<PAGE>
 
                                  EXHIBIT 13.1
<PAGE>
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

FORWARD LOOKING STATEMENTS

The following information should be read in conjunction with the audited
consolidated financial statements included elsewhere herein. This Management's
Discussion and Analysis of Financial Condition and Results of Operations
("MD&A") contains forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended. These forward-looking
statements involve uncertainty and risk, and all assumptions, anticipations, and
expectations stated herein are forward-looking statements. The actual results
that Corel achieves may differ materially from any forward-looking statements
made herein due to such risks and uncertainties. The Company has identified by
italics various sentences within this MD&A which contain such forward-looking
statements, and words such as "believes", "anticipates", "expects", "intends",
and similar expressions are intended to identify forward-looking statements, but
are not the exclusive means of identifying such statements. In addition, the
sections labelled "Financial Instruments," "Factors That May Affect Future
Operating Results" and "Year 2000," which are not italicized for improved
readability, consists primarily of forward-looking statements. The Company
undertakes no obligation to revise any forward-looking statements to reflect
events or circumstances that may arise after the date of this report. Readers
are urged to carefully review and consider the various disclosures made by the
Company in this MD&A and in the Company's other reports filed with the
Securities and Exchange Commission that attempt to advise interested parties of
the risks and factors that may affect Corel's business. Historical results and
percentage relationships will not necessarily be indicative of the operating
results of any future period. All amounts in this report are in US dollars
unless otherwise indicated.

OVERVIEW

For the purposes of this discussion, unless the context otherwise requires,
"Corel" refers to the consolidated operations of Corel Corporation and its
wholly owned subsidiaries, Corel Corporation Limited, Corel Computer Corp.,
Corel International Corporation, Corel, Inc., and Corel Corporation (U.S.A.),
while "the Company" refers to the parent, Corel Corporation.  Corel Computer
Corp. was amalgamated with Corel Corporation on December 1, 1998 and is no
longer a subsidiary of the parent company.

Corel develops, manufactures, licenses, sells, and supports a wide range of
software products, including graphics, business productivity and consumer
product applications and video and network computer products.

In the third quarter of 1998, the Company initiated a consolidation plan to
transfer the research and development activity in the Orem, Utah engineering
center to the engineering facilities in Ottawa, Ontario.  As a result of this
plan, a restructuring charge of $15,880,000 was incurred in the third quarter of
1998 for severance costs associated with the termination of approximately 550
employees at the Orem, Utah location, facilities closure costs and non-cash
asset write-downs.

On December 31, 1998, the Company transferred its Java(TM)-based jBridge(TM)
solution, in exchange for a 25% equity stake in GraphOn Corporation of Campbell,
California.  On January 20, 1999, the Company announced the signing of an 
agreement to transfer the Corel Computer NetWinder(TM) division to Hardware
Canada Computing (HCC) of Ottawa, Canada,  in exchange for a significant
ownership position.  Under the terms of the agreement, HCC acquired all of
the assets of Corel Computer supporting the NetWinder family of Linux(R)-based
thin client/thin server computers and other consideration, in exchange for a 25%
equity stake in HCC.  

These activities have and will continue to allow the Company to reduce operating
costs while still developing and marketing award winning software.

<PAGE>
 
SALES

Sales are recognized when products are shipped to customers, primarily
distributors; and are net of discounts and allowances for returns. Sales to
distributors are subject to agreements allowing various rights of return and
price protection. Corel provides reserves for estimated future returns and
exchanges and for price protection on a quarterly basis. The setting of reserves
is inherently risky due to the factors discussed below in "Factors That May
Affect Future Results." In certain instances, Corel's corporate licensing
program provides for the licence of the software and for free updates and
upgrades to the software, otherwise known as Maintenance, as well as free
technical support over the life of the contract (generally not exceeding two
years). Given this strategy, rateable revenue recognition is required for that
portion of the corporate licensing fees attributable to Maintenance and
technical support.   The increase in deferred revenue in 1998 is consistent with
the increase in corporate licence sales.

