Washington, D.C. 20549
ý QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
o TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT
For the transition period from _________to _________.
Commission File No. 000-29299
CorVu Corporation
(Exact name of registrant as specified in its charter)
Minnesota |
| 41-1457090 |
(State of Incorporation) |
| (IRS Employer ID #) |
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3400 West 66th Street Edina, Minnesota |
| 55435 |
(Address of Principal Executive Offices) |
| (zip code) |
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952-944-7777 | ||
(Issuer’s Telephone Number, Including Area Code) | ||
Check whether the issuer (1) filed all reports required to be filed by Sections 13 or 15(d) of the Exchange Act during the past 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ý No o
State the number of shares outstanding of each of the issuer’s classes of common equity as of the latest practicable date.
Class: Common Stock, par value $.01 per share
Outstanding shares as of November 14, 2001: 20,362,657
CorVu Corporation
Item 1. Financial Statements
CORVU CORPORATION AND SUBSIDIARIES
September 30, 2001 (Unaudited) and June 30, 2001
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| September 30, |
| June 30, |
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| 2001 |
| 2001 |
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| (Unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
| $ | 25,956 |
| 77,409 |
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Trade accounts receivable, net of allowance for doubtful accounts of $133,000 and $145,000, respectively |
| 1,479,886 |
| 2,668,802 |
| |
Prepaid expenses and other |
| 137,202 |
| 145,403 |
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Total current assets |
| 1,643,044 |
| 2,891,614 |
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Furniture, fixtures and equipment, net |
| 112,404 |
| 105,073 |
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| $ | 1,755,448 |
| 2,996,687 |
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Liabilities and Stockholders’ Deficit |
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Current liabilities: |
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Accounts payable |
| $ | 2,671,425 |
| 2,951,684 |
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Accrued compensation and related costs |
| 2,254,989 |
| 2,600,675 |
| |
Deferred revenue |
| 2,064,454 |
| 2,120,172 |
| |
Accrued interest |
| 25,749 |
| 23,663 |
| |
Other accrued expenses |
| 543,410 |
| 741,816 |
| |
Note payable |
| 58,104 |
| 188,123 |
| |
Director advances |
| 683,485 |
| 562,345 |
| |
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Total current liabilities |
| 8,301,616 |
| 9,188,478 |
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Stockholders’ deficit: |
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Undesignated capital stock, 24,000,000 shares |
| — |
| — |
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Series A convertible preferred stock, par value $10 per share; 1,000,000 shares authorized; 200 shares issued and outstanding |
| 2,000 |
| 2,000 |
| |
Common stock, $0.01 par value; 75,000,000 shares authorized; 20,157,781 shares issued and outstanding |
| 201,522 |
| 201,522 |
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Additional paid-in capital |
| 16,161,541 |
| 16,159,995 |
| |
Accumulated deficit |
| (23,322,837 | ) | (22,641,345 | ) | |
Deferred compensation |
| (10,000 | ) | (318,100 | ) | |
Accumulated other comprehensive income |
| 421,606 |
| 404,137 |
| |
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Total stockholders’ deficit |
| (6,546,168 | ) | (6,191,791 | ) | |
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Total liabilities and stockholders’ deficit |
| $ | 1,755,448 |
| 2,996,687 |
|
See accompanying notes to unaudited consolidated financial statements.
CORVU CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
Three Month Periods Ended September 30, 2001 and 2000
|
| 2001 |
| 2000 |
| |
Cash flows from operating activities: |
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Net loss |
| $ | (681,427 | ) | (2,281,242 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation |
| 12,727 |
| 12,210 |
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Warrants and stock options vested |
| 309,646 |
| 404,950 |
| |
Changes in operating assets and liabilities: |
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Trade accounts receivable, net |
| 1,254,885 |
| 1,651,325 |
| |
Other current assets |
| 8,201 |
| (3,110 | ) | |
Accounts payable |
| (295,874 | ) | (86,624 | ) | |
Accrued compensation and related costs |
| (364,867 | ) | 231,499 |
| |
Deferred revenue |
| (58,810 | ) | 152,901 |
| |
Accrued interest |
| 2,086 |
| 1,660 |
| |
Other accrued expenses |
| (209,415 | ) | (71,868 | ) | |
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Net cash provided by (used in) operating activities |
| (22,848 | ) | 11,701 |
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Cash flows from investing activities: |
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Capital expenditures |
| (20,058 | ) | — |
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Net cash used in investing activities |
| (20,058 | ) | — |
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Cash flows from financing activities: |
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Proceeds from sale of common stock, net of costs |
| — |
| 7,500 |
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Repayment of note payable |
| (130,019 | ) | — |
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Borrowings on director advances |
| 156,800 |
| 54,680 |
| |
Repayment on director advances |
| (35,660 | ) | (50,000 | ) | |
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Net cash provided by (used in) financing activities |
| (8,879 | ) | 12,180 |
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Effect of exchange rate changes on cash |
| 332 |
| 472 |
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Net increase (decrease) in cash and cash equivalents |
| (51,453 | ) | 24,353 |
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Cash and cash equivalents at beginning of period |
| 77,409 |
| 46,745 |
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Cash and cash equivalents at end of period |
| $ | 25,956 |
| 71,098 |
|
See accompanying notes to unaudited consolidated financial statements.
