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U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT UNDER SECTION 13 OF 15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 2003
OR
|_| 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
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(Exact name of registrant as specified in its charter)
Minnesota 41-1457090
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(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 |X| No |_|
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 January 31, 2004: 23,581,017
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CorVu Corporation
Index to Form 10-QSB
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets December 31, 2003 (Unaudited) and June 30, 2003
Consolidated Statements of Cash Flows (Unaudited) Six Month Periods Ended December 31, 2003 and 2002
Consolidated Statements of Operations (Unaudited) Three and Six Month Periods Ended December 31, 2003 and 2002
Notes to Unaudited Consolidated Financial Statements For the Three and Six Month Periods Ended December 31, 2003 and 2002
Item 2. Management's Discussion and Analysis or Plan of Operations
Item 3. Controls and Procedures
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
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
EXHIBITS
1
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
CORVU CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, June 30,
2003 2003
--------------------- --------------------
(Unaudited) (Audited)
Assets
Current assets:
Cash and cash equivalents $ 655,652 643,346
Trade accounts receivable, net of allowance for doubtful accounts of $205,000 and
$183,000, respectively 4,101,609 3,294,193
Deferred income taxes 1,137,000 1,137,000
Prepaid expenses and other 405,628 346,490
--------------------- --------------------
Total current assets 6,299,889 5,421,029
Furniture, fixtures and equipment, net 163,027 161,381
Deferred income taxes 1,478,000 1,478,000
--------------------- --------------------
$ 7,940,916 7,060,410
===================== ====================
Liabilities and Stockholders' Deficit
Current liabilities:
Line of credit $ 300,000 250,000
Accounts payable 1,456,844 1,061,768
Accrued compensation and related costs 1,864,895 1,973,304
Deferred revenue 5,336,115 4,438,724
Accrued interest 110,423 168,664
Other accrued expenses 835,463 853,999
--------------------- --------------------
Total current liabilities 9,903,740 8,746,459
--------------------- --------------------
Notes payable-stockholder 726,884 685,767
--------------------- --------------------
Stockholders' deficit:
Undesignated, 24,000,000 shares --
Series A convertible preferred stock, par value $10 per share; 1,000,000 shares
authorized; none issued and outstanding -- --
Common stock, $0.01 par value; 75,000,000 shares authorized; 23,510,350 and
22,753,029 shares issued and outstanding 235,103 227,474
Additional paid-in capital 17,803,710 16,886,375
Stock subscription receivable -- (324,000)
Accumulated deficit (19,845,700) (18,509,486)
Deferred compensation (53,766) (131,250)
Foreign currency translation adjustment (829,055) (520,929)
--------------------- --------------------
Total stockholders' deficit (2,689,708) (2,371,816)
--------------------- --------------------
Total liabilities and stockholders' deficit $ 7,940,916 7,060,410
===================== ====================
See accompanying notes to unaudited consolidated financial statements.
2
CORVU CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Six Month Periods Ended December 31, 2003 and 2002
2003 2002
----------------- -----------------
Cash flows from operating activities:
Net income (loss) $ (1,182,214) 1,968,875
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation 67,857 29,206
Warrants and stock options vested 108,504 64,194
Changes in operating assets and liabilities:
Trade accounts receivable, net (557,416) (304,502)
Deferred income taxes -- (708,000)
Prepaid expenses and other (59,138) 93,523
Accounts payable 95,076 (936,367)
Accrued compensation and related costs (183,409) (420,062)
Deferred revenue 647,391 536,015
Accrued interest (58,241) 104,672
Other accrued expenses 81,780 (148,943)
----------------- -----------------
Net cash provided by (used in) operating activities (1,039,810) 278,611
----------------- -----------------
Cash flows from investing activities:
Capital expenditures (69,503) (95,204)
----------------- -----------------
Net cash used in investing activities (69,503) (95,204)
----------------- -----------------
Cash flows from financing activities:
Proceeds from sale of common stock, net 1,201,680 100,000
Exercise of employee stock options 16,264 800
Repurchase of common stock (154,000) --
Increase in line of credit 50,000 --
----------------- -----------------
Net cash provided by financing activities 1,113,944 100,800
Effect of exchange rate changes on cash 7,675 112
----------------- -----------------
Net increase in cash and cash equivalents 12,306 284,319
Cash and cash equivalents at beginning of period 643,346 279,176
----------------- -----------------
Cash and cash equivalents at end of period $ 655,652 563,495
================= =================
Supplemental cash flow disclosures:
Cash paid during the period for interest $ 104,993 $ --
Cash paid during the period for taxes -- --
================= =================
Non-cash investing and financing activities:
Common stock issued for (cancellation of) stock subscription receivable $ (324,000) 324,000
Cashless exercise of stock warrants -- 4,888
================= =================
See accompanying notes to unaudited consolidated financial statements.
