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

          Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES |X| NO |   |

          The number of shares of the registrant's common stock, par value $0.01 per share, outstanding as of October 31, 2004, the most recent practicable date prior to the filing of this report, was 80,345,481.

The accompanying notes are an integral part of the financial statements.

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

The accompanying notes are an integral part of the financial statements.

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BORLAND SOFTWARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands, unaudited)

The accompanying notes are an integral part of the financial statements.

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

The accompanying notes are an integral part of the financial statements.

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BORLAND SOFTWARE CORPORATION

Notes to Condensed Consolidated Financial Statements (unaudited)

          The accompanying Borland Software Corporation, or Borland, condensed consolidated financial statements at September 30, 2004 and December 31, 2003 and for the three and nine months ended September 30, 2004 and 2003, are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and Rule 10-01 of Regulation S-X. Accordingly, they do not include all financial information and disclosures required by GAAP for complete financial statements and certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, neces sary to present fairly Borland's financial position at September 30, 2004 and December 31, 2003, and its results of operations and cash flows for the three and nine months ended September 30, 2004 and 2003. Certain amounts in the three and nine months ended September 30, 2003 information have been reclassified in order to be consistent with current financial statement presentation. Since January 1, 2004, certain employees have been reclassified from selling, general and administrative to research and development. To conform to the 2004 presentation, the associated employee-related expenses have been reclassified in the 2003 presentations. In addition, amortization of acquired technology and maintenance contracts has been reclassified from operating expenses to cost of revenues for 2003 to provide consistent presentation with 2004. See Note 5 to our Notes to Condensed Consolidated Financial Statements for information regarding our reclassifications of amortization of intangible assets.

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

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

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

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

          The weighted average fair value of the stock options granted under our employee stock option plans and the stock awarded under our employee stock purchase plan during the three months ended September 30, 2004 and 2003, as defined by SFAS No. 123, was $3.52 and $5.76, respectively, and was $4.12 and $7.47 for the nine months ended September 30, 2004 and 2003, respectively.

          Had we recorded compensation expenses based on the estimated grant date fair value for awards granted under our stock option and stock purchase plans as defined by SFAS No. 123, our pro forma net loss and net loss per share for the three and nine months ended September 30, 2004 and 2003 would have been as follows (in thousands, except per share amounts):

          The pro forma amounts include compensation expenses related to stock option grants and stock purchase rights for the three and nine months ended September 30, 2004 and 2003. In future periods, compensation expense may increase as a result of the fair value of stock options and stock purchase rights granted in those future periods.

          We compute net income (loss) per share in accordance with SFAS No. 128, "Earnings per Share," or SFAS No. 128. Under the provisions of SFAS No. 128, basic net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing the net income for the period by the weighted average number of common and potentially diluted shares outstanding during the period. Potentially diluted shares, which consist of incremental shares issuable upon exercise of stock options, are included in diluted net income per share to the extent such shares are dilutive. Diluted net loss per share is the same as basic net loss per share for the three and nine months ended September 30, 2003.

          The following table sets forth the computation of basic and diluted net income (loss) per share for the three and nine months ended September 30, 2004 and 2003 (in thousands, except per share amounts):

          The diluted earnings (loss) per share calculation for the three months ended September 30, 2004 and 2003 excludes options to purchase approximately 12.5 million and 13.5 million shares, respectively, because their effect would have been antidilutive. The diluted earnings (loss) per share calculation for the nine months ended September 30, 2004 and 2003 excludes options to purchase approximately 7.8 million and 13.5 million shares, respectively, because their effect would have been antidilutive.

          On January 14, 2003, we completed the acquisition of TogetherSoft Corporation, or TogetherSoft, a privately-held corporation. The consideration consisted of approximately $82.5 million in cash, 9,050,000 shares of Borland common stock and the assumption of certain liabilities and obligations of TogetherSoft, including those arising under its stock option plans. The consideration paid was reduced for certain legal expenses paid by TogetherSoft. Approximately $22.8 million of the total consideration is being held in escrow to indemnify us against, and reimburse us for, certain events and cover certain liabilities and transaction costs. In October 2004, $1.3 million in consideration, which consisted of $0.7 million in cash and $0.7 million worth of our common stock, was released to us from this escrow and $11.9 million in consideration, which consisted of $5.0 million in cash and $6.9 million worth of our common stock, was released to the fo rmer TogetherSoft shareholders, leaving a total of $9.6 million in the escrow. Unused consideration will be released from escrow at certain times between 2004 and 2007.

