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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, 2001

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 May 1, 2001, the most recent practicable date prior to the filing of this report,
was 62,251,588.

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INDEX

|        |                                                                                                              | PAGE | 
|------- | ------------------------------------------------------------------------------------------------------------ | ---- | 
|        |                                                                                                              |      | 
|PART I  | FINANCIAL INFORMATION                                                                                        |      | 
|        |                                                                                                              |      | 
|Item 1. | Financial Statements                                                                                         | 1    | 
|        |                                                                                                              |      | 
|        | Condensed Consolidated Balance Sheets at March 31, 2001 and December 31, 2000                                | 1    | 
|        |                                                                                                              |      | 
|        | Condensed Consolidated Statements of Operations for the three months ended March 31, 2001 and 2000           | 2    | 
|        |                                                                                                              |      | 
|        | Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2001 and 2000 | 3    | 
|        |                                                                                                              |      | 
|        | Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2001 and 2000           | 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                                                   | 23   | 
|        |                                                                                                              |      | 
|        |                                                                                                              |      | 
|PART II | OTHER INFORMATION                                                                                            |      | 
|        |                                                                                                              |      | 
|Item 6. | Exhibits and Reports on Form 8-K                                                                             | 25   | 
|        |                                                                                                              |      | 
|        | Signatures                                                                                                   | 26   | 



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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, 2001
|                                                               |  | (Unaudited)   
|ASSETS                                                         | 
|Current assets:                                                | 
|Cash and cash equivalents                                      |  | $ 248,414     
|Short-term investments                                         |  | 15,694        
|Accounts receivable, net                                       |  | 33,186        
|Other current assets                                           |  | 13,219        
|                                                               |  |               
|Total current assets                                           |  | 310,513       
|                                                               |  |               
|Property and equipment, net                                    |  | 20,777        
|Other non-current assets                                       |  | 10,657        
|                                                               |  |               
|                                                               |  | $ 341,947     
|                                                               |  |               
|LIABILITIES AND STOCKHOLDERS' EQUITY                           | 
|Current liabilities:                                           | 
|Accounts payable and accrued expenses                          |  | $   41,132    
|Income taxes payable                                           |  | 5,824         
|Deferred revenue                                               |  | 18,773        
|Other                                                          |  | 8,500         
|                                                               |  |               
|Total current liabilities                                      |  | 74,229        
|                                                               |  |               
|Long-term debt and other                                       |  | 18,463        
|                                                               |  |               
|                                                               |  | 92,692        
|                                                              
|Stockholders' equity:                                          | 
|Preferred stock: $.01 par  value; 1,000,000 shares authorized; |  |               
|625 shares issued and outstanding                              |  |              
|Common stock: $.01 par value; 100,000,000 shares authorized;   |  |               
|62,233,066 and 61,966,879 shares issued and outstanding        |  | 622           
|Additional paid-in capital                                     |  | 474,621       
|Accumulated deficit                                            |  | (204,087      
|Deferred compensation                                          |  | (1,428        
|Cumulative comprehensive income                                |  | 4,732         
|                                                               |  |               
|                                                               |  | 274,460       
|Less common stock in treasury, at cost                         | 
| 4,473,800 shares                                             |  | (25,205       
|                                                               |  |               
|                                                               |  | 249,255       
|                                                               |  |               
|                                                               |  | $ 341,947     
|                                                               |  |               

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, |           
|----------------------------------------------------- | --------------------------- | ----------
|                                                      |                             | 2001      
|Licenses and other revenues                           |                             | $ 42,407  
|Service revenues                                      |                             | 9,289     
|                                                      |                             |           
|Net revenues                                          |                             | 51,696    
|                                                      |                             |           
|Cost of licenses and other revenues                   |                             | 2,981     
|Cost of service revenues                              |                             | 5,031     
|                                                      |                             |           
|Cost of revenues                                      |                             | 8,012     
|                                                      |                             |           
|Gross profit                                          |                             | 43,684    
|                                                      |                             |           
|Research and development                              |                             | 11,278    
|Sales, general and administrative                     |                             | 28,538    
|Restructuring and merger-related charges              |                             |          
|                                                      |                             |           
|Total operating expenses                              |                             | 39,816    
|                                                      |                             |           
|Operating income (loss)                               |                             | 3,868     
|Interest income, net and other                        |                             | 3,448     
|                                                      |                             |           
|Income (loss) before income taxes                     |                             | 7,316     
|Income tax provision                                  |                             | 1,463     
|                                                      |                             |           
|Net income (loss)                                     |                             | $   5,853 
|                                                      |                             |           
|Net income (loss) per share:                          |                            
|                                                      |                             |           
|Basic                                                 |                             | $     0.09
|                                                      |                             |           
|Diluted                                               |                             | $     0.08
|                                                      |                             |           
|Weighted average number of common shares outstanding: |                            
|                                                      |                             |           
|Basic                                                 |                             | 61,863    
|                                                      |                             |           
|Diluted                                               |                             | 71,890    
|                                                      |                             |           

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, |        
|--------------------------------------------------------------- | --------------------------- | -------
|                                                                |                             | 2001   
|Net income (loss)                                               |                             | $ 5,853
|                                                               
|Other comprehensive income (loss):                              |                            
|Foreign currency translation adjustments                        |                             | (879   
|Fair market value  adjustment for available for sale securities |                             | 24     
|                                                                |                             |        
|Comprehensive income (loss)                                     |                             | $ 4,998
|                                                                |                             |        