3
CORVU CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
Three and Six Month Periods Ended December 31, 2003 and 2002
Three Months Ended Six Months Ended
--------------------------------------- ---------------------------------------
December 31, December 31, December 31, December 31,
2003 2002 2003 2002
------------------- ------------------- ------------------- -------------------
Revenues:
Software and license fees $ 1,784,213 2,136,925 3,178,619 4,771,899
Maintenance fees 1,192,107 1,066,573 2,451,022 1,971,126
Consulting and other 967,347 688,392 1,901,920 1,593,417
------------------- ------------------- ------------------- -------------------
Total revenues 3,943,667 3,891,890 7,531,561 8,336,442
------------------- ------------------- ------------------- -------------------
Operating costs and expenses:
Cost of maintenance, consulting, and other 853,931 825,187 1,666,569 1,554,752
Product development 448,926 328,359 893,767 610,594
Sales and marketing 2,074,984 1,530,223 3,744,555 2,817,258
General and administrative 1,341,504 955,498 2,367,216 2,042,744
------------------- ------------------- ------------------- -------------------
Total operating costs and expenses 4,719,345 3,639,267 8,672,107 7,025,348
------------------- ------------------- ------------------- -------------------
Operating income (loss) (775,678) 252,623 (1,140,546) 1,311,094
Interest expense, net (21,359) (22,680) (41,668) (50,219)
------------------- ------------------- ------------------- -------------------
Income (loss) before income taxes (797,037) 229,943 (1,182,214) 1,260,875
Benefit from income taxes -- 708,000 -- 708,000
------------------- ------------------- ------------------- -------------------
Net income (loss) $ (797,037) 937,943 (1,182,214) 1,968,875
=================== =================== =================== ===================
Net income (loss) per common share--basic $ (0.04) 0.04 (0.05) 0.09
Weighted average shares outstanding--basic 22,448,705 22,277,197 22,369,380 21,693,305
Net income (loss) per common share--diluted $ (0.04) 0.04 (0.05) 0.09
Weighted average shares outstanding--diluted 22,448,705 23,246,834 22,369,380 22,765,184
See accompanying notes to unaudited consolidated financial statements.
4
CORVU CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements for the
Three and Six Month Periods Ended December 31, 2003 and 2002
(1) Unaudited Financial Statements
The accompanying unaudited consolidated financial statements of CorVu
Corporation and Subsidiaries (the Company) 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 six months ended December 31, 2003
are not necessarily indicative of the results that may be expected for
the year ending June 30, 2004. 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, 2003.
