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PART I
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BORLAND SOFTWARE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value and share amounts, unaudited)


	March 31, 2008			December 31, 2007
ASSETS
Current assets:
Cash and cash equivalents	$	86,542		$	90,805
Short-term investments		83,756			68,061
Accounts receivable, net of allowances of $5,508 and $6,096, respectively		48,898			54,640
Prepaid expenses		8,728			9,207
Other current assets		5,755			5,106

Total current assets		233,679			227,819

Property and equipment, net		9,322			9,996
Goodwill		214,119			226,688
Intangible assets, net		31,268			31,658
Long-term investments		20,783			37,970
Other non-current assets		9,615			9,886

Total assets	$	518,786		$	544,017


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5,940		$	7,622
Accrued expenses		29,863			31,605
Short-term restructuring		8,558			9,867
Income taxes payable		2,958			2,315
Deferred revenue		50,436			51,390
Other current liabilities		6,173			7,575

Total current liabilities		103,928			110,374

Convertible senior notes		200,000			200,000
Long-term restructuring		4,493			5,823
Long-term deferred revenue		2,156			1,774
Other long-term liabilities		25,134			23,976

Total liabilities		335,711			341,947

Stockholders’ equity:
Preferred stock; $.01 par value; 1,000,000 shares authorized; 0 shares issued and outstanding		—			—
Common stock, $.01 par value, 200,000,000 shares authorized (2008: 94,119,587 issued and 72,960,607 outstanding; 2007: 94,134,952 issued and 72,975,972 outstanding)		730			730
Additional paid-in capital		668,460			666,910
Accumulated deficit		(357,812	)		(335,478	)
Cumulative other comprehensive income		12,106			10,317

		323,484			342,479
Treasury stock at cost, (2008 and 2007: 21,158,980 shares)		(140,409	)		(140,409	)

Total stockholders’ equity		183,075			202,070

Total liabilities and stockholders’ equity	$	518,786		$	544,017

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

BORLAND SOFTWARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts, unaudited)


	Three Months Ended
	March 31,
	2008			2007
License and other revenues	$	27,820		$	37,162
Service revenues		30,454			33,804

Total revenues		58,274			70,966


Costs of revenues:
Cost of license and other revenues		1,296			1,706
Cost of service revenues		9,142			11,237
Amortization of acquired intangibles and other charges		2,100			2,119

Cost of revenues		12,538			15,062


Gross profit		45,736			55,904


Selling, general and administrative		36,746			47,831
Research and development		15,689			15,924
Restructuring, amortization of other intangibles, acquisition-related expenses and other charges		1,472			874
Impairment of goodwill		13,300			—

Total operating expenses		67,207			64,629


Operating loss		(21,471	)		(8,725	)

Interest income		1,755			1,669
Interest expense		(1,660	)		(885	)
Other income (expense), net		558			(257	)

Loss before income taxes		(20,818	)		(8,198	)

Income tax provision		1,516			1,020

Net loss	$	(22,334	)	$	(9,218	)


Net loss per share:
Net loss per share — basic and diluted	$	(0.31	)	$	(0.12	)


Shares used in computing basic and diluted loss per share		72,751			74,395

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

BORLAND SOFTWARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)


	Three Months Ended March 31,
	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(22,334	)	$	(9,218	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		3,493			4,109
Stock-based compensation		1,579			1,230
Provision for accounts receivable allowances		(250	)		59
Impairment of goodwill		13,300			—
Loss on sale of subsidiary		—			226
Write-off of fixed assets		4			304
Changes in assets and liabilities, net of acquisitions:
Accounts receivable		3,741			754
Prepaid expenses and other assets		(718	)		(6,975	)
Accounts payable and accrued expenses		(3,399	)		(4,223	)
Income taxes payable		506			204
Restructuring		(2,394	)		(4,185	)
Deferred revenues		824			52
Other liabilities		375			8,176

Cash used in operating activities		(5,273	)		(9,487	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(570	)		(1,253	)
Acquisition of Simunication, net of cash acquired		(1,970	)		—
Proceeds from sale of subsidiary		—			178
Sales of long-term investments		8,101			—
Purchases of short-term investments		(26,600	)		—
Sales and maturities of short-term investments		19,991			—

Cash used in investing activities		(1,048	)		(1,075	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of convertible senior notes, net		—			194,230
Proceeds from issuance of stock options, net		—			220
Repurchase of common stock and others		(29	)		(29,941	)

Cash provided by (used in) financing activities		(29	)		164,509

Effect of exchange rate changes on cash		2,087			(333	)
Net change in cash and cash equivalents		(4,263	)		153,614
Beginning cash and cash equivalents		90,805			55,317

Ending cash and cash equivalents	$	86,542		$	208,931

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

BORLAND SOFTWARE CORPORATION

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 1. DESCRIPTION OF THE COMPANY AND BASIS OF PRESENTATION

Description of the Company

Borland Software Corporation (the “Company”) is the leading vendor of Open Application Lifecycle Management (“ALM”) solutions. The Company’s Open ALM Platform provides process-driven integration across all lifecycle assets, activities and tools so that its customers can collaborate, share information and track the entire software development lifecycle from planning to delivery.

Basis of Presentation

The accompanying condensed consolidated financial statements at March 31, 2008 and December 31, 2007, and for the three months ended March 31, 2008 and 2007, are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and Rule 10-01 of Regulation S-X. Accordingly, they do not include all financial information and disclosures required by GAAP for complete financial statements and certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the Company’s financial position at March 31, 2008 and December 31, 2007, and its results of operations and cash flows for the three months ended March 31, 2008 and 2007.

Estimates and Assumptions

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for interim periods are not necessarily indicative of the results to be expected for any subsequent quarter or for the full year. The condensed consolidated financial statements and related 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, 2007, as filed with the Securities and Exchange Commission (“SEC”) on March 7, 2008.

Reclassifications

The Company has reclassified certain prior period amounts to conform to the current period’s presentation.

NOTE 2. STOCK-BASED COMPENSATION

The Company follows the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), Share-Based Payment (“SFAS 123R”). The Company currently has in effect certain stock purchase plans, stock award plans, and equity incentive plans as described in Note 12 of Notes to Consolidated Financial Statements in the Annual Report on Form 10-K for the fiscal year ended December 31, 2007. There have been no material changes to such plans.

Stock-Based Compensation Expense

The total stock-based compensation expense associated with the Company’s employee stock-based compensation plans under SFAS 123R for the three months ended March 31, 2008 and 2007, was as follows:


	Three Months Ended
	March 31,
	2008		2007
	In Thousands
Cost of sales	$	24	$	42
Research and development		358		340
Selling, general and administrative		1,197		848

Stock-based compensation expense	$	1,579	$	1,230

BORLAND SOFTWARE CORPORATION

Notes to Condensed Consolidated Financial Statements — (Continued)
(unaudited)

Stock Options

Option activity during the three months ended March 31, 2008, was as follows:


						Weighted-
				Weighted-		Average
				Average		Remaining		Aggregate
	Options			Exercise		Contractual		Intrinsic Value
	(In Thousands)			Price		Term (Years)		(In Thousands)
Outstanding at December 31, 2007		12,610		$	7.38
Granted		92		$	2.38
Forfeited/expired		(769	)	$	7.49

Outstanding at March 31, 2008		11,933		$	7.33		6.26	$	—

Vested and expected to vest at March 31, 2008		10,251		$	7.61		5.88	$	—

Exercisable at March 31, 2008		7,135		$	8.48		4.67	$	—

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the first quarter of fiscal 2008 and the exercise price, multiplied by the number of in-the-money options on such date) that option holders would have received had all option holders exercised their options on March 31, 2008. This amount could changed based on the fluctuation in the fair market value of the Company’s stock.

Information regarding the stock options outstanding at March 31, 2008, is summarized below:


	Options Outstanding								Options Exercisable
			Weighted-
	Number		Average		Weighted-				Number		Weighted-
	Outstanding at		Remaining		Average		Aggregate		Exercisable at		Average
	March 31, 2008		Contractual		Exercise		Intrinsic Value		March 31, 2008		Exercise
	(In Thousands)		Life		Price		(In Thousands)		(In thousands)		Price
$2.00 - $5.29		2,412		8.15	$	4.97				886	$	5.14
$5.31 - $5.73		2,554		4.96	$	5.56				1,927	$	5.58
$5.75 - $6.26		2,475		8.45	$	5.96				463	$	5.98
$6.28 - $8.43		2,427		6.52	$	6.93				1,794	$	7.11
$8.58 - $714.22		2,065		2.74	$	14.39				2,065	$	14.39

Outstanding at March 31, 2008		11,933		6.26	$	7.33	$	—		7,135	$	8.48

Vested and expected to vest at March 31, 2008		10,251		5.88	$	7.61	$	—

The weighted-average remaining contractual life for all exercisable stock options at March 31, 2008 was 4.67 years. As of March 31, 2008, the aggregate intrinsic value of the options outstanding and the aggregate intrinsic value of the options outstanding and exercisable were each nil.

As of March 31, 2008, the Company expects to recognize $7.9 million of total unrecognized compensation cost related to stock options over a weighted-average period of approximately 2.5 years.

BORLAND SOFTWARE CORPORATION

Notes to Condensed Consolidated Financial Statements — (Continued)
(unaudited)

The Company estimates the fair value of share-based payment awards granted using the Black-Scholes option pricing model. The weighted-average assumptions for the three months ended March 31, 2008 and 2007 are as follows:


	Three Months Ended
	March 31,
	2008			2007
Expected life	4.66 years			4.84 years
Risk-free interest rate		2.46	%		4.50	%
Volatility		48.5	%		41.1	%
Dividend yield		0	%		0	%

Restricted Stock

Unvested restricted stock awards as of December 31, 2007, and changes during the three months ended March 31, 2008, were as follows:


	Unvested			Weighted
	Restricted			Average
	Stock			Grant Date
	Outstanding			Fair
	(In Thousands)			Value
Balance at December 31, 2007		255		$	6.14
Vested		(99	)	$	6.14
Forfeited		(4	)	$	9.79

Balance at March 31, 2008		152		$	6.03

As of March 31, 2008, there was $502,000 in unrecognized stock-based compensation expense related to unvested restricted stock awards. The Company expects to recognize that cost over a weighted-average period of approximately 1 year.

Employee Stock Purchase Plan

The Company’s Employee Stock Purchase Plan (“ESPP”) allows the Company’s eligible employees to purchase shares of our common stock through payroll deductions. Effective starting with the offering period ended November 30, 2007, purchases are limited to a maximum of 10% of the employee’s compensation, subject to a total annual employee purchase limit of $25,000 worth of our common stock. In addition, the maximum number of shares a participant may purchase in an offering period is 1,250 shares. The ESPP shares may be purchased by participants at 85% of the lower of the fair value of the common stock on the purchase date as reported by the Nasdaq Stock Market at the beginning of the offering period or the fair value on the purchase date.

There are two offering periods which last six months each and generally begin on or about December 1 of each year and on or about June 1 of each year. Each offering period may be adjusted or suspended under the ESPP by the Company’s Board of Directors. Each offering period comprises a single purchase period. The current offering period began on December 3, 2007 and will end on May 30, 2008.

The ESPP is deemed to be compensatory, and therefore, ESPP expenses of $110,000 have been included in our unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2008.

BORLAND SOFTWARE CORPORATION

Notes to Condensed Consolidated Financial Statements — (Continued)
(unaudited)

NOTE 3. NET INCOME (LOSS) PER SHARE

Under the provisions of SFAS No. 128, Earnings per Share (“SFAS 128”), the Company computes the basic net income (loss) per share by dividing the net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted-average number of common and potentially dilutive shares outstanding during the period. Potentially dilutive shares, which consist of incremental shares issuable upon exercise of stock options and unvested restricted stock, are included in diluted net income per share in periods in which net income is reported, to the extent such shares are dilutive. Diluted net loss per share is the same as basic net loss per share for three months ended March 31, 2008 and 2007, due to our net losses in those periods.

The following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share amounts):


	Three Months Ended
	March 31,
	2008			2007
Numerator:
Net loss	$	(22,334	)	$	(9,218	)

Denominator:
Weighted-average shares outstanding, excluding unvested restricted stock		72,751			74,395
Effect of dilutive securities:
Employee stock options, restricted stock awards and ESPP shares		—			—

Denominator for diluted net loss per share-weighted-average shares and assumed conversions		72,751			74,395


Net loss per share attributable to common stockholders:
Net loss per share-basic and diluted	$	(0.31	)	$	(0.12	)

The diluted net loss per share calculation for the three months ended March 31, 2008 and 2007, excludes options to purchase 12.3 million and 14.0 million weighted average shares of common stock, respectively, and 216,000 and 691,000 unvested weighted average restricted common shares, respectively, due to our net loss in those periods. In addition, the dilutive net loss per share calculation for the three months ended March 31, 2008 and 2007, excluded the dilutive impact of 15.3 million shares each, respectively, of shares issuable upon conversion of our 2.75% Convertible Senior Notes due February 15, 2012, calculated using the “if converted method”, due to our net loss in the periods presented. See Note 4 of the unaudited Condensed Consolidated Financial Statements for information on the Convertible Senior Notes.

NOTE 4. SENIOR NOTES OFFERING

In February 2007, the Company issued 2.75% Convertible Senior Notes due February 15, 2012, for an aggregate principal amount of $200 million in a private offering for resale to qualified institutional buyers pursuant to SEC Rule 144A under the Securities Act of 1933. The Convertible Senior Notes bear interest at 2.75% per annum. Interest is payable semiannually in arrears on February 15 and August 15, of each year. The Company received proceeds of approximately $193.9 million after the initial purchaser fees and the offering expenses of approximately $6.1 million were deducted. The fees and interest expense related to the offering are being recorded in interest expense over the term of the Convertible Senior Notes. The Company used approximately $30 million of the net proceeds from the sale of the Convertible Senior Notes to repurchase approximately 5.9 million shares of the Company’s common stock.

