COREL CORP, 10-K405, 1998-03-02

COREL CORP
10-K405, 1998-03-02
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

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

FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1997

Commission File Number 0-20562

COREL CORPORATION
(Exact name of Registrant as specified in its Charter)

CANADA NOT APPLICABLE
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1600 CARLING AVENUE, OTTAWA, ONTARIO, CANADA K1Z 8R7
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (613) 728-8200

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act:

COMMON SHARES WITHOUT NOMINAL OR PAR VALUE
(Title of Class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]

The aggregate market value of Common Shares held by non-affiliates of the
registrant, based on the last reported sales price of the Common Shares as
reported on the NASDAQ National Market on February 26, 1998 was $126,110,771.
As of that date 59,346,217 Common Shares were issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the 1997 Annual Report to Shareholders are incorporated by reference
into Parts II and IV.

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COREL CORPORATION

FORM 10-K

FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1997

INDEX

<TABLE>

<S> <C> <C>
PART I
Item 1. Business......................................................................... 3
Item 2. Properties....................................................................... 11
Item 3. Legal Proceedings................................................................ 11
Item 4. Submission of Matters to a Vote of Security Holders.............................. 12

PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters........ 13
Item 6. Selected Financial Data.......................................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition and Results of....... 15
Operations
Item 8. Financial Statements and Supplementary Data...................................... 15
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial........ 16
Disclosures

PART III
Item 10. Directors and Executive Officers of the Registrant............................... 17
Item 11. Executive Compensation........................................................... 19
Item 12. Security Ownership of Certain Beneficial Owners and Management................... 23
Item 13. Certain Relationships and Related Transactions................................... 23

PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................. 24
Signatures.................................................................................. 25
</TABLE>

All financial information contained in this report is expressed in United States
dollars, unless otherwise stated.

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PART I
ITEM 1. BUSINESS

GENERAL
________________________________________________________________________________

The Company was incorporated as Corel Systems Corporation under the Canada
Business Corporations Act by Articles of Incorporation dated May 29, 1985. The
name of the Company was changed to Corel Corporation in May 1992. For the
purposes of this report, unless the context otherwise requires, "Corel" refers
to the consolidated operations of Corel Corporation and its wholly owned
subsidiaries, Corel Corporation Limited, Corel Computer Corporation, Corel
International Corporation, Corel Inc. and Corel Corporation (U.S.A.), while "the
Company" refers to the parent, Corel Corporation.

Corel develops, manufactures, licenses, sells and supports a wide range of
software products including graphics applications, business and consumer
productivity applications, multimedia titles and communications applications.
Corel is also engaged in the research and development of advanced technology
software such as products for the new Webtop environment, which includes Java,
XML and HTML. Corel products are available for users of most PCs, including
International Business Machines Corporation ("IBM/(R)/") and IBM-compatible PCs,
Apple Computer Inc.'s ("Apple") Macintosh/(R)/ ("Mac"), and UNIX-based systems.

During the second quarter, Corel recorded a nonrecurring charge totaling
$113.7 million. The charge consisted of write-downs of previously capitalized
acquired technologies for the WordPerfect family of software programs and
deferred development costs in the form of advance royalties paid to various
developers of the Corel CD HOME Collection and Corel Medical Series software.
Both multimedia product lines were sold to Hoffman + Associates Inc. of
Toronto for cash, a minority interest in the acquiring company and an ongoing
royalty stream over a period of time. During the same quarter, Corel announced
the formation of a spin-off company, Corel Computer Corporation. This
subsidiary develops and sells video and network computer products, and offers
turnkey computing and communication solutions for corporate users.

On September 30, 1997, Corel sold various consumer product software lines to
IMSI (International Microcomputer Software, Inc.). These lines included
CorelCAD, Corel Visual CADD, CorelFLOW, Corel Lumiere Suite, Corel Click &
Create and Corel Family Tree Suite. Corel sold these lines for cash, marketable
securities in the acquiring company and an ongoing royalty stream over a period
of time.

On January 20, 1998, Corel issued a press release announcing its financial
results for the fourth quarter and the restatement of financial information for
the first three quarters of fiscal 1997. The restatement related to certain Java
technology exchange transactions undertaken by Corel during the first three
quarters of the year. In that press release, Corel reported, in part, that the
restatement had the effect of eliminating revenues and the amortization of
related costs previously reported in connection with those transactions. The
press release stated that the accounting treatment of these transactions in the
first three quarters was considered appropriate at the time and that the
treatment adopted in the restatement resulted from further consideration by
Corel's auditors in connection with the year end audit. The release, which was
included as an exhibit to a Report on Form 8-K filed by Corel with the
Securities and Exchange Commission in January 1998, provided further information
concerning the effects of the restatement on previously reported quarterly
results and results for the fiscal year. See "Legal Proceedings."

Corel's business strategy emphasizes the development of a broad line of PC
software application products for business and personal use, marketed through
multiple channels of distribution. Corel is divided into three broad areas: the
Software Development Group; the Sales and Customer Support Group; and the
Operations and Administration Group.

The Software Development Group consists of four divisions, each responsible for
a particular area of software development. The Graphics Software Division
develops graphics software applications and products designed for the business,
academic and home markets. The Productivity Applications Division creates
business productivity applications and products designed for the business,
academic and home markets. The Multimedia Software Division develops the CD-ROM
Photo titles and the small computer system interface ("SCSI) software. The
Communications Applications Division, operating as Corel Computer Corporation,
develops video communication software and hardware.

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The Sales and Customer Support Group is responsible for building long-term
business relationships with customers. This group is organized to serve three
customer types: end-users, original equipment manufacturers ("OEMs") and
enterprises. The group also focuses directly on large organizations, offering
tailored license programs and organization-wide support. The group manages the
channels that serve customers by working with distributors, resellers and OEMs.
The group supports Corel's products with technical support and customer service
for end-users and organizations.

The Operations and Administration Group is responsible for managing business
operations and overall business planning. This includes the process of
manufacturing and delivering finished goods and licenses, and corporate
functions such as finance, administration, human resources and legal.

PRODUCTS GRAPHICS SOFTWARE APPLICATIONS
________________________________________________________________________________

The Graphics Software Division develops graphics applications software, which
provides the PC with instructions for creating and manipulating graphics, text,
or numbers. Corel's graphics software applications are designed to meet the
needs of general business users, graphics professionals, and home PC users.
Primary examples of graphics software applications include illustration, photo
editing and painting, 3D rendering, and animation programs. Corel's graphics
software applications programs are developed principally for the Microsoft
Corporation ("Microsoft/(R)/") Windows/TM/ ("Windows") and Macintosh operating
systems.

CORELDRAW. CorelDRAW/TM/ is a suite of software programs featuring integration
of all of the major graphics functions that share a common "look and feel".
CorelDRAW modules feature common commands and extensive use of object linking
and embedding ("OLE") cross-application capabilities. CorelDRAW is available in
several versions, with certain combinations of modules, supporting utilities,
clipart images, fonts, photos and 3D models available for the various operating
system platforms. Versions of CorelDRAW include: CorelDRAW 8 and CorelDRAW 7,
32-bit suites designed to run under Windows 95 and Windows NT, CorelDRAW 6 Suite
for Power Macintosh and CorelDRAW 5 for Windows 3.x.

The CorelDRAW module is an illustration program allowing users to produce color
illustrations incorporating both text and objects. The Corel PHOTO-PAINT/TM/
module is a photo-editing and painting module that enables users to apply global
photo-retouching and pixel by pixel editing to scanned or photographic images.
The Corel DREAM 3D module is a spline-based 3D modeling and rendering
application that allows users to create 3D illustrations with predefined models
and surface textures, lighting controls and high resolution rendering.
Supporting utilities include Corel TEXTURE/TM/, a tool for creating realistic
natural textures, Corel OCR-TRACE/TM/, a bitmap-to-vector conversion utility for
images and text, Corel DEPTH/TM/, a tool for applying 3D effects to text and
graphics, Corel SCAN/TM/, a wizard-based scanning utility with preset processing
options, and Corel CAPTURE/TM/, a tool for capturing portions of, or the entire,
application window.

CorelDRAW has the leading market share in the illustration segment of the
Windows graphics software market with an installed base of over 6.3 million
units worldwide.

COREL PRINT HOUSE/TM/, COREL PRINT & PHOTO HOUSE/TM/ AND COREL PRINT HOUSE/TM/
MAGIC. Corel Print House was developed as a graphics tool for home and small
business design projects. Designed to run under Windows 95 and Windows NT, Corel
Print House can be used to create greeting cards, banners, invitations, business
cards, signs, calendars, menus, fax report covers, certificates and labels.
Corel Print & Photo House adds photo-editing and bitmap creation capabilities
that allow users to scan in their own photographs and touch them up or add
special effects. Corel Print House Magic is a suite of applications which
include Corel Print House 3, Corel Photo House 2 and an all-in-one Calendar,
Address Book and List Manager.

COREL GALLERY/TM/, COREL GALLERY 2/TM/, COREL MEGA GALLERY/TM/ AND COREL
GALLERY/TM/ MAGIC. Published on a single CD-ROM, Corel GALLERY is a visual
clipart manager containing 10,000 of the clipart images that are included with
CorelDRAW separated into over 50 categories. Corel GALLERY 2 contains 15,000
clipart images, 500 royalty-free photos, 500 fonts, 75 sound clips and 10 video
clips. Corel MEGA GALLERY contains over 50,000 vector clipart images, 60,000
Internet-ready professional photos, 1,000 fonts, 200 sound clips, and 100 video
clips. Corel GALLERY Magic 65,000 contains 25,000 vector clipart images, 40,000
photos, 500 fonts, 100 animated GIFs and 100 Web theme sets. Corel GALLERY Magic
200,000 is a collection of 105,000

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clipart images, 80,000 photos and hundreds of fonts, animated GIFs, sounds,
video clips and Web theme sets. All versions of Corel GALLERY allows users to
drag and drop any of these images into any OLE compatible application or export
images to several industry standard formats.

COREL PHOTO-PAINT. Corel PHOTO-PAINT is a photo-editing and painting program
that enables users to apply global photo-retouching and pixel by pixel editing
to scanned or photographic images. Corel PHOTO-PAINT is available in various
versions: Corel PHOTO-PAINT 8, Corel PHOTO-PAINT 7 Plus and Corel PHOTO-PAINT 6
for Windows 95 and Windows NT; and Corel PHOTO-PAINT 5 Plus for Windows 3.x.

COREL GRAPHICS PACK. Corel Graphics Pack includes five, fully integrated
graphics programs with a wizard-driven, task oriented user interface which
prompts the user to the appropriate program particular to the project selected
and guides them step by step through to completion of the task. Designed for
Windows 95, Corel Graphics Pack includes Corel Print House; CorelFLOW 3, a
business graphics and technical diagraming program; Corel PHOTO-PAINT 6; Corel
MOTION 3D 6, an animation tool and internet utilities; and Corel PRESENTS 6, a
presentation graphics program.

CORELWEB.GRAPHICS SUITE. CorelWEB.GRAPHICS SUITE includes six HTML authoring,
animation and graphics programs designed for Windows 3.x, Windows 95 and Windows
NT which allow users to create web pages for the Internet or corporate intranet.
CorelWEB.GRAPHICS SUITE includes: CorelWEB.DESIGNER, Internet authoring software
requiring no HTML programming knowledge and using a familiar word processor-
style interface; CorelWEB.Transit, a tool to convert legacy documents into HTML
format; CorelWEB.GALLERY, a library of over 7,500 Internet-ready images;
CorelWEB.MOVE, software to add animations to Web pages; CorelWEB.WORLD, a tool
that enables the user to turn a Web site into an interactive virtual reality;
and CorelWEB.DRAW, software to create and edit illustrations using CorelDRAW
technology.

COREL WEBMASTER SUITE. Corel WebMaster Suite offers a complete solution for
creating Intranet and Internet web sites. Corel WebMaster Suite includes: Corel
WEB.DESIGNER, Internet authoring software using a familiar word processor-style
interface; Corel WEB.SiteManager, a tool that allows the user to manage local
and remote Web sites; Corel WEB.WORLD enables the user to turn a Web site into
an interactive reality; Corel WEB.MOVE, software that creates animation; design
and bitmap editing as well as the ability to do database and Java-based
publishing.

COREL VENTURA/TM/. Corel VENTURA is a suite of high-end desktop publishing
software programs for publishing documents of any size, length or complexity.
The latest version of Corel VENTURA, Corel VENTURA 7, allows users to publish
Corel VENTURA 7 documents to HTML, portable electronic formats, such as Corel
Envoy/TM/ and Adobe Acrobat/(R)/, a CD-ROM, over an internal network, or on the
Internet. Corel VENTURA is available in two versions: Corel VENTURA 7 for
Windows 95 and Windows NT, and Corel VENTURA 5 for Windows 3.x.

COREL XARA/TM/. CorelXARA, designed for Windows 3.x, Windows for Workgroups,
Windows 95 and Windows NT, is a vector and bitmap drawing program allowing the
user to create photo-realistic images using powerful artistic tools such as
anti-aliasing, graduated transparency and stepless graduated fills. Tools for
web page graphics publishing are also included.

OTHER GRAPHICS SOFTWARE PRODUCTS. On September 30, 1997, Corel sold to IMSI
various graphics software titles in exchange for cash, marketable securities in
the acquiring company and an ongoing royalty stream over a period of time. The
software product lines sold included CorelCAD/TM/, Corel Visual CADD/TM/,
CorelFLOW/TM/, Corel Click & Create/TM/, Corel Lumiere/TM/ and Corel Family
Tree Suite/TM/.

PRODUCTIVITY SOFTWARE APPLICATIONS
________________________________________________________________________________

Corel's productivity applications software are designed for use by a broad class
of end-users, regardless of business, industry, or market segment. Primary
examples of productivity software applications are word processing, spreadsheet,
and presentation graphics programs. Corel's productivity software applications
are developed for Windows, Macintosh, DOS and UNIX operating systems.

COREL WORDPERFECT SUITE. Corel WordPerfect/(R)/ Suite is a suite of software
programs featuring seamless integration

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of the most commonly used desktop applications. Corel WordPerfect Suite combines
document creation with graphics and Internet capabilities. There are several
versions of Corel WordPerfect Suite available: Corel WordPerfect Suite for DOS;
Corel WordPerfect Suite 7 for Windows 3.x; and Corel WordPerfect Suite 7 and
WordPerfect Suite 8 for Windows 95 and Windows NT. In each of the 16-bit
versions, certain combinations of the following programs are included: Corel
WordPerfect; Corel Quattro/(R)/ Pro; Corel Presentations/TM/; CorelFLOW; Envoy
electronic publishing software; Starfish Software's Sidekick personal
information manager; Starfish Software's Dashboard integrated application and
task-automation launcher; AT&T WorldNet Service software including Netscape
Navigator Internet browser; 150 fonts and 10,000 clipart images. Corel
WordPerfect Suite 8 and Corel WordPerfect Suite 7 for Windows 95 and Windows NT
contain 32-bit versions of Corel WordPerfect, Corel Quattro/(R)/ Pro, Corel
Presentations/TM/. Corel also created versions of Corel WordPerfect Suite for
three key business sectors - legal, medical and construction. Corel Office
Professional 7 - Medical Edition, Corel WordPerfect Suite 7 - Construction
Edition and Corel WordPerfect Suite 7 - Legal Edition offer all the features
found in the Corel WordPerfect Suite 7 along with industry-specific applications
and resources.

COREL OFFICE PROFESSIONAL. Corel Office Professional is a suite of software
programs which, depending on the version, includes enhanced Internet
connectivity, graphics, and database features. Corel Office Professional is
available in three versions: Corel Office Professional for Windows 3.x; Corel
Office Professional 8 and Corel Office Professional 7 for Windows 95 and Windows
NT with certain combinations of products available for the two operating system
platforms. Products offered in Corel Office Professional for Windows 3.x and
Corel Office Professional 7 versions include all of the components of Corel
WordPerfect Suite plus the Corel Paradox/TM/ database management program and the
InfoCentral/TM/ database information manager. Corel Office Professional 8 and
Corel Office Professional 7 also include the CorelDRAW 6 illustration module,
the Corel Time Line/(R)/ project management software, Corel Barista/TM/
technology which allows users to publish to the Java/TM/ language,
QuickTasks/TM/ cross-application automation tool, and an additional 850 fonts.
Among the features offered in Corel Office Professional 8 are Corel
WEB.SiteBuilder 8, a tool which simplifies the process of creating and managing
a Web site; CorelCENTRAL/TM/ 8, a personal information manager with fully
integrated Netscape Communicator; Grolier Multimedia Encyclopedia Deluxe Edition
1998, a comprehensive online encyclopedia; and Corel Paradox 8.

COREL WORDPERFECT. Corel WordPerfect is Corel's principal word processing
program providing all the features that users of word processing products expect
plus the ability to handle graphics, tables, spreadsheet data, charts, and
images imported from other software programs. Corel WordPerfect is available on
a stand-alone basis for the Macintosh, DOS and UNIX operating systems, while
Windows versions are available only as components of Corel WordPerfect Suite or
Corel Office Professional.

