SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
CORVU CORPORATION
(Name of small business issuer in its charter)
MINNESOTA 41-1457090
(State of incorporation or organization) (I.R.S. Employer
Identification No.)
3400 West 66th Street, Suite 445, Edina, MN 55435
(Address of principal executive offices)
Issuer's telephone number, including area code: (612) 944-7777
Securities to be registered under Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
<PAGE>
To simplify the language in this registration statement, references to
"We", "Us", "Our", "CorVu", the "Company" or the "Surviving Company" refer to
CorVu Corporation and its wholly-owned subsidiaries.
PART I
ITEM 1: DESCRIPTION OF BUSINESS
Business Development
We are a holding company that develops and sells business performance
management software products and related professional services through our
subsidiaries: CorVu North America, Inc. (incorporated in Minnesota, responsible
for North and South America); CorVu Plc. (incorporated in Great Britain,
responsible for Europe), and CorVu Australasia Pty. Ltd. (incorporated in
Australia, responsible for the Australian-Pacific region). Recently, CorVu Plc
incorporated a subsidiary, CorVu Benelux B.V., under the laws of the
Netherlands, and is in the process of forming another subsidiary, CorVu
Deutschland GmbH, under the laws of Germany.
We are the company surviving the merger between CorVu Corporation and
Minnesota American, Inc.
Minnesota American, Inc. was incorporated in Minnesota as J.B. Goodhouse on
September 29, 1983. On April 28, 1988, it changed its name to Lockermate
Corporation, on October 20, 1992 to Minnesota American, Inc. The principal
assets of Minnesota American, Inc. consisted of the capital stock of its
subsidiaries, LockerMate Corporation and Favorite Memories, Inc. The shares of
Minnesota American, Inc. were quoted on the Over-the-Counter Bulletin Board
(OTCBB) of the National Association of Securities Dealers (NASD) under the
symbol "MNAC".
CorVu Corporation was incorporated in Minnesota as "CorVu International" on
September 15, 1995 and changed its name to "CorVu Corporation" on August 29,
1996. The shares of CorVu Corporation were privately held.
Throughout 1999, both Minnesota American, Inc. and CorVu Corporation
engaged in preliminary discussions with various third parties concerning
possible strategic transactions and / or investments. The negotiations between
both companies started in the fall of 1999. On November 17, 1999, the companies
entered into a formal "Agreement and Plan of Reorganization". The following
transactions were carried out to complete the merger:
1. On January 13, 2000, the shareholders of CorVu Corporation approved the
merger of CorVu Corporation with Minnesota American, Inc.
2. Minnesota American, Inc. ceased operating its subsidiary Favorite Memories,
Inc., as a going concern effective November 30, 1999.
3. Minnesota American, Inc. obtained shareholder approval for the sale of its
LockerMate subsidiary, and closed the sale of that subsidiary, on January
14, 2000, thus concluding its pre-merger business activities;
4. On January 14, 2000, Minnesota American, Inc. obtained shareholder approval
for its merger with CorVu Corporation and the amendment of its Articles of
Incorporation to change its name to "CorVu Corporation";
5. The companies consummated the merger on January 14, 2000 by filing Articles
of Merger with the Minnesota Secretary of State.
<PAGE>
The merger did not affect the issued and outstanding shares of common and
preferred stock of Minnesota American, Inc. As a result of the merger, CorVu
Corporation shareholders received 1.125 shares of common stock of our Company
for each share of common stock they held. These shares, which we call "Merger
Shares", were not registered under the Securities Act of 1933 and are subject to
a Registration Rights Agreement. After the merger, shareholders of CorVu
Corporation hold about 74% of the issued and outstanding stock of our Company.
Our Company will continue the business of CorVu Corporation. The common stock of
our Company was quoted on the OTCBB under the symbol "CRVU" until the end of
business on February 9, 2000. However, since January 4, 1999, quotations on the
OTCBB have been limited to the securities of companies that report their current
financial information to the SEC, banking, or insurance regulators. Our
securities were no longer eligible for quotation on the OTCBB as of market open
on February 10, 2000. We are filing this registration statement to become a
reporting company under the Securities Exchange Act of 1934. As soon as the
registration statement has become effective and the SEC has cleared us of
further comments, we intend to seek reinstatement of quotations of our stock on
the OTCBB and immediately, apply for trading on the Nasdaq National Market.
However, there is no guarantee that our application will be approved.
Business of Issuer
(i) Our Principal Products and Services
CorVu is a provider of Enterprise Business Performance Management and
Balanced Scorecard software products.
Business performance management is a process by which an organization seeks
to define its strategy, measure and analyze its performance, and ultimately
manage improvements to enhance performance. In recent years several
methodologies have arisen for managing organizational performance. To our
knowledge, none of the methodologies supported by CorVu products are protected
under intellectual property law. Each methodology represents an approach to
measuring an organization's performance against strategic goals and specific
performance targets. Our customers use our products to implement one or more
performance management methodologies of their choice. One of these methodologies
is known as "Balanced Scorecard".
The Balanced Scorecard is a performance management methodology first
introduced by Dr. Robert Kaplan and Dr. David Norton in their 1992 Harvard
Business Review article, "The Balanced Scorecard - Measures that Drive
Performance." The Balanced Scorecard recognizes four dimensions as integral for
developing an enterprise view of performance: financial, customer, internal and
innovation. The Balanced Scorecard is a business performance management system
designed to enable the management of an organization to translate its mission
statement and strategy into specific goals and measurements. Management then may
communicate these goals and measurements throughout the entire organization by
using any means management considers appropriate, to provide guidelines for an
employee's contribution to the performance of the organization.
We generate revenues in three areas: (1) sale and licensing of our software
products; (2) consulting and training services (we refer to these services as
"professional services"); and (3) maintenance agreements entered into in
connection with the sale and licensing of our products.
Our Products
Our software products are designed to enable our customers to better
measure and analyze their information in order to achieve strategic objectives
and improve business performance through two basic products, CorBusiness and
CorManage. We shipped the version 4.1 of both products to approximately 50
customers worldwide in February 2000, and we are expecting to make these new
versions available to all customers at the beginning of April 2000. The
following product descriptions are those of the 4.1 version of the products.
Customers who have licensed previous versions of these products and who have
active maintenance agreements will receive these 4.1 versions at no additional
charge.
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CorBusiness is designed to address the needs of the data warehousing and
business intelligence market.
Data warehouses are databases designed specifically for accessing and
analyzing information. They may be described as a "copy" of an organization's
transaction database. Such databases have grown in popularity over the last few
years as organizations are finding it more critical to understand and utilize
their information resources. The term Business Intelligence (BI) generally
refers to the process of accessing and analyzing such information in order to
develop a more comprehensive understanding of one's organization and thus, to
make more informed decisions. CorBusiness includes end-user query/reporting
(i.e., information access and reporting), On-Line Analytical Processing ("OLAP")
analysis (i.e., the multidimensional analysis of information, viewing data from
many different perspectives and cross examinations) and executive dashboards
(i.e., collections of many key performance indicators presented on a single
screen through a simple graphical representation). The application modules are
as follows:
Graphical Analysis - designed to empower users with easy ad-hoc access to
data. Once retrieved, users can access various levels of their data to
explore and analyze information more easily and more comprehensively. Such
ad-hoc analysis is designed to enable users to uncover and understand
trends that may be hidden in the data.
Informative visual reports created with the help of the graphical analysis
module may include
- an unlimited amount of headers and footers;
- aggregates, i.e., sums, averages, counts, etc.;
- conditional color-coding, i.e., red numbers indicate poor performance,
green numbers indicate good performance; and
- the ability to view summary information first and double-click on
specific data to reveal information on various levels of details.
Users can arrange the available information in a variety of graphical
presentations, e.g. in the form of a "pie chart" or as a column chart.
Graphs may also be "rotated" for 3-dimensional viewing, giving users a more
complete visual understanding of the information.
Report Writer - designed to provide the more sophisticated user with the
ability to produce
- composite reports including both data and graphics;
- calculations such as sums, averages, and counts on several levels;
- graphic images, and other multimedia objects, such as video or audio
clips.
The module is intended to allow quick and easy formatting of data, even for
financial reporting layouts. Users who generate a report with the help of
this Report Writer can tightly integrate the report with an existing
application.
Executive Alerts - designed to enable executives to quickly and graphically
monitor those performance measures that they consider to be important for
their business. Simple visual presentation is meant to provide more
immediate information regarding the health of an enterprise. As with other
CorVu modules, users may access various levels of data by simply clicking
on the graph to view specific sub-groups and constituents of the graph.
This capability may be important for decision makers who need the
appropriate level of detail to answer specific business questions.
CorManage is designed to satisfy various demands of the Business Performance
Management market - such as the ability to link specific performance measures to
specific strategic objectives; and the ability to identify the impact one
strategic objective may have on another within the organization. CorManage
combines the CorBusiness application - described above - with an offering based
on the Balanced Scorecard methodology - including forecasting, strategic
modeling and what-if analysis. In addition to the CorBusiness application,
CorManage includes:
<PAGE>
Forecasting - Unlike query and reporting tools, which tell users what has
happened in the past, this business tool intends to assist users in more
accurately predicting future events.
Our Forecasting module is designed to examine the past and to apply
selected statistical methods, strategies and parameters to predict future
trends and events. Once created, users can modify forecasts as desired and
use them in other programs.
Impact Analysis - This module is designed to provide "what-if" analysis for
simulated business modeling. "What-if" business models are simulations
based on hypotheses posed by the users. Users then analyze these
simulations to help predict future trends and events. They also assist
users in testing business plans and measuring the business impact prior to
implementation. Model simulations are comparable to historical data or
other models using CorVu's graphical formats and analytical features that
integrate Enterprise Business Performance Management concepts with
traditional Business Intelligence functions.
Balanced Scorecard - This module is designed to combine strategic
measurement and management systems and provide current performance results
and analysis. Our Balanced Scorecard products are intended to give users
the ability to translate strategic and organizational objectives into
individual performance measures, as well as show individual employees ways
to contribute to the overall performance of the organization. CorVu's
Balanced Scorecard products enable executives to link performance results
with processes that may drive those same results, and to learn how to
leverage the value of all other information technology applications.
Our CorVu WebServer is designed to give access to each of these applications via
the worldwide web. From a Windows browser users can access the various CorVu
products to track overall performance with the Balanced Scorecard, access
Executive Alerts, produce queries and reports, perform OnLine Analytical
Processing (OLAP) analysis, interrogate business forecasts and "what-if"
scenarios.
CorVu's client products are available for Windows 95/98, WindowsNT and Linux.
CorVu's server products are available on WindowsNT, UNIX, and Linux. All pricing
is based upon the number of users licensed under the agreement with the
respective customer.
CorVu software products contain the following essential components:
CorVu Knowledge Library - is designed to present the end-user with database
information in common terms rather than in technical computer jargon.
CorVu Server - with support for UNIX and Windows-NT, the CorVu Server is
designed to allow CorVu users to process and analyze larger volumes of
data, since it utilizes the power of large, server-based computers to
process data, rather than the users' desktop computers.
CorVu Gateway - is designed to provide each end-user with access to all
data included in the customers' systems.
CorVu Intelligent Scheduler - designed to enable users to effectively
manage when their queries and reports will run. This allows users to have
repetitive reports - such as monthly financial statements - run
automatically at predetermined intervals.
Professional Services
In an effort to assist our clients in implementing Enterprise Business
Performance Management software, we have developed the RapidROI Program which
consists of consulting, installation, implementation, and training services. The
program is designed to facilitate the implementation and use of our products in
<PAGE>
the organizations of our customers and thus, to establish long-term
relationships with our customers. In the RapidROI program, CorVu consultants
work with customers through a step-by-step process, confirming customer
satisfaction at each stage prior to moving on. This process typically entails
the following steps:
Initial Interview - CorVu consultants conduct interviews with client
personnel to be able to define the client's expectations and needs.
Design - CorVu consultants work with client personnel to design an
implementation agenda which the client approves as appropriate for its
needs.
Implementation - Installation and setup of the CorVu products ordered.
Training - While much training occurs at each individual stage, most
customers consider the assistance of consultants especially helpful when
they start to use CorVu's software products. Administrative training occurs
primarily during the implementation stage.
Performance Tuning - Depending on the individual customer, the adaptation
of the specific CorVu product may prove necessary.
While each of these stages may be required in varying degrees, our company
attempts to provide customized services to our customers to make the
implementation of our products a success.
Maintenance Agreements
We also provide support services to customers with "Software Maintenance
Agreements". Such customers are entitled to:
o New Versions of CorVu Software
o Help Desk Support Services
o Online Support Services
A Software Maintenance Agreement is meant to give customers access to our help
desk staff when the customers experience a software problem or have any
questions regarding the use of our products. Customers with Software Maintenance
Agreement may reach our help desk staff via telephone, e-mail or through our
home page on the World Wide Web (www.corvu.com). The services provided through
the World Wide Web are designed to make it easier for customers to answer
questions and solve problems without the need for direct assistance from our
support personnel.
(ii) Market for our Products and Services
Our management believes that the market for our products and services includes
small, medium and large corporations across all industry segments. Regardless of
size, all organizations are concerned with improving their performance. Various
analyst organizations agree that performance management concepts, such as the
balanced scorecard methodology, may be a way to achieve such performance
improvement.
Our currently available information suggests that 40% of our customers are
active in the manufacturing and distribution sectors. Over the last 12 to 24
months we have been able to increase our sales to organizations in other
sectors, such as financial services, insurance, healthcare, pharmaceuticals,
telecommunications, and government and other segments of the public sector.
(iii) Distribution of our Products and Services
CorVu products and services are sold through our subsidiaries' sales offices and
through "Value Added Resellers", distributors and marketing alliances.
Our Sales Offices - Our subsidiaries have sales offices in the U.S. in
Boston, New York, Washington, D.C., Atlanta, Cincinnati, Chicago,
Minneapolis, Dallas, Los Angeles and San Francisco. In Europe, our sales
offices are located in London, Sheffield, Rotterdam, Munich and Stockholm.
Sales offices for the Asian-Pacific region have been established in Sydney,
Melbourne, Perth and Auckland. Direct sales activities are concentrated on
Fortune 2000 accounts.
<PAGE>
Value Added Resellers (VARs) - Our VARs are software companies with
industry applications that sell our software products in conjunction with
their own products. Some VARs will private-label CorVu products. Current
VARs offer CorVu products into a variety of industries, including
manufacturing, distribution, warehouse logistics, healthcare, insurance,
mining, power/utilities, and human resources. Under the typical agreement
between a VAR and one of our subsidiaries, the VAR receives the
non-exclusive license to sell the software products specified in the
agreement and to grant sublicenses for the use of such software to users of
the VAR's applications. The license fees paid by a VAR are a percentage of
our standard license fee for the use of our software and may be increased
at our discretion upon 30 days prior written notice. Any of the parties may
terminate the agreement without giving any reason by giving written notice
90 days prior to the termination date. A typical VAR agreement would have a
three year term.
Distributors - CorVu distributors are companies that sell technology into
geographic regions where CorVu has no physical presence. Currently we have
distributors located in Brazil, the Czech Republic, Indonesia, Mexico,
Norway, the Philippines, Saudi Arabia, Singapore, South Africa, South
Korea, Sri Lanka, and Thailand. Our subsidiaries typically grant to their
distributors the non-exclusive license to sell the software products
specified in the distributor agreement and to grant sublicenses for the use
of such software. The fees a distributor has to pay are a percentage of our
standard license fee for the use of our software and may be increased at
our discretion upon 30 days prior written notice. The agreement may be
entered into for a five year term, termination usually requires cause such
as nonperformance.
Alliance Partners - Our "Alliance Partners" are companies that provide both
technology and management consulting and implementation services but,
typically do not actually sell software. They recommend CorVu products as a
service to their clients. The Alliance Partners often provide great
influence into large corporate sales. Smaller regional alliances with such
firms also provide influence into smaller and mid-size companies in the
partner's locale. Such Alliance Partners maintain no financial relationship
with CorVu in that they do not receive fees in exchange for their
recommendations. The Partners benefit from such recommendations because we
will, if the occasion arises, refer management consulting services to them.
Historically, approximately 10% of our annual revenues have been received
through distributors, and 32% through VARs. Alliance Partners - as a group and
on an individual basis - do not currently account for a quantifiable part of our
business.
(iv) Competition
We are unaware of competitors whose products perform all of the functions
performed by our products. However, there are competitors whose products perform
certain of the functions performed by our products, but do not integrate all the
functions performed by our products into one product. We compete in the market
for Business Intelligence (BI) software, and focus especially on one Business
Intelligence application, the Balanced Scorecard methodology of performance
management.
Business Intelligence (BI) - Business Intelligence is the term generally
applied to the process of accessing and analyzing information. Our product
"CorBusiness" is designed to address these needs. Some of the competitors we
encounter in this market are Cognos, Business Objects and Brio. However, our
management believes that these competing products focus only on specific
business intelligence features, such as end user query and reporting, or
sophisticated programmer reporting, or multidimensional information analysis. In
contrast, CorVu products are designed to offer a suite of integrated
applications covering all of the business intelligence features mentioned above.
<PAGE>
To the best knowledge of our management, the most recent analysis of the
market for Business Intelligence (BI) Software is Dataquest's "Business
Intelligence Software Market Share: 1998", published July 19, 1999. That study
predicts that the market for such software will develop as follows:
Business Intelligence Five-Year Forecast (Millions of U.S. Dollars)
<TABLE>
<CAPTION>
BI Category 1998 1999 2000 2001 2002 2003 CAGR(%)
- ------------------------- ------ --------- ---------- --------- ---------- --------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Query Reporting & OLAP 910.8 1086.6 1363.7 1681.5 2058.1 2465.6 22.0
- ------------------------- ------ --------- ---------- --------- ---------- --------- ----
Advanced BI Device Tools 572.3 734.8 991.3 1316.4 1714.0 2183.6 30.7
- ------------------------- ------ --------- ---------- --------- ---------- --------- ----
BI Applications 603.2 879.1 1267.6 1765.3 2408.6 3186.0 39.5
- ------------------------- ------ --------- ---------- --------- ---------- --------- ----
Data Mining 60.2 73.8 67.9 63.1 57.5 52.4 -2.7
- ------------------------- ------ --------- ---------- --------- ---------- --------- ----
Total BI 2146.5 2774.4 3690.6 4826.3 6238.3 7887.6 29.7
- ------------------------- ------ --------- ---------- --------- ---------- --------- ----
</TABLE>
The study also indicates the market share of CorVu and its competitors,
respectively. The following percentages are based upon annual software license
revenues.
Market Share by Vendor
Vendor 1996 1997 1998
- ------------- ---- ---- ----
Cognos 5.9 5.5 5.6
Business Objects 5.1 4.7 5.1
Brio .6 1 1.4
CorVu Corporation .2 .3 .3
Balanced Scorecard - The Balanced Scorecard is one of several Business
Intelligence methodologies. In its aforementioned study, Dataquest therefore
included estimates for the market size of Balanced Scorecard applications in the
category "BI Applications". To our knowledge, there are no market analyses
available which describe separately the market share of the various Business
Intelligence applications, such as the Balanced Scorecard.
Our management is aware of only a few companies offering software based on
the Balanced Scorecard methodology. We consider Hyperion, Gentia, and Panorama
Business Views to be our most important competitors in this area. However, we
are not aware that they also offer products that tightly integrate business
intelligence applications with their Balanced Scorecard software. A few vendors
of applications that are designed to automate an entire organization (also
called "Enterprise Resource Planning" or "ERP" vendors) have recently announced
initiatives to offer balanced scorecard applications. We are not aware that they
intend to sell their products outside of their existing client base. To our
knowledge, these products are designed to work only with performance data
contained within the application already installed by the ERP vendor. Our
management therefore does not consider these vendors' products to be competitive
with our products in the market. On the contrary, we believe that their entry
into this market may actually benefit our Company by validating the market for
balanced scorecard software products. Their announcements may attract attention
to these products and actually raise the awareness of CorVu in the market.
Our management believes that our products are competitive due to features
such as ease of deployment, low overhead and administration, ease of use,
integrated application suite, and appeal to broad user requirements.
<PAGE>
(v) Our Customers
Over 2100 customers worldwide have licensed CorVu products. These include
companies like Citibank, American Express, Ford Motor Company, St. Jude Medical,
British Customs and Excise, Australia Dept of Veterans Affairs and US Census
2000. The most revenue that any single customer or partner has contributed to
CorVu on an annual basis is about 6%. In the past, several of our customers have
ordered additional software and services. These additional orders have occurred
within a non-predictable time frame, that is, from a few months of the original
order up to a few years after that order. The additional orders typically have
been either (a) the addition of users for new projects, departments, divisions
etc. within a given customer, or (b) the purchase of new products as these
become available. Our management estimates that such repeat business accounts
for approximately 5% of our annual license revenues.
