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, 2003
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) | ||
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Minnesota |
| 41-1457090 |
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3400 West 66th Street | ||
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952-944-7777 | ||
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 March 31, 2003: 22,694,962
CorVu Corporation
Index to Form 10-QSB
1
FINANCIAL INFORMATION
CORVU CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
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| March 31, |
| June 30, |
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| (Unaudited) |
| (Audited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
| $ | 839,339 |
| 279,176 |
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Trade accounts receivable, net of allowance for doubtful accounts of $178,000 and $160,000, respectively |
| 2,587,181 |
| 2,845,858 |
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Deferred income taxes |
| 708,000 |
| — |
| |
Prepaid expenses and other |
| 222,880 |
| 197,851 |
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Total current assets |
| 4,357,400 |
| 3,322,885 |
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Furniture, fixtures and equipment, net |
| 163,351 |
| 99,940 |
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| $ | 4,520,751 |
| 3,422,825 |
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Liabilities and Stockholders’ Deficit |
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Current liabilities: |
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Accounts payable |
| $ | 1,245,591 |
| 2,036,842 |
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Accrued compensation and related costs |
| 2,158,423 |
| 2,527,493 |
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Deferred revenue |
| 3,827,856 |
| 2,872,329 |
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Notes payable-stockholder |
| 685,767 |
| — |
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Accrued interest |
| 161,969 |
| 73,232 |
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Other accrued expenses |
| 708,417 |
| 845,168 |
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Total current liabilities |
| 8,788,023 |
| 8,355,064 |
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Notes payable-stockholder |
| — |
| 685,767 |
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Stockholders’ deficit: |
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Undesignated, 24,000,000 shares |
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| — |
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Series A convertible preferred stock, par value $10 per share; 1,000,000 shares authorized; 0 and 200 shares issued and outstanding |
| — |
| 2,000 |
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Common stock, $0.01 par value; 75,000,000 shares authorized; 22,694,962 and 20,730,835 shares issued and outstanding |
| 226,894 |
| 207,252 |
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Additional paid-in capital |
| 16,693,292 |
| 16,223,744 |
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Stock subscription receivable |
| (324,000 | ) | — |
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Accumulated deficit |
| (20,605,756 | ) | (22,191,944 | ) | |
Foreign currency translation adjustment |
| (257,702 | ) | 140,942 |
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Total stockholders’ deficit |
| (4,267,272 | ) | (5,618,006 | ) | |
Total liabilities and stockholders’ deficit |
| $ | 4,520,751 |
| 3,422,825 |
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See accompanying notes to unaudited consolidated financial statements.
2
CORVU CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Nine Month Periods Ended March 31, 2003 and 2002
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| 2003 |
| 2002 |
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Cash flows from operating activities: |
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Net income (loss) |
| $ | 1,586,658 |
| (229,955 | ) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
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Depreciation |
| 52,764 |
| 44,000 |
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Warrants and stock options vested |
| 64,194 |
| 309,646 |
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Changes in operating assets and liabilities: |
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Trade accounts receivable, net |
| 158,677 |
| (45,942 | ) | |
Deferred income taxes |
| (708,000 | ) | — |
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Prepaid expenses and other |
| (25,029 | ) | (12,537 | ) | |
Accounts payable |
| (941,381 | ) | 110,271 |
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Accrued compensation and related costs |
| (469,070 | ) | 8,988 |
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Deferred revenue |
| 805,527 |
| (133,925 | ) | |
Accrued interest |
| 88,737 |
| 64,207 |
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Other accrued expenses |
| (61,679 | ) | 34,157 |
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Net cash provided by operating activities |
| 551,398 |
| 148,910 |
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Cash flows from investing activities: |
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Capital expenditures |
| (116,175 | ) | (51,135 | ) | |
Net cash used in investing activities |
| (116,175 | ) | (51,135 | ) | |
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Cash flows from financing activities: |
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Proceeds from sale of common stock |
| 100,995 |
| 19,005 |
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Redemption of preferred stock |
| (2,340 | ) | — |
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Repayment of notes payable |
| — |
| (188,123 | ) | |
Borrowings on notes payable— stockholder |
| — |
| 169,600 |
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Repayment on notes payable— stockholder |
| — |
| (59,200 | ) | |
Other |
| — |
| 21,190 |
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Net cash provided (used) by financing activities |
| 98,655 |
| (37,528 | ) | |
Effect of exchange rate changes on cash |
| 26,285 |
| (532 | ) | |
Net increase in cash and cash equivalents |
| 560,163 |
| 59,715 |
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Cash and cash equivalents at beginning of period |
| 279,176 |
| 77,409 |
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Cash and cash equivalents at end of period |
| $ | 839,339 |
| 137,124 |
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Non-cash investing and financing activities: |
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Common stock issued for stock subscription receivable |
| $ | 324,000 |
| — |
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Cashless exercise of stock warrants |
| $ | 4,888 |
| — |
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Conversion of director advance into common stock |
| $ | — |
| 12,000 |
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See accompanying notes to unaudited consolidated financial statements.
