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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,
D.C. 20549

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Form 10-Q

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|- | ----------------------------------------------------------------------------------------
|  |                                                                                         
|  | For the quarterly period ended June 30, 2002.                                           
|  |                                                                                         
|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|  |                                                                                         
|  | For the transition period from _______ to _______                                       

Commission File Number
000-30293

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EMBARCADERO TECHNOLOGIES, INC.(Exact Name of Registrant as
Specified in Its Charter)

|Delaware                                                      | 68-0310015                         
|------------------------------------------------------------- | -----------------------------------
|(State or other jurisdictionof incorporation or organization) | (I.R.S. EmployerIdentification No.)

425 MARKET STREET, SUITE 425SAN FRANCISCO, CA
94105(415) 834-3131(Address of principal executive offices)

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Indicate
by check mark whether the registrant (1) 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 shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

The number of shares outstanding of the Registrants Common Stock as of June 30, 2002 was 27,217,614.

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EMBARCADERO TECHNOLOGIES, INC.

INDEX

|                              |                                                                                                           | Page
|----------------------------- | --------------------------------------------------------------------------------------------------------- | ----
|PART I. FINANCIAL INFORMATION
|                              |                                                                                                           |     
|ITEM 1.                       | FINANCIAL STATEMENTS                                                                                      |     
|                              |                                                                                                           |     
|                              | Condensed Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001                           | 3   
|                              |                                                                                                           |     
|                              | Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2002 and 2001 | 4   
|                              |                                                                                                           |     
|                              | Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and 2001           | 5   
|                              |                                                                                                           |     
|                              | Notes to Condensed Consolidated Financial Statements                                                      | 6   
|                              |                                                                                                           |     
|ITEM 2.                       | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                     | 11  
|                              |                                                                                                           |     
|ITEM 3.                       | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                | 26  
|                              |                                                                                                           |     
|PART II. OTHER INFORMATION   
|                              |                                                                                                           |     
|ITEM 4.                       | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                       | 27  
|                              |                                                                                                           |     
|ITEM 6.                       | EXHIBITS AND REPORTS ON FORM 8-K                                                                          | 27  
|                              |                                                                                                           |     
|SIGNATURE                     |                                                                                                           | 28  

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|PART I                                    
|------------------------------------------
|                                          
|FINANCIAL INFORMATION                     
|                                          
|ITEM 1. FINANCIAL STATEMENTS              
|                                          
|EMBARCADERO TECHNOLOGIES, INC.            
|                                          
|CONDENSED CONSOLIDATED BALANCE SHEETS     
|(in thousands, except par value)          
|(unaudited)                               
|                                          
|                                          
|                                          
|                                          
|                                          
|ASSETS                                    
|Current Assets:                           
|Cash and cash equivalents                 
|Short-term investments                    
|Trade accounts receivable, net            
|Prepaid expenses and other current assets 
|                                          
|Total current assets                      
|Property and equipment, net               
|Goodwill and other intangible assets, net 
|Deferred income taxes                     
|Other assets                              
|                                          
|Total assets                              
|                                          
|                                          
|LIABILITIES AND STOCKHOLDERS EQUITY      
|                                          
|Current Liabilities:                      
|Accounts payable and accrued liabilities  
|Deferred revenue                          
|Deferred income taxes                     
|                                          
|Total current liabilities                 
|                                          
|                                          
|Stockholders Equity:                     
|Common stock, $0.001 par value            
|Treasury stock                            
|Additional paid-in capital                
|Accumulated other comprehensive income    
|Deferred stock-based compensation         
|Accumulated deficit                       
|                                          
|Total stockholders equity                
|                                          
|Total liabilities and stockholders equity
|                                          

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

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EMBARCADERO TECHNOLOGIES, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share data)(unaudited)

|                                                                            | Three Months Ended |        | Six Months Ended
|--------------------------------------------------------------------------- | ------------------ | ------ | ----------------
|                                                                            | June 30,           |        | June 30,        
|                                                                            |                    |        |                 
|                                                                            | 2002               |        | 2001            
|                                                                            |                    |        |                 
|Revenues:                                                                   |                    |        |                 
|License                                                                     | $                  | 6,516  |                 
|Maintenance                                                                 |                    | 5,403  |                 
|                                                                            |                    |        |                 
|Total revenues                                                              |                    | 11,919 |                 
|                                                                            |                    |        |                 
|Cost of revenues:                                                           |                    |        |                 
|License:                                                                    |                    |        |                 
|License, other                                                              |                    | 155    |                 
|Amortization of acquired technology                                         |                    | 405    |                 
|                                                                            |                    |        |                 
|Total license                                                               |                    | 560    |                 
|                                                                            |                    |        |                 
|Maintenance:                                                                |                    |        |                 
|Maintenance, other                                                          |                    | 523    |                 
|Non-cash stock-based compensation                                           |                    | 1      |                 
|                                                                            |                    |        |                 
|Total maintenance                                                           |                    | 524    |                 
|                                                                            |                    |        |                 
|Total cost of revenues                                                      |                    | 1,084  |                 
|                                                                            |                    |        |                 
|Gross profit                                                                |                    | 10,835 |                 
|                                                                            |                    |        |                 
|Operating expenses:                                                         |                    |        |                 
|Research and development:                                                   |                    |        |                 
|Research and development, other                                             |                    | 3,552  |                 
|Purchased research and development                                          |                    | 1,100  |                 
|Non-cash stock-based compensation                                           |                    | 8      |                 
|                                                                            |                    |        |                 
|Total research and development                                              |                    | 4,660  |                 
|                                                                            |                    |        |                 
|Sales and marketing:                                                        |                    |        |                 
|Sales and marketing, other                                                  |                    | 4,411  |                 
|Non-cash stock-based compensation                                           |                    | 208    |                 
|                                                                            |                    |        |                 
|Total sales and marketing                                                   |                    | 4,619  |                 
|                                                                            |                    |        |                 
|General and administrative:                                                 |                    |        |                 
|General and administrative, other                                           |                    | 1,070  |                 
|Non-cash stock-based compensation                                           |                    | 338    |                 
|                                                                            |                    |        |                 
|Total general and administrative                                            |                    | 1,408  |                 
|                                                                            |                    |        |                 
|Amortization of goodwill and other intangible assets                        |                    | 385    |                 
|                                                                            |                    |        |                 
|Total operating expenses                                                    |                    | 11,072 |                 
|                                                                            |                    |        |                 
|Income (loss) from operations                                               |                    | (237   | )               
|Interest income                                                             |                    | 180    |                 
|Other expenses                                                              |                    |       |                 
|Expenses related to proposed public offering                                |                    |       |                 
|                                                                            |                    |        |                 
|Income (loss) before benefit from (provision for) income taxes and share in |                    |        |                 
|loss of joint venture.                                                      |                    | (57    | )               
|Benefit from (provision for) income taxes                                   |                    | 58     |                 
|                                                                            |                    |        |                 
|Income before share in loss of joint venture                                |                    | 1      |                 
|Share in loss of joint venture, net                                         |                    | (123   | )               
|                                                                            |                    |        |                 
|Net income (loss)                                                           | $                  | (122   | )               
|                                                                            |                    |        |                 
|                                                                            |                    |        |                 
|Net income (loss) per share:                                                |                    |        |                 
|Basic                                                                       | $                  | 0.00   |                 
|                                                                            |                    |        |                 
|Diluted                                                                     | $                  | 0.00   |                 
|                                                                            |                    |        |                 
|                                                                            |                    |        |                 
|Weighted average shares used in per share calculation:                      |                    |        |                 
|Basic                                                                       |                    | 27,225 |                 
|                                                                            |                    |        |                 
|Diluted                                                                     |                    | 27,225 |                 
|                                                                            |                    |        |                 

