10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the Quarterly Period Ended August 31, 2009

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

For the Transition Period From                      to                     

Commission File Number 000-20562

COREL CORPORATION

(Exact name of registrant as specified in its charter)

Canada	98-0407194
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1600 Carling Avenue, Ottawa, Ontario
(Address of principal executive office) K1Z 8R7
(Zip Code)

Registrant’s telephone number, including area code:
(613) 728-0826

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares outstanding of the registrant’s common stock as of September 22, 2009 was 25,905,422

COREL CORPORATION

Form 10-Q

For the Quarter Ended August 31, 2009

INDEX

	Page
PART I FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements		3
a) Balance Sheets as of August 31, 2009 and November 30, 2008		3
b) Statements of Operations for the Three and Nine Months Ended August 31, 2009 and 2008		4
c) Statements of Cash Flows for the Three and Nine Months Ended August 31, 2009 and 2008		5
d) Notes to Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3. Quantitative and Qualitative Disclosures About Market Risk		28
Item 4. Controls and Procedures		30
PART II OTHER INFORMATION
Item 1. Legal Proceedings		30
Item 1A. Risk Factors		30
Item 5. Other Information		30
Item 6. Exhibits		31
Signature		31
Exhibit 4.1
Exhibit 4.2
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

2

PART I. FINANCIAL INFORMATION

Item 1. Unaudited Consolidated Financial Statements

Corel Corporation

Consolidated Balance Sheets
(In thousands of US dollars or shares)
(Unaudited)

			August 31,			November 30,
	Note		2009			2008
Assets
Current assets:
Cash and cash equivalents			$	18,902		$	50,260
Restricted cash				9			159
Accounts receivable
Trade, net of allowance for doubtful accounts of $809 and $1,357, respectively				22,587			33,241
Other				1,950			2,932
Inventory		3		1,149			1,562
Income taxes recoverable				155			785
Deferred tax assets				—			3,138
Prepaids and other current assets				3,054			2,456
Total current assets				47,806			94,533
Capital assets				8,545			10,549
Intangible assets				48,237			67,029
Goodwill		4		80,993			82,343
Deferred financing and other long-term assets				4,136			4,942
Total assets			$	189,717		$	259,396
Liabilities and shareholders’ deficit
Current liabilities:
Accounts payable and accrued liabilities			$	40,774		$	57,746
Due to related parties				335			341
Income taxes payable		5		1,568			1,226
Deferred revenue				11,137			15,190
Current portion of long-term debt		6		—			19,095
Current portion of interest rate swaps		10		3,778			3,096
Current portion of obligations under capital lease				739			621
Total current liabilities				58,331			97,315
Deferred revenue				1,841			2,404
Income taxes payable				10,987			12,960
Deferred income taxes		5		7,687			13,059
Long-term debt				117,768			137,264
Accrued pension benefit obligation				220			261
Interest rate swaps		10		2,410			3,534
Obligations under capital lease				517			962
Total liabilities				199,761			267,759
Commitments and contingencies		7
Shareholders’ deficit
Share capital:
Common Shares (par value: none; authorized: unlimited; issued and outstanding: 25,905 and 25,823 shares, respectively)				44,800			43,992
Additional paid-in capital				11,800			9,198
Accumulated other comprehensive loss				(4,110	)		(4,151	)
Deficit				(62,534	)		(57,402	)
Total shareholders’ deficit				(10,044	)		(8,363	)
Total liabilities and shareholders’ deficit			$	189,717		$	259,396

See Accompanying Notes to the Consolidated Financial Statements

3

Corel Corporation

Consolidated Statements of Operations

(In thousands of U.S. dollars or shares, except per share data)

(Unaudited)

			Three Months Ended						Nine Months Ended
			August 31,						August 31,
	Note		2009			2008			2009			2008
Revenues
Product			$	41,712		$	59,725		$	136,067		$	179,336
Maintenance and services				5,669			6,503			17,896			19,480
Total revenues		13		47,381			66,228			153,963			198,816
Cost of revenues
Cost of products				12,688			15,218			42,585			44,453
Cost of maintenance and services				164			113			374			412
Amortization of intangible assets				6,152			6,418			18,471			19,250
Total cost of revenues				19,004			21,749			61,430			64,115
Gross margin				28,377			44,479			92,533			134,701
Operating expenses
Sales and marketing				13,738			17,941			43,780			58,373
Research and development				7,940			10,610			26,336			34,417
General and administration				5,120			8,378			17,544			25,829
Restructuring		9		(28	)		293			1,585			918
Total operating expenses				26,770			37,222			89,245			119,537
Income from operations				1,607			7,257			3,288			15,164
Other expenses (income)
Interest income				(24	)		(123	)		(113	)		(342	)
Interest expense				2,785			3,663			8,897			11,103
Amortization of deferred financing fees				271			270			813			810
Expenses associated with evaluation of strategic alternatives				—			992			—			1,697
Other non-operating (income) expense				165			1,034			(733	)		(328	)
Income (loss) before taxes				(1,590	)		1,421			(5,576	)		2,224
Income tax (recovery) provision		5		(2,119	)		(177	)		(444	)		(274	)
Net income (loss)			$	529		$	1,598		$	(5,132	)	$	2,498
Other comprehensive income (loss)
Unrealized (loss) gain on securities, net of taxes				(11	)		(23	)		35			(58	)
Amortization of actuarial gain recognized for defined benefit plan				(6	)		(1	)		(16	)		21
Gain (loss) on interest rate swaps designated as hedges, net of taxes		10		548			(624	)		22			(1,313	)
Other comprehensive income (loss) income, net of taxes				531			(648	)		41			(1,350	)
Comprehensive income (loss)			$	1,060		$	950		$	(5,091	)	$	1,148
Net income (loss) per share:
Basic			$	0.02		$	0.06		$	(0.20	)	$	0.10
Fully Diluted		11	$	0.02		$	0.06		$	(0.20	)	$	0.10
Weighted average number of shares:
Basic				25,899			25,704			25,873			25,570
Fully diluted		11		26,138			26,248			25,873			26,192

See Accompanying Notes to the Consolidated Financial Statements

4

Corel Corporation

Consolidated Statement of Cash Flows
(in thousands of U.S. dollars)
(Unaudited)

			Three Months Ended						Nine Months Ended
			August 31,						August 31,
	Note		2009			2008			2009			2008
Cash flows from operating activities
Net income (loss)			$	529		$	1,598		$	(5,132	)	$	2,498
Depreciation and amortization				1,075			1,022			3,374			3,417
Amortization of deferred financing fees				271			270			813			810
Amortization of intangible assets				6,152			6,418			18,471			19,250
Stock-based compensation		8		1,001			1,839			3,361			4,954
(Recovery of) provision for bad debts				(28	)		146			(57	)		379
Change in tax uncertainties				(2,245	)		(62	)		(1,973	)		494
Deferred income taxes				(744	)		(1,233	)		(884	)		(3,700	)
Unrealized gain on forward exchange contracts				—			—			(45	)		—
Loss on disposal of fixed assets				—			19			18			67
Gain on sale of investment				—			—			—			(822	)
Defined benefit pension plan costs				(2	)		—			20			—
(Gain) loss on interest rate swap recorded at fair value		10		(200	)		(193	)		(419	)		50
Change in operating assets and liabilities		12		1,496			(3,605	)		(9,491	)		(7,861	)
Cash flows provided by operating activities				7,305			6,219			8,056			19,536
Cash flows from financing activities
Reduction in restricted cash				150			2			150			58
Repayments of long-term debt				(20,346	)		(755	)		(38,591	)		(1,850	)
Repayments of capital lease obligations				(177	)		(318	)		(543	)		(657	)
Proceeds from exercise of stock options				14			231			49			485
Other financing activities				(27	)		—			(77	)		—
Cash flows used in financing activities				(20,386	)		(840	)		(39,012	)		(1,964	)
Cash flows from investing activities
Purchase of long-lived assets				(14	)		(1,657	)		(1,067	)		(4,956	)
Cash flows used in investing activities				(14	)		(1,657	)		(1,067	)		(4,956	)
Effect of exchange rate changes on cash and cash equivalents				(130	)		—			665			(94	)
Increase (decrease) in cash and cash equivalents				(13,225	)		3,722			(31,358	)		12,522
Cash and cash equivalents, beginning of period				32,127			33,415			50,260			24,615
Cash and cash equivalents, end of period			$	18,902		$	37,137		$	18,902		$	37,137
Supplementary Disclosure
Cash paid for income taxes			$	130		$	1,041		$	1,920		$	3,689
Cash paid for interest			$	2,926		$	3,594		$	9,071		$	10,593

See Accompanying Notes to the Consolidated Financial Statements

5

Corel Corporation

Notes to the Consolidated Financial Statements
(All amounts in thousands of U.S. dollars, unless otherwise stated)
(Unaudited)

1. Unaudited Interim Financial Information

The interim financial information is unaudited and includes all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of our financial position at August 31, 2009 and our results of operations and cash flows for the three and nine months ended August 31, 2009 in conformity with accounting principles generally accepted in the United States of America (“US GAAP”). The consolidated balance sheet as of November 30, 2008 was derived from the audited consolidated financial statements at that date, but, in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”), does not include all of the information and notes required by US GAAP for complete financial statements. Operating results for the three and nine months ended August 31, 2009 are not necessarily indicative of results that may be expected for the entire fiscal year. The financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-Q, and in conjunction with Management’s Discussion and Analysis and the financial statements and notes thereto included in the Company’s Form 10-K for the period ending November 30, 2008 (File No. 000-20562).

2. Summary of Significant Accounting Policies

Basis of presentation

The consolidated financial statements have been presented in United States (US) dollars. The Company’s accounting polices are consistent with those presented in our annual consolidated financial statements as at November 30, 2008, except as noted below.

Estimates and assumptions

The preparation of these financial statements is in conformity with US GAAP, which requires management to make certain estimates that affect the reported amounts in the consolidated financial statements, and the disclosures made in the accompanying notes. Despite the Company’s intention to establish accurate estimates and use reasonable assumptions, actual results may differ from these estimates.

Derivative Instruments and Hedging Activities

In March 2008, the FASB released FAS 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133.” This Statement is effective for the Company during this interim period. This Statement requires that objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation, in order to better convey the purpose of derivative use in terms of the risks that the Company is intending to manage. Management assessed and evaluated the new disclosure requirements for its derivative instruments, and in particular the hedges on its term loans. The only significant derivative instrument held by the Company is its interest rate swaps used to hedge the cash flows for interest on its long-term debt. These are disclosed in accordance with FAS 161, in note 9 to these consolidated financial statements.

Fair value of financial instruments

In April 2009, the FASB issued FASB Staff Position (FSP) Financial Accounting Standard (FAS) 107-1 (FSP FAS 107-1), Interim Disclosures about Fair Value of Financial Instruments, which is effective for interim and annual periods ending after June 15, 2009, which for the Company, is this interim period ending August 31, 2009. FSP FAS 107-1 applies to all financial instruments within the scope of FAS 107, and requires entities to disclose the methods and significant assumptions used to estimate the fair value of financial instruments, in both interim financial statements as well as annual financial statements. The Company has adopted this provision and updated its disclosures in these consolidated financial statements.

6

The carrying amounts for cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities, and amounts due to related parties approximates fair value due to the short maturity of these instruments.

The carrying amount of 98% of the long-term debt, which is the portion that equals the notional amounts of the outstanding interest rate swaps, combined with the fair value of the interest rate swaps included in liabilities approximate fair value because the Company has interest rate swaps which are marked to market as at August 31, 2009. The remaining long-term debt which is not hedged has a balance of $2.3 million, which approximates the fair value based on terms that would be available to us under current market conditions.

The carrying amount of the capital leases, which is based on amortized cost, is not materially different from fair value.

The following is a summary of our items

				Quoted
	Fair Value of			Prices in Active		Significant
	Assets			Market for		Other			Significant
	(Liabilities) at			Identical Assets		Observable			Unobservable
	August 31,			(Liabilities)		Inputs			Inputs
	2009			(Level 1)		(Level 2)			(Level 3)
Long-term investments (1)	$	131		$	131	$	—		$	—
Interest rate swaps (2)		(6,188	)		—		(6,188	)		—

(1)	The fair value of our long-term investments is based on the closing market prices of the investments.
(2)	For basis of measurement please refer note 9 of these notes to the consolidated financial statements.

Subsequent Events

In May 2009, the FASB issued FAS No. 165 Subsequent Events (“FAS 165”). The objective of FAS 165 is to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. It sets forth the period after the balance sheet date for which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure. FAS 165 is effective for any interim or annual financing periods ending after June 15, 2009. Therefore, the Company has adopted the requirements of FAS 165 in the current interim period. This has not resulted in any significant changes in the Company’s recognition or disclosure of subsequent events.

Recent Accounting Pronouncements

In December 2007, the FASB issued FAS No. 141 (revised 2007) Business Combinations (FAS No. 141(R)). FAS No. 141(R) retains the fundamental requirements of the original pronouncement requiring that the purchase method be used for all business combinations. SFAS No. 141(R) defines the acquirer as the entity that obtains control of one or more businesses in the business combination, establishes the acquisition date as the date that the acquirer achieves control and requires the acquirer to recognize the assets acquired, liabilities assumed and any non-controlling interest at their fair values as of the acquisition date. FAS No. 141(R) also requires that acquisition-related costs be recognized separately from the acquisition. FAS No. 141(R) is effective for fiscal years beginning on or after December 15, 2008, which for the Company is the fiscal year beginning December 1, 2009.

In May 2008, the FASB issued FSP FAS 142-3 (FSP FAS 142-3), Determination of the Useful Life of Intangible Assets, which is effective for fiscal years beginning after December 15, 2008 and for interim periods within those years, which for the Company is the fiscal year beginning December 1, 2009. FSP FAS 142-3 provides guidance on the renewal or extension assumptions used in the determination of the useful life of a recognized intangible asset. The intent of FSP FAS 142-3 is to better match the useful life of the recognized intangible asset to the period of the expected cash flows used to measure its fair value. The Company does not expect the adoption of FSP FAS 142-3 to have a material effect on its consolidated financial statements.

7

In September 2006, the Financial Accounting Standards Board released FAS 157, “Fair Value Measurements” and was effective for fiscal years beginning after November 15, 2007, which was the year ending November 30, 2008 for the Company. At that time we adopted the non-deferred items of FAS 157. FAS 157 defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. In November 2007, FASB agreed to a one-year deferral of the effective date for nonfinancial assets and liabilities that are recognized or disclosed at fair value on a nonrecurring basis. The Company will adopt the items that have been deferred in its financial statements for the year ending November 30, 2009 and is currently assessing the impact the adoption of the above deferred items will have on its financial statements.

In June 2009, the FASB issued FAS No. 166, Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140 (“FAS 166”). The objective of FAS 166 is to better reflect the effects of a transfer on financial position, financial performance and cash flows and to eliminate the concept of a special purpose entity. FAS 166 clarifies whether a transferor has surrendered control and defines participating interest to establish specific conditions for reporting a transfer. FAS 166 applies to the first annual reporting period starting after November 15, 2009 and interim periods within that financial year, which for the company is the interim period ending February 29, 2010. The Company does not anticipate this will have a material impact on its financial statements.

3. Inventory

The components of inventory are as follows:

	August		November
	31, 2009		30, 2008
Product components	$	354	$	844
Finished goods		795		718
Inventory	$	1,149	$	1,562

4. Goodwill

During the fiscal quarter ended May 31, 2009, the Company reduced its goodwill related to the InterVideo acquisition by $1,350. This was related to the transfer of intellectual property which was not subject to Taiwanese tax as a result of a pre-acquisition tax basis that was not recognized. This transfer was part of a tax plan that has now been completed.