COREL QUATTRO PRO. Corel Quattro Pro is an integrated spreadsheet with
database, business graphics and, in version 7, Internet capabilities. Corel
Quattro Pro is available in two versions: Corel Quattro Pro 6.0 for Windows 3.x
and Corel Quattro Pro 7 for Windows 95.

COREL PARADOX. Corel Paradox, a powerful data management tool, delivers
advanced features such as the ability to publish a database to the Web. It is
offered in several configurations including a retail version and a Java runtime
version.

COREL PRESENTATIONS. Corel Presentations is a presentation graphics program for
producing slides, overheads, transparencies and prints. Corel Presentations is
available in two versions: Corel Presentations 3 for Windows 3.x and Corel
Presentations 7 for Windows 95.

MULTIMEDIA SOFTWARE PRODUCTS
________________________________________________________________________________

The Multimedia Software Division develops photo CD titles (for both the Internet
and retail markets) as well as peripheral interface software for PCs.

COREL PROFESSIONAL PHOTO TITLES. Corel Professional Photo titles on CD-ROM
provides an easy and inexpensive way for people to use professional photographs
in all their visual communications. Corel Professional Photos are available on
individual CDs (100 photos per CD), in packages of 10 CDs (100 photos per CD) or
in one of three Corel Stock Photo Libraries, each of which consists of 200 Corel
Professional Photos CD-ROM titles. Individual

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Corel Professional Photos can also be downloaded from Corel's World Wide Web
home page.

COREL CD HOME AND COREL MEDICAL SERIES TITLES. In May, 1997, Corel sold all
software titles in the Corel CD HOME and Corel Medical series to Hoffmann +
Associates for cash, a minority interest in the acquiring company as well as an
ongoing royalty stream over a time period.

PERIPHERAL INTERFACE SOFTWARE. CorelSCSI/TM/ is a software package that allows
users to link up to seven peripheral devices with a single host adapter card.
CorelSCSI supports most major SCSI peripherals, including CD-ROM and other
optical drives, hard disk drives, tape drives, printers and scanners.

COMMUNICATIONS APPLICATIONS PRODUCTS
________________________________________________________________________________

In the second quarter, Corel announced the formation of a spin-off company,
Corel Computer Corporation. This subsidiary develops and sells video and
network computer products, and offers turnkey computing and communication
solutions for corporate users. Corel's current desktop video communications
product, CorelVIDEO/TM/, is a hardware and software solution that provides
television quality video and audio, along with extensive communications features
such as broadcast, multi-party conferencing, data sharing, and telephony. Within
the local environment, CorelVIDEO uses a single pair of existing unused category
5 UTP wires to transport audio and video signals without impacting network
traffic.

RESEARCH AND DEVELOPMENT
________________________________________________________________________________

The PC software industry is characterized by frequent changes in technology and
user preferences, which require constant attention to software technology
trends, shifting consumer demand and rapid product innovation. The pace of
change has recently increased due to the burgeoning interest in the Internet,
networking in general, and new programming languages such as Java.

Accordingly, Corel must be able to provide new software products and modify and
enhance existing products on a timely and continuing basis to be competitive.
Corel employs a strategy of both internally developing software, including
overseeing third party development for certain products, and acquiring or
licensing technology that will, in most cases, be enhanced by Corel. Corel
believes that its ability to maintain technological competitiveness will depend
in large part upon its ability to successfully enhance its existing products,
develop new products on a timely basis and acquire or license complementary
technologies and products in a timely manner. The Company strives to become as
informed as possible at an early stage about changing usage patterns and
hardware advances that may affect software design.

In order to better serve the needs of users outside of Canada and the United
States, Corel "localizes" many of its products to reflect local languages and
conventions. Various Corel products have been localized into more than 20
languages.

Corel's research and development expenses were $27.2 million, $65.9 million and
$89.5 million in fiscal 1995, 1996 and 1997 respectively. Those amounts
represented approximately 13%, 20%, and 34%, respectively, of sales in each of
those years. Software acquired or licensed for incorporation into Corel's
product line totaled $11.7 million in fiscal 1995, $171.1 million in fiscal
1996, of which $153.4 million was for the acquisition of the WordPerfect
technology on March 1, 1996, and $12.2 million in fiscal 1997. Corel intends to
continue significant expenditures for research and development activities.

MANUFACTURING
________________________________________________________________________________

The principal materials and components used in Corel's products include computer
media (diskettes, CD-ROMs or tapes), documentation, and video hardware in the
case of CorelVIDEO. Corel is often able to acquire component parts and materials
on a volume discount basis.

Corel contracts all of its manufacturing activity to third parties.
Manufacturing involves the duplication of computer media and user manuals,
assembly of components, spot testing of the product and final packaging, in
accordance

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with Corel's specifications. Corel believes there is an adequate supply of and
source for the raw materials used in its products, and that multiple sources are
available for media duplication, manual printing and final packaging. Corel's
products are generally shipped as orders are received and, accordingly, Corel
has historically operated with little backlog.

MARKETING, SALES AND DISTRIBUTION
________________________________________________________________________________

Corel's marketing and sales efforts are directed towards several customer types,
including end-users, corporate accounts, and OEMs. Corel's marketing and sales
staff seeks to build long-term relationships with customers and end-users of
Corel products. In addition to the OEM channel, Corel has three major geographic
sales and marketing areas: North America, Europe and the rest of the world.

End-user marketing activities cover all of Corel's products and target end-users
who make individual buying decisions for the PCs they use at work or at home.
Marketing activities aimed at end-users include developing and administering
reseller relationships, channel marketing and promotions, end-user marketing
programs and seminars, events and product training for resellers.

The Corporate Licensing unit has responsibility for sales and marketing
activities that target groups of users in all organizations and enterprises. The
unit works directly with these organizations and enterprises, as well as with
channel partners such as distributors, value-added resellers and large account
resellers, to provide complete desktop productivity solutions to this customer
segment. The unit's sales and marketing activities include providing technical
training to channel resellers, supporting and providing seminars, events, and
sales training for channel partners. The unit also has responsibility for
administering the Corel License Programs worldwide. Key products for the
Corporate Licensing unit are graphics and productivity software applications.

The OEM customer unit works with original equipment manufacturers that
preinstall or bundle Corel software on their PCs or peripheral hardware.

FINISHED GOODS CHANNELS
________________________________________________________________________________

DISTRIBUTORS AND RESELLERS. Corel sells its products worldwide to over 160
distributors for resale through software resellers. Distributors include Ingram
Micro, Merisel, Tech Data, and Computer 2000. Resellers include MicroWarehouse
and Multiple Zones International. Within the United States and Canada, Corel has
sales representatives and support personnel who solicit orders from distributors
and resellers and provide product training and sales support. In other
countries, Corel's marketing personnel provide product training and sales
support.

LICENSING. Corel has a program designed to make it easier for large or small
organizations to acquire and maintain Corel products. The Corel License Program
("CLP") consists of two separate programs. CLP Universal offers flexible
software acquisition, licensing and maintenance options specially designed to
meet the needs of large multinational organizations. Targeted audiences include
technology specialists and influential end-users in large enterprises. Marketing
efforts and fulfillment are generally coordinated through Corel's network of
large account resellers. CLP Choice offers flexible software acquisition and
licensing options specially designed to meet the needs of small and medium sized
organizations. Marketing efforts and fulfillment are generally coordinated
through Corel's network of distributors and resellers.

SOLUTION PARTNERS. Corel's Solution Partners program is a support relationship
with independent developers and consultants that provide products, solutions or
services around Corel products. The program supports independent software
vendors, consultants, value-added resellers ("VARs"), system integrators, custom
application developers, and solution developers, as well as technical support
and training organizations. Under this business partnership strategy, the
Company provides sales and product information, development services, access to
beta software, discounts on Corel products, as well as dedicated developer
technical support.

APPROVED SERVICE BUREAUS. The Corel Approved Service Bureau Program ("CASB")
supports organizations that output and render files created with Corel's
graphics software applications such as CorelDRAW and Corel VENTURA. Under CASB,
the Company provides members with product information, free priority technical

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support, and referral services through Corel's bulletin board service ("BBS"),
CompuServe Forum and Customer Service and Technical Support networks.

DIRECT MARKETING. Corel promotes some of its products through direct marketing
techniques directed toward existing and potential users of Corel's products.
Fulfillment of product to the end-user is either by direct shipment or through
resellers.

OEM CHANNEL
________________________________________________________________________________

Corel markets certain productivity, graphics, and multimedia software
applications under license agreements with OEMs that grant the OEMs the right to
distribute copies of Corel's products with their hardware products. Corel has
OEM agreements covering one or more of its products with most of the major PC
hardware vendors, including Canon, Compaq, Cybermax, Dell, Digital Equipment
Corporation, Epson, Gateway 2000, Hewlett-Packard, Packard Bell, Quantex and
Vobis.

ADVERTISING AND PROMOTION
________________________________________________________________________________

Advertising, direct marketing, and marketing materials are targeted to various
end-user groups through a variety of programs: (i) extensive worldwide
advertising in broad consumer media (business publications and television) and
trade publications; (ii) joint promotions with computer retailers under which
qualifying resellers and OEMs are reimbursed for certain advertising
expenditures; (iii) trade show and PC user group participation; and (iv) direct
corporate marketing efforts. The Company has an in-house creative design group
responsible for conceptualizing and producing all of Corel's ad copy, box
covers, and promotional material. The Company has an in-house ad agency which
places and monitors the effectiveness of Corel's worldwide advertising. The
Company maintains a broad advertising campaign emphasizing the Corel brand
identity.

CUSTOMERS
________________________________________________________________________________

As described above, Corel has three customer types: end-users, organizations or
enterprises, and OEMs. Most end-users of Corel products are individuals in
business, government agencies, educational institutions, and at home. These end-
users obtain Corel products primarily through distributors, resellers, and OEMs,
which include certain Corel products with their hardware. Note 7 to Consolidated
Financial Statements (see Item 8) identifies customers that represent more than
10% of Corel's revenues.

PRODUCT SUPPORT
________________________________________________________________________________

Corel provides product support coverage options to meet the needs of users of
Corel products. Support personnel are located in Orem, Utah; Ottawa, Ontario;
and Dublin, Ireland. Certain support is also provided by qualified third-party
support organizations in accordance with Corel's specifications for quality and
timeliness of the support response. Corel generally hires individuals with
product expertise and provides them with the productivity tools, continuous
product education, training and consistent processes to deliver quality support
for Corel products. Coverage options currently range from standard no-charge
toll telephone support to fee-based offerings providing unlimited toll-free
telephone and technical support for all Corel products 24 hours per day, 7 days
per week.

Users have access to Corel's Knowledge Base, a database of technical support
articles that is updated regularly with useful information regarding Corel
products. Corel provides access to Knowledge Base, technical support information
and frequently asked question and answers via Corel's worldwide web site on the
Internet (http://www.corel.com). Corel maintains a forum on CompuServe and a
bulletin board service ("BBS") to provide users with a mechanism to provide
feedback as well as receive technical updates and notes. Additionally, users can
access Corel's automated "Fax on Demand" system where up-to-date information
about common issues and tips and tricks is stored in numbered documents.

Corel's Customer Service representatives, including a number of third-party
organizations, answer questions about product specifications and pricing, sell
Corel products, and issue replacement media and documents.

9
<PAGE>

COMPETITION
________________________________________________________________________________

The PC software business is highly competitive and subject to rapid
technological change. Many of Corel's current and potential competitors have
larger technical staffs, more established and larger marketing and sales
organizations and significantly greater financial resources than does Corel. The
rapid pace of technological change constantly creates new opportunities for
existing and new competitors and can quickly render existing technologies less
valuable. As the market for Corel's products continues to develop, additional
competitors may enter the market and competition may intensify.

GRAPHICS SOFTWARE. Corel's graphics software products face substantial
competition from a wide variety of companies. In the illustration graphics
segment, Corel's competitors include Adobe Systems Incorporated, Macromedia
Inc., Deneba Systems Inc. and Micrografx, Inc.. In the photo-editing and
painting graphics segment, Corel's competitors include Adobe and Micrografx. In
the charting and presentation segments, Corel's competitors include Software
Publishing Corporation, Microsoft Corporation, Adobe, Micrografx and IBM (Lotus
Development Corporation). In the desktop publishing segment, Corel's competitors
include Adobe and Quark, Inc. Corel's competitors include many other
independent software vendors, such as Autodesk, Inc., Borland International,
Inc., Apple Computer Inc. (Claris Corporation) and Computer Associates, as well
as a number of personal computer manufacturers which devote significant
resources to creating personal computer software, including Apple, Hewlett-
Packard Company and IBM.

PRODUCTIVITY SOFTWARE. Corel's competitors in the productivity software
(primarily office suites) marketplace include Microsoft and IBM (Lotus).
According to industry sources, Microsoft currently has the largest overall
market share for office suites. IBM has a large installed base with its
spreadsheet program. Also, IBM pre-installs certain of its software products on
various models of its PCs, competing directly with Corel productivity software.

MULTIMEDIA SOFTWARE. The Company competes with other participants in the Photo
CD market on the basis of price, the categories of photographs available, the
quality of the photographs and the nature of the rights attached to the photos
included on the Photo CD. The Company's competitors in this market include
Westflight, Digital Zone and Aris Entertainment.

COMMUNICATIONS APPLICATIONS. The Company's communications applications products
(CorelVIDEO) compete against offerings from Intel, PictureTel, C-Phone, and many
other companies.

The Company believes that the principal competitive factors in the PC software
markets include performance, product features, ease of use, reliability,
hardware compatibility, brand name recognition, product reputation, pricing,
levels of advertising, availability and quality of customer support, and
timeliness of product upgrades. Corel competes with other software vendors for
access to distribution channels, retail shelf space and the attention of
customers at the retail level and in corporate accounts. The Company also
competes with other software companies in its efforts to acquire software
technology developed by third parties. The Company believes that, in the future,
competition in the industry will intensify as major software companies expand
their product lines.

PROPRIETARY RIGHTS
________________________________________________________________________________

Corel regards certain features of its internal operations, software and
documentation as proprietary and relies on contract, copyright, trademark, and
trade secret laws and other measures to protect its proprietary information. The
Company holds no patents applicable to its current business, and existing
copyright and trade secret laws afford only limited protection. The Company
believes that, due to the rapid pace of innovation within its industry, factors
such as the technological expertise and creative skills of its personnel are
more important to establishing and maintaining technological leadership than are
the various legal protections of its technology.

Corel provides its products to end users under non-exclusive licenses, which
generally are non-transferable and have a perpetual term. Corel makes source
code available for certain of Corel's products. The provision of source code may
increase the likelihood of misappropriation or other misuse of Corel's
intellectual property. Corel licenses its products pursuant to shrink wrap
licenses that are not signed by licensees and therefore may be unenforceable
under the laws of certain jurisdictions. In addition, the laws of some foreign
countries do not protect Corel's proprietary rights to the same extent as do the
laws of Canada and the United States.

10
<PAGE>

Except as noted in the "Legal Proceedings" section of this report, Corel is not
aware that its products, trademarks or other proprietary rights infringe the
proprietary rights of third parties. However, from time to time Corel receives
notices from third parties asserting that Corel has infringed their patents or
other intellectual property rights. Corel may find it necessary or desirable in
the future to obtain licenses from third parties relating to one or more of its
products or relating to current or future technologies. There can be no
assurance that third parties will not assert infringement claims against Corel
in the future with respect to current or future products or that any such
assertion will not require Corel to enter into royalty arrangements or result in
costly litigation. As the number of software products in the industry increases
and the functionality of these products further overlap, Corel believes that
software developers may become increasingly subject to infringement claims. Any
such claims, with or without merit, can be time consuming and expensive to
defend.

EMPLOYEES
________________________________________________________________________________

As of November 30, 1997, Corel employed 1,454 people on a full-time basis,
including 839 in research and development, 539 in sales, marketing and support,
and 76 in finance and administration. Corel's success depends to a significant
extent upon the performance of Corel's executive officers and key technical and
marketing personnel, particularly the Company's founder and Chairman, President
and Chief Executive Officer, Dr. Michael C.J. Cowpland. The loss of Dr. Cowpland
could have a material adverse effect on Corel's results of operations. Corel
believes that its future success will also depend in large part on its ability
to attract and retain highly skilled technical, managerial and sales and
marketing personnel. Competition for employees is intense in the software
industry. To date, Corel believes it has been successful in its efforts to
recruit qualified employees, but there can be no assurance that Corel will
continue to be as successful in the future. None of Corel's employees are
subject to collective bargaining agreements. Corel believes relations with its
employees are good.

ITEM 2. PROPERTIES

Corel leases 188,000 square feet of office space in a facility located in
Ottawa, Ontario under leases that expire in 2015; 20,484 square feet under a
lease that expires in 2002 in another facility in Ottawa, Ontario; 106,450
square feet of office space in a facility located in Orem, Utah under a lease
that expires in 1999; and 23,520 square feet of office space in a facility
located in Dublin, Ireland under leases that expire between 1997 and 1999.