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

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EMBARCADERO TECHNOLOGIES, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)(unaudited)

|                                                                                  |                  |        |      |  |   |        |  
|--------------------------------------------------------------------------------- | ---------------- | ------ | ---- |  | - | ------ | -
|                                                                                  | Six Months Ended
|                                                                                  | June 30,        
|                                                                                  |                 
|                                                                                  | 2002             |        | 2001
|                                                                                  |                  |        |      |  |  
|Cash Flows from Operating Activities:                                             |                  |        |      |  |   |        |  
|Net income                                                                        | $                | 531    |      |  | $ | 315    |  
|Adjustments to reconcile net income to net cash provided by operating activities: |                  |        |      |  |   |        |  
|Depreciation and amortization                                                     |                  | 1,000  |      |  |   | 873    |  
|Provision for doubtful accounts                                                   |                  | 243    |      |  |   | 20     |  
|Amortization of goodwill and other intangible assets                              |                  | 1,534  |      |  |   | 3,214  |  
|Amortization of deferred stock-based compensation                                 |                  | 1,236  |      |  |   | 2,551  |  
|Share in loss of joint venture                                                    |                  | 577    |      |  |   |       |  
|Changes in assets and liabilities:                                                |                  |        |      |  |   |        |  
|Trade accounts receivable                                                         |                  | (633   | )    |  |   | (292   | )
|Prepaid expenses and other assets                                                 |                  | (506   | )    |  |   | 1,461  |  
|Deferred income taxes, net                                                        |                  |       |      |  |   | (489   | )
|Accounts payable and accrued liabilities                                          |                  | 237    |      |  |   | 959    |  
|Deferred revenue                                                                  |                  | 1,521  |      |  |   | 1,212  |  
|                                                                                  |                  |        |      |  |  
|Net cash provided by operating activities                                         |                  | 5,740  |      |  |   | 9,824  |  
|                                                                                  |                  |        |      |  |  
|Cash Flows from Investing Activities:                                             |                  |        |      |  |   |        |  
|Sales and maturities of investments                                               |                  | 1,541  |      |  |   |       |  
|                                                                                  |                  |        |      |  |   |        |  
|Purchase of property and equipment                                                |                  | (1,564 | )    |  |   | (1,187 | )
|Technology acquired and developed                                                 |                  | (290   | )    |  |   | (3,075 | )
|Deferred payment in connection with acquisition of subsidiary                     |                  | (2,000 | )    |  |   |       |  
|Investment in joint venture                                                       |                  | (500   | )    |  |   |       |  
|                                                                                  |                  |        |      |  |  
|Net cash used in investing activities                                             |                  | (2,813 | )    |  |   | (4,262 | )
|                                                                                  |                  |        |      |  |  
|Cash Flows from Financing Activities:                                             |                  |        |      |  |   |        |  
|Proceeds from exercise of stock options                                           |                  | 504    |      |  |   | 677    |  
|Payments for repurchase of common stock                                           |                  | (102   | )    |  |   |       |  
|                                                                                  |                  |        |      |  |  
|Net cash provided by financing activities                                         |                  | 402    |      |  |   | 677    |  
|                                                                                  |                  |        |      |  |  
|Effect of exchange rate changes on cash                                           |                  | 40     |      |  |   |       |  
|Net increase in cash and cash equivalents                                         |                  | 3,369  |      |  |   | 6,239  |  
|Cash and cash equivalents at beginning of period                                  |                  | 23,371 |      |  |   | 34,745 |  
|                                                                                  |                  |        |      |  |  
|Cash and cash equivalents at end of period                                        | $                | 26,740 |      |  | $ | 40,984 |  
|                                                                                  |                  |        |      |  |  

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

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EMBARCADERO TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(unaudited)

NOTE 1THE COMPANY AND BASIS OF PRESENTATION

Embarcadero Technologies, Inc. (with its subsidiaries, collectively referred to as the Company) was incorporated in California on
July 23, 1993 and reincorporated in Delaware on February 15, 2000. The Company provides software products that enable organizations to effectively manage their database infrastructure. The Company is headquartered in San Francisco, California and
has international operations in Toronto, Canada and Maidenhead, United Kingdom.

The Company markets its software and related
maintenance services directly through telesales and field sales organizations in the United States, Canada and the United Kingdom, and indirectly through independent distributors in Australia, Latin America and Japan.

The accompanying unaudited condensed consolidated financial statements reflect all adjustments, which, in the opinion of the Company, are
necessary for a fair presentation of the results for the interim periods presented. All such adjustments are normal recurring adjustments. These financial statements have been prepared in accordance with generally accepted accounting principles
related to interim financial statements and the applicable rules of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete
financial statements. The balance sheet at December 31, 2001 was derived from audited financial statements, but it does not include all disclosures required by generally accepted accounting principles.

The financial statements and related disclosures have been prepared with the presumption that users of the interim financial information have read or have access
to the audited financial statements for the preceding fiscal year. Accordingly, these financial statements should be read in conjunction with the audited financial statements and the related notes thereto contained in the Companys Annual
Report on Form 10-K for the year ended December 31, 2001, filed on March 26, 2002.

Operating results for the three and six months
ended June 30, 2002 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2002 or for any future period. Further, the preparation of condensed consolidated financial statements requires management
to make estimates and assumptions that affect the recorded amounts reported therein. A change in facts or circumstances surrounding the estimates could result in a change to the estimates and impact future operating results.

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EMBARCADERO TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)(unaudited)

NOTE 2COMPREHENSIVE INCOME (LOSS)

Other comprehensive income (loss) consists of foreign currency translation adjustments during the period. For the three and six months ended June 30, 2002, other comprehensive income amounted to
approximately $64,000 and $40,000, respectively, and accumulated other comprehensive income was $156,000 at June 30, 2002. No such amounts existed as of June 30, 2001.

The components of comprehensive income (loss) are as follows (in thousands):

|                                         | Three Months Ended |      | Six Months Ended
|---------------------------------------- | ------------------ | ---- | ----------------
|                                         | June 30,           |      | June 30,        
|                                         |                    |      |                 
|                                         | 2002               |      | 2001            
|                                         |                    |      |                 
|                                         | (unaudited)        |      | (unaudited)     
|                                         |                    |      |                 
|Net income (loss)                        | $                  | (122 | )               
|Foreign currency translation adjustments |                    | 64   |                 
|                                         |                    |      |                 
|Comprehensive income (loss)              | $                  | (58  | )               
|                                         |                    |      |                 

NOTE 3EARNINGS PER SHARE

Basic net income (loss) per common share excludes the effect of potentially dilutive securities and is computed by dividing net income (loss) by the weighted
average number of common shares outstanding for the period. Diluted net income (loss) per share reflects the potential dilution of securities by including stock options in the weighted average number of common shares outstanding for a period, if
dilutive.

A reconciliation of the numerator and denominator used in the calculation of historical basic and diluted net income
(loss) per share is as follows (in thousands, except per share data):

|                                                                                   | Three Months Ended June 30, |        | Six Months Ended June 30,
|---------------------------------------------------------------------------------- | --------------------------- | ------ | -------------------------
|                                                                                   | 2002                        |        |                          
|                                                                                   |                             |        |                          
|                                                                                   | (unaudited)                 |        | (unaudited)              
|Calculation of basic net income (loss) per share:                                  |                             |        |                          
|Net income (loss)                                                                  | $                           | (122   | )                        
|Weighted average common shares outstanding                                         |                             | 27,225 |                          
|                                                                                   |                             |        |                          
|Net income (loss) per share, basic                                                 | $                           | 0.00   |                          
|                                                                                   |                             |        |                          
|                                                                                   |                             |        |                          
|Calculation of diluted net income (loss) per share:                                |                             |        |                          
|Weighted average common shares outstanding                                         |                             | 27,225 |                          
|Dilutive securities-common stock options                                           |                             |       |                          
|Weighted average common and common equivalent shares                               |                             | 27,225 |                          
|                                                                                   |                             |        |                          
|Net income (loss) per share, diluted                                               | $                           | 0.00   |                          
|                                                                                   |                             |        |                          
|Anti-dilutive common stock options not included in net income     (loss) per share |                             | 2,394  |                          
|                                                                                   |                             |        |                          

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EMBARCADERO TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)(unaudited)

NOTE 4CHANGES IN ACCOUNTING FOR BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE ASSETS

In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 142, Goodwill and Other Intangible Assets,
which is effective for fiscal years beginning after December 15, 2001. SFAS No. 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 as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the testing for impairment of existing goodwill
and other intangibles. The Company adopted the provisions of SFAS No. 142 effective January 1, 2002. On January 1, 2002, $3.5 million of intangible assets related to the workforce, net of accumulated amortization of $840,000, were reclassified to
goodwill. As a result, approximately $10.3 million of remaining goodwill, net will no longer be amortized. In lieu of amortization, the Company performed an impairment review of its goodwill balance upon the initial adoption of SFAS No. 142. The
impairment review performed by the Company involves a two-step process as follows:

| | Step 1  The Company compares the market value of its reporting unit to the carrying value, including goodwill of each of those units. If the carrying value of the reporting unit, including
goodwill, exceeds the units market value, the Company moves on to step 2. If the market value of the reporting unit exceeds the carrying value, no further work would be performed and no impairment charge would be necessary.                                                                                                                                    
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Step 2  The Company performs an allocation of the market value of the reporting unit to its identifiable tangible and non-goodwill intangible assets and liabilities. This derives an implied
fair value for the reporting units goodwill. The Company then compares the implied fair value of the reporting units goodwill with the carrying amount of the reporting units goodwill. If the carrying amount of the reporting
units goodwill is greater than the implied fair value of its goodwill, an impairment charge would be recognized for the excess.

