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

**Washington, D.C. 20549**

 

**FORM 10-QSB**

 

**ý QUARTERLYREPORT UNDER SECTION 13 OF 15 (D) OF THE SECURITIES EXCHANGEACT OF 1934**

 

**For the quarterly period endedMarch 31, 2003**

 

**OR**

 

**o TRANSITIONREPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT**

 

**For the transition period from            to           .**

 

**Commission File No. 000-29299**

 

| **CorVu Corporation**                                                                            |
|--------------------------------------------------------------------------------------------------|
| (Exact  name of registrant as specified in its charter)                                          |
|                                                                                             |   |   |
| **Minnesota**(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)                            |

 

Checkwhether the issuer (1) filed all reports required to be filed by Sections 13 or15(d) of the Exchange Act during the past 12 months (or such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

Yes  ý   No  o

 

Statethe number of shares outstanding of each of the issuer’s classes of commonequity as of the latest practicable date.

 

**Class:  Common Stock, parvalue $.01 per share**

**Outstanding shares as of March 31,2003:  22,694,962**

 

 

----

 

**CorVu Corporation**

**Index to Form 10-QSB**

 
| PART I FINANCIAL INFORMATION |
|------------------------------|
|                         |
|                         | Item  1.  Financial Statements |
|                         |   |
|                         | Consolidated  Balance Sheets March 31, 2003 (Unaudited) and June 30, 2002 |
|                         |   |
|                         | Consolidated  Statements of Cash Flows (Unaudited) Nine Month Periods Ended March 31, 2003  and 2002 |
|                         |   |
|                         | Consolidated  Statements of Operations (Unaudited) Three and Nine Month Periods Ended March  31, 2003 and 2002 |
|                         |   |
|                         | Notes  to Unaudited Consolidated Financial Statements For the Three and Nine Month  Periods Ended March 31, 2003 and 2002 |
|                         |   |
|                         | 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**

**FINANCIAL INFORMATION**

 

**Item 1.****                 ****Finan****cial Statements**

 

**CORVU CORPORATION AND SUBSIDIARIES**

** **

Consolidated Balance Sheets

 

 
|                                                                                                                                  |   | **March 31,  2003** |       | **June 30,  2002** |       |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|------------|--------------------|------------|
|                                                                                                                                  |   | **(Unaudited)**     |       | **(Audited)**      |       |
| **Assets**                                                                                                                            |   |                |       |               |       |
|                                                                                                                                  |   |                | ** ** |               | ** ** |
| Current assets:                                                                                                                       |   |                |       |               |       |
| Cash and cash  equivalents                                                                                                            |   | $                   | 839,339    |               | 279,176    |   |
| Trade accounts  receivable, net of allowance for doubtful accounts of $178,000 and $160,000,  respectively                            |   | 2,587,181           |       | 2,845,858          |       |
| Deferred income  taxes                                                                                                                |   | 708,000             |       | —             |       |
| Prepaid expenses  and other                                                                                                           |   | 222,880             |       | 197,851            |       |
| Total current  assets                                                                                                                 |   | 4,357,400           |       | 3,322,885          |       |
| Furniture,  fixtures and equipment, net                                                                                               |   | 163,351             |       | 99,940             |       |
|                                                                                                                                  |   | $                   | 4,520,751  |               | 3,422,825  |   |
|                                                                                                                                  |   |                |       |               |       |
| **Liabilities and  Stockholders’ Deficit**                                                                                       |   |                |       |               |       |
|                                                                                                                                  |   |                | ** ** |               | ** ** |
| Current  liabilities:                                                                                                                 |   |                |       |               |       |
| Accounts payable                                                                                                                      |   | $                   | 1,245,591  |               | 2,036,842  |   |
| Accrued compensation  and related costs                                                                                               |   | 2,158,423           |       | 2,527,493          |       |
| Deferred revenue                                                                                                                      |   | 3,827,856           |       | 2,872,329          |       |
| Notes  payable-stockholder                                                                                                            |   | 685,767             |       | —             |       |
| Accrued interest                                                                                                                      |   | 161,969             |       | 73,232             |       |
| Other accrued  expenses                                                                                                               |   | 708,417             |       | 845,168            |       |
| Total current  liabilities                                                                                                            |   | 8,788,023           |       | 8,355,064          |       |
|                                                                                                                                  |   |                |       |               |       |
| Notes  payable-stockholder                                                                                                            |   | —              |       | 685,767            |       |
|                                                                                                                                  |   |                |       |               |       |
| Stockholders’  deficit:                                                                                                          |   |                |       |               |       |
| Undesignated,  24,000,000 shares                                                                                                      |   |                |       | —             |       |
| Series A  convertible preferred stock, par value $10 per share; 1,000,000 shares  authorized; 0 and 200 shares issued and outstanding |   | —              |       | 2,000              |       |
| Common stock,  $0.01 par value; 75,000,000 shares authorized; 22,694,962 and 20,730,835  shares issued and outstanding                |   | 226,894             |       | 207,252            |       |
| Additional  paid-in capital                                                                                                           |   | 16,693,292          |       | 16,223,744         |       |
| Stock  subscription receivable                                                                                                        |   | (324,000            | )          | —             |       |
| Accumulated  deficit                                                                                                                  |   | (20,605,756         | )          | (22,191,944        | )          |
| Foreign currency  translation adjustment                                                                                              |   | (257,702            | )          | 140,942            |       |
| Total  stockholders’ deficit                                                                                                     |   | (4,267,272          | )          | (5,618,006         | )          |
| Total  liabilities and stockholders’ deficit                                                                                     |   | $                   | 4,520,751  |               | 3,422,825  |   |

 

See accompanying notes to unaudited consolidated financial statements.