ITEM 3. LEGAL PROCEEDINGS

On or about July 5, 1995, the Company received notice that a class action
lawsuit had been filed against it by named plaintiff Jeffery L. Fishbein, in the
Court of Common Pleas of the Seventeenth Judicial District in Snyder County,
Pennsylvania. The complaint, as amended, included causes of action for breach
of warranty and violations of state consumer protection laws, on behalf of
persons who purchased CorelDRAW 4 and 5. The plaintiff's deposition, originally
scheduled to continue on September 9 and 10, 1997, was postponed, due to
plaintiff counsel's Petition for Leave to Withdraw as Counsel. By order of the
Court dated September 5, 1997, all matters were stayed pending disposition of
the Plaintiff's Counsels' Petition. On November 3, 1997, the Court ordered Mr.
Fishbein to find replacement counsel on or before December 4, 1997, and granted
Plaintiff's Counsel's Petition to Withdraw as Counsel. Because new counsel did
not enter an appearance by December 4, 1997, the court held a hearing on
December 12, 1997, "to address the issues as to why the action should not be
discontinued". Pursuant to Pennsylvania Rules of Civil Procedure, a class
action (even one that has not yet been certified) cannot be discontinued without
notice unless the Court finds that the discontinuance will not prejudice other
prospective class members. By Order dated December 12, 1997, this action was
dismissed in its entirety, due to the failure of the plaintiff to appear and
show cause as to why the action should not be discontinued and dismissed.

On or about January 12, 1998, the Company received notice that a complaint had
been filed against it by Micrografx, Inc. in the Northern District of Texas,
Dallas Division. The complaint alleges that the personal calendar included in
Corel Print House Magic is strikingly similar to and in some instances virtually
identical to the personal calendar found in the plaintiff's CreataCard Gold and
CreataCard Plus software products. The complaint includes causes of action for
copyright infringement, false designation of origin and false representations in
commerce, unfair competition and unjust enrichment. By motion filed January 20,
1998, the plaintiff seeks a preliminary injunction to stop the Company from
distributing or selling the personal calendar (Corel Family & Friends) included
in Corel Print House Magic. An attempt to mediate the matters at issue occurred
on February 12,

11
<PAGE>

1998; however, this initiative was unsuccessful. Depositions of Corel's
representatives occurred in Ottawa on February 19 and 20, 1998. Depositions of
the plaintiff's representatives are currently scheduled to be held in Texas on
March 2 and 3, 1998. Corel believes that the plaintiff's motion for
preliminary injunction will likely be heard in mid-to-late April 1998, but
there can be no assurance that this will be the case. The Company considers
the complaint to be ill-founded and will vigorously defend both the action and
motion for preliminary injunction.

On or about February 23, 1998, Corel became aware that a class action lawsuit
had been filed against it by named Plaintiff Great Neck Capital Appreciation
Investment Partnership in the United States District Court for the Eastern
District of New York. The complaint also names as co-defendants Dr. Michael C.
J. Cowpland, Corel's Chairman, President and Chief Executive Officer, and Mr.
Charles Norris, Corel's former Vice President, Finance and Chief Financial
Officer. The complaint was filed on behalf of all persons who purchased or
otherwise acquired Corel common shares between March 26, 1997 and January 20,
1998 (the "Class Period"). The complaint alleges that the defendants violated
various provisions of the federal securities laws, including Section 10(b) and
10(a) of the Securities Exchange Act of 1934, as amended, and Securities and
Exchange Commission Rule 10b-5, by misrepresenting or failing to disclose
material information about Corel's financial condition. The complaint alleges
that the defendants issued false and misleading press releases and financial
statements for the first three quarters of fiscal 1997. Plaintiff alleges, in
part, that defendants (a) failed to disclose that they were overstating Corel's
reported profits by, among other things, inflating reported revenues and
earnings through improperly recognizing revenue on Java technology exchange
transactions, and (b) overstated revenues and earnings by understating reserves
in connection with sales to distributors who had no obligation to keep or pay
for the products. The complaint also alleges that Corel insiders, including the
individual co-defendants, sold common shares during the Class Period at
"artificially inflated prices". The complaint seeks an unspecified amount of
money damages. As of February 26, 1998 the complaint had not been served on any
defendant.

No motions have been filed or discovery yet undertaken. Corel intends to
defend the litigation vigorously. However, due to the inherent uncertainties
of litigation, Corel cannot accurately predict the ultimate outcome of the
litigation. Investigating and defending the complaint may require expenditure
of material amounts of funds and may require a significant amount of
management's time and resources. An unfavorable outcome in the litigation
could have a material adverse effect on Corel's business, financial condition
and results of operations. Announcement of material developments in the
litigation prior to its resolution could adversely affect the market price of
Corel's common shares.

The Company is a party to a number of additional claims arising in the ordinary
course of business relating to intellectual property and other matters. The
Company believes that the ultimate resolution of these claims will not have a
material adverse effect on its business, financial position or results of
operations.

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

No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal 1997.

12
<PAGE>

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

PRICE RANGE OF COMMON SHARES

The Company's Common Shares are traded on The Toronto Stock Exchange (the"TSE")
under the symbol "COS" and in the over-the-counter market on the NASDAQ National
Market under the symbol "COSFF". The following table sets forth the range of
quarterly high and low closing sale prices of the Common Shares on the TSE and
on the NASDAQ National Market within the two most recent fiscal years.

FISCAL 1996 FISCAL 1997
HIGH LOW HIGH LOW
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
THE TORONTO STOCK EXCHANGE (Canadian dollars)
- --------------------------
First Quarter............................. $24.50 $11.75 $11.10 $7.45
Second Quarter............................ 19.05 12.25 9.70 6.90
Third Quarter............................. 17.75 11.25 9.15 7.60
Fourth Quarter............................ 14.75 8.38 8.95 3.13

NASDAQ NATIONAL MARKET (US dollars)
- ----------------------
First Quarter............................. $18.00 $ 8.38 $ 8.25 $6.38
Second Quarter............................ 13.88 8.88 7.13 5.00
Third Quarter............................. 13.00 8.25 6.75 5.50
Fourth Quarter............................ 10.75 6.50 6.50 2.23
</TABLE>

As of February 26, 1998, there were 693 record holders of Common Shares. A
substantial number of Common Shares of the Company are held by depositories,
brokerage firms and financial institutions in "street name." Based upon the
number of annual reports and proxy statements requested by such nominees, the
management of the Company estimates that the number of beneficial holders of
Common Shares approximates 36,000 holders.

LIMITATIONS AFFECTING SECURITY HOLDERS

There is no law or government decree or regulation in Canada that restricts the
export or import of capital, or affects the remittances of dividends, insurance
or other payments to a non-resident holder of Common Shares, other than the
withholding tax requirements described below.

TAXATION

The following discussion summarizes certain tax considerations relevant to an
investment by individuals and corporations who, for income tax purposes, are
resident in the United States and not in Canada, hold Common Shares as capital
property, and do not use or hold the Common Shares in carrying on business
through a permanent establishment or in connection with a fixed base in Canada
(collectively, "Unconnected US Shareholders"). The Canadian tax consequences of
an investment in the Common Shares by investors who are not Unconnected US
Shareholders may be expected to differ substantially from the tax consequences
discussed herein. The discussion is based upon the provisions of the Income Tax
Act (Canada) (the "Tax Act"), the Convention between Canada and the United
States of America with respect to taxes on Income and on Capital
(the"Convention") and the published administrative practices of Revenue Canada,
Taxation and judicial decisions, all of which are subject to change. The
discussion does not take into account the tax laws of the various provinces or
territories of Canada.

The discussion is intended to be a general description of the Canadian tax
considerations and does not take into account the individual circumstances of
any particular shareholder.

13
<PAGE>

Any cash dividends and stock dividends on the Common Shares payable to
Unconnected US Shareholders generally will be subject to Canadian withholding
tax. Under the Convention, the rate of withholding tax generally applicable to
Unconnected US Shareholders is 15%. In the case of a United States corporate
shareholder owning 10% or more of the voting shares of the Company, the
applicable withholding tax under the revised Canada US Income Tax Convention is
reduced to 5% for 1997.

Capital gains realized on the disposition of Common Shares by Unconnected US
Shareholders will not be subject to tax under the Tax Act unless such Common
Shares are taxable Canadian property within the meaning of the Tax Act. Common
Shares will generally not be taxable Canadian property to a holder unless, at
any time during the five-year period immediately preceding a disposition, the
holder, or persons with whom the holder did not deal at arm's length, or any
combination thereof, owned 25% or more of the issued shares of any class or
series of the Company. If the Common Shares are considered taxable Canadian
property to a holder, the Convention will generally exempt Unconnected US
Shareholders from tax under the Tax Act in respect of a disposition of Common
Shares provided the value of the shares of the Company is not derived
principally from real property situated in Canada. Neither Canada nor any
province thereof currently imposes any estate taxes or succession duties.

DIVIDEND POLICY

The Company has neither declared nor paid cash dividends on its Common Shares
since its inception and does not anticipate paying any dividends in the
foreseeable future, but intends to retain future earnings for reinvestment to
finance the growth of its business. On November 22, 1993, the Board of Directors
declared a two for one stock split, effected in the form of a stock dividend,
payable December 8, 1993 to shareholders of record on December 1, 1993. On
October 8, 1994, the Board of Directors declared a three for two stock split,
effected in the form of a stock dividend, payable October 28, 1994 to
shareholders of record on October 24, 1994. Any future determination to pay
dividends will be at the discretion of the Board of Directors.

14
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

The statement of income data set forth below with respect to the years ended
November 30, 1995, 1996 and 1997 and the balance sheet data at November 30, 1996
and 1997 are derived from the audited financial statements of Corel included in
Item 8 hereof and should be read in conjunction with those financial statements
and the notes thereto. The statement of income data set forth below with respect
to the fiscal years ended November 30, 1993 and 1994 and the balance sheet data
at November 30, 1993, 1994 and 1995 are derived from audited financial
statements not included in this Annual Report on Form 10-K. All amounts are in
United States dollars.

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(In thousands, except per share data)
CANADIAN GAAP
Sales..................................................... $105,027 $164,313 $196,379 $334,245 $ 260,581
Income (loss) from continuing operations.................. 20,853 32,503 14,484 (2,750) (231,678)
Income (loss) from continuing operations
per share (fully diluted).............................. 0.45 0.63 0.26 (0.04) (3.84)
Cash and short-term investments........................... 57,000 85,618 81,816 30,629 30,629
Working capital........................................... 84,821 129,094 149,353 120,945 20,356
Total assets.............................................. 132,290 191,422 221,346 398,478 163,743
Long-term debt............................................ - - - 33,830 24,044
Shareholders' equity...................................... 111,234 164,953 195,858 290,260 59,809

US GAAP
Income (loss) from continuing operations.................. 20,853 32,503 14,484 (2,750) (231,678)
Net income (loss) from continuing
operations per share (fully diluted)................... 0.49 0.67 . 0.29 (0.05) (3.84)

</TABLE>
_________
<TABLE>
<S> <C>
Note: The summary financial information is prepared on the basis of Canadian GAAP, which is different in
some respects from US GAAP. Significant differences between Canadian GAAP and US GAAP are set forth in
Note 10 of "Notes to Consolidated Financial Statements" included in Item 8 hereof.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The information set forth on pages 18-31 of the 1997 Annual Report to
Shareholders is incorporated herein by reference and is filed herewith as
Exhibit 13.1.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following financial statements and independent auditors' report set forth on
pages 32-45 and the back cover of the 1997 Annual Report to Shareholders is
incorporated herein by reference and is filed herewith as Exhibit 13.2.

. Independent Auditors Report;
. Consolidated Balance Sheets at November 30, 1996 and 1997;
. Consolidated Statements of Operations and Retained Earnings (Deficit) for
the years ended November 30, 1995, 1996, and 1997;
. Consolidated Statements of Changes in Financial Position for the years
ended November 30, 1995, 1996, and 1997; and
. Notes to Consolidated Financial Statements.

15
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

16
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information with respect to the executive
officers and directors of Corel:

NAME AGE POSITION WITH THE COMPANY
<S> <C> <C>
Dr. Michael C.J. Cowpland 54 Chairman of the Board; President; Chief Executive Officer
Patrick R. Beirne 44 Chief Engineer
Kim E. Dixon 36 Vice President, Marketing
Eid E. Eid 40 President, Corel Computer Corporation
Sandra Gibson 34 Vice President, Human Resources
Paul King 39 Vice President, International Sales
Paul C. LaBarge 47 Secretary and Director
Michael P. O'Reilly 45 Vice President, Finance; Chief Financial Officer; Treasurer
Paul Skillen 37 Vice President, Software Development
Carey Stanton 30 Vice President, Business Development
Don Sylvester 43 Senior Vice President, Sales
Kerry D. Williams 35 Vice President, Manufacturing
Lyle B. Blair (2) 67 Director
Hon. William G. Davis (1) (2) 68 Director
Hunter S. Grant (1) (2) 55 Director
Jean-Louis Malouin 54 Director
</TABLE>
______________

(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.

DR. MICHAEL C.J. COWPLAND founded the Company and has served as a Director,
Chairman of the Board and President of the Company since May 1986. Prior to
founding the Company in 1985, Dr. Cowpland held a variety of executive positions
with Mitel Corporation, a telecommunications company, most recently as Chairman
of the Board.

PATRICK R. BEIRNE joined the Company in November 1985 as Chief Engineer. Prior
to November 1985, Mr. Beirne held a number of positions with Mitel Corporation,
most recently as Senior Staff Engineer.

KIM E. DIXON joined the Company in August 1990 as Senior Product Specialist -
Central USA and was appointed Corporate Accounts Manager - USA in December 1990
and North American Marketing Manager in November 1991. Ms. Dixon held the
positions of Manager of Media and Market Development - United Kingdom,
Australia, New Zealand from January 1993 until July 1993, Manager of
International Advertising and Product Marketing from August 1993 until August
1995, and Creative Director from September 1995 until January 1997, at which
time she was appointed to her current position, Vice President, Marketing.

EID E. EID joined the Company in October 1989 as a Software Programmer. He held
the positions of Team Leader from January 1993 until September 1993, and
Director, Graphics Software from October 1994 until April 1996, at which time he
was appointed Vice President, Software Development. In June 1997, he was
appointed President, Corel Computer Corporation.

SANDRA GIBSON joined the Company in March 1990 as a Human Resource Generalist.
She held the positions of Supervisor, Human Resources from January 1993 until
March 1995, Manager, Human Resources from March 1995 until February 1996,
Director, Human Resources from March 1996 until September 1996, and Director,
Corporate Services from September 1996 until January 1997, at which time she was
appointed to her current position, Vice President, Human Resources.

17
<PAGE>

PAUL KING joined the Company in January 1998. As Vice-President, International
Sales, Mr. King has more than 17 years of Canadian and International sales and
marketing experience. Prior to joining Corel, he was Vice President of retail
systems at NCR Canada Ltd. where he was responsible for direct sales and
marketing in that division.

PAUL C. LABARGE has been Secretary of the Company since January 1992. He was
appointed a Director of the Company in April 1996. Mr. LaBarge is a Partner of
LaBarge Weinstein, external counsel to the Company. Prior to establishing
LaBarge Weinstein in February 1997, Mr. LaBarge was a partner with Blake Cassels
& Graydon since February 1990. Previously, Mr. LaBarge was a partner with the
firm of Lang Michener.

MICHAEL P. O'REILLY was appointed Vice President, Finance, Chief Financial
Officer and Treasurer in December 1997. Prior to joining Corel, Mr. O'Reilly
was a senior tax partner in the Ottawa practice of KPMG, the international
professional advisory services firm.

PAUL SKILLEN joined the Company in September 1992 as a software developer. He
moved on to head up many engineering projects within Corel. In 1996 he was
transferred to Orem, Utah to oversee the WordPerfect transition from Novell,
Inc. to Corel Corporation. Mr. Skillen was subsequently named Vice President
of Engineering in 1997. Prior to joining Corel, he was involved in several
high-technology start-up companies including his own consulting firm. Mr.
Skillen has almost 20 years experience in the Ottawa area high technology
industry.

CAREY STANTON joined the Company in May 1991 as Sales Leads Coordinator and was
appointed Account Executive for CorelSCSI - USA in October 1991 and Product
Marketing Manager in December 1991. He held the positions of Manager, OEM Sales
for CorelSCSI, RAID and other Network related product lines from August 1992
until August 1993, and Business Manager from September 1993 until January 1997,
at which time he was appointed to his current position, Vice President, Business
Development.

DON SYLVESTER joined the Company in August 1997. As Senior Vice President,
Sales, Mr. Sylvester has twenty years of sales and marketing experience,
including seven years with Dell Computer Corporation as the Director of
Commercial Sales. Mr. Sylvester holds an MBA from the University of Windsor.

KERRY D. WILLIAMS joined the Company in November 1989 as Materials
Administrator. He held the positions of Manufacturing Manager from February 1990
until January 1994, Director, Operations and Advertising from January 1994 until
August 1995, and Director, Operations from September 1995 until January 1997, at
which time he was appointed to his most recent position, Vice President,
Manufacturing.

LYLE B. BLAIR has been a Director since September 1989. Mr. Blair has been
Chairman of L.B. Blair Management Ltd. since 1976. L.B. Blair Management Ltd.
has owned and operated several companies including, from 1980 to 1992, Storwal
International Inc., an office furniture manufacturer, and Thames Valley
Beverages, the largest independent Ontario Pepsi bottler, from 1976 to 1988.
Prior to 1976, Mr. Blair held senior international positions with Procter &
Gamble Inc. and Pepsico Inc.

