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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, 2002

OR

|_| TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(D) OF THESECURITIES 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 |  | (I.R.S. Employer   
|Incorporation or Organization)  |  | Identification No.)

100 ENTERPRISE WAYSCOTTS VALLEY, CALIFORNIA95066-3249(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. YES |X| NO |_|

The number of shares of common stock
issued and outstanding as of April 30, 2002, the most recent practicable date prior to the filing of this report,
was 70,483,561.

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INDEX

|        |                                                                                                              | PAGE | 
|------- | ------------------------------------------------------------------------------------------------------------ | ---- | 
|        |                                                                                                              |      | 
|PART I  | FINANCIAL INFORMATION                                                                                        |      | 
|        |                                                                                                              |      | 
|Item 1. | Financial Statements (unaudited)                                                                             | 1    | 
|        |                                                                                                              |      | 
|        | Condensed Consolidated Balance Sheets at March 31, 2002 and December 31, 2001                                | 1    | 
|        |                                                                                                              |      | 
|        | Condensed Consolidated Statements of Operations for the three months ended March 31, 2002 and 2001           | 2    | 
|        |                                                                                                              |      | 
|        | Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2002 and 2001 | 3    | 
|        |                                                                                                              |      | 
|        | Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2002 and 2001           | 4    | 
|        |                                                                                                              |      | 
|        | Notes to Condensed Consolidated Financial Statements                                                         | 5    | 
|        |                                                                                                              |      | 
|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations                        | 7    | 
|        |                                                                                                              |      | 
|Item 3. | Quantitative and Qualitative Disclosures About Market Risk                                                   | 29   | 
|        |                                                                                                              |      | 
|        |                                                                                                              |      | 
|PART II | OTHER INFORMATION                                                                                            |      | 
|        |                                                                                                              |      | 
|Item 1. | Legal Proceedings                                                                                            | 31   | 
|        |                                                                                                              |      | 
|Item 5. | Other Information                                                                                            | 31   | 
|        |                                                                                                              |      | 
|Item 6. | Exhibits and Reports on Form 8-K                                                                             | 31   | 
|        |                                                                                                              |      | 
|        | Signatures                                                                                                   | 33   | 

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PART IFINANCIAL INFORMATION

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

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

|                                                               |  |               
|-------------------------------------------------------------- |  | --------------
|                                                               |  | March 31, 2002
|                                                               |  | (Unaudited)   
|ASSETS                                                         | 
|Current assets:                                                | 
|Cash and cash equivalents                                      |  | $ 237,979     
|Short-term investments                                         |  | 58,218        
|Accounts receivable, net                                       |  | 41,040        
|Other current assets                                           |  | 14,150        
|                                                               |  |               
|Total current assets                                           |  | 351,387       
|                                                               |  |               
|Property and equipment, net                                    |  | 18,502        
|Other non-current assets                                       |  | 11,631        
|                                                               |  |               
|                                                               |  | $ 381,520     
|                                                               |  |               
|LIABILITIES AND STOCKHOLDERS EQUITY                           | 
|Current liabilities:                                           | 
|Accounts payable and accrued expenses                          |  | $   44,786    
|Income taxes payable                                           |  | 7,188         
|Deferred revenues                                              |  | 25,247        
|Other current liabilities                                      |  | 9,512         
|                                                               |  |               
|Total current liabilities                                      |  | 86,733        
|                                                               |  |               
|Long-term liabilities                                          |  | 10,471        
|                                                               |  |               
|                                                               |  | 97,204        
|                                                              
|Stockholders equity:                                          | 
|Preferred stock: $.01 par  value; 1,000,000 shares authorized; |  |               
|115 shares issued and outstanding                              |  |              
|Common stock: $.01 par value; 200,000,000 shares authorized;   | 
|70,426,225 and 68,028,526 shares issued and outstanding        |  | 704           
|Additional paid-in capital                                     |  | 492,156       
|Accumulated deficit                                            |  | (182,415      
|Deferred compensation                                          |  | (1,005        
|Cumulative comprehensive income                                |  | 3,067         
|                                                               |  |               
|                                                               | 
|Less common stock in treasury, at cost  4,835,900 shares      |  | (28,191       
|                                                               |  |               
|                                                               |  | 284,316       
|                                                               |  |               
|Total liabilities and stockholders equity                     |  | $ 381,520     
|                                                               |  |               

See Notes to the Condensed Consolidated Financial Statements.

1

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BORLAND SOFTWARE CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS(in thousands, except per share amounts, unaudited)

|                                                        | Three Months EndedMarch 31, |           
|------------------------------------------------------- | --------------------------- | ----------
|                                                        |                             | 2002      
|Licenses and other revenues                             |                             | $ 47,668  
|Service revenues                                        |                             | 9,409     
|                                                        |                             |           
|Net revenues                                            |                             | 57,077    
|                                                        |                             |           
|Cost of licenses and other revenues                     |                             | 3,520     
|Cost of service revenues                                |                             | 5,035     
|                                                        |                             |           
|Cost of revenues                                        |                             | 8,555     
|                                                        |                             |           
|Gross profit                                            |                             | 48,522    
|                                                        |                             |           
|Research and development                                |                             | 11,949    
|Sales, general and administrative                       |                             | 31,033    
|Amortization of intangibles and merger-related expenses |                             | 1,522     
|                                                        |                             |           
|Total operating expenses                                |                             | 44,504    
|                                                        |                             |           
|Operating income                                        |                             | 4,018     
|Interest income, net and other                          |                             | 1,730     
|                                                        |                             |           
|Income before income taxes                              |                             | 5,748     
|Income tax provision                                    |                             | 1,151     
|                                                        |                             |           
|Net income                                              |                             | $   4,597 
|                                                        |                             |           
|Net income per share:                                   |                            
|                                                        |                             |           
|Basic                                                   |                             | $     0.07
|                                                        |                             |           
|Diluted                                                 |                             | $     0.06
|                                                        |                             |           
|Weighted average number of common shares outstanding:   |                            
|                                                        |                             |           
|Basic                                                   |                             | 70,188    
|                                                        |                             |           
|Diluted                                                 |                             | 76,040    
|                                                        |                             |           

See Notes to the Condensed Consolidated Financial Statements.

2

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BORLAND SOFTWARE CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME(in thousands, unaudited)

|                                                                | Three Months EndedMarch 31, |        
|--------------------------------------------------------------- | --------------------------- | -------
|                                                                |                             | 2002   
|Net income                                                      |                             | $ 4,597
|                                                               
|Other comprehensive income (loss):                              |                            
|Foreign currency translation adjustments                        |                             | (387   
|Fair market value  adjustment for available for sale securities |                             | (233   
|                                                                |                             |        
|Comprehensive income                                            |                             | $ 3,977
|                                                                |                             |        

See Notes to the Condensed Consolidated Financial Statements.

