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

**Washington,D.C. 20549**

**FORM 10-QSB**

**xQUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF1934**

**For thequarterly period ended March 31, 2007**

**OR**

**o****TRANSITION REPORT UNDERSECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT**

**Forthe transition period from              to              .**

**CommissionFile No. 000-29299**

**CorVu Corporation**

(Exact name ofregistrant as specified in its charter)

| **Minnesota**

(State of  Incorporation)                                                       |   | **41-1457090**

(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 theExchange Act during the past 12 months (or such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

Yes  x   No  o

Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes  o   No  x

State the numberof shares outstanding of each of the issuer’s classes of common equity as ofthe latest practicable date.

**Class:  Common Stock,par value $.01 per share**

**Outstandingshares as of May 15, 2007:  49,527,268**

Transitional Small Business Disclosure Format (check one):   Yes  o   No  x

 

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**CorVu Corporation**

**Index toForm 10-QSB**
| PART I FINANCIAL INFORMATION                                                                                                        |   |   |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                                                |   |   |
| Item  1.  Financial Statements                                                                                            |   |   |
|                                                                                                                                |   |   |
| Consolidated Balance  Sheets March 31, 2007 (Unaudited) and June 30, 2006                                                           |   |   |
|                                                                                                                                |   |   |
| Consolidated Statements  of Operations (Unaudited) Nine Month Periods Ended March 31, 2007  and 2006                      |   |   |
|                                                                                                                                |   |   |
| Consolidated  Statements of Cash Flows (Unaudited) Three and Nine Month Periods Ended March 31, 2007  and 2006            |   |   |
|                                                                                                                                |   |   |
| Notes to  Unaudited Consolidated Financial Statements For the Three and Nine Month  Periods Ended March 31, 2007 and 2006 |   |   |
|                                                                                                                                |   |   |
| Item  2.  Management’s Discussion and Analysis or Plan of Operation                                                  |   |   |
|                                                                                                                                |   |   |
| Item 3.  Controls  and Procedures                                                                                         |   |   |
|                                                                                                                                |   |   |
| PART  II OTHER INFORMATION                                                                                                          |   |   |
|                                                                                                                                |   |   |
| Item 1.  Legal  Proceedings                                                                                               |   |   |
|                                                                                                                                |   |   |
| Item  2.  Unregistered Sales of Equity Securities and Use of Proceeds                                                     |   |   |
|                                                                                                                                |   |   |
| Item  3.  Defaults Upon Senior Securities                                                                                 |   |   |
|                                                                                                                                |   |   |
| Item 4.  Submission  of Matters to a Vote of Security Holders                                                             |   |   |
|                                                                                                                                |   |   |
| Item 5.  Other  Information                                                                                               |   |   |
|                                                                                                                                |   |   |
| Item 6.  Exhibits                                                                                                         |   |   |
|                                                                                                                                |   |   |
| SIGNATURES                                                                                                                          |   |   |
|                                                                                                                                |   |   |
| EXHIBITS                                                                                                                            |   |   |

 

2

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**PART I**

**FINANCIAL INFORMATION**

**Item 1.            FinancialStatements**

**CORVU CORPORATION AND SUBSIDIARIES**

Consolidated Balance Sheets
| ** **                                                                                                                                                                                               | ** ** | **March 31, 2007** | ** ** | **June 30,  2006** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-------------------------|------------|
| ** **                                                                                                                                                                                               | ** ** | **(Unaudited)**              | ** ** | **(Audited)**           | ** ** |
| **Assets**                                                                                                                                                                                               | ** ** | ** **                   | ** ** | ** **              | ** ** |
| ** **                                                                                                                                                                                               | ** ** | ** **                   | ** ** | ** **              | ** ** |
| Current  assets:                                                                                                                                                                                         |       |                         |       |                    |       |
| Cash and cash equivalents                                                                                                                                                                                |       | $                            | 1,055,047  |                    | 3,104,504  |   |
| Restricted cash                                                                                                                                                                                          |       | 2,000,000                    |       | —                  |       |
| Trade accounts receivable, net of allowance for doubtful accounts of  $100,000 and $69,000, respectively                                                                                                 |       | 2,939,813                    |       | 3,807,362               |       |
| Prepaid expenses and other                                                                                                                                                                               |       | 371,679                      |       | 313,861                 |       |
| Total current assets                                                                                                                                                                                     |       | 6,366,539                    |       | 7,225,727               |       |
| Furniture,  fixtures and equipment, net                                                                                                                                                                  |       | 199,182                      |       | 221,876                 |       |
| Total assets                                                                                                                                                                                             |       | $                            | 6,565,721  |                    | 7,447,603  |   |
|                                                                                                                                                                                                     |       |                         |       |                    |       |
| **Liabilities and Stockholders’ Deficit**                                                                                                                                                           |       |                         |       |                    |       |
| ** **                                                                                                                                                                                               | ** ** | ** **                   | ** ** | ** **              | ** ** |
| Current  liabilities:                                                                                                                                                                                    |       |                         |       |                    |       |
| Term loan                                                                                                                                                                                                |       | $                            | 3,200,000  |                    | —     |   |
| Accounts payable                                                                                                                                                                                         |       | 1,012,182                    |       | 814,020                 |       |
| Accrued compensation and related costs                                                                                                                                                                   |       | 1,699,375                    |       | 2,241,334               |       |
| Deferred revenue                                                                                                                                                                                         |       | 4,942,663                    |       | 5,330,222               |       |
| Accrued interest                                                                                                                                                                                         |       | 22,303                       |       | 78,657                  |       |
| Other accrued expenses                                                                                                                                                                                   |       | 626,896                      |       | 899,987                 |       |
| Total current liabilities                                                                                                                                                                                |       | 11,503,419                   |       | 9,364,220               |       |
|                                                                                                                                                                                                     |       |                         |       |                    |       |
| Long-term  debt                                                                                                                                                                                          |       | —                       |       | 1,500,000               |       |
| Total Liabilities                                                                                                                                                                                        |       | 11,503,419                   |       | 10,864,220              |       |
|                                                                                                                                                                                                     |       |                         |       |                    |       |
| Stockholders’  deficit:                                                                                                                                                                             |       |                         |       |                    |       |
| Undesignated capital stock, 23,383,000 shares authorized at March 31,  2007 and June 30, 2006; none issued and outstanding                                                                               |       | —                       |       | —                  |       |
| Series C convertible preferred stock, par value $100 per share; 17,000  shares authorized; none and 17,000 outstanding at March 31, 2007 and June 30,  2006, respectively                                |       | —                       |       | 1,717,200               |       |
| Series B convertible preferred stock, par value $0.01 per share;  600,000 shares authorized; 360,000 outstanding at March 31, 2007 and June 30,  2006, liquidation preference of $360,000 March 31, 2007 |       | 3,600                        |       | 3,600                   |       |
| Series A convertible preferred stock, par value $10 per share;  1,000,000 shares authorized; none issued and outstanding at March 31, 2007  and June 30, 2006                                            |       | —                       |       | —                  |       |
| Common stock, $0.01 par value; 75,000,000 shares authorized; 49,527,268  and 49,498,268 shares issued and outstanding at March 31, 2007 and June 30,  2006, respectively                                 |       | 495,273                      |       | 494,983                 |       |
| Additional paid-in capital                                                                                                                                                                               |       | 22,260,034                   |       | 22,238,620              |       |
| Accumulated deficit                                                                                                                                                                                      |       | (26,433,219                  | )          | (26,634,092             | )          |
| Deferred compensation                                                                                                                                                                                    |       | —                       |       | (208,933                | )          |
| Accumulated other comprehensive loss                                                                                                                                                                     |       | (1,263,386                   | )          | (1,027,995              | )          |
| Total stockholders’ deficit                                                                                                                                                                         |       | (4,937,698                   | )          | (3,416,617              | )          |
| Total  liabilities and stockholders’ deficit                                                                                                                                                        |       | $                            | 6,565,721  |                    | 7,447,603  |   |

