COREL CORP - 10-Q Quarterly Report

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10Q doc

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

for the quarterly period ended May 31, 2003

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

For the transition period from ________to _________

Commission file number 0-20562

COREL CORPORATION

(Exact name of Registrant as specified in its Charter)

1600 Carling Avenue

Ottawa, Ontario, Canada    KIZ 8R7

(Address of Principal Executive Offices including Zip Code)

(613) 728-8200

(Registrant's Telephone Number, Including Area Code)

(Former name, former address and former fiscal year if changed
since last report)


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 reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X]    NO [  ]


Indicate by check mark whether the registrant is an accelerated
filer. YES [X]    NO [  ]

As of July 15, 2003 the registrant had 92,988,938 Common Shares.
outstanding.

SIZE="+2"> SIZE="+2">Corel Corporation

SIZE="-1"> SIZE="+1">Form 10-Q for the Quarter Ended May 31,
2003 SIZE="+2">

SIZE="+2"> SIZE="+2">Table of Contents

FACE="Frutiger 45 Light" SIZE="-2">Part I

Canada

Not Applicable

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification Number)

Part
II

SIZE="-2">Item 1. Financial Statements

FACE="Frutiger 45 Light" SIZE="-2">Consolidated Balance Sheets as at May 31,
2003 and November 30, 2002 1

Consolidated Statements of
Operations and Deficit for the three and six month periods ended May 31,
2003

and May 31, 2002

2

Consolidated Statements of
Cash Flows for the three and six month periods ended May 31, 2003 and May 31,
2002 3

Notes to Consolidated
Financial Statements 4

Item
2. Management's Discussion and
Analysis of Financial Condition and Results of Operations 9

Item
3. Quantitative and Qualitative
Disclosures About Market Risk 13

Item
4. Controls and Procedures
SIZE="-2">14

Item
1. Legal Proceedings 14

Item
4. Submission of matters to a vote
of security holders 15

Item
5. Other Information 16

Item
6. Exhibits, Financial Statement
Schedules and Reports on Form 8-K SIZE="-2">16

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

The following information contains forward-looking statements
as defined by the United States Private Securities Litigation Reform Act of
1995, involving Corel's expectations about future financial results and other
matters. These statements reflect management's current forecast
of certain aspects of Corel's future business. Specifically, this release
contains forward-looking statements regarding the likely benefits from
new product introductions and the need by the marketplace for the products
under development; the programs being undertaken by Corel
and expectations regarding the ability of Corel to increase sales and return
to profitability; and results in future quarters and for the next
fiscal year. The words "plan", "expect", "believe", "will", "intend",
"anticipate", "forecast", "target", "estimate" and similar expressions
identify forward-looking statements. These forward-looking statements are
subject to certain risks and uncertainties that could cause actual
results of operations to differ materially from historical results or current
expectations. In particular, there can be no assurance that Corel's
cost reductions will be adequate or that Corel will achieve a level of revenue
that will allow Corel to return to profitability, that Corel will
be able to produce and launch new products or that Corel will be able to
successfully implement or complete the short-term and long-term
programs that Corel has undertaken. Risk factors include shifts in customer
demand, product shipment schedules, product mix, competitive
products and pricing, technological shifts, Corel's effectiveness at executing
its sales, marketing and development plans, the market
acceptance of new products and other variables. Readers are referred to
Corel's most recent reports filed with the Securities and Exchange
Commission for a more complete discussion of the other risks and
uncertainties. The factors underlying forecasts are dynamic and subject
to change. As a result, forecasts speak only as of the date they are given and
do not necessarily reflect Corel's outlook at any other point
in time. Corel does not undertake to update or review these forward-looking
statements.

COREL
CORPORATION

Consolidated Balance
Sheets

(in thousands of US$)

(unaudited) FACE="Frutiger 45 Light" SIZE="-1">

FACE="Frutiger 45 Light" SIZE="-2">Signatures 17

CERTIFICATIONS
SIZE="-2">18

(See accompanying
Notes to Consolidated Financial Statements)

COREL
CORPORATION

Consolidated Statements of
Operations and Deficit

(in thousands of US$, except share
and per share data)

(unaudited)

FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">May 31,
November
30,

SIZE="-2">2003 SIZE="-2">2002

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2">Assets

FACE="Frutiger 45 Light" SIZE="-2">Current assets:

SIZE="-2"> Cash and cash
equivalents $
40,594 $
18,874

Restricted
cash 1,566 SIZE="-2">1,558

Short-term
investments 33,377 SIZE="-2">56,952

Accounts
receivable

SIZE="-2">
Trade 18,845 SIZE="-2">19,958

Other 222 SIZE="-2">250

Inventory 408 SIZE="-2">191

Prepaid
expenses 2,677 SIZE="-2">2,786

Total current
assets 97,689 SIZE="-2">100,569

SIZE="-2">Investments 7,770 SIZE="-2">8,590

Fixed
assets 5,195 SIZE="-2">8,762

Intangible
assets 10,477 SIZE="-2">13,006

Total assets
$
121,131 $
130,927

SIZE="-2">Liabilities and shareholders' equity

FACE="Frutiger 45 Light" SIZE="-2">Current liabilities:

SIZE="-2"> Accounts
payable and accrued liabilities $
19,386 $
22,552

Income
taxes payable 6,209 SIZE="-2">5,685

Deferred
revenue 7,343 SIZE="-2">8,875

Total current
liabilities 32,938 SIZE="-2">37,112

Deferred
revenue 1,418 SIZE="-2">879

Future income
tax liabilities 714 SIZE="-2">806

Total
liabilities 35,070 SIZE="-2">38,797

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2">Commitments and contingencies

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2"> SIZE="-2">Shareholders' equity

SIZE="-2">Share
capital

SIZE="-2"> Issued and
outstanding (000's): 92,972 common shares (91,818 on November 30,
2002); $
405,181 $
405,124

22,890
Series A preferred shares (24,000 on November 30, 2002)

SIZE="-2">Contributed
surplus 4,990 SIZE="-2">4,990

SIZE="-2">Deficit SIZE="-2">(324,110) SIZE="-2">(317,984)

Total
shareholders' equity 86,061 SIZE="-2">92,130

Total
liabilities and shareholders' equity $
121,131 $
130,927

(See accompanying
Notes to Consolidated Financial Statements)

COREL
CORPORATION

Consolidated Statements of
Cash Flows

(in thousands of
US$)

(unaudited)

SIZE="-2">Three months
ended SIZE="-2">Six months ended

SIZE="-2">May 31, SIZE="-2">May 31,

2003

SIZE="-2">

2002
SIZE="-2">

SIZE="-2">2003
SIZE="-2">

2002

SIZE="-2">Sales $
32,206
$
30,762 $
60,536 $
61,976

Cost of sales 4,650 3,019 SIZE="-2">8,297 SIZE="-2">5,927

Gross profit 27,556 27,743 SIZE="-2">52,239 SIZE="-2">56,049

SIZE="-2">Expenses

FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> Sales 9,825 9,921 SIZE="-2">19,210 SIZE="-2">17,767

Marketing 6,074 4,759 SIZE="-2">10,816 SIZE="-2">9,632

Research and
development 6,173 7,572 SIZE="-2">11,314 SIZE="-2">14,712

General and
administration 8,344 7,585 SIZE="-2">15,247 SIZE="-2">15,046

Depreciation and
amortization 3,032 4,196 SIZE="-2">6,799 SIZE="-2">8,502

Loss (gain) on foreign
exchange 278 (239) SIZE="-2">(310) SIZE="-2">(82)

SIZE="-2">33,726 33,794 SIZE="-2">63,076 SIZE="-2">65,577

Loss from
operations (6,170) (6,051) SIZE="-2">(10,837) SIZE="-2">(9,528)

Gain on disposal of fixed
asset 33 FACE="Frutiger 45 Light" SIZE="-2">33

Loss on investment
SIZE="-2">(119) SIZE="-2">(36) SIZE="-2">(137)

Interest income 945 412 SIZE="-2">1,184 SIZE="-2">900

Loss before the
undernoted (5,192) (5,758) SIZE="-2">(9,656) SIZE="-2">(8,765)

Income tax (recovery)
expense 21 265 SIZE="-2">(4,302) SIZE="-2">202

Share of loss in equity
investment 339 316 SIZE="-2">772 SIZE="-2">520

Net loss (5,552) (6,339) SIZE="-2">(6,126) SIZE="-2">(9,487)

FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2">Deficit beginning of
period SIZE="-2">(318,558) SIZE="-2">(224,708) SIZE="-2">(317,984) SIZE="-2">(221,560)

Deficit end of
period $
(324,110) $
(231,047) $
(324,110) $
(231,047)

FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2">Loss per share:

FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2">Basic $
(0.06) $
(0.07) $
(0.07) $
(0.11)

Diluted $
(0.06) $
(0.07) $
(0.07) $
(0.11)

Weighted average number of
common shares
outstanding (000s):

FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2">Basic 92,237 90,117 SIZE="-2">92,034 SIZE="-2">85,465

Diluted 92,237 90,117 SIZE="-2">92,034 SIZE="-2">85,465

FACE="Frutiger 45 Light" SIZE="-2">(See accompanying Notes to Consolidated
Financial Statements)

Notes to Consolidated
Financial Statements

May 31,
2003

(unaudited)

1. Summary of Significant
Accounting Policies

All dollar amounts included herein
are expressed in thousands of US$ unless otherwise noted. Certain per share
information is expressed
in units of US$ unless otherwise noted.

