##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended March 31, 2004



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from  to



0-16096

(Commission File Number)



Borland Software Corporation

(Exact Name of Registrant as Specified in its Charter)



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



100 ENTERPRISE WAY

SCOTTS VALLEY, CALIFORNIA 95066-3249

(Address of Principal Executive Offices) (Zip Code)



Registrants Telephone Number, Including Area Code: (831) 431-1000



(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YESx
NO ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YESx NO ̈



The number of
shares of the registrants common stock, par value $0.01 per share, outstanding as of April 30, 2004, the most recent practicable date prior to the filing of this report, was 80,746,100.



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##### Table of Contents

INDEX



|        |  |                                                                                                                     |  |     
|------- |  | ------------------------------------------------------------------------------------------------------------------- |  | ----
|        |  |                                                                                                                     |  | PAGE
|PART I  |  | FINANCIAL INFORMATION                                                                                               |  |     
|        |  |                                                                                                                    
|Item 1. |  | Financial Statements (unaudited)                                                                                    |  | 1   
|        |  |                                                                                                                    
|        |  | Condensed Consolidated Balance Sheets at March 31, 2004 and December 31, 2003                                       |  | 1   
|        |  |                                                                                                                    
|        |  | Condensed Consolidated Statements of Operations for the three months ended March 31, 2004 and 2003                  |  | 2   
|        |  |                                                                                                                    
|        |  | Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2004 and 2003 |  | 3   
|        |  |                                                                                                                    
|        |  | Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2004 and 2003                  |  | 4   
|        |  |                                                                                                                    
|        |  | Notes to Condensed Consolidated Financial Statements                                                                |  | 5   
|        |  |                                                                                                                    
|Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                               |  | 12  
|        |  |                                                                                                                    
|Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk                                                          |  | 30  
|        |  |                                                                                                                    
|Item 4. |  | Controls and Procedures                                                                                             |  | 31  
|        |  |                                                                                                                    
|PART II |  | OTHER INFORMATION                                                                                                   |  |     
|        |  |                                                                                                                    
|Item 1. |  | Legal Proceedings                                                                                                   |  | 32  
|        |  |                                                                                                                    
|Item 2. |  | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities                                    |  | 32  
|        |  |                                                                                                                    
|Item 6. |  | Exhibits and Reports on Form 8-K                                                                                    |  | 33  
|        |  |                                                                                                                    
|        |  | Signature                                                                                                           |  | 36  





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##### Table of Contents

PART I

FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------



BORLAND SOFTWARE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value and share amounts)



|                                                                                                                     |  |               |          |   |                  |   |          |  
|-------------------------------------------------------------------------------------------------------------------- |  | ------------- | -------- | - | ---------------- | - | -------- | -
|                                                                                                                     |  | March 31,2004 |          |   | December 31,2003 |  
|                                                                                                                     |  | (unaudited)   |          |   |                  |  
|ASSETS                                                                                                               |  |               |          |   |                  |   |          |  
|Current assets:                                                                                                      |  |               |          |   |                  |   |          |  
|Cash and cash equivalents                                                                                            |  | $             | 190,723  |   |                  | $ | 197,023  |  
|Short-term investments                                                                                               |  |               | 12,908   |   |                  |   | 5,623    |  
|Accounts receivable, net of allowances of $15,165 and $16,825                                                        |  |               | 46,991   |   |                  |   | 54,989   |  
|Other current assets                                                                                                 |  |               | 15,565   |   |                  |   | 13,333   |  
|                                                                                                                     |  |               |          |   |                  |   |          |  
|Total current assets                                                                                                 |  |               | 266,187  |   |                  |   | 270,968  |  
|Property and equipment, net                                                                                          |  |               | 18,980   |   |                  |   | 20,377   |  
|Goodwill                                                                                                             |  |               | 183,049  |   |                  |   | 183,303  |  
|Intangible assets, net                                                                                               |  |               | 23,015   |   |                  |   | 26,752   |  
|Other non-current assets                                                                                             |  |               | 8,152    |   |                  |   | 10,389   |  
|                                                                                                                     |  |               |          |   |                  |   |          |  
|Total assets                                                                                                         |  | $             | 499,383  |   |                  | $ | 511,789  |  
|                                                                                                                     |  |               |          |   |                  |   |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                 |  |               |          |   |                  |   |          |  
|Current liabilities:                                                                                                 |  |               |          |   |                  |   |          |  
|Accounts payable                                                                                                     |  | $             | 8,398    |   |                  | $ | 11,843   |  
|Accrued expenses                                                                                                     |  |               | 44,166   |   |                  |   | 50,046   |  
|Short-term restructuring                                                                                             |  |               | 2,473    |   |                  |   | 6,783    |  
|Income taxes payable                                                                                                 |  |               | 9,236    |   |                  |   | 6,309    |  
|Deferred revenues                                                                                                    |  |               | 49,826   |   |                  |   | 48,330   |  
|Other current liabilities                                                                                            |  |               | 8,029    |   |                  |   | 7,754    |  
|                                                                                                                     |  |               |          |   |                  |   |          |  
|Total current liabilities                                                                                            |  |               | 122,128  |   |                  |   | 131,065  |  
|Long-term restructuring                                                                                              |  |               | 3,483    |   |                  |   | 3,979    |  
|Other long-term liabilities                                                                                          |  |               | 9,352    |   |                  |   | 8,877    |  
|                                                                                                                     |  |               |          |   |                  |   |          |  
|Total liabilities                                                                                                    |  |               | 134,963  |   |                  |   | 143,921  |  
|                                                                                                                     |  |               |          |   |                  |   |          |  
|Commitments and contingencies (Notes 9 and 11)                                                                       |  |               |          |   |                  |   |          |  
|Stockholders equity:                                                                                                |  |               |          |   |                  |   |          |  
|Common stock; $.01 par value; 200,000,000 shares authorized; 80,906,698 and 81,001,946 shares issued and outstanding |  |               | 809      |   |                  |   | 810      |  
|Additional paid-in capital                                                                                           |  |               | 626,266  |   |                  |   | 624,713  |  
|Accumulated deficit                                                                                                  |  |               | (209,483 | ) |                  |   | (210,196 | )
|Deferred compensation                                                                                                |  |               | (1,648   | ) |                  |   | (2,475   | )
|Cumulative comprehensive income                                                                                      |  |               | 9,231    |   |                  |   | 9,571    |  
|                                                                                                                     |  |               |          |   |                  |   |          |  
|                                                                                                                     |  |               | 425,175  |   |                  |   | 422,423  |  
|Less: Common stock in treasury at cost, 8,318,205 and 7,688,923 shares                                               |  |               | (60,755  | ) |                  |   | (54,555  | )
|                                                                                                                     |  |               |          |   |                  |   |          |  
|Total stockholders equity                                                                                           |  |               | 364,420  |   |                  |   | 367,868  |  
|                                                                                                                     |  |               |          |   |                  |   |          |  
|Total liabilities and stockholders equity                                                                           |  | $             | 499,383  |   |                  | $ | 511,789  |  
|                                                                                                                     |  |               |          |   |                  |   |          |  



See accompanying Notes
to Condensed Consolidated Financial Statements.



1



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BORLAND SOFTWARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts, unaudited)



|                                                                                                 |  |                             |        |      |   |         |  
|------------------------------------------------------------------------------------------------ |  | --------------------------- | ------ | ---- | - | ------- | -
|                                                                                                 |  | Three Months EndedMarch 31, |       
|                                                                                                 |  | 2004                        |        | 2003 |  
|Licenses and other revenues                                                                      |  | $                           | 50,820 |      | $ | 56,809  |  
|Service revenues                                                                                 |  |                             | 22,039 |      |   | 17,561  |  
|                                                                                                 |  |                             |        |      |   |         |  
|Net revenues                                                                                     |  |                             | 72,859 |      |   | 74,370  |  
|                                                                                                 |  |                             |        |      |   |         |  
|Cost of licenses and other revenues                                                              |  |                             | 2,831  |      |   | 3,099   |  
|Cost of service revenues                                                                         |  |                             | 6,002  |      |   | 6,599   |  
|Amortization of acquired intangibles                                                             |  |                             | 2,561  |      |   | 4,317   |  
|                                                                                                 |  |                             |        |      |   |         |  
|Cost of revenues                                                                                 |  |                             | 11,394 |      |   | 14,015  |  
|                                                                                                 |  |                             |        |      |   |         |  
|Gross profit                                                                                     |  |                             | 61,465 |      |   | 60,355  |  
|                                                                                                 |  |                             |        |      |   |         |  
|Selling, general and administrative                                                              |  |                             | 40,575 |      |   | 43,974  |  
|Research and development                                                                         |  |                             | 16,791 |      |   | 20,244  |  
|Restructuring, amortization of other intangibles, acquisition-related expenses and other charges |  |                             | 1,739  |      |   | 13,555  |  
|                                                                                                 |  |                             |        |      |   |         |  
|Total operating expenses                                                                         |  |                             | 59,105 |      |   | 77,773  |  
|                                                                                                 |  |                             |        |      |   |         |  
|Operating income (loss)                                                                          |  |                             | 2,360  |      |   | (17,418 | )
|Interest income, net and other                                                                   |  |                             | 268    |      |   | 1,234   |  
|                                                                                                 |  |                             |        |      |   |         |  
|Income (loss) before income taxes                                                                |  |                             | 2,628  |      |   | (16,184 | )
|Income tax provision                                                                             |  |                             | 1,915  |      |   | 1,508   |  
|                                                                                                 |  |                             |        |      |   |         |  
|Net income (loss)                                                                                |  | $                           | 713    |      | $ | (17,692 | )
|                                                                                                 |  |                             |        |      |   |         |  
|Net income (loss) per share:                                                                     |  |                             |        |      |   |         |  
|Net income (loss) per share  basic                                                              |  | $                           | 0.01   |      | $ | (0.22   | )
|                                                                                                 |  |                             |        |      |   |         |  
|Net income (loss) per share  diluted                                                            |  | $                           | 0.01   |      | $ | (0.22   | )
|                                                                                                 |  |                             |        |      |   |         |  
|Shares used in computing basic net income (loss) per share                                       |  |                             | 80,808 |      |   | 78,910  |  
|                                                                                                 |  |                             |        |      |   |         |  
|Shares used in computing diluted net income (loss) per share                                     |  |                             | 82,737 |      |   | 78,910  |  
|                                                                                                 |  |                             |        |      |   |         |  



See accompanying Notes
to Condensed Consolidated Financial Statements.



2



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BORLAND SOFTWARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands, unaudited)



|                                                               |  |                             |      |   |      |   |         |  
|-------------------------------------------------------------- |  | --------------------------- | ---- | - | ---- | - | ------- | -
|                                                               |  | Three Months EndedMarch 31, |     
|                                                               |  | 2004                        |      |   | 2003 |  
|Net income (loss)                                              |  | $                           | 713  |   |      | $ | (17,692 | )
|Other comprehensive income (loss):                             |  |                             |      |   |      |   |         |  
|Foreign currency translation adjustments                       |  |                             | (340 | ) |      |   | 685     |  
|Fair market value adjustment for available-for-sale securities |  |                             |     |   |      |   | (2      | )
|                                                               |  |                             |      |   |      |   |         |  
|Comprehensive income (loss)                                    |  | $                           | 373  |   |      | $ | (17,009 | )
|                                                               |  |                             |      |   |      |   |         |  



See accompanying Notes
to Condensed Consolidated Financial Statements.



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BORLAND SOFTWARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)



|                                                                                                   |  |                             |         |   |      |   |         |  
|-------------------------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                   |  | Three Months EndedMarch 31, |        
|                                                                                                   |  | 2004                        |         |   | 2003 |  
|CASH FLOWS OPERATING ACTIVITIES:                                                                   |  |                             |         |   |      |   |         |  
|Net income (loss)                                                                                  |  | $                           | 713     |   |      | $ | (17,692 | )
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |  |                             |         |   |      |   |         |  
|Depreciation and amortization                                                                      |  |                             | 5,745   |   |      |   | 7,458   |  
|Write-off of loan receivable                                                                       |  |                             |        |   |      |   | 2,209   |  
|CHANGES IN ASSETS AND LIABILITIES, NET OF EFFECT OF BUSINESS ACQUISITIONS:                         |  |                             |         |   |      |   |         |  
|Accounts receivable                                                                                |  |                             | 7,789   |   |      |   | 2,740   |  
|Other assets                                                                                       |  |                             | 109     |   |      |   | 3,621   |  
|Accounts payable and accrued expenses                                                              |  |                             | (9,212  | ) |      |   | (1,693  | )
|Income taxes payable                                                                               |  |                             | 3,120   |   |      |   | (455    | )
|Short-term restructuring                                                                           |  |                             | (4,310  | ) |      |   | (3,874  | )
|Other                                                                                              |  |                             | 1,218   |   |      |   | 3,668   |  
|                                                                                                   |  |                             |         |   |      |   |         |  
|Cash provided by (used in) operating activities                                                    |  |                             | 5,172   |   |      |   | (4,018  | )
|                                                                                                   |  |                             |         |   |      |   |         |  
|CASH FLOWS INVESTING ACTIVITIES:                                                                   |  |                             |         |   |      |   |         |  
|Purchase of property and equipment                                                                 |  |                             | (406    | ) |      |   | (720    | )
|Acquisition of Starbase, net of cash acquired                                                      |  |                             |        |   |      |   | (5,320  | )
|Acquisition of TogetherSoft, net of cash acquired                                                  |  |                             |        |   |      |   | (71,627 | )
|Purchases of short-term investments                                                                |  |                             | (7,378  | ) |      |   | (7,611  | )
|Sales and maturities of short-term investments                                                     |  |                             | 93      |   |      |   | 49,449  |  
|                                                                                                   |  |                             |         |   |      |   |         |  
|Cash used in investing activities                                                                  |  |                             | (7,691  | ) |      |   | (35,829 | )
|                                                                                                   |  |                             |         |   |      |   |         |  
|CASH FLOWS FINANCING ACTIVITIES:                                                                   |  |                             |         |   |      |   |         |  
|Proceeds from issuance of common stock, net                                                        |  |                             | 2,184   |   |      |   | 4,293   |  
|Repurchase of common stock                                                                         |  |                             | (6,206  | ) |      |   | (2,882  | )
|                                                                                                   |  |                             |         |   |      |   |         |  
|Cash (used in) provided by financing activities                                                    |  |                             | (4,022  | ) |      |   | 1,411   |  
|Effect of exchange rate changes on cash                                                            |  |                             | 241     |   |      |   | 1,240   |  
|                                                                                                   |  |                             |         |   |      |   |         |  
|Net change in cash and cash equivalents                                                            |  |                             | (6,300  | ) |      |   | (37,196 | )
|Cash and cash equivalents at beginning of period                                                   |  |                             | 197,023 |   |      |   | 239,771 |  
|                                                                                                   |  |                             |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                                         |  | $                           | 190,723 |   |      | $ | 202,575 |  
|                                                                                                   |  |                             |         |   |      |   |         |  



See accompanying Notes
to Condensed Consolidated Financial Statements.



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BORLAND SOFTWARE CORPORATION



Notes to Condensed Consolidated Financial Statements (unaudited)



NOTE 1BASIS OF PRESENTATION



The accompanying Borland Software Corporation, or Borland, condensed consolidated financial statements at March 31, 2004 and December 31, 2003 and for the three months ended March 31, 2004 and 2003, are unaudited and
have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and Rule 10-01 of Regulation S-X. Accordingly, they do not include all financial information and disclosures
required by GAAP for complete financial statements and certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. The unaudited interim condensed
consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present
fairly Borlands financial position at March 31, 2003 and December 31, 2003, and its results of operations and cash flows for the three months ended March 31, 2004 and 2003. Certain amounts in the March 31, 2003 and December 31, 2003
information have been reclassified in order to be consistent with current financial statement presentation. See Note 5 to our Notes to Condensed Consolidated Financial Statements for information regarding our reclassifications.