5. Income Taxes

For the three months ended August 31, 2009, the Company recorded a tax recovery of $2,119 on a loss before income taxes of $1,590. The current tax recovery was $1,375 and the deferred tax recovery was $744. The current tax recovery relates to the reversal of certain tax uncertainties which are now outside of the potential examination period, which has resulted in a decrease in non-current taxes payable. This recovery was offset by withholding taxes which are not creditable due to loss carryforwards and income taxes in foreign jurisdictions. The deferred tax recovery of $744 relates to the amortization of the intellectual property acquired with InterVideo.

For the nine months ended August 31, 2009, the Company recorded a tax recovery of $444 on a loss before income taxes of $5,576. The current tax provision was $440 which was offset by a deferred tax recovery of $884. The current tax provision relates mostly to withholding taxes which are not creditable due to loss carryforwards and income taxes in foreign jurisdictions, which is partially offset by the reversal of certain tax uncertainties in the third quarter of fiscal 2009. The net deferred tax recovery of $884,000 consists of a deferred tax recovery of $2,234 related to the amortization of the intellectual property acquired with InterVideo, which has been partially offset by deferred tax expense of $1,350 related to the transfer of intellectual property to Taiwan as a result of revising the estimated amount of pre-acquisition losses to be utilized upon the transfer.

For the three and nine months ended August 31, 2008, the Company recorded a tax recovery of $177 and $274 on income before income taxes of $1,421 and $2,224, respectively. The current tax provision was $1,056 and $3,426, for the three and nine month period ended August 31, 2008, respectively, which related mostly to withholding taxes which are not creditable due to loss carryforwards and income taxes in foreign jurisdictions. The current tax provision was offset by a deferred tax recovery of $1,233 and $3,700, for the respective periods, which related to the amortization of the intangible assets acquired with InterVideo.

8

At the beginning of the third quarter of fiscal 2007, the Company received a notice of reassessment from the Ministry of Revenue of Ontario (the “Ministry”) for CDN$13.4 million. The Ministry reassessment disallows various deductions related to transactions with a foreign related party claimed on our tax returns for the 2000, 2001 and 2002 taxation years resulting in a potential disallowance of loss carryforwards and liabilities for tax and interest. In September 2007, Corel received further notice that the Ministry had applied tax losses and other attributes which reduced the assessment from CDN$13.4 million to CDN$6.4 million. Subsequently, in November 2007, the Company received another notice of assessment regarding this issue, which increased the capital tax and interest owing for the 2000, 2001, and 2002 taxation years. This notice of reassessment amended the original assessment to CDN$7.5 million. The Company has not provided any amount of income tax payable in respect of these reassessments as it has and continues to vigorously defend against these reassessments. The Company has filed Notice of Objections for the denied deductions and for the capital tax issue. Although the Company believes that it will prevail in the appeals process, the ultimate liability for the tax and interest may differ from the amount recorded in our financial statements. While the Company believes that they have adequately provided for potential assessments, it is possible that an adverse outcome may lead to a material deficiency in recorded income tax expense, reduced net income and adversely affect liquidity. As of August 31, 2009, no potential losses have been accrued. The Company has obtained a letter of credit of CDN$6.9 million through its $75.0 million line of credit with its principal lender, to cover the balance of the current reassessment from the Ministry of Ontario.

6. Long-Term Debt

Due to the Company’s voluntary repayment of $20.0 million in the third quarter of fiscal 2009 the Company estimates that no mandatory cash sweep payment due under our senior credit facility will be required for fiscal 2009. If a payment were required it would be due in March 2010.

7. Commitments and Contingencies

The Company is currently, and from time to time, involved in certain legal proceedings, as well as demands, claims and threatened litigation that arise in the normal course of its business, including assertions from third parties that it may be infringing patents or other intellectual property rights of others and from certain of our customers that they are entitled to indemnification from us in respect of claims that they are infringing such third party rights through the use or distribution of our products. The ultimate outcome of any litigation is uncertain and, regardless of outcome, litigation can have an adverse impact on the business because of defense costs, negative publicity, diversion of management resources and other factors. Failure to obtain any necessary license or other rights on commercially reasonable terms, or otherwise, or litigation arising out of intellectual property claims could materially adversely affect the business.

In addition, some of the Company’s agreements with customers and distributors, including Operating Equipment Manufacturers (“OEMs”) and online services companies, require the Company to indemnify these parties for third-party intellectual property infringement claims, and many of these indemnification obligations are not subject to monetary limits. The existence of these indemnification provisions could increase the Company’s cost of litigation and could significantly increase its exposure to losses from an adverse ruling.

At August 31, 2009, the Company was a defendant in the Victor Company of Japan, Ltd (“JVC”) v. Corel Corporation, InterVideo, Inc., patent infringement proceeding. JVC filed a patent infringement action on January 15, 2008, against Corel and others in the United States District Court for the Western District of Texas (Austin Division), alleging infringement of certain US patents. JVC alleges certain Corel video applications infringe the patents. Earlier this year, Cyberlink Corp. and JVC entered into a confidential settlement, and the complaint against Cyberlink Corp. was dismissed. On July 27, 2009 the court issued its Markman ruling on claim construction. On August 31, 2009 the court issued a scheduling order setting trial for October of 2010. The Company believes it has meritorious defenses to JVC’s claims, is situated differently than Cyberlink Corp. and intends to continue to defend the litigation vigorously. The ultimate outcome of the litigation, however, is uncertain and any potential loss that may arise is indeterminable at this time.

9

8. Stock-Based Compensation

Stock option plans

The following table shows total stock-based compensation expense included in the consolidated statement of operations:

	Three Months				Nine Months
	Ended August 31,				Ended August 31,
	2009		2008		2009		2008
Cost of products	$	3	$	4	$	10	$	19
Cost of maintenance and services		2		2		6		6
Sales and marketing		302		459		1,249		1,358
Research and development		160		232		503		767
General and administration		534		1,142		1,593		2,804
Total stock-based compensation expense	$	1,001	$	1,839	$	3,361	$	4,954

The Company estimates the fair value of its options for financial accounting purposes using the Black-Scholes option pricing model (“Black-Scholes Model”), which requires the input of subjective assumptions including the expected life of the option, risk-free interest rate, dividend rate, future volatility of the price of the Company’s common shares, forfeiture rate and vesting period. Changes in subjective input assumptions can materially affect the fair value estimate. Prior to the Company’s public offering in April 2006 there was no active market for the Company’s common shares. Since the Company has been public for less than the vesting period of its options, the Company does not consider the historic volatility of the Company’s share price to be representative of the estimated future volatility when computing the fair value of options granted. Accordingly, until such time that a representative volatility can be determined based on the Company’s share price, in this case once Corel has been a public company for a period equal to the estimated life of our options, which will be in April 2012, the Company will use a blended rate of its own share price volatility and the US Dow Jones Software and Computer Services Index. Up to the second quarter of fiscal 2007, the Company did not use its own share price volatility in a blended rate computation, as the Company was either a private company or had been a public company for less than one year. The expected life of the option is calculated under the simplified method as the Company does not have an extended history of options issued and subsequently exercised as a public company. The majority of options that have been exercised were issued when the Company was a private entity, and the grant price was not reflective of the Company’s share price since it went public in April 2006. The risk-free interest rate used in the model is the zero-coupon yield implied from U.S. Treasury securities with equivalent remaining terms.

There were 3,919,253 options granted during the three months ended August 31, 2009, of which 3,604,635 were granted under the 2006 Equity Incentive Plan and 314,618 were granted to an executive officer as an inducement Under the 2006 plan 1,887,708 options were granted to our Chief Executive Officer, and the remaining amount was granted to other executive officers and directors of the Company. The fair value, estimated using the Black-Scholes Model, of all options granted during the three months ended August 31, 2009, was estimated as of the date of grant using the following weighted average assumptions:

Expected option life (years)		5.84
Volatility		45.67	%
Risk free interest rate		2.84	%
Forfeiture rate		24.00	%
Dividend yield	Nil

There were no options granted for the three months ended August 31, 2008.

As of August 31, 2009, there was $8.3 million of unrecognized compensation cost for the Company’s equity incentive plans, related to non-vested stock-based payments granted to Corel employees. Total unrecognized compensation cost has been adjusted for changes in estimated forfeitures.

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2006 Equity Incentive Plan

Corel has 6,208,880 remaining common shares authorized for issuance under the 2006 Equity Incentive Plan. Option activity under the 2006 Equity Incentive Plan for the three and nine month periods ended August 31, 2009 is presented below:

	2006 Equity Incentive Plan
						Weighted
				Weighted		Average
				Average		Grant
				Exercise		Date Fair
	Options			Price		Value
Balance at November 30, 2008		2,784,031		$	11.81	$	4.21
Granted	Nil				n/a		n/a
Exercised	Nil				n/a		n/a
Forfeited		(238,942	)		12.30		4.03
Outstanding balance at February 28, 2009		2,545,089		$	11.76	$	4.23
Granted		25,000			1.93		0.68
Exercised	Nil				n/a		n/a
Forfeited		(70,643	)		12.73		4.13
Outstanding balance at May 31, 2009		2,499,446		$	11.63	$	4.20
Granted		3,604,635			2.20		0.75
Exercised	Nil				n/a		n/a
Forfeited		(117,042	)		9.67		3.28
Outstanding balance at August 31, 2009		5,987,039		$	5.99	$	2.14
Exercisable at August 31, 2009		1,600,280		$	11.73	$	4.23
Weighted average remaining life of the outstanding options	9.00 Years
Total intrinsic value of exercisable options	$	81
Weighted average remaining life of the exercisable options	7.48 Years

Restricted stock unit activity under the 2006 equity incentive plan, for the three and nine month periods ended August 31, 2009 is presented below:

				Weighted
				Average
				Grant Date
				Fair
	Units			Value
Outstanding balance at November 30, 2008		106,500		$	11.24
Restricted stock units converted to common shares		(11,875	)		11.78
Forfeited		(5,000	)		10.10
Outstanding balance at February 28, 2009		89,625		$	11.23
Restricted stock units converted to common shares		(28,125	)		12.64
Outstanding balance at May 31, 2009		61,500		$	10.58
Restricted stock units converted to common shares		(625	)		13.00
Outstanding balance at August 31, 2009		60,875		$	10.56
Exercisable at August 31, 2009		1,250		$	10.75
Weighted average remaining life of the outstanding restricted stock units	8.69 Years
Weighted average remaining life of the exercisable restricted stock units	8.82 Years
Total intrinsic value of the exercisable restricted stock units	$	3

Inducements to New Executive Officers

In July 2009 the Company granted options to a new executive officer. These grants were issued from treasury and were not issued under the 2006 Equity Incentive Plan.

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These options offer the same terms, conditions and benefits as those issued under the 2006 Equity Incentive Plan:.

	Inducement Grants
					Weighted
			Weighted		Average
			Average		Grant
			Exercise		Date Fair
	Options		Price		Value
Initial grant at July 24, 2009		314,618	$	2.20	$	0.77
Outstanding balance at August 31, 2009		314,618	$	2.20	$	0.77
Exercisable at August 31, 2009	Nil			n/a		n/a
Weighted average remaining life of the outstanding options	9.90 Years
Total intrinsic value of exercisable options		n/a
Weighted average remaining life of the exercisable options		n/a

2003 Share Option and Phantom Share Unit Plan

In the three months ended August 31, 2009, no options were granted as this plan is no longer eligible for grant distribution. Unit activity for the three and nine month periods ended August 31, 2009 is presented below:

	The 2003 Plan
				Weighted
				Average		Weighted Average
				Exercise		Grant Date
	Options			Price		Fair Value
Outstanding balance at November 30, 2008		504,499		$	2.61	$	5.35
Exercised		(29,220	)		1.17		6.51
Forfeited		(15,336	)		1.63		7.90
Outstanding balance at February 28, 2009		459,943		$	2.74	$	5.13
Exercised		(985	)		1.17		4.18
Forfeited		(2,286	)		6.97		4.76
Outstanding balance, May 31, 2009		456,672		$	2.72	$	5.13
Exercised		(11,927	)		1.17		4.99
Forfeited		(1,918	)		7.49		5.57
Outstanding balance, August 31, 2009		442,827		$	2.74	$	5.13
Exercisable at August 31, 2009		433,664		$	2.57	$	5.08
Weighted average remaining life of the outstanding options	5.11 Years
Total intrinsic value of exercisable options	$	595
Weighted average remaining life of the exercisable options	5.08 Years

9. Restructuring Charges

In April 2009, management initiated a restructuring plan to reduce its workforce by approximately 80 people. The total costs that arose from this global restructuring were $1.4 million, of which the entire amount was expensed in the second quarter of fiscal 2009. All costs related to this plan have been expensed.

In the third quarter of fiscal 2008, the Company incurred restructuring expense of $293 related to the termination of an executive and charges for various other employees from prior restructuring plans in November 2007 and April 2008.

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A summary of the Company’s restructuring activities, that are accrued as of August 31, 2009 are as follows:

	Three Months			Nine Months
	Ended August			Ended August
	31, 2009			31, 2009
Opening balance — Accrued Termination Benefits	$	440		$	511
Additional restructuring charges		—			1,640
Changes in estimates		(28	)		(55	)
Cash payments		(275	)		1,959
Accrued Termination Benefits as of August 31, 2009	$	137		$	137

10. Derivative Instruments

Cash Flow Hedges Designated as Effective Hedging Instruments

												Balance in accrued
										Gain (loss) in		liabilities and
				Fair Value at			Fair Value at			OCI for three months		accumulated OCI
	Notional			August 31,			May 31,			ending August 31,		as at August 31,
Instrument	Amount		Maturity Date	2009			2009			2009		2009
Interest Rate Swap	$	40,000	May 31, 2011	$	(1,937	)	$	(2,148	)	$	211	$	1,937
Interest Rate Swap		50,000	October 31, 2011		(3,475	)		(3,812	)		337		3,475
Total	$	90,000		$	(5,412	)	$	(5,960	)	$	548	$	5,412

Cash Flow Hedges not Designated as a Hedging Instrument

										Gain (loss) in
										Interest Expense		Balance in
										for period		Accrued
				Fair Value at			Fair Value at			ending		liabilities as at
	Notional			August 31,			May 31,			August 31,		August 31,
Instrument	Amount		Maturity Date	2009			2009			2009		2009
Interest Rate Swap		21,000	January 2, 2010		(479	)		(652	)		173		479
Interest Rate Swap		4,500	January 2, 2011		(297	)		(324	)		27		297
Total	$	25,500		$	(776	)	$	(976	)	$	200	$	776

In connection with its current long-term debt facility, the Company uses interest rate swaps to limit its exposure to changing interest rates and future cash outflows for interest. Interest rate swaps provide for the Company to pay an amount equal to a specified fixed rate of interest times a notional principal amount and to receive in return an amount equal to a variable rate of interest times the same notional amount. As of August 31, 2009, the Company has $115.5 million of interest rate swaps which convert an aggregate notional principal amount of $115.5 million (or approximately 98% of its interest-bearing debt). The fixed rate of the interest rate swaps range from 8.19% to 9.49%. The Company does not use its interest rate swaps for speculative purposes.

During fiscal 2007 and fiscal 2008, the Company entered into interest rate swaps for $50.0 million and $40.0 million, respectively, with its principal lender to reduce the risk of changes in cash flows associated with interest payments due to changes in one-month LIBOR. The interest rate swaps expire prior to the period which the senior credit extends. The objective of the swaps is to hedge the risk of changes in cash flows associated with the first future interest payments on floating rate debt with a notional amount of $90.0 million which is subject to changes in the one-month LIBOR rate, and therefore the cash flow from the derivative is expected to offset any changes in the first interest payments on floating rate debt with a notional amount of $90.0 million due to changes in one-month LIBOR. This is a hedge of specified cash flows. As a result, these interest rate swaps are derivatives and were designated as hedging instruments at the initiation of the swaps. The Company has applied cash flow hedge accounting in accordance with FAS 133. At the end of each period, the interest rate swaps are recorded in the consolidated balance sheet at fair value, in either other current assets if it is an asset position, or in accrued liabilities if it is in a liability position. Any related increases or decreases in the fair value are recognized on the Company’s balance sheet within accumulated other comprehensive income. Of the loss in other comprehensive income, approximately $3.3 million is expected to be re-classified into earnings over the next twelve months.