3
CORVU CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
Three and Nine Month Periods Ended March 31, 2003 and 2002
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| Three Months Ended |
| Nine Months Ended |
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| March 31, |
| March 31, |
| March 31, |
| March 31, |
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Revenues: |
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Software and license fees |
| $ | 961,155 |
| 1,250,631 |
| 5,733,054 |
| 3,783,629 |
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Maintenance, consulting, and other |
| 2,211,685 |
| 1,470,233 |
| 5,776,228 |
| 4,122,713 |
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Total revenues |
| 3,172,840 |
| 2,720,864 |
| 11,509,282 |
| 7,906,342 |
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Operating costs and expenses: |
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Cost of maintenance, consulting, and other |
| 745,341 |
| 683,258 |
| 2,300,093 |
| 2,021,637 |
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Product development |
| 325,241 |
| 248,965 |
| 935,835 |
| 804,105 |
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Sales and marketing |
| 1,438,159 |
| 849,330 |
| 4,255,417 |
| 2,743,143 |
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General and administrative |
| 1,034,736 |
| 651,028 |
| 3,077,480 |
| 2,447,335 |
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Total operating costs and expenses |
| 3,543,477 |
| 2,432,581 |
| 10,568,825 |
| 8,016,220 |
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Operating income (loss) |
| (370,637 | ) | 288,283 |
| 940,457 |
| (109,878 | ) | |
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Interest expense, net |
| (11,580 | ) | (47,216 | ) | (61,799 | ) | (120,077 | ) | |
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Income (loss) before income taxes |
| (382,217 | ) | 241,067 |
| 878,658 |
| (229,955 | ) | |
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Benefit from income taxes |
| — |
| — |
| 708,000 |
| — |
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Net income (loss) |
| $ | (382,217 | ) | 241,067 |
| 1,586,658 |
| (229,955 | ) |
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Net income (loss) per common share—basic |
| $ | (0.02 | ) | 0.01 |
| 0.07 |
| (0.01 | ) |
Weighted average shares outstanding—basic |
| 22,694,554 |
| 20,442,651 |
| 22,030,901 |
| 20,321,696 |
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Net income (loss) per common share—diluted |
| $ | (0.02 | ) | 0.01 |
| 0.07 |
| (0.01 | ) |
Weighted average shares outstanding—diluted |
| 22,694,554 |
| 21,501,227 |
| 22,809,208 |
| 20,321,696 |
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See accompanying notes to unaudited consolidated financial statements.
4
CORVU CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements For the Three and Nine Month Periods Ended March 31, 2003 and 2002
(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 consolidated 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.
Operating results for the three and nine months ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending June 30, 2003. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-KSB for the year ended June 30, 2002.
(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.
5
(b) Net Income (Loss) per Common Share
Basic net 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 net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus all additional common stock that would have been outstanding if potentially dilutive common stock related to stock options and warrants had been issued. Weighted average shares outstanding-diluted includes 778,307 shares of dilutive securities for the nine months ended March 31, 2003. Weighted average shares outstanding-diluted includes 1,058,576 shares of dilutive securities for the three months ended March 31, 2002. Dilutive common equivalent shares have not been included in the computation of diluted net loss per share for the three months ended March 31, 2003 and the nine months ended March 31, 2002 because their inclusion would be anti-dilutive.
