**U.S. Securities and Exchange Commission**

 

**Washington, D.C.20549**

 

**FORM 10-QSB**

 

**ý****QUARTERLY REPORT UNDERSECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended September 30,2002**

 

**OR**

 

**o****TRANSITION REPORT UNDERSECTION 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 bySections 13 or 15(d) of the Exchange Act during the past 12 months (or suchshorter 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 classesof common equity as of the latest practicable date.

 

**Class:  Common Stock, par value $.01 per shareOutstanding shares as of October 31, 2002: 22,197,503**

 

 

----

 

**CorVu Corporation**

# **Index to Form 10-QSB**

 
| PART  I.  FINANCIAL INFORMATION |
|--------------------------------------|
|                                 |   |   |
|                                 | Item 1. | Consolidated Balance Sheets at September 30, 2002 (unaudited) and  June 30, 2002 |
|                                 |   |   |
|                                 |   | Consolidated Statements of Cash Flows  (unaudited) for the three months ended September 30, 2002 and 2001 |
|                                 |   |   |
|                                 |   | Consolidated Statements of Operations  (unaudited) for the three months ended September 30, 2002 and 2001 |
|                                 |   |   |
|                                 |   | Notes to Unaudited Consolidated Financial  Statements |
|                                 |   |   |
|                                 | Item 2. | Management’s Discussion and Analysis of  Financial Condition and Results of Operations |
|                                 |   |   |
|                                 | Item 3. | Controls and Procedures |
|                                 |   |
| 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                           |
|                                 |
| CERTIFICATIONS                       |
|                                 |
| EXHIBITS                             |

 

1

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PART I

FINANCIALINFORMATION

 

Item 1.    **Financial Statements**

**CORVUCORPORATION AND SUBSIDIARIES**

Consolidated Balance Sheets

 
|                                                                                                                                 |   | **September 30,  2002** |       | **June 30,  2002** |       |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|------------|--------------------|------------|
|                                                                                                                                 |   | **(Unaudited)**         |       | **(Audited)**      |       |
| **Assets**                                                                                                                           |   |                    |       |               |       |
|                                                                                                                                 |   |                    |       |               |       |
| Current assets:                                                                                                                      |   |                    |       |               |       |
| Cash and cash equivalents                                                                                                            |   | $                       | 93,463     |               | 279,176    |   |
| Trade accounts receivable, net  of allowance for doubtful accounts of $204,000 and $160,000, respectively                            |   | 3,954,044               |       | 2,845,858          |       |
| Prepaid expenses and other                                                                                                           |   | 150,348                 |       | 197,851            |       |
|                                                                                                                                 |   |                    | ** ** |               | ** ** |
| Total current assets                                                                                                                 |   | 4,197,855               |       | 3,322,885          |       |
|                                                                                                                                 |   |                    |       |               |       |
| Furniture, fixtures and  equipment, net                                                                                              |   | 96,115                  |       | 99,940             |       |
|                                                                                                                                 |   |                    |       |               |       |
|                                                                                                                                 |   | $                       | 4,293,970  |               | 3,422,825  |   |
| **Liabilities and  Stockholders’ Deficit**                                                                                      |   |                    |       |               |       |
|                                                                                                                                 |   |                    | ** ** |               | ** ** |
| Current liabilities:                                                                                                                 |   |                    |       |               |       |
| Accounts payable                                                                                                                     |   | $                       | 1,677,722  |               | 2,036,842  |   |
| Accrued compensation and  related costs                                                                                              |   | 2,461,635               |       | 2,527,493          |       |
| Deferred revenue                                                                                                                     |   | 3,136,488               |       | 2,872,329          |       |
| Notes payable-stockholder                                                                                                            |   | 669,824                 |       | —             |       |
| Accrued interest                                                                                                                     |   | 149,146                 |       | 73,232             |       |
| Other accrued expenses                                                                                                               |   | 696,099                 |       | 845,168            |       |
| Total current liabilities                                                                                                            |   | 8,790,914               |       | 8,355,064          |       |
|                                                                                                                                 |   |                    |       |               |       |
| Notes payable-stockholder                                                                                                            |   | —                  |       | 685,767            |       |
|                                                                                                                                 |   |                    |       |               |       |
| Stockholders’ deficit:                                                                                                          |   |                    |       |               |       |
| Undesignated capital stock,  24,000,000 shares, none issued                                                                          |   | —                  |       | —             |       |
| 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; 22,197,503 and 20,730,835 shares issued and  outstanding, respectively |   | 221,919                 |       | 207,252            |       |
| Additional paid-in capital                                                                                                           |   | 16,697,271              |       | 16,223,744         |       |
| Stock subscription receivable                                                                                                        |   | (324,000                | )          | —             |       |
| Accumulated deficit                                                                                                                  |   | (21,161,077             | )          | (22,191,944        | )          |
| Accumulated other comprehensive  income                                                                                              |   | 66,943                  |       | 140,942            |       |
|                                                                                                                                 |   |                    |       |               |       |
| Total stockholders’ deficit                                                                                                     |   | (4,496,944              | )          | (5,618,006         | )          |
|                                                                                                                                 |   |                    |       |               |       |
| Total liabilities and  stockholders’ deficit                                                                                    |   | $                       | 4,293,970  |               | 3,422,825  |   |