The consolidated financial
statements have been prepared in accordance with accounting principles
generally accepted in Canada
("Canadian GAAP"). These principles are also generally accepted in the United
States ("US GAAP") in all material respects except as
disclosed in Note 6. In management's opinion, all adjustments necessary for
fair presentation are reflected in the financial statements. All
adjustments made are normal and recurring in nature. Corel Corporation
("Corel") has followed the same accounting policies and methods
of application as in the most recent audited financial statements except as
stated herein.

Comparative Figures

Historical comparative figures
have been reclassified to reflect current presentation. In the third quarter
of fiscal 2002, the amortization of
technology, historically included as a component of costs of goods sold, was
reclassified for financial statement presentation to depreciation
and amortization expense.

2. Loss per
share

The calculation of loss per share
is based on the weighted average number of shares outstanding during the
period. As the impacts of the
exercise of options and warrants and conversion of preferred shares are
anti-dilutive in the first six months of fiscal 2003, 8,465,578
outstanding options, 282,500 warrants and 22,890,000 preferred shares have
been excluded from the calculation of diluted earnings per
share.

SIZE="-2"> SIZE="-2">Three months ended SIZE="-2">Six months ended

SIZE="-2">May 31, SIZE="-2">May 31,

2003 SIZE="-2">2002 SIZE="-2"> 2003 SIZE="-2">2002

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">Operating
activities:

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">Net loss $
(5,552) $
(6,339) $
(6,126) $
(9,487)

SIZE="-2">Items which do not involve cash or cash equivalents:

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">Depreciation of fixed assets 1,495 1,539 SIZE="-2">2,852 SIZE="-2">2,916

Amortization of
intangible assets 1,791 3,445 SIZE="-2">4,521 SIZE="-2">6,824

Bad debt expense
32 FACE="Frutiger 45 Light" SIZE="-2">95 52

Loss on write
down of investments SIZE="-2">119 SIZE="-2">48 SIZE="-2">137

Future income
tax (46) (247) SIZE="-2">(92) SIZE="-2">(566)

Gain on disposal
of assets (33) FACE="Frutiger 45 Light" SIZE="-2">(43)

Share of
loss in equity investments 339 316 SIZE="-2">772 SIZE="-2">520

Changes in
operating assets and liabilities

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">Restricted
cash (5) (2) SIZE="-2">(8) 5

Accounts
receivable (2,035) (3,228) SIZE="-2">1,046 SIZE="-2">(3,262)

Inventory
779 102 SIZE="-2">(216) SIZE="-2">230

Prepaid
expenses 782 (1,303) SIZE="-2">109 SIZE="-2">(2,290)

Accounts payable
and accrued liabilities 2,902 (2,929) SIZE="-2">(3,166) SIZE="-2">(8,161)

Income tax
payable 3,300 (141) SIZE="-2">524 SIZE="-2">(210)

Deferred
revenue (786) 712 SIZE="-2">(994) SIZE="-2">697

Net cash from (used in)
operating activities SIZE="-2">2,963 SIZE="-2">(7,956) SIZE="-2">(678) SIZE="-2">(12,595)

Financing
activities:

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">Issuance of common
shares 30 - SIZE="-2">57 64

Net cash provided by
financing activities SIZE="-2">30 SIZE="-2">- SIZE="-2">57 SIZE="-2">64

Investing
activities:

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">Acquisition of
Micrografx Inc., net of cash acquired (543) FACE="Frutiger 45 Light" SIZE="-2">(543)

SIZE="-2">Acquisition of SoftQuad Inc., net of cash acquired (2,605) FACE="Frutiger 45 Light" SIZE="-2">(2,605)

Redemption
(purchase) of short term investments SIZE="-2">(15,426) SIZE="-2">(16,746) SIZE="-2">23,575 SIZE="-2">38,400

Purchase of
capital assets (542) (381) SIZE="-2">(1,277) SIZE="-2">(1,412)

Purchase of other non-current
assets SIZE="-2">2,071

FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">Proceeds on disposal of assets SIZE="-2">33 SIZE="-2">43 SIZE="-2">

Net cash provided by
investing activities SIZE="-2">(15,935) SIZE="-2">(18,204) SIZE="-2">22,341 SIZE="-2">33,840

Increase in
cash and cash equivalents SIZE="-2">(12,942) SIZE="-2">(26,160) SIZE="-2">21,720 SIZE="-2">21,309

Cash and cash
equivalents at beginning of period 53,536 72,393 SIZE="-2">18,874 SIZE="-2">24,924

Cash and cash equivalents at
end of period $
40,594 $
46,233 SIZE="-2">$ 40,594 $
46,233

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">Supplementary
cash information:

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2"> Cash paid
(refund received) for income taxes $
(3,862) $
29 $
(5,546) $
919

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2">3. Subsequent
Events

On March 24, 2003, an affiliate
of Vector, Vector CC Holdings, L.L.C. ("Vector CC Holdings") announced that it
had completed the
purchase of 22,890,000 Series A participating convertible preferred shares of
Corel (the "Series A Shares") representing 95.38% of
outstanding Series A Shares at a price of US$0.5625 per share from Microsoft
Licensing, Inc. in a private transaction as originally announced
on March 10, 2003. Those shares are convertible on a one-for-one basis into
common shares of Corel and represent approximately 19.75%
of the issued and outstanding common shares of Corel at February 28, 2003,
assuming conversion of those shares. In April 2003, the
remaining Series A participating convertible preferred shares of Corel held by
Microsoft Licensing, Inc. were sold to an undisclosed buyer
and subsequently converted to common shares.

On June 6, 2003, Corel entered
into an acquisition agreement with Corel Holdings L.P. ("Corel Holdings") and
Vector CC Acquisitions Inc.
under which those entities, together with their affiliates (together, the
"Vector Group") will, subject to receiving all required approvals,
including the approval of Corel Securityholders and the satisfaction of
certain other conditions, become the owner of all the shares of Corel.
Corel Securityholders are holders of common shares of Corel and holders of
options, warrants or other securities exercisable for, convertible
into or exchangeable for common shares for less than $1.05 per
share.

A Special Meeting of
Securityholders will be held on August 20, 2003, where Securityholders will
be asked to consider a resolution
approving the Plan of Arrangement ("Arrangement") under which:

a) Common Shareholders will
receive an amount of $1.05 for each Common Share held; and

b) the holders of options,
warrants or other securities (excluding Series A Shares) exercisable for,
convertible into or exchangeable for
common shares will be entitled to either (1) receive the excess of $1.05 over
any amount payable in connection with the exercise of the
convertible security into one common share multiplied by the number of shares
for which such convertible securities could be exercised or
(2) exercise, convert or exchange their convertible security into common
shares no later than two business days following the meeting and
all unexercised convertible securities will be cancelled upon the Arrangement
becoming effective.

Corel's Board of Directors has
agreed, subject to certain conditions, to recommend that shareholders approve
the Arrangement. The
agreement by Corel's Board of Directors is subject to the Board's fiduciary
right to consider and support any superior proposal. In the event
that an agreement to implement the superior proposal is concluded, Corel would
be required to pay Vector a termination fee of US$2.0
million as well as a portion of Vector's expenses relating to the
Arrangement.

The Board of Directors of Corel
has received an opinion from its financial advisor, CIBC World Markets Inc.,
that the consideration to be
received from Vector by the holders of common shares is fair from a financial
point of view.

4. Segmented
information

Corel has one global operating
segment. A summary of sales by product group, region and major customer from
consolidated
operations is as follows. Comparative amounts have been reclassified to be
consistent with current presentation.

