dealers and certain end-user customers. We perform ongoing credit
evaluations of our customers' financial condition and, generally, require no
collateral from our customers. We maintain an allowance for uncollectable
accounts receivable based upon the expected collectability of all accounts
receivable. One customer, Ingram Micro, accounted for approximately 14% and 13%
of total accounts receivable as of December 31, 2001 and 2000, respectively. No
other single group or customer represents greater than 10% of total accounts
receivable. For the years ended December 31, 2001, 2000 and 1999, sales to one
customer, Ingram Micro, Inc. and its subsidiaries, accounted for approximately
13%, 12% and 11% of our net revenues, respectively.

   We are exposed to credit loss in case of non-performance by counterparties
to foreign exchange contracts, but we do not anticipate non-performance by
these counterparties.

Property and Equipment

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

         Buildings.......................................... 31.5 years
         Computer equipment............................... 3 to 5 years
         Furniture, fixtures and equipment..................... 5 years
         Leasehold improvements... Shorter of lease term or useful life

   Depreciation expense for the years ended December 31, 2001, 2000 and 1999
was $6.3 million, $8.1 million and $13.5 million, respectively. The costs of
maintenance and repairs are expensed as incurred. The costs of assets and
related accumulated depreciation are removed from the accounts upon retirement
or disposition; any resulting gain or loss is reported as income or expense.

   We capitalize costs relating to internal use software in accordance with the
provisions of Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). We capitalized
approximately $2.8 million in costs associated with the development and
deployment of internal use software during 1999. We did not capitalize any cost
associated with internal use software in 2001 and 2000. We had approximately
$2.1 million and $3.6 million in unamortized internal use software costs as of
December 31, 2001 and 2000, respectively. We amortized approximately $1.2
million and $2.1 million in costs associated with internal use software during
2001 and 2000, respectively. These costs are amortized over a useful life
ranging from three to five years.

                                     F-11

<PAGE>

                         BORLAND SOFTWARE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Stock-Based Compensation Plans

   We account 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 our 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. Our policy is generally to grant options with an
exercise price equal to the closing market price of our stock on the grant
date. Accordingly, no compensation expense has been recognized for our stock
option plans. We provide additional pro forma disclosures as required under
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). See Note
14.

   We account for stock options issued to non-employees under SFAS 123 and
Emerging Issues Task Force ("EITF") Issue No. 96-18, "Accounting for Equity
Instruments with Variable Terms that are Issued for Consideration Other Than
Employee Services under SFAS 123." We record the expense of such services based
upon the estimated fair value of the equity instrument using the Black-Scholes
pricing model. Assumptions used to value the equity instruments are consistent
with equity instruments issued to employees. See Note 14. The value of the
equity instrument is charged to earnings over the term of the service agreement.

Research and Development

   We capitalize certain product rights acquired from others and 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.

   Costs incurred in the research and development of new software products are
expensed as incurred until technological feasibility is established.
Development costs are capitalized beginning when a product's technological
feasibility has been established and ending when the product is available for
general release to customers. Technological feasibility is reached when the
product reaches the working model stage. To date, products and enhancements
have generally reached technological feasibility and have been released for
sale at substantially the same time and all research and development costs have
been expensed.

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 ranging from
one to three years. Amortization of goodwill charged to operating expenses
during the years ended December 31, 2001, 2000 and 1999 was $1.4 million, $1.0
million and $1.8 million, respectively. We had approximately $0.8 million and
$1.0 million in unamortized goodwill at December 31, 2001 and 2000,
respectively. Unamortized goodwill is included in other non-current assets as
of December 31, 2001. As of December 31, 2001, we do not believe that the
unamortized goodwill is impaired. Beginning in 2002, the company will adopt the
SFAS No. 142 "Goodwill and other Intangible Assets" and accordingly, we will
discontinue amortization of the recorded goodwill and evaluate the goodwill for
impairment based on a prescribed method on at least an annual basis.

Valuation of Long-Lived Assets

   We evaluate the recoverability of long-lived assets in accordance with SFAS
No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" ("SFAS 121"). SFAS 121

                                     F-12

<PAGE>

                         BORLAND SOFTWARE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

requires recognition of impairment of long-lived assets if the net book value
of such assets exceeds the estimated future undiscounted cash flows
attributable to such assets. If the carrying value of a long-lived asset is
considered impaired, a loss is recognized based on the amount by which the
carrying value exceeds the fair market value of the long-lived asset for assets
to be held and used, or the amount by which the carrying value exceeds the fair
market value less cost to dispose for assets to be disposed. Fair market value
is determined primarily using the anticipated cash flows discounted at a rate
commensurate with the risk involved. No impairment was recorded during 2001.

Advertising Costs

   We expense the production costs of advertising, including direct response,
the first time the advertising takes place. Advertising expense was $1.6
million, $1.8 million and $3.6 million during the years ended December 31,
2001, 2000 and 1999, respectively.

Foreign Currency Translation

   The functional currency of our 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 cumulative comprehensive income.

Recent Accounting Pronouncements

   In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations." SFAS 141 requires the purchase method of
accounting for business combinations initiated after June 30, 2001 and
eliminates the pooling-of-interests method. We believe the adoption of SFAS 141
will not have a significant impact on our financial statements.