 

Seeaccompanying notes to unaudited consolidated financial statements.

 

2

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**CORVUCORPORATION AND SUBSIDIARIES**

 

Consolidated Statements of Cash Flows(unaudited)

 

For the Three Months Ended September 30, 2002and 2001

 
|                                                                                  |   | **2002**   |      | **2001**  |     |
|---------------------------------------------------------------------------------------|--------|------------|-----------|-----------|----------|
|                                                                                  |   |       |      |      |     |
| Cash flows from operating activities:                                                 |   |       |      |      |     |
| Net income (loss)                                                                     |   | $          | 1,030,932 |      | (681,427 | ) |
| Adjustments to reconcile net  income (loss) to net cash used in operating activities: |   |       |      |      |     |
| Depreciation                                                                          |   | 14,966     |      | 12,727    |     |
| Warrants and stock options  vested                                                    |   | 64,194     |      | 309,646   |     |
| Changes in operating assets and  liabilities:                                         |   |       |      |      |     |
| Trade accounts receivable, net                                                        |   | (1,176,996 | )         | 1,254,885 |     |
| Prepaid expenses and other                                                            |   | 47,504     |      | 8,201     |     |
| Accounts payable                                                                      |   | (382,605   | )         | (295,874  | )        |
| Accrued compensation and  related costs                                               |   | (70,153    | )         | (364,867  | )        |
| Deferred revenue                                                                      |   | 281,385    |      | (58,810   | )        |
| Accrued interest                                                                      |   | 75,914     |      | 2,086     |     |
| Other accrued expenses                                                                |   | (158,789   | )         | (209,415  | )        |
|                                                                                  |   |       |      |      |     |
| Net cash used operating  activities                                                   |   | (273,648   | )         | (22,848   | )        |
|                                                                                  |   |       |      |      |     |
| Cash flows from investing  activities:                                                |   |       |      |      |     |
| Capital expenditures                                                                  |   | (11,141    | )         | (20,058   | )        |
|                                                                                  |   |       |      |      |     |
| Net cash used in investing  activities                                                |   | (11,141    | )         | (20,058   | )        |
|                                                                                  |   |       |      |      |     |
| Cash flows from financing  activities:                                                |   |       |      |      |     |
| Proceeds from sale of common  stock                                                   |   | 100,000    |      | —    |     |
| Repayment of note payable                                                             |   | —     |      | (130,019  | )        |
| Borrowings on notes payable -  stockholder                                            |   | —     |      | 156,800   |     |
| Repayment on notes payable -  stockholder                                             |   | —     |      | (35,660   | )        |
|                                                                                  |   |       |      |      |     |
| Net cash provided by (used in)  financing activities                                  |   | 100,000    |      | (8,879    | )        |
|                                                                                  |   |       |      |      |     |
| Effect of exchange rate changes  on cash                                              |   | (924       | )         | 332       |     |
|                                                                                  |   |       |      |      |     |
| Net decrease in cash and cash  equivalents                                            |   | (185,713   | )         | (51,453   | )        |
|                                                                                  |   |       |      |      |     |
| Cash and cash equivalents at  beginning of period                                     |   | 279,176    |      | 77,409    |     |
|                                                                                  |   |       |      |      |     |
| Cash and cash equivalents at  end of period                                           |   | $          | 93,463    |      | 25,956   |   |
| Non-cash investing and  financing activities:                                         |   |       |      |      |     |
| Common stock issued for stock  subscription receivable                                |   | $          | 324,000   |      | —   |   |

 

Seeaccompanying notes to unaudited consolidated financial statements.