Three months ended

May 31,

SIZE="-2">Six months ended
May 31,

SIZE="-2">2003 SIZE="-2">2002 SIZE="-2"> 2003 SIZE="-2">2002

Basic and
Diluted:

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">Weighted average
common shares outstanding 92,237 90,117 SIZE="-2">92,034 SIZE="-2">85,465

Net loss $
(5,552) $
(6,339) SIZE="-2">$ (6,126) $
(9,487)

Loss per share $
(0.06) $
(0.07) SIZE="-2">$ (0.07) $
(0.11)

FACE="Frutiger 45 Light" SIZE="-2">Three months
ended

SIZE="-2">Six months ended

May
31,
SIZE="-2">May 31,

SIZE="-2">2003 SIZE="-2">2002 SIZE="-2"> 2003 SIZE="-2">2002

By
product

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2"> Graphics
Solutions $
13,952 $
16,530 $
29,216 $
33,309

Office
Productivity Solutions 14,978 11,247 SIZE="-2">23,967 SIZE="-2">23,096

Process
Management Solutions 2,247 2,530 SIZE="-2">4,505 SIZE="-2">4,720

Other
(including XML Solutions) 1,029 455 SIZE="-2">2,848 SIZE="-2">851

$
32,206 $
30,762 $
60,536 $
61,976

By
region

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2"> North
America

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">
Canada $
4,091 $
2,355 $
6,196 $
4,120

U.S.A. 16,380 13,925 SIZE="-2">27,097 SIZE="-2">27,710

Europe,
Middle East, Africa 7,364 9,594 SIZE="-2">16,941 SIZE="-2">19,999

Rest of
world 1,816 2,752 SIZE="-2">5,181 SIZE="-2">5,991

OEM 2,555 2,136 SIZE="-2">5,121 SIZE="-2">4,156

$
32,206 $
30,762 $
60,536 $
61,976

5. Stock options
plans

Effective December 1, 2002, Corel
adopted the new recommendations of the Canadian Institute of Chartered
Accountants relating to
stock based compensation. Under the new recommendations, where the fair
value-based method of accounting has not been used to
account for employee stock options, companies are required to disclose
pro-forma earnings per share, as if the fair value based method
of accounting has been used to account for these stock based awards. The
estimated share based compensation costs based on stock
options granted to directors, officers, employees and consultants and the
pro-forma net loss per share are as follows:

By major
customer

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2"> Ingram Micro
$
11,987 $
4,680 $
19,315 $
11,131

All
others 20,219 26,082 SIZE="-2">41,221 SIZE="-2">50,845

$
32,206 $
30,762 $
60,536 $
61,976

The fair values of all options
granted during the three month and six month periods ended May 31, 2003 and
2002 were estimated as
of the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions:

SIZE="-2">Three months
ended SIZE="-2">Six months ended

SIZE="-2">May 31, SIZE="-2">May 31,

SIZE="-2">2003 SIZE="-2">2002 SIZE="-2">2003 SIZE="-2">2002

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">Net loss
$
(5,552) $
(6,339) $
(6,126) $
(9,487)

Estimated
stock-based compensation costs (476) (427) SIZE="-2">(946) SIZE="-2">(822)

Pro forma net
loss $
(6,028) $
(6,766) $
(7,072) $
(10,309)

Pro forma loss
per share basic and diluted $
(0.07) $
(0.08) $
(0.08) $
(0.12)

The Black-Scholes model, used by
Corel to calculate option values, as well as other currently accepted option
valuation models, were
developed to estimate the fair value of freely tradeable, fully transferable
options without vesting restrictions, which significantly differ
from Corel'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 these models do not
necessarily provide a reliable single measure of the fair value of Corel's
stock option awards.

FACE="Frutiger 45 Light" SIZE="-2">6. Significant differences
between Canadian and United States GAAP

Corel's financial statements are
prepared on the basis of Canadian GAAP, which differs in some respects from US
GAAP. There were no
differences in reported cash flows for the periods presented. Significant
differences between Canadian GAAP and US GAAP are
reflected in the Balance Sheets and Statements of Operations set forth
below:

SIZE="-2">Three months
ended SIZE="-2">Six months ended

SIZE="-2">May 31, SIZE="-2">May 31,

SIZE="-2">2003 SIZE="-2">2002

SIZE="-2">2003
SIZE="-2">2002

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">Expected
option life (years) 3 3 3
3

SIZE="-2">Volatility 100 110 SIZE="-2">101 110

Risk free
interest rate 3.93% 4.40% SIZE="-2">3.76% SIZE="-2">4.11%

Dividend
yield nil nil nil
nil

Balance
Sheet in accordance with US GAAP SIZE="-2">As at

SIZE="-2"> SIZE="-2">May 31, November
30,

FACE="Frutiger 45 Light" SIZE="-2">Notes SIZE="-2">2003 SIZE="-2">2002

SIZE="-2">Assets

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2">Current assets

(B)
$
98,195 $
100,569

SIZE="-2">Investments (C) 7,842 SIZE="-2">8,590

Fixed
assets SIZE="-2">5,195 SIZE="-2">8,762

Intangible
assets (A) 9,497 SIZE="-2">11,881

Total
assets $
120,729 $
129,802

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">Liabilities

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2">Current liabilities $
26,729 $
31,427

Income tax
payable SIZE="-2">6,209 SIZE="-2">5,685

Deferred
revenue SIZE="-2">1,418 SIZE="-2">879

Future income
tax liabilities SIZE="-2">714 SIZE="-2">806

Total
liabilities SIZE="-2">35,070 SIZE="-2">38,797

Shareholders'
equity (A) 85,659 SIZE="-2">91,005

Total
liabilities and shareholders' equity $
120,729 $
129,802

FACE="Frutiger 45 Light" SIZE="-2">A. In-process research and
development

In accordance with Canadian GAAP,
the allocation of the purchase price of the acquisition of Micrografx,
Inc.("Micrografx") included
$4.3 million for in-process research and development, which is being amortized
over its expected useful life. For US GAAP purposes, this
was expensed in fiscal 2001, the year of acquisition.

FACE="Frutiger 45 Light" SIZE="-2">B. Unrealized gain on forward
exchange contracts

As the forward exchange contracts
held by Corel are not designated as hedges, US GAAP requires unrealized gains
on these forward
exchange contracts to be currently accounted for in earnings. Accordingly,
current assets would have changed by $0.5 million at May
31, 2003 and would not have changed at November 30, 2002.

FACE="Frutiger 45 Light" SIZE="-2">C. Comprehensive
income

US GAAP requires
available-for-sale securities to be marked to market with unrealized holding
gains or losses being accounted for in
other comprehensive income. Accordingly, the reported carrying value of
investments would have changed by $0.072 million at May
31, 2003 and would not have changed at November 30, 2002.

FACE="Frutiger 45 Light" SIZE="-2">Stock options
plans

Effective December 1, 2002, Corel
adopted SFAS No.148 - "Accounting for Stock-Based Compensation -- Transition
and Disclosure an
amendment of FASB Statement No.123". Under SFAS No.148, where the fair
value-based method of accounting has not been used to
account for employee stock options, companies are required to disclose
pro-forma earnings per share, as if the fair value based method
of accounting has been used to account for these stock based awards. The
estimated share based compensation costs based on stock
options granted to directors, officers, employees and consultants and the
pro-forma net loss per share are as follows:

SIZE="-2">Statement of Operations in accordance
with SIZE="-2">Three months ended SIZE="-2">Six months ended

US
GAAP SIZE="-2">May 31, SIZE="-2">May 31,

SIZE="-2">Notes SIZE="-2">2003 SIZE="-2">2002 SIZE="-2">2003 SIZE="-2">2002

Net
loss in accordance with Canadian GAAP $
(5,552) $
(6,339) $
(6,126) $
(9,487)

Amortization of
acquired technology

(A)

72
SIZE="-2">145

SIZE="-2">Unrealized foreign exchange gain on

forward exchange contracts

SIZE="-2">(B)

SIZE="-2">506

SIZE="-2">506

Net loss
in accordance with US GAAP $
(4,974) $
(6,339) $
(5,475) $
(9,487)

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">Comprehensive
income

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">Net loss in
accordance with US GAAP SIZE="-2"> SIZE="-2">$ (4,974) $
(6,339) $
(5,475) $
(9,487)

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">Unrealized
holding gains (losses) on
available for sale securities SIZE="-2">(C)

72
SIZE="-2"> SIZE="-2">72 SIZE="-2">(424)

Related income
tax SIZE="-2">(C) SIZE="-2"> SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2">93

Comprehensive
loss SIZE="-2">(4,902) (6,339) $
(5,403) $
(9,818)

Loss per share

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">Basic $
(0.05) $
(0.07) $
(0.06) $
(0.11)

SIZE="-2">Diluted $
(0.05) $
(0.07) $
(0.06) $
(0.11)

FACE="Frutiger 45 Light" SIZE="-1">Item 2. Management's Discussion
and Analysis of Financial Condition and Results of
Operations SIZE="-2">

SIZE="-2">OVERVIEW

We develop, manufacture, license,
sell and support software that is grouped into four main categories: Graphics
Solutions, Office
Productivity Solutions, XML Solutions and Process Management Solutions. As
customer needs evolve, we are developing solutions that
enable customers to create, deploy and interact with content across multiple
delivery channels.

