8-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):

September 28, 2006

COREL CORPORATION

(Exact name of Registrant as specified in its Charter)

CANADA	000-20562	98-0407194
(State or other Jurisdiction) of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

1600 Carling Avenue
Ottawa, Ontario
Canada
K1Z 8R7
(613) 728-0826
(Address of principal executive offices)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

	Item 2.02. Results of Operations and Financial Condition.
	Item 9.01 Financial Statements and Exhibits
SIGNATURES
EXHIBIT INDEX
EX-99.1: PRESS RELEASE

Item 2.02.   Results of Operations and Financial Condition.

Today Corel Corporation issued a press release disclosing financial results for the fiscal quarter ended August 31, 2006. The text of the release is furnished herewith as Exhibit 99.1.

Item 9.01   Financial Statements and Exhibits

The following exhibit is furnished with this Form 8-K:

99.1   Press Release dated September 28, 2006.

2

SIGNATURES

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

Date: September 28, 2006

COREL CORPORATION
By:	/s/ CHRISTOPHER DIFRANCESCO
	Name:	Christopher DiFrancesco
	Title:	Vice President, Legal, General Counsel and Secretary

3

EXHIBIT INDEX

Exhibit	Description
99.1	Press release dated September 28, 2006.

4

EX-99.1

For Immediate Release

Corel Corporation Reports Third Quarter Results

Revenue Increases 7%; GAAP Net Income of $0.22 Per Diluted Share;
Non-GAAP Adjusted Net Income of $0.36 Per Diluted Share

Ottawa, Canada — September 28, 2006 — Corel Corporation (NASDAQ:CREL; TSX:CRE) today reported financial results for its third quarter ended August 31, 2006. Revenues in the third quarter of fiscal 2006 were $41.3 million, an increase of 7% over revenues of $38.5 million in the third quarter of fiscal 2005. GAAP net income in the third quarter of fiscal 2006 was $5.5 million, or $0.22 per diluted share. This compares to a GAAP net loss of $(3.0) million, or $(0.15) per share in the third quarter of fiscal 2005.

Non-GAAP adjusted net income for the third quarter of fiscal 2006 was $9.2 million, or $0.36 per diluted share, an increase of 88% compared to non-GAAP adjusted net income for the third quarter of fiscal 2005 of $4.9 million, or $0.24 per diluted share. Non-GAAP adjusted EBITDA in the third quarter of fiscal 2006 was $12.4 million, a 16% increase compared to $10.7 million in the third quarter of fiscal 2005. A reconciliation of GAAP net income to non-GAAP adjusted net income and non-GAAP adjusted EBITDA is provided in the notes to the financial statements included in this press release.

“Corel continued to execute against all aspects of our strategy in the third quarter,” said David Dobson, CEO of Corel Corporation. “Our announced acquisition of InterVideo and recent launches of Snapfire and Paint Shop Pro Photo XI show that we are focused on delivering the products and value that customers and partners demand. We also showed our discipline around driving profits as earnings growth outpaced revenue growth. With strong revenue performance, new global partnerships, and increasing traction in developing and emerging markets, Corel is successfully executing its strategy to deliver long-term, shareholder value.”

Fourth Quarter Fiscal 2006 Guidance

Corel provided guidance for the fourth quarter ending November 30, 2006.
The Company currently expects:

• Revenue in the range of $46 million to $48 million.

• GAAP net income of $6.7 million to $7.8 million and non-GAAP adjusted net income of $10.4 million to $11.5 million.

• GAAP EPS of $0.26 to $0.30 per share and non-GAAP EPS of $0.40 to $0.45 per share.

Fiscal 2006 Guidance

Corel provided guidance for the year ending November 30, 2006.
The Company currently expects:

• Revenue in the range of $175.8 million to $177.8 million

• GAAP net income of $6.6 million to $7.7 million and non-GAAP adjusted net income of $34.8 million to $35.9 million.

• GAAP EPS of $0.28 to $0.33 per share and non-GAAP EPS of $1.48 to $1.52 per share.

Corel will host a conference call to discuss the results at 4:30 p.m. Eastern Time today. To access the conference call, please dial (800) 289-0572 or (913) 981-5543. A live webcast and replay of the call will also be available through Corel’s Investor Relations website at http://investor.corel.com/events.cfm.