3

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BORLAND SOFTWARE CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS(in thousands, unaudited)

|                                                                                          | Three Months EndedMarch 31, |            
|----------------------------------------------------------------------------------------- | --------------------------- | -----------
|                                                                                          |                             | 2002       
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                     |                             |            
|Net income                                                                                |                             | $     4,597
|Adjustments to reconcile net income to net cash provided by         operating activities: |                            
|Depreciation and amortization                                                             |                             | 1,642      
|Loss on sale of property and equipment                                                    |                             |           
|CHANGES IN ASSETS AND LIABILITIES:                                                        |                            
|Accounts receivable                                                                       |                             | (2,913     
|Other assets                                                                              |                             | 479        
|Accounts payable and accrued expenses                                                     |                             | (2,233     
|Income taxes payable                                                                      |                             | (2,230     
|Other                                                                                     |                             | 2,554      
|                                                                                          |                             |            
|Cash provided by operating activities                                                     |                             | 1,896      
|                                                                                          |                             |            
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                     |                            
|Purchase of property and equipment                                                        |                             | (836       
|Acquisition of Redline Software, Inc. (VMGEAR)                                            |                             | (2,193     
|Purchases of short-term investments                                                       |                             | (55,426    
|Sales and maturities of short-term investments                                            |                             | 11,111     
|                                                                                          |                             |            
|Cash provided by (used in) investing activities                                           |                             | (47,344    
|                                                                                          |                             |            
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                     |                            
|Proceeds from issuance of common stock, net                                               |                             | 3,431      
|Repayment of capital lease obligations and other debt activity                            |                            |            
|                                                                                          |                             |            
|Cash provided by financing activities                                                     |                             | 3,431      
|                                                                                          |                             |            
|Effect of exchange rate changes on cash                                                   |                             | (471       
|                                                                                          |                             |            
|Net change in cash and cash equivalents                                                   |                             | (42,488    
|Cash and cash equivalents at beginning of period                                          |                             | 280,467    
|                                                                                          |                             |            
|Cash and cash equivalents at end of period                                                |                             | $ 237,979  
|                                                                                          |                             |            

See Notes to the Condensed Consolidated Financial Statements.

4

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BORLAND SOFTWARE CORPORATION

| | Notes
to Condensed Consolidated Financial Statements (unaudited)
| | ----------------------------------------------------------------

| | NOTE
1BASIS OF PRESENTATION
| | ----------------------------

| | The
accompanying Borland Software Corporation (Borland) condensed consolidated
financial statements at March 31, 2002 and December 31, 2001 and for the three months
ended March 31, 2002 and 2001 are unaudited and have been prepared in accordance with
generally accepted accounting principles for interim financial information and Rule 10-01
of Regulation S-X. Accordingly, they do not include all financial information and
disclosures required by generally accepted accounting principles for complete financial
statements and certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles 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,
2002 and December 31, 2001, and its results of operations and cash flows for the three
months ended March 31, 2002 and 2001. The preparation of condensed consolidated financial
statements in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. 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, 2001 as filed with
the Securities and Exchange Commission (the SEC) on March 29, 2002. | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 

| | NOTE
2NET INCOME PER SHARE
| | ---------------------------

| | We
compute net income per share in accordance with Statement of Financial Accounting
Standards Earnings per Share (FAS No. 128). Under the provisions
of SFAS No. 128, basic net income per share is computed by dividing the net income
available to common stockholders for the period by the weighted average number of common
shares outstanding during the period. Diluted net income per share is computed by dividing
the net income 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 and warrants and upon
conversion of the issued and outstanding shares of Series C Convertible Preferred Stock,
are included in diluted net income per share to the extent such shares are dilutive. | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | The
following table sets forth the computation of basic and diluted net income per share for
the periods indicated (in thousands, except per share amounts): | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------ | 

|                                                                        | Three Months Ended March 31, |            
|----------------------------------------------------------------------- | ---------------------------- | -----------
|                                                                        |                              | 2002       
|Numerator:                                                              |                              |            
|Net income before accretion charges                                     |                              | $    4,597 
|Accretion charges to preferred stock                                    |                              |           
|                                                                        |                              |            
|Income available to common stockholders for basic    earnings per share | $    4,597                   |            
|                                                                        |                              |            
|Denominator:                                                            |                             
|Denominator for basic income per share - weighted    average shares     |                              | 70,188     
|Effect of dilutive securities                                           |                              | 5,852      
|                                                                        |                              |            
|Denominator for dilutive income per share                               |                              | 76,040     
|                                                                        |                              |            
|Net income per share - basic                                            |                              | $      0.07
|                                                                        |                              |            
|Net income per share - diluted                                          |                              | $      0.06
|                                                                        |                              |            

5

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| | The
diluted earnings per share calculation for the three months ended March 31, 2002 and 2001
excludes approximately 3.0 million and 2.1 million options, respectively, because their effect would
have been antidilutive. | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | NOTE
3RESTRUCTURING
| | --------------------

| | The
following table summarizes our restructuring activity for the three months ended March 31,
2002 (in thousands): | 
| | ------------------------------------------------------------------------------------------------------------------- | 

|                             | SeveranceandBenefits | Facilities | Other  | Total
|---------------------------- | -------------------- | ---------- | ------ | -----
|Accrual at December 31, 2001 | $  329               |            | $  279 |      
|Additions                    | 4                    |            | 468    |      
|Cash payments                | (229                 | )          | (90    | )    
|                             |                      |            |        |      
|Accrual at March 31, 2002    | $  104               |            | $  657 |      
|                             |                      |            |        |      

| | During
the three months ended March 31, 2002, we recorded a provision of approximately $0.5
million associated to leases in the United States and United Kingdom that are currently
not in use. We have recorded a restructure reserve associated to certain leases in the
United Kingdom in the amount of $2.4 million as of March 31, 2002 and December 31, 2001.
This amount represents the excess of our contractual obligation over the minimum
income under the current sublease arrangement. Due to the timing of the contractual payments, this amount has been included in
other long-term liabilities. Subsequent to March 31, 2002, there have not been any
significant changes to our estimate of the total costs of prior restructuring activities. | 
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | NOTE
4ACQUISITION OF REDLINE SOFTWARE, INC. (VMGEAR)
| | -----------------------------------------------------

| | On
January 18, 2002, we completed our acquisition of Redline Software, Inc.
(Redline), a privately held software firm located in San Jose, California.
Redline develops and markets performance assurance and testing solutions for Java
developers. The transaction was accounted for as a purchase. Total fixed consideration of
$2.0 million was paid upon the close of the transaction and acquisition-related costs were
$0.2 million. The contingent consideration
includes retention payments of $6.0 million to be earned through the continued employment
of certain individuals and additional earnout payments contingent upon future revenues
derived from the sale of Redline products and the retention of certain employees of
Redline. Contingent consideration, if any, will be earned and paid over a three-year
period. We recorded goodwill for the excess of the purchase price over the net assets
acquired of $1.6 million and $0.6 million for acquired technology which will be amortized
over the estimated useful life of 18 months. In accordance with the provision of Statement of Accounting
Statements No. 142, Goodwill and Other Intangibles, we did not amortize the
excess of the purchase price over net assets acquired during the three months ended March
31, 2002. The contingent consideration will be expensed when it is deemed probable that
such payments will be made. | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | NOTE
5RECENT ACCOUNTING PRONOUNCEMENTS
| | ---------------------------------------

| | In
November 2001, the Emerging Issues Task Force (EITF) reached a consensus on
EITF Issue 01-09, Accounting for Consideration Given by a Vendor to a Customer or a
Reseller of the Vendors Products (EITF 01-09), which is a
codification of EITF 00-14, 00-22 and 00-25. This issue presumes that consideration from a
vendor to a customer or reseller of the vendors products to be a reduction of the
selling prices of the vendors products, unless the
consideration relates to a separate identifiable benefit and the benefits fair value
can be established. During the three months ended March 31, 2002, we adopted the
provisions of EITF 01-09. The adoption of this pronouncement did not have a material
impact to our financial position or results of operations. | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | In
July 2001, the FASB issued Statement of Financial Accounting Standards No. 142 (SFAS 142),
Goodwill and Other Intangible Assets, which is effective for fiscal years beginning
after March 15, 2001. SFAS 142 requires, among other things, the discontinuance of
goodwill amortization. In addition, the | 
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