CORVU CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations (unaudited)
For the Three Month Periods Ended September 30, 2001 and 2000
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| 2001 |
| 2000 |
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Revenues: |
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Software and license fees |
| $ | 930,124 |
| 909,463 |
|
Maintenance, consulting, and other |
| 1,269,116 |
| 1,537,766 |
| |
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Total revenues |
| 2,199,240 |
| 2,447,229 |
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Operating costs and expenses: |
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Cost of maintenance, consulting, and other |
| 609,416 |
| 898,776 |
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Product development |
| 269,918 |
| 295,376 |
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Sales and marketing |
| 906,866 |
| 1,823,687 |
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General and administrative |
| 1,071,794 |
| 1,681,978 |
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Total operating costs and expenses |
| 2,857,994 |
| 4,699,817 |
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Operating loss |
| (658,754 | ) | (2,252,588 | ) | |
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Interest expense |
| (22,673 | ) | (28,654 | ) | |
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Net loss |
| $ | (681,427 | ) | (2,281,242 | ) |
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Loss per common share—basic and diluted |
| $ | (0.03 | ) | (0.12 | ) |
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Weighted average shares—basic and diluted |
| 20,157,781 |
| 19,515,621 |
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See accompanying notes to unaudited consolidated financial statements.
CorVu Corporation and Subsidiaries
(1) Unaudited Financial Statements
The accompanying unaudited consolidated financial statements of CorVu Corporation and Subsidiaries have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America for interim financial information, pursuant to the rules and regulations of the Securities and Exchange Commission. Pursuant to such rules and regulations, certain financial information and footnote disclosures normally included in the financial statements have been condensed or omitted. The results for the periods indicated are unaudited, but reflect all adjustments (consisting only of normal recurring adjustments) which management considers necessary for a fair presentation of operating results.
(2) Summary of Significant Accounting Policies
(a) Revenue Recognition
Software license revenue is recognized when all of the following criteria have been met: there is an executed license agreement, software has been delivered to the customer, the license fee is fixed and payable within twelve months, collection is deemed probable and product returns are reasonably estimable. Revenues related to multiple element arrangements are allocated to each element of the arrangement based on the fair values of elements such as license fees, maintenance, and professional services. Fair value is determined based on vendor specific objective evidence. Maintenance revenues are recognized ratably over the term of the maintenance contract, typically 12 to 36 months. Consulting and other revenues are recognized when services are performed.
Deferred revenue represents payment received or amounts billed in advance of services to be performed. Billing occurs within 30 days of scheduled performance of services.
(b) Net Loss per Common Share
Basic loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period assuming the exercise of dilutive stock options and warrants. The dilutive effect of stock options and warrants is computed using the average market price of the Company’s stock during each period under the treasury stock method. In periods where losses have occurred, options and warrants are considered anti-dilutive and thus have not been included in the diluted loss per common share calculations.
(3) Comprehensive Loss
Comprehensive loss and its components, including all changes in equity during a period except those resulting from investments by owners or distributions to owners are as follows:
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| For the Three |
| For the Three |
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| Months Ended |
| Months Ended |
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| September 30, 2001 |
| September 30, 2000 |
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Net Loss |
| $ | (681,427 | ) | $ | (2,281,242 | ) | |
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Other comprehensive loss: |
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Foreign currency translation |
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Adjustment |
| 17,469 |
| 125,289 |
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Total comprehensive loss |
| $ | (663,958 | ) | $ | (2,155,953 | ) | |
(4) Liquidity
The accompanying interim consolidated financial statements are prepared assuming the Company will continue as a going concern. During the year ended June 30, 2001, the Company incurred an operating loss of $3,168,265. Subsequently, for the three-month period ended September 30, 2001, the Company incurred an operating loss of $658,754. As of September 30, 2001, the Company had an accumulated deficit of $23,322,837, total stockholders’ deficit of $6,546,168, and negative working capital of $6,658,572. In addition, as of November 14, 2001, due to inadequate funds, the Company has not paid the outstanding principal on director advances discussed in Note 7 and, has not remitted approximately $620,000 of employee and employer payroll taxes.
Going forward the Company must raise additional cash either through raising additional capital or through profits from operations.
Management anticipates the impact of the actions listed below will generate sufficient cash flows to pay past due debts and fund the Company’s future operations.