 

2

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**CORVU CORPORATION AND SUBSIDIARIES**

 

ConsolidatedStatements of Cash Flows (Unaudited)

 

Nine Month Periods Ended March 31, 2003and 2002

 
|                                                                                      |   | **2003** |      | **2002** |     |
|-------------------------------------------------------------------------------------------|--------|----------|-----------|----------|----------|
| Cash flows from  operating activities:                                                    |   |     |      |     |     |
| Net income  (loss)                                                                        |   | $        | 1,586,658 |     | (229,955 | ) |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities: |   |     |      |     |     |
| Depreciation                                                                              |   | 52,764   |      | 44,000   |     |
| Warrants and  stock options vested                                                        |   | 64,194   |      | 309,646  |     |
| Changes in  operating assets and liabilities:                                             |   |     |      |     |     |
| Trade accounts  receivable, net                                                           |   | 158,677  |      | (45,942  | )        |
| Deferred income  taxes                                                                    |   | (708,000 | )         | —   |     |
| Prepaid expenses  and other                                                               |   | (25,029  | )         | (12,537  | )        |
| Accounts payable                                                                          |   | (941,381 | )         | 110,271  |     |
| Accrued  compensation and related costs                                                   |   | (469,070 | )         | 8,988    |     |
| Deferred revenue                                                                          |   | 805,527  |      | (133,925 | )        |
| Accrued interest                                                                          |   | 88,737   |      | 64,207   |     |
| Other accrued  expenses                                                                   |   | (61,679  | )         | 34,157   |     |
| Net cash  provided by operating activities                                                |   | 551,398  |      | 148,910  |     |
|                                                                                      |   |     |      |     |     |
| Cash flows from  investing activities:                                                    |   |     |      |     |     |
| Capital  expenditures                                                                     |   | (116,175 | )         | (51,135  | )        |
| Net cash used in  investing activities                                                    |   | (116,175 | )         | (51,135  | )        |
|                                                                                      |   |     |      |     |     |
| Cash flows from  financing activities:                                                    |   |     |      |     |     |
| Proceeds from  sale of common stock                                                       |   | 100,995  |      | 19,005   |     |
| Redemption of  preferred stock                                                            |   | (2,340   | )         | —   |     |
| Repayment of  notes payable                                                               |   | —   |      | (188,123 | )        |
| Borrowings  on notes payable— stockholder                                       |   | —   |      | 169,600  |     |
| Repayment on  notes payable— stockholder                                             |   | —   |      | (59,200  | )        |
| Other                                                                                     |   | —   |      | 21,190   |     |
| Net cash  provided (used) by financing activities                                         |   | 98,655   |      | (37,528  | )        |
| Effect of  exchange rate changes on cash                                                  |   | 26,285   |      | (532     |  )  |
| Net increase in  cash and cash equivalents                                                |   | 560,163  |      | 59,715   |     |
| Cash and cash  equivalents at beginning of period                                         |   | 279,176  |      | 77,409   |     |
| Cash and cash  equivalents at end of period                                               |   | $        | 839,339   |     | 137,124  |   |
|                                                                                      |   |     |      |     |     |
| Non-cash  investing and financing activities:                                             |   |     |      |     |     |
| Common stock  issued for stock subscription receivable                                    |   | $        | 324,000   |     | —   |   |
| Cashless  exercise of stock warrants                                                      |   | $        | 4,888     |     | —   |   |
| Conversion of  director advance into common stock                                         |   | $        | —    |     | 12,000   |   |

 

See accompanying notes to unaudited consolidated financial statements.

 

3

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**CORVU CORPORATION AND SUBSIDIARIES**

** **

Consolidated Statements of Operations (Unaudited)

 