BORLAND SOFTWARE CORPORATION

Notes to Condensed Consolidated Financial Statements — (Continued)
(unaudited)

Conversion Process and Other Terms of the Convertible Senior Notes

On or after November 11, 2011, holders of the Convertible Senior Notes will have the right to convert their notes. Upon conversion, the Company will deliver a number of shares of its common stock equal to the conversion rate for each $1,000 of principal amount of notes converted, unless prior to the date of such conversion the Company has obtained stockholder approval to settle conversions of the notes in cash and shares of its common stock. If such approval is obtained, any notes converted after approval will be convertible into (i) cash equal to the lesser of the aggregate principal amount of the notes to be converted and the total conversion value and (ii) shares of the Company’s common stock for the remainder, if any, of the total conversion value. In addition, following specified corporate transactions, the Company will increase the conversion rate for holders who elect to convert notes in connection with such corporate transactions, provided that in no event may the shares issued upon conversion, as a result of adjustment or otherwise, result in the issuance of more than approximately 39.2 million shares.

Holders may convert their Convertible Senior Notes prior to maturity if: (1) the price of the Company’s common stock reaches $8.29 during periods of time specified in the Convertible Senior Notes, (2) specified corporate transactions occur or (3) the trading price of the notes falls below a certain threshold.

The Company evaluated the embedded conversion option in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”), and concluded that the embedded conversion option contained within the Convertible Senior Notes should not be accounted for separately because the conversion option is indexed to our common stock and is classified as stockholders’ equity. Additionally, the Company evaluated the terms of the Convertible Senior Notes for a beneficial conversion feature in accordance with Financial Accounting Standard Board (“FASB”) Emerging Issue Task Force (“EITF”) No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios and EITF No. 00-27, Application of Issue 98-5 to Certain Convertible Instruments, and concluded that there was no beneficial conversion feature at the commitment date based on the conversion rate of the Convertible Senior Notes relative to the commitment date stock price.

Each $1,000 of principal of the Convertible Senior Notes will initially be convertible into 156.8627 shares of the Company’s common stock, which is the equivalent of $6.38 per share and would result in the issuance of an aggregate of approximately 31.4 million shares. The number of shares issuable upon conversion is subject to adjustment under the following circumstances: (1) during any fiscal quarter beginning after March 31, 2007, if the last reported sale price of the Company’s common stock for at least 20 trading days during the 30 consecutive trading days ending on the last trading day of the immediate preceding fiscal quarter is greater or equal to 130% of the applicable conversion price on the last day of such preceding fiscal quarter; (2) during the five business day period after any ten consecutive trading day period in which the trading price per note for each day of that ten consecutive trading day period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate for such day; and (3) upon the occurrence of specified corporate transactions.

Based on SFAS 128 and EITF No. 04-08, Accounting Issues Related to Certain Features of Contingently Convertible Debt and the Effect on Diluted Earnings per Share, the dilutive effect of the common shares issuable upon conversion of the Convertible Senior Notes would normally be reflected in the diluted earnings per share calculation. However, due to the net share settlement feature, the Convertible Senior Notes do not qualify as an Instrument C under EITF No. 90-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock. Therefore, the Company uses the “if-converted” method for calculating diluted earnings per share. Using the “if-converted” method, the shares issuable upon conversion of the Convertible Senior Notes were anti-dilutive for the three months ended March 31, 2008 and 2007. Accordingly, the impact has been excluded from the computation of diluted earnings per share.

Registration Rights

Under the terms of the Convertible Senior Notes, the Company filed a shelf registration statement for the Convertible Senior Notes with the SEC on December 3, 2007. The shelf registration statement was declared effective by the SEC on February 8, 2008. The Company must keep the shelf registration statement effective until February 6, 2009 or such earlier date as all shares issued upon conversion of the Convertible Senior Notes are sold or available to be sold, or transferred, by the holders pursuant to Rule 144 under the Securities Act of 1933, as amended. If the Company fails to meet these terms, it will be required to pay additional interest on the Convertible Senior Notes in the amount of 0.25% for the first 90 days after the occurrence of the failure to meet a term and 0.50% thereafter.

BORLAND SOFTWARE CORPORATION

Notes to Condensed Consolidated Financial Statements — (Continued)
(unaudited)

NOTE 5. INVESTMENTS IN MARKETABLE SECURITIES AND FAIR VALUE MEASUREMENTS

The following table summarizes our investments in available-for-sale debt securities as of March 31, 2008 (in thousands):


	March 31, 2008
	Gross Amortized		Gross Unrealized		Gross Unrealized			Estimated Fair
	Costs		Gains		Loss			Value
Corporate debt securities	$	43,652	$	27	$	(539	)	$	43,140
U.S. government debt securities		34,169		207		—			34,376
Asset-backed securities		26,784		266		(27	)		27,023

	$	104,605	$	500	$	(566	)	$	104,539

Fixed income securities included in short-term investments above are summarized by their contractual maturities as follows (in thousands):


	March 31, 2008
	Gross Amortized		Estimated Fair
Due in	Costs		Value
Less than one year	$	83,579	$	83,756
1 thru 5 years		21,026		20,783
After 5 years		—		—

Total	$	104,605	$	104,539

The following table summarizes the fair value and gross unrealized losses related to available-for-sale debt securities, aggregated by investment category and length of time individual securities have been in a continuous loss position, as of March 31, 2008 (in thousands):


	March 31, 2008
	Less than twelve months					Greater than twelve months					Total
	Estimated Fair		Gross Unrealized			Estimated Fair		Gross Unrealized			Estimated Fair		Gross Unrealized
	Value		(Losses)			Value		(Losses)			Value		(Losses)
Corporate debt securities	$	27,095	$	(269	)	$	16,045	$	(270	)	$	43,140	$	(539	)
U.S. government debt securities		34,376		—			—		—			34,376		—
Asset-backed securities		22,285		—			4,738		(27	)		27,023		(27	)

	$	83,756	$	(269	)	$	20,783	$	(297	)	$	104,539	$	(566	)

Fair Value Measurements

The Company adopted the provisions of SFAS 157, effective January 1, 2008 for financial assets and liabilities that are being measured and reported at fair value on a recurring basis. Under this standard, fair value is defined as the price that would be

BORLAND SOFTWARE CORPORATION

Notes to Condensed Consolidated Financial Statements — (Continued)
(unaudited)

received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. SFAS 157 establishes a hierarchy for inputs used in measuring fair value that minimizes the use of unobservable inputs by requiring the use of observable market data when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on active market data. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances.

The fair value hierarchy is broken down into the three input levels summarized below:

	•		Level 1 — Valuations are based on quoted prices in active markets for identical assets or liabilities, and readily accessible by the Company at the reporting date.

			Examples of assets and liabilities utilizing Level 1 inputs are: most U.S. Government securities; certain other sovereign government obligations; and exchange-traded equity securities and listed derivatives that are actively traded.

	•		Level 2 — Valuations based on inputs other than quoted prices included within Level 1 that are observable for asset or liability, either directly or indirectly.

			Examples of assets and liabilities utilizing Level 2 inputs are: U.S. agency securities; municipal bonds; corporate bonds; certain residential and commercial mortgage-related instruments (including loans, securities and derivatives); and most over-the-counter (“OTC”) derivatives.

	•		Level 3 — Valuations based on inputs that are unobservable.

			Examples of assets and liabilities utilizing Level 3 inputs are: certain residential and commercial mortgage-related instruments; real estate and private equity investments; and long-dated or complex OTC derivatives.

The Company measures its available-for-sale securities at fair value on a recurring basis. Available-for-sale securities include money market funds, corporate debt securities, US government debt securities and asset-backed securities. Where possible, the Company utilizes quoted market prices to measure and such items are classified as Level 1 in the hierarchy and include some equity securities and US government bonds. When quoted market prices for identical assets are unavailable, varying valuation techniques are used. Such assets are classified as Level 2 in the hierarchy and typically include asset-backed securities, corporate debt securities and other US government debt securities.

The following table provides the fair value measurements of applicable assets and liabilities by level within the fair value hierarchy as of March 31, 2008 (in thousands):


			Fair Value Measurement at Reporting Date using
			Quoted Prices in
	Estimated Fair		Active Markets		Significant Other		Significant
	Value at		for Identical Assets		Observable Inputs		Unobservable Inputs
Description	March 31, 2008		(Level 1)		(Level 2)		(Level 3)

Assets:
Money market funds	$	31,128	$	31,128	$	—	$	—
Corporate debt securities		43,140		—		43,140		—
U.S. government debt securities		34,376		—		34,376		—
Asset-backed securities		27,023		—		27,023		—

	$	135,667	$	31,128	$	104,539	$	—

NOTE 6. ACQUISITIONS

On January 2, 2008, the Company executed a Share Purchase Agreement to purchase all outstanding shares of Simunication, Inc. (“Simunication”) for approximately $2.4 million, including $450,000 of assumed liabilities. Simunication was a Canadian-based

BORLAND SOFTWARE CORPORATION

Notes to Condensed Consolidated Financial Statements — (Continued)
(unaudited)

provider of leading edge software simulation technology for global organizations that develop software for external or internal use. The Company funded this acquisition with available cash. Pro forma financial information has not been provided as the acquisition did not have a material impact on the Company’s results of operations.

The purchase price of the transaction was allocated to the acquired assets and liabilities based on their estimated fair values as of the date of the acquisition, including identifiable intangible assets, with the remaining amount being classified as goodwill. The estimated fair value of the net assets acquired was approximately $2 million, of which approximately $1.8 million was allocated to acquired developed technology. The acquired developed technology is being amortized over seven years. The results of operations for Simunication have been included in the unaudited Condensed Consolidated Financial Statements from the date of acquisition.

On April 19, 2006, the Company completed the acquisition of Segue Software, Inc. (“ Segue”), pursuant to an Agreement and Plan of Merger, dated as of February 7, 2006. The purchase price was approximately $115.9 million and consisted of fixed consideration of $105.4 million in cash used to purchase all of Segue’s outstanding common shares, $8.1 million in cash paid to eligible Segue employees who held vested common stock options on the closing date of the acquisition and $2.5 million of direct acquisition-related costs. The purchase price of the transaction was allocated to the acquired assets and liabilities based on their estimated fair values as of the date of the acquisition, including identifiable intangible assets, with the remaining amount being classified as goodwill. Additionally, the Company expects to pay contingent consideration through 2009 of up to a maximum of $1.3 million to eligible former Segue employees who held unvested common stock options on the closing date of the acquisition and were retained as the Company’s employees. The contingent consideration is based upon continued employment with the Company and paid in accordance with the vesting schedules of the original Segue common stock options. This contingent consideration is recognized as compensation expense in the periods when it is earned and paid. The Company has made a total payment of $587,000 to date, of which $19,000 was paid during the three months ended March 31, 2008. The results of operations for Segue have been included in the unaudited Condensed Consolidated Financial Statements from the date of acquisition.

NOTE 7. GOODWILL AND INTANGIBLE ASSETS

Changes in the carrying amount of goodwill are as follows (in thousands):


	Goodwill
	Enterprise		CodeGear			Consolidated
Balance as of December 31, 2007	$	185,857		40,831		$	226,688
Impairment of goodwill		—		(13,300	)		(13,300	)
Acquisitions		502		—			502
Effect of exchange rates		229		—			229

Balance as of March 31, 2008	$	186,588	$	27,531		$	214,119

Due to the pending sale of its CodeGear assets, the Company reevaluated the recoverability of the CodeGear segment goodwill. Based upon the anticipated selling price of the business and the recorded values of the associated net assets, goodwill was deemed impaired and, accordingly, an impairment charge of $13.3 million was recorded during the three months ended March 31, 2008.

The following table summarizes the intangible assets, net at March 31, 2008 (in thousands):

BORLAND SOFTWARE CORPORATION

Notes to Condensed Consolidated Financial Statements — (Continued)
(unaudited)


	Acquired						Tradenames
	Developed			Maintenance			and			Customer
	Technology			Agreements			Trademarks			Relationships			Others			Total
Estimated Useful Lives	3-7 years			7 years			4 years			7 years			1-3 years
Gross Carrying Amount
As of December 31, 2007	$	46,330		$	11,300		$	1,100		$	9,075		$	400		$	68,205
Acquisitions		1,819			—			—			—			25			1,844

As of March 31, 2008		48,149			11,300			1,100			9,075			425			70,049
Accumulated Amortization
As of December 31, 2007		(30,187	)		(2,735	)		(499	)		(2,726	)		(400	)		(36,547	)
Current Period Amortization		(1,419	)		(404	)		(71	)		(338	)		(2	)		(2,234	)

As of March 31, 2008		(31,606	)		(3,139	)		(570	)		(3,064	)		(402	)		(38,781	)

Net Carrying Amount as of March 31, 2008	$	16,543		$	8,161		$	530		$	6,011		$	23		$	31,268

The intangible assets are all amortizable. During the three months ended March 31, 2008, the Company recorded a total amortization of $2.2 million, of which $2.1 million was recorded to cost of revenues. Based on the current amount of intangibles subject to amortization, the estimated future amortization expense related to the intangible assets at March 31, 2008, is as follows (in thousands):


	Future
	Amortization
2008 (9 months)	$	6,499
2009		7,584
2010		6,734
2011		5,532
2012		3,578
Thereafter		1,341

Total	$	31,268

NOTE 8. RESTRUCTURING

The Company accounts for its restructuring activities in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, SFAS No. 112, Employers’ Accounting for Postemployment Benefits—an amendment of FASB Statement No. 5 and 43,” and SEC Staff Accounting Bulletin No. 100, Restructuring and Impairment Charges, as applicable.

Summary of Restructuring Activity for the First Quarter of 2008.

Of the $13.1 million recorded in the restructuring accrual at March 31, 2008, $8.6 million was short-term and $4.5 million was in long-term accrual. The long-term accrual is primarily related to facility operating leases in the Enterprise segment. The facility accruals represent the Company’s remaining lease payments less anticipated sublease income plus lease incentives for prospective tenants and other costs.