1. Continue to increase the Company’s revenues from software licenses and other revenue sources.
2. Increase the level of indebtedness.
3. Solicit additional equity investment in the Company.
4. Reduce operating costs, as deemed necessary, in the event the sales of product licenses and/or additional equity or debt financing do not generate adequate proceeds.
(5) Note Payable
In February 1998, the Company entered into a loan agreement in the amount of approximately $927,000 with a third party lender. During fiscal 1999, the Company borrowed an additional $480,000. The note is secured by the assets of the Company. The interest rate on the outstanding principal balance is based on an index defined in the loan agreement plus 7%, with interest due monthly. On September 30, 2001 and June 30, 2000 the interest rates were 11.51% and 12.025%, respectively.The outstanding principal balance became due on December 15, 1999. During fiscal 2001, the Company made principal payments totaling approximately $411,000. As of November 14, 2001, the note has been paid in full.
(6) Director Advances
The Company has received interest-bearing advances from certain directors of the Company. Interest rates vary from 8.0% to 8.5% as of September 30, 2001. These amounts are classified as current liabilities as the Company anticipates paying the amounts during the year ending June 30, 2002.
(7) Installment Agreement with Internal Revenue Service
On March 29, 2001, the Company entered into an installment agreement with the Internal Revenue Service regarding the repayment of past due payroll taxes, penalties and interest. As of that date, the amount due under this agreement was approximately $931,000. The agreement called for monthly payments of $100,000 on April 15, 2001, $50,000 on May 15, 2001, $100,000 on June 15, 2001, $200,000 on July 15, 2001 and $100,000 on the fifteenth of each month thereafter, with any remaining balance being due on January 15, 2002. In July 2001, the Company renegotiated the monthly payment amounts to $50,000 per month. As of September 30, 2001, the balance due under this agreement was approximately $680,000, including penalties and accrued interest. In connection with this agreement, the Internal Revenue Service filed a federal tax lien against the Company’s assets. This lien will be removed once all payments under the agreement are made.
(8) Litigation
In April 2001, the Company and its officers and directors were served a lawsuit brought by Calton, Inc. (“Calton”) and Gildea Management Company (“Gildea”) in the Superior Court of New Jersey, Monmouth County. After removal to federal court, the case was transferred to the United States District Court, District of Minnesota. Calton and Gildea purchased securities from the Company in November 1999 and January 2000. The lawsuit claims that Company officials knowingly provided false and misleading information regarding the historical and future financial performance of the Company to the shareholders, which induced them to make these investments, which totaled approximately $1.5 million. Calton and Gildea are seeking damages in an unspecified amount or, in the alternative, rescission of the stock purchase agreements. The case is being handled by the Company’s attorney and its insurance carrier. The Company believes it has meritorious defenses against these claims.
In April 2001, the Company was served a lawsuit brought by American Express Travel Related Services Company, Inc. in the Supreme Court of the State of New York, County of New York. The plaintiff is seeking payment of the balance due them of approximately $976,000, which has been recorded by the Company as of June 30, 2001 in the accompanying balance sheet. On November 9, 2001 the Company entered into a Stipulation of Settlement agreement with American Express under which the Company agreed to make payments as follows: $25,000 on November 15, 2001, $100,000 on November 30, 2001, March 31, 2002 and June 30, 2002, $125,000 on September 30, 2002, $150,000 on December 31, 2002, March 31, 2003 and June 30, 2003 and $70,000 on September 30, 2003. In addition, the Company agreed to make a final payment on December 31, 2003 of any remaining principal plus accrued interest on the unpaid principal balance from the date of the agreement to December 31, 2003 at a rate of 9% per annum. In the event of default, the obligation is accelerated, the interest rate is increased to 15% and legal fees in the amount of $100,000 would become due. The Company has also granted a security interest in the receivables of CorVu North America, Inc. to American Express as part of this settlement.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Total revenue for the three-month period ended September 30, 2001 decreased $247,989 (10%) compared to the same period a year ago.
Software and license fee revenues increased $20,661 (2%) from $909,463 for the three-month period ended September 30, 2000 to $930,124 for the three-month period ended September 30, 2001. This increase was accomplished in spite of the current economic climate and a 49% reduction in sales staff since the same period last year (see discussion of Sales and Marketing expenses below).
Maintenance, consulting and other revenues decreased $268,650 (17%), from $1,537,766 for the three-month period ended September 30, 2000 to $1,269,116 for the three-month period ended September 30, 2001. This was caused by a reduction in revenue attributable to consulting and training services of $378,375 (39%). Several factors which contributed to this reduction included (1) a 10% reduction in professional services personnel, (2) an overall reduction in billable hours due to decreased demand for the services and (3) an increase in services delivered at discounted hourly rates. In addition, the terrorist events that occurred in the U.S. caused the postponement of scheduled consulting engagements and public training classes. This reduction was partially offset by an increase in annual maintenance revenues of $109,725 (22%), which continue to increase in line with the increased customer base.