Our business strategy is to
leverage our expertise in content creation and open standards such as XML
(Extensible Markup Language), to
deliver solutions that allow customers to create, exchange and interact
instantly with visually rich content. Using Corel's solutions,
customers have access to data which is relevant, accurate and up to date,
saving them time, reducing costs and giving them a
competitive advantage.

FACE="Frutiger 45 Light" SIZE="-2">Revenue

Our 2003 second quarter revenue
was $32.2 million compared to $30.8 million in the second quarter of fiscal
2002. This was a 4.7%,
or $1.4 million, increase in revenue due mainly to the release of three new
products WordPerfect Office 11, Corel DESIGNER 10 and
Corel Painter 8 in the second quarter of 2003. Sales have decreased 2.3% in
the first six months of 2003 from the first six months of
fiscal 2002 as a result of declining graphic sales internationally offset by
the increases in sales from Office Productivity Solutions due to
the release of WordPerfect 11, and XML Solutions in 2003 due to a full six
months of sales from products acquired from SoftQuad
Software, Ltd. ("SoftQuad") in March 2002.

Revenue by product
group SIZE="-2">

Graphics Solutions revenue
decreased by 15.6% for the quarter ended May 31, 2003 from the quarter ended
May 31, 2002. For the
first six months of 2003, Graphics Solutions revenue declined 12.3% from the
first six months of 2002. The declines are primarily due to
lower than anticipated revenue from Corel's CorelDRAW Graphics Suite caused by
adverse economic conditions in Germany and the
delayed release of the Simplified Chinese, Traditional Chinese and Korean
versions of CorelDRAW Graphics Suite 11 in Asia-Pacific.

Office Productivity Solutions
revenue increased by 33.2% for the quarter ended May 31, 2003 from the quarter
ended May 31, 2002.
For the first six months of 2003, Office Productivity Solutions revenue
increased by 3.8% for the first six months of 2003 from the first
six month of 2002. The increase in sales can be attributed to the release of
WordPerfect Office 11 in April 2003.

Process Management Solutions
revenue decreased by 11.2% for the quarter ended May 31, 2003 from the quarter
ended May 31,
2002. For the first six months of 2003, Process Management Solutions revenue
decreased by 4.6% from the first six months of 2002.
The declines are mainly as a result of potential major deals being delayed by
customers and cautious spending by corporate customers.

Other Products revenue increased
by $0.6 million in the second quarter of 2003 compared to the second quarter
of 2002 and for the
first six months of 2003 increased by $2.0 million from the first six months
of 2002. The increases are primarily as a result of revenue
from our XML Solutions and Pro Services products acquired from SoftQuad in
March of 2002.

FACE="Frutiger 45 Light" SIZE="-2">Revenue by
region

Revenue in North America increased
25.7% in the second quarter of 2003 from the second quarter of 2002. For the
first six months of
2003, North American revenue increased by 4.6% from the first six months on
2002. The increases can be attributed to increased sales
from the release of WordPerfect Office 11, Corel Painter 8 and Corel Designer
10 in the first six months of 2003.

Revenue in Europe, Middle East and
Africa ("EMEA") decreased by 23.2% for the quarter ended May 31, 2003 from the
quarter ended
May 31, 2002. For the first six months of 2003, EMEA revenue decreased 15.3%
from the first six months of 2002. This decline in sales
can be attributed to lower sales of Corel Graphics Suite 11 caused by adverse
economic conditions in Germany, a key market for Corel
Graphics Suite. In addition, WordPerfect Office 11 and Corel Painter 8 were
released late in the second quarter of 2003 resulting in
minimal impact on sales.

Rest of world ("ROW") revenue
decreased 34.0% in the second quarter of 2003 compared to the second quarter
of 2002. For the first
six months of 2003, ROW revenue decreased 13.5% from the first six months of
2002. The declines are primarily due to weak demand
for graphics products along with the delayed release of the Simplified
Chinese, Traditional Chinese and Korean versions of CorelDRAW
Graphics Suite 11 in Asia-Pacific.

OEM revenue increased by 16.4% in
the second quarter of 2003 over the second quarter of 2002. For the first six
months of 2003,
OEM sales increased 23.2% from the first six months of 2002. The increases are
due in large part to an increase in royalty revenues
from partnerships with leading hardware manufacturers.

Cost of sales and gross
profit

We have historically included the
amortization of licenses and acquired technology as a component of cost of
goods sold. To make
analysis of our financial results more comparable with general industry
practices, the acquired technology amortization costs have been
reclassified for all periods presented to depreciation and amortization
expense. With this change, gross margin for the second quarter of
2003 was 85.6%, down from 90.2% for the same period in the prior year. For the
first six months of 2003, the gross margin was
86.3%, down from 90.4% from the first six months of 2002. The increase in cost
of sales is mainly as a result of inventory write downs
due to the lower sales volumes than originally anticipated and higher shipping
costs.

Sales
expenses

Sales expenses remained fairly
constant for the second quarter of 2003 from the second quarter of 2002 as the
increase in expenses
from the sales staff and infrastructure assumed after acquiring SoftQuad in
the second quarter of 2002 was matched by the increased
level of sales staff in EMEA and US enterprise sales in place in the second
quarter of 2003. For the first six months of 2003, sales
expenses increased 8.1% from the first six months of 2002. This can be
attributed to an increased investment in our European
workforce and US enterprise sales force in the first six months of 2003 over
the first six months of 2002.

Marketing
expenses

Marketing expenses increased by
27.6% for the second quarter of 2003 from the second quarter of 2002. For the
first six months of
2003, marketing expenses increased 12.3% million from the first six months of
2002. The large increase in marketing expenses for the
second quarter of 2003 over the same period last year is due to significant
new product releases in the second quarter of 2003 with no
major product releases over the same period of last year.

General and administrative
expenses

General and administrative
expenses increased by 10.0% during the quarter ended May 31, 2003 compared to
the quarter ended May
31, 2002. For the first six months of 2003, general and administrative
expenses increased 1.3% from the first six months of 2002. The
increase can be attributed in part to additional severance costs and costs
associated with the Vector proposal.

Research and development
expenses

Corel's second quarter 2003
research and development expenses decreased 18.5% or $1.4 million compared to
the second quarter of
fiscal 2002. For the first six months of 2003, research and development
expenses decreased 23.1% or $3.4 million from the first six
months of 2002. The decrease in expenses is a result of the decrease in staff
in research and development in the six months of 2003
over the first six months of 2002 as a result of the restructuring of the
development process done in late fiscal 2002.

Depreciation and
amortization expenses

Depreciation and amortization in
the second quarter of 2003 decreased by 27.7% over the second quarter of 2002.
For the first six
months of 2003, depreciation and amortization expenses decreased 20.0% from
the first six months of 2002. The decrease is a result
of the write off in late fiscal 2002 of goodwill and technology from the
acquisition of Micrografx in October 2001 and SoftQuad in
March 2002, which has then reduced future depreciation and
amortization.

Interest income

Interest income increased $0.5
million for the quarter ended May 31, 2003 from the quarter ended May 31,
2002. For the first six
months of 2003, interest income increased $0.3 million from the first six
months of 2002. The increase is primarily attributable to
interest received in the second quarter of 2003 on a refund of prior year
taxes.

Income taxes

Corel's tax expense is impacted by
the relative profitability of its operations in various geographic regions.
In addition, during the first
six months of 2003, we received tax reassessments of prior years, settling a
number of outstanding tax issues. The first six months of
2003 tax recovery includes approximately $4.8 million relating to refunds of
taxes from those reassessments.

FACE="Frutiger 45 Light" SIZE="-2">Liquidity and capital
resources

As of May 31, 2003, our principal
sources of liquidity included cash and cash equivalents and short-term
investments of approximately
$75.5 million, and trade accounts receivable of $18.8 million. Cash used in
operations was $0.7 million for the first six months of fiscal
2003 compared to $12.6 million for the first six months of fiscal 2002. This
$11.9 million improvement can be attributed to a $3.1
million improvement in our financial results and improvement in our working
capital as a result of reduced cash requirements in the first
six months of 2003 compared to the first six months of 2002 for liabilities
associated with the SoftQuad acquisition in March 2002 as
well as reductions in salary expenses.