The Company performed Step 1 of the goodwill impairment analysis required by SFAS 142 on January 1, 2002 and concluded that goodwill was not impaired as the market value of its one
reporting unit exceeded its carrying value, including goodwill. Accordingly, Step 2 was not performed. The market value of the reporting unit was estimated by multiplying the number of shares outstanding on the analysis date by the stock market
closing price on January 2, 2001 (there was a stock market holiday on January 1, 2002). The Company will continue to test for impairment on an annual basis and on an interim basis if an event occurs or circumstances change that would more likely
than not reduce the fair value of the Companys reporting units below their carrying amounts.

Between January 1 and June 30,
2002, there were no changes to the Companys goodwill balance.Goodwill information is as follows (in thousands):

|              | January 1,2002 | GoodwillAcquired | Adjustments   | June 30, 2002 
|------------- | -------------- | ---------------- | ------------- | --------------
|              |                |                  |               |               
|North America | $       10,300 | $               | $            | $       10,300
|              |                |                  |               |               

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EMBARCADERO TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)(unaudited)

The following table presents comparative information showing the effects that
non-amortization of goodwill would have had on the income statement for the three and six months ended June 30, 2001 (in thousands, except per share amounts):

|                                             |  | Three Months Ended |      | Six Months Ended
|-------------------------------------------- |  | ------------------ | ---- | ----------------
|                                             |  | June 30,           |      | June 30,        
|                                             |  |                    |      |                 
|                                             |  | 2002               |      |                 
|                                             |  |                    |      |                 
|                                             |  | (unaudited)        |      | (unaudited)     
|Reported net income (loss)                   |  | $                  | (122 | )               
|Goodwill amortization                        |  |                    |     |                 
|                                             |  |                    |      |                 
|Adjusted net income (loss)                   |  | $                  | (122 | )               
|                                             |  |                    |      |                 
|                                             |  |                    |      |                 
|Basic net income (loss) per share            |  | $                  | 0.00 |                 
|Goodwill amortization                        |  |                    |     |                 
|                                             |  |                    |      |                 
|Adjusted basic net income (loss) per share   |  | $                  | 0.00 |                 
|                                             |  |                    |      |                 
|                                             |  |                    |      |                 
|Diluted net income (loss) per share          |  | $                  | 0.00 |                 
|Goodwill amortization                        |  |                    |     |                 
|                                             |  |                    |      |                 
|Adjusted diluted net income (loss) per share |  | $                  | 0.00 |                 
|                                             |  |                    |      |                 

Intangible assets subject to amortization consist
of technology and non-compete agreements that are being amortized over a period of two to four years. The components of intangible assets, excluding goodwill, are as follows (in thousands):

|                         |  | June 30, 2002         |       | December 31, 2001       
|------------------------ |  | --------------------- | ----- | ------------------------
|                         |  | Gross Carrying Amount |       | Amortization Accumulated
|                         |  |                       |       |                         
|                         |  |                       |       |                         
|Other Intangible assets: |  |                       |       |                         
|Purchased technology     |  | $                     | 3,230 |                         
|Other intangibles        |  |                       | 3,080 |                         
|                         |  |                       |       |                         
|Total                    |  | $                     | 6,310 |                         
|                         |  |                       |       |                         

Expected future intangible asset
amortization expense is as follows (in thousands):

| | Fiscal Years:     |   |       | 
| | ----------------- | - | ----- | 
| | Remainder of 2002 | $ | 954   | 
| | 2003              | $ | 808   | 
| | 2004              | $ | 692   | 
| | 2005              | $ | -     | 
| | 2006              | $ | -     | 
| | Thereafter        | $ | -     | 
| |                  
| |                   | $ | 2,454 | 
| |                  

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EMBARCADERO TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)(unaudited)

NOTE 5SEGMENT REPORTING

Operating segments are components of an enterprise about which separate financial information is available and is regularly evaluated by management, namely the chief decision maker of an
organization, in order to make operating and resource allocation decisions. By this definition, Embarcadero operates in one reportable operating segment, the design, development, marketing, sales and support of software for database and application
development and management.

The Companys wholly owned subsidiary, Embarcadero Europe Ltd., transacts all sales in Europe, the Middle
East and Africa. Various distributors handle sales in regions outside Europe, the Middle East, Africa and North America. The Companys geographic sales data is based on customer location as defined by the following regions: North America,
United Kingdom and Other.

Revenue and long-lived assets by geographic region are as follows (in thousands):

|                  |  | Three Months Ended |        | Six Months Ended |  
|----------------- |  | ------------------ | ------ | ---------------- | -
|                  |  | June 30,           |        | June 30,         |  
|                  |  |                    |        |                  |  
|Geographic Region |  | 2002               |        | 2001             |  
|                  |  |                    |        |                  |  
|                  |  | (unaudited)        |        | (unaudited)     
|Revenues:         |  |                    |        |                  |  
|                  |  |                    |        |                  |  
|North America     |  | $                  | 9,604  |                  | $
|United Kingdom    |  |                    | 1,064  |                  |  
|Other             |  |                    | 1,252  |                  |  
|                  |  |                    |        |                  |  
|Total             |  | $                  | 11,918 |                  | $
|                  |  |                    |        |                  |  

|                   |  | As ofJune 30 |        | As ofDecember 31
|------------------ |  | ------------ | ------ | ----------------
|                   |  |              | 2002   |                 
|                   |  |              |        |                 
|Long-lived assets: |  | (unaudited) 
|                   |  |              |        |                 
|North America      |  | $            | 22,173 |                 
|United Kingdom     |  |              | 247    |                 
|                   |  |              |        |                 
|Total              |  | $            | 22,420 |                 
|                   |  |              |        |                 

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

The following
discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included in this Form 10-Q, and with our managements discussion
and analysis included in the Companys Annual Report on Form 10-K for the year ended December 31, 2001, filed on March 26, 2002.

This
report contains forward-looking statements within the meaning of the federal securities laws that relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as
may, will, should, expect, plan, anticipate, believe, estimate, predict, intend, potential or continue or
the negative of these terms or other comparable terminology. Such statements are only predictions. Risks and uncertainties and the occurrence of other events could cause actual results to differ materially from these predictions. The factors
discussed below under Factors That May Affect Future Results should be considered carefully in evaluating Embarcadero and its business. Although we believe that the expectations reflected in the forward-looking statements are reasonable,
we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of these statements. We are under no duty to update any of the
forward-looking statements after the date of this report or to conform these statements to actual results.

Overview

We provide software products that enable organizations to effectively manage their database infrastructure. Our Database Administration, Performance Management, Data and Application
Architecture and Data Integration products offer customers comprehensive solutions for managing the database life cycle, which is the process of creating, optimizing and managing key business applications and their underlying databases in response
to evolving business requirements. By simplifying the management of the database life cycle, our products allow organizations to ensure the availability, performance and reliability of their critical business applications.

We were incorporated in California as Client Worx, Inc. in July 1993 and changed our name to Embarcadero Technologies, Inc. in October 1993. We
reincorporated in Delaware in February 2000. At our inception, we focused on developing and marketing software for use with Sybase and Microsoft SQL Server databases. In December 1993, we introduced Rapid SQL for Sybase and Microsoft SQL Server
database development. In July 1994, we introduced DBArtisan for the administration of Sybase and Microsoft SQL Server databases. In September 1996, we released ER/Studio, our database design solution, which was our first product to offer support for
IBM DB2 Universal Database, Informix and Oracle, as well as Sybase and Microsoft SQL Server.

The success of ER/Studios
multi-vendor support led us to add support for other major databases to our other products. We added Oracle support to DBArtisan in April 1997 and to Rapid SQL in January 1998. We added support for IBM DB2 Universal Database to both products in
mid-1998. In 1998, we also began to enhance our products with add-ons and companion products. In October 1998, we offered our first standalone companion product, ER/Studio Viewer, which complemented the ER/Studio product. In April 1999, we
introduced DBArtisan Schema Manager as a standalone companion product and changed the product name to DBArtisan Change Manager in January 2000. In 2000, we introduced Embarcadero Job Scheduler, designed to simplify database administration by
enabling database professionals to automate their scheduling tasks and manage them from a single, easy-to-use graphical console. Also in 2000, we introduced Embarcadero SQL Debugger and Embarcadero SQL Profiler add-ons to extend the functionality of
Rapid SQL and DBArtisan.

During the fourth quarter of 2000, we completed three acquisitions: Embarcadero Europe Ltd., Advanced
Software Technologies, Inc. and EngineeringPerformance, Inc. Embarcadero Europe Ltd. serves as our sales and marketing office for Europe, the Middle East and Africa. In connection with our acquisition of Advanced Software Technologies, Inc., we
introduced GDPro (renamed Describe in 2001), an application design product.