Following is a reconciliation of basic and diluted net income (loss) per common share for the three and nine months ended March 31, 2003 and 2002, respectively:
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| Three Months Ended |
| Nine Months Ended |
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| 2003 |
| 2002 |
| 2003 |
| 2002 |
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Net income (loss) |
| $ | (382,217 | ) | 241,067 |
| 1,586,658 |
| (229,955 | ) |
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Weighted average shares outstanding |
| 22,694,554 |
| 20,442,651 |
| 22,030,901 |
| 20,321,696 |
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Net income (loss) per common share— basic |
| $ | (0.02 | ) | 0.01 |
| 0.07 |
| (0.01 | ) |
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Net income (loss) per common share — diluted: |
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Net income (loss) |
| $ | (382,217 | ) | 241,067 |
| 1,586,658 |
| (229,955 | ) |
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Weighted average shares outstanding |
| 22,694,554 |
| 20,442,651 |
| 22,030,901 |
| 20,321,696 |
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Common stock equivalents |
| 0 |
| 1,058,576 |
| 778,307 |
| 0 |
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Weighted average shares and potential diluted shares outstanding |
| 22,694,554 |
| 21,501,227 |
| 22,809,208 |
| 20,321,696 |
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Net income (loss) per common share — Diluted |
| $ | (0.02 | ) | 0.01 |
| 0.07 |
| (0.01 | ) |
The Company uses the treasury method for calculating the dilutive effect of the stock options and warrants (using the average market price).
6
Options and warrants to purchase 4,187,077 shares of common stock with a weighted average exercise price of $2.25 were outstanding at March 31, 2003 but were excluded from the computation of common share equivalents for the nine months ended March 31, 2003 because their exercise prices were greater than the average market price of the common shares. All options and warrants outstanding at March 31, 2003 were excluded from the computation of common share equivalents for the three months ended March 31, 2003 as they were anti-dilutive. All options and warrants outstanding as of March 31, 2002 were excluded from the computation of common stock equivalents for the nine months ended March 31, 2002 as they were anti-dilutive. Options and warrants to purchase 6,527,104 shares of common stock with a weighted average exercise price of $3.90 were outstanding at March 31, 2002 but were excluded from the computation of common share equivalents for the three months ended March 31, 2002 because their exercise prices were greater than the average market price of the common shares.
(c) Stock-Based Compensation
In accordance with Accounting Principles Board (APB) Opinion No. 25 and related interpretations, the Company uses the intrinsic value-based method for measuring stock-based compensation cost which measures compensation cost as the excess, if any, of quoted market price of the Company’s common stock at the grant date over the amount the employee must pay for the stock. The Company’s general policy is to grant stock options at fair value at the date of grant. Options and warrants issued to non-employees are recorded at fair value, as required by Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation”, using the Black Scholes pricing method.