WILLIAM G. DAVIS has been a Director since September 1989. Mr. Davis has been
counsel to Tory Tory DesLauriers & Binnington, Barristers and Solicitors, since
February 1986. He served as Canada's Special Envoy on Acid Rain from March 1985
to March 1986 and prior to March 1985 was Premier of the Province of Ontario.
Mr. Davis is a director of The Seagram Company Ltd., Magna International Inc.
and First American Title Insurance Company, all of which are reporting companies
under the Securities Exchange Act of 1934.

HUNTER S. GRANT has been a Director since September 1989. Mr. Grant has been Co-
Publisher, President and General Manager of the Recorder and Times Limited, a
newspaper publishing company, since July 1977.

JEAN-LOUIS MALOUIN became a Director in November 1996. Since 1992, Dr. Malouin
has been the Dean of the Faculty of Administration at the University of Ottawa.
From 1989 to 1992, Dr. Malouin was the Dean of Administration at the University
of Alberta and is a former dean at the Universite Laval. He is an expert in
operations and production management, management information systems design and
research methodology. He has served as a management consultant for numerous
organizations and institutions including the Canadian International Development
Agency (CIDA), the Universite du Quebec and the Organization for Economic and
Cooperation Development.

18
<PAGE>

Under the Canada Business Corporations Act, a majority of the Board of Directors
and a majority of Board Committee members must be resident Canadians. All
directors hold office until the next annual meeting of shareholders and until
their successors have been elected. The officers of the Company serve at the
discretion of the Board of Directors of the Company. There are no family
relationships among any of the directors and executive officers of the Company.

The Audit Committee reviews the internal accounting procedures of the Company
and consults with and reviews the services provided by the Company's independent
auditors and is responsible for corporate governance issues relating to the
Company.

The Compensation Committee reviews the compensation and benefits of all officers
of the Company and recommends to the Board of Directors the compensation and
benefits of the most senior officers of the Company. It reviews general policy
matters relating to employment and wage equity, compensation and benefits of
employees of the Company generally. The Compensation Committee administers the
granting of stock options to eligible participants in the Corel Corporation
Stock Option Plan.

ITEM 11. EXECUTIVE COMPENSATION

The following table, presented in accordance with the regulations to the
Securities Act (Ontario), sets forth all compensation paid in respect of the
individuals who were, at November 30, 1997, the Chief Executive Officer and the
other four most highly compensated executive officers of the Company (the "named
executive officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------------- ----------------
OTHER ANNUAL SECURITIES UNDER
COMPENSATION OPTIONS
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) GRANTED (#)
- --------------------------- ---- ------ ----- ------------ ----------------
<S> <C> <C> <C> <C> <C>

Michael C.J. Cowpland 1997 $213,236 Nil -
Chairman, President and 1996 188,388 Nil 1,175,000
Chief Executive Officer 1995 163,895 Nil 603,000

Eid E. Eid 1997 188,025 Nil -
President, Corel Computer Corp. 1996 181,062 Nil 200,000
1995 156,617 Nil 234,400

Charles A. Norris (2) 1997 130,590 Nil -
Vice President, Finance and 1996 106,300 Nil 24,400
Chief Financial Officer 1995 82,264 Nil 24,600

Paul Skillen 1997 184,304 Nil -
Vice President, Software Development 1996 117,296 Nil 12,000
1995 81,315 Nil 14,000

Kerry D. Williams 1997 130,287 Nil -
Vice President, Manufacturing 1996 128,414 Nil 36,800
1995 114,348 Nil 37,300
_____________________________________________________________________________________________________________________________
</TABLE>

Notes:
(1) Perquisites and other personal benefits do not exceed the lesser of $50,000
and 10% of the total of the annual salary and bonus for any of the named
executive officers.
(2) Effective December 2, 1997, Mr. Norris resigned his position as Vice
President, Finance and CFO and left the Company. Mr. Norris'
responsibilities were assumed by Mr. Michael P. O'Reilly.

19
<PAGE>

CASH COMPENSATION

The aggregate cash compensation paid or payable to executive officers of the
Company for the year ended November 30, 1997 was $1,423,821 during which period
there were ten executive officers. The Company furnishes other benefits to its
officers and other employees. The estimated aggregate cost to the Company to
provide such other benefits to the executive officers of the Company as a group
for the year ended November 30, 1997 was less than $11,759 and was attributable
primarily to health and dental benefits.

Directors who are salaried officers of the Company receive no compensation for
serving on the Board. The other directors (the "independent directors"), of
which there are currently five, receive an annual retainer of CAD$16,000 and a
fee of CAD$800 (CAD$1,600 for Committee Chairman) for each Board of Directors
and Committee meeting they attend and are reimbursed for traveling costs and
other out-of-pocket expenses incurred in attending such meetings. For the year
ended November 30, 1997, the independent directors received an aggregate of
$122,520 for their services and in reimbursement for their expenses.

DIRECTORS' AND OFFICERS' INSURANCE

Corel maintains directors' and officers' liability insurance insuring directors
and officers of the Company and its subsidiaries against liability for acts or
omissions in their capacities as directors or officers, as well as insuring the
Company and its subsidiaries for claims relating to securities matters, subject
to certain exclusions. Such insurance also insures Corel against all losses
which it may incur in indemnifying officers and directors of Corel. The maximum
amount payable under the policy is CAD$5,000,000 per occurrence and
CAD$5,000,000 per year, subject, in the case of Corel, to a deductible of
US$250,000 per occurrence for entity coverage in Canada, and a deductible of
US$250,000 per occurrence for any claims against a director, officer or entity
in the United States.

STOCK OPTION PLAN

The Corel Corporation Stock Option Plan (the "Plan") is administered by the
Compensation Committee (the "Committee") of the Board of Directors. Under the
Plan the Committee may grant options to purchase Common Shares of the Company to
all eligible participants including, full-time permanent employees of Corel,
directors on the Board of Directors and persons appointed as an officer of the
Company by the Board of Directors. The factors which the Committee considers
when granting options include outstanding performance and/or contribution to
Corel. The exercise price of such options may not be less than the closing price
of the Common Shares on the TSE on the trading day immediately preceding the
date of the grant. All options granted under the Plan are non-transferable and
the exercise price thereof must be paid at the time of exercise. Options are
exercisable for a period of four years from the date of grant. Options held by a
participant who ceases to hold a board or office position or whose employment is
terminated for any reason, including death, are, for options granted prior to
November 1, 1993, exercisable to a date which is not later than four years from
the date of the grant. Options granted since that date are exercisable for 30
days following termination. In addition, the Chief Executive Officer of the
Company may extend such periods for any participant to a date which is not later
than four years from the date of the grant.

On April 18, 1997, the shareholders passed a resolution that allowed employees
or directors of the Company to tender any existing options held by them to the
Company for repricing and regranting. The number of options to be regranted was
determined by reducing the initial granted amount pro rata by that ratio that
the exercise price of the regranted option is to the original exercise price.
The exercise price of the regranted option was effected on the basis of the fair
market value of the Common Shares of the Company at the close of market on the
day prior to the 14/th/ day following all requisite approval, or CAD$7.70 on May
1, 1997. Pursuant to the passing of the resolution, 10,373,000 options at
exercise prices ranging from CAD$7.917 to CAD$25.25 were exchanged for 5,773,614
options at an exercise price of CAD$7.70, of which 3,853,033 options at exercise
prices ranging from CAD$9.50 to CAD$22.38 were exchanged by the named executive
officers for 2,163,253 options at an exercise price of CAD$7.70. Michael C.J.
Cowpland exchanged 2,850,949 options at exercise prices ranging from CAD$9.50 to
CAD$22.38 for 1,631,683 options at an exercise price of CAD$7.70. Eid E. Eid
exchanged 598,098 options at exercise prices ranging from CAD$9.50 to CAD$22.38
for 311,232 options at an exercise price of CAD$7.70. Charles Norris exchanged
112,881 options at exercise prices ranging from CAD$9.50 to CAD$22.38 for 55,746
options at an exercise price of CAD$7.70. Paul Skillen exchanged 137,472 options
at exercise prices ranging from CAD$9.50 to CAD$22.38 for 80,494 options at an
exercise price of CAD$7.70. Kerry Williams exchanged 153,633 options at exercise
prices ranging from CAD$12.67 to CAD$19.67 for 84,098 options at an exercise
price of CAD$7.70.

20
<PAGE>

During the year ended November 30, 1997, the Company granted options to purchase
up to 202,800 Common Shares to 33 participants at an average exercise price of
CAD$6.77 per share, of which options for 134,000 Common Shares were granted to
one executive officer and five directors of the Company at an average exercise
price of CAD $6.62 per share.

As of November 30, 1997, there were outstanding under the plan options
exercisable for an aggregate of 6,157,519 Common Shares at prices ranging from
CAD$4.00 to CAD$22.38 per share and expiring at various dates through November
14, 2001. Of such options, options exercisable for an aggregate total of
1,999,272 Common Shares were held by nine executive officers and five directors
of the Company. Other participants as a group as of such date held options
exercisable for an aggregate of 4,158,247 Common Shares at prices ranging from
CAD$7.05 to CAD$22.38 and expiring at various dates through September 12, 2001.

For the fiscal year ended November 30, 1997 there were no stock options granted
under the Plan to the above named executive officers; certain options were
repriced as discussed above.

The following table sets forth each exercise of stock options under the Plan
during the fiscal year ended November 30, 1997 to the named executive officers.

AGGREGATED OPTION EXERCISES DURING THE FISCAL YEAR ENDED
NOVEMBER 30, 1997 AND FISCAL YEAR-END OPTION VALUES

Value of
Unexercised
Securities Unexercised in-the-Money
Acquired Aggregate Value Options at Options at
on Exercise Realized Nov. 30, 1997 Nov. 30, 1996
Name (#) (CAD$) (#) (CAD$)
---- ----------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Michael C.J. Cowpland 455,910 $455,910 1,175,773 -
Eid E. Eid 37,993 38,443 273,239 -
Charles A. Norris 2,900 14,007 55,746 -
Paul Skillen 41,339 47,540 39,155 -
Kerry D. Williams 83,625 80,062 101,663 -
</TABLE>

COMPENSATION COMMITTEE

As at November 30, 1997 the members of the Compensation Committee (the
"Committee") were Hunter S. Grant (Chairman) and the Honourable William G.
Davis. The Committee has a mandate to: (a) monitor compliance with provincial
legislation applicable in respect of employment practices of the Company, (b)
determine the appropriate allocation of options, (c) determine Chief Executive
Officer and senior officer compensation, (d) monitor compliance with statutory
requirements for employment matters including remittances and legislation, and
(e) review levels of compensation generally for the Company. The Committee met
five times in fiscal 1997 and acted by way of resolution on other occasions.

The Company has a policy of compensation based on merit and performance and does
not discriminate or distinguish with respect to persons performing similar
functions. Compensation in the Company, based on industry surveys, is consistent
with industry standards at the level necessary to attract and retain qualified
personnel.

REPORT ON EXECUTIVE COMPENSATION

The philosophy of the Company in the determination of senior executive
compensation is to encourage performance in order to maintain the position of
the Company in a highly competitive environment. As a result, the compensation
package is based upon salaries which provide a reasonable level of
remuneration and broad

21
<PAGE>

distribution of employee stock options. Given the nature of the industry, the
performance of the stock is sensitive to the financial performance of Corel and
as such provides a compensation regime which encourages active support of the
Company's competitive efforts.

With the concurrence of the Compensation Committee, the Chief Executive Officer
participates directly in the fixing of the compensation for all levels of
employees. Base compensation is reviewed annually to verify compatibility with
industry norms. The Chief Executive Officer is involved in all aspects of
compensation determination and he assesses, with the assistance of the relevant
managers on an on-going basis, performance of the individual incumbents.
Individual salaries are set in an appropriate salary range and reflect the
employee's experience and proven or expected performance.

To ensure a linkage of management with the shareholder, stock options are
granted at 100% of market value at the time of the stock option grant. Under the
terms of the stock option plan, options must be exercised within a period of
four years from the date of the grant. All options granted vest immediately on
grant and terminate 30 days after termination of employment unless otherwise
determined by the Chief Executive Officer. The number of stock options available
for grant under the program are determined by shareholder resolution and fixed
as at April 18, 1997 at 16,000,000 and are restricted for certain participants
to 10% of the issued and outstanding capital of the Company from time to time.

No additional benefits or perquisites are provided to members of management that
are not available to employees of Corel generally. These currently include
health, long-term disability, dental, group life and a fitness membership.

PERFORMANCE GRAPH

The following chart and graph compares the yearly percentage change over the
last five years in the cumulative total shareholder return on the Company's
Common Shares with the cumulative total return of the NASDAQ Index and the
NASDAQ Computer and Data Processing Services Stock Index:

[GRAPH APPEARS HERE}

FIVE-YEAR TOTAL RETURN ON $100 INVESTMENT

__________________________________________________________________________________________________________
1993 1994 1995 1996 1997
__________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Corel 100.00 79.86 97.81 47.11 13.39
Computer and Data Processing Services Stock Index 100.00 119.32 186.16 229.61 269.96
NASDAQ Index 100.00 116.07 164.31 200.25 248.80
__________________________________________________________________________________________________________
</TABLE>

22
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of February 26, 1998, certain information
with respect to the beneficial ownership of Common Shares by (1) each person
known by the Company to be a beneficial owner of more than 5% of its outstanding
Common Shares, (2) by each director and executive officer and (3) by all
directors and executive officers as a group.

<TABLE>
<CAPTION>
COMMON EXERCISABLE PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OPTIONS OWNED (1)
- ------------------------------------ ------ ----------- ----------
<S> <C> <C> <C>
Dr. Michael C.J. Cowpland 5,450,558 1,175,773 10.9
Novell, Inc 8,950,000 - 15.1
1555 N. Technology Way
Orem, Utah 84057
Lyle B. Blair 3,000 27,107 *
Hon. William G. Davis 1,500 27,620 *
Hunter S. Grant - 30,186 *
Paul C. LaBarge 4,000 27,107 *
Jean Louis Malouin - 5,000 *
Kim E. Dixon - 41,273 *
Eid E. Eid - 273,239 *
Sandra Gibson - 16,134 *
Michael P. O'Reilly (3) - 100,000 *
Paul Skillen - 39,155 *
Carey Stanton - 35,015 *
Don Sylvester - 100,000 *
Kerry D. Williams 290 101,663 *
Directors and Executive Officers
as a group (14 persons) (2) 5,459,348 1,999,272 12.0
</TABLE>
* Indicates less than 1%.

(1) Percentage ownership is calculated using as a denominator the total
number of Common Shares outstanding plus the number of Common Shares to
which the beneficial owner indicated has a right to acquire pursuant to
options currently exercisable or exercisable within 60 days.

(2) The address for each director and executive officer is Corel Corporation,
1600 Carling Avenue, Ottawa, Ontario, Canada K1Z 8R7.

(3) Mr. O'Reilly's options were granted on December 3, 1997 but do not vest
for a six month period thereafter.

Statements contained in the table as to securities beneficially owned by
directors, executive officers and beneficial owners of more than 5% of the
Company's outstanding Common Shares are, in each instance, based upon
information obtained from such directors and executive officers. Statements
contained in the table as to securities beneficially owned by beneficial owners
of holders of 5% or more of the Company's outstanding Common Shares are based on
Schedules 13G or 13D filed by such persons with the U.S. Securities and Exchange
Commission.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Inapplicable pursuant to Instruction 3 to Item 404 of Regulation S-K, except for
transactions described elsewhere in this Report.

23
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) FINANCIAL STATEMENTS AND SCHEDULES

The following audited financial statements of Corel (together with
the independent auditors report thereon and the notes thereto) are
included in this Report:

(a) Consolidated Balance Sheets at November 30, 1996 and 1997.

(b) Consolidated Statements of Operations and Retained Earnings
(Deficit) for the years ended November 30, 1995, 1996 and 1997.

Financial statement schedules have been omitted because the required
information is included in the financial statements or notes thereto as
set forth under Item 8 of this Report on Form 10-K.

(b) REPORTS ON FORM 8-K

On January 21, 1998, the Company filed a Report on Form 8-K to report
the restatement of the financial results for the first three quarters
of fiscal 1997.

Exhibit
Number Description
------- -----------
<S> <C>

3.1 Certificate and Articles of Incorporation (1)

3.2 By-law No. 6 (1)

4.1 Specimen of Common Share Certificate (1)

10.1 Distribution Agreement dated October 2, 1991 between
Corel Corporation and Ingram Micro Inc. (1)

10.2 Distribution Agreement dated May 11, 1989 between Corel
Corporation and Merisel, Inc. (formerly Softsel Computer
Products, Inc.) (1)

10.3 Agreement for Purchase and Sale by and among Novell,
Inc., Corel Corporation, Corel Corporation Limited, and
Corel Corporation (Delaware) (3)

13.1 Management's Discussion and Analysis of Financial
Condition and Results of Operations (Incorporated by
Reference to Pages 18-31 of 1997 Annual Report to
Shareholders ("1997 Annual Report"))

13.2 Financial Statements (Incorporated by Reference to Pages
32-45 and Back Cover of 1997 Annual Report)

21.1 Subsidiaries of Registrant (Incorporated by Reference to
Exhibit 13.2 filed herein)

23.1 Independent Auditor's Consent

99.1 Form of License Agreement, including Limited Warranty(1)
</TABLE>
_________________

(1) Incorporated by reference to Registration Statement on Form F-1, file no.
33-50886.
(2) Incorporated by reference to Annual Report on Form 10-K for the fiscal year
ended November 30, 1994.
(3) Incorporated by reference to Exhibit 2.01 to the Company's Report on Form
8-K/A, Amendment No. 2, dated March 1, 1996.