(vi) Intellectual Property
Due to the length of the patent application procedure on one hand and the
necessity to continually develop and improve our software products on the other
hand, we have not sought patent protection for any of our products. However, an
application for registration for the trademark "Managing Business Performance"
is pending with the U.S. Patent and Trademark Office. In Brazil, Colombia,
Mexico and Venezuela, applications for registration of the trademark "Corvu
Managing Business Performance" which includes our Company's logo are pending. In
Australia, a trademark for "CorVu Your Window Into the Future" and its design is
registered.
Contracts under which we license the use and/or sale of our products,
include confidentiality clauses to protect our products and any information in
connection with them as trade secrets.
(vii) Research and Development Activities
In fiscal 1998, we spent a total amount of $515,100 on research and
development activities, in fiscal 1999, a total of $628,741. None of these costs
were borne directly by any customer.
(viii) Our Employees
As of January 15, 2000, we employed 114 people in our Company and our
subsidiaries around the world. Fifty-seven of these employees worked in Sales
and Marketing, 30 provided professional services such as training and general
product assistance, 12 worked in product development and 15 provided general
administrative services. All of our employees are working full-time.
RISK FACTORS
Our operations and our securities are subject to a number of risks,
including but not limited to those described below. If any of the following
risks actually occur, the business, financial condition or operating results of
our Company and the trading price or value of our securities could be materially
adversely affected.
<PAGE>
SINCE FEBRUARY 10, 2000, OUR SECURITIES ARE NO LONGER QUOTED ON THE
OVER-THE-COUNTER BULLETIN BOARD.
On January 4, 1999, the Securities and Exchange Commission (SEC) approved
amendments to the applicable NASD Rules to limit quotations on the
Over-The-Counter Bulletin Board (OTCBB) to the securities of companies that
report their current financial information to the SEC, banking, or insurance
regulators. This new Eligibility Rule provides that, in order for a security to
continue being quoted on the OTCBB, the issuer must be required to make periodic
filings with the SEC, or with banking or insurance regulators, and be current
with those filings. The NASD will affix a modifier "E" on the security symbol of
any securities issuer that does not meet the requirements of the Eligibility
Rule. Once an issuer which is required to make filings with the SEC is deemed
not to be in compliance with the Eligibility Rule, the issuer's security may
continue to be quoted on the OTCBB for a 30 day grace period from the date that
the "E" modifier was appended on the security symbol.
The NASD affixed the modifier "E" to the security symbol of Minnesota
American, Inc. on January 10, 2000. As of market open on February 10, 2000, our
securities were no longer quoted on the OTCBB. However, some broker-dealers are
permitted to publish or submit quotations in other quotation mediums, including
the National Quotation Bureau's Pink Sheets. After this registration statement
has become effective on April 3, 2000 and the SEC has cleared us of further
comments, we intend to apply for trading on the Nasdaq National Market. However,
there is no guarantee that our application will be successful.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE
Future sales of substantial amounts of our stock in the public market,
or the perception that these sales may occur, as well as the exercise of
outstanding options and warrants could adversely affect the market price of our
stock.
As of March 27, 2000, 18,579,279 shares of our common stock were issued and
outstanding, 4,548,063 of these shares were unrestricted. As of March 15, 2000,
options to purchase approximately 3,826,250 shares of our common stock and
warrants to purchase 1,674,072 shares of CorVu common stock were outstanding;
warrants to purchase 553,125 shares of common stock give their holders piggy
back registration rights. (The number of options might change slightly due to
the conversion of pre-merger CorVu options at a rate of 1.125; under the merger
agreement, the number of option shares will be rounded down to the nearest whole
number.) 1,792,818 of the options and all of the warrants were exercisable as of
March 15, 2000. Currently, the Company is offering in a private placement a
total of 625,000 shares of common stock at $4 per share, an aggregate of
$2,500,000, plus warrants to purchase a total of 187,500 shares of common stock
at exercise prices ranging from $4 to $5.50 to $7. The investors in the private
placement received demand registration rights covering both the shares of common
stock and the shares underlying the warrants.
At its meeting on March 17, 2000, our board of directors declared a
warrant dividend: all shareholders of record on April 28, 2000 will receive for
each ten shares of common stock they hold a warrant to purchase one share of
common stock of CorVu at an exercise price of $8.50. Corvu may cancel the
warrants within 30 days after giving notice to the warrant holders if CorVu's
stock closed at $12.50 or higher for at least ten (10) consecutive trading days.
The warrant dividend might induce some option holders and warrant holders,
respectively, to exercise their convertible securities to take advantage of the
warrant dividend which would increase the number of issued and outstanding
shares before the record date for the dividend. Moreover, CorVu intends to
register the shares underlying the warrant dividend for resale, thus providing
an incentive for the exercise of the warrants received as a dividend which would
further increase the number of issued and outstanding shares of common stock.
In addition, CorVu's board of directors approved the registration of
1,000,000 shares of common stock to be offered by means of an underwritten
public offering as soon as this registration statement has become effective and
the SEC has cleared CorVu of further comments.
<PAGE>
WE HAVE EXPERIENCED HISTORICAL LOSSES AND ARE IN NEED OF ADDITIONAL FINANCING TO
SUPPORT OPERATIONS
In fiscal year 1998 (ended June 30, 1998), CorVu Corporation incurred net
operating losses in the amount of approximately $1.29 million and in fiscal year
1999 in the amount of approximately $3.06 million. Under a loan agreement with a
third party lender, a principal amount of about $1.4 million became due on
December 15, 1999 and we did not have funds available to pay the note off. The
outstanding principal and interest was subsequently not paid on December 16,
1999. Subsequently, we have repaid $600,000 and intend to retire the outstanding
principal and accrued interest upon receipt of the proceeds from the current
private placement. The audit report dated December 3, 1999, except as to notes
4, 11, and 13, which are as of December 16, 1999, on our 1999 and 1998
consolidated financial statements, contains an explanatory paragraph that states
that the company has suffered recurring losses from operations and has a net
capital deficiency, which raise substantial doubt about its ability to continue
as a going concern.
The increase of CorVu's operating expenses through the fast expansion of
CorVu's sales and support organizations significantly contributed to our losses.
Other factors included increased expenses for product development and marketing
including advertising. We expect to continue to significantly increase our
operating expenses to further expand our marketing operations. We also expect to
continue to increase our capital expenditures to further develop and maintain
our proprietary software. We will require additional funds to finance our future
growth. We cannot assure you that we will successfully negotiate or obtain
additional financing, or that we will obtain financing on terms favorable or
acceptable to us. Currently, we are attempting to raise additional funds through
a private placement, and we anticipate further offerings for the near future
(see previous risk factor, "Future Sales of Our Common Stock"). On March 31, one
of our directors extended a short-term loan of $300,000 to the Company; the loan
will become due on April 30. We intend to repay the loan with the proceeds of
the current private placement. Our ability to obtain additional capital depends
on market conditions, the national economy and other factors outside our
control. Investors should be aware that raising the required amounts of capital
will result in substantial dilution to current shareholders. However, if we do
not obtain adequate financing or such financing is not available on acceptable
terms, our ability to finance our expansion, develop or enhance services or
products or respond to competitive pressures will be limited significantly. Our
failure to secure necessary financing could have a material adverse effect on
our business, prospects, financial condition and results of operations.
THE COMPETITIVE SITUATION IN THE MARKET FOR BUSINESS INTELLIGENCE TECHNOLOGY AND
BUSINESS PERFORMANCE MANAGEMENT SYSTEMS MAY CHANGE THROUGH THE REORGANIZATION OF
OUR COMPETITORS.
Companies with far higher revenues, greater market presence and substantially
greater resources than our Company are interested and active in the market for
Business Intelligence Technology and Business Performance Management Systems. To
the extent these companies develop products that integrate the functions
performed by our products into one product, we would face competitors that would
pose a significant competitive threat in the market place.
WE DEPEND ON OUR ABILITY TO PROTECT AND ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS
We believe that our trademarks and other proprietary rights are important to our
success and competitive position. We rely on a combination of trademark,
copyright and trade secret laws to protect our proprietary rights. One of our
<PAGE>
products is protected under a trademark registered in Australia. We have applied
for trademark registrations in the United States and in some Latin American
countries for some of our products. We cannot assure you that we will secure
significant protection for our proprietary rights or that claims will not be
made against us in connection with our proprietary rights. The actions we take
to establish and protect our trademarks and other proprietary rights may be
inadequate to prevent imitation of our services or products or to prevent others
from claiming violations of their trademarks and proprietary rights by us. In
addition, others may develop similar technology independently or assert rights
in our trademarks and other proprietary rights. The laws of other countries may
afford us little or no effective protection of our additional property.
INTELLECTUAL PROPERTY CLAIMS AGAINST US CAN BE COSTLY AND COULD IMPAIR OUR
BUSINESS
Other parties may assert infringement or unfair competition claims against us.
We cannot predict whether third parties will assert claims of infringement
against us, or whether any past or future assertions or prosecutions will harm
our business. If we are forced to defend against any such claims, whether they
are with or without merit or are determined in our favor, then we may face
costly litigation, diversion of technical and management personnel, or product
shipment delays. As a result of such a dispute, we may have to develop
non-infringing technology or enter into royalty or licensing agreements. Such
royalty or licensing agreements, if required, may be unavailable on terms
acceptable to us, or at all. If there is a successful claim of product
infringement against us and we are unable to develop non-infringing technology
or license the infringed or similar technology on a timely basis, it could
impair our business.
THE LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT OPERATIONS
Our performance depends substantially on the continued services and performance
of our senior management and other key personnel particularly Justin MacIntosh,
our Chief Executive Officer. We have employment agreements with our executive
officers. Our performance also depends on our ability to retain and motivate our
key employees. We have relatively few senior personnel, and thus the loss of any
single individual could interrupt our operations significantly. The loss of the
services of any of our executive officers or other key employees could have a
material adverse effect on our business, prospects, financial condition and
results of operations. Our future success also depends on our ability to
identify, attract, hire, train, retain and motivate other highly skilled
technical, managerial and marketing personnel. Competition for such personnel is
intense, and we cannot assure you that we will succeed in attracting and
retaining such personnel. Our failure to attract and retain the necessary
technical, managerial and marketing personnel could have a material adverse
effect on our business, prospects, financial condition and results of
operations.
WE ARE LARGELY CONTROLLED BY MANAGEMENT
Our officers and directors currently own or control a substantial majority of
our outstanding common stock. If they act in concert, they will be able to
exercise voting control over our Company for the foreseeable future and will be
able to elect the entire Board of Directors, set dividend policy and determine
our management affairs. This management control could preclude, or make it more
difficult to effect, a sale or reorganization of our Company that is not on
terms acceptable to our management.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
CorVu is an international provider of Integrated Business Intelligence and
Business Performance Management software. Our Company designs, develops, markets
and supports its management software products and its services through sales
offices of our subsidiaries as well as through distributors, Value Added
Resellers, and Alliance Partners. Sales and support offices belonging to our
subsidiaries are located throughout the United States, Australia and Europe. See
for details ITEM 1 (b), Business of the Issuer.
On January 14, 2000, the former CorVu Corporation merged with and into Minnesota
American, Inc. In connection with the merger, Minnesota American, Inc., the
company surviving the merger, changed its name to "CorVu Corporation". Minnesota
American, Inc. had operated its business through two subsidiaries. Prior to the
merger, Minnesota American, Inc. ceased to operate one of the subsidiaries and
sold the other subsidiary, thus discontinuing all of its business activities.
The Surviving Company continues to operate the business operated by the former
CorVu Corporation before the merger. Accordingly, the discussion and analysis
provided below focuses on the financial position and results of operations of
the former CorVu Corporation.
Fiscal Year Ended June 30, 1999 versus June 30, 1998
REVENUES:
CorVu derives its revenues from three sources: (i) the sale and licensing of its
software products; (ii) consulting and training services; and (iii) maintenance
agreements in connection with the sale and licensing of software products. CorVu
recognizes revenue in accordance with Statement of Position No. 97-2, Software
Revenue Recognition, as amended by Statement of Position 98-9. Software license
revenue is recognized when all of the following criteria have been met: there is
an executed license agreement, software has been shipped to the customer, no
significant vendor obligations remains, the license fee is fixed and payable
within twelve months and collection is deemed probable. Maintenance revenues are
recognized ratably over the term of the maintenance contract, typically 12 to 36
months. Consulting and other revenues are recognized when services are
performed.
CorVu's revenues which were comprised of (i) software and license
fees, and (ii) maintenance, consulting, and other revenues, increased by
$3,720,796, from $6,867,662 in fiscal 1998 to $10,588,458 in fiscal 1999, an
increase of 54%. Software and license fee revenue increased by $2,178,991 (46%),
from $4,688,895 in fiscal year 1998, to $6,867,886 in fiscal year 1999;
maintenance, consulting, and other revenues increased by$1,541,805 (71%), from
$2,178,767 in fiscal 1998 to $3,720,572 in fiscal 1999.
CorVu's management attributes these increases to two factors: (1) The number of
employees in CorVu's sales and marketing organization was increased from 24
employees in fiscal 1998 to 48 employees in fiscal 1999, and the number of
professionals providing consulting, training and maintenance services, increased
from 14 professionals in fiscal 1998 to 24 professionals in fiscal 1999. (2) In
the middle of calendar year 1999, CorVu Corporation completed its development
from being a seller of isolated software modules and tools to becoming a seller
of comprehensive software offerings for an entire organization. This change in
CorVu's marketing and sales strategy resulted in an increase in the average
dollar value of each sale.
<PAGE>
OPERATING EXPENSES:
Operating expenses increased by $5,492,845 (67%), from $8,157,119 in fiscal 1998
to $13,649,964 in fiscal 1999. CorVu reports operating costs and expenses on a
departmental basis for the following departments: (i) maintenance, consulting,
and other services; (ii) product development; (iii) sales and marketing; and
(iv) general and administrative department. All costs and expenses incurred by
personnel of the respective department are included under the department's
expenses.
Cost of maintenance, consulting and other expenses increased $825,404 (67%),
from $1,238,733 in fiscal 1998 to $2,064,137 in fiscal 1999, due to the
expansion of CorVu's professional service organization, from 14 professionals in
fiscal 1998 to 24 professionals in fiscal 1999.
The increase in product development costs by $113,641 (22%), from $515,100 in
fiscal 1998 to $628,741 in fiscal 1999, was also caused by the employment of
additional personnel (7 professionals in fiscal 1998 as opposed to 11
professionals in fiscal 1999). CorVu's management believes this investment to be
necessary to ensure CorVu's competitiveness through the continuing development
of new and the updating of old software products.
Sales and marketing expenses increased $1,641,470 (38%), from $4,289,869 in
fiscal 1998 to $5,931,339 in fiscal 1999. The primary factor for the increase
was the doubling of personnel in that area from 24 people in fiscal 1998 to 48
people in fiscal 1999. Other factors were increased expenditures for marketing
including advertising, production of marketing material, and participation in
trade show activity to increase the exposure of CorVu's products in the
marketplace and to increase its market share.
General and administrative expenses increased $2,912,330 (138%), from $2,113,417
in fiscal 1998 to $5,025,747 in fiscal 1999. CorVu recorded non-cash expenses of
$716,500 for (i) stock options CorVu had granted to employees below the fair
value, based on the intrinsic value method, and (ii) options and warrants issued
to third parties valued using the Black-Scholes pricing model. The remainder of
the increase of $2,195,830 was caused by increased overhead expenditures such as
salaries, wages and benefits for administrative personnel, office rent,
equipment rent for computers and communication equipment, professional service
fees such as audit and tax fees and corporate travel expenses.
INTEREST EXPENSE, NET:
Interest expense, net increased by $97,116 (51%), from $191,094 in fiscal 1998
to $288,210 in fiscal 1999, due to a $479,986 increase in borrowings under the
note payable under an agreement with Integral Business Finance Pty Limited dated
February 26, 1998. In addition, advances from certain directors increased by
$680,000 during fiscal 1999.
NET LOSSES:
CorVu incurred net losses of $3,349,716 and $1,480,551 for the fiscal years
ended June 30, 1999 and 1998, respectively.
Liquidity and Capital Resources
Total cash and cash equivalents decreased by $255,954 during fiscal 1999, from
$287,289 as of June 30, 1998 to $31,335 as of June 30, 1999. Net cash used in
operating activities was $1,391,656 for fiscal 1999. This was caused by the net
loss during the year as discussed above. Net cash used in investing activities
was $107,701 for fiscal 1999 reflecting the acquisition of office furniture and
computer and office software and equipment as part of CorVu's worldwide
expansion. Net cash provided by financing activities was $1,275,291 for fiscal
1999. Proceeds from the sale of common stock accounted for $216,471 of this
activity. In addition, borrowings under the note payable increased by $479,986
and borrowings under director advances increased by $680,000 during fiscal 1999.
Working capital needs were funded using the following sources:
<PAGE>
Note payable- In February 1998, CorVu's subsidiaries entered into a loan
agreement with Integral Business Finance Pty Limited which was secured by its
assets and the assets of the other subsidiaries. Borrowings under the loan
increased during fiscal 1999 by $479,986 to a total of $1,407,000. The rate of
interest was based on an index defined in the loan agreement plus 3% with
interest due monthly. The interest rate on June 30, 1999 was 8.05%. In addition,
there was a line fee of 1.25%, payable quarterly in advance. The loan was due on
December 15, 1999. After the merger, the Surviving Company paid $600,000 to the
lender. CorVu intends to repay the outstanding principal and accrued interest
with the receipt of the current private placement.
Director advances- During fiscal 1999, CorVu Corporation received a total of
$680,000 of additional advances from certain directors. On June 30, 1999, a
director converted a total of $790,000 of outstanding advances into common stock
at a price of $2.00 per share. Subsequent to June 30, 1999, the Company repaid
$330,000 of advances to certain directors. Immediately prior to the merger,
outstanding director advances totaled $316,938. On March 31, one of our
directors extended a short-term loan of $300,000 to CorVu; the Company intends
to repay the loan out of the proceeds of the current private placement.
Six Month Periods Ended December 31, 1999 versus December 31, 1998
REVENUES:
Total revenue for the first six months of fiscal 1999, ended December 31, 1999,
increased by $1,042,316, from $4,987,243 in the first six months of fiscal 1998
to $6,029,559 in the first six months of fiscal year 1999, an increase of 21%.
Software and license fee revenues increased $507,346 (16%), from $3,158,956 in
1998 to $3,666,302 in 1999. CorVu's management believes several factors are
responsible for this increase. As described above, CorVu changed its sales and
marketing strategy, in order to become a seller of comprehensive business
software offerings for entire organizations. This has resulted in an increase in
the average dollar value of each sale. In addition, the number of sales people
employed increased substantially from 30 as of December 31, 1998 to 56 as of
December 31, 1999. The increases discussed above were partially offset by other
factors: (1) The sale of such comprehensive software products requires on the
part of the sales force skills that are different from the skills the sales
personnel employed previously for the sale of separate tools and modules. As a
result, CorVu experienced temporarily a high turnover in its sales force. The
new sales personnel did not contribute significantly to corporate revenues
because they were not yet fully trained. (2) The described change in the sales
and marketing strategy resulted in an extension of the sales cycle. (3) Many
potential customers were in the final phase of their Y2K compliance work and
therefore froze additional spending and implementation of new systems.
Maintenance, consulting and other revenues increased by $534,970 (29%), from
$1,828,287 in fiscal 1998 to $2,363,257 in fiscal 1999, due to the employment of
additional service professionals to meet the demands of the increased customer
base for both consulting and training services. In addition, annual maintenance
fees continued to increase in line with the increased customer base.
<PAGE>
OPERATING EXPENSES:
Operating expenses increased by $3,091,283 (55%), from $5,597,806 in fiscal 1998
to $8,689,089 in fiscal 1999.
Cost of maintenance, consulting and other expenses increased $523,587 (51%),
from $1,025,247 in fiscal 1998 to $1,548,834 in fiscal 1999, and product
development costs increased $239,258 (99%), from $240,596 in fiscal 1998 to
$479,854 in fiscal 1999. These increases were primarily caused by the employment
of additional professionals in both the consulting and training services, as
well as in the research and development area.
Sales and marketing expenses increased $1,115,274 (41%), from $2,733,840 in
fiscal 1998 to $3,849,114 in fiscal 1999, due to the higher number of employees
working in that sector and other factors such as higher expenditures for
marketing including advertising, production of marketing materials, and
participation in trade show activities.