In fiscal 1998, the average selling price per unit decreased due to a decision
made in the second quarter of the year to decrease prices for upgrades of
Business Productivity applications. Average revenue per unit from original
equipment manufacturer ("OEM") licences and corporate licence programs, such as
the Universal Corel Licence Program, are lower than the average revenue per unit
from retail versions.
 
PRODUCT GROUPS
 
<TABLE>
<CAPTION>
                                                                                YEAR ENDED NOVEMBER 30
                                                            ------------------------------------------------------------
                                                                  1998                   1997                   1996
                                                            --------------         --------------         --------------
                                                                                   (in thousands)
<S>                                                         <C>                    <C>                    <C>
Graphics - new licences.................................          $ 68,720               $ 52,562               $ 64,255 
Graphics - existing user upgrades.......................            37,508                 38,540                 40,674
                                                            --------------         --------------         --------------
     Total graphics.....................................           106,228                 91,102                104,929
                                                            --------------         --------------         --------------
Business productivity - new licences....................            83,801                104,935                 87,146
Business productivity - existing user upgrades..........            28,189                 36,015                 91,017
                                                            --------------         --------------         -------------- 
     Total business productivity........................           111,990                140,950                178,163
                                                            --------------         --------------         --------------
Consumer products.......................................            27,613                 27,547                 50,587
                                                            --------------         --------------         --------------
Video and network computer..............................               996                    982                    566
                                                            --------------         --------------         -------------- 
Total sales.............................................          $246,827               $260,581               $334,245
                                                            ==============         ==============         ==============
</TABLE>

Graphics software revenues increased in 1998 due to the concentration of the
Company's marketing and sales efforts which  resulted in large increases in the
units sold of the current version of CorelDRAW and contributed to the large unit
sales for the new CorelDRAW 8 for the Power Macintosh and Corel Photo Paint 8
releases.

The graphics applications revenues decrease in fiscal 1997 relates primarily to
the decrease in sales of CorelDRAW versions 3, 4 and 5. Sales of new versions of
CorelDRAW were comparable to 1996. Sales in the academic, OEM and corporate
markets have increased the number of overall units sold.  However, due to the
sales mix the overall average selling price decreased in fiscal 1997. Corel
Photo-Paint 8 was not released in 1997 which adversely affected graphics
software revenues.

Unit sales for business productivity applications increased in 1998 and were
aided through price cuts to all upgrade versions of the Company's business
productivity applications. However, the increase in the units sold did not
outweigh the effect of the price cuts and therefore overall productivity
software applications revenue declined from 1997.

Business productivity applications revenue in 1997 included revenues from new
releases such as Corel WordPerfect Suite 8, Corel WordPerfect Suite 8
Professional, Corel Paradox 8, Corel WordPerfect Suite 7 for DOS and UNIX, and
Corel WordPerfect Suite 7 16-bit version. Corel also launched business
applications developed for specialized 

<PAGE>
 
industries. These releases included Corel WordPerfect Suite 7 - Construction
Edition, Corel WordPerfect Suite 7 - Legal Edition, and Corel Office
Professional - Medical Edition. Revenue generated from productivity software
applications declined in 1997 from 1996. This was due, in part, to lower than
expected sales of Corel WordPerfect Suite 7 16-bit version.

Consumer product applications include such items as the Corel GALLERY, Corel
Graphics Pack, Corel Print House and Corel Studio lines that were designed
primarily for the retail market.  Sales of consumer product applications
experienced little change between 1997 and 1998.  The decline from 1996 revenues
can be attributed to revenues generated in that year from the CD Creator and CD
Home lines which were subsequently sold in 1997.  The sales of the Graphics Pack
and Print House products in 1996 were relatively higher than in 1997 and 1998
due to that year being the initial launch year for those products.

Video and Network Computer products include CorelVIDEO video communication
software, CorelCAM colour cameras and other video communication hardware; in
addition to the NetWinder line of network computers. Initial commercial
installations of CorelVIDEO commenced in the second quarter of fiscal 1996.
Revenues remained relatively consistent through 1998.  It is expected that
the completed sale of the NetWinder division in the first quarter of 1999 and
the intended sale of the video division when reasonably possible in 1999 will
result in reduced sales in this area for fiscal 1999.