Financing activities provided
$57,000 in the first six months of 2003 compared to $64,000 in the first six
months of 2002. The source
of cash in both quarters was the issuance of shares under employee stock
option plans.

Cash provided from investing
activities was $22.3 million in the first six months of 2003 compared to $33.8
million in the first six
months of 2002. The primary source of cash was the redemption of short-term
investments, which provided $23.6 million for the first
six months of 2003. The primary use of cash from investing activities during
the quarter was the acquisition of capital assets for $1.3
million, compared to $1.4 million in the second quarter of 2002.

We currently have $40.6 million of
cash and cash equivalents and $33.4 million of short-term investments which
are highly liquid. We
believe these funds, along with future cash flow from operations will provide
sufficient liquidity for the near term. At May 31, 2003,
our future commitments consisted primarily of lease arrangements for office
space and certain sponsorship activities (see chart below).
No significant commitments exist for future capital expenditures and we have
no long term debt. We believe available balances of cash
and cash equivalents and short-term investments are sufficient to meet our
working capital requirements for the foreseeable future.

Future Payments
Under Lease and Sponsorship Contracts

Commitments under lease and
sponsorship contract obligations as of May 31, 2003 were as
follows:

SIZE="-2">Three months
ended SIZE="-2">Six months ended

SIZE="-2">May 31, SIZE="-2">May 31,

SIZE="-2">2003 SIZE="-2">2002 SIZE="-2">2003 SIZE="-2">2002

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">Net loss in
accordance with US GAAP $
(4,902) $
(6,339) $
(5,403) $
(9,818)

Estimated
stock-based compensation costs (476) (427) SIZE="-2">(946) SIZE="-2">(822)

Pro forma net
loss $
(5,378) $
(6,766) $
(6,349) $
(10,640)

Pro forma loss
per share - basic and diluted $
(0.06) $
(0.08) $
(0.07) $
(0.12)

SIZE="-2">Fiscal year SIZE="-2">Operating
leases SIZE="-2">Sponsorship
contracts SIZE="-2">Total

FACE="Frutiger 45 Light" SIZE="-2">Potential Fluctuations in Quarterly
Results

We experience significant
fluctuations in our quarterly operating results due to the following factors:
market acceptance of new and
enhanced products, timing and shipment of significant orders, mix of products
sold, exchange rate fluctuations, length of revenue cycles
and cycles in the markets we serve. In addition, our net revenue and
operating results for a future quarter will depend on generating and
shipping orders in the same quarter that the order is received. The failure to
receive anticipated orders or delays in shipments near the end
of a quarter, due to rescheduling, cancellations or unexpected manufacturing
difficulties, may cause net revenue in a particular quarter to
fall significantly below expectations. This could adversely affect our
operating results for such quarter.

Being first to market with new
products is critical to revenue growth. As we and our competitors develop new
products, demand for our
current and future products will fluctuate. If demand for our products were
to decline significantly, revenue would decline and cost of sales
would increase as a result of obsolete inventory and accelerated amortization
of capitalized licences.

Critical Accounting
Policies and Estimates

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

We believe the following critical
accounting policies affect our more significant judgements and estimates used
in the preparation of
our consolidated financial statements:

FACE="Frutiger 45 Light" SIZE="-2">Revenue recognition

We recognize revenue in accordance
with Statement of Position ("SOP") 97-2, "Software Revenue Recognition,"
issued by the
American Institute of Certified Public Accountants ("AICPA"), SOP 98-9,
"Modification of 97-2, Software Recognition with Respect to
Certain Transactions" and Staff Accounting Bulletin ("SAB") No. 101 "Revenue
Recognition in Financial Statements", issued by the
Securities and Exchange Commission ("SEC").

We record product revenue from
packaged software and license fees when persuasive evidence of an arrangement
exists, the software
product has been shipped, there are no significant uncertainties surrounding
product acceptance, the fees are fixed and determinable
and collection is considered probable.

Revenue is net of a provision for
product returns. In computing this provision, we use estimates and
professional judgement. These
estimates are based on information on channel inventory and current return
rates. Consequently, actual return rates could vary
materially from our estimates. An increase in the return rate could result
from changes in consumer demand. Should this variance occur,
revenue could fluctuate significantly. Variances from estimated return rates
and actual return rates are adjusted for monthly.

At the time of contract signing,
we assess whether the fee associated with the revenue transactions is fixed
and determinable based on
the payment terms associated with the transaction. We consider the fee to be
fixed and determinable if it is due within our normal
payment terms, which are generally 30 to 90 days from invoice date.

We assess collection based on a
number of factors, including past transaction history with the customer and
the credit-worthiness of
the customer and do not request collateral from our customers. If it is
determined that collection of a fee is not reasonably assured, we
defer the fee and recognize revenue at the time collection becomes reasonably
assured, which is generally upon receipt of cash.

We uses binding purchase orders
and signed license agreements as evidence of an arrangement. Our arrangements
do not include
acceptance clauses.

We review our accounts receivable
and evaluate the adequacy of our allowance for doubtful accounts. Specific
items that are analyzed
include historical bad debts, changes in customer payments, and current
economic trends.

Income taxes

We have a net future tax asset the
principal components of which are book and tax differences on assets and net
operating loss
carryforwards. We believe sufficient uncertainty exists regarding the
realizability of these net future tax assets such that a valuation
allowance has been taken on the entire amount. Assumptions regarding the
realizability of these net future tax assets are revisited at
each balance sheet date. Any changes in our overall operating environment and
financial performance could result in adjustments to
the valuation allowance.

FACE="Frutiger 45 Light" SIZE="-2">New Accounting
Pronouncements

In December 2001, the CICA issued
AcG 13 - "Hedging Relationships" ("AcG 13"). The guideline presents the views
of the Canadian
Accounting Standards Board on the identification, designation, documentation
and effectiveness of hedging relationships, for the
purpose of applying hedge accounting. The guideline is effective for all
fiscal years beginning on or after July 1 2003, which is the fiscal
year beginning December 1, 2003 for Corel. Corel does not believe that the
adoption of this guideline will have a material impact on its
results of operations or financial position.

In December 2002, the CICA issued
CICA 3475 - "Disposal of long-lived assets and discontinued operations" ("CICA
3475"). This
section establishes standards for the recognition, measurement, presentation
and disclosure of the disposal of long-lived assets. It also
establishes standards for the presentation and disclosure of discontinued
operations, whether or not they include long-lived assets. The
recommendations in this section should be applied to disposal activities
initiated by an enterprise's commitment to a plan on or after
May 1, 2003, with early adoption encouraged. Corel does not believe that the
adoption of this guideline will have a material impact on
its results of operations or financial position.

In December 2002, the CICA issued
CICA 3063 - "Impairment of long-lived assets" ("CICA 3063"). This section
establishes standards
for the recognition, measurement and disclosure of the impairment of
long-lived assets. The Recommendations in this Section should be
applied prospectively for years beginning on or after April 1, 2003, which is
the fiscal year beginning December 1, 2003 for Corel, with
earlier application encouraged. Corel does not believe that the adoption of
this guideline will have a material impact on its results of
operations or financial position.

In February 2003, the CICA issued
AcG 14 - "Disclosure of Guarantees" ("AcG 15"). The guidelines require a
guarantor to disclose
certain information about its guarantees. The guideline was applicable for
annual and interim periods beginning on or after January 1,
2003, which was the quarter beginning March 1, 2003, for Corel.

In April 2003, the FASB issued
SFAS No. 149, - "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities"
("SFAS 149"). This Statement clarifies the accounting guidance on derivative
instruments (including certain derivative instruments
embedded in other contracts) and hedging activities that fall within the scope
of FASB Statement No. 133. The recommendation in this
Statement should be applied prospectively to contracts entered into or
modified after June 30, 2003 and for hedging relationships
designated after June 30, 2003. Corel does not believe that the adoption of
this Statement may have a material impact in its results of
operations or financial position.

In May 2003, the FASB issued SFAS
No. 150, - "Accounting for certain financial instruments with characteristics
of both liabilities and
equity" ("SFAS 150"). This Statement establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. The recommendations in the
Statement are effective for financial instruments entered into
or modified after May 31, 2003. Corel does not believe that the adoption of
this Statement will have a material impact on its results of
operations or financial position.