24
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Ottawa,
Province of Ontario, Canada, on February 26, 1997.

COREL CORPORATION

By /s/ Michael P. O'Reilly
-----------------------------
Michael P. O'Reilly
Vice-President, Finance;
Chief Financial Officer;
Treasurer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints MICHAEL C.J. COWPLAND and MICHAEL P. O'REILLY,
his Attorneys-in-fact, each with full power of substitution, for him in any and
all capacities, to sign any amendments to this Annual Report on Form 10-K, and
to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each said Attorney-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on February 25, 1997.

<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
/s/ Michael C.J. Cowpland
- ------------------------------
Michael C.J. Cowpland Chairman of the Board of Directors,
President and Chief Executive Officer

/s/ Lyle B. Blair
- ------------------------------
Lyle B. Blair Director

/s/ William G. Davis
- ------------------------------
William G. Davis Director

- ------------------------------
Hunter S. Grant Director

- ------------------------------
Paul C. LaBarge Director

/s/ Jean-Louis Malouin
- ------------------------------
Jean-Louis Malouin Director

/s/ Michael P. O'Reilly
- ------------------------------
Michael P. O'Reilly Vice-President, Finance; Chief Financial
Officer; Treasurer (Principal
Financial and Accounting Officer)
</TABLE>

25
<PAGE>

EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>

Exhibit Number Description
- -------------- -----------
<S> <C>

13.1 Management's Discussion and Analysis of Financial
Condition and Results of Operations

13.2 Financial Statements

21.1 Subsidiaries of Registrant

23.1 Independent Auditor's Consent
</TABLE>

<PAGE>

EXHIBIT 13.1

27
<PAGE>

EXHIBIT 13.1

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

For the purposes of this discussion, unless the context otherwise requires,
"Corel" refers to the consolidated operations of Corel Corporation and its
wholly owned subsidiaries, Corel Corporation Limited, Corel Computer Corp.,
Corel International Corporation, Corel, Inc., and Corel Corporation (U.S.A.),
while "the Company" refers to the parent, Corel Corporation.

The following information should be read in conjunction with the audited
consolidated financial statements included elsewhere herein. This Management's
Discussion and Analysis of Financial Condition and Results of Operations
("MD&A") contains forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended. These forward-looking
statements involve uncertainty and risk, and all assumptions, anticipations, and
expectations stated herein are forward-looking statements. The actual results
that Corel achieves may differ materially from any forward-looking statements
made herein due to such risks and uncertainties. The Company has identified by
italics various sentences within this MD&A which contain such forward-looking
statements, and words such as "believes", "anticipates", "expects", "intends",
and similar expressions are intended to identify forward-looking statements, but
are not the exclusive means of identifying such statements. In addition, the
section labelled "Factors That May Affect Future Operating Results", which is
not italicized for improved readability, consists primarily of forward-looking
statements. The Company undertakes no obligation to revise any forward-looking
statements to reflect events or circumstances that may arise after the date of
this report. Readers are urged to carefully review and consider the various
disclosures made by the Company in this MD&A and in the Company's other reports
filed with the Securities and Exchange Commission that attempt to advise
interested parties of the risks and factors that may affect Corel's business.
Historical results and percentage relationships will not necessarily be
indicative of the operating results of any future period. All amounts in this
report are in US dollars unless otherwise indicated.

OVERVIEW

Corel develops, manufactures, licenses, sells, and supports a wide range of
software products, including graphics applications, business and consumer
productivity applications, multimedia titles and communications applications.

During the second quarter, Corel determined that recording a nonrecurring charge
totaling $113.7 million was appropriate. The charge consisted of write-downs of
previously capitalized acquired technologies for the WordPerfect family of
software programs and deferred development costs in the form of advance
royalties paid to various developers of the Corel CD HOME Collection and Corel
Medical Series software. Both multimedia product lines were sold to Hoffman +
Associates Inc. of Toronto for cash, a minority interest in the acquiring
company and an ongoing royalty stream over a period of time. During the same
quarter, Corel announced the formation of a spin-off company, Corel Computer
Corp. The company, a wholly owned subsidiary of Corel Corporation comprising
Corel's Video and Network Computing groups, is expected to compete in the
network computer market.

During the fourth quarter, Corel announced the sale of various consumer product
software lines to IMSI (International Microcomputer Software Inc.). These lines
included CorelCAD, Corel Visual CADD, CorelFLOW, Corel Lumiere Suite, Corel
Click & Create and Corel Family Tree Suite. Corel sold these lines for cash,
marketable securities in the acquiring company and an ongoing royalty stream
over a period of time. These transactions assisted Corel to focus on its core
product offerings, namely business and graphics applications.

28
<PAGE>

RESULTS OF OPERATIONS
<TABLE>
<CAPTION>

PERIOD TO PERIOD
INCREASE(DECREASE)
--------------------------
PERCENT OF SALES 1996 1997
---------------------------------- COMPARED COMPARED
1995 1996 1997 TO 1995 TO 1996
-------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales......................... 100 % 100 % 100 % 70.2 % 22.0 %
Cost of sales................. 24 % 30 % 32 % 113.5 % (16.8)%
-------- --------- ---------
Gross profit.................. 76 % 70 % 68 % 56.5 % (24.3)%
-------- --------- ---------
Expenses
Advertising................... 28 % 28 % 31 % 68.2 % (14.2)%
Selling, general and
administrative............. 21 % 21 % 33 % 76.3 % 19.0 %
Gain on sale of Corel CD
Creator................. N/A (3)% N/A N/A N/A
Research and development.... 13 % 20 % 34 % 142.1 % 35.8 %
Depreciation and
amortization............... 5 % 5 % 10 % 101.5 % 37.7 %
Write-down of purchased
software............... N/A N/A 45 % N/A N/A
Gain on foreign exchange..... 0 % 0 % 0 % * *
-------- --------- ---------
67 % 71 % 153 % 80.1 % 67.2 %
-------- --------- ---------
Income (loss) from operations. 9 % (1)% (85)% (129.7)% (4340.9)%
Interest income............... 3 % 0 % 0 % (72.3)% (183.0)%
-------- --------- ---------
Income (loss) before income
taxes........................ 12 % (1)% (85)% (116.5)% (6088.9)%
Income taxes.................. 4 % 0 % 3 % (111.5)% 1145.5 %
-------- --------- ---------
Net income (loss)............. 8 % (1)% (88)% (119.1)% (8324.7)%
======== ========= =========
</TABLE>
* not meaningful

SALES

Sales are recognized when products are shipped to customers, primarily
distributors, and are net of discounts and allowances for returns. Sales to
distributors are subject to agreements allowing limited rights of return and
price protection. Corel provides reserves for estimated future returns and
exchanges on a quarterly basis and for price protection in the quarter when
price reductions are announced. In certain instances, Corel's corporate
licensing program provides for the licence of the software and for free updates
and upgrades to the software, otherwise known as maintenance, as well as free
technical support over the life of the contract (generally not exceeding two
years). Given this strategy, rateable revenue recognition is required for that
portion of the corporate licensing fees attributable to maintenance and
technical support. As at November 30, 1997, deferred revenue relating to
corporate licensing fees attributable to maintenance and technical support was
$11.9 million.

Sales increased 70.2% in the fiscal year ended November 30, 1996 and decreased
22.0% compared to the previous fiscal year. In fiscal 1997, the average selling
price per unit has decreased, primarily due to market competition and general
shifts in the sales mix from retail packaged products to licensing programs.
Average revenue per unit from original equipment manufacturer ("OEM") licences
and corporate licence programs, such as the Universal Corel Licence Program, are
lower than the average revenue per unit from retail versions.

29
<PAGE>

PRODUCT GROUPS

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
---------------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
(in thousands)

Graphics software - new licences.............. $114,530 $101,320 $ 85,148
Graphics software - existing user upgrades.... 63,595 40,625 30,673
------------ ------------ ------------
Total graphics software................... 178,125 141,945 115,821
Productivity software - new licences.......... 0 87,146 104,935
Productivity software - existing user upgrades 0 91,017 36,015
------------ ------------ ------------
Total productivity software............... 0 178,163 140,950
Multimedia software........................... 18,254 13,571 2,828
Communications applications................... 0 566 982
------------ ------------ ------------
Total sales................................... $196,379 $334,245 $260,581
============ ============ ============
</TABLE>

Graphics software revenues decreased in fiscal 1996 primarily due to lower sales
of CorelDRAW 6, resulting, the Company believes, from the slower than
anticipated corporate adoption rate of Windows 95 as corporations determined how
and when they would upgrade to 32-bit operating systems. This was partially
offset by the introduction of CorelDRAW 7, Corel Print & Photo House and Corel
Ventura 7 in November 1996, Corel MEGA GALLERY in the fourth quarter of fiscal
1996, and Corel Graphics Pack in the first quarter of fiscal 1996.

The graphics software revenues decrease in fiscal 1997 relates primarily to the
decrease in sales of CorelDRAW versions 3, 4 and 5. Sales of new versions of
CorelDRAW were comparable to 1996. Sales in the academic, OEM and corporate
markets have increased the number of overall units sold; however, due to the
sales mix the overall average selling price decreased in fiscal 1997. In the
fourth quarter of fiscal 1997, Corel completed the sale of certain consumer-
based products, namely CorelCAD, CorelFLOW, Corel Lumiere Suite, Corel Family
Tree Suite, Corel Click & Create and Corel Visual CADD. Revenues from these
products were lower in 1997. Corel Photo-Paint 8 was not released in 1997, which
adversely affected graphics software revenues.

Productivity software applications revenue in 1997 included revenues from new
releases such as Corel WordPerfect Suite 8, Corel WordPerfect Suite 8
Professional, Corel Paradox 8, Corel WordPerfect Suite 7 for DOS and UNIX, and
Corel WordPerfect Suite 7 16-bit version. Corel also launched business
applications developed for specialized industries. These releases included Corel
WordPerfect Suite 7 - Construction Edition, Corel WordPerfect Suite 7 - Legal
Edition, and Corel Office Professional - Medical Edition. Revenue generated from
productivity software applications declined in 1997 from 1996. This was due, in
part, to lower than expected sales of Corel WordPerfect Suite 7 16-bit version.

Multimedia software includes Corel Professional Photos on CD-ROM and small
computer system interface ("SCSI") software. Multimedia software revenues
decreased in fiscal 1996 due to a decline in Corel CD Creator revenues resulting
from the sale of the Corel CD Creator product line to Adaptec, Inc. in June 1996
for $12 million, and a decline in the average selling price for Photo CD titles
as the sales mix changed toward single titles from Corel Stock Photo Libraries
containing 200 titles each. Multimedia software revenues further decreased in
fiscal 1997 due to the sale of the Corel CD HOME series and the Corel Medical
series to Hoffman + Associates Inc. in May 1997.

Communications applications include CorelVIDEO video communication software,
CorelCAM colour cameras and other video communication hardware. Initial
commercial installations of CorelVIDEO commenced in the second quarter of fiscal
1996.

30
<PAGE>

SALES CHANNELS. Corel distributes its products primarily through distributors
(as retail packaged products), OEM licences and corporate licences.

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
--------------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
(in thousands)

Retail packaged products...................... $174,703 $273,089 $161,528
OEM licences.................................. 18,520 26,527 30,441
Corporate licences............................ 3,156 34,629 68,612
------------ ------------ ------------
Total sales................................... $196,379 $334,245 $260,581
============ ============ ============
</TABLE>

Retail packaged products and corporate licences are sold primarily through
distributors. The three largest distributors accounted for $82.8 million (42%),
$168.4 million (50%), and $93.8 million (36%) of Corel's sales in fiscal 1995,
1996 and 1997, respectively. Packaged product revenue increased in 1996
primarily because of the acquisition of the WordPerfect family of software
products on March 1, 1996, the subsequent release of Corel versions of these
products during the second and third quarters of fiscal 1996 and the
introduction of CorelDRAW 7 in November 1996. Packaged product revenue decreased
in 1997. Corporate licences increased significantly in fiscal 1996 due to the
introduction in April 1996 of the Corel Licence Program that, while including
all of Corel's products, was targeted primarily toward office suite users.
Corel's enhanced focus on the corporate market has resulted in increased revenue
in 1997 from corporate licences. OEM channel revenues are licence fees from
original equipment manufacturers. The primary source of OEM revenues in fiscal
1995 and 1996 was the licensing of graphics software applications. OEM revenues
in 1997 related to the licensing of graphics software applications and
productivity software applications. Corel intends to continue expanding its
marketing efforts in the OEM channel and the corporate marketplace and
anticipates that sales from both of these areas will increase in the future both
in absolute dollars and as a percentage of revenues, although there can be no
assurances that such increases will occur.

SALES BY REGION

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
--------------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
(in thousands)
North America................................. $ 99,387 $233,997 $147,450
Europe........................................ 79,668 75,513 84,732
Other international........................... 17,324 24,735 28,399
------------ ------------ ------------
Total sales................................... $196,379 $334,245 $260,581
============ ============ ============
</TABLE>

Sales outside North America, principally in Europe, were 49%, 30% and 43% of
Corel's sales for fiscal 1995, 1996 and 1997, respectively. Sales outside North
America decreased as a percentage of sales in 1996 primarily due to the
introduction during the second and third quarters of fiscal 1996 of the English
language versions of Corel WordPerfect Suite and Corel Office Professional, and
the general economic slowdown in Europe, particularly in Germany which has
traditionally been Corel's second-largest geographic source of revenues after
the United States. In 1997, sales increased in both our European and
International markets, notably in Germany and the United Kingdom. Corel intends
to continue expanding its marketing efforts outside North America and
anticipates that sales outside North America will increase in the future in
absolute dollars. Conducting business outside North America is typically subject
to certain additional risks, including longer payment cycles, unexpected changes
in regulatory requirements and tariffs, currency conversion risks, difficulties
in staffing and managing foreign operations, greater difficulty in accounts
receivable collection and potentially adverse tax consequences.

Corel's products are sold primarily in US dollars in all countries other than
Canada and in US dollars to Canadian distributors. Sales in US dollars as a
percentage of total sales were in excess of 95% in each of fiscal 1995, 1996 and
1997.

31
<PAGE>

GROSS PROFIT

Corel includes in cost of sales all costs associated with the acquisition of
components, the assembly of finished products, the amortization of software
acquisition costs and shipping. Costs associated with warehousing are included
in selling, general and administrative expenses. Acquired software has been
capitalized and is currently being amortized over a 36-month period commencing
with the month of first shipment of the product incorporating such acquired
software, except for the WordPerfect family of software programs and related
technology, the cost of which is currently being amortized over a three to five
year period.

Gross profit as a percentage of sales decreased from 76% in fiscal 1995 to 70%
in fiscal 1996 and to 68% in fiscal 1997. The decrease in fiscal 1996 was due to
the shift in product mix to lower margin products within the graphics software
product line, the delayed market acceptance of CorelDRAW 6, and the amortization
of approximately $9 million per quarter over the last three quarters of fiscal
1996 relating to the acquisition costs of the WordPerfect family of software
products. These factors were partially offset by a higher proportion of CD-ROM
versions (over 95% in fiscal 1996) and manufacturing efficiencies. The decrease
in gross profit in fiscal 1997 was due primarily to a write-down for inventory
obsolescence in the amount of $12.8 million. The write-down was necessitated by
the discontinuance of older versions of CorelDRAW in the North American channel.
This write-down was partially offset by a lower amortization amount related to
the write-down of the WordPerfect technology in the second quarter of fiscal
1997.