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During the first quarter of 2001, we introduced Embarcadero Performance Center and Embarcadero SQL Tuner,
both of which are designed to improve the availability and performance of databases. We introduced Describe, which is used to design and document enterprise applications, in the second quarter of 2001. Two new products were released during the third
quarter of 2001, Data Voyager, for publishing and managing test and reference data, and Repository for ER/Studio, for enabling collaborative database design among ER/Studio users. In the fourth quarter of 2001, we delivered DT/Studio, a java-based
data integration product that can transform and move data from a number of disparate data sources to a wide variety of relational database targets.

Sources of Revenue and Revenue
Recognition Policy

Revenues are primarily derived from software license fees and related maintenance contracts. Revenues from
software license fees are recognized upon shipment, when terms are F.O.B. shipping point, provided that evidence of an arrangement exists, the fee is fixed or determinable and collection of the resulting receivable is reasonable assured. Evidence of
an arrangement may be an order accompanied by pre-payment via check or credit card, a signed purchase order or an equivalent form of documentation from the customer. Maintenance contracts generally cover a one-year term paid for in advance, and
revenues from maintenance contracts are recognized ratably over the contract term.

Most license orders have multiple obligations,
both deliverable products and related maintenance, and revenues are allocated to each undelivered component of the contract based on objective evidence of its fair value, which is specific to the Company. We recognize revenues allocated when the
criteria for revenue recognition set forth above are met. While some revenues are collected via credit card at the time an order is placed, customers are generally granted payment terms of net thirty days.

Products may be sold through resellers and distributors in the United States and certain international markets. Revenues from software license fees and maintenance
contracts sold through resellers or distributors are recognized under the same criteria as those sold by the Company. Distributors purchase products to fulfill specific customer orders and generally do not hold inventory of the Companys
products.

We market our software and related maintenance services directly through our telesales and field sales organizations in
the United States, Canada and the United Kingdom, and indirectly through our distribution partners worldwide. We intend to expand our international sales activities in an effort to increase revenues from foreign sales.

There can be no assurance that our license and maintenance revenues, results of operations, cash flows from operations and financial condition
will not be adversely affected in future periods as a result of continued downturns in global economic conditions and increased competitive pressures.

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RESULTS OF OPERATIONS

The
following table sets forth, for the periods indicated, the percentage relationship of certain items from the Companys condensed consolidated statements of operations to total revenues:

|                                                                                                     | Three Months Ended |       | Six Months Ended
|---------------------------------------------------------------------------------------------------- | ------------------ | ----- | ----------------
|                                                                                                     | June 30,           |       | June 30,        
|                                                                                                     |                    |       |                 
|                                                                                                     | 2002               |       |                 
|                                                                                                     |                    |       |                 
|                                                                                                     |                    |       |                 
|Revenues:                                                                                            |                    |       |                 
|License                                                                                              |                    | 54.7  | %               
|Maintenance                                                                                          |                    | 45.3  |                 
|                                                                                                     |                    |       |                 
|Total revenues                                                                                       |                    | 100.0 |                 
|                                                                                                     |                    |       |                 
|Cost of revenues:                                                                                    |                    |       |                 
|License:                                                                                             |                    |       |                 
|License, other                                                                                       |                    | 1.3   |                 
|Amortization of acquired technology                                                                  |                    | 3.4   |                 
|                                                                                                     |                    |       |                 
|Total license                                                                                        |                    | 4.7   |                 
|                                                                                                     |                    |       |                 
|Maintenance:                                                                                         |                    |       |                 
|Maintenance, other                                                                                   |                    | 4.4   |                 
|                                                                                                     |                    |       |                 
|Total cost of revenues                                                                               |                    | 9.1   |                 
|                                                                                                     |                    |       |                 
|Gross profit                                                                                         |                    | 90.9  |                 
|                                                                                                     |                    |       |                 
|Operating expenses:                                                                                  |                    |       |                 
|Research and development:                                                                            |                    |       |                 
|Research and development, other                                                                      |                    | 29.8  |                 
|Purchased research and development                                                                   |                    | 9.2   |                 
|Non-cash stock-based compensation                                                                    |                    | 0.1   |                 
|                                                                                                     |                    |       |                 
|Total research and development                                                                       |                    | 39.1  |                 
|                                                                                                     |                    |       |                 
|Sales and marketing:                                                                                 |                    |       |                 
|Sales and marketing, other                                                                           |                    | 37.0  |                 
|Non-cash stock-based compensation                                                                    |                    | 1.8   |                 
|                                                                                                     |                    |       |                 
|Total sales and marketing                                                                            |                    | 38.8  |                 
|                                                                                                     |                    |       |                 
|General and administrative:                                                                          |                    |       |                 
|General and administrative, other                                                                    |                    | 8.9   |                 
|Non-cash stock-based compensation                                                                    |                    | 2.9   |                 
|                                                                                                     |                    |       |                 
|Total general and administrative                                                                     |                    | 11.8  |                 
|                                                                                                     |                    |       |                 
|Amortization of goodwill and other intangible assets                                                 |                    | 3.2   |                 
|                                                                                                     |                    |       |                 
|Total operating expenses                                                                             |                    | 92.9  |                 
|                                                                                                     |                    |       |                 
|Income (loss) from operations                                                                        |                    | (2.0  | )               
|Interest income                                                                                      |                    | 1.5   |                 
|Other expenses                                                                                       |                    |      |                 
|Expenses related to proposed public offering                                                         |                    |      |                 
|                                                                                                     |                    |       |                 
|Income (loss) before benefit from (provision for) income taxes and share in    loss of joint venture |                    | (0.5  | )               
|Benefit from (provision for) income taxes                                                            |                    | 0.5   |                 
|                                                                                                     |                    |       |                 
|Income before share in loss of joint venture                                                         |                    | 0.0   |                 
|Share in loss of joint venture, net                                                                  |                    | (1.0  | )               
|                                                                                                     |                    |       |                 
|Net income (loss)                                                                                    |                    | (1.0  | )%              
|                                                                                                     |                    |       |                 

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Three and Six Months Ended June 30, 2002 and 2001

Revenues

|               | Three Months Ended June 30, |        | Six Months Ended June 30,
|-------------- | --------------------------- | ------ | -------------------------
|               |                             |        |                          
|               | 2002                        |        | 2001                     
|               |                             |        |                          
|               | (in thousands)             
|Revenues:      |                             |        |                          
|License        | $                           | 6,516  |                          
|Maintenance    |                             | 5,403  |                          
|               |                             |        |                          
|Total revenues | $                           | 11,919 |                          
|               |                             |        |                          

Total Revenues. Total revenues were $11.9 million and $24.4 million for the three
and six months ended June 30, 2002, respectively, representing decreases of 18.4% and 13.7% from the comparable periods of 2001.

License. License revenues were $6.5 million and
$13.6 million for the three and six months ended June 30, 2002, respectively, representing decreases of 33.5% and 28.1% from the comparable periods of 2001. The decrease in license revenues was due to unfavorable changes in macro-economic conditions
and the resulting impact on information technology related spending.

Maintenance. Maintenance revenues were $5.4 million and $10.8 million for the three and six months ended
June 30, 2002, respectively, representing increases of 12.4% and 15.6% from the comparable periods of 2001. The increases were due to the cumulative increase in the number of licenses sold and a corresponding increase in our customer base and
maintenance renewals.

Cost of Revenues

|                                    |                             |       |                          
|----------------------------------- | --------------------------- | ----- | -------------------------
|                                    | Three Months Ended June 30, |       | Six Months Ended June 30,
|                                    |                             |       |                          
|                                    | 2002                        |       | 2001                     
|                                    |                             |       |                          
|                                    | (in thousands)             
|Cost of revenues:                   |                             |       |                          
|License:                            |                             |       |                          
|License, other                      | $                           | 155   |                          
|Amortization of acquired technology |                             | 405   |                          
|                                    |                             |       |                          
|Total license                       |                             | 560   |                          
|                                    |                             |       |                          
|Maintenance:                        |                             |       |                          
|Maintenance, other                  |                             | 523   |                          
|Non-cash stock-based compensation   |                             | 1     |                          
|                                    |                             |       |                          
|Total maintenance                   |                             | 524   |                          
|                                    |                             |       |                          
|Total cost of revenues              | $                           | 1,084 |                          
|                                    |                             |       |                          

License.Cost of license revenues consists primarily of amortization of acquired
technology, royalties, product media and packaging, shipping fees, duplication expenses and amortization of capitalized research and development costs. Cost of license revenues was $560,000 and $958,000 for the three and six months ended June 30,
2002, respectively, representing increases of 26.4% and 17.1% from the comparable periods of 2001. Excluding amortization of acquired technology, cost of license revenues for the three and six months ended June 30, 2002 decreased 35.7% and 31.4%
from the comparable periods of 2001. This decrease from 2001 to 2002 correlates to the decrease in license revenues, as evidenced by the fact that cost of license, as a percentage of license revenues, was relatively consistent from year-to-year for
each reported period. Excluding amortization of acquired technology, cost of license as a percentage of license revenues was 2.4% and 2.1% in the three and six months ended June 30, 2002, respectively, and 2.5% and 2.2% in the comparable periods of
2001. Cost of license revenues as a percentage of license revenues may vary in the future depending on the mix of internally developed versus externally licensed products and product components.