   In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets," which is effective for fiscal years beginning after March 15, 2001.
SFAS 142 requires, among other things, the discontinuance of goodwill
amortization. In addition, the standard includes provisions upon adoption for
the reclassification of certain existing recognized intangibles,
reclassification of certain intangibles out of previously reported goodwill and
the testing for impairment of existing goodwill and other intangibles. We
believe the adoption of SFAS 142 will not have a significant impact on our
financial statements.

   In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses
significant issues relating to the implementation of SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," and develops a single accounting method under which long-lived
assets that are to be disposed of by sale are measured at the lower of book
value or fair value less cost to sell. Additionally, SFAS No. 144 expands the
scope of discontinued operations to include all components of an entity with
operations that (1) can be distinguished from the rest of the entity and (2)
will be eliminated from the ongoing operations of the entity in a disposal
transaction. SFAS No. 144 is effective for financial statements issued for
fiscal years beginning after December 15, 2001 and its provisions are to be
applied prospectively. We are currently assessing the impact of SFAS No. 144 on
our financial position and results of operations.

   In November 2001, the EITF reached a consensus on EITF Issue 01-09,
Accounting for Consideration Given by a Vendor to a Customer or a Reseller of
the Vendor's Products, which is a codification of EITF 00-14, 00-22 and 00-25.
This issue presumes that consideration from a vendor to a customer or reseller
of the vendor's

                                     F-13

<PAGE>

                         BORLAND SOFTWARE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

products to be a reduction of the selling prices of the vendor's products and,
therefore, should be characterized as a reduction of revenue when recognized in
the vendor's income statement and could lead to negative revenue under certain
circumstances. Revenue reduction is required unless consideration relates to a
separate identifiable benefit and the benefit's fair value can be established.
This issue should be applied no later than in annual or interim financial
statements for periods beginning after December 15, 2001, which is our first
quarter ended March 31, 2002. Upon adoption we are required to reclassify all
prior period amounts to conform to the current period presentation. We have not
yet evaluated the effects of these changes on our consolidated financial
statements.

NOTE 3.  CONSOLIDATED BALANCE SHEET COMPONENTS

   Details of certain balance sheet captions are as follows (amounts in
thousands):

<TABLE>
<CAPTION>
                                                         December 31, December 31,
                                                             2001         2000
                                                         ------------ ------------
<S>                                                      <C>          <C>
Property and equipment:
   Buildings............................................   $ 10,171     $ 10,171
   Computer equipment...................................     78,900       74,441
   Furniture, fixtures and equipment....................     12,901       12,626
   Other................................................      8,800        7,446
                                                           --------     --------
                                                            110,772      104,684
   Less accumulated depreciation and amortization.......    (95,812)     (88,280)
                                                           --------     --------
                                                             14,960       16,404
   Land.................................................      4,034        4,034
                                                           --------     --------
       Total............................................   $ 18,994     $ 20,438
                                                           ========     ========
Accrued expenses:
   Accrued payroll and incentives.......................   $ 17,651     $ 14,475
   Advertising and other marketing......................      2,013        1,867
   Professional fees and settlement costs...............      6,598        6,885
   Other................................................     10,881        9,653
                                                           --------     --------
       Total............................................   $ 37,143     $ 32,880
                                                           ========     ========
Long-term debt and other:...............................
   Non-current portion of accrued restructuring charges.   $  2,449     $  2,449
   Mortgage notes payable...............................         --        8,764
   Deferred and other taxes.............................      5,700        5,700
   Other................................................      2,320        2,402
                                                           --------     --------
       Total............................................   $ 10,469     $ 19,315
                                                           ========     ========
</TABLE>

                                     F-14

<PAGE>

                         BORLAND SOFTWARE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 4.  EARNINGS PER SHARE ("EPS")

   The following is a reconciliation of the computation of basic and diluted
earnings per share (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                          Years Ended December 31,
                                                                          ------------------------
                                                                            2001    2000    1999
                                                                          -------  ------- -------
<S>                                                                       <C>      <C>     <C>
Numerator:
   Net income............................................................ $23,106  $20,726 $22,684
   Accretion charge relating to Series C convertible preferred stock.....     397      875     505
                                                                          -------  ------- -------
   Income available to common stockholders............................... $22,709  $19,851 $22,179
                                                                          =======  ======= =======
Denominator:
   Denominator for basic income per share--weighted average shares.......  66,494   61,357  54,810
   Effect of dilutive securities
       Series B mandatorily convertible preferred stock..................      --       --   3,987
       Series C convertible preferred stock..............................   3,064    6,721   3,920
       Employee stock options............................................   4,444    1,796     691
       Other.............................................................     134       --      --
                                                                          -------  ------- -------
   Denominator for diluted income per share--weighted average shares and
     assumed conversions.................................................  74,136   69,874  63,408
                                                                          =======  ======= =======
   Income per share--basic............................................... $  0.34  $  0.32 $  0.40
   Income per share--diluted............................................. $  0.31  $  0.30 $  0.36
</TABLE>

   Options to purchase approximately 2.6 million, 2.1 million and 9.1 million
shares of common stock were outstanding at December 31, 2001, 2000 and 1999,
respectively, and were not included in the computation of diluted EPS as the
inclusion of such options would have been antidilutive.

   Approximately 0.1 million, 0.3 million, and 0.3 million warrants to purchase
common shares were outstanding at December 31, 2001, 2000 and 1999,
respectively. These warrants were not included in the computation of diluted
EPS for the years ended December 31, 2000 and 1999, as the inclusion of the
warrants would have been antidilutive in those periods.