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, |            
|----------------------------------------------------------------------------------------- | --------------------------- | -----------
|                                                                                          |                             | 2001       
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                     |                             |            
|Net income                                                                                |                             | $     5,853
|Adjustments to reconcile net income to net cash provided by         operating activities: |                            
|Depreciation and amortization                                                             |                             | 2,053      
|Loss on sale of property and equipment                                                    |                             | 8          
|CHANGES IN ASSETS AND LIABILITIES:                                                        |                            
|Accounts receivable                                                                       |                             | (637       
|Other assets                                                                              |                             | 147        
|Accounts payable and accrued expenses                                                     |                             | (4,075     
|Income taxes payable                                                                      |                             | 487        
|Other                                                                                     |                             | (787       
|                                                                                          |                             |            
|Cash provided by operating activities                                                     |                             | 3,049      
|                                                                                          |                             |            
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                     |                            
|Purchase of property and equipment                                                        |                             | (1,989     
|Proceeds from sale of property                                                            |                             |           
|Net change in short-term investments                                                      |                             | 30,231     
|Net change in long-term investments                                                       |                             |           
|                                                                                          |                             |            
|Cash provided by investing activities                                                     |                             | 28,242     
|                                                                                          |                             |            
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                     |                            
|Proceeds from issuance of common stock, net                                               |                             | 1,502      
|Repayment of capital lease obligations and other debt activity                            | (48                         | )          
|                                                                                          |                             |            
|Cash provided by financing activities                                                     |                             | 1,454      
|                                                                                          |                             |            
|Effect of exchange rate changes on cash                                                   |                             | (965       
|                                                                                          |                             |            
|Net change in cash and cash equivalents                                                   |                             | 31,780     
|Cash and cash equivalents at beginning of period                                          |                             | 216,634    
|                                                                                          |                             |            
|Cash and cash equivalents at end of period                                                |                             | $ 248,414  
|                                                                                          |                             |            

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, 2001 and for the three months ended March
31, 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, 2001, and its results of operations and cash flows for the three
months ended March 31, 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 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, 2000 as filed with the Securities and
Exchange Commission (the SEC) on March 29, 2001.

NOTE 2NET INCOME PER SHARE

We compute net
income (loss) per share in accordance with SFAS No. 128 Earnings per
Share. 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 common equivalent shares
outstanding during the period. Common equivalent 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 (loss) per
share for the periods indicated (in thousands, except per share amounts):

|                                                                            | Three Months Ended March 31, |            
|--------------------------------------------------------------------------- | ---------------------------- | -----------
|                                                                            |                              | 2001       
|Numerator:                                                                  |                              |            
|Net income (loss) before accretion charges                                  |                              | $    5,853 
|Accretion charges to preferred stock                                        |                              | 219        
|                                                                            |                              |            
|Income (loss) available to common stockholders for basic earnings per share | $    5,634                   |            
|                                                                            |                              |            
|Denominator:                                                                |                             
|Denominator for basic income per share - weighted average shares            |                              | 61,863     
|Effect of dilutive securities                                               |                              | 10,027     
|                                                                            |                              |            
|Denominator for dilutive income per share                                   |                              | 71,890     
|                                                                            |                              |            
|Net income (loss) per share - basic                                         |                              | $      0.09
|                                                                            |                              |            
|Net income (loss) per share - diluted                                       |                              | $      0.08
|                                                                            |                              |            

5

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NOTE 3RESTRUCTURING

The following
table summarizes our restructuring activity for the three months ended March 31,
2001 (in thousands):

|                             | SeveranceandBenefits | Facilities | OtherAssetCharges | Other | Total
|---------------------------- | -------------------- | ---------- | ----------------- | ----- | -----
|Accrual at December 31, 2000 | $ 1,052              |            | $  620            |       | $   
|Additions                    | 50                   |            |                  |       |     
|Cash payments                |                     |            | (37               | )     |     
|Non-cash costs               |                     |            |                  |       |     
|                             |                      |            |                   |       |      
|Accrual at March 31, 2001    | $ 1,102              |            | $  583            |       | $   
|                             |                      |            |                   |       |      

Subsequent to
December 31, 2000, there have not been any significant changes to our estimate
of the total costs of prior restructuring activities.

6

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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations

A CAUTION ABOUT FORWARD-LOOKING STATEMENTS

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

These
forward-looking statements may relate to, but are not limited to, future capital
expenditures, acquisitions, 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
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. Such factors are not
exclusive and are in addition to other factors discussed elsewhere in this Form
10-Q, in our other filings with the SEC, or in materials incorporated therein by
reference. You should consider the following factors with respect to any
forward-looking statements made throughout this Form 10-Q:

- adverse general industry trends and the potential effects on us of competition in computer
           software product and services markets;
- rapid technological changes that can adversely affect the demand for our products;
- changes in political, societal and economic conditions and local regulations of geographic
           areas where we do business;
- changes in our sales mix;
- customer business conditions;
- our ability to maintain or raise current pricing levels;
- financial or regulatory accounting principles or policies imposed by the Financial Accounting
Standards Board, the SEC and similar agencies with regulatory oversight;
- the potential loss of key employees;
- our ability to attract and retain qualified personnel;
- general economic factors and capital market conditions;
- changes in tax compliance requirements, including tax rate changes, new tax laws and revised interpretation of tax laws;
- adverse changes, trends and conditions in the financial and capital markets;
- reduction in sales to, or loss of, any significant customers;
- growth rates in the software and professional services markets that we
participate in;
- market acceptance of new or enhanced products or services
developed, marketed or sold by us;
- the publics perception of Borland and its products;
- changes in laws and regulations, both domestically and overseas, which are applicable to the Internet and electronic commerce;
- our reliance on value-added reseller ("VARs") and independent software vendors ("ISVs") to
           market and sell many of our products;
- the lengthy sales cycles applicable to our enterprise software products;
- our dependence, with respect to certain of our business units, on licenses from third
           parties;
- product returns from retailers exceeding our reserves;

7

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- our ability to successfully integrate acquisitions;
- delays in scheduled product availability dates (which could result from various
occurrences including development or testing difficulties, software errors and
project management problems);
- disruption of our products or services, or theft of proprietary information, by hackers;
- the increasing trend for software companies to consolidate and our ability to compete
           against these larger companies, and their substantially greater financial, technical,
           marketing and other resources;
- our ability to effectively safeguard our products from software piracy;
- changes in laws and regulations, domestically and overseas, with respect to the protection
           and enforcement of intellectual property rights, including but not limited to, those laws
           and regulations applicable to the patentability of computer software;
- the possibility that we may need to defend ourselves against intellectual property
           infringement lawsuits regardless of the merits of the underlying claims;
- the rate of adoption of Linux® as an operating system;
- catastrophic natural disasters;
- foreign currency exchange rate fluctuations;
- unanticipated changes in our operating expenses and capital expenditures; and
- other risks and uncertainties described under the caption "Factors That May Affect Future Results and
Market Price of Stock in this Form 10-Q as well as in our other filings
with the SEC and public announcements.