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Maintenance. Cost of maintenance revenues consists primarily of customer support personnel and related expenses, including payroll, employee benefits
and non-cash stock-based compensation. Cost of maintenance revenues was $524,000 and $1.2 million for the three and six months ended June 30, 2002, respectively, representing an increase of 3.6% and a decrease of 1.3% from the comparable periods of
2001. Cost of maintenance revenues represented 9.7% and 10.6% of maintenance revenues in the three and six months ended June 30, 2002, respectively, and 10.5% and 12.5% of maintenance revenues for the comparable periods of 2001. The decrease in cost
of maintenance as a percentage of related revenues from 2001 to 2002 was due to greater efficiencies of scale from the support organization.

Operating Expenses

Research and Development

|                                   |                             |       |                           |   |       |  |      |       |  |   |      
|---------------------------------- | --------------------------- | ----- | ------------------------- | - | ----- |  | ---- | ----- |  | - | -----
|                                   | Three Months Ended June 30, |       | Six Months Ended June 30,
|                                   |                             |       |                          
|                                   | 2002                        |       | 2001                      |   | 2002  |  | 2001
|                                   |                             |       |                           |   |       |  |     
|                                   | (in thousands)             
|Research and development:          |                             |       |                           |   |       |  |      |       |  |   |      
|Research and development, other    | $                           | 3,552 |                           | $ | 3,485 |  | $    | 7,269 |  | $ | 6,896
|Purchased research and development |                             | 1,100 |                           |   |      |  |      | 1,100 |  |   |     
|Non-cash stock-based compensation  |                             | 8     |                           |   | 36    |  |      | 21    |  |   | 81   
|                                   |                             |       |                           |   |       |  |     
|Total research and development     | $                           | 4,660 |                           | $ | 3,521 |  | $    | 8,390 |  | $ | 6,977
|                                   |                             |       |                           |   |       |  |     

Research and development expenses consist primarily of personnel and related expenses, including payroll,
employee benefits and non-cash stock-based compensation, as well as payments made to outside software development contractors. Research and development expenses were $4.7 million and $8.4 million for the three and six months ended June 30, 2002,
respectively, representing increases of 32.3% and 20.3% from the comparable periods of 2001. Excluding purchased research and development and non-cash stock-based compensation, the 2002 results represent increases of 1.9% and 5.4% from the
comparable periods of 2001. Excluding purchased research and development and non-cash stock-based compensation, the increases in absolute dollars from 2001 to 2002 were primarily due to an increase in research and development headcount and related
expenses. As a percentage of total revenues, excluding purchased research and technology and non-cash stock-based compensation, research and development expenses were 29.8% in the three and six months ended June 30, 2002 and 23.9% and 24.4%,
respectively, in the comparable periods of 2001. The increase as a percentage of total revenues from 2001 to 2002, excluding purchased research and technology and non-cash stock-based compensation, was due primarily to the lower revenue base in 2002
and to a lesser extent to the increase in headcount and related expenses. During the three months ended June 30, 2002, we incurred a $1.1 million expense to purchase technology to supplement our internal research and development efforts. Research
and development expenses may increase in absolute dollars in future periods should we choose to hire additional development personnel, purchase technology and/or expand our product development activities.

Sales and Marketing

|                                  |                             |       |                           |   |       |  |      |       |  |   |       
|--------------------------------- | --------------------------- | ----- | ------------------------- | - | ----- |  | ---- | ----- |  | - | ------
|                                  | Three Months Ended June 30, |       | Six Months Ended June 30,
|                                  |                             |       |                          
|                                  | 2002                        |       | 2001                      |   | 2002  |  | 2001
|                                  |                             |       |                           |   |       |  |     
|                                  | (in thousands)             
|Sales and marketing:              |                             |       |                           |   |       |  |      |       |  |   |       
|Sales and marketing, other        | $                           | 4,411 |                           | $ | 5,302 |  | $    | 9,036 |  | $ | 10,124
|Non-cash stock-based compensation |                             | 208   |                           |   | 415   |  |      | 458   |  |   | 907   
|                                  |                             |       |                           |   |       |  |     
|Total sales and marketing         | $                           | 4,619 |                           | $ | 5,717 |  | $    | 9,494 |  | $ | 11,031
|                                  |                             |       |                           |   |       |  |     

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Sales and marketing expenses consist primarily of salaries and related personnel costs, commissions earned by sales personnel, non-cash stock-based
compensation, trade shows, travel and other marketing communication costs, such as advertising and other marketing programs. Sales and marketing expenses were $4.6 million and $9.5 million for the three and six months ended June 30, 2002,
respectively, representing decreases of 19.2% and 13.9% from the comparable periods of 2001. Excluding non-cash stock-based compensation, sales and marketing costs in 2002 decreased by 16.8% and 10.7% from the three and six months ended June 30,
2001. Excluding non-cash stock-based compensation, the decrease in absolute dollars from 2001 to 2002 was due to a reduction in discretionary marketing spending in 2002 due to the economic environment and lower commission expense of approximately
$200,000 attributable to the decrease in license revenue in 2002 as compared to 2001. As a percentage of total revenues, excluding non-cash stock-based compensation, sales and marketing expenses were 37.0% in the three and six months ended June 30,
2002 and 36.3% and 35.8%, respectively, in the comparable periods of 2001. Although we reduced certain marketing spend in 2002, the costs of on-going programs coupled with the lower revenues in 2002 led to the small increase in sales and marketing
costs as a percentage of total revenues in 2002. We plan to continue to invest resources in our selling efforts and to execute marketing programs that build the awareness and brand equity of our products. Depending upon the rate of future revenue
growth, sales and marketing expenses may increase in absolute dollars in future periods as a result of increases in commission expense due to revenue growth, the additional of personnel and/or expanded marketing programs.

General and Administrative

|                                  | Three Months Ended June 30, |       | Six Months Ended June 30,
|--------------------------------- | --------------------------- | ----- | -------------------------
|                                  |                             |       |                          
|                                  | 2002                        |       | 2001                     
|                                  |                             |       |                          
|                                  | (in thousands)             
|General and administrative:       |                             |       |                          
|General and administrative, other | $                           | 1,070 |                          
|Non-cash stock-based compensation |                             | 338   |                          
|                                  |                             |       |                          
|Total general and administrative  | $                           | 1,408 |                          
|                                  |                             |       |                          



General and administrative expenses consist primarily of non-cash
stock-based compensation, salaries and related personnel costs and general operating expenses. General and administrative expenses were $1.4 million and $2.7 million for the three and six months ended June 30, 2002, respectively, representing
decreases of 18.9% and 22.1% from 2001 to 2002. Excluding non-cash stock based compensation, general and administrative expenses increased 4.3% and 1.0% from 2001 and, as a percentage of total revenues, were 8.9% and 8.2% in the three and six months
ended June 30, 2002, respectively, and 7.0% and 7.0% in the comparable periods of 2001. The increase as a percentage of total revenues for both the three and six months ended June 30, 2002 when compared to 2001 was due to the decrease in revenue in
2002. Depending upon market conditions and related future growth of our sales and operations, general and administrative expenses may increase in absolute dollars in the future should we need to expand our administrative staff and facilities to
support larger operations.

Amortization of Goodwill and Other Intangible Assets. In connection with the acquisitions of Advanced Software Technologies, Inc.,
EngineeringPerformance, Inc., and the remaining 56% of Embarcadero Europe Ltd., we recorded $21.4 million of goodwill and other intangible assets in the fourth quarter of 2000. The total amortization expense related to these intangibles was
approximately $587,000 and $1.2 million in the three and six months ended June 30, 2002, respectively, and $1.6 million and $3.2 million in the comparable periods of 2001. For the three and six months ended June 30, 2002, approximately $202,000 and
$404,000, respectively, of this amortization expense was recorded as cost of license revenue. The remaining expenses of $385,000 and $770,000, respectively, were recorded as operating expenses. The decrease in amortization expense from 2001 to 2002
was due to adoption of SFAS No. 142, which required us to cease goodwill amortization and record impairment charges when appropriate (see discussion in Note 4 to the financial statements). Other intangible assets, those with identifiable lives, will
continue to be amortized over their useful lives, ranging from 2 to 4 years.