 

Seeaccompanying notes to unaudited consolidated financial statements.

3

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**CORVU CORPORATION AND SUBSIDIARIES**

Consolidated Statements ofOperations (Unaudited)

Three and Nine Month Periods Ended March 31, 2007 and 2006
| ** **                                                           | ** ** | **Three Months Ended March 31,** | ** ** | **Nine Months Ended March 31,** | ** ** |
|----------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                           | ** ** | **2007**                                             | ** ** | **2006**                                            | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                                 |       |                                                 |       |                                                |       |   |   |   |   |
| Revenues:                                                            |       |                                                 |       |                                                |       |   |   |   |   |
| Software and license fees                                            |       | $                                                    | 1,232,034  |                                                | 1,590,839  |   | 3,321,254 |   | 4,736,898 |   |
| Maintenance fees                                                     |       | 1,621,148                                            |       | 1,483,796                                           |       | 4,703,729 |   | 4,417,015 |   |
| Consulting and other                                                 |       | 605,152                                              |       | 748,016                                             |       | 1,940,010 |   | 2,134,440 |   |
|                                                                 |       |                                                 |       |                                                |       |   |   |   |   |
| Total revenues                                                       |       | 3,458,334                                            |       | 3,822,651                                           |       | 9,964,993 |   | 11,288,353 |   |
| Operating costs and expenses:                                        |       |                                                 |       |                                                |       |   |   |   |   |
| Cost of consulting and other  services                               |       | 635,072                                              |       | 753,172                                             |       | 2,018,991 |   | 2,277,008 |   |
| Product development                                                  |       | 574,892                                              |       | 531,419                                             |       | 1,629,685 |   | 1,605,910 |   |
| Sales and marketing                                                  |       | 1,144,581                                            |       | 993,250                                             |       | 3,156,630 |   | 3,368,331 |   |
| General and administrative                                           |       | 1,068,981                                            |       | 1,129,608                                           |       | 3,245,665 |   | 3,464,621 |   |
| Reversal of foreign payroll  tax and other liabilities               |       | (644,279                                             | )          | —                                              |       | (644,279 | ) | — |   |
| Merger costs and expenses                                            |       | 279,780                                              |       | —                                              |       | 279,780 |   | — |   |
| Total operating costs and  expenses                                  |       | 3,059,027                                            |       | 3,407,449                                           |       | 9,686,472 |   | 10,715,870 |   |
|                                                                 |       |                                                 |       |                                                |       |   |   |   |   |
| Operating income                                                     |       | 399,307                                              |       | 415,202                                             |       | 278,521 |   | 572,483 |   |
|                                                                 |       |                                                 |       |                                                |       |   |   |   |   |
| Interest income (expense), net                                       |       | 23,168                                               |       | (11,121                                             | )          | 20,627 |   | (55,658 | ) |
|                                                                 |       |                                                 |       |                                                |       |   |   |   |   |
| Income before income taxes                                           |       | 422,475                                              |       | 404,081                                             |       | 299,148 |   | 516,825 |   |
|                                                                 |       |                                                 |       |                                                |       |   |   |   |   |
| Benefit from income taxes                                            |       | —                                               |       | —                                              |       | — |   | — |   |
|                                                                 |       |                                                 |       |                                                |       |   |   |   |   |
| Net income                                                           |       | 422,475                                              |       | 404,081                                             |       | 299,148 |   | 516,825 |   |
|                                                                 |       |                                                 |       |                                                |       |   |   |   |   |
| Preferred stock dividends                                            |       | (25,575                                              | )          | (24,842                                             | )          | (98,275 | ) | (56,642 | ) |
|                                                                 |       |                                                 |       |                                                |       |   |   |   |   |
| Income attributable to common stockholders                           |       | $                                                    | 396,900    |                                                | 379,239    |   | 200,873 |   | 460,183 |   |
|                                                                 |       |                                                 |       |                                                |       |   |   |   |   |
| Income attributable to common stockholders per common share- basic   |       | $                                                    | 0.01       |                                                | 0.01       |   | 0.00 |   | 0.01 |   |
| Weighted average shares outstanding—basic                       |       | 49,522,368                                           |       | 49,483,268                                          |       | 49,519,250 |   | 49,483,268 |   |
| Income attributable to common stockholders per common share- diluted |       | $                                                    | 0.01       |                                                | 0.01       |   | 0.00 |   | 0.01 |   |
| Weighted  average shares outstanding—diluted                    |       | 53,652,136                                           |       | 57,390,234                                          |       | 53,372,438 |   | 56,226,114 |   |

 

Seeaccompanying notes to unaudited consolidated financial statements.

4

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**CORVU CORPORATION AND SUBSIDIARIES**

Consolidated Statements of CashFlows (Unaudited)