 

3

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**CORVUCORPORATION AND SUBSIDIARIES**

 

Consolidated Statements of Operations(unaudited)

 

For the Three Months Ended September 30, 2002and 2001

 
|                                              |   | **2002**   |      | **2001**   |     |
|---------------------------------------------------|--------|------------|-----------|------------|----------|
|                                              |   |       |      |       |     |
| Revenues:                                         |   |       |      |       |     |
| Software and license fees                         |   | $          | 2,634,974 |       | 930,124  |   |
| Maintenance, consulting and  other                |   | 1,809,578  |      | 1,269,116  |     |
|                                              |   |       |      |       |     |
| Total revenues                                    |   | 4,444,552  |      | 2,199,240  |     |
|                                              |   |       |      |       |     |
| Operating costs and expenses:                     |   |       |      |       |     |
| Cost of maintenance, consulting  and other        |   | 729,565    |      | 609,416    |     |
| Product development                               |   | 282,235    |      | 269,918    |     |
| Sales and marketing                               |   | 1,287,035  |      | 906,866    |     |
| General and administrative                        |   | 1,087,246  |      | 1,071,794  |     |
|                                              |   |       |      |       |     |
| Total operating costs and  expenses               |   | 3,386,081  |      | 2,857,994  |     |
|                                              |   |       |      |       |     |
| Operating income (loss)                           |   | 1,058,471  |      | (658,754   | )        |
|                                              |   |       |      |       |     |
| Interest expense, net                             |   | (27,539    | )         | (22,673    | )        |
|                                              |   |       |      |       |     |
| Income (loss) before income  taxes                |   | 1,030,932  |      | (681,427   | )        |
|                                              |   |       |      |       |     |
| Provision for income taxes                        |   | —     |      | —     |     |
|                                              |   |       |      |       |     |
| Net income (loss)                                 |   | $          | 1,030,932 |       | (681,427 | ) |
|                                              |   |       |      |       |     |
| Net income (loss) per common  share—basic    |   | $          | 0.05      |       | (0.03    | ) |
| Weighted average shares  outstanding—basic   |   | 21,102,996 |      | 20,157,781 |     |
| Net income (loss) per common  share—diluted  |   | $          | 0.05      |       | (0.03    | ) |
| Weighted average shares  outstanding—diluted |   | 22,283,534 |      | 20,157,781 |     |

 

Seeaccompanying notes to unaudited consolidated financial statements.

 

4

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**CorVu Corporation and Subsidiaries**

 

**Notes to Unaudited Consolidated FinancialStatements For the Three Months Ended September 30, 2002 and 2001**

 

**(1)****                                 UnauditedFinancial Statements**

 

The accompanying unaudited consolidated financial statements of CorVuCorporation and Subsidiaries (the Company) have been prepared by the Company inaccordance with accounting principles generally accepted in the United Statesof America for interim financial information, pursuant to the rules andregulations of the Securities and Exchange Commission. Pursuant to such rulesand regulations, certain financial information and footnote disclosuresnormally included in the consolidated financial statements have been condensedor omitted. The results for the periods indicated are unaudited, but reflectall adjustments (consisting only of normal recurring adjustments) whichmanagement considers necessary for a fair presentation of operating results.

 

Operating results for thethree months ended September 30, 2002 are not necessarily indicative of theresults that may be expected for the year ending June 30, 2003.  These unaudited consolidated financialstatements should be read in conjunction with the consolidated financial statementsand footnotes thereto included in the Company’s Annual Report on Form 10-KSBfor the year ended June 30, 2002.

 

**(2)****                                 Summaryof Significant Accounting Policies**

 

***(a)******         RevenueRecognition***

 

Softwarelicense revenue is recognized when all of the following criteria have beenmet:  there is an executed licenseagreement, software has been delivered to the customer, the license fee isfixed and payable within twelve months, collection is deemed probable andproduct returns are reasonably estimable. Revenues related to multiple elementarrangements are allocated to each element of the arrangement based on the fairvalues of elements such as license fees, maintenance, and professionalservices. Fair value is determined based on vendor specific objective evidence.Maintenance revenues are recognized ratably over the term of the maintenancecontract, typically 12 to 36 months. Consulting and other revenues arerecognized when services are performed.

 

Deferred revenue represents payment receivedor amounts billed in advance of services to be performed.

 

5

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***(b)******         NetIncome (Loss) per Common Share***

 

Basic netincome (loss) per common share is computed by dividing net income (loss) by theweighted average number of common shares outstanding during the period. Dilutednet income (loss) per common share is computed by dividing net income (loss) bythe weighted average number of common shares outstanding plus all additionalcommon stock that would have been outstanding if potentially dilutive commonstock related to stock options and warrants had been issued. Weighted averageshares outstanding-diluted includes 1,180,538 shares of dilutive securities forthe three months ended September 30, 2002. Dilutive common equivalent shareshave not been included in the computation of diluted net loss per share for thethree months ended September 30, 2001 because their inclusion would beanti-dilutive.