General and administrative expenses increased $1,213,164 (76%), from $1,598,123
in fiscal 1998 to $2,811,287 in fiscal 1999. CorVu recorded non-cash expenses of
$354,950 for stock options granted to employees at exercise prices below fair
value based on the intrinsic value method. The remainder of the increase of
$858,214 was caused by increased overhead expenditures such as salaries, wages
and benefits for administrative personnel, office rent, equipment rent for
computers and communication equipment and corporate travel expenses.
INTEREST EXPENSE, NET:
Interest expense, net increased by $725,565 (601%), from $120,787 in fiscal 1998
to $846,352 in fiscal 1999. In November 1999, the Company entered into two loan
agreements with third parties totaling $500,000. The agreement allowed the
holder to convert the debt into common stock at any time at a conversion rate of
$2 per share. In addition, the loan was automatically convertible into common
stock upon the closing of the merger with Minnesota American, Inc. The loan
agreements also called for the issuance of warrants to purchase up to 450,000
shares of common stock at an exercise price of $.01 per share. The increase in
interest expense, net was caused by the recording of approximately $750,000 of
non-cash interest expense charges related to this debt instrument. The non-cash
charges were required to (1) reflect the difference between the $2 per share
conversion price included within the agreements and $3 per share, the Company's
estimate of the fair value of the stock on the date of issuance and, (2) reflect
the fair value of the warrants attached to the debt instrument using the
Black-Scholes pricing model over the period the bridge loan was outstanding
during the period.
NET LOSSES:
CorVu Corporation incurred net losses of $731,350 and $3,505,882 for the
six-month periods ended December 31, 1998 and 1999, respectively.
Liquidity and Capital Resources
Total cash and cash equivalents increased by $196,579 during the six-month
period ended December 31, 1999 from $31,335 as of June 30, 1999 to $227,914 as
of December 31, 1999. Net cash used in operating activities was $1,703,629 for
the period ended December 31, 1999. This was caused by the net loss during the
period as discussed above. Net cash used in investing activities was $39,187 for
fiscal 1999 reflecting the acquisition of office furniture and computer and
office software and equipment as part of the Company's expansion. Net cash
provided by financing activities was $1,901,996 for the period ended December
31, 1999. Proceeds from the sale of common stock at $2 per share accounted for
$1,459,752, net of financing costs. In addition, the Company collected a stock
subscription receivable in the amount of $250,000 and entered into a $500,000
bridge loan facility as discussed above. Additionally, the Company repaid
director loans in the amount of $293,006.
<PAGE>
In January 2000, prior to the merger, CorVu raised a total of $200,000 from the
sale of common stock (priced at $2.00 per share). After the merger, CorVu sold
to two accredited investors 500,000 shares of common stock plus 300,000 common
stock warrants exercisable at prices from $2 to $8 per share, for a total
purchase price of $1,000,000. Currently, the Company is negotiating with several
accredited investors for the sale of up to 625,000 shares of common stock,
together with warrants to purchase up to 187,500 shares at prices ranging from
$4 to $7 per share, for a total purchase price of $2,500,000. On March 31, CorVu
received from one of its directors a short-term loan for the principal amount of
$300,000 to satisfy its working capital needs. The Company intends to repay this
loan with the proceeds of the current offering. In addition, CorVu's management
intends to undertake one or several of the following activities: (1) continue to
increase CorVu's revenues from software licenses and other revenue sources; (2)
increase the level of indebtedness; (3) solicit additional equity investment in
the Company; (4) reduce operating costs, as deemed necessary, in the event the
sales of product licenses and / or additional equity or debt financing do not
generate adequate proceeds. CorVu's management believes that these activities,
combined with the recent financing transactions and the financing activities
described above under "Future Sales of Our Common Stock ..." , will generate
sufficient cash flows to sustain CorVu's operations through the end of fiscal
2000.
ITEM 3: DESCRIPTION OF PROPERTY
Our corporate headquarters are located at 3400 West 66th Street, Edina,
Minnesota. On June 1, 1998, we entered into a sublease agreement that will
expire on August 31, 2002, to rent approximately 6,271 rentable square feet.
Pursuant to the sublease agreement, we make monthly base rent payments of
approximately $5,497.58. In addition to the rent payments, we reimburse the
sublandlord all amounts that may become due under the lease between the landlord
and our sublandlord, for any operating costs allocable to our premises based
upon the rentable square foot office area allocable to our premises. Total
monthly rent payments amount to approximately $10,700. The premises include a
reception area, conference and training rooms, as well as executive and
administrative offices.
The major regional centers of our subsidiaries are located in Sydney (Australia)
and London (Great Britain). Total monthly rent payments for the Sydney office
amount to about $10,700, for the London office to approximately $7,200. These
amounts are subject to variations due to the applicable exchange rates. The
lease agreements vary concerning terms and conditions, and are subject to the
applicable local law.
ITEM 4: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information as of March 27, 2000 concerning the
beneficial ownership of our Company's common stock by (i) each director of the
company, (ii) the named executive officers in the summary compensation table,
(iii) the persons known by the company to own more than 5% of the company's
outstanding common stock, and (iv) all directors and executive officers as a
group. Except as otherwise indicated, the persons named in the table have sole
voting and investment power with respect to all shares of common stock owned by
them.
Name or Number of Shares Percent of Common
Identity of Group Beneficially Owned Stock Outstanding(1)
- ------------------ ------------------ -----------------
Edward S. Adams (2) (3) 604,603 3.22%
David C. Carlson (2) (4) 191,250 1.02%
Ismail Kurdi (2) (5) 1,175,625 6.22%
Justin M. MacIntosh (2) (6) 8,829,701 46.40%
James L. Mandel (2) (7) 224,061 1.20%
Pierce A. McNally (2) (8) 405,985 2.18%
Alan M. Missroon (2) (9) 157,500 *(10)%
Directors and executive
officers as a group 11,588,725 58.00%
Opella Holdings Limited (11) (12) 7,541,733 40.59%
Troy Rollo (13) (14) 1,023,950 5.50%
Rollosoft Pty Ltd (13) (15) 982,325 5.29%
Dominic K.K. Sum 7,541,733 40.59%
<PAGE>
(1) The percentages are calculated on the basis of 18,579,279 shares of common
stock of the Surviving Company. In addition, for each person or group, any
securities that the person or group has the right to acquire within 60 days
pursuant to options, warrants, conversion privileges or other rights, have
been added to the total amount of outstanding shares of the Surviving
Company.
(2) Address: 3400 W. 66th Street, Suite 445, Edina, MN 55435.
(3) Mr. Adams' beneficial ownership consists of (i) 345,806 shares of common
stock issued to Jon Adams Financial Co., L.L.P ("JAF") under its letter
agreement with CorVu, dated May 12,1999, which are converted pursuant to
the merger agreement into 389,031 shares of common stock of our Company,
(ii) a warrant issued to JAF under the same letter agreement to purchase an
additional amount of 185,572 shares of common stock of the surviving
corporation at $5.3125 per share, and (iii) warrants issued to Equity
Securities Investment, Inc. in connection with the current private
placement to purchase 10,000 shares of common stock at $4 per share, 10,000
shares of common stock at $5.50 per share, and 10,000 shares of common
stock at $7 per share.
(4) Mr. Carlson's beneficial ownership consists out of 191,250 shares of common
stock issuable under currently exercisable stock options.
(5) Mr. Kurdi's beneficial ownership includes 309,375 shares of common stock
issuable under currently exercisable warrants.
(6) Mr. MacIntosh's beneficial ownership includes 7,541,733 shares registered
in the name of Barleigh Wells Limited (see also footnotes 12 and 16),
115,537 shares of common stock held by Blamac Holdings Limited, 450,000
shares of common stock issuable under currently exercisable stock options,
and 81,420 shares of common stock held by Mr. MacIntosh's spouse as to
which Mr. MacIntosh disclaims his beneficial ownership.
(7) Mr. Mandel's beneficial ownership includes 35,000 shares of common stock
issuable under currently exercisable stock options, and 40,350 shares of
common stock held by Mr. Mandel's spouse as to which Mr. Mandel disclaims
beneficial ownership.
(8) Mr. McNally's beneficial ownership includes 299,938 shares of common stock
held by McNally Family Investment Partnership, d/b/a Aldrich Investment
Partnership, of which Mr. McNally and his spouse are the general partners,
and 2,000 shares of common stock issuable under currently exercisable stock
options.
(9) Mr. Missroon's beneficial ownership consists of 157,500 shares of common
stock issuable under currently exercisable stock options.
(10) Below 1%.
(11) Address: c/o Tempio Corporate Consultants Limited, Suite 701, 7/F, 6-8
Pottinger Street, Central, HONG KONG.
(12) Opella Holdings Limited as trustee of The Asia Pacific Technology Trust is
the beneficial owner of the shares registered in the name of Barleigh Wells
Limited as street name holder. Opella Holdings Limited shares beneficial
ownership of the shares with Mr. MacIntosh (see footnote 6) and Mr. Sum
(see footnote 16).
(13) Address: C/-Crispin & Jeffery, Level 2, 57 Grosvenor Street, Neutral Bay
NSW 2089, AUSTRALIA.
(14) Mr. Rollo's beneficial ownership includes 982,325 shares of common stock
held by Rollosoft Pty. Limited (see footnote 15) and 41,625 shares of
common stock issuable under currently exercisable stock options.
(15) Mr. Rollo is the sole shareholder, director and officer of Rollosoft Pty.
Limited.
(16) Mr. Sum is the sole shareholder of Opella Holdings Limited (see footnote
12). The director of Opella Holdings Limited is Pio Services Limited whose
sole shareholder is Tempio Group of Companies Limited which in turn is
wholly owned by Mr. Sum. Pio Services Limited has two directors one of
which is Mr. Sum.
<PAGE>
ITEM 5: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth the name, age and position of each person who
serves as a director and/or officer of our Company as of January 15, 2000
(alphabetical order). Our directors serve for an indefinite term that expires at
the next regular meeting of our shareholders, and until such directors'
successors are elected and qualified, or until such directors' earlier death,
resignation, disqualification or removal as provided by law.
Name Age Position
Ed Adams 36 Director
David Carlson 43 Chief Financial Officer; Director
Ismail Kurdi 31 Director
Justin MacIntosh 49 Chairman, President, Chief Executive
Officer; Director
James L. Mandel 43 Director
Pierce A. McNally 50 Director
Alan Missroon 36 Vice President Marketing; Director
John Stout 59 Secretary
Edward S. Adams (Director). Since August 1992, Mr. Adams has held various
positions at the University of Minnesota Law School; currently, he is Associate
Dean for Academic Affairs, Julius E. Davis Chair and Professor of Law and
Director of the Center for Business Law and Enterpreneurship at the University
of Minnesota Law School. In June 1996, Mr. Adams and a partner formed Jon Adams
Financial Co., L.L.P. of which he remains a principal. Jon Adams has provided
financial and business advice to our Company. In January 2000, Mr. Adams became
the president and chief executive officer of Equity Securities Investments,
Inc., a registered broker-dealer that has acted as CorVu's agent in various
securities offerings in the recent past. In September 1999, Mr. Adams became a
member of the board of directors of Virtualfund, Inc., a Minnesota corporation.
Mr. Adams was elected to the board of directors of our Company in January 2000.
He devotes a substantial amount of his time to CorVu's business affairs.
David C. Carlson (Chief Financial Officer; Director). Before joining CorVu
Corporation as Chief Financial Officer in July 1996, Mr. Carlson gained
extensive experience in the area of accounting and audits. He served from July
1979 to July 1984 in the audit division of Arthur Andersen & Co. From July 1984
to April 1989, he held the position of Controller and later, Vice President of
Finance at Canterbury Downs, a horse racing facility. He joined the Minnesota
Timberwolves, a professional sports franchise, in April 1989 as Controller, a
position he subsequently held at a local health and fitness chain until May
1996; the sports franchise and the health and fitness chain were under common
ownership. Mr. Carlson is responsible for all areas of financial management of
our Company. He became a member of the board of directors of CorVu Corporation
in December 1996 and was elected to the board of directors of the Company
surviving the merger of CorVu Corporation into Minnesota American, Inc. in
January 2000.
Ismail Kurdi (Director). Mr. Kurdi received a Bachelor of Science from Boston
University in May 1992. From September 1992 to September 1993, he was with Oxy
USA, a subsidiary of Occidental Petroleum. In October 1993, he relocated back to
England where he is a real estate developer and investor. He serves on the board
of directors for several property companies. Mr. Kurdi was elected to the board
of directors of CorVu Corporation in December 1996 and was elected to the board
of directors of the Company surviving the merger of CorVu Corporation into
Minnesota American, Inc. in January 2000. He currently spends approximately 10%
of his time on CorVu's business affairs.
<PAGE>
Justin M. MacIntosh (Chairman, President, Chief Executive Officer; Director).
After a career in the equity and real estate markets of Australia, Mr. MacIntosh
founded MACS Software Company, a provider of business application software, in
1977. He served as Chairman and CEO of MACS until he founded the former parent
company of CorVu in Australia in 1990. Since the incorporation of CorVu
Corporation in Minnesota in September 1995, Mr. MacIntosh has served as
Chairman, President and Chief Executive Officer, and as a director of the
company. He was elected as director, Chairman of the Board, President and Chief
Executive Officer of the Company surviving the merger of CorVu Corporation into
Minnesota American, Inc. in January 2000.
James Mandel (Director). Mr. Mandel has been a director of Minnesota American
since 1987. He has been the Chief Executive Officer and a director of Vicom
Inc., a full service telecommunications company which is reporting to the SEC
under the Securities Exchange Act of 1934 and is headquartered in Minneapolis,
since September 1998. From January 1997 to September 1998, he was Chairman of
Call 4 Wireless LLC and from January 1992 to February 1997, he served as a Vice
President of Grand Casinos, Inc. Mr. Mandel was elected to the board of
directors of Minnesota American, Inc. in September 1987. He currently spends
approximately 10% of his time on Corvu's business affairs.
Pierce McNally (Director). Mr. McNally received an A.B. in History from Stanford
University in 1971 and a J.D. (Order of the coif) from the University of
Wisconsin in 1978. He is on the board of directors since December 1990. He
served as Minnesota American's Chairman of the Board, Chief Executive Officer
and Secretary from October 1994 to January 2000. He practiced corporate law at
Oppenheimer, Wolff & Donnelly LLP from 1979 to 1985. Subsequently, Mr. McNally
served as an officer and director of Midwest communications, Inc. through
February 1992 when the company merged with CBS, Inc. He served as Chairman and
Director of Corporate Development of Nicollet Process Engineering, Inc. from May
1995 until April 1999 when he retired from the board. Additionally, he has
served and continues to serve on the boards of several U.S. corporations
(including Vicom Inc., Personal Genie, Inc. and Rainy River Resources, Inc.) for
the last seven years. He currently serves as Chairman, Secretary and Director of
LockerMate Corporation of Minnetonka, Minnesota. Mr. McNally has the capacity to
devote considerable time to Corvu's business affairs.
Alan Missroon (Vice President Marketing; Director). Mr. Missroon gained his
knowledge of the business intelligence market while working at Burroughs
Corporation (Unisys) and during his eight years (from July 1987 to November 95)
at IQ Software Corporation in which he became familiar with a variety of
positions in sales, sales management, product design, and marketing. From
December 1995 to December 1996, he worked at Praxis International. Mr. Missroon
is responsible for worldwide operations, product positioning, market awareness,
interfacing with trade press and analysts and other general marketing duties. He
joined CorVu Corporation in January 1997 and was elected as one of the directors
of CorVu Corporation in February 1997. He was elected to the board of directors
of the Company surviving the merger of CorVu Corporation into Minnesota
American, Inc. in January 2000.
ITEM 6: EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth all cash compensation paid or to be paid
by CorVu, as well as certain other compensation, paid or accrued, during each of
CorVu's last three fiscal years to the Chief Executive Officer and to the other
executive officers whose total annual salary and bonus paid or accrued during
fiscal year 1999 exceeded $100,000.
<PAGE>
<TABLE>
<CAPTION>
Long Term Compensation
------------------------------------
Annual Compensation Awards Payouts
----------------------------------- ------------------------------------
Restricted LTIP All Other
Name and Principal Fiscal Stock Payouts Compensation
Position Year Salary ($) Bonus ($) Other ($) Awards ($) Options ($) ($)(1)
- ------------------------- ----- ---------- --------- --------- ---------- ------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Justin M. MacIntosh (2) 1999 412,000 -- -- -- -- -- --
Chairman and Chief 1998 300,800 -- -- -- 56,250 -- --
Executive Officer 1997 291,000 -- -- -- -- -- --
David C. Carlson 1999 100,000 -- -- -- 45,000 -- --
Chief Financial Officer 1998 84,240 10,530 -- -- 45,000 -- --
1997 78,000 7,800 -- -- 67,500 -- --
Alan M. Missroon 1999 124,500 -- -- -- 11,250 -- --
Vice President Marketing 1998 114,500 25,020 -- -- - -- --
1997 55,000 18,000 -- -- 135,000 -- --
</TABLE>
(1) Numbers adjusted by conversion ratio of 1.125 to reflect post-merger
situation.
(2) Includes salary from CorVu Australasia Pty. Ltd.
Option Grants During 1999 Fiscal Year
The following table provides information regarding stock options
granted during fiscal 1999 to the named executive officers in the Summary
Compensation Table. The Company has not granted any stock appreciation rights.
<TABLE>
<CAPTION>
Percent of Total
Number of Shares Options Granted to Exercise or
Underlying Options Employees Base Price Per
Name Granted (1) in Fiscal Year Share (1) Expiration Date
- ---- ------------------- -------------------- --------- ---------------
<S> <C> <C> <C> <C>
Justin M. MacIntosh --- --- --- ---
David C. Carlson 45,000 3.51% $1.34 05/27/06
Alan M. Missroon 11,250 0.88% $1.78 03/13/06
</TABLE>
(1) Number of shares and exercise price per share adjusted to reflect
post-merger situation.
Option Exercises During 1999 Fiscal Year and Fiscal Year-End Option Values
The following table provides information as to options exercised by the
named executive officers in the Summary Compensation Table during fiscal 1999
and the number and value of options at June 30, 1999. The Company has no
outstanding stock appreciation rights.
<PAGE>
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
Shares June 30, 1999 June 30, 1999
Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable (1) Unexercisable(2)
- ---- ----------- -------- ----------------- -------------
<S> <C> <C> <C> <C>
Justin M. MacIntosh -- -- 56,250 exercisable $148,640
0 unexercisable $0
David C. Carlson -- -- 135,000 exercisable $497,139
22,500 unexercisable $99,506
Alan M. Missroon -- -- 112,500 exercisable $321,468
33,750 unexercisable $93,909
</TABLE>
(1) Numbers adjusted by conversion ratio of 1.125 to reflect post-merger
situation.
(2) Value is calculated on the basis of the difference between the option
exercise price and $5.3125, the average of the closing bid and ask price on
January 14, 2000, the day of the merger.
Employment Agreements
Effective July 1, 1999, CorVu entered into a three-year employment
agreement with Justin M. MacIntosh. Pursuant to the agreement, Mr. MacIntosh
will serve as our Chairman, President and Chief Executive Officer. During the
term of the agreement, Mr. MacIntosh will be paid annual base salaries of
$330,000 for the first employment year, $380,000 for the second and $420,000 for
the third employment year. He was also granted options to purchase a total of
675,000 shares of our Company's common stock at $1.34 per share, with 225,000 of
these options vesting at the beginning of each employment year. [The number of
the options has been changed to reflect the post-merger situation.] Mr.
MacIntosh will participate in any retirement, welfare and other benefit program
our Company provides for its executive officers. Mr. MacIntosh will receive
payments in the amount of at least 9 monthly installments of the base salary in
effect at the time of termination if we terminate his employment without cause.
Mr. MacIntosh is subject to certain confidentiality and non-compete provisions
under the agreement.
Effective July 15, 1996, CorVu entered into a one-year employment agreement
with David Carlson that was amended as of July 20, 1998. Pursuant to the
agreement Mr. Carlson will serve as our Chief Financial Officer. The term of the
agreement is automatically renewed for successive one-year periods unless the
agreement has been terminated earlier. Mr. Carlson currently receives an annual
base salary in the amount of $108,000 and additional 25% quarterly bonus
payments, based on attaining quarterly business plan profits and his personal
performance. Mr. Carlson will participate in any retirement, welfare and other
benefit program our Company provides for its executive officers. Both parties to
the agreement can terminate the agreement without cause upon 60 days prior
written notice. Mr. Carlson is subject to certain confidentiality provisions
under the agreement.