          Of the total purchase price, approximately $150.9 million was allocated to goodwill. Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," or SFAS No. 142, goodwill is not being amortized and is tested for impairment annually during the three months ending September 30 as well as when circumstances indicate a possible impairment.

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

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

         The following table summarizes the short-term portion of our restructuring activity related to the TogetherSoft acquisition accounted for according to the Emerging Issues Task Force Issue No. 95-3, or EITF 95-3, for the nine months ended September 30, 2004 (in thousands):

         We expect our severance and benefits accrual to be fully paid by the end of 2004, and we are currently seeking to sublet or terminate the leases on our vacant facilities.

         The changes in the carrying amount of goodwill for the nine months ended September 30, 2004 are as follows (in thousands):

         The adjustments to goodwill during the nine months ended September 30, 2004 are related to reversals of accrued expenses and other reserves originally recorded as part of the purchase accounting for our Togethersoft and Starbase acquisitions and include adjustments due to fluctuations in foreign currency exchange rates during the nine months ended September 30, 2004.

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

          We recorded $3.6 million and $10.8 million of intangible amortization expense in the three and nine months ended September 30, 2004, respectively. In the three and nine months ended September 30, 2003, we recorded $5.8 and $17.0 million of intangible amortization expense, respectively.

          Estimated future amortization expense related to our intangible assets at September 30, 2004 is as follows (in thousands):

          We have reclassified from operating expenses to cost of revenues the amortization of acquired technology and maintenance contracts for the three and nine months ended September 30, 2003 to provide consistent presentation with the three and nine months ended September 30, 2004. This reclassification did not impact total net revenues, net loss, or net loss per share for the three or nine months ended September 30, 2003. The effect of the reclassification on the Condensed Consolidated Statements of Operations is as follows (in thousands):

          During the three months ended September 30, 2004, we recorded $4.6 million in restructuring expenses. Of this amount, $2.9 million was recorded to our short-term restructuring accrual, including $1.1 million related to severance and benefits resulting from headcount reductions totaling 42 employees (including 39 in selling, general and administrative and 3 in research and development) and $1.4 million related to the exiting from certain facilities. The facility amount represents our remaining lease payments less anticipated sublease income plus the write-off of leasehold improvements and certain other costs. We also recorded $0.4 million related to the write-off of certain fixed assets and other costs. During the three and nine months ended September 30, 2004, we reclassified approximately $2.6 million and $3.4 million, respectively, from our long-term restructuring accrual to short-term restructuring accrual to properly reflect the current portion of the lease obligations for two vacant facilities located in the United Kingdom. In October 2004, we settled our obligation on one of the two facilities for less than our previous estimate and, as a result, reversed $1.1 million in reserves during the three months ended September 30, 2004. For the nine months ended September 30, 2004, we reversed $1.7 million, which includes the $1.1 million previously mentioned and $0.6 million related to changes in estimates of outplacement costs and certain other lease termination accruals for exited facilities that we were able to exit for less than our previous estimate.

          At September 30, 2004, we had approximately $2.2 million in our long-term restructuring accrual related to the lease obligations for vacant facilities mentioned above, of which $1.7 million relates to our September 2004 restructuring. We expect our severance and benefits and other accruals to be fully paid by the end of 2004, and we are currently seeking to sublet or terminate the leases on our vacant facilities.

          The effective tax rates for the three and nine months ended September 30, 2004 and 2003 differ from statutory tax rates principally because we incurred non-U.S. withholding taxes in a number of foreign jurisdictions, which were not based on our profitability, as well as non-U.S. income taxes for certain profitable foreign operations. We also incurred U.S. federal tax expense for Alternative Minimum Tax, or AMT, purposes, as well as state income tax expense. Tax liabilities incurred in foreign jurisdictions were not offset by the benefits of prior U.S. net operating loss and tax credit carryforwards.

     Discretionary Repurchase Program

          In September 2001, our Board of Directors authorized the use of up to $30.0 million to repurchase shares of our outstanding common stock under a discretionary stock repurchase program. In February 2004, our Board of Directors authorized an additional $30.0 million to repurchase shares of our outstanding stock under the discretionary program, bringing the total discretionary stock repurchase authorizations to $60.0 million.

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          As a part of our discretionary stock repurchase program, we repurchased 610,500 common shares at an average price of $8.18 per share for an aggregate cost of approximately $5.0 million during the three months ended September 30, 2004. We repurchased 1,723,200 common shares at an average price of $8.70 per share for an aggregate cost of approximately $15.0 million during the nine months ended September 30, 2004.