 

Following is areconciliation of basic and diluted net income (loss) per common share for thethree months ended September 30, 2002 and 2001, respectively:

 
|                                                             |   | **2002**   |      | **2001**   |   |
|------------------------------------------------------------------|--------|------------|-----------|------------|--------|
| Net income (loss) per common share - basic:                      |   |       |      |       |   |
|                                                             |   |       |      |       |   |
| Net income (loss)                                                |   | $          | 1,030,932 |       | $      | (681,427 | ) |
|                                                             |   |       |      |       |   |
| Weighted average shares outstanding                              |   | 21,102,996 |      | 20,157,781 |   |
|                                                             |   |       |      |       |   |
| Net income (loss) per common share - basic                       |   | $          | 0.05      |       | $      | (0.03 | ) |
|                                                             |   |       |      |       |   |
| Net income (loss) per common share - diluted:                    |   |       |      |       |   |
|                                                             |   |       |      |       |   |
| Net income (loss)                                                |   | $          | 1,030,932 |       | $      | (681,427 | ) |
|                                                             |   |       |      |       |   |
| Weighted average shares outstanding                              |   | 21,102,996 |      | 20,157,781 |   |
|                                                             |   |       |      |       |   |
| Common stock equivalents                                         |   | 1,180,538  |      | 0          |   |
|                                                             |   |       |      |       |   |
| Weighted average shares and potential diluted shares outstanding |   | 22,283,534 |      | 20,157,781 |   |
|                                                             |   |       |      |       |   |
| Net income (loss) per common share – Diluted                |   | $          | 0.05      |       | $      | (0.03 | ) |

 

The Companyuses the treasury method for calculating the dilutive effect of the stockoptions and warrants (using the average market price).

 

Options andwarrants to purchase 4,452,952 shares of common stock with a weighted averageexercise price of $2.15 were outstanding at September 30, 2002 but wereexcluded from the computation of common share equivalents because theirexercise prices were greater than the average market price of the commonshares. All options and warrants outstanding as of September 30, 2001 wereanti-dilutive.

 

6

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**(3)****                                 ComprehensiveNet Income (Loss)**

 

Comprehensive net income (loss) and itscomponents, including all changes in equity during a period except thoseresulting from investments by owners or distributions to owners are as follows:

 
|                                     |   | **For the Three  Months Ended  September 30, 2002** |      | **For the Three  Months Ended  September 30, 2001** |   |
|------------------------------------------|--------|-----------------------------------------------------|-----------|-----------------------------------------------------|--------|
|                                     |   |                                                |      |                                                |   |
| Net Income (Loss)                        |   | $                                                   | 1,030,932 |                                                | $      | (681,427 | ) |
|                                     |   |                                                |      |                                                |   |
| Other comprehensive income  (loss):      |   |                                                |      |                                                |   |
|                                     |   |                                                |      |                                                |   |
| Foreign currency translation  adjustment |   | (73,999                                             | )         | 17,469                                              |   |
|                                     |   |                                                |      |                                                |   |
| Total comprehensive net income  (loss)   |   | $                                                   | 956,933   |                                                | $      | (663,958 | ) |

** **

**(4)****                                ****Income Taxes**

 

At September 30, 2002, theCompany has reported U.S. net operating loss carryforwards of approximately$7.8 million.  The net operating loss carryforwardsexpire in the years 2010 through 2021. A full valuation allowance against thedeferred tax asset has been recorded due to the uncertainty of realizing therelated benefit.

 

Federal taxlaws impose significant restrictions on the utilization of net operating losscarryforwards in the event of a change in ownership of the Company whichconstitutes an “ownership change,” as defined by the Internal Revenue Code,Section 382.  The Company’s netoperating loss carryforward may be subject to the above limitations.

 

**(5)****                                 Liquidity**

 

Theaccompanying interim consolidated financial statements are prepared assumingthe Company will continue as a going concern. During the year ended June 30,2002, the Company generated operating income of $605,491. Subsequently, for thethree-month period ended September 30, 2002, the Company generated operatingincome of $1,058,471. As of September 30, 2002, the Company had an accumulateddeficit of $21,161,077, total stockholders’ deficit of $4,496,944, and negativeworking capital of $4,593,059.