Three and Nine Month Periods EndedMarch 31, 2003 and 2002

 
|                                              |   | **Three Months Ended** |     | **Nine Months Ended** |      |
|---------------------------------------------------|--------|------------------------|----------|-----------------------|-----------|
|                                              |   | **March 31,  2003**    |     | **March 31,  2002**   |      | **March 31,  2003** |   | **March 31,  2002** |   |
|                                              |   |                   |     |                  |      |   |   |   |   |
| Revenues:                                         |   |                   |     |                  |      |   |   |   |   |
| Software and  license fees                        |   | $                      | 961,155  |                  | 1,250,631 |   | 5,733,054 |   | 3,783,629 |   |
| Maintenance,  consulting, and other               |   | 2,211,685              |     | 1,470,233             |      | 5,776,228 |   | 4,122,713 |   |
|                                              |   |                   |     |                  |      |   |   |   |   |
| Total revenues                                    |   | 3,172,840              |     | 2,720,864             |      | 11,509,282 |   | 7,906,342 |   |
| Operating costs  and expenses:                    |   |                   |     |                  |      |   |   |   |   |
| Cost of  maintenance, consulting, and other       |   | 745,341                |     | 683,258               |      | 2,300,093 |   | 2,021,637 |   |
| Product  development                              |   | 325,241                |     | 248,965               |      | 935,835 |   | 804,105 |   |
| Sales and  marketing                              |   | 1,438,159              |     | 849,330               |      | 4,255,417 |   | 2,743,143 |   |
| General and  administrative                       |   | 1,034,736              |     | 651,028               |      | 3,077,480 |   | 2,447,335 |   |
| Total operating  costs and expenses               |   | 3,543,477              |     | 2,432,581             |      | 10,568,825 |   | 8,016,220 |   |
|                                              |   |                   |     |                  |      |   |   |   |   |
| Operating income  (loss)                          |   | (370,637               | )        | 288,283               |      | 940,457 |   | (109,878 | ) |
|                                              |   |                   |     |                  |      |   |   |   |   |
| Interest  expense, net                            |   | (11,580                | )        | (47,216               | )         | (61,799 | ) | (120,077 | ) |
|                                              |   |                   |     |                  |      |   |   |   |   |
| Income (loss)  before income taxes                |   | (382,217               | )        | 241,067               |      | 878,658 |   | (229,955 | ) |
|                                              |   |                   |     |                  |      |   |   |   |   |
| Benefit from  income taxes                        |   | —                 |     | —                |      | 708,000 |   | — |   |
|                                              |   |                   |     |                  |      |   |   |   |   |
| Net income  (loss)                                |   | $                      | (382,217 | )                     | 241,067   |   | 1,586,658 |   | (229,955 | ) |
|                                              |   |                   |     |                  |      |   |   |   |   |
| Net income  (loss) per common share—basic    |   | $                      | (0.02    | )                     | 0.01      |   | 0.07 |   | (0.01 | ) |
| Weighted average  shares outstanding—basic   |   | 22,694,554             |     | 20,442,651            |      | 22,030,901 |   | 20,321,696 |   |
| Net income  (loss) per common share—diluted  |   | $                      | (0.02    | )                     | 0.01      |   | 0.07 |   | (0.01 | ) |
| Weighted average  shares outstanding—diluted |   | 22,694,554             |     | 21,501,227            |      | 22,809,208 |   | 20,321,696 |   |

 

See accompanying notes to unaudited consolidated financial statements.

 

4

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**CORVU CORPORATION AND SUBSIDIARIES**

 

**Notes****to Unaudited Consolidated Financial Statements For the Threeand Nine Month Periods Ended March 31, 2003 and 2002**

 

**(1)****                ****Unaudited Financial Statements**

 

The accompanying unauditedconsolidated financial statements of CorVu Corporation and Subsidiaries havebeen prepared by the Company in accordance with accounting principles generallyaccepted in the United States of America for interim financial information,pursuant to the rules and regulations of the Securities and Exchange Commission.  Pursuant to such rules and regulations,certain financial information and footnote disclosures normally included in 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 results for thethree and nine months ended March 31, 2003 are not necessarily indicative ofthe results that may be expected for the year ending June 30, 2003.  These unaudited consolidated financialstatements should be read in conjunction with the consolidated financialstatements and footnotes thereto included in the Company’s Annual Report onForm 10-KSB for the year ended June 30, 2002.

 

**(2)****                ****Summary of Significant AccountingPolicies**

 

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

 

Software license revenue isrecognized when all of the following criteria have been met: 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 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 determinedbased on vendor specific objective evidence. Maintenance revenues are recognized ratably over the term of themaintenance contract, typically 12 to 36 months.  Consulting and other revenues are recognized when services areperformed.

 

Deferred revenue representspayment received or amounts billed in advance of services to be performed.

 

5

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***(b)******                ******Net Income (Loss) per Common Share***

*** ***

Basic net income (loss) percommon share is computed by dividing net income (loss) by the weighted averagenumber of common shares outstanding during the period. Diluted net income (loss)per common share is computed by dividing net income (loss) by the weightedaverage number of common shares outstanding plus all additional common stockthat would have been outstanding if potentially dilutive common stock relatedto stock options and warrants had been issued. Weighted average sharesoutstanding-diluted includes 778,307 shares of dilutive securities for the ninemonths ended March 31, 2003. Weighted average shares outstanding-dilutedincludes 1,058,576 shares of dilutive securities for the three months endedMarch 31, 2002. Dilutive common equivalent shares have not been included in thecomputation of diluted net loss per share for the three months ended March 31,2003 and the nine months ended March 31, 2002 because their inclusion would beanti-dilutive.