(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 969,637 and 1,071,879 shares of
dilutive securities for the three and six month periods ended December
31, 2002, respectively. Dilutive common equivalent shares have not been
included in the computation of diluted net loss per common share for
the three and six month periods ended December 31, 2003 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 six months ended December 31, 2003
and 2002, respectively:
Three Months Ended Six Months Ended
December 31, December 31,
----------------------------------- ----------------------------------
2003 2002 2003 2002
---------------- ----------------- ---------------- ----------------
Net income (loss) $ (797,037) 937,943 (1,182,214) 1,968,875
Weighted average shares outstanding 22,448,705 22,277,197 22,369,380 21,693,305
Net income (loss) per common share--basic $ (0.04) 0.04 (0.05) 0.09
Net income (loss) per common share -- diluted:
Net income (loss) $ (797,037) 937,943 (1,182,214) 1,968,875
Weighted average shares outstanding 22,448,705 22,277,197 22,369,380 21,693,305
Common stock equivalents 0 969,637 0 1,071,879
Weighted average shares and potential
diluted shares outstanding 22,448,705 23,246,834 22,369,380 22,765,184
Net income (loss) per common share--
Diluted $ (0.04) 0.04 (0.05) 0.09
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 4,205,077 shares of common stock with
a weighted average exercise price of $2.24 were outstanding at December
31, 2002 but were excluded from the computation of common share
equivalents for the three and six months ended December 31, 2002
because their exercise prices were greater than the average market
price of the common shares. Options and warrants outstanding at
December 31, 2003 totaling 7,681,973 were excluded from the computation
of common share equivalents for the three and six month periods ended
December 31, 2003 as they were anti-dilutive.
(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 value 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:
Three Months Ended Six Months Ended
December 31, December 31,
----------------------------------- ----------------------------------
2003 2002 2003 2002
---------------- ----------------- ---------------- ----------------
Net income (loss):
As reported $ (797,037) 937,943 (1,182,214) 1,968,875
Pro forma (853,173) 811,676 (1,286,043) 1,716,814
Basic net income (loss) per common share:
As reported (0.04) 0.04 (0.05) 0.09
Pro forma (0.04) 0.04 (0.06) 0.08
Diluted net income (loss) per common share:
As reported (0.04) 0.04 (0.05) 0.09
Pro forma (0.04) 0.03 (0.06) 0.08
Stock based compensation:
As reported 97,516 0 108,504 64,194
Pro forma 56,136 126,267 103,829 252,061
In determining the compensation cost of options granted during the
three and six months ended December 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 pricing model and the
weighted average assumptions used in these calculations are summarized
as follows:
Three Months Ended Six Months Ended
December 31, December 31,
----------------------------------- ----------------------------------
2003 2002 2003 2002
---------------- ----------------- ---------------- ----------------
Risk-free interest rate 3.25% 2.625-4.375% 2.625-3.25% 2.625-4.375%
Expected life of options granted 7 years 7 years 7 years 7 years
Expected volatility 84% 84% 84% 84%
Expected dividend yield 0% 0% 0% 0%
7
(3) Comprehensive Income (Loss)
Comprehensive income (loss) and its components consist of the
following::
Three Months Ended Six Months Ended
-------------------------------------- -------------------------------------
December 31, December 31, December 31, December 31,
2003 2002 2003 2002
------------------ ------------------ ----------------- ------------------
Net income (loss) $ (797,037) 937,943 (1,182,214) $ 1,968,875
Other comprehensive loss:
Foreign currency translation
adjustment (281,460) (59,636) (308,126) (133,635)
------------------ ------------------ ----------------- ------------------
Comprehensive income (loss) $ (1,078,497) $ 878,307 $ (1,490,340) $ 1,835,240
================== ================== ================= ==================
(4) Income Taxes
Through June 30, 2003, the Company has U.S. net operating loss
carryforwards of approximately $5,480,000. The net operating loss
carryforwards expire in the years 2010 through 2021. The Company
recorded a deferred tax asset of $2,615,000 as of June 30, 2003.
Previous to that time, the Company fully reserved the deferred tax
asset due to the uncertainty of its use in future periods. The Company
continues to evaluate the deferred tax asset and will record a
valuation allowance accordingly.
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) 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 after December 31,
2004. The notes are secured by substantially all of the assets of the
Company. Interest expense was $15,384 and $14,932 for the three month
periods ended December 31, 2003 and 2002, respectively and was $32,638
and $29,453 for the six month periods ended December 31, 2003 and 2002,
respectively.
