890640--2/23/2007--COREL

related topics

{product, market, service}

{customer, product, revenue}

{stock, price, share}

{property, intellectual, protect}

{provision, law, control}

{operation, international, foreign}

{debt, indebtedness, cash}

{acquisition, growth, future}

{system, service, information}

{control, financial, internal}

{interest, director, officer}

{tax, income, asset}

{regulation, change, law}

The long-term trend in our business reflects growth in revenues from acquisitions and not our existing products. We rely on the accuracy of our customers sales reports for collecting and reporting revenue. If these reports are not accurate, our reported revenue will be inaccurate. If we fail to manage our growth effectively, our business could be harmed. Our core products compete with products offered by Microsoft and Adobe, which have dominant market positions and other significant competitive advantages. We face significant competitive threats from Internet companies that may offer competitive software products at little or no cost to consumers to increase their market presence and user base. Our success depends on our ability to offer products that are highly compatible with products offered by Microsoft and Adobe. Our products are complex and may contain errors or defects resulting from such complexity. The manner in which packaged software is distributed is changing rapidly, which presents challenges to established software companies such as us and presents opportunities for potential competitors. With the growth in the Internet as a medium to download and purchase software, we expect to face increasing competition from smaller software providers. Because there are a small number of large PC original equipment manufacturers, we only have a limited number of potential new large original equipment manufacturer customers, which will cause revenue to grow at a slower rate. Slow growth, or negative growth, in the PC industry could reduce demand for our product, and reduce gross profit. Open source software and open standards may make us more vulnerable to competition because new market entrants and existing competitors could introduce similar products quickly and cheaply. Our prices may decline, which could harm our operating results. We rely on relationships with a small number of companies for a significant percentage of our revenues, and if any of these companies terminates its relationship with us, our revenues could decline. If we fail to maintain strong relationships with our resellers and distributors, our ability to successfully deploy and sell our products may be harmed. An interruption of our supply of certain products of key components from our sole source supplier, or a price increase in such products or complements, could hurt our business. The packaged software industry is subject to rapid technological change, and if we fail to respond to dynamic market forces, our position within the industry will be harmed. Our recent growth through acquisitions may not be representative of future growth. We are subject to risks associated with international operations that may harm our business. We may incur losses associated with currency fluctuations and may not effectively reduce our exposure. Our business may be constrained by the intellectual property rights of others, and we have been and are currently subject to claims of intellectual property infringement, which are costly and time-consuming to defend. We may be unable to maintain licenses to third-party technology that is integrated into our products. Our success depends heavily on our ability to adequately protect our intellectual property. As a global business, we have a relatively complex tax structure, and there is a risk that tax authorities will disagree with our tax positions. Our substantial indebtedness could affect our financing options and liquidity. We are subject to restrictive debt covenants that impose operating and financial restrictions on our operations and could limit our ability to grow our business. If we do not provide acceptable customer support, our reputation will suffer and it will be difficult to retain existing customers or to acquire new customers. Risks Related to an Investment in our Common Shares Our common share price is likely to be volatile. Future sales, or the possibility of future sales, of a substantial amount of common shares may depress the price of the common shares. Vector Capital has significant control over our business and you may not have the same corporate governance protections you would have if we were not a controlled company. Vector Capital s ownership of a majority of our common shares, coupled with provisions contained in our articles of incorporation and Canadian law, reduce the likelihood that you will receive a premium upon a change of control. You may be unable to enforce actions against us, certain of our directors and officers or our independent public accounting firm under U.S. federal securities laws. U.S. investors in our company could suffer adverse tax consequences if we are characterized as a passive foreign investment company.

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890640--2/23/2007--COREL_CORP