Has compensation cost been recognized based on the fair values of options at the grant dates consistent with the provisions of SFAS No. 123, the Company’s net income (loss) and basic and diluted net income (loss) per common share would have been changed to the following pro forma amounts:
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| Three Months Ended |
| Nine Months Ended |
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| 2003 |
| 2002 |
| 2003 |
| 2002 |
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Net income (loss): |
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As reported |
| $ | (382,217 | ) | 241,067 |
| 1,586,658 |
| (229,955 | ) |
Pro forma |
| (468,658 | ) | 27,959 |
| 1,281,289 |
| (869,280 | ) | |
Basic net income (loss) per common share: |
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As reported |
| (0.02 | ) | 0.01 |
| 0.07 |
| (0.01 | ) | |
Pro forma |
| (0.02 | ) | 0.00 |
| 0.06 |
| (0.04 | ) | |
Diluted net income (loss) per common share: |
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As reported |
| (0.02 | ) | 0.01 |
| 0.07 |
| (0.01 | ) | |
Pro forma |
| (0.02 | ) | 0.00 |
| 0.06 |
| (0.04 | ) | |
Stock based compensation: |
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As reported |
| 0 |
| 0 |
| 17,385 |
| 309,646 |
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Pro forma |
| 86,441 |
| 213,108 |
| 305,369 |
| 639,325 |
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In determining the compensation cost of options granted during the three and nine months ended March 31, 2003 and 2002, as specified by SFAS No. 123, the fair value of each option grant has been estimated on the date of grant using the Black-Scholes option pricing model and the weighted average assumptions used in these calculations are summarized as follows:
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| Three Months Ended |
| Nine Months Ended |
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| 2003 |
| 2002 |
| 2003 |
| 2002 |
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Risk-free interest rate |
| 4.000 |
| 4.875 |
| 4.000 |
| 5.000 |
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Expected life of options granted |
| 7 years |
| 7 years |
| 7 years |
| 7 years |
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Expected volatility |
| 188 | % | 188 | % | 188 | % | 188 | % |
Expected dividend yield |
| 0 | % | 0 | % | 0 | % | 0 | % |
7
(3) Comprehensive Income (Loss)
Comprehensive income (loss) and its components consist of the following::
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| Three Months Ended |
| Nine Months Ended |
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|
| March 31, |
| March 31, |
| March 31, |
| March 31, |
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Net income (loss) |
| $ | (382,217 | ) | 241,067 |
| 1,586,658 |
| $ | (229,955 | ) | ||
Other comprehensive income (loss): |
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Foreign currency translation adjustment |
| (265,009 | ) | (68,751 | ) | (398,644 | ) | (119,225 | ) | ||||
Comprehensive income (loss) |
| $ | (647,226 | ) | $ | 172,316 |
| $ | 1,188,014 |
| $ | (349,180 | ) |
(4) Income Taxes
At March 31, 2003, the Company has U.S. net operating loss carryforwards of approximately $8.3 million. The net operating loss carryforwards expire in the years 2010 through 2021. The Company recorded a deferred tax asset of $708,000 for the three months ended December 31, 2002. Previous to the three months ended December 31, 2002, the Company fully reserved the deferred tax asset due to the uncertainty of its use in future periods.
Federal tax laws impose significant restrictions on the utilization of net operating loss carryforwards in the event of a change in ownership of the Company which constitutes an “ownership change,” as defined by the Internal Revenue Code, Section 382. The Company’s net operating loss carryforward may be subject to the above limitations.
(5) Liquidity
The accompanying interim consolidated financial statements are prepared assuming the Company will continue as a going concern. During the year ended June 30, 2002, the Company generated operating income of $605,491. Subsequently, for the nine-month period ended March 31, 2003, the Company generated operating income of $940,457. As of March 31, 2003, the Company had an accumulated deficit of $20,605,756, total stockholders’ deficit of $4,267,272, and negative working capital of $4,430,623.
8
During the past eighteen months, the Company has completely repaid the amount due to the Internal Revenue Service ($930,000) and has also significantly reduced the amount due under a Creditor Settlement Agreement (from $976,000 to $200,000 as of March 31, 2003). Payments have been funded with current operating capital. During the nine month period ended March 31, 2003, the Company generated consolidated revenues of approximately $11.5 million and net income of approximately $1.5 million. Management continues to focus on increasing revenues and carefully managing operating costs. Management projects that over the next twelve months the Company will generate sufficient cash flow to meet its obligations and fund its operations.
(6) Notes Payable- Stockholder
The Company has received interest-bearing advances from a stockholder under short-term notes. The notes bear interest at 8.5% and mature on December 31, 2006, with the right to demand payment on or after September 30, 2003. The notes are secured by substantially all of the assets of the Company. Interest expense was $15,393 and $15,813 for the three month periods ended March 31, 2003 and 2002, respectively and was $44,846 and $45,426 for the nine month periods ended March 31, 2003 and 2002, respectively.