6

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| | standard
includes provisions upon adoption for the reclassification of certain existing recognized
intangibles, reclassification of certain intangibles out of previously reported goodwill
and the testing for impairment of existing goodwill and other intangibles. The adoption
of this pronouncement did not have a material impact to our financial position or results
of operations for the quarter ended March 31, 2002. | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

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

| | 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, future revenues, earnings, margins, costs, demand for our
products, market and technological trends in the software industry, interest rates and
inflation and various economic and business trends. You can generally identify
forward-looking statements by the use of words such as expect,
estimate, project, budget, forecast,
anticipate, intend, plan, may,
will, could, should, believes,
predicts, potential, continue and similar expressions
or the negative or other variations thereof. These forward-looking statements involve substantial risks and
uncertainties. Examples of such risks and uncertainties are described under
Factors That May Affect Future Results and Market Price of Stock and
elsewhere in this report, as well as in our other filings with the
Securities and Exchange Commission or in materials incorporated by
reference. You should be aware that the occurrence of any of these risks and
uncertainties may cause our actual results to differ materially from those
anticipated in our forward-looking statements, which could have a material
and adverse effect on our business, results of operations and financial
condition. New factors may emerge from time to time, and it is not possible
for us to predict new factors, nor can we assess the potential effect of any
new factors on us. | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 

| | These forward-looking statements are found at various places throughout this
Form 10-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. | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

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

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

| | Overview | 
| | -------- | 

| | As
a leading global provider of technology for the rapid and effective development,
deployment, integration and management of software applications, we enable enterprises to
realize the profitability-enhancing potential of innovation. By delivering comprehensive
best-in-class technology solutions dedicated to interoperability, we allow enterprises of
all sizes to move into Web-based computing while leveraging their legacy systems. From
Fortune 1000 companies to the millions of individual developers known as the Borland
Nation, we provide our customers the freedom to develop applications, deploy them on
most major platforms, and integrate and manage them across the enterprise. Our solutions,
including those for the high potential growth areas of Java, Linux, Web Services and
wireless technologies, are designed to enable organizations to increase productivity and
deliver higher performance projects faster and on budget, while lowering total cost of
ownership. | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | Our
loyal customers are enterprises of many sizes, including individual developers which
comprise the Borland Nation, small independent software and services firms, as well as
prominent companies | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

7

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| | worldwide,
including leading companies in high technology, telecommunications and financial
services. Many of our customers use Borland technology so that they themselves can create
and ship software and system products conforming to high performance specifications. Our
principal technology partners include leading technology companies such as Apple,
Ericsson, Hitachi, IBM, Intel, Macromedia, Microsoft, Nokia, Rational, Red Hat, Siemens,
Sun Microsystems and Sybase. | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

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

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

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

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

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

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

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

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

| | Widening our lead in Java products; | 
| | ----------------------------------- | 

| | Promoting platform independence and interoperability, including through Web Services; | 
| | ------------------------------------------------------------------------------------- | 

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

| | Targeting large enterprises with our comprehensive application lifecycle management
solutions; | 
| | ---------------------------------------------------------------------------------------------- | 

| | Focusing on the needs of our installed base, e.g., the Borland Nation; | 
| | ------------------------------------------------------------------------ | 

| | Capitalizing on the strength of the Borland brand, with new product and service
offerings and through international expansion; and | 
| | ------------------------------------------------------------------------------------------------------------------------------------ | 

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

| | To
achieve this goal, we now offer leading products and services for addressing various
dimensions of the software implementation processdevelopment, deployment,
integration and management. Innovation, quality, performance, ease of use and
interoperability are the hallmarks of our products. Our products provide key pieces
necessary for enterprises to implement applications critical to their business rapidly and
effectively. For the development phase, we offer our JBuilder, Delphi, Kylix and
C++Builder integrated development environments (IDEs), as well as our hosted
TeamSource DSP service. Our deployment and integration products include our Borland
Enterprise Server line of application servers, | 
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

8

---

| | including
Borland Enterprise Server, AppServer Edition for high end EJB deployments, VisiBroker
Edition to facilitate legacy integration and our recently introduced Web Edition for
JavaServer Pages (JSP)/Servlet-based application deployments. Our deployment products
also include JDataStore, an embedded database for web and mobile applications, and
InterBase, our high-performance embedded SQL database. To manage applications, we offer
Borland AppCenter, a visual distributed application management solution. | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 

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

| | Our
focused efforts in sales and marketing include a sales model that combines strong indirect
and direct sales efforts. We also pay particular attention to our research and development
activities. | 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | 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 as filed
with the SEC on March 29, 2002. | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | Results
of Operations for the Three Months Ended March 31, 2001 and 2002 | 
| | ------------------------------------------------------------------------ | 

| | Revenues | 
| | -------- | 

| | Our
revenues are derived from software licenses and sales of its related services, which
include assistance in implementation and integration, and post-contract customer support,
training and consulting services. Net revenues were $57.1 million and $51.7 million for
the three months ended March 31, 2002 and 2001, respectively. The growth in net revenues
was principally attributable to the increase in net revenues from
our Java and RAD businesses. The Java and RAD businesses grew 40% and 19%, respectively,
during the three months ended March 31, 2002 when compared with the three months ended
March 31, 2001. The growth in our Java and RAD businesses was offset by a decline in our
Enterprise business. Our Enterprise business declined 25% during the three months ended
March 31, 2002 when compared with the three months ended March 31, 2001. | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | Licenses
and Other Revenues | 
| | --------------------------- | 

