The following discussion and analysis should be read together with our audited consolidated financial statements for the years ended November 30, 2008, 2007 and 2006 and accompanying notes set forth elsewhere in this report. All financial information is presented in U.S. dollars.

Some of the statements set forth in this section are forward-looking statements relating to our future results of operations. Our actual results may vary from the results anticipated by these statements. Please see "Information Regarding Forward-Looking Statements".

OVERVIEW

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

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

Graphics and Productivity

Our primary Graphics and Productivity products include: CorelDRAW Graphics Suite, Corel Painter, CorelDESIGNER Technical Suite, WinZip, iGrafx and WordPerfect Office. CorelDRAW Graphics Suite is a leading vector illustration, page layout, image editing and bitmap conversion software suite used by design professionals and non-professionals around the world. Corel Painter is a Natural-Media digital painting and drawing software that mirrors the look and feel of their traditional counter parts. CorelDESIGNER Technical Suite offers users a graphics application for creating or updating complex technical illustrations. WinZip is the most widely used compression utility, with more than 40 million licenses sold to date. Our iGrafx products allow enterprises to analyze, streamline and optimize their business processes. WordPerfect Office is the leading Microsoft-alternative productivity software and features Microsoft-compatible word processing, spreadsheet and presentation applications.

Digital Media

Our Digital Media portfolio includes products for digital imaging, video editing, optical disc authoring (Blu-ray, DVD, and CD), and video playback. Our Digital Imaging products include Corel Paint Shop Pro Photo, Corel MediaOne, Corel Photo Album, and PhotoImpact. Corel Paint Shop Pro Photo is a digital image editing and management application used by novice and professional photographers and photo editors. Corel MediaOne is a multimedia software program for organizing and enhancing photos and video clips that are primarily taken with a point-and-shoot camera. Corel Photo Album is an entry-level software program that allows users to easily store, organize, share and manage their digital photo collections. PhotoImpact is an image editing software, which provides users with easy-to-use photo editing tools, creative project templates and some digital art capabilities. VideoStudio is our consumer focused video editing and DVD authoring

software for users who want to produce professional-looking videos, slideshows and DVDs. Our optical disc authoring software applications are DVD Movie Factory and DVD Movie Writer. WinDVD is the world's leading software for DVD, video and Blu-ray Disc playback on PC's with over 200 million units shipped worldwide.

Corporate History

We were incorporated in Canada under the Canada Business Corporations Act in May 1985. In January 1989, we released CorelDRAW, a market-leading full-featured graphics software product in the Windows platform. In November 1989, we completed an initial public offering of our common shares. In January 1996, we acquired the WordPerfect family of software products. In August 2003, we were acquired by Vector Capital and taken private under the Business Corporations Act (Ontario). Following our acquisition by Vector Capital, we undertook a significant restructuring of our business. As part of this restructuring, we divested our underperforming product lines, discontinued speculative research and development activity, refocused investments on our core product offerings and implemented company-wide expense reduction measures.

In October 2004, we acquired Jasc Inc. (Jasc), a leading Digital Media packaged software company, for total consideration of $36.7 million, consisting of $34.3 million in cash and 379,677 of our common shares. Through the Jasc acquisition, we added Corel Paint Shop Pro Photo and Corel Photo Album to our Digital Media offerings.

In May 2006, we acquired WinZip Inc. (WinZip). As consideration for the acquisition, we issued to Vector Capital 4,322,587 of our common shares and repaid all of WinZip's outstanding indebtedness. Vector Capital acquired WinZip in January 2005. Through this acquisition, we added the WinZip file compression utility to our Graphics and Productivity software offerings. Also in May 2006, we completed an initial public offering of our common shares on the TSX and the NASDAQ Global Market.