The following table summarizes the Company’s restructuring activity relating to the fiscal year (“FY”) 2007 and 2006 restructurings for the quarter ended March 31, 2008 (in thousands):

BORLAND SOFTWARE CORPORATION

Notes to Condensed Consolidated Financial Statements — (Continued)
(unaudited)


	FY 2007 Restructuring									FY 2006 Restructuring
	Quarter 4 Plan						Quarter 2 Plan
	Severance,						Severance,			Severance,
	Benefits and Other			Facilities			Benefits and Other			Benefits and Other			Facilities			Total
Accrual at December 31, 2007	$	3,737		$	5,152		$	328		$	179		$	6,294		$	15,690
Additional accruals		1,492			104			21			37			84			1,738
Cash paid		(2,191	)		(728	)		(213	)		(216	)		(935	)		(4,283	)
Reversal of previous restructuring		—			—			(94	)		—			—			(94	)

Accrual at March 31, 2008	$	3,038		$	4,528		$	42		$	—		$	5,443		$	13,051

FY 2007 4th Quarter Restructuring

In December 2007, the Company announced a worldwide reduction in workforce. The worldwide reduction in workforce involved approximately 90 employees, or approximately eight percent of the headcount prior to the reduction, and the closing of facilities in approximately six locations. The workforce reduction and facility actions were primarily in the United States and Europe, and to a lesser degree in other international locations.

During the three months ended March 31, 2008, the Company paid $2.2 million related to accrued severance, benefits and other costs and $728,000 related to restructured facility operating leases. Additionally, during the three months ended March 31, 2008, the Company incurred an additional $1.5 million for severance, benefits and other related costs as well as $104,000 related to restructured facility operating leases.

FY 2007 2^nd Quarter Restructuring

In April of 2007, the Company announced the relocation of its corporate headquarters from Cupertino, California to Austin, Texas. The relocation involved restructuring actions with respect to personnel and the consolidation of facilities. Approximately 70 employees, or approximately six percent of the full-time staff, prior to the relocation, were affected.

During the three months ended March 31, 2008, the Company paid $213,000 and released $94,000 of previously accrued severance, benefits and other costs.

FY 2006 Restructuring

In the second quarter of 2006, in connection with the acquisition of Segue and in response to the Company’s previous efforts to seek a buyer for our CodeGear division, the Company initiated plans to restructure its operations to eliminate certain duplicative activities, focus the resources on future growth opportunities and reduce the cost structure. In connection with the 2006 restructuring plan, the Company recognized costs related to termination benefits for employee positions that were eliminated and for the closure of duplicative facilities.

During the three months ended March 31, 2008, the Company paid $935,000 related to restructured facility operating leases and $216,000 related to accrued severance, benefits and other costs.

The restructuring charges relating to operating leases have been recorded, net of assumed sublease income and present value factors. Substantially all of these restructuring costs have or will require the outlay of cash, although the timing of lease payments relating to leased facilities over the next five years will be unchanged by the restructuring.

BORLAND SOFTWARE CORPORATION

Notes to Condensed Consolidated Financial Statements — (Continued)
(unaudited)

NOTE 9. INCOME TAXES

For the three months ended March 31, 2008 and 2007, the Company recorded income tax expense of $1.5 million and $1.0 million, respectively. The non-U.S. income tax provision is based on the Company’s estimated annualized foreign effective tax rate plus foreign income withholding taxes incurred. The U.S. tax is based on the Company’s actual results for the quarter.

The effective tax rates for the quarters ended March 31, 2008 and 2007, differ from applying the U.S. federal statutory tax rate to the pre-tax loss principally because the Company does not currently benefit from the operating losses incurred in the United States, and the fact that the Company incurs withholding and income taxes in a number of foreign jurisdictions. The Company also provides U.S. taxes on the un-remitted earnings of certain of its foreign subsidiaries.

Included in the balance of unrecognized tax benefits at March 31, 2008, is between $1.4 to $1.7 million related to tax positions and interest for which it is reasonably possible that audits will be closed or the statute of limitations will expire in various foreign jurisdictions within the next twelve months.

NOTE 10. STOCK REPURCHASES

There were no stock repurchases during the three months ended March 31, 2008, other than cancellation of restricted stock related to employee termination and repurchases of shares of restricted stock surrendered by the Company’s employees in order to meet tax withholding obligations in connection with the vesting of installments of their restricted stock awards.

Discretionary Repurchase Program

In September 2001, the Company’s Board of Directors authorized the use of up to $30 million to repurchase shares of its outstanding common stock under a discretionary stock repurchase program, or the Discretionary Program. In February 2004 and May 2005, the Board of Directors authorized an additional $30 million and $75 million, respectively, under this program bringing the total discretionary stock repurchase authorizations to $135 million.

Repurchase Following Senior Notes Offering

In connection with the Company’s offering of the Convertible Senior Notes in February 2007, the Board of Directors authorized the repurchase of 5.9 million shares at an average price of $5.10 per share for a total consideration of approximately $30 million.

NOTE 11. COMMITMENTS AND CONTINGENCIES

Indemnification Obligations and Guarantees

The following is a summary of the agreements the Company has determined are within the scope of FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. The Company has no liabilities recorded for these agreements as of March 31, 2008, except as described below.

The Company has agreements whereby the Company indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was, serving in such capacity. The term of the indemnification period is for the officers’ or directors’ lifetime. In connection with certain previous acquisitions, the Company has assumed the acquired entity’s obligations to indemnify its directors and officers prior to the closing of the respective acquisition. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a director and officer insurance policy that in certain circumstances enables the Company to recover a portion of any future amounts paid. As a result of the insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal.

As part of the Starbase, TogetherSoft and Segue acquisitions, the Company entered into agreements whereby the Company indemnifies the officers and directors of the acquired companies for certain events or occurrences while such officers or directors served in such capacity. The term of the indemnification period in the Starbase and TogetherSoft acquisitions is for the officers’ or directors’ lifetime, and in the Segue acquisition the term is for six years. The maximum potential amount of future payments the

BORLAND SOFTWARE CORPORATION

Notes to Condensed Consolidated Financial Statements — (Continued)
(unaudited)

Company could be required to make under these indemnification agreements is unlimited; however, the Company has purchased directors’ and officers’ insurance policies for Starbase and TogetherSoft, if applicable, through 2009, and for Segue through 2012, which in certain circumstances enable the Company to recover a portion of any future amounts paid. As a result of the insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal.

The Company sells software licenses and services to its customers via contractual arrangements. As part of those contractual arrangements, the Company generally provides a warranty for the software products and services to the customers. The products are generally warranted to perform substantially as described in the associated product documentation. The services are generally warranted to be performed in a professional manner. The Company has not incurred significant expense under the product or services warranties. As a result, the Company believes the estimated fair value of these agreements is minimal.

The Company also enters into standard indemnification agreements in its ordinary course of business with its customers, suppliers and other third-party providers. With respect to the customer license agreements, each contract generally includes certain provisions for indemnifying the customer against losses, damages, expenses and liabilities incurred by the customer in the event our software is found to infringe upon certain intellectual property rights of a third-party. In the services agreements, the Company generally agrees to indemnify its customers against any acts by the Company employees or agents that cause property damage or personal injury. In the technology license agreements, the Company also generally agrees to indemnify its technology suppliers against any losses, damages, expenses and liabilities incurred by the suppliers in connection with certain intellectual property right infringement claims by any third-party with respect to the products. Finally, from time to time the Company enters into other industry-standard indemnification agreements with third-party providers. The maximum potential amount of future payments the Company could be required to make under any of these indemnification agreements is presently unknown. To date, the Company has not incurred significant expense to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the estimated fair value of these agreements is minimal.

The Company also has arrangements with certain vendors whereby the Company guarantees the expenses incurred by the vendor. The term is from execution of the arrangement until cancellation and payment of any outstanding amounts. The Company would be required to pay any unsettled expenses upon notification from the vendor. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is insignificant. As a result, the Company believes the estimated fair value of these agreements is minimal. Additionally, from time to time the Company enters into agreements with certain customers in certain foreign jurisdictions, which provide for penalties to be incurred if specific non-performance or breach of agreement occurs on the Company’s behalf. To date the Company has not incurred a significant expense in relation to these penalties and the Company believes the estimated fair value of these indemnification agreements is minimal.

Leases and Long Term Debt Obligations

The Company leases its offices and operating facilities and certain furniture and equipment under various operating leases. The Company also has a capital lease for leasehold improvements on a facility in Austria. At March 31, 2008, the capital lease obligation amounted to $145,000, which is payable through 2010. At March 31, 2008, future minimum lease payments and sublease incomes under non-cancelable leases and Convertible Senior Notes were as follows (in thousands):


	Less than 1									More than
	Year			1-3 Years			3-5 Years			5 Years		Total
Operating leases	$	6,189		$	16,202		$	5,176		$	8,746	$	36,313
Restructured operating leases		6,041			14,682			4,663			3		25,389
Convertible senior notes		—			—			200,000			—		200,000
Capital lease		39			106			—			—		145

Gross commitments		12,269			30,990			209,839			8,749		261,847
Sublease income		(1,727	)		(6,110	)		(3,334	)		—		(11,171	)

Net commitments	$	10,542		$	24,880		$	206,505		$	8,749	$	250,676

The operating leases expire at various times through 2021. Rent expense, net, for all operating leases was $2.1 million and $2.4 million for the three months ended March 31, 2008 and 2007, respectively.

BORLAND SOFTWARE CORPORATION

Notes to Condensed Consolidated Financial Statements — (Continued)
(unaudited)

The restructured operating leases above represent total lease commitments for facilities the Company vacated or partially exited in California and North Carolina.

The Convertible Senior Notes represent the aggregate principal amount for 2.75% Convertible Senior Notes issued by the Company in February, 2007. See Note 4 of the unaudited Condensed Consolidated Financial Statements for information on Convertible Senior Notes.

Litigation

From time to time, the Company is involved in lawsuits, claims, investigations and proceedings, relating to intellectual property, commercial, employment and other matters, which arise in the ordinary course of business. In accordance with SFAS No. 5, Accounting for Contingencies (“SFAS 5”), the Company records a liability when it is both probable a liability has been incurred and the amount of the loss can be reasonably estimated. These accruals are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Litigation is inherently unpredictable; however, the Company believes that it has valid defenses with respect to the legal matters pending against the Company, as well as adequate accruals for any probable and estimable losses. If an unanticipated or unfavorable ruling or settlement were to occur in any of these matters in a particular period, the Company’s liquidity and financial condition could be adversely impacted, as well as its results of operations and cash flows.

From time to time, the Company receives notices from third parties claiming infringement by its products of third party patent, trademark and other intellectual property rights, disputing royalties, or disputing other commercial arrangements. Regardless of the merit of any such claim, responding to these claims could be time consuming and expensive and may require the Company to enter into licensing or royalty agreements which may not be offered or available on terms acceptable to the Company. If a successful claim is made against the Company, its business could be materially and adversely affected. The Company expects that its software products will increasingly be subject to such claims as the number of products and competitors in its industry segment increases, the functionality of products overlap and industry participants become more aggressive in protecting their patents.

Service Commitments

The Company terminated a contract for the outsourcing of portions of its information technology operations on January 30, 2008, with an effective date of July 30, 2008. The Company incurred a termination fee of $900,000 as a result of the termination of service. As of March 31, 2008, $450,000 of the termination fee was paid. This amount is not included in the table above.

NOTE 12. REPORTABLE SEGMENTS

SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information establishes standards for reporting information about operating segments in a company’s financial statements. Operating segments are defined as components of an enterprise which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker, (“CODM”), is its Chief Executive Officer.

Description of Segments

The Company has two reporting segments: Enterprise and CodeGear. A summary of the types of products and services provided by the Enterprise and CodeGear segments is provided below.

Enterprise. The Enterprise segment focuses on Open ALM, which includes a combination of software products as well as consulting and education services to help the customers better manage their software development projects. The ALM portfolio includes products and services for project and portfolio management, requirements definition and management, lifecycle quality management, software configuration and change management and modeling. The Enterprise segment also includes our Deployment Product Group (“ DPG”) products.

BORLAND SOFTWARE CORPORATION

Notes to Condensed Consolidated Financial Statements — (Continued)
(unaudited)

CodeGear. The CodeGear segment focuses on developing tools for individual developers and currently offers a number of Integrated Developer Environment (“IDE”), and database products for Java, .NET and Windows development. CodeGear products include Delphi, Delphi for PHP, C++Builder, C#Builder, JBuilder, Turbo™ and Interbase. CodeGear also provides worldwide developer support and education services.

Segment Data

The Company derives the results of the business segments directly from its internal management reporting system. The accounting policies the Company uses to derive business segment results are substantially the same as those the consolidated company uses. Management, under the direction of the CODM, measures the performance of each business segment based on several metrics, including earnings from operations. Additionally, management, under the direction of the CODM, uses these results, in part, to evaluate the performance of, and to assign resources to, each of the business segments. The Company does not allocate costs to CodeGear that are not directly attributable to CodeGear. The Company has no intersegment revenue.

Selected operating results information for each business segment was as follows (in thousands):


	Three Months Ended
	March 31,
	2008									2007
	*Enterprise*			*CodeGear*			*Total*			*Enterprise*			*CodeGear*		*Total*
License and other revenues	$	18,537		$	9,283		$	27,820		$	27,422		$	9,740	$	37,162
Service revenues		27,521			2,933			30,454			29,506			4,298		33,804

Total revenues	$	46,058		$	12,216		$	58,274		$	56,928		$	14,038	$	70,966


Operating income (loss)	$	(11,010	)	$	(10,461	)	$	(21,471	)	$	(10,604	)	$	1,879	$	(8,725	)

The Company has allocated goodwill and other long-lived assets to its reportable segments as follows (in thousands):


	March 31, 2008						December 31, 2007
	*Enterprise*		*CodeGear*		*Total*		*Enterprise*		*CodeGear*		*Total*
Long-lived assets:

Goodwill	$	186,588	$	27,531	$	214,119	$	185,857	$	40,831	$	226,688
Other non-current assets		70,398		590		70,988		88,969		541		89,510

Non-current assets		256,986		28,121		285,107		274,826		41,372		316,198


Total assets	$	492,051	$	26,735	$	518,786	$	494,889	$	49,128	$	544,017

Enterprise-wide disclosures

The Company has various wholly-owned subsidiaries, which develop, market and/or distribute its products in other countries. In certain international markets not covered by its international subsidiaries, the Company generally sells through independent distributors. For the geographic disclosures, inter-company transactions are recorded at either cost or applicable transfer price, as appropriate. Inter-company transactions and balances are eliminated upon consolidation.