These factors
are difficult to predict. They also involve uncertainties that may materially
and adversely affect actual results, and may be beyond our control. 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.

Forward-looking
statements are found 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 release publicly any revisions to these forward-looking statements
to reflect events or circumstances after the date of this Form 10-Q.

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

Overview

We provide our
customers with e-business implementation platforms designed to increase
developer productivity and reduce time to market for enterprise software
projects. E-business implementation platforms consist of software products that
allow businesses to develop, deploy and manage e-business applications. We offer
products in all three phases of the implementation process: development,
deployment and management. For the development phase, Borland offers
JBuilder, C++Builder, Delphi, and Kylix. Our deployment
products include Borland® AppServer, InterBase® and
VisiBroker®. To manage these systems, Borland offers Borland
AppCenter, a visual distributed application management solution. We are
committed to all major computing platforms as well as the open standards of the
Internet. We also provide service and support for software developers worldwide
through an online developer community and an e-commerce site,
community.borland.com, which offers a range of technical information,
value-added services and third-party products.

8

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We market and
distribute products worldwide through our direct sales organization, e-commerce
Internet site, independent distributors, dealers, value-added resellers
(VARs) and independent software vendors (ISVs).

Results of Operations

Revenues

Our revenues are
derived from software licenses, customer support, training and consulting
services.

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 $42.4 million for the
quarter ended March 31, 2001, an increase of 7% from the same quarter a year
ago. As a percentage of total license revenue, revenues from our Java, RAD,
Enterprise and other product groups represented 36%, 27%, 30% and 7%,
respectively for the quarter ended March 31, 2001. This is compared to 21%, 47%,
23% and 9%, respectively for the quarter ended March 31, 2000. Licenses and
other revenues during the three months ended March 31, 2001 were favorably
affected by the continued strong demand for JBuilder. Licenses and other revenue
from JBuilder grew 78% over the same quarter a year ago. Additionally, licenses
and other revenues from Borlands enterprise products, including
VisiBroker, Borland AppServer and Borland AppCenter, increased by 39% over the
same quarter a year ago. Licenses and other revenues from our RAD product group,
which includes the Borland Delphi, C++ Builder and Kylix product lines,
decreased 38% from the same quarter in 2000 due in part to the absence of a new
release of C++ Builder during the three months ended March 31, 2001 compared
with the release of C++ Builder 5.0 during the same quarter a year ago. In
addition, we deferred the next release of our Delphi product to the second
quarter of 2001. We deferred the release of new versions of the Delphi and C++
Builder product lines during the quarter ended March 31, 2001 due to our
decision to reallocate research and development and marketing resources to
support the development and launch of new technologies to target new market
opportunities to expand our RAD business. Licenses and other revenues from other
products declined 29% from the same quarter a year ago. Other products include, among others, our InterBase, Entera,®
and MIDAS products.

Service
   Revenues

Service revenues
represent amounts earned from customer support, training, consulting and
educational services related to our software products. Service revenues
increased to $9.3 million for the quarter ended March 31, 2001, compared to $6.7
million for the quarter ended March 31, 2000. This increase is primarily due to
increased consulting revenues in Europe and increased technical support revenues in the
U.S. The growth in service revenues represents our continued focus on direct
sales and marketing of our products to corporate customers. In the future, we
expect service revenues to remain dependent upon our ability to grow the number
of corporate customers.

International
   Revenues

International
revenues represented 56% of our total net revenues for the quarter ended March
31, 2001 compared to 63% for the quarter ended March 31, 2000. We expect that
our international operations will continue to provide a significant portion of
our total revenues.

9

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The following table
presents our total revenues by geographic area:

|              | Three Months Ended March 31, |        
|------------- | ---------------------------- | -------
|              |                              | 2001   
|United States |                              | $22,539
|Europe        |                              | 18,204 
|Japan         |                              | 5,456  
|Other         |                              | 5,497  
|              |                              |        
|Net revenues  |                              | $51,696
|              |                              |        

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
$3.0 million and $4.1 million for the quarters ended March 31, 2001 and 2000,
respectively. The cost of licenses and other revenues decreased as a percentage
of licenses and other revenues during the quarter, as enterprise sales increased
as a percentage of overall license revenues. Enterprise revenues typically have
a lower direct production cost because a large portion of enterprise revenues
are generated from transactions that involve multiple licenses to the same
customer. Additionally, Borland experienced a decrease in royalty costs payable
to third-party vendors, resulting from a decrease in sales of third-party
products.

Cost of
   Service Revenues

Cost of service
revenues consist primarily of salaries and benefits, third-party contractor
costs, and related expenses incurred in providing customer support, training and
education. Cost of service revenues were $5.0 million and $4.9 million for the
quarters ended March 31, 2001 and 2000, respectively. Cost of service revenues
as a percentage of service revenues decreased from 73% in the quarter ended
March 31, 2000 to 54% for the quarter ended March 31, 2001, as a larger portion
of our service revenues were generated from profitable technical support
contracts.

Operating Expenses

Research
   and Development

Research and development
expenses consist primarily of salaries and other personnel-related expenses,
facilities costs and fees and expenses of third-party consultants. Research and
development expenses were 22% and 24% of net revenues for each of the quarters
ended March 31, 2001 and 2000. Research and development expenses for the quarter
ended March 31, 2001 increased to $11.3 million from $11.1 million for the
quarter ended March 31, 2000, primarily due to an increase in employee and
equipment costs.

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 5%
this quarter compared to the same quarter of last year but decreased as a
percentage of revenues to 55% from 59% for the quarters ended March 31, 2001 and
2000, respectively. The increase in total dollars was principally due to
increased employee costs due to increased headcount partially offset by the
reduction in depreciation costs and building maintenance costs resulting from
the sale of our Scotts Valley, California corporate headquarters during the
quarter ended March 31, 2000.

10

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Interest Income, Net and Other

Interest income,
net and other increased from $2.2 million during the quarter ended March 31,
2000 to $3.4 million during the quarter ended March 31, 2001. This increase is
principally due to the increase in interest income. Interest income increased by
$1.0 million during the quarter ended March 31, 2001 over the same quarter a
year ago, as the cash, cash equivalents and short-term investment balance has
increased by $24.4 million, or 10%, from March 31, 2000 to March 31, 2001.
Additionally, the $39.7 million in cash received from the sale of the Scotts
Valley, California corporate headquarters was not received until late in the
first quarter of 2000.

