U.S. Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-QSB

ý QUARTERLY REPORT UNDER SECTION 13 OF 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2002

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 #)

3400 West 66th Street

Edina, Minnesota 55435

(Address of Principal Executive Offices)

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 April 30, 2002: 20,680,835

CorVu Corporation

Index to Form 10-QSB

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets March 31, 2002 (Unaudited) and June 30, 2001 (Audited)

Consolidated Statements of Cash Flows (Unaudited) Nine Month Periods Ended March 31, 2002 and 2001

Consolidated Statements of Operations (Unaudited) Three and Nine Month Periods Ended March 31, 2002 and 2001

Notes to Unaudited Consolidated Financial Statements For the Three and Nine Month Periods Ended March 31, 2002 and 2001

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

PART II OTHER INFORMATION

Item 1. Legal Proceedings

Item 2. Changes in Securities and Use of Proceeds

Item 3. Default Upon Senior Securities

Item 4. Submission of Matters to a Vote of Security Holders

Item 5. Other Information

Item 6. Exhibits and Reports on Form 8-K

SIGNATURES

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

CORVU CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

March 31, 2002 (Unaudited) and June 30, 2001 (Audited)

		March 31,			June 30,
Assets		2002			2001
		(Unaudited)			(Audited)
Current assets:
Cash and cash equivalents		$	137,124		77,409
Trade accounts receivable, net of allowance for doubtful
accounts of $142,000 and $145,000, respectively		2,507,570			2,668,802
Prepaid expenses and other		157,940			145,403
Total current assets		2,802,634			2,891,614
Property and equipment, net		112,208			105,073
		$	2,914,842		2,996,687

Liabilities and Stockholders’ Deficit

Current liabilities:
Accounts payable		$	2,564,237		2,951,684
Accrued compensation and related costs		2,569,133			2,600,675
Deferred revenue		2,590,173			2,120,172
Accrued interest		87,870			23,663
Other accrued expenses		621,944			741,816
Notes payable		—			188,123
Notes payable— stockholder		681,935			562,345
Total current liabilities		9,115,292			9,188,478

Stockholders’ deficit:	��
Undesignated, 24,000,000 shares		—			—
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;
20,442,651 and 20,157,781 shares issued and outstanding		204,370			201,522
Additional paid-in capital		16,189,698			16,159,995
Accumulated deficit		(22,871,430		)	(22,641,345	)
Deferred compensation		(10,000		)	(318,100	)
Foreign currency translation adjustment		284,912			404,137
Total stockholders’ deficit		(6,200,450		)	(6,191,791	)
Total liabilities and stockholders’ deficit		$	2,914,842		2,996,687

See accompanying notes to unaudited consolidated financial statements.

CORVU CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

Nine Month Periods Ended March 31, 2002 and 2001

	2002			2001

Cash flows from operating activities:
Net loss	$	(229,955	)	(3,113,285	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	44,000			38,434
Warrants and stock options vested	309,646			497,582
Salary forgiven by executive	—			241,586
Changes in operating assets and liabilities:
Trade accounts receivable, net	(45,942		)	2,664,555
Other current assets	(12,537		)	(110,551	)
Accounts payable	110,271			43,253
Accrued compensation and related costs	8,988			(125,658	)
Deferred revenue	(133,925		)	(401,772	)
Accrued interest	64,207			(37,199	)
Other accrued expenses	34,157			298,773
Due to affiliates	—			(23,358	)
Net cash provided (used) in operating activities	148,910			(27,640	)

Cash flows from investing activities:
Capital expenditures	(51,135		)	—
Net cash used in investing activities	(51,135		)	—

Cash flows from financing activities:
Proceeds from sale of common stock, net of costs	19,005			152,604
Repayment of notes payable	(188,123		)	(235,862	)
Borrowings on notes payable— stockholder	169,600			371,950
Repayment on notes payable— stockholder	(59,200		)	(118,706	)
Other	21,190			74,431
Net cash provided (used) by financing activities	(37,528		)	244,417
Effect of exchange rate changes on cash	(532		)	(33,309	)
Net increase (decrease) in cash and cash equivalents	59,715			183,468
Cash and cash equivalents at beginning of period	77,409			46,745
Cash and cash equivalents at end of period	$	137,124		230,213

Conversion of director advance into common stock	$	12,000		—

See accompanying notes to unaudited consolidated financial statements.