On December 12, 2006, we completed the acquisition of InterVideo Inc., a provider of Digital Media authoring and video playback software with a focus on high-definition and DVD technologies. In 2005, InterVideo acquired a majority interest in Ulead Inc., a leading developer of video imaging and DVD authoring software for desktop, server, mobile and Internet platforms. On December 28, 2006 we completed the acquisition of the remaining interest in Ulead Inc. The acquisitions of InterVideo Inc. and Ulead Inc. (together referred to as InterVideo) were completed in cash transactions totaling approximately $220.4 million. We purchased InterVideo for $13.00 per share of InterVideo common stock. We financed the acquisitions through a combination of our cash reserves, InterVideo's cash reserves and debt financing which included an amendment to our existing credit agreement to increase available term borrowings by $70.0 million.

This acquisition substantially expanded our presence in the Digital Media software market by creating a broad portfolio of Digital Media and DVD video products. The main products acquired from InterVideo were WinDVD, VideoStudio, DVD Factory, DVD Copy and PhotoImpact. With the combination of our Digital Imaging software and InterVideo's Digital Media products, we now deliver an expanded portfolio of easy-to-use, multi-purpose high-definition video, imaging, and DVD creation products to consumers and enterprises worldwide. In addition the acquisition has enabled us to further extend our presence in emerging markets and Japan. As a result of the acquisition, we now report revenues on two product categories: Graphics and Productivity and Digital Media.

Fiscal 2008 Activity

On March 28, 2008 we received an unsolicited proposal from Corel Holdings, L.P. ("CHLP") (which is controlled by an affiliate of Vector Capital) the holder of approximately 69% of our outstanding common shares. CHLP proposed to make an offer to acquire all of our outstanding common shares not currently held by CHLP at a price of US$11.00 cash per share. CHLP indicated that any such offer would be conditional upon, among other things, satisfactory confirmatory due diligence and our existing credit facility remaining in place following the consummation of any transaction. Our Board of Directors formed a Special Committee of the Board, which assisted it in evaluating and responding to the CHLP proposal. In addition, the Special Committee undertook a process to evaluate other strategic alternatives to maximize value for all shareholders.

On August 18, 2008, we announced that CHLP had informed us that it withdrew its proposal to facilitate pursuit by us of other alternatives for maximizing value for all shareholders. In light of the withdrawal of the CHLP Proposal and the Board's desire to oversee evaluation of the potential strategic alternatives directly, the Board unanimously determined that there was no longer a need for the Special Committee. On August 20, 2008, we stated in a press release that we were in discussions with a third party regarding a potential sale of the company. We further stated that no agreement had been reached and there could be no assurance that such an agreement would be reached or, if completed, what its terms, price or timing might be. On October 22, 2008 we announced that discussions with a third party regarding a potential sale of Corel had ceased, and there were no longer any ongoing negotiations concerning a future acquisition of us. The Company incurred approximately $2.7 million of expenses associated with the Special Committee Review and the evaluation of other strategic alternatives from March 28, 2008 through October 22, 2008. These costs have been classified separately from income from operations.

On September 10, 2008, management initiated a restructuring plan to streamline its global operations in order to become more operationally efficient and to increase its investment in key growth opportunities, including sales to emerging markets and its eCommerce program. As part of this effort, we have reduced our workforce by approximately 90 employees worldwide. The total costs that will arise from this global restructuring are estimated to be approximately $2.4 million, of which $2.2 million were recorded as operating expenses in fiscal 2008.