          During the three months ended September 30, 2003, we repurchased 544,305 common shares at an average price of $9.18 per share for an aggregate cost of approximately $5.0 million. We repurchased 1,239,305 common shares at an average price of $9.51 per share for an aggregate cost of approximately $11.8 million during the nine months ended September 30, 2003.

          The discretionary program is currently deemed to be in effect, and at September 30, 2004 approximately $17.7 million remains authorized for future repurchases.

     10b5-1 Repurchase Program

          In August 2003, our Board of Directors authorized a 10b5-1 repurchase program whereby the lesser of 1,000,000 shares or $15.0 million worth of our outstanding common stock may be repurchased with a per trading day limit of 2,000 shares. Under this program, we repurchased 128,000 common shares at an average price of $8.03 a share for an aggregate cost of $1.0 million during the three months ended September 30, 2004 and repurchased 374,000 common shares at an average price of $8.85 a share for an aggregate cost of $3.3 million during the nine months ended September 30, 2004. During the three and nine months ended September 30, 2003, we repurchased 72,000 common shares at an average price of $9.70 per share for an aggregate cost of $0.7 million.

          This 10b5-1 repurchase program is currently deemed to be in effect, and at September 30, 2004 the lesser of approximately $9.8 million or 426,000 shares remains authorized for future repurchases.

          During the three months ended March 31, 2003, we had a loan receivable with a book value of $2.2 million related to our investment in AltoWeb, Inc., or AltoWeb, a provider of J2EE applications. Subsequent to March 31, 2003, we were informed by AltoWeb that it had ceased substantially all of its operations, and we recorded a $2.2 million write-off charge for the loan during the three months ended March 31, 2003. Since our investment in AltoWeb was related to AltoWeb's attempt to extend their product development efforts for the Borland platform, we recorded the loan write-off charge in research and development.

          The following is a summary of our agreements that we have determined are within the scope of FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," or FIN No. 45, some of which are specifically grandfathered in because the guarantees were in effect prior to December 31, 2002. Accordingly, we have no liabilities recorded for these agreements as of September 30, 2004, except as noted below.

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

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

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          We entered into an agreement for the outsourcing of inventory fulfillment. As a component of this agreement, we guarantee that in the event we terminate the fulfillment agreement, we will purchase all inventory held by the vendor at the time of termination. We estimate and accrue reserves for excess inventory at the fulfillment vendor. As of September 30, 2004, we had inventory in excess of the reserves of approximately $0.5 million, which represents the potential charge relating to this guarantee.

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

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

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

          We lease certain of our office and operating facilities and certain furniture and equipment under various operating leases. In addition, in December 2003, we entered into a five year lease for a facility in Tokyo, Japan, which was classified as a capital lease in accordance with SFAS No. 13 "Accounting for Leases." We recorded an obligation of $0.8 million at the time we entered into the capital lease and as of September 30, 2004, we had a total obligation of $0.6 million remaining.

          Lease terms range from one to seventeen years and as of September 30, 2004, contractual commitments are as follows, (in thousands):

          Rent expense for all operating leases was approximately $3.0 million and $9.1 million for three and nine months ended September 30, 2004, respectively, and was $3.0 and $9.2 million for the three and nine months ended September 30, 2003, respectively.

          The restructuring-related operating leases above represent total lease commitments that are not associated with continuing operations. We have recorded restructuring-related operating lease obligations in our restructuring accrual, net of assumed sublease income and present value factors.

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          On November 27, 2002, a stockholder class action and derivative lawsuit, Dieterich v. Harrer, et al., Case No. 02CC00350, was filed against Starbase Corporation, or Starbase, and five former directors of Starbase in the Superior Court of the State of California for Orange County, claiming that the former directors had breached fiduciary duties owed to Starbase and stockholders of Starbase. We are paying the costs of defending this litigation pursuant to indemnification obligations under the merger agreement relating to our acquisition of Starbase. Following a series of motions, the case was dismissed without prejudice on August 20, 2003. On October 28, 2003, a stockholder class action relating to the same matter, Dieterich v. Harrer, et al, Case No. 024-N, was filed against the former directors of Starbase in Chancery Court of the State of Delaware, alleging breach of fiduciary duties by the former directors of Starbase, Borland, Dale L. Fuller, Keith E. Gottfried, Frederick A. Ball, and Doug Barre. We intend to defend ourselves vigorously. There is no indication at present whether the lawsuit will have a material effect on our financial condition, results of operations or liquidity.

