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COREL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands of US$)
May 31, |
November 30, | ||||
2000 | 1999 | ||||
ASSETS |
(unaudited) |
(audited) |
|||
Current assets: | |||||
Cash and cash equivalents | $ 9,864 | $ 18,021 | |||
Accounts receivable | |||||
Trade | 21,745 | 54,770 | |||
Other | 1,408 | 3,954 | |||
Inventory | 9,920 | 13,567 | |||
Income taxes recoverable . . . . . . . . . . . . . . . . . . . . | - | 5,135 | |||
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . | 1,870 | 1,642 | |||
Prepaid expenses | 2,564 | 2,042 | |||
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . | 47,371 | 99,131 | |||
Investments | 3,092 | 2,873 | |||
Capital assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 55,754 | 49,697 | |||
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | $ 106,217 | $ 151,701 | |||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||
Current liabilities: | |||||
Accounts payable and accrued liabilities | $ 43,793 | $ 50,284 | |||
Current portion of long term debt | 7,758 | 10,594 | |||
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . | 996 | - | |||
Deferred revenue | 15,492 | 18,472 | |||
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . | 68,039 | 79,350 | |||
Long term portion of Novell obligations. . . . . . | 6,916 | 7,985 | |||
Shareholders' equity | |||||
Share capital | 225,068 | 222,155 | |||
Contributed surplus | 1,099 | 1,099 | |||
Deficit | (194,905) | (158,888) | |||
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . | 31,262 | 64,366 | |||
Total liabilities and shareholders' equity . . . . . . . . . . | $ 106,217 | $ 151,701 |
COREL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
AND DEFICIT
(in thousands of US$, except per share data)
(unaudited)
Three months ended | Six months ended | |||||
May 31, | May 31, | May 31, | May 31, | |||
2000 | 1999 | 2000 | 1999 | |||
Sales | $ 36,639 | $ 70,501 | $ 80,780 | $ 110,807 | ||
Cost of sales | 11,292 | 14,092 | 26,281 | 25,652 | ||
Gross profit | 25,347 | 56,409 | 54,499 | 85,155 | ||
Expenses | ||||||
Advertising | 9,948 | 11,946 | 22,674 | 20,717 | ||
Selling, general and administrative | 23,915 | 21,618 | 45,819 | 40,557 | ||
Research and development | 12,306 | 12,395 | 23,753 | 25,855 | ||
Depreciation and amortization | 2,004 | 1,043 | 3,737 | 2,673 | ||
Loss (gain) on foreign exchange | 475 | (303) | 469 | (54) | ||
48,648 | 46,699 | 96,452 | 89,748 | |||
Income (loss) from operations | (23,301) | 9,710 | (41,953) | (4,593) | ||
Gain on investment | 1,204 | - | 10,144 | - | ||
Interest expense (income) | (46) | 192 | (63) | 329 | ||
Income (loss) before income taxes | (22,051) | 9,518 | (31,746) | (4,922) | ||
Income tax expense (recovery) | (496) | 339 | (2,938) | 538 | ||
Share of loss in equity investment . . . . . . . . . . . . . . . . . | (1,071) | - | (1,335) | - | ||
Net Income (loss) | $(23,618) | $ 9,179 | $(36,019) | $ (5,460) | ||
Deficit beginning of period . . . . . . . . . . . . . . . . . . . . . . . | (171,288) | (190,243) | (158,888) | (175,604) | ||
Deficit end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . | (194,906) | (181,064) | (194,906) | (181,064) | ||
Earnings (loss) per share: | ||||||
Net loss | ||||||
Basic | $ (0.36) | $ 0.15 | $ (0.55) | $ (0.09) | ||
Fully diluted | $ (0.36) | $ 0.14 | $ (0.55) | $ (0.09) | ||
Average number of Common Shares outstanding (000s) | ||||||
Basic | 65,810 | 61,560 | 65,832 | 60,860 | ||
Fully diluted | 65,810 | 69,193 | 65,832 | 60,860 |
COREL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands of US$)
(unaudited)
Six months ended | |||
May 31, | May 31, | ||
2000 | 1999 | ||
Cash flows from operating activities: | |||
Net income (loss) | $ (36,019) | (5,460) | |
Items which do not involve cash or cash equivalents: | |||
Depreciation and amortization | 10,272 | 8,648 | |
Deferred income taxes | (228) | 648 | |
Equity loss in investments . . . . . . . . . . . . . . . . . . . . . . . . . . . | 1,444 | - | |
Gain on investment . . . . . . . . . . . . . . . . . . . . . . . . . . . | (10,144) | - | |
Change in non-cash working capital | 26,356 | 2,808 | |
Cash flows from (used in) operating activities | $ (8,319) | $ 6,805 | |
Cash flows from financing activities: | |||
Issue of share capital | 2,912 | 10,213 | |
Reduction of Novell Obligations | (3,905) | (4,530) | |
Cash flows from (used in) financing activities . . . . . . . . . . . . . . . . . | (993) | 5,683 | |
Cash flows from investing activities: | |||
Purchase of investments | (1,663) | (3,351) | |
Net change in capital assets | (7,326) | (17,241) | |
Proceeds on disposal of investment . . . . . . . . . . . . . . . . . . . . . . . | 10,144 | - | |
Proceeds on disposal of assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . | - | 63 | |
Cash flows used in investing activities | 1,155 | (20,529) | |
Net increase (decrease) in cash and cash equivalents | (8,157) | (8,041) | |
Cash and cash equivalents at beginning of period | 18,021 | 24,506 | |
Cash and cash equivalents at end of period | $ 9,864 | $ 16,465 |
COREL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited interim consolidated financial statements of Corel Corporation (the "Company") have been prepared by the Company in accordance with accounting principles generally accepted in Canada. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Corel Corporation Limited, Corel International Corporation, Corel, Inc. and its wholly-owned subsidiary, Corel Corporation (U.S.A.).