Industry and Business Trends

Our largest competitors, Microsoft Corporation and Adobe Systems Incorporated, hold the majority of the markets in both Productivity and Graphics and in Digital Media. Microsoft Corporation's Microsoft Office and Adobe Systems hold most of the North American and global market for packaged Graphics and Productivity software. Adobe Systems holds much of the Digital Media software market. Growth rates of packaged software sales in emerging economies are expected to be higher than for the global packaged software market as a whole resulting from more rapidly increasing PC adoption rates in these markets. Additionally, higher growth rates are expected within the Digital Media software market because of the proliferation of capturing devices, the introduction of high definition formats, and the expansion of Digital Media content creation and sharing through social networking websites and email. Because the prices we charge for our packaged software are generally substantially less than those charged by Microsoft and Adobe for products with similar functionality, we believe we are well positioned to take advantage of the emerging market for lower cost software. However, if any of our more established competitors decide to compete with us based on price in this market, we may be unable to successfully compete with the more widely accepted software applications these competitors sell. Similarly, the markets for low-cost personal computers and Digital Media software are only newly emerging. If these markets do not develop as we expect, our business could be adversely affected. Please refer to risk included in Item 1A - Risk Factors, of this 10-K document, ''Slow growth, or negative growth, in the PC industry could reduce demand for our product, and reduce gross profit".

We believe there is a significant market opportunity for us in countries where the markets for PCs are newly emerging, both because our software is more attractively priced than that of our larger competitors and because we believe first time users in these markets do not have established brand loyalties.

The packaged software industry continues to change with new revenue sharing models and types of business relationships. We will seek to continue to develop relationships with industry leading companies to establish new sources of revenues for our existing and future products. If we are unsuccessful in establishing such relationships, our operating results could be materially and adversely affected.

Operating Performance

Revenue for fiscal 2008 was $268.2 million, up 7.1% from fiscal 2007. The revenue growth of $17.8 million was due to a $9.9 million revenue increase from our Digital Media group of products along with a $7.8 million revenue increase from our Graphics and Productivity group of products. The growth in the Digital Media group of products was driven primarily by an increase in revenue from our WinDVD and Instant

On products as well as the OEM revenue of InterVideo, which we were unable to recognize in the first quarter of fiscal 2007, due to acquisition accounting standards. This was partially offset by a decline in sales from Paint Shop Pro Photo and Corel Photo Album. The increase in revenue from Graphics and Productivity was driven primarily by CorelDRAW Graphics Suite, WinZip, iGrafx, CorelDESIGNER Technical Suite, and was partially offset by a decline in sales from WordPerfect.

Our net income for 2008 was $3.7 million, or income of $0.14 per fully diluted common share, compared to a loss of $13.1 million, or a loss of $0.52 per filly diluted common share in 2007. The increase in net income of $16.8 million was driven by a $6.9 million increase in gross margin associated with our higher revenues, and a reduction of $5.2 million in integration expenses, $7.8 million in acquired in-process research and development expenses, and $3.6 million of income tax expenses all largely associated with the acquisition of InterVideo in 2007. These items were offset by additional restructuring expenses and strategic alternative review costs incurred in fiscal 2008 of $4.2 million. Non-GAAP Adjusted EBITDA was $60.9 million and cash flow from operations was $35.5 million in fiscal 2008 compared to non-GAAP adjusted EBITDA of $57.3 million and cash provided by operations of $26.5 million in fiscal 2007. Adjusted EBITDA represents net income before interest, income taxes, depreciation and amortization, further adjusted to eliminate items specifically defined in our credit facility agreement. Refer to the indebtedness section within Item 7 of this 10-K document, for a reconciliation of non-GAAP Adjusted EBITDA to cash flow provided by operations.

OPERATIONS

Revenues

We derive revenues principally from the sale of our software, and associated maintenance and support services. Maintenance and services revenues have historically constituted 8.0% to 12.0% of our total revenues. We distribute our software through OEMs, our Internet-based e-Stores, retailers and resellers around the world. Our products are focused on two primary software markets - the Graphics and Productivity market and the Digital Media market. Our primary Graphics and Productivity products are CorelDRAW Graphics Suite, Corel Painter, Corel Designer Technical Suite, WinZip, iGrafx Flow Charter and WordPerfect Office Suite. Our primary Digital Media products consist of Paint Shop Pro Photo, Media One and the Digital Video family of products including WinDVD, VideoStudio, DVD Factory, Instant ON and PhotoImpact. When comparing fiscal 2006 to fiscal 2008, there has been a significant increase in our Asia Pacific sales due to the acquisition of InterVideo and our positioning in this market. In our fiscal year ended November 30, 2008, approximately 48.1% (2006 - 58.9%) of our revenues came from the Americas, 29.5% (2006 - 32.9%) came from EMEA and 22.4% (2006 - 8.2%) came from APAC.