 

Following is areconciliation of basic and diluted net income (loss) per common share for thethree and nine months ended March 31, 2003 and 2002, respectively:

 
|                                                              |   | **Three Months Ended  March 31,** |     | **Nine Months Ended  March 31,** |    |
|-------------------------------------------------------------------|--------|-----------------------------------|----------|----------------------------------|---------|
|                                                              |   | **2003**                          |     | **2002**                         |    | **2003** |   | **2002** |   |
|                                                              |   |                              |     |                             |    |   |   |   |   |
| Net income (loss)                                                 |   | $                                 | (382,217 | )                                | 241,067 |   | 1,586,658 |   | (229,955 | ) |
|                                                              |   |                              |     |                             |    |   |   |   |   |
| Weighted average shares outstanding                               |   | 22,694,554                        |     | 20,442,651                       |    | 22,030,901 |   | 20,321,696 |   |
|                                                              |   |                              |     |                             |    |   |   |   |   |
| Net income (loss) per common share— basic                    |   | $                                 | (0.02    | )                                | 0.01    |   | 0.07 |   | (0.01 | ) |
|                                                              |   |                              |     |                             |    |   |   |   |   |
| Net income (loss) per common share — diluted:                |   |                              |     |                             |    |   |   |   |   |
|                                                              |   |                              |     |                             |    |   |   |   |   |
| Net income (loss)                                                 |   | $                                 | (382,217 | )                                | 241,067 |   | 1,586,658 |   | (229,955 | ) |
|                                                              |   |                              |     |                             |    |   |   |   |   |
| Weighted average shares outstanding                               |   | 22,694,554                        |     | 20,442,651                       |    | 22,030,901 |   | 20,321,696 |   |
|                                                              |   |                              |     |                             |    |   |   |   |   |
| Common stock equivalents                                          |   | 0                                 |     | 1,058,576                        |    | 778,307 |   | 0 |   |
|                                                              |   |                              |     |                             |    |   |   |   |   |
| Weighted average shares and potential diluted shares  outstanding |   | 22,694,554                        |     | 21,501,227                       |    | 22,809,208 |   | 20,321,696 |   |
|                                                              |   |                              |     |                             |    |   |   |   |   |
| Net income (loss) per common share — Diluted                 |   | $                                 | (0.02    | )                                | 0.01    |   | 0.07 |   | (0.01 | ) |

 

The Company uses thetreasury method for calculating the dilutive effect of the stock options andwarrants (using the average market price).

 

6

----

 

Options and warrants topurchase 4,187,077 shares of common stock with a weighted average exerciseprice of $2.25 were outstanding at March 31, 2003 but were excluded from thecomputation of common share equivalents for the nine months ended March 31,2003 because their exercise prices were greater than the average market priceof the common shares. All options and warrants outstanding at March 31, 2003were excluded from the computation of common share equivalents for the threemonths ended March 31, 2003 as they were anti-dilutive. All options andwarrants outstanding as of March 31, 2002 were excluded from the computation ofcommon stock equivalents for the nine months ended March 31, 2002 as they wereanti-dilutive. Options and warrants to purchase 6,527,104 shares of commonstock with a weighted average exercise price of $3.90 were outstanding at March31, 2002 but were excluded from the computation of common share equivalents forthe three months ended March 31, 2002 because their exercise prices weregreater than the average market price of the common shares.

 

***(c)******                ******Stock-Based Compensation***

* *

In accordance withAccounting Principles Board (APB) Opinion No. 25 and related interpretations,the Company uses the intrinsic value-based method for measuring stock-basedcompensation cost which measures compensation cost as the excess, if any, ofquoted market price of the Company’s common stock at the grant date over theamount the employee must pay for the stock. The Company’s general policy is togrant stock options at fair value at the date of grant. Options and warrantsissued to non-employees are recorded at fair value, as required by Statement ofFinancial Accounting Standards (SFAS) No. 123, “Accounting for Stock-BasedCompensation”, using the Black Scholes pricing method.

 

Has compensation cost beenrecognized based on the fair values of options at the grant dates consistentwith the provisions of SFAS No. 123, the Company’s net income (loss) and basicand diluted net income (loss) per common share would have been changed to thefollowing pro forma amounts:

 
|                                        |   | **Three Months Ended  March 31,** |     | **Nine Months Ended  March 31,** |    |
|---------------------------------------------|--------|-----------------------------------|----------|----------------------------------|---------|
|                                        |   | **2003**                          |     | **2002**                         |    | **2003** |   | **2002** |   |
| Net income (loss):                          |   |                              |     |                             |    |   |   |   |   |
| As reported                                 |   | $                                 | (382,217 | )                                | 241,067 |   | 1,586,658 |   | (229,955 | ) |
| Pro forma                                   |   | (468,658                          | )        | 27,959                           |    | 1,281,289 |   | (869,280 | ) |
| Basic net income (loss) per common share:   |   |                              |     |                             |    |   |   |   |   |
| As reported                                 |   | (0.02                             | )        | 0.01                             |    | 0.07 |   | (0.01 | ) |
| Pro forma                                   |   | (0.02                             | )        | 0.00                             |    | 0.06 |   | (0.04 | ) |
| Diluted net income (loss) per common share: |   |                              |     |                             |    |   |   |   |   |
| As reported                                 |   | (0.02                             | )        | 0.01                             |    | 0.07 |   | (0.01 | ) |
| Pro forma                                   |   | (0.02                             | )        | 0.00                             |    | 0.06 |   | (0.04 | ) |
| Stock based compensation:                   |   |                              |     |                             |    |   |   |   |   |
| As reported                                 |   | 0                                 |     | 0                                |    | 17,385 |   | 309,646 |   |
| Pro forma                                   |   | 86,441                            |     | 213,108                          |    | 305,369 |   | 639,325 |   |
|                                             |        |                                   |          |                                  |         |  |  |  |  |  |