In June 2003, the CICA issued AcG
15 - "Consolidation of variable interest entities" ("AcG 15"). The guidelines
presents the views of
the Canadian Accounting Standard Board on the application of consolidation
principles to certain entities that are subject to control on
a basis other than ownership of voting interests. The guideline is effective
for annual and interim periods beginning on or after January
1, 2004, which is the quarter beginning March 1, 2004 for Corel. Corel does
not believe that the adoption of this guideline will have a
material impact on its results of operations and financial position.

FACE="Frutiger 45 Light" SIZE="-2">Item 3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest rate
risk

Our exposure to market risk for
changes in interest rates relates primarily to our investment portfolio of
cash equivalents and short-term
investments. Our primary objective with respect to investments is security of
principal. Investment criteria include selecting securities
having an acceptable credit rating and diversifying both issuers and terms to
maturity, which in no case exceed one year. Short-term
investments include only those securities with active secondary or resale
markets to ensure portfolio liquidity. Sustained low general
interest rates, particularly in the United States, could significantly reduce
our interest income. We do not use derivative financial
instruments in our investment portfolio.

At May 31, 2003, interest rates on
our investments ranged from 1.20% to 3.30% per annum (average rate
approximately 1.38% per
annum) with all investments maturing by the end of September 2003. Our cash,
cash equivalents and short-term investments are
denominated predominantly in US dollars. As at May 31, 2003, maturity values
approximate fair values.

Foreign currency
risk

We conduct business worldwide.
Revenue and expenses are generated primarily in US dollars, but we do operate
in foreign currencies,
primarily in Canada and Europe and, to a lesser extent, in Australia, Latin
America, Japan and other Asian countries. We continue to monitor
our foreign currency exposure to minimize the impact on our business
operations. We have mitigated, and expect to continue to mitigate,
a portion of our currency exposure through decentralized sales, marketing and
support operations in which most costs are local currency
based. As at May 31, 2003 we had forward exchange contracts to purchase $9.0
million Canadian dollars with maturity dates ranging from
June 27, 2003 to February 6, 2004. As of May 31, 2002, we had contracts to
purchase $11.8 million Canadian dollars with maturity dates
ranging from March 11, 2002 to February 10, 2003.

Item 4. CONTROLS AND
PROCEDURES

(a) Evaluation of disclosure
controls and procedures. Corel's chief executive officer and chief financial
officer have evaluated the effectiveness
of Corel's "disclosure controls and procedures" (as defined in the Securities
Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c)) as of June
16, 2003, (the "Evaluation Date"). Based on such review, they have concluded
that, as of the Evaluation Date, Corel's disclosure controls
and procedures were effective to ensure that material information relating to
Corel and its consolidated subsidiaries would be made known
to them by others within those entities.

(b) Changes in internal controls.
There were no significant changes in Corel's internal controls or to the
knowledge of Corel's chief executive
officer and chief financial officer, in other factors that could significantly
affect Corel's internal controls subsequent to the Evaluation Date.

(c) Limitations on the
Effectiveness of Controls. Corel's management including the chief executive
officer and chief financial officer, does
not expect that our disclosure controls will prevent all error and all fraud.
A control system, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of
the control system are met.

FACE="Frutiger 45 Light" SIZE="-2">PART II. OTHER
INFORMATION

Item 1. Legal and
Government Proceedings

On March 13, 2000, Corel was
served with a complaint filed against it and Dr. Michael C.J. Cowpland by
Plaintiffs Anthony Basilio and Fred
Spagnola in the U.S. District Court for the Eastern District of Pennsylvania.
The Complaint was filed on behalf of all persons who purchased
or otherwise acquired Corel common shares between December 7, 1999 and
December 21, 1999 (the "Class Period"). The Complaint
alleges that the defendants violated various provisions of U.S. federal
securities laws, including Section 10(b), Section 20(a) and Rule 10b-5
of the Securities Exchange Act of 1934, by misrepresenting or failing to
disclose material information about Corel's financial condition. The
Complaint seeks an unspecified amount of money damages. Further complaints
were filed thereafter, each making similar allegations and
referencing the same Class Period as the initial claims. The Court has
consolidated all pending cases in the Eastern District of Pennsylvania.
An Amended Consolidated Complaint was served on or about August 14, 2000,
which claims an expanded Class Period, from December
7, 1999 to March 20, 2000 (inclusive), and contains several new allegations.
On or about July 6, 2001, Corel and co-defendant Cowpland
filed their answers to the amended Complaint, denying all liability to
Plaintiffs and asserting various affirmative defences. By order dated
February 1, 2002, the Court granted Plaintiffs' motion for class certification
and on May 3, 2002, approved the expanded Class Period as
claimed in the Amended Consolidated Complaint. The Company has responded to
extensive interrogatories and plaintiffs have conducted
numerous depositions of both current and former Corel employees and directors.
Following the attendance of a mediation in April 2003,
the parties signed in June 2003 a Stipulation and Agreement of Settlement
("the Settlement") to resolve all claims in the case. In entering
into the Settlement, the parties acknowledged that Corel continued to deny any
wrongdoing, that it had entered into the Settlement in view
of the uncertainties and expense of further litigation and that the Settlement
was not an admission of fault. On July 1, 2003, the Court
granted Preliminary Approval to the proposed Settlement. The class will be
notified about the Settlement and will be given the opportunity
to opt out or object to the Settlement. This notification will indicate the
terms of the Settlement. The Court will then determine whether
to grant final judicial approval to the Settlement. This procedure is expected
to last at least until the Fall of 2003.

In January 2002, Corel was
notified of a claim filed December 28, 2001, which also names Micrografx
(acquired by Corel in 2001) and 92
other defendants, by The Massachusetts Institute of Technology ("MIT") and
Electronics for Imaging, Inc. ("EMI") in the U.S. District Court,
Eastern District of Texas, for alleged patent infringement of U.S. Patent No.
4,500,919 relating to a system and method of color
management. The subject patent expired in May 2002. Plaintiffs filed an
amended complaint on April 25, 2002 (the "Complaint"), increasing
the number of defendants to 214. The defendants include numerous large
corporations, including Microsoft, IBM, Dell, and Nikon. The
Complaint seeks injunctive relief and an unspecified amount of money damages.
Both Corel and Micrografx have licensed from Eastman
Kodak ("Kodak") a color management system included in the products identified
in the Complaint, and as such, Corel has claimed indemnity
from Kodak for losses arising from the Complaint, including for those claims
of co-defendants who are claiming indemnity from Corel. This
case is continuing in its discovery process. Corel strongly disagrees with the
Plaintiffs' claims and intends to vigorously defend this matter.

In May 2003, Corel was served with
a class action complaint against it, Derek Burney, James Baillie, Lyle Blair,
David Galloway, Hunter Grant,
James Hopkins, Jean-Louis Malouin, The Hon. Barbara McDougall, and Germaine
Gibara, each in their capacity as directors of Corel, and
Vector Capital. The claim was issued on April 23, 2003 and filed by Charles
Miller, a purported Corel shareholder, with the Supreme court
of the State of New York, County of Nassau ("the Complaint"). The suit arises
from the non-disclosure and standstill agreement for the
acquisition of Corel by Vector Capital, entered into by Corel and Vector on
March 24, 2003, and claims unspecified compensatory damages
and injunctive relief. The plaintiff alleges that the defendants breached
their duties to take steps to ensure that the shareholders receive
maximum value for their shares in a change of control transaction. On June 5,
2003, Corel and the Individual Defendants moved to dismiss
on the basis that the plaintiff's claim for breach of fiduciary duty is a
Canadian corporate law question which ought not be heard in the
courts of New York and that the court lacks personal jurisdiction over the
defendants. The plaintiff served Corel and the Individual
Defendants with an Amended Complaint on June 27, 2003, updating references to
the price of the acquisition as reflected in the Acquisition
Agreement signed between Corel and Vector on June 6, 2003. The allegations are
otherwise identical to the Complaint. Corel and the
Individual Defendants believe the case is without merit and will defend their
position vigorously.

Corel is a party to a number of
additional claims arising in the ordinary course of business relating to
employment, intellectual property and
other matters. Based on its review of the individual matters, Corel believes
that such claims, individually, will not have a material adverse
effect on its business, financial position or results of operations but, in
the aggregate, may have a material adverse effect on its business,
financial position or results of operations. Such possible effect cannot be
reasonably estimated at this time.

Item 4. Submission of
matters to a vote of security holders

a) The Annual and Special Meeting
of Shareholders was held on April 9, 2003

b) Three matters submitted to
vote:

1) Approval of increase in
number of shares reserved for issuance under the Corel Corporation Stock
Option Plan 2000.