Income Taxes

For the quarter ended
March 31, 2001, our effective tax rate was 20%. 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 2000 calendar year, we anticipate our tax provision for
2001 to be comprised principally of non-U.S. income taxes and non-U.S. withholding taxes.

Liquidity and Capital Resources

As of March 31,
2001, total cash, cash equivalents and short-term investments totaled $264.1
million; up from $262.6 million at December 31, 2000, due primarily to the $3.0
million in cash provided from operations during the three months ended March 31,
2001 and the $1.5 million in cash received from the issuance of stock upon the
exercise of employee stock options, offset by $2.0 million in cash used for the
purchase of property and equipment. Cash provided from operations is net of a
one-time, prepaid license fee of $5.7 million paid to Sun Microsystems, Inc.
This fee covers a multi-year agreement related to license and support fees for
their Java technology. We expect that our current working capital will be
sufficient to finance our working capital requirements at least through the next
twelve months.

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.

We Depend on the Overall Demand for Information Technology and
Services

Our success
depends on the growth of the overall demand for information technology and
services, particularly in the market for our e-business implementation
platforms. Our business is affected by general economic and business conditions
throughout the world. A softening of the demand for our e-business
implementation platformsspecifically, and information technology and
services generally, caused by a weakening of the economy, may result in
decreased revenues or slower growth for us.

Risks Related to New Product Introductions; Rapid Technological and
Market Changes

The market for
our products is highly competitive and is characterized by continuous
technological advancement, evolving industry standards and changing customer
requirements. Our success in generating revenues in the future will depend
substantially on our ability to design and market new products and upgrades of
our current products for existing and new computer platforms and operating
environments.

We face a number
of inherent risks in the current market environment, including, but not limited
to, the following:

- we may introduce products later than we expect or later than competitors introductions;
- the mere announcement by us of a new product or an upcoming upgrade to an existing product could cause potential customers to defer or cancel purchases of existing products and
           services;
- competitors may introduce competing products at lower prices;
- products may not meet customers expectations regarding features and performance;

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- competitors products based on new technologies or new industry standards may quickly render an existing product obsolete and unmarketable;
- product upgrades, which enable users to upgrade from earlier versions of our products or
our competitors products, have lower prices and margins than new products; and/or
- the acceptance of some of our new products is highly dependent, in part, on the continued
adoption of the Internet as a new computing paradigm and the continued adoption
of the Linux operating system.

From time to
time, we announce when we expect to begin shipping a new product. In the past,
some of our products have shipped later, and 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 or delay in enhancements of 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 Key Personnel

We believe that
our future success will depend, in large part, on our ability to recruit and
retain qualified employees, particularly highly skilled software engineers and
management personnel. Competition for such personnel is intense, particularly in
Northern California where our operations are based, due to the strong demand for
such personnel by the many technology companies that are based in or have
significant operations in Northern California. There can be no assurances that
we will be successful in retaining or recruiting such personnel.

To retain key
employees, we have instituted retention programs. We have increased
compensation, bonuses, stock options and other fringe benefits in order to
attract and retain management and other key personnel. We may be required to
further increase such compensation and benefits. We are not certain that these
efforts will succeed in retaining our key employees, and failure to attract and
retain key personnel could significantly harm our business. These increased
compensation costs may not be offset through either improved productivity or
higher revenue.

Unpredictability of Future Revenues: Potential Fluctuations in
Quarterly Operating Results and Seasonality

Our quarterly
operating results have varied significantly in the past. We expect that our
operating results will continue to vary significantly from time to time. We
believe that these variations may result from many factors already described in
this Form 10-Q and may include, but may not be limited to, any of the following
factors:

- introduction of new products;
- the mix of channels through which we sell our products;
- the overall level of demand for our products and services;
- the size and timing of significant orders and their fulfillment;
- the number, timing and significance of product enhancements and new product announcements
           by us and our competitors;
- changes in pricing policies by us or our competitors;
- customer order deferrals in anticipation of enhancements or new products offered by us or
           our competitors;
- deferral of customer orders based on customers' uncertainty about our short-term and
           long-term prospects;
- product release cycles of existing products;

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- product defects and other product quality problems;
- seasonal trends; and
- general domestic and international economic and political conditions.

An additional
risk factor is the lengthening of our sales cycle. We expect that a significant
percentage of our future revenues will be from large orders. These large sales
typically contain multiple elements, including licenses for development and
deployment products, technical support, maintenance, consulting and training
services. A significant portion of the revenues from a large order is typically
recognized over time. For example, when the contract is signed, the license and
deployment fees may be recognized by us as revenue. However, revenues related to
further services, such as technical support and consulting services, must be
deferred until the services are rendered. The timing of recognition of revenues
associated with larger sales may have a material adverse effect on our business,
operating results and financial position.

Furthermore,
many customers place orders toward the end of a given quarter. Revenues may also
fluctuate based on our customers fiscal year budgeting cycles. Therefore,
revenues may be difficult to predict. 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 of
all of these factors, we believe that quarterly revenues and operating results
are 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.

Risks in Direct Sales, Lengthy Sales Cycles and Systems
Implementation Selling

Selling
enterprise software products directly to our customers entails sales cycles that
are substantially more lengthy and more uncertain than those associated with our
traditional business of selling desktop software through retail channels.
Customers for enterprise products are predominately larger companies,
institutions and government entities. These customers generally commit
significant time and resources to evaluating enterprise software, and they
require us to expend substantial time, effort and money educating them about our
software products and solutions. As a result, sales to these types of customers
generally require an extensive sales effort throughout the customers
organization, and they often require final approval by the customers Chief
Information Officer or other senior level employee. All of these factors
substantially extend the sales cycle and increase the uncertainty of whether a
sale will be made. We have experienced and expect to continue to experience
delays and uncertainty in the sales cycle as well as increased expenses for
these sales. The timing of sales 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.