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As of August 31, 2009, the Company has two additional interest rate swaps with a notional amount of $25.5 million. The interest rate swaps qualify as derivatives and were not designated as a hedging instrument at the initiation of the swap, and as such, the Company has not applied hedge accounting. At the end of each period, the interest rate swaps are recorded in the consolidated balance sheet at fair value, either in other current assets or accrued liabilities, and any related gains or losses are recognized on the Company’s statement of operations within interest expense. The Company estimates that our liabilities for these interest rate swaps will be reduced by $525 over the next 12 months.

The Company considers its interest rate swaps to be a Level 2 measurement under the FAS 157 hierarchy, as it is largely based on observable inputs over the life of the swaps in a liquid market. The fair value of the interest rate swaps is calculated by comparing the stream of cash flows on the fixed rate debt versus the stream of cash flows that would arise under the floating rate debt. The floating and fixed rate cash flows are then discounted to the valuation date by using the one month LIBOR rate at the date of the valuation. In order to value the interest rate swaps, management used observable LIBOR rates. Linear interpolation was used to estimate the relevant rates along the zero coupon curve. To construct the zero coupon curves, management used cash rates up to three months inclusively, futures rates from three months to two years inclusively, and swap rates from two to thirty years. The fair value of the interest rate swaps includes a credit valuation adjustment. The credit adjusted valuation values the swaps using an adjusted LIBOR curve for discounting cash flows to take into account our and the counterparty’s credit risk. The credit spread used for the calculation was based on the Company’s debt ratings in August 2009.

The valuation of the interest rate swap can be sensitive to changes in the current and future one month LIBOR rates, which can have a material impact on the fair value of the derivative. However, as these swaps are used to manage the Company’s cash outflows, these changes will not impact its liquidity and capital resources. Furthermore, since the majority of the interest rate swaps are deemed as effective hedging instruments, these changes do not impact income from operations, as they would be included in other comprehensive income.

The Company assesses the effectiveness of its interest rate swaps as defined in FAS 133 on a quarterly basis. The Company has considered the impact of the credit crisis in the United States in assessing the risk of counterparty default. The Company believes that it is still likely that the counterparty for these swaps will continue to act throughout the contract period, and as a result continues to deem the swaps as effective hedging instruments. A counterparty default risk is considered in the valuation of the interest rate swaps.

Management has assessed that its cash flow hedges have no ineffectiveness, as determined by the hypothetical derivate method. If the hedge of any of the interest rate swaps, was deemed ineffective, or extinguished by either counterparty, any accumulated gains or losses remaining in other comprehensive income would be fully recorded in interest expense during the period.

11. Loss per Share

For the three months ending August 31, 2009, the dilutive impact of the outstanding options for common shares is 239. The impact of the potential exercise of Corel options is anti-dilutive for the nine month period ending August 31, 2009. Had there been income for the nine month period ending August 31, 2009, the impact of these potentially dilutive instruments would have been to increase diluted common shares by 250. For the three and nine months ending August 31, 2008, the dilutive impact of the outstanding options for common shares was 544, and 622, respectively.

12. Change in Operating Assets and Liabilities

	Three months ended						Nine months ended
	August 31						August 31
	2009			2008			2009			2008
Accounts receivable	$	6,478		$	(134	)	$	11,361		$	10,076
Inventory		(11	)		(328	)		413			(531	)
Prepaids and other current assets		465			578			(570	)		(596	)
Accounts payable and accrued liabilities		(5,661	)		(4,189	)		(17,141	)		(14,232	)
Due to related parties		1			—			(6	)		—
Accrued interest		(34	)		230			96			219
Taxes payable		728			409			972			451
Deferred revenue		(470	)		(171	)		(4,616	)		(3,248	)
Total change in operating assets and liabilities	$	1,496		$	(3,605	)	$	(9,491	)	$	(7,861	)

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13. Segment Reporting

The Company has determined that it operates in one business operating and reportable segment, the packaged software segment. The Company does manage revenue based on two product line categories: Graphics and Productivity and Digital Media. Revenues by product and region are disclosed in the following table:

	Three Months Ended				Nine Months Ended
	August 31,				August 31,
	2009		2008		2009		2008
By product category:
Graphics and Productivity	$	26,998	$	37,913	$	84,233	$	113,357
Digital Media		20,383		28,315		69,730		85,459
	$	47,381	$	66,228	$	153,963	$	198,816
By geographic region:
Americas
Canada	$	1,349	$	2,424	$	4,056	$	5,465
United States		22,288		28,932		68,502		86,736
Other		1,278		1,644		3,523		4,489
Europe, Middle East, Africa (EMEA)		11,314		18,151		37,683		58,728
Asia Pacific (APAC)
Japan		8,044		11,333		26,019		32,200
Other		3,108		3,744		14,180		11,198
	$	47,381	$	66,228	$	153,963	$	198,816

14. Comparative Balances

Certain prior year balances have been re-classified in order to conform to the current year presentation.

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

Special Note Regarding Forward-Looking Statements

Statements contained in this Quarterly Report on Form 10-Q which are not historical facts are forward-looking statements within the meaning of Section 21E of the US. Securities Exchange Act of 1934, as amended. A forward-looking statement may contain words such as “anticipate that,” “believes,” “continue to,” “estimates,” “expects to,” “hopes,” “intends,” “plans,” “to be,” “will be,” “will continue to be,” or similar words. These forward-looking statements include the statements in this Report regarding: future developments in our markets and the markets in which we expect to compete; our estimated cost reductions; our future ability to fund our operations; our development of new products and relationships; our ability to increase our customer base; the services that we or our customers will introduce and the benefits that end users will receive from these services; the impact of entering new markets; our plans to use or not to use certain types of technologies in the future; our future cost of revenue, gross margins and net losses; our future restructuring, research and development, sales and marketing, general and administrative, stock-based compensation and depreciation and amortization expenses; our future interest expenses; the value of our goodwill and other intangible assets; our future capital expenditures and capital requirements; and the anticipated impact of changes in applicable accounting rules.

These forward-looking statements are based on estimates and assumptions made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances including but not limited to general economic conditions, product pricing levels and competitive intensity, and new product introductions. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results, performance or achievements to differ materially from any future results, performance, or achievements discussed or implied by such forward-looking statements. These risks include the following:

• we are subject to restrictive covenants under our credit facility that impose operating and financial restrictions on our Company. Due to the uncertainties presented by the current state of the global economy and its potential impact on our future financial performance, there is a risk that we may, over the next twelve months, be in violation of certain of those covenants or that we may not be able to access funds under our revolving credit facility. If a violation of certain debt covenants were to occur, it could result in a default under the credit facility which might require a prepayment of all of or a portion of our credit facility debt;

• we face adverse effects to our business due to the current disruption in the global economy and financial markets;

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• we rely on relationships with a small number of OEMs and distributors for a significant percentage of our revenues, and if any of these companies terminates its relationship with us, our revenues could decline;

• many of 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, if any; accordingly, we must develop new products, successfully complete acquisitions, penetrate new markets or increase penetration of our installed base to achieve revenue growth;

• we face potential claims from third parties who may hold patent and other intellectual property rights which purport to cover various aspects of our products and from certain of our customers who may be entitled to indemnification from us in respect of potential claims they may receive from third parties related to their use or distribution of our products;

• we face competition from companies with significant competitive advantages, such as significantly greater market share and resources;

• as an increasing number of companies with advertising or subscriber-fee business models seek to offer competitive software products over the Internet at little or no cost to consumers, it may become more challenging for us to maintain our historical pricing policies and operating margins;

• we rely on relationships with a small number of strategic partners and these relationships can be modified or effectively terminated at any time without our approval;

• our acquisition strategy may fail for various reasons, including our inability to find suitable acquisition candidates, complete acquisitions on acceptable terms or effectively integrate acquired businesses;

• the manner in which packaged software is distributed is changing rapidly, which presents challenges to established software companies such as us and presents opportunities for potential competitors; and

• the proliferation of open source software and open standards may make us more vulnerable to competition because new market entrants and existing competitors could introduce similar products quickly and cheaply.

These risk factors should be considered carefully, and readers should not place undue reliance on our forward-looking statements. Forward-looking statements speak only as of the date of the document in which they are made. We disclaim any intention 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, except as required by law.

Many factors could cause our actual results, performance or achievements to differ materially from those expressed or implied by such forward-looking statements, including, without limitation, the above factors.

These and other important factors are described in greater detail in the section entitled “Risk Factors” in our annual report on Form 10-K dated February 9, 2009 filed with the Securities and Exchange Commission and with Canadian securities regulators. A copy of the 10-K can be obtained on our website (http://www.corel.com), or at www.sec.gov

The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and accompanying notes for the three and nine month period ended August 31, 2009 included elsewhere in this quarterly report on Form 10-Q. All amounts are in United States dollars, except as otherwise noted.

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BACKGROUND

We are a leading global packaged software company with an estimated installed base of over 100 million active users in over 75 countries. We provide high quality, affordable and easy-to-use Graphics, Productivity and Digital Media software. Our products enjoy a favorable market position among value-conscious consumers and small businesses benefiting from the widespread, global adoption of personal computers, or PCs, and digital capture devices. The functional departments within large companies and governmental organizations are also attracted to the industry-specific features and technical capabilities of our software. Our products are sold through a scalable distribution platform comprised of original equipment manufacturer’s (OEMs), our global e-Stores, and our international network of resellers and retail vendors. We have broad geographic representation with dedicated sales and marketing teams based in the Americas, Europe Middle East and Africa (EMEA), and the Asia Pacific (APAC) regions. Our product portfolio includes well-established, globally recognized brands.

An important element of our business strategy is to grow revenues through acquisitions of companies or product lines. We intend to focus our acquisition activities on companies or product lines with proven and complementary products and established user bases that we believe can be accretive to our earnings shortly after completion of the acquisition. While we review acquisition opportunities on an ongoing basis, we currently have no binding obligations with respect to any particular acquisition. We are subject to certain debt covenants which may restrict our ability to pursue certain acquisitions.

Graphics and Productivity

Our primary Graphics and Productivity products include: CorelDRAW^® Graphics Suite, Corel^® Painter™, CorelDESIGNER^® Technical Suite, WinZip^® , iGrafx^® and WordPerfect^® Office. CorelDRAW Graphics Suite is a leading vector illustration, page layout, image editing and bitmap conversion software suite used by design professionals and non-professionals around the world. Corel Painter is a Natural-Media^® digital painting and drawing software that mirrors the look and feel of their traditional counter parts. CorelDESIGNER Technical Suite offers users a graphics application for creating or updating complex technical illustrations. WinZip is the most widely used compression utility in the world. Our iGrafx products allow enterprises to analyze, streamline and optimize their business processes. WordPerfect Office is the leading Microsoft-alternative productivity software and features Microsoft-compatible word processing, spreadsheet and presentation applications.

Digital Media

Our Digital Media portfolio includes products for digital imaging, video editing, optical disc authoring (Blu-ray, DVD, and CD), and video playback. Our Digital Imaging products include Corel^® Paint Shop ^® Photo, Corel^® Digital Studio™ 2010, and PhotoImpact^®. Corel Paint Shop Photo is a digital image editing and management application used by novice and professional photographers and photo editors. Corel Digital Studio 2010, launched in September 2009, is a multimedia software program for organizing and enhancing photos and video clips that are primarily taken with a point-and-shoot camera. Photo Impact is an image editing software, which provides users with easy-to-use photo editing tools, creative project templates and some digital art capabilities. VideoStudio^® is our video editing and DVD authoring software for users who want to produce professional-looking videos, slideshows and DVDs. Our optical disc authoring software applications are DVD Movie Factory^® and DVD Movie Writer^®. WinDVD^® is the world’s leading software for DVD, video and Blu-ray Disc playback on PC’s with over 200 million units shipped worldwide.

Product Development

Despite the challenging economic conditions, Corel continued to place an emphasis on innovation, delivering software that provides easier, more compelling ways for our customers to create, edit, share, and enjoy digital content. In this quarter we introduced Corel Home Office, providing consumers with a light, fast and affordable productivity suite loaded on a USB stick for maximum flexibility.

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Our drive towards simplicity and enhanced usability is perhaps best exemplified in our most recent product release, Corel Digital Studio 2010, which was released at beginning of September 2009. Designed specifically for the consumer who captures digital photos and videos on their point-and-shoot cameras or smartphones, Corel Digital Studio taps into the dramatic growth of digital photo capture and video creation, and makes it much easier for consumers to make the most of their digital memories. Our focus with the Version 1 release was to build a solution that brings photo and video organization, editing and sharing together in a simple, fun and easy to understand environment. The first offering of its kind on the PC platform, Digital Studio makes it easy to organize, edit, and share digital photos and videos, even for those who have no prior experience. Digital Studio also includes easy uploading options to key social networking sites such as Facebook, YouTube and Flickr and incorporates backup, burning and playback capabilities — all with an elegant and consistent user interface. We are excited about the positive early reviews for Digital Studio and growing customer interest, and we believe it represents a significant new opportunity for Corel.

OVERVIEW OF THE QUARTER

Operating Performance

Revenue during the third quarter was $47.4 million, down 28.5% year over year. The revenue decrease of $18.8 million coincides with weakness in the global economy which has had an adverse impact on our operations particularly in Europe and North America. Within our Digital Media group, our revenues for the third quarter of fiscal 2009 decreased by $7.9 million or 28.0%, largely due to decreases in WinDVD, Instant On, Corel Paint Shop Photo, and DVD Movie Factory. Our Graphics and Productivity revenues decreased by $10.9 million or 28.8%, due mainly to declines in revenues from our CorelDRAW, WordPerfect, iGrafx, and WinZip products.

A shift in our product mix for the current quarter has resulted in higher gross margins on our revenues. Our gross margin for the current quarter, not including amortization on intangible assets, was 72.9% as opposed to 71.3% in the second quarter of fiscal 2009.

From an operating income perspective, we were able to mitigate the impact of the decreased revenues and gross margins through a 28.1% year over year reduction in our operating expenses of $10.5 million, which was driven by our prior restructuring activities, a decrease in discretionary spending, and favourable changes in foreign exchange from the strengthening of the US Dollar against the CDN Dollar and the Pound Sterling.

Our net income for the third quarter of fiscal 2009 was $529,000, or $0.02 per share, compared to net income of $1.6 million, or $0.06 per share in the third quarter of 2008. Non-GAAP Adjusted EBITDA was $9.6 million and cash provided by operations was $7.3 million in the third quarter of fiscal 2009 compared to non-GAAP Adjusted EBITDA of $15.8 million and cash flow from operations of $6.2 million in the third quarter of fiscal 2008. Adjusted EBITDA represents net income before interest, income taxes, depreciation and amortization, further adjusted to eliminate items specifically defined in our credit facility agreement. Refer to the Financial Condition section within this MD&A for a reconciliation of non-GAAP Adjusted EBITDA to cash flow provided by operations.