(7) Creditor Settlement Agreement
In November 2001 the Company entered into a Stipulation of Settlement agreement with a creditor for approximately $976,000 under which the Company agreed to make quarterly 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 is accelerated, the interest rate is increased to 15% and legal fees in the amount of $100,000 become due. The Company has also granted a security interest in the receivables of CorVu North America, Inc. as part of this settlement. As of March 31, 2003, the balance under this obligation, which is included in accounts payable in the accompanying balance sheets, was approximately $278,000, including accrued interest. Interest expense was $7,741 and $18,737 for the three month periods ended March 31, 2003 and 2002, respectively and was $34,111 and $32,887 nine month periods ended March 31, 2003 and 2002, respectively.
9
(8) Consulting Agreement
In September 2002, the Company entered into a consulting agreement with GlobalNet Venture Partners, L.L.C. (GlobalNet) to provide management advisory services for a period of 30 months. In exchange for these services, the Company will pay GlobalNet a fee of $26,500 per month. In addition, GlobalNet can earn additional fees under the agreement as a result of its involvement in obtaining financing and for introducing and developing strategic partnerships that result in revenue to the Company. The agreement can be terminated by either party upon 60 days written notice. As part of the services to be provided under this agreement, a principal of GlobalNet agreed to serve as the Company’s Chairman of the Board for a period of 24 months.
(9) Stock Purchase
In September 2002, the Company sold 1.2 million shares of the Company’s common stock to GlobalNet at a price of $0.27 per share under a stock purchase agreement. GlobalNet paid the entire purchase price by delivering a promissory note to the Company and pledged the stock purchased as security for the note. The note, which expires in September 2009, bears an interest rate of 5.5% per annum through September 2, 2009, with interest payable quarterly starting September 30, 2002. The note is a limited recourse note in that in the event of non-payment, the Company’s only recourse is against the pledged shares.
10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the Three and Nine Month Periods Ended March 31, 2003
versus March 31, 2002
REVENUES:
Total revenue for the three and nine-month periods ended March 31, 2003 increased 17% and 46%, respectively, compared to the same periods a year ago.
Software revenues decreased $289,476 (23%) for the three month period ended March 31, 2003 and increased $1,949,425 (52%) for the nine month period ended March 31, 2003, from the same periods last year. Results for the nine month period ended March 31, 2003 continue to compare favorably to the prior year due to increased demand for our products. Results for the three months ended March 31, 2003 were less than in the comparable period of the previous year due to business uncertainty due in part to the unsettled situation in the Middle East.
Maintenance, consulting and other revenues increased $741,452 (50%) and $1,653,515 (40%), for the three and nine-month periods ended March 31, 2003, respectively, from the same periods last year. These results reflect continued improvement of maintenance contract renewals and collections, as well as increased utilization of our professional services personnel required to service the increased demand for consulting and training services.
OPERATING COSTS AND EXPENSES:
Operating expenses increased $1,110,896 (46%) and $2,552,605 (32%) for the three and nine-month periods ended March 31, 2003, respectively, from the same periods last year.
Cost of maintenance, consulting and other expenses increased $62,083 (9%) and $278,456 (14%) for the three and nine-month periods ended March 31, 2003, respectively, from the same periods last year. Increased demand for our services caused primarily by the increased software license fees has caused us to increase staffing levels.
Product development costs increased $76,276 (31%) and $131,730 (16%) for the three and nine-month periods ended March 31, 2003, respectively, from the same periods last year. Development staffing has increased by 19% (3 positions) as we continue to further enhance and improve our product offerings.
Sales and marketing expenses increased $588,829 (69%) and $1,512,274 (55%) for the three and nine-month periods ended March 31 2003, respectively, from the same periods last year. These increases are the result of a 40% increase in new sales positions (an increase of 13 positions) and increased sales commissions expenses (116%, or $370,000, for the nine month period ended March 31, 2003) as a result of our increasing revenues from both software license fees and professional services. In addition, other increases have occurred in sales related expenses, such as travel expenses, and in marketing expenses, due to our increased activities in business shows and performance management and balanced scorecard seminars.
General and administrative expenses increased $383,708 (59%) and $630,145 (26%) for the three and nine-month periods ended March 31, 2003, respectively, from the same periods last year. Due to our profitable results for our fiscal year 2003, the bonus earned by our chief executive officer ($179,000) has contributed to the increase for the nine month period ended March 31, 2003. In addition, expenses were incurred during the three and nine month periods ended March 31, 2003 as a result of the consulting agreement with GlobalNet Venture Partners, L.L.C.