 

During thepast fifteen months, the Company has significantly reduced the amount due tothe Internal Revenue Service (from $772,000 as of June 30, 2001 to $62,000 asof September 30, 2002) and has also significantly reduced the amount due undera Creditor Settlement Agreement (from $976,000 to $650,000 as of September 30,2002). Payments have been funded with current operating capital generated as aresult of four consecutive quarters of profitability. During the twelve monthperiod ended September 30, 2002, the Company generated consolidated revenues of$14,587,118 and net income of $2,161,890. Management continues to focus onincreasing revenues and carefully managing operating costs, as necessary.Management projects that cash flow sufficient for the Company to meet itsobligations and to fund future operations will be generated.

 

7

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**(6)****                                 Notes Payable- Stockholder**

 

The Companyhas received interest-bearing advances from a stockholder under short-termnotes.  The notes bear interest at 8.5and mature on December 31, 2006 with the right to demand payment on or afterSeptember 30, 2003.  The notes aresecured by substantially all of the assets of the Company. Interest expense was$14,521 for each of the three months ended September 30, 2002 and 2001.

 

**(7)****                              Installment Agreement with Internal RevenueService**

 

On March 29,2001, the Company entered into an installment agreement with the InternalRevenue Service regarding the payment of past due payroll taxes, penalties andinterest totaling approximately $930,000. In connection with this agreement,the Internal Revenue Service filed a federal tax lien against the Company’sassets. This lien will be removed once all payments under the agreement aremade. The Company has been making payments of $50,000 per month on thisobligation. As of September 30, 2002, the balance remaining under thisobligation was $62,000 which is included in accrued compensation and relatedcosts in the accompanying balance sheets (see Note 12).

 

**(8)****                                 Settlement of Litigation**

 

The Company and its officers and directors were involved in a lawsuitfiled by certain shareholders for providing allegedly false and misleadinginformation regarding the historical and future financial performance of theCompany. In September 2002, the Company entered into a Settlement Agreement andMutual Release to fully settle the matter. Terms of the settlement are coveredby a confidentiality clause within the agreement. The settlement includes theissuance of warrants to purchase 133,332 shares of common stock at a price of$0.21 per share.

 

**(9)****                                 CreditorSettlement Agreement**

 

InNovember 2001, the Company entered into a Stipulation of Settlement agreementwith a creditor for approximately $976,000 under which the Company agreed tomake quarterly principal payments through December 2003, at which time it wouldalso pay accrued interest on the unpaid principal balance from the date of theagreement 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 to15% and legal fees in the amount of $100,000 would become due. The Company hasgranted a security interest in the receivables of CorVu North America, Inc. aspart of this settlement. As of September 30, 2002, the balance under thisobligation, which is included in accounts payable in the accompanying balancesheets, was approximately $650,000 (see Note 12). Interest expense was $14,757for the three-month period ended September 30, 2002.

 

**(10)****                          ConsultingAgreement**

 

In September2002, the Company entered into a consulting agreement with GlobalNet VenturePartners, L.L.C. (GlobalNet) to provide management advisory services for aperiod of 30 months. In exchange for these services, the Company will payGlobalNet a fee of $26,500 per month. In addition, GlobalNet can earnadditional fees under the agreement as a result of its involvement in obtainingfinancing and for introducing and developing strategic partnerships that resultin revenue to the Company. The agreement can be terminated by either party upon60 days written notice. As part of the services to be provided under thisagreement, a principal of GlobalNet agreed to serve as the Company’s Chairmanof the Board for a period of 24 months.

 

8

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**(11)****                          Stock Purchase**

 

In September2002, the Company sold 1.2 million shares of the Company’s common stock toGlobalNet 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 theCompany 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 annumthrough September 2, 2009, with interest payable quarterly starting September30, 2002. The note is a limited recourse note in that in the event ofnon-payment, the Company’s only recourse is against the pledged shares.

 

**(12)****                          Subsequent Events**

 

In October2002, the Company made its final payment to the Internal Revenue Service underthe installment agreement which completely fulfilled its IRS obligation, andmade a payment of $150,000 under the Creditor Settlement Agreement bringing thebalance remaining to $500,000.

 

9

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

 

**For the Three Months Ended September 30, 2002and 2001**

 

REVENUES:

 

Total revenue for thethree-month period ended September 30, 2002 increased $2,245,312 (102%)compared to the same period a year ago.

 

Software and license feerevenues increased $1,704,850 (183%) from $930,124 for the three-month periodended September 30, 2001 to $2,634,974 for the three-month period endedSeptember 30, 2002. This increase reflects an increasing acceptance and demandfor our products, especially in the Balanced Scorecard area.