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(Provision for) Benefit From Income Taxes. (Provision for) benefit from income taxes was $58,000 and ($312,000) in the three and six months ended June 30,
2002, respectively, and $1.0 million and $1.8 million in the comparable periods of 2001. The decrease in the provision for income taxes is due to an increase in projected tax credits for 2002 as well as the effects of a reduction in non-deductible
amortization of goodwill and deferred compensation expenses in 2002 compared to 2001.

Share in Loss of Joint Venture. In September 2001, we formed a joint venture with Aztec
Software, Inc. (Aztec), a California corporation and wholly owned subsidiary of Aztec Software and Technology Services Limited, an Indian software development company publicly traded on the Bombay stock exchange. The joint venture was
established to pursue new product initiatives that fall outside of our and Aztecs existing product offerings. In accordance with the terms of the agreement, Embarcadero and Aztec have each contributed $1.0 million to the venture. We account
for this venture under the equity method of accounting. For our fifty percent share in the loss of the venture in the three and six months ended June 30, 2002, we recorded $123,000 (net of taxes of $37,000) and $423,000 (net of taxes of $154,000),
respectively, as a loss from joint venture, net on our consolidated statement of operations. The book value of the venture was $16,000 at June 30, 2002. While the future amount of income or loss recorded from the venture may vary, it is not
expected to be material. There can be no assurances that we will realize any income from our investment in this entity.

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##### Table of Contents

LIQUIDITY AND CAPITAL RESOURCES

We
have funded our business to date from cash generated by our operations and financings. In April 2000, we completed our initial public offering of common stock, generating net proceeds to us of approximately $43.0 million. At June 30, 2002, we had
cash, cash equivalents and short-term investments of $41.7 million.

Net cash provided by operating activities was $5.7 million and
$9.8 million for the six months ended June 30, 2002 and 2001, respectively. The decrease from 2001 to 2002 was primarily due to decreases in non-cash deferred stock-based compensation and amortization expenses and changes in operating assets and
liabilities.

Net cash used in investing activities was $2.8 million and $4.3 million for the six months ended June 30, 2002 and
2001, respectively. In the six months ended June 30, 2002 and 2001, cash used to purchases of property and equipment was $1.6 million and $1.2 million, respectively. In the six months ended June 30, 2002 and 2001, $290,000 and $3.1 million,
respectively, was used to acquire technology. In the six months ended June 30, 2002, a $2.0 million previously deferred payment was made in connection with an acquisition completed in 2000 and $500,000 was invested in a joint venture, offset by $1.5
million, net provided by sales and maturities of investments.

Net cash provided by financing activities was $402,000 and $677,000
for the six months ended June 30, 2002 and 2001, respectively. In both periods this cash came from the exercise of stock options under the Companys stock option plan. In 2002, the proceeds from stock option exercises were partially offset by
$102,000 used to repurchase shares of the Companys common stock.

At June 30, 2002 we had a $2.0 million interest bearing,
revolving credit facility with a bank that had an expiration date of July 31, 2002. The credit facility required that the Company maintain various quarterly financial covenants including covenants related to tangible net worth, total liabilities and
profitability. At June 30, 2002 we were in compliance with all covenants and had no amounts outstanding under this credit facility. On July 1, 2002, we terminated the aforementioned credit facility and replaced it with a $3.0 million revolving
credit facility that bears interest at the prime rate and expires on June 2, 2003. The annual fee to maintain this facility is $5,000 and funds drawn can be used for general operating activities. This facility requires that the Company maintain
various quarterly financial covenants including covenants related to tangible net worth, total liabilities and profitability.

We
believe that our existing cash, cash equivalents, short-term investments and cash generated from operations will be sufficient to finance our operations through at least the next 12 to 18 months. If we fail to generate cash flow from operations in
the future due to an unexpected decline in revenues or due to a sustained increase in cash expenditures in excess of revenues generated, our cash balances may not be sufficient to fund continuing operations without obtaining additional financing. If
additional financing is needed, there can be no assurance that such financing will be available to us on commercially reasonable terms, or at all.

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Factors That May Affect Future Results

In addition to other information in this report, the following factors should be considered carefully in evaluating the Company. The risks and uncertainties described below are not
the only ones facing the Company. Additional risks and uncertainties that we are unaware of or currently deem immaterial may also become important factors that may harm our business.



Our quarterly operating results may fluctuate in future periods, and, as a result, our stock price may fluctuate or decline.



Our growth rates may not be sustainable and you should not use our past performance to predict
future results. We believe that quarter-to-quarter comparisons of our historical results of operations are not indicative of our future performance. Our revenues and operating results may vary significantly from quarter to quarter due to a number of
factors, including the factors discussed below under the captions:

|- | Our operating results would be harmed if the database industry continues in a downward cycle;                                                                                                                                                      
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                      
|- | The impact of changes in global economic conditions on our customers may cause us to fail to meet revenue and earnings per share expectations, which would negatively impact
the price of our stock;                                               
|  |                                                                                                                                                                                                                                                      
|- | Large sales of our products and maintenance involve a lengthy sales cycle, which could cause delays in recognizing revenue or the failure to obtain
revenue;                                                                                       
|  |                                                                                                                                                                                                                                                      
|- | Our operating leverage might affect our profitability;                                                                                                                                                                                             
|  |                                                                                                                                                                                                                                                      
|- | We may have future non-recurring charges in the event of goodwill impairment;                                                                                                                                                                      
|  |                                                                                                                                                                                                                                                      
|- | We may be required to change our revenue recognition policies based on changing implementation guidelines and interpretations, which could cause our revenues and operating
results to fluctuate unexpectedly;                                     
|  |                                                                                                                                                                                                                                                      
|- | If our products do not perform as expected, we may lose customers, our costs will increase and revenues may be delayed or lost;                                                                                                                    
|  |                                                                                                                                                                                                                                                      
|- | If we are not able to enhance our existing products to adapt to rapid technological change, or we introduce new products that do not achieve market acceptance, our revenue and
earnings may suffer and we may experience loss of market share; and
|  |                                                                                                                                                                                                                                                      
|- | Acquisitions of companies or technologies may result in disruptions to our business.                                                                                                                                                               

Seasonal variations in orders for our products also contribute to fluctuations in our quarterly operating results. These fluctuations are likely to cause corresponding volatility in our stock price, particularly if our operating results
vary from analysts expectations.



If sales of DBArtisan fall, our revenues and income may
decline.



A large portion of our revenues currently comes
from sales of our DBArtisan product. For the six months ended June 30, 2002 and the years ended December 31, 2001, 2000 and 1999, DBArtisan accounted for approximately 44.4%, 38.7%, 46.6% and 48.3%, respectively, of our domestic license revenues. We
expect that sales of DBArtisan will continue to represent a substantial portion of our license revenues for the foreseeable future. In addition, many of our customers initiate a relationship with us by purchasing DBArtisan. If demand for
DBArtisan

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##### Table of Contents

declines due to competition, technological change or other factors, our revenues and income may decline significantly.



If we do not continue to add new customers, we will not be able to sustain or increase our revenues.



Our license arrangements do not generally provide for substantial ongoing license or maintenance
payments. Therefore, our future revenue growth depends on our continued success in attracting new customers or expanding our relationships with existing customers. Our ability to attract new customers and expand our relationships with existing
customers will depend on a variety of factors, including the performance, quality, breadth and depth of our current and future products and maintenance. Our failure to add new customers or to expand our relationships with existing customers would
reduce our future revenues.

Our operating results would be harmed if the database industry continues in a downward cycle.

The markets into which we sell our products are cyclical and are subject to general economic conditions. The database industry has experienced a downturn due to
declines in general economic conditions. For example, a number of companies that sell the database platforms that our products support, including Oracle Corporation, have reduced revenue and earnings expectations. In addition, we believe that the
current economic downturn has had an impact on capital spending for database technology and related products.

We are uncertain as
to how long and how deep the current downturn may be in the database market. Any continued or further slowdowns in the database market or in general economic conditions would likely result in a reduction in demand for our products and would harm our
business.

The impact of changes in global economic conditions on our customers may cause us to fail to meet revenue and earnings per share expectations, which would negatively
impact the price of our stock.

Our operating results can vary significantly based upon the impact of changes in global and
domestic economic conditions on our customers. The domestic and economic environment in 2002 continues to be uncertain. The September 11, 2001 terrorist attacks in New York City, Washington, D.C. and Pennsylvania, and the continuing United
States military response, has affected the economic environment. At the time of the attacks, capital investment by businesses, particularly investments in new technology, had been experiencing substantial weakness. This weakness was aggravated
by the September 11, 2001 attacks and continues into 2002. Current economic and political uncertainty could result in further decline in new technology investments. These uncertainties could cause customers to defer or reconsider purchasing products
or services if they experience a downturn in their business or if there is a further downturn in the general economy. Such events could have a material adverse effect on our business.