RESULTS OF OPERATIONS

Three and Nine Months ended August 31, 2009 and August 31, 2008

Revenues

	Three Months Ended									Nine Months Ended
	August 31,						Percentage			August 31,						Percentage
	2009			2008			Change			2009			2008			Change
	(dollars in thousands)
	(unaudited)
Product	$	41,712		$	59,725			(30.2	)%	$	136,067		$	179,336			(24.1	)%
As a percent of revenue		88.0	%		90.2	%					88.4	%		90.2	%
Maintenance and services		5,669			6,503			(12.8	)%		17,896			19,480			(8.1	)%
As a percent of revenue		12.0	%		9.8	%					11.6	%		9.8	%
Total		47,381			66,228			(28.5	)%		153,963			198,816			(22.6	)%

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Total revenues for the three month period ended August 31, 2009 decreased by 28.5% to $47.4 million from $66.2 million for the three months ended August 31, 2008. Total revenues for the nine month period ended August 31, 2009 decreased by 22.6% to $154.0 million from $198.8 million for the nine months ended August 31, 2008. On a global level, all of our products, product groups, and distribution channels have been impacted by the weakening of the global economy and the declining EURO in relation to the US Dollar. Of the current quarter decrease in total revenues of $18.8 million, $10.9 million is attributable to the Graphics and Productivity group of products and $7.9 million is attributable to the Digital Media group of products. Revenues from the direct sales channel have remained fairly flat, compared to the prior period. Our remaining distribution channels, including OEM and resellers, have had declining revenues compared to the three and nine months ended August 31, 2008. In light of the global economic downturn, our resellers have been reducing inventory levels across all our products.

Product revenues for the three and nine months ended August 31, 2009 decreased by 30.2% and 24.1%, to $41.7 million and $136.1 million, respectively, from $59.7 and $179.3 million for the three and nine months ended August 31, 2008. Product revenues have declined for the same reasons as described above for total revenues.

Maintenance and services revenues for the three and nine months ending August 31, 2009 have been decreasing as compared to the three and nine months ending August 31, 2008. We have not experienced declines in maintenance revenues similar to those with product revenues, as much of this revenue is related to products sold in prior periods, in which we had higher revenues.

Total Revenues by Product Group

	Three Months Ended									Nine Months Ended
	August 31,						Percentage			August 31,						Percentage
	2009			2008			Change			2009			2008			Change
	(dollars in thousands)
	(unaudited)
Graphics and Productivity	$	26,998		$	37,913			(28.8	)%	$	84,233		$	113,357			(25.7	)%
As a percent of revenue		57.0	%		57.2	%					54.7	%		57.0	%
Digital Media		20,383			28,315			(28.0	)%		69,730			85,459			(18.4	)%
As a percent of revenue		43.0	%		42.8	%					45.3	%		43.0	%

Our products generally have release cycles of between 12 and 24 months and we typically earn the largest portion of revenues for a particular product during the first half of its release cycle. In the past we have experienced declines in product revenues during the second half of product release cycles, with the sharpest declines occurring toward the end of the release cycle. The fiscal quarter of the most recent and prior release of each of our major products is set forth below:

			Quarter of
	Current		Current		Quarter of
	Version		Release		Prior Release
Product
Graphics and Productivity:
CorelDRAW Graphics Suite		14		Q1 2008		Q1 2006
Corel Painter		11		Q2 2009		Q1 2007
Corel Designer Technical Suite		14		Q3 2008		Q3 2005
WinZip		12		Q4 2008		Q4 2006
iGrafx FlowCharter		12		Q2 2007		Q1 2006
WordPerfect Office Suite		14		Q2 2008		Q1 2006
Digital Media
Paint Shop Photo (ultimate)		12		Q4 2008		Q4 2006
MediaOne		2		Q4 2007		Q4 2006
WinDVD		9		Q1 2008		Q4 2006
VideoStudio		12		Q4 2008		Q2 2007
DVD Movie Factory		6		Q1 2007		Q1 2006
PhotoImpact		13		Q1 2008		Q3 2006

Graphics and Productivity revenues decreased by $10.9 million or 28.8% to $27.0 million in the third quarter of fiscal 2009 from $37.9 million in the third quarter of fiscal 2008, and decreased by $29.1 million or 25.7% to $84.2 million for the nine month period ending August 31, 2009 as compared to the nine month period ending August 31, 2008. The revenue decline was primarily driven by declines in CorelDRAW, WordPerfect, iGrafx and WinZip. CorelDRAW, which enjoyed a sales peak in fiscal 2008 due to the launch of CorelDRAW Graphics Suite X4 in the first quarter of fiscal 2008, experienced most of its decline in EMEA and in its sales to resellers and distributors. The decline in WordPerfect revenues has been isolated mainly to the United States, where there were large benefits in the prior year due to the launch of X4 in the second quarter of fiscal 2008. iGrafx revenues have declined in both EMEA and the Americas, due to large deals in Q3 2008 and to enterprise customers delaying or declining orders of this product due to the current economy. WinZip revenues have declined in both North America and EMEA as a decrease in license sales continues from prior periods.

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Digital Media revenues decreased by $7.9 million or 28.0% to $20.4 million in the third quarter of fiscal 2009 from $28.3 million in the third quarter of fiscal 2008, and decreased by $15.7 million or 18.4% to $69.7 million for the nine months ending August 31, 2009. Our decline in these revenues in the current quarter was led by WinDVD, Instant On, Corel Paint Shop Photo, and DVD Movie Factory. The decline in WinDVD is due to reduced sales in the North America to OEMs. The decline in Instant On is due to a significant Japanese OEM customer that is not currently bundling this product with their computers. However, we changed the specifications in the agreement with this OEM customer in the first quarter of fiscal 2009, and have experienced growth in the third quarter of fiscal 2009 as compared to the second quarter of fiscal 2009. The decline in Paint Shop Photo, a product towards the end of this version’s life cycle, was largely in the EMEA market where they have encountered decreased sales to resellers. The majority of the decrease in DVD Movie Factory is in North America, relating largely to OEM sales decreases for two significant customers. In addition, for the nine months ending August 31, 2009 there have also been declines in VideoStudio and Corel Media One. VideoStudio, which is near the end of its life cycle, has had declines across varying distribution channels in both EMEA and APAC. MediaOne has incurred the majority of its declines in the first two quarters of fiscal 2009 and in the United States as there has been a large decrease in electronic downloads. Despite a decline in the current quarter, year to date WinDVD revenues have been consistent with the prior year as the product enjoyed success in Taiwan and Japan with existing and new OEM customers in the first two quarter of fiscal 2009.

Total Revenues by Region

	Three Months Ended									Nine Months Ended
	August 31,						Percentage			August 31,						Percentage
	2009			2008			Change			2009			2008			Change
	(dollars in thousands)
	(unaudited)
Americas	$	24,915		$	33,000			(24.5	)%	$	76,081		$	96,690			(21.3	)%
As a percent of revenue		52.6	%		49.8	%					49.4	%		48.6	%
EMEA		11,314			18,151			(37.7	)%		37,683			58,728			(35.8	)%
As a percent of revenue		23.9	%		27.4	%					24.5	%		29.5	%
APAC		11,152			15,077			(26.0	)%		40,199			43,398			(7.4	)%
As a percent of revenue		23.5	%		22.8	%					26.1	%		21.8	%

Revenues in the Americas decreased by 24.5% to $24.9 million in the third quarter of fiscal 2009 compared to $33.0 million in the third quarter of fiscal 2008. For the nine months ended August 31, 2009 revenues decreased by 21.3% to $76.1 million as compared to revenues for the nine month period ending August 31, 2008. The decline in revenue in the third quarter was led by WinDVD, WordPerfect, iGrafx, CorelDRAW, and DVD Movie Factory. The WinDVD and DVD Movie Factory decline in revenues are primarily due to lower OEM sales with two large customers. The decrease in CorelDRAW and WordPerfect revenues is partially attributable to the launch of products in the prior period, those being CorelDRAW Graphics Suite X4 in the first quarter of fiscal 2008 and WordPerfect Office Suite X4 in the second quarter of 2008. iGrafx has received smaller orders from its largest enterprise customers as they delay the purchases of this specialty product, and due large orders in the comparable period which were not duplicated. For the nine month period ending August 31, 2009 we have also had revenue declines in WinZip and Corel Media One, most of which is attributable to the first half of the year. The WinZip decline is due to lower internet licenses and corporate license sales to enterprise customers, due in part to delayed upgrade cycles. The Corel Media One decline was most attributable to a decrease in electronic downloads.

Revenues in EMEA decreased by 37.7% to $11.3 million in the third quarter of fiscal 2009 from $18.2 million in the third quarter of fiscal 2008, and decreased by 35.8% to $37.7 million in the first nine months of fiscal 2009 from $58.7 million in the first nine months of fiscal 2008. One significant cause of the declining revenues in this region is the drop in the value of the EURO and Pound Sterling relative to the US dollar. The average exchange rate for the EURO and Pound Sterling was 1.52 and 1.97 in the first three quarters of fiscal 2008, respectively, and 1.36 and 1.53 in the first three quarters of fiscal 2009. The impact of the declining exchange rates is estimated to have lowered revenues by approximately $1.0 million and $5.5 million for the three and nine months ended August 31, 2009, as compared to the prior year. The largest portion of the declines in this region are Eastern Europe, and in particular the Russian Federation. The product with the most significant portion of the decline in revenues was CorelDRAW, which had significant growth in the first three quarters of fiscal 2008 due to the launch of CorelDRAW Graphics Suite X4, and had significant sales orders to Eastern Europe which were not duplicated in the current year. The decrease in revenues in this region was also caused by declines in Paint Shop Photo, WinZip and iGrafx. The decline in Paint Shop Photo is largely due to declining orders from the largest resellers of this product as the product is nearing the end of its life cycle that has been longer than normal. WinZip sales decline is most attributable to declining sales to our key reseller partners. iGrafx revenues have declined due to the falloff of enterprise level orders across various customers who are delaying or declining purchases in the current economic conditions.

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APAC revenues decreased by 26.0% to $11.2 million in the third quarter of fiscal 2009 and decreased by 7.4% to $40.2 million in the first nine months of fiscal 2009. The revenue decline in the current quarter was driven by Instant On, CorelDRAW, and DVD Movie Factory. There was a significant sale of Instant On with an OEM customer in the first three quarters of fiscal 2008 which has not recurred in fiscal 2009. However, we have had a change of specifications with this OEM customer in the first quarter of fiscal 2009, which has caused Instant On sales to increase from the second quarter to the third quarter of fiscal 2009. The decline in CorelDRAW in the third quarter is attributable to a decline in sales by distributors. In prior quarters, there was a larger decline in revenues of VideoStudio mainly due to the decreased sales through one OEM customer. While revenues in the current quarter did decrease, APAC revenues in the first two quarters of fiscal 2009 increased due to WinDVD. The growth in revenue from WinDVD is attributable to significant agreements entered into with two OEM customers in Taiwan.

Cost of Revenues

	Three Months Ended									Nine Months Ended
	August 31,						Percentage			August 31,						Percentage
	2009			2008			Change			2009			2008			Change
	(dollars in thousands)
	(unaudited)
Cost of products	$	12,688		$	15,218			(16.6	)%	$	42,585		$	44,453			(4.2	)%
As a percent of product revenue		30.4	%		25.5	%					31.3	%		24.8	%
Cost of maintenance and services		164			113			45.1	%		374			412			(9.2	)%
As a percent of maintenance and service revenue		2.9	%		1.7	%					2.1	%		2.1	%
Amortization of intangible assets		6,152			6,418			(4.1	)%		18,471			19,250			(4.0	)%
As a percent of revenue		13.0	%		9.7	%					12.0	%		9.7	%

Cost of Products. Cost of products decreased by 16.6% to $12.7 million in the third quarter of fiscal 2009 from $15.2 million in the third quarter of fiscal 2008. As a percentage of product revenues, cost of products increased to 30.4%, for the three months ended August 31, 2009 from 25.5% in the three month period ended August 31, 2008. This is consistent with the trend for the nine months ending August 31, 2009. The decrease in gross margin percentage is largely attributable to the change in our product mix caused by the higher proportion of Digital Media products sold, and in particular WinDVD. WinDVD sales, which have been increasing relative to other products, carry a higher royalty charge as a percentage of revenue than any of our other products.

A shift in our product mix for the current quarter has resulted in higher gross margins as compared to the second quarter of fiscal 2009. Our gross margin, excluding amortization of intangible assets, was 72.9% in the third quarter of fiscal 2009 as opposed to 71.3% in the second quarter of fiscal 2009. The improved margin, based on our product revenue base of $41.7 million, increased our operating income by about $820,000.

Cost of Maintenance and Services. Cost of maintenance and services are 2.1% of related revenues for the nine months ending August 31, 2009 which is consistent with the nine months ending August 31, 2008. We incur minimal incremental costs to earn maintenance revenues.

Amortization of Intangible Assets. Amortization of intangible assets decreased by $266,000 to $6.2 million in the three months ended August 31, 2009, from $6.4 million in the three months ended August 31, 2008. This is consistent with the trend for the nine months ending August 31, 2009. The decrease is due to declining amortization for certain customer relationships obtained in the acquisition of InterVideo in fiscal 2007.

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Operating Expenses

	Three Months Ended									Nine Months Ended
	August 31,						Percentage			August 31,						Percentage
	2009			2008			Change			2009			2008			Change
	(dollars in thousands)
	(unaudited)
Sales and marketing	$	13,738		$	17,941			(23.4	)%	$	43,780		$	58,373			(25.0	)%
As a percent of revenue		29.0	%		27.1	%					28.4	%		29.4	%
Research and development		7,940			10,610			(25.2	)%		26,336			34,417			(23.4	)%
As a percent of revenue		16.8	%		16.0	%					17.1	%		17.3	%
General and administrative		5,120			8,378			(38.9	)%		17,544			25,829			(32.1	)%
As a percent of revenue		10.8	%		12.7	%					11.4	%		13.0	%
Restructuring		(28	)		293			(109.6	)%		1,585			918			72.7	%
As a percent of revenue		(0.1	)%		0.4	%					1.0	%		0.5	%
Total		26,770			37,222			(28.1	%)		89,245			119,537			(25.3	)%
As a percent of revenue		56.5	%		56.2	%					58.0	%		60.1	%

A significant portion of our operating expenses relates to employee costs. A majority of our employees are located in Canada, Taiwan and the United Kingdom and therefore a significant portion of our labour and other operating costs are incurred in those jurisdictions outside of the United States. As compared to the three first quarters of fiscal 2008, the US Dollar is relatively stronger to each of the Canadian Dollar, the Pound Sterling, and the New Taiwanese Dollar. In the third quarter of fiscal 2009, this has caused an estimated reduction in our operating expenses of $1.1 million, of which $0.5 million, $0.4 million, and $0.2 million is related to the weakening of the Canadian Dollar, the Pound Sterling, and the New Taiwanese Dollar, respectively. For the nine month period ending August 31, 2009, this has caused an estimated reduction in our operating expenses of $7.2 million, of which $4.3 million, $2.1 million, and $0.8 million is related to the weakening of the Canadian Dollar, the Pound Sterling, and the New Taiwanese Dollar, respectively.

Sales and Marketing.

Sales and marketing expenses decreased by 23.4% to $13.7 million in the third quarter of fiscal 2009 as compared to $17.9 million in the third quarter of fiscal 2009. For this quarter, sales and marketing expenses as a percentage of revenue only slightly increased to 29.0%, as compared to 27.1%; as we have largely mitigated our declining revenues with lower operating expenses. Sales and marketing expenses decreased by 25.0% to $43.8 million for the nine months ended August 31, 2009, as compared to $58.4 million for the nine months ended August 31, 2008 and decreased as a percentage of revenue from 29.4% to 28.4%. The decrease in sales and marketing expenses results from reduced headcount in our sales and marketing force subsequent to our September 2008 and April 2009 restructuring initiatives, a decrease in discretionary spending on marketing programs, and the decline in the Canadian dollar and the Pound Sterling relative to the US Dollar, which has a favorable impact on operating costs of $0.5 million and $3.4 million for the three and nine month periods ended August 31, 2009, respectively.