Forward-Looking Statements:

This news release includes forward-looking statements that are based on certain assumptions and reflect our current expectations. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements to differ materially from any future results, performance, or achievements discussed or implied by such forward-looking statements. Such risks include competitive threats from well-established software companies that have significantly greater market share and resources than us, new entrants that benefit from industry trends, such as the increasing importance of Internet distribution and open source software, and from online services companies that are increasingly seeking to provide software products at little or no incremental cost to their customers to expand their Internet presence and build consumer loyalty. We rely on a small number of key strategic relationships for a significant percentage of our revenue and these relationships can be modified or terminated at any time. In addition, our core products have been marketed for many years and the packaged software market in North America and Europe is relatively mature and characterized by modest growth. Accordingly, we must successfully complete acquisitions, penetrate new markets or increase penetration of our installed base to achieve revenue growth. In addition, we face risks related to our proposed acquisition of InterVideo, Inc., including the risk that the proposed acquisition may not be completed in a timely manner, if at all, and disruption from the transaction making it more difficult to maintain relationships with customers, employees, or suppliers. These and other risks, uncertainties and other important factors are described in our Prospectus dated April 25, 2006, filed with the Securities and Exchange Commission (The SEC) pursuant to Rule 462(b) of the rules and regulations under the Securities Act of 1933 and our other filings with the SEC under the caption “Risk Factors” and elsewhere. A copy of the Prospectus and such

other filings can be obtained on our website or on the SEC’s website at http://www.sec.gov. Certain of such risks are also included in our Canadian supplemented PREP prospectus dated April 25, 2006, available at http://www.sedar.com. Risks related to InterVideo’s business can be found in InterVideo’s reports filed with the SEC under the caption “Risk Factors” and elsewhere, including InterVideo’s 10-Q for the quarter ended June 30, 2006, which can be found on InterVideo’s website or on the SEC’s website at http://www.sec.gov. Forward-looking statements speak only as of the date of the document in which they are made. We disclaim any obligation or undertaking to provide any updates or revisions to any forward-looking statement to reflect any change in our expectations or any change in events, conditions or circumstances on which the forward-looking statement is based.

Financial Presentation and Use of Non-GAAP Measures:

Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, which differ in certain material respects from Canadian generally accepted accounting principles. In addition, our financial statements and information in this release are presented in U.S. Dollars, unless otherwise indicated. This news release includes certain non-GAAP financial measures, such as adjusted net income and adjusted EBITDA. We use these non-GAAP financial measures to confirm our compliance with covenants contained in our debt facilities, as supplemental indicators of our operating performance and to assist in evaluation of our liquidity. These measures do not have any standardized meanings prescribed by GAAP and therefore are not comparable to the calculation of similar measures used by other companies, and should not be viewed as alternatives to measures of financial performance or changes in cash flows calculated in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the closes GAAP measures are set out in the notes to the financial statements attached to this news release.

About Corel Corporation

Corel is a leading global packaged software company with over 40 million users. The Company provides full-featured, easy-to-use productivity, graphics and digital imaging software and enjoys a favorable market position among consumers and small businesses. The Company’s award-winning product portfolio features popular, globally recognized brands, including CorelDRAW^® Graphics Suite, Corel^® Paint Shop^® Pro, Corel PainterÔ , Corel DESIGNER^®, Corel^® WordPerfect^® Office, WinZip^®, and iGrafx^®. With hundreds of industry awards for leadership in software innovation, design and value, Corel’s products have built a loyal following of customers and partners around the globe. Corel’s products are sold in over 75 countries through an international network of resellers and retailers, original equipment manufacturers (OEMs), and Corel’s global websites.

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^© 2006 Corel Corporation. All rights reserved. Corel, CorelDRAW, Paint Shop, Painter, Designer, WordPerfect, WinZip, iGrafx and the Corel logo are trademarks or registered trademarks of Corel Corporation and/or its subsidiaries.

CRELF
Press Contact:
Gail Scibelli
617-539-9984
gail.scibelli@corel.com

Investor Relations Contact:
The Blueshirt Group
415-217-7722
Todd Friedman
todd@blueshirtgroup.com

Stacie Bosinoff
stacie@blueshirtgroup.com

Corel Corporation
Quarterly Financial results
For the quarter ended August 31, 2006
(in thousands, except per share data; unaudited)