We need to
extensively train and effectively manage our sales personnel, invest additional
resources in our sales efforts and educate our authorized resellers in
international markets. Our failure to do so could have a material adverse impact
on our business. We have made changes to our sales compensation programs in
recent years in an effort to increase sales. There can be no assurance, however,
that such programs will be successful in achieving this result in the long term,
and such changes could significantly impact our sales-related expenses.

We have added
trained technical personnel to assist our customers in implementing our
enterprise software products. Personnel with sufficient expertise and experience
for these positions are in great demand, and we may not be able to attract or
retain a sufficient number of qualified personnel. Our failure to do so could
significantly harm our business.

Results of Our Research and Development Efforts are Uncertain

Our future
success will depend upon our ability to enhance our current products and develop
and introduce new products on a timely basis. We believe that we will need to
incur significant research and development expenditures to remain competitive.
The products we are currently developing or may develop in the future may not be
technologically successful. In addition, the length of our product development
cycle may be greater than we originally expected. We are likely to experience
delays in future product

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development. If the resulting products are not technologically
successful, they may not achieve market acceptance or compete effectively with products
of our competitors.

Our competitors
may respond more quickly to emerging technologies than we do. We may lose
customers to competitors if we are not able to respond to requests for
additional features and new products in a timely fashion. We may not be able to
maintain or improve our competitive position against current or potential
competitors, especially those with greater resources.

Risks of New Software and Hardware Platforms

We invest and
will continue to invest a significant amount to develop products for emerging
market segments such as new software and hardware platforms. However, there is a
risk that a new hardware or software platform that we do not provide products
for could rapidly grow in popularity. 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, our future growth and profitability could suffer.

Risks of Entering a New Business Area

Our strategy is
to focus on implementation of e-business systems at the enterprise, departmental
and individual developer levels. Our sales are dependent on enterprise customers
adopting distributed object technology for information processing and the
Internet and corporate Intranets for commerce and communications.

Our distributed
object software products, such as VisiBroker, Borland AppCenter and Borland
AppServer, are based on several industry standards, including the Common Object
Request Broker Architecture or CORBA,® Extended Markup Language or XML,
Enterprise JavaBeans or EJB, and Java 2 Enterprise Edition or
J2EE. These standards guide the development and management of applications
created in object oriented programming languages such as C++ and Java. These
industry standards have begun to gain widespread acceptance and they compete
with proprietary solutions such as ActiveX® and DCOM and the emerging
 .Net initiative, all of which are marketed by Microsoft Corporation.
CORBA-based implementations have been tried and tested in extremely demanding
application environments, and are generally deemed suitable for enterprise class
applications. EJB and J2EE implementations are earlier in the maturity cycle and
are only sparingly and partially used in enterprise class processing
environments. The rate of adoption of these latter standards will affect our
business results and success.

We are investing
time and resources in developing products, such as Kylix, which was released and
began shipping in the first quarter of 2001, for the Linux operating system.
Linux is a new operating system that has yet to be adopted on a widespread
basis. At this time, there are relatively few commercially viable products that
operate on the Linux operating system. If Linux is not adopted, or is adopted
more slowly than we anticipate, our investments in Linux compatible products may
not generate the anticipated return, and as a result there could be a material
and adverse effect on our business.

As a newcomer to these
markets, we face a number of risks including:

- the new and evolving nature of the markets themselves;
- our need to make choices regarding the operating systems, database management systems and
           server software on which to focus;
- the ongoing transition and investment of our resources for these markets;
- our limited experience in these markets; and
- the presence of several very large and well-established companies, as well as a number of
           smaller successful companies, that are already competing in some of these markets.

There can be no
assurance that we will be successful in these new markets.

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Risks Related to the Use of Java

Some of our
products are based on Java, an object-oriented software programming language and
distributed computing platform developed by Sun Microsystems, Inc. Java is a
relatively new language and was developed primarily for the Internet and
corporate Intranet applications. It is still too early to determine whether Java
will achieve greater acceptance as a programming language and platform for
enterprise applications. Alternatives to Java include Microsoft
Corporations C# language and .Net computing platform. If Java does not
continue to be widely adopted, or is adopted more slowly than anticipated, our
business will suffer.

Additionally,
because some of our products are written in Java, they require proprietary
technology made available by Sun Microsystems, Inc. in order to operate.
Pursuant to license agreements with Sun Microsystems, Inc., we license the Java
2 Standard Edition specification, the Java 2 Enterprise Edition specification
and the Java 2 Micro Edition specification. If Sun Microsystems, Inc. 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, Inc. 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. In the future, our customers also may require the ability to deploy
our products on platforms for which technically acceptable Java implementations
either do not exist or are not available on commercially reasonable terms.

Extremely Competitive Industry

The computer
software industry is an intensely competitive industry. Rapid change, new and
emerging technologies and fierce competition characterize the industry. The pace
of change has accelerated due to the emergence of the Internet and corporate
Intranets, programming languages, such as Java, and operating systems such as
Linux.

Our e-business
implementation platforms compete with products offered by a number of companies,
including, but not limited to, BEA Systems, Inc., International Business Machines
Corporation, Microsoft Corporation, Oracle Corporation, Sun Microsystems, Inc. and
Webgain, Inc. With respect to our Borland AppServer product, we compete primarily with
BEA Systems, Inc. and International Business Machines Corporation. With respect to our
VisiBroker product, we compete primarily with Iona Technologies PLC.

In addition, we
compete with, and in some cases are dependent upon, operating systems vendors
such as Apple Computer, Inc., Hewlett-Packard Company, International Business
Machines Corporation, Microsoft Corporation, Red Hat, Inc. and Sun Microsystems,
Inc. To the extent that we are unable to obtain information regarding existing
and future operating systems from the developers of such systems, the release of
our products for such systems may be delayed or may not be competitive. For
example, Microsoft Corporation, a significant competitor, is the developer of
the Windows® operating environment. Microsoft Corporation has also
introduced a product that includes certain basic application server
functionality. The bundling of competing functionality in versions of Windows
products requires us to compete with Microsoft Corporation in the Windows
marketplace where Microsoft Corporation has certain inherent advantages due to
its significantly greater financial, technical, marketing and other resources,
greater name recognition, substantial installed base and the integration of its
middleware functionality with Windows. We need to differentiate our products
from Microsoft Corporations, based on scalability, functionality,
interoperability with non-Microsoft Corporation platforms, performance and
reliability as well as to establish that our products provide more effective
solutions to customers needs. There can be no assurance that we will be
able to differentiate our products successfully from those offered by Microsoft
Corporation, or that Microsoft Corporations entry into the middleware
market will not harm this portion of our business.