Nine Month Periods Ended March 31, 2007 and 2006
| ** **                                                                         | ** ** | **2007**   | ** ** | **2006**  | ** ** |
|------------------------------------------------------------------------------------|------------|------------|------------|-----------|------------|
| Cash flows from operating activities:                                              |       |       |       |      |       |
| Net income                                                                         |       | $          | 299,148    |      | 516,825    |   |
| Adjustments to reconcile net  income to net cash provided by operating activities: |       |       |       |      |       |
| Depreciation                                                                       |       | 66,802     |       | 121,050   |       |
| Warrants and stock options  vested                                                 |       | 208,562    |       | 30,967    |       |
| Changes in operating assets  and liabilities:                                      |       |       |       |      |       |
| Trade accounts receivable, net                                                     |       | 817,549    |       | 1,191,858 |       |
| Prepaid expenses and other                                                         |       | (57,818    | )          | 104,369   |       |
| Accounts payable                                                                   |       | 236,412    |       | (111,437  | )          |
| Accrued compensation and  related costs                                            |       | (574,534   | )          | 103,607   |       |
| Deferred revenue                                                                   |       | (482,638   | )          | (962,771  | )          |
| Accrued interest                                                                   |       | (56,354    | )          | 33,442    |       |
| Other accrued expenses                                                             |       | (284,081   | )          | (125,744  | )          |
| Net cash provided by operating  activities                                         |       | 173,048    |       | 902,166   |       |
|                                                                               |       |       |       |      |       |
| Cash flows from investing activities:                                              |       |       |       |      |       |
| Capital expenditures                                                               |       | (44,108    | )          | (60,108   | )          |
| Net cash used in investing  activities                                             |       | (44,108    | )          | (60,108   | )          |
|                                                                               |       |       |       |      |       |
| Cash flows from financing activities:                                              |       |       |       |      |       |
| Proceeds from term loan                                                            |       | 3,200,000  |       | —    |       |
| Repayment of long-term debt                                                        |       | (1,500,000 | )          | —    |       |
| Redemption of Series C  Preferred stock                                            |       | (1,700,000 | )          | —    |       |
| Payment of preferred stock  dividends                                              |       | (153,725   | )          | (99,642   | )          |
| Proceeds from exercise of  stock options                                           |       | 4,650      |       | —    |       |
| Net cash used in financing  activities                                             |       | (149,075   | )          | (99,642   | )          |
| Effect of exchange rate changes on cash                                            |       | (29,322    | )          | (1,671    | )          |
| Net increase (decrease) in  cash and cash equivalents                              |       | (49,457    | )          | 740,745   |       |
| Cash and cash equivalents at beginning of period                                   |       | 3,104,504  |       | 2,162,866 |       |
| Cash and cash equivalents at end of period                                         |       | $          | 3,055,047  |      | 2,903,611  |   |
|                                                                               |       |       |       |      |       |
| Supplemental cash flow disclosures:                                                |       |       |       |      |       |
| Cash paid during the period for interest                                           |       | $          | 128,283    |      | 70,316     |   |
| Cash paid during the period for income taxes                                       |       | —     |       | —    |       |
| Non-cash investing and financing activities:                                       |       |       |       |      |       |
| Accrued  compensation and related costs paid in stock options                      |       | $          | 17,425     |      | —     |   |

 

Seeaccompanying notes to unaudited consolidated financial statements.

5

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**CORVUCORPORATION AND SUBSIDIARIES**

**Notes to Unaudited Consolidated FinancialStatements for the Three and Nine Month Periods Ended March 31, 2007and 2006**

**(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 rules and regulations,certain financial information and footnote disclosures normally included in theconsolidated financial statements have been condensed or omitted.  The results for the periods indicated areunaudited, but reflect all adjustments (consisting only of normal recurringadjustments) which management considers necessary for a fair presentation ofoperating results.

Operating resultsfor the three and nine months ended March 31, 2007 are not necessarilyindicative of the results that may be expected for the year ending June 30,2007.  These unaudited consolidatedfinancial statements should be read in conjunction with the consolidatedfinancial statements and footnotes thereto included in the Company’s AnnualReport on Form 10-KSB for the year ended June 30, 2006.

**(2)****           Summary of SignificantAccounting Policies**

***(a)******           Revenue Recognition***

TheCompany recognizes revenues in accordance with the provisions of the AmericanInstitute of Certified Public Accountants Statement of Position (SOP) 97-2, “SoftwareRevenue Recognition,” as amended by SOP 98-4 and SOP 98-9, as well as TechnicalPractice Aids issued from time to time by the American Institute of CertifiedPublic Accountants, and in accordance with the Securities and ExchangeCommission Staff Accounting Bulletin No. (SAB) 101, “Revenue Recognition inFinancial Statements”, as amended by SAB 104.

Software license revenues are generally recognized when there is anexecuted license agreement, software has been delivered to the customer, thelicense fee is fixed and payable within twelve months, collection is deemedprobable and product returns are reasonably estimable. Revenues related tomultiple element arrangements are allocated to each element of the arrangementbased on the fair values of elements such as license fees, maintenance, andprofessional services.  Fair value isdetermined based on vendor specific objective evidence. The Company sells itsproducts directly to end users and indirectly using resellers and distributors.

The Company sells perpetual licenses to use their software in exchangefor a one-time licensing fee. The software is generally priced on a per userbasis, which represents an arrangement to use multiple single licenses of the samesoftware. The licensing fee recognized is a function of the number of copiesdelivered to the customer. In accordance with SOP 97-2, revenue is recognizedas those licenses are delivered, provided all other revenue recognitioncriteria have been met. In certain situations, the Company licenses theirsoftware under site, or unlimited user, licenses. Under these arrangements, theCompany is obligated to furnish an unlimited and unspecified number of licensesof the software, but only if the licenses are requested by the customer. Thelicensing fee is payable in full, whether or not the customer requests anyadditional licenses under the agreement. Accordingly, assuming all othercriteria of revenue recognition are met, the Company recognizes license revenueupon delivery of the first copy of the software.

When software revenues are generated by our resellers and distributors,as evidenced by a purchase order, the Company generally delivers the productdirectly to the end user customer and recognizes revenue in accordance with SOP97-2. In certain cases, the Company receives cash for prepayment of softwarelicense fees from resellers and distributors. Accordingly, revenue isrecognized upon the delivery and acceptance of the product, when title to theproduct has passed to the reseller or distributor and there is no right ofreturn or refund.  To date, the Companyhas not refunded any prepayments made by resellers or distributors.

Agreements with resellers and distributors contain contract terminationlanguage. Upon termination of a contract, any amounts due as a result of salesto end users which occurred up to the date of termination remain due andpayable. To date, the Company has successfully collected all amounts due underthese contractual provisions.

Maintenance revenues are recognized in accordance with SOP 97-2. Uponcollection of the funds from the customer, revenue is recognized ratably overthe term of the maintenance contract, typically 12 months, beginning with thefirst month of the maintenance contract period. Maintenance contracts arerenewable at the same rates as originally contracted. Customers covered undercurrent maintenance contracts receive the right to receive unspecifiedupgrades/enhancements of the products they have purchased on a when-and-if-availablebasis.

6

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Many of our software arrangements include consulting implementationservices sold separately under consulting engagement contracts. Consultingrevenues from these arrangements are generally accounted for separately fromnew software license revenues because the arrangements qualify as servicetransactions as defined in SOP 97-2. The more significant factors considered indetermining whether the revenue should be accounted for separately include thenature of services (i.e., consideration of whether the services are essentialto the functionality of the licensed product), degree of risk, availability ofservices from other vendors, timing of payments and impact of milestones oracceptance criteria on the realizability of the software license fee. Revenuesfor consulting services are generally recognized as the services are performed.If there is a significant uncertainty about the project completion or receiptof payment for the consulting services, revenue is deferred until the uncertaintyis sufficiently resolved. Contracts with fixed or “not to exceed” fees arerecognized on a proportional performance basis.