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

<TABLE>
<CAPTION>
                                                                               YEAR ENDED NOVEMBER 30
                                                            -----------------------------------------------------------
                                                                  1998                   1997                  1996
                                                            --------------         --------------        --------------
                                                                                   (in thousands)
<S>                                                         <C>                    <C>                   <C>
Retail packaged products................................          $153,623               $161,528              $273,089
OEM licences............................................            23,340                 30,441                26,527
Corporate licences......................................            69,864                 68,612                34,629
                                                            --------------         --------------        --------------
Total sales.............................................          $246,827               $260,581              $334,245
                                                            ==============         ==============        ==============
</TABLE>

Retail packaged products and corporate licences are sold primarily through
distributors. The three largest distributors accounted for $77.7 million (31%),
$93.8 million (36%) and $168.4 million (50%) of Corel's sales in fiscal 1998,
1997 and 1996, respectively.  Packaged product revenue decreased in 1997 and
1998 due to a shift in focus from retail to corporate sales.  Corel's enhanced
focus on the corporate market has resulted in increased revenue in both 1997 and
1998 from corporate licences. OEM channel revenues are licence fees from
original equipment manufacturers.  These revenues decreased in 1998 due to the
declining price of hardware which has led to a decline in OEM per unit revenues.
The primary source of OEM revenues in fiscal 1996 was the licensing of graphics
software applications. OEM revenues in 1997 and 1998 related to the licensing of
graphics software applications and productivity software applications.

SALES BY REGION

<TABLE>
<CAPTION>
                                                                               YEAR ENDED NOVEMBER 30
                                                            -----------------------------------------------------------
                                                                  1998                   1997                  1996
                                                            --------------         --------------        --------------
                                                                                   (in thousands)
<S>                                                         <C>                    <C>                   <C> 
North America...........................................          $152,880               $147,450              $233,997
Europe..................................................            73,089                 84,732                75,513
Other...................................................            20,858                 28,399                24,735
                                                            --------------         --------------        --------------
Total...................................................          $246,827               $260,581              $334,245
                                                            ==============         ==============        ==============
</TABLE>

In 1997, sales increased in both the European and International markets; notably
in Germany and the United Kingdom. North American sales increased again in 1998;
although not to 1996 levels.  The decrease in sales outside 

<PAGE>
 
of North America in 1998 reflected large declines in revenues from the United
Kingdom, Belgium and Japan. Corel's products are sold primarily in US dollars in
all countries. Sales in US dollars as a percentage of total sales were in excess
of 90% in each of fiscal 1998, 1997 and 1996.

GROSS PROFIT

Corel includes in cost of sales all costs associated with the acquisition of
components, the assembly of finished products, the amortization of software
acquisition costs and shipping. Costs associated with warehousing are included
in selling, general and administrative expenses.

The decrease in gross profit in fiscal 1997 was due primarily to a write-down
for inventory obsolescence in the amount of $12.8 million.  The write-down was
necessitated by the discontinuance of older versions of CorelDRAW in the North
American channel. This write-down was partially offset by a lower amortization
amount related to the write-down of the WordPerfect technology in the second
quarter of fiscal 1997.  Gross profit increased in 1998 both as a percentage of
sales and in dollars.  This was due to lower amortization with the write down of
the WordPerfect technology in the second quarter of 1997 and to the inventory
obsolescence provision required in 1997.

ADVERTISING EXPENSES

Advertising expenses include all marketing, advertising and trade show expenses.
Advertising expenses decreased in both 1997 and 1998.  The decrease in 1997 was
due primarily to the reduction of print advertising and corporate sponsorships
and promotions.  In 1998, these expenses decreased even further due to a
significant reduction in television advertising.  In addition, print
advertisements have also decreased as part of the Company's efforts to control
costs and use advertising dollars more effectively.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

All selling expenses (except for advertising expenses) are included in this
category along with general and administrative expenses; as well as expenses
associated with warehousing. There were two major reasons for the decrease in
these expenses over 1997. Firstly, the restructuring that occurred in the third
quarter of 1998 contributed to the decrease in SG&A expenses with the decline in
salaries for the last two quarters. Secondly, the Company's customer support
expenses decreased in 1998, which reflects the fact that customers required less
product support in 1998 and is consistent with the Company's latest product
versions moving towards the end of their life cycle. In 1996, the purchase of
the WordPerfect technology resulted in increases in expenses for customer and
technical support, warehousing and increased personnel for marketing efforts.
These increases remained in effect for the entire 1997 fiscal year.