| | Licenses
and other revenues represent amounts earned from granting customers licenses to use our
software products. Licenses and other revenues totaled $47.7 million for the three months
ended March 31, 2002, compared to $42.4 million from the same quarter a year ago. License
and other revenues were 84% and 82% of total net revenues for the three months ended March
31, 2002 and 2001, respectively. Licenses and other revenues from our Java, RAD, and
Enterprise businesses represented, 45%, 31%, and 24%, respectively, of total license and
other revenues for the three months ended March 31, 2002. This is compared to 36%, 30%,
and 34%, respectively, for the three months ended March 31, 2001. Licenses and other
revenues during the three months ended March 31, 2002 were favorably affected by the
continued strong demand for our Java products. Licenses and other revenue from our Java
business, which includes JBuilder, Borland Enterprise Studio for Java and Optimizeit
product lines, grew 40% over the same quarter a year ago. Licenses and other revenues from
our RAD business, which includes the Borland Delphi, C++Builder and Kylix product lines,
increased 19% from the same quarter in 2001. Licenses and other revenues from our
Enterprise business, including VisiBroker, Borland AppServer and Borland AppCenter product
lines, decreased by 25% over the same quarter a year ago. | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | License
and other revenues from our Java business were favorably affected by the continued success
of JBuilder 6.0 released during the three months ended December 31, 2001 and by the
initial release of our Optimizeit product during the three months ended March 31, 2002.
License and other revenues from our RAD business were favorably affected by the release of
C++ Builder 6.0 during the three months ended March 31, 2002. The revenue growth in this
product is reflective of the upgrade purchases by our customers upon the new version
release. Consistent with historical trends, we expect that the upgrade activity will
decrease in the quarters subsequent to the general release. Licenses and other revenues
from our Enterprise business were negatively impacted by lower demand from our Original
Equipment Manufacturers, or OEM, customers. We believe that this behavior is due to
concerns about the current economic climate, particularly | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

9

---

| | in
the United States. Continued concerns around the United States and world economy could
impact the buying patterns of our OEM customers and impact our Enterprise business. | 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | Service
Revenues | 
| | ---------------- | 

| | Service
revenues represent amounts earned from customer support, training and consulting services
related to our software products. Service revenues increased to $9.4 million for the three
months ended March 31, 2002, compared to $9.3 million for the three months ended March 31,
2001. Service revenues were 16% and 18% of total net revenues for the three months ended
March 31, 2002 and 2001, respectively. Technical support revenues represented 68% and 59%
of the total service revenues for the three months ended March 31, 2002 and 2001,
respectively, while consulting and training revenues represented 32% and 41% of the total
service revenues for the same periods, respectively. The growth of our technical support
revenues is due to the increase in number of enterprise-level support contracts and we
expect this trend to continue should we have success licensing software to a larger number
of enterprise customers. Consulting and training revenues have
been negatively impacted by the lower demand for such services. We believe such behavior
is due to customers concerns about the current economic climate and their efforts to
manage controllable costs. Continued concerns around the United States and world economy
could impact the demand for such services. | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 

| | International
Net Revenues | 
| | -------------------------- | 

| | International
net revenues represented 62% of our total net revenues for the three months ended March
31, 2002 compared to 56% for the three months ended March 31, 2001. The increase in the
percentage of non-U.S. net revenues for the three months ended March 31, 2002, as compared
to the three months ended March 31, 2001 was principally due to the growing adoption of
the Java language in Europe and the Asia/Pacific region and the decline in our Enterprise
business in the U.S. due to the downturn in the U.S. economy.
We expect non-U.S. revenues to continue to be a significant percentage of total net
revenues in future periods. | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | Fluctuations
in foreign currency exchange rates did not have a material impact on our total net
revenues or operating results for the three months ended March 31, 2002. However, our
non-U.S. revenues would be adversely affected if the U.S. dollar were to strengthen
against major foreign currencies including Japanese Yen, United Kingdom Pound Sterling and
the Euro. | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 

| | The
following table presents our total revenues by region: | 
| | ---------------------------------------------------------- | 

|                                        | Three Months Ended March 31, |        
|--------------------------------------- | ---------------------------- | -------
|                                        |                              | 2002   
|Americas                                |                              | $25,800
|Europe, Middle East and Africa (EMEA) |                              | 20,059 
|Asia Pacific                            |                              | 11,218 
|                                        |                              |        
|Net revenues                            |                              | $57,077
|                                        |                              |        

| | Amounts
reported for our Americas region represent revenues generated from our operations located
in the United States, Canada and Brazil. Amounts reported for our EMEA region represent
revenues generated from our operations located in the Netherlands, Germany, France, United
Kingdom, Sweden, Italy, Russia and Spain. Amounts reported for our Asia Pacific region
represent revenues generated from our operations located in Singapore, Japan, South Korea,
Hong Kong, Taiwan, Australia, New Zealand, China and India. | 
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | Cost
of Revenues | 
| | ---------------- | 

| | Cost
of Licenses and Other Revenues | 
| | ----------------------------------- | 

| | Cost
of licenses and other revenues consist primarily of production costs, product packaging,
and royalties paid to third-party vendors. Cost of licenses and other revenues were $3.5
million and $3.0 million for the three months ended March 31, 2002 and 2001, respectively.
The increase in cost of licenses and other | 
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

10

---

| | revenues
for the three months ended March 31, 2002 when compared with the three months ended March
31, 2001 was due to an increase in royalty costs payable to third-party vendors. The
level of royalty costs in future quarters will be dependent upon our success in licensing
our products that include third party technology. | 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | Cost
of Service Revenues | 
| | ------------------------ | 

| | 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. Cost of service revenues was $5.0 million for the three months ended March 31,
2002 and 2001. Cost of technical support revenues represented 30% and 25% of the total
cost of service revenues for the three months ended March 31, 2002 and 2001, respectively,
while cost of consulting and training revenues represented 70% and 75% of the cost of
service revenues for the same periods, respectively. The increase in cost of technical
support revenues for the three months ended March 31, 2002 when compared the three months
ended March 31, 2001 is due to additional
headcount and other resources deployed to manage the higher support activity. The lower
cost of consulting and training during the three months ended March 31, 2002 when
compared with the same quarter a year ago was due to a reduction in headcount and other
resources due to fewer consulting and training engagements. | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | Gross
Margins | 
| | ------------- | 

| | Gross
margins were 85% for the three months ended March 31, 2002 and 2001, respectively. Gross
margins on license and other revenues were 93% for the three months ended March 31, 2002
and 2001, respectively. Gross margins from service revenues were 46% for the three months
ended March 31, 2002 and 2001, respectively. While we would expect our total gross margins
to remain consistent with these levels, the future gross margins will be a function of our
future net revenues, the level of third-party royalty-bearing technology sold with our
product offerings, our ability to control our manufacturing costs and our utilization of
our professional services group. | 
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | Operating
Expenses | 
| | ------------------ | 

| | Research
and Development | 
| | ------------------------ | 

| | Research
and development (R&D) expenses consist primarily of salaries and other
personnel-related expenses, facilities costs and fees and expenses of third-party
consultants. R&D expenses were 21% of revenues for each of the three months ended
March 31, 2002 and 2001. R&D expenses for the three months ended March 31, 2002
increased to $11.9 million from $11.1 million for the three months ended March 31, 2001.
The increase in R&D expenses for the three months ended March 31, 2002 when compared
with the three months ended March 31, 2001 was due to additional employee related
expenses. While we expect total dollars spent on R&D to increase in 2002 when compared
with 2001, we expect our R&D expenses to remain relatively consistent as a percentage
of net revenues. | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | Sales,
General and Administrative | 
| | --------------------------------- | 

| | Sales,
general and administrative (SG&A) expenses consist primarily of salaries,
benefits, sales commissions, the cost of product marketing programs, and facility and
information system costs. SG&A expenses increased by 9% this quarter compared to the
same quarter of last year but decreased as a percentage of total revenues to 54% from 55%
for the three months ended March 31, 2002 and 2001, respectively. The increase in total
dollars was principally due to increased employee costs due to increased headcount in our
direct sales force and strategic marketing organizations. We expect the future expansion
of our sales and marketing organizations to be dependent on our ability to generate future
meaningful revenue growth. To the extent net revenues from our direct sales channel
increase, we expect our SG&A expenses to increase as a result of variable compensation
from our sale incentive plans related to levels of direct sales. | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