BORLAND SOFTWARE CORPORATION

Notes to Condensed Consolidated Financial Statements — (Continued)
(unaudited)


	Three Months Ended
	March 31,
	2008			2007
	In Thousands
Total revenues from unaffiliated customers:
Americas	$	28,537		$	39,555
EMEA		16,369			23,460
Asia Pacific		13,368			7,951

Total revenues		58,274			70,966

License and other revenues	$	27,820		$	37,162
Technical support		23,772			25,856
Consulting and education services		6,682			7,948

Total revenues		58,274			70,966

Inter-company revenue U.S.	$	7,910		$	3,181
Elimination of inter-company-revenues		(7,910	)		(3,181	)

Reported inter-company revenues	$	—		$	—


Operating income (loss):
Americas	$	(26,625	)	$	(13,656	)
EMEA		(1,399	)		3,824
Asia Pacific		6,553			1,107

Operating loss		(21,471	)		(8,725	)

Interest and other income, net		653			527

Loss before income taxes	$	(20,818	)	$	(8,198	)


	March 31, 2008		December 31, 2007
	In Thousands
Long-lived assets:
Americas	$	35,801	$	53,559
EMEA		2,478		2,621
Asia Pacific		1,469		1,672

Long-lived assets:		39,748		57,852
Other non-current assets		245,359		258,346

Non-current assets		285,107		316,198

Identifiable assets:
Americas	$	299,411	$	344,907
EMEA		32,438		31,691
Asia Pacific		16,639		8,553

Identifiable assets:		348,488		385,151
General corporate assets (cash, cash equivalents and short-term investments)		170,298		158,866

Total assets	$	518,786	$	544,017

BORLAND SOFTWARE CORPORATION

Notes to Condensed Consolidated Financial Statements — (Continued)
(unaudited)

NOTE 13. RECENT ACCOUNTING PRONOUNCEMENTS

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (“SFAS 141R”), a revision of SFAS No. 141. Under SFAS 141(R), an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS 141(R) is effective for all business combinations for which the acquisition date is on or after January 1, 2009 for companies operating under a calendar fiscal year. The Company will apply the guidance of SFAS 141(R) to business combinations completed on or after January 1, 2009.

In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51 (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary, and is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company does not expect SFAS 160 to have any impact on its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 expands the use of fair value accounting but does not affect existing standards which require assets or liabilities to be carried at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company has chosen not to adopt the provisions of SFAS 159 for our existing financial instruments.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”), which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS No. 157 establishes a fair value hierarchy that prioritizes inputs to valuation techniques used for financial and non-financial assets and liabilities. SFAS No. 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. In February 2008, the FASB issued FASB Staff Position No. 157-2, Partial Deferral of the Effective Date of Statement 157, which defers the effective date of SFAS No. 157 for certain non-financial assets and liabilities. SFAS No. 157 became effective for the Company on January 1, 2008 for financial assets and liabilities. The impact of adoption on financial assets and liabilities did not have a material impact on the Company’s financial position, results of operations or cash flows. See Note 5 for additional information. SFAS No. 157 becomes effective for the Company on January 1, 2009 for non-financial assets and liabilities. The impact of adoption of SFAS No. 157 on non-financial assets and liabilities is not expected to have a significant impact on the Company’s financial position, results of operations and cash flows. However, the Company will continue to evaluate its fair value measurements for non-financial assets and liabilities.

NOTE 14. SUBSEQUENT EVENTS

Sale of CodeGear Assets

On May 6, 2008, the Company signed a definitive agreement to sell substantially all of the assets of its CodeGear division to Embarcadero Technologies, Inc. The purchase price is approximately $29.8 million less the aggregate amount of the accounts receivables of CodeGear at closing of the transaction, which the Company expects will be approximately $7.4 million, and subject to a working capital adjustment. The accounts receivable will be retained and collected by the Company. Embarcadero will assume substantially all the liabilities of CodeGear following closing. The Company anticipates the sale to be completed in the second quarter of 2008.

The CodeGear business focuses primarily on developing tools for individual developers and offers a number of IDE and database products for Java, .NET and Windows development. CodeGear also provides worldwide developer support and education services. CodeGear represents approximately 21% of the Company’s total company wide revenues for the three months ended March 31, 2008, and 5% of total assets at March 31, 2008.

New Lease Agreement

On April 18, 2008, the Company entered into a lease agreement (the “Lease”) with Prominent Northpoint L.P. (“Landlord”), for approximately 45,000 square feet of office space in Austin, Texas. This new location will become the Company’s headquarters.

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

In this Quarterly Report on Form 10-Q, the terms the “Company”, “we”, “our”, and “us” refer to Borland Software Corporation on a consolidated basis.

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, revenues, composition of revenues, cash flows, earnings, margins, costs, expenses, strategy, research and development, customer service and relationships, demand for our products, market and technological trends in the software industry, licenses, developments in technology, effects of and timeframe for company restructuring actions and relocation of headquarters, effects of our offering of Convertible Senior Notes, product quality, competition, sales, cash resources, utilization of cash resources, personnel, interest rates, foreign currency exchange rates, financial systems, internal controls and disclosure controls and procedures and various economic and business trends. Generally, you can identify forward-looking statements by the use of words such as “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “goal,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believes,” “predicts,” “potential,” “continue” and similar expressions or the negative or other variations thereof. These forward-looking statements involve substantial risks and uncertainties. Examples of such risks and uncertainties are described under “Risk Factors” and elsewhere in this report, as well as in our other filings with the SEC or in materials incorporated by reference herein or therein. You should be aware that the occurrence of any of these risks and uncertainties may cause our actual results to differ materially from those anticipated in our forward-looking statements and have a material adverse effect on our business, results of operations and financial condition. New factors may emerge from time to time, and it may not be possible for us to predict new factors, nor can we assess the potential effect of any new factors on us.

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

Overview

We have two reporting segments: Enterprise and CodeGear.

Enterprise. Our Enterprise segment focuses on our Open Application Lifecycle Management solutions, or ALM, which represents the segment of the ALM market in which vendors’ solutions are flexible enough to support a customer’s specific processes, tools and platforms. Open ALM is a new, customer-centric approach to helping IT organizations transform software delivery into a managed, efficient and predictable business process. Borland is a leading vendor of Open ALM solutions. Our solutions address five critical ALM processes: project & portfolio management, requirements definition & management, lifecycle quality management, software change management and model driven development. Open ALM products include Tempo, TeamFocus, CaliberRM, Caliber DefineIT, SilkCentral Test Manager, SilkPerformer, SilkTest, Gauntlet, Together and StarTeam. We also offer services aimed at streamlining the path to software process improvement, including technical support, consulting and education services.

Our Enterprise segment also includes our Deployment Products Group, or DPG, which includes our VisiBroker and AppServer products. Our deployment products are application middleware for high-performance, low-latency, transaction-intensive applications.

CodeGear. Our CodeGear segment focuses on developing tools for individual developers and currently offers a number of IDE, and database products for Java, .NET and Windows development. CodeGear products include Delphi, Delphi for PHP, C++Builder, C#Builder, JBuilder, Turbo™ and Interbase. CodeGear also provides worldwide developer support and education services.

Sale of CodeGear Assets

On May 6, 2008, we signed a definitive agreement to sell substantially all of the assets of our CodeGear division to Embarcadero Technologies, Inc. The purchase price is approximately $29.8 million less the aggregate amount of the accounts receivables of CodeGear at closing of the transaction, which we expect will be approximately $7.4 million, and subject to a working capital adjustment. The accounts receivable will be retained and collected by us. Embarcadero will assume substantially all the liabilities of CodeGear following closing. We anticipate the sale to be completed in the second quarter of 2008.

The CodeGear business focuses primarily on developing tools for individual developers and offers a number of IDE and database products for Java, .NET and Windows development. CodeGear also provides worldwide developer support and education services. CodeGear represents approximately 21% of the our total company wide revenues for the three months ended March 31, 2008, and 5% of total assets at March 31, 2008.

Acquisition of Simunication

On January 2, 2008, we executed a Share Purchase Agreement to purchase all outstanding shares of Simunication Inc., for approximately $2.4 million. Simunication was a Canadian-based provider of leading edge software simulation technology for global organizations that develop software for external or internal use. We funded this acquisition with available cash. Pro forma financial information has not been provided as the acquisition did not have a material impact on our results of operations.

The purchase price of the transaction was allocated to the acquired assets and liabilities based on their estimated fair values as of the date of the acquisition, including identifiable intangible assets, with the remaining amount being classified as goodwill. The estimated fair value of the total assets acquired was approximately $2 million, of which approximately $1.8 million was allocated to acquired developed technology. The results of operations for Simunication have been included in our unaudited Condensed Consolidated Financial Statements from the date of acquisition.

Summary of Key Financial Results

The following is a summary of our key financial results for the three months ended March 31, 2008:

	•		Total revenues decreased 18% to $58.3 million for the three months ended March 31, 2008, from $71 million for the three months ended March 31, 2007.

	•		License and other revenues decreased 25% to $27.8 million for the three months ended March 31, 2008, from $37.2 million for the three months ended March 31, 2007.

	•		Service revenues decreased 10% to $30.5 million for the three months ended March 31, 2008, from $33.8 million for the three months ended March 31, 2007.

	•		Gross profit as a percentage of revenue decreased to 78% for the three months ended March 31, 2008, compared to 79% for the three months ended March 31, 2007.

	•		Operating expenses increased 4% to $67.2 million for the three months ended March 31, 2008, from $64.6 million for the three months ended March 31, 2007.

	•		Net loss was $22.3 million for the three months ended March 31, 2008, compared to net loss of $9.2 million for the three months ended March 31, 2007.

	•		Cash, cash equivalents and short-term investments increased $11.4 million to $170.3 million as of March 31, 2008, from $158.9 million as of December 31, 2007.

Results of Operations

The following table presents our unaudited Condensed Consolidated Statements of Operations data and the related percentage of total revenues (dollars in thousands):


	Three Months Ended
	March 31,
	2008			% of Rev			2007			% of Rev
License and other revenues	$	27,820			48	%	$	37,162			52	%
Service revenues		30,454			52	%		33,804			48	%

Total revenues		58,274			100	%		70,966			100	%


Cost of license and other revenues		1,296			2	%		1,706			2	%
Cost of service revenues		9,142			16	%		11,237			16	%
Amortization of acquired intangibles and other charges		2,100			4	%		2,119			3	%

Total cost of revenues		12,538			22	%		15,062			21	%


Gross profit		45,736			78	%		55,904			79	%
Operating expenses:
Selling, general and administrative		36,746			63	%		47,831			67	%
Research and development		15,689			27	%		15,924			22	%
Restructuring, amortization of other intangibles and acquisition related expenses and other charges		1,472			3	%		874			1	%

Impairment of goodwill		13,300			23	%		—			0	%

Total operating expenses		67,207			115	%		64,629			91	%


Operating loss		(21,471	)		(37	%)		(8,725	)		(12	%)

Interest income		1,755			3	%		1,669			2	%
Interest expense		(1,660	)		(3	%)		(885	)		(1	%)
Other income (expense), net		558			1	%		(257	)		(0	%)

Loss before income taxes		(20,818	)		(36	%)		(8,198	)		(12	%)

Income tax provision		1,516			3	%		1,020			1	%

Net loss	$	(22,334	)		(38	%)	$	(9,218	)		(13	%)

The following table presents our total revenues and the absolute dollar and percentage change from the comparable prior year period (dollars in thousands):


	Three Months Ended
	March 31,
	2008					2007					Change
	Amount		% of Total			Amount		% of Total			$			%
License and other revenues	$	27,820		48	%	$	37,162		52	%	$	(9,342	)		(25	%)
Service revenues		30,454		52	%		33,804		48	%		(3,350	)		(10	%)

Total revenues	$	58,274		100	%	$	70,966		100	%	$	(12,692	)		(18	%)

We derive revenues from the license of our software and the sale of related services. We had no customers representing more than 10% of our total revenues in the quarter ended March 31, 2008 or March 31, 2007.

Revenues by Product

We have three major product categories: our ALM product group includes products such as Tempo, TeamFocus, Caliber, Together, Silk and Gauntlet; our Deployment Product Group (“DPG”) consists of our VisiBroker and AppServer products.; and our IDE product group includes JBuilder, Delphi, Delphi for PHP, C++Builder, C# Builder, Turbo and Interbase products.

The following table presents our revenues by product (in thousands):


	Three Months Ended								Three Months Ended
	March 31, 2008								March 31, 2007
	Enterprise				CodeGear				Enterprise				CodeGear
	ALM		DPG		IDE		Total		ALM		DPG		IDE		Total
License and other revenues	$	9,415	$	9,122	$	9,283	$	27,820	$	19,120	$	8,302	$	9,740	$	37,162
Service revenues		22,972		4,549		2,933		30,454		24,216		5,290		4,298		33,804

Total	$	32,387	$	13,671	$	12,216	$	58,274	$	43,336	$	13,592	$	14,038	$	70,966

License and Other Revenues

License and other revenues represent amounts for license fees and royalties earned for granting customers the right to use and distribute our software products. Although revenue recognition for our software licenses may be affected by numerous aspects of a contract, for the majority of our customer contracts, we recognize software license revenue upon shipment of the product. License and other revenues decreased $9.3 million in the quarter ended March 31, 2008, as compared to the year-ago quarter. ALM license revenue decreased 51% compared to the year-ago quarter, from $19.1 million to $9.4 million. This decrease was due primarily to large deals in the year-ago quarter that were not repeated this quarter. DPG license revenue increased 10% compared to the year-ago quarter, from $8.3 million to $9.1 million. The increase was primarily driven by increased sales of VisiBroker products. License revenue in our IDE products decreased 5% from $9.7 million to $9.3 million, when compared to the year-ago quarter, on lower sales of our JBuilder and Delphi products.