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INTEREST EXPENSE, NET:
Interest expense, net decreased $35,636 (75%) and $58,278 (49%) for the three and nine-month periods ended March 31, 2003, respectively, compared to the same periods last year due to lower debt levels.
BENEFIT FROM INCOME TAXES:
For the nine month period ended March 31, 2003, the Company recorded a deferred tax asset of $708,000. In previous periods, the Company had fully reserved the deferred tax asset due to the uncertainty of its use in future periods.
NET INCOME (LOSS):
CorVu Corporation reported a net loss of $382,217 for the three month period ended March 31, 2003 and net income of $1,586,658 for the nine month period ended March 31, 2003, respectively, compared to net income of $241,067 and a net loss of $229,955 for the three and nine-month periods ended March 31, 2002, respectively. Results for the nine month period ended March 31, 2003 includes a benefit for income taxes related to a deferred tax asset of $708,000 which represents the value of its accumulated net operating losses that will be utilized in future periods to offset federal and state income taxes, due to the Company's continuing positive financial performance.
Liquidity and Capital Resources
Total cash and cash equivalents increased by $560,163 during the nine-month period ended March 31, 2003 from $279,176 as of June 30, 2002 to $839,339 as of March 31, 2003. Net cash provided by operating activities was $551,398 for the nine-month period ended March 31, 2003. Net cash used in investing activities was $116,175, reflecting the acquisition of capital assets during the period. Net cash provided by financing activities was $98,655 for the nine-month period ended March 31, 2003, reflecting the proceeds from the sale of common stock.
During the nine month period ended March 31, 2003, the Company has generated consolidated revenues of approximately $11.5 million and net income of approximately $1.5 million. Management intends to continue to increase revenues from software licenses and other revenue sources, and to carefully manage operating costs. Management believes these activities will generate sufficient cash flows to sustain CorVu’s operations for the next twelve months.
(1) 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, 2002. The accounting policies used in preparing our interim 2003 consolidated financial statements are the same as those described in our annual report, and are as follows:
We believe the critical accounting policies listed below affect significant judgments and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition. We recognize revenues in accordance with the provisions of the American Institute of Certified Public Accountants’ Statement of Position (SOP) 97-2, “Software Revenue Recognition,” as amended by SOP 98-4 and SOP 98-9, as well as Technical Practice Aids issued from time to time by the American Institute of Certified Public Accountants, and in accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements.” We license software under non-cancelable license agreements and provide related professional services, including consulting, training, and implementation services, as well as ongoing customer support and maintenance. Consulting, training and implementation services are not essential to the functionality of our software
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products, are sold separately and also are available from a number of third-party service providers. Accordingly, revenues from these services are generally recorded separately from the license fee. Our specific revenue recognition policies are as follows:
Software License Fees — Software license fee revenues from end-users and resellers are generally recognized when there is an executed license agreement, software has been delivered to the customer, the license fee is fixed and payable within 12 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, Consulting and other - Revenues from training and consulting services are recognized as services are provided to customers. Revenues from maintenance contracts are deferred and recognized ratably over the term of the maintenance agreements.
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.
Allowance for Doubtful Accounts. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required or revenue could be deferred until collectibility becomes probable.
Contingencies. We are subject to the possibility of various loss contingencies in the normal course of business. We accrue for loss contingencies when a loss is estimable and probable.