GAIN ON SALE OF COREL CD CREATOR

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

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

<TABLE>
<CAPTION>
                                                                               YEAR ENDED NOVEMBER 30
                                                            -------------------------------------------------------------
                                                                   1998                   1997                   1996
                                                            ---------------         --------------         --------------
                                                                                    (in thousands)
<S>                                                         <C>                     <C>                    <C>  
Gross research and development expenses.................            $71,935                $89,499                $70,619
Less:  Research and development tax credits.............                  -                      -                  4,692
                                                            ---------------         --------------         --------------    
Net research and development expenses...................            $71,935                $89,499                $65,927
                                                            ===============         ==============         ==============
</TABLE>

The restructuring that took place in the third quarter of 1998 is the main
reason for the decrease in research and development expenses in 1998.  In
September 1998, the Company terminated 460 employees at the Orem, Utah location
as part of the transfer of research and development activities from Orem to
Ottawa. The increase in 1997 research and development expenses was primarily
attributable to increased staffing and costs associated with the continued
maintenance and enhancement of Corel's products (including a full year of R&D
expenses associated with WordPerfect in 1997 as compared to a partial year in
1996) as well as new R&D on Webtop products.

DEPRECIATION AND AMORTIZATION EXPENSES

Depreciation and amortization expenses, which do not include the amortization of
purchased software, decreased in 1998 due to the decrease in assets purchased in
1998 as compared to 1997 and the write-down of assets as part of the
restructuring.  The increase in 1997 was attributable to the full year of
depreciation and amortization incurred on relatively higher 1996 purchases for
the research and development and technical support staff in Orem, Utah as well
as the depreciation and amortization on additional 1997 purchases.

WRITE-DOWN OF PURCHASED SOFTWARE AND ROYALTIES

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

RESTRUCTURING CHARGE

As discussed in the Overview and Research and Development Expenses sections
above, the Company incurred a restructuring charge of $15.9 million in the third
quarter of 1998.  The charge relates to the costs associated with moving the
research and development activity in Orem, Utah to the Ottawa, Ontario and
Dublin, Ireland locations.  Further discussion of the charge and its components
may be found in Note 7 of the 1998 Consolidated Financial Statements included in
Exhibit 13.2.

INTEREST EXPENSES (INCOME)

The interest expense in fiscal 1997 and 1998 relates to Novell Obligations for
the acquisition of the WordPerfect technology from Novell, Inc.  The interest
expense in 1996 for these obligations was more than offset by the interest
earned on the cash and short term investments held by the Company in the first
part of the year.

<PAGE>
 
INCOME TAXES

Corel's effective tax rates for fiscal 1998, 1997 and 1996 were (15%), 23.6% and
(4.0%) respectively. These effective tax rates vary from the Company's statutory
tax rate of 44.3% primarily due to foreign tax rate differences associated with
Corel's international operations and the unrecorded tax benefit of losses in the
1998 and 1997 fiscal years. The accounting losses include loss carryforwards for
income tax purposes.

LIQUIDITY AND CAPITAL RESOURCES

Corel has used funds generated from operations and from the exercise of employee
stock options to fund its operations, to repay a portion of its long-term debt
and to acquire capital equipment, products and technology.  Corel initiated
significant cost reduction measures throughout 1998 that allowed it to record a
profit from operations in the fourth quarter of 1998.  The efforts undertaken
throughout 1998 will facilitate the Company's movement towards an improved
liquidity position in 1999.

Days sales outstanding ("DSO") decreased in fiscal 1998 to 58 days at November
30, 1998 from 106 days at November 30, 1997,and 98 days at November 30, 1996.