Some 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. They also have extensive
knowledge of the market, and extensive development, sales and marketing
resources, and they are capable of offering single vendor solutions. In
particular, operating system vendors such as those mentioned above may offer
similar products bundled with their own operating systems. For example,
Microsoft Corporation has introduced DCOM for Microsoft Corporation operating

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systems. In addition, in the past, some of our competitors have utilized
their greater resources to provide substantial signing bonuses and other inducements to
lure away key personnel from us.

Some of our
products are targeted at the market for standards-based distributed object
software products. These markets are intensely competitive. We believe that our
product quality, performance and price, vendor and product reputation, product
architecture and quality of support make us competitive in these markets.
However, because there are relatively low barriers to entry in these markets, we
expect additional competition from other established and emerging companies.
Increased competition could result in price reductions, fewer customer orders,
reduced gross margins and loss of market share. Any one of these results could
materially adversely affect our business, operating results and financial
condition.

It is possible
that current and new competitors may form alliances to gain significant market
share. Some of our competitors have offered to license software for free to gain
competitive advantage. For example, Sun Microsystems, Inc. offers NetBeans
at no charge and Object Oriented Concepts, Inc. (a recent acquisition by Iona
Technologies PLC) offers ORBacus in an open source version. This kind of
competition could materially adversely affect our ability to sell additional
licenses and maintenance and support renewals on profitable terms. Competitive
pressures could require us to reduce the price of our products and related
services. We are not certain that we will be able to compete successfully
against current and future competition. The failure to compete successfully
could have a material adverse effect on our business, operating results and
financial condition.

We need to
differentiate our products from our competitors products based on
functionality, interoperability, developer productivity, performance and
reliability. There can be no assurance that we will be able to successfully
differentiate our products from those of our competitors.

We face intense
competition in the development and marketing of Internet and corporate
Intranets, middleware and development software. We are not certain that we will
be able to compete effectively for Internet and corporate Intranets, online
services, electronic commerce and other business opportunities as they arise.

We also need to
constantly expand our product lines to meet the needs of our customers. This
includes not only the development, but also the acquisition of new products and
technologies. In addition, there is no guarantee that any newly acquired
technologies or products will be successfully commercialized so as to realize
revenue.

A Trend Toward Consolidation in our Industry May Impede Our Ability
to Compete Effectively

Consolidation
may occur among companies in the software industry as firms seek to offer more
extensive suites of software products and broader arrays of software solutions.
Changes resulting from consolidation may negatively impact our competitive
condition. In addition, to the extent that we seek to expand our product lines,
a trend toward consolidation may result in increased competition for attractive
companies for acquisition, and higher prices for such companies.

Risks Associated with Potential Business Combinations

As a part of our
business strategy, we may need to acquire 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. We will review
potential acquisition prospects to determine if they:

- complement our existing product offerings;
- augment our market coverage;
- enhance our technological capabilities; or
- offer growth opportunities.

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 goodwill and
other intangible assets and the legal and other fees associated with the
negotiation and consummation of the acquisition. Acquisitions entail numerous
risks,

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including difficulty in the assimilation 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. An
acquisition in a new area risks entering markets where we have limited or no prior
experience as well as potential loss of key employees of the acquired organization.
Further, there is no guarantee that the expected synergies will occur between ourselves
and the new acquisition. There is also no assurance that we will be able to commercialize
a new product or technology so as to realize revenue. Finally, despite due diligence
reviews, acquired businesses may bring with them certain unanticipated or undisclosed
liabilities and risks. Any one of these risks, if realized, could negatively affect our
business, financial condition and operating results.

Dependence on Third-Party Licenses

We are dependent
on licenses from third-party suppliers for some elements of our products. If any
of these licenses were terminated or were not renewed, or these third parties
failed to develop new or updated products in a timely manner, we might not be
able to ship some of our products. We would then have to seek an alternative to
the third partys product and, in some cases, it is possible that an
alternative may not exist. This could result in delays in releasing and/or
shipping the product, increased costs or reduced functionality of our products
and could have a material and adverse effect on our business, operating results
and financial condition.

Protecting Our Intellectual Property Rights

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,
contractual arrangements, domain name registrations and other methods to protect
our intellectual property rights. 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.
Litigation may be necessary to protect our intellectual property rights.
Litigation can be time consuming and expensive. In addition, effective
protection of intellectual property rights is unavailable or limited in certain
foreign countries, making the possibility of misappropriation of our
intellectual property more likely. Current U.S. laws 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.

From time to
time, we receive a notice 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 such claims as the number of products
and competitors increase and the functionality of products overlap. Further, the
receipt of a notice alleging infringement generally requires that an opinion of
counsel be obtained to prevent an allegation of intentional infringement.
Regardless of the merits of a claim, 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, our insurance
coverage for these types of claims may not be adequate.

Our Software Products and Web Site May Be Subject to Intentional
Disruption

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

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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.

We Have a History of Operating Losses

Despite the fact
that we have experienced an operating profit in our most recently completed
fiscal year, we have had operating losses in three of the past four fiscal
years. Our ability to achieve profitability in the future is dependent on our
success in growing our revenue, while, at the same time, minimizing our
operating expenses. Our future profitability is dependent, among other things,
upon our ability to:

- introduce new products and services successfully;
- achieve market acceptance of our products and services;
- hire experienced sales personnel to market and sell our products;
- implement appropriate budgeting and cost control measures; and
- integrate the products, operations and personnel of acquired companies successfully.

If we are unable
to accomplish these objectives, we may be unable to achieve revenue growth and
profitability in future periods.

The Price of Our Common Stock May Fluctuate Significantly

Like the
publicly-traded securities of other high technology companies, the market price
of our common stock has experienced significant fluctuations and may continue to
fluctuate significantly. During the period from January 1, 2000 to March 31,
2001, the price of our common stock has ranged from a low of $4.03 on April 17,
2000 to a high of $16.94 on January 20, 2000. On May 2, 2001, 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 $10.03. 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 enhancements 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 and other multiples used to value companies in the
           software industry;
- changes in our earnings estimates by research analysts;
- actual or anticipated changes in information technology spending;
- speculation by the press, product analysts or research analysts with respect to Borland and
           its products, revenues and/or earnings;
- 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.