 

In determining thecompensation cost of options granted during the three and nine months endedMarch 31, 2003 and 2002, as specified by SFAS No. 123, the fair value of eachoption grant has been estimated on the date of grant using the Black-Scholesoption pricing model and the weighted average assumptions used in thesecalculations are summarized as follows:

 
|                              |   | **Three Months Ended  March 31,** |   | **Nine Months Ended  March 31,** |   |
|-----------------------------------|--------|-----------------------------------|--------|----------------------------------|--------|
|                              |   | **2003**                          |   | **2002**                         |   | **2003** |   | **2002** |   |
|                              |   |                              |   |                             |   |   |   |   |   |
| Risk-free interest rate           |   | 4.000                             |   | 4.875                            |   | 4.000 |   | 5.000 |   |
| Expected life of options  granted |   | 7  years                          |   | 7  years                         |   | 7  years |   | 7  years |   |
| Expected volatility               |   | 188                               | %      | 188                              | %      | 188 | % | 188 | % |
| Expected dividend yield           |   | 0                                 | %      | 0                                | %      | 0 | % | 0 | % |

 

7

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

 

Comprehensive income (loss)and its components consist of the following::

 
|                                    |   | **Three  Months Ended** |     | **Nine  Months Ended** |    |
|-----------------------------------------|--------|-------------------------|----------|------------------------|---------|
|                                    |   | **March 31,  2003**     |     | **March 31,  2002**    |    | **March 31,  2003** |   | **March 31,  2002** |   |
| Net income (loss)                       |   | $                       | (382,217 | )                      | 241,067 |   | 1,586,658 |   | $ | (229,955 | ) |
| Other comprehensive income (loss):      |   |                    |     |                   |    |   |   |   |   |
| Foreign currency translation adjustment |   | (265,009                | )        | (68,751                | )       | (398,644 | ) | (119,225 | ) |
| Comprehensive income (loss)             |   | $                       | (647,226 | )                      | $       | 172,316 |   | $ | 1,188,014 |   | $ | (349,180 | ) |
|                                         |        |                         |          |                        |         |  |  |  |  |  |  |  |  |

 

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

 

At March 31, 2003, theCompany has U.S. net operating loss carryforwards of approximately $8.3million.  The net operating losscarryforwards expire in the years 2010 through 2021. The Company recorded adeferred tax asset of $708,000 for the three months ended December 31, 2002.Previous to the three months ended December 31, 2002, the Company fullyreserved the deferred tax asset due to the uncertainty of its use in futureperiods.

 

Federal tax laws imposesignificant restrictions on the utilization of net operating loss carryforwardsin the event of a change in ownership of the Company which constitutes an“ownership change,” as defined by the Internal Revenue Code, Section 382.  The Company’s net operating losscarryforward may be subject to the above limitations.

 

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

 

The accompanying interimconsolidated financial statements are prepared assuming the Company willcontinue as a going concern. During the year ended June 30, 2002, the Companygenerated operating income of $605,491. Subsequently, for the nine-month periodended March 31, 2003, the Company generated operating income of $940,457. As ofMarch 31, 2003, the Company had an accumulated deficit of $20,605,756, totalstockholders’ deficit of $4,267,272, and negative working capital of$4,430,623.

 

8

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During the past eighteenmonths, the Company has completely repaid the amount due to the InternalRevenue Service ($930,000) and has also significantly reduced the amount dueunder a Creditor Settlement Agreement (from $976,000 to $200,000 as of March31, 2003). Payments have been funded with current operating capital. During thenine month period ended March 31, 2003, the Company generated consolidatedrevenues of approximately $11.5 million and net income of approximately $1.5million. Management continues to focus on increasing revenues and carefullymanaging operating costs. Management projects that over the next twelve monthsthe Company will generate sufficient cash flow to meet its obligations and fundits operations.

 

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

 

The Company has receivedinterest-bearing advances from a stockholder under short-term notes. The notesbear interest at 8.5% and mature on December 31, 2006, with the right to demandpayment on or after September 30, 2003. The notes are secured by substantiallyall of the assets of the Company. Interest expense was $15,393 and $15,813 forthe three month periods ended March 31, 2003 and 2002, respectively and was$44,846 and $45,426 for the nine month periods ended March 31, 2003 and 2002,respectively.