The decrease in inventories in fiscal 1997 was primarily due to a write-down for
obsolescence related to the decision to discontinue CorelDRAW 3, CorelDRAW 4,
CorelDRAW 6 and CorelDRAW 7 in the North American market.  The increase in 1998
reflects the increased production of the Company's core products that are
currently in the market; including CorelDRAW 8 and Corel WordPerfect Suite 8.

The increase in prepaid expenses in 1998 was a result of more prepaid royalties
paid as part of agreements to use third party technologies. Prepaid expenses
decreased by $15.8 million in fiscal 1997 to $2.6 million at November 30, 1997.
This was primarily due to the write-down of deferred development costs in the
form of prepaid royalties to third-party developers of Corel CD HOME titles. The
multimedia titles were sold to Hoffman + Associates Inc. in the second quarter
of fiscal 1997.

Accounts payable and accrued liabilities increased by $10.0 million in fiscal
1998 and decreased by $4.3 million in fiscal 1997.  The increase in fiscal 1998
relates to increases in accrued liabilities relating to the restructuring charge
as well as accruals for income tax proposals as noted in the Legal and
Government Proceedings section above and in Note 14 of the 1998 Consolidated
Financial Statements in Exhibit 13.2.

The current portion of Novell Obligations of $11.8 million at November 30, 1998
represents the amounts due in fiscal 1999 arising from long-term royalty and
product return obligations pursuant to the acquisition of the WordPerfect family
of software programs on March 1, 1996.
 
The exercise of employee and other stock options provided cash of approximately
$0.2 million in fiscal 1998, $6.2 million in fiscal 1997 and $7.3 million in
fiscal 1996.  This was countered by repurchases of common shares by the Company
for cancellation.  The repurchases included 394,000 common shares for $1.0
million in 1998 and 1,450,000 common shares for $5.0 million in 1997.

Corel's capital expenditures totalled $10.4 million in fiscal 1998, $23.8
million in fiscal 1997 and $210.1 million in fiscal 1996, including expenditures
for acquired software of $4.7 million in fiscal 1998, $12.2 million in fiscal
1997 and $171.1 million in fiscal 1996, of which $153.4 million was for the
acquisition of the WordPerfect technology on March 1, 1996, and for computer and
office equipment. At November 30, 1998, Corel had no material commitments for
capital expenditures.

Corel believes that the existing sources of liquidity and anticipated funds from
operations will satisfy Corel's projected working capital, capital expenditure
and Novell Obligations repayment requirements for the 1999 fiscal year. Corel
anticipates that subsequent to that time, its working capital and capital
expenditures will be satisfied by 

<PAGE>
 
existing sources of liquidity, funds from operations and, if necessary,
additional financing
<PAGE>
 
signed to sell the Network Computer division and the intention to sell the Video
division , it is expected that the above mentioned organizations will not remain
competitors of Corel.

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

Pricing

Pricing pressures continually intensify in the PC software applications market
and the Company believes that price competition, with its attendant reduced
profit margins, may become a more significant factor in the future. Corporate
licensing, discount pricing for large volume distributors and retailers, product
bundling promotions and competitive upgrade programs are forms of price
competition that may become more prevalent. In addition, enterprise wide
versions of products are generally priced lower per user than individual copies
of the same products. Corel also competes with companies that produce standalone
graphics and desktop publishing applications that might serve a specific need of
a user or class of users at a price below that of Corel's products.

Technological Change

The markets for Corel's products are characterized by rapidly changing
technology, frequent new product introductions and uncertainty due to new and
emerging technologies. Corel's future success is highly dependent upon the
timely completion and introduction of new or enhanced products incorporating
such emerging technologies at competitive price/performance levels. The pace of
change has recently accelerated due to the Internet, corporate intranets and the
acceptance of new operating systems such as Windows 98 and Linux.

PC Growth Rates

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

Dependence on New Products

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

Product Ship Schedules

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

Channel Mix

Average revenue per unit is lower from OEM licences than from retail versions,
reflecting the relatively low direct costs of operations in the OEM channel.
Corel's OEM revenues fell slightly in 1998 from the increases experienced in
1996 and 1997.