Our products generally have release cycles of between 12 and 24 months, and we typically earn the largest portion of revenues for a particular product during the first half of its release cycle. The fiscal quarter of the most recent release of each of our major products is set forth in Item 1 of this 10-K document, under "Our Products."

We have typically released new versions of our Digital Media products on an annual basis during the second half of our fiscal year in preparation for the December holiday shopping season. While we expect to do so in future fiscal periods as well, it should be noted that release dates are subject to a number of uncertainties and variables many of which are beyond our control. See "Item 1A-Risk Factors - Our quarterly operating results may fluctuate depending on the timing and success of product releases, which may result in volatility of our stock price".

While our revenues have been growing due to recent acquisitions and revenue growth in some of our existing products, we are uncertain as to how our revenues will be impacted by the current downturn in the global economy. We do believe we are well positioned to avoid significant revenue decreases due to our global operations and our diverse product offerings.

Cost of Revenues

Cost of product revenues primarily consists of:

• royalties paid and costs of licensing third party intellectual property;

• salaries, benefits, stock-based compensation and related costs of the manufacturing oversight staff;

• the cost of packaging and distribution of our packaged software products;

• the cost of related customer and technical support functions;

• credit card fees; and

• allocated facilities, depreciation and amortization and other related overhead.

Our cost of product revenues varies depending on the format in which our products are delivered. Products delivered in electronic format, such as through OEMs or our e-Stores, involve minimal packaging cost, as compared to products delivered in fully packaged format, such as through retail outlets, which involve substantially higher packaging and distribution expense. In addition, typically, Digital Media products, in particular WinDVD, are lower margin products because of the related third party royalty payments.

Cost of maintenance and services revenues consists of:

• salaries, benefits, stock-based compensation and related costs of customer and technical support functions; and

• allocated facilities, depreciation and amortization and other related overhead.

Amortization of intangible assets represents the amortization of intellectual property and other intangible assets arising from purchases of other companies such as Jasc, WinZip and InterVideo and is included in the calculation of our gross margin.

Our gross margin as a percentage of revenues decreased in 2007 and 2008 due to the acquisition of Digital Video products which tend to have higher royalties, and also as a result of a change in our sales mix. We expect this to stabilize at current levels in the next fiscal year.

Sales and Marketing

Sales and marketing expenses consist primarily of:

• salaries, commissions, benefits and stock-based compensation related to sales and marketing personnel;

• travel and living expenses;

• marketing, such as co-marketing programs with our resellers and OEMs, trade shows and advertising; and

• allocated facilities, depreciation and amortization and other related overhead.

Research and Development

Research and development expenses consist primarily of:

• salaries, benefits and stock-based compensation related to research and development personnel;

• allocated facilities, depreciation and amortization and other related overhead; and

• localization and contract development expenses.

Our research and development investments are primarily focused on maintaining competitive functionality of our software products, responding to customer requirements and expanding the geographic reach of our products. We limit research and development spending to areas that we believe will provide an attractive return on investment and have eliminated spending on speculative or high risk projects. Our research and

development costs are expensed as incurred since the cost and time between technical feasibility and release is insignificant.

General and Administrative

General and administrative expenses consist primarily of:

• salaries, benefits and stock-based compensation related to general and administrative personnel;

• accounting, legal and other professional fees;

• allocated facilities, depreciation and amortization and other related overhead; and

• insurance costs.