 

**(7)****                ****Creditor Settlement Agreement**

 

InNovember 2001 the Company entered into a Stipulation of Settlement agreementwith a creditor for approximately $976,000 under which the Company agreed tomake quarterly payments through December 2003, at which time it would also payaccrued interest on the unpaid principal balance from the date of the agreementto December 2003 at a rate of 9% per annum. In the event of default, theobligation is accelerated, the interest rate is increased to 15% and legal feesin the amount of $100,000 become due. The Company has also granted a securityinterest in the receivables of CorVu North America, Inc. as part of thissettlement. As of March 31, 2003, the balance under this obligation, which isincluded in accounts payable in the accompanying balance sheets, wasapproximately $278,000, including accrued interest. Interest expense was $7,741and $18,737 for the three month periods ended March 31, 2003 and 2002,respectively and was $34,111 and $32,887 nine month periods ended March 31, 2003and 2002, respectively.

 

9

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**(8)****                ****Consulting Agreement**

 

InSeptember 2002, the Company entered into a consulting agreement with GlobalNetVenture Partners, L.L.C. (GlobalNet) to provide management advisory servicesfor a period 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.

 

**(9)****                ****Stock Purchase**

 

InSeptember 2002, the Company sold 1.2 million shares of the Company’s commonstock to GlobalNet at a price of $0.27 per share under a stock purchase agreement.GlobalNet paid the entire purchase price by delivering a promissory note to 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.

 

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

 

**For the Three and Nine MonthPeriods Ended March 31, 2003versus March 31, 2002**

 

REVENUES:

 

Total revenue for the three and nine-monthperiods ended March 31, 2003 increased 17% and 46%, respectively, compared tothe same periods a year ago.

 

Software revenues decreased $289,476 (23%)for the three month period ended March 31, 2003 and increased $1,949,425 (52%)for the nine month period ended March 31, 2003, from the same periods lastyear. Results for the nine month period ended March 31, 2003 continue tocompare favorably to the prior year due to increased demand for our products.Results for the three months ended March 31, 2003 were less than in the comparableperiod of the previous year due to business uncertainty due in part to theunsettled situation in the Middle East.

 

Maintenance,consulting and other revenues increased $741,452 (50%) and $1,653,515 (40%),for the three and nine-month periods ended March 31, 2003, respectively, fromthe same periods last year. These results reflect continued improvement ofmaintenance contract renewals and collections, as well as increased utilizationof our professional services personnel required to service the increased demandfor consulting and training services.

 

OPERATING COSTS AND EXPENSES:

 

Operating expenses increased $1,110,896 (46%)and $2,552,605 (32%) for the three and nine-month periods ended March 31, 2003,respectively, from the same periods last year.

 

Cost ofmaintenance, consulting and other expenses increased $62,083 (9%) and $278,456(14%) for the three and nine-month periods ended March 31, 2003, respectively,from the same periods last year. Increased demand for our services caused primarily by the increasedsoftware license fees has caused us to increase staffing levels.

 

Productdevelopment costs increased $76,276 (31%) and $131,730 (16%) for the three andnine-month periods ended March 31, 2003, respectively, from the same periodslast year.  Development staffing hasincreased by 19% (3 positions) as we continue to further enhance and improveour product offerings.

 

Sales and marketing expenses increased$588,829 (69%) and $1,512,274 (55%) for the three and nine-month periods endedMarch 31 2003, respectively, from the same periods last year. These increasesare the result of a 40% increase in new sales positions (an increase of 13positions) and increased sales commissions expenses (116%, or $370,000, for thenine month period ended March 31, 2003) as a result of our increasing revenuesfrom both software license fees and professional services. In addition, otherincreases have occurred in sales related expenses, such as travel expenses, andin marketing expenses, due to our increased activities in business shows andperformance management and balanced scorecard seminars.

 

General and administrative expenses increased$383,708 (59%) and $630,145 (26%) for the three and nine-month periods endedMarch 31, 2003, respectively, from the same periods last year. Due to ourprofitable results for our fiscal year 2003, the bonus earned by our chiefexecutive officer ($179,000) has contributed to the increase for the nine monthperiod ended March 31, 2003. In addition, expenses were incurred during the threeand nine month periods ended March 31, 2003 as a result of the consultingagreement with GlobalNet Venture Partners, L.L.C.

 

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INTEREST EXPENSE, NET:

 

Interest expense, net decreased $35,636 (75%)and $58,278 (49%) for the three and nine-month periods ended March 31, 2003,respectively, compared to the same periods last year due to lower debt levels.

 

BENEFIT FROM INCOME TAXES:

 

For the nine month period ended March 31,2003, the Company recorded a deferred tax asset of $708,000. In previousperiods, the Company had fully reserved the deferred tax asset due to theuncertainty of its use in future periods.

 

NET INCOME (LOSS):

 

CorVu Corporation reported a net loss of$382,217 for the three month period ended March 31, 2003 and net income of$1,586,658 for the nine month period ended March 31, 2003, respectively,compared to net income of $241,067 and a net loss of $229,955 for the three andnine-month periods ended March 31, 2002, respectively. Results for the ninemonth period ended March 31, 2003 includes a benefit for income taxes relatedto a deferred tax asset of $708,000 which represents the value of itsaccumulated net operating losses that will be utilized in future periods tooffset federal and state income taxes, due to the Company's continuing positivefinancial performance.