11

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| | Restructuring
Charges | 
| | --------------------- | 

| | The
following table summarizes our restructuring activity for the three months ended March 31,
2002 (in thousands): | 
| | ------------------------------------------------------------------------------------------------------------------- | 

|                             | SeveranceandBenefits | Facilities | Other  | Total
|---------------------------- | -------------------- | ---------- | ------ | -----
|Accrual at December 31, 2001 | $  329               |            | $  279 |      
|Additions                    | 4                    |            | 468    |      
|Cash payments                | (229                 | )          | (90    | )    
|                             |                      |            |        |      
|Accrual at March 31, 2002    | $  104               |            | $  657 |      
|                             |                      |            |        |      

| | During
the three months ended March 31, 2002, we recorded a provision of approximately $0.5
million associated to leases in the United States and United Kingdom that are currently
not in use. We have recorded a restructure reserve associated to certain leases in the
United Kingdom in the amount of $2.4 million as of March 31, 2002 and December 31, 2001.
This amount represents the excess of our contractual obligation over the minimum
income under the current sublease arrangement. Due to the timing of the contractual payments, this amount has been included in
other long-term liabilities. Subsequent to March 31, 2002, there have not been any
significant changes to our estimate of the total costs of prior restructuring activities. | 
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | Interest
Income, Net and Other | 
| | ------------------------------ | 

| | Interest
income, net and other decreased from $3.4 million during the three months ended March 31,
2001 to $1.7 million during the three months ended March 31, 2002. The decline in interest
income, net and other for the three months ended March 31, 2002 when compared with the
three months ended March 31, 2001 principally reflects the decrease in interest income of
$2.0 million, despite higher cash balances, due to a decline in prevailing interest rates.
Changes in interest rates will continue to impact our interest income performance in
future periods. | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 

| | Income
Taxes | 
| | ------------ | 

| | For the three months ended March 31, 2002 and 2001, we generated pretax profits
of $5.7 million and $7.3 million, respectively. Our effective tax rate was 20%
for these same periods. We have significant net operating loss and tax credit
carryforwards in the U.S. and a number of non-U.S. jurisdictions in which we
conduct business. These loss and credit carryforwards are used to offset our
tax liability as allowed by law. In addition, we incur withholding taxes in a
number of non-U.S. jurisdictions that are imposed regardless of the
profitability of Borland in that jurisdiction. Similar to the 2001 calendar
year, we anticipate our tax provision for 2002 to be comprised principally of
non-U.S. income taxes and non-U.S. withholding taxes. Our effective tax
rate,which is dependent on the amount and location of our taxable profits,
ability to utilize our net operating loss and credit carryforwards in certain
jursdictions, and the amount of our non-U.S. withholding taxes which are
imposed regardless of our profitability, is currently expected to be 20% for
2002. | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | Liquidity
and Capital Resources | 
| | ------------------------------- | 

| | As
of March 31, 2002, cash, cash equivalents and short-term investments totaled $296.2
million; an increase of $1.8 million from $294.4 million at December 31, 2001. Working
capital increased from $258.6 million at December 31, 2001 to $264.7 million at March 31,
2002. | 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | Cash
provided by operating activities for the three months ended March 31, 2002 was $1.9
million, consisting of $4.6 million in net income and $1.6 million in depreciation and
amortization offset by an increase in non-cash working capital of $4.3 million. Cash provided
by operating activities during the three months ended March 31, 2001 was $3.1 million,
consisting of $5.9 million in net income and $2.1 million in depreciation and amortization
offset by an increase in non-cash working capital of $4.9 million. | 
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

12

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| | Cash
used in investing activities for the three months ended March 31, 2002 included $2.2
million used for the acquisition of Redline discussed in Note 4 above and $0.8 million in
cash used for the purchase of property and equipment. Cash used in investing activities
for the three months ended March 31, 2001 included $2.0 million for the purchase of
property and equipment. | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | Cash
provided by financing activity was $3.4 million and $1.5 million for the three months
ended March 31, 2002 and 2001, respectively, and principally consisted of proceeds from the
issuance of common stock to employees under our Employee Stock Option and Stock Purchase
Plans. | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | Currency
fluctuations did not have a significant impact on our cash position during the three
months ended March 31, 2002. Although we partially hedge our foreign currency exchange
rate risk, strengthening of the U.S. dollar against the Euro, United Kingdom Pound
Sterling, Australian and Singapore dollars and Japanese Yen would harm our business. We
cannot predict currency exchange rate fluctuations and there can be no assurance that
foreign currency exchange rates will not have a material adverse impact on our future cash
flows and operating results. See further discussion of foreign currency risk in Item 3,
Quantitative and Qualitative Disclosures About Market Risk. | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 

| | For
the remainder of 2002, we expect that operating expenses will decrease slightly as a
percentage of revenue when compared with 2001. We anticipate that operating expenses and
planned capital expenditures will continue to constitute a material use of our cash
resources. We expect our capital expenditures in 2002 to be greater than fiscal year
2001. In addition, we may utilize cash resources to fund acquisitions or investments in
other businesses, technologies or products lines. We believe that our available cash and
cash equivalents, 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 may seek to raise the 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. | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | FACTORS
THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK | 
| | ---------------------------------------------------------------- | 

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

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

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

| | In
addition, our infrastructure products, including Borland Enterprise Server, are based on
Common Object Request Broker Architecture, or CORBA, in addition to EJB and J2EE. CORBA is
a standard from the Object Management Group (OMG) for communicating between distributed
objects (objects are self-contained software modules). CORBA provides a way to execute
programs (objects) written in different programming languages running on different
platforms no matter where they reside in the network. While we believe that CORBA has
achieved widespread acceptance as a software-based communications interface | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

13

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| | through
which objects are located and accessed, critics contend that it is a highly complex
technology requiring significant investments to implement it, as well as in training and
support. If CORBA is displaced or its popularity diminished, our business would be
impacted. | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

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

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

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

| | The
software application infrastructure market is relatively new and evolving. While we
believe we maintain strong relationships with the information technology, or IT,
organizations in large enterprises through our developer network, we do not have extensive
experience in this market. For example, we entered this market for the first time as the
result of our acquisition of Visigenic in 1997 and are now marketing comprehensive
implementation solutions to enterprises including development and infrastructure products.
There can be no assurance that the software application infrastructure market will grow or
that we will be able to compete successfully in it. To compete successfully in the
software application infrastructure market we will need to: | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 