(6) Line of Credit
In April 2003, the Company entered into a one-year revolving line of
credit agreement with a bank with a credit limit of $300,000. The line
of credit carries an interest rate based on the prime rate plus 2%
(6.0% at December 31, 2003), is secured by the assets of its
wholly-owned subsidiary CorVu North America, Inc. and is guaranteed by
the Company. The amount outstanding as of December 31, 2003 and June
30, 2003 was $300,000 and $250,000, respectively, which is included in
the accompanying consolidated balance sheets. Interest expense was
$2,933 and $6,252 for the three and six month periods ended December
31, 2003, respectively, which is included in interest expense in the
accompanying consolidated statements of operations.
8
(7) 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 paid GlobalNet a fee of $26,500 per month. In
addition, GlobalNet could 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 could 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.
On July 1, 2003, the Company entered into a restructuring agreement
with GlobalNet pursuant to which GlobalNet ceased to provide monthly
consulting services to the Company. As part of the restructuring
agreement, the principal of GlobalNet who was serving as the Company's
Chairman of the Board resigned from that position effective July 31,
2003. In addition, the Company repurchased 560,000 shares of the
Company's common stock that was previously held by GlobalNet for a
price of $0.27 per share by canceling $151,200 of the promissory note
that existed between the two parties and adjusting the balance of the
note to $172,800.
(8) 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 carried an interest rate
of 5.5% per annum through September 2, 2009, with interest payable
quarterly starting September 30, 2002. The note was a limited recourse
note in that in the event of non-payment, the Company's only recourse
was against the pledged shares.
On September 15, 2003, under separate agreements, the Company exercised
its option to repurchase 440,000 shares at a price of $0.62 per share
from GlobalNet by reducing the principal balance of the promissory note
held by $118,800 and agreeing to make cash payments totaling $154,000.
In addition, for the remaining 200,000 shares of common stock held by
GlobalNet, the Company converted those shares into 112,903 fully paid
shares by reducing the remaining principal balance under the promissory
note ($54,000) to zero.
(9) Sale of Common Stock
During the quarter ended December 31, 2003, the Company sold 1,800,001
shares of common stock at a price of $0.75 per share to several
accredited investors under a private placement, the proceeds of which
totaled approximately $1.2 million, net of associated expenses. In
connection therewith, the Company issued three year warrants to the
investors which allows them to purchase a total of 540,000 shares of
common stock at a price of $1.25 per share. In addition, the Company
issued five year warrants in exchange for services performed in
connection with the private placement for a total of 69,066 shares of
common stock at prices ranging from $.90-$1.25 per share.
9
Item 2. Management's Discussion and Analysis or Plan of Operations
For the Three and Six Month Periods Ended December 31, 2003
versus December 31, 2002
REVENUES:
Total revenue increased 1% for the three month period ended December 31, 2003
and decreased 10% for the six month period ended December 31, 2003, compared to
the same periods a year ago. Overall, the weakening of the U.S. dollar, in
relation to our foreign currencies (Australian dollar and U.K. pound) has
increased revenues by approximately $200,000 for the six month period ended
December 31, 2003.
Software revenues decreased $352,712 (17%) and $1,593,280 (33%) for the three
and six month periods ended December 31, 2003, respectively, from the same
periods last year. As was reported in the Form 10-QSB for the quarter ended
September 30, 2003, software revenues were extremely favorable for the six month
period ended December 31, 2002 due to the closing of several large license
transactions. In addition, a significant turnover in the salesforce in the U.S.
and Europe has contributed to the decline in revenues for the quarter as these
new employees become trained and begin to build their pipelines. Although we
continue to trail revenues from fiscal year 2003, software revenues increased in
the three month period ended December 31, 2003 over the previous quarter
(September 30, 2003) by 28% ($389,807), which shows the improvement in sales
performance due in part to improved conditions as it relates to corporate
spending on business software.
Maintenance revenues increased $125,534 (12%) and $479,896 (24%) for the three
and six month periods ended December 31, 2003, respectively, from the same
periods last year. These results reflect continued improvement of maintenance
contract renewals and collections.
Consulting and other revenues increased $278,955 (41%) and $308,503 (19%), for
the three and six month periods ended December 31, 2003, respectively, from the
same periods last year. These results reflect continued utilization of our
professional services personnel required to service the increased demand for
consulting and training services.