Taxes

We have tax loss carryforwards available to offset future taxable income of $90.6 million as of November 30, 2008, that expire between the tax years 2009 and 2028, and have not been fully audited by relevant authorities. Of these tax loss carryforwards, approximately CDN$51.0 million will expire in fiscal 2009. We have not recorded a financial statement benefit for these attributes as we have limited history of profitability, with the exception of a benefit realized on approximately $6.0 million of losses in Taiwan. As of November 30, 2008 we also had approximated $155.4 million of tax depreciation that would be available to offset taxable income in future years, for which we have established a full valuation allowance. To the extent we use tax loss carryforwards subsequent to 2008, we expect to record the benefit as a reduction in income tax expense.

Due to the international scope of our business, our income tax expense includes the tax provisions calculated for the various tax jurisdictions in which we operate and foreign withholding tax on certain license income. As a result, income tax expense is affected by the profitability of our operations in all locations, as well as local tax rates.

RESULTS OF OPERATIONS

Comparison of Fiscal Year Ended November 30, 2008 to Fiscal Year Ended November 30, 2007

Our consolidated financial statements for our fiscal year ended November 30, 2008 have been prepared in accordance with U.S. generally accepted accounting principles.

The following table sets forth certain consolidated statements of operations data in dollars and expressed as a percentage of revenues for the periods indicated, as well as the percentage change on a year-over-year basis.

                                                                 November 30,                          Percentage
                                                2007           2008          2007         2008           Change
                                                                     (Dollars in thousands)

Revenues
Product                                       $ 228,274      $ 241,960         91.1 %       90.2 %             6.0 %
Maintenance and services                         22,206         26,270          8.9          9.8              18.3

Total revenues                                  250,480        268,230        100.0        100.0               7.1

Cost of revenues
Cost of product(1)                               49,846         61,453         21.8         25.4              23.3
Cost of maintenance and services(1)                 796            528          3.6          2.0             (33.7 )
Amortization of intangible assets                26,119         25,634         10.4          9.6              (1.9 )

Total cost of revenues                           76,761         87,615         30.6         32.7              14.1

Gross margin                                    173,719        180,615         69.4         67.3               4.0

Operating expenses
Sales and marketing                              71,563         76,791         28.6         28.6               7.3
Research and development                         46,368         44,513         18.5         16.6              (4.0 )
General and administrative                       34,380         33,017         13.7         12.3              (4.0 )
Acquired in-process research and
development                                       7,831              -          3.1          0.0            (100.0 )
Integration expense                               5,220              -          2.1          0.0            (100.0 )
Restructuring                                     1,447          2,878          0.6          1.1              98.9

Total operating expenses                        166,809        157,199         66.6         58.6              (5.8 )

Income from operations                            6,910         23,416          2.8 %        8.7 %           238.9 %

Other expenses (income)
Interest expense, net                            16,254         14,252              *            *                 *
Amortization of deferred financing fees           1,074          1,081              *            *                 *
Expenses associated with evaluation of
strategic alternatives                                -          2,728
Other non-operating (income) expense               (799 )        1,784              *            *                 *

Income (loss) before income tax expense
(recovery)                                       (9,619 )        3,571              *            *                 *
Income tax expense (recovery)                     3,443           (136 )            *            *                 *

Net income (loss)                             $ (13,062 )    $   3,707              *            *                 *

(1) Percentage reflects percentage of related revenues.

* Not Meaningful

Revenues


                                      Year Ended November 30,        Percentage
                                        2007             2008          Change
                                               (Dollars in thousands)

         Product                    $    228,274       $ 241,960             6.0 %
         As a percent of revenue            91.1 %          90.2 %
         Maintenance and services         22,206          26,270            18.3 %
         As a percent of revenue             8.9 %           9.8 %
         Total                           250,480         268,230             7.1 %

Total revenues for the year ended November 30, 2008 increased by 7.1% to $268.2 million from $250.5 million for the year ended November 30, 2007. The increase of $17.8 million is attributable to the $9.9 million revenue growth in Digital Media products and the $7.8 million revenue growth in Graphics and Productivity products. The growth in the Digital Media group of products was . . .