2003 (6
months)
$
1,997 $
439 $
2,436

2004 3,333 903 SIZE="-2">4,236

2005 1,852 930 SIZE="-2">2,782

2006 987 958 SIZE="-2">1,945

2007
392 987 SIZE="-2">1,379

2008 and
thereafter 6,101 11,656 SIZE="-2">17,757

$
14,662 $
15,873 $
30,535

2) Approval of the Corel
Corporation Director Stock Option Plan

FOR

AGAINST

SIZE="-2">39,307,638 SIZE="-2">5,964,863

3) Ratification of continued
existence of the Corel Corporation Shareholder Rights Plan

FOR

AGAINST

SIZE="-2">39,603,149 SIZE="-2">5,447,202

Item 5. Other
Information

a) On May 8, 2003, James L.
Hopkins resigned as a Director.

b) Pursuant to the June 5, 2003,
oral hearing before a Nasdaq Listing Qualifications Panel, a determination has
been made in the matter
of Corel and its request for continued listing on The Nasdaq National Market.
The Panel determined to continue the listing of Corel's
securities on The Nasdaq National Market. The hearing file has been
closed.

Item 6. Exhibits and
Reports on Form 8-K

a) The following exhibits are
included with the Company's 10-Q as filed with the SEC on July 15,
2003.

Exhibit 99.
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.

b) Reports on Form 8-K

Corel filed with the SEC one
Current Report on Form 8-K on June 24, 2003, including information requested
under Item 5 as follows:

Corel entered into an acquisition
agreement with Corel Holdings, L.P. and Vector CC Acquisitions Inc. dated as
of June 6, 2003 under which
Vector has agreed to acquire all of the outstanding common shares of Corel
pursuant to a plan of arrangement at a price of $1.05 per
share, payable in cash. Attached were Exhibit 2 the Acquisition Agreement and
Exhibit 99 the press release dated June 6, 2003.

FACE="Frutiger 45 Light" SIZE="-2"> SIGNATURES

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

COREL
CORPORATION

(Registrant)

July 15, 2003

By: /s/ Joel Price
SIZE="-2">

Joel Price

Vice President, Finance and

Interim Chief Financial
Officer

(Principal Financial and Accounting
Officer)

SIZE="-2">FOR

AGAINST

SIZE="-2">6,234,697 SIZE="-2">4,515,626

Canada	Not Applicable
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

SIZE="-2">Item 1.	Financial Statements
	FACE="Frutiger 45 Light" SIZE="-2">Consolidated Balance Sheets as at May 31, 2003 and November 30, 2002	1
	Consolidated Statements of Operations and Deficit for the three and six month periods ended May 31, 2003 and May 31, 2002	2
	Consolidated Statements of Cash Flows for the three and six month periods ended May 31, 2003 and May 31, 2002	3
	Notes to Consolidated Financial Statements	4
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	9
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	13
Item 4.	Controls and Procedures	SIZE="-2">14

Item 1.	Legal Proceedings	14
Item 4.	Submission of matters to a vote of security holders	15
Item 5.	Other Information	16
Item 6.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	SIZE="-2">16

FACE="Frutiger 45 Light" SIZE="-2">Signatures	17
CERTIFICATIONS	SIZE="-2">18

	FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">May 31,	November 30,
	SIZE="-2">2003	SIZE="-2">2002

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2">Assets
FACE="Frutiger 45 Light" SIZE="-2">Current assets:
SIZE="-2"> Cash and cash equivalents	$ 40,594	$ 18,874
Restricted cash	1,566	SIZE="-2">1,558
Short-term investments	33,377	SIZE="-2">56,952
Accounts receivable
SIZE="-2"> Trade	18,845	SIZE="-2">19,958
Other	222	SIZE="-2">250
Inventory	408	SIZE="-2">191
Prepaid expenses	2,677	SIZE="-2">2,786
Total current assets	97,689	SIZE="-2">100,569
SIZE="-2">Investments	7,770	SIZE="-2">8,590
Fixed assets	5,195	SIZE="-2">8,762
Intangible assets	10,477	SIZE="-2">13,006
Total assets	$ 121,131	$ 130,927
SIZE="-2">Liabilities and shareholders' equity
FACE="Frutiger 45 Light" SIZE="-2">Current liabilities:
SIZE="-2"> Accounts payable and accrued liabilities	$ 19,386	$ 22,552
Income taxes payable	6,209	SIZE="-2">5,685
Deferred revenue	7,343	SIZE="-2">8,875
Total current liabilities	32,938	SIZE="-2">37,112
Deferred revenue	1,418	SIZE="-2">879
Future income tax liabilities	714	SIZE="-2">806
Total liabilities	35,070	SIZE="-2">38,797

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2">Commitments and contingencies

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2"> SIZE="-2">Shareholders' equity
SIZE="-2">Share capital
SIZE="-2"> Issued and outstanding (000's): 92,972 common shares (91,818 on November 30, 2002);	$ 405,181	$ 405,124
22,890 Series A preferred shares (24,000 on November 30, 2002)
SIZE="-2">Contributed surplus	4,990	SIZE="-2">4,990
SIZE="-2">Deficit	SIZE="-2">(324,110)	SIZE="-2">(317,984)
Total shareholders' equity	86,061	SIZE="-2">92,130
Total liabilities and shareholders' equity	$ 121,131	$ 130,927

	SIZE="-2">Three months ended			SIZE="-2">Six months ended
	SIZE="-2">May 31,			SIZE="-2">May 31,
	2003	SIZE="-2"> 2002	SIZE="-2">	SIZE="-2">2003	SIZE="-2"> 2002
SIZE="-2">Sales	$ 32,206	$ 30,762		$ 60,536	$ 61,976
Cost of sales	4,650	3,019		SIZE="-2">8,297	SIZE="-2">5,927
Gross profit	27,556	27,743		SIZE="-2">52,239	SIZE="-2">56,049
SIZE="-2">Expenses
FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> Sales	9,825	9,921		SIZE="-2">19,210	SIZE="-2">17,767
Marketing	6,074	4,759		SIZE="-2">10,816	SIZE="-2">9,632
Research and development	6,173	7,572		SIZE="-2">11,314	SIZE="-2">14,712
General and administration	8,344	7,585		SIZE="-2">15,247	SIZE="-2">15,046
Depreciation and amortization	3,032	4,196		SIZE="-2">6,799	SIZE="-2">8,502
Loss (gain) on foreign exchange	278	(239)		SIZE="-2">(310)	SIZE="-2">(82)
	SIZE="-2">33,726	33,794		SIZE="-2">63,076	SIZE="-2">65,577
Loss from operations	(6,170)	(6,051)		SIZE="-2">(10,837)	SIZE="-2">(9,528)
Gain on disposal of fixed asset	33			FACE="Frutiger 45 Light" SIZE="-2">33
Loss on investment		SIZE="-2">(119)		SIZE="-2">(36)	SIZE="-2">(137)
Interest income	945	412		SIZE="-2">1,184	SIZE="-2">900
Loss before the undernoted	(5,192)	(5,758)		SIZE="-2">(9,656)	SIZE="-2">(8,765)
Income tax (recovery) expense	21	265		SIZE="-2">(4,302)	SIZE="-2">202
Share of loss in equity investment	339	316		SIZE="-2">772	SIZE="-2">520
Net loss	(5,552)	(6,339)		SIZE="-2">(6,126)	SIZE="-2">(9,487)

FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2">Deficit beginning of period	SIZE="-2">(318,558)	SIZE="-2">(224,708)		SIZE="-2">(317,984)	SIZE="-2">(221,560)
Deficit end of period	$ (324,110)	$ (231,047)		$ (324,110)	$ (231,047)

FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2">Loss per share:
FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2">Basic	$ (0.06)	$ (0.07)		$ (0.07)	$ (0.11)
Diluted	$ (0.06)	$ (0.07)		$ (0.07)	$ (0.11)
Weighted average number of common shares outstanding (000s):
FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2">Basic	92,237	90,117		SIZE="-2">92,034	SIZE="-2">85,465
Diluted	92,237	90,117		SIZE="-2">92,034	SIZE="-2">85,465

	SIZE="-2"> SIZE="-2">Three months ended			SIZE="-2">Six months ended
	SIZE="-2">May 31,			SIZE="-2">May 31,
	2003	SIZE="-2">2002	SIZE="-2">	2003	SIZE="-2">2002