We invest heavily in research and development with no guarantee of return from the investments that we make.

We are
nearing the end of a cycle of significant new product development. We have invested significant resources in the development of these new products; if our new products are not accepted in the marketplace, we could suffer a contraction of revenue
growth and have limited return on the investments that we have made. In addition, we plan to continue to invest in research and development and could suffer the same effects from these future investments.

Large sales of our products and maintenance involve a lengthy sales cycle, which could cause delays in recognizing revenue or the failure to obtain revenue.

In the past two years, large sales of our products and maintenance to individual customers have increased. These large sales typically involve sales cycles between
6 and 12 months, which is considerably longer than our historical sales cycle. This lengthy sales cycle is due to the need to educate and convince prospective customers of the value of our products and to gain approval from a variety of
constituencies within a prospective customer, including key management personnel. The timing of our revenues has become more difficult to forecast because of this lengthy sales cycle for large sales. We may expend substantial funds and effort to
negotiate these sales with prospective customers but then be delayed in concluding, or be unable to conclude, sales of our products and maintenance. Any delay in, or failure to complete, sales in a particular period would reduce our revenues in
that

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period as well as in subsequent periods over which revenues for the sale may be recognized. If our sales cycle unexpectedly lengthens in general or for
one or more large sales, it could negatively affect the timing of our revenues and our revenue growth and may cause our revenues and operating results to vary significantly from period to period. If we were to experience a delay on a large order, it
could harm our ability to meet our forecasts for a given period.

Our operating leverage might affect our profitability.

The majority of our operating expenses consist of personnel and related expenses and facility related costs. These costs are relatively fixed in the short term,
and our operating decisions are based in large part on expectations about expected future revenue. We experience a significant amount of operating leverage, and if we have hired personnel and entered into facilities contracts and then have revenue
that does not meet our expectations, we would likely have lower than expected earnings per share, which would negatively affect our stock price.

We may have future non-recurring
charges in the event of goodwill impairment.

We adopted SFAS No. 142 on January 1, 2002 and, as a result, we have ceased amortization
of goodwill. Going forward, we will be required to test our goodwill for impairment on an annual basis or in the event of a significant change in our business. We performed this test in January 2002 and determined that, at that time, there had been
no impairment in goodwill. At June 30, 2002 our net goodwill totaled $10.3 million. In the future, if we determine that this goodwill has been impaired, we will be required to take a non-recurring charge to write down this asset, which would
adversely affect our earnings.

We may be required to change our revenue recognition policies based on changing implementation guidelines and interpretations, which may cause our
revenues and operating results to fluctuate unexpectedly.

In recent years, software revenue recognition rules have been
under heavy review and interpretation by various accounting authoritative and regulatory bodies, including the American Institute for Certified Public Accountants and the Financial Accounting Standards Board. These reviews and interpretations have
resulted in significant changes in the practices and standards for recognizing revenues in software companies. The rapid pace of change in these standards could result in significantly different standards in the future. We may have to change our
methods of revenue recognition to comply with new standards, and any such change could cause deferment of revenue recognized in current periods to subsequent periods or accelerated recognition of deferred revenue to current periods, either of which
could cause shortfalls in meeting securities analysts and investors expectations in any period. Any such shortfalls could have an adverse impact on our stock price.

The expansion of our international operations exposes us to risks.

One aspect of our growth strategy is to
expand our international sales and research and development operations. As a result, we could face a number of risks from our expanding international operations, including:

| | staffing and managing foreign operations;                                
|- | -------------------------------------------------------------------------
| | increased financial accounting and reporting complexities;               
| | potentially adverse tax consequences;                                    
| | the loss of revenues and net income resulting from currency fluctuations;
| | compliance with a wide variety of complex foreign laws and treaties;     
| | reduced protection for intellectual property rights in some countries;   
| | licenses, tariffs and other trade barriers;                              
| | longer sales and payment cycles; and                                     
| | costs and difficulties of customizing products for foreign countries.    

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Further expansion of our international operations may require significant management attention and
financial resources and may place burdens on our management, administrative, operational and financial infrastructure. Our possible investments in establishing facilities in other countries may not produce desired levels of revenue or
profitability.

Our proprietary rights may be inadequately protected and infringement claims or independent development of competing technologies could harm our competitive
position.

We rely on copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions to
establish and protect our proprietary rights. We also enter into confidentiality agreements with employees and consultants and attempt to restrict access to proprietary information on a need-to-know basis. Despite such precautions, unauthorized
third parties may be able to copy aspects of our products or obtain and use information that we consider as proprietary.

We
license our software products primarily under shrink-wrap licenses included as part of product packaging. Shrink-wrap licenses are not negotiated with or signed by individual licensees and purport to take effect upon the opening of the product
package or downloading of the product from the Internet. These measures afford only limited protection. Policing unauthorized use of our products is difficult and we are unable to determine the extent to which piracy of our software exists. In
addition, the laws of some foreign countries do not protect our proprietary rights as well as United States laws.

We may have to
enter into litigation to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others with respect to our rights. Litigation is generally very expensive and can divert the attention of
management from daily operations. Accordingly, any intellectual property litigation could disrupt our operations and harm our operating results.

We are not aware of any case in which we are infringing the proprietary rights of others. However, third parties may bring infringement claims against us. Any such claim is likely to be
time consuming and costly to defend, could cause product delays and could force us to enter into unfavorable royalty or license agreements with third parties. A successful infringement claim against us could require us to enter into a license or
royalty agreement with the claimant or develop alternative technology. However, we may not be able to negotiate favorable license or royalty agreements, if any, in connection with such claims and we may fail to develop alternative technology on a
timely basis. Accordingly, a successful product infringement claim against us could harm our business and operating results.

If our products do not perform as expected, we may
lose customers, our costs will increase and revenues may be delayed or lost.

Computer software such as ours often contains
undetected errors and may contain design flaws. Errors may be found in current versions, new versions or enhancements of our products after we make commercial shipments. If our software contains undetected errors, performs unreliably, or if we
otherwise fail to meet our customers expectations, we may suffer:

| | loss of revenues, market share or customers;                   
|- | ---------------------------------------------------------------
| | negative publicity and harm to our reputation;                 
| | diversion of research and development and management resources;
| | increased maintenance and warranty costs;                      
| | legal actions by customers against us; and                     
| | increased insurance costs.                                     

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If we are not able to enhance our existing products to adapt to rapid technological change, or we introduce new products that do not achieve market
acceptance, our revenue and earnings may suffer and we may experience loss of market share.

The market for our products is
characterized by rapid technological change, frequent product introductions and enhancements, uncertain product life cycles and changes in customer demands and industry standards. Our success depends on our ability to continue to:

| | enhance our current products;                                         
|- | ----------------------------------------------------------------------
| | introduce new products that keep pace with technological developments;
| | satisfy increasingly complicated customer requirements;               
| | integrate our products with multiple database platforms; and          
| | modify our products as database platforms change.                     

However, due to the nature of computing environments and the performance demanded by customers for database management software, new products and product enhancements could require
longer development and testing periods than we currently anticipate. Moreover, if we develop new products that do not achieve market acceptance, we may not be able to recoup development and marketing expenses, which could harm our operating
results.

The introduction of new technologies and the emergence of new industry standards may render our existing products
obsolete and unmarketable. Delays in the general availability of new releases or problems in the installation or implementation of new releases could harm our business and operating results. We may not be successful in developing and marketing, on a
timely and cost-effective basis, new products or new product enhancements that respond to technological change, evolving industry standards or customer requirements. Our failure to do so would render our products obsolete and could harm our ability
to compete. In addition, our products and product enhancements may not achieve market acceptance.

Acquisitions of companies or technologies may result in disruptions to our
business.

We may make strategic acquisitions of companies, products or technologies as necessary in order to implement our
business strategy. If we make acquisitions and are unable to successfully integrate them with our existing operations, we may not receive the intended benefits of such acquisitions and the revenue and operating results of the combined company may
decline. Any acquisition may temporarily disrupt our operations and divert managements attention from day-to-day operations. In addition, acquisitions may subject us to unanticipated liabilities or risks.

While we have financed our acquisitions to date primarily with working capital, we may incur debt or issue equity securities to finance future acquisitions. The
issuance of equity securities for any acquisition could be substantially dilutive to our stockholders. In addition, our profitability may suffer due to acquisition-related expenses.

If we are not able to attract and retain qualified personnel, our business will not be able to grow.

Our
success depends on the continued service of our executive officers and other key administrative, sales and marketing, research and development and support personnel. None of our executive officers or key employees is bound by an employment agreement
for any specific term and we do not maintain any key person life insurance policies. If we lose the services of one or more of our executive officers or key employees, or if one or more of them decide to join a competitor or otherwise compete
directly or indirectly with us, our business could be seriously harmed.