<PAGE>
 
Potential Fluctuations in Quarterly Results

Corel's quarterly operating results fluctuate as a result of a number of
factors, including the timing of new product announcements and introductions by
Corel and its competitors, pricing, distributor ordering patterns, the relative
proportions of sales attributable to full kits and existing user upgrades,
product returns and reserves, advertising and other marketing expenditures, and
research and development expenditures. Revenues and earnings may be difficult to
predict due to shipment patterns. Products are generally shipped as orders are
received, and accordingly, Corel has historically operated with little backlog.
As a result, sales in any quarter are dependent on orders booked and shipped in
that quarter.

Employee Compensation

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

Dependence on Distributors

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

International Operations and Geographic Concentration

Currently, Corel markets its products in more than 60 countries. Corel
anticipates that sales outside North America will continue to account for a
significant portion of total sales. These sales are subject to certain risks
including imposition of government controls, export licence requirements,
restrictions on the export of technology, political instability, trade
restrictions, changes in tariffs, differences in copyright protection and
difficulties in managing accounts receivable. More than 45% of Corel's sales for
the past three fiscal years were made in the United States. As a result, adverse
developments in the United States markets for Corel's products could have a
material adverse effect on Corel's results of operations.

Dependence on Key Personnel

Corel's success depends to a significant extent upon the performance of Corel's
executive officers and key technical and marketing personnel.  Corel has
agreements describing compensation arrangements and containing non-disclosure
covenants with all of its key employees.  Corel believes that its future success
will also depend in large part on its ability to attract and retain highly
skilled technical, managerial, and sales and marketing personnel.

Saturation

Product upgrades, which enable users to upgrade from earlier versions of Corel's
products or from competitors' products, have lower prices and margins than new
products. The sales mix has shifted from full-kit products to upgrade products
as the market for Corel's products become saturated.  This sales pattern is
likely to continue.

<PAGE>
 
Corporate licenses

Average revenue per unit from corporate license programs is lower than average
revenue per unit from retail versions.  Unit sales under licensing programs may
continue to increase.

Research and development investment cycle

Developing and localizing software is expensive and the investment in product
development often involves a lengthy payback cycle. The Company plans to
continue significant investments in product research and development from which
significant revenue is not assured.
 
YEAR 2000

Many computer and related systems use the last two digits in a year as a
reference point and may not properly distinguish between 1900 and 2000 when
"00" is used.  If not corrected, these systems may provide incorrect data or may
not function (at all).

There are three major risks for the Company from Year 2000 issues.  Year 2000
compliance problems with Corel's products could have a material adverse effect
on sales and operations.  Significant Year 2000 compliance problems with
internal systems could seriously affect the Company's ability to carry out its
operations.  Corel also depends heavily on third parties for raw materials,
transportation utilities, and other key services.  Interruption of supplier
operations due to Year 2000 issues could seriously disrupt the Company's
operations.  In addition, if Corel's current or future customers do not achieve
Year 2000 compliance or if they divert expenditures previously reserved for
business software to address their Year 2000 compliance problems, Corel's
business, results of operations, or financial condition could be materially
adversely affected.

In 1996, Corel initiated a corporate wide program to review, test and prepare
Corel's products and internal systems for the Year 2000 with the full support of
the Board of Directors.

Corel has established a Year 2000 Product Evaluation Program. For those Corel
products currently being sold and for historical Corel products, the Company has
provided detailed Year 2000 information on a product by product basis on their
website at http://www.corel.com/2000.htm. The status of each product is
discussed and updated regularly; including whether a product will be tested, the
stage of testing reached on the product and the conclusion on its Year 2000
compliance once testing is complete. The Company expects to complete testing of
these products by the end of the third quarter of 1999. All upcoming product
releases are being tested for Year 2000 compliance and it is anticipated that
all upcoming releases will be Year 2000 compliant. Although Corel's testing
process is comprehensive, there can be no assurances that the Company's products
do not contain undetected errors or defects associated with year 2000 date
functions.