The preparation of condensed consolidated financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for interim periods are not necessarily indicative of the results to be expected for any subsequent quarter or for the full year.
The condensed consolidated financial statements and notes should be read in conjunction with our audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2003 as filed with the Securities and
Exchange Commission, or the SEC, on March 15, 2004.



Transition of sales
cycle



We are in the process of transforming the
company from one focused on selling individual development tools alone to one focused on selling multi-product enterprise solutions that span the entire software application development lifecycle. As part of this transformation, we are focused on
increasing sales force productivity by generating more sales of our multi-product solutions, developing stronger alliances with systems integrators and technology partners that have strong relationships with enterprise-level customers, and selling
our individual products through our network of channel partners. As we make the transition to selling enterprise solutions, we expect to compete more directly with larger companies and, as a result, we may face additional pricing pressures, longer
sales cycles, and more complex revenue agreements.



NOTE 2STOCK BASED
COMPENSATION



Stock-Based Compensation Plans



We account for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, or APB 25, and related interpretations. Under APB 25, compensation expense is measured as the excess, if any, of the closing
market price of our stock at the date of grant over the exercise price of the option granted. We recognize compensation cost for stock options, if any, ratably over the vesting period. Generally, we grant options with an exercise price equal to the
closing market price of our stock on the grant date. Accordingly, we have not recognized any compensation expense for our stock option plans. We have also granted restricted stock awards to certain officers and other executives as an incentive to
retain key employees. The awarded shares are made in common stock and vest at the end of the restriction period. Upon issuance of the award, an amount equivalent to the excess of the market price of the shares awarded over the price paid by the
recipient at the date of grant is recorded in deferred compensation and is amortized against income over the related vesting period. We provide additional pro forma disclosures as required under Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, or SFAS No. 123, as amended by SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure-an amendment of FASB Statement No. 123, or SFAS No. 148.



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Pro Forma Net Income (Loss) and Net Income (Loss) Per Share



Compensation expense included in pro forma net income (loss) and net income
(loss) per share is recognized for the fair value of the awards granted under our stock option and stock purchase plans using the Black-Scholes pricing model. The fair value of each stock option is estimated on the date of grant using the
Black-Scholes pricing model with the following weighted average assumptions:



|                        |  |                              |   |  |            |  
|----------------------- |  | ---------------------------- | - |  | ---------- | -
|                        |  | Three Months Ended March 31, |  
|                        |  | 2004                         |   |  | 2003       |  
|Expected life           |  | 4.31 years                   |   |  | 4.48 years |  
|Risk-free interest rate |  | 2.99                         | % |  | 3.82       | %
|Volatility              |  | 52.0                         | % |  | 62.0       | %
|Dividend yield          |  | 0.00                         | % |  | 0.00       | %



The fair value of each
employee stock purchase plan award is estimated using the Black-Scholes pricing model with the following weighted average assumptions:



|                        |  |                              |   |  |           |  
|----------------------- |  | ---------------------------- | - |  | --------- | -
|                        |  | Three Months Ended March 31, |  
|                        |  | 2004                         |   |  | 2003      |  
|Expected life           |  | 1.00 year                    |   |  | 1.00 year |  
|Risk-free interest rate |  | 1.24                         | % |  | 1.56      | %
|Volatility              |  | 52.0                         | % |  | 62.0      | %
|Dividend yield          |  | 0.00                         | % |  | 0.00      | %



The weighted average
fair value of the stock options granted under our employee stock option plans and the stock awarded under our employee stock purchase plan during the three months ended March 31, 2004 and 2003, as defined by SFAS No. 123, was $4.01 and $7.80,
respectively.



Had we recorded compensation expenses based on
the estimated grant date fair value for awards granted under our stock option and stock purchase plans as defined by SFAS No. 123, our pro forma net loss and net loss per share for the three months ended March 31, 2004 and 2003, would have been as
follows (in thousands, except per share amounts):



|                                                         |  |                             |        |   |      |   |         |  
|-------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------- | -
|                                                         |  | Three Months EndedMarch 31, |       
|                                                         |  | 2004                        |        |   | 2003 |  
|Net income (loss):                                       |  |                             |        |   |      |   |         |  
|As reported                                              |  | $                           | 713    |   |      | $ | (17,692 | )
|Stock compensation adjustmentintrinsic value            |  |                             | 38     |   |      |   | 366     |  
|Stock compensation expense, net of tax effectfair value |  |                             | (2,206 | ) |      |   | (5,747  | )
|                                                         |  |                             |        |   |      |   |         |  
|Pro Forma                                                |  | $                           | (1,455 | ) |      | $ | (23,073 | )
|                                                         |  |                             |        |   |      |   |         |  
|Net income (loss) per share:                             |  |                             |        |   |      |   |         |  
|As reported basic                                        |  | $                           | 0.01   |   |      | $ | (0.22   | )
|As reported diluted                                      |  | $                           | 0.01   |   |      | $ | (0.22   | )
|Pro Forma basic                                          |  | $                           | (0.02  | ) |      | $ | (0.29   | )
|Pro Forma diluted                                        |  | $                           | (0.02  | ) |      | $ | (0.29   | )



The pro forma amounts
include compensation expenses related to stock option grants and stock purchase rights for the three months ended March 31, 2004 and 2003. In future periods, the compensation expense will increase as a result of the fair value of stock options and
stock purchase rights granted in those future periods.



NOTE 3NET
INCOME (LOSS) PER SHARE



We compute net income (loss) per
share in accordance with SFAS No. 128, Earnings per Share, or SFAS No. 128. Under the provisions of SFAS No. 128, basic net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of
common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common and potentially diluted shares outstanding during the period.
Potentially diluted shares, which consist of incremental shares issuable upon exercise of stock options, are included in diluted net income (loss) per share to the extent such shares are dilutive.



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##### Table of Contents

The following table sets forth the computation of basic and diluted net income (loss) per share for the
three months ended March 31, 2004 and 2003 (in thousands, except per share amounts):



|                                                                                    |  |                             |        |      |   |         |  
|----------------------------------------------------------------------------------- |  | --------------------------- | ------ | ---- | - | ------- | -
|                                                                                    |  | Three Months EndedMarch 31, |       
|                                                                                    |  | 2004                        |        | 2003 |  
|Numerator:                                                                          |  |                             |        |      |   |         |  
|Net income (loss)                                                                   |  | $                           | 713    |      | $ | (17,692 | )
|Denominator:                                                                        |  |                             |        |      |   |         |  
|Denominator for basic income (loss) per share  weighted average shares outstanding |  |                             | 80,808 |      |   | 78,910  |  
|Effect of dilutive securities                                                       |  |                             | 1,929  |      |   |        |  
|                                                                                    |  |                             |        |      |   |         |  
|Denominator for diluted income (loss) per share                                     |  |                             | 82,737 |      |   | 78,910  |  
|                                                                                    |  |                             |        |      |   |         |  
|Net income (loss) per share  basic                                                 |  | $                           | 0.01   |      | $ | (0.22   | )
|                                                                                    |  |                             |        |      |   |         |  
|Net income (loss) per share  diluted                                               |  | $                           | 0.01   |      | $ | (0.22   | )
|                                                                                    |  |                             |        |      |   |         |  



The diluted earnings
per share calculation for the three months ended March 31, 2004 and 2003, excludes options to purchase approximately 6.4 million and 15.3 million shares, respectively, because their effect would have been antidilutive.



NOTE 4ACQUISITIONS



TogetherSoft Corporation



On January 14, 2003, we completed the acquisition of TogetherSoft
Corporation, or TogetherSoft, a privately-held corporation. The consideration consisted of approximately $82.5 million in cash, 9,050,000 shares of Borland common stock and the assumption of certain liabilities and obligations of TogetherSoft,
including those arising under its stock option plans. The consideration paid was reduced for certain legal expenses paid by TogetherSoft. Approximately $22.8 million of the total consideration is being held in escrow to indemnify us against, and
reimburse us for, certain events and cover certain liabilities and transaction costs. Unused funds will be released from escrow at certain times between 2004 and 2007.



During the three months ended March 31, 2004, we recorded approximately $3.0 million in acquisition-related expenses
associated with the amortization of the purchased intangibles from the acquisition of TogetherSoft.



Of the total purchase price, approximately $150.9 million was allocated to goodwill. Goodwill represents the excess of the purchase price over the fair
value of the net tangible and intangible assets acquired. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, or SFAS No. 142, goodwill is not being amortized and is tested for impairment at least annually.



Supplemental pro forma information reflecting the acquisition
of TogetherSoft as if it occurred on January 1, 2003 is as follows (in thousands, except per share amounts, unaudited):



|                            |  |                                  |         |  
|--------------------------- |  | -------------------------------- | ------- | -
|                            |  | Three MonthsEnded March 31, 2003 |        
|Total net revenues          |  | $                                | 74,370  |  
|Net income (loss)           |  | $                                | (18,270 | )
|Net income (loss) per share |  | $                                | (0.23   | )



Such information is
not necessarily representative of the actual results that would have occurred for those periods.



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##### Table of Contents

The following table summarizes the short-term portion of our restructuring activity related to the
TogetherSoft acquisition accounted for according to the Emerging Issues Task Force Issue No. 95-3, or EITF 95-3, for the three months ended March 31, 2004 (in thousands):



|                                              |  |                        |     |            |   |     |       |  |   |     |  
|--------------------------------------------- |  | ---------------------- | --- | ---------- | - | --- | ----- |  | - | --- | -
|                                              |  | Severance and Benefits |     | Facilities |   |     | Total | 
|Accrual at December 31, 2003                  |  | $                      | 405 |            | $ | 147 |       |  | $ | 552 |  
|Cash payments                                 |  |                        |    |            |   | (70 | )     |  |   | (70 | )
|Reclassification from long-term restructuring |  |                        |    |            |   | 79  |       |  |   | 79  |  
|                                              |  |                        |     |            |   |     |       |  |   |     |  
|Accrual at March 31, 2004                     |  | $                      | 405 |            | $ | 156 |       |  | $ | 561 |  
|                                              |  |                        |     |            |   |     |       |  |   |     |  



Starbase Corporation



On October 8, 2002, we signed a merger agreement to
purchase all of the outstanding shares of Starbase Corporation, or Starbase, for an aggregate consideration of approximately $24.0 million and $2.0 million in bridge financing that was forgiven upon the consummation of the transaction. Starbase was
a provider of end-to-end enterprise software lifecycle solutions covering requirements definition and management, code and content development, and change and configuration management.



During the three months ended March 31, 2004, we recorded approximately $0.7 million in acquisition-related expenses
associated with the amortization of the purchased intangibles from the acquisition of Starbase.



NOTE 5GOODWILL AND INTANGIBLE ASSETS



The changes in the carrying amount of goodwill for the three months ended March 31, 2004 are as follows (in thousands):



|                                           |  |       |         |  
|------------------------------------------ |  | ----- | ------- | -
|                                           |  | Total |        
|Balance as of December 31, 2003            |  | $     | 183,303 |  
|Adjustments to initial purchase accounting |  |       | (254    | )
|                                           |  |       |         |  
|Balance as of March 31, 2004               |  | $     | 183,049 |  
|                                           |  |       |         |  



The adjustment to
goodwill is primarily related to fluctuations in foreign currency exchange rates during the three months ended March 31, 2004.



The following tables summarize our intangible assets, net (in thousands):



|                                          |  |                      |        |                         |   |         |                   |  |   |       
|----------------------------------------- |  | -------------------- | ------ | ----------------------- | - | ------- | ----------------- |  | - | ------
|                                          |  | March 31, 2004      
|                                          |  | Gross carrying value |        | Accumulatedamortization |   |         | Net carryingvalue
|Acquired technology                       |  | $                    | 30,495 |                         | $ | (13,865 | )                 |  | $ | 16,630
|Service/maintenance agreements            |  |                      | 8,700  |                         |   | (8,700  | )                 |  |   |      
|Trademarks, trade names and service marks |  |                      | 8,300  |                         |   | (3,355  | )                 |  |   | 4,945 
|Other                                     |  |                      | 4,975  |                         |   | (3,535  | )                 |  |   | 1,440 
|                                          |  |                      |        |                         |   |         |                   |  |   |       
|Total                                     |  | $                    | 52,470 |                         | $ | (29,455 | )                 |  | $ | 23,015
|                                          |  |                      |        |                         |   |         |                   |  |   |       



|                                          |  |                      |        |                         |   |         |                   |  |   |       
|----------------------------------------- |  | -------------------- | ------ | ----------------------- | - | ------- | ----------------- |  | - | ------
|                                          |  | December 31, 2003   
|                                          |  | Gross carrying value |        | Accumulatedamortization |   |         | Net carryingvalue
|Acquired technology                       |  | $                    | 30,495 |                         | $ | (11,465 | )                 |  | $ | 19,030
|Service/maintenance agreements            |  |                      | 8,700  |                         |   | (8,513  | )                 |  |   | 187   
|Trademarks, trade names and service marks |  |                      | 8,300  |                         |   | (2,664  | )                 |  |   | 5,636 
|Other                                     |  |                      | 4,975  |                         |   | (3,076  | )                 |  |   | 1,899 
|                                          |  |                      |        |                         |   |         |                   |  |   |       
|Total                                     |  | $                    | 52,470 |                         | $ | (25,718 | )                 |  | $ | 26,752
|                                          |  |                      |        |                         |   |         |                   |  |   |       



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##### Table of Contents

Estimated future amortization expense related to our intangible assets at March 31, 2004 is as follows
(in thousands):



|                   |  |               |       
|------------------ |  | ------------- | ------
|                   |  | March 31,2004
|2004 (nine months) |  | $             | 10,576
|2005               |  |               | 12,092
|2006               |  |               | 347   
|                   |  |               |       
|Total              |  | $             | 23,015
|                   |  |               |       



We have reclassified
from operating expenses to cost of revenues the amortization of acquired technology and maintenance contracts for the three months ended March 31, 2003 to provide consistent presentation with the three months ended March 31, 2004. This
reclassification did not impact total net revenues, net loss, or net loss per share for the three months ended March 31, 2003. The effect of the reclassification on the Condensed Consolidated Statements of Operations is as follows (in thousands):



|                                     |  |                                  |        |           |   |       
|------------------------------------ |  | -------------------------------- | ------ | --------- | - | ------
|                                     |  | Three Months EndedMarch 31, 2003
|                                     |  | As PreviouslyReported            |        | AsRevised
|Amortization of acquired intangibles |  | $                                |       |           | $ | 4,317 
|Total cost of revenues               |  | $                                | 9,698  |           | $ | 14,015
|Gross profit                         |  | $                                | 64,672 |           | $ | 60,355
|Total operating expenses             |  | $                                | 82,090 |           | $ | 77,773



NOTE 6RESTRUCTURING



The following table summarizes our short-term
restructuring and acquisition-related activity accounted for according to SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, for the three months ended March 31, 2004 (in thousands):



|                                              |  |                        |        |   |            |   |        |       |  |   |       |   |  |   |        |  
|--------------------------------------------- |  | ---------------------- | ------ | - | ---------- | - | ------ | ----- |  | - | ----- | - |  | - | ------ | -
|                                              |  | Severance and Benefits |        |   | Facilities |   |        | Other |  |   | Total |  
|Accrual at December 31, 2003                  |  | $                      | 3,499  |   |            | $ | 2,258  |       |  | $ | 474   |   |  | $ | 6,231  |  
|Cash payments and write-offs                  |  |                        | (2,662 | ) |            |   | (1,943 | )     |  |   | (209  | ) |  |   | (4,814 | )
|Reclassification from long-term restructuring |  |                        |       |   |            |   | 495    |       |  |   |      |   |  |   | 495    |  
|                                              |  |                        |        |   |            |   |        |       |  |   |       |   |  |   |        |  
|Accrual at March 31, 2004                     |  | $                      | 837    |   |            | $ | 810    |       |  | $ | 265   |   |  | $ | 1,912  |  
|                                              |  |                        |        |   |            |   |        |       |  |   |       |   |  |   |        |  



During the three
months ended March 31, 2004 we reclassified approximately $0.5 million from our long-term restructuring accrual to short-term restructuring accrual to properly reflect the current portion of the lease obligations for vacant facilities in the United
Kingdom. At March 31, 2004 we had approximately $3.5 million in our long-term restructuring accrual related to the lease obligations for vacant facilities. During the three months ended March 31, 2004, we paid approximately $1.5 million in cash for
the termination of a facility lease which is included in cash payments and write-offs under facilities in the table above. We expect our severance and benefits accrual to be fully paid by the end of 2004 and we are currently seeking to sublet or
terminate the leases on our vacant facilities.