Effective January 2, 1997, CorVu entered into a one-year employment
agreement with Alan M. Missroon. Pursuant to the agreement Mr. Missroon will
serve as our Vice President of Marketing. The agreement is automatically renewed
for successive one year terms unless terminated earlier. Mr. Missroon receives
an annual base salary of $150,000 and additional bonuses, based on our profits.
<PAGE>
In addition, Mr. Missroon was granted options to purchase a total of 112,500
shares of stock of our company at $2.54; all of which were exercisable at
January 15, 2000. [The number of the options and their exercise price have been
changed to reflect the post-merger situation.] Mr. Missroon will participate in
any retirement, welfare and other benefit program our Company provides for its
executive officers. If we terminate his employment without cause, Mr. Missroon
will receive his base salary for a period of three months after the date of
termination, with an additional one month of base pay added for each year of
employment up to a maximum of six months. Mr. Missroon is subject to certain
confidentiality and non-compete provisions under the agreement.
ITEM 7: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Directors of CorVu Corporation
Edward Adams, a director of CorVu, is a principal of Jon Adams Financial Co.,
L.L.P., and president and chief executive officer of Equity Securities
Investments, Inc., a registered broker-dealer. Jon Adams Financial Co., L.L.P.
received for its services in connection with the merger of CorVu and Minnesota
American, Inc., $47,500 plus 389,031 shares of common stock and warrants to
purchase additional 185,572 shares of CorVu common stock. Equity Securities
Investments, Inc. received a commission of 7.5% plus a non-accountable expense
allowance of 1% on most of the security sales and financing transactions of
CorVu since November 1999.
On May 28, 1999, David Carlson, the Chief Financial Officer and a director of
CorVu, and his wife Cynthia loaned CorVu $300,000. The due date of the note was
extended from July 21, 1999 to September 20, 1999. Interest payable was based
upon a bank index rate plus 2%. CorVu paid the promissory note in full on
December 13, 1999. On March 31, 2000, Mr. Carlson and his wife loaned CorVu
$300,000. The loan is due on April 30, 2000. Interest payable is based upon a
bank index rate plus 2%. The Company intends to repay the loan with the proceeds
of the current private placement.
One of the directors of CorVu, Ismail Kurdi, advanced to CorVu money at an
interest rate of 5% per annum on numerous occasions in fiscal 1997, fiscal 1998
and fiscal 1999. Mr. Kurdi advanced $150,000 on June 26, 1997, $200,000 on
October 28, 1997, and $250,000 on December 26, 1997. CorVu paid amounts of
$80,000 each back to Mr. Kurdi on January 27, 1998 and February 27, 1998. Mr.
Kurdi loaned $150,000 to CorVu on November 27, 1998, so that as of December 31,
1998, CorVu owed Mr. Kurdi the principal amount of $590,000 and interest
totaling $29,489. Mr. Kurdi advanced $200,000 to CorVu on February 26, 1999 and
$30,000 on April 14, 1999. As of June 30, 1999, outstanding loans from Mr. Kurdi
to CorVu totaled $820,000. Mr. Kurdi and CorVu agreed to convert the amount of
$790,000 into CorVu common stock, at a per share price of $2, effective June 30,
1999. On October 13, 1999, Mr. Kurdi advanced $150,000 to CorVu. On December 13,
1999, the Company paid $30,000 to Mr. Kurdi. As of December 31, 1999, the
principal amount of $150,000 was outstanding, as well as interest in the amount
of $49,975. On January 31, 2000, we paid the principal of $150,000 back to Mr.
Kurdi.
Justin M. MacIntosh, the Chairman, President, Chief Executive Officer of CorVu
and one of our Directors, and Australian companies controlled by him (Core Music
Group and Blamac Holdings Limited) advanced money to, and received money
advances from our Australian subsidiary on a regular basis. As of the end of
fiscal year 1999, our Australian subsidiary owed $112,296 to Justin MacIntosh
and $176,992 to Blamac Holdings Limited. At the same point of time, Core Music
Group owed to our Australian subsidiary $218,415. We intend to settle these
amounts as soon as possible.
<PAGE>
Pierce A. McNally, a director of CorVu, is a 20% shareholder of LAC, Inc. which
bought LockerMate, Inc. from Minnesota American, Inc. prior to the merger of
Minnesota American, Inc. with CorVu. The sale of LockerMate, Inc. was one of the
conditions for the closing of the merger.
ITEM 8: DESCRIPTION OF SECURITIES
Common and Preferred Stock
After the merger, our Company is authorized to issue an aggregate number of
100,000,000 shares which shall consist of 75,000,000 shares of common stock,
1,000,000 shares of Series A Convertible Preferred Stock, and 24,000,000
undesignated shares. Our board of directors is authorized to establish from the
undesignated shares one or more classes or series of shares, to designate each
such class or series (including but not limited to the designation of additional
Series A Convertible Preferred Shares), and to fix the relative rights and
preferences of each such class or series. As of January 15, 2000, 18,271,577
shares of common stock and 4,200 shares of Series A Convertible Preferred Stock
were outstanding.
Common stock:
Our common stock has a par value of $.01 per share.
Common shareholders are entitled to one vote for each share held of record on
each matter submitted to a vote of the common shareholders. Subject to the
preferential dividend rights of the Series A Convertible Preferred Stock, the
common stock shareholders are entitled to receive dividends as and when declared
by our board of directors. However, dividends on our common stock are not
contemplated in the foreseeable future. Common shareholders are entitled to one
vote for each share held of record on each matter submitted to a vote of the
common shareholders.
Our Articles provide that our shareholders will not have cumulative voting
rights in the electing of directors. Under cumulative voting, a shareholder
could cast that number of votes equal to such shareholder's shares multiplied by
the number of directors to be elected in favor of one candidate or among several
candidates. Cumulative voting makes it possible for less than a majority of the
shareholders to elect one or more members of the board of directors. Under
non-cumulative voting, a majority of the voting power of the shareholders
entitled to vote can elect the entire board of directors. Our Articles provide
that our shareholders will not have any preemptive rights to subscribe for or
purchase additional shares of our capital stock. This means that our
shareholders will not be entitled to acquire a certain fraction of the unissued
securities or rights to purchase our securities before we may offer them to
other persons. Preemptive rights enable a shareholder to maintain the
shareholder's proportional voting power and proportional rights to receive other
distributions by the company.
Series A Convertible Preferred Stock:
The holders of Series A Convertible Preferred Stock are entitled to receive a
dividend of 6.5% per annum, payable semi-annually on July 1 and January 1. The
dividend is cumulative which means that if in any semi-annual dividend period,
dividends at the rate of 6.5% per annum have not been paid upon or set apart for
the Series A Stock, the deficiency (but without interest) shall be fully paid or
set apart for payment before any dividends shall be paid upon or set apart for
the common stock. The Company may, to the extent that funds are legally
available therefor, redeem each share of Series A Stock at $11.70 plus earned
and unpaid dividends.
Each share of Series A Stock is convertible into common stock at the rate of
eight shares of common stock for each share of Series A Stock. Each share of
Series A Stock is entitled to eight votes. In the event of an involuntary or
voluntary liquidation, the holders of shares of Series A stock shall be entitled
to receive out of the assets of our Company an amount equal to $10 per share.
<PAGE>
PART II
ITEM 1: MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
The common stock of Minnesota American, Inc. was traded in the over-the-counter
market with prices quoted on the OTC Bulletin Board under the symbol "MNAC."
After the merger, we changed the symbol to "CRVU." CorVu's common stock was not
publicly traded prior to the merger. Since market open on February 10, 2000, our
stock is no longer quoted on the OTC Bulletin Board but only on other quotation
mediums, including the National Quotation Bureau's Pink Sheets. Quotations in
the following table are based on information provided by IDD Information
Services, Tradeline(r) on Lexis(R). The quotations represent inter-dealer
prices, without retail markup, markdown or commission, and do not necessarily
represent actual transactions.
Common Stock
--------------------------------------------
Fiscal Quarter Ended High Bid Low Bid
- ------------------------ ------------------------- ------------------
September 30, 1997 $0.125 $0.03125
December 31, 1997 0.28125 0.125
March 31, 1998 0.171875 0.125
June 30, 1998 0.1875 0.03125
September 30, 1998 $0.125 $0.046875
December 31, 1998 0.421875 0.09375
March 31, 1999 1.00 0.25
June 30, 1999 1.0625 0.28125
September 30, 1999 $2.75 $0.28125
December 31, 1999 $6.00 $0.6875
As of March 27, 2000, we had 137 shareholders of record.
Prior to their merger, neither CorVu Corporation nor Minnesota American, Inc.
paid cash dividends to holders of their common stock. However, the shareholders
of Series A Convertible Preferred Stock are entitled to receive a cumulative
dividend of 6.5% per year, payable semi-annually.
ITEM 2: LEGAL PROCEEDINGS
None.
ITEM 3: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
<PAGE>
ITEM 4: RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, CorVu has engaged in the securities transactions
listed below. CorVu relied for all such sales on the exemption from registration
provided under Section 4(2) and / or Rule 506 of Regulation D of the Securities
Act for transactions not involving a public offering, and related state
securities laws. Unless otherwise stated, all securities were issued directly by
CorVu, no underwriters were involved and no discount, commission or other
transaction-related remuneration was paid. The purchasers of securities acquired
them for their own account and not with a view to any distribution thereof to
the public. The transactions involved sales to accredited investors and to not
more than 35 non-accredited but sophisticated investors. The certificates
evidencing the securities bear legends stating that the shares are not to be
offered, sold or transferred other than pursuant to an effective registration
statement under the Securities Act, or an exemption from such registration
requirements.
1. In February 1997, CorVu issued and sold 150,000 shares of common stock to
Ashkirk International Limited, a non-U.S. entity, at $2.85 per share.
2. In April 1997, CorVu issued and sold 135,000 shares of common stock to
Ashkirk International Limited and Blamac Holdings Limited, non-U.S.
entities, at $2.85 per share.
3. In September 1997, CorVu issued and sold 100,000 shares of common stock to
Wink Holdings Limited, a non-U.S. entity, at $2 per share.
4. In September 1997, CorVu issued and sold 102,700 shares of common stock to
Trulock Company Limited, a non-U.S. entity, at $3 per share.
5. In October 1997, CorVu issued and sold 3,000 shares of common stock to an
employee of its Australian subsidiary, at $2.85 per share.
6. In July 1998, CorVu issued warrants to purchase 30,000 shares of common
stock, at $3 per share, to the McCurdy Group.
7. In August 1998, CorVu issued warrants to purchase 100,000 shares of common
stock, at $1.17 per share, to First Albany Corporation.
8. In November 1998, CorVu issued warrants to purchase 30,000 shares of common
stock, at $3 per share, to Technology Strategies & Alliances.
9. In February 1999, CorVu issued and sold 1,550 shares of common stock to an
employee of its Australian subsidiary, at $2 per share.
10. In April 1999, CorVu issued and sold 150,000 shares of common stock, at $2
per share, and a warrant for the purchase of 150,000 shares of common
stock, at $.01 per share, to a director, who is an accredited investor and
who is not a U.S. citizen.
11. In June 1999, CorVu issued and sold 520,000 shares of common stock, at $2
per share, and a warrant for the purchase of 125,000 shares of common
stock, exercise price of $.01 per share, to a director, who is an
accredited investor and who is not a U.S. citizen.
12. In June 1999, CorVu issued warrants to purchase 80,000 shares of common
stock, at $3 per share, to three foreign distributors.
13. In September 1999, CorVu issued and sold 12,500 shares of common stock, at
$2 per share, to two individuals, each an accredited investor.
14. In November 1999, CorVu issued warrants to purchase 12,000 shares of common
stock, at $2 per share, to an accredited investor for services rendered.
<PAGE>
15. In November 1999, CorVu issued warrants to purchase 450,000 shares of
common stock, at $.01 per share, to two business entities, both of which
are accredited investors, in connection with a loan agreement. Equity
Securities Investments, Inc., a registered broker-dealer, received a
commission of 7.5% plus a non-accountable expense allowance of 1% for this
transaction.
16. From November 1999 through January 2000, CorVu issued and sold 935,000
shares of common stock, at $2 per share, to two accredited U.S. investors
and seventeen non-U.S. individuals and business entities. In addition,
under one such transaction CorVu issued a warrant for the purchase of up to
75,000 shares of common stock at an exercise price of $2 per share. Equity
Securities Investments, Inc. received a commission of 7.5% plus a
non-accountable expense allowance of 1% for most of these sales.
17. In connection with the merger with Minnesota American, Inc., CorVu issued
to its business advisor Jon Adams Financial Co., L.L.P., 345,806 shares of
common stock as partial payment for services rendered.
18. Immediately following the merger, our Company, as the Surviving Company of
the merger, issued a warrant to purchase 185,572 shares of common stock, at
$5.3125 per share, to Jon Adams Financial Co., L.L.P. for services
rendered.
19. In January 2000, our Company instructed our transfer agent to issue 285,702
shares of common stock at $2 per shares to two business entities, both of
which are accredited investors, in conversion of the outstanding principal
and interest under a loan agreement.
20. In January 2000, our Company issued and sold 500,000 shares of common stock
and warrants to purchase 300,000 shares of common stock, at exercise prices
ranging from $2 to $8 per share, to two accredited investors for a total
purchase price of $1,000,000. Equity Securities Investments, Inc. received
a commission of 7.5% plus a non-accountable expense allowance of 1% for
these sales.
21. Currently, our Company is offering 625,000 shares of common stock and
warrants to purchase 187,500 shares of common stock, at exercise prices
ranging from $4 to $7.00, to several accredited investors for a total
purchase price of $2,500,000. Equity Securities Investments, Inc. received
a commission of 7.5% for these sales and a warrant to purchase up to 30,000
shares of common stock, at exercise prices ranging from $4 to $7.
22. As of March 31, 2000, options to purchase approximately 3,826,250 shares of
CorVu common stock and warrants to purchase 1,674,072 (excluding 187,500
warrants currently offered for sale) shares of CorVu common stock were
outstanding. (The number of options might change slightly due to the
conversion of pre-merger CorVu options at a rate of 1.125; under the merger
agreement, the number of option shares will be rounded down to the nearest
whole number.)
ITEM 5: INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Minnesota corporate law, a corporation shall, unless prohibited or limited
by its Articles of Incorporation or Bylaws, indemnify its directors, officers,
employees and agents against judgments, penalties, fines, settlements, expenses
and disbursements incurred by such person who was, or is threatened to be, made
a party to a proceeding by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation if generally, with
respect to the acts or omissions of the person complained of in the proceeding,
the person: (i) has not been indemnified by another organization with respect to
the same acts or omissions; (ii) acted in good faith, (iii) received no improper
personal benefit; (iv) in the case of a criminal proceeding, had no reasonable
cause to believe the conduct was unlawful; and (v) reasonably believed the
conduct was in the best interests of the corporation or, in certain
circumstances, reasonably believed that the conduct was not opposed to the best
interests of the corporation. Our Articles of Incorporation and bylaws do not
limit our obligation to indemnify such persons.
<PAGE>
Minnesota corporate law also provides that a corporation may purchase and
maintain insurance on behalf of any indemnified party against any liability
asserted against such person, whether or not the corporation would have been
required to indemnify the person against liability under the provisions of
Minnesota corporate law. Under the Agreement and Plan of Reorganization, entered
into by Minnesota American, Inc. and CorVu Corporation on November 17, 1999, our
Company - as the Surviving Company - is obliged to indemnify and hold harmless
current and former officers and directors of both companies for six years after
the merger, in respect of acts or omissions occurring prior to the merger,
provided that such indemnification shall be subject to any limitation imposed
from time to time under applicable law. Moreover, for six years after the
merger, we must use our best efforts to provide officers' and directors'
liability insurance in respect of acts or omissions occurring prior to and
including the merger, covering each current and former officer or director of
Minnesota American, Inc. and CorVu. The Company is in the process of procuring
Director and Officer insurance.
PART F/S
The following information is provided:
CorVu Corporation
o Consolidated Financial Statements June 30, 1998 and June 30, 1999
o (Unaudited) Consolidated Financial Interim Statements for six-month period
December 1999 and December 1998
o Pro forma balance sheet.
o Regarding pro forma statements of income, since Minnesota American, Inc.
sold and disposed of, respectively, both of its operating subsidiaries,
operations after the consummation of the merger consist of the operations
of CorVu. We therefore refer to the statements of income of CorVu, included
above.
Minnesota American, Inc.
o Consolidated Financial Statements September 30, 1998 and September 30,
1999.
o (Unaudited) Consolidated Financial Interim Statement for the quarters
December 1999 and December 1998.
CORVU CORPORATION AND SUBSIDIARIES
Consolidated Financial Statements
June 30, 1999 and 1998
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
CorVu Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of CorVu
Corporation and subsidiaries (the Company) as of June 30, 1999 and 1998, and the
related consolidated statements of operations, stockholders' deficit, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CorVu Corporation
and subsidiaries as of June 30, 1999 and 1998, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 4 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has a net capital deficiency that raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 4. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ KPMG LLP
Minneapolis, Minnesota
December 3, 1999, except as to notes 4, 11 and 13
which are as of December 16, 1999
<PAGE>
CORVU CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1999 and 1998
<TABLE>
<CAPTION>
Assets 1999 1998
----------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 31,335 287,289
Stock subscription receivable 250,000 -
Trade accounts receivable, net of allowance for doubtful
accounts of $100,000 and $50,000, respectively 3,763,628 2,456,273
Prepaid expenses 117,369 97,844
Other assets 58,794 149,189
----------- ------------
Total current assets 4,221,126 2,990,595
Furniture, fixtures, and equipment 325,595 243,195
Less accumulated depreciation (172,654) (146,221)
----------- ------------
152,941 96,974
----------- ------------
$ 4,374,067 3,087,569
=========== ============
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 1,904,989 1,000,091
Accrued compensation 1,507,916 737,424
Deferred revenue 1,435,792 973,363
Accrued interest 370,287 216,538
Other accrued expenses 192,811 58,068
Convertible note payable-parent 2,000,000 -
Due to affiliates - 101,166
Note payable 1,407,000 927,014
Director advances 444,826 554,826
----------- ------------
Total current liabilities 9,263,621 4,568,490
----------- ------------
Convertible note payable-parent - 2,000,000
----------- ------------
Total liabilities 9,263,621 6,568,490
Stockholders' deficit:
Undesignated capital stock, 25,000,000 shares in 1999 and 1998, none issued. - -
Common stock, $0.01 par value; 25,000,000 shares authorized;
10,162,250 and 9,490,700 shares issued and outstanding in
1999 and 1998, respectively 101,622 94,907
Additional paid-in capital 2,852,949 811,693
Accumulated deficit (7,980,480) (4,630,764)
Deferred compensation (75,000) -
Accumulated other comprehensive income 211,355 243,243
----------- ------------
Total stockholders' deficit (4,889,554) (3,480,921)
----------- ------------
Commitments (Notes 9, 10, 12, and 13)
Total liabilities and stockholders' deficit $ 4,374,067 3,087,569
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CORVU CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
-------------- -------------
<S> <C> <C>
Revenues:
Software and license fees $ 6,867,886 4,688,895
Maintenance, consulting, and other 3,720,572 2,178,767
-------------- -------------
Total revenues 10,588,458 6,867,662
-------------- -------------
Operating costs and expenses:
Cost of maintenance, consulting, and other 2,064,137 1,238,733
Product development 628,741 515,100
Sales and marketing 5,931,339 4,289,869
General and administrative 5,025,747 2,113,417
-------------- -------------
Total operating expenses 13,649,964 8,157,119
-------------- -------------
Operating loss (3,061,506) (1,289,457)
Interest expense, net (288,210) (191,094)
-------------- -------------
Net loss $ (3,349,716) (1,480,551)
============== =============
Loss per common share-basic and diluted $ (0.35) (0.16)
Weighted average shares-basic and diluted 9,518,964 9,450,260
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CORVU CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Deficit
Years ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
Accumulated
Additional other Total
Common stock paid-in Accumulated Deferred comprehensive stockholders
Shares Amount capital deficit compensation income/(loss) deficit
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1997 9,285,000 $ 92,850 520,200 (3,150,213) -- 40,959 (2,496,204)
Comprehensive loss:
Net loss -- -- -- (1,480,551) -- -- (1,480,551)
Foreign currency translation
adjustment -- -- -- -- -- 202,284 202,284
----------
Comprehensive loss -- -- -- -- -- -- (1,278,267)
Issuance of common stock 205,700 2,057 291,493 -- -- -- 293,550
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, June 30, 1998 9,490,700 94,907 811,693 (4,630,764) -- 243,243 (3,480,921)
Comprehensive loss:
Net loss -- -- -- (3,349,716) -- -- (3,349,716)
Foreign currency translation
adjustment -- -- -- -- -- (31,888) (31,888)
----------
Comprehensive loss -- -- -- -- -- -- (3,381,604)
Warrants and stock options granted -- -- 716,500 -- -- -- 716,500
Deferred compensation -- -- 75,000 -- (75,000) -- --
Issuance of common stock 671,550 6,715 1,249,756 -- -- -- 1,256,471
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, June 30, 1999 10,162,250 $ 101,622 2,852,949 (7,980,480) (75,000) 211,355 (4,889,554)
========== ========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CORVU CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,349,716) (1,480,551)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 51,734 188,955
Warrants and stock options granted 716,500 -
Changes in operating assets and liabilities:
Accounts receivable (1,307,355) (1,370,516)
Prepaid expenses (19,525) (60,417)
Other current assets 90,395 (127,759)
Accounts payable 734,228 191,242
Accrued compensation 365,656 378,271
Deferred revenue 462,429 569,779
Accrued interest 153,749 143,700
Other accrued expenses 710,249 9,856
----------- -----------
Net cash used in operating activities (1,391,656) (1,557,440)
----------- -----------
Cash flows from investing activities:
Capital expenditures (107,701) (91,894)
----------- -----------
Net cash used in investing activities (107,701) (91,894)
----------- -----------
Cash flows from financing activities:
Net proceeds from sale of common stock 216,471 293,550
Borrowings on note payable 479,986 927,014
Repayment of amounts due to affiliates (101,166) -
Borrowings of amounts due to affiliates - 101,166
Borrowings on notes payable-directors 680,000 562,278
Repayment on notes payable-directors - (160,000)
Payments on capital lease - (81,419)
----------- -----------
Net cash provided by financing activities 1,275,291 1,642,589
Effect of exchange rate changes on cash (31,888) 202,284
----------- -----------
Net increase (decrease) in cash and cash equivalents (255,954) 195,539
Cash and cash equivalents at beginning of year 287,289 91,750
----------- -----------
Cash and cash equivalents at end of year $ 31,335 287,289
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CORVU CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(1) Description of Business and Consolidated Financial Statement Presentation
(a) Organization
CorVu Corporation (the Company or CorVu) is an international
provider of Integrated Business Intelligence and Business
Performance Management Solutions. The Company designs,
develops, markets, and supports its proprietary management
software solutions.