 

Maintenance, consulting andother revenues increased $540,462 (43%), from $1,269,116 for the three-monthperiod ended September 30, 2001 to $1,809,578 for the three-month period endedSeptember 30, 2002. This was caused by an increase in revenue attributable toconsulting and training services of $307,605 (51%) due to increased sales ofour products and the associated utilization of our professional consulting andtraining personnel. In addition, an increase in maintenance revenues of$232,857 (35%) was experienced due to an increasing maintenance customer base.

 

OPERATING EXPENSES:

 

Operating expenses increased $528,087(18%) for the three-month period ended September 30, 2002, from the same periodlast year.

 

Cost of maintenance, consultingand other expenses increased $120,149 (20%) for the three-month period endedSeptember 30, 2002, from the same period last year. Staffing levels in thisarea have increased by 18% to keep up with the increased demand for ourservices.

 

Product development costsincreased $12,317 (5%) for the three-month period ended September 30, 2002,from the same period last year. Management continues to invest in productdevelopment to further improve and enhance its product offerings.

 

Sales and marketing expensesincreased $380,169 (42%) for the three-month period ended September 30, 2002,from the same period last year, consistent with increased staffing levels (sixadditional salespeople), overhead and other variable costs such as salescommissions, caused by the significant increase in revenues.

 

General and administrativeexpenses increased $15,452 (1%) for the three-month period ended September 30,2002, from the same period last year.

 

INTEREST EXPENSE, NET:

 

Interest expense increased$4,866 (21%) for the three-month period ended September 30, 2002, compared tothe same period last year.

 

10

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NET INCOME (LOSS):

 

CorVu generated net income of$1,030,932 and incurred a net loss of $681,427 for the three-month periodsended September 30, 2002 and 2001, respectively.

 

**Liquidityand Capital Resources**

 

Total cash and cash equivalentsdecreased by $185,713 during the three-month period ended September 30, 2002from $279,176 as of June 30, 2002 to $93,463 as of September 30, 2002. Net cashused in operating activities was $273,648 for the period ended September 30,2002. Net cash used in investing activities was $11,141, reflecting theacquisition of property and equipment during the period. Net cash provided byfinancing activities was $100,000 reflecting proceeds from the  sale of common stock during the period.

 

During the twelve month period endedSeptember 30, 2002, the Company has generated consolidated revenues of$14,587,118 and net income of $2,161,890. Management intends to continueto increase revenues from software licenses and other revenue sources and, tocarefully manage operating costs, as deemed necessary. Management believesthese activities will generate sufficient cash flows to sustain CorVu’soperations for the next twelve months.

 

**CriticalAccounting Policies and Estimates-**

 

Our significant accounting policies aredescribed in Note 1 to the consolidated financial statements included in ourannual report for the year ended June 30, 2002.  The accounting policies used in preparing our interim 2003consolidated financial statements are the same as those described in our annualreport.

 

We believe the criticalaccounting policies listed below affect significant judgments and estimatesused in the preparation of our consolidated financial statements.

 

RevenueRecognition.  We recognize revenues inaccordance with the provisions of the American Institute of Certified PublicAccountants’ 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 issuedfrom time to time by the American Institute of Certified Public Accountants,and in accordance with the Securities and Exchange Commission Staff AccountingBulletin No. 101, “Revenue Recognition in Financial Statements.”  We license software under non-cancelablelicense agreements and provide related professional services, includingconsulting, training, and implementation services, as well as ongoing customersupport and maintenance.  Consulting,training and implementation services are not essential to the functionality ofour software products, are sold separately and also are available from a numberof third-party service providers. Accordingly, revenues from these services are generally recordedseparately from the license fee.  Ourspecific revenue recognition policies are as follows:

 

SoftwareLicense Fees – Software license fee revenues from end-users and resellers aregenerally recognized when there is an executed license agreement, software hasbeen delivered to the customer, the license fee is fixed and payable within 12months, collection is deemed probable and product returns are reasonablyestimable.  Revenues related to multipleelement arrangements are allocated to each element of the arrangement based onthe fair values of elements such as license fees, maintenance, and professionalservices.  Fair value is determinedbased on vendor specific objective evidence.

 

Maintenance,Consulting and other - Revenues from training and consulting services arerecognized as services are provided to customers.  Revenues from maintenance contracts are deferred and recognizedratably over the term of the maintenance agreements.