Deferred revenue represents payment received or amounts billed inadvance of services to be performed. The amounts included in deferred revenueare recognized as revenue in accordance with the policies discussed above.Deferred revenue consists of the following for the periods ended:
|                      | ** ** | **March 31,** | ** ** | **June 30,** | ** ** |
|----------------------|------------|--------------------|------------|-------------------|------------|
| ** **           | ** ** | **2007**           | ** ** | **2006**          | ** ** |
|                 |       |               |       |              |       |
| Maintenance  revenue |       | $                  | 4,770,201  |              | 5,040,712  |   |
| Services revenue     |       | 172,462            |       | 289,510           |       |
|                 |       |               |       |              |       |
| Total                |       | $                  | 4,942,663  |              | 5,330,222  |   |

As of March 31, 2007 and June 30, 2006, the balance ofaccounts receivable represented by unpaid maintenance contracts (which isincluded in deferred revenues) was $1,212,278 and $1,732,519, respectively.

7

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***(b)******           Net Income per CommonShare***

Basic net income attributable to common stockholders per common shareis computed by dividing net income attributable to common stockholders by theweighted average number of common shares outstanding during the period. Dilutednet income attributable to common stockholders per common share is computed bydividing net income attributable to common stockholders by the weighted averagenumber of common shares outstanding plus all additional common stock that wouldhave been outstanding if potentially dilutive common stock related to stockoptions and warrants had been issued.

Following is a reconciliation of basic and diluted net incomeattributable to common stockholders per common share for the three and ninemonths ended March 31, 2007 and 2006, respectively:
|                                                                          | ** ** | **Three Months Ended  March 31,**                                                                     | ** ** | **Nine Months Ended  March 31,** | ** ** |
|--------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                               | ** ** | **         2007         ** | ** ** | **2006**                                        | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                                     |       |                                                                                                                 |       |                                            |       |   |   |   |   |
| Income  attributable to common stockholders                              |       | $                                                                                                                    | 396,900    |                                            | 379,239    |   | 200,873 |   | 460,183 |   |
|                                                                     |       |                                                                                                                 |       |                                            |       |   |   |   |   |
| Weighted average  shares outstanding                                     |       | 49,522,368                                                                                                           |       | 49,483,268                                      |       | 49,519,250 |   | 49,483,268 |   |
|                                                                     |       |                                                                                                                 |       |                                            |       |   |   |   |   |
| Income  attributable to common stockholders per common share— basic |       | $                                                                                                                    | 0.01       |                                            | 0.01       |   | 0.00 |   | 0.01 |   |
|                                                                     |       |                                                                                                                 |       |                                            |       |   |   |   |   |
| Income per  common share — diluted:                                 |       |                                                                                                                 |       |                                            |       |   |   |   |   |
|                                                                     |       |                                                                                                                 |       |                                            |       |   |   |   |   |
| Income  attributable to common stockholders                              |       | $                                                                                                                    | 396,900    |                                            | 379,239    |   | 200,873 |   | 460,183 |   |
|                                                                     |       |                                                                                                                 |       |                                            |       |   |   |   |   |
| Weighted average  shares outstanding                                     |       | 49,522,368                                                                                                           |       | 49,483,268                                      |       | 49,519,250 |   | 49,483,268 |   |
|                                                                     |       |                                                                                                                 |       |                                            |       |   |   |   |   |
| Common stock  equivalents                                                |       | 2,929,768                                                                                                            |       | 3,306,966                                       |       | 3,853,188 |   | 2,142,846 |   |
|                                                                     |       |                                                                                                                 |       |                                            |       |   |   |   |   |
| Convertible  preferred stock                                             |       | 1,200,000                                                                                                            |       | 4,600,000                                       |       | 1,200,000 |   | 4,600,000 |   |
|                                                                     |       |                                                                                                                 |       |                                            |       |   |   |   |   |
| Weighted average  shares and potential diluted shares outstanding        |       | 53,652,136                                                                                                           |       | 57,390,234                                      |       | 53,372,438 |   | 56,226,114 |   |
|                                                                     |       |                                                                                                                 |       |                                            |       |   |   |   |   |
| Income attributable to  common stockholders — Diluted               |       | $                                                                                                                    | 0.01       |                                            | 0.01       |   | 0.00 |   | 0.01 |   |

 

The Company uses the treasury method for calculating the dilutiveeffect of the stock options and warrants (using the average market price).

Options, warrants and convertible preferred stock outstanding totaling8,863,791 and 8,113,791, respectively, were excluded from the computation ofcommon share equivalents for the three and nine months ended March 31, 2007, asthey were anti-dilutive. Options and warrants outstanding totaling 9,728,504and 9,894,504, respectively, were excluded from the computation of common shareequivalents for the three and nine months ended March 31, 2006, as they wereanti-dilutive.

***(c)******           Stock-BasedCompensation***

On December 16, 2004, the Financial Accounting Standards Board, orFASB, issued Statement of Financial Accounting Standards (SFAS) No. 123 (R), “Share-BasedPayment”, which is a revision of SFAS No. 123 and supersedes APB Opinion No.25. SFAS No. 123 (R) requires all share-based payments to employees, includinggrants of employee stock options, to be valued at fair value on the date ofgrant, and to be expensed over the applicable vesting period. Pro formadisclosure of the income statement effects of share-based payments is no longeran alternative. SFAS No. 123(R) is effective for all share-based awards grantedon or after July 1, 2006. In addition, companies must recognize compensationexpense related to any awards that are not fully vested as of the effectivedate. Compensation expense for the unvested awards will be measured based onthe fair value of the awards previously calculated in developing the pro formadisclosures in accordance with the provisions of SFAS No. 123. We implementedSFAS No. 123 (R) on July 1, 2006 using the modified prospective method.

8

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As more fully described in our Annual Report on Form 10-KSB for theyear ended June 30, 2006, the Company has granted stock options over the yearsto employees and directors under various stockholder approved stock optionplans. At July 1, 2006, options to purchase up to 8,250,126 shares of commonstock were outstanding under these plans. The fair value of each option grantwas determined as of the grant date, utilizing the Black-Scholes option pricingmodel. Based on these valuations, we recognized compensation expense of $45,698($0.00 per share) and $137,952 ($0.00 per share) for the three and nine monthsended March 31, 2007, respectively, related to the amortization of the unvestedportion of these options as of July 1, 2006. The amortization of each optiongrant will continue over the remainder of the vesting period of each optiongrant. As of March 31, 2007, $447,232 remains to be amortized to operations.

During the nine month period March 31, 2007, the Company granted fiveand seven year, fully vested stock options to directors, in exchange forservices, to purchase up to 95,000 shares of common stock, at exercise pricesranging from $0.30-0.40 per share. In addition, in previous years, similaroptions have been granted from time to time to directors in exchange forservices. In accordance with SFAS 123 (R), these options were valued at fairvalue on the date of grant. Based on these valuations, we recognizedcompensation expense of $13,803 ($0.00 per share) and $70,610 ($0.00 per share)for the three and nine months ended March 31, 2007, respectively, in theaccompanying statement of operations.