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Cautionary Factors That May Affect Future Results
This Quarterly Report on Form 10-QSB, including the information incorporated by reference herein and the exhibits hereto, and other written and oral statements made from time to time by us may include “forward-looking” statements. Forward-looking statements broadly involve our current expectations for future results. Any statement that is not a historical fact, including estimates, projections, future trends and the outcome of events that have not yet occurred, are forward-looking statements. Our forward-looking statements generally relate to our financing plans, trends affecting our financial condition or results of operations, our growth and operating strategy, product development, competitive strengths, the scope of our intellectual property rights, sales efforts, and the declaration and payment of dividends. Words such as “anticipates,” “believes,” “could” “estimates,” “expects,” “forecast,” “intend,” “may,” “plan,” “possible,” “project,” “should,” “will” and similar expressions generally identify our forward-looking statements. You must carefully consider forward-looking statements and understand that such statements involve a variety of assumptions, risks and uncertainties, known and unknown, and may be affected by a number of factors, including, among others, the factors discussed in our Annual Report on Form 10-KSB for the year ended June 30, 2002.
We also caution you that forward-looking statements speak only as of the date made. We undertake no obligation to update any forward-looking statement, but investors are advised to consult any further disclosures by us on this subject in our filings with the Securities and Exchange Commission, especially on Forms 10-KSB, 10-QSB, and 8-K (if any), in which we discuss in more detail various important factors that could cause actual results to differ from expected or historic results. We intend to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 regarding our forward-looking statements, and are including this sentence for the express purpose of enabling us to use the protections of the safe harbor with respect to all forward-looking statements.
Item 3. Controls and Procedures
Within 90 days prior to the filing of this quarterly report, the Company’s Chief Executive Officer and its Chief Financial Officer evaluated the Company’s disclosure controls and procedures as required pursuant to Rule 13a-14 under the Securities and Exchange Act of 1934, as amended. Based on this evaluation, the Chief Executive Officer and its Chief Financial Officer determined that such controls and procedures were effective. There were no significant changes in internal controls that could significantly affect the disclosure controls and procedures since the date of the evaluation.
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OTHER INFORMATION
Item 1. Legal Proceedings.
See Item 3 of Part II of Form 10-KSB for the year ended June 30, 2002.
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.
(a) The Annual Meeting of the Company’s shareholders was held on February 3, 2003.
(b) At the Annual Meeting a proposal to set the number of directors at six was adopted by a vote of 17,906,938 shares in favor, with 17,326 shares against, 52,500 shares abstaining and no shares represented by broker nonvotes.
(c) Proxies for the Annual Meeting were solicited pursuant to Regulation A under the Securities Exchange Act of 1934, there was no solicitation in opposition to management’s nominees, and the following persons were elected directors of the Company to serve until the next annual meeting of shareholders and until their successors shall have been duly elected and qualified:
Nominee |
| Number of Votes For |
| Number of Votes Against |
| Number of Votes Withheld |
|
John Bohn |
| 17,970,864 |
| 0 |
| 5,900 |
|
David C. Carlson |
| 17,970,864 |
| 0 |
| 5,900 |
|
Ismail Kurdi |
| 17,970,864 |
| 0 |
| 5,900 |
|
Justin M. MacIntosh |
| 17,961,888 |
| 8,976 |
| 5,900 |
|
James L. Mandel |
| 17,970,864 |
| 0 |
| 5,900 |
|
Alan M. Missroon, Jr. |
| 17,961,888 |
| 8,976 |
| 5,900 |
|
(d) The selection of Virchow, Krause & Company, LLP as the Company’s independent auditors for the current fiscal year was approved by a vote of 17,891,538 shares in favor, with 5,200 shares against, 80,026 shares abstaining and no shares represented by broker nonvotes.
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: See Exhibit Index on page following Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K: None
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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.
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| CORVU CORPORATION | |
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Date: April 29, 2003 | By | /s/ David C. Carlson |
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| David C. Carlson | |
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| Chief Financial Officer | |
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CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Justin M. MacIntosh, Chief Executive Officer of CorVu Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of CorVu Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function);
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Dated: April 29, 2003 | Signature: | /s/ Justin M. MacIntosh |
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| Justin M. MacIntosh | |
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| Chief Executive Officer | |
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CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David C. Carlson, Chief Financial Officer of CorVu Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of CorVu Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function);
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Dated: April 29, 2003 | Signature: | /s/ David C. Carlson |
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| David C. Carlson | |
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| Chief Financial Officer | |
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EXHIBIT INDEX
Exhibit
Number Description
99.1 Certification of CEO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002
99.2 Certification of CFO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002
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