Consolidated Condensed Statement of Operations

	Three Months ended August 31,					Nine Months ended August 31,
	2006		2005			2006			2005
Revenues — Product	$	36,362	$	34,360		$	115,011		$	106,870
Revenues — Maintenance and service		4,892		4,129			14,740			11,608
Total revenues		41,254		38,489			129,751			118,478
Cost of revenues — Product		5,338		4,263			15,392			13,068
Cost of revenues — Maintenance and service		287		257			877			898
Amortization of intangible assets		2,712		6,654			11,987			19,489
Total cost of revenues		8,337		11,174			28,256			33,455
Gross margin		32,917		27,315			101,495			85,023
Operating expenses
Sales and marketing		11,810		12,938			40,337			37,926
Research and development		6,379		6,016			19,200			17,669
General and administrative		5,833		5,088			17,421			15,401
Restructuring		—		68			811			680
Total operating expenses		24,022		24,110			77,769			71,676
Income from operations		8,895		3,205			23,726			13,347
Other expenses (income)
Loss on debt retirement		17		—			8,292			3,937
Interest expense, net		2,334		3,549			9,404			8,926
Impairment (gain on disposal) of equity investment		—		(60	)					(60	)
Amortization of deferred financing fees		188		455			989			1,259
Other non-operating expense (income)		377		282			(271	)		653
Income (loss) before taxes		5,979		(1,021	)		5,312			(1,368	)
Income tax expense		485		1,969			5,427			3,984
Net income (loss)	$	5,494	$	(2,990	)	$	(115	)	$	(5,352	)
Net income (loss) per share
Basic and diluted
Class A	$	N/A	$	N/A		$	N/A		$	N/A
Class B		N/A		N/A			N/A			N/A
WinZip Common		N/A		N/A			N/A			N/A
Corel Common		0.22		(0.15	)		(0.01	)		(0.27	)
Pro-forma basic		0.22		(0.15	)		(0.01	)		(0.27	)
Pro-forma diluted		0.22		(0.15	)		(0.01	)		(0.27	)
Shares used in basic and diluted per share amounts
Class A		N/A		N/A			N/A			N/A
Class B		N/A		N/A			N/A			N/A
WinZip Common		N/A		N/A			N/A			N/A
Corel Common		25,348		19,485			21,708			19,485
Shares used in pro-forma per share amounts
Basic		24,494		19,485			21,708			19,485
Diluted		25,348		19,485			21,708			19,485

Consolidated Condensed Balance Sheet

	August 31,			November 30,
	2006			2005
Assets
Current assets:
Cash and cash equivalents	$	34,554		$	20,746
Restricted cash		718			966
Accounts receivable
Trade, net		15,531			19,342
Due from related parties		—			667
Other		251			311
Inventory		1,005			726
Defered tax assets, current portion		240			592
Prepaids and other current assets		2,367			2,343
Total current assets		54,666			45,693
Investments		226			334
Capital assets		3,564			3,532
Intangible assets		40,353			52,397
Goodwill		9,850			9,850
Deferred Income tax assets		—			284
Deferred financing charges and other long-term assets		4,080			8,746
Total assets	$	112,739		$	120,836
Liabilities and shareholders’ deficit
Current liabilities:
Accounts payable & accrued liabilities	$	21,796		$	30,152
Due to related party		—			334
Income taxes payable		9,814			10,773
Deferred revenue		10,319			11,755
Current portion of promissory note		542			1,170
Current portion of term loan payable		900			15,764
Total current liabilities		43,371			69,948
Deferred revenue		1,842			2,085
Term loan payable		88,875			132,965
Promissory note and other long-term liabilities		591			1,072
Total liabilities		134,679			206,070
Shareholders’ deficit
Share capital		30,584			(73,793	)
Additional paid-in capital		3,960			7,427
Accumulated other comprehensive income		(22	)		85
Deficit		(56,462	)		(18,953	)
Total shareholders’ deficit		(21,940	)		(85,234	)
Total liabilities and shareholders’ deficit	$	112,739		$	120,836

Consolidated Condensed Statement of Cash Flows

	Three Months ended August 31,						Nine Months ended August 31,
	2006			2005			2006			2005
Cash flow from operating activities
Net income (loss)	$	5,494		$	(2,990	)	$	(115	)	$	(5,352	)
Depreciation		336			327			1,112			1,096
Amortization of deferred financing fees		188			455			989			1,259
Amortization of intangible assets		2,712			6,654			11,987			19,489
Stock-based compensation		805			755			2,451			994
Accrued interest		161			(180	)		(100	)		353
Provision for bad debts		(24	)		216			150			409
Deferred income taxes		—			426			636			739
Unrealized losses on foreign exchange contracts		(43	)		(31	)		178			262
Gain on disposal of fixed assets		—			(2	)		—			(16	)
Loss on early retirement of debt		17			—			8,292			3,937
Gain on disposal of investments		—			(54	)		—			(125	)
Operating Assets		(3,614	)		(341	)		(3,881	)		(450	)
Cash flow provided by operating activities		6,032			5,235			21,699			22,595
Cash flow from financing activities
Restricted cash		(1	)		(500	)		(1	)		857
Proceeds from term loan		—			23,000			90,000			153,000
Repayments of term loan		(225	)		(16,895	)		(148,954	)		(81,200	)
Financing fees incurred		(70	)		(956	)		(7,708	)		(8,624	)
Proceeds from public offering		(3,221	)		—			69,317			—
Proceeds from issuance of common shares		3			—			4			—
Paid up capital distribution		—			—			—			(83,113	)
Dividends		—			(8,000	)		(7,500	)		(14,135	)
Other financing		(340	)		(250	)		(1,438	)		(3,000	)
Cash flow provided by (used in) financing activities		(3,854	)		(3,601	)		(6,280	)		(36,215	)
Cash flow from investing activities
Proceeds from redemption of investments		—			54			—			10,112
Acquisition of Jasc		—			(170	)		—			(354	)
Purchase of long lived assets, net of proceeds		(616	)		(538	)		(1,471	)		(1,006	)
Cash flow provided by (used in) investing activities		(616	)		(654	)		(1,471	)		8,752
Effect of exchange rate changes on cash		(29	)		(10	)		(140	)		(29	)
Increase (decrease) in cash and cash equivalents		1,533			970			13,808			(4,897	)
Opening cash and cash equivalents		33,021			5,690			20,746			11,557
Closing cash and cash equivalents	$	34,554		$	6,660		$	34,554		$	6,660