In the opinion of Management, these unaudited interim consolidated financial statements reflect all adjustments, which are of a normal and recurring nature, necessary to state fairly the results for the periods presented.
These financial statements should be read in conjunction with the Company's audited financial statements as of November 30, 1998 and 1999 and for each of the three years in the period ended November 30, 1999 including notes thereto, included in the Company's Annual Report for the year ended November 30, 1999. The consolidated results of operations for the second fiscal quarter are not necessarily indicative of the results to be expected for any future period. The Company adopted SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions", in Q1 fiscal 2000. This has not had a material impact on the Company's financial results.
These financial statements have been prepared using generally accepted accounting principles that are applicable to a going concern, which assumes that the Company will realize its assets and discharge its liabilities in the normal course of business. As such, the financial statements do not reflect adjustments in the carrying values of the assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used, that would be necessary if the going concern assumption were not appropriate, and such adjustments could be material.
Based on the prospects for revenue and the cost structure currently in place at Corel, Corel expects that results for the next quarter will be similar to those experienced in the second quarter of fiscal 2000 and accordingly, management believes that the Company needs to secure additional equity or debt financing immediately and to effect a significant cost reduction plan in the near term. The Company is currently pursuing the public offering as described in note 3, the contemplated proceeds of which management believes are necessary for the Company to continue to meet its liabilities and other commitments as they become due. If such proposed issuance of common shares and common share purchase warrants does not occur, other sources of financing are not secured, the contemplated cost reduction plan is not completed and successfully implemented in the near term and /or Corel's operating results do not improve, the Company's ability to continue would be in substantial doubt and the going concern assumption detailed in the preceding paragraph may not be appropriate.
2. Segmented information
The Company has only one global operating segment as detailed in the consolidated financial statements included herein.
The company sells its products worldwide from three geographic regions. A summary of sales by product, channel, region and by major customer from consolidated operations is as follows:
Three Months Ended
Six Months Ended
May 31,
2000
May 31,
1999
May 31,
2000
May 31,
1999 By product
Professional & Consumer Graphics
software . . .
$ 17,227
$ 26,718
$ 36,619
$ 41,809 Productivity software . . . . . . . . . . . . . . . . . . . . .
16,788
43,762
39,247
68,623 Linux operating system and applications. . . . . . . . . . .
2,626
-
4,916
- Video Communications
(2)
21
(2)
375 Total sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
$ 36,639
$ 70,501
$ 80,780
$ 110,807
By sales channel | |||||
Retail packaged products | $ 18,877 | $ 43,874 | $ 41,794 | $ 61,089 | |
OEM licenses | 4,502 | 7,251 | 8,855 | 13,371 | |
Corporate licenses | 13,260 | 19,376 | 30,131 | 36,347 | |
Total sales | $ 36,639 | $ 70,501 | $ 80,780 | $ 110,807 |
By region | |||||
North America | $ 22,359 | $ 47,346 | $ 46,089 | $ 72,075 | |
Europe | 8,149 | 17,685 | 22,940 | 31,247 | |
Other international | 6,131 | 5,470 | 11,751 | 7,485 | |
Total sales | $ 36,639 | $ 70,501 | $ 80,780 | $ 110,807 | |
By major customer | |||||
Navarre Corporation | $ 4,833 | $ 574 | $ 7,983 | $ 640 | |
Ingram Micro | 542 | 22,123 | 974 | 28,628 | |
Merisel | 0 | 8,953 | 527 | 11,781 | |
$ 5,375 | $ 31,650 | $ 9,484 | $ 41,049 | ||
3. Subsequent Event - Prospectus Filing
On May 29, 2000, the Company filed a preliminary short form prospectus with the securities commissions of Ontario, Alberta and British Columbia for a public offering of 7,299,270 common shares and 3,649,635 common share purchase warrants for gross proceeds of Cdn. $30 million. The common share purchase warrants are exercisable at a price of Cdn. $4.56 for a period of 12 months from their date of issue.
The Company intends to file a final short form prospectus relating to the sale and issue of the common shares and the common share purchase warrants upon completion by the securities commissions of the review of the materials filed by the Company with the securities commissions.
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