The three phases of the Company's internal systems testing program are
inventory, assessment and renovation. The inventory phase includes compiling a
list of hardware and software systems and suppliers that are critical to Corel's
operations. Assessment includes the evaluation of critical systems for Year 2000
compliance. The renovation phase includes the resolution of all issues
identified in the assessment phase. The inventory phase is ongoing as additions
to internal systems are made on a regular basis. Corel expects to complete the
assessment phase for all critical internal hardware and software systems by the
third quarter of 1999. The Company is also in the process of implementing
solutions to ensure Year 2000 compliance. It is expected that renovations, if
required, will be complete by the third quarter of 1999 for critical systems.
Non-critical systems will be tested and solutions implemented over the balance
of 1999. In addition, as part of ongoing business operations, the Company
strives to ensure that all current investments in new technology are Year 2000
compliant. Due to the nature of Corel's normal business practices, Corel is
continually upgrading many of its critical back-end systems with new hardware
and software. These practices are intended to help ensure that Corel does not
experience any significant disruptions due to Year 2000 issues.

<PAGE>
 
Corel's Year 2000 program also includes a full review of significant third
parties' Year 2000 compliance.  Corel has been in contact with the majority of
these third parties and is currently conducting an in-depth risk analysis. This
includes assessing the extent of Year 2000 compliance for third parties as well
as reviewing their plans to address any Year 2000 issues through surveys and
discussions with company representatives.  The Company fully expects to have
suitable solutions in place before 2000.  There can be no guarantees, however,
that these third parties will be fully Year 2000 compliant.

Corel has designed a comprehensive contingency planning process to ensure the
continuity of business operations in the event of a disruption caused by Year
2000 issues.  The four phases of this plan are I - business process definition,
II - business process analysis, III - scenario generation and contingency plan
determination and IV -validation and testing.  The Company is currently in phase
I of the plan; which includes identifying the business processes and the
resources and technologies required for each process.  Phase II provides
quantitative analysis for each process using various criteria such as business
impact and likelihood of failure.  Both Phase I and II are expected to be
complete during the second quarter of 1999.  Phase III is expected to be
complete in the third quarter of 1999 and Phase IV completion is expected in the
fourth quarter of 1999.

Corel expects to incur total costs of approximately $1.7 million from the first
quarter of 1999 through the second quarter of 2000 to become Year 2000
compliant.  This amount includes the direct costs involved in running the Year
2000 department as well as costs associated with third party testing.  These
amounts will be funded from operating cash flow and will be expensed as
incurred.  There have also been substantial efforts expended by both the
Engineering and Legal departments in regards to Year 2000 issues and by other
departments to a lesser degree. These costs are included in the salaries for
those departments.  There is no assurance that the Company's financial position
may not be materially adversely affected if unanticipated problems occur.

Notwithstanding the efforts made to become Year 2000 compliant, there can be no
assurances that this program will ensure that all of Corel's internal systems,
products and third party systems will be Year 2000 compliant. Should these
systems not be compliant before 2000, there could be material adverse
consequences to the Company.

Corporate Governance

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

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<CAPTION>

TSE Corporate Governance Committee                    Does Corel                                                        
Guideline                                              Conform?           Comments                                        
-------------------------------------------------      --------           ---------------------------------------------------
<S>         <C>                                        <C>                       <C>                                    
1           Board should explicitly assume
            responsibility for stewardship of the
            corporation, and specifically for:

       a)   adoption of a strategic planning             Yes.            The Board participates in strategic planning;       
            process.                                                     however, the nature of the business and its rapid   
                                                                         evolution precludes long-term planning. The Board   
                                                                         generally participates in, and is fully informed of,
                                                                         strategic initiatives as they develop.              
 
       b)   identification of principal risks, and       Yes.            The Board, in its deliberations, considers the  
            implementing risk-managing systems.                          principal risks of the Company's business and   
                                                                         receives reports of the Company's assessment and
                                                                         management of those risks.                      
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<PAGE>
 
<TABLE> 

<S>                                                  <C>        <C>                                                          
       c)   succession planning and monitoring       Yes.       The Board has addressed with the CEO the question of         
            senior management.                                  succession planning. The Board does participate in the       
                                                                appointing of senior management.                             
                                                                                                                             
       d)   communications policy.                   Yes.       The Board has considered and discussed how the               
                                                                Company communicates with its various stakeholders           
                                                                and intends to further review the Company's                  
                                                                communications policy.                                       
                                                                                                                             
       e)   integrity of internal control and        Yes.       The Board directly, and through its Audit Committee,         
            management information systems.                     assesses the integrity of the Company's internal             
                                                                control and management information systems.                  
                                                                                                                             