ADVERTISING EXPENSES

Advertising expenses include all marketing, advertising and trade show expenses.
Advertising expenses increased by 68.2% to $92.7 million in fiscal 1996 from
$55.1 million in fiscal 1995 and decreased by 14.2% to $79.6 million in fiscal
1997. The increase in fiscal 1996 was due primarily to advertising expenses
related to the acquisition of the WordPerfect family of software programs and
the subsequent release of Corel versions of these software programs during the
second and third quarters of fiscal 1996. The decrease in 1997 was due primarily
to the reduction of print advertising and corporate sponsorships and promotions.
Advertising expenditures are fixed prospectively based on a percentage of
projected sales. Actual advertising expenses as a percentage of sales were 28%
in fiscal 1995, 28% in fiscal 1996 and 31% in fiscal 1997. The increase in
advertising expenses as a percentage of sales in fiscal 1997 was due primarily
to lower than anticipated sales in fiscal 1997. Corel expects that these
expenses will decline somewhat as a percentage of sales and in actual dollars
during fiscal 1998. The expected level of advertising expenses as a percentage
of sales is subject to, among other things, Corel's level of sales.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses include all selling expenses
(except for advertising expenses) and general administrative expenses as well as
expenses associated with warehousing. Selling, general and administrative
expenses increased by 76.3% to $71.0 million in fiscal 1996 from $40.3 million
in fiscal 1995 and by 19% to $84.5 million in fiscal 1997. The increase in
fiscal 1996 was primarily due to the costs of providing customer and technical
support for the WordPerfect family of software programs commencing on March 1,
1996, higher warehousing expenses resulting from higher inventory levels, and
the hiring of additional customer support and management and administrative
personnel associated with Corel's increased marketing efforts. The increases in
1996 occurred throughout the year due to the acquisition of the WordPerfect
technology midway through the year. In 1997 these increases for customer and
technical support, warehousing and increased personnel for marketing efforts
throughout 1996 were in effect for the entire year which caused the increase in
1997. Selling, general and administrative expenses as a percentage of sales were
21% in fiscal 1995, 21% in fiscal 1996 and 33% in fiscal 1997. Corel expects
that these expenses will remain relatively stable in absolute dollars during
fiscal 1998. The expected level of selling, general and administrative expenses
as a percentage of sales is subject to, among other things, Corel's level of
sales.

32
<PAGE>

GAIN ON SALE OF COREL CD CREATOR

On June 26, 1996, the Company sold all versions of its Corel CD Creator software
program and its PD optical recording technology to Adaptec, Inc. in a $12
million cash transaction. A gain on the sale of $10.4 million was realized in
the third quarter of fiscal 1996.

RESEARCH AND DEVELOPMENT EXPENSES

The Company has expensed all of its internal software development costs as
incurred, in accordance with Canadian GAAP. Research and development expenses
are reported net of Canadian investment tax credits.

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
------------------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
(in thousands, except percentage data)

Gross research and development expenses $31,286 $70,619 $89,499
Research and development tax credits 4,054 4,692 -
----------- ----------- -----------
Net research and development expenses $27,232 $65,927 $89,499
=========== =========== ===========
Gross research and development expenses
as a percentage of sales 16 % 21 % 34 %
</TABLE>

Net research and development expenses increased by 142.1% to $65.9 million in
fiscal 1996 from $27.2 million in fiscal 1995 and by 35.8% to $89.5 million in
fiscal 1997. These increases were primarily attributable to increased staffing
and costs associated with the continued maintenance and enhancement of Corel's
products, the acquisition of the WordPerfect family of software programs on
March 1, 1996, and development work on new products such as Internet and Java
products in fiscal 1996 and Webtop products in 1997. Net research and
development expenses as a percentage of sales were 13%, 20% and 34% in fiscal
1995, 1996 and 1997 respectively. Corel expects that these expenses will remain
relatively stable in absolute dollars during fiscal 1998. The expected level of
research and development expenses as a percentage of sales is subject to, among
other things, Corel's level of sales.

DEPRECIATION AND AMORTIZATION EXPENSES

Depreciation and amortization expenses, which do not include the amortization of
purchased software, increased by 101.5% to $19.0 million in fiscal 1996 from
$9.5 million in fiscal 1995 and by 37.7% to $26.3 million in fiscal 1997. These
increases were due primarily to purchases of additional office and computer
equipment over these periods, and in particular, office and computer equipment
acquired with the acquisition of the WordPerfect family of software programs on
March 1, 1996, and the subsequent expenditures during the second quarter of
fiscal 1996 to upgrade this equipment.

WRITE-DOWN OF PURCHASED SOFTWARE AND ROYALTIES

During 1997, the Company determined that recording nonrecurring charges totaling
$117.5 million was appropriate. These charges consist of write-downs of
previously capitalized acquired technologies for WordPerfect and deferred
development costs in the form of advance royalties paid to various developers
for multimedia titles in the Corel CD HOME Collection. The multimedia titles
were sold to Hoffman + Associates Inc. in the second quarter of 1997.

LOSS (GAIN) ON FOREIGN EXCHANGE

Foreign exchange gains or losses on Canadian dollar transactions are due to
fluctuations in the value of the Canadian dollar relative to the value of the US
dollar between the time sales are recorded and the collection of the account
receivable, and revaluation gains or losses relating to short-term investments
held in a currency other than

33
<PAGE>

the financial measurement and reporting currency due to fluctuations in the
value of those currencies relative to the value of the US dollar. The fiscal
1995 foreign exchange loss of $0.1 million reflected fluctuations in the
exchange rate during 1995, partially offset by the strengthening of the Canadian
dollar from US$0.73 at the beginning of fiscal 1995 to US$0.74 at the end of
fiscal 1995. The fiscal 1996 foreign exchange gain of $0.1 million reflected
fluctuations in the exchange rate during 1996 as the Canadian dollar was US$0.74
both at the beginning and end of fiscal 1996. The fiscal 1997 foreign exchange
loss of $0.7 million reflected the weakening of the Canadian dollar from US$0.74
at the beginning of fiscal 1997 to US$0.71 at the end of fiscal 1997. Corel
expects that foreign exchange fluctuations in future periods will be immaterial
as substantially all of Corel's sales, assets and liabilities as well as a
significant portion of its manufacturing and operating expenses will be in US
dollars. Consequently, Corel does not hedge its exposure to potential
fluctuations of other currencies vis-a-vis the US dollar.

INTEREST EXPENSES (INCOME)

Interest income decreased by $3.6 million to $1.4 million in fiscal 1996 from
$5.0 million in fiscal 1995. Interest expense in 1997 was $1.2 million. The
decrease in fiscal 1996 was due primarily to the decrease in cash and short-term
investments of $74.9 million during fiscal 1996 resulting mainly from the
WordPerfect acquisition on March 1, 1996, and the subsequent transition to
Corel, of the WordPerfect family of software programs and related technology.
The interest income received by Corel resulted from weighted average interest
rates of 6% in fiscal 1995, and 5% in fiscal 1996. The interest expense in 1997
is for long-term debt relating to the acquisition of the WordPerfect technology
from Novell, Inc.

INCOME TAXES

Corel's effective tax rates for fiscal 1995, 1996 and 1997 were 33.6%, 23.6% and
(4.0%) respectively. These effective tax rates vary from the Company's statutory
tax rate of 44.3% primarily due to foreign tax rate differences associated with
Corel's international operations and the unrecorded tax benefit of accounting
losses in the 1997 fiscal year. The accounting losses include loss carryforwards
for income tax purposes. Corel's effective tax rate in fiscal 1996 reflects
lower operating income from the Company's Irish subsidiary primarily due to
higher advertising, research and development, and operating expenses in fiscal
1996.

LIQUIDITY AND CAPITAL RESOURCES

As of November 30, 1997, Corel's principal sources of liquidity included cash
and short-term investments of $30.6 million, and accounts receivable of $53.3
million. Short-term investments consist of overnight call loans to a major
Canadian bank and marketable securities. Long-term debt of $37.5 million
consists of the outstanding royalty and product return obligations pursuant to
the acquisition of the WordPerfect family of software programs on March 1, 1996.
Shareholders' equity at November 30, 1997 was $59.8 million.

Corel has used funds generated from operations and from the exercise of employee
stock options to fund its operations, to repay a portion of its long-term debt
and to acquire capital equipment, products and technology. Corel's operating
activities provided cash of $7.9 million in fiscal 1995, used $11.5 million in
fiscal 1996 and provided cash of $55.1 million in 1997. Non-cash working capital
(current assets net of cash and short-term investments and current liabilities)
increased by $46.5 million to $114.0 million at November 30, 1996 from $67.5
million at November 30, 1995 and decreased $124.2 million to ($10.2) million at
November 30, 1997. Major components of non-cash working capital include accounts
receivable, inventories, prepaid expenses, accounts payable, accrued
liabilities, the current portion of long-term debt and deferred revenue.

Accounts receivable increased by $74.6 million in fiscal 1996 to $136.7 million
at November 30, 1996, from $62.1 million at November 30, 1995 and decreased by
$83.4 million in fiscal 1997 to $53.3 million at November 30, 1997. Days sales
outstanding ("DSO") increased by 12 days in fiscal 1996 to 98 days at November
30, 1996, from 86 days at November 30, 1995 and increased by eight days in
fiscal 1997 to 106 days at November 30, 1997. Extended payment terms, up to 75
days, are granted to many of Corel's distributors upon the introduction of new
products or new versions of current products to allow these distributors to
effectively market and promote such new

34
<PAGE>

products or new versions of current products. Bad debts written off totalled
$4.6 million in fiscal 1996 and $0.1 million in fiscal 1997. A bad debt
provision of approximately $4.0 million made in fiscal 1995 on account of a
German distributor was confirmed and written off in fiscal 1996.

Inventories increased by $14.2 million in fiscal 1996 to $30.4 million at
November 30, 1996 from $16.2 million at November 30, 1995 and decreased by $19.0
million in fiscal 1997 to $11.4 million at November 30, 1997. The increase in
fiscal 1996 reflected the addition of Corel WordPerfect products subsequent to
the acquisition of the WordPerfect technology in fiscal 1996, and Corel's
decisions to maintain CorelDRAW 3, CorelDRAW 4 and CorelDRAW 5 as separate
product lines, expand Corel Professional Photos on CD-ROM from 440 titles at
November 30, 1995 to over 600 titles at November 30, 1996, and introduce new
products, such as CorelVIDEO and Corel Graphics Pack. The decrease in fiscal
1997 was primarily due to a write-down for obsolescence related to the decision
to discontinue CorelDRAW 3, CorelDRAW 4, CorelDRAW 6 and CorelDRAW 7 in the
North American market.

Prepaid expenses increased by $9.5 million in fiscal 1996 to $18.4 million at
November 30, 1996, from $8.9 million at November 30, 1995, and decreased by
$15.8 million in fiscal 1997 to $2.6 million at November 30, 1997, primarily due
to the write-down of deferred development costs in the form of prepaid royalties
to third-party developers of Corel CD HOME titles. The multimedia titles were
sold to Hoffman + Associates Inc. in the second quarter of fiscal 1997.

Accounts payable and accrued liabilities increased by $29.4 million in fiscal
1996 to $52.4 million at November 30, 1996, from $23 million at November 30,
1995, and decreased by $4.3 million in fiscal 1997 to $48.1 million at November
30, 1997.

The current portion of long-term debt of $13.5 million at November 30, 1997
represents the amounts due in fiscal 1998 arising from long-term royalty and
product return obligations pursuant to the acquisition of the WordPerfect family
of software programs on March 1, 1996.

The exercise of employee and other stock options provided cash of approximately
$16.4 million in fiscal 1995, $7.3 million in fiscal 1996 and $6.2 million in
fiscal 1997. Also, in 1997, the Company repurchased for cancellation, 1,450,000
Common Shares for $5.0 million.

Corel's capital expenditures totalled $28.5 million in fiscal 1995, $210.1
million in fiscal 1996 and $23.8 million in fiscal 1997, including expenditures
for acquired software ($11.7 million in fiscal 1995, $171.1 million in fiscal
1996, of which $153.4 million was for the acquisition of the WordPerfect
technology on March 1, 1996 and $12.2 million in fiscal 1997), and for computer
and office equipment. At November 30, 1997, Corel had no material commitments
for capital expenditures. Corel anticipates that capital expenditures for
computer and office equipment for fiscal 1998 and future fiscal years will
remain constant with respect to fiscal 1997 levels as computer systems are
upgraded to take advantage of new technologies. Due to the rapidly changing
technology in the computer software industry, expenditures for technology
acquisitions are inherently difficult to predict for future fiscal periods.

Corel believes that the existing sources of liquidity and anticipated funds from
operations will satisfy Corel's projected working capital, capital expenditure
and long-term debt repayment requirements for the 1998 fiscal year. Corel
anticipates that subsequent to that time, its working capital and capital
expenditures will be satisfied by existing sources of liquidity, funds from
operations and, if necessary, additional financings.

Corel initiated a corporate-wide program in 1996 to review, test and prepare
Corel's products and internal systems for the Year 2000. Review and preparation
for the Year 2000 is expected to be completed on a timely basis. Corel has
committed significant resources to this process and does not believe that the
Year 2000 problems that may arise will materially affect sales of Corel products
or the operations of the Company. The most current information on the Year 2000
status of Corel products may be found on the Company's Web site.

35
<PAGE>

FACTORS THAT MAY AFFECT FUTURE RESULTS

Corel does not provide forecasts of future financial performance. While Corel's
management is confident about Corel's long-term performance prospects, the
following factors, among others, should be considered in evaluating its future
results of operations.

Competition

The PC software business is highly competitive and subject to rapid
technological change. Many of Corel's current and potential competitors have
larger technical staffs, more established and larger marketing and sales
organizations, and significantly greater financial resources than does Corel.
The rapid pace of technological change constantly creates new opportunities for
existing and new competitors and can quickly render existing technologies less
valuable. As the market for Corel's products continues to develop, additional
competitors may enter the market and competition may intensify.

GRAPHICS SOFTWARE. Corel's graphics software products face substantial
competition from a wide variety of companies. In the illustration graphics
segment, Corel's competitors include Adobe Systems Incorporated, Macromedia
Inc., Deneba Systems Incorporated and Micrografx, Inc. In the photo-editing and
painting graphics segments, its competitors include Adobe and Micrografx. In the
charting and presentation segments its competitors include Software Publishing
Corporation, Microsoft Corporation, Adobe, Micrografx and IBM (Lotus Development
Corporation). In the desktop publishing segment, its competitors include Adobe
and Quark, Inc. Corel's competitors include many other independent software
vendors, such as Autodesk, Inc., Borland International, Inc., Apple Computer
Inc. (Claris Corporation) and Computer Associates, as well as a number of
personal computer manufacturers which devote significant resources to creating
personal computer software, including Apple, Hewlett-Packard Company and IBM.

COMMUNICATIONS APPLICATIONS. The Company's communications applications products
(CorelVIDEO) compete against offerings from Intel, PictureTel, C-Phone and many
other companies.

Pricing

In the past year, pricing pressures have intensified in the PC software
applications market and the Company believes that price competition, with its
attendant reduced profit margins, may become a more significant factor in the
future. Corporate licensing, discount pricing for large volume distributors and
retailers, product bundling promotions and

36
<PAGE>

competitive upgrade programs are forms of price competition that may become more
prevalent. In addition, local area network versions of products are generally
priced lower per user than individual copies of the same products. Corel also
competes with companies that produce standalone graphics and desktop publishing
applications that might serve a specific need of a user or class of users at a
price below that of Corel's products. Additionally, should competitive pressures
in the industry increase, Corel may have to increase its spending on advertising
as a percentage of revenues, resulting in lower profit margins.

Technological Change

The markets for Corel's products are characterized by rapidly changing
technology, frequent new product introductions and uncertainty due to new and
emerging technologies. Corel's future success is highly dependent upon the
timely completion and introduction of new or enhanced products incorporating
such emerging technologies at competitive price/performance levels. The pace of
change has recently accelerated due to the Internet, corporate intranets, the
introduction of 32-bit operating systems such as Windows 95 and Windows NT 4.0,
and new programming languages, such as Java.

PC Growth Rates

The underlying PC unit growth rate, which may increase at a slower rate in the
future, impacts Corel's revenue growth.

Dependence on New Products

While Corel performs extensive usability and beta testing of new and enhanced
products, user acceptance and corporate penetration rates ultimately determine
the success of development and marketing efforts.

Product Ship Schedules

Delays in new product releases impact sales growth rates and can cause
operational inefficiencies that impact manufacturing and distribution logistics,
distributor, reseller and OEM relationships, and technical support and customer
service staffing.

Channel Mix

Average revenue per unit is lower from OEM licences than from retail versions,
reflecting the relatively low direct costs of operations in the OEM channel.
Corel's OEM revenues continued to increase during fiscal 1996 and fiscal 1997.

Potential Fluctuations in Quarterly Results

Corel's quarterly operating results fluctuate as a result of a number of
factors, including the timing of new product announcements and introductions by
Corel and its competitors, pricing, distributor ordering patterns, the relative
proportions of sales attributable to full kits and existing user upgrades,
product returns and reserves, advertising and other marketing expenditures, and
research and development expenditures. Revenues and earnings may be difficult to
predict due to shipment patterns. Products are generally shipped as orders are
received, and accordingly, Corel has historically operated with little backlog.
As a result, sales in any quarter are dependent on orders booked and shipped in
that quarter. As is typical in the computer software industry, a high percentage
of Corel's revenues are expected to be earned in the third month of each fiscal
quarter and will tend to be concentrated in the latter half of that month.
Accordingly, quarterly financial results will be difficult to predict until the
end of the quarter and a shortfall in shipments at the end of any particular
quarter may cause the results of that quarter to fall significantly short of
anticipated levels.

37
<PAGE>

Employee Compensation

The highly competitive market for qualified personnel, especially software
engineers and developers, could adversely affect Corel's ability to engage and
retain competent qualified personnel, particularly development professionals.
Corel believes that its employment policies in this regard are competitive
within the industry. Effective December 1, 1997, Corel introduced an employee
bonus incentive plan.