NOTE 7INCOME TAXES



For the three months ended March 31, 2004 and 2003, we
recorded income tax expense of $1.9 million and $1.5 million, respectively. Our tax provisions for the three months ended March 31, 2004 and 2003 were not based on our expected annual rate, as we incurred non-U.S. withholding taxes in a number of
foreign jurisdictions, which were not based on our profitability, as well as non-U.S. income taxes for certain profitable foreign operations. We also incurred U.S. federal tax expense for Alternative Minimum Tax, or AMT, purposes, as well as state
income tax expense. Tax liabilities incurred in foreign jurisdictions were not offset by the benefits of prior U.S. net operating loss and tax credit carryforwards.



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NOTE 8REPURCHASE OF COMMON STOCK



Discretionary Repurchase Program



In September 2001, our Board of Directors authorized the use of up to $30.0 million to repurchase shares of our outstanding
common stock under a discretionary stock repurchase program. During the three months ended March 31, 2004, the plan approached its $30.0 million limit and in February 2004, our Board of Directors authorized an additional $30.0 million to repurchase
shares of our outstanding stock under the discretionary program, bringing the total discretionary stock repurchase authorizations to $60.0 million.



As a part of our discretionary stock repurchase program, we repurchased 523,100 common shares at an average price of $9.56 per share for an aggregate cost
of approximately $5.0 million during the three months ended March 31, 2004. During the three months ended March 31, 2003, we repurchased 299,801 common shares at an average price of $9.61 per share for an aggregate cost of approximately $2.9
million. The discretionary program is currently deemed to be in effect and at March 31, 2004, approximately $27.7 million remains authorized for future repurchases.



10b5-1 Repurchase Program



In August 2003, our Board of Directors authorized a 10b5-1 repurchase program whereby up to 1,000,000 shares or
$15.0 million worth of our outstanding common stock, whichever comes first, may be repurchased with a per trading day limit of 2,000 shares. Under this program we repurchased 124,000 common shares at an average price of $9.69 a share for total
consideration of $1.2 million during the three months ended March 31, 2004. This authorization is currently deemed to be in effect and at March 31, 2004, approximately $12.0 million, or 676,000 shares, whichever comes first, remains authorized for
future repurchases.



NOTE 9LITIGATION



On November 27, 2002, a stockholder class action and derivative lawsuit,
Dieterich v. Harrer, et al., Case No. 02CC00350, was filed against Starbase Corporation, or Starbase, and five former directors of Starbase in the Superior Court of the State of California for Orange County, claiming that the former directors had
breached fiduciary duties owed to Starbase and stockholders of Starbase. We are paying the costs of defending this litigation pursuant to indemnification obligations under the merger agreement relating to our acquisition of Starbase. Following a
series of motions, the case was dismissed without prejudice on August 20, 2003. On October 28, 2003, a stockholder class action relating to the same matter, Dieterich v. Harrer, et al, Case No. 024-N, was filed against the former directors of
Starbase in Chancery Court of the State of Delaware, alleging breach of fiduciary duties by the former directors of Starbase, Borland, Dale L. Fuller, Keith E. Gottfried, Frederick A. Ball, and Doug Barre. On March 31, 2004, the Delaware Chancery
Court held a hearing on our motion for summary judgment, but has not ruled on such motion. We intend to defend ourselves vigorously. There is no indication at present whether the lawsuit will have a material effect on our financial condition or
liquidity.



From time to time, we may be involved in other
lawsuits, claims, investigations and proceedings, consisting of intellectual property, commercial, employment and other matters, which arise in the ordinary course of business. In accordance with SFAS No. 5, Accounting for
Contingencies, or SFAS No. 5, we make a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and
adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Litigation is inherently unpredictable. However, we believe that we have valid defenses
with respect to the legal matters pending against us, as well as adequate provisions for any probable and estimable losses. If an unfavorable ruling were to occur in any specific period, there exists the possibility of a material adverse impact on
the results of operations for that period. We believe that, except as listed above, given our current liquidity and cash and investment balances, even were we to receive an adverse judgment with respect to litigation that we are currently a party
to, it is likely that such a judgment would not have a material impact on our financial condition or liquidity.



NOTE 10LOAN RECEIVABLE WRITE-OFF



At March 31, 2003, we had a loan receivable with a book value of $2.2 million related to a loan to AltoWeb, Inc., or AltoWeb, a provider of J2EE
applications. Subsequent to March 31, 2003, we were informed by AltoWeb that it had ceased substantially all of its operations. We recorded the write-off of this loan receivable of



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##### Table of Contents

$2.2 million during the three months ended March 31, 2003. Since our investment in Altoweb was related to AltoWebs attempt to extend their product
development efforts for the Borland platform, we have included these expenses in research and development during the three months ended March 31, 2003.



NOTE 11INDEMNIFICATIONS AND GUARANTEES



The following is a summary of our agreements that we have determined are within the scope of FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, or FIN No. 45, which are specifically grandfathered because the guarantees were in effect prior to December 31, 2002.
Accordingly, we have no liabilities recorded for these agreements as of March 31, 2004, except as noted below.



As permitted under Delaware law, we have agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer or
director is, or was serving, at our request in such capacity. The term of the indemnification period is for the officer or directors lifetime. The maximum potential amount of future payments we could be required to make under these
indemnification agreements is unlimited; however, we have a Director and Officer insurance policy that limits our exposure and enables us to recover a portion of any future amounts paid. As a result of our insurance policy coverage, we believe the
estimated fair value of these indemnification agreements is minimal.



As part of the Starbase and TogetherSoft acquisitions, we entered into agreements whereby we indemnify the officers and directors of the acquired company for certain events or occurrences while such officers or directors served in such
capacity. The term of the indemnification period is for the officers or directors lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we
have purchased Director and Officer insurance policies for Starbase and TogetherSoft that limit our exposure for six years. These insurance policies enable us to recover a portion of any future amounts paid. As a result of our insurance policy
coverage, we believe the estimated fair value of these indemnification agreements is minimal.



We entered into an agreement for the outsourcing of inventory fulfillment. As a component of this agreement, we guarantee that in the event we terminate the fulfillment agreement, we will purchase all inventory held
by the vendor at the time of termination. We estimate and accrue reserves for excess inventory at the fulfillment vendor. As of March 31, 2004, we had inventory in excess of the reserves of approximately $0.4 million, which represents the potential
obligation relating to this guarantee.



During the year ended
December 31, 2003, we entered into an operating lease for our U.S. regional sales headquarters in Cupertino, California. In the event that we do not exercise our option to extend the term of the lease, we guarantee certain costs to restore the
property to certain conditions in place at the time the lease commenced. We are accruing the estimated lease restoration costs over the lease term.



During 1999, we entered into a ten-year operating lease for our corporate headquarters buildings in Scotts Valley, California. In the event that we do not
exercise our option to extend the term of the lease, we guarantee certain costs to restore the property to certain conditions in place at the time of lease. We believe the estimated fair value of this guarantee is minimal.



We enter into standard indemnification agreements in our ordinary course of
business. Pursuant to these agreements, we indemnify and agree to repair, replace or reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally our business partners or customers, in connection with any U.S.
patent, or any copyright or other intellectual property infringement claim by any third party with respect to our products. The term of these indemnification agreements is generally perpetual. The maximum potential amount of future payments we could
be required to make under these indemnification agreements is presently unknown. We have never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe the estimated fair value of these
agreements is minimal.



NOTE 12RECENT ACCOUNTING PRONOUNCEMENTS



In December 2003, the FASB issued additional guidance
clarifying the provisions of FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, or FIN No. 46-R. FIN No. 46-R provides a deferral of FIN No. 46 for certain entities. FIN No.
46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at
risk for the entity to finance its activities without additional subordinated financial support from other parties. We do not have any interests in variable interest entities and the adoption of FIN No. 46-R is not expected to have a material impact
on our financial position, results of operations or cash flows.



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------



Forward-Looking Statements



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



These forward-looking statements may relate to, but are not limited to,
future capital expenditures, acquisitions, timing of the integration of acquired businesses, the ultimate cost of acquired businesses, revenue pipeline, revenues, including revenues from recently acquired businesses, cash flows,
earnings, margins, costs, strategy, demand for our products, market and technological trends in the software industry, effective tax rates, interest rates, foreign currency exchange rates and inflation and various economic and business trends.
Generally, you can identify forward-looking statements by the use of words such as expect, estimate, project, budget, forecast, anticipate, goal, intend,
plan, may, will, could, should, believes, predicts, potential, continue and similar expressions or the negative or other variations thereof.
These forward-looking statements involve substantial risks and uncertainties. Examples of such risks and uncertainties are described under Factors That May Affect Future Results and Market Price of Stock and elsewhere in this report, as
well as in our other filings with the SEC or in materials incorporated by reference herein or therein. You should be aware that the occurrence of any of these risks and uncertainties may cause our actual results to differ materially from those
anticipated in our forward-looking statements and have a material and adverse effect on our business, results of operations and financial condition. New factors may emerge from time to time, and it is not possible for us to predict new factors, nor
can we assess the potential effect of any new factors on us.



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



General



We are a leading global provider of software development and deployment solutions that are designed to accelerate the
application development lifecycle. We provide our customers solutions that help them deliver better software faster and manage software development projects from beginning to end. By connecting managers, testers, designers and developers, our
solutions are designed to improve software quality, accelerate the delivery of software, lower the cost of ownership and reduce the risk of project failure. In support of our solutions, we also provide training, consulting and support services
through our professional services organization.



We are in the
process of transforming the company from one focused on selling individual development tools alone to one focused on selling multi-product enterprise solutions that span the entire software application development lifecycle. As part of this
transformation, we are focused on increasing sales force productivity by generating more sales of our multi-product solutions, developing stronger alliances with systems integrators and technology partners that have strong relationships with
enterprise-level customers, and selling our individual products through our network of channel partners. As we make the transition to selling enterprise solutions, we expect to compete more directly with larger companies. As a result, we may face
additional pricing pressures. We believe that, over time as we compete for these larger enterprise customers, the pricing of our individual products may become less meaningful than the overall blend of our enterprise solutions offered. We also
expect to experience longer sales cycles, which is typical for sales of larger solutions.



We are and have been transitioning certain product lines into a software assurance model in which upgrades are sold as part of a customers maintenance offering and are reported as service revenues
instead of license revenues as is the case when sold as a stand-alone product upgrades. Further, we have enhanced our systems and focus around renewal of software assurance contracts. As such, our service revenues have become a larger portion of our
business.



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##### Table of Contents

We remain focused on improving operating margins, and in recent quarters have restructured our operations
toward this objective. We believe we are structured appropriately at this time and believe overall expenses will stabilize over the next several quarters close to the current level or with a minimal increase as we pursue our enterprise marketing and
selling strategy.



We achieved the following financial results
during the three months ended March 31, 2004:



| |  | For the three months ended March 31, 2004, net revenues decreased 2% to $72.9 million from $74.4 million for the three months ended March 31, 2003.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Licenses and other revenues decreased 11% to $50.8 million for the three months ended March 31, 2004 from $56.8 million for the three months ended March 31, 2003.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Service revenues increased 25% to $22.0 million for the three months ended March 31, 2004 from $17.6 million for the three months ended March 31, 2003.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Gross margins increased to 84% for the three months ended March 31, 2004 from 81% for the three months ended March 31, 2003.
| | - | ----------------------------------------------------------------------------------------------------------------------------



| |  | Operating expenses decreased 24% to $59.1 million for the three months ended March 31, 2004 from $77.8 million for the three months ended March 31, 2003.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Profitability increased substantially. Net income was $0.7 million for the three months ended March 31, 2004, compared to a net loss of $17.7 million for the three months ended
March 31, 2003.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Expenses from the amortization of acquired and other intangible assets decreased to $3.8 million for the three months ended March 31, 2004, from $5.3 million for the three months
ended March 31, 2003.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Cash, cash equivalents and short-term investments increased $1.0 million to $203.6 million as of March 31, 2004, from $202.6 million as of December 31, 2003.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We repurchased 647,100 shares of our common stock under our stock repurchase programs for a total aggregate cost of $6.2 million during the three months ended March 31, 2004. This
brings the total common stock repurchased under our stock repurchase programs to 3,827,805 million shares for a total aggregate cost of $35.3 million.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For a more in-depth discussion of our business, including a discussion of our critical accounting policies and estimates,
please read our Annual Report on Form 10-K for the year ended December 31, 2003 as filed with the SEC on March 15, 2004.



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##### Table of Contents

Results of Operations



The following table presents our Condensed Consolidated Statements of Operations data and the related percentage of net
revenues for the three months ended March 31, 2004 and 2003 (dollars in thousands):



|                                                                                                 |  |                              |        |  |      |   |  |   |         |   |  |     |   
|------------------------------------------------------------------------------------------------ |  | ---------------------------- | ------ |  | ---- | - |  | - | ------- | - |  | --- | --
|                                                                                                 |  | Three Months Ended March 31, |       
|                                                                                                 |  | 2004                         |        |  | 2003 |  
|Licenses and other revenues                                                                      |  | $                            | 50,820 |  | 70   | % |  | $ | 56,809  |   |  | 76  | % 
|Service revenues                                                                                 |  |                              | 22,039 |  | 30   | % |  |   | 17,561  |   |  | 24  | % 
|                                                                                                 |  |                              |        |  |      |   |  |   |         |   |  |     |   
|Net revenues                                                                                     |  |                              | 72,859 |  | 100  | % |  |   | 74,370  |   |  | 100 | % 
|                                                                                                 |  |                              |        |  |      |   |  |   |         |   |  |     |   
|Cost of licenses and other revenues                                                              |  |                              | 2,831  |  | 4    | % |  |   | 3,099   |   |  | 4   | % 
|Cost of service revenues                                                                         |  |                              | 6,002  |  | 8    | % |  |   | 6,599   |   |  | 9   | % 
|Amortization of acquired intangibles (*)                                                         |  |                              | 2,561  |  | 4    | % |  |   | 4,317   |   |  | 6   | % 
|                                                                                                 |  |                              |        |  |      |   |  |   |         |   |  |     |   
|Cost of revenues                                                                                 |  |                              | 11,394 |  | 16   | % |  |   | 14,015  |   |  | 19  | % 
|                                                                                                 |  |                              |        |  |      |   |  |   |         |   |  |     |   
|Gross profit                                                                                     |  |                              | 61,465 |  | 84   | % |  |   | 60,355  |   |  | 81  | % 
|                                                                                                 |  |                              |        |  |      |   |  |   |         |   |  |     |   
|Selling, general and administrative                                                              |  |                              | 40,575 |  | 56   | % |  |   | 43,974  |   |  | 59  | % 
|Research and development                                                                         |  |                              | 16,791 |  | 23   | % |  |   | 20,244  |   |  | 27  | % 
|Restructuring, amortization of other intangibles, acquisition-related expenses and other charges |  |                              | 1,739  |  | 2    | % |  |   | 13,555  |   |  | 18  | % 
|                                                                                                 |  |                              |        |  |      |   |  |   |         |   |  |     |   
|Total operating expenses                                                                         |  |                              | 59,105 |  | 81   | % |  |   | 77,773  |   |  | 104 | % 
|                                                                                                 |  |                              |        |  |      |   |  |   |         |   |  |     |   
|Operating income (loss)                                                                          |  |                              | 2,360  |  | 3    | % |  |   | (17,418 | ) |  | (23 | %)
|Interest income, net and other                                                                   |  |                              | 268    |  | 0    | % |  |   | 1,234   |   |  | 1   | % 
|                                                                                                 |  |                              |        |  |      |   |  |   |         |   |  |     |   
|Income (loss) before income taxes                                                                |  |                              | 2,628  |  | 3    | % |  |   | (16,184 | ) |  | (22 | %)
|Income tax provision                                                                             |  |                              | 1,915  |  | 2    | % |  |   | 1,508   |   |  | 2   | % 
|                                                                                                 |  |                              |        |  |      |   |  |   |         |   |  |     |   
|Net income (loss)                                                                                |  | $                            | 713    |  | 1    | % |  | $ | (17,692 | ) |  | (24 | %)
|                                                                                                 |  |                              |        |  |      |   |  |   |         |   |  |     |   



|* | We have reclassified from operating expenses to cost of revenues the amortization of purchased technology and maintenance contracts for the three months ended March 31, 2003 to
provide consistent presentation with the three months ended March 31, 2004. This reclassification did not impact total net revenues, net loss, or net loss per share. See Note 5 of Notes to Condensed Consolidated Financial Statements.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Total Net Revenues



The following table presents our net revenues for the three months ended
March 31, 2004 and 2003, and the absolute dollar and percentage change from the comparable prior year period (dollars in thousands):



|             |  |                             |        |        |   |        |  |   |        |   |  |    |   
|------------ |  | --------------------------- | ------ | ------ | - | ------ |  | - | ------ | - |  | -- | --
|             |  | Three Months EndedMarch 31, |        | Change |  
|             |  | 2004                        |        | 2003   |   | $      |  |   | %      |  
|Net revenues |  | $                           | 72,859 |        | $ | 74,370 |  | $ | (1,511 | ) |  | (2 | %)



We derive revenues
from licenses of our software and the sale of related services.