In prior years, in accordance with Accounting Principles Board (APB)Opinion No. 25 and related interpretations, the Company used the intrinsicvalue-based method for measuring stock-based compensation cost which measuredcompensation cost as the excess, if any, of quoted market price of the Company’scommon stock at the grant date over the amount the employee had to pay for thestock. The Company’s general policy was to grant stock options at fair value atthe date of grant. Options and warrants issued to non-employees were recordedat fair value, as required by Statement of Financial Accounting Standards (SFAS)No. 123, “Accounting for Stock-Based Compensation”, using the Black Scholespricing method. The Company had adopted the disclosure-only provisions of SFASNo. 148, “Accounting for Stock-Based Compensation”.

The expected life of the options is determined using a simplifiedmethod, computed as the average of the option vesting periods and thecontractual term of the option. For performance based options that vest uponthe occurrence of an event, the Company uses an estimate of when the event willoccur as the vesting period used in the Black-Scholes calculation for eachoption grant. Because of the lack of history to calculate a forfeiture rate,the Company has not adjusted the calculated value of the options for the threeand nine months ended March 31, 2007.

Had compensation cost been recognized based on the fair value ofoptions at the grant dates consistent with the provisions of SFAS No. 123, theCompany’s income attributable to common stockholders and basic and diluted netincome attributable to common stockholders per common share would have beenchanged to the following pro forma amounts:
|                                                                       | ** ** | **Periods Ended  March 31, 2006** | ** ** |
|-----------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                            | ** ** | **Three Months**                            | ** ** | **Nine Months** | ** ** |
| Income  attributable to common stockholders:                          |       |                                             |       |   |   |
| As reported                                                           |       | $                                                | 379,239    |   | 460,183 |   |
| Pro forma                                                             |       | 318,711                                          |       | 299,250 |   |
| Basic income  attributable to common stockholders per common share:   |       |                                             |       |   |   |
| As reported                                                           |       | 0.01                                             |       | 0.01 |   |
| Pro forma                                                             |       | 0.01                                             |       | 0.01 |   |
| Diluted income  attributable to common stockholders per common share: |       |                                             |       |   |   |
| As reported                                                           |       | 0.01                                             |       | 0.01 |   |
| Pro forma                                                             |       | 0.01                                             |       | 0.01 |   |
| Stock based  compensation:                                            |       |                                             |       |   |   |
| As reported                                                           |       | 0                                                |       | 0 |   |
| Pro forma                                                             |       | 60,528                                           |       | 160,933 |   |
|                                                                       |            |                                                  |            |  |  |  |

 

9

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In determining the compensation cost of options granted during thethree and nine months ended March 31, 2007 and 2006, as specified by SFAS No.123, the fair value of each option grant has been estimated on the date ofgrant using the Black-Scholes pricing model and the weighted averageassumptions used in these calculations are summarized as follows:
|                                   | ** ** | **Three Months Ended  March 31,** | ** ** | **Nine Months Ended  March 31,** | ** ** |
|-----------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                        | ** ** | **2007**                                         | ** ** | **2006**                                        | ** ** | **2007** | ** ** | **2006** | ** ** |
|                              |       |                                             |       |                                            |       |   |   |   |   |
| Risk-free  interest rate          |       | 4.50                                             | %          | 4.50                                            | %          | 4.50-4.875 | % | 3.875-4.50 | % |
| Expected life of  options granted |       | 7 years                                          |       | 7 years                                         |       | 5-7 years |   | 5-7 years |   |
| Expected  volatility              |       | 94                                               | %          | 152                                             | %          | 94 | % | 152 | % |
| Expected dividend yield           |       | 0                                                | %          | 0                                               | %          | 0 | % | 0 | % |

 

**(3)****           Comprehensive Income**

Comprehensive income and its components consist of the following:
|                                          | ** ** | **Three Months Ended March 31,** | ** ** | **Nine Months Ended March 31,** | ** ** |
|------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                               | ** ** | **2007**                                             | ** ** | **2006**                                            | ** ** | **2007** | ** ** | **2006** | ** ** |
| Net income                               |       | $                                                    | 422,475    |                                                | 404,081    |   | 299,148 |   | 516,825 |   |
| Other  comprehensive income (loss):      |       |                                                 |       |                                                |       |   |   |   |   |
| Foreign currency  translation adjustment |       | (1,943                                               | )          | 11,445                                              |       | (235,391 | ) | 110,692 |   |
| Comprehensive income                     |       | $                                                    | 420,532    |                                                | 415,526    |   | 63,757 |   | 627,517 |   |

 

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

Through March 31, 2007, the Company has U.S. Federal and Stateoperating loss carryforwards of approximately $8.9 million and $3.3 million,respectively.  In addition, the Companyhas foreign net operating loss carryforwards of approximately $7.3 million. TheU.S. net operating loss carryforwards expire in the years 2010 through 2024.The Company has recorded a valuation allowance at March 31, 2007 and June 30,2006 due to the uncertainties related to the ability to utilize certainFederal, State and international net operating loss carryforwards as determinedin accordance with accounting principles generally accepted in the UnitedStates of America.

Federal tax laws impose significant restrictions on the utilization ofnet operating loss carryforwards in the event of a change in ownership of theCompany which constitutes an “ownership change,” as defined by the InternalRevenue Code, Section 382.  The Company’snet operating loss carryforward may be subject to the above limitations.

**(5)****           Preferred Stock**

Holdersof the Series B Convertible Preferred Stock are entitled to receive a dividendof 6% per annum, payable quarterly in either cash or common stock, at theoption of the Company. For the three and nine month periods ended March 31,2007 and 2006, the Company has recorded dividends of $5,400 and $16,200 in eachperiod, respectively.

TheSeries C Convertible Preferred Stock accrued cumulative quarterly dividends of$1.50 per share during the first year after issuance, $2.25 per share duringthe second year after issuance, and $3.00 per share during the third year afterissuance. In accordance with Staff Accounting Bulletin Topic 5, “IncreasingRate Preferred Stock”, the Company has increased the carrying value of theSeries C Convertible Preferred stock by $90,000, represented as the net presentvalue of the difference between the actual stated value of dividends payable inthe first two years after issuance and the effective dividends based on a 12%market rate during those periods. For the three and nine month periods endedMarch 31, 2007, the Company amortized $2,600 and $17,200, respectively, of theeffective dividend discussed above. For the three and nine month periods endedMarch 31, 2006, the Company amortized $13,000 and $43,000, respectively, of theeffective dividend discussed above. In addition, the Company has recordedadditional dividends of $22,775 and $99,275 for the three and nine monthperiods ended March 31, 2007, respectively. For the three and nine monthperiods ended March 31, 2006, the Company has recorded additional dividends of$32,442 and $83,442, respectively. In February 2007, the Company redeemed allshares of Series C Convertible Preferred Stock using proceeds from the termloan discussed in Note 7. The amount of the redemption, including accrued butunpaid dividends as of the redemption date, was $1,722,775.