Our business will not be able to grow if we cannot
attract, retain and motivate qualified personnel. Despite the economic downturn, competition for qualified employees remains intense and we may not be able to attract,

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assimilate or retain highly qualified personnel in the future. There has in the past been and there may in the future be a shortage of personnel that
possess the technical background necessary to sell, support and develop our products effectively. Some of our current employees and those that we seek to hire may be subject to non-competition or non-solicitation covenants that could further limit
our ability to attract or retain qualified personnel.

We may lose market share and be required to reduce prices as a result of competition from our existing competitors and other
independent software vendors and other developers of software.

The market for our products is highly competitive, dynamic and subject
to rapidly changing technology. Pricing pressure in the market has increased as competitors have lowered prices and engaged in more aggressive discounting. If such pricing pressure continues, it could have an adverse effect on our
margins.

We compete primarily against other providers of application design and database management utilities, which include Computer
Associates, Quest Software, BMC Software, Rational Software and other independent software vendors. Our products also compete with products offered by database software manufacturers, including Oracle, Microsoft, Sybase and IBM. Some of these
competing products are provided at no charge to their customers. We expect that companies such as Oracle, Microsoft, Sybase and IBM will continue to develop and incorporate into their products applications which compete with our products and may
take advantage of their substantial technical, financial, marketing and distribution resources in those efforts. We may not be able to compete effectively with those products or efforts, which could significantly harm our business and operating
results.

In addition, if the market for application design and database management products grows, some of our competitors may increase their
focus on offering software directly competitive with ours, whether by internal development, external development or acquisition. Our competitors may also attempt to keep us from integrating our software with theirs, making it more difficult for our
customers to adopt our software. If such increased competition were to result in resistance to integration of our software with the software of these competitors, our business would be harmed.

Further, if a single database platform were to gain a considerably larger share of the database market than other database platforms, we would lose our multi-platform competitive advantage and our
sales would suffer. Many of our competitors have longer operating histories, substantially greater financial, technical, marketing and other resources, and greater name recognition than we do. They also may be able to respond more quickly than we
can to changes in technology or customer requirements. Competition could seriously impede our ability to sell additional products on acceptable terms. Our competitors may:

| | develop and market new technologies that render our products obsolete, unmarketable or otherwise less competitive;                                                    
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | make strategic acquisitions or establish cooperative relationships among themselves or with other companies, thereby enhancing the functionality of their products; or
| | establish or strengthen cooperative relationships with channel or strategic partners which limit our ability to sell or to co-market products through these channels. 

Competitive pressures could reduce our market share, reduce customer orders, reduce gross margins or require us to reduce our prices, any of
which would harm our operating results.

We are susceptible to business interruptions that could harm our business.

Our operations are vulnerable to damage or interruption from computer viruses, human error, natural disasters, telecommunications failures, intentional acts of vandalism and similar
events. In particular, our corporate headquarters are located in San Francisco, which is known for seismic activity. Although we have a disaster recovery plan for critical data and business applications, this does not provide assurance that we would
not suffer a business interruption. A significant business interruption would result in losses or damages incurred by us and would harm our business. Our business interruption insurance may not be adequate to compensate us for losses that might
occur.

Insiders have substantial control over us, which could limit others ability to influence the outcome of key transactions.

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Our executive officers and directors, in the aggregate, beneficially own 30.0% of our outstanding common
stock as of June 30, 2002. These stockholders, if acting together, can influence significantly all matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combination
transactions.

We expect the price of our common stock to remain volatile, making it difficult for our stockholders to predict the return on their investment.

Since our initial public offering, the market price of our common stock has fluctuated significantly in response to a number of factors, some
of which are beyond our control, including:

| | changes in market valuation of software and Internet companies;                                                                                                                    
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | quarterly variations in our operating results;                                                                                                                                     
| | global and domestic economic conditions;                                                                                                                                           
| | changes in financial estimates by securities analysts;                                                                                                                             
| | announcements that we or our competitors make related to significant contracts, acquisitions, capital commitments, strategic partnerships or product introductions or
enhancements;
| | additions or departures of key personnel;                                                                                                                                          
| | stock market price and volume fluctuations, which are particularly volatile among securities of software and Internet companies; and                                               
| | sales of significant amounts of our common stock or other securities in the open market.                                                                                           

The market for technology and Internet-related companies has experienced extreme volatility that often has been unrelated to the operating performance of particular companies. These
fluctuations may adversely affect the trading price of our common stock, regardless of our actual operating performance.

Provisions of our charter and bylaws and Delaware law
could deter takeover attempts that might be beneficial to our stockholders.

Provisions of our amended and restated
certificate of incorporation and bylaws as well as Delaware law could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. We are subject to the provisions of Delaware law, which restrict
business combinations with interested stockholders, which may have the effect of inhibiting a non-negotiated merger or other business combinations.

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ITEM 3.  
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our exposure to market risk for changes in interest rates primarily relates to our investment portfolio, which at June 30, 2002 included fixed-income securities with a fair value of approximately
$14.9 million. The values of these securities are likely to decline if interest rates increase. However, due to the short maturities of our investments, an immediate 10 percent change in interest rates is not expected to have a material effect on
our near-term financial condition or results of operations.

Foreign Exchange Risk

Our operations are conducted primarily in the United States and are denominated in United States dollars. A small but growing portion of our sales originate through our European subsidiary and are
denominated in Pounds Sterling. From time to time, we enter into forward exchange contracts to hedge our European balance sheet. Gains and losses on these contracts are generally recognized in the consolidated statement of operations at the time
that the related transactions being hedged are recognized. Because the effect of movements in currency exchange rates on forward exchange contracts generally offset the related effect on the underlying items being hedged, use of these instruments is
not expected to subject the Company to risks that would otherwise result from changes in currency exchange rates. We do not use derivative financial instruments for trading or speculative purposes. The Company did not enter into any forward exchange
contacts in the six months ended June 30, 2002. Foreign currency gains and losses did not have a material effect on our results of operations in the six months ended June 30, 2002 or 2001.

Forward exchange contracts are denominated in the same currency as the underlying transactions (i.e. British Pounds), and the terms of the forward exchange contracts generally match the terms of the
underlying transactions. The effect of an immediate 10 percent change in exchange rates on forward exchange contracts and the underlying hedged transactions is not expected to have a material effect on our near-term financial condition or results of
operations.

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PART II

OTHER INFORMATION

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

On June 5, 2002 the Company held its annual meeting of
stockholders. The following items were submitted to a vote of the stockholders:

|(a) | To elect two three-year term Class I members serving on the Board of Directors.
|--- | -------------------------------------------------------------------------------

| | Election of Directors | Votes For  | Votes Withheld
| | --------------------- | ---------- | --------------
| |                       |            |               
| | Dennis J. Wong        | 23,463,467 | 78,532        
| | Michael J. Roberts    | 23,522,567 | 19,432        

| | As a result, Messrs. Wong and Roberts were elected as Directors of the Company. The following incumbent members continue to serve on the Board of Directors: Stephen R. Wong, Timothy C.K. Chou
and Frank M. Polestra.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | To ratify the appointment of PricewaterhouseCoopers LLP as the Companys independent accountants for the year ending December 31, 2002.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------

| |         | Votes      | 
| | ------- | ---------- | 
| |         |            | 
| | For     | 23,392,106 | 
| | Against | 149,093    | 
| | Abstain | 800        | 

The appointment was approved.

ITEM
6.  
EXHIBITS AND REPORTS ON FORM 8-K

|(a) | Exhibits:None
|--- | -------------

|(b) | Reports on Form 8-K:None
|--- | ------------------------

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SIGNATURES

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

| | Embarcadero Technologies, Inc.                                                       
| | -------------------------------------------------------------------------------------
| | /s/ RAJ SABHLOK                                                                      
| | By: _________________________________                                                
| | Raj SabhlokChief Financial Officer and Senior Vice President of Corporate Development

Date: August 13, 2002

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CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Embarcadero Technologies, Inc. (the Company) on Form 10-Q for the period ending June 30, 2002 as filed with the Securities and Exchange
Commission on the date hereof (the Report), I, Stephen Wong, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the
Company.

By: /s/ STEPHEN WONG Stephen WongPresident and Chief Executive Officer Date: August 13, 2002

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CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002

In connection with the Quarterly Report of Embarcadero Technologies, Inc. (the Company) on Form 10-Q for the period ending June 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the Report), I, Raj Sabhlok, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002,
that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
result of operations of the Company.

By: /s/ RAJ SABHLOK Raj
SabhlokChief Financial Officer and Senior Vice President of Corporate DevelopmentDate: August 13, 2002

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