 

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Software DevelopmentCosts.  Software development costs areexpensed as incurred until technological feasibility is established.  Software development costs incurredsubsequent to establishing technological feasibility are capitalized andamortized over their estimated useful lives. Management is required to use professional judgment in determining whetherdevelopment costs meet the criteria for immediate expense or capitalization.

 

Allowance for DoubtfulAccounts.  We maintain allowances fordoubtful accounts for estimated losses resulting from the inability of ourcustomers to make required payments.  Ifthe financial condition of our customers were to deteriorate, resulting in animpairment of their ability to make payments, additional allowances may berequired or revenue could be deferred until collectibility becomes probable.

 

Contingencies.  We are subject to the possibility of variousloss contingencies in the normal course of business.  We accrue for loss contingencies when a loss is estimable andprobable.

 

**Recently Issued Accounting Pronouncements**

 

In October 2002, the Financial AccountingStandards Board (FASB) issued Statement of Financial Standards (SFAS) No. 147,“Acquisitions of Certain Financial Institutions”. SFAS No. 147 is effectiveOctober 1, 2002. The Company believes the adoption of SFAS No. 147 will nothave a material effect on the Company’s consolidated financial position orresults of operations.

 

**CautionaryFactors That May Affect Future Results**

 

This Quarterly Report on Form 10-QSB,including the information incorporated by reference herein and the exhibitshereto, and other written and oral statements made from time to time by us mayinclude “forward-looking” statements. Forward-looking statements broadlyinvolve our current expectations for future results. Any statement that is nota historical fact, including estimates, projections, future trends and theoutcome of events that have not yet occurred, are forward-looking statements.Our forward-looking statements generally relate to our financing plans, trendsaffecting our financial condition or results of operations, our growth andoperating strategy, product development, competitive strengths, the scope ofour intellectual property rights, sales efforts, and the declaration andpayment of dividends.  Words such as “anticipates,” “believes,” “could”“estimates,” “expects,” “forecast,” “intend,” “may,” “plan,” “possible,”“project,” “should,” “will” and similar expressions generally identify ourforward-looking statements. You must carefully consider forward-lookingstatements and understand that such statements involve a variety ofassumptions, risks and uncertainties, known and unknown, and may be affected bya number of factors, including, among others, the factors discussed in ourAnnual Report on Form 10-KSB for the year ended June 30, 2002.

 

We also caution you that forward-lookingstatements speak only as of the date made. We undertake no obligation to updateany forward-looking statement, but investors are advised to consult any furtherdisclosures by us on this subject in our filings with the Securities andExchange 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 causeactual results to differ from expected or historic results. We intend to takeadvantage of the safe harbor provisions of the Private Securities Litigation ReformAct of 1995 regarding our forward-looking statements, and are including thissentence for the express purpose of enabling us to use the protections of thesafe harbor with respect to all forward-looking statements.

 

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Item 3.    **Controlsand Procedures**

 

Within 90 days prior to the filing of thisquarterly report, the Company’s Chief Executive Officer and its Chief FinancialOfficer evaluated the Company’s disclosure controls and procedures as requiredpursuant to Rule 13a-14 under the Securities and Exchange Act of 1934, asamended.  Based on this evaluation, theChief Executive Officer and its Chief Financial Officer determined that suchcontrols and procedures were effective. There were no significant changes in internal controls that couldsignificantly affect the disclosure controls and procedures since the date ofthe evaluation.

 

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**PART IIOTHER INFORMATION**

 

Item 1.    Legal Proceedings.

 

See Item 3 of PartI of Form 10-KSB for the year ended June 30, 2002.

 

Item 2.    Changes in Securities and Use of Proceeds.

 

On September 3, 2002, wesold 1,200,000 shares of our common stock to an accredited investor at a priceof $0.27 per share.  In connection withsuch sale we relied on the exemption from registration provided by Section 4(2)of the Securities Act of 1933.  Theinvestor represented in writing that the shares were being acquired forinvestment and, in addition, the certificate representing the shares bears arestrictive securities legend.

 

On September 30, 2002, wesold an aggregate of 266,668 shares of our common stock to four accreditedinvestors at a price of $.375 per share. In connection with such sales we relied on the exemption from registrationprovided by Section 4(2) of the Securities Act of 1933.  The investors represented in writing thatthe shares were being acquired for investment and, in addition, thecertificates representing the shares bear a restrictive securities legend.

 

On September 30, 2002, weissued warrants to purchase an aggregate of 133,332 shares of our common stockat an exercise price of $.21 per share in partial consideration of thesettlement of a lawsuit.  In connectionwith the issuance of such warrants we relied on the exemption from registrationprovided by Section 4(2) of the Securities Act of 1933.  The warrant certificates bear a restrictivesecurities legend.