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**(6)****           Long-termDebt**

The Company had a $1.5 million loan which was collateralized bysubstantially all of the assets of the Company and its wholly-owned subsidiary,CorVu North America, Inc. (“CorVu North America”) and ranked senior to allexisting or future indebtedness of the Company. The interest rate for the loan was 6% during the first year of the loan,9% during the second year and 12% for the third year.  The loan became immediately due and payableupon the earlier of (i) 36 months from the date of issuance (February 2005),(ii) a merger or combination of the Company or a sale of all or substantiallyall of the assets of the Company, or (iii) the acquisition of more than 50% of thevoting power or interest in the Company by a single entity or person. InFebruary 2007, the Company repaid the balance of this facility using proceedsfrom the term loan discussed in Note 7. The amount repaid, including accruedbut unpaid interest, was $1,520,096.

**(7)****           TermLoan**

In February 2007, the Company entered into a term loan agreement in theprincipal amount of $3,200,000.  Proceedsof the loan were used to redeem all outstanding shares of Series C ConvertiblePreferred Stock (see Note 5) and to retire the loan discussed in Note 6. Theloan is secured by a security interest in all of the assets of the Company andCorVu North America, Inc. and a cash collateral account that Company hasestablished with the lender.  The cashcollateral account was funded with $2,000,000 at the closing.  The Company is obligated to increase thebalance in the cash collateral account by making three additional cash depositsof $100,000 each on or before April 30, 2007, June 30, 2007 and July 31, 2007,respectively. The Company has made the deposit required on April 30, 2007. Aslong as any amount under the term loan is outstanding, the balance maintainedin the cash collateral account is restricted from any use by the Company.Accordingly, the balance as of March 31, 2007 of $2,000,000 has been reflectedas restricted cash in the accompanying balance sheet.

Interest on the aggregate unpaid principal amount of the loan will becharged and is payable on the first day of each month at the followingrates:  Interest on the outstandingprincipal amount equal to the amount deposited in the cash collateral accountshall be equal to the interest rate earned by the Company on the balance insuch account plus 2.6%, whereas interest on the remaining principal amount willbe charged at a rate equal to the then Prime Rate plus 1.5%.  This rate adjusts to the then Prime Rate plus1.0% once the balance in the cash collateral account reaches $2,300,000. Uponthe occurrence of an event of default, each of such interest rates shallincrease by 3%.

Commencing on September 1, 2007, and on each December 1, March 1, June1 and September 1 thereafter, the Company is required to make quarterlyprincipal payments of $75,000.  The noteis due and payable in full on February 28, 2008 but, may be extended, at thesole discretion of the lender, for up to two one-year extensions, for a maximumterm of three years.

The loan is also secured by an unlimited corporate guaranty provided byCorVu North America and a limited personal guaranty provided jointly andseverally by certain officers and directors of the Company.  The personal guaranty is limited to an amountof $300,000. The balance of the guaranty will be reduced by each additionalcash deposit the Company makes into the cash collateral account and will befully released after the last of such deposits (on or before July 31, 2007),provided, all these deposits are made in a timely way and the Company is not indefault at the time of such deposit.

The loan is subject to customary covenants, including a covenant tomaintain a debt service coverage ratio for the 12-month period ending at theend of each quarter, beginning with the quarter ending December 31, 2007, ofnot less than 1.25 to 1, and a covenant to maintain tangible net worth of notless than negative $4,500,000, negative $3,750,000 and negative $3,000,000 forcalendar years 2007, 2008 and 2009, respectively.

Interest expense for the three and nine month periods ended March 31,2007 was $28,778, which is included in the accompanying statements ofoperations. Accrued interest as of March 31, 2007 of $22,303 is included in theaccompanying balance sheets.

**(8)****           Reversalof Foreign Payroll Tax and Other Liabilities**

During the three months ended March 31, 2007, the Company recorded acredit of $644,279 to reverse previously recorded foreign payroll tax and otherliabilities which had been incurred in connection with past operations ofsubsidiaries in various foreign countries that have been subsequentlydissolved. The liabilities were no longer necessary as the applicable statutesof limitations have expired and the amounts are no longer due or collectible.

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**(9)****           Mergerwith Rocket Software, Inc.**

On March 5, 2007, the Company entered into an Agreement and Plan ofMerger with Rocket Software, Inc. a Delaware corporation (“Rocket Software”),Rocket Software Minnesota, Inc., a Minnesota corporation and a wholly-ownedsubsidiary of Rocket Software (“Newco”) pursuant to which Newco will be mergedwith and into the Company, with the Company surviving the merger as awholly-owned subsidiary of Rocket Software. Upon completion of the merger, each share of the Company’s common stock(other than shares held by shareholders who properly assert their dissenters’rights under Minnesota law) will be converted into the right to receive $0.40in cash, without interest, and each share of the Company’s Series B ConvertiblePreferred Stock (other than shares held by shareholders who properly asserttheir dissenters’ rights under Minnesota law) will be converted into the right toreceive $2.33333 in cash, without interest. If the merger is completed, the Company will cease to be a publiccompany.

The approval of the merger agreement requires (a) the affirmative voteof the holders of a majority of the outstanding shares of common stock and theholders of a majority of the outstanding shares of preferred stock, votingtogether in a single class on an as-converted basis, and (b) the affirmativevote of the holders of a majority of the outstanding shares of preferred stock,voting as a separate class. A special meeting of the shareholders has beencalled to vote on the proposed merger on May 10, 2007. If the Company’sshareholders approve the merger and all other closing conditions are either metor waived, the closing of the merger is expected to occur on or before May 21,2007.

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**Item 2.****    Management’s Discussion andAnalysis or Plan of Operation**

**For the Three and Nine MonthsEnded March 31, 2007**

**versusMarch 31, 2006**

**REVENUES:**

Total revenue decreased10% and 12% for the three and nine months ended March 31, 2007, respectively,compared to the same periods a year ago.

Software revenues decreased $358,805 (23%) and$1,415,644 (30%) for the three and nine months ended March 31, 2007,respectively, from the same periods last year. Software revenues in theAmericas region declined $355,269 (67%) and $259,726 (22%) for the three andnine month periods ended March 31, 2007, over the comparable periods last year.The decreases were largely attributable to no counterpart to (a) a sale to alarge auditing and consulting firm ($133,000) recorded in the March quarter oflast year and (b) a sale to the distributor for Latin/South America, whichcontributed $125,000 and $375,000 for the three and nine month periods endedMarch 31, 2006, respectively. Software revenues in the Asia-Pacific regionincreased $202,933 (65%) and declined $597,594 (34%) for the three and ninemonth periods ended March 31, 2007, over the comparable periods last year. Alarger number of direct deals were closed during the current quarter comparedto the comparable quarter last year. The maturity of the sales force (length oftenure) has certainly contributed to a higher close rate on pipeline deals. Themain factor contributing to the decline shown for the nine month period weretwo transactions valued at approximately $800,000 (including a $600,000 sale toa non-U.S. defense agency) in software revenues closed in the second quarter oflast year. Software revenues have declined in the UK/Europe region since lastyear, $206,469 (28%) and $558,324 (31%) for the three and nine month periodsended March 31, 2007, respectively, over the comparable periods last yearmainly due to no counterpart to last year’s orders from a large auditing andconsulting firm ($133,000) and two large orders from local governmentsaggregating $300,000. We have recently added three salespeople in this regionat the beginning of the three month period ended March 31, 2007 which should favorablyimpact future results.