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

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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.

Risks of Regulation of the Internet and Electronic Commerce

We intend to
expand our business through, among other channels, electronic commerce on the
Internet. The electronic commerce market on the Internet is new and rapidly
evolving. While this is an evolving area of the law in the U.S. 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, acceptable payment methods
and quality of products or services could have a material adverse effect on our
business, operating results and financial condition. Taxation of Internet
commerce, or other charges imposed by government agencies or by private
organizations may also be imposed. Laws and regulations applying to the
solicitation, collection and processing of personal or consumer information
could also be enacted. Any of these regulations could result in a decline in the
use or popularity of the Internet as a medium for commerce, which could have an
adverse effect on our future sales and revenue growth.

Our future sales
and any future profits will be substantially dependent upon the 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, insufficient commercial support and
privacy 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.

Risks Associated with Our Dependence on Encryption Technology

We use and will
continue to use encryption technology in some of our products to provide
security for the exchange of confidential information. Encryption technologies
have been breached in the past. There can be no assurance that there will not be
a compromise or breach of our security technology. If such a breach were to
occur, it could have a material adverse effect on our business.

Risks of Using Retail Distribution Channels

A significant
portion of our sales are made through retail distribution channels. Demand in
these channels fluctuate based on customer demand. Our retail distributors also
carry the products of competitors. Some of our retail distributors have limited
capital to invest in inventory. Their decision to purchase our products is based
on a combination of demand for our products, our pricing and the terms and
special promotions we offer.

Our net revenues
and earnings may be affected by a practice called channel fill.
Channel fill occurs when a distributor purchases more products than it expects
to sell in anticipation of price changes, sales promotions or incentives. After
we announce a new version or new product and prior to the date of product
availability, distributors, dealers and end users often delay purchases, cancel
orders or return products in anticipation of the availability of the new version
or product. We try to mitigate the negative effect of this pattern by deferring
recognition of revenue associated with distributors and resellers
inventories that are in excess of appropriate levels. However, channel fill may
still affect our net revenues, particularly during periods where we announce
several new products and/or new versions at the same time.

When we
introduce new versions of our products, our distributors return their
inventories of the older versions. Our return policy allows our distributors,
with some limitations, to return products in exchange for credit toward new
products. Similarly, end users may return products through dealers and
distributors within a reasonable period from the date of purchase for a full
refund. Retailers may then return the older versions to us. We estimate and
maintain reserves for product returns. However, future product returns could
exceed our reserves, and this could have a material adverse effect on our
business.

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Risks of Reliance on VARs & ISVs

A part of our
distribution strategy is to embed and bundle our technology in the products offered by
value-added resellers, or VARs, and independent software vendors, or ISVs, such as
America Online, Inc., Cisco Systems, Inc., Hewlett-Packard Company, Hitachi Ltd., i2
Technologies, Inc., Netscape Communications Corporation, Novell, Inc. and Oracle
Corporation. In the past, a small number of VAR and ISV customers accounted for a
significant percentage of our enterprise product revenue.

For these sales,
the pricing and discount terms and conditions of our license agreements are
negotiated and vary among our customers. Most of our license agreements with
these customers are non-exclusive and do not require them to recommend or offer
our products exclusively. 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. Many of the
markets for VAR and ISV products are new and evolving. Therefore, we cannot
predict that these customers will purchase our technology for their products in
the future. If we are not successful in securing additional licenses with our
current or new customers on profitable terms, our business, financial condition
and results of operations could be materially and adversely affected.

Risks Associated with International Operations and Sales

A substantial
portion of our revenue is from international sales. There are inherent risks in
doing business internationally. Some of these risks include the following:

- general economic conditions in each country;
- seasonal reductions in business
activity during the summer months in Europe and certain other parts of the world;
- the difficulty of staffing and managing an organization spread over various countries and
           continents;
- reduced or less certain protection for intellectual property rights than is available under
           the laws of the United States;
- fluctuations in foreign currency exchange rates;
- longer payment cycles in certain countries;
- export restrictions, tariffs and other trade barriers;
- changes in regulatory requirements;
- restrictions on the expatriation of currency from a particular country;
- compliance with various conflicting laws and regulations;
- overlap of different tax structures; and
- political instability.

One or more of
these risk factors could have a material adverse effect on our future
international operations 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.

Risks of Software Defects and 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. We routinely
test our new products and new versions for defects and errors. We cannot be
certain, however, that our products are 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

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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.

Most 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 or
local 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.

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

Risks of Certain Anti-Takeover Provisions

In December
1991, we implemented a stockholder rights plan 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 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, under certain
circumstances, to purchase shares of our common stock at a 50% discount from its
then current market price. The preferred share purchase rights are redeemable at
a nominal price and expire in December 2001.

Our stockholder
rights plan and certain provisions of our Restated Certificate of Incorporation
and Amended and Restated Bylaws may discourage, delay or prevent an actual or
potential change in control of Borland even if such a change in control would be
beneficial to and in the best interests of our stockholders. These limitations
may limit our stockholders ability to approve transactions that they may
deem to be in their best interests. In addition, our Board of Directors has the
authority to fix the rights and preferences of, and issue shares of, preferred
stock without action by our stockholders.

Potential Dilutive Effect of Conversion and Additional Issuance of
Series C Preferred Stock ("Series C Stock")

Each share of
Series C Stock is convertible, at the option of the holder, on June 10, 2001,
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

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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. At March 31, 2001, the 625 shares of Series C Stock were convertible
into 6,720,430 shares of common stock.

Revenue Recognition and Accounting Rules and Guidance May Change

In the quarter
ending December 31, 2000, we adopted SAB No. 101, Revenue Recognition in
Financial Statements, which provides revenue recognition guidance. The
accounting profession continues to review provisions of SAB No. 101 and other
rules and guidelines with the objective of determining whether to provide
additional guidance on implementing their provisions. Depending upon the outcome
of these reviews and the issuance of implementation guidelines and
interpretations, we may be required to change our revenue recognition policies
and business practices or revalue assets, and such changes could have a material
adverse effect on our revenue recognition, balance sheet, results of operations
or financial condition.