NOTE 5.  ACQUISITIONS

Advanced Training Center, LTDA

   On December 7, 2001, we completed our acquisition of Advanced Training
Center, LTDA ("ATC"), a software training firm located in Sao Paulo, Brazil for
total consideration of approximately $0.3 million in cash and 32,000 shares of
common stock. The shares are subject to a four-year vesting schedule based upon
the achievement of certain financial and non-financial objectives. The
transaction was accounted for as a purchase. We recorded goodwill for the
excess of the purchase price over the net assets acquired of $0.1 million.

Bedouin, Inc.

   On November 3, 2000, we completed our acquisition of Bedouin, Inc.
("Bedouin"), a software development firm located in Chicago, Illinois, for
total consideration of $3.5 million, consisting of $1.9 million in cash and
250,000 shares of common stock. The shares are subject to a four-year vesting
schedule based upon the achievement of certain non-financial objectives. The
transaction was accounted for as a purchase. As a result of

                                     F-15

<PAGE>

                         BORLAND SOFTWARE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

the purchase-price allocation, we recorded deferred compensation of
approximately $1.6 million. This amount was recorded as a component of equity
and will be amortized over four years. We recorded goodwill for the excess of
the purchase price over the net assets acquired of $1.4 million. We also
recorded a charge for in-process research and development related to the
acquisition of approximately $0.4 million.

   Pro forma results of operations for ATC and Bedouin have not been presented
because the effects of these acquisitions were not material on either an
individual or an aggregate basis.

NOTE 6.  RESTRUCTURING AND MERGER-RELATED CHARGES

   During the year ended December 31, 2001, we made payments associated with
prior restructuring activities of approximately $0.4 million for excess lease
facilities in the UK and U.S. and $0.8 million for severance for approximately
56 employees.

   During the year ended December 31, 2000, we incurred approximately $3.6
million in costs associated with a proposed merger with Corel Corporation which
was terminated in May 2000.

   During the year ended December 31, 2000, we recorded restructuring costs of
approximately $1.5 million. This restructuring was for severance for
approximately 30 employees.

   During December 1999, we recorded a restructuring charge of $34.8 million.
The restructuring charge consists primarily of a loss on the sale of our Scotts
Valley, California headquarters facility of $29.7 million, a $3.1 million
charge for discontinuation of our European information system implementation
and other miscellaneous restructuring-related costs of $3.1 million. In
addition, we recorded a charge of $3.0 million for severance costs associated
with organizational changes implemented during the fourth quarter of 1999.
Employee terminations represented approximately 5% of the total employee
workforce as of December 31, 1999. These charges were offset, in part, by the
reversal of restructuring charges totaling $4.1 million, that were taken in
both the first quarter of 1999 and 1998, which will not be utilized. During the
year ended December 31, 2000, we reversed approximately $1.7 million in
restructuring reserves established in prior periods that were determined to be
unnecessary.

   In January 1999, we announced the restructuring of our corporate operations.
A restructuring charge of $7.0 million was recorded during the quarter ended
March 31, 1999 of which $6.7 million related to severance costs associated with
the elimination of duplicate workforce and $0.3 million related to the
termination of certain lease agreements.

   On March 17, 2000, we completed the sale of our corporate headquarters
facility at 100 Enterprise Way, Scotts Valley, California, to Enterprise Way
Associates, LLC, assignee of the ScanlanKemperBard Companies. We received
approximately $44.1 million in consideration for the facility. Consideration in
the transaction was net of $2.5 million to cover potential costs to improve the
building and $0.4 million in other disposal costs. We recorded a write-down of
the corporate facility of $29.7 million during the quarter ended December 31,
1999. In conjunction with the sale of the facility, we entered into a long-term
lease arrangement to use approximately 44% of the building for corporate
purposes. On September 30, 2000, we entered into an amendment to our lease with
ScanlanKemperBard Companies which decreased the space leased by us to
approximately 41% of the facility.

   During 2000 and 1999, we reversed approximately $1.7 million and $3.9
million in restructure reserves established in prior periods that were
determined to be no longer necessary. The restructure reserves were reversed
primarily because the individuals identified in the restructure were not
terminated.

                                     F-16

<PAGE>

                         BORLAND SOFTWARE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following table summarizes our restructuring activity for the years
ended December 31, 2001, 2000 and 1999 (amounts in thousands):

<TABLE>
<CAPTION>
                                        Severance   Other Asset
                                       and Benefits   Charges   Facilities Other    Total
                                       ------------ ----------- ---------- ------  -------
<S>                                    <C>          <C>         <C>        <C>     <C>
Accrual at December 31, 1998..........   $ 2,303      $   152     $ 713    $  106  $ 3,274
1999 restructuring....................     9,682        4,727       641     1,169   16,219
Cash paid during 1999.................    (5,060)          --      (357)     (234)  (5,651)
Reversal of previous restructuring....    (3,922)        (115)       --       163   (3,874)
                                         -------      -------     -----    ------  -------
Accrual at December 31, 1999..........   $ 3,003      $ 4,764     $ 997    $1,204  $ 9,968
2000 restructuring....................     1,546           --        --        --    1,546
Cash paid during 2000.................    (2,346)        (181)     (370)     (189)  (3,086)
Non-cash costs........................        --       (4,139)       --      (459)  (4,598)
Reversal of previous restructuring....    (1,151)        (444)       (7)      (56)  (1,658)
                                         -------      -------     -----    ------  -------
Accrual at December 31, 2000..........   $ 1,052      $    --     $ 620    $  500  $ 2,172
2001 restructuring....................       228           --        --        --      228
Cash paid during 2001.................      (806)          --      (379)       --   (1,185)
Non-cash costs........................        50           --        --      (364)    (314)
Reversal of previous restructuring....      (195)          --        38       157       --
                                         -------      -------     -----    ------  -------
Accrual at December 31, 2001..........   $   329      $    --     $ 279    $  293  $   901
                                         =======      =======     =====    ======  =======
</TABLE>

   We have recorded a restructure reserve associated to certain leases in the
United Kingdom in the amount of $2.4 million as of December 31, 2001 and 2000.
This amount represents the excess of our contractual obligation over the
minimum sublease income. Due to the timing of the contractual payments, this
amount has been included in other long-term liabilities.