Service Revenues

Service revenues represent amounts earned for technical support, which includes call support, maintenance and upgrades and for consulting and education services for our software products. Service revenues decreased 10% compared to the year-ago quarter, from $33.8 million to $30.5 million in the quarter ended March 31, 2008.

The following table presents our service revenues (in thousands):


	Three Months Ended
	March 31,				Change
	2008		2007		$			%
Technical support	$	23,772		25,855	$	(2,083	)		(8	%)
Consulting and education		6,682		7,949	$	(1,267	)		(16	%)

	$	30,454	$	33,804	$	(3,350	)		(10	%)

Technical support revenues decreased 8% compared to the year-ago quarter, from $25.9 million to $23.8 million. The decrease during the three month period was due to the decline in support revenues for our Visibroker, Delphi and JBuilder products partially offset by increased support revenues for our Silk products.

Consulting and education services revenues decreased 16% compared to the year-ago quarter, from $7.9 million to $6.7 million. The decrease was primarily attributable to our continued focus on license-driven consulting projects versus pure consulting engagements.

As of March 31, 2008, open sales orders were insignificant.

International Revenues

International revenues represented 61% and 54% of total revenues in the quarters ended March 31, 2008 and 2007, respectively. The following table presents our total revenues by country and the absolute dollar and percentage change from the comparable prior year period (dollars in thousands):


	Three Months Ended
	March 31,				Change
	2008		2007		$			%
United States	$	22,547	$	32,390	$	(9,843	)		(30	%)
Japan		9,644		3,711		5,933			160	%
Germany		4,755		8,840		(4,085	)		(46	%)
All other countries		21,328		26,025		(4,697	)		(18	%)

Total revenues	$	58,274	$	70,966	$	(12,692	)		(18	%)

The United States, and Japan accounted for revenues greater than 10% of total revenues in the three months ended March 31, 2008. No single country, other than the United States and Germany, accounted for revenues greater than 10% of total revenues in the three months ended March 31, 2007.

Regional Revenues

The following table presents our total revenues by region and the absolute dollar and the percentage change from the comparable prior year period (dollars in thousands):


	Three Months Ended
	March 31,				Change
	2008		2007		$			%
Americas	$	28,537	$	39,555	$	(11,018	)		(28	%)
Europe, Middle East and Africa		16,369		23,460		(7,091	)		(30	%)
Asia Pacific		13,368		7,951		5,417			68	%

Total revenues	$	58,274	$	70,966	$	(12,692	)		(18	%)

Our Americas operations include our activities in the United States as well as subsidiaries and branch offices in Brazil and Canada. Our Europe, Middle East and Africa (“EMEA”) operations include activities of our subsidiaries and branch offices in Finland, France, Germany, Ireland, Italy, the Netherlands, Spain, Sweden and the United Kingdom. Our Asia Pacific (“APAC”) operations include activities of our subsidiaries and branch offices in Australia, China, Hong Kong, India, Japan, and Singapore.

Americas. Revenues in our Americas region decreased 28% to $28.5 million in the three months ended March 31, 2008, from $39.6 million in the year-ago period. The decrease is primarily due to several large deals recorded in the year-ago period that were not repeated in the current period. Of the decrease in revenues from our Americas region, license revenues decreased $9.8 million and service revenues decreased $1.2 million.

EMEA. Revenues in our EMEA region decreased 30% to $16.4 million in the three months ended March 31, 2008, from $23.5 million in the year-ago period. Of the decrease in revenues from our EMEA region, license revenues decreased $5.3 million and service revenues decreased $1.8 million.

APAC. Revenues in our APAC region increased 68% to $13.4 million for the three months ended March 31, 2008, from $8 million in the year-ago period. Of the increase in revenues from our APAC region, license revenues increased $5.7 million and service revenues decreased $0.3 million.

Cost of Revenues

The following table presents cost of revenues and the absolute dollar and percentage changes from the comparable prior year period (dollars in thousands):


	Three Months Ended
	March 31,						Change
	2008			2007			$			%
Cost of license and other revenues	$	1,296		$	1,706		$	(410	)		(24	%)


As a percentage of license and other revenues		5	%		5	%

Cost of service revenues	$	9,142		$	11,237		$	(2,095	)		(19	%)


As a percentage of service revenues		30	%		33	%

Amortization of acquired intangibles and other charges	$	2,100		$	2,119		$	(19	)		(1	%)


As a percentage of total revenues		4	%		3	%

Cost of License and Other Revenues

Cost of license and other revenues consists primarily of variable costs including production costs, product packaging costs and royalties paid to third-party vendors. Cost of license and other revenues decreased $410,000 compared to the year-ago quarter, from $1.7 million to $1.3 million. The decrease was attributable to a reduction in royalties and licensing cost associated with third-party embedded technology. Royalty, manufacturing and shipping costs tend to fluctuate with changes in the mix of products sold. Generally, manufacturing and shipping costs are lower for ALM, as compared to IDE and DPG, due to the greater proportion of ALM contracts that are fulfilled electronically. The level of royalty costs in future periods will be dependent upon our ability to obtain favorable licensing terms for our products that include third-party technology and the extent to which we include such third-party technology in our product offerings.

Cost of Service Revenues

Cost of service revenues consists primarily of employee salaries and benefits, third-party contractor costs and related expenses incurred in providing technical support and consulting and education services. Cost of service revenues decreased $2.1 million compared to the year-ago quarter, from $11.2 million to $9.1 million. The overall decrease in cost of services as a percentage of service revenues was attributable to the replacement of non-billable headcount by billable headcount and improved resource utilization.

Amortization of Acquired Intangibles and Other Charges

Amortization of acquired intangibles and other charges consists of the amortization of acquired developed technology, maintenance agreements and customer relationships. Amortization of acquired intangibles for the three months ended March 31, 2008 and 2007 was $2.1 million in each period.

Operating Expenses

Selling, General and Administrative Expenses

The following table presents our selling, general and administrative expenses and the absolute dollar and percentage change from the comparable prior year period (dollars in thousands):


	Three Months Ended
	March 31,						Change
	2008			2007			$			%
Selling, general and administrative expenses	$	36,746		$	47,831		$	(11,085	)		(23	%)
As a percentage of total revenues		63	%		67	%

Selling, general and administrative expenses primarily consist of employee salaries and benefits, sales commissions, marketing programs, professional fees, and facilities and equipment costs. Selling, general and administrative expenses decreased $11.1 million compared to the year-ago quarter, from $47.8 million to $36.7 million. The decrease was primarily due to reduced outside services, employee compensation, benefits expense, marketing expense, computer equipment and telecom expense, and depreciation. These reductions result from our previously announced restructuring activities combined with continued optimization of our back-office operations and infrastructure. In addition, during the three months ended March 31, 2008, we reversed approximately $1.0 million of accrued expenses no longer deemed necessary, which also contributed to the reduction of selling, general, and administrative expenses.

Research and Development Expenses

The following table presents our research and development expenses and the absolute dollar and percentage change from the comparable prior year period (dollars in thousands):


	Three Months Ended
	March 31,						Change
	2008			2007			$			%
Research and development expenses	$	15,689		$	15,924		$	(235	)		(1	%)
As a percentage of total revenues		27	%		22	%

Research and development expenses primarily consist of employee salaries, benefits, and related costs of our engineering staff, external personnel costs, and facilities and equipment costs. Research and development expenses decreased slightly by $235,000 compared to the year-ago quarter, from $15.9 million to $15.7 million. The decrease is due to personnel and benefit expense reductions resulting from continued realignment and optimization of product development teams.

Restructuring, Impairment of Goodwill, Amortization of Other Intangibles, and Acquisition-Related Expenses

The following table summarizes our restructuring, amortization of other intangibles, acquisition-related expenses and impairment of goodwill and the absolute dollar and percentage change from the comparable prior year period (dollars in thousands):


	Three Months Ended
	March 31,						Change
	2008			2007			$			%
Restructuring	$	1,258		$	—		$	1,258			100	%
Impairment of goodwill		13,300			—			13,300			100	%
Amortization of other intangibles		142			159			(17	)		(11	%)
Acquisition-related expenses		72			715			(643	)		(90	%)

Total	$	14,772		$	874		$	13,898			1590	%

As a percentage of total revenues		25	%		1	%

Restructuring: The following table summarizes our restructuring activity relating to our FY 2006 and FY 2007 restructurings for the first quarter of 2008 (in thousands):


	FY 2007 Restructuring									FY 2006 Restructuring
	Quarter 4 Plan						Quarter 2 Plan
	Severance,						Severance,			Severance,
	Benefits and Other			Facilities			Benefits and Other			Benefits and Other			Facilities			Total
Accrual at December 31, 2007	$	3,737		$	5,152		$	328		$	179		$	6,294		$	15,690
Additional accruals		1,492			104			21			37			84			1,738
Cash paid		(2,191	)		(728	)		(213	)		(216	)		(935	)		(4,283	)
Reversal of previous restructuring		—			—			(94	)		—			—			(94	)

Accrual at March 31, 2008	$	3,038		$	4,528		$	42		$	—		$	5,443		$	13,051

Of the $13.1 million in our restructuring accrual at March 31, 2008, $8.6 million was in the short-term accrual and $4.5 million was in our long-term accrual. The long-term accrual is related to facility operating leases in the Enterprise segment. The facility accruals represent our remaining lease payments less anticipated sublease income plus lease incentives for prospective tenants and other certain costs.

Amortization of other intangibles. In the three months ended March 31, 2008, we incurred $142,000 of amortization expense related to intangible non-compete agreements and trade names as a result of our acquisitions, compared to $159,000 in the comparable year-ago periods.

Impairment of goodwill. Due to the pending sale of our CodeGear assets, we reevaluated the recoverability of the CodeGear segment goodwill. Based upon the anticipated selling price of the business and the recorded values of the associated net assets, the goodwill was deemed impaired and, accordingly, an impairment charge of $13.3 million was recorded during the three months ended March 31, 2008.

Acquisition-related expenses. In the three months ended March 31, 2008, we recorded $72,000 in acquisition-related expenses, which primarily consisted of contingent consideration payable under the terms of the Legadero acquisition agreement. Acquisition-related expenses in the three months ended March 31, 2007, consisted of $715,000 of contingent consideration payable under the terms of the Legadero acquisition agreement.

Interest Income, Interest Expense and Other Income (Expense), net

The following table presents our interest and other income, net and the absolute dollar and percentage change from the comparable prior year period (dollars in thousands):


	Three Months Ended
	March 31,						Change
	2008			2007			$			%
Interest income	$	1,755		$	1,669		$	86			5	%
Interest expense		(1,660	)		(885	)		(775	)		88	%
Other income (expense), net		558			(257	)		815			(317	%)

Total	$	653		$	527		$	126			24	%

As a percentage of total revenues		1	%		1	%

Interest income consists primarily of interest earned on cash and cash equivalents. Interest expense consists primarily of interest incurred on our Convertible Senior Notes. Other income (expense), net consists primarily of foreign exchange transaction gains and losses. The increase in interest income in the three month ended March 31, 2008, was primarily attributable to interest income generated from

investments purchased with proceeds from our Convertible Senior Notes offering that occurred February of 2007. The increase in interest expense for the three months ended March 31, 2008, when compared to the year-ago period was primarily attributable to amortization of debt issuance costs and interest incurred on our Convertible Senior Notes offering that occurred February of 2007. The amortization of debt issuance costs was recorded in operating expenses for the three months ended March 31, 2007. Other income (expenses), net for the three months ended March 31, 2008, primarily represents net foreign currency gains resulted from fluctuations in the U.S. dollar versus the foreign currencies in which we conduct business.

Income Taxes

The following table presents our income taxes and the absolute dollar and percentage change from the comparable prior year period (dollars in thousands):


	Three Months Ended
	March 31,						Change
	2008			2007			$		%
Income tax provision	$	1,516		$	1,020		$	496		49	%
As a percentage of total revenues		3	%		1	%

On a consolidated basis, we generated a pre-tax loss of $20.8 million and $8.2 million in the three months ended March 31, 2008 and 2007, respectively. Our income tax provision, as a percentage of pre-tax earnings, was 7.3% and 12.4% for the three months ended March 31, 2008 and 2007, respectively. The increase in our income tax provision in absolute dollars in the three months ended March 31, 2008, as compared to the year-ago quarter, was largely due to an increase in the allocation of non-U.S. pre-tax profits subject to foreign taxes and discrete tax adjustments related to FIN 48 interest and withholding tax on non-permanently reinvested earnings. In the three months ended March 31, 2008 and 2007, substantially all of our tax provision related to non-U.S. taxes.

Our effective tax rate is primarily dependent on the location of taxable profits, if any, and the utilization of our net operating loss carryforwards in certain jurisdictions. Our tax rate is also affected by the imposition of withholding taxes on revenues regardless of our profitability.

Liquidity and Capital Resources


	Three Months Ended
	March 31,
	2008			2007
	In Thousands
Net cash provided by (used for):
Operating activities	$	(5,273	)	$	(9,487	)
Investing activities		(1,048	)		(1,075	)
Financing activities		(29	)		164,509
Effect of exchange rate changes on cash		2,087			(333	)

Net change in cash and cash equivalents		(4,263	)		153,614
Beginning cash and cash equivalents		90,805			55,317

Ending cash and cash equivalents	$	86,542		$	208,931

Cash, cash equivalents and short-term investments. Cash, cash equivalents and short-term investments were $170.3 million at March 31, 2008, an increase of $11.4 million from a balance of $158.9 million at December 31, 2007. Working capital increased $12.3 million to $129.8 million at March 31, 2008, from a $117.5 million at December 31, 2007.

Cash, cash equivalents and short-term investments were $208.9 million at March 31, 2007, an increase of $153.6 million from a balance of $55.3 million at December 31, 2006. Working capital increased $173.3 million to $162.7 million at March 31, 2007, from a negative $10.6 million at December 31, 2006.