CORVU CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations (Unaudited)

Three and Nine Month Periods Ended March 31, 2002 and 2001

	Three Months Ended					Nine Months Ended
	March 31,			March 31,		March 31,		March 31,
	2002			2001		2002		2001

Revenues:
Software and license fees	$	1,250,631		1,363,253		3,783,629		3,464,409
Maintenance, consulting, and other	1,470,233			1,617,228		4,122,713		5,170,408

Total revenues	2,720,864			2,980,481		7,906,342		8,634,817

Operating costs and expenses:
Cost of maintenance, consulting, and other	683,258		��	794,173		2,021,637		2,492,424
Product development	248,965			281,953		804,105		878,646
Sales and marketing	849,330			1,223,277		2,743,143		4,279,330
General and administrative	651,028			950,181		2,447,335		3,979,438

Total operating costs and expenses	2,432,581			3,249,584		8,016,220		11,629,838

Operating income (loss)	288,283			(269,103	)	(109,878	)	(2,995,021	)

Interest expense, net	(47,216		)	(63,224	)	(120,077	)	(118,264	)

Net income (loss)	$	241,067		(332,327	)	(229,955	)	(3,113,285	)

Net Income (loss) per common share-basic	$	.01		(0.02	)	(.01	)	(0.16	)
Weighted average shares-basic	20,442,651			19,692,823		20,321,696		19,589,524
Net Income (loss) per common share-fully diluted	$	.01		(0.02	)	(.01	)	(0.16	)
Weighted average shares-fully diluted	21,501,227			19,692,823		20,321,696		19,589,524

See accompanying notes to unaudited consolidated financial statements.

CORVU CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements For the Three and Nine Month Periods Ended March 31, 2002 and 2001

(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 Income (Loss) per Common Share

Basic income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted income (loss) per common share is computed by dividing net income (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 income (loss) per common share calculations.

(3) Comprehensive Income (Loss)

Comprehensive income (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:

	Three Months Ended						Nine Months Ended
	March 31, 2002			March 31, 2001			March 31, 2002			March 31, 2001
Net Income (Loss)	$	241,067		$	(332,327	)	$	(229,955	)	$	(3,113,285	)
Other comprehensive income (loss):
Foreign currency translation adjustment	(68,751		)	111,993			(119,225		)	184,727
Total comprehensive income (loss)	$	172,316		$	(220,334	)	$	(349,180	)	$	(2,928,558	)

(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 nine-month period ended March 31, 2002, the Company incurred an operating loss of $109,878. As of March 31, 2002, the Company had an accumulated deficit of $22,871,430, total stockholders’ deficit of $6,200,450, and negative working capital of $6,312,658.

Going forward the Company must generate additional cash through profits from operations or otherwise. The Company has now generated net income for two consecutive fiscal quarters, $210,405 for the quarter ended December 31, 2001 and $241,067 for the quarter ended March 31, 2002. Management continues to focus on increasing revenues and/or reducing operating costs, as necessary, which should allow it to generate sufficient cash flows to pay its debts and fund the Company’s future operations.

(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 was secured by substantially all of the assets of the Company. The interest rate on the outstanding principal balance was based on an index defined in the loan agreement plus 7%, with interest due monthly. The balance on this note was paid in full during the period ended December 31, 2001.

(6) Notes Payable- Stockholder

The Company has received interest-bearing advances from a stockholder under term notes. The notes bear interest at 8.5%, are due on demand and expire December 31, 2006. The notes are secured by substantially all of the assets of the Company. These amounts are classified as current liabilities in the accompanying balance sheets.