          From time to time, we may be involved in other lawsuits, claims, investigations and proceedings, consisting of intellectual property, commercial, employment and other matters, which arise in the ordinary course of business. In accordance with SFAS No. 5, "Accounting for Contingencies," or SFAS No. 5, we 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 unfavorable ruling were to occur in any specific period, there exists the possibility of a material adverse impact on the results of operations for that period. We believe that, except as described above, given our current liquidity and cash and investment balances, even were we to receive an adverse judgment with respect to litigation that we are currently a party to, it is likely that such a judgment would not have a material impact on our financial condition, results of operations or liquidity.

          The company has commitments regarding an outsourcing arrangement for portions of our information technology operations. The committed expenditures are an average of $5.8 million per year from November 2004 through November 2014. The company can terminate this contract with or without cause upon payment of a termination fee, the maximum amount of which is $2.1 million for the first year declining to $0.5 million in the final year of the contract. These amounts are not included in the lease commitments table above.

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

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

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

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

          We are a leading provider of platform independent solutions for optimized software development and delivery. We provide our customers solutions that help them plan, execute and manage the development and delivery of software across technology platforms. Our solutions are designed to assist our customers in aligning software strategies with business objectives to maximize the business value of software. Thus, Borland's solutions are designed to assist our customers in the delivery of quality software, on time and within budget.

          Over the past year, we have been in the process of transforming the company from one focused on selling individual development tools to one focused on selling multi-product enterprise solutions that span the entire software application development lifecycle. As part of this transformation, we continue to focus on increasing sales force productivity by generating more sales of our multi-product solutions, developing stronger alliances with systems integrators and technology partners that have established relationships with enterprise-level customers, and selling our individual products through our network of channel partners. We believe that, as we compete for enterprise-level customers, the pricing of our individual products may become less meaningful than the overall blend of our enterprise solutions offered. We also expect to experience longer sales cycles, which is typical for larger solution sales, and expect to compete more directly with larger companies.

          We remain focused on improving operating margins. We believe we are structured appropriately at this time and expect our overall expenses will increase slightly over the next several quarters as we pursue our enterprise marketing and selling strategy and we incur ongoing expenses in connection with our Sarbanes-Oxley testing and compliance initiative.

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          We achieved the following financial results during the three and nine months ended September 30, 2004:

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

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          The following table presents our Condensed Consolidated Statements of Operations data and the related percentage of net revenues for the three and nine months ended September 30, 2004 and 2003 (dollars in thousands):

          The following table presents our net revenues for the three and nine months ended September 30, 2004 and 2003, and the absolute dollar and percentage change from the comparable prior year periods (dollars in thousands):

          We derive revenues from licenses of our software and the sale of related services. No single customer represented 10% or more of our total revenues in the three or nine months ended September 30, 2004 or in the three and nine months ended September 30, 2003.

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          The following table presents our license revenues for the three and nine months ended September 30, 2004 and 2003, and the absolute dollar and percentage change from the comparable prior year periods (dollars in thousands):

          With the integration of the acquisitions of TogetherSoft and Starbase, we have aligned our presentation of license revenues to better reflect our product strategy. Specifically, our Application Lifecycle Management, or ALM, offerings comprise three major product categories: Design, Develop and Deploy. Design includes StarTeam, CaliberRM, Together and other related design and management products. Develop includes our JBuilder, Optimizeit, Delphi, C++Builder and Kylix products. Deploy is comprised of our Visibroker, Borland Enterprise Server products, InterBase and other enterprise products.

          License revenues represent amounts for license fees and royalties earned for granting customers the right to use our software products. License revenues represented 68% of net revenues in the three months ended September 30, 2004 compared to 73% in the three months ended September 30, 2003, and represented 70% in the nine months ended September 30, 2004 compared to 75% in the nine months ended September 30, 2003. The change in mix between license and service revenues is due in part to higher maintenance renewal rates and maintenance attachment rates and in part to our transition of certain products from a stand-alone upgrade selling model to a software assurance model. When we sell upgrades to our software on a stand-alone basis, the associated revenues are recorded in license revenues. By contrast, in our software assurance model, customers pay annually for the right to receive future product upgrades, and the associated revenues are recorded in service revenues.

          The following table presents our license revenues by product category and the percentage change of each category for the three and nine months ended September 30, 2004 and 2003 (dollars in thousands):

          In the future, as our integrated ALM solutions become a larger portion of our business, it may prove difficult to provide a meaningful segregation of license revenues on a product category basis, as the functionality of the previously distinct products will become increasingly integrated.