Maintenance revenuesincreased $137,352 (9%) and $286,714 (6%) for the three and nine months endedMarch 31, 2007, respectively, from the same periods last year. Results areindicative of the continued maintenance contract renewals and collections, andcontracts sold to new customers at the current rate of 20% of the softwarelicense fee paid.

Consulting and otherrevenues decreased $142,864 (19%) and $194,430 (9%), for the three and ninemonths ended March 31, 2007, respectively, from the same periods last year.Revenues in this area are usually indicative of the results in softwarerevenues and were impacted negatively by lower software license sales. Assoftware revenues increase, we would expect revenues in this area to increaseas well.

**OPERATING COSTS AND EXPENSES:**

Operating expensesdecreased $348,422 (10%) and $1,029,398 (10%) for the three and nine months endedMarch 31, 2007, respectively, from the same periods last year.

Cost of consulting andother services expenses decreased $118,100 (16%) and $258,017 (11%) for thethree and nine months ended March 31, 2007, respectively. The number ofpersonnel in this area has declined by approximately 25% this year compared tothe same period last year due to a decrease in the number of implementationprojects (see decline in software revenues discussed above).

Product development costs increased $43,473 (8%) and$23,775 (1%) for the three and nine months ended March 31, 2007, respectively,from the same periods last year.

Sales and marketingexpenses increased $151,331 (15%) and decreased $211,701 (6%) for the three andnine months ended March 31, 2007, respectively, from the same periods lastyear. Sales commissions have increased $21,055 (14%) and decreased $145,129(26%) for the three and nine month periods ended March 31, 2007, respectively,from the same periods last year, in line with changes in software revenuesdiscussed above. Other costs have increased by $130,276 (15%) for the threemonth period ended March 31, 2007, when compared to the same period last year,due to recruiting fees incurred for the salespeople added in the UK/Europeregion during the quarter and because of the global marketing position that wasadded earlier this year.

General andadministrative expenses decreased $60,627 (5%) and $218,956 (6%) for the threeand nine months ended March 31, 2007, respectively, from the same periods lastyear. These decreases are primarily due to the fact that corporate bonuses havedecreased by approximately $180,000 and $245,000 for the three and nine monthperiod ended March 31, 2007, respectively, from the same periods last year.

Reversal of foreignpayroll tax and other liabilities reflects a credit of $644,279 that wasrecorded during the three months ended March 31, 2007 to remove previouslyrecorded liabilities for expenses incurred by subsidiaries operating in variousforeign countries that have been

13

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subsequently dissolved.These liabilities were no longer needed due to the fact that applicablestatutes of limitation have expired and the amounts are no longer payable orcollectible.

Merger costs and expensesincurred in connection with the planned merger with Rocket Software, Inc. were$279,780 for the three month period ended March 31, 2007

**OPERATING INCOME:**

CorVu Corporationgenerated operating income of $399,307 and $278,521 for the three and ninemonths ended March 31, 2007, respectively, compared to operating income of$415,202 and $572,483 for the three and nine months ended March 31, 2006,respectively.

**INTEREST INCOME (EXPENSE), NET:**

Interest income(expense), net increased $34,289 (308%) and $76,285 (137%) for the three andnine months ended March 31, 2007, respectively, from the same periods lastyear. Results in this year have been positively impacted by the reversal of anaccrual of interest on long-term debt (approximately $56,000) that was retiredprior to maturity. In addition, interest income on excess cash has increasedfor the periods ended March 31, 2007, from the same periods last year, due tothe higher cash balances maintained during the year.

**NET INCOME:**

CorVu Corporationreported net income of $422,475 and $299,148 for the three and nine monthsended March 31, 2007, respectively, compared to net income of $404,081 and$516,825 for the three and nine months ended March 31, 2006, respectively.

**PREFERRED STOCK DIVIDENDS:**

The Company recordedpreferred stock dividends of $25,575 and $98,275 for the three and nine monthsended March 31, 2007, respectively, compared to dividends of $24,842 and$56,642 for the three and nine months ended March 31, 2006, respectively.

**INCOME ATTRIBUTABLE TO COMMONSTOCKHOLDERS:**

CorVu Corporationreported income attributable to common stockholders of $396,900 and $200,873for the three and nine months ended March 31, 2007, respectively, compared toincome attributable to common stockholders of $379,239 and $460,183 for thethree and nine months ended March 31, 2006, respectively.

**Liquidity and Capital Resources**

Total cash and cashequivalents decreased by $49,457 during the nine months ended March 31, 2007from $3,104,504 as of June 30, 2006 to $3,055,047 as of March 31, 2007.  Net cash provided by operating activities was$173,048 for the nine months ended March 31, 2007. Net cash used in investingactivities was $44,108, reflecting the acquisition of capital assets during theperiod.  Net cash used by financingactivities was $149,075 for the nine months ended March 31, 2007 as a result ofthe payment of preferred stock dividends in the amount of $153,725 which waspartially offset by proceeds from the exercise of stock options ($4,650). Inaddition, proceeds from a $3.2 million term loan were used to redeem all sharesof Series C Preferred Stock ($1.7 million) and to retire long-term debt ($1.5million). Foreign exchange rate changes reduced the value of cash by $29,322.

Our plan is tocontinue to manage our operating expenses to keep them in line with revenues wegenerate. Management expects revenues to improve as sales and marketinginitiatives take effect. We believe that we will generate sufficient cash flowfrom operations to meet our operating cash requirements for the next 12 months.

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**Critical Accounting Policies andEstimates-**

Our significantaccounting policies are described in Note 1 to the consolidated financialstatements included in our annual report for the year ended June 30, 2006. Theaccounting policies used in preparing our interim 2007 consolidated financialstatements are the same as those described in our annual report, and are asfollows:

Revenue Recognition. 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 (SAB) No. 101, “Revenue Recognition in Financial Statements”, asamended by SAB 104. We license software under non-cancelable license agreementsand provide related professional services, including consulting, training, and implementationservices, as well as ongoing customer support 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 aregenerally recorded separately from license fees. Our specific revenuerecognition policies are as follows:

Software License Fees.Software license fee revenues from end-users, resellers and distributors aregenerally recognized when there is an executed license agreement, software hasbeen delivered to the customer, the license fee is fixed and payable withintwelve months, collection is deemed probable and product returns are reasonablyestimable. Revenues related to multiple element arrangements are allocated toeach element of the arrangement based on the fair values of elements such aslicense fees, maintenance, and professional services. Fair value is determinedbased on vendor specific objective evidence. In certain cases, the Companyreceives cash for prepayment of software license fees from resellers anddistributors. Accordingly, revenue is recognized upon the delivery andacceptance of the product, when title to the product has passed to the reselleror distributor and there is no right of return or refund.  To date, the Company has not refunded anyprepayments made by resellers or distributors.