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

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

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

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

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

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

| | We
have been rapidly expanding our direct sales force and plan to hire additional sales
personnel. Because a significant percentage of our sales force are relatively new to our
company, there is a limited history on which to evaluate their performance. There can be
no assurance that our expanded sales force will succeed in increasing or sustaining our
revenue or improving our competitive position or that our newly-hired employees will
achieve desired levels of productivity. In addition, while we have experienced sales | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

14

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| | management
personnel, our company has limited experience in managing a large,
geographically-dispersed sales force. For example, we may experience difficulty in
integrating the new members of our sales team into our operations. Our failure to
successfully manage our sales force may impair our ability to increase sales and grow our
revenue. | 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

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

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

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

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

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

| | A
substantial portion of our revenue is from international sales. International sales
accounted for approximately 62% of our revenues in the three months ended March 31,
2002. Given our focus on international markets and the market potential for our products
in such markets, we anticipate increased international sales going forward. However, there
are inherent risks in doing business internationally, including: | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 

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

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

15

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

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

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

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

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

| | changes
in regulatory requirements; | 
| | ----------------------------------- | 

| | compliance
with various conflicting laws and regulations; | 
| | --------------------------------------------------------- | 

| | overlap
of different tax structures; and | 
| | ---------------------------------------- | 

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

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

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

| | Political
and economic conditions abroad may adversely affect international sales of our products.
Protectionist trade legislation in either the United States or foreign countries, such as
a change in the current tariff structures, export or import compliance laws, or other
trade policies, could adversely affect our ability to sell our software products and
services in foreign markets. Changes in policies by the U.S. or foreign governments
resulting in, among other things, higher taxation, currency conversion limitations,
restrictions on the transfer of funds or the expropriation of private enterprises also
could have a material adverse effect on us. Any actions by countries in which we conduct
business to reverse policies that encourage foreign investment or foreign trade also could
adversely affect our operating results. | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 

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

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

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

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

16

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

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

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

| | We
differentiate our products from our competitors products based on scalability,
functionality, interoperability, cost of ownership, performance and reliability as well as
their effectiveness in addressing our customers needs. There can be no assurance
that we will be able to successfully differentiate our products from those of our
competitors in the future or be able to continue to enhance our product lines to meet the
needs of our customers. In addition, many of our competitors have substantially greater
financial, management, marketing and technical resources than we have. Many of our
competitors have well established relationships with our current and potential customers,
extensive knowledge of the market and extensive product development, sales and marketing
resources. These competitors may be more successful than us at developing and marketing
products in our markets. | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

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

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

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

17

---

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

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

| | The
market for our products is highly competitive and is characterized by continuous
technological advancement, evolving industry standards and changing customer requirements.
While we believe that to date we have successfully developed products that incorporate the
latest technologies and standards, we cannot be certain that we will successfully design
and market new products and upgrades of our current products that are competitive and work
with existing and new computer platforms and operating environments. | 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

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

| | we
may introduce products later than we expect or later than competitors introductions; | 
| | ---------------------------------------------------------------------------------------- | 

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

| | our
products may not meet customers expectations regarding features and performance; | 
| | ------------------------------------------------------------------------------------- | 

| | competitors
products based on new technologies or new industry standards may quickly render our
existing products obsolete; | 
| | ---------------------------------------------------------------------------------------------------------------------------- | 

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

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

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

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

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

18

---

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

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

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

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

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

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

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

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

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

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

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

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

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

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

| | evolving
standards and other technological changes; and | 
| | ------------------------------------------------------- | 

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

| | If
the wireless and mobile market does not develop as we anticipate or if we are unable to
respond to technological shifts in the market, our anticipated sales and operating results
could be adversely impacted. In | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

19

---

| | addition,
even if the wireless market does develop and we have competitive products, our failure to
market and sell these products to our customers will impact our anticipated sales and
operating results. | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 

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

| | We
believe that our ability to successfully grow and manage our business and to develop new
products will depend, in large part, on our ability to recruit and retain qualified
employees, particularly highly skilled software engineers and management personnel. Over
the last few years, we have increased compensation, bonuses, stock options and other
fringe benefits in order to attract and retain key personnel. In the past, some of our
competitors have utilized their greater resources to provide substantial signing bonuses
and other inducements to lure key personnel away from us. As a result, we may be required
to further increase compensation and benefits. We are not certain that these efforts will
succeed in retaining our key employees, and our failure to attract and retain key
personnel could significantly harm our business. Even if we succeed in attracting and
retaining key personnel, these increased compensation costs may not be offset through
either improved productivity or higher revenue. | 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

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

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

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

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

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

| | Our
future success will depend upon our ability to enhance our current products and develop
and introduce new products on a timely basis, particularly if new technology or new
industry standards render any existing products obsolete. We believe that we will need to
incur significant research and development | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

20

---

| | expenditures
to remain competitive, particularly since many of our competitors have substantially
greater resources. The products that we are currently developing or may develop in the
future may not be technologically successful or may not be accepted in our market. In
addition, the length of our product development cycle may be greater than we expect. If
the resulting products are not introduced in a timely manner, or do not compete
effectively with products of our competitors, our business will be harmed. | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

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

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

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

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

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

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

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

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

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

21

---

| | in
the event that Java matures to the point where vendors are able to have success selling
broadly applicable packaged Java software without fear of obsolescence, the need for
extensive in-house Java development could be curtailed. If in-house development is
curtailed, the need for our development technologies will be impacted and our operating
results would be adversely affected. | 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

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

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

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

| | A
large portion of our revenue with respect to our application infrastructure products is
derived from customers in a small number of vertical markets such as the technology,
telecommunications and financial markets. While we believe that customers in these markets
are attracted to the performance advantages of our products, continuation or deepening of
the current downturn in any of these markets could have a significant impact on our
revenues with respect to our application infrastructure products. Our infrastructure
business was adversely affected in 2001 and in the first quarter of 2002 by the downturn
in these markets. Our failure to broaden our base of customers outside these vertical
markets would reduce our future revenues with respect
to our application infrastructure products if an extended downturn occurs in our targeted
vertical markets. | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

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

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

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

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

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

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

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

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

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

22

---

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

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

| | product
release cycles for our products and those of our competitors; | 
| | --------------------------------------------------------------------- | 

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

| | general
domestic and international economic and political conditions; and | 
| | ------------------------------------------------------------------------- | 

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

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

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

| | Ingram
Micro, one of our major distributors, accounted for approximately 10% of our total revenue for the
quarter ended March 31, 2002, 13% of our total revenue
during the year ended December 31, 2001 and 12% of total revenue during the year ended
December 31, 2000. We expect that Ingram Micro will continue to be a significant customer
and a small number of distributors will continue to account for a significant portion of
our revenue for the foreseeable future. Our inability to increase the number of our
distributors or the loss of any one major distributor like Ingram Micro could limit our
ability to maintain or increase our market share, or could cause our revenue to drop
quickly and unexpectedly. | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