OPERATING COSTS AND EXPENSES:
Operating expenses increased $1,080,078 (30%) and $1,646,759 (23%) for the three
and six month periods ended December 31, 2003, respectively, from the same
periods last year. Overall, the weakening of the U.S. dollar, in relation to our
foreign currencies (Australian dollar and U.K. pound) has increased operating
costs and expenses by approximately $200,000 for the six month period ended
December 31, 2003.
Cost of maintenance, consulting and other expenses increased $28,744 (3%) and
$111,817 (7%) for the three and six month periods ended December 31, 2003,
respectively, from the same periods last year due to continued demand for our
consulting and training services.
Product development costs increased $120,567 (37%) and $283,173 (46%) for the
three and six month periods ended December 31, 2003, respectively, from the same
periods last year. Development staffing has increased by 11% (2 positions) as we
continue to further enhance and improve our product offerings, as well as
develop new products like our budgeting and financial consolidation module. In
addition, we have reclassified certain overhead expenses to this category that
had previously been categorized elsewhere.
Sales and marketing expenses increased $544,761 (36%) and $927,297 (33%) for the
three and six month periods ended December 31 2003, respectively, from the same
periods last year. These increases are the result of a 23% increase in sales
positions (an increase of 8 positions), primarily in the U.S. region. 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 $386,006 (40%) and $324,472 (16%)
for the three and six month periods ended December 31, 2003, respectively, from
the same periods last year. Increases in insurance costs and investor relations
activities, including non-cash charges for warrants issued for services of
approximately $109,000, have contributed to these increases.
10
INTEREST EXPENSE, NET:
Interest expense, net decreased $1,321 (6%) and $8,551 (17%) for the three and
six month periods ended December 31, 2003, respectively, compared to the same
periods last year due to lower debt levels.
BENEFIT FROM INCOME TAXES:
For the three month period ended December 31, 2002, 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. For the three and six month periods ended December 31, 2003, even
though the Company has incurred net losses in those periods, the Company still
expects to have positive financial performance over the next twelve months. The
Company continues to evaluate the deferred tax asset and will record a valuation
allowance accordingly.
NET INCOME (LOSS):
CorVu Corporation reported net losses of $797,037 and $1,182,214 for the three
and six month periods ended December 31, 2003, respectively, compared to net
income of $937,943 and $1,968,875 for the three and six month periods ended
December 31, 2002, respectively. Results for the three and six month periods
ended December 31, 2002 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.For the three and six month periods ended December 31, 2003. Even
though the Company has incurred net losses, the Company still expects to have
positive financial performance over the next twelve months.
Liquidity and Capital Resources
Total cash and cash equivalents increased by $12,306 during the six month period
ended December 31, 2003 from $643,346 as of June 30, 2003 to $655,652 as of
December 31, 2003. Net cash used by operating activities was $1,039,810 for the
six month period ended December 31, 2003. Net cash used in investing activities
was $69,503, reflecting the acquisition of capital assets during the period. Net
cash provided by financing activities was $1,113,944 for the six month period
ended December 31, 2003, primarily the result of proceeds from the sale of 1.8
million shares of common stock to accredited investors under a private placement
that raised approximately $1.2 million.
During the six month period ended December 31, 2003, the Company has generated
consolidated revenues of approximately $7.5 million and incurred a net loss of
approximately $1.2 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 at least the next twelve months.
11
(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,
2003. The accounting policies used in preparing our interim 2004 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. 104, "Revenue
Recognition." 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 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.
12
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, 2003.
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
Management of the Company has evaluated, with the participation of the Chief
Executive Officer and Chief Financial Officer of the Company, the effectiveness
of the Company's disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) as of the end of the fiscal quarter covered by this
Quarterly Report on Form 10-QSB. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer of the Company have concluded that the
Company's disclosure controls and procedures as of the end of the fiscal quarter
covered by this Quarterly Report on Form 10-QSB are effective to provide
reasonable assurance that information required to be disclosed by the Company in
the reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission. Management of the
Company has also evaluated, with the participation of the Chief Executive
Officer and Chief Financial Officer of the Company, any change in the Company's
internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) that occurred during the fiscal quarter
covered by this Quarterly Report on Form 10-QSB. There was no change in the
Company's internal control over financial reporting identified in that
evaluation that occurred during the fiscal quarter covered by this Quarterly
Report on Form 10-QSB that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
Management is aware that there is a lack of segregation of duties due to the
small number of employees dealing with general administrative and financial
matters. However, management has decided that considering the employees involved
and the control procedures in place, risks associated with such lack of
segregation are insignificant and the potential benefits of adding employees to
clearly segregate duties do not justify the expenses associated with such
increases.