Dependence on Distributors

The distribution of Corel's products is carried out primarily through
distributors, certain of which are material to the competitive position of
Corel. The distribution channels through which software products for desktop
computers are sold have been characterized by rapid change, including
consolidations and financial difficulties of certain distributors and resellers,
the emergence of new retailers such as general mass merchandisers and
superstores, and the desire of large customers such as retail chains and
corporate users to purchase directly from software developers. The loss of, or a
significant reduction in sales volume attributable to, any of Corel's principal
distributors or the insolvency or business failure of any such distributor could
have a material adverse effect on Corel's results of operations.

International Operations and Geographic Concentration

Currently, Corel markets its products in approximately 70 countries. Corel
anticipates that sales outside North America will continue to account for a
significant portion of total sales. These sales are subject to certain risks
including imposition of government controls, export licence requirements,
restrictions on the export of technology, political instability, trade
restrictions, changes in tariffs, differences in copyright protection and
difficulties in managing accounts receivable. More than 40% of Corel's sales for
the past three fiscal years were made in the United States. As a result, adverse
developments in the United States markets for Corel's products could have a
material adverse effect on Corel's results of operations.

Dependence on Key Personnel

Corel's success depends to a significant extent upon the performance of Corel's
executive officers and key technical and marketing personnel, particularly the
Company's founder and Chairman, President and Chief Executive Officer, Dr.
Michael C.J. Cowpland. Corel has agreements describing compensation arrangements
and containing non-disclosure covenants with certain of its key employees. Corel
does not have employment agreements with other key employees, including Dr.
Cowpland. Corel believes that its future success will also depend in large part
on its ability to attract and retain highly skilled technical, managerial, and
sales and marketing personnel.

38
<PAGE>

CORPORATE GOVERNANCE

The Company's Board of Directors and senior management consider good corporate
governance to be central to the effective and efficient operation of Corel. The
Toronto Stock Exchange ("TSE") Committee on Corporate Governance in Canada has
issued a series of proposed guidelines for effective corporate governance. The
guidelines address matters such as the constitution and independence of
corporate boards, the functions to be performed by boards and their committees,
and the effectiveness and education of board members. To implement these
guidelines, the TSE has adopted as a listing requirement the disclosure by each
listed corporation of its approach to corporate governance with reference to the
proposed guidelines.

<TABLE>
<CAPTION>
Does
Corel
TSE Corporate Governance Committee Guideline Conform? Comments
- -------------------------------------------- -------- -------
<S> <C> <C> <C>
1 Board should explicitly assume responsibility
for stewardship of the corporation, and
specifically for:
a) adoption of a strategic planning process. Yes. The Board participates in strategic
planning; however, the nature of the
business and its rapid evolution precludes
long-term planning. The Board generally
participates in, and is fully informed of,
strategic initiatives as they develop.

b) identification of principal risks, Yes. The Board, in its deliberations, considers
and implementing risk-managing systems. the principal risks of the Company's
business and receives reports of the
Company's assessment and management of those
risks.

c) succession planning and monitoring Yes. The Board has addressed with the CEO the
senior management. question of succession planning. The Board
does participate in the appointing of senior
management.

d) communications policy. Yes. The Board has considered and discussed how
the Company communicates with its various
stakeholders and intends to further review
the Company's communications policy.

e) integrity of internal control and Yes. The Board directly, and through its
management information systems. Audit Committee, assesses the integrity of
the Company's internal control and
management information systems.

2 Majority of directors should be "unrelated" Yes. The Board is composed of nine members:
(free from conflicting interests). four are unrelated, one is an employee of
the Company, one is an officer of the
Company and three positions are currently
vacant.

3 Disclose for each director whether he or she Yes. Apart from Michael Cowpland and Paul C.
is related, and how that conclusion was LaBarge, all directors are unrelated to
reached. the Company or each other. Michael Cowpland
is the Founder, the largest individual
shareholder, Chief Executive Officer and
President of the Company. Paul C. LaBarge is
the Secretary of the Company.
____________________________________________________________________________________________________________________________________

</TABLE>

39
<PAGE>

<TABLE>
<CAPTION>
Does
Corel
TSE Corporate Governance Committee Guideline Conform? Comments
- -------------------------------------------- -------- --------
<S> <C> <C> <C>
4 a) Appoint a Committee responsible for Yes. The Board of Directors has appointed
the appointment/assessment of directors the Audit Committee with this mandate.

b) Composed exclusively of non-management Yes.
directors, the majority of whom are
unrelated.

5 Implement a process for assessing the Yes. The Board of Directors has appointed
effectiveness of the Board, its the Audit Committee with this mandate.
Committees and individual directors.

6 Provide orientation and education Yes. The Company provides appropriate
programs for new directors. documentation and presentations as
required for new directors.

7 Consider reducing the size of Board, Yes. The Board has considered its size with
with a view to improving effectiveness. a view to the impact of size upon its
effectiveness and has concluded that the
number of directors is in the appropriate
range for a corporation of the size and
complexity of the Company. The Board as
presently constituted brings together a mix of
skills, backgrounds and attitudes that the
Board considers appropriate to the stewardship
of the Company.

8 Review compensation of directors in Yes. The Board, through its Compensation
light of risks and responsibilities. Committee, periodically reviews the adequacy
and form of compensation of directors.

9 a) Committees should generally be Yes. All the members of the Audit and Compensation
composed of non-management directors, Committees are non-management directors.
and

b) Majority of Committee members Yes. All the members of the Audit and Compensation
should be unrelated. Committees are unrelated.

10 Appoint a Committee responsible for Yes. The Board, as a whole, has considered
approach to corporate governance corporate governance issues and has appointed
issues. the Audit Committee with this mandate.

11 a) Define limits to management's
responsibilities by developing
mandates for:

(i) the Board. No. There is no specific mandate for the Board,
since the Board has plenary power. Any
responsibility which is not delegated to
senior management or a Board Committee remains
with the full Board.

(ii) the CEO. No. The scope and extent of the CEO's mandate has
evolved through interaction with the Board and
an ongoing consultative process with the
Board.
</TABLE>

40
<PAGE>

<TABLE>
<CAPTION>
Does
Corel
TSE Corporate Governance Committee Guideline Conform? Comments
- -------------------------------------------- -------- --------
<S> <C> <C> <C>
b) Board should approve CEO's corporate Yes. The Board annually approves the key results
objectives. for which the CEO is responsible and reviews
key results and objectives quarterly.

12 Establish procedures to enable the Yes. The Board has functioned, and is of the
Board to function independently of opinion that it can continue to function,
management. independently as required.

13 a) Establish an Audit Committee with a Yes. The Audit Committee has a specifically
specifically defined mandate. defined mandate that includes oversight
responsibility for management reporting on
internal controls and corporate governance.

b) All members should be Yes. The members are non-management directors.
non-management directors.

14 Implement a system to enable individual Yes. A system is under consideration but was not
directors to engage outside advisers, implemented during the fiscal year.
at corporation's expense.
</TABLE>

<PAGE>

EXHIBIT 13.2

42
<PAGE>

EXHIBIT 13.2

COREL CORPORATION
________________________________________________________________________________

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Auditors' Report

Consolidated Balance Sheets

Consolidated Statements of
Operations and Retained Earnings (Deficit)

Consolidated Statements of
Changes in Financial Position

Notes to Consolidated Financial Statements

43
<PAGE>
COREL CORPORATION
________________________________________________________________________________

AUDITORS' REPORT TO THE SHAREHOLDERS

We have audited the consolidated balance sheets of Corel Corporation as at
November 30, 1997, and November 30, 1996, and the consolidated statements of
operations and retained earnings (deficit) and changes in financial position for
the years ended November 30, 1997, 1996 and 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at November 30, 1997
and 1996, and the results of operations and the changes in financial position
for the years ended November 30, 1997, 1996 and 1995 in accordance with
generally accepted accounting principles.

Generally accepted accounting principles in Canada differ in some respects from
those applicable in the United States (note 10).

/s/ KPMG

Chartered Accountants

Ottawa, Canada
January 16, 1998
(except as to Note 12 which is at February 23, 1998)

44
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________________________________________________________________________________

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
As of November 30
-------------------------
1996 1997
------- -------
<S> <C> <C>
(in thousands of US$)
ASSETS
Current assets:
Cash and short-term investments $ 6,924 $ 30,629
Accounts receivable
Trade (note 11) 135,338 50,951
Other 1,341 2,310
Inventory (note 1) 30,390 11,412
Income taxes recoverable 12 -
Deferred income taxes 2,940 2,353
Prepaid expenses 18,388 2,591
-------- ---------
Total current assets 195,333 100,246

Deferred income taxes 870 -

Capital assets (note 2) 202,275 63,497
-------- ---------
Total assets $398,478 $ 163,743
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 17,592 $ 13,840
Accrued liabilities 34,801 34,223
Current portion of long-term
debt (note 3) 15,500 13,500
Income taxes payable - 4,203
Deferred revenue 6,495 14,124
-------- ---------
Total current liabilities 74,388 79,890

Long-term debt (note 3) 33,830 24,044

SHAREHOLDERS' EQUITY:
Share capital (note 4) 202,953 204,235
Contributed surplus 352 730
Retained earnings (deficit) 86,955 (145,156)
-------- ---------
Total shareholders' equity 290,260 59,809
-------- ---------
Total liabilities and shareholders' equity $398,478 $ 163,743
======== =========
</TABLE>

Commitments (note 8)

(See accompanying Notes to Consolidated Financial Statements)

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________________________________________________________________________________

CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)

Year ended November 30
----------------------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
(in thousands of US$, except per share data)

Sales $196,379 $334,245 $ 260,581
Cost of sales (note 5) 47,352 101,094 84,136
Gross profit 149,027 233,151 176,445

Expenses:
Advertising 55,099 92,682 79,561
Selling, general and
administrative 40,292 71,019 84,480
Gain on sale of CD Creator
technology - (10,426) -
Research and development 27,232 65,927 89,499
Depreciation and amortization 9,468 19,081 26,275
Write-down of purchased software
and royalties - - 117,512
Loss (gain) on foreign exchange 136 (141) 764
-------- -------- --------
132,227 238,142 398,091
-------- -------- --------
Income (loss) from operations 16,800 (4,991) (221,646)
Interest expense (income) (5,023) (1,391) 1,154
-------- -------- --------
Income (loss) before income taxes 21,823 (3,600) (222,800)
Income taxes (recoverable) (note 6):
Current 7,174 5,455 7,421
Deferred 165 (6,305) 1,457
-------- -------- --------
7,339 (850) 8,878
-------- -------- --------
Net income (loss) 14,484 (2,750) (231,678)
Retained earnings beginning of year 75,221 89,705 86,955
Premium on shares repurchased for
cancellation - - (433)
-------- -------- --------
Retained earnings (deficit) end of year $ 89,705 $ 86,955 $(145,156)
======== ======== =========

Earnings (loss) per share (note 4):
Net income (loss)
Basic $0.30 $(0.05) $(3.84)

Weighted average number of
Common shares outstanding (000s):
Basic 48,412 57,289 60,297
</TABLE>

(See accompanying Notes to Consolidated Financial Statements)

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________________________________________________________________________________

CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION

<TABLE>
<CAPTION>
Year ended November 30
----------------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
(in thousands of US$)

Cash provided by (used for):

Operations:
Net income (loss) $ 14,484 $ (2,750) $(231,678)
Items which do not involve cash:
Depreciation and amortization 17,334 56,553 52,282
Deferred income taxes 165 (6,305) 1,457
Decrease (increase) in accounts receivable (9,269) (74,560) 83,418
Decrease (increase) in inventory (2,807) (14,166) 18,978
Decrease (increase) in prepaid expenses (7,533) (9,507) 5,616
Increase (decrease) in accounts payable 4,409 4,696 (3,752)
Increase (decrease) in accrued liabilities (625) 24,704 (578)
Increase (decrease) in income taxes
payable/recoverable (8,236) 3,294 4,215
Increase in deferred revenue - 6,495 7,629
Write-down of royalties - - 10,181
Write-down of purchased software - - 107,331
-------- --------- ---------
7,922 (11,546) 55,099
-------- --------- ---------
Financing:
Issue of share capital 16,421 97,152 6,206
Shares repurchased for cancellation - - (4,979)
Increase in long-term debt - 55,000 -
Repayment of long-term debt - (5,670) (11,786)
-------- --------- ---------
16,421 146,482 (10,559)
-------- --------- ---------
Investments:
Purchase of capital assets (28,459) (210,108) (23,829)
Proceeds on disposal of assets 314 280 2,994
-------- --------- ---------
(28,145) (209,828) (20,835)
-------- --------- ---------
Net increase (decrease) in cash (3,802) (74,892) 23,705

Cash at beginning of year 85,618 81,816 6,924
-------- --------- ---------
Cash at end of year $ 81,816 $ 6,924 $ 30,629

</TABLE>

Cash is defined as cash and short-term investments

(See accompanying Notes to Consolidated Financial Statements)

47
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________________________________________________________________________________

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada. These principles are also
generally accepted in the United States in all material respects except as
disclosed in Note 10.

(a) BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Corel Corporation Limited,
Corel Computer Corp., Corel International Corporation, Corel, Inc. and
its wholly-owned subsidiary, Corel Corporation (U.S.A.). All material
intercompany transactions and balances have been eliminated.

(b) ESTIMATES AND ASSUMPTIONS
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities,
revenue and expenses. Examples include provisions for returns and bad
debts, the length of product cycles and capital assets lives. Actual
results may differ from these estimates.

(c) SALES RECOGNITION
Sales are recognized when the products are shipped to the customer and
are net of discounts and allowances for returns. Sales to distributors
are subject to agreements allowing limited rights of return and price
protection. The Company provides reserves for estimated future returns,
exchanges and price protection. Licence revenue is recognized when the
licence is shipped to the customer. Associated maintenance revenue is
deferred and recognized over the term of the related agreement.

(d) RESEARCH AND DEVELOPMENT COSTS
Research costs are expensed as incurred. Development costs are expensed
as incurred unless they meet the criteria for deferral under generally
accepted accounting principles. Acquired software is capitalized and
amortized over its expected useful life, generally three to five years.

(e) INVENTORY
Inventory of raw materials is valued at the lower of cost and
replacement cost, and finished goods are valued at the lower of cost and
net realizable value.

(f) CAPITAL ASSETS
Capital assets are recorded at cost. Amortization of licences commences
with the market release of each new software product and version.
Depreciation and amortization are calculated using the following rates
and bases:

Furniture and equipment................ 20 - 33.3% declining balance
Computer equipment and software........ 50% straight line
Research and development equipment..... 20 - 50% declining balance
Software licences and purchased
software, clipart libraries and
Photo CD libraries.................... Shorter of the life of the
licence or 20.0 - 33.3% straight
line
Leasehold improvements................. Straight line over the term of
the lease

The Company regularly reviews the carrying value of its capital assets. If the
carrying value of its capital assets exceeds the amount recoverable, a write-
down is charged to the consolidated statement of operations.

48
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________________________________________________________________________________

(g) CASH AND SHORT-TERM INVESTMENTS
Short-term investments are stated at the lower of cost and market value.
Short-term investments included with cash consisted of overnight bank
term deposits of $6,000,000 and $1,000,000 at November 30, 1996 and 1997
respectively. At November 30, 1997, short-term investments also include
$5,000,000 of marketable securities.

(h) INCOME TAXES
The Company follows the tax allocation basis using the deferral method
in accounting for income taxes. Deferred income taxes are recorded for
timing differences in reporting income and expenses for financial
statement and tax purposes.

(i) FOREIGN CURRENCY TRANSLATION
Monetary assets and liabilities denominated in foreign currencies are
translated at the closing year end rates of exchange. Non-monetary items
are translated at the rates of exchange in effect when the assets were
acquired or obligations incurred. Income and expense items have been
translated at the average rates prevailing during the respective years.
The resulting gains or losses resulting from the translation of these
amounts have been reflected in earnings.

1. INVENTORY

<TABLE>
<CAPTION>
As at November 30
------------------------
1996 1997
-------- --------
(in thousands of US$)
<S> <C> <C>
Raw materials $23,986 $ 7,974
Finished goods 6,404 3,438
------- -------
$30,390 $11,412
======= =======
</TABLE>

2. CAPITAL ASSETS

<TABLE>
<CAPTION>
As at November 30, 1997
------------------------------------------------
Accumulated
Depreciation Net
and November 30
Cost Amortization Net 1996
------------ -------------- -------- -----------
<S> <C> <C> <C> <C>
(in thousands of US$)

Funiture and equipment $ 15,603 $ 7,296 $ 8,307 $ 8,963
Computer equipment
and software 60,688 51,265 9,423 24,205
Research and
development equipment 12,596 5,198 7,398 6,683
Leasehold improvements 3,625 1,951 1,674 1,729
Software licences and
puchased software, clipart
libraries and Photo CD libraries 94,009 57,314 36,695 160,695
-------- -------- ------- --------
$186,521 $123,024 $63,497 $202,275
======== ======== ======= ========
</TABLE>

At November 30, 1996 the cost amounted to $297,969,000 and accumulated
depreciation and amortization amounted to $95,694,000. The carrying amount of
licences not being amortized at November 30, 1997 and 1996 amounted to
$2,425,000 and $77,000 respectively. Included in the $107,331,000 write-down of
purchased

49
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COREL CORPORATION
________________________________________________________________________________

software is an amount of $97,383,000 related to a write-down of the WordPerfect
family of software programs to net recoverable amount.