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

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

| | We
are dependent upon certain retail distribution channels. | 
| | ----------------------------------------------------------- | 

| | A
significant portion of our sales is made through retail distribution channels, which is
subject to events that cause unpredictability in customer demand. Our retail distributors
also carry the products of our competitors. Some of our retail distributors have limited
shelf space and limited capital to invest in inventory. Their decision to purchase our
products is based on a combination of demand for our products, our pricing, the terms and
special promotions we offer and other factors that we do not control and cannot predict.
Our agreements with retail distributors are generally nonexclusive and may be terminated
by them or us without cause. Accordingly, there can be no assurance that our distributors
will continue to carry our products. | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 

23

---

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

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

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

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

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

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

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

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

| | We
use and will continue to use encryption technology licensed by third parties in some of
our products, such as in Borland Enterprise Server, VisiBroker Edition, to provide
security for the exchange of our customers confidential information. Encryption
technologies have been breached in the past. There can be no assurance that there will not
be a compromise or breach of our security technology. If such a breach | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

24

---

| | were
to occur, it could have a material adverse effect on our reputation and sales of our
application infrastructure products. | 
| | ------------------------------------------------------------------------------------------------------------------------------ | 

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

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

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

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

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

| | immediate
loss of revenue; | 
| | -------------------------- | 

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

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

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

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

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

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

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

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

| | Our
products or services may be the target of intentional disruptions, such as software
viruses specifically designed to impede the performance of our products. Similarly,
experienced computer | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 

25

---

| | programmers
or hackers may attempt to penetrate our network security or the security of our web site
and misappropriate proprietary information or cause interruptions to the delivery of our
services or products. Our activities could be substantially disrupted, and our reputation
and future sales could be harmed if these efforts were successful. | 
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

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

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

| | successfully
hire, train, retain and motivate additional employees; | 
| | ------------------------------------------------------------------- | 

| | enhance
our operational, financial and management systems; and | 
| | -------------------------------------------------------------- | 

| | expand
our research and development capacity. | 
| | --------------------------------------------- | 

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

| | The
price of our common stock could fluctuate significantly. | 
| | ------------------------------------------------------------ | 

| | Like the publicly-traded securities of other high technology companies, the
market price of our common stock has experienced significant fluctuations and
may continue to fluctuate significantly. During the period from March 31, 2001
to March 31, 2002, the price of our common stock has ranged from a low of $6.25
on April 3, 2001 to a high of $18.40 on January 11, 2002. On May 10, 2002, the most
recent practicable date prior to the filing of this Form 10-Q, the closing price of a
share of our common stock on The Nasdaq Stock Market was $9.78. From time to time, the
market price of our common stock may be significantly affected by a number of factors,
including, but not limited to, the following: | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 

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

| | technological
innovation by us or our competitors; | 
| | -------------------------------------------------- | 

| | quarterly
variations in our results of operations or those of our competitors; | 
| | ------------------------------------------------------------------------------ | 

| | changes
in the prices of our products or those of our competitors; | 
| | ------------------------------------------------------------------ | 

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

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

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

| | actual
or anticipated changes in information technology spending; | 
| | ----------------------------------------------------------------- | 

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

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

| | the
relatively low trading volume in our stock; | 
| | ----------------------------------------------- | 

26

---

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

| | actual
or anticipated changes in interest rates; and | 
| | ---------------------------------------------------- | 

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

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

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

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

| | The
conversion of our Series C Preferred Stock (Series C Stock) may have a
dilutive effect. | 
| | --------------------------------------------------------------------------------------------- | 

| | Each
share of our Series C Stock is convertible, at the option of the holder, into fully paid
and non-assessable shares of Borland common stock based upon a fixed conversion ratio. In
the event of a reorganization, reclassification or other change (other than a stock
dividend, stock split or reverse stock split), each share of Series C Stock would be
convertible, at the option of the holder, into the kind and amount of shares of stock and
other securities and property receivable upon such events. Upon transfer by the holder to
an unaffiliated third party, each share of Series C Stock would automatically convert into
fully-paid and non-assessable shares of our common stock based upon a fixed conversion
ratio. In the event of a merger, consolidation, tender offer, agreement to sell, or sale
of all or substantially all of our assets, each share of Series C Stock would
automatically convert into the right to receive the same consideration as if the Series C Stock
had been converted into common stock immediately prior to such events. In the event of
liquidation, dissolution or winding up of Borland, the holders of shares of Series C
Stock would receive the same consideration as if the Series C Stock had been converted
into common stock immediately prior to such event. The conversion ratio is subject to
certain adjustments in the event of a stock split and other capital reorganizations. As
of May 10, 2002, the 115 shares of Series C Stock not previously submitted for conversion
were convertible into 1,236,595 shares of our common stock. | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

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

| | In
the past, following periods of volatility in the market price of a companys
securities, securities class action litigation has often been instituted against such
companies. Were such litigation to be commenced against us, we would incur substantial
costs and there would be diversion of our managements attention and resources, which
could materially adversely affect our business, results of operations and financial
condition. | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

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

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

27

---

| | litigation
can be time consuming and expensive. We have 98 issued U.S. patents, 10 issued foreign
patents and additional pending applications for U.S. and foreign patents. It is possible
that some or all of our patents may be challenged, invalidated or circumvented. It is
also possible that our pending patent applications may never result in issued patents,
and if they do result in issued patents, those patents may be invalidated. In addition,
effective protection of intellectual property rights is unavailable or limited in some
foreign countries, making the possibility of misappropriation of our intellectual
property more likely. Current laws in the United States that prohibit copying give us
only limited practical protection from software pirates, and the laws of many
other countries provide very little protection. Policing unauthorized use of our products
is difficult, expensive and time consuming and we expect that software piracy will be a
persistent problem for our software products. In addition, the unique technology of the
Internet may tend to increase, and provide new methods for, illegal copying. Accordingly,
we cannot be certain that we will be able to protect our intellectual property rights
against unauthorized third-party copying or use. This could materially and adversely
affect our competitive position. | 
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

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

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

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

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

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

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

28

---

| | of
the Internet as a medium for commerce, which could have an adverse effect on our future
sales and revenue growth. | 
| | -------------------------------------------------------------------------------------------------------------------- | 

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

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

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

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

| | 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 denominated
balances. We do not use foreign currency forward exchange contracts for trading purposes.
At month-end, foreign denominated balances and the forward exchange contracts are
marked-to-market and unrealized gains and losses are included in current period net
income. | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | During
the three months ending March 31, 2002, we have recorded net foreign exchange losses of
$0.3 million. The foreign exchange losses were generated primarily due to the strength of
the dollar relative to the Euro and the Japanese Yen. It is uncertain that these currency
trends will continue. If these currency trends continue, we will continue to experience
foreign exchange losses on our intercompany receivables to the extent that we have not
hedged the exposure with foreign currency forward exchange contracts. Such foreign
exchange losses could have a material adverse effect on our operating results and cash
flows. | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | During
the quarter ended March 31, 2002, we recorded a foreign currency gain of approximately
$0.4 million as part of other comprehensive income due to foreign currency movements on
our long-term | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