Research and Development.

Research and development expenses decreased by 25.2% and 23.4% to $7.9 million and $26.3 million in the three and nine months ended August 31, 2009, respectively, as compared to $10.6 million and $34.4 million in three and nine months ended August 31, 2008. As a percentage of total revenues, research and development expenses only slightly increased to 16.8% from 16.0% in the third quarter of fiscal 2009 as compared to the third quarter of fiscal 2008 as we have largely mitigated our declining revenues with lower operating expenses. The decrease in research and development expense results from reduced headcount subsequent to our completed restructuring activities in September 2008 and April 2009, a decrease in facility costs related to the consolidation of operations, such as the closure of the Minneapolis location subsequent to the end of the first quarter of fiscal 2008, and the decline in the Canadian dollar and the New Taiwanese dollar relative to the US Dollar which had a favorable impact on operating costs of $0.3 million and $1.4 million for the three and nine months ending August 31, 2009, respectively.

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General and Administration.

General and administration expenses decreased by 38.9% and 32.1% to $5.1 million and $17.5 million in the three and nine months ended August 31, 2009, respectively, from $8.4 million and $25.8 million for the three and nine months ended August 31, 2008. As a percentage of total revenues, general and administration expenses decreased to 10.8% in the third quarter of fiscal 2009, from 12.7% in the third quarter of fiscal 2008, as we have mitigated against our declining revenues by reducing operating expenses. The decrease in general and administration expense results from reduced headcount subsequent to our completed restructuring activities in September 2008 and April 2009, a decrease in facility costs related to the consolidation of operations, a $1.2 million reduction in stock compensation expense over the first three quarters of fiscal 2009, and the decline in the Canadian dollar and the Pound Sterling relative to the US Dollar which had a favorable impact on operating costs of $0.3 million and $2.4 million for the three and nine months ending August 31, 2009, respectively.

Restructuring Expense.

In April 2009, we initiated a restructuring plan to reduce our workforce by approximately 80 employees. We took these actions to better align our cost structure with our current business conditions. The total costs that arose from this global restructuring were $1.4 million which was expensed in the second quarter of fiscal 2009. In the third quarter we recorded a gain of $28,000, relating to certain estimates for the April 2009 restructuring which were overstated.

We recorded $293,000 of restructuring expenses during the three months ended August 31, 2008, and $918,000 in the nine months ended August 31, 2008, related to restructuring plans adopted in the fourth quarter of fiscal 2007 and the second quarter of fiscal 2008, to centralize much of the Company’s Digital Media operations in Greater China and Fremont, California. Additionally, further changes were made to staff to align and balance our global teams. This resulted in the closure of the Company’s Minneapolis location at the end of the second quarter of fiscal 2008 as well as the termination of certain individuals.

Our major restructuring activities initiated in September 2008 and April 2009, have had a significant impact in reducing our operating expenses in the first three quarters of fiscal 2009 as compared to the first three quarters of fiscal 2008. We expect this trend to continue through the end of fiscal 2009.

Additional Expense Reduction Initiatives. In the second quarter of fiscal 2009, we implemented a series of initiatives to further reduce costs. These initiatives included a 10% salary reduction for all senior executives, five unpaid days off for all employees taken in the second quarter of fiscal 2009, and accelerated timing for the use of vacation time. As a result of these initiatives, we expect to realize operational cost savings totaling approximately $2.0 million throughout fiscal 2009, the majority of which has now been realized.

Other Expenses (Income)

	Three Months Ended				Nine Months Ended
	August 31,				August 31
	2009		2008		2009			2008
	(dollars in thousands)
	(unaudited)
Interest expense, net		2,761		3,540		8,784			10,761
Amortization of deferred financing fees		271		270		813			810
Expenses associated with evaluation of strategic alternatives		—		992		—			1,697
Other non-operating expenses (income)		165		1,034		(733	)		(328	)
Total non-operating expenses		3,197		5,836	$	8,864		$	12,940

Interest Expense, Net. Interest expense decreased by $779,000 in the third quarter of fiscal 2009 as compared to the third quarter of fiscal 2008, and decreased by $2.0 million for the nine months ending August 31, 2009, as compared to the prior year. The quarterly and year to date decrease is attributable to a significant decrease in our long-term debt balance of approximately 25% since November 30, 2008, related to our cash sweep payment made at the beginning of the second quarter of fiscal 2009 and our voluntary debt payments of $20.0 million made during the third quarter of fiscal 2009. Interest expense has also decreased due to a favourable change in gains pertaining to the valuation of our unhedged interest rate swaps of $469,000, and a decrease in the LIBOR rate in the past 12 months which has reduced the interest we pay on the portion of our long-term debt that is not hedged.

23

Amortization of Deferred Financing Fees. Amortization of deferred financing fees of $271,000 in the second quarter of fiscal 2009 is consistent with the second quarter of fiscal 2008, as there have been no new credit facilities during the period.

Expenses Associated with Evaluation of Strategic Alternatives. These expenses were isolated to fiscal 2008 as the purchase of Corel by its majority shareholders was being evaluated. No charges have been recorded in fiscal 2009.

Other Non-Operating Income. Other non-operating expense decreased by $869,000 to $165,000 in the third quarter of fiscal 2009 from the third quarter of fiscal 2008. The impact of foreign exchange on our receivables and trade accounts payable have been minimal in the current quarter as the key exchange rates have held fairly steady. In the third quarter of fiscal 2008 we incurred unfavourable foreign currency exchange losses relating mostly to the strengthening of the US Dollar versus the Canadian Dollar and the Euro, and the recognition of a loss for unused space in a leased location in Ireland.

Income Tax Recovery

For the three and nine months ended August 31, 2009, we recorded tax recoveries of $2.1 million and $444,000 on losses before income taxes of $1.6 million and $5.6 million. For the three and nine months ended August 31, 2009, we had a current tax recovery of $1.4 million and a current tax provision of $440,000 respectively. The current tax recovery in the current quarter relates to the reversal of certain tax uncertainties which are now outside of the potential examination period. This recovery was offset by withholding taxes which are not creditable due to loss carryforwards and income taxes in foreign jurisdictions. These withholding taxes also form the majority of the tax provision in the first two quarters of fiscal 2009. For the three and nine months ended August 31, 2009 we had a deferred tax recovery of $744,000 and $844,000 respectively. Within deferred taxes, a $744,000 and $2.2 million recovery was recorded in these periods related to the amortization of the intellectual property acquired with InterVideo. These recoveries were offset by a deferred tax expense of $1.4 million recorded in the second quarter of fiscal 2009 related to the transfer of intellectual property to Taiwan as a result of revising the estimated amount of pre-acquisition losses to be utilized upon the transfer.

For the three and nine months ended August 31, 2008, we recorded a tax recovery of $177,000 and $274,000 on income before income taxes of $1.4 million and $2.2 million, respectively. The current tax provision was $1.1 million and $3.4 million, for the three and nine month period ended August 31, 2008, respectively, which related mostly to withholding taxes which are not creditable due to loss carryforwards and income taxes in foreign jurisdictions. The current tax provision was offset by a deferred tax recovery of $1.2 million and $3.7 million, for the respective periods, which related to the amortization of the intangible assets acquired with InterVideo which have a tax basis of $nil.

The amount of the current tax recovery has been increased by $2.5 million in the third quarter of fiscal 2009 as compared to the third quarter of fiscal 2008, due to the implementation of tax plans to reduce withholding taxes in certain entities, and the reversal of certain tax uncertainties. The deferred tax recovery decreased by $489,000 in the third quarter of fiscal 2009, due to a reduction in the tax basis in the intellectual property which we amortize.

FINANCIAL CONDITION

Liquidity and Capital Resources

As of August 31, 2009, our principal sources of liquidity include cash and cash equivalents of $18.9 million and trade accounts receivable of $22.6 million.

At August 31, 2009, all of our cash and cash equivalents are held on deposit with banks. The largest proportion of our bank deposits are held in Canadian banking institutions which we believe to be secure in the current global economy due to historically strict regulations. We believe that we will be able to access the remaining balance of bank deposits outside of Canada as these deposits are with what we consider to be large, reputable banks. We have and will continue to make a series of short-term investments in term deposits and commercial paper. Our investment policy is to invest in low risk short-term investments which are investment grade commercial paper and term deposits. We have not had a history of any defaults on this commercial paper, nor do we expect any in the future given the grade and short term to maturity of these investments. At the current time we have no investments in commercial paper.

24

Based on our current business plan, internal forecasts and the risks that are present in the current global economy, we believe that cash generated from operations and our existing cash balance, will be sufficient to meet our working capital and operating cash requirements over the next twelve months. In the past quarter, we generated $7.3 million of operating cash flows. Furthermore, as we have made a voluntary repayment of $20.0 million on our term loan in the third quarter, we are expecting our mandatory cash sweep payment for fiscal 2009, which would be due in March 2010, to be nil. We could be affected by various risks and uncertainties, including, but not limited to, the risks detailed Item 1A — “Risk Factors” of our 10-K for the period ending November 30, 2008.

In fiscal 2008, the Company generated an increase in cash of $25.6 million, largely driven by our operating cash flows, increasing our cash and cash equivalents to $50.3 million. In the first nine months of fiscal 2009, the main driver of our decrease in cash of $31.4 million was loan repayments totaling $37.5 million, of which $17.5 million was a mandatory cash sweep payment and $20.0 million was voluntary payments made in the third quarter of fiscal 2009. Despite our reduced operating income in the current economy, we continue to generate positive cash flows from our operating activities.

Over the next 12 months our operating cash flows could decrease as we continue to face revenue uncertainty. To date, our revenue uncertainty has been largely offset by a reduction in our operating expenditures, including the additional cost reduction initiatives announced on April 2, 2009, our global restructuring plan implemented in May 2009, an elimination of salary increases for fiscal 2009, a reduction in expenditures such as the charges associated with the evaluation of strategic alternatives, a reduction in discretionary spending and a reduction in our capital expenditures. The benefits of our restructuring activities and our cost curtailment initiatives are evident in our operating expenditures for the nine months ending August 31, 2009, which have decreased by 25.3% from the same period in the prior year. We expect this level of reduced expenditures to continue for the remainder of fiscal 2009 and into fiscal 2010. We also have no significant liabilities for our defined pension benefit plan, our past restructuring activities, and do not expect significant cash flows from tax uncertainties and in particular our tax contingency with the province of Ontario.

We expect that our actions to reduce operating expenses will allow us to generate operating cash flows sufficient to sustain operations, to consider making further voluntary payments on our long term debt, and to offset, in whole or in part, the potential impact of a decrease in future revenues. We also believe the global positioning of our diverse group of products will reduce the revenue risks created by the uncertainty in the present economy.

We have a five-year $75.0 million revolving line of credit facility, of which approximately $69.0 million is unused as of August 31, 2009. Management believes based on our current market conditions, forecasts and our debt covenant restrictions, that limited amounts, if any, of the line of credit will be available to us over the next twelve months. Ultimately, we would need to obtain approval from our lenders for permitted transactions as defined in the credit agreement. Management has not used, and does not anticipate using the revolving line of credit to fund operating requirements over the next 12 months.

As of August 31, 2009 we are in full compliance with all debt covenants with our lenders. We are required to meet the following financial covenants:

• a maximum total leverage ratio, which is defined as the ratio of total debt to trailing four quarter consolidated Adjusted EBITDA, as defined in the credit agreement, to be less than specified amounts over the term of the facility as follows:

Period	Ratio
November 30, 2008 through November 29, 2009		3.00
November 30, 2009 through November 29, 2010		2.75
November 30, 2010 through November 29, 2011		2.50
November 30, 2011, thereafter		2.25

• a minimum fixed charge coverage ratio, which is defined as the ratio of trailing four quarter consolidated Adjusted EBITDA to fixed charges (fixed charges include interest paid, scheduled repayment of principal on long-term debt, capital expenditures and taxes paid) as follows:

Period	Ratio
Through to November 29, 2010		2.00
November 30, 2010 through November 29, 2011		2.25
November 30, 2011, thereafter		2.50

25

Due to the uncertainties presented by the current state of the global economy and its potential impact on our future financial performance, there is a risk that we may be in violation of certain debt covenants with our lenders over the next twelve months. However, due to our cash position and continued generation of operating cash flows, management has exercised its option to pre-pay a portion of our term loan debt, and will continue to evaluate making further payments over the next 12 months. These payments reduce our interest expense and our total amount of long-term debt, which eases our ability to meet the financial covenants under our senior credit facility.

Based on our current senior debt facility, a significant balloon payment will be required in fiscal 2012. We are unable to currently assess our ability to maintain our creditworthiness over this period, which would be required to refinance this payment at or prior to that date.

Working Capital

Our working capital deficiency at August 31, 2009 was $10.5 million, an increase of $7.7 million from the November 30, 2008 working capital deficiency of $2.8 million.

Current assets at August 31, 2009 were $47.8 million, a decrease of $46.7 million from the November 30, 2008 year end balance of $94.5 million. The decrease is primarily due to a decrease in our cash and cash equivalents of $31.4 million, a decrease in our trade accounts receivable of $10.7 million, and a decrease in our deferred tax assets of $3.1 million. The decrease in our cash position is due to our cash sweep payment of $17.5 million made in March 2009 and our voluntary debt pre-payments of $20.0 million made the third quarter of 2009, offset by the cash we have generated from operations in the past nine months. The decrease in our trade accounts receivable is attributable to our decreasing revenues in the past two fiscal quarters and cash collection efforts. The deferred tax assets decreased by $3.1 million due to transactions related to the transfer of intellectual property in a prior quarter.

Current liabilities were $58.3 million at August 31, 2009, a decrease of $39.0 million from November 30, 2008. This is attributable to a $19.1 million reduction in the current portion of our long-term debt, a $17.0 million decrease in accounts payable and accrued liabilities and a $4.1 million decrease in deferred revenue. As we have made a voluntary cash payment of $20.0 million in the third quarter of fiscal 2009, we are no longer expecting to make a cash sweep payment for fiscal 2009 which would have been paid in February 2010. The decrease in accounts payable and accrued liabilities is attributable to our decreasing royalty payables which are caused by declining sales and the decrease in our organizational headcount which impacts various employee related accruals. The decrease in deferred revenues is caused by the timing of several maintenance renewals which historically take place in the fourth quarter, and partially by our declining revenue base.

Cash Flows

Cash provided by operations increased by $1.1 million to $7.3 million for the three months ended August 31, 2009, and decreased by $11.5 million to $8.1 million for the nine months ended August 31, 2009. The year to date decrease is primarily due to our decreasing income from operations caused by our declining revenues and gross margins as well as the timing of certain royalty payments.

Cash used by financing activities increased by $19.5 million and $37.0 million to $20.4 million and $39.0 million for the three and nine months ended August 31, 2009 as compared to the respective periods in fiscal 2008. This increase is attributable to our first cash sweep payment of $17.5 million which was made in March 2009 and a voluntary prepayment on our term debt of $20.0 million made in the third quarter of fiscal 2009. The repayment of our capital lease obligations have remained and will continue to remain consistent. We are no longer required to make any payments on our term debt until fiscal 2012.

Cash used in investing activities was $1.1 million in the nine months ended August 31, 2009, a significant decrease of $3.9 million over the cash used of $5.0 million in the nine months ended August 31, 2008. These cash flows pertain to capital purchases, and the decrease in capital spending is attributable to management’s decision to reduce spending in the current economic environment.