NOTE 7.  LONG-TERM DEBT

   On July 13, 2001, we used approximately $9.0 million in cash to repay the
outstanding portion of a mortgage note. The note related to a mortgage on
office buildings located at 1700 and 1800 Green Hills Road, Scotts Valley,
California which, prior to 1993, served as our corporate headquarters and is
leased to third-party tenants. Such amounts included $0.2 million in prepayment
penalties to retire such note.

   Interest expense for this obligation was approximately $0.8 million, $1.0
million, and $1.0 million for the years ended December 31, 2001, 2000 and 1999,
respectively.

NOTE 8.  INCOME TAXES

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

<TABLE>
<CAPTION>
                                                Year Ended December 31,
                                                -----------------------
                                                 2001    2000    1999
                                                ------- ------- -------
        <S>                                     <C>     <C>     <C>
        U.S.................................... $24,441 $14,036 $24,824
        Non U.S................................   4,510  11,672   6,526
                                                ------- ------- -------
                                                $28,951 $25,708 $31,350
                                                ======= ======= =======
</TABLE>

                                     F-17

<PAGE>

                         BORLAND SOFTWARE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The provision for income taxes consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                       Year Ended December 31,
                                       ----------------------
                                        2001     2000   1999
                                       ------   ------ ------
                  <S>                  <C>      <C>    <C>
                  Current:
                     Federal.......... $  635   $   -- $2,113
                     State............    250       --  2,535
                     Non U.S..........  5,363    4,800  4,476
                                       ------   ------ ------
                                       $6,248   $4,800 $9,124
                                       ------   ------ ------
                  Deferred:
                     Federal.......... $   --       --     --
                     State............     --       --     --
                     Non U.S..........   (403)     182   (458)
                                       ------   ------ ------
                                         (403)     182   (458)
                                       ------   ------ ------
                  Income tax provision $5,845   $4,982 $8,666
                                       ======   ====== ======
</TABLE>

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

<TABLE>
<CAPTION>
                                                            Year Ended December 31,
                                                           -------------------------
                                                            2001     2000     1999
                                                           -------  -------  -------
<S>                                                        <C>      <C>      <C>
Tax provision computed at U.S. statutory rate............. $10,133  $ 8,998  $10,973
State taxes...............................................   1,737       --    2,535
Benefit on utilization of U.S. losses.....................  (9,614)  (4,913)  (6,575)
Non-U.S. withholding taxes................................   1,970    1,180    1,252
Subsidiaries' results subject to tax rates other than U.S.
  statutory rates.........................................     864      833      481
Limitation (benefit) on utilization of non-U.S. losses....     755   (1,116)      --
                                                           -------  -------  -------
Income tax provision...................................... $ 5,845  $ 4,982  $ 8,666
                                                           =======  =======  =======
</TABLE>

   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 (in thousands):

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                                        ----------------------
                                                           2001         2000
                                                        ---------    ---------
   <S>                                                  <C>          <C>
   Accrued expenses.................................... $   9,135    $   9,377
   Accounts receivable reserves........................     2,938        3,238
   Inventory valuation.................................       557          384
   Depreciation, amortization and other................     1,993        1,584
   U.S. federal and state loss and credit carryforwards    96,839      107,400
   Non-U.S. loss carryforwards.........................     7,532        6,222
                                                        ---------    ---------
   Gross deferred tax assets...........................   118,994      128,205
   Deferred tax assets valuation allowance.............  (118,085)    (127,699)
                                                        ---------    ---------
   Deferred tax assets, net............................ $     909    $     506
                                                        =========    =========
</TABLE>

                                     F-18

<PAGE>

                         BORLAND SOFTWARE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   At December 31, 2001 and 2000, we had reserved a substantial portion of our
deferred tax assets. We believe 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, we have net operating loss
carryforwards of approximately $193 million at December 31, 2001. There are
also available U.S. federal tax credit carryforwards of approximately $23
million. These loss and credit carryforwards expire between 2006 and 2021, if
not utilized. We also have Alternative Minimum Tax (AMT) credit carryforwards
for U.S. federal income tax purposes of approximately $1 million, which do 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. We also have approximately $22 million of net operating loss
carryforwards in various foreign jurisdictions. Certain of these loss
carryforwards will expire beginning in 2002, if not utilized.

   Deferred tax assets and related valuation allowances of approximately $44
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.

   Applicable U.S. income and non-U.S. withholding taxes have not been provided
on undistributed earnings of approximately $16.5 million of our foreign
subsidiaries as such earnings are considered to be permanently invested in
foreign operations.

NOTE 9.  LEASES

   We lease certain of our office and operating facilities and certain
furniture and equipment under various operating leases. Lease terms range from
one to seventeen years.