Licenses
and Other Revenues



The following table presents our
licenses and other revenues for the three months ended March 31, 2004 and 2003, and the absolute dollar and percentage change from the comparable prior year period (dollars in thousands):



|                             |  |                             |        |   |        |   |        |   |  |   |        |   |  |     |   
|---------------------------- |  | --------------------------- | ------ | - | ------ | - | ------ | - |  | - | ------ | - |  | --- | --
|                             |  | Three Months EndedMarch 31, |        |   | Change |  
|                             |  | 2004                        |        |   | 2003   |   |        | $ |  |   | %      |  
|Licenses and other revenues  |  | $                           | 50,820 |   |        | $ | 56,809 |   |  | $ | (5,989 | ) |  | (11 | %)
|As a percent of net revenues |  |                             | 70     | % |        |   | 76     | % |  |   |        |   |  |     |   



With the integration
of the acquisitions of TogetherSoft and Starbase, we have aligned our presentation of licenses and other revenues to better reflect our application lifecycle strategy. Specifically, our application lifecycle management, or ALM, offerings comprise
three major product categories: Design, Develop and Deploy. Design includes the products from our acquisitions of TogetherSoft and Starbase: StarTeam, CaliberRM, Together and other



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##### Table of Contents

related design and management products. Develop includes two major categories: Java, which includes JBuilder, Java Studio and Optimizeit, and .NET, which
includes Delphi, C++Builder, Kylix and C++ Mobile Edition. Deploy is comprised of our Visibroker, Borland Enterprise Server products, InterBase and other enterprise products.



Licenses and other revenues represent amounts for license fees and royalties earned for granting customers the right to use
our software products. License and other revenues represented 70% of net revenues in the three months ended March 31, 2004 compared to 76% in the three months ended March 31, 2003. The change in mix between licenses/other revenues and service
revenues is due to our transition of certain products from a stand-alone upgrade selling model to a software assurance model that provides upgrades to products while being reflected in the service revenues line item.



The following table presents our licenses and other revenues by product
category and the percentage of net licenses and other revenues of each category for the three months ended March 31, 2004 and 2003 (dollars in thousands):



|                                |  |                              |        |  |      |   |  |   |        |  |     |  
|------------------------------- |  | ---------------------------- | ------ |  | ---- | - |  | - | ------ |  | --- | -
|                                |  | Three Months Ended March 31, |       
|                                |  | 2004                         |        |  | 2003 |  
|Design                          |  | $                            | 9,436  |  | 19   | % |  | $ | 12,256 |  | 22  | %
|Develop                         |  |                              | 28,582 |  | 56   | % |  |   | 34,879 |  | 61  | %
|Deploy                          |  |                              | 12,802 |  | 25   | % |  |   | 9,674  |  | 17  | %
|                                |  |                              |        |  |      |   |  |   |        |  |     |  
|Net licenses and other revenues |  | $                            | 50,820 |  | 100  | % |  | $ | 56,809 |  | 100 | %
|                                |  |                              |        |  |      |   |  |   |        |  |     |  



In the future, if we are successful in
selling integrated ALM solutions, it may prove difficult to break out license revenues on a product category basis.



Design.The decrease in Design licenses and other revenues in the three months ended March 31, 2004 from the three months ended March 31, 2003 was
due to lower revenues generated from the sales of our Together product line. Historically, revenues from the Together product line have been influenced by the design and development functionality within the product. As we transform the Together
product line into a pure modeling solution and promote JBuilder and Delphi as our flagship development solutions, we are seeing less license revenue from this product line. However, we believe the Together product line is an important element of our
ALM studio product, Borland Enterprise Studio.



Develop.
The decrease in Develop licenses and other revenues in the three months ended March 31, 2004 from the three months ended March 31, 2003 was due to weakness in our Java revenues. Licenses and other revenues from our Develop products group included
licenses and other revenues of $13.4 million and $20.9 million in the three months ended March 31, 2004 and 2003, respectively, from our Java product line. The decrease in licenses and other revenues in our Java product line was due to lower
revenues from our JBuilder product line. We believe the market growth in adoption of new Java development technology has slowed, we face competition from open source offerings, and consequently, we face increasing price pressure. Thus, while unit
sales of the current version of JBuilder (JBuilder X) are higher than unit sales of the version of JBuilder that was current as of March 31, 2003 (JBuilder 8), our JBuilder revenue has declined. Additionally, as more of our Java customers have
purchased software assurance contracts that include upgrades, we expect to generate less revenue from stand-alone upgrades of Java products. We believe that revenue trends for our JBuilder product will be dependent upon the maturation of the Java
development market and the success of our ALM solutions in the Java market.



Licenses and other revenues from our Develop products group included $15.2 million and $14.0 million in the three months ended March 31, 2004 and 2003, respectively, from our .NET product line. The increase in
licenses and other revenues from our .NET product line was due to higher licenses and other revenues generated from our Delphi products following a release of Delphi 8 in late December 2003. We have historically experienced an increase in revenues
from our Delphi product during the quarter following the release of a new version, as a majority of our Delphi customers purchase stand-alone upgrades instead of purchasing technical support contracts.



Deploy.The increase in licenses and other revenues in the three
months ended March 31, 2004 from the three months ended March 31, 2003 was due to higher revenues generated from large deals with our telecommunications customers and OEM partners. We believe that the growth in our deployment revenues is due, in
part, to increasing sales in the telecommunications sector. While we expect to receive a short-term benefit from the increased spending in this market, more sustained growth in our deployment revenues will require broader adoption of the next
generation telecommunication technology.



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##### Table of Contents

Service revenues



The following table presents our service revenues for the three months ended March 31, 2004 and 2003, and the absolute
dollar and percentage change from the comparable prior year period (dollars in thousands):



|                             |  |                             |        |   |        |   |        |   |  |   |       |  |    |  
|---------------------------- |  | --------------------------- | ------ | - | ------ | - | ------ | - |  | - | ----- |  | -- | -
|                             |  | Three Months EndedMarch 31, |        |   | Change |  
|                             |  | 2004                        |        |   | 2003   |   |        | $ |  | % |      
|Service revenues             |  | $                           | 22,039 |   |        | $ | 17,561 |   |  | $ | 4,478 |  | 25 | %
|As a percent of net revenues |  |                             | 30     | % |        |   | 24     | % |  |   |       |  |    |  



Service revenues
represent amounts earned for technical support, which includes call support and maintenance, and for consulting and training services for our software products. The increase in service revenues in the three months ended March 31, 2004 from the three
months ended March 31, 2003 primarily resulted from an increase in technical support revenues due to our efforts to transition customers to our software assurance model. We expect our service revenues to represent between 25% and 35% of total net
revenues in the future. We believe that our technical support revenues have benefited from increased revenues generated from larger enterprises, which generally purchase support contracts with their software licenses. We expect our support revenues
to grow to the extent we are successful in selling our solutions to larger enterprises with greater frequency. Our service revenues may also grow as our new enterprise solution offerings increase in complexity and include more services as a
component of larger sales contracts. However, if we are unsuccessful in our efforts to transition customers to a software assurance model or in selling new enterprise solutions, we may experience decreases in our service revenues.



The following table presents our service revenues by service category and as
a percentage of total service revenues for the three months ended March 31, 2004 and 2003 (dollars in thousands):



|                        |  |                              |        |  |      |   |  |   |        |  |     |  
|----------------------- |  | ---------------------------- | ------ |  | ---- | - |  | - | ------ |  | --- | -
|                        |  | Three Months Ended March 31, |       
|                        |  | 2004                         |        |  | 2003 |  
|Technical support       |  | $                            | 16,400 |  | 74   | % |  | $ | 12,041 |  | 69  | %
|Consulting and training |  |                              | 5,639  |  | 26   | % |  |   | 5,520  |  | 31  | %
|                        |  |                              |        |  |      |   |  |   |        |  |     |  
|Service revenues        |  | $                            | 22,039 |  | 100  | % |  | $ | 17,561 |  | 100 | %
|                        |  |                              |        |  |      |   |  |   |        |  |     |  



International
Net Revenues



Revenues from sources outside the United
States, or non-U.S. revenues, represented approximately 58% and 56% of net revenues for the three months ended March 31, 2004 and 2003, respectively. The increase in the percentage of non-U.S. revenues for the three months ended March 31, 2004, as
compared to the three months ended March 31, 2003, was principally due to a $1.9 million increase in EMEA revenues as a result of the weakening of the U.S. Dollar against the Euro and due to a $1.8 million decrease in revenues attributable to the
United States primarily as a result of a decrease in revenues from our Java product line in the United States. We believe that our transformation efforts created the most disruption with our sales efforts in the United States, and we expect this
disruption to continue in the near-term as new personnel gain experience and as we continue to modify our go-to-market effort. On a percentage basis, we expect non-U.S. revenues to decline slightly in future periods due to the anticipated growth of
revenues in the United States as we increase our efforts to sell our ALM solutions to large enterprise customers in the United States.



Our non-U.S. revenues would be harmed if the U.S. Dollar were to strengthen against major foreign currencies, including the Japanese Yen, United Kingdom
Pound Sterling and Euro.



The following table presents our net
revenues by region and as a percentage of total net revenues for the three months ended March 31, 2004 and 2003 (dollars in thousands):



|                               |  |                              |        |  |      |   |  |   |        |  |     |  
|------------------------------ |  | ---------------------------- | ------ |  | ---- | - |  | - | ------ |  | --- | -
|                               |  | Three Months Ended March 31, |       
|                               |  | 2004                         |        |  | 2003 |  
|Americas                       |  | $                            | 34,482 |  | 47   | % |  | $ | 36,765 |  | 49  | %
|Europe, Middle East and Africa |  |                              | 27,290 |  | 38   | % |  |   | 25,390 |  | 34  | %
|Asia Pacific                   |  |                              | 11,087 |  | 15   | % |  |   | 12,215 |  | 17  | %
|                               |  |                              |        |  |      |   |  |   |        |  |     |  
|Net revenues                   |  | $                            | 72,859 |  | 100  | % |  | $ | 74,370 |  | 100 | %
|                               |  |                              |        |  |      |   |  |   |        |  |     |  



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##### Table of Contents

Cost of Revenues



The following table presents cost of revenues for the three months ended March 31, 2004 and 2003, and the absolute dollar and percentage changes from
the comparable prior year period (dollars in thousands):



|                                            |  |                             |       |   |        |   |       |   |  |   |        |   |  |     |   
|------------------------------------------- |  | --------------------------- | ----- | - | ------ | - | ----- | - |  | - | ------ | - |  | --- | --
|                                            |  | Three MonthsEnded March 31, |       |   | Change |   |       |   | 
|                                            |  | 2004                        |       |   | 2003   |   |       | $ |  |   | %      |  
|Cost of licenses and other revenues         |  | $                           | 2,831 |   |        | $ | 3,099 |   |  | $ | (268   | ) |  | (9  | %)
|As a percent of licenses and other revenues |  |                             | 6     | % |        |   | 5     | % |  |   |        |   |  |     |   
|                                            |  |                             |       |  
|Cost of service revenues                    |  | $                           | 6,002 |   |        | $ | 6,599 |   |  | $ | (597   | ) |  | (9  | %)
|As a percent of service revenues            |  |                             | 27    | % |        |   | 38    | % |  |   |        |   |  |     |   
|                                            |  |                             |       |  
|Amortization of acquired intangibles        |  | $                           | 2,561 |   |        | $ | 4,317 |   |  | $ | (1,756 | ) |  | (41 | %)
|As a percent of licenses and other revenues |  |                             | 5     | % |        |   | 8     | % |  |   |        |   |  |     |   



Cost of Licenses
and Other Revenues



Cost of licenses and other
revenues consists primarily of production costs, product packaging and royalties paid to third-party vendors. The reduction in the cost of licenses and other revenues was in line with the change in licenses and other revenues. Royalty costs were 2%
of licenses and other revenues in the three months ended March 31, 2004 and 2003. The level of royalty costs in future periods will depend on our ability to obtain favorable licensing terms for our products that include third-party technology and
the extent to which we include such third-party technology in our product offerings.



Cost of Service Revenues



The following table presents our cost of service revenues by category and as a percentage of total cost of service revenues for the three months ended March 31, 2004 and 2003 (dollars in thousands):



|                         |  |                              |       |  |      |   |  |   |       |  |     |  
|------------------------ |  | ---------------------------- | ----- |  | ---- | - |  | - | ----- |  | --- | -
|                         |  | Three Months Ended March 31, |      
|                         |  | 2004                         |       |  | 2003 |  
|Technical support        |  | $                            | 1,525 |  | 25   | % |  | $ | 1,725 |  | 26  | %
|Consulting and training  |  |                              | 4,477 |  | 75   | % |  |   | 4,874 |  | 74  | %
|                         |  |                              |       |  |      |   |  |   |       |  |     |  
|Cost of service revenues |  | $                            | 6,002 |  | 100  | % |  | $ | 6,599 |  | 100 | %
|                         |  |                              |       |  |      |   |  |   |       |  |     |  



Cost of service
revenues consists primarily of salaries and benefits, third-party contractor costs and related expenses incurred in providing customer support, consulting and training. Service revenues gross margins were 73% and 62% in the three months ended March
31, 2004 and 2003, respectively. The increase in gross margins was due to an increase in support revenues coupled with a decrease in technical support and consulting and training costs. In future periods, our cost of service revenues may grow as
consulting and training revenues, which typically have lower margins, potentially become a larger component of service revenues.