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Adjusted EBITDA

Adjusted EBITDA represents net income before interest, income taxes, depreciation and amortization, further adjusted to eliminate items specifically defined in our credit facility agreement. Adjusted EBITDA is not a measure of operating income, operating performance or liquidity under GAAP. We use this non-GAAP financial measure to confirm our compliance with covenants contained in our debt facilities, as a supplemental indicator of our operating performance and to assist in evaluation of our ongoing operations and liquidity and to determine appropriate levels of indebtedness. In particular, we have included a presentation of Adjusted EBITDA because certain covenants in our credit facility are tied to Adjusted EBITDA. If our Adjusted EBITDA were to decline below certain levels, it could result in, among other things, a default or mandatory prepayment under our current credit facility. Adjusted EBITDA was $9.6 million in the third quarter of fiscal 2009 compared to $15.8 million in the third quarter of fiscal 2008. The decrease of $6.2 million is primarily attributable to our decrease in gross margin in the period, caused by the decline in revenues being principally concentrated in our higher margin products, which was partially offset by our decline in operating expenditures.

We believe Adjusted EBITDA is useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. This measure does not have any standardized meaning prescribed by GAAP and therefore is not comparable to the calculation of similar measures used by other companies. Adjusted EBITDA should not be considered in isolation, and should not be viewed as an alternative to or substitute for measures of financial performance or changes in cash flows calculated in accordance with GAAP. We consider Adjusted EBITDA to be a measure of liquidity and that cash flow from operations is the closest GAAP measure to Adjusted EBITDA. For the three months ended August 31, 2009 and August 31, 2008, we had cash provided by operations of $7.3 million and $6.2 million, respectively. The table below reconciles Adjusted EBITDA to cash flow from operations; investors are encouraged to review the related GAAP financial measure and the reconciliation:

	Three Months Ended						Nine Months Ended
	August 31,						August 31,
(dollars in thousands)	2009			2008			2009			2008
Cash flows provided by / (used in) operations	$	7,305		$	6,219		$	8,056		$	19,536
Change in operating assets and liabilities		(1,496	)		3,605			9,491			7,861
Interest expenses, net		2,761			3,540			8,784			10,761
Income tax provision (recovery)		(2,119	)		(177	)		(444	)		(274	)
Change in tax uncertainties		2,245			62			1,973			(494	)
Deferred income taxes		744			1,233			884			3,700
Provision for bad debts		28			(146	)		57			(379	)
Unrealized foreign exchange losses on forward contracts		—			—			45			—
Gain in sale of investments		—			—			—			822
Defined benefit pension plan costs		2			—			(20	)		—
Gain (loss) on interest rate swap		200			193			419			(50	)
Loss on disposal of fixed assets		—			(19	)		(18	)		(67	)
Restructuring costs		(28	)		293			1,585			918
Expenses associated with evaluation of strategic alternatives		—			992			—			1,697
Adjusted EBITDA	$	9,642		$	15,795		$	30,812		$	44,031

Off Balance Sheet Arrangements

In certain agreements with customers and distributors, including OEMs and online services companies, we provide indemnifications for third-party intellectual property infringement claims, and many of these indemnification obligations are not subject to monetary limits. We evaluate estimated losses for such indemnifications under SFAS No. 5, Accounting for Contingencies, as interpreted by Financial Accounting Standards Board (“FASB”) Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. We consider factors such as the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. To date, we have not encountered material costs as a result of such obligations and have not accrued any material liabilities related to such indemnifications in our financial statements.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States consistently applied throughout all periods. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to product returns, bad debts, inventories, intangible assets, income taxes, contingencies, litigation and cash sweep payments related to our long-term debt. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

All critical accounting policies that affect our more significant judgments and estimates used in the preparation of our consolidated financial statements have been discussed in Item 7 of our 10-K filing as at November 30, 2008.

Impairment of Goodwill

In accordance with Statement of Financial Accounting Standards No. 142 Goodwill and Other Intangible Assets (“FAS 142”), goodwill is subject to annual impairment tests or on a more frequent basis if events or conditions indicate that goodwill may be impaired. Goodwill is tested for impairment at the beginning of the fourth quarter of each fiscal year. We also test goodwill for impairment more frequently if events or circumstances warrant. Corel as a whole is considered one reporting unit. We estimate the value of our reporting unit based on our market capitalization. If we determine that our carrying value exceeds our fair value, we would conduct the second step of the goodwill impairment test. The second step compares the implied fair value of the goodwill (determined as the excess fair value over the fair value assigned to our other assets and liabilities) to the carrying amount of goodwill. If the carrying amount of goodwill were to exceed the implied fair value of goodwill, an impairment loss would be recognized. Our goodwill balance of approximately $81.0 million arose from the acquisition of Jasc in fiscal 2004, which generated goodwill of approximately $9.9 million, and from the acquisition of InterVideo in fiscal 2007, which now has goodwill of approximately $71.1 million.

Management concluded that no triggers had been reached during the three months ended August 31, 2009 that would require us to perform additional impairment testing.

Definite-lived Intangible Assets

We amortize our long-lived assets over the estimated useful life of the asset. We evaluate all of our long-lived assets, excluding goodwill, periodically for impairment in accordance with Statement of Financial Accounting Standards No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets (“FAS 144”). FAS 144 requires that long-lived assets be evaluated for impairment when events or changes in facts and circumstances indicate that their carrying value may not be recoverable. Events or changes in facts or circumstances can include a strategic change in business direction, decline or discontinuance of a product line, a reduction in our customer base or a restructuring. If one of these events or circumstances indicates that the carrying value of an asset may not be recoverable, or that our estimated amortization period was not appropriate, we would record an impairment charge against our long-lived assets. The amount of impairment would be measured as the difference between the carrying value and the fair value of the impaired asset as calculated using a net realizable value methodology. An impairment charge would be recorded as an operating expense in the period of the impairment and as a reduction in the carrying value of that asset.

Management concluded that no triggers had been reached during the three months ended August 31, 2009, that would require us to perform additional impairment testing.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk is the risk of a loss that could affect our financial position resulting from adverse changes in the financial markets. Our primary risks relate to increases in interest rates and fluctuations in foreign currency exchange rates. Our market risk sensitive instruments were all entered into for non-trading purposes.

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Interest Rate Risk

Our exposure to interest rate risk relates primarily to our long-term debt. We have significantly larger amounts of interest bearing debt as compared to interest bearing assets. The risk is associated with increases in the prime lending rate, as a significant portion of the debt has a floating rate of interest based on the LIBOR rate.

Given the amount of debt that we have, if LIBOR rates were to rise significantly, the resulting interest cost could materially affect the business. Our annual interest expense, after considering our interest rate swaps that are deemed as effective hedging instruments, would change by approximately $139,000 for each 0.5% change in interest rates based on debt outstanding as of August 31, 2009. In connection with the current debt facility, we use interest rate swaps to limit our exposure to changing interest rates and future cash outflows for interest. Interest rate swaps provide for us to pay an amount equal to a specified fixed rate of interest times a notional principal amount and to receive in return an amount equal to a variable rate of interest times the same notional amount.

As of August 31, 2009 our interest rate swaps convert an aggregate notional principal amount of $115.5 million (or approximately 98% of our interest-bearing debt) from floating rate interest payments under our term loan facility to fixed interest rate obligations. The variable rate of interest is based on one-month LIBOR plus 4.00%. The fixed rates range from 8.19% to 9.49%. As of August 31, 2009, $90.0 million of these interest rate swaps have been designated as effective hedging instruments and any gains or losses on these items are recorded in other comprehensive income. In this quarter, the decrease in the liability to record the fair value of the swaps of $548,000 has been recorded as a gain in other comprehensive income.

We assess the effectiveness of our interest rate swaps as defined in Financial Accounting Standards No. 133 Accounting for Derivative Instruments and Hedging Activities (“FAS 133”), on a quarterly basis. We have considered the impact of the current credit crisis in the United States and elsewhere, and the downturn in the global economy in assessing the risk of counterparty default. We believe that it is still likely that the counterparty for these swaps will continue to act throughout the contract period, and as a result we continue to assess the swaps as effective hedging instruments. If there was to be a counterparty default during the life of the contract, there could be a material impact on future cash flows as well as interest expense recorded on our statement of operations. To the extent that the interest rate swaps continue to be in a liability position the impact would not be adverse.

Foreign Currency Risk

The majority of our employees are located outside of the United States, mostly in Canada, Taiwan and the United Kingdom. We incur a disproportionate percentage of costs in Canadian and Taiwanese dollars as compared to Canadian and Taiwanese dollar denominated revenues. In addition we have a disproportionate amount of revenues in Euros and Japanese Yen, as compared to costs in Euros and Japanese Yen. We are therefore exposed to loss if the Canadian and Taiwanese dollar appreciates against the US dollar, and if the Euro and the Japanese Yen depreciate against the US dollar.

We manage our financial exposure to certain foreign exchange fluctuations with the objective of minimizing the impact of foreign currency exchange movements on our operations. We try to minimize the effect of changes in US and Canadian dollar exchange rates on our business through the purchase of forward exchange contracts. As of August 31, 2009 and at August 31, 2008, we did not have any open forward exchange contracts. However, we have used forward exchange contracts at various selected times throughout fiscal 2009.

As we also operate internationally, a portion of our business outside North America is conducted in currencies other than the US dollar. Accordingly, the results of our business may also be affected by fluctuations in the US dollar against certain European and Asian currencies, in particular the Pound Sterling, the Yen and the Euro. Our exposure to these and other currencies is partially mitigated due to certain hedges naturally occurring in our business as we have decentralized sales, marketing and support operations in which most costs are local currency-based.

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Item 4. Controls and Procedures

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective at the reasonable assurance level. There were no changes in our internal control over financial reporting during the quarter ended August 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent or detect all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Corel have been detected.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are currently, and from time to time, involved in certain legal proceedings, as well as demands, claims and threatened litigation that arise in the normal course of our business, including assertions from third parties that we may be infringing patents or other intellectual property rights of others and from certain of our customers that they are entitled to indemnification from us in respect of claims that they are infringing such third party rights through the use or distribution of our products. The ultimate outcome of any litigation is uncertain and, regardless of outcome, litigation can have an adverse impact on the business because of defense costs, negative publicity, diversion of management resources and other factors. Failure to obtain any necessary license or other rights on commercially reasonable terms, or otherwise, or litigation arising out of intellectual property claims could materially adversely affect the business.

In addition, some of our agreements with customers and distributors, including OEMs and online services companies, require us to indemnify these parties for third-party intellectual property infringement claims, and many of these indemnification obligations are not subject to monetary limits. The existence of these indemnification provisions could increase our cost of litigation and could significantly increase our exposure to losses from an adverse ruling.

At August 31, 2009, we were a defendant in Victor Company of Japan, Ltd (“JVC”) v. Corel Corporation, InterVideo, Inc., an ongoing patent infringement proceeding. JVC filed a patent infringement action on January 15, 2008, against Corel and others in the United States District Court for the Western District of Texas (Austin Division), alleging infringement of US patents: 6,493,383 issued on December 10, 2002; 6,522,692 issued February 18, 2003; 6,542,543 issued April 1, 2003; 6,570,920 issued May 27, 2003; 6,141,491 issued October 31, 2000; and 5,535,008 issued July 9, 1996. JVC alleges certain Corel video applications infringe the patents. Earlier this year, Cyberlink Corp. and JVC entered into a confidential settlement, and the complaint against Cyberlink Corp. was dismissed. On July 27, 2009 the court issued its Markman ruling on claim construction. On August 31, 2009 the court issued a scheduling order setting trial for October of 2010. We believe we have meritorious defenses to JVC’s claims, we are situated differently than Cyberlink Corp. and intend to continue to defend the litigation vigorously. The ultimate outcome of the litigation, however, is uncertain. Any potential loss that may arise is indeterminable at this time.

Item 1A. Risk Factors

The risk factors set forth in the section entitled “Risk Factors” in our Form 10-K for the period ending November 30, 2008 (File No. 000-20562), are incorporated by reference into this quarterly report.

Item 5. Other Information

During the three months ending August 31, 2009, the Company entered into the following employment arrangements with executive officers of the Company: (i) an employment agreement, dated August 18, 2009, with Mr. Thomas Berquist to act as Chief Financial Officer upon the resignation of Mr. Douglas McCollam; and (ii) an amendment to an employment agreement, dated May 13, 2009, with Ms. Amanda Bedborough.  The key terms amended for Ms. Bedborough consist of the following: (i) an increase in annual base salary from £180,000 to £200,000, (ii) an increase in annual target bonus from £101,296 to £155,000, (iii) an offer to be included in future long-term equity incentives, with a guarantee that, 24 months after the date any new grants are made, such new equity interests will be worth at least £250,000 so long as the guarantee is triggered  by  such 24-month anniversary and, if not triggered by such 24-month anniversary, the guarantee will be  forfeited , and (iv) a signing bonus of £25,000 to be paid March 24, 2010, provided that Ms. Bedborough has served continuously as EVP Global Sales for the preceding 12 months.

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In July 2009 the Company granted stock options for 314,618 common shares, at a per share exercise price of US$2.20, to Mr. Joseph Roberts. In September 2009 the Company granted stock options for 314,618 common shares, at a per share exercise price of US$2.82, to Mr. Thomas Berquist and stock options for 100,000 common shares, at a per share exercise price of US$2.96 to Ms. Eleanor Lacey. In September 2009, the Company offered stock options for 30,000 common shares to Mr. Yann Connan, which remain subject to Board approval as of this date. Each of Mr. Roberts (Executive Vice President, Products), Mr. Berquist (Chief Financial Officer following Mr. Doug McCollam’s resignation), Eleanor Lacey (General Counsel & Vice President, Business Development)  and Yann Connan (Vice President, E-commerce) are new executive officers of the Company. These grants were stand-alone inducement grants and accordingly were not issued pursuant to the 2006 Equity Incentive Plan, and they remain subject to approval by the Toronto Stock Exchange

Item 6. Exhibits

Exhibit
Number			Exhibit
	3.1	*	Certificate and Articles of Continuance
	3.2	*	Articles of Amendment
	3.3	*	By-laws
	4.1		Amendment of Employee Agreement with a named executive officer, Amanda Bedborough, Executive Vice President, Global Sales.
	4.2		Employee Agreement with Thomas Berquist, Chief Executive Officer
	31.1		Certifications of Chief Executive Officer Pursuant to Section 302 Certifications of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2		Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1		Certifications of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2		Certifications of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Incorporated by reference to the exhibit of the same number in the Company’s Registration Statement on Form F-1, as amended (File No. 333-132970)

Items 2, 3, 4 are not applicable to us and have been omitted.

SIGNATURE

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.

	Corel Corporation
	By:	/s/ Douglas McCollam
		Douglas McCollam
		Chief Financial Officer, Director (Principal Financial Officer and Chief Accounting Officer)
Date: October 5, 2009

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EX-4.1

Exhibit 4.1

Amanda Bedborough	PRIVATE & CONFIDENTIAL
Dove Lodge
Braywick Road
Bray
Berkshire

May 11, 2009

Dear Amanda,

Congratulations Amanda! I am pleased to confirm your promotion to EVP, Global Sales effective 24 March 2009.

Concurrent with this promotion, your total compensation has been reviewed and, effective 24 March 2009, your total compensation will be distributed as follows:

Base salary	£200,000 per annum
AIP	£155,000 per annum
Total Target Cash Compensation	£355,000 per annum

You will receive your new salary via May payroll, backdated to 24 March 2009.

FY09 Annual Incentive Plan

AIP shall be governed by a separate written agreement (the Annual Incentive Plan@), this document will be forwarded to you shortly.

Long Term Incentive

We are currently in the process of reviewing the long-term incentives (i.e., equity interests) previously granted and to be granted to you and other employees. Details of any future grants will be provided to you upon Board approval. We will guarantee that, after 24 months from the date of new grants being made, provided you are still in the position of EVP Global Sales, the total value of your new equity interests in Corel Corporation will be worth at least £250,000. Further details regarding this guarantee are set out in attached Schedule A.