   Minimum annual lease commitments and minimum future sublease income at
December 31, 2001 are as follows, amounts in thousands:

<TABLE>
<CAPTION>
                                                     Operating Sublease
        Calendar year:                                Leases    Income
        --------------                               --------- --------
        <S>                                          <C>       <C>
        2002........................................  $ 7,662    $407
        2003........................................    8,961     236
        2004........................................    8,245      --
        2005........................................    7,994      --
        2006........................................    6,906      --
        Thereafter..................................   19,546      --
                                                      -------    ----
                                                      $59,314    $643
                                                      =======    ====
</TABLE>

   Rent expense for all operating leases was approximately $7.9 million, $6.9
million and $4.2 million for the years ended December 31, 2001, 2000 and 1999,
respectively. Sublease income was approximately $0.6 million, $1.2 million and
$3.0 million for the years ended December 31, 2001, 2000 and 1999, respectively.

                                     F-19

<PAGE>

                         BORLAND SOFTWARE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 10.  SERIES B MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK

   In prior years, we issued 770 shares of Series B mandatorily redeemable
convertible preferred stock ("Series B Shares") for $38.5 million. For each
Series B Share, we also issued to the purchaser a warrant to purchase 400
shares of our common stock at a per share price equal to 125% of the closing
price of the common stock on the issuance date. During the year ended December
31, 1999, all remaining outstanding Series B Shares were converted into
approximately 10,831,000 shares of common stock at an average conversion rate
of $3.41 per share. As of December 31, 2001, warrants to purchase 88,000 shares
of common stock with an average exercise price at $8.59 were outstanding.

NOTE 11.  SERIES C CONVERTIBLE PREFERRED STOCK

   In 1999, we sold an aggregate of 625 shares of Series C Convertible
Preferred Stock ("Series C Stock") to Microsoft Corporation for $25 million.
The Series C Stock has no voting rights, until such stock is converted to
common stock. The holders of shares of Series C Stock are not entitled to
receive any dividends except as and when declared by the Board of Directors.
Such dividends would be non-cumulative. In the event of liquidation and to the
extent assets are available, the holder of shares of Series C Stock are
entitled to receive the same consideration as if the shares of Series C Stock
had been converted into common stock immediately prior to such an event.

   Each share of Series C Stock is convertible, at the option of the holder,
into fully paid and non-assessable shares of our common stock based upon a
fixed conversion ratio. In the event of a reorganization, reclassification or
other change (other than a stock dividend, stock split or reverse stock split),
each share of Series C Stock would be convertible, at the option of the holder,
into the kind and amount of shares of stock and other securities and property
receivable upon such events. Upon transfer by the holder to an unaffiliated
third party, each share of Series C Stock would automatically convert into
fully-paid and non-assessable shares of our common stock based upon a fixed
conversion ratio. In the event of a merger, consolidation, tender offer,
agreement to sell, or sale of all or substantially all of our assets, each
share of Series C Stock would automatically convert into the right to receive
the same consideration as if the Series C Stock had been converted into common
stock immediately prior to such events. In the event of liquidation,
dissolution or winding up of Borland, the holders of shares of Series C Stock
would receive the same consideration as if the Series C Stock had been
converted into common stock immediately prior to such event. The conversion
ratio is subject to certain adjustments in the event of a stock split and other
capital reorganizations. During 2001, 340 shares of Series C stock were
converted into 3,655,914 shares of common stock. At December 31, 2001, the 285
shares of Series C Stock that remained outstanding were convertible into
3,064,516 shares of common stock. We recorded a charge for the Series C stock
of approximately $0.4 million, $0.9 million and $0.5 million to the income
available to common stockholders during the years ended December 31, 2001, 2000
and 1999, respectively.

NOTE 12.  COMMON SHARES RESERVED FOR FUTURE ISSUANCE

   Shares of common stock reserved for future issuance at December 31, 2001 are
as follows:

<TABLE>
                <S>                                  <C>
                Employee Stock Purchase Plans.......    459,061
                Stock Option Plans.................. 14,922,635
                Series C Convertible Preferred Stock  3,064,516
                Warrants............................     90,590
                                                     ----------
                       Total........................ 18,536,802
                                                     ==========
</TABLE>

                                     F-20

<PAGE>

                         BORLAND SOFTWARE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 13.  STOCK REPURCHASE PROGRAM

   During September 2001, our Board of Directors authorized repurchases of up
to $30 million of our outstanding common stock. As a part of this program, we
repurchased 362,500 common shares for an average price of $8.24 a share for a
total consideration of $3.0 million. This authorization is still deemed to be
in effect.

   In 1998, our Board of Directors authorized us to repurchase up to 10% of our
outstanding shares of common stock on a fully diluted basis, or approximately
5,900,000 shares. In 1998, we repurchased approximately 3.5 million shares at
an average price of $5.87 per share. In 1999, we repurchased approximately 1.0
million shares at an average price of $4.87 per share. The 1998 authorization
is deemed to be of no further force and effect.

NOTE 14.  EMPLOYEE BENEFIT PLANS

Stock Option Plans

   As of December 31, 2001, we have various stock-based compensation plans.
Generally, our employee stock option plans allow for the grant of both
incentive stock options and non-qualified stock options. Certain options have
been granted that vest daily or monthly over a specified vesting period from
the date of grant. For most grantees, options expire at the earlier of either
three months after termination of the grantee's employment or ten years after
the date of grant.