 

Item 3.    Default Upon Senior Securities.

 

None

 

Item 4.    Submission of Matters to a Vote of SecurityHolders.

 

None

 

Item 5.    Other Information

 

None

 

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

 

(a)  Exhibits: See Exhibit Index on pagefollowing Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of2002.

 

(b)  Reports on Form 8-K: A report on Form 8-K wasfiled on September 30, 2002 reporting, under Item 9, the submission to theSecurities and Exchange Commission of certifications under the Sarbanes-OxleyAct of 2002.

 

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**SIGNATURES**

 

In accordancewith the requirements of the Exchange Act, the registrant caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized.

 
|                         | CORVU  CORPORATION |
|------------------------------|--------------------|
|                         |               |   |
|                         |               |   |
| Date:  November 7, 2002 | By                 |   /s/ David C. Carlson |   |
|                         |               | David C. Carlson,  Chief Financial Officer |

 

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**CERTIFICATION****PURSUANT TOSECTION 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 CorVuCorporation;

 

2.        Based on my knowledge, this quarterly report does not contain anyuntrue statement of a material fact or omit to state a material fact necessaryto make the statements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the period covered by thisquarterly report;

 

3.        Based on my knowledge, the financial statements, and other financialinformation included in this quarterly report, fairly present in all materialrespects the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this quarterly report;

 

4.        The registrant’s other certifying officer and I are responsible forestablishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

 

a)             designed such disclosure controls andprocedures to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this quarterly reportis being prepared;

 

b)            evaluated the effectiveness of theregistrant’s disclosure controls and procedures as of a date within 90 daysprior to the filing date of this quarterly report (the “Evaluation Date”); and

 

c)             presented in this quarterly report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date;

 

5.        The registrant’s other certifying officer and I have disclosed, basedon our most recent evaluation, to the registrant’s auditors and the auditcommittee of registrant’s board of directors (or persons performing theequivalent function);

 

a)             all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

 

b)            any fraud, whether or not material, thatinvolves management or other employees who have a significant role in theregistrant’s internal controls; and

 

6.        The registrant’s other certifying officer and I have indicated in thisquarterly report whether or not there were significant changes in internalcontrols or in other factors that could significantly affect internal controlssubsequent to the date of our most recent evaluation, including any correctiveactions with regard to significant deficiencies and material weaknesses.

 
| Dated:  November 7, 2002 | Signature: |   /s/ Justin M. MacIntosh |
|-------------------------------|------------|--------------------------------|
|                          |       | Justin M. MacIntosh            |
|                          |       | Chief Executive Officer        |

 

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**CERTIFICATIONS PURSUANT TO**

**SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002**

 

I, David C. Carlson, ChiefFinancial Officer of CorVu Corporation, certify that:

 

1.        I have reviewed this quarterly report on Form 10-QSB of CorVuCorporation;

 

2.        Based on my knowledge, this quarterly report does not contain anyuntrue statement of a material fact or omit to state a material fact necessaryto make the statements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the period covered by thisquarterly report;

 

3.        Based on my knowledge, the financial statements, and other financialinformation included in this quarterly report, fairly present in all materialrespects the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this quarterly report;

 

4.        The registrant’s other certifying officer and I are responsible forestablishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

 

a)             designed such disclosure controls andprocedures to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this quarterly reportis being prepared;

 

b)            evaluated the effectiveness of theregistrant’s disclosure controls and procedures as of a date within 90 daysprior to the filing date of this quarterly report (the “Evaluation Date”); and

 

c)             presented in this quarterly report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date;

 

5.        The registrant’s other certifying officer and I have disclosed, based onour most recent evaluation, to the registrant’s auditors and the auditcommittee of registrant’s board of directors (or persons performing theequivalent function);

 

a)             all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

 

b)            any fraud, whether or not material, thatinvolves management or other employees who have a significant role in theregistrant’s internal controls; and

 

6.        The registrant’s other certifying officer and I have indicated in thisquarterly report whether or not there were significant changes in internalcontrols or in other factors that could significantly affect internal controlssubsequent to the date of our most recent evaluation, including any correctiveactions with regard to significant deficiencies and material weaknesses.

 
| Dated:  November 7, 2002 | Signature: |   /s/ David C. Carlson |
|-------------------------------|------------|-----------------------------|
|                          |       | David C. Carlson            |
|                          |       | 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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