Net cash used in operating activities. Net cash used in operating activities, in the three months ended March 31, 2008, was $5.3 million, which includes $2.4 million of net cash used in restructuring activities, consisting primarily of severance and restructured operating lease payments in connection with the FY 2007 4^th Quarter and FY 2006 Restructuring discussed in Note 8 to the unaudited Condensed Consolidated Financial Statements. These payments were offset by additional accruals recorded for FY 2007 4^th Quarter restructuring.

Net cash used in investing activities. Net cash used in investing activities, during the three months ended March 31, 2008, was $1.0 million, primarily driven by $2.0 million cash used in the acquisition of Simunication and purchases of property and equipment of $570,000. This increase in cash used was partially offset by $1.5 million net proceeds from sale of investments.

Net cash used by financing activities. Net cash used in financing activities during the three months ended March 31, 2008, was $29,000 primarily due to purchase of shares from cancellation of restricted stock related to employee termination and repurchases of shares of restricted stock surrendered by the employees in order to meet tax withholding obligations in connection with the vesting of installments of their restricted stock awards.

Currency. Although we utilize foreign currency forward exchange contracts to reduce our foreign currency exchange rate risk, the strengthening of the United States dollar against the Euro, the United Kingdom Pound Sterling, the Australian and Singapore dollars and the Japanese Yen could harm our financial condition. We cannot predict currency exchange rate fluctuations and there can be no assurance that foreign currency exchange rates will not have a material adverse impact on our future cash flows and operating results. Refer to Item 3 “Quantitative and Qualitative Disclosures About Market Risk” for additional discussion of foreign currency risk.

Contractual Obligations and Off-Balance Sheet Arrangements

Leases and Long Term Debt Obligations. We lease our offices and operating facilities and certain furniture and equipment under various operating leases. We also have a capital lease for leasehold improvements on a facility in Austria. At March 31, 2008, the capital lease obligation amounted to $145,000, which is payable through 2010.

At March 31, 2008, future minimum lease payments and sublease incomes under non-cancelable leases and Convertible Senior Notes were as follows (in thousands):


	Less than 1									More than 5
	Year			1-3 Years			3-5 Years			Years		Total
Operating leases	$	6,189		$	16,202		$	5,176		$	8,746	$	36,313
Restructured operating		6,041			14,682			4,663			3		25,389
leases Convertible senior notes		—			—			200,000			—		200,000
Capital lease		39			106			—			—		145

Gross commitments		12,269			30,990			209,839			8,749		261,847
Sublease income		(1,727	)		(6,110	)		(3,334	)		—		(11,171	)

Net commitments	$	10,542		$	24,880		$	206,505		$	8,749	$	250,676

Our operating leases expire at various times through 2021. Rent expense, net, for all operating leases was $2.1 million and $2.4 million for the three months ended March 31, 2008 and 2007, respectively.

The restructured operating leases above represent total lease commitments for facilities we vacated or partially exited in California and North Carolina.

The Convertible Senior Notes represent the aggregate principal amount for 2.75% Convertible Senior Notes issued by us in February, 2007. See Note 4 of the unaudited Condensed Consolidated Financial Statements for information on Convertible Senior Notes.

We terminated a contract for outsourcing of portions of our information technology operations on January 30, 2008, with an effective date of July 30, 2008. We incurred a termination fee of $900,000 million as a result of the termination of service. As of March 31, 2008, $450,000 million of the termination fee was paid. This amount is not included in the table above.

On April 18, 2008, we entered into a lease agreement (the “Lease”) with Prominent Northpoint L.P. (“Landlord”), for approximately 45,000 square feet of office space in Austin, Texas. This new location will become our Company’s headquarters.

The term of the new Lease is 84 months and will commence on October 1, 2008 (the “Commencement Date”) and end on September 30, 2015, with such dates subject to adjustment as provided in the Lease. Under the Lease, the minimum rent payable is approximately $71,250 per month during the first year of the Lease and will increase each year to approximately $104,325 per month in the seventh year of the Lease.

In connection with the Lease, the Landlord agreed to assume all obligations under our lease for the office space we will vacate, located at 8303 N. MoPac Expressway, Austin, Texas, and further agreed to relieve us of our rent and other obligations under such lease, effective on the Commencement Date. The future minimum lease payments for this Lease are not included in the table above.

FIN 48 Liability. As of March 31, 2008, the liability for uncertain tax positions, net of offsetting tax benefits associated with the correlative effects of potential transfer pricing adjustments, state income taxes, and interest deductions is $19 million, of which none is expected to be paid within one year. The balance of $19 million is recorded in other long-term liabilities in the balance sheet.

Indemnification Obligations and Guarantees. For information regarding our indemnification obligations and guarantees, refer to Note 11 of Notes to unaudited Condensed Consolidated Financial Statements in Item 1.

Off-Balance Sheet Arrangements. As part of our ongoing business, we do not participate in material transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance, variable interest or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of March 31, 2008, we are not involved in any material unconsolidated transactions.

Critical Accounting Estimates and Policies

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The application of GAAP requires us to make estimates that affect our reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Changes in these accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by us. To the extent there are material differences between these estimates and actual results, our future financial statement presentation of our financial condition or results of operations will be affected.

We describe our significant accounting policies in Note 2 of the Notes to Consolidated Financial Statements and we discuss our critical accounting policies and estimates in MD&A in our Annual Report on Form 10-K for the year ended December 31, 2007.

There have been no material changes to the critical accounting policies as filed in our Annual Report on Form 10-K as of and for the year ended December 31, 2007 with the SEC on March 7, 2008, except for the adoption of SFAS 157, which impacts the disclosure regarding our investment securities as discussed below.

We adopted the provisions of SFAS 157, effective January 1, 2008 for financial assets and liabilities that are being measured and reported at fair value on a recurring basis. Under this standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. SFAS 157 establishes a hierarchy for inputs used in measuring fair value that minimizes the use of unobservable inputs by requiring the use of observable market data when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on active market data. Unobservable inputs are inputs that reflect our assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances.

The fair value hierarchy is broken down into the three input levels summarized below:

	•		Level 1 — Valuations are based on quoted prices in active markets for identical assets or liabilities, and readily accessible by us at the reporting date.

			Examples of assets and liabilities utilizing Level 1 inputs are: most U.S. Government securities; certain other sovereign government obligations; and exchange-traded equity securities and listed derivatives that are actively traded.

	•		Level 2 — Valuations based on inputs other than quoted prices included within Level 1 that are observable for asset or liability, either directly or indirectly.

			Examples of assets and liabilities utilizing Level 2 inputs are: U.S. agency securities; municipal bonds; corporate bonds; certain residential and commercial mortgage-related instruments (including loans, securities and derivatives); and most over-the-counter (“OTC”) derivatives.

	•		Level 3 — Valuations based on inputs that are unobservable. Examples of assets and liabilities utilizing Level 3 inputs are: certain residential and commercial mortgage-related instruments; real estate and private equity investments; and long-dated or complex OTC derivatives.

We measure our available-for-sale securities at fair value on a recurring basis. Available-for-sale securities include money market funds, corporate debt securities, US government debt securities and asset-backed securities. Where possible, we utilize quoted market prices to measure and such items are classified as Level 1 in the hierarchy and include some equity securities and US government bonds. When quoted market prices for identical assets are unavailable, varying valuation techniques are used. Such assets are classified as Level 2 in the hierarchy and typically include asset-backed securities, corporate debt securities and other US government debt securities.

Effect of New Accounting Pronouncements

For information regarding the effect of new accounting pronouncements, refer to Note 13 of our Notes to unaudited Condensed Consolidated Financial Statements.

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 foreign currency forward exchange contracts as described below. We do not use financial instruments for trading purposes.

Foreign Currency Risk

A portion of our business is conducted in currencies other than the U.S. dollar. The functional currency for all of our foreign operations is the local currency of the country in which we have established business operations. Both revenues and operating expenses in each of these countries are largely denominated in local currencies, which mitigate a portion of the exposure related to fluctuations in local currencies against the U.S. dollar. However, our financial results could still be adversely affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets.

During the three a months ended March 31, 2008, we recorded net realized foreign exchange losses of $454,000 included as part of other income (expense), in our unaudited Condensed Consolidated Statements of Operations. The foreign exchange losses were generated primarily from fluctuations in the Brazilian Real, the Canadian dollar, the Euro, the United Kingdom Pound Sterling, and the Japanese Yen versus the U.S. dollar. It is uncertain whether these currency trends will continue. In the future we may experience foreign exchange losses on our inter-company receivables and payables to the extent that we have not mitigated our exposure utilizing foreign currency forward exchange contracts. Foreign exchange losses could have a material adverse effect on our operating results and cash flows.

During the three months ended March 31, 2008, we had an increase of $1.9 million in unrealized foreign currency gains in cumulative other comprehensive income on our unaudited Condensed Consolidated Balance Sheets, in part, due to foreign currency movements on our long-term inter-company balances. As of March 31, 2008, we had $13 million, $5.6 million, $1.7 million, $1.2 million and $406,000 in long-term inter-company receivable balances that will be settled in Singapore dollars, Indian Rupees, Brazilian Real, Australian dollars, and Japanese Yen, respectively and $14.3 million in long-term inter-company payable balances that will be settled in Euros.

Interest Rate Risk

The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing 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. Our investment strategy to achieve this objective is by investing available

funds in a portfolio of cash equivalents, short-term and long-term investments in a variety of securities, including but not limited to government and corporate securities, time deposits and money market funds. These securities are generally classified as available-for-sale and consequently are recorded on the balance sheet at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive loss, net of estimated tax.

Short-term investments. At March 31, 2008, our cash and cash equivalents consisted primarily of commercial paper. Short-term investments consist of marketable securities, including but not limited to corporate notes, corporate bonds and medium-term notes in large U.S. institutions and governmental agencies. Our marketable securities that are classified as short-term investments will mature in less than one year from March 31, 2008. These securities are classified as available-for-sale and are recorded at their estimated fair value.

Long-term investments. At March 31, 2008, long-term investments consisted of long-term marketable securities. Long-term marketable securities primarily consists of asset-backed securities and corporate bonds in large U.S. institutions.

Credit Risks

Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash, cash equivalents, short-term and long-term investments and trade receivables. Our cash, cash equivalents, short-term and long-term investments are in high-quality securities placed with major banks and financial institutions and commercial paper. Concentrations of credit risk with respect to receivables are limited due to the large number of customers and their dispersion across geographic areas. We perform periodic credit evaluations of our customers’ financial condition and generally do not require collateral. We had one customer representing greater than 10% of total accounts receivable, net of allowances, as of March 31, 2008.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Our Disclosure Controls and Procedures

Disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)) are those controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, who is our Principal Financial Officer, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures pursuant to the Exchange Act rules as of the end of the period covered by this Report. Based upon this evaluation, our Chief Executive Officer and Principal Financial Officer concluded that, as of March 31, 2008, our disclosure controls and procedures were effective to provide a reasonable level of assurance that the financial information we are required to disclose in the reports we file or submit under the Exchange Act was recorded, processed, summarized and reported accurately within the time periods specified in the SEC’s rules and forms.

Changes in Internal Control Over Financial Reporting

There were no other changes in our internal control over financial reporting during the quarter ended March 31, 2008, which our management concluded have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we are involved in lawsuits, claims, investigations and proceedings, consisting of intellectual property, commercial, employment and other matters, which arise in the ordinary course of business. In accordance with SFAS 5, “Accounting for Contingencies” we record a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These accruals are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Litigation is inherently unpredictable; however, we believe that we have valid defenses with respect to the legal matters pending against us, as well as adequate accruals for any probable and estimable losses. If an unanticipated unfavorable ruling or settlement were to occur in any of these matters in a particular period, our liquidity and financial condition could be adversely impacted, as well as our results of operations and cash flows.

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

ITEM 1A. RISK FACTORS

We operate in a rapidly changing environment that involves many risks, some of which are beyond our control. The following discussion highlights some of these risks. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations or results. If any of these risks actually occur, our business operations or results could be harmed. Risk Factors that have been added or have materially changed since the filing of our Annual Report on Form 10-K for the year ended December 31, 2007, are identified with an “*”.

Risks Relating to Our Business

We have limited experience in the enterprise market for application lifecycle management, or ALM, software solutions. If we are unable to successfully achieve our strategic goals, our operating results could be harmed.

Since we are still in the early stages of focusing our business on Open ALM, and considering ALM is a relatively new and evolving market, it is difficult for us to predict our likelihood of success. There is a limited history upon which to base assumptions as to our probability of success and we are in the process of developing and implementing new products, solutions and sales and marketing strategies. The change in the primary focus of our business from IDE to Open ALM has involved significant changes in our go-to-market strategy, our sales and services organizations and sales cycles and our marketing strategies. If we are not able to successfully develop and implement our new strategies, our business and operating results will be harmed.

Our success is dependent upon our ability to develop effective products which meet our customers’ complex and evolving needs and to integrate our products into effective ALM solutions.

We produce and sell a broad portfolio of products to manage the software development process. The market for these products is characterized by continuous technological advancement, evolving industry standards and changing customer requirements. Our customers use a wide variety of constantly changing hardware, software and operating platforms. While we plan to continue to invest resources to develop products for new or emerging software and hardware platforms in the server, desktop, mobile and other environments that may develop, there is a risk that a new hardware or software platform for which we do not provide products could rapidly grow in popularity. In particular, we believe that this risk is substantial for particular proprietary platforms and languages for which we may not be given economically feasible access or access at all. As a result, we may not be in a position to develop products for such platforms or may be late in doing so. If we fail to introduce new products that address the needs of emerging market segments or if our new products do not achieve market acceptance as a result of delays in development or other factors, our future growth and

revenue opportunity could suffer.

A significant portion of our research and development focus is on integrating our existing and recently acquired products into cohesive ALM solutions. Managing our development activities as we gain experience in the evolving ALM market is complex and involves a number of risks. We may not be successful in designing and marketing new products, integrating products into cohesive solutions or providing the necessary enhancements or features to address the sophisticated and varied needs of our customers. To be successful in this market, we will also need to be able to compete with several large and well-established companies with more experience and resources.