Maintenance, Consulting and other. Revenues fromtraining and consulting services are recognized as services are provided tocustomers. Revenues from maintenance contracts are deferred until collectionhas occurred and recognized ratably over the term of the maintenanceagreements, beginning with the first month of the maintenance contract period.

Software DevelopmentCosts.  Software development costs areexpensed as incurred until technological feasibility is established. Softwaredevelopment costs incurred subsequent to establishing technological feasibilityare capitalized and amortized over the estimated useful lives of the software.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 lossis estimable and probable. There are no pending contingencies as of March 31,2007.

Stock Based Compensation.The Company uses guidance prescribed by SFAS No. 123(R), “Share-Based Payment,”and related interpretations in accounting for employee stock options and stockbased compensation. Management’s estimates of the fair value of each option andwarrant granted is calculated using the Black-Scholes pricing model withweighted-average assumptions including risk free interest rate, expected lifeof options granted, expected volatility range, and expected dividend yield.

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**CautionaryFactors That May Affect Future Results**

This Quarterly Reporton Form 10-QSB, including the information incorporated by reference hereinand the exhibits hereto, and other written and oral statements made from timeto time by us may include “forward-looking” statements. Forward-lookingstatements broadly involve our current expectations for future results. Anystatement that is not a historical fact, including estimates, projections,future trends and the outcome of events that have not yet occurred, areforward-looking statements. Our forward-looking statements generally relate toour financing plans, trends affecting our financial condition or results ofoperations, our growth and operating strategy, product development, competitivestrengths, the scope of our intellectual property rights, sales efforts, andthe 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 ourforward-looking statements. You must carefully consider forward-lookingstatements and understand that such statements involve a variety of assumptions,risks and uncertainties, known and unknown, and may be affected by a number offactors, including, among others, the factors discussed in our Annual Report onForm 10-KSB for the year ended June 30, 2006.

We also caution youthat forward-looking statements speak only as of the date made. We undertake noobligation to update any forward-looking statement, but investors are advisedto consult any further disclosures by us on this subject in our filings withthe Securities and Exchange Commission, especially on Forms 10-KSB,10-QSB, and 8-K (if any), in which we discuss in more detail various importantfactors that could cause actual results to differ from expected or historicresults. We intend to take advantage of the safe harbor provisions of thePrivate Securities Litigation Reform Act of 1995 regarding our forward-lookingstatements, and are including this sentence for the express purpose of enablingus to use the protections of the safe harbor with respect to allforward-looking statements.

**Item 3****     Controls and Procedures**

Management of the Company has evaluated, withthe participation of the Chief Executive Officer and Chief Financial Officer ofthe Company, the effectiveness of the Company’s disclosure controls andprocedures (as defined in Rules 13a-15(e) and 15d-15(e) under the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”)) as of the end of thefiscal quarter covered by this Quarterly Report on Form 10-QSB.  Based on that evaluation, the Chief ExecutiveOfficer and Chief Financial Officer of the Company have concluded that theCompany’s disclosure controls and procedures as of the end of the fiscalquarter covered by this Quarterly Report on Form 10-QSB are effective to (1)provide reasonable assurance that information required to be disclosed by theCompany in the reports that it files or submits under the Exchange Act isrecorded, processed, summarized and reported within the time periods specifiedin the rules and forms of the Securities and Exchange Commission and (2) ensurethat information required to be disclosed in the reports that we file or submitunder the Exchange Act is accumulated and communicated to management, includingthe Chief Executive Officer and the Chief Financial Officer, to allow timelydecisions regarding required disclosure. Management of the Company has also evaluated, with the participation ofthe Chief Executive Officer and Chief Financial Officer of the Company, anychange in the Company’s internal control over financial reporting (as definedin Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred duringthe fiscal quarter covered by this Quarterly Report on Form 10-QSB.  There was no change in the Company’s internalcontrol over financial reporting identified in that evaluation that occurredduring the fiscal quarter covered by this Quarterly Report on Form 10-QSB thathas materially affected, or is reasonably likely to materially affect, theCompany’s internal control over financial reporting.

The Company has a limited number of employees and hasdetermined that is not able to have proper segregation of duties based on ananalysis of the cost versus the benefit of hiring additional employees solelyto address that issue. We have determined that the risks associated with thelack of segregation of duties are insignificant based on the close involvementof management in day-to-day activities (i.e. tone at the top, corporategovernance, officer oversight and involvement with daily activities, and othercompany controls). The Company has limited resources available and the limitedamount of transactions and activities allow for sufficient compensatingcontrols.

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**PART II**

**OTHER INFORMATION**
| Item 1. |   | Legal Proceedings.                                                                                                                                                       |
|---------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                     |
|    |   | During the quarter ended March 31, 2007, the Company  did not have any additional legal proceedings that were outside of routine  litigation incidental to the business. |
|    |   |                                                                                                                                                                     |
| Item 2. |   | Unregistered Sales of  Equity Securities and Use of Proceeds.                                                                                                            |
|    |   |                                                                                                                                                                     |
|    |   | None                                                                                                                                                                     |
|    |   |                                                                                                                                                                     |
| Item 3. |   | Defaults Upon Senior  Securities.                                                                                                                                        |
|    |   |                                                                                                                                                                     |
|    |   | None                                                                                                                                                                     |
|    |   |                                                                                                                                                                     |
| Item 4. |   | Submission of Matters  to a Vote of Security Holders.                                                                                                                    |
|    |   |                                                                                                                                                                     |
|    |   | None                                                                                                                                                                     |
|    |   |                                                                                                                                                                     |
| Item 5. |   | Other Information.                                                                                                                                                       |
|    |   |                                                                                                                                                                     |
|    |   | None                                                                                                                                                                     |
|    |   |                                                                                                                                                                     |
| Item 6. |   | Exhibits.                                                                                                                                                                |
|    |   |                                                                                                                                                                     |
|    |   | (a)  Exhibits: See Exhibit Index on page  following the signature page of this Form 10-QSB.                                                                    |

17

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**SIGNATURES**

In accordance withthe requirements of the Exchange Act, the registrant caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.
|                                |   |  CORVU CORPORATION                    |   |   |   |   |
|--------------------------------|--------|--------------------------------------------|--------|--------|--------|--------|
|                           |   |                                       |   |   |   |   |
|                           |   |                                       |   |   |   |   |
| Date:  May  15, 2007 | By     |   /s/ David C. Carlson           |   |   |   |   |
|                           |   |    David  C. Carlson        |   |   |   |   |
|                           |   |    Chief  Financial Officer |   |   |   |   |

 

18

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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 |

 

19

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