Amortization of Acquired Intangibles



Amortization of acquired intangibles consists of the amortization of acquired technology and maintenance contracts from the TogetherSoft and Starbase
acquisitions. Amortization of acquired intangibles decreased 41% to approximately $2.6 million in the three months ended March 31, 2004 from $4.3 million in the three months ended March 31, 2003.The amortization of acquired intangibles for
the three months ended March 31, 2004 and 2003 included $0.2 million and $2.0 million, respectively, of amortization expense associated with maintenance contracts assumed in the TogetherSoft and Starbase acquisitions.



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##### Table of Contents

Operating Expenses



Selling, General and Administrative Expenses



The following table presents our selling, general and administrative expenses for the three months ended March 31, 2004 and
2003, and the absolute dollar and percentage change from the comparable prior year period (dollars in thousands):



|                                             |  |                             |        |   |        |   |        |   |  |   |        |   |  |    |   
|-------------------------------------------- |  | --------------------------- | ------ | - | ------ | - | ------ | - |  | - | ------ | - |  | -- | --
|                                             |  | Three Months EndedMarch 31, |        |   | Change |  
|                                             |  | 2004                        |        |   | 2003   |   |        | $ |  |   | %      |  
|Selling, general and administrative expenses |  | $                           | 40,575 |   |        | $ | 43,974 |   |  | $ | (3,399 | ) |  | (8 | %)
|As a percent of net revenues                 |  |                             | 56     | % |        |   | 59     | % |  |   |        |   |  |    |   



The decrease in
selling, general and administrative expenses was primarily attributable to a decrease in headcount following our restructuring efforts during 2003, which resulted in a 9% decrease in selling, general and administrative employee-related expenses. In
addition, we incurred higher discretionary costs of approximately $2.3 million, including marketing, outside services and business travel, during the three months ended March 31, 2003 when compared to the three months ended March 31, 2004 due to
higher start-up costs incurred as part of the TogetherSoft and Starbase integrations.



Since January 1, 2003 certain employees have been reclassified from selling, general and administrative to research and development. As a result, we reclassified approximately $2.3 million of associated
employee-related expenses from selling, general and administrative to research and development for the three months ended March 31, 2003 to conform to our 2004 presentation. The reclassification had no effect on operating loss as previously
reported.



Research and Development Expenses



The following table presents our research and
development expenses for the three months ended March 31, 2004 and 2003, and the absolute dollar and percentage change from the comparable prior year period (dollars in thousands):



|                                  |  |                             |        |   |        |   |        |   |  |   |        |   |  |     |   
|--------------------------------- |  | --------------------------- | ------ | - | ------ | - | ------ | - |  | - | ------ | - |  | --- | --
|                                  |  | Three Months EndedMarch 31, |        |   | Change |  
|                                  |  | 2004                        |        |   | 2003   |   |        | $ |  |   | %      |  
|Research and development expenses |  | $                           | 16,791 |   |        | $ | 20,244 |   |  | $ | (3,453 | ) |  | (17 | %)
|As a percent of net revenues      |  |                             | 23     | % |        |   | 27     | % |  |   |        |   |  |     |   



The decrease in
research and development expenses was primarily attributable to a charge of $2.2 million for outsourced research and development during the three months ended March 31, 2003. Additionally, the decrease in our research and development expense was
attributable to a decrease of $2.1 million in our research and development headcount from the comparable period following our restructuring efforts in 2003.



During 2002, we entered into contracts to perform non-recurring engineering projects for several customers. Under these arrangements, we received payments
for engineering services upon the achievement and delivery of certain milestones. We accounted for the payments received under these arrangements as a reduction of research and development expenses. During the three months ended March 31, 2003, we
recorded approximately $0.4 million under these arrangements. No such payments were received in the three months ended March 31, 2004. We do not anticipate reductions in our research and development expenses in future periods as a result of
non-recurring engineering projects.



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##### Table of Contents

Restructuring, Amortization of Other Intangibles, Acquisition-Related Expenses and Other Charges



The following table summarizes our restructuring,
amortization of other intangibles, acquisition-related expenses and other charges for the three months ended March 31, 2004 and 2003, and the absolute dollar and percentage change from the comparable prior year period (dollars in thousands):



|                                    |  |                             |       |   |        |   |        |   |  |   |         |   |  |      |   
|----------------------------------- |  | --------------------------- | ----- | - | ------ | - | ------ | - |  | - | ------- | - |  | ---- | --
|                                    |  | Three Months EndedMarch 31, |       |   | Change |  
|                                    |  | 2004                        |       |   | 2003   |   |        | $ |  |   | %       |  
|Restructuring                       |  | $                           | (86   | ) |        | $ | 5,402  |   |  | $ | (5,488  | ) |  | (102 | %)
|Amortization of other intangibles   |  |                             | 1,190 |   |        |   | 1,006  |   |  |   | 184     |   |  | 18   | % 
|Acquisition related expenses        |  |                             | 635   |   |        |   | 2,547  |   |  |   | (1,912  | ) |  | (75  | %)
|In-process research and development |  |                             |      |   |        |   | 4,600  |   |  |   | (4,600  | ) |  | (100 | %)
|                                    |  |                             |       |   |        |   |        |   |  |   |         |   |  |      |   
|Total                               |  | $                           | 1,739 |   |        | $ | 13,555 |   |  | $ | (11,816 | ) |  | (87  | %)
|                                    |  |                             |       |   |        |   |        |   |  |   |         |   |  |      |   
|As a percent of net revenues        |  |                             | 2     | % |        |   | 18     | % |  |   |         |   |  |      |   



During the three
months ended March 31, 2004, we incurred $1.2 million of amortization expense related to acquired intangibles from our TogetherSoft, Starbase and Boldsoft acquisitions, and recorded $0.6 million in acquisition-related expenses, which includes $0.5
million of contingent consideration payable under the terms of the VM Gear acquisition agreement.



During the three months ended March 31, 2003, we recorded $5.4 million in restructuring costs from redundancies as a result of the TogetherSoft and
Starbase acquisitions and excess facilities in the United Kingdom, $1.0 million in amortization expense from purchased intangibles from the TogetherSoft, Starbase, VMGear, Bedouin, Boldsoft and Highlander acquisitions, $2.5 million in
acquisition-related expense, which is primarily associated with the earn-out provision of the VMGear acquisition, and a $4.6 million charge for in-process research and development from the TogetherSoft acquisition.



The following table summarizes our restructuring activity for the three
months ended March 31, 2004 (in thousands):



|                                              |  |                       |        |   |            |   |        |       |  |   |       |   |  |   |        |  
|--------------------------------------------- |  | --------------------- | ------ | - | ---------- | - | ------ | ----- |  | - | ----- | - |  | - | ------ | -
|                                              |  | Severance andBenefits |        |   | Facilities |   |        | Other |  |   | Total |  
|Accrual at December 31, 2003                  |  | $                     | 3,499  |   |            | $ | 2,258  |       |  | $ | 474   |   |  | $ | 6,231  |  
|Cash payments and write-offs                  |  |                       | (2,662 | ) |            |   | (1,943 | )     |  |   | (209  | ) |  |   | (4,814 | )
|Reclassification from long-term restructuring |  |                       |       |   |            |   | 495    |       |  |   |      |   |  |   | 495    |  
|                                              |  |                       |        |   |            |   |        |       |  |   |       |   |  |   |        |  
|Accrual at March 31, 2004                     |  | $                     | 837    |   |            | $ | 810    |       |  | $ | 265   |   |  | $ | 1,912  |  
|                                              |  |                       |        |   |            |   |        |       |  |   |       |   |  |   |        |  



We estimate that the
2003 restructuring activities reduced our operating expenses by approximately $5.0 million for the three months ended March 31, 2004 and will reduce our operating expenses by up to approximately $5.0 million per quarter for the remainder of 2004
from where operating expenses would have been absent the restructuring activities.



Interest Income, Net and Other



The
following table presents our interest income, net and other for the three months ended March 31, 2004 and 2003, and the absolute dollar and percentage change from the comparable prior year period (dollars in thousands):



|                               |  |                             |     |   |        |   |       |   |  |   |      |   |  |     |   
|------------------------------ |  | --------------------------- | --- | - | ------ | - | ----- | - |  | - | ---- | - |  | --- | --
|                               |  | Three MonthsEnded March 31, |     |   | Change |  
|                               |  | 2004                        |     |   | 2003   |   |       | $ |  |   | %    |  
|Interest income, net and other |  | $                           | 268 |   |        | $ | 1,234 |   |  | $ | (966 | ) |  | (78 | %)
|As a percent of net revenues   |  |                             | 0   | % |        |   | 1     | % |  |   |      |   |  |     |   



The decline in interest income, net
and other during the three months ended March 31, 2004 as compared to the same period in 2003 is due primarily to foreign currency losses of approximately $0.6 million during the three months ended March 31, 2004, compared to foreign currency gains
of approximately $0.3 million during the three months ended March 31, 2003.



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##### Table of Contents

Income Taxes



For the three months ended March 31, 2004 and 2003, we recorded income tax expense of $1.9 million and $1.5 million, respectively. Our tax provision for
the three months ended March 31, 2004 was not based on our expected annual rate, as we incurred non-U.S. withholding taxes in a number of foreign jurisdictions which were not based on our profitability, as well as non-U.S. income taxes for certain
profitable foreign operations. We also incurred U.S. federal tax expense for alternative minimum tax purposes, as well as state income tax expense. Our tax provision for the three months ended March 31, 2003 was not based on our expected annual
rate, as we incurred non-U.S. withholding taxes in a number of foreign jurisdictions, which were not based on our profitability, as well as non-U.S. income taxes for certain profitable foreign operations. As these tax liabilities were incurred in
foreign jurisdictions, they were not offset by the benefits of prior U.S. net operating loss and tax credit carryforwards.



Liquidity and Capital Resources



As of March 31, 2004, cash, cash equivalents and short-term investments totaled $203.6 million, an increase of $1.0 million from $202.6 million at
December 31, 2003. Working capital increased from $139.9 million at December 31, 2003 to $144.1 million at March 31, 2004. The increase in working capital of $4.2 million during the three months ended March 31, 2004 was primarily due to a decrease
in accounts payable and accrued payroll of $8.6 million related to the timing of cash disbursements and a $4.3 million decrease in short-term restructuring accruals related to cash payments for employee severance and facilities costs. These costs
were offset, in part, by an $8.0 million decrease in accounts receivable related to collection activities.



Cash provided by operating activities for the three months ended March 31, 2004 was $5.2 million, consisting of $0.7 million of net income, $5.8 million
of depreciation and amortization, and a decrease in non-cash working capital of $1.3 million. Cash used in operating activities for the three months ended March 31, 2003 was $4.0 million, consisting of $17.7 million of net loss offset by $7.5
million of depreciation and amortization, a $2.2 million loss on a write-off of a loan receivable and a decrease in non-cash working capital of $4.0 million.



In relation to our restructuring activities during the year ended December 31, 2003, we expect to make restructuring-related payments during our fiscal
quarter ending June 30, 2004 of approximately $0.3 million in severance related payments and approximately $0.2 million in facility-related payments. We are currently seeking to terminate or sublet several other facilities that are not in use and
may consolidate other facilities. These activities may result in additional cash payments in future periods.



To the extent that non-cash items increase or decrease our future operating results, there will be no corresponding impact on our cash flows. After
excluding the effects of these non-cash charges, the primary changes in cash flows relating to operating activities result from changes in working capital. Our primary source of operating cash flows has been the collection of accounts receivable
from our customers. Our operating cash flows are also affected by the timing of payments to our vendors. We generally pay our vendors and service providers in accordance with the invoice terms and conditions. Our ability to generate positive cash
flow from our non-cash working capital will be dependant on our ability to negotiate favorable payment terms with our customers and suppliers and collect our outstanding receivables from our customers on a timely basis. We anticipate our operating
expenses to remain relatively stable for the foreseeable future and as a result we intend to fund our operating expenses through cash flows from operations.



Cash used in investing activities for the three months ended March 31, 2004 was $7.7 million, including $7.4 million used for purchases of short-term
investments and $0.4 million used for purchases of property and equipment. Cash used in investing activities for the three months ended March 31, 2003 totaled $35.8 million, including $71.6 million and $5.3 million used for the acquisitions of
TogetherSoft and Starbase, respectively, as discussed in Note 4 to the Condensed Consolidated Financial Statements. Additionally, $7.6 million of cash was used for the purchases of short-term investments and $0.7 million of cash was used for the
purchases of property and equipment in the three months ended March 31, 2003. These amounts were offset by $49.4 million provided by the sales and maturities of short-term investments.



During the remainder of 2004, we expect significant activity in purchases and sales of short-term investments as we adjust
investments in light of movements in short-term interest rates while considering our short-term cash requirements. In the future, we may utilize cash resources to fund acquisitions or investments in other businesses, technologies or products lines.



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Cash used in financing activities was $4.0 million for the three months ended March 31, 2004 and
principally consisted of $2.2 million of proceeds from the issuance of common stock to employees under our employee stock option plans, offset by $6.2 million used to purchase our common shares under our stock repurchase programs. Cash provided by
financing activities was $1.4 million for the three months ended March 31, 2003 and principally consisted of $4.3 million of proceeds from the issuance of common stock to employees offset by $2.9 million in repurchases of common stock.



Although we partially hedge our foreign currency exchange rate risk,
fluctuations of the U.S. Dollar against the Euro, United Kingdom Pound Sterling, Australian and Singapore Dollars, and Japanese Yen could harm our business. We cannot predict currency exchange rate fluctuations, and there can be no assurance that
foreign currency exchange rates will not have a material adverse impact on our future cash flows and operating results. See further discussion of foreign currency risk in Item 3, Quantitative and Qualitative Disclosures About Market
Risk.



For the remainder of 2004, we expect that
operating expenses will remain at current levels or increase slightly in absolute dollars when compared with the three months ended March 31, 2004. We anticipate that operating expenses and planned capital expenditures will continue to constitute a
material use of our cash resources. We believe that our available cash and cash equivalents, together with our anticipated future cash provided by operating activities, will be sufficient to meet our working capital and operating expense
requirements for at least the next twelve months. At some point in the future, we may seek additional funds to support our working capital and operating expense requirements or for other purposes, and we may seek to raise additional funds through
public or private debt or equity financings. If we seek additional financing, there is no assurance that this additional financing will be available, or if available, will be on reasonable terms and not dilutive to our stockholders.



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FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK



We operate in a rapidly changing environment that involves many risks, some
of which are beyond our control. The following discussion highlights some of these risks. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations or results. If any of
these risks actually occur, our business operations or results could be harmed.



We are in the process of transforming the company from one that focuses on the development and distribution of point solutions to one that focuses on the development and distribution of enterprise solutions. If we are unable to
successfully complete this transformation quickly and smoothly, our operating results could be harmed.



We are undergoing a transformation from a company that focuses on the development and distribution of discrete software development tools alone to the
development and distribution of enterprise software development solutions. This transformation has taken many forms (each of which involves substantial risks), including:



| |  | Changes in go-to-market strategy. To achieve increased sales force productivity, we must complete more large revenue, multi-product sales of our application lifecycle
management, or ALM, solutions. To do so, we must coordinate the efforts of our marketing, sales, and services organizations to focus on the needs of large enterprises. These tasks are complicated and involve many people and processes. If we fail to
coordinate these efforts, we will not satisfy the demands of the large enterprise customers that we are targeting and will not achieve our anticipated revenues.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Changes in our sales organization. We have recently focused our sales effort on enterprise customers. As a part of this effort to transform our sales organization, we are
making these changes throughout our global sales force, but they have been particularly acute in the United States and Japan. These efforts may prove unsuccessful in increasing our sales to enterprise customers and may prove unsuccessful in
increasing our revenues.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Changes in our sales cycles. Sales to large enterprises often are accompanied by long sales cycles. Given our relative inexperience in serving enterprise customers, we may be
unable to accurately forecast revenues derived from these customers. If we fail to accurately forecast revenues, we may not achieve the revenue or net income that we anticipate, which could harm our stock price.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Changes in the make-up of our executive management. Several members of our executive management team and senior personnel in a wide range of managerial roles recently joined
Borland. As a result, our management team has a relatively short history working together, and it is unclear whether they will be able to manage the company effectively. If they are unable to manage the company effectively, our business will suffer.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



These are just a few of the types of risks associated with
transforming the company to a provider of enterprise software development solutions. There are several other types of risks inherent in such a process, generally described in the following paragraphs and throughout this document. While we believe
that transforming the organization to focus on the development and delivery of comprehensive solutions to enterprise customers is critical to growing our revenue and achieving higher operating margins, we may be unable to complete this
transformation smoothly and quickly. If we are unable to manage the process smoothly and quickly, our business will be harmed.