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

Our markets are intensely competitive. In the market for comprehensive software development solutions, we face competition from some of the largest software providers in the world. For example, IBM, Microsoft, Sun Microsystems, Hewlett-Packard, Computer Associates and others provide or have stated they intend to provide comprehensive enterprise software development and integration solutions. Traditionally, we have partnered with some of these competitors to offer a broader solution to their or our customer base; however, as our partners and business strategy change, a larger market overlap may develop and some or all of these partnering arrangements could be adversely affected or terminated. Most of these competitors have substantially greater financial, management, marketing and technical resources than we have. In addition, many of our competitors have well established relationships with our current and potential customers, extensive knowledge of the market, substantial experience in selling enterprise solutions, strong professional services and technical support offerings and extensive product development, sales and marketing resources. As a result of their greater resources and established relationships, these competitors may be more successful than we are at developing and marketing products and solutions in our markets.

In addition, the markets for our CodeGear products are characterized by rapid change, new and emerging technologies, and aggressive competition. Some of our competitors include IBM, Microsoft and Sun Microsystems. We attempt to differentiate our products from those of our competitors based on interoperability, total cost of ownership, product quality, performance, level of integration and reliability. We may be unable to successfully differentiate our products from those of our competitors, or we may be unable to compete with the substantially greater resources many of our competitors have. If so, our business, results of operations and financial condition may suffer.

Our inability to forecast our revenue pipeline or convert revenue pipeline into contracts, especially given our focus on enterprise customers, could increase fluctuations in our revenue and financial results.

We use a “pipeline” system, a common industry practice, to forecast sales and trends in our ALM business. Our sales personnel monitor the status of all potential transactions, including the estimated closing date and potential dollar amount of each transaction. We aggregate these estimates periodically to generate a sales pipeline and then evaluate the pipeline to identify trends in our business. This pipeline analysis and related estimates of revenue may differ significantly from actual revenues in a particular reporting period. When customers delay purchasing decisions, reduce the amount of their purchases or cancel their purchases altogether, it will reduce the rate of conversion of the pipeline into contracts and our revenues will be harmed. In addition, because a substantial portion of our software license contracts close in the latter part of a quarter, we may not be able to adjust our cost structure to respond to a variation in the conversion of the pipeline into contracts in a timely manner. Our inability to respond to a variation in the pipeline or in the conversion of the pipeline into contracts in a timely manner, or at all, could cause us to plan or budget inaccurately and thereby could adversely affect our results of operations and financial condition.

A significant portion of our business involves licenses of our software that are made directly to large enterprises. These large transactions involve multiple elements and tend to be lengthy and unpredictable. Sales to enterprise customers generally require substantial time, effort and money as we aim to establish relationships and educate them about our solutions. Also, sales to enterprise customers generally require an extensive sales effort throughout many levels within the customer’s organization and often require final approval by several layers of the customer’s executives. These factors substantially extend the sales cycle and increase the uncertainty of whether a sale will be made in any particular quarter, or at all. We have experienced and expect to continue to experience delays and uncertainties in our sales cycles as well as increased up-front expenses in connection with our enterprise sales efforts. The timing of the execution of enterprise volume licenses could cause our results of operations to vary significantly from quarter to quarter, especially when we anticipate certain transactions will close in a particular quarter. Further, industry buying patterns suggest that larger transactions are frequently deferred until later in the quarter, creating increased difficulty in quarterly forecasting. If a sale is never completed despite months or even years of selling efforts, we will have expended substantial time, money and resources during the pre-sales effort without generating any revenue to offset these expenses. Finally, due to the

complexity and time commitment necessary to pursue each of these transactions, we focus on a small number of proposed sales at any time and if we fail to complete any of these sales, our business, results of operations and financial condition would be negatively affected.

The complexity of accounting regulations and related interpretations and policies, particularly those related to revenue recognition, could limit our ability to predict our revenue and materially affect our financial results for a given period.

Although we use standardized agreements designed to meet current revenue recognition criteria under generally accepted accounting principles, we must often negotiate and revise terms and conditions of these standardized agreements, particularly in multi-product license and services transactions. As our transactions have increased in complexity, particularly with the sale of larger, multi-product licenses, negotiation of mutually acceptable terms and conditions may require us to defer recognition of revenue on such licenses. We believe that we are in compliance with Statement of Position 97-2, “Software Revenue Recognition,” as amended; however, more complex, multi-product license transactions require additional accounting analysis to account for them accurately. Errors in such analysis in any period could lead to unanticipated changes in our revenue accounting practices and may affect the timing of revenue recognition, which could adversely affect our financial results for any given period. If we discover that we have interpreted and applied revenue recognition rules differently than prescribed by generally accepted accounting principles in the U.S, we could be required to devote significant management resources, and incur the expense associated with an audit, restatement or other examination of our financial statements.

Our failure to implement systems to meet the requirements and manage the large service projects necessary for our enterprise may result in delays in recognizing revenue on these projects and thus could harm our profit and adversely affect our results of operations.

Our enterprise business focuses on large, complex professional services agreements. Our inability to structure and manage services agreements may result in unanticipated changes to the timing of our services revenue. In addition, if we bundle services together with our license agreements, this may also affect the timing of recognizing our license revenue. We may need to implement new systems or upgrade current systems to manage these large, complex services agreements. If we fail to make appropriate changes to our existing systems or if our services agreements lead to unanticipated changes to the timing of revenue recognition, our results of operations could be harmed.

We have recently undergone significant changes to our financial reporting and accounting team and systems and are still in the process of making changes to these systems in international regions, which may impact our ability to comply with our financial reporting and accounting obligations.

In October 2007, we moved our corporate headquarters from Cupertino, CA to Austin, TX and in connection with this move, we transitioned a significant portion of our finance team. While we planned for an orderly transition, our new hires have a limited history working together as a part of our accounting team. We also recently began to build an internal audit team, in conjunction with reducing our reliance upon consultants to assess our internal controls over financial reporting. In addition, we recently changed our financial reporting systems in the United States and are continuing to implement changes in our international regions. While we have taken measures aimed at protecting data and keeping accurate records, there can be no assurance the transition will be done without causing errors, delays or inefficiencies. If we fail to staff our accounting and finance function adequately or maintain adequate internal control over financial reporting, we may be unable to report our financial results accurately or in a timely manner and our business, results of operations and financial condition may suffer.

We are in the process of implementing plans for reducing expenses and if we fail to achieve the results we expect, there will be a negative effect on our financial condition.

We announced restructuring plans during 2007, which included the consolidation of certain office locations, reductions in capital expenditures, reduction in discretionary spending, reduction in the work force and other cost cutting measures. We may not be able to realize the cost savings we anticipate from these measures. For example, we may not be able to exit facilities with long term leases. If we are not able to implement these measures as planned, further cost reduction efforts may be necessary. Our plans to reduce expenses may not be completed in a timely manner, which would impair our goal to achieve profitability and positive cash flow. In addition, although we are aiming to implement plans to reach sustainable profitability in the second half of 2008, we are currently operating at a net loss and there can be no assurance as to when we will return to profitability, if at all. In order to fund our ongoing operations in future periods it will be necessary for us to achieve profitability.

We and our prior independent registered public accounting firm, previously determined that we had a material weakness in our internal control over financial reporting. There can be no assurance that a material weakness will not arise in the future. As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm our business and the trading price of our stock. *

Under Section 404 of the Sarbanes-Oxley Act of 2002, we are required to evaluate and determine the effectiveness of our internal control over financial reporting. In our Annual Reports on Form 10-K for the years ended December 31, 2005 and 2006, respectively, we reported material weaknesses in our internal control over financial reporting. We have since remediated these deficiencies and continue to spend time and resources to ensure compliance with Section 404 of the Sarbanes-Oxley Act of 2002. As reported in Section 9A of our 2007 Form 10-K, management concluded that we had no material weakness in our internal control over financial reporting as of December 31, 2007 and, as reported in Item 4 of this Form 10-Q, management does not believe we had any material weakness in our internal control over financial reporting as of the quarter ended March 31, 2008. However, considering that we have and will continue to evolve our business in a changing marketplace, we are continuing to implement changes in our ERP systems and will continue to make corresponding changes in our financial reporting processes, there can be no assurance that material weaknesses or significant deficiencies will not arise in the future.

Should we or our independent registered public accounting firm, determine in future fiscal periods that we have a material weakness in our internal control over financial reporting, the reliability of our financial reports may be impacted, and our results of operations or financial condition may be harmed and the price of our common stock may decline.

In prior periods, we were unable to timely file our annual and quarterly reports as required by the Securities Exchange Act of 1934, and our continued inability to file these reports on time could result in your not having access to important information about us and the delisting of our common stock from the Nasdaq Stock Market.

We were late in filing our Annual Report on Form 10-K for the fiscal year ended December 31, 2005 and our Quarterly Reports on Forms 10-Q for the fiscal quarters ended March 31, 2006, June 30, 2006, and September 30, 2006. As a result, during the periods in which these reports were late, we were not in compliance with the continued listing requirements of the Nasdaq Stock Market and, in some cases, with the SEC’s rules and regulations under the Securities Exchange Act of 1934. We are required to comply with these rules as a condition of the continued listing of our stock on the Nasdaq Stock Market.

Although we are not currently late with respect to any annual or quarterly report, there can be no assurance that we will be able to file all such reports in the future in a timely manner. If we are unable to timely file these reports in the future, it may impede your access to important information about us. This could cause us to incur substantial expenses, including an increase in the interest rate under our Convertible Senior Notes offering, issued in February 2007. Further, in the case of a prolonged delay in filing, our common stock could be delisted from the Nasdaq Stock Market. Delisting could result in our common stock no longer being traded on any securities exchange or over-the-counter market and could impact its liquidity and price. In addition, if we were delisted, we would be in default under the senior convertible notes, which would cause the notes to become immediately due and payable.

If we are unable to maintain revenue levels for our deployment, or application middleware, products, our financial results may be harmed.

We currently have a portion of our revenue attributable to our deployment products, which we also call or application middleware products. These products are mature products and we primarily rely on new sales to existing customers, maintenance agreements with existing customers, compliance purchases through customer audits and sales through existing independent software vendors and original equipment manufacturers’ partners to generate revenue. We have experienced weakness and fluctuations in revenue from these products in the past and believe they will continue to be subject to commoditization. Our deployment products are generally based on older standards and technologies, which are used in a decreasing number of industries, networks and applications. We devote little marketing resources to these products and primarily rely on the effectiveness of the sales force and compliance teams to work with customers and partners to generate sales. There have been many changes in the sales force over the past several quarters, especially in Europe where we have historically generated a significant amount of revenue from our deployment products. If we are unable to maintain effective sales programs for our deployment products, or if existing customers migrate away from our deployment products, our business, results of operations and financial condition could suffer.

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

We believe our ability to successfully manage and grow our business and to develop new products depends, in large part, on our ability to recruit and retain qualified employees, particularly highly skilled software engineers, sales personnel and management personnel. Competition for qualified technical and management personnel is intense and in the past some of our competitors have utilized their greater resources to provide substantial signing bonuses and other inducements to lure key personnel away from us. We have implemented various cost cutting efforts, which makes it challenging to retain key people and recruit new talent, as needed.

Consolidation in our industry or fluctuation in our stock price may impede our ability to compete effectively.

Consolidation continues to occur among companies that compete in our markets. Additionally, some of the largest software and hardware providers in the world have sought to expand their software and services offerings through acquisitions in the software development, deployment and integration space. If large providers, who have significantly greater financial, management, marketing and technical resources than we have, are successful in increasing their offerings in the software development market, our business will be subject to significant pressure and our ability to compete effectively harmed. Additionally, changes resulting from these and other consolidations may harm our competitive position, particularly as certain products, when offered as part of a bundled suite, are offered for free or are given away to sell more hardware, infrastructure components or information technology services.

As the trend toward consolidation continues, we may encounter increased competition for attractive acquisition targets and may have to pay higher prices for those businesses or technologies we seek to acquire. In addition, we have seen a recent decline in our stock price, which will in turn make it more difficult for us to use stock as a currency for the acquisition of strategic businesses or technologies. This will put pressure on our ability to seek out potential acquisition targets which may impede our growth and our ability to compete effectively.

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

We depend on licenses from third-party suppliers for some elements of our products such as various file libraries. In particular, we depend on technology licenses from Sun Microsystems for certain of our Java products, and we depend on licenses from Microsoft for our Delphi, C++, C#Builder and Borland Developer Studio products. If any of these licenses or other third-party licenses were terminated or were not renewed, or if these third-parties failed to notify us in a timely manner of any new or updated technology, we might not be able to ship such products as planned or provide support for such products, including upgrades. We would then have to seek an alternative to the third-party’s technology and, in some cases, an alternative may not exist. This could result in delays in releasing and/or shipping our products, increased costs by having to secure unfavorable royalty arrangements or reduced functionality of our products, which in turn could adversely affect our business, results of operations and financial condition.

Failure to manage our international operations could harm our results.

A substantial portion of our revenues are generated from international sales. In addition, a significant portion of our operations consist of activities outside the United States. We now have research and development facilities in several domestic and international locations, and we currently have a direct sales force in approximately eighteen countries around the world. We have a complicated corporate structure, and historically have had geographically dispersed operational controls. In particular, we rely on personnel in our international locations to properly account for and manage our international operations, which introduce inherent difficulties in management and control. Given this, we have and may continue to experience difficulty in efficiently and effectively managing our dispersed and complicated organization. As a result, our results of operations may suffer. In addition, we are subject to other risks inherent in doing business internationally, including:

	•		fluctuations in foreign currency exchange rates;

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

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

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

	•		restrictions on the expatriation of currency;

	•		foreign taxes, export restrictions, tariffs, duties and other trade barriers;

	•		changes in regulatory requirements and resulting costs;

	•		differing cultures and business practices not consistent with our regulatory obligations in the United States;

	•		compliance with various conflicting laws and regulations, including employment laws, and resulting costs; and

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

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

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

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

Our future success depends upon enhancing existing relationships and establishing new technology alliances.