Impact of Year 2000 Date Transition

This section is
a Year 2000 Readiness Disclosure pursuant to the Year 2000 Information and
Readiness Disclosure Act of 1998.

We currently
know of no significant Year 2000-related failures occurring in either our
products or our internal systems as a result of the date change from December
31, 1999 to January 1, 2000.

Costs for our
efforts to address Year 2000 readiness have not been substantial and were
largely absorbed within our existing engineering expenditures. To date, these
costs have not been reported separately.

We believe that
our newly introduced products are Year 2000 ready. Some of our older products
are not Year 2000 ready or will not be tested. Where possible, we encourage our
customers to migrate to current product versions. However, despite our analysis
and review, it is possible that our products may contain undetected errors or
defects associated with Year 2000 date functions, that may result in material
costs. Furthermore, use of our products in connection with other products, that
may or may not be Year 2000 ready, including hardware, software and firmware,
may result in the inaccurate exchange of date data resulting in performance
issues and system failures. To the extent that our products, or third-party
products that include our products, prove not to be Year 2000 ready or in the
event of disputes with customers regarding whether our products are ready, there
could be a material adverse effect on our business, results of operations and
financial condition.

Risk of Natural Disasters, Power Shortages and Other Unexpected
Events

Our corporate
headquarters, including most of our research and development operations, are
located in Scotts Valley, California, an area known for significant seismic
activity. Seismic activity, such as a major earthquake, could have a material
adverse effect on our business, financial condition and operating results. In
recent months, there has been a shortage of electricity in California. As a
result, many regions, including the San Francisco Bay Area, have experienced
rolling power outages as capacity has failed to satisfy demand. Continued power
shortages, a power failure or other similar unexpected events could impair our
ability to operate our business, which could also significantly disrupt our
operations.

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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, 2001, we have recorded net foreign exchange losses of
$0.4 million. The foreign exchange losses were generated primarily due to the
strength of the dollar relative to the European Union 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 materially adverse affect on our operating results and cash flows.

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

|                                             | NotionalAmount |            | AverageContractRate |       | March 31,2001EstimatedFair Value |        
|-------------------------------------------- | -------------- | ---------- | ------------------- | ----- | -------------------------------- | -------
|Foreign currency forward exchange contracts: |                |            |                     |       |                                  |        
|Australian Dollar                            |                | 7,033,405  |                     | 2.01  |                                  | 193,102
|Singapore Dollar                             |                | 6,698,876  |                     | 1.77  |                                  | 129,553
|German Mark                                  |                | 1,194,785  |                     | 2.16  |                                  | 39,506 
|Hong Kong Dollar                             |                | 1,600,507  |                     | 7.81  |                                  | (1,436 
|Dutch Guilder                                |                | (2,470,583 | )                   | 2.43  |                                  | (79,487
|New Taiwan Dollar                            |                | 884,779    |                     | 32.98 |                                  | (2,691 
|Others                                       |                | 916,187    |                     |       |                                  | 22,452 
|                                             |                |            |                     |       |                                  |        
|Total                                        |                | 15,857,956 |                     |       |                                  | 300,999
|                                             |                |            |                     |       |                                  |        

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. We, by corporate policy,
limit the amount of our credit exposure to any one financial institution or
commercial issuer.

We mitigate
default risk by investing in only safe and high credit quality securities and by
constantly positioning our portfolio to respond appropriately to a significant
reduction in the credit rating of any investment issuer. The portfolio includes
only marketable securities with active secondary and resale markets to ensure
portfolio liquidity.

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We have no
interest rate exposure due to rate changes for long-term debt obligations. We
primarily enter into debt and capital lease obligations to finance capital
expenditures. Such debt and capital lease obligations have a fixed rate of
interest.

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

|                       | 2001 |                | 2002 |        | 2003 |        | 2004 |        | 2005 |        | Thereafter |         | Total
|---------------------- | ---- | -------------- | ---- | ------ | ---- | ------ | ---- | ------ | ---- | ------ | ---------- | ------- | -----
|                       |      | (in thousands)
|Cash equivalents       |      |                |      |        |      |        |      |        |      |        |            |         |      
|Fixed rate             | $    | 248,414        |      |       |      |       |      |       |      |       |            |        |      
|Average interest rate  |      | 5.03%          |      |       |      |       |      |       |      |       |            |        |      
|Short-term investments |     
|Fixed rate             | $    | 15,694         |      |       |      |       |      |       |      |       |            |        |      
|Average interest rate  |      | 3.75%          |      |       |      |       |      |       |      |       |            |        |      
|Long-term debt         |     
|Fixed rate             | $    | 178            |      | $  200 |      | $  222 |      | $  247 |      | $  275 |            | $ 7,820 |      
|Average interest rate  |      | 10.75%         |      | 10.75% |      | 10.75% |      | 10.75% |      | 10.75% |            | 10.75%  |      

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. At March 31, 2001, one customer
located in the United States accounts for approximately 16% of total accounts receivable.
As of March 31, 2001, no other single group or customer represents greater than 10% of
total accounts receivable.

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PART IIOTHER INFORMATION

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 Quarterly Report.
| | ------------------------------------------------------------------------------------------------------

|   | Exhibit No.                                              | Description of Exhibit                                                                                                                                                                                                  
|-- | -------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                          |                                                                                                                                                                                                                         
|   | 10.1                                                     | Letter Agreement between Keith E. Gottfried and Borland Software
Corporation, dated as of April 25, 2001, amending Mr. Gottfried's
Employment Agreement with Borland Software Corporation dated as
of May 16, 2000. * ++
|   |                                                          |                                                                                                                                                                                                                         
|   |                                                         
|*  | Filed herewith.                                         
|++ | Management contract or compensatory plan or arrangement.

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

B.  Reports on Form 8-K

1.  On January 29, 2001 we
filed a Current Report on Form 8-K with the Securities and Exchange Commission. The
purpose of the filing was to report that effective on January 22, 2001, our name was
changed from Inprise Corporation to Borland Software Corporation and that our trading
symbol on The Nasdaq Stock Market was changed from "INPR" to "BORL."

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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 4, 2001

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

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