OPERATING EXPENSES:
Operating expenses decreased $1,841,823 (39%) for the three-month period ended September 30, 2001, from the same period last year.
Cost of maintenance, consulting and other expenses decreased $289,360 (32%) for the three-month period ended September 30, 2001, from the same period last year. As explained above, this was primarily caused by a 10% reduction in professional service personnel.
Product development costs decreased $25,458 (9%) for the three-month period ended September 30, 2001, from the same period last year. A temporary reduction of one product development employee caused this reduction in expense. Management continues to invest in product development to further improve and enhance its product offerings.
Sales and marketing expenses decreased $916,821 (50%) for the three-month period ended September 30, 2001, from the same period last year. A 49% reduction in sales and marketing personnel from 57 people at September 30, 2000 to 29 people at September 30, 2001 led to a reduction in costs such as salaries, wages and employee benefits, sales commissions, remote sales office expenses and travel costs.
General and administrative expenses decreased $610,184 (36%) for the three-month period ended September 30, 2001, from the same period last year. Many factors contributed to this including a reduction in salaries due to the amendment of the chief executive officer’s employment contract, a reduction in financing costs which were incurred last year due to capital raising activities, a reduction in accounting and audit fees due to a change in the Company’s public auditing firm and reductions in all travel and general overhead costs.
INTEREST EXPENSE:
Interest expense decreased $5,981 (21%) for the three-month period ended September 30, 2001, compared to the same period last year. This was due to a decrease in the balance on the note payable from $546,000 as of September 30, 2000 to $58,000 as of September 30, 2001.
NET LOSSES:
CorVu incurred net losses of $681,427 and $2,281,242 for the three-month periods ended September 30, 2001 and 2000, respectively.
Total cash and cash equivalents decreased by $51,453 during the three-month period ended September 30, 2001 from $77,409 as of June 30, 2001 to $25,956 as of September 30, 2001. Net cash used in operating activities was $22,848 for the period ended September 30, 2001. This was caused by the net loss discussed above. Net cash used in investing activities was $20,058, reflecting the acquisition of property and equipment during the period. Net cash used in financing activities was $8,879 for the period ended September 30, 2001. During the period, the Company repaid $130,019 of a note payable, received borrowings from a director of $156,800 and repaid director loans in the amount of $35,660.
CorVu’s management intends to undertake one or several of the following activities: (1) continue to increase CorVu’s revenues from software licenses and other revenue sources; (2) increase the level of indebtedness; (3) solicit additional equity investment in the Company; (4) reduce operating costs, as deemed necessary, in the event the sales of product licenses and / or additional equity or debt financing do not generate adequate proceeds. CorVu’s management believes these activities will generate sufficient cash flows to sustain CorVu’s operations for the foreseeable future.
Forward Looking Statements
This Report contains statements, which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and the Securities Exchange Act of 1934. These statements appear in a number of places in this Report and include all statements regarding the intent, belief or current expectations of the Company, its directors or its officers with respect to, among other things: (i) the Company’s financing plans; (ii) trends affecting the Company’s financial condition or results of operations; (iii) the Company’s growth strategy and operating strategy; and (iv) the declaration and payment of dividends. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors discussed herein.
PART II
In April 2001, the Company was served a lawsuit brought by American Express Travel Related Services Company, Inc. in the Supreme Court of the State of New York, County of New York. The plaintiff is seeking payment of the balance due it of approximately $976,000, which has been recorded by the Company as of June 30, 2001 in its balance sheet. On November 9, 2001 the Company entered into a Stipulation of Settlement agreement with American Express under which the Company agreed to make payments as follows: $25,000 on November 15, 2001, $100,000 on November 30, 2001, March 31, 2002 and June 30, 2002, $125,000 on September 30, 2002, $150,000 on December 31, 2002, March 31, 2003 and June 30, 2003 and $70,000 on September 30, 2003. In addition, the Company agreed to make a final payment on December 31, 2003 of any remaining principal plus accrued interest on the unpaid principal balance from the date of the agreement to December 31, 2003 at a rate of 9% per annum. In the event of default, the obligation is accelerated, the interest rate increases to 15% and legal fees in the amount of $100,000 would become due. The Company has also granted a security interest in the receivables of CorVu North America, Inc. to American Express as part of this settlement.
A lawsuit against the Company by Calton, Inc. and Gildae Management Company is contained in the Company’s Form 10-KSB for the fiscal year ended June 30, 2001.
Item 2. Changes in Securities and Use of Proceeds.
None
Item 3. Default Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: None
(b) Reports on Form 8-K: None
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CORVU CORPORATION | |
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Date: November 14, 2001 | By | /s/ David C. Carlson |
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| David C. Carlson, Chief Financial Officer |