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

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

Software products occasionally contain errors or defects, especially when they are first introduced or when new versions are released. We cannot be certain that our products are currently or will be completely free of defects and errors. We could lose revenue as a result of product defects or errors, including defects contained in third-party products that enable our products to work. In addition, the discovery of a defect or error in a new version or product may result in the following consequences, among others:

	•		delayed shipping of the product;

	•		delay in or failure to ever achieve market acceptance;

	•		diversion of development resources;

	•		damage to our reputation;

	•		product liability claims; and

	•		increased service and warranty costs.

We believe our ALM products are critical to our customers and a defect or error in our products could result in a significant disruption to their businesses. Due to the nature of our complex solutions, there is also the risk that our current products will not prove scalable without substantial effort. If we are unable to develop products that are free of defects or errors or if our products are not able to scale across an enterprise or are perceived to be too complex to scale across an enterprise, our business, results of operations and financial condition could be harmed.

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

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

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

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

Our debt obligations expose us to risks that could adversely affect our business, operating results and financial condition.

In February 2007, we issued an aggregate principal amount of $200,000,000 in 2.75% Convertible Senior Notes due in 2012. The level of our indebtedness, among other things, could:

	•		require us to dedicate a portion of our expected cash flow or our existing cash to service our indebtedness, which would reduce the amount of our cash available for other purposes, including working capital, capital expenditures and research and development expenditures;

	•		make it difficult for us to incur additional debt or obtain any necessary financing in the future for working capital, capital expenditures, debt service, acquisitions or general corporate purposes;

	•		limit our flexibility in planning for or reacting to changes in our business;

	•		limit our ability to sell ourselves or engage in other strategic transactions;

	•		make us more vulnerable in the event of a downturn in our business; or

•

place us at a possible competitive disadvantage relative to less leveraged competitors and competitors that have greater access to capital resources.

If we experience a decline in revenue due to any of the factors described in this section entitled “Risk Factors,” or otherwise, we could have difficulty paying amounts due on our indebtedness. Although the convertible senior notes mature in 2012, the holders of the convertible senior notes may require us to repurchase their notes prior to maturity under certain circumstances, including specified fundamental changes such as the sale of a majority of the voting power of the Company. If we are unable to generate sufficient cash flow or otherwise obtain funds necessary to make required payments, or if we fail to comply with the various requirements of the convertible senior notes, we would be in default, which would permit the holders of our indebtedness to accelerate the maturity of the indebtedness and could cause defaults under any other indebtedness that we may have outstanding at such time. Any default under our indebtedness could have a material adverse effect on our business, operating results and financial condition.

Conversion of the Convertible Senior Notes will dilute the ownership interests of existing stockholders.

The terms of the Convertible Senior Notes permit the holders to convert the notes into shares of our common stock. The Convertible Senior Notes are convertible into our common stock initially at a conversion price of $6.38 per share, which would result in an aggregate of approximately 31.4 million shares of our common stock being issued upon conversion, subject to adjustment upon the occurrence of specified events, provided that the total number of shares of common stock issuable upon conversion, as may be adjusted for fundamental changes or otherwise, may not exceed approximately 39.2 million shares. The conversion of some or all of the convertible senior notes will dilute the ownership interest of our existing stockholders. Any sales in the public market of the common stock issuable upon conversion could adversely affect prevailing market prices of our common stock.

Each $1,000 of principal of the Convertible Senior Notes is initially convertible into 156.86 shares of our common stock, subject to adjustment upon the occurrence of specified events. However we may seek to obtain stockholder approval to settle conversions of the notes in cash and shares of common stock, which approval would require the vote of a majority of shares of our common stock at a stockholder meeting duly called and convened in accordance with our organizational documents, applicable law and the rules of the Nasdaq Stock Market.

In addition, holders may convert their Convertible Senior Notes prior to maturity if: (1) the price of our common stock reaches $8.29 during specific periods of time, (2) specified corporate transactions occur or (3) the trading price of the notes falls below a certain threshold. As a result, although the Convertible Senior Notes mature in 2012, the holders may require us to convert the notes prior to maturity. As of the date this Annual Report on Form 10-K was filed with the Securities and Exchange Commission, none of the conditions allowing holders of the notes to convert had occurred.

Under the terms of the 2.75% Convertible Senior Notes due 2012, events that we do not control may trigger conversion rights that, if exercised, may have an adverse effect on our liquidity.

Holders of our Convertible Senior Notes due 2012 will have the right to require us to repurchase the notes upon the occurrence of a fundamental change of Borland, including some types of change of control transactions. We may not have sufficient funds to repurchase the notes in cash or to make the required repayment at such time or have the ability to arrange necessary financing on acceptable terms. In addition, upon conversion of the notes, if we have received approval from our stockholders to settle conversions of the notes in cash and shares of our common stock, we will be required to make cash payments to the holders of the notes equal to the lesser of the principal amount of the notes being converted and the conversion value of those notes. Such payments could be significant, and we may not have sufficient funds to make them at such time. Our failure to repurchase the notes or pay cash in respect of conversions when required would result in an event of default.

Our rights plan and our ability to issue additional preferred stock could harm the rights of our common stockholders.

In October 2001, we adopted our stockholder rights plan and currently each share of our outstanding common stock is associated with one right. Each right entitles the registered stockholder to purchase 1/1,000 of a share of our Series D Junior Participating Preferred Stock at an exercise price of $80.00.

The rights only become exercisable in certain limited circumstances following the tenth day after a person or group announces acquisition of or tender offers for 15% or more of our common stock. For a limited period of time following the announcement of any such acquisition or offer, the rights are redeemable by us at a price of $0.01 per right. If the rights are not redeemed, each right will then entitle the holder to purchase common stock having the value of twice the then-current exercise price. For a limited period of

time after the exercisability of the rights, each right, at the discretion of our board of directors, may be exchanged for either 1/1,000 share of Series D Junior Participating Preferred Stock or one share of common stock. The rights expire on December 19, 2011.

Pursuant to our restated certificate of incorporation, our board of directors has the authority to issue up to 850,000 shares of undesignated preferred stock and to determine the powers, preferences and rights and the qualifications, limitations or restrictions granted to or imposed upon any wholly unissued shares of undesignated preferred stock and to fix the number of shares constituting any series and the designation of such series, without the consent of our stockholders. The preferred stock could be issued with voting, liquidation, dividend and other rights superior to those of the holders of common stock.

The issuance of Series D Junior Participating Preferred Stock or any preferred stock subsequently issued by our board of directors, under some circumstances, could have the effect of delaying, deferring or preventing a change in control. For example, an issuance of shares of our preferred stock could:

	•		adversely affect the voting power of the stockholders of our common stock;

	•		make it more difficult for a third-party to gain control of us;

	•		discourage bids for our common stock at a premium;

	•		limit or eliminate any payments the stockholders of our common stock could expect to receive upon our liquidation; or

	•		otherwise adversely affect the market price of our common stock.

Specifically, some provisions may deter tender offers for shares of common stock, which may be attractive to stockholders, or deter purchases of large blocks of common stock, thereby limiting the opportunity for stockholders to receive a premium for their shares of common stock over the then-prevailing market prices.

Provisions of our certificate of incorporation and bylaws might discourage, delay or prevent a change of control of our company or changes in our management and, therefore, depress the trading price of our common stock.

Our certificate of incorporation and bylaws contain provisions that could discourage, delay or prevent a change in control of our company or changes in our management that our stockholders may deem advantageous. These provisions:

	•		authorize the issuance of “blank check” preferred stock by our board that could increase the number of outstanding shares and discourage a takeover attempt;

	•		limit the ability of our stockholders to call special meetings of stockholders;

	•		prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;

	•		provide that our board is expressly authorized to amend our bylaws, or enact such other bylaws as in their judgment may be advisable; and

	•		establish advance notice requirements for nominations for election to our board or for proposing matters that can be acted upon by stockholders at stockholder meetings.

In addition, certain of our named executive officers and certain other executives have entered into change of control severance agreements, which were approved by our compensation committee. These agreements would likely increase the costs that an acquirer would face in purchasing us and may thereby act to discourage such a purchase.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

SALES OF UNREGISTERED SECURITIES

The shares shown as repurchased in the table below were surrendered by Borland employees in order to meet minimum tax withholding obligations in connection with the vesting of an installment of their restricted stock awards. Below is a summary of these transactions for the three months ended March 31, 2008:

ISSUER PURCHASES OF EQUITY SECURITIES


					Total Number of		Maximum Number (or
			Average		Shares (or Units)		Approximate Dollar Value) of
	Total Number		Price Paid		Purchased as Part of		Shares (or Units) that May Yet
	of Shares (or Units)		per share		Publicly Announced		Be Purchased Under the Plans
Period	Purchased		(or Unit)		Plans or Programs		or Programs (1)
Beginning dollar value available to be repurchased as of March 31, 2008							$	59,332
January 1, 2008 - January 31, 2008 (2)		2,817	$	2.71		—		—
February 1, 2008 - February 28, 2008 (2)		6,827	$	2.55		—		—
March 1, 2008 - March 31, 2008 (2)		1,653	$	1.92		—		—

Total shares repurchased		11,297	$	2.50		—	$	59,332

Ending dollar value available to be repurchased under the Discretionary Program as of March 31, 2008 (1)							$	59,332


(1)		In September 2001, our Board of Directors authorized the use of up to $30 million to repurchase shares of our outstanding common stock under a discretionary stock repurchase program (“Discretionary Program”). In February 2004, our Board of Directors authorized an additional $30 million of repurchases under the Discretionary Program, which was announced in our Current Report on Form 8-K filed with the Securities and Exchange Commission, or SEC, on February 4, 2004. In May 2005, our Board of Directors authorized an additional $75 million of repurchases under the Discretionary Program, which was announced in our Current Report on Form 8-K filed with the SEC on May 20, 2005. No shares were repurchased through our Discretionary Program during the three months ended March 31, 2008.

(2)		Consists of shares of restricted stock surrendered by Borland employees in order to meet tax withholding obligations in connection with the vesting of an installment of their restricted stock awards.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

There were no matters submitted to a vote of security holders during the quarter ended March 31, 2008.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

(a) Exhibits

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

Exhibit

Incorporated by Reference

Filed

Number

Description of Exhibit

Form

Date

Number

Herewith

3.1

Restated Certificate of Incorporation of Borland Software Corporation.

10-Q

08/09/05

3.1

3.2

Amended and Restated Bylaws of Borland Software Corporation.

10-Q

08/09/05

3.2

4.1

Stockholder Rights Agreement, dated as of October 26, 2001, between Borland Software Corporation and Mellon Investor Services, L.L.C.

8-A

10/31/01

4.2

Specimen Stock Certificate of Borland Software Corporation.

10-Q

05/13/02

4.1

31.1

Certification of Tod Nielsen, Chief Executive Officer of Borland Software Corporation, pursuant to Rule 13a-14(a).

31.2

Certification of Erik E. Prusch, Principal Financial Officer of Borland Software Corporation, pursuant to Rule 13a-14(a).

32.1

Certification of Tod Nielsen, Chief Executive Officer of Borland Software Corporation, pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350. +

32.2

Certification of Erik E. Prusch, Principal Financial Officer of Borland Software Corporation, pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350. +


+		The certifications attached as Exhibit 32.1 and Exhibit 32.2 that accompany this Quarterly Report on Form 10-Q, are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Borland Software Corporation under the Securities Act of 1933 or the Securities Exchange Act of 1934 whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing.

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, 8303 N. Mo-Pac Expressway, Suite A-300, Austin, TX 78759, Attention: Investor Relations.

EXHIBIT INDEX

Exhibit

Incorporated by Reference

Filed

Number

Description of Exhibit

Form

Date

Number

Herewith

3.1

Restated Certificate of Incorporation of Borland Software Corporation.

10-Q

08/09/05

3.1

3.2

Amended and Restated Bylaws of Borland Software Corporation.

10-Q

08/09/05

3.2

4.1

Stockholder Rights Agreement, dated as of October 26, 2001, between Borland Software Corporation and Mellon Investor Services, L.L.C.

8-A

10/31/01

4.2

Specimen Stock Certificate of Borland Software Corporation.

10-Q

05/13/02

4.1

31.1

Certification of Tod Nielsen, Chief Executive Officer of Borland Software Corporation, pursuant to Rule 13a-14(a).

31.2

Certification of Erik E. Prusch, Principal Financial Officer of Borland Software Corporation, pursuant to Rule 13a-14(a).

32.1

Certification of Tod Nielsen, Chief Executive Officer of Borland Software Corporation, pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350. +

32.2

Certification of Erik E. Prusch, Principal Financial Officer of Borland Software Corporation, pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350. +


+		The certifications attached as Exhibit 32.1 and Exhibit 32.2 that accompany this Quarterly Report on Form 10-Q, are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Borland Software Corporation under the Securities Act of 1933 or the Securities Exchange Act of 1934 whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing.


Delaware		94-2895440
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)


			PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)			3
Condensed Consolidated Balance Sheets at March 31, 2008 and December 31, 2007			3
Condensed Consolidated Statements of Operations for the three months ended March 31, 2008 and 2007			4
Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2008 and 2007			5
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2007			6
Notes to Condensed Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
Item 3. Quantitative and Qualitative Disclosures About Market Risk			35
Item 4. Controls and Procedures			36
PART II OTHER INFORMATION
Item 1. Legal Proceedings			37
Item 1A. Risk Factors			37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			46
Item 3. Defaults upon Senior Securities			46
Item 4. Submission of Matters to a Vote of Security Holders			46
Item 5. Other Information			46
Item 6. Exhibits			47
Signatures			48
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2


	Three Months Ended
	March 31,
	2008			2007
Net loss	$	(22,334	)	$	(9,218	)
Other comprehensive income:
Foreign currency translation adjustments		1,869			(586	)
Fair market value adjustment for available-for-sale securities, net of tax		(80	)		—

Comprehensive loss	$	(20,545	)	$	(9,804	)


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


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


		BORLAND SOFTWARE CORPORATION
		(Registrant)

		/s/ ERIK E. PRUSCH

		Erik E. Prusch Principal Financial Officer
		(Principal Financial Officer and Duly Authorized Officer)

	a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	(1)		the Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

	(2)		the information contained in the Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Report and results of operations of the Company for the period covered by the Report.