Signing bonus

Once you have been in the Global Sales role for 12 months from the 24 March 2009 you will be paid a signing bonus of £25,000, subject to the normal tax and national insurance deductions. If you are no longer in the position before 12 months from 24 March 2009, the amount will be pro-rated for the period that you served as EVP Global Sales.

All terms and conditions remain the same in your employment contract dated 1 January 2003.

Amanda, I am thrilled to have you taking on this new role! I am confident that having you contribute in this increased capacity will not only re-focus our global sales team but will also strengthen Corel overall. Thank you for your ongoing commitment to the team and to Corel.

Yours sincerely

/s/ KRIS HAGERMAN Kris Hagerman

Interim CEO

Please confirm your acceptance of these terms by signing this letter and returning one copy to Anna Seegers, no later than the 13 May 2009.

Agreed and accepted this 13 day of May 2009, signed:	/s/ AMANDA BEDBOROUGH
	Amanda Bedborough

SCHEDULE A
Long-Term Incentive Guarantee

1. This schedule describes the method of determining and paying the long-term incentive guarantee (the “Guarantee”) referred to in the accompanying promotion letter and supersedes the general description contained in that letter.

2. It is Corel Corporation’s intention that you will be granted new options on or near 1 June 2009 (the actual grant date being referred to as the “New Grant Date”). The Corel options you are to be granted are referred to as your “Equity Interest”.

3. Triggering the Guarantee is at your discretion. If you wish to trigger the guarantee, you must notify HR, in writing, prior to the two year anniversary of the new grant date. If you trigger the guarantee, you will forfeit the vested portion of the new equity grant in exchange for the guaranteed amount or the appropriate amount as described in point 6, in the event of cash dividends, distributions or gains from exercises afforded to you prior to the second anniversary of the equity grant. The Guarantee is only valid up until the two year anniversary of the grant. If you choose to not trigger the Guarantee by the two year anniversary of the new grant date, then the Guarantee is null and void thereafter.

4. If you trigger the Guarantee two years after the New Grant Date, the “Guaranteed Value” will be equal to ,250,000. If the Guarantee is triggered earlier than the two year anniversary, the Guaranteed Value will be prorated based on the number of days after the New Grant Date.

5. The Guarantee may only be triggered in conjunction with the exercise or other disposition of the entire portion of your Equity Interest under paragraph 3 above that has vested as of the trigger date or in connection with a departure occurring before any of the Equity Interest has vested.

6. As of the trigger date, the body administering the long-term incentive plan governing your Equity Interest will determine the value of your Equity Interest (the “Equity Interest Value”). For the purposes of this Guarantee, the value will be equal to the fair value of the Corel shares underlying the options (vested or unvested) forming the Equity Interest less the exercise price of those options and less the value of any cash dividends, distributions or gains from exercises and sales associated with the Equity Interest and actually paid to you. In determining the fair value of the Corel shares, the body will apply a 30-day weighted average trading price (if the shares are publicly traded) or such other methodology as the body uses for other determinations of fair value under the plan.

7. To the extent that the Equity Interest Value as of the trigger date is less than the Guaranteed Value, then you will be entitled to a Top-Up Payment. The Top-Up Payment will be equal to the difference between the Guaranteed Value and the Equity Interest Value. Any payment will be subject to all applicable tax and national insurance deductions.

EX-4.2

Exhibit 4.2

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT is made effective as of the 18^th day of August, 2009 (the “Effective Date”) between COREL CORPORATION (the “Employer”) and THOMAS PETER BERQUIST (the “Executive”), an individual residing in the State of California.

WHEREAS, the Employer and the Executive wish to enter into an agreement pursuant to which the Executive will provide the Executive’s services to the Employer and the Employer will hire and retain the services of the Executive as an employee of the Employer, on the terms and conditions set forth in this agreement (the “Agreement”).

NOW, THEREFORE, in consideration of the premises and mutual covenants and agreements contained in this Agreement, the parties hereby mutually covenant and agree as follows:

1. EMPLOYMENT

(a) The Executive is employed in the position of Chief Financial Officer, reporting to the Chief Executive Officer or his/her designee, with such duties and responsibilities attendant to such position as shall be determined from time to time by the Chief Executive Officer or his/her designee; provided, however, that the Employer has the absolute right, with prior notice to the Executive, to change the Executive’s assignments, duties and reporting relationships in accordance with the operational needs of the Employer.

(b) The Executive is employed on a full-time basis for the Employer and it is understood that the hours of work involved will vary and may be irregular. The Executive acknowledges that this clause constitutes agreement to work such hours.

(c) The Executive shall be required to work in the Employer’s offices in Mountain View, California and such other locations as the Employer may specify from time to time. If the principal office location is moved by a distance greater than 50 miles, then the Executive shall have the right to be deemed to have been Terminated without Cause. It is fundamental to the term of Executive’s employment that the Executive be willing and able to travel frequently without restriction, both domestically and internationally. Accordingly, the Executive must maintain an up-to-date passport at all times.

(d) The Executive acknowledges and hereby agrees to observe all policies of the Employer as the Employer may in its absolute discretion create from time to time.

(e) The Executive acknowledges and agrees that during the term of this Agreement, the Executive shall devote the Executive’s full-time and skill to the duties and responsibilities contemplated in this Agreement and shall not be engaged in any other employment in any other capacity or any other activity that interferes with the provision of the services contemplated in this Agreement or that is for the benefit of any person, corporation or enterprise whose business interests are either competitive or in conflict with those of the Employer unless specifically approved in writing by the Chief Executive Officer; provided that the Executive may engage in charitable, civic or community activities, provided such duties do not materially interfere with the performance of the duties described herein. The Employer acknowledges that the Executive is permitted to continue to serve on two Boards as disclosed by the Executive to the Employer prior to signing this Agreement, and that any further changes in Board membership is subject to review and approval by the Employer. The Executive further agrees to limit membership to two Boards at any given time.

Employment Agreement — Tom Berquist

2. EMPLOYMENT TERM

Subject to being terminated pursuant to the provisions of Section 5 of this Agreement, the term of this Agreement shall be indefinite commencing on September 14, 2009 (the “Hire Date”).

3. SALARY AND BENEFITS

(a) Upon hire, the Executive shall receive a gross annual salary (“Base Pay”) of $300,000 USD. The said Base Pay is to be paid at such times and in such fashion as is in keeping with the ordinary practices and policies of the Employer, as amended from time to time. The Executive’s Base Pay shall be subject to review from time to time, and the Employer may but is not required to adjust the Base Pay as the Employer in its discretion may determine.

(b) The Executive shall be eligible to participate in the Employer’s Annual Incentive Plan (AIP) and the Executive’s target incentive under this program will be $200,000 USD; provided that the target incentive for the fiscal year in which the Effective Date falls will be prorated based on the actual service in that fiscal year. The terms and conditions of the AIP shall be governed by a separate written document (the “Annual Incentive Plan”), as may be amended from time to time by the Employer, and the Executive agrees to adhere to such Annual Incentive Plan.

(c) The Executive shall be eligible to participate in the Employer’s Equity Incentive program which allows employees to share in the long term value created in the company. At the next regularly scheduled Compensation Committee meeting and/or Board Meeting following the execution of this agreement, your recommended stock option grant of 314,618 options will be presented for approval. Details of this grant will be provided to you upon approval. These options are governed by the Corel Corporation Equity Incentive Plan (‘the Plan’), as it may be amended from time to time. If a Significant Event occurs (as defined in the Plan), then the Executive will vest his options on a pro-rata basis based on his then current vesting schedule without being subject to any “cliff” period as defined in the Annual Incentive Plan,. Additionally, 50% of the Executive’s unvested options will also vest on completion of that Significant Event (the “Accelerated Options”). However, if the Executive voluntarily terminates his employment with the Employer before 6 months have elapsed from completion of the Significant Event, then the Executive will be required to deliver for cancellation any common shares issuable on exercise of the Accelerated Options, or pay to the Employer the net cash proceeds received by the Executive in respect of the Accelerated Options, or shares issuable upon exercise of those options. Except as set out above, these options are governed by the Plan. You acknowledge that for the purpose of the Plan the effective date of any termination of your employment shall not be affected by the subsequent decision of any court or other body that the termination was improper, unlawful, unfair, without sufficient notice or otherwise deficient in any respect.

CA
Employment Agreement — Tom Berquist

Page 2 of 9

(d) The Executive shall be entitled to participate in such additional benefit programs as are enjoyed from time to time generally by similarly situated employees in accordance with the established practices and policies of the Employer as the Employer may in its absolute discretion create or amend from time to time. In this regard, the Executive acknowledges having received a description of the benefit programs in force as of the effective date of this Agreement. The Executive acknowledges that except as otherwise set out in this Agreement, there are no further benefits.

4. VACATION

The Executive shall be entitled to paid vacation in accordance with the Employer’s policies as the Employer may in its absolute discretion amend from time to time. The Executive’s initial annual vacation benefit shall be four (4) weeks per 12 month period commencing on the Hire Date, to accrue in equal installments of 1.67 days per month of employment. The Executive’s annual entitlement will increase by 1 day per completed year of employment, subject to an aggregated cap of five (5) weeks per 12 month period. The maximum number of vacation days Executive may accrue shall be the total number of days he/she can accrue in the 12 month period plus 5 days. The Executive shall begin to accrue vacation again after his/her vacation balance falls below that amount.

5. TERMINATION

This Agreement and the employment of the Executive under this Agreement may be terminated in the manner set out in this Section 5. For all purposes under this Agreement, the “Termination Date” shall be the date on which the Executive’s employment with the Employer ends, as specified in the written notice under Sections 5(a), (b), (c) and (e) below, or the date of death under Section 5(d) below.

(a) Termination by the Employer without Cause

The Employer may terminate this Agreement and the employment of the Executive at any time without Cause by giving the Executive notice in writing of such termination.

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(b) Termination by the Employer for Cause

The Employer may terminate this Agreement and the employment of the Executive for Cause by giving the Executive notice in writing of such termination. For purposes of this Agreement, “Cause” shall mean (i) any material act of dishonesty or misconduct in violation of the Employer’s policy, (ii) any material act significantly and demonstrably detrimental to the financial condition, reputation or good will of the Employer, which act constitutes gross negligence or willful misconduct by Executive in the performance of his duties to the Employer, (iii) Executive’s conviction of any crime deemed by the Employer to be adverse to its best interests or reputation, (iv) Executive’s willful failure to follow any lawful directive of the Executive’s superior, (v) a substantial failure by Executive to meet reasonable performance objectives that have been approved by the Executive’s superior after consultation with Executive and have been communicated to Executive in advance of the relevant period of time for performance, (vi) a material breach of this Agreement or any other agreement to which Executive and the Employer are parties or a material breach of any other obligation or duty owed to the Employer, which breach remains uncured to the reasonable satisfaction of the Employer for 15 days after Executive receives notice thereof. If the Employer proposes to terminate Executive’s employment for Cause, the Employer shall provide written notice to Executive setting forth the reasons for such termination and giving Executive an opportunity to respond prior to the effective date of termination, which shall be not less than ten (10) calendar days after Executive’s receipt of such notice. The Employer may suspend Executive with pay until a final termination decision is made by the Employer.

(c) Termination by the Executive

This Agreement and the employment of the Executive may be terminated at any time by the Executive giving to the Employer four weeks’ prior written notice. The Employer reserves the right to require the Executive to work for all or any part of such notice period, and/or to waive in writing any notice in excess of four weeks, in which case the termination will take effect on the date designated by the Employer but no sooner than four weeks from the Executive’s notice.

(d) Termination by Death

This Agreement and the employment of the Executive under this Agreement shall be automatically terminated by the death of the Executive.

(e) Termination due to Disability

This Agreement and the employment of the Executive may be terminated effective immediately in the event of the Executive’s Disability, by the Employer giving notice in writing of such termination to the Executive. For these purposes, “Disability” shall be determined in accordance with the Employer’s long-term disability program in effect from time to time, or, if no such program is in effect, shall mean that the Executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of not less than 12 months.

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(f) Effect of Termination

(A) In the event Executive’s employment with the Employer terminates under Sections 5(b) or (c) the Employer shall pay to the Executive the Accrued Obligations as set forth in subsections (i)-(iii) below:

(i) the amount of any Base Pay earned by the Executive as of the Date of Termination to the extent not theretofore paid;

(ii) any vacation pay, expense reimbursements and other cash entitlements accrued by the Executive as of the Date of Termination to the extent not theretofore paid; and

(iii) all other benefits which have accrued as of the Termination Date.

(B) In the event Executive’s employment with the Employer terminates under Sections 5(d) or (e), the Employer shall pay to the Executive (or designated beneficiary in case of his/her death):

(i) all Accrued Obligations; and

(ii) any incentive payment in accordance with the terms of the AIP Plan.

(C) In the event Executive’s employment with the Employer terminates under Section 5(a), the Employer shall pay to the Executive:

(i) all Accrued Obligations;

(ii) any incentive payment in accordance with the terms of the AIP Plan; and

(iii) the Executive’s then-current Base Pay calculated on a pro rata basis for a period of time equal to one month for each full year of employment subject to a minimum of six (6) months and a cap of twelve (12) months, payable in accordance with the Employer’s regular payroll practices.

(iv) family COBRA coverage for medical and dental calculated on a pro rata basis for a period of time equal to one month for each full year of employment subject to a minimum of six (6) months and a cap of twelve (12) months. If, prior to completion of the above period following the termination the Executive commences a position with another employer, or becomes self-employed, then the COBRA coverage will end

The payments specified in Section 5(f)(C)(iii) are conditioned upon the Executive’s compliance with Sections 6 and 7 herein and delivery to the Employer of an executed unconditional release of claims in a form satisfactory to the Employer. Any amounts due under Section 5(f)(C)(iii) shall not be due until the expiration of any revocation period applicable to the unconditional release of claims.

6. CONFIDENTIAL INFORMATION AND PROPRIETARY RIGHTS; OWNERSHIP OF PROPERTY

(a) The Executive shall abide by the Confidential Information and Proprietary Rights Agreement (“NDA/IP Agreement”) attached as Schedule A to this Agreement, as well as the Network Use and Security Policy attached as Schedule B of this Agreement, all of which form part of the terms and conditions of the Executive’s employment.

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7. OWNERSHIP OF PROPERTY

(a) The Executive agrees that during the term of his employment with the Employer and thereafter any and all equipment, devices or other property provided to the Executive by the Employer shall remain the property of the Employer. The foregoing shall include all property (whether in electronic or hard copy form) including without limitation computers, peripherals, software, cellular phones and any other equipment.

(b) Upon termination of this Agreement, the Executive shall immediately return to the Employer any and all of the foregoing property and shall return to the Employer any other property which has been leased or rented by the Employer for use by the Executive.

8. SURVIVAL, SEVERABILITY AND ENFORCEABILITY

(a) The provisions of Sections 6 and 7 of this Agreement, this Section 8 and the NDA/IP Agreement shall each survive the cessation for any reason whatsoever of the employment relationship under this Agreement and shall remain enforceable notwithstanding the existence of any claim or cause of action of the Executive against the Employer, whether predicated upon this Agreement or otherwise.

(b) If any provision of this Agreement or any part thereof shall be deemed void, invalid, illegal or unenforceable by a court or other lawful authority of competent jurisdiction, this Agreement shall continue in force with respect to the enforceable provisions and all rights accrued under the enforceable provisions shall survive any such declaration, and any non-enforceable provision or part-thereof shall, to the extent permitted by law, be replaced by a provision which, being valid, comes closest to the intention underlying the invalid, illegal or unenforceable provision.