We are relatively new to selling comprehensive solutions for the application development lifecycle, and we may not be able to successfully compete in this broader
market.



The application development lifecycle market
is evolving, and customers are increasingly demanding software that integrates and addresses each stage of the application development lifecycle. Historically, we have focused on selling particular products for particular segments of the application
development lifecycle, most notably development tools. We have done this utilizing a combination of an indirect sales channel that sells individual point products and a direct sales force that managed largely modest accounts on the basis of
geography. We have recently focused our sales efforts on selling enterprise solutions to large customers, as we believe our future growth will depend in large measure on our ability to sell comprehensive ALM solutions to these larger enterprises. To
that end, we have introduced sales personnel who will be dedicated exclusively to named enterprise accounts. However, we have little history of selling comprehensive ALM solutions, and we may be unable to transition effectively to selling these
solutions to large enterprises. To compete successfully in the application development lifecycle market, we believe we will need to:



| |  | develop and reinforce corporate-level messaging that convinces executive-level IT professionals of the need to consider our solutions;
| | - | --------------------------------------------------------------------------------------------------------------------------------------



| |  | develop stronger relationships with systems integrators and other strategic partners with access to enterprise accounts;
| | - | ------------------------------------------------------------------------------------------------------------------------



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| |  | develop stronger relationships with executive-level IT professionals responsible for making enterprise-wide purchasing decisions; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------



| |  | compete with several very large and well-established companies with more experience in these markets.
| | - | -----------------------------------------------------------------------------------------------------



We do not have extensive experience in these areas. If we are unable to do any of the foregoing, our operating results could suffer.



If we fail to establish strategic relationships with systems integrators
or fail to offer services in support of their implementation efforts, our ability to sell comprehensive solutions to enterprise customers will be harmed .



We believe that growth in our licenses and other revenues will depend on our ability to provide our customers with
professional services that support the utilization of our solutions. This will require establishing stronger relationships with the large systems integrators that have experience implementing enterprise solutions across large organizations. We
believe these systems integrators are important to our sales, marketing and support activities with enterprise customers given their access to large enterprises. If successful, we believe that these relationships will expand the distribution of our
products. If we are unsuccessful in establishing good relations with large systems integrators, our ability to sell our solutions to large enterprises will be greatly diminished, and as a consequence, our revenues will be harmed.



To succeed in establishing relationships with systems integrators, we believe
we need to provide services that complement the core service offerings of these systems integrators. These professional services include maintenance, architectural consulting, training, education and project management. If we fail to provide the
professional services that complement the core service offerings of systems integrators, our ability to maintain mutually beneficial relations with these systems integrators will be harmed. If this occurs, our ability to sell comprehensive solutions
to enterprise customers will be greatly diminished, and as a consequence, our revenues will be harmed.



Our increasing focus on enterprise customers may lengthen our sales cycles and increase fluctuations in our financial results.



As we seek to license our software directly to large enterprises, we have experienced sales cycles that are substantially
more lengthy and uncertain than those associated with our traditional business of licensing software through indirect and retail channels. As we focus on large transactions that involve multiple elements, enterprise customers generally require us to
expend substantial time, effort and money in establishing a relationship and in educating them about our solutions. Also, sales to enterprise customers generally require an extensive sales effort throughout many levels within the customers
organization and often require final approval by the customers chief information officer or other senior executive employee. In particular, we believe that purchase decisions on complete ALM solutions often involve more senior-level employees
than sales of the discrete development products that we have traditionally sold. These factors substantially extend the sales cycle and increase the uncertainty of whether a sale will be made in any particular quarter, or at all. We have experienced
and expect to continue to experience delays and uncertainties in our sales cycle as well as increased up-front expenses in connection with our enterprise sales efforts. The timing of the execution of enterprise volume licenses, or their non-renewal
by large customers, could cause our results of operations to vary significantly from quarter to quarter.



We rely on independent software vendors, value-added resellers, and other channel partners to complement our direct sales. If we cease doing business with one or more of these parties, our revenues could suffer.



We rely on independent software vendors, or ISVs,
value-added resellers, or VARs, and other channel partners to complement our direct sales. The pricing, terms and conditions of our agreements with these parties are individually negotiated and vary by agreement. A majority of these agreements are
non-exclusive. Many of our agreements do not require these channel partners to make a minimum number of purchases, and we have virtually no control over the shipping dates or volumes of systems shipped by our channel partners. Although we believe
our relationships with these parties have been successful to date, we cannot guarantee that these relationships will continue to be successful or grow or that the channel partners will continue to purchase our products at the anticipated levels in
the future. If we do not maintain good relations with our channel and other partners or if we are unable to secure arrangements with these parties on favorable terms, our business may suffer.



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In addition, we depend on a small number of distributors for a significant portion of our revenue, and we
expect that a small number of distributors will continue to account for a significant portion of our revenues for the foreseeable future. Presently, some software distributors are experiencing financial weakness. If we lose a major distributor, such
as Ingram Micro, or if we fail to increase the number of our distributors, our ability to maintain or increase our market share could be significantly harmed. As a result, our revenues could drop quickly and unexpectedly.



A number of factors affecting our revenues make our future results for a particular
period difficult to predict, and therefore we may not meet expectations for a particular period.



We believe that our revenues have the potential to vary significantly from time to time. These variations could cause our stock price to fluctuate
significantly. We believe that these variations may result from many factors, including, but not limited to:



| |  | our limited experience in consistently forecasting revenues across all of our business units and across our geographic regions;
| | - | -------------------------------------------------------------------------------------------------------------------------------



| |  | the mix of channels through which we sell our products;
| | - | -------------------------------------------------------



| |  | timing, and any delay in the introduction, of upgrades (or localizations) to existing products or releases of new products;
| | - | ---------------------------------------------------------------------------------------------------------------------------



| |  | the relative mix of demand for our various products and services;
| | - | -----------------------------------------------------------------



| |  | the size and timing of significant orders and their fulfillment;
| | - | ----------------------------------------------------------------



| |  | changes in pricing policies by us or our competitors;
| | - | -----------------------------------------------------



| |  | customer order deferrals; and
| | - | -----------------------------



| |  | product defects that may be discovered from time to time and other product quality problems.
| | - | --------------------------------------------------------------------------------------------



As a result of the foregoing, revenues may be difficult to predict, and any shortfall in revenues for a quarterly period may
not be known until late in the quarter. Additionally, our costs, while based on projected revenues, are relatively fixed in the short term. Therefore, if our revenue levels fall below projections, net income may be significantly reduced or result in
losses. As a result, we believe that quarterly revenues and operating results will continue to be difficult to forecast, and period-to-period comparisons of our results of operations are not necessarily meaningful and should not be relied upon as
indications of trends or our future performance.



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



Our markets are intensely competitive. As we enter the market for comprehensive software development solutions, we face competition from some of the largest software providers in the world. For example, IBM,
Microsoft, Sun Microsystems, BEA, Mercury Interactive and others today provide or have stated they intend to provide more comprehensive enterprise software development, deployment and integration solutions. Many of these competitors have
substantially greater financial, management, marketing and technical resources than we have. In addition, many of our competitors have well established relationships with our current and potential customers, extensive knowledge of the market,
substantial experience in selling enterprise solutions, strong professional services and technical support offerings and extensive product development, sales and marketing resources. As a result of their greater resources and established
relationships, these competitors may be more successful than we are at developing and marketing products and solutions in our markets.



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In addition, the markets for our individual products are characterized by rapid change, new and emerging
technologies, and fierce competition. Below is a table of our largest competitors for each of our product lines:



|                                      |  |                                                                                                                                                           
|------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|Product                               |  | Competitive Products                                                                                                                                      
|CaliberRM                             |  | IBMs Rational Requisite Pro and Telelogics DOORS                                                                                                        
|                                      | 
|Together ControlCenter                |  | IBMs Rational Rose and Rational XDE, and Embarcaderos Describe                                                                                          
|                                      | 
|JBuilder                              |  | Eclipse, IBMs WebSphere Studio Application Developer, BEA Systems Workshop, Oracles JDeveloper, JetBrains IntelliJ and Sun Microsystems Sun One Studio
|                                      | 
|Delphi/C++Builder/C#Builder           |  | Microsofts Visual Studio and Visual Basic                                                                                                                
|                                      | 
|Optimizeit                            |  | IBMs Rational Purify Plus and Quests JProbe                                                                                                             
|                                      | 
|Optimizeit ServerTrace                |  | Quests PerformaSure                                                                                                                                      
|                                      | 
|StarTeam                              |  | Telelogics CM Synergy, Merants PVCS, IBMs Rational ClearCase and ClearQuest and MKS Source Integrity                                                  
|                                      | 
|Enterprise Server, VisiBroker Edition |  | Ionas Orbix                                                                                                                                              
|                                      | 
|Enterprise Server, AppServer Edition  |  | BEA Systems WebLogic, IBMs WebSphere, Oracle 10g and Sun Microsystems ONE                                                                              
|                                      | 
|Enterprise Server, Web Edition        |  | Microsofts Content Management Server and providers of the Apache Web Server                                                                              
|                                      | 
|Janeva                                |  | Intrinsic Janet                                                                                                                                           



We attempt to differentiate our
products from those of our competitors based on interoperability, cost of ownership, performance, level of integration and reliability. In the future, we may be unable to successfully differentiate our products from those of our competitors, and we
may be unable to compete with the substantially greater resources that many of our competitors have. If so, our business will suffer.



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



Some of our
competitors, particularly those that are primarily hardware vendors or platform providers, generate a substantially greater proportion of their sales in markets in which we do not directly compete. We believe a number of these competitors view sales
of software development technologies as important for enhancing the functionality of, and the demand for, their core products. As a result, some companies may bundle software development products that compete with our offerings with their other
products, such as application servers, work stations, personal computers, operating systems and databases. When competitors do so, the effective price for software development products that compete with our development products may be heavily
discounted or offered at no charge. This could require us to reduce the price of our products and related services, diminish our revenues and harm our profitability. Similarly, industry alliances and arrangements exist or may be formed in the future
under which our competitors ally with companies in markets in which we do not compete to bundle products. These arrangements may result in lower effective prices for our competitors products than our products, putting pressure on our business
and diminishing our competitive position.



In addition to
bundled offerings and bundling arrangements, some competitors make available to their customers at no charge products that compete with our software development solutions, including our JBuilder product. While we believe that products made available
at minimal or no cost are not able to compete with our offerings on the basis of quality, performance and reliability, freely available competitive technologies are a risk to our business. At a minimum, technologies offered at no charge increase
pricing pressure and threaten revenue potential. For example, IBM has donated some of its proprietary software to the open source Eclipse initiative. Eclipse has created an open source toolkit in which customers can access and create development
technologies at no charge. Wide adoption of this model may reduce demand for some of our products.



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



Consolidation continues to occur among companies that compete in our markets
as firms seek to offer more extensive suites of software products and to take advantage of efficiencies and economies of scale. Additionally, a number of major hardware companies have sought to expand their software and services offerings through
acquisitions. For instance, in early 2003, IBM acquired Rational Software, a competitor of ours. Changes resulting from this and other consolidations may harm our competitive position, particularly as certain products, when offered as part of a
bundled suite, are offered for free or are given away to sell more hardware or infrastructure components. In addition, as the trend toward consolidation continues, we may encounter increased competition for attractive acquisition targets and may
have to pay higher prices for those businesses or technologies we seek to acquire.



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



Today, we depend on licenses from third-party
suppliers for some elements of our products such as various file libraries. In particular, we depend on technology licenses from Sun Microsystems for our Java and Janeva products, and we depend on licenses from Microsoft for our Delphi, C++Builder,
C#Builder and Janeva products. If any of these licenses were terminated or were not renewed, or if these third parties failed to notify us in a timely manner of any new or updated technology, we might not be able to ship such products or provide
support for such products, including upgrades. We would then have to seek an alternative to the third partys technology and, in some cases, an alternative may not exist. This could result in delays in releasing and/or shipping our products,
increased costs or reduced functionality of our products, which in turn could substantially reduce our revenues.



Our future success is dependent upon enhancing existing and establishing new technology alliances.



The market landscape for enterprise software development, deployment and
management solutions is broad, and our products and solutions must integrate with a wide variety of technologies. To be successful, we must establish and enhance strategic alliances with a wide variety of companies in the software development
ecosystem. Many of these companies have competitive products or have stated a desire to move broadly into the software development space. In addition, many of these companies are competitive with one another and approach partnering with us
cautiously. This has made it difficult in some cases to establish or enhance desired relationships or achieve intended objectives. We currently have a number of important strategic alliances and technology relationships with industry leaders.
Additionally, where we have established working relationships, our allies may choose to terminate their arrangements with us where no binding contractual arrangements exist. The failure to develop or maintain our strategic alliances and technology
relationships or our allies inability to perform or to opt out of their arrangements with us may impede our ability to introduce new products or enter new markets, and consequently harm our revenue prospects.



Our historical financial results are based on sales of development solutions for
currently adopted platforms and languages. As the markets for our products in these currently adopted languages mature, our revenues could be harmed.



Our historical financial information relating to a number of our software development technologies is based on sales of software designed to develop
applications for currently adopted platforms and languages (e.g., Windows, C++ and Java) as well as traditional computer hardware platforms (e.g., mainframes, work stations, applications servers, desktop personal computers and notebook computers).
For example, many of our most popular products are focused on the Java language and platform, and we continue to invest heavily in software solutions for the Java platform as it evolves, including enterprise-focused standards such as Java 2
Platform, Enterprise Edition, or J2EE, and Enterprise JavaBeans, or EJB. Recently, the growth of the market for our Java solutions has slowed. Similarly, our deployment products, including Borland Enterprise Server, are based on Common Object
Request Broker Architecture, or CORBA, a standard for communicating across large enterprise networks. CORBA provides a way to execute software programs written in different programming languages running on different platforms no matter where they
reside in the network. While we believe that CORBA has achieved widespread acceptance, critics contend that its penetration tends to be narrow and deep, resulting in large investments by relatively few enterprises. As a result, while we continue to
enhance the functionality of these products and expect sales of these technologies to continue to generate a significant percentage of our revenues, we believe these markets are maturing. If Java and CORBA do not sustain the level of adoption that
we anticipate, our expected revenues would diminish.



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If our products for Microsofts .NET Framework are not successful, our business would be harmed.



We are currently investing resources in our research
and development efforts for the .NET Framework, Microsofts operating environment for software applications. While we have and will continue to release software products that support the .NET Framework, our business would be harmed if our
products for the .NET Framework fail to address the needs of our customers, or if our competitors, particularly Microsoft, develop more effective or efficient products. In addition, despite our efforts to provide effective and compatible development
products for the .NET Framework, customers may still elect to use an all-Microsoft development platform. Furthermore, the success of our .NET products is dependent upon Microsoft gaining market acceptance of its .NET Framework. If Microsofts
..NET Framework does not gain market acceptance or gains acceptance more slowly than we anticipate, our investments in .NET compatible products may not generate their anticipated return. In conjunction with the .NET Framework, Microsoft has a new
development language, C#. An alternative to Java, C# is an object-oriented programming language and is based on C++. We believe that C# is gaining in market acceptance. If certain emerging programming languages, such as Microsofts C#, gain
significantly in popularity and we do not offer a development technology to facilitate development in such languages, our competitiveness could be diminished.