3. LONG-TERM DEBT

Long-term debt is comprised of the outstanding royalty and product return
obligations pursuant to the acquisition of the WordPerfect family of software
programs and related technologies from Novell, Inc. and is secured by a pledge
of certain accounts receivable.

As at November
As at November 30, 1997 30, 1996
------------------------------------------ --------------
Product
Royalty Returns Total Total
----------- ------------ ---------- ----------
(in thousands of US$)
<S> <C> <C> <C> <C>

Long-term debt $19,182 $18,362 $37,544 $49,330
Less: Current portion 6,500 7,000 13,500 15,500
------- ------- ------- -------
$12,682 $11,362 $24,044 $33,830
======= ======= ======= =======
</TABLE>

ROYALTY OBLIGATION

The following are the future royalty payments (in thousands of US$)
under the acquisition agreement based on management's estimates net of
interest imputed at 10%.

1998 $ 6,500
1999 7,800
2000 9,360
2001 2,976
-------
Total minimum royalty payments 26,636
Less amounts representing interest at 10% 7,454
-------
Balance of the obligation $19,182
=======
</TABLE>

PRODUCT RETURNS

The Company is obligated to reimburse Novell Inc. for amounts
representing returns of Novell WordPerfect products in the distribution
channel. Payments are due in quarterly installments over four years
commencing January 1, 1997, with an interest charge of 1% over the US
prime rate.

The payments (in thousands of US$) required in the next three years are
as follows:

50
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COREL CORPORATION
________________________________________________________________________________

4. SHARE CAPITAL

<TABLE>
<CAPTION>
As at November 30
----------------------------------------
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
(a) AUTHORIZED AND ISSUED SHARE CAPITAL
Authorized
Unlimited preferred shares, issuable in series,
no par value
Unlimited common shares
Issued
Number of common shares (000s) 49,300 60,041 59,740
Stated capital (in thousands of US$) $105,801 $202,953 $204,235

(b) COMMON SHARES ISSUED DURING THE YEAR
Stock option plan
Number of shares (000s) 1,471 791 1,149
Cash consideration (in thousands of US$) $ 16,421 $ 7,252 $ 6,206
Technology acquisition
Number of shares (000s) - 9,950 -
Consideration (in thousands of US$) - $ 89,900 -

(c) COMMON SHARES PURCHASED AND CANCELLED DURING THE YEAR
Number of shares (000s) - - 1,450
Cash outlay (in thousands of US$) - - $ (4,979)
Premium of share repurchase (in thousands of US$) - - $ 433
Discount on share repurchase (in thousands of US$) - - $ (378)
</TABLE>

<TABLE>
<S> <C>
(d) EARNINGS (LOSS) PER COMMON SHARE
The calculations of the earnings (loss) per common share are based on the weighted daily average number of shares
outstanding during the year. The calculation of fully diluted earnings per common share assumes that all outstanding options
have been exercised at the later of the beginning of the fiscal period or the option issuance date. Where the impact of the
conversion or exercise of these options is anti-dilutive they are not included in the calculation of fully diluted earnings
per share. In 1995, fully diluted earnings per share was $0.26 and the weighted average number of fully diluted shares
outstanding was 55,174. For other years presented there is no dilutive effect for potential conversions.
</TABLE>

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(e) STOCK OPTION PLAN
The Company's stock option plan is administered by the Compensation
Committee which is a subcommittee of the Board of Directors. The
Compensation Committee will designate eligible participants to be
included under the plan and will designate the number of options and
share price pursuant to the new options, subject to applicable
securities laws and stock exchange regulations. The options vest when
granted. Information with respect to stock option activity for 1996 and
1997 follows:

<TABLE>
<CAPTION>
Price per share (CDN$)
--------------------------------
Weighted
Number of Shares Range Average
---------------- --------------- ----------
<S> <C> <C> <C>
Outstanding at November 30, 1995 7,564,284 $ 4.67 - $ 25.25 $17.52
Granted 5,957,000 9.50 - 15.00 11.55
Exercised (791,720) 4.67 - 19.67 12.24
Cancelled (371,187) 13.50 - 22.38 17.00
------------ ---------------- ------

Outstanding at November 30, 1996 12,358,377 4.67 - 25.25 14.99
Granted 5,976,414 4.00 - 8.60 7.67
Exercised (1,149,087) 4.67 - 9.50 7.75
Cancelled (11,028,185) 4.67 - 25.25 15.03
------------ ---------------- ------
Outstanding at November 30, 1997 6,157,519 $ 4.00 - $ 22.38 $ 9.17
------------ ---------------- ------
</TABLE>

For various price ranges (in CDN$), weighted average characteristics of
outstanding stock options at November 30, 1997 were as follows:
<TABLE>
<CAPTION>

Outstanding options
------------------------------------
Remaining life Weighted Average
Range of exercise price Shares (years) Price
----------------------- ------ -------------- ----------------
<S> <C> <C> <C>
$ 4.00 - $ 7.50 178,800 3.8 $ 6.52
7.51 - 13.00 5,089,329 2.1 7.84
13.01 - 18.00 438,001 1.8 14.03
18.01 - 22.38 451,389 1.2 20.42
</TABLE>

The outstanding options expire between February 7, 1998 and November 14, 2001.

(f) STOCK OPTION REPRICING

On April 18, 1997, the shareholders adopted a resolution by the Board of
Directors to reprice outstanding options at prices greater than $7.70,
to $7.70. The resolution permitted option holders who qualified for
grants under the plan to exchange existing options for options with a
current market exercise price. The basis of the exchange was to reduce
pro rata the number of options received to the change in exercise price.
No other changes will be made in respect of options exchanged.

52
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________________________________________________________________________________

5. COST OF SALES

<TABLE>
<CAPTION>
Year ended November 30
-------------------------------------------
1995 1996 1997
-------- -------- ---------
(in thousands of US$)
<S> <C> <C> <C>
Cost of goods sold $37,490 $ 42,852 $44,906
License amortization 7,866 37,472 26,007
Royalties 1,996 20,770 13,223
------- -------- -------
$47,352 $101,094 $84,136
======= ======== =======
</TABLE>

6. INCOME TAXES

Income tax expense varies from the amount that would be computed by
applying the basic federal and provincial income tax rates to income
before income taxes, as shown in the following table:

Year ended November 30
-------------------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
(in thousands of US$)
Basic rate applied to income before income taxes $ 9,676 $ (1,606) $(99,414)
Increase (decrease) in taxes resulting from:
Provincial research and development deduction (1,072) (823) (677)
Amortization of software licences not tax deductible 601 540 507
Amortization of share costs (194) (197) -
Losses recognized for accounting purposes
but not for income tax purposes - - 23,152
Write-down of items not deductible for income tax
purposes - - 1,086
Foreign tax and exchange rate differences (1,570) 400 84,222
Other items (102) 836 2
------- ------- --------
$ 7,339 $ (850) $ 8,878
======= ======= ========
</TABLE>

(a) LOSS CARRYFORWARD

During the year ended November 30, 1997, the Company reported accounting
losses of $222,800,000. The tax benefit related to $213,000,000 of these
losses has not been recorded in the consolidated financial statements.
The accounting losses include loss carryforwards for income tax purposes
of $32,600,000 which begin to expire after the 2003 fiscal year. The
remaining amount relates to items expensed in the consolidated financial
statements which have not yet been claimed for income tax purposes.

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7. SEGMENTED INFORMATION

In the opinion of management, the Company operates in one industry
segment, that being the PC software development business. The Company
distributes its products worldwide from three geographic regions.

<TABLE>
<CAPTION>
As at and for the year ended November 30
--------------------------------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
(in thousands of US$)
Sales
U.S.A. - $ 235,818 $ 182,523
Canada $ 78,507 57,334 40,105
Ireland 137,306 309,456 242,334

Segment Transfers
Canada (19,434) (23,134) (17,706)
Ireland - (245,229) (186,675)
-------- --------- ---------
Net Sales $196,379 $ 334,245 $ 260,581
-------- --------- ---------
Net income (loss)
U.S.A. - $ 1,853 $ 3,073
Canada $ 9,800 (4,869) (37,273)
Ireland 4,684 266 (197,478)
-------- --------- ---------
$ 14,484 $ (2,750) $(231,678)
-------- --------- ---------
Identifiable assets
U.S.A. - $ 110,397 $ 40,278
Canada $154,866 75,622 55,456
Ireland 66,480 212,459 68,009
-------- --------- ---------
$221,346 $ 398,478 $ 163,743
-------- --------- ---------
</TABLE>

A summary of sales by region and by major customer from consolidated
operations is as follows:

Year ended November 30
-------------------------------------------------
1995 1996 1997
------ ------- -------
(in thousands of US$)
<S> <C> <C> <C>
By region:
U.S.A. $ 91,913 $214,481 $129,110
Europe 79,668 75,513 84,732
Canada 7,474 19,516 18,340
Other 17,324 24,735 28,399
-------- -------- --------
$196,379 $334,245 $260,581
-------- -------- --------
By major customer:
Ingram Micro Inc. $ 58,173 $109,562 $ 63,119

</TABLE>

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8. COMMITMENTS

The Company rents office premises, sponsors various sporting events and
venues, and is obligated to pay minimum product royalties under long-
term agreements. Rent expense (in thousands of US$) pursuant to lease
obligations aggregated $3,115, $6,746 and $7,006 during the years ended
November 30, 1995, 1996 and 1997, respectively. At November 30, 1997,
the minimum commitments under long-term agreements (in thousands of
US$), are as follows:

1998 $11,677
1999 7,859
2000 7,660
2001 6,730
2002 4,981
2003 and thereafter 58,315
-------
$97,222
-------
</TABLE>

9. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

The carrying values of cash and short-term investments (excluding
marketable securities), accounts receivable, accounts payable and
accrued liabilities approximate their fair value due to the relatively
short period to maturity of the instruments.

The fair value of marketable securities included in cash and short term
investments at November 30, 1997 is $5,493,000 which is based on the
quoted market price.

The fair value of long-term debt is determined by discounting the
future contractual cash flow of the obligations at discount rates
which represent borrowing rates presently available to the Company for
instruments with similar terms and maturities. The carrying value of
the Company's product return obligation approximates its fair value on
a discounted cash flow basis as the interest rate on this obligation
automatically reprices based on the US prime rate. The carrying value
of the Company's royalty obligation cannot be estimated as the Company
cannot reliably estimate the prevailing interest rate for a financial
instrument having substantially the same terms and characteristics.
Accordingly, the carrying value of the royalty obligation is
considered to approximate its fair value.

10. SIGNIFICANT DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GAAP

The Company's financial statements are prepared on the basis of Canadian
GAAP, which is different in some respects from US GAAP. Significant
differences between Canadian GAAP and US GAAP are set forth below:

(a) CALCULATION OF EARNINGS PER SHARE

Under Canadian GAAP, the basic earnings per share data are computed
using only the weighted daily average number of shares outstanding
during the year. Under US GAAP, the weighted average number of shares is
computed including dilutive options, and as if the funds obtained from
the assumed exercise of the options were used to purchase common shares
at the average market price during the period.

The calculation of fully diluted earnings per share for US GAAP purposes
is not significantly different from the primary calculation for US GAAP
and therefore is not presented.

55
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________________________________________________________________________________

<TABLE>
<CAPTION>
Year ended November 30
--------------------------------------------
1995 1996 1997
------- ------- -------
(in thousands of US$)
<S> <C> <C> <C>
US GAAP-Primary
Net income (loss) per share (in US$) $ 0.29 $ (0.05) $ (3.84)
Weighted average number of common
shares outstanding (000s) 50,349 57,340 60,297
</TABLE>

(b) ACCOUNTING FOR STOCK-BASED COMPENSATION

The Company applies Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations in
accounting for its employee stock option plan. Accordingly, no
compensation expense has been recognized for its stock-based
compensation plan. Had compensation cost for the Company's employee
stock-option plan been determined based on the fair value at the grant
date for awards under the plan, consistent with the methodology
prescribed under the Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation, the Company's net loss
would have changed to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
1996 1997
------- -------
(in thousands of US$)
<S> <C> <C>
Net loss as reported $ 2,750 $231,678
Estimated stock based compensation costs 14,290 4,538
------- --------
Pro forma net loss $17,040 $236,216
======= ========
Pro forma loss per share $ 0.30 $ 3.92
======= ========
</TABLE>

The weighted average fair values of all options granted during 1997 and
1996 was estimated as of the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions:

<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Expected option life (years) 2.0 1.25
Volatility 45 45
Risk free interest rate 5.47% 4.97%
Dividend yield nil nil
</TABLE>

The weighted average fair values, at the date of grant, for stock
options granted during 1997 and 1996 were $2.51 and $0.76 per option,
respectively.

The Black-Scholes model, used by the Company to calculate option values,
as well as other currently accepted option valuation models, was
developed to estimate the fair value of freely tradeable, fully
transferable options without vesting restrictions, which significantly
differ from the Company's stock option awards. These models also require
highly subjective assumptions, including future stock price volatility
and expected time until exercise, which greatly affect the calculated
values. Accordingly, management believes that this model does not
necessarily provide a reliable single measure of the fair value of the
Company's stock option awards.

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(c) DEFERRED INCOME TAXES
The Company follows the deferral method of accounting for income taxes.
Under U.S. GAAP, the asset and liability method is used. In the case of
the Company, the application of the asset and liability method does not
result in a significant difference in the amount of the deferred tax
asset. U.S. GAAP also requires the disclosure of the tax effect of
temporary differences that give rise to deferred tax assets and
liabilities. This information is provided in the following table.

<TABLE>
<CAPTION>
1996 1997
-------- --------
(in thousands of US$)
<S> <C> <C>
Operating loss carryforwards - $ 4,855
Depreciation $ 2 14,750
Reserves 475 3,292
Inter-segment transfers 3,050 -
Other 283 -
------ --------
3,810 22,897
Valuation allowance - (20,544)
------ --------
Net non-current deferred tax assets $3,810 $ 2,353
------ --------
</TABLE>

(d) CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
The Company defines cash for purposes of the consolidated statements of
changes in financial position as cash and short-term investments.
Included in short-term investments are $5,000,000 of marketable equity
securities. Under US GAAP, cash at the end of the year and cash provided
by operations for 1997 would be reduced by this amount.

11. SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION

Included in trade accounts receivable are the following reserves and
related activity:

<TABLE>
<CAPTION>
Opening Ending
Period Ended Description Balance Additions Deductions Balance
- -------------- ------------- --------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
(in thousands of US$)
November 30, 1997 Promotional Rebates $14,750 $42,775 $ 46,129 $11,396
Sales reserve 30,000 85,829 61,416 54,413
Allowance for
doubtful
accounts 3,831 1,743 108 5,466

November 30, 1996 Promotional Rebates 2,970 39,148 27,368 14,750
Sales reserve 9,871 28,392 8,263 30,000
Allowance for
doubtful 6,136 2,283 4,588 3,831

November 30, 1995 Promotional Rebates 2,476 8,442 7,948 2,970
Sales reserve 6,418 8,470 5,017 9,871
Allowance for
doubtful 2,027 5,112 1,003 6,136
</TABLE>

57
<PAGE>
COREL CORPORATION
________________________________________________________________________________

12. SUBSEQUENT EVENT

On or about February 23, 1998, Corel became aware that a class action
lawsuit had been filed against it by named Plaintiff Great Neck Capital
Appreciation Investment Partnership in the United States District Court
for the Eastern District of New York. No motions have been filed or
discovery yet undertaken. Corel intends to defend the litigation
vigorously. However, due to the inherent uncertainties of litigation,
Corel cannot accurately predict the ultimate outcome of the litigation.
Investigating and defending the complaint may require expenditure of
material amounts of funds and may require a significant amount of
management's time and resources. An unfavourable outcome in the
litigation could have a material adverse effect on Corel's business,
financial condition and results of operations.

<PAGE>

EXHIBIT 21.1

59
<PAGE>

EXHIBIT 21.1

Subsidiary Information

Corel Corporation Limited
Europa House
Harcourt Street
Dublin 2, Ireland

Corel, Inc.
567 Timpanogos Parkway
Orem, Utah U.S.A. 84507

Corel Corporation (U.S.A.)
567 Timpanogos Parkway
Orem, Utah U.S.A. 84507

Corel Computer Corporation
150 Isabella Street, Suite 1000
Ottawa, Ontario K1S 1V7

<PAGE>

EXHIBIT 23.1

61
<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders
of Corel Corporation

We consent to the incorporation by reference in the registration statements
(No. 33-64940 and No. 33-87226) on Form S-8 of our report dated January 16,
1998, except for note 12 which is as at February 23, 1998, relating to the
consolidated balance sheets of Corel Corporation and subsidiaries as of
November 30, 1997 and 1996, and the related consolidated statements of
operations and retained earnings (deficit) and changes in financial position
for each of the years in the three-year period ended November 30, 1997 which
report appears in the November 30, 1997 annual report on Form 10-K of Corel
Corporation.

/s/ KPMG

Chartered Accountants

Ottawa, Canada
February 23, 1998