2           Majority of directors should be          Yes.       The Board is composed of seven members: six are              
            "unrelated" (free from conflicting                  unrelated, one is an officer of the Company and one          
            interests).                                         seat on the Board remains vacant.                            
                                                                                                                             
3           Disclose for each director whether he    Yes.       Apart from Michael Cowpland, all directors are               
            or she is related, and how that                     unrelated to the Company or each other. Michael              
            conclusion was reached.                             Cowpland is the Founder, the largest individual              
                                                                shareholder, Chief Executive Officer and President of        
                                                                the Company.                                                 
                                                                                                                             
4      a)   Appoint a Committee responsible for      Yes.       The Board of Directors has appointed the Audit               
            the appointment/assessment of                       Committee with this mandate.                                 
            directors                                                                                                        
                                                                                                                             
       b)   Composed exclusively of non-             Yes.                                                                    
            management directors, the majority                                                                               
            of                                                                                                               
            whom are unrelated.                                                                                              
                                                                                                                             
5           Implement a process for assessing the    Yes.       The Board of Directors has appointed the Audit               
            effectiveness of the Board, its                     Committee with this mandate.                                 
            Committees and individual directors.                                                                             
                                                                                                                             
6           Provide orientation and education        Yes.       The Company provides appropriate documentation               
            programs for new directors.                         and presentations as required for new directors.             
                                                                                                                             
7           Consider reducing the size of Board,     Yes.       The Board has considered its size with a view to the         
            with a view to improving                            impact of size upon its effectiveness and has                
            effectiveness.                                      concluded that the number of directors is in the             
                                                                appropriate range for a corporation of the size and          
                                                                complexity of the Company. The Board as presently            
                                                                constituted brings together a mix of skills,                 
                                                                backgrounds and attitudes that the Board considers           
                                                                appropriate to the stewardship of the Company.               
                                                                                                                             
8           Review compensation of directors in      Yes.       The Board, through its Compensation Committee,               
            light of risks and responsibilities.                periodically reviews the adequacy and form of                
                                                                compensation of directors.                                   
                                                                                                                             
9      a)   Committees should generally be           Yes.       All the members of the Audit and Compensation                
            composed of non-management                          Committees are non-management directors.                      
            directors, and
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<TABLE> 
<S>                                                      <C>           <C> 
     b)    Majority of Committee members should          Yes.          All the members of the Audit and Compensation
           be unrelated.                                               Committees are unrelated.
 
10         Appoint a Committee responsible for           Yes.          The Board, as a whole, has considered corporate
           approach to corporate governance                            governance issues and has appointed the Audit
           issues.                                                     Committee with this mandate.
 
11   a)    Define limits to management's
           responsibilities by developing
           mandates for:
 
           (i)  the Board.                                No.          There is no specific mandate for the Board, since
                                                                       the Board has plenary power. Any responsibility
                                                                       which is not delegated to senior management or a
                                                                       Board Committee remains with the full Board.
 
           (ii)  the CEO.                                 No.          The scope and extent of the CEO's mandate has
                                                                       evolved through interaction with the Board and an
                                                                       ongoing consultative process with the Board.
 
     b)    Board should approve the CEO's                Yes.          The Board annually approves the key results for
           corporate objectives.                                       which the CEO is responsible and reviews key
                                                                       results and objectives quarterly.
 
12         Establish procedures to enable the            Yes.          The Board has functioned, and is of the opinion
           Board to function independently of                          that it can continue to function independently as
           management.                                                 required.
 
13   a)    Establish an Audit Committee with a           Yes.          The Audit Committee has a specifically defined
           specifically defined mandate.                               mandate that includes oversight responsibility for
                                                                       management reporting on internal controls and
                                                                       corporate governance.
 
     b)    All members should be non-management          Yes.          The members are non-management directors.
           directors.
 
14         Implement a system to enable                  Yes.
           individual directors to engage
           outside advisers, at corporation's
           expense.
</TABLE>