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



The market for our products is characterized by
continuous technological advancement, evolving industry standards and changing customer requirements. While we believe that to date we have successfully developed and acquired products that incorporate the latest technologies and standards, we
cannot be certain that we will successfully design and market new products and upgrades of our current products that are competitive and work with existing and new computer platforms and operating environments. This is especially true regarding the
development of comprehensive solutions for the .NET Framework.



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



Our customers use a wide variety of constantly changing hardware, software
and operating platforms. We invest and will continue to invest significant resources to develop products for new or emerging software and hardware platforms in the server, desktop, personal digital assistant, mobile, wireless and other environments
that may develop from time to time. However, there is a risk that a new hardware or software platform for which we do not provide products could rapidly grow in popularity. In particular, we believe that this risk is substantial for particular
proprietary platforms and languages for which we may not be given economically feasible access or access at all. As a result, we may not be in a position to develop products for such platforms or may be late in doing so. If we fail to introduce new
products that address the needs of emerging market segments or if our new products do not achieve market acceptance as a result of delays in development or other factors, our future growth and revenue opportunity could suffer.



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



Software products occasionally contain errors or defects, especially when they are first introduced or when new versions are released. We have not experienced any substantial problems to date from potential defects
and errors, but we cannot assure you that our products are or in the future will be completely free of defects and errors. The discovery of a defect or error in a new version or product may result in the following consequences, among others:



| |  | delayed shipping of the product;
| | - | --------------------------------



| |  | delay in market acceptance;
| | - | ---------------------------



| |  | diversion of development resources;
| | - | -----------------------------------



| |  | damage to our reputation; and
| | - | -----------------------------



| |  | increased service and warranty costs.
| | - | -------------------------------------



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In addition, as we transition to selling larger, more complex solutions, there is the risk that our
current products will not prove scalable without substantial effort.



Failure to manage our international operations could harm our financial results.



A substantial portion of our revenues is from international sales. International sales accounted for approximately 58% of our revenues during the three
months ended March 31, 2004, with each of Germany and Japan accounting for significant portions of our total revenue. In addition, an increasing portion of our operations consists of activities outside the United States. We now have research and
development facilities in Singapore, Sweden, Russia and the Czech Republic, and we have a direct sales force in place in 26 countries around the world. We have a complicated corporate structure, and historically have had geographically dispersed
operational controls. Given this, we may experience difficulty in efficiently and effectively managing our dispersed and complicated organization. As a result, our results of operations may suffer. In particular, we rely on personnel in our
international locations to properly account for and manage our international operations, which introduces inherent difficulties in managing and controlling our operations. We have experienced weaknesses in our financial reporting and operations in
the past, including recently a failure to timely reconcile certain general ledger accounts. Given our complicated and geographically diverse operations, despite our best efforts, other issues could arise in the future. Other risks inherent in doing
business internationally include:



| |  | the difficulty of staffing and managing an organization spread over various countries and continents;
| | - | -----------------------------------------------------------------------------------------------------



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



| |  | longer payment cycles in some countries and greater difficulty in collecting accounts receivable;
| | - | -------------------------------------------------------------------------------------------------



| |  | fluctuations in foreign currency exchange rates;
| | - | ------------------------------------------------



| |  | restrictions on the expatriation of currency from a particular country;
| | - | -----------------------------------------------------------------------



| |  | export restrictions, tariffs, duties and other trade barriers;
| | - | --------------------------------------------------------------



| |  | changes in regulatory requirements and resulting costs;
| | - | -------------------------------------------------------



| |  | compliance with various conflicting laws and regulations, including employment laws, and resulting costs; and
| | - | -------------------------------------------------------------------------------------------------------------



| |  | war, threats of war, terrorist activity or political or economic instability in certain parts of the world.
| | - | -----------------------------------------------------------------------------------------------------------



One or more of these risks could harm our future research operations and
international sales. If we are unable to manage these risks of doing business internationally, our results of operations could suffer.



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



We believe that our
ability to successfully grow and manage our business and to develop new products will depend, in large part, on our ability to recruit and retain qualified employees, particularly highly skilled software engineers, sales personnel and management
personnel. We recently reduced the number of employees in the company, including a reduction of 80 employees in our research and development operations. In addition, a number of skilled technical personnel have left of their own choosing. When taken
together, these factors create a risk that we do not have personnel in place, especially research and development and sales personnel, who are familiar with the particular needs of our customers. This could harm our ability to provide solutions that
effectively solve customers problems, and as a result, we may lose customers or may not achieve anticipated sales during a particular period. In addition, the loss of technical talent may result in us being unable to ship new products or
product upgrades at the times that we originally planned. If we experience delays in the shipment of new products or product upgrades, we may be unable to achieve anticipated sales during a particular period.



In addition, in the past some of our competitors have utilized their greater
resources to provide substantial signing bonuses and other inducements to lure key personnel away from us. We employ a variety of measures to retain our key people, including the grant of stock options, promotions, bonuses and special assignments.
We are not certain that our efforts to retain our key employees will succeed, and our failure to attract and retain key personnel could significantly harm our business.



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If we fail to effectively manage our growth, our ability to effectively manage our businesses could be diminished
and our operating results could suffer.



Our future
success depends on growing our company. Failure to manage growth effectively could strain our resources, which would impede our ability to increase revenues. During the past two years, we have increased the number of product releases we make each
year and have introduced a number of new products and services. In addition, we have undertaken a number of acquisitions in the last two years, diversified our product offerings and increased our international operations. There is a risk, especially
following our recent reductions in force, that we will be unable to manage the growth that we have recently experienced and that we will be unable to manage our increasingly dispersed organization, including our international operations. If we fail
to manage these risks, our operating results could suffer.



As
we expand and diversify our product and customer base, we may be required to increase staffing and other expenditures in order to meet the anticipated demands of our customers. However, given that our customers do not commit to license our software
for more than a short time in advance, any increase in expenses in anticipation of future orders that do not materialize could reduce our net income. If we are unable to match our increased staffing and other expenditures with similarly increased
revenue, our profitability would be harmed.



We may incur future
impairment losses related to intangible assets from prior acquisitions that could harm our future operating results.



In the past few years, we have acquired significant assets and businesses. If the assets and businesses do not perform as expected, we may be required to
take impairment charges related to the intangible assets from these acquisitions. Such charges could harm our operating results.



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



As a software company, our intellectual property rights are among our most valuable assets. We rely on a combination of
patent, copyright, trademark, trade secret laws, domain name registrations, confidentiality agreements and other contractual arrangements and other methods to protect our intellectual property rights, but these measures may provide only limited
protection. The protective steps we have taken may be inadequate to deter misappropriations of our intellectual property rights. In addition, it may be possible for an unauthorized third party to reverse-engineer or decompile our software products.
We may be unable to detect the unauthorized use of, or take appropriate steps to enforce, our intellectual property rights, particularly in certain international markets, making misappropriation of our intellectual property more likely. Litigation
may be necessary to protect our intellectual property rights, and such litigation can be time consuming and expensive.



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



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



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



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



29



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##### Table of Contents

|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------



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



Foreign Currency Risk



We transact business in various foreign countries and have established a foreign currency hedging program utilizing foreign currency forward exchange
contracts to hedge intercompany balances and other monetary assets denominated in foreign currencies. The goal of the hedging program is to offset the earnings impact of foreign currency-denominated balances by entering into contracts to sell or buy
foreign currency at the time a foreign currency receivable or payable is generated. We do not use foreign currency forward exchange contracts for trading purposes. At month-end, foreign currency-denominated balances and the forward exchange
contracts are marked-to-market and unrealized gains and losses are included in current period net income.



During the three months ended March 31, 2004, we recorded net foreign exchange losses totaling $0.6 million. The foreign exchange losses were generated
primarily due to the fluctuations of the U.S. Dollar relative to the Euro, the United Kingdom Pound Sterling, the Australian Dollar and the Singapore Dollar. If these currency fluctuations continue, we may experience further foreign exchange losses
on our intercompany receivables to the extent that we have not hedged the exposure with foreign currency forward exchange contracts. Such foreign exchange losses could have a material adverse effect on our operating results and cash flows.



During the three months ended March 31, 2004, we recorded a
foreign currency loss of approximately $0.3 million as part of other comprehensive income due to foreign currency movements on our long-term intercompany balances. As of March 31, 2004, we had $13.0 million, $3.0 million and $1.8 million in
long-term intercompany balances that will be settled in Australian Dollars, Singapore Dollars and Brazilian Reals, respectively.



Movement of 1% in the Euro in relation to the U.S. Dollar on March 31, 2004 would have had an impact of approximately $0.5 million on our net assets on
March 31, 2004.



The table below provides information about our
derivative financial instruments, comprised of foreign currency forward exchange contracts as of March 31, 2004. The information is provided in U.S. Dollar equivalent amounts, as presented in our financial statements. For foreign currency forward
exchange contracts, the table presents the notional amounts (at the contract exchange rates), the weighted average contractual foreign currency exchange rates and the net fair value as of March 31, 2004. All instruments mature within twelve months
(dollars in thousands).



|                                             |  |                |        |                     |        |                              |   |    
|-------------------------------------------- |  | -------------- | ------ | ------------------- | ------ | ---------------------------- | - | ---
|                                             |  | NotionalAmount |        | AverageContractRate |        | March 31, 2004Net Fair Value
|Foreign currency forward exchange contracts: |  |                |        |                     |        |                              |   |    
|Australian Dollar                            |  | $              | 4,700  |                     | 0.7647 |                              | $ | 150
|Singapore Dollar                             |  |                | 6,500  |                     | 0.5975 |                              |   | 80 
|Korean Won                                   |  |                | 400    |                     | 0.0008 |                              |   | 5  
|New Zealand Dollar                           |  |                | 700    |                     | 0.6676 |                              |   | 20 
|United Kingdom Pound Sterling                |  |                | 5,000  |                     | 1.8430 |                              |   | 112
|                                             |  |                |        |                     |        |                              |   |    
|Total                                        |  | $              | 17,300 |                     |        |                              | $ | 367
|                                             |  |                |        |                     |        |                              |   |    



Interest Rate Risk



Our exposure to market risk for changes in interest
rates relate primarily to our investment portfolio. We do not use derivative financial instruments in our investment portfolio. We place our cash equivalents and short-term investments in a variety of financial instruments such as commercial paper.
By corporate policy, we limit the amount of our credit exposure to $5.0 million to any one commercial issuer.



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



30



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##### Table of Contents

Cash and cash equivalents includes investments which have an original maturity of 90 days or less and
short term investments includes investments which have an original maturity of 91 days up to a year. As of March 31, 2004 and December 31, 2003, we held no investments with maturities in excess of 180 days. The table below presents principal (or
notional) amounts and related weighted average interest rates for our investment portfolio as of March 31, 2004 (dollars in thousands).



|                                      |  |               |         |   |                  |   |         |  
|------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                      |  | March 31,2004 |         |   | December 31,2003 |  
|Included in cash and cash equivalents |  | $             | 190,723 |   |                  | $ | 197,023 |  
|Weighted average interest rate        |  |               | 0.75    | % |                  |   | 0.89    | %
|Included in short-term investments    |  | $             | 12,908  |   |                  | $ | 5,623   |  
|Weighted average interest rate        |  |               | 1.91    | % |                  |   | 3.14    | %



Credit Risks



Our financial instruments that are exposed to concentrations of credit
risk consist primarily of cash equivalents, short-term investments, and trade receivables. Our cash equivalents and short-term investments are in high quality securities placed with major banks and financial institutions and commercial paper.
Concentrations of credit risk with respect to receivables are limited due to the large number of customers and their dispersion across geographic areas. We perform periodic credit evaluations of our customers financial condition and generally
do not require collateral. As of March 31, 2004, no single group or customer represented greater than 10% of our total accounts receivable.



|Item 4. | Controls and Procedures
|------- | -----------------------



(a) Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal
financial officer, respectively) have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange
Act)) as of March 31, 2004 (the Evaluation Date). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in ensuring that information required to
be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.



(b) Changes in Internal Control Over Financial Reporting. During the three months ended March 31, 2004, there were no changes in our internal
control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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##### Table of Contents

PART II

OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------



On November 27, 2002, a stockholder class action and derivative lawsuit, Dieterich v. Harrer, et al., Case No. 02CC00350, was filed against Starbase
Corporation, or Starbase, and five former directors of Starbase in the Superior Court of the State of California for Orange County, claiming that the former directors had breached fiduciary duties owed to Starbase and stockholders of Starbase. We
are paying the costs of defending this litigation pursuant to indemnification obligations under the merger agreement relating to our acquisition of Starbase. Following a series of motions, the case was dismissed without prejudice on August 20, 2003.
On October 28, 2003, a stockholder class action relating to the same matter, Dieterich v. Harrer, et al, Case No. 024-N, was filed against the former directors of Starbase in Chancery Court of the State of Delaware, alleging breach of fiduciary
duties by the former directors of Starbase, Borland, Dale L. Fuller, Keith E. Gottfried, Frederick A. Ball, and Doug Barre. On March 31, 2004, the Delaware Chancery Court held a hearing on our motion for summary judgment, but has not ruled on such
motion. We intend to defend ourselves vigorously. There is no indication at present whether the lawsuit will have a material effect on our financial condition, results of operations or liquidity.



In the ordinary course of business, we are involved in other lawsuits,
claims, investigations, proceedings, and threats of litigation consisting of intellectual property, commercial, employment and other matters. In accordance with Statement of Financial Accounting Standards No. 5, Accounting for
Contingencies, we make a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect
the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Litigation is inherently unpredictable. However, we believe that we have valid defenses with respect to the
legal matters pending against us, as well as adequate provisions for any probable and estimable losses. If an unfavorable ruling were to occur in any specific period, there exists the possibility of a material adverse impact on the results of
operations for that period. We believe that, except as noted above, given our current liquidity and cash and investment balances, even were we to receive an adverse judgment with respect to litigation that we are currently a party to, it is likely
that such a judgment would not have a material impact on our financial condition, results of operations or liquidity.



|Item 2. | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
|------- | --------------------------------------------------------------------------------



(a) Below is a summary of stock repurchases for the three months ended March 31. 2004. See Note 8 of our Notes to Condensed
Consolidated Financial Statements for information regarding our stock repurchase programs.



PURCHASES OF EQUITY SECURITIES(1)



|                                     |  |                                               |  |                                          |         |                                                                                              |         |                                                                                                                        |   |            |    
|------------------------------------ |  | --------------------------------------------- |  | ---------------------------------------- | ------- | -------------------------------------------------------------------------------------------- | ------- | ---------------------------------------------------------------------------------------------------------------------- | - | ---------- | ---
|Period                               |  | (a) Total Number ofShares (or Units)Purchased |  | (b) AveragePrice Paid perShare (or Unit) |         | (c) Total Number of Shares(or Units) Purchased as Partof Publicly Announced Plansor Programs |         | (d) Maximum Number(or Approximate DollarValue) of Shares (orUnits) that May Yet BePurchased Under thePlans or
Programs |  
|January 1, 2004  January 31, 2004   |  | 40,000                                        |  | $                                        | 10.0777 |                                                                                              | 40,000  |                                                                                                                        | $ | 15,462,735 | (2)
|February 1, 2004  February 29, 2004 |  | 318,141                                       |  | $                                        | 9.7055  |                                                                                              | 318,141 |                                                                                                                        | $ | 41,625,611 | (3)
|March 1, 2004  March 31, 2004       |  | 288,959                                       |  | $                                        | 9.3846  |                                                                                              | 288,959 |                                                                                                                        | $ | 39,663,267 | (4)
|                                     |  |                                               |  |                                          |         |                                                                                              |         |                                                                                                                        |   |            |    
|Total                                |  | 647,100                                       |  |                                          |        |                                                                                              | 647,100 |                                                                                                                        |   |           |    
|                                     |  |                                               |  |                                          |         |                                                                                              |         |                                                                                                                        |   |            |    



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##### Table of Contents

No shares were repurchased other than through our Discretionary Program and our 10b5-1 Program.