The Company's products and services are sold through both
direct and indirect channels. Sales and support offices are
located throughout the United States, Australia, and Europe.
CorVu is a Minnesota corporation. Prior to August 16, 1999,
CorVu was majority owned by CorVu Pty Limited (Parent), an
Australian Company, which is controlled by the Chief Executive
Officer of the Company. On August 16, 1999, the Parent
distributed all shares of CorVu common stock held to the
Parent's shareholders.
(b) Basis of Consolidated Financial Statement Presentation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries.
Intercompany accounts and transactions have been eliminated in
consolidation.
(2) New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000. SFAS No. 133
established standards for accounting and reporting of derivative
financial instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. The accounting for changes in fair value of
a derivative depends on the intended use of the derivative and the
resulting designation. Management is currently in the process of
assessing the impact of SFAS No. 133 to the Company.
In December 1998, the AICPA issued Statement of Position (SOP) No.
98-9, Modification of SOP 97-2, Software Revenue Recognition, with
Respect to Certain Transactions. SOP No. 98-9 requires recognition of
revenue using the "residual method" in a multiple-element software
arrangement when fair value does not exist for one or more of the
delivered elements in the arrangement. Under the "residual method," the
total fair value of the undelivered elements is deferred and recognized
in accordance with SOP No. 97-2. The Company elected to adopt SOP No.
98-9 for both fiscal 1999 and 1998, neither period for which financial
statements have been issued, as allowed by the statement. SOP No. 98-9
also extends the deferral of the application of SOP No. 97-2 to certain
other multiple element software arrangements until the date SOP 98-9
becomes effective.
<PAGE>
(3) Summary of Significant Accounting Policies
(a) Revenue Recognition
The Company recognizes revenue in accordance with Statement of
Position No. 97-2, Software Revenue Recognition. Software
license revenue is recognized when all of the following
criteria have been met: there is an executed license
agreement, software has been shipped to the customer, no
significant vendor obligations remain, the license fee is
fixed and payable within twelve months and collection is
deemed probable. Maintenance revenues are recognized ratably
over the term of the maintenance contract, typically 12 to 36
months. Consulting and other revenues are recognized when
services are performed.
Deferred revenue represents payment received or amounts in
advance of services to be performed.
(b) Software Development Costs
Software development costs are expensed as incurred until
technological feasibility is established. Software development
costs incurred subsequent to establishing technological
feasibility are capitalized and amortized over their estimated
useful lives. During 1999 and 1998, no software development
costs were capitalized.
(c) Comprehensive Income
Comprehensive income represents the change in stockholders'
deficit resulting from other than stockholder investments and
distributions. Accumulated other comprehensive income (loss)
in the consolidated statements of stockholders' deficit is
solely comprised of the accumulated foreign currency
translation adjustment.
(d) Foreign Currency Translation
The functional currency of the Company's subsidiaries is the
local currency. Accordingly, the Company translates all assets
and liabilities into U.S. dollars at current rates. Revenues,
costs, and expenses are translated at weighted average rates
during each reporting period. Gains and losses resulting from
the translation of the consolidated financial statements are
excluded from results of operations and are reflected as a
translation adjustment and a separate component of
stockholders' deficit.
Gains and losses resulting from foreign currency transactions
are recognized in the consolidated statement of operations in
the period they occur.
(e) Net Loss per Share
Basic loss per share is computed by dividing net loss
available to common stockholders by the weighted-average
number of shares outstanding during the period. Diluted EPS
recognizes the potential dilutive effects of stock options and
warrants determined by the treasury stock method and the
effects of convertible debt.
<PAGE>
(f) Stock-based Compensation
The Company uses the intrinsic value-based method prescribed
by Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related
interpretations in accounting for employee stock options.
Under the intrinsic value method, compensation expense is
recorded only to the extent that the market price of the
common stock exceeds the exercise price of the stock option on
the date of grant.
(g) Income Taxes
The Company accounts for income taxes using the asset and
liability method. Under the asset and liability method,
deferred tax assets and liabilities are recognized at the
enacted rates for the future tax consequences attributable to
differences between the financial statement carrying amounts
of existing tax assets and liabilities and their respective
tax basis. The effect on deferred tax assets and liabilities
of a change in tax rate is recognized in income in the period
that includes the enactment date. Valuation allowances are
established when necessary to reduce deferred tax assets to
the amounts expected to be realized.
(h) Fair Value of Financial Instruments
The carrying value of the Company's financial assets and
liabilities, because of their short-term nature, approximates
fair value. The carrying value of notes payable and long-term
debt approximates fair value because the current rates
approximate market rates available on similar instruments.
(i) Cash and Cash Equivalents
Cash equivalents consist of highly liquid money market
accounts carried at cost plus accrued interest, which
approximates market value. All cash equivalents have remaining
maturities of 90 days or less.
(j) Stock Subscription Receivable
Stock subscription receivables that are paid in full by the
subscriber prior to the date the financial statements are
issued are reflected as a current asset.
(k) Property and Equipment, Net
Property and equipment consists of property, equipment,
furniture and computers and are stated at cost less
accumulated depreciation. Depreciation is calculated using the
straight-line method over the estimated useful lives of the
respective assets which generally range from three to seven
years.
(l) Advertising Costs
Advertising costs are expensed as incurred. Advertising costs
totaled approximately $156,000 and $130,000 for the years
ended June 30, 1999 and 1998, respectively.
<PAGE>
(m) Business and Credit Concentrations
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade
accounts receivable. The Company sells principally to
resellers and end users in the United States, Australia, and
Europe. The Company performs ongoing credit evaluations of its
customers and has not experienced significant credit losses in
the past.
(n) Impairment of Long-lived Assets and Assets to be Disposed Of
Long-lived assets and certain identifiable intangibles are
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of
an asset to future net undiscounted cash flows expected to be
generated by the amount by which the carrying amount of the
assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount
or fair value less costs to sell.
(o) Use of Estimates
The preparation of consolidated financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of those assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. A change in the facts
and circumstances surrounding these estimates could result in
a change to the estimates and impact future operating results.
(4) Liquidity
The accompanying consolidated financial statements are prepared
assuming the Company will continue as a going concern. During the year
ended June 30, 1999, the Company incurred an operating loss of
$3,061,506 and used $1,391,656 of cash in operating activities. As of
June 30, 1999, the Company had an accumulated deficit of $7,980,480,
total stockholders' deficit of $4,889,554, and negative working capital
of $5,042,495. In addition, due to inadequate funds, the Company has
not paid the outstanding principal and interest on the note payable
discussed in Note 9, that was due on December 16, 1999.
Going forward the Company must raise additional cash either through
raising additional capital or through profits from operations. During
the years ended June 30, 1999 and June 30, 1998, the Company raised
capital of $216,471 and $293,550, respectively.
Management anticipates that the impact of certain subsequent
activities, discussed in Note 11, as well as the actions listed below,
will generate sufficient cash flows to fund the Company's future
operations.
<PAGE>
1. Continue to increase the Company's revenues from software licenses
and other revenue sources.
2. Increase the level of the current Indebtedness.
3. Solicit additional equity investment in the Company.
4. Reduce operating costs, as deemed necessary, in the event the sales
of product licenses and/or additional equity or debt financing do
not generate adequate proceeds.
(5) Loss Per Common Share
For the Year Ended 1999
-------------------------------------------
Loss Shares Per-Share
(Numerator) (Denominator) Amount
----------- ----------- --------
Basic Loss Per Share: $(3,349,716) 9,518,964 $ (0.35)
Effect of Dilutive Securities:
None -- -- --
----------- ----------- --------
Loss Per Share -
Assuming dilution $(3,349,716) 9,518,964 $ (0.35)
=========== =========== ========
For the Year Ended 1998
-------------------------------------------
Basic Loss Per Share: $(1,480,551) 9,450,260 $ (0.16)
Effect of Dilutive Securities:
None -- -- --
----------- ----------- --------
Loss Per Share -
Assuming dilution $(1,480,551) 9,450,260 $ (0.16)
=========== =========== ========
(6) Stock Options and Warrants
The Company's 1996 Stock Option Plan (the Plan) provides for the
issuance of up to an aggregate of 3,500,000 shares of common stock to
employees, directors, and consultants. The Plan provides for the
issuance of incentive and nonqualified stock options.
Under the Plan, the exercise price for incentive stock options is at
least 100% of the fair market value on the date of the grant. The
exercise price for incentive stock options is at least 110% of the fair
market value on the date of the grant for persons with greater than 10%
of the voting power of all classes of stock. Options generally expire
in seven years; however, incentive stock options may expire in five
years if the optionee owns stock representing more than 10% of the
voting power of all classes of stock. Vesting periods are determined by
a stock option committee appointed by the board of directors and
generally provide for shares to vest ratably over three years.
<PAGE>
During fiscal year 1999, in connection with the grant to employees of
options outside the Plan to purchase 345,000 shares of common stock,
the Company recorded deferred compensation of $75,000, representing the
difference between the deemed value of the common stock for accounting
purposes and the option exercise price of such options on the date of
grant. The Company recognized an expense of $327,500 for the fiscal
year ended June 30, 1999 for these stock option grants based upon the
intrinsic value method in accordance with APB Opinion No. 25, and will
recognize the remainder of the deferred compensation cost over the
respective three year vesting periods of the options granted.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. Accordingly, compensation
expense has been recognized using the intrinsic value method prescribed
in APB No. 25 and related interpretations. Had compensation cost for
the Company's stock option grants in fiscal years 1999 and 1998 been
based on the fair value method prescribed by SFAS No. 123, the
Company's net loss would have been increased by $618,979 and $195,282,
respectively in 1999 and in 1998; net loss per share would have been
increased by $.08 and $.02 in 1999 and 1998, respectively.
Under SFAS No. 123, the weighted average estimated fair value of stock
options granted at exercise price equal to market price of grant date
during 1999 and 1998 was $1.15 and $1.08 per share, respectively. The
weighted-average estimated fair value of stock options granted at
prices below fair value during fiscal 1999 was $1.86.
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions: dividend yield of 0%; expected volatility
of 0%; risk-free interest rate of 7.0% and 6.5% in 1999 and 1998; and
expected lives of approximately seven years.
Plan activity is summarized as follows:
Weighted-
average exercise
Options price per share
---------- ----------------
Outstanding at June 30, 1997 1,001,800 $ 1.98
Granted 771,800 3.00
Exercised -- --
Forfeited (410,000) 2.01
---------- -----
Outstanding at June 30, 1998 1,363,600 2.50
Granted 793,000 3.00
Exercised -- --
Forfeited (461,800) 2.78
---------- -----
Outstanding at June 30, 1999 1,694,800 $ 2.62
========== =====
<PAGE>
Options activity outside the Plan is summarized as follows:
Weighted-
average exercise
Options price per share
------- ----------------
Outstanding at June 30, 1998 -- $ --
Granted 345,000 1.83
Exercised -- --
Forfeited -- --
------- -----
Outstanding at June 30, 1999 345,000 $ 1.83
======= =====
<PAGE>
The following tables summarize information about stock options
outstanding as of June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
-------------------------------------------------- ---------------------------------
Weighted-
Number average Number
outstanding remaining exercisable
Exercise June 30, contractual Exercise June 30, Exercise
prices 1999 life price 1999 price
------------- ---------------- ----------------- ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C>
$ 1.00 299,000 4.3 $ 1.00 199,334 $ 1.00
1.50 115,000 7.0 1.50 65,000 1.50
2.00 230,000 6.8 2.00 230,000 2.00
2.85 272,000 4.6 2.85 191,334 2.85
3.00 1,123,800 6.1 3.00 242,770 3.00
------------- ---------------- ----------------- ------------ ---------------- ------------
$ 1.00 - 3.00 2,039,800 5.8 $ 2.47 928,438 $ 2.18
=============================== ================= ============ ================ ============
<CAPTION>
Options outstanding Options exercisable
--------------------------------------------------- ---------------------------------
Weighted-
Number average Number
outstanding remaining exercisable
Exercise June 30, contractual Exercise June 30, Exercise
prices 1998 life price 1998 price
------------- ---------------- ----------------- ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C>
$ 1.00 314,000 4.3 $ 1.00 104,666 $ 1.00
2.85 351,800 4.6 2.85 127,266 2.85
3.00 697,800 5.6 3.00 137,833 3.00
------------- ---------------- ----------------- ------------ ---------------- ------------
$ 1.00 - 3.00 1,363,600 5 $ 2.5 369,765 $ 2.38
=============================== ================= ============ ================ ============
</TABLE>
Warrants and options issued to third parties
During fiscal year 1999, the Company issued 240,000 warrants and
options to purchase common stock at $1.17 - $3.00 per share to vendors,
value-added resellers, and consultants. The options and warrants are
exercisable from the date of grant through June 2006. The fair value of
the options and warrants at the date of grant was estimated to be
approximately $389,000 using Black-Scholes pricing model which was
expensed in the 1999 consolidated statement of operations.
<PAGE>
The following assumptions were used to calculate the expense using the
Black-Scholes pricing model: dividend yield of 0%; expected volatility
of 0%; risk-free interest rate of 7.0%; and expected lives ranging
from four to seven years.
In connection with the sale of stock in fiscal 1999, the Company issued
warrants to purchase 275,000 shares of common stock at $.01 per share.
The warrants are exercisable for a period of seven years.
(7) Equity Transactions
(a) Stock Subscriptions
On June 30, 1999, the Company entered into a stock
subscription agreement with a director of the Company for the
sale of 125,000 shares of common stock at $2.00 per share. On
July 1, 1999, the Company received $250,000 in satisfaction of
this subscription agreement.
(b) Conversion of Advances
During fiscal 1999, a director of the Company converted
advances to the Company of $790,000 to 395,000 shares of
common stock at $2.00 per share.
(8) Income Taxes
The Company has incurred net operating losses since inception. The
Company has not reflected any benefit of such net operating loss
carryforwards in the accompanying consolidated financial statements.
The income tax expense benefit differed from the amount computed by
applying the U.S. federal income tax rate of 34% to income before
income taxes as a result of the following:
1999 1998
--------- -----------
Computed "expected" tax benefit 34 % 34 %
State income tax, net of federal benefit 5 % 2 %
Change in valuation allowance (39)% (36)%
--------- -----------
- % - %
========= ===========
<PAGE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets as of June 30 is presented below:
1999 1998
------- -------
Deferred tax assets:
Foreign net operating loss carryforward $ 1,070 920
U.S. net operating loss carryforward 1,345 670
Stock compensation 330 --
Miscellaneous reserves and accruals 215 70
Other (20) (20)
------- -------
Total gross deferred tax assets 2,940 1,640
Valuation allowance (2,940) (1,640)
------- -------
Net deferred tax assets $ -- --
======= =======
In assessing the realization of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible.
Based on the level of historical taxable income and projections of
future taxable income over the periods in which the deferred tax assets
are deductible, management does not believe that it is more likely than
not the Company will realize the benefits of these deductible
differences. Accordingly, the Company has provided a valuation
allowance against the gross deferred tax assets as of June 30, 1999 and
1998.
As of June 30, 1999, the Company has reported U.S. net operating loss
carryforwards of approximately $3,360,000. The federal net operating
loss carryforwards expire in the years 2010 through 2019.
Federal tax laws impose significant restrictions on the utilization of
net operating loss carryforwards in the event of a change in ownership
of the Company which constitutes an "ownership change," as defined by
the Internal Revenue Code, Section 382. The Company's net operating
loss carryforward may be subject to the above limitations.
(9) Note Payable
In February 1998, the Company entered into a loan agreement in the
amount of $927,014 with a third party lender. During 1999, the Company
borrowed an additional $479,986. The note is secured by the assets of
the Company. The interest rate on the outstanding principal balance is
based on an index defined in the loan agreement plus 3%, with interest
due monthly. On June 30, 1999 and 1998 the interest rates were 8.05%
and 8.30%, respectively. The outstanding principle balance becomes due
on December 15, 1999. The outstanding principal and interest was
subsequently not paid on December 16, 1999, and the Company is in
negotiations with the lender to extend the terms of the note.
<PAGE>
(10) Commitments
Operating Leases
The Company leases certain facilities and equipment under noncancelable
operating leases that expire at various dates through 2004. Future
minimum lease commitments under these operating leases are as follows:
Year ending June 30:
2000 $ 668,000
2001 439,000
2002 324,000
2003 107,000
2004 92,000
----------
$1,630,000
==========
Rent expense under operating leases for the year ended June 30, 1999
and 1998 was $792,000 and $429,000, respectively.
(11) Related Parties
(a) Director Advances
The Company has received interest-bearing and non-interest
bearing advances from certain directors of the Company.
Interest rates on interest-bearing advances vary from 5.0 to
9-3/4% as of June 30, 1999. These amounts are classified as
current liabilities as the Company anticipates paying the
amounts back during the year ending June 30, 2000. Amounts
outstanding at June 30, 1999 and 1998 are $444,826 and
$554,826, respectively. The Company had repaid $330,000 of the
advances to certain directors at December 16, 1999.
(b) Convertible Note Payable-Parent Corporation
On July 1, 1996, the Company purchased the intellectual
property to CorVu software from its Parent. A promissory note
in the amount of $2,000,000 was issued by the Company to its
Parent as consideration for the purchase of the license. This
intellectual property provides the Company with unlimited use
of the technology and the ability to modify and enhance the
purchased technology. The promissory note bears interest at
6.3% interest per annum. On July 1, 1998, the terms of the
note were modified to include a conversion feature with which
the holder at its option on or after June 30, 1999 may convert
all of the outstanding principal and accrued interest into
common stock of the Company at a conversion price of $2.00. On
August 16, 1999, approximately $1,500,000 of the outstanding
balance and accrued interest was forgiven by the Company's
Parent. The remaining balance of $834,286 was converted to
417,143 shares of common stock in full settlement of the note
and accrued interest.