          Design. The increase in Design license revenues in the three months ended September 30, 2004 from the three months ended September 30, 2003 was due primarily to higher revenues generated from the sales of our StarTeam and CaliberRM product lines and to a lesser extent from modest increases in revenues from our Together product line. These increases resulted from the increased number of enterprise-level transactions that included these products during the three months ended September 30, 2004. The increase is Design license revenues in the nine months ended September 30, 2004 from the nine months ended September 30, 2003 was due to higher revenues generated from the sales of our StarTeam and CaliberRM product lines, partially offset by a decrease in revenue from our Together product line, as we changed the Together product line to a pure modeling solution and removed the functionality captured in our Develop products. In the future, we expect license revenues from the Design product group to represent a larger percentage of our total license revenues as these products represent a significant portion of our ALM strategy.

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          Develop. The decrease in Develop license revenues in the three and nine months ended September 30, 2004 from the three and nine months ended September 30, 2003 was due to the maturation of the Integrated Development Environment, or IDE, market, especially in Java IDE products. We are currently undertaking efforts to stabilize the revenue we receive from our Develop products. However, on a percentage basis, we expect revenues from our Develop products to be a smaller portion of our overall revenue because our Design products represent a significant portion of our increasing sales to enterprise customers.

          Deploy. The increase in license revenues from our Deploy products group in the three and nine months ended September 30, 2004 from the three and nine months ended September 30, 2003 was due to higher revenues generated from enterprise-level transactions in the telecommunications and government markets. While we have seen a short-term benefit from the increased spending in these markets, more sustained growth in our deployment revenue will require broader adoption of next generation telecommunication technologies.

          The following table presents our service revenues for the three and nine months ended September 30, 2004 and 2003, and the absolute dollar and percentage change from the comparable prior year periods (dollars in thousands):

          Service revenues represent amounts earned for technical support, which includes call support and maintenance, and consulting and training services for our software products. The increase in service revenues in the three and nine months ended September 30, 2004 from the three and nine months ended September 30, 2003 primarily resulted from an increase in our technical support revenues, partially offset by a decrease in consulting revenues. Technical support revenues represented 82% and 80% of our total service revenues in the three and nine months ended September 30, 2004, respectively. In the three and nine months ended September 30, 2003, respectively, technical support revenues represented 70% and 68% of our service revenues. We believe that our technical support revenues have benefited from increased revenues generated from larger enterprise customers, which generally purchase support contracts with their software licenses. We expect our service revenues to increase to 30% and 35% of total net revenues in the near future as we attempt to execute on technical support renewal opportunities and our new enterprise solution offerings increase in complexity and include services as a component of larger sales contracts.

     International Net Revenues

          Revenues from sources outside the United States, or non-U.S. revenues, represented approximately 61% and 57% of net revenues for the three months ended September 30, 2004 and 2003, respectively. Non-U.S. revenues represented 60% and 56% of net revenues for the nine months ended September 30, 2004 and 2003, respectively. The following table presents our net revenues by region and the percentage change of each region for the three and nine months ended September 30, 2004 and 2003 (dollars in thousands):

          The increase in the percentage of non-U.S. revenues for the three months ended September 30, 2004 from the three months ended September 30, 2003 was due primarily to fluctuations in the Euro and an increase in the number of enterprise-level transactions that closed in our Europe, Middle East and Africa (EMEA) region and, to a lesser extent, due to increased sales of StarTeam and CaliberRM in our Asia Pacific region. We experienced more modest growth in the Americas in the three months ended September 30, 2004 from the three months ended September 30, 2003 as growth in ALM solution revenues have been offset by decreases in revenues from our Develop products.

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          The increase in the percentage of non-U.S. revenues for the nine months ended September 30, 2004 was principally due to a $9.5 million increase in EMEA revenues as a result of a single enterprise-level transaction completed in 2004 in the EMEA region, the weaker U.S. Dollar versus the Euro in 2004 compared to 2003 and an $10.0 million decrease in revenues from our Develop products in the United States. We believe that our transformation to an enterprise solutions focused company has created the most disturbance with our sales efforts in the United States, and we expect this disturbance to continue in the near-term as new personnel gain experience and as we continue to modify our go-to-market effort.

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

          The following table presents cost of revenues for the three and nine months ended September 30, 2004 and 2003, and the absolute dollar and percentage changes from the comparable prior year periods (dollars in thousands):