In December 2001, a director converted the remaining balance under a note ($12,000) into 80,000 shares of common stock at a price of $0.15 per share, the fair market value of the stock on the date of conversion.

(7) Installment Agreement with Internal Revenue Service

In March 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 March 31, 2002, the balance due under this agreement was approximately $348,000, including penalties and accrued interest. The Company is currently paying $50,000 per month on this obligation. 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) Creditor Settlement Agreement

In November 2001 the Company entered into a Stipulation of Settlement agreement with a creditor under which the Company agreed to make quarterly principal payments through December 2003, at which time it would also pay accrued interest on the unpaid principal balance from the date of the agreement to December 2003 at a rate of 9% per annum. In the event of default, the obligation would be accelerated, the interest rate would be increased to 15% and legal fees in the amount of $100,000 would become due. The Company has granted a security interest in the receivables of CorVu North America, Inc. as part of this settlement. As of March 31, 2002, the balance under this obligation, which is included in accounts payable in the accompanying balance sheets, was approximately $834,000, including accrued interest.

(9) Litigation

The Company and its officers and directors are involved in a lawsuit filed by certain shareholders for allegedly providing false and misleading information regarding the historical and future financial performance of the Company. The suit is for an unspecified amount, or in the alternative, rescission of the stock purchase agreements, which was for $1.5 million. The Company has a $3 million Directors and Officers insurance policy that includes entity coverage for securities claims. The Company’s attorney and its insurance carrier are handling the case. The Company believes the suit is without merit and it is vigorously defending the case.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

For the Three and Nine Month Periods Ended March 31, 2002

versus March 31, 2001

REVENUES:

Total revenue for the three and nine-month periods ended March 31, 2002 decreased 9% and 8%, respectively, compared to the same periods a year ago.

Software revenues decreased $112,622 (8%) and increased $319,220 (9%) for the three and nine-month periods ended March 31, 2002, respectively, from the same periods last year. Although there was slight reduction in quarter on quarter revenue, performance for the nine-month period showed an increase of 9% over the comparable period last year. This increase was accomplished in spite of a 28% reduction in staff levels (see discussion of Sales and Marketing expenses below) and reflects an overall improvement in sales performance as it relates to software license sales caused by an improvement in general business economic conditions and increased activity in sales made through partners (resellers and distributors).

Maintenance, consulting and other revenues decreased $146,995 (9%) and $1,047,695 (20%), for the three and nine-month periods ended March 31, 2002, respectively, from the same periods last year. These decreases were caused by (1) an overall reduction in billable hours due to a decreased demand for services and (2) an increase in services delivered at discounted hourly rates based on partner activity and the lower demand for the services. Although we have experienced reductions in revenue when comparing to the prior year, revenue in this area has continued to trend positively throughout the current year. This revenue category showed an increase of 9% from the first quarter (September 30, 2001) to the second quarter (December 31, 2001) which was followed by another increase of 6% from the second quarter to the third quarter ended March 31, 2002.

OPERATING COSTS AND EXPENSES:

Operating expenses decreased $817,003 (25%) and $3,613,618 (31%) for the three and nine-month periods ended March 31, 2002, respectively, from the same periods last year.

Cost of maintenance, consulting and other expenses decreased $110,915 (14%) and $470,787 (19%) for the three and nine-month periods ended March 31, 2002, respectively, from the same periods last year. Expenses in the Americas region alone accounted for decreases of $148,536 and $440,941 for the three and nine-month periods ended March 31, 2002, respectively, from the same periods last year. These decreases are in line with revenue performance in the region reflecting the lower staffing levels required to service consulting engagements, as well as all associated costs.

Product development costs decreased $32,988 (12%) and $74,541 (8%) for the three and nine-month periods ended March 31, 2002, respectively, from the same periods last year. These expenses reflect continued investment in the development of all CorVu products.