<PAGE>
(12) Industry Segment and Operations By Geographic Areas:
The Company operates predominantly in one industry segment, being the
design, development and marketing of its proprietary management
software solutions. The geographic distributions of the Company's
revenue and long-lived assets are summarized in the following table:
Year Ended June 30,
----------------------------------
1999 1998
---------------- ---------------
Total Revenues:
United States $ 4,536,000 3,409,000
Australia 3,658,000 2,025,000
United Kingdom 2,394,000 1,434,000
---------------- ---------------
$ 10,588,000 6,868,000
================ ===============
Long-Lived Assets:
United States $ 48,000 40,000
Australia 12,000 16,000
United Kingdom 93,000 41,000
---------------- ---------------
$ 153,000 97,000
================ ===============
(13) Subsequent Events
(a) Agreement and Plan of Reorganization
On November 17, 1999, the Company entered into an Agreement
and Plan of Reorganization (the Agreement) with Minnesota
American, Inc. (MNAC) whereby the Company would merge with and
into MNAC. The merger is subject to shareholder approval and
certain other conditions, including the sale/disposal of
MNAC's current operating subsidiaries and MNAC having at least
$750,000 of cash and $1,000,000 of net worth.
The merger, if approved and completed, will result in
shareholders of the Company and MNAC owning approximately 74
percent and 26 percent, respectively of the outstanding shares
of the combined entity. MNAC is a public company with its
shares traded over the NASD Electronic Bulletin Board. The
combined entity would change its name to CorVu and continue
CorVu's business operations as a public company. The Agreement
includes a termination fee of $250,000 to be paid under
specified circumstances. The Company is obligated to issue
approximately 339,000 common shares and pay approximately
$50,000 to its investment bankers at closing in exchange for
services. In addition, the Company will grant a warrant to
purchase approximately 113,000 common shares at fair value on
the closing date which have a five year life.
<PAGE>
(b) Convertible Bridge Loan
On November 15, 1999, the Company entered into a loan
agreement with a third party in the amount of $500,000. The
outstanding principal is due on February 15, 2000. Interest to
be charged on the outstanding principal is 10% per annum. The
loan will be converted into common stock at a price of $2.00
per share upon the execution of the merger transaction with
MNAC. In addition, the holder of the loan received warrants to
purchase up to 450,000 shares of common stock at an exercise
price of $.01 per share. If the outstanding principal and
interest is not paid on the due date, the number of shares the
holder of the loan has the option to purchase under the
warrants will increase by 25,000 shares, with incremental
increases of 25,000 for each subsequent 60-day period
thereafter until the conditions of the loan agreement are
satisfied.
(c) Equity Sales
At December 16, 1999, the Company had raised a total of $1.4
million from the sale of common stock (priced at $2.00 per
share) under several transactions subsequent to June 30, 1999.
(d) Employment Agreement
On July 1, 1999, the Company entered into a three-year
employment agreement with its chief executive officer. This
agreement included options to purchase 600,000 shares of
common stock at $1.50 per share. The fair value of the stock
on the date of grant was $3.00 per share. The options vest
over a period of three years and expire in June 2006. There is
$900,000 of deferred compensation resulting from this grant
that will be recognized over the vesting term.
<PAGE>
CORVU CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 (Unaudited) and June 30, 1999
<TABLE>
<CAPTION>
December 31, June 30,
Assets 1999 1999
----------------- -------------
(Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 227,914 31,335
Stock subscription receivable - 250,000
Trade accounts receivable, net of allowance for doubtful
accounts of $200,000 and $100,000, respectively 3,860,993 3,763,628
Prepaid expenses and other 57,082 176,163
----------------- -------------
Total current assets 4,145,989 4,221,126
Property and equipment, net 171,096 152,941
----------------- -------------
$ 4,317,085 4,374,067
================= =============
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 1,987,965 1,904,989
Accrued compensation 1,740,738 1,507,916
Deferred revenue 1,613,505 1,435,792
Accrued interest 48,155 370,287
Other accrued expenses 312,349 192,811
Convertible note payable-parent - 2,000,000
Notes payable 1,892,250 1,407,000
Director advances 151,820 444,826
----------------- -------------
Total current liabilities 7,746,782 9,263,621
----------------- -------------
Stockholders' deficit:
Undesignated, 25,000,000 shares - -
Common stock, $0.01 par value; 25,000,000 shares authorized;
11,426,893 and 10,162,200 shares issued and outstanding 114,269 101,622
Additional paid-in capital 8,419,192 2,852,949
Accumulated deficit (11,486,362) (7,980,480)
Deferred compensation (725,550) (75,000)
Foreign currency translation adjustment 248,754 211,355
----------------- -------------
Total stockholders' deficit (3,429,697) (4,889,554)
----------------- -------------
Total liabilities and stockholders' deficit $ 4,317,085 4,374,067
================= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
CORVU CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Six Month Periods Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,505,882) (731,350)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 21,032 17,799
Warrants and stock options granted 1,128,499 -
Changes in operating assets and liabilities:
Accounts receivable (97,365) (563,702)
Other current assets 119,081 41,405
Accounts payable 82,976 (89,303)
Accrued compensation 232,822 108,580
Deferred revenue 177,713 107,585
Accrued interest 17,957 64,951
Other accrued expenses 119,538 183,967
------------- -------------
Net cash used in operating activities (1,703,629) (860,068)
------------- -------------
Cash flows from investing activities:
Capital expenditures (39,187) (74,706)
------------- -------------
Net cash used in investing activities (39,187) (74,706)
------------- -------------
Cash flows from financing activities:
Proceeds from sale of common stock 1,695,000 -
Costs of financing activities (235,248) -
Collection of subscription receivable 250,000 -
Borrowings on notes payable 500,000 414,826
Borrowings on notes payable-director - 117,138
Repayment on notes payable-director (293,006) -
Other (14,750) -
------------- -------------
Net cash provided by financing activities 1,901,996 531,964
Effect of exchange rate changes on cash 37,399 140,391
------------- -------------
Net increase (decrease) in cash and cash equivalents 196,579 (262,419)
Cash and cash equivalents at the beginning of period 31,335 287,289
------------- -------------
Cash and cash equivalents at end of period $ 227,914 24,870
============= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
CORVU CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations (unaudited)
Six Month Periods Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
-------------- -------------
<S> <C> <C>
Revenues:
Software $ 3,666,302 3,158,956
Maintenance, consulting, and other 2,363,257 1,828,287
-------------- -------------
Total revenues 6,029,559 4,987,243
-------------- -------------
Operating costs and expenses:
Cost of maintenance, consulting, and other 1,548,834 1,025,247
Product development 479,854 240,596
Sales and marketing 3,849,114 2,733,840
General and administrative 2,811,287 1,598,123
-------------- -------------
Total operating expenses 8,689,089 5,597,806
-------------- -------------
Operating loss (2,659,530) (610,563)
Interest expense, net (846,352) (120,787)
-------------- -------------
Net loss $ (3,505,882) (731,350)
============== =============
Loss per common share--basic and diluted $ (0.33) (0.08)
Weighted average shares--basic and diluted 10,592,731 9,490,700
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
CorVu Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
For the Six Month Periods Ended December 31, 1999 and 1998
(1) Unaudited Financial Statements
The accompanying unaudited consolidated financial statements of CorVu
Corporation and Subsidiaries have been prepared by the Company in
accordance with generally accepted accounting principles for interim
financial information, pursuant to the rules and regulations of the
Securities and Exchange Commission. Pursuant to such rules and
regulations, certain financial information and footnote disclosures
normally included in the financial statements have been condensed or
omitted. The results for the periods indicated are unaudited, but
reflect all adjustments (consisting only of normal recurring
adjustments) which management considers necessary for a fair
presentation of operating results.
(2) Liquidity
The accompanying interim consolidated financial statements are prepared
assuming the Company will continue as a going concern. During the year
ended June 30, 1999, the Company incurred an operating loss of
$3,061,506 and used $1,391,656 of cash in operating activities.
Subsequently, for the six month period ended December 31, 1999, the
Company incurred an operating loss of $2,659,530 and used $1,703,629 of
cash in operating activities. As of December 31, 1999, the Company had
an accumulated deficit of $11,486,362, total stockholders' deficit of
$3,429,697, and negative working capital of $3,600,793. Going forward
the Company must raise additional cash either through raising
additional capital or through profits from operations. During the years
ended June 30, 1999 and June 30, 1998, the Company raised capital of
$216,471 and $293,550, respectively. Subsequent to June 30, 1999, the
Company has raised an additional $4.3 million in convertible debt and
equity financing.
Management anticipates that the impact of certain subsequent
activities, as well as the actions listed below, will generate
sufficient cash flows to fund the Company's future operations.
1. Continue to increase the Company's revenues from software
licenses and other revenue sources.
2. Increase the level of indebtedness.
3. Solicit additional equity investment in the Company.
4. Reduce operating costs, as deemed necessary, in the event the
sales of product licenses and/or additional equity or debt
financing do not generate adequate proceeds.
(3) Note Payable
In February 1998, the Company entered into a loan agreement in the
amount of $927,014 with a third party lender. During fiscal 1999, the
Company borrowed an additional $479,986. The note is secured by the
assets of the Company. The interest rate on the outstanding principal
balance is based on an index defined in the loan agreement plus 3%,
with interest due monthly. On June 30, 1999 and 1998 the interest rates
were 8.05% and 8.30%, respectively. The outstanding principle balance
became due on December 15, 1999. Subsequently, the Company repaid
$600,000 and continues discussions with the lender regarding repayment
of the remaining balance.
<PAGE>
(4) Convertible Bridge Loan
On November 15, 1999, the Company entered into two loan agreements with
third parties totaling $500,000. The outstanding principal was due on
March 14, 2000. Interest was charged at a rate of 10% per annum. In
addition, the agreements called for the issuance of warrants to
purchase up to 450,000 shares of common stock at an exercise price of
$.01 per share. After the merger of CorVu with and into Minnesota
American, Inc., the outstanding principal and interest was converted
into a total of 285,702 shares of common stock of our Company, at a
price of $2 per share. The Company has recorded in the fiscal quarter
ended December 31, 1999 a non-cash expense of approximately $500,000 to
reflect the fair value of the warrants issued using the Black-Scholes
pricing model over the period the bridge loan was outstanding during
that quarter. An additional non-cash expense of approximately $170,000
will be recorded in the fiscal quarter ended March 31, 2000 to reflect
the fair value of the warrants through the date the note was converted
into common stock. In addition, the Company recorded a non-cash expense
of $250,000 during the six month period ended December 31, 1999 to
reflect the difference between the $2 per share conversion price and $3
per share, the Company's estimate of the fair value of the stock.
(5) Equity Financing
Subsequent to December 31, 1999 and through March 15, 2000, CorVu
raised a total of $1.2 million from the sale of common stock (priced at
$2 per share). In connection with some of the transactions, the Company
also issued warrants to purchase up to 375,000 shares of common stock
at exercise prices ranging from $2 to $8 per share.
In addition, as part of the reverse merger transaction discussed in
Note 6, the Company received $950,000 in equity financing from
Minnesota American, Inc.
<PAGE>
(6) Agreement and Plan of Reorganization
On January 14, 2000, the Company completed a reverse merger transaction
with Minnesota American, Inc. (MNAC). The merger resulted in
shareholders of the Company and MNAC owning approximately 74 percent
and 26 percent, respectively of the outstanding shares of the combined
entity. The shares of MNAC were quoted on the Over-the-Counter Bulletin
Board (OTCBB) of the National Association of Securities Dealers (NASD).
The combined entity changed its name to CorVu Corporation and continues
CorVu's business operations. The Company issued 345,806 common shares
and paid $47,500 to its business advisor at closing in exchange for
services. In addition, the Company granted its business advisor a
five-year warrant to purchase up to 185,572 common shares at $5.3125
per share. For accounting purposes, the Company has estimated the value
of the stock and warrants issued to be $5.3125 per share, the closing
trading price of the stock on the date of the merger. Accordingly, the
Company will record a merger expense, as a direct charge to Additional
Paid-in Capital, an amount of approximately $2,124,000 in the fiscal
quarter ending March 31, 2000.
Total number of shares authorized after the merger is 100,000,000 which
consists of 75,000,000 shares of common stock, 1,000,000 shares of
Series A Convertible Preferred Stock, and 24,000,000 undesignated
shares. As of March 15, 2000, there were 18,271,577 shares of CorVu
common stock outstanding. Adjusted by the conversion ratio of 1.125
used in the merger, common shares outstanding as of December 31, 1999
and June 30, 1999 are 12,855,262 and 11,432,475, respectively.
As of March 15, 2000, options and warrants outstanding are as follows
(adjusted for the conversion ratio of the merger):
Number Range of
Of Shares Exercise Price
Stock options outstanding 3,826,250 $0.13 to $2.67
Stock options exercisable 1,792,818 $0.13 to $2.67
Warrants outstanding 1,674,072 $0.01 to $8.00
Warrants exercisable 1,674,072 $0.01 to $8.00
(7) Director Advance
In March 2000, the Company received a short-term loan for the principal
amount of $300,000 from a director. The loan is due on April 30, 2000.
Interest is payable based upon a bank index rate plus 2% (11% as of
March 31, 2000).
<PAGE>
CorVu Corporation
PRO FORMA BALANCE SHEET
<TABLE>
<CAPTION>
Pro Forma
Discontinued Pro Forma Other Pro MNAC As CorVu Corp. Pro Forma
MNAC Historical Operations Equity Sale Forma Adjusted Historical Pro Forma Combined
12/31/99 Favorite Mem(A) LockerMate(B) Adjustments 12/31/99 12/31/99 Adjustments CorVu MNAC
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Current Assets
Cash $199,913 (8,890)(1) (196,965) (161,058)(4) $950,000 227,914 1,177,914
1,200,000 (2)
(83,000)(3)
Accts. Receivable 8,535 (2,997)(1) (5,538) - 3,860,993 3,860,993
Inventory 340,210 (51,459) (288,751) - 0 -
Deferred Income Tax Asset 194,600 (194,600) - 0 -
Prepaid Expenses 11,319 (364) (10,955) - 57,082 57,082
Total Current Assets 754,577 (63,710) 420,191 (161,058) 950,000 4,145,989 0 5,095,989
Other Assets 13,789 (13,927) 138 - 0 -
Investments 50,000 (50,000)(5) - -
Property & Equipment, net 270,129 (2,049) (268,080) - 171,096 171,096
--------------------- ---------- -------------------- ---------
Total Assets 1,088,495 (79,686) 152,249 4,317,085 0 5,267,085
===================== ========== ==================== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes Payable-Bank $50,000 (50,000)(4) - 0 -
Accounts Payable 161,180 ($8,409)(1) (152,771) - 1,987,965 1,987,965
Accrued Compensation 1,740,738 1,740,738
Deferred Revenue 1,613,505 1,613,505
Accrued Interest 48,155 48,155
Accrued Expenses/Customer
Deposits 2,600 ($3,478)(1) 878 - 312,349 312,349
Note Payable 1,892,250 1,892,250
Director Advances 151,820 151,820
Total Current Liabilities 213,780 (11,887) (151,893) (50,000) - 7,746,782 7,746,782
Long Term Liabilities
Deferred Income
Tax Liability 44,100 (44,100) - 0 0
Total Liabilities 257,880 (11,887) (195,993) (50,000) 0 7,746,782 7,746,782
Stockholders Equity
Series A Convertible
Preferred Stock; par
value $10; issued and
outstanding 1999
56,726 shares 40,530 40,530 0 40,530
Common Stock, Par Value
$.01 issued and outstanding
3,809,610 shares 43,252 43,252 0 ($43,252)(7) 0
Common Stock, Par Value $.01
issued and outstanding
11,426,893 114,269 ($114,269)(7) 0
Common Stock, Par Value $.01
issued and outstanding
17,180,586 (6) $171,805 (7) 171,805
Additional Paid in
Capital 1,755,424 1,755,424 8,419,192 ($903,490) 9,271,126
(6)(7)
Accumulated Deficit (1,008,591) ($67,799) 431,242 (645,148) (11,486,362) 889,206(6)(11,486,362)
(83,000)(3) (161,058) (244,058)
(4,5)
Deferred Compensation (725,550) (725,550)
Foreign Currency
Translation Adjustment 248,754 248,754
Total Shareholders Equity 830,615 (67,799) 348,242 (161,058) 950,000 (3,429,697) (2,479,697)
--------------------- --------- --------- ---------
Total Liabilities &
Equity 1,088,495 (79,686) 152,249 4,317,085 0 5,267,085
===================== ========= ========= =========
</TABLE>
(A) Reflects the adjustments to the balances of Favorite Memories, Inc., a
wholly owned subsidiary of Minnesota American, Inc. ("MNAC"), for
discontinued operations pursuant to the terms of the merger agreement.
(B) Reflects the adjustments to the balances of LockerMate Corporation, a
wholly owned subsidiary of MNAC, for the equity sale of LockerMate and the
associated sales transactions (See Footnote 2 and 3) pursuant to the terms
of the merger agreement.
(1) Assumes payment of all accounts payable and accrued liabilities and
collection of all accounts receivable.
(2) Cash proceeds from LockerMate sale per the Stock Purchase Agreement dated
December 17, 1999.
(3) Estimated selling expenses to include 4% Finders Fee ($48,000) on sale of
LockerMate; estimated legal & accounting expenses of $25,000 and estimated
miscellaneous expenses of $10,000.
(4) Assumes payment of $50,000 Note Payable and merger expenses estimated at
approximately $111,058 of legal, accounting fees and miscellaneous
expenses.
(5) To adjust for the exclusion of the investment in flowersngifts.com which is
not to be included as part of the combined company.
(6) The accumulated deficit of MNAC was eliminated in the proforma adjustment
with the corresponding entry to Additional Paid-in Capital
(7) To calculate "new" CorVu common stock, shares in "old" Corvu were converted
at a rate of 1.125 and were then combined with MNAC common stock.
<PAGE>
MINNESOTA AMERICAN, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
--------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 199,913 $ 110,665
Trade accounts receivable net of allowances 8,535 1,599
Inventories 340,210 250,368
Deferred income tax assets 194,600 223,300
Prepaid expenses and other 11,319 28,176
------------- -----------
Total current assets 754,577 614,108
OTHER ASSETS 13,789 24,396
INVESTMENTS 50,000 0
EQUIPMENT
Furniture and equipment 110,020 104,869
Dies and molds 552,352 601,135
------------- -----------
662,372 706,004
Less accumulated depreciation 392,243 439,376
------------- -----------
270,129 266,628
============= ===========
$ 1,088,495 $ 905,132
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturity of capital lease obligation $ 0 $ 1,677
Note payable, bank 50,000 0
Accounts payable 161,180 48,530
Accrued liabilities 2,600 13,995
------------- -----------
Total current liabilities 213,780 64,202
DEFERRED INCOME TAX LIABILITY 44,100 36,900
COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENT
STOCKHOLDERS' EQUITY
Series A convertible preferred stock, parvalue $10 per share, 40,530 601,857
authorized 1,000,000 shares; issued and outstanding
1999 4700; 1998 69,826
Common stock, par value $.01 per share; authorized 10,000,000 43,252 35,327
shares; issued and outstanding 1999 4,325,331;
1998 3,532,810 shares
Additional paid-in capital 1,755,424 1,146,711
Accumulated deficit (1,008,591) (979,865)
------------- -----------
830,615 804,030
------------- -----------
$ 1,088,495 $ 905,132
============= ===========
</TABLE>
<PAGE>
MINNESOTA AMERICAN, INC.
CONSOLIDATED STATEMENTS OF INCOME
Quarters Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Net sales $ 162,849 $ 49,860
Cost of goods sold 95,979 24,029
------------- --------------
Gross profit 66,870 25,831
Selling, general and administrative expenses 227,052 206,435
------------- --------------
Operating income (160,182) (180,604)
Other income (expense)
Interest income 1,868 2,782
Interest expense (1,130) (316)
Loss on sale of assets (20,008) 0
Other expense 16,449 0
------------- --------------
(2,822) 2,467
------------- --------------
Income before income taxes (163,004) (178,137)
Federal and state income tax benefits 0 73,000
------------- --------------
Net Income $ (163,004) $ (105,137)
============= ==============
Basic earnings per share $ (0.04) $ (0.03)
Weighted average shares outstanding 4,067,470 3,532,810
Diluted earnings per share $ (0.03) $ (0.03)
Weighted average shares outstanding 4,751,536 3,532,810
</TABLE>
<PAGE>
MINNESOTA AMERICAN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
Quarters Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ (163,004) $ (105,137)
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization 5,894 6,525
Provision for allowance for doubtful accounts and returns (274,969) (47,732)
Loss on sale of assets 20,008 0
Deferred income taxes 0 (73,400)
(Increase) decrease in assets:
Trade accounts receivable 399,800 126,865
Inventories 98,080 27,684
Prepaid expenses and other 8,697 1,423
Increase (decrease) in liabilities:
Accounts payable (117,100) (159,289)
Accrued liabilities (26,679) (14,359)
-------------- -------------
Net cash provided by (used in) operating activities (49,273) (237,420)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (24,361) (12,106)
Purchase of trademarks 0 (10,008)
-------------- -------------
Net cash used in investing activities (24,361) (22,114)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease 0 (1,182)
Exercise of stock options 20,259 0
-------------- -------------
Net cash provided by (used in) financing activities 20,259 (1,182)
Increase (decrease) in cash and cash equivalents (53,375) (260,716)
Cash and cash equivalents:
Beginning 253,288 371,382
-------------- -------------
Ending $ 199,913 $ 110,665
============== =============
</TABLE>
<PAGE>
MINNESOTA AMERICAN, INC.