29

---

| | intercompany
balances. As of March 31, 2002, we had $9.1 million and $2.8 million in long-term
intercompany balances that will be settled in Australian dollars and Singapore dollars,
respectively. | 
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | The
table below provides information about our derivative financial instruments, comprised of
foreign currency forward exchange contracts. The information is provided in U.S. dollar
equivalent amounts, as presented in our financial statements. For foreign currency forward
exchange contracts, the table presents the notional amounts (at the contract exchange
rates), the weighted average contractual foreign currency exchange rates and the net
fair value as of March 31, 2002. All instruments mature within twelve months (dollar
amounts in thousands). | 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

|                                             | NotionalAmount |  | AverageContractRate |    | March 31,2002Net Fair Value
|-------------------------------------------- | -------------- |  | ------------------- | -- | ---------------------------
|Foreign currency forward exchange contracts: |                |  |                     |    |                            
|Euro                                         | 5,484          |  |                     | 0. | 8666                       
|Australian Dollar                            | 1,558          |  |                     | 0. | 5283                       
|New Zealand Dollar                           | 647            |  |                     | 0. | 4313                       
|Singapore Dollar                             | 1,357          |  |                     | 0. | 5427                       
|Korean Won                                   | 1,897          |  |                     | 0. | 00074                      
|Hong Kong Dollar                             | 2,499          |  |                     | 0. | 1281                       
|Great Britain Pound                          | 1,113          |  |                     | 1. | 4230                       
|New Taiwan Dollar                            | 860            |  |                     | 0. | 0282                       
|Others                                       | 806            |  |                     |    |                            
|                                             |                |  |                     |    |                            
|Total                                        | 16,221         |  |                     |    |                            
|                                             |                |  |                     |    |                            

| | Interest
Rate Risk | 
| | ------------------ | 

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

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

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

|                       | 2002 |                | 2003 |   | 2004 |   | 2005 |   | 2006 |   | Thereafter |   | Total
|---------------------- | ---- | -------------- | ---- | - | ---- | - | ---- | - | ---- | - | ---------- | - | -----
|                       |      | (in thousands)
|Cash equivalents       |      |                |      |   |      |   |      |   |      |   |            |   |      
|Fixed rate             | $    | 237,979        |      |  |      |  |      |  |      |  |            |  |      
|Average interest rate  |      | 2.12%          |      |  |      |  |      |  |      |  |            |  |      
|Short-term investments |     
|Fixed rate             | $    | 58,218         |      |  |      |  |      |  |      |  |            |  |      
|Average interest rate  |      | 2.97%          |      |  |      |  |      |  |      |  |            |  |      

| | Credit
Risks | 
| | ------------ | 

| | Our
financial instruments that are exposed to concentrations of credit risk consist primarily
of cash equivalents and trade receivables. Our cash equivalents are in high quality
securities placed with major banks and financial institutions. Concentrations of credit
risk with respect to receivables are limited due to the large number of customers and
their dispersion across geographic areas. We perform periodic credit evaluations of our
customers financial condition and generally do not require collateral. As of March
31, 2002, no single group or customer represents greater than 10% of total accounts
receivable. | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

30

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PART II

OTHER INFORMATION

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

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

| | Item
5. Other Information | 
| | ------------------------- | 

| | Agreements
with Sun Microsystems, Inc. | 
| | -------------------------------------- | 

| | Filed
with this Form 10-Q, pursuant to (b)(10) of Item 601 of Regulation S-K, are certain
agreements between ourselves and Sun Microsystems, Inc. (Sun) relating to
Borlands license from Sun of Suns Java technology. | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | Agreements
with Microsoft Corporation | 
| | ------------------------------------- | 

| | Filed
with this Form 10-Q, pursuant to (b)(10) of Item 601 of Regulation S-K, are certain
agreements between ourselves and Microsoft Corporation (Microsoft) relating to
Borlands license from Microsoft of certain Microsoft technology. | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

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

| | A.
Exhibits | 
| | ----------- | 

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

| | Exhibit No. | Description of Exhibit                                                                                                                                             | 
| | ----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 
| |             |                                                                                                                                                                    | 
| | 4.1         | Specimen Stock Certificate of Borland Software Corporation.*                                                                                                       | 
| |             |                                                                                                                                                                    | 
| | 10.1        | Addendum Number 1 to Software License Agreement between Sun Microsystems, Inc.
and Borland Software Corporation, dated as of December 12, 2001.*                   | 
| |             |                                                                                                                                                                    | 
| | 10.2        | Addendum Number 1 to Trademark License between Sun Microsystems, Inc.
and Borland Software Corporation, dated as of December 12, 2001.*                            | 
| |             |                                                                                                                                                                    | 
| | 10.3        | Addendum Number 2 to Master Support Agreement between Sun Microsystems, Inc.
and Borland Software Corporation, dated as of December 12, 2001.*                     | 
| |             |                                                                                                                                                                    | 
| | 10.4        | Addendum Number 3 to Master Support Agreement between Sun Microsystems, Inc.
and Borland Software Corporation, dated as of December 21, 2001.*+                    | 
| |             |                                                                                                                                                                    | 
| | 10.5        | Wireless Toolkit Supplement to the Sun Community Source Licenses between Sun Microsystems, Inc.
and Borland Software Corporation, dated as of December 21, 2001.*+ | 
| |             |                                                                                                                                                                    | 
| | 10.6        | Open Tools License Agreement between Microsoft Corporation and Borland Software Corporation,
dated as of March 2, 1999.*+                                          | 
| |             |                                                                                                                                                                    | 
| | 10.7        | Amendment Number 1 to Open Tools License Agreement between Microsoft Corporation and Borland Software Corporation,
dated as of June 2, 1999.*                      | 

31

---

| | Exhibit No. | Description of Exhibit                                                                                                                                                                                      | 
| | ----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| |             |                                                                                                                                                                                                             | 
| | 10.8        | License and Distribution Agreement (Microsoft Internet Explorer and
ComponentsWindows 95 and Windows NT Version) between Microsoft
Corporation and Borland Software Corporation, dated as of May 7, 1997.* | 

| |  | 
| |  | 

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

| | A
copy of any exhibit referenced above 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: Lynne
Farris, Director of Investor Relations. | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | B.
Reports on Form 8-K | 
| | ---------------------- | 

| | During
the quarter ended March 31, 2002, Borland filed the following Current Reports on Form 8-K
with the Securities and Exchange Commission: | 
| | --------------------------------------------------------------------------------------------------------------------------------------------- | 

| | Form 8-K filed on March 15, 2002 announcing the entry of
Doug Barre, Keith E. Gottfried and Edward Shelton into stock trading plans in accordance with Rule 10b5-1 of the Securities
and Exchange Act of 1934. | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | Form 8-K filed on January 22, 2002 announcing that Borland
had acquired all of the outstanding capital stock of Redline Software, Inc., a Delaware corporation known to its customers as VMGEAR,
pursuant to a Stock Purchase Agreement. | 
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

32

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SIGNATURES

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

| | BORLAND
SOFTWARE CORPORATION(Registrant)
| | ----------------------------------------

| | Date:
May 10, 2002 | 
| | ------------------ | 

| | / s / Frederick A. Ball                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                 
| | Frederick A. Ball Executive Vice President and Chief Financial
Officer (Principal Financial Officer and Duly Authorized Officer)

33

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