   We also grant options to non-employee directors. Upon first joining the
Board, each non-employee director is granted options to acquire 30,000 shares
of our common stock. All such shares vest one year from the date of grant.
Effective July 1, 2001, and on July 1 of each year thereafter, each
non-employee director (excluding the Chairman of the Board) receives an annual
stock option to purchase 12,500 shares of our common stock. The Chairman of the
Board receives an annual stock option to purchase 17,500 shares of our common
stock. In addition, each non-employee director that serves as a member on a
committee of the Board receives an additional annual stock option to purchase
1,000 shares of our common stock for each committee on which they serve as a
member. A non-employee director that serves as the Chairman of a committee of
the Board receives an additional stock option to purchase 1,000 shares of our
common stock for each committee on which they serve as Chairman. These stock
options vest over a four-year vesting schedule with 25% of the options vesting
one year from the date of the grant and the remaining 75% of the options
vesting over the remaining three years on a monthly basis. In the event of a
change of control of Borland, the options will vest immediately.

   On May 31, 2001, our stockholders approved an amendment to our 1997 Stock
Option Plan to increase, by 3.0 million, the number of shares of our common
stock reserved for issuance thereunder.

   At December 31, 2001, approximately 1,589,395 shares were available for
future grant under our various stock option plans. All options granted under
the plans for the years ended December 31, 2001, 2000 and 1999 were priced at
the market value on the date of grant.

                                     F-21

<PAGE>

                         BORLAND SOFTWARE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following table summarizes our stock option activity and related
weighted average exercise prices within each category for the years ended
December 31, 2001, 2000 and 1999 relating to our stock option plans. Amounts
are in thousands, except share price:

<TABLE>
<CAPTION>
                                              Year Ended December 31,
                                     ------------------------------------------
                                          2001          2000          1999
                                     -------------- ------------- -------------
                                     Shares  Price  Shares  Price Shares  Price
                                     ------  ------ ------  ----- ------  -----
<S>                                  <C>     <C>    <C>     <C>   <C>     <C>
Options outstanding at beginning
  of period......................... 12,114  $ 7.21  7,650  $6.08 12,857  $6.43
Stock options:
   Granted..........................  4,824  $11.40  8,448  $8.30  4,623  $4.52
   Exercised........................ (2,172) $ 5.61   (753) $5.98 (2,252) $6.16
   Canceled......................... (1,433) $ 9.53 (3,231) $7.67 (7,578) $6.42
                                     ------  ------ ------  ----- ------  -----
Options outstanding at end of period 13,333  $ 8.73 12,114  $7.21  7,650  $6.08
                                     ======  ====== ======  ===== ======  =====
Exercisable.........................  4,532          3,778         3,633
</TABLE>

   The fair value of each option grant, as defined by SFAS No. 123 "Accounting
for Stock-Based Compensations," 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 our 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 December 31,
                                                  -----------------------------
                                                    2001      2000      1999
                                                  --------- --------- ---------
<S>                                               <C>       <C>       <C>
Expected life.................................... 3.5 years 2.5 years 2.3 years
Risk-free interest rate..........................   3.96%     4.65%     6.39%
Volatility.......................................  86.51%     93.0%     88.0%
Dividend yield...................................   0.00%     0.00%     0.00%
</TABLE>

   The weighted-average fair value of the stock options granted under the
Employee Stock Option Plans during the years ended December 31, 2001, 2000 and
1999, as defined by SFAS 123, was $8.39, $6.00 and $3.01, respectively.

   The following table summarizes information about stock options outstanding
at December 31, 2001 (options outstanding and exercisable are in thousands):

<TABLE>
<CAPTION>
                                          Options Outstanding    Options Exercisable
                                         --------------------- ------------------------
                                          Weighted-
                              Number       Average   Weighted-     Number     Weighted-
                          Outstanding at  Remaining   Average  Exercisable at  Average
                           December 31,  Contractual Exercise   December 31,  Exercise
Range of Exercise Prices       2001         Life       Price        2001        Price
------------------------  -------------- ----------- --------- -------------- ---------
                                         (in years)
<S>                       <C>            <C>         <C>       <C>            <C>
$0.49-$5.53..............      3,479        8.13      $ 4.71       1,899       $ 4.44
$5.54-$6.06..............      2,782        8.41        5.78         885         5.83
$6.07-$10.62.............      2,779        7.91        7.94         899         6.67
$10.63-$15.50............      3,989        9.06       14.11         649        15.33
$15.51-$41.87............        304        4.96       18.15         199        18.69
                              ------                               -----
                              13,333        8.35      $ 8.73       4,531       $ 7.34
                              ======                               =====
</TABLE>

                                     F-22

<PAGE>

                         BORLAND SOFTWARE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


InterBase Stock Option Plan

   In October 1998, the Board of Directors of our wholly owned subsidiary,
InterBase Software Corporation ("InterBase"), established the InterBase
Software Corporation 1998 Stock Option Plan ("InterBase Option Plan"). During
1999, we merged InterBase into Borland and, in connection therewith, we
repurchased all options outstanding under the InterBase Option Plan at a total
cost of $5.1 million.