Non-GAAP Results
(In thousands, except per share data)

	Three Months ended August 31,						Nine Months ended August 31,
	2006			2005			2006			2005
Non-GAAP Adjusted Net Income Calculation:
Net income (loss)	$	5,494		$	(2,990	)	$	(115	)	$	(5,352	)
Amortization of intangible assets		2,712			6,654			11,987			19,489
Stock based compensation		805			755			2,451			994
Restructuring		—			68			811			680
Impairment gain on disposal of investments		—			(54	)		—			(125	)
Reorganization costs		—			—			117			883
Amortization of deferred financing fees		188			455			989			1,259
Loss on debt retirement		17			—			8,292			3,937
Non-GAAP Adjusted Net Income	$	9,216		$	4,888		$	24,532		$	21,765
Percentage of revenue		22.3	%		12.7	%		18.9	%		18.4	%
Pro-forma diluted non-GAAP adjusted net income per share	$	0.36		$	0.24		$	1.09		$	1.09
Shares used in computing proforma diluted non-GAAP adjusted net income per share		25,348			20,253			22,492			19,959
Non-GAAP Adjusted EBITDA Calculation:
Cash flow provided by operating activities	$	6,032		$	5,235		$	21,699		$	22,595
Change in operating assets and liabilities		3,614			341			3,881			450
Interest Expense		2,334			3,549			9,404			8,926
Income tax expense, net		485			1,969			5,427			3,984
Accrued interest		(161	)		180			100			(353	)
Provision for bad debts		24			(216	)		(150	)		(409	)
Unrealized losses on foreign exchange contracts		43			31			(178	)		(262	)
Deferred income taxes					(426	)		(636	)		(739	)
Gain on disposal of fixed assets					2						16
Restructuring		—			68			811			680
Reorganizational costs								117			883
Non-GAAP Adjusted EBITDA	$	12,371		$	10,733		$	40,475		$	35,771
Percentage of revenue		30.0	%		27.9	%		31.2	%		30.2	%
Other Supplemental Information
Revenue by Product Segment
Productivity	$	20,265		$	17,756		$	59,228		$	49,656
Graphics and Digital Imaging		20,989			20,733			70,523			68,822
Total	$	41,254		$	38,489		$	129,751		$	118,478
As percentage of revenues
Productivity		49.1	%		46.1	%		45.6	%		41.9	%
Graphics and Digital Imaging		50.9	%		53.9	%		54.4	%		58.1	%
Total		100.0	%		100.0	%		100.0	%		100.0	%
Revenue by Geography
Americas	$	26,559		$	25,583		$	79,141		$	73,404
Europe, Middle East, Africa		10,887			9,703			40,336			36,800
Asia-Pacific		3,808			3,203			10,274			8,274
Total	$	41,254		$	38,489		$	129,751		$	118,478
As percentage of revenues
Americas		64.4	%		66.5	%		61.0	%		62.0	%
Europe, Middle East, Africa		26.4	%		25.2	%		31.1	%		31.0	%
Asia-Pacific		9.2	%		8.3	%		7.9	%		7.0	%
Total		100.0	%		100.0	%		100.0	%		100.0	%
Allocation of Stock-Based Compensation Expense
Cost of revenues — Product	$	4		$	4		$	19		$	12
Cost of revenues — Maintenance and service		2			1			6			3
Sales and marketing		231			290			543			392
Research and development		101			74			217			145
General and administrative		467			386			1,666			442
Total	$	805		$	755		$	2,451		$	994