SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A-2
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.
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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. As of April 2000, the version was
available to customers upon special request, through our password-protected and
secure website. CD Roms containing version 4.1 are currently in production; the
general release of the version is expected to occur at the end of May 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 receive these 4.1 versions at no additional
charge.
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
<PAGE>
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:
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.
<PAGE>
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
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.
<PAGE>
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.
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.
<PAGE>
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.
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.
<PAGE>
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.
(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. Once granted, the trademarks in the U.S. and in the named Southern
American Countries will have a duration of ten years, with the possibility of
renewals for like terms. In Australia, a trademark for "CorVu Your Window Into
the Future" and its design is registered. This trademark will be up for renewal
in 2005.
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 May 8, 2000, 19,500,654 shares of our common stock were issued
and outstanding. As of May 8, 2000, options to purchase approximately 3,826,250
shares of our common stock and warrants to purchase 1,394,697 shares of CorVu
common stock were outstanding; warrants to purchase 583,125 shares of common
stock give their holders demand and/or 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. In a
private placement that ended on April 13, 2000, a total of 100,000 shares of
common stock at $4 per share, plus warrants to purchase a total of 30,000 shares
of common stock at exercise prices ranging from $4 to $5.50 to $7, were sold for
an aggregate amount of $400,000. 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. Corvu may cancel the warrants
within 30 days after giving notice to the warrant holders if CorVu's stock
closed at $12 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 as soon as funds are available. 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. We raised some additional funds through a private placement
that ended on April 13, 2000, 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 loaned $300,000 to the Company which was to be repaid
April 30. The loan was not repaid on that date, and has been extended to June
30, 2000. However, we intend to repay the loan as soon as funds become
available. Our ability to obtain additional capital depends in part 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
<PAGE>
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
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
<PAGE>
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.
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.
<PAGE>
Working capital needs were funded using the following sources:
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 as
soon as funds become available.
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 as soon as funds become available.
Six Month Periods Ended December 31, 1999 versus December 31, 1998
REVENUES:
Total revenue for the first six months of fiscal 2000, ended December 31, 1999,
increased by $1,042,316, from $4,987,243 in the first six months of fiscal 1999
to $6,029,559 in the first six months of fiscal year 2000, an increase of 21%.
Software and license fee revenues increased $507,346 (16%), from $3,158,956 in
fiscal 1999 to $3,666,302 in fiscal 2000. 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 1999 to $2,363,257 in fiscal 2000, 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.
OPERATING EXPENSES:
Operating expenses increased by $3,091,283 (55%), from $5,597,806 in fiscal 1999
to $8,689,089 in fiscal 2000.
Cost of maintenance, consulting and other expenses increased $523,587 (51%),
from $1,025,247 in fiscal 1999 to $1,548,834 in fiscal 2000, and product
development costs increased $239,258 (99%), from $240,596 in fiscal 1999 to
$479,854 in fiscal 2000. 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.
<PAGE>
Sales and marketing expenses increased $1,115,274 (41%), from $2,733,840 in
fiscal 1999 to $3,849,114 in fiscal 2000, 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 1999 to $2,811,287 in fiscal 2000. 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 $242,252 (200%), from $120,787 in fiscal 1999
to $363,039 in fiscal 2000. 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 $271,000 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 $3,022,569 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 2000 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.
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. In March and April 2000, the Company sold to four
accredited investors a total of 100,000 shares of common stock, together with
warrants to purchase up to 30,000 shares at prices ranging from $4 to $7 per
share, for a total purchase price of $400,000. 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 as
soon as funds are available. 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.
<PAGE>
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 May 8, 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 3.07%
David C. Carlson (2) (4) 191,250 *(5)%
Ismail Kurdi (2) 1,175,625 6.03%
Justin M. MacIntosh (2) (6) 8,829,701 44.26%
James L. Mandel (2) (7) 224,061 1.15%
Pierce A. McNally (2) (8) 405,985 2.08%
Alan M. Missroon (2) (9) 157,500 *(5)%
Directors and executive
officers as a group 11,588,725 56.39%
Opella Holdings Limited (10) (11) 7,541,733 38.67%
Troy Rollo (12) (13) 1,023,950 5.24%
Rollosoft Pty Ltd (12) (14) 982,325 5.04%
Dominic K.K. Sum(10)(15) 7,541,733 38.67%
<PAGE>
(1) The percentages are calculated on the basis of 19,500,654 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 private placement that ended on April 13, 2000 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) Below 1%.
(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) Address: c/o Tempio Corporate Consultants Limited, Suite 701, 7/F, 6-8
Pottinger Street, Central, HONG KONG.
(11) 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).
(12) Address: C/-Crispin & Jeffery, Level 2, 57 Grosvenor Street, Neutral
Bay NSW 2089, AUSTRALIA.
(13) 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.
(14) Mr. Rollo is the sole shareholder, director and officer of Rollosoft
Pty. Limited.
(15) 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.
<PAGE>
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 British property companies which are not reporting
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.
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; one of these companies (Vicom Inc.) filed a Form 10 with
the SEC on April 7, 2000; the other companies are not reporting companies. Mr.
McNally 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.
<PAGE>
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 $100,000.
<TABLE>
<CAPTION>
Long Term Compensation
------------------------------------
Annual Compensation Awards Payouts
----------------------------------- ------------------------------------
Restricted LTIP All Other
Name and Principal Fiscal Stock Payouts Compensation
Position Year Salary ($) 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.
<PAGE>
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.
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. Interest payable is based upon a bank index rate plus 2%. The loan was
to be repaid April 30. The loan was not repaid on that date, and has been
extended to June 30, 2000. The Company intends to repay the loan as soon as
funds are available.
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
<PAGE>
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. 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 May 8, 2000, 19,500,654 shares
of common stock and 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
Before the merger with CorVu Corporation, the principal accountant of Minnesota
American, Inc. was Virchow Krause & Company, LLP. Since the company surviving
the merger, CorVu Corporation, f/k/a Minnesota American, Inc., continues to
operate the business of the former CorVu Corporation, the Company's executive
officers decided to continue working with the accountant of the former CorVu
Corporation, KPMG LLP, and to terminate the relationship with Virchow Krause &
Company, LLP effective as of the merger on January 14, 2000. The Company is not
aware that Virchow Krause & Company, LLP issued any report during the two years
before the merger that contained an adverse opinion or disclaimer of opinion, or
was modified as to uncertainty, audit scope, or accounting principles. The
change of accountants was not recommended or approved by the board of directors
or any committee of the board. The Company is not aware that there was any
disagreement between Minnesota American, Inc. and Virchow Krause & Company, LLP
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
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.
<PAGE>
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.
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. In March and April 2000, our Company sold 100,000 shares of common
stock and warrants to purchase 30,000 shares of common stock, at
exercise prices ranging from $4 to $7.00, to four accredited investors
for a total purchase price of $400,000. 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 May 8, 2000, options to purchase approximately 3,826,250
shares of CorVu common stock and warrants to purchase 1,394,697 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.)
<PAGE>
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.
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.
<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> <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. The Company does
not expect a material change to its accounting for revenues as a result of
the provisions of SOP 98-9.
<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)
<S> <C> <C>
Current assets:
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 1,663,500 1,407