 

**Liquidity and Capital Resources**

 

Total cash and cash equivalents increased by$560,163 during the nine-month period ended March 31, 2003 from $279,176 as ofJune 30, 2002 to $839,339 as of March 31, 2003.  Net cash provided by operating activities was $551,398 for thenine-month period ended March 31, 2003. Net cash used in investing activitieswas $116,175, reflecting the acquisition of capital assets during the period.Net cash provided by financing activities was $98,655 for the nine-month periodended March 31, 2003, reflecting the proceeds from the sale of common stock.

 

During the nine month period ended March 31,2003, the Company has generated consolidated revenues of approximately $11.5million and net income of approximately $1.5 million. Management intends tocontinue to increase revenues from software licenses and other revenue sources,and to carefully manage operating costs. Management believes these activities willgenerate sufficient cash flows to sustain CorVu’s operations for the nexttwelve months.

 

**(1)****                ****Critical Accounting Policies andEstimates-**

 

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, and are as follows:

 

We believe the critical accounting policieslisted below affect significant judgments and estimates used in the preparationof our consolidated financial statements.

 

Revenue Recognition.  We recognize revenues in accordance with theprovisions of the American Institute of Certified Public Accountants’ Statementof Position (SOP) 97-2, “Software Revenue Recognition,” as amended by SOP 98-4and SOP 98-9, as well as Technical Practice Aids issued from time to time bythe American Institute of Certified Public Accountants, and in accordance withthe Securities and Exchange Commission Staff Accounting Bulletin No. 101,“Revenue Recognition in Financial Statements.” We license software under non-cancelable license agreements and providerelated professional services, including consulting, training, andimplementation services, as well as ongoing customer support andmaintenance.  Consulting, training andimplementation services are not essential to the functionality of our software

 

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products, are sold separately and also areavailable from a number of third-party service providers.  Accordingly, revenues from these servicesare generally recorded separately from the license fee.  Our specific revenue recognition policiesare as follows:

 

Software License Fees —Software license fee revenues from end-users and resellers are generallyrecognized when there is an executed license agreement, software has beendelivered 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 andother - Revenues from training and consulting services are recognized asservices are provided to customers. Revenues from maintenance contracts are deferred and recognized ratablyover the term of the maintenance agreements.

 

Software Development Costs.  Software development costs are expensed asincurred until technological feasibility is established.  Software development costs incurred subsequentto establishing technological feasibility are capitalized and amortized overtheir estimated useful lives. Management is required to use professional judgment in determiningwhether development costs meet the criteria for immediate expense or capitalization.

 

Allowance for Doubtful Accounts.  We maintain allowances for doubtful accountsfor estimated losses resulting from the inability of our customers to makerequired payments.  If the financialcondition of our customers were to deteriorate, resulting in an impairment oftheir ability to make payments, additional allowances may be required orrevenue could be deferred until collectibility becomes probable.

 

Contingencies.  We are subject to the possibility of various loss contingenciesin the normal course of business.  Weaccrue for loss contingencies when a loss is estimable and probable.

 

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**Cautionary Factors That MayAffect Future Results**

 

ThisQuarterly Report on Form 10-QSB, including the information incorporated byreference herein and the exhibits hereto, and other written and oral statementsmade from time to time by us may include “forward-looking” statements.Forward-looking statements broadly involve our current expectations for future results.Any statement that is not a historical fact, including estimates, projections,future trends and the outcome of events that have not yet occurred, 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 expressionsgenerally identify our forward-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.

 

Wealso caution you that forward-looking statements speak only as of the datemade. We undertake no obligation to update any forward-looking statement, butinvestors are advised to consult any further disclosures by us on this subjectin our filings with the Securities and Exchange Commission, especially onForms 10-KSB, 10-QSB, and 8-K (if any), in which we discuss in more detailvarious important factors that could cause actual results to differ from expectedor historic results. We intend to take advantage of the safe harbor provisionsof the Private Securities Litigation Reform Act of 1995 regarding ourforward-looking statements, and are including this sentence for the expresspurpose of enabling us to use the protections of the safe harbor with respectto all forward-looking statements.

 

**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 such controlsand procedures were effective.  Therewere no significant changes in internal controls that could significantlyaffect the disclosure controls and procedures since the date of the evaluation.

 

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**PART II**

**OTHER INFORMATION**

 

Item1.       Legal Proceedings.

 

SeeItem 3 of Part II of Form 10-KSB for the year ended June 30, 2002.

 

Item2.       Changes in Securitiesand Use of Proceeds.

 

None

 

Item3.       Default Upon Senior Securities.

 

None

 

Item4.       Submission of Matters to a Vote of Security Holders.

 

(a)            The Annual Meeting of the Company’sshareholders was held on February 3, 2003.

 

(b)           At the Annual Meeting a proposal toset the number of directors at six was adopted by a vote of 17,906,938 sharesin favor, with 17,326 shares against, 52,500 shares abstaining and no sharesrepresented by broker nonvotes.