(c) The Executive acknowledges that a breach of any of the provisions in Sections 6 and 7 of this Agreement or of the NDA/IP Agreement will give rise to irreparable harm and injury non-compensable in damages. Accordingly, the Employer or such other party may seek and obtain injunctive relief against the breach or threatened breach of the foregoing provisions, in addition to any other legal remedies which may be available. The Executive further acknowledges and agrees that the covenants contained in Sections 6 and 7 of this Agreement and in the NDA/IP Agreement are necessary for the protection of the Employer’s legitimate business interests. The Executive further agrees to notify the Employer immediately of any breach of the Executive’s obligations under this Agreement which comes to the attention of the Executive.

9. DISCLOSURE

(a) The Executive acknowledges that the Executive is not a party to any prior agreements which have created, or which could create in any third party rights which are or could become inconsistent with the Executive’s obligations in this Agreement, and the Executive agrees that the Executive will fully disclose to the Employer at the Executive’s earliest opportunity any such prior agreements as well as any claims made or notices provided by a third party which allege any such agreement or interest.

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(b) The Executive undertakes and agrees that after the termination for any reason whatsoever of the Executive’s employment under this Agreement and prior to entering into any contractual relationship with any other party to serve as an officer, director, employee, partner, advisor, joint-venturer or in any other capacity with any other business, undertaking, association, partnership, firm, enterprise or venture, the Executive shall disclose to such other party the terms of Sections 6, 7 and 8 of this Agreement and the NDA/IP Agreement. The Executive expressly authorizes the Employer to make such disclosure to such other party, if the Employer deems it necessary.

10. CURRENCY AND PAYMENTS

All payments provided under this Agreement are expressed in U.S. dollars and all payments to the Executive under this Agreement will be made subject to applicable federal and state income tax withholding and other applicable withholding requirements.

11. APPLICABLE LAW

This Agreement and the rights and obligations of the parties under this Agreement shall be construed and governed in accordance with the laws of the State of California.

12. ENTIRE AGREEMENT

This Agreement, inclusive of Schedules A and B, contains the entire understanding and agreement between the parties with respect to the employment of the Executive and the subject matter of this Agreement and any and all previous agreements and representations, written or oral, express or implied, between the parties or on their behalf, relating to the employment of the Executive by the Employer and the subject matter of this Agreement, are hereby terminated and cancelled and each of the parties hereby releases and forever discharges the other of and from all manner of actions, causes of action, claims and demands whatsoever under or in respect of any such prior agreements and representations. Except as provided in this Agreement, no amendment or variation of any of the provisions of this Agreement shall be valid unless made in writing and signed by each of the parties.

13. NOTICES

Any consent, approval, notice, request, or demand required or permitted to be given by one party to the other shall be in writing (including, without limitation, telecopy communications) to be effective and shall be deemed to have been given on the earlier of receipt or the fifth day after mailing by registered mail as follows:

(a) If to the Employer, to it at:

Corel Corporation
1600 Carling Avenue
Ottawa ON K1Z 8R7
Facsimile: (613) 761-1146

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(b) If to the Executive, at:

212 Oak Grove Avenue
Atherton, CA 94027

or such other address as may have been designated by written notice.

Any consent, approval, notice, request or demand aforesaid if delivered, faxed or telecopied shall be deemed to have been given on the date of such delivery, facsimile or telecopy transmission. Any such delivery shall be sufficient, inter alia, if left with an adult person at the above address of the Executive in the case of the Executive, and if left with the receptionist at the above address of the Employer in the case of the Employer. The Employer or the Executive may change its or the Executive’s address for service, from time to time, by notice given in accordance with the foregoing.

14. NON WAIVER

The parties acknowledge and agree that a failure by either party to enforce any particular provision of this Agreement shall not be considered a waiver of any of its rights and will not release the other party of any responsibility for performance under this Agreement.

15. SUCCESSORS AND ASSIGNS

This Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Employer.

16. COUNTERPARTS

This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.

17. INDEPENDENT LEGAL ADVICE

The Executive acknowledges that the Executive is aware that the Executive has the right to obtain independent legal advice before signing this Agreement. The Executive hereby acknowledges and agrees that either such advice has been obtained or that the Executive does not wish to seek or obtain such independent legal advice. The Executive further acknowledges and agrees that the Executive has read this Agreement inclusive of all Schedules, and has read all enclosures, and fully understands the terms of this Agreement, and further agrees that all such terms are reasonable and that the Executive signs this Agreement freely, voluntarily and without duress.

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IN WITNESS WHEREOF the parties have duly executed this Agreement as of the dates set forth below.

	COREL CORPORATION
Dated: August 18, 2009	By:	/s/ KRIS HAGERMAN
		Title: Chief Executive Officer
	EXECUTIVE
Dated: August 18, 2009	/s/ TOM BERQUIST

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Schedule A

CONFIDENTIAL INFORMATION AND PROPRIETARY RIGHTS AGREEMENT (“NDA/IP AGREEMENT”)

CONFIDENTIAL INFORMATION

1. You acknowledge that you may, in your capacity as an employee of Corel, from time to time receive Confidential Information of Corel which Corel wishes and is entitled to protect. You understand that “Confidential Information” includes, but is not limited to, any part of the computer systems, software source code, system logic, systems, marketing plans, patents, trade secrets, know how, technical expertise, financial information, product information, customer information, and other non-public information relating to the business of Corel and its affiliates, whether verbal or written, regardless of the form or medium, with respect to the business of Corel, as well as all proprietary and other information of a confidential nature which is provided to Corel by third parties.

2. You agree that both during and after your employment with Corel you will hold the Confidential Information in trust and confidence for Corel, and that you will not disclose the Confidential Information to any person or entity without the prior written approval of Corel or use the Confidential Information for any purpose other than the specific purposes required by your duties with Corel.

3. You agree that both during and after your employment with Corel you will not copy the Confidential Information without Corel’s written permission or as required by your duties with Corel. You agree that both during and after your employment with Corel you will not remove any Confidential Information from Corel’s premises without the express permission of Corel. If Corel requests at any time, you will immediately return all Confidential Information in your possession or control to Corel.

4. You agree that you will advise Corel promptly of any information known to you prior to your employment with Corel which could be included as Confidential Information but which you consider to be excluded from the provisions of this NDA/IP Agreement.

5. The obligations of confidentiality under this Agreement shall not apply to any information that (a) is or becomes information in the public domain without any act or omission by you, (b) was in your possession free of any obligation of confidentiality before being disclosed to you by or on behalf of Corel, (c) was disclosed to you by a third party without breach by such third party of any obligation to keep such information confidential, or (d) is required to be disclosed by law, whether under an order of a court or government tribunal or other legal process, provided that you inform Corel of such requirement as soon as you become aware of the requirement and in sufficient time to allow Corel to take such steps as are lawfully available to Corel to avoid or limit such disclosure. You agree that you will advise Corel promptly of any information which you believe is qualified by this paragraph before using or disclosing such information.

6. You agree that during your employment with Corel you will not make use of or in any manner communicate to Corel any confidential information of any third party (including but not limited to your former employers) that may be in or may come into your possession or control, other than confidential information disclosed to you in your capacity as a representative of Corel.

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PROPRIETARY PROPERTY

7. You acknowledge that all tangible and intangible improvements, inventions, know how and discoveries, technology, patents, copyrightable materials, computer programs, designs, documentation, processes, techniques or procedures in any way related to Corel’s business which are developed, invented, contributed to or written by you, alone or together with others during the course of your employment with Corel or at any time using Confidential Information, including all derivative works (all collectively, “Developments”) are the exclusive property of Corel.

8. You agree that you will fully disclose all Developments to Corel promptly after they are created. You hereby irrevocably waive all your moral rights in all Developments as of the moment they are created and you hereby transfer all your right, title and interest in and to all Developments, including all derivative works, exclusively to Corel on a world wide, royalty free basis as of the moment they are created and, as required by Corel, will protect Corel’s interest in such Developments. Both during and after your employment with Corel, you agree to execute any documents which Corel feels are necessary, at Corel’s expense, to enable Corel to apply for or enforce its patent, copyright, industrial design, trademark right, or any other industrial or intellectual property rights in the Developments.

9. You acknowledge that you are not a party to any prior agreements which have created, or which could create in any third party rights which are or could become inconsistent with your obligations in this Agreement, and you agree that you will fully disclose to Corel at your earliest opportunity any such prior agreements as well as any claims made or notices provided by a third party which allege any such agreement or interest.

10. You acknowledge that, from time to time, Corel uses the image, likeness, voice or other representation of its employees in connection with the production of corporate reports, advertising and promotional materials, and training videos. You hereby agree that if, during the course of your employment, you participate in such productions, Corel may use your image, likeness, voice or other representation in perpetuity, in all media and in all territories for the purposes described above, both during and after your employment with Corel, without further compensation to you.

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GENERAL

11. You acknowledge that any breach of this NDA/IP Agreement will cause Corel irreparable harm, for which damages may not be adequate compensation and acknowledge that in addition to any other rights and remedies that it may have at law or equity, Corel may apply for equitable relief, including an injunction, in order to stop any breach or threatened breach by you of this NDA/IP Agreement. You are required to notify Corel immediately of any breach of your obligations under this NDA/IP Agreement which comes to your attention.

12. You understand that a failure by Corel to enforce any particular provision of this NDA/IP Agreement is not to be considered a waiver of any of its rights and will not release you of any responsibility for performance under this NDA/IP Agreement.

13. The various provisions of this NDA/IP Agreement are independent of each other and of any other agreement, and the invalidity of all or part of any one particular provision will not affect or impair the enforceability of the remainder of that provision or the other provisions of this NDA/IP Agreement.

14. You understand that your employment with Corel is subject to the terms and conditions of this NDA/IP Agreement, and that regardless of any changes in your role, responsibilities, compensation or otherwise, you will continue to be subject to the terms and conditions of this NDA/IP Agreement. You also understand that the ongoing obligations contained in this NDA/IP Agreement shall continue in full force and effect notwithstanding the termination for any reason whatsoever of your employment with Corel and that you must continue to observe these obligations when seeking new employment.

Acceptance and Authorization I have read, I understand, and I hereby agree to comply with the terms and conditions of this NDA/IP Agreement. I confirm that I had the opportunity to confer with an independent legal advisor if I so wished, in advance of signing below.

I hereby undertake to notify my actual or future employers (and other third parties as necessary) of the terms of this NDA/IP Agreement and my responsibilities under this Agreement.

I also hereby authorize Corel to notify my actual or future employers (and other third parties as necessary) of the terms of this NDA/IP Agreement and my responsibilities under this Agreement.

Signed:	/s/ TOM BERQUIST	Date: August 18, 2009
	Tom Berquist

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Schedule B

NETWORK USE & SECURITY

The purpose of this policy is to establish guidelines for the proper use of computer network resources by employees and to increase the overall security of our computer network, including the Internet and all software, hardware, related equipment and/or services (the “Network”). Improper use of the Network by you can expose yourself and Corel to potential civil and criminal penalties, litigation, embarrassment and adverse publicity. Further, the use of unauthorized software on the Network can compromise Network performance or unduly complicate the work of Corel’s MIS department. Accordingly, it is important that all employees be familiar with and abide by the terms of this policy.

By using the Network, you acknowledge and agree that:

The Network is owned by Corel Inc, its parent, subsidiaries and/or affiliates (“Corel”). It is to be used:

• only by you; and,

• primarily for authorized business purposes that are directly related to your work for Corel.

You may make personal use of the Internet, provided that such personal use does not interfere with your ability to perform your job and does not otherwise offend this policy; however you should have no expectation as to privacy with respect to any use of the Internet or the Network.

Corel has the right and ability to monitor any and all aspects of your use of the Network, including, but not limited to, monitoring sites that you visit on the Internet and the material contained in your files and e mail. Current auditing technology allows Corel to conduct a detailed Internet audit which includes tracking the Internet sites that you visit and identifying Corel employees who visit certain sites. Anything you create, store, send, post or otherwise access and/or transmit via the Network should not be considered private. Your use of passwords, access codes, account numbers or other Network related authorizations does not necessarily ensure privacy.

You are responsible for using the Network in an ethical and lawful manner, including as follows:

Your use of the Network must comply with all relevant intellectual property laws, inclusive of copyright and the terms and conditions of third party software license or Network related agreements to which you or Corel are a party. Without limiting the foregoing, you are not to knowingly use the Network (i) to operate software that has been copied illegally; and/or (ii) to transmit software to third parties without written authorization from your Director. Software that is licensed to you personally may not be used on the Network without the prior written authorization of your Director.

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You are not to use the Network to create, store, send, post or otherwise access and/or transmit inappropriate, offensive and/or illegal material, including but not limited to, harassing, embarrassing, sexually explicit and pornographic material (collectively referred to “Inappropriate Material”). Participation in chat groups, discussion groups, newsletters and/or other public forums that contain or make reference to Inappropriate Material is similarly prohibited. Should you encounter Inappropriate Material on the Network, you agree to report it to the Human Resources Department. Should you mistakenly access Inappropriate Material, you agree to advise the Human Resources Department.

You will not use the Network to knowingly make or disseminate any defamatory, negligent or other similar statements.

You have an obligation to safeguard the Network’s integrity and security. You are responsible for all transactions and transmissions made using your password, unless your password was illegally obtained by a third party. You agree to not disclose confidential passwords, access codes, account numbers or other Network related authorizations that are assigned to you from time to time. You are not to destroy, password protect, encrypt or remove software or data without prior written authorization from your Manager. You may be required to disclose your password or assist with the decryption of a file to allow access by authorized Corel employees. You agree not to attempt to access or use the Network through the use of another user’s I.D. or password or to otherwise misrepresent yourself as another user of the Network.

Remote access privileges are for Corel employees only. Any access by a third party (such as a friend, spouse or roommate) will result in immediate withdrawal of all remote access privileges and may result in further disciplinary action.

You acknowledge and agree that, from time to time, Corel may provide you with notice of changes to this policy’s terms and conditions and that such changes shall be binding upon you.

Violation of this policy may result in disciplinary action, including dismissal for cause, and/or subject you to penalties or civil, criminal and/or copyright proceedings. Corel will cooperate fully with local, provincial, state and federal officials in any investigation that is Network related.

ACKNOWLEDGMENT

I hereby acknowledge receiving and reading a copy of the above Corporate Policy Network Use and Security on the date indicated below and I agree to abide and be bound by the above terms and conditions, as amended from time to time.

Signed:	/s/ TOM BERQUIST	Date: August 18, 2009
	Tom Berquist

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EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Kris Hagerman, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Corel Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and have:

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 Corel’s internal control over financial reporting that occurred during Corel’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Corel’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

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.

October 5, 2009

/s/ Kris Hagerman

Kris Hagerman

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Douglas McCollam, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Corel Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and have:

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 Corel’s internal control over financial reporting that occurred during Corel’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Corel’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

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.

October 5, 2009

/s/ Douglas McCollam

Douglas McCollam

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATIONS PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)

In connection with the Quarterly Report of Corel Corporation (the “Company”), on Form 10-Q for the quarter ended August 31, 2009, as filed with the Securities and Exchange Commission (the “Report”), Kris Hagerman, Interim Chief Executive Officer of the Company, does hereby certify, pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350), that to his knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Kris Hagerman

Kris Hagerman

Chief Executive Officer

October 5, 2009

[A signed original of this written statement required by Section 906 has been provided to Corel Corporation and will be retained by Corel Corporation and furnished to the Securities and Exchange Commission or its staff upon request.]

EX-32.2

Exhibit 32.2

CERTIFICATIONS PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)

In connection with the Quarterly Report of Corel Corporation (the “Company”), on Form 10-Q for the quarter ended August 31, 2009, as filed with the Securities and Exchange Commission (the “Report”), Douglas McCollam, Chief Financial Officer of the Company, does hereby certify, pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350), that to his knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Douglas McCollam

Douglas McCollam

Chief Financial Officer

October 5, 2009

[A signed original of this written statement required by Section 906 has been provided to Corel Corporation and will be retained by Corel Corporation and furnished to the Securities and Exchange Commission or its staff upon request.]