Corel facing more lawsuits: from the Financial Post
Software maker's shares dive as three suits filed in New York
By JILL VARDY
Technology Reporter The Financial Post
OTTAWA - Three new U.S. lawsuits put a stop to Corel Corp.'s two-week flirtation with investors yesterday. Corel's share price (COS/TSE, COSFF/Nasdaq) fell 39› to $3.85 in Toronto and 7/32 to US$2 3/4 in New York after the suits were announced, unwinding some of the strong gains the stock has made in recent weeks. Three U.S. law firms said yesterday they are seeking class action status against Corel for alleged false and misleading press releases, filings and statements. The suits were filed in District Court in New York on behalf of investors who bought Corel shares between March 26, 1997 and Jan. 20, 1998. Like previous suits, these stem from Corel's restatement of its financial results for the first three quarters of fiscal 1997, after it stopped recognizing as revenue bartered Java technology exchanged with other companies. Corel chairman and CEO Michael Cowpland and former chief financial officer Chuck Norris are both named a co-defendants in the suits.
The new actions follow one filed in February by Great Neck Capital Appreciation Partnership, which alleges securities law
was violated when Corel failed to disclose material information about its financial condition.
Corel officials weren't commenting on the new lawsuits yesterday. Chief financial officer Michael O'Reilly has said the company is vigorously fighting the Great Neck suit. The first casualty of the suits was the stock price, which had been toying with $4.25 before yesterday. The shares had jumped almost 30% since the software company released its first-quarter results for the year ending Nov. 30, on March 26. Analysts and investors have been taking a second look at Corel since company officials suggested the firm might post a profit
in its second quarter ending May 31. Duncan Stewart of Tera Capital Corp., for example, recently bought the stock for the Navigator Canadian Technology Fund, which he manages. That's a departure for Stewart, who was publicly doubting the company's survival last fall.
"I honestly believe a turnaround is under way," Stewart said. "It's not a great turnaround, it's not going to turn this into a $24 a
share company ... but I think they could turn a profit in the second quarter." Cowpland said last week that unit sales are up and the company's cash position is improving. He repeated earlier predictions
that Corel will show a profit in 1998.
Forecasts of profitability instantly attract people to a low-priced stock, especially one that peaked at $22 in better times. But
analysts caution that Corel still has problems. "The long-term fundamentals continue to show the situation at the company is likely to get worse before it gets better," warned David Beck, technology analyst at TD Securities Inc. "Corel has a fairly significant debt position and if they keep burning cash at the rate they've been burning it, the company is going to be in a lot of trouble."
During its first quarter ended Feb. 28, the company reported a net loss of US$21.1 million (US36› a share) on revenue of just
US$45.5 million.
The lawsuits are expected to distract Corel executives from their task of rebuilding the company. In a filing with securities regulators, the firm warned that investigating and defending the February lawsuit could cost "material amounts of funds and may require a significant amount of management's time and resources." A ruling against the company "could have a material adverse effect on Corel's business, financial condition and results of operations," it added.
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