 

(c)           Proxies for the Annual Meeting weresolicited pursuant to Regulation A under the Securities Exchange Act of 1934,there was no solicitation in opposition to management’s nominees, and thefollowing persons were elected directors of the Company to serve until the nextannual meeting of shareholders and until their successors shall have been dulyelected and qualified:

 
| **Nominee**            |   | **Number of  Votes For** |   | **Number of  Votes Against** |   | **Number of  Votes Withheld** |   |
|------------------------|--------|--------------------------|--------|------------------------------|--------|-------------------------------|--------|
| John Bohn              |   | 17,970,864               |   | 0                            |   | 5,900                         |   |
| David C. Carlson       |   | 17,970,864               |   | 0                            |   | 5,900                         |   |
| Ismail Kurdi           |   | 17,970,864               |   | 0                            |   | 5,900                         |   |
| Justin M.  MacIntosh   |   | 17,961,888               |   | 8,976                        |   | 5,900                         |   |
| James L. Mandel        |   | 17,970,864               |   | 0                            |   | 5,900                         |   |
| Alan M.  Missroon, Jr. |   | 17,961,888               |   | 8,976                        |   | 5,900                         |   |

 

(d)           The selection of Virchow, Krause& Company, LLP as the Company’s independent auditors for the current fiscalyear was approved by a vote of 17,891,538 shares in favor, with 5,200 sharesagainst, 80,026 shares abstaining and no shares represented by broker nonvotes.

 

Item5.       Other Information.

 

None

 

Item6.       Exhibits and Reports on Form 8-K.

 

(a)  Exhibits: SeeExhibit Index on page following Certifications Pursuant to Section 302 of theSarbanes-Oxley Act of 2002.

 

(b)  Reports onForm 8-K:   None

 

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**SIGN****ATURES**

 

In accordance with therequirements of the Exchange Act, the registrant caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.

 
|                             |   |    CORVU  CORPORATION                                                                               |
|----------------------------------|--------|--------------------------------------------------------------------------------------------------------------------|
|                             |   |                                                                                                               |
|                             |   |                                                                                                               |
| Date:  April 29,  2003 | By     |    /s/  David C. Carlson                                                                            |   |
|                             |   |                David  C. Carlson        |
|                             |   |                Chief  Financial Officer |

 

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**CERTIFICATION****PURSUANT TO**

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

 

I, Justin M. MacIntosh,Chief Executive Officer of CorVu Corporation, certify that:

 

1.                    I have reviewed thisquarterly report on Form 10-QSB of CorVu Corporation;

 

2.                    Based on my knowledge, thisquarterly report does not contain any untrue statement of a material fact oromit to state a material fact necessary to make the statements made, in lightof the circumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

 

3.                    Based on my knowledge, thefinancial statements, and other financial information included in thisquarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

 

4.                    The registrant’s othercertifying officer and I are responsible for establishing and maintainingdisclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and15d-14) for the registrant and we have:

 

a)                                      designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisquarterly report is being prepared;

 

b)                                     evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c)                                      presented inthis quarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.                    The registrant’s othercertifying officer and I have disclosed, based on our most recent evaluation,to the registrant’s auditors and the audit committee of registrant’s board ofdirectors (or persons performing the equivalent function);

 

a)                                      all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize andreport financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)                                     any fraud,whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

6.                    The registrant’s othercertifying officer and I have indicated in this quarterly report whether or notthere were significant changes in internal controls or in other factors thatcould significantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
| Dated:  April 29, 2003 | Signature: | /s/ Justin M. MacIntosh |                    |
|-----------------------------|------------|-------------------------|-------------------------|
|                        |       |                    | Justin M. MacIntosh     |
|                        |       |                    | Chief Executive Officer |
|                             |            |                         |                         |  |

 

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**CERTIFICATION 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 thisquarterly report on Form 10-QSB of CorVu Corporation;

 

2.                    Based on my knowledge, thisquarterly report does not contain any untrue statement of a material fact oromit to state a material fact necessary to make the statements made, in lightof the circumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

 

3.                    Based on my knowledge, thefinancial statements, and other financial information included in thisquarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

 

4.                    The registrant’s othercertifying officer and I are responsible for establishing and maintainingdisclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and15d-14) for the registrant and we have:

 

a)                                      designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisquarterly report is being prepared;

 

b)                                     evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c)                                      presented inthis quarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.                    The registrant’s othercertifying officer and I have disclosed, based on our most recent evaluation,to the registrant’s auditors and the audit committee of registrant’s board ofdirectors (or persons performing the equivalent function);

 

a)                                      all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize andreport financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)                                     any fraud,whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

6.                    The registrant’s othercertifying officer and I have indicated in this quarterly report whether or notthere were significant changes in internal controls or in other factors thatcould significantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
| Dated:  April 29, 2003 | Signature: | /s/ David C. Carlson |                    |
|-----------------------------|------------|----------------------|-------------------------|
|                        |       |                 | David C. Carlson        |
|                        |       |                 | Chief Financial Officer |
|                             |            |                      |                         |  |

 

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EXHIBIT INDEX

 

Exhibit

Number                           Description

 

99.1                                      Certificationof CEO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

 

99.2                                      Certificationof CFO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

 

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