13
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
See Item 3 of Part II of Form 10-KSB for the year ended June 30, 2003.
Item 2. Changes in Securities.
During the quarter ended December 31, 2003, the Company made the
following sales of unregistered securities:
(a) On November 19, 2003, for an aggregate purchase price of $550,000,
the Company sold to three accredited investors a total of 733,334
shares of common stock and a three year warrant to purchase up to
220,000 shares of common stock at an exercise price of $1.25 per share.
In addition, the Company issued to an accredited investor a five year
warrant to purchase up to 33,333 shares of common stock at an exercise
price of $.90 per share as part of the compensation owed to such
investor for its services as placement agent in connection with the
investment by one of the investors.
(b) On November 21, 2003, for an aggregate purchase price of $500,000,
the Company sold to four accredited investors a total of 666,667 shares
of common stock and a three year warrant to purchase up to 200,000
shares of common stock at an exercise price of $1.25 per share. In
connection with such sale, the Company issued to an accredited investor
a five year warrant to purchase up to 33,333 shares of common stock at
an exercise price of $.90 per share as part of the compensation owed to
such investor for its services as placement agent.
(c) On December 5, 2003, for an aggregate purchase price of $225,000,
the Company sold to an accredited investor 300,000 shares of common
stock and a three year warrant to purchase up to 90,000 shares of
common stock at an exercise price of $1.25 per share.
(d) On December 8, 2003, for an aggregate purchase price of $75,000,
the Company sold to an accredited investor 100,000 shares of common
stock and a three year warrant to purchase up to 30,000 shares of
common stock at an exercise price of $1.25 per share.
(e) On December 8, 2003, as compensation for services, the Company
issued to an accredited investor a three year warrant to purchase up to
2,400 shares of common stock at an exercise price of $1.25.
Item 3. Default Upon Senior Securities.
None
14
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of the Company's shareholders was held on
December 18, 2003.
(b) At the Annual Meeting a proposal to set the number of
directors at six was adopted by a vote of 18,256,979 shares in
favor, with 20,776 shares against, 7,788 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 Number of Votes Against Number of Votes Abstained
------- --------------- ----------------------- -------------------------
For
---
David C. Carlson 18,277,943 0 7,600
Ismail Kurdi 18,277,943 0 7,600
Justin M. MacIntosh 18,268,967 8,976 7,600
James L. Mandel 18,277,943 0 7,600
Alan M. Missroon, Jr. 18,268,967 8,976 7,600
Gary P. Smaby 18,277,943 0 7,600
(d) A 500,000 share increase in the number of shares reserved for
grant under the Company's 1996 Stock Option Plan was approved
by a vote of 13,479,014 shares in favor, with 510,497 shares
against, 9,638 shares abstaining and no shares represented by
broker nonvotes.
(f) The selection of Virchow, Krause & Company, LLP, as the
Company's independent auditors for the current fiscal year was
approved by a vote of 18,270,105 shares in favor, with 4,400
shares against, 11,038 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
15
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: February 12, 2004 By /s/ David C. Carlson
--------------------------------
David C. Carlson
Chief Financial Officer
16
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
31.1 Certification of CEO Pursuant to Section 302 of Sarbanes-Oxley Act of
2002
31.2 Certification of CFO Pursuant to Section 302 of Sarbanes-Oxley Act of
2002
32.1 Certification of CEO Pursuant to Section 906 of Sarbanes-Oxley Act of
2002
32.2 Certification of CFO Pursuant to Section 906 of Sarbanes-Oxley Act of
2002
17