Employee Stock Purchase Plans

   We have two Employee Stock Purchase Plans (each an "ESPP"). These plans
allow our eligible employees, and the eligible employees of our subsidiaries,
to purchase shares of our 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 but limited to no more
than 2,500 shares of our common stock. The ESPP shares may be purchased by
participants at 85% of the lower of the fair market value of the common stock
at the beginning of the offering period and the fair market value on the
purchase date. Of the 2,650,000 shares of common stock that have been reserved
for issuance under the two plans, 2,190,939 shares were issued through December
31, 2001. Sales under the two plans during the years ended December 31, 2001,
2000 and 1999 were 439,244, 284,145 and 309,434 shares of common stock at an
average price of $5.06, $4.49 and $3.85 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 years ended December 31, 2001, 2000 and 1999,
respectively: an expected life of one year; expected volatility of 87%, 93% and
88%, risk-free interest rates of 3.96%, 4.65% and 6.39%; and dividend yields of
0%. The weighted average fair value of those purchase rights granted during the
years ended December 31, 2001, 2000 and 1999, as defined by SFAS 123, was
$7.11, $2.73 and $4.33, respectively.

Pro Forma Net Income and Net Income Per Share

   Had we recorded compensation costs based on the estimated grant date fair
value, as defined by SFAS 123, for awards granted under our stock option and
stock purchase plans, our pro forma net income and earnings per share for the
years ended December 31, 2001, 2000 and 1999 would have been as follows
(amounts in thousands, expect per share data):

<TABLE>
<CAPTION>
                                          Year Ended December 31,
                                          ------------------------
                                           2001     2000    1999
             -                            -------  ------- -------
             <S>                          <C>      <C>     <C>
             Net income (loss):
                As reported.............. $23,106  $20,726 $22,684
                Pro Forma................ $(1,879) $ 3,435 $12,624

             Net income (loss) per share:
                As reported basic........ $  0.34  $  0.32 $  0.40
                As reported diluted...... $  0.31  $  0.30 $  0.35

                Pro Forma basic.......... $ (0.03) $  0.04 $  0.22
                Pro Forma diluted........ $ (0.03) $  0.04 $  0.20
</TABLE>

   The pro forma amounts include compensation expenses related to stock option
grants and stock purchase rights for the years ended December 31, 2001, 2000
and 1999. 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.

                                     F-23

<PAGE>

                         BORLAND SOFTWARE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 15.  STOCKHOLDER RIGHTS AGREEMENT

   In October 2001, we adopted a successor Stockholder Rights Plan to protect
the stockholders in the event that a third party proposes an unsolicited
takeover of Borland that has not been recommended or approved by the Board of
Directors. This rights plan replaced an earlier rights plan which expired in
December 2001. Under the successor Stockholder Rights Plan, each share of our
outstanding common stock carries one preferred share purchase right ("Right").
Each Right entitles the holder, other than the acquiring person or entity,
under certain circumstances, to purchase common stock at a 50% discount from
our then-current market price. The Rights are redeemable at a nominal price and
expire in December 2011.

NOTE 16.  LITIGATION

   Although litigation is subject to inherent uncertainties, management does
not believe that the ultimate outcome of any of our legal proceedings will have
a material adverse effect on our financial position or overall trends in
results of operations. However, if an unfavorable ruling were to occur in any
specific period, there exists the possibility of a material adverse impact on
the results of operations of that period. Management believes that, given our
current liquidity and cash and investment balances, even were we to receive an
adverse judgment with respect to litigation that we are currently a party to,
such a judgment would not have a material impact on cash and investments or
liquidity.

                                     F-24

<PAGE>

                         BORLAND SOFTWARE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 17.  ENTERPRISE-WIDE DISCLOSURES

   We have various wholly-owned subsidiaries, which develop, market and/or
distribute our products in other countries. In certain international markets
not covered by our non-U.S. subsidiaries, we generally sell through independent
distributors. Our reportable segments were identified based upon our internal
reporting structure. Each reportable segment is responsible for marketing and
selling all our products and services within their predetermined geographical
region. Intercompany transactions are recorded at either cost or applicable
transfer price, as appropriate. Intercompany transactions and balances are
eliminated upon consolidation. Summary financial information from our
reportable segments are as follows (amounts in thousands):