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">Operating activities:
SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">Net loss	$ (5,552)	$ (6,339)		$ (6,126)	$ (9,487)
SIZE="-2">Items which do not involve cash or cash equivalents:
SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">Depreciation of fixed assets	1,495	1,539		SIZE="-2">2,852	SIZE="-2">2,916
Amortization of intangible assets	1,791	3,445		SIZE="-2">4,521	SIZE="-2">6,824
Bad debt expense	32			FACE="Frutiger 45 Light" SIZE="-2">95	52
Loss on write down of investments		SIZE="-2">119		SIZE="-2">48	SIZE="-2">137
Future income tax	(46)	(247)		SIZE="-2">(92)	SIZE="-2">(566)
Gain on disposal of assets	(33)			FACE="Frutiger 45 Light" SIZE="-2">(43)
Share of loss in equity investments	339	316		SIZE="-2">772	SIZE="-2">520
Changes in operating assets and liabilities
SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">Restricted cash	(5)	(2)		SIZE="-2">(8)	5
Accounts receivable	(2,035)	(3,228)		SIZE="-2">1,046	SIZE="-2">(3,262)
Inventory	779	102		SIZE="-2">(216)	SIZE="-2">230
Prepaid expenses	782	(1,303)		SIZE="-2">109	SIZE="-2">(2,290)
Accounts payable and accrued liabilities	2,902	(2,929)		SIZE="-2">(3,166)	SIZE="-2">(8,161)
Income tax payable	3,300	(141)		SIZE="-2">524	SIZE="-2">(210)
Deferred revenue	(786)	712		SIZE="-2">(994)	SIZE="-2">697
Net cash from (used in) operating activities	SIZE="-2">2,963	SIZE="-2">(7,956)		SIZE="-2">(678)	SIZE="-2">(12,595)
Financing activities:
SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">Issuance of common shares	30	-		SIZE="-2">57	64
Net cash provided by financing activities	SIZE="-2">30	SIZE="-2">-		SIZE="-2">57	SIZE="-2">64
Investing activities:
SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">Acquisition of Micrografx Inc., net of cash acquired		(543)			FACE="Frutiger 45 Light" SIZE="-2">(543)
SIZE="-2">Acquisition of SoftQuad Inc., net of cash acquired		(2,605)			FACE="Frutiger 45 Light" SIZE="-2">(2,605)
Redemption (purchase) of short term investments	SIZE="-2">(15,426)	SIZE="-2">(16,746)		SIZE="-2">23,575	SIZE="-2">38,400
Purchase of capital assets	(542)	(381)		SIZE="-2">(1,277)	SIZE="-2">(1,412)
Purchase of other non-current assets		SIZE="-2">2,071
FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">Proceeds on disposal of assets	SIZE="-2">33			SIZE="-2">43	SIZE="-2">
Net cash provided by investing activities	SIZE="-2">(15,935)	SIZE="-2">(18,204)		SIZE="-2">22,341	SIZE="-2">33,840
Increase in cash and cash equivalents	SIZE="-2">(12,942)	SIZE="-2">(26,160)		SIZE="-2">21,720	SIZE="-2">21,309
Cash and cash equivalents at beginning of period	53,536	72,393		SIZE="-2">18,874	SIZE="-2">24,924
Cash and cash equivalents at end of period	$ 40,594	$ 46,233		SIZE="-2">$ 40,594	$ 46,233

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">Supplementary cash information:
SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2"> Cash paid (refund received) for income taxes	$ (3,862)	$ 29		$ (5,546)	$ 919

	Three months ended May 31,		SIZE="-2">Six months ended May 31,
	SIZE="-2">2003	SIZE="-2">2002	SIZE="-2"> 2003	SIZE="-2">2002
Basic and Diluted:
SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">Weighted average common shares outstanding	92,237	90,117	SIZE="-2">92,034	SIZE="-2">85,465
Net loss	$ (5,552)	$ (6,339)	SIZE="-2">$ (6,126)	$ (9,487)
Loss per share	$ (0.06)	$ (0.07)	SIZE="-2">$ (0.07)	$ (0.11)

	FACE="Frutiger 45 Light" SIZE="-2">Three months ended		SIZE="-2">Six months ended
	May 31,		SIZE="-2">May 31,
	SIZE="-2">2003	SIZE="-2">2002	SIZE="-2"> 2003	SIZE="-2">2002
By product
SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2"> Graphics Solutions	$ 13,952	$ 16,530	$ 29,216	$ 33,309
Office Productivity Solutions	14,978	11,247	SIZE="-2">23,967	SIZE="-2">23,096
Process Management Solutions	2,247	2,530	SIZE="-2">4,505	SIZE="-2">4,720
Other (including XML Solutions)	1,029	455	SIZE="-2">2,848	SIZE="-2">851
	$ 32,206	$ 30,762	$ 60,536	$ 61,976

By region
SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2"> North America
SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2"> Canada	$ 4,091	$ 2,355	$ 6,196	$ 4,120
U.S.A.	16,380	13,925	SIZE="-2">27,097	SIZE="-2">27,710
Europe, Middle East, Africa	7,364	9,594	SIZE="-2">16,941	SIZE="-2">19,999
Rest of world	1,816	2,752	SIZE="-2">5,181	SIZE="-2">5,991
OEM	2,555	2,136	SIZE="-2">5,121	SIZE="-2">4,156
	$ 32,206	$ 30,762	$ 60,536	$ 61,976

By major customer
SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2"> Ingram Micro	$ 11,987	$ 4,680	$ 19,315	$ 11,131
All others	20,219	26,082	SIZE="-2">41,221	SIZE="-2">50,845
	$ 32,206	$ 30,762	$ 60,536	$ 61,976

Balance Sheet in accordance with US GAAP		SIZE="-2">As at
		SIZE="-2"> SIZE="-2">May 31,	November 30,

	FACE="Frutiger 45 Light" SIZE="-2">Notes	SIZE="-2">2003	SIZE="-2">2002
SIZE="-2">Assets
SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2">Current assets	(B)	$ 98,195	$ 100,569
SIZE="-2">Investments	(C)	7,842	SIZE="-2">8,590
Fixed assets		SIZE="-2">5,195	SIZE="-2">8,762
Intangible assets	(A)	9,497	SIZE="-2">11,881
Total assets		$ 120,729	$ 129,802

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">Liabilities
SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2">Current liabilities		$ 26,729	$ 31,427
Income tax payable		SIZE="-2">6,209	SIZE="-2">5,685
Deferred revenue		SIZE="-2">1,418	SIZE="-2">879
Future income tax liabilities		SIZE="-2">714	SIZE="-2">806
Total liabilities		SIZE="-2">35,070	SIZE="-2">38,797
Shareholders' equity	(A)	85,659	SIZE="-2">91,005
Total liabilities and shareholders' equity		$ 120,729	$ 129,802

SIZE="-2">Statement of Operations in accordance with		SIZE="-2">Three months ended		SIZE="-2">Six months ended
US GAAP		SIZE="-2">May 31,		SIZE="-2">May 31,
	SIZE="-2">Notes	SIZE="-2">2003	SIZE="-2">2002	SIZE="-2">2003	SIZE="-2">2002
Net loss in accordance with Canadian GAAP		$ (5,552)	$ (6,339)	$ (6,126)	$ (9,487)
Amortization of acquired technology	(A)	72		SIZE="-2">145
SIZE="-2">Unrealized foreign exchange gain on forward exchange contracts	SIZE="-2">(B)	SIZE="-2">506		SIZE="-2">506
Net loss in accordance with US GAAP		$ (4,974)	$ (6,339)	$ (5,475)	$ (9,487)

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">Comprehensive income
SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">Net loss in accordance with US GAAP	SIZE="-2">	SIZE="-2">$ (4,974)	$ (6,339)	$ (5,475)	$ (9,487)

SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">Unrealized holding gains (losses) on available for sale securities	SIZE="-2">(C)	72	SIZE="-2">	SIZE="-2">72	SIZE="-2">(424)
Related income tax	SIZE="-2">(C)	SIZE="-2">			SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2">93
Comprehensive loss		SIZE="-2">(4,902)	(6,339)	$ (5,403)	$ (9,818)
Loss per share
SIZE="-2"> FACE="Frutiger 45 Light" SIZE="-2"> SIZE="-2">Basic		$ (0.05)	$ (0.07)	$ (0.06)	$ (0.11)
SIZE="-2">Diluted		$ (0.05)	$ (0.07)	$ (0.06)	$ (0.11)

2003 (6 months)	$ 1,997	$ 439	$ 2,436
2004	3,333	903	SIZE="-2">4,236
2005	1,852	930	SIZE="-2">2,782
2006	987	958	SIZE="-2">1,945
2007	392	987	SIZE="-2">1,379
2008 and thereafter	6,101	11,656	SIZE="-2">17,757
	$ 14,662	$ 15,873	$ 30,535