Footnotes to Consolidated Financial Statements for the Quarters Ended
December 31, 1999 and 1998 (Unaudited)
(1) Unaudited Financial Statements
The accompanying unaudited consolidated financial statements of Minnesota
American, Inc. have been prepared by the Company in accordance with
generally accepted accounting principles for interim financial information,
pursuant to the rules and regulations of the Securities and Exchange
Commission. Pursuant to such rules and regulations, certain financial
information and footnote disclosures normally included in the financial
statements have been condensed or omitted. The results for the periods
indicated are unaudited, but reflect all adjustments (consisting only of
normal recurring adjustments) which management considers necessary for a
fair presentation of operating results.
(2) Agreement and Plan of Reorganization
On January 14, 2000, the Company completed a reverse merger transaction
with CorVu Corporation. The merger resulted in shareholders of the Company
and CorVu owning approximately 26 percent and 74 percent, respectively of
the outstanding shares of the combined entity. The shares were quoted on
the Over-The-Counter Bulletin Board (OTCBB) of the National Association of
Securities Dealers (NASD). The combined entity changed its name to CorVu
Corporation and continues CorVu's business operations.
(3) Sale of Subsidiaries
The Agreement and Plan of Reorganization stated in item (2) required
Minnesota American, Inc. to sell, transfer or otherwise dispose of all or
substantially all of the assets or capital stock of its wholly owned
subsidiaries, LockerMate Corporation and Favorite Memories, Inc. In
October, 1999, the Board of Directors passed a resolution to discontinue
Favorite Memories' operations and in December 1999 all the assets of
Favorite Memories were sold. The loss on the sale of assets was $20,008 and
is reflected in the attached Consolidated Statements of Income for the
Quarter ended December 31, 1999. In December, 1999, Minnesota American
entered into a stock purchase agreement for the sale of all of the issued
and outstanding capital stock of LockerMate Corporation for $1,200,000 to
LAC, Inc., a corporation owned by certain members of management and other
unrelated persons. The sale was consummated on January 14, 2000. A referral
fee of $48,000 was paid to the consulting firm retained to assist in the
sale of the subsidiaries.
<PAGE>
PART III: EXHIBITS
Exhibit
Number Description
2. Agreement and Plan of Reorganization between CorVu Corporation
and Minnesota American, Inc., dated as of November 17, 1999.
Exhibits, Schedules and Attachments:
Exhibit A: Plan of Merger*
Exhibit B: Amended and Restated Articles of Incorporation of Minnesota
American, Inc.**
Exhibit C: Restated Bylaws of CorVu Corporation***
Exhibit D: Registration Rights Agreement*
CorVu Corporation Disclosure Schedule and Attachments*
Minnesota American, Inc. Disclosure Schedule and Attachments*
3.1 Amended and Restated Articles of Incorporation of Minnesota American,
Inc., as amended to date.
3.2 Restated Bylaws of CorVu Corporation, as amended to date.
4. Rights of Shareholders of Series A Convertible Preferred Stock: see
Article 3 of the Amended and Restated Articles of Incorporation of
Minnesota Ameican, Inc. (Exhibit 3.1).
10.1 Subscription Agreement and Letter of Investment Intent, dated
April 27, 1999, from Ismail Kurdi, accepted by CorVu
Corporation, to Purchase 150,000 Shares of Common Stock and
Warrants to Purchase 150,000 Shares of Common Stock of CorVu
Corporation, including Warrant to Ismail Kurdi to Purchase
150,000 Shares of Common Stock of CorVu Corporation.
10.2 Subscription Agreement and Letter of Investment Intent, dated
June 30, 1999, from Ismail Kurdi, accepted by CorVu
Corporation, to Purchase 125,000 Sharess of Common Stock and
Warrants to Purchase 125,000 Shares of Common Stock of CorVu
Corporation, including Warrant to Ismail Kurdi to Purchase
125,000 Shares of Common Stock of CorVu Corporation.
10.3 Subscription Agreement and Letter of Investment Intent, dated
June 30, 1999, from Ismail Kurdi to Subscribe for 395,000
Shares of Common Stock of CorVu Corporation in full
satisfaction and payment of cash advances.
10.4**** Employment Agreement between CorVu Corporation and Justin MacIntosh,
dated July 1, 1999.
10.5**** Employment Agreement between CorVu and David C. Carlson, dated July 15,
1996, amended July 20, 1998.
10.6**** Employment Agreement between CorVu and Alan M. Missroon, dated January
2, 1997.
10.7 Sublease Agreement between Arcadia Financial Ltd. and CorVu North
America for premises at 3400 West 66th Street, Edina, Minnesota; and
Consent to Subletting of Premises, given by Landlord United Properties
Investment Company.
10.8 Commercial Lease between Viestall Pty. and CorVu Australasia
Pty. Ltd., dated April 15, 1999, for the premises at Level 4,
1 James Place, North Sydney.
<PAGE>
10.9 Underlease between Michael John Haynes, Raymond John Evans,
Terrance Guy Hawker and CorVu PLC and CorVu Corporation for
premises at Craven House, 40 Uxbridge Road, London W5.
10.10 Loan Agreement between CorVu Australasia Pty Ltd, CorVu North America,
Inc., CorVu PLC and Integral Business Finance Pty. Limited.
10.11 Specific and Floating Charge / Deed of Charge between CorVu Australasia
Pty Ltd. and Integral Business Finance Pty. Limited.
10.12 Letter Agreement between CorVu Corporation and Jon Adams Financial Co.,
L.L.P., dated 12 May, 1999, as amended ____________.
10.13 Bridge Loan Agreement dated as of November 15, 1999 between CorVu
Corporation and Gildea Management Company - The Network Funds,
including Subordinated Unsecured Convertible Promissory Note for
$250,000, and Warrant for up to 250,000 Shares of Common Stock of CorVu
Corporation, both as of November 15, 1999.
10.14 Bridge Loan Agreement dated as of November 15, 1999 between CorVu
Corporation and Calton, Inc., including Subordinated Unsecured
Convertible Promissory Note for $250,000, and Warrant for up to 250,000
Shares of Common Stock of CorVu Corporation, both as of November 15,
1999.
10.15**** CorVu Corporation 1996 Stock Option Plan, as amended through November
30, 1999 and approved by the shareholders at their meeting on January
13, 2000.
10.16**** Minnesota American, Inc. 1993 Stock Inventive Plan as amended and
approved by the shareholders at their meeting on January 30, 1996.
22. List of the Subsidiaries of the Registrant
* Item has been omitted, but will be provided to the Commission upon
request.
** See 3.1.
*** See 3.2.
**** Management contract or compensatory arrangement.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: April 6, 2000
By /s/ David C. Carlson, CFO
(Name and Title)
MINNESOTA AMERICAN, INC.
1993 STOCK INCENTIVE PLAN
1. Purpose of Plan.
The purpose of the Minnesota American, Inc. 1993 Stock Incentive plan
(the "Plan") is to advance the interests of Minnesota American, Inc. (the
"Company") and its shareholders by enabling the Company and its Subsidiaries to
attract and retain persons of ability to perform services for the Company and
its Subsidiaries by providing an incentive to such individuals through equity
participation in the Company and by rewarding such individuals who contribute to
the achievement by the Company of its economic objectives.
2. Definitions.
The following terms will have the meanings set forth below, unless the
context clearly otherwise requires:
2.1 "Board" means the Board of Directors of the Company.
2.2 "Broker Exercise Notice" means a written notice pursuant to which a
Participant, upon exercise of an Option, irrevocably instructs a broker or
dealer to sell a sufficient number of shares or loan a sufficient amount of
money to pay all or a portion of the exercise price of the Option and/or any
related withholding tax obligations and remit such sums to the Company and
directs the Company to deliver stock certificates to be issued upon such
exercise directly to such broker or dealer.
2.3 "Change in Control" means an event described in section 12.1 of the
Plan.
2.4 "Code" means the Internal Revenue Code of 1986, as amended.
2.5 "Committee" means the group of individuals administering the Plan,
as provided in Section 3 of the Plan.
2.6 "Common Stock" means the common stock of the Company, par value
$.01 per share, or the number and kind of shares of stock or other securities
into which such Common Stock may be changed in accordance with Section 4.3 of
the Plan.
2.7 "Disability" means the disability of the Participant such as would
entitle the Participant to receive disability income benefits pursuant to the
long-term disability plan of the Company or Subsidiary then covering the
Participant or, if no such plan exists or is applicable to the Participant, the
permanent and total disability of the Participant within the meaning of Section
22(e)(3) of the Code.
<PAGE>
2.8 "Eligible Recipients" means all employees (including, without
limitation, officers and directors who are also employees) of the Company or any
Subsidiary and any non-employee consultants and independent contractors of the
Company or any Subsidiary.
2.9 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.10 "Fair Market Value" means, with respect to the Common Stock, as of
any date (or, if no shares were traded or quoted on such date, as of the next
preceding date on which there was such a trade or quote), the following:
(a) If the Common Stock is listed or admitted to unlisted
trading privileges on any national securities exchange or is not so
listed or admitted but transactions in the Common Stock are reported on
the Nasdaq National Market System, the mean between the reported high
and low sale prices of the Common Stock on such exchange or by the
NASDAQ National Market System.
(b) If the Common Stock is not so listed or admitted to
unlisted trading privileges or reported on the NASDAQ National Market
System, but bid and asked prices in the over-the-counter market are
reported by the NASDAQ System or the National Quotation Bureau, Inc.
(or any comparable reporting service), the mean of the closing bid and
asked prices.
(c) If the Common Stock is not so listed or admitted to
unlisted trading privileges or reported on the NASDAQ National
Marketing System, and such bid and asked prices are not so reported by
a reporting service, such price as the Committee determines in good
faith in the exercise of its reasonable discretion.
2.11 "Incentive Award" means an Option, Restricted Stock Award,
Performance Unit or Stock Bonus granted to an Eligible Recipient pursuant to the
Plan.
2.12 "Incentive Stock Option" means a right to purchase Common Stock
granted to an Eligible Recipient pursuant to Section 6 of the Plan that
qualifies as an "incentive stock option" within the meaning of Section 422 of
the Code.
2.13 "Non-Employee Director" means any member of the Board of Directors
of the Company who is not an employee of the Company or any Subsidiary.
2.14 "Non-Statutory Stock Option" means a right to purchase Common
Stock granted to an Eligible Recipient pursuant to Section 6 of the Plan that
does not qualify as an Incentive Stock Option.
2.15 "Option" means an Incentive Stock Option or a Non-Statutory Stock
Option.
2.16 "Participant" means an Eligible Recipient who receives one or more
Incentive Awards under the Plan.
<PAGE>
2.17 "Performance Unit" means a right granted to an Eligible Recipient
pursuant to Section 8 of the Plan to receive a payment from the Company, in the
form of stock, cash or a combination of both, upon the achievement of
established performance goals.
2.18 "Previously Acquired Shares" means shares of Common Stock that are
already owned by the Participant or, with respect to any Incentive Award, that
are to be issued upon the grant, exercise or vesting of such Incentive Award.
2.19 "Restricted Stock Award" means an award of Common Stock granted to
an Eligible Recipient pursuant to Section 7 of the Plan that is subject to the
restrictions on transferability and the risk of forfeiture imposed by the
provisions of such Section 7.
2.20 "Retirement" means termination of employment or service pursuant
to and in accordance with the regular (or, if approved by the Board for purposes
of the Plan, early retirement/pension plan or practice of the Company or
Subsidiary then covering the Participant, provided that if the Participant is
not covered by any such plan or practice, the Participant will be deemed to be
covered by the Company's plan or practice for purposes of this determination.
2.21 "Securities Act" means the Securities Act of 1933, as amended.
2.22 "Stock Bonus" means an award of Common Stock granted to an
Eligible Recipient pursuant to Section 9 of the Plan.
2.23 "Subsidiary" means any entity that is directly or indirectly
controlled by the Company or any entity in which the Company has a significant
equity interest, as determined by the Committee.
2.24 "Tax Date" means the date any withholding tax obligation arises
under the Code for a Participant with respect to an Incentive Award.
3. Plan Administration.
3.1 The Committee. The Plan will be administered by the Board or by a
committee of the Board consisting of not less than two persons; provided,
however, that from and after the date on which the Company first registers a
class of its equity securities under Section 12 of the Exchange Act, the Plan
will be administered by the Board, all of whom will be "disinterested persons"
within the meaning of Rule 16b-3 under the Exchange Act, or by a committee
consisting solely of not fewer than two members of the Board who are such
"disinterested persons." As used in this Plan, the term "Committee" will refer
to the Board or to such a committee, if established. To the extent consistent
with corporate law, the Committee may delegate to any officers of the Company
the duties, power and authority of the Committee under the Plan pursuant to such
conditions or limitations as the Committee may establish; provided, however,
that only the Committee may exercise such duties, power and authority with
respect to Eligible Recipients who are subject to Section 16 of the Exchange
Act. Each determination, interpretation or other action made or taken by the
Committee pursuant to the provisions of the Plan will be conclusive and binding
for all purposes and on all persons, and no member of the Committee will be
liable for any action or determination made in good faith with respect to the
Plan or any Incentive Award granted under the Plan.
<PAGE>
3.2 Authority of the Committee.
(a) In accordance with and subject to the provisions of the
Plan, the Committee will have the authority to determine all provisions
of Incentive Awards as the Committee may deem necessary or desirable
and as consistent with the terms of the Plan, including, without
limitation, the following: (i) the Eligible Recipients to be selected
as Participants; (ii) the nature and extent of the Incentive Awards to
be made to each Participant (including the number of shares of Common
Stock to be subject to each Incentive Award, any exercise price, the
manner in which Incentive Awards will vest or become exercisable and
whether Incentive Awards will be granted in tandem with other Incentive
Awards) and the form of written agreement, if any, evidencing such
Incentive Award; (iii) the time or times when Incentive Awards will be
granted; (iv) the duration of each Incentive Award; and (v) the
restrictions and other conditions to which the payment or vesting of
Incentive Awards may be subject. In addition, the Committee will have
the authority under the Plan in its sole discretion to pay the economic
value of any Incentive Award in the form of cash, Common Stock or any
combination of both.
(b) The Committee will have the authority under the Plan to
amend or modify the terms of any outstanding Incentive Award in any
manner, including, without limitation, the authority to modify the
number of shares or other terms and conditions of an Incentive Award,
extend the term of an Incentive Award, accelerate the exercisability or
vesting or otherwise terminate any restrictions relating to an
Incentive Award, accept the surrender of any outstanding Incentive
Award or, to the extent not previously exercised or vested, authorize
the grant of new Incentive Awards in substitution for surrendered
Incentive Awards; provided, however, that the amended or modified terms
are permitted by the Plan as then in effect and that any participant
adversely affected by such amended or modified terms has consented to
such amendment or modification. No amendment or modification to an
Incentive Award, however, whether pursuant to this Section 3.2 or any
other provisions of the Plan, will be deemed to be a regrant of such
Incentive Award for purposes of this Plan.
(c) In the event of (i) any reorganization, merger,
consolidation, recapitalization, liquidation, reclassification, stock
dividend, stock split, combination of shares, rights offering,
extraordinary dividend or divestiture (including spin-off) or any other
change in corporate structure or shares, (ii) any purchase,
acquisitions ale or disposition of a significant amount of assets or a
significant business, (iii) any change in accounting principles or
practices, or (iv) any other similar change, in each case with respect
to the Company or any other entity whose performance is relevant to the
grant or vesting of an Incentive Award, the Committee (or, if the
Company is not the surviving corporation in any such transaction, the
board of directors of the surviving corporation) may, without the
consent of any affected Participant, amend or modify the vesting
criteria of any outstanding Incentive Award that is based in whole or
in part on the financial performance of the Company (or any Subsidiary
or division thereof) or such other entity so as equitably to reflect
such event, with the desired result that the criteria for evaluating
such financial performance of the Company or such other entity will be
substantially the same (in the sole discretion of the Committee or the
board of directors of the surviving corporation) following such event
as prior to such event; provided, however, that the amended or modified
terms are permitted by the Plan as then in effect.
<PAGE>
4. Shares Available for Issuance.
4.1 Maximum Number of Shares Available. Subject to adjustment as
provided in Section 4.3 of the Plan, the maximum number of shares of Common
Stock that will be available for issuance under the Plan will be Five Hundred
Thousand (500,000) shares.
4.2 Accounting for Incentive Awards. Shares of Common Stock that are
issued under the Plan or that are subject to outstanding Incentive Awards will
be applied to reduce the maximum number of shares of Common Stock remaining
available for issuance under the Plan. Any shares of Common Stock that are
subject to an Incentive Award that lapses, expires, is forfeited or for any
reason is terminated unexercised or unvested and any shares of Common Stock that
are subject to an Incentive Award that is settled or paid in cash or any form
other than shares of Common Stock will automatically again become available for
issuance under the Plan. Any shares of Common Stock that constitute the
forfeited portion of a Restricted Stock Award, however, will not become
available for further issuance under the Plan.
4.3 Adjustments to Shares and Incentive Awards. In the event of any
reorganization, merger, consolidation, recapitalization, liquidation,
reclassification, stock dividend, stock split, combination of shares, rights
offering, divestiture or extraordinary dividend (including a spin-off) or any
other change in the corporate structure or shares of the Company, the Committee
(or, if the Company is not the surviving corporation in any such transaction,
the board of directors of the surviving corporation) will make appropriate
adjustment (which determination will be conclusive) as to the number and kind of
securities available for issuance under the Plan and, in order to prevent
dilution or enlargement of the rights of Participants, the number, kind and,
where applicable, exercise price of securities subject to outstanding Incentive
Awards.
5. Participation.
Participants in the Plan will be those Eligible Recipients who, in the
judgment of the Committee, have contributed, are contributing or are expected to
contribute to the achievement of economic objectives of the Company or its
Subsidiaries. Eligible Recipients may be granted from time to time one or more
Incentive Awards, singly or in combination or in tandem with other Incentive
Awards, as may be determined by the Committee in its sole discretion. Incentive
Awards will be deemed to be granted as of the date specified in the grant
resolution of the Committee, which date will be the date of any related
agreement with the Participant.
6. Options.
6.1 Grant. An Eligible Recipient may be granted one or more Options
under the Plan, and such Options will be subject to such terms and conditions,
consistent with the other provisions of the Plan, as may be determined by the
Committee in its sole discretion. The Committee may designate whether an Option
is to be considered an Incentive Stock Option or a Non-Statutory Stock Option.
<PAGE>
6.2 Exercise Price. The per share price to be paid by a Participant
upon exercise of an Option will be determined by the Committee in its discretion
at the time of the Option grant, provided that (a) such price will not be less
than 100% of the Fair Market Value of one share of Common Stock on the date of
grant with respect to an Incentive Stock Option (110% of the Fair Market Value
if, at the time the Incentive Stock Option is granted, the Participant owns,
directly or indirectly, more than 10% of the total combined voting power of all
classes of stock of the Company or any parent or subsidiary corporation of the
Company), and (b) such price will not be less than 100% of the Fair Market Value
of one share of Common Stock on the date of grant with respect to a
Non-Statutory Stock Option.
6.3 Exercisability and Duration. An Option will become exercisable at
such times and in such installments as may be determined by the Committee in its
sole discretion at the time of grant; provided, however, that no Option may be
exercisable after 10 years from the its date of grant.
6.4 Payment of Exercise Price. The total purchase price of the shares
to be purchased upon exercise of an Option will be paid entirely in cash
(including check, bank draft or money order); provided, however, that the
Committee, in its sole discretion and upon terms and conditions established by
the Committee, may allow such payments to be made, in whole or in part, by
tender of a Broker Exercise Notice, Previously Acquired Shares or by a
combination of such methods.