<TABLE>
<CAPTION>
                                                                                       Year Ended December 31,
                                                                                    -----------------------------
                                                                                      2001      2000      1999
                                                                                    --------  --------  ---------
<S>                                                                                 <C>       <C>       <C>
Net revenues from unaffiliated customers:
    U.S. operations (including exports)............................................ $ 87,812  $ 86,620  $  76,780
    European operations............................................................   84,103    61,353     60,500
    Japan operations...............................................................   23,581    20,943     19,927
    Other international operations.................................................   26,275    22,151     17,599
                                                                                    --------  --------  ---------
Net revenues....................................................................... $221,771  $191,067  $ 174,806
                                                                                    ========  ========  =========
    Deployment and other........................................................... $ 49,157  $ 52,675  $  48,037
    Development environments.......................................................  137,886   111,055    102,513
    Service revenue................................................................   34,728    27,337     24,256
                                                                                    --------  --------  ---------
Net revenue........................................................................ $221,771  $191,067  $ 174,806
                                                                                    ========  ========  =========
Intercompany revenues U.S..........................................................   13,051     9,658      8,858
Eliminations.......................................................................  (13,051)   (9,658)    (8,858)
                                                                                    --------  --------  ---------
Reported intercompany revenue...................................................... $     --  $     --  $      --
                                                                                    ========  ========  =========
Depreciation and amortization expense:
    U.S. operations................................................................ $  5,205  $  7,392  $  13,060
    European operations............................................................      574       576        681
    Japan operations...............................................................      447       408        431
    Other international operations.................................................    1,273     1,181      1,159
                                                                                    --------  --------  ---------
Depreciation and amortization expense.............................................. $  7,499  $  9,557  $  15,331
                                                                                    ========  ========  =========
Operating results:
    U.S. operations................................................................ $(32,577) $(28,504) $(117,026)
    European operations............................................................   40,063    28,495     25,360
    Japan operations...............................................................    9,705     8,301      6,572
    Other international operations.................................................      643     4,140      2,210
                                                                                    --------  --------  ---------
Operating income (loss)............................................................ $ 17,834  $ 12,432  $ (82,884)
                                                                                    ========  ========  =========
Long-lived assets:
    U.S. operations................................................................ $ 19,623  $ 24,620  $  71,202
    European operations............................................................    1,626     1,088      1,607
    Japan operations...............................................................    4,245     4,377      5,135
    Other international operations.................................................    3,206     1,829      1,937
                                                                                    --------  --------  ---------
Long-lived assets.................................................................. $ 28,700  $ 31,914  $  79,881
                                                                                    ========  ========  =========
Identifiable assets:
    U.S. operations................................................................ $ 39,822  $ 47,716  $  86,525
    European operations............................................................   22,966    13,741     12,617
    Japan operations...............................................................    9,244     7,441      8,374
    Other international operations.................................................    9,421     9,446      7,807
                                                                                    --------  --------  ---------
Identifiable assets................................................................ $ 81,453  $ 78,344  $ 115,323
    General corporate assets (cash, cash equivalents and short-term investments)...  294,370   262,559    197,693
                                                                                    --------  --------  ---------
Total assets....................................................................... $375,823  $340,903  $ 313,016
                                                                                    ========  ========  =========
</TABLE>

                                     F-25

<PAGE>

                         BORLAND SOFTWARE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Other international operations include activities of subsidiaries in
Australia, Brazil, Canada, Hong Kong, Singapore, Korea, India, New Zealand,
China and Taiwan.

   Revenues, operating results and identifiable assets are classified by
location of our facilities rather than by customer location. Revenues related
to product transfers between geographic areas were not significant. Export
revenues from the U.S. represented $0.5 million, $1.7 million and $2.8 million
during the years ended December 31, 2001, 2000 and 1999, respectively.

                                     F-26

<PAGE>

                                  SCHEDULE II

                         BORLAND SOFTWARE CORPORATION

                       VALUATION AND QUALIFYING ACCOUNTS
             For the Years ended December 31, 2001, 2000 and 1999
                                (in thousands)

<TABLE>
<CAPTION>
                                                                           Charged
                                                                              to
                                                               Balance at Statements Deductions Balance at
                                                               Beginning      of        From      End of
                                                               of Period  Operations  Reserves    Period
                                                               ---------- ---------- ---------- ----------
<S>                                                            <C>        <C>        <C>        <C>
December 31, 2001:
   Allowance for sales returns, rebates and doubtful accounts.  $ 13,669   $15,581    $14,071    $ 15,179
December 31, 2000:
   Allowance for sales returns, rebates and doubtful accounts.  $ 14,457   $13,205    $13,993    $ 13,669
December 31, 1999:
   Allowance for sales returns, rebates and doubtful accounts.  $  8,293   $24,120    $17,956    $ 14,457

December 31, 2001:
   Deferred tax asset valuation allowance.....................  $127,699   $(9,614)   $    --    $118,085
December 31, 2000:
   Deferred tax asset valuation allowance.....................  $132,612   $(4,913)   $    --    $127,699
December 31, 1999:
   Deferred tax asset valuation allowance.....................  $139,187   $(6,575)   $    --    $132,612
</TABLE>


                                     F-27

<PAGE>

                         BORLAND SOFTWARE CORPORATION

                                 SUBSIDIARIES*

<TABLE>
<CAPTION>
                                                              Jurisdiction of
  Name                                                         Incorporation
  ----                                                        ---------------
  <S>                                                         <C>
  ADVANCED TRAINING CENTER, LTDA.............................     Brazil
  BORLAND (FRANCE)...........................................     France
  BORLAND (H.K.) LIMITED.....................................    Hong Kong
  BORLAND (HOLDING) UK LIMITED............................... United Kingdom
  BORLAND (JAPAN) CO., LTD...................................      Japan
  BORLAND (SINGAPORE) PTE., LTD..............................    Singapore
  BORLAND (UK) LIMITED....................................... United Kingdom
  BORLAND AUSTRALIA PTY LTD..................................    Australia
  BORLAND B.V................................................ The Netherlands
  BORLAND CANADA, INC........................................     Canada
  BORLAND GMBH...............................................     Germany
  BORLAND KOREA LTD..........................................      Korea
  BORLAND LATIN AMERICA LTDA.................................     Brazil
  BORLAND NEW ZEALAND LIMITED................................   New Zealand
  BORLAND SOFTWARE (BEIJING) CO., LTD........................      China
  BORLAND SOFTWARE INDIA PRIVATE LIMITED.....................      India
  BORLAND TECHNOLOGY CORPORATION.............................    Delaware
  BORLAND TECHNOLOGY CORPORATION.............................     Ireland
  BORLAND TECHNOLOGY CORPORATION.............................     Russia
  INPRISE SOLUTIONS GMBH.....................................     Germany
</TABLE>
--------
* Excludes subsidiaries that do not fall under definition of "Significant
  Subsidiary" as defined under Rule 1-02(w) of Regulation S-X

                                     F-28