Sales and marketing expenses decreased $373,947 (31%) and $1,536,187 (36%) for the three and nine-month periods ended March 31, 2002, respectively, from the same periods last year, due to the lower number of employees working in that sector (28% fewer employees) and other factors such as lower expenditures for remote sales offices, travel expenses, reduction of middle sales management staff, advertising, production of marketing materials, and participation in trade show activities.

General and administrative expenses decreased $299,153 (31%) and $1,532,103 (39%) for the three and nine-month periods ended March 31, 2002, respectively, from the same periods last year. Many factors have contributed to this including an amendment of the chief executive officer’s employment contract, a reduction in audit and tax fees due to a change in the Company’s public accounting firm and overall reductions in travel and general overhead costs.

INTEREST EXPENSE, NET:

Interest expense, net decreased $16,008 (25%) and increased $1,813 (2%) for the three and nine-month periods ended March 31, 2002, respectively, compared to the same periods last year. Interest charges recorded are reflective of settlement agreements currently being serviced with the Internal Revenue Service, a creditor and notes payable- stockholder (see footnotes to unaudited financial statements).

NET INCOME (LOSS):

CorVu Corporation reported net income of $241,067 and incurred a net loss of $229,955 for the three and nine-month periods ended March 31, 2002, respectively, compared to net losses of $332,327 and $3,113,285 for the three and nine-month periods ended March 31, 2001, respectively.

Liquidity and Capital Resources

Total cash and cash equivalents increased by $59,715 during the nine-month period ended March 31, 2002 from $77,409 as of June 30, 2001 to $137,124 as of March 31, 2002. Net cash provided in operating activities was $148,910 for the nine-month period ended March 31, 2002. Net cash used in investing activities was $51,135, reflecting the acquisition of capital assets during the period. Net cash used by financing activities was $37,528 for the nine-month period ended March 31, 2002. Proceeds from the sale of common stock were $19,005, net of costs. In addition, during the nine-month period ended March 31, 2002, the Company repaid $188,123 of an existing note payable. Additionally, the Company received borrowings from a stockholder of approximately $170,000 and repaid amounts under notes payable- stockholder in the amount of $59,200.

In addition, 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) reduce operating costs, as deemed necessary. CorVu’s management believes that these activities will generate sufficient cash flows to sustain CorVu’s operations for the next twelve months.

Critical Accounting Policies and Estimates-

Our significant accounting policies are described in Note 1 to the consolidated financial statements included in our annual report for the year ended June 30, 2001. The accounting policies used in preparing our interim 2002 consolidated financial statements are the same as those described in our annual report.

Our critical accounting policies are those both having the most impact to the reporting of our financial condition and results, and requiring significant judgments and estimates. Our critical accounting policies include those related to (a) revenue recognition and (b) software development costs.

Software development costs are expensed as incurred until technological feasibility is established. Software development costs incurred subsequent to establishing technological feasibility are capitalized and amortized over their estimated useful lives. Management is required to use professional judgment in determining whether development costs meet the criteria for immediate expense or capitalization.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Certain information included in this Form 10-QSB and other materials filed or to be filed with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by us) contain statements that are forward-looking. A number of important factors could, individually or in the aggregate, cause actual results to differ materially from those expressed or implied in any forward-looking statements. Such factors include, but are not limited to, the following: our ability expand into new markets; our ability to execute our expansion strategy; changes in business strategy or development plans; availability and terms of capital; competition. For further information regarding these and other factors, see our Annual Report on Form 10-KSB for the fiscal year ended June 30, 2001.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings.

See Item 2 of Part II of Form 10Q-SB for the quarter ended September 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

Item 5. Other Information.

None

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits: None

(b) Reports on Form 8-K: None

SIGNATURES

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

Date: May 13, 2002	By	/s/ David C. Carlson
			David C. Carlson
			Chief Financial Officer

Corvu (CRVU) Inactive 10QSB2002 Q1 Quarterly report (small business)

Critical Accounting Policies and Estimates-