(1) In September 2001, our Board of Directors authorized the use of up to $30.0 million to
repurchase shares of our outstanding common stock under a discretionary stock repurchase program (the Discretionary Program). The program was announced in our Annual Report on Form 10-K filed with the Securities and Exchange Commission
on April 15, 2002. In February 2004, our Board of Directors authorized an additional $30.0 million of repurchases under the Discretionary Program, which was announced in our Current Report on Form 8-K filed with the Securities and Exchange
Commission on February 4, 2004.



In August 2003, our Board of Directors
authorized the use of up to $15.0 million of our outstanding common stock, or 1,000,000 shares, whichever comes first, to repurchase shares of our common stock pursuant to a 10b5-1 repurchase program (the 10b5-1 Program). The program was
announced in our Current Report on Form 8-K filed with the Securities and Exchange Commission on August 7, 2003.



(2) Includes $2,711,325 under our Discretionary Program and $12,751,410 under our 10b5-1 Program.



(3) Includes $29,250,609 under our Discretionary Program and $12,375,002 under our 10b5-1 Program.



(4) Includes $27,710,841 under our Discretionary Program and $11,952,426 under our 10b5-1
Program.



|Item 6. | Exhibits and Reports on Form 8-K
|------- | --------------------------------



(a) Exhibits



Except as so indicated in Exhibits 32.1 and 32.2, the following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report.



|               |  |                                                                                                                                                                                                                                                                                                           |  |                           |  |                |  |        |  | 
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | -------------- |  | ------ |  | 
|Exhibit Number |  | Description of Exhibit                                                                                                                                                                                                                                                                                    |  | Incorporated by Reference |  | Filed Herewith
|               |  | Form                                                                                                                                                                                                                                                                                                      |  | Date                      |  | Number         | 
|               |  |                                                                                                                                                                                                                                                                                                           |  |                           | 
|2.1            |  | Agreement and Plan of Merger and Reorganization by and among Borland Software Corporation, Targa Acquisition Corp. I, Targa Acquisition Corp. II, TogetherSoft Corporation, Peter Coad, as Primary
Stockholders Agent, and Kurt Jaggers, as Secondary Stockholders Agent, dated as of October 29, 2002. |  | 8-K                       |  | 11/01/02       |  | 2.1    |  | 
|               |  |                                                                                                                                                                                                                                                                                                           |  |                           | 
|2.2            |  | Agreement and Plan of Merger among Borland Software Corporation, Galaxy Acquisition Corp. and Starbase Corporation, dated as of October 8, 2002.                                                                                                                                                          |  | 8-K                       |  | 10/10/02       |  | 2.1    |  | 
|               |  |                                                                                                                                                                                                                                                                                                           |  |                           | 
|3.1            |  | Restated Certificate of Incorporation of Borland Software Corporation.                                                                                                                                                                                                                                    |  | 10-Q                      |  | 11/14/03       |  | 3.1    |  | 
|               |  |                                                                                                                                                                                                                                                                                                           |  |                           | 
|3.2            |  | Amended and Restated Bylaws of Borland Software Corporation.                                                                                                                                                                                                                                              |  | 10-K                      |  | 03/15/04       |  | 3.2    |  | 
|               |  |                                                                                                                                                                                                                                                                                                           |  |                           | 
|4.1            |  | Stockholder Rights Agreement, dated as of October 26, 2001, between Borland Software Corporation and Mellon Investor Services, L.L.C.                                                                                                                                                                     |  | 8-A                       |  | 10/31/01       |  | 1      |  | 
|               |  |                                                                                                                                                                                                                                                                                                           |  |                           | 
|4.2            |  | Specimen Stock Certificate of Borland Software Corporation.                                                                                                                                                                                                                                               |  | 10-Q                      |  | 05/13/02       |  | 4.1    |  | 
|               |  |                                                                                                                                                                                                                                                                                                           |  |                           | 
|4.4            |  | Investor Rights Agreement between Borland Software Corporation and Microsoft Corporation, dated as of June 7, 1999.                                                                                                                                                                                       |  | 8-K                       |  | 07/06/99       |  | 4.2(a) |  | 
|               |  |                                                                                                                                                                                                                                                                                                           |  |                           | 
|4.5            |  | Stockholder Lock-up Agreement between Borland Software Corporation and Object International, Inc., dated as of January 14, 2003.                                                                                                                                                                          |  | 10-K                      |  | 03/28/03       |  | 4.5    |  | 



33



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##### Table of Contents

|               |  |                                                                                                                                                                |  |                           |  |                |  |       |  |  
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | -------------- |  | ----- |  | -
|Exhibit Number |  | Description of Exhibit                                                                                                                                         |  | Incorporated by Reference |  | Filed Herewith
|               |  | Form                                                                                                                                                           |  | Date                      |  | Number         | 
|               |  |                                                                                                                                                                |  |                           | 
|4.6            |  | Stockholder Lock-up Agreement between Borland Software Corporation and Dietrich Charisius, dated as of January 14, 2003.                                       |  | 10-K                      |  | 03/28/03       |  | 4.6   |  |  
|               |  |                                                                                                                                                                |  |                           | 
|10.68          |  | Amendment No. 4 to Technology License and Distribution Agreement Sun Microsystems, Inc. and Borland Software Corporation, dated as of December 29, 2000. *     |  | 10-Q                      |  | 08/13/01       |  | 10.11 |  |  
|               |  |                                                                                                                                                                |  |                           | 
|10.69          |  | Amendment to the Amended and Restated Employment Agreement between Borland Software Corporation and Brian Elloy, dated as of April 23, 2004. +                 |  |                           |  |                |  |       |  | X
|               |  |                                                                                                                                                                |  |                           | 
|10.70          |  | Separation and Severance Agreement between Borland Software Corporation and Keith E. Gottfried, dated as of March 31, 2004, as amended as of April 14, 2004. + |  |                           |  |                |  |       |  | X
|               |  |                                                                                                                                                                |  |                           | 
|10.71          |  | Letter Agreement between Microsoft Corporation and Borland Software Corporation, dated as of April 30, 2004.                                                   |  |                           |  |                |  |       |  | X
|               |  |                                                                                                                                                                |  |                           | 
|24.1           |  | Power of Attorney (see signature page).                                                                                                                        |  |                           |  |                |  |       |  | X
|               |  |                                                                                                                                                                |  |                           | 
|31.1           |  | Certification of Dale L. Fuller, Chief Executive Officer of Borland Software Corporation, pursuant to Rule 13a-14(a).                                          |  |                           |  |                |  |       |  | X
|               |  |                                                                                                                                                                |  |                           | 
|31.2           |  | Certification of Kenneth R. Hahn, Chief Financial Officer of Borland Software Corporation, pursuant to Rule 13a-14(a).                                         |  |                           |  |                |  |       |  | X
|               |  |                                                                                                                                                                |  |                           | 
|32.1           |  | Certification of Dale L. Fuller, Chief Executive Officer of Borland Software Corporation, pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350.               |  |                           |  |                |  |       |  | X
|               |  |                                                                                                                                                                |  |                           | 
|32.2           |  | Certification of Kenneth R. Hahn, Chief Financial Officer of Borland Software Corporation, pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350.              |  |                           |  |                |  |       |  | X

---

|+ | Management contract or compensatory plan or arrangement.
|- | --------------------------------------------------------



|++ | Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the SEC.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------



|* | Attached as Exhibit A-1 to the Software License Agreement between Sun Microsystems, Inc. and Borland Software Corporation, dated as of December 29, 2000.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



A copy of any exhibit will be furnished (at a reasonable cost) to any
stockholder of Borland upon receipt of a written request. Such request should be sent to Borland Software Corporation, 100 Enterprise Way, Scotts Valley, California 95066-3249, Attention: Investor Relations.



34



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##### Table of Contents

(b) Reports on Form 8-K



During the three months ended March 31, 2004, Borland filed with or furnished to the Securities and Exchange Commission the following Current Reports on
Form 8-K:



| |  | Current Report on Form 8-K filed on January 20, 2004 announcing resignations of Blake Stone as Chief Technology Officer and Roger Barney as Chief Administrative Officer.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Current Report on Form 8-K furnished on January 29, 2004 announcing financial results for the three months ended December 31, 2004.
| | - | -----------------------------------------------------------------------------------------------------------------------------------



| |  | Current Report on Form 8-K filed on February 4, 2004 regarding the establishment of trading plans under Rule 10b5-1 by President and Chief Executive Officer, Dale L. Fuller, and
Senior Vice President and Chief Financial Officer, Kenneth R. Hahn.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Current Report on Form 8-K filed on February 12, 2004 announcing the authorization of an increase of $30 million to Borlands discretionary stock repurchase program.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Current Report on Form 8-K filed on February 25, 2004 announcing the appointment of T. Michael Nevens to Borlands board of directors.
| | - | --------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

SIGNATURE



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



BORLAND SOFTWARE CORPORATION (Registrant)




Date: May 10, 2004



/s/ KENNETH R. HAHNKenneth R. Hahn Senior Vice President and Chief Financial Officer (Principal Financial Officer and Duly Authorized
Officer)




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##### Table of Contents

EXHIBIT INDEX



|               |  |                                                                                                                                                                                                                                                                                                           |  |                           |  |                |  |        |  |  
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | -------------- |  | ------ |  | -
|Exhibit Number |  | Description of Exhibit                                                                                                                                                                                                                                                                                    |  | Incorporated by Reference |  | Filed Herewith
|               |  | Form                                                                                                                                                                                                                                                                                                      |  | Date                      |  | Number         | 
|               |  |                                                                                                                                                                                                                                                                                                           |  |                           | 
|2.1            |  | Agreement and Plan of Merger and Reorganization by and among Borland Software Corporation, Targa Acquisition Corp. I, Targa Acquisition Corp. II, TogetherSoft Corporation, Peter Coad, as Primary
Stockholders Agent, and Kurt Jaggers, as Secondary Stockholders Agent, dated as of October 29, 2002. |  | 8-K                       |  | 11/01/02       |  | 2.1    |  |  
|               |  |                                                                                                                                                                                                                                                                                                           |  |                           | 
|2.2            |  | Agreement and Plan of Merger among Borland Software Corporation, Galaxy Acquisition Corp. and Starbase Corporation, dated as of October 8, 2002.                                                                                                                                                          |  | 8-K                       |  | 10/10/02       |  | 2.1    |  |  
|               |  |                                                                                                                                                                                                                                                                                                           |  |                           | 
|3.1            |  | Restated Certificate of Incorporation of Borland Software Corporation.                                                                                                                                                                                                                                    |  | 10-Q                      |  | 11/14/03       |  | 3.1    |  |  
|               |  |                                                                                                                                                                                                                                                                                                           |  |                           | 
|3.2            |  | Amended and Restated Bylaws of Borland Software Corporation.                                                                                                                                                                                                                                              |  | 10-K                      |  | 03/15/04       |  | 3.2    |  |  
|               |  |                                                                                                                                                                                                                                                                                                           |  |                           | 
|4.1            |  | Stockholder Rights Agreement, dated as of October 26, 2001, between Borland Software Corporation and Mellon Investor Services, L.L.C.                                                                                                                                                                     |  | 8-A                       |  | 10/31/01       |  | 1      |  |  
|               |  |                                                                                                                                                                                                                                                                                                           |  |                           | 
|4.2            |  | Specimen Stock Certificate of Borland Software Corporation.                                                                                                                                                                                                                                               |  | 10-Q                      |  | 05/13/02       |  | 4.1    |  |  
|               |  |                                                                                                                                                                                                                                                                                                           |  |                           | 
|4.4            |  | Investor Rights Agreement between Borland Software Corporation and Microsoft Corporation, dated as of June 7, 1999.                                                                                                                                                                                       |  | 8-K                       |  | 07/06/99       |  | 4.2(a) |  |  
|               |  |                                                                                                                                                                                                                                                                                                           |  |                           | 
|4.5            |  | Stockholder Lock-up Agreement between Borland Software Corporation and Object International, Inc., dated as of January 14, 2003.                                                                                                                                                                          |  | 10-K                      |  | 03/28/03       |  | 4.5    |  |  
|               |  |                                                                                                                                                                                                                                                                                                           |  |                           | 
|4.6            |  | Stockholder Lock-up Agreement between Borland Software Corporation and Dietrich Charisius, dated as of January 14, 2003.                                                                                                                                                                                  |  | 10-K                      |  | 03/28/03       |  | 4.6    |  |  
|               |  |                                                                                                                                                                                                                                                                                                           |  |                           | 
|10.68          |  | Amendment No. 4 to Technology License and Distribution Agreement Sun Microsystems, Inc. and Borland Software Corporation, dated as of December 29, 2000. *                                                                                                                                                |  | 10-Q                      |  | 08/13/01       |  | 10.11  |  |  
|               |  |                                                                                                                                                                                                                                                                                                           |  |                           | 
|10.69          |  | Amendment to the Amended and Restated Employment Agreement between Borland Software Corporation and Brian Elloy, dated as of April 23, 2004. +                                                                                                                                                            |  |                           |  |                |  |        |  | X
|               |  |                                                                                                                                                                                                                                                                                                           |  |                           | 
|10.70          |  | Separation and Severance Agreement between Borland Software Corporation and Keith E. Gottfried, dated as of March 31, 2004, as amended as of April 14, 2004. +                                                                                                                                            |  |                           |  |                |  |        |  | X
|               |  |                                                                                                                                                                                                                                                                                                           |  |                           | 
|10.71          |  | Letter Agreement between Microsoft Corporation and Borland Software Corporation, dated as of April 30, 2004                                                                                                                                                                                               |  |                           |  |                |  |        |  | X



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##### Table of Contents

|               |  |                                                                                                                                                   |  |                           |  |                |  |  |  |  
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | -------------- |  |  |  | -
|Exhibit Number |  | Description of Exhibit                                                                                                                            |  | Incorporated by Reference |  | Filed Herewith
|               |  | Form                                                                                                                                              |  | Date                      |  | Number         | 
|               |  |                                                                                                                                                   |  |                           | 
|24.1           |  | Power of Attorney (see signature page).                                                                                                           |  |                           |  |                |  |  |  | X
|               |  |                                                                                                                                                   |  |                           | 
|31.1           |  | Certification of Dale L. Fuller, Chief Executive Officer of Borland Software Corporation, pursuant to Rule 13a-14(a).                             |  |                           |  |                |  |  |  | X
|               |  |                                                                                                                                                   |  |                           | 
|31.2           |  | Certification of Kenneth R. Hahn, Chief Financial Officer of Borland Software Corporation, pursuant to Rule 13a-14(a).                            |  |                           |  |                |  |  |  | X
|               |  |                                                                                                                                                   |  |                           | 
|32.1           |  | Certification of Dale L. Fuller, Chief Executive Officer of Borland Software Corporation, pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350.  |  |                           |  |                |  |  |  | X
|               |  |                                                                                                                                                   |  |                           | 
|32.2           |  | Certification of Kenneth R. Hahn, Chief Financial Officer of Borland Software Corporation, pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350. |  |                           |  |                |  |  |  | X

---

|+ | Management contract or compensatory plan or arrangement.
|- | --------------------------------------------------------



|++ | Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the SEC.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------



|* | Attached as Exhibit A-1 to the Software License Agreement between Sun Microsystems, Inc. and Borland Software Corporation, dated as of December 29, 2000.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



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