6.5 Manner of Exercise. An Option may be exercised by a Participant in
whole or in part from time to time, subject to the conditions contained in the
Plan and in the agreement evidencing such Option, by delivery in person, by
facsimile or electronic transmission or through the mail of written notice of
exercise to the Company (Attention: Chief Financial Officer) at its principal
executive office in Minnetonka, Minnesota and by paying in full the total
exercise price for the shares of Common Stock to be purchased in accordance with
Section 6.4 of the Plan.
6.6 Aggregate Limitation of Stock Subject to Incentive Stock Options.
To the extent that the aggregate Fair Market Value (determined as of the date an
Incentive Stock Option is granted) of the shares of Common Stock with respect to
which incentive stock options (within the meaning of Section 422 of the Code)
are exercisable for the first time by a Participant during any calendar year
(under the Plan and any other incentive stock option plans of the Company or any
subsidiary or parent corporation of the Company (within the meaning of the
Code)) exceeds $100,000 (or such other amount as maybe prescribed by the Code
from time to time), such excess Options will be treated as Non-Statutory Stock
Options. The determination will be made by taking incentive stock options into
account in the order in which they were granted. If such excess only applies to
a portion of an incentive stock option, the Committee, in its discretion, will
designate which shares will be treated as shares to be acquired upon exercise of
an incentive stock option.
6.7 Automatic Grants to Non-Employee Directors.
(a) Grant of Options. On the effective date of the Plan,
Non-Employee Directors who were directors on December 16, 1993 will be
granted automatically, on a one-time basis, a Non-Statutory Stock
Option to purchase 2,000 shares of Common Stock. Following the
<PAGE>
effective date of the Plan, Non-Employee Directors will be granted
automatically, on May 1 of every year for the duration of the Plan, a
Non-Statutory Stock Option to purchase 1,000 shares of Common Stock.
All automatic grants pursuant to this Section 6.7 are subject to
adjustment as provided in Section 4.3 of the Plan.
(b) Option Exercise Price. The per share price to be paid by
the Non-Employee Director at the time an Option is exercised will be
100% of the average bid price of one share of Common Stock during the
month of April immediately preceding the date of grant. The total
purchase price of the shares to be purchased upon exercise will be paid
entirely in cash (including check, bank draft or money order).
(c) Duration of Options. Each Option will terminate five years
after its date of grant and will become exercisable, with respect to
all shares covered by such Option after six (6) months from the date of
its grant.
(d) Effect of Termination of Directorship. In the event a
Non-Employee Director's service as a director of the Company is
terminated by reason of death or Disability, all outstanding Options
then held by the Non-Employee Director will become immediately
exercisable in full and will remain exercisable for a period of one
year after such termination (but in no event after the expiration of
any such Option). In the event that a Non-Employee Director's service
as a director of the Company is terminated for any reason other than
death or Disability, all outstanding Options then held by the
Non-Employee Director will remain exercisable to the extent exercisable
as of such termination of service for a period of three months after
such termination of service (but in no event after the expiration of
any such Option). Such Options will not be subject to the termination
provisions of Section 10 of the Plan.
(e) Manner of Option Exercise. An Option may be exercised by a
Non-Employee Director in whole or in part from time to time, subject to
the conditions contained in the Plan and in the agreement evidencing
such Option, by giving written notice of exercise to the Company at its
principal executive office (such notice to specify the particular
Option that is being exercised and the number of shares with respect to
which the Option is being exercised) accompanied by payment, in cash or
check payable to the Company, of the total purchase price of the shares
to be purchased under the Option.
(f) Non-Discretionary Grants. Options granted to Non-Employee
Directors pursuant to this Section 6.7 are intended to qualify as
"formula awards" within the meaning of Rule 16b-3 under the Exchange
Act. As a result, other than as provided in Section 16 of the Plan, the
Committee will not have the authority to amend the eligibility
requirements for, or modify the terms of, such Options (including,
without limitation, the authority to modify the rights of Non-Employee
Directors in connection with termination of service as a director or a
change in control of the Company) if such amendments or modifications
would disqualify such Options from treatment as "formula awards."
<PAGE>
7. Restricted Stock Awards.
7.1 Grant. An Eligible Recipient may be granted one or more Restricted
Stock Awards under the Plan, and such Restricted Stock Awards will be subject to
such terms and conditions, consistent with the other provisions of the Plan, as
may be determined by the Committee in its sole discretion. The Committee may
impose such restrictions or conditions, not inconsistent with the provisions of
the Plan, to the vesting of such Restricted Stock Awards as it deems
appropriate, including, without limitation, that the Participant remain in the
continuous employ or service of the Company or a Subsidiary for a certain period
or that the Participant or the Company (or any Subsidiary or division thereof)
satisfy certain performance goals or criteria.
7.2 Rights as a Shareholder; Transferability. Except as provided in
Sections 7.1, 7.3 and 13.3 of the Plan, a Participant will have al voting,
dividend, liquidation and other rights with respect to shares of Common Stock
issued to the Participant as a Restricted Stock Award under this Section 7 upon
the Participant becoming the holder of record of such shares as if such
Participant were a holder of record of shares unrestricted Common Stock.
7.3 Dividends and Distributions. Unless the Committee determines
otherwise in its sole discretion (either in the agreement evidencing the
Restricted Stock Award at the time of grant or at any time after the grant of
the Restricted Stock Award), any dividends or distributions (including regular
quarterly cash dividends) paid with respect to shares of Common Stock subject to
the unvested portion of a Restricted Stock Award will be subject to the same
restrictions as the shares to which such dividends or distributions relate. In
the event the Committee determines not to pay such dividends or distributions
currently, the Committee will determine in its sole discretion whether any
interest will be paid on such dividends or distributions. In addition, the
Committee in its sole discretion may require such dividends and distributions to
be reinvested (and in such case the Participants consent to such reinvestment)
in shares of Common Stock that will be subject to the same restrictions as the
shares to which such dividends or distributions relate.
7.4 Enforcement of Restrictions. To enforce the restrictions referred
to in this Section 7, the Committee may place a legend on the stock certificates
referring to such restrictions and may require the Participant, until the
restrictions have lapsed, to keep the stock certificates, together with duly
endorsed stock powers, in the custody of the Company or its transfer agent or to
maintain evidence of stock ownership, together with duly endorsed stock powers,
in a certificateless book-entry stock account with the Company's transfer agent.
8. Performance Units.
An Eligible Recipient may be granted one or more Performance Units
under the Plan, and such Performance Units will be subject to such terms and
conditions, consistent with the other provisions of the Plan, as may be
determined by the Committee in its sole discretion. The Committee may impose
such restrictions or conditions, not inconsistent with the provisions of the
Plan, to the vesting of such Performance Units as it deems appropriate,
including, without limitation, that the Participant remain in the continuous
employ or service of the Company or any Subsidiary for a certain period or that
the Participant or the Company (or any Subsidiary or division thereof) satisfy
<PAGE>
certain performance goals or criteria. The Committee will have the sole
discretion either to determine the form in which payment of the economic value
of vested Performance Units will be made to the Participant (i.e., cash, Common
Stock or any combination thereof) or to consent to or disapprove the election by
the Participant of the form of such payment.
9. Stock Bonuses.
An Eligible Recipient may be granted one or more Stock Bonuses under
the Plan, and such Stock Bonuses will be subject to such terms and conditions,
consistent with the other provisions of the Plan, as may be determined by the
Committee in its sole discretion. The Participant will have all voting,
dividend, liquidation and other rights with respect to the shares of Common
Stock issued to a Participant as a Stock Bonus under this Section 9 upon the
Participant becoming the holder of record of such shares; provided, however,
that the Committee may impose such restrictions on the assignment or transfer of
a Stock Bonus as it deems appropriate.
10. Effect of Termination of Employment or Other Service.
10.1 Termination Due to Death, Disability or Retirement. In the event a
Participant's employment or other service with the Company and all Subsidiaries
is terminated by reason of death, Disability or Retirement:
(a) All outstanding Options then held by the Participant will
become immediately exercisable in full and will remain exercisable for
a period of twelve (12) months after such termination (but in no event
after the expiration date of any such Option);
(b) All Restricted Stock Awards then held by the Participant
will become fully vested; and
(c) All Performance Units and Stock Bonuses then held by the
Participant will vest and/or continue to vest in the manner determined
by the Committee and set forth in the agreement evidencing such
Performance Units or Stock Bonuses.
10.2 Termination for Reasons Other than Death, Disability or
Retirement.
(a) In the event a Participant's employment or other service
is terminated with the Company and all Subsidiaries for any reason
other than death, Disability or Retirement, or a Participant is in the
employ or service of a Subsidiary and the Subsidiary ceases to be a
Subsidiary of the Company (unless the Participant continues in the
employ or service of the Company or another Subsidiary), all rights of
the Participant under the Plan and any agreements evidencing an
Incentive Award will immediately terminate without notice of any kind,
and no Options then held by the Participant will thereafter be
exercisable, all Restricted Stock Awards then held by the Participant
that have not vested will be terminated and forfeited, and all
Performance Units and Stock Bonuses then held by the Participant will
vest and/or continue to vest in the manner determined by the Committee
and set forth in the agreement evidencing such Performance Units or
<PAGE>
Stock Bonuses; provided, however, that if such termination is due to
any reason other than termination by the Company or any Subsidiary for
"cause," all outstanding Options then held by such Participant will
remain exercisable to the extent exercisable as of such termination for
a period of ninety (90) days after such termination (but in no event
after the expiration date of any such Option).
(b) For purposes of this Section 10.2, "cause" (as determined
by the Committee) will be as defined in any employment or other
agreement or policy applicable to the Participant or, if no such
agreement or policy exists, will mean (i) dishonesty, fraud,
misrepresentation, embezzlement or deliberate injury or attempted
injury, in each case related to the Company or any Subsidiary, (ii) any
unlawful or criminal activity of a serious nature, (iii) any
intentional and deliberate breach of a duty or duties that,
individually or in the aggregate, are material in relation to the
Participant's overall duties, or (iv) any material breach of any
employment, service, confidentiality or noncompete agreement entered
into with the Company or any Subsidiary.
10.3 Modification of Rights Upon Termination. Notwithstanding the other
provisions of this Section 10, upon a Participant's termination of employment or
other service with the Company and all Subsidiaries, the Committee may, in its
sole discretion (which may be exercised at any time on or after the date of
grant, including following such termination), cause Options (or any part
thereof) then held by such Participant to come or continue to become exercisable
and/or remain exercisable following such termination of employment or service
and Restricted Stock Awards and Performance Units then held by such Participant
to vest and/or continue to vest or become free of transfer restrictions, as the
case may be, following such termination of employment or service, in each case
in the manner determined by the Committee; provided, however, that no Option may
remain exercisable beyond its expiration date.
10.4 Breach of Confidentiality or Noncompete Agreements.
Notwithstanding anything in this Plan to the contrary, in the event that a
Participant materially breaches the terms of any confidentiality or noncompete
agreement entered into with the Company or any Subsidiary, whether such breach
occurs before or after termination of such Participant's employment or other
service with the Company or any Subsidiary, the Committee in its sole discretion
may immediately terminate all rights of the Participant under the Plan and any
agreements evidencing an Incentive Award then held by the Participant without
notice of any kind.
10.5 Date of Termination of Employment or Other Service. Unless the
Committee otherwise determines in its sole discretion, a Participant's
employment or other service will, for purposes of the Plan, be deemed to have
terminated on the date recorded on the personnel or other records of the Company
or the Subsidiary for which the participant provides employment or other
service, as determined by the Committee in its sole discretion based upon such
records.
11. Payment of Withholding Taxes.
11.1 General Rules. The Company is entitled to (a) withhold and deduct
from future wages of the Participant (or from other amounts that may be due and
owing to the Participant from the Company or a Subsidiary), or make other
arrangements for the collection of, all legally required amounts necessary to
satisfy any and all federal, state and local withholding and employment-related
tax requirements attributable to an Incentive Award, including, without
<PAGE>
limitation, the grant, exercise or vesting of, or payment of dividends with
respect to, an Incentive Award or a disqualifying disposition of stock received
upon exercise of an Incentive Stock Option, or (b) require the Participant
promptly to remit the amount of such withholding to the Company before taking
any action, including issuing any shares of Common Stock, with respect to an
Incentive Award.
11.2 Special Rules. The Committee may, in its sole discretion and upon
terms and conditions established by the Committee, permit or require a
Participant to satisfy, in whole or in part, any withholding or
employment-related tax obligation described in Section 11.1 of the Plan by
electing to tender Previously Acquired Shares or a Broker Exercise Notice, or by
a combination of such methods.
12. Change in Control.
12.1 Change in Control. For purposes of this Section 12.1, a "Change in
Control" of the Company will mean (a) the sale, lease, exchange or other
transfer of substantially all of the assets of the Company (in one transaction
or in a series of related transaction) to a person or entity that is not
controlled, directly or indirectly, by the Company (b) a merger or consolidation
to which the Company is a party if the shareholders of the Company immediately
prior to effective date of such merger or consolidation do not have "beneficial
ownership" (as defined in Rule 13d-3 under the Exchange Act) immediately
following the effective date of such merger or consolidation of more than 80% of
the combined voting power of the surviving corporation's outstanding securities
ordinarily having the right to vote at elections of directors, or (c) a change
in control of the Company of a nature that would be required to be reported
pursuant to Section 13 or 15(d) of the Exchange Act, whether or not the Company
is then subject to such reporting requirements, including, without limitation,
such time as (i) any person becomes after the effective date of the Plan the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of 20% or more of the combined voting power of the Company's
outstanding securities ordinarily having the right to vote at elections of
directors, or (ii) individuals who constitute the Board on the effective date of
the Plan cease for any reason to constitute at least a majority of the Board,
provided that any person becoming a director subsequent to the effective date of
the Plan whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
comprising the Board on the effective date of the Plan will, for purposes of
this clause (ii), be considered as though such persons were a member of the
Board on the effective date of the Plan.
12.2 Acceleration of Vesting. Without limiting the authority of the
Committee under Section 3.2 of the Plan, if a Change in Control of the Company
occurs, then, if approved by the Committee in its sole discretion either in an
agreement evidencing an Incentive Award at the time of grant or at any time
after the grant of an Incentive Award, (a) all Options will become immediately
exercisable in full and will remain exercisable for the remainder of their
terms, regardless of whether the Participants to whom such Options have been
granted remain in the employ or service of the Company or any Subsidiary; (b)
all outstanding Restricted Stock Awards will become immediately fully vested;
and (c) all Performance Units and Stock Bonuses then held by the Participant
will vest and/or continue to vest in the manner determined by the Committee and
set forth in the agreement evidencing such Performance Units or Stock Bonuses.
<PAGE>
12.3 Cash Payment for Options. If a Change in Control of the Company
occurs, then the Committee, if approved by the Committee in its sole discretion
either in an agreement evidencing an Incentive Award at the time of grant or at
any time after the grant of an Incentive Award, and without the consent of any
Participant effected thereby, may determine that some or all Participants
holding outstanding Options will receive, with respect to some or all of the
shares of Common Stock subject to such Options, as of the effective date of any
such Change of Control of the Company, cash in an amount equal to the excess of
the Fair Market Value of such shares immediately prior to the effective date of
such Change in Control of the Company over the exercise price per share of such
Options.
12.4 Limitation on Change in Control Payments. Notwithstanding anything
in Section 12.2 or 12.3 of the Plan to the contrary, if, with respect to a
Participant, the acceleration of the vesting of an Incentive Award as provided
in Section 12.2 or the payment of cash in exchange for all or part of an
Incentive Award as provided in Section 12.3 (which acceleration or payment could
be deemed a "payment" within the meaning of Section 280G(b)(2) of the Code),
together with any other payments which such Participant has the right to receive
from the Company or any corporation that is a member of an "affiliated group"
(as defined in Section 1504(a) of the Code without regard to Section 1504(b) of
the Code) of which the Company is a member, would constitute a "parachute
payment" (as defined in Section 280G(b)(2) of the Code), then the payments to
such Participant pursuant to Section 12.2 or 12.3 will be reduced to the largest
amount as will result in no portion of such payments being subject to the excise
tax imposed by Section 4999 of the Code; provided, however, that if such
Participant is subject to a separate agreement with the Company or a Subsidiary
which specifically provides that payments attributable to one or more forms of
employee stock incentives or to payments made in lieu of employee stock
incentives will not reduce any other payments under such agreement, even if it
would constitute an excess parachute payment, then the limitations of this
Section 12.4 will, to that extent, not apply.
13. Rights of Eligible Recipients and Participants; Transferability.
13.1 Employment or Service. Nothing in the Plan will interfere with or
limit in any way the right of the Company or any Subsidiary to terminate the
employment or service of any Eligible Recipient or Participant at any time, nor
confer upon any Eligible Recipient or Participant any right to continue in the
employ or service of the Company or any Subsidiary.
13.2 Rights as a Shareholder. As a holder of Incentive Awards (other
than Restricted Stock Awards), a Participant will have no rights as a
shareholder unless and until such Incentive Awards are exercised for, or paid in
the form of, shares of Common Stock and the Participant becomes the holder of
record of such shares. Except as otherwise provided in the Plan, no adjustment
will be made for dividends or distributions with respect to such Incentive
Awards as to which there is a record date preceding the date the Participant
becomes the holder of record of such shares, except as the Committee may
determine in its discretion.
13.3 Restriction on Transfer. Except pursuant to testamentary will or
the laws of descent and distribution or as otherwise expressly permitted by the
Plan, no right or interest of any Participant in an Incentive Award prior to the
exercise or vesting of such Incentive Award will be assignable or transferable,
<PAGE>
or subjected to any lien, during the lifetime of the Participant, either
voluntarily or involuntarily, directly or indirectly, by operation of law or
otherwise. A Participant will, however, be entitled to designate a beneficiary
to receive an Incentive Award upon such Participant's death, and in the event of
a Participant's death, payment of any amounts due under the Plan will be made
to, and exercise of any Options (to the extent permitted pursuant to Section 9
of the Plan) may be made by, the Participant's legal representatives, heirs and
legatees.
13.4 Non-Exclusivity of the Plan. Nothing contained in the Plan is
intended to modify or rescind any previously approved compensation plans or
programs of the Company or create any limitations on the power or authority of
the Board to adopt such additional or other compensation arrangements as the
Board may deem necessary or desirable.
14. Securities Law and Other Restrictions.
Notwithstanding any other provision of the Plan or any agreements
entered into pursuant to the Plan, the Company will not be required to issue any
shares of Common Stock under this Plan, and a Participant may not sell, assign,
transfer or otherwise dispose of shares of Common Stock issued pursuant to
Incentive Awards granted under the Plan, unless (a) there is in effect with
respect to such shares a registration statement under the Securities Act and any
applicable state securities laws or an exemption from such registration under
the Securities Act and applicable state securities laws, and (b) there has been
obtained any other consent, approval or permit from any other regulatory body
which the Committee, in its sole discretion, deems necessary or advisable. The
Company may condition such issuance, sale or transfer upon the receipt of any
representations or agreements from the parties involved, and the placement of
any legends on certificates representing shares of Common Stock, as may be
deemed necessary or advisable by the Company in order to comply with such
securities law or other restrictions.
15. Plan Amendment, Modification and Termination.
The Board may suspend or terminate the Plan or any portion thereof at
any time, and may amend the Plan from time to time in such respects as the Board
may deem advisable in order that Incentive Awards under the Plan will conform to
any change in applicable laws or regulations or in any other respect the Board
may deem to be in the best interests of the Company; provided, however, that no
amendments to the Plan will be effective without approval of the stockholders of
the Company if stockholder approval of the amendment is then required pursuant
to Rule 16b-3 under the Exchange Act, Section 422 of the Code or the rules of
the National Association of Securities Dealers, Inc. No termination, suspension
or amendment of the Plan may adversely affect any outstanding Incentive Award
without the consent of the affected Participant; provided, however, that this
sentence will not impair the right of the Committee to take whatever action it
deems appropriate under Sections 4.3 and 12 of the Plan.
<PAGE>
16. Effective Date and Duration of the Plan.
The Plan is effective as of December 16, 1993, the date it was adopted
by the Board. The Plan will terminate at midnight on December 15, 2003, and may
be terminated prior to such time by Board action, and no Incentive Award will be
granted after such termination. Incentive Awards outstanding upon termination of
the Plan may continue to be exercised, or become free of restrictions, in
accordance with their terms.
17. Miscellaneous.
17.1 Governing Law. The validity, construction, interpretation,
administration and effect of the Plan and any rules, regulations and actions
relating to the Plan will be governed by and construed exclusively in accordance
with the laws of the State of Minnesota.
17.2 Successors and Assigns. The Plan will be binding upon and inure to
the benefit of the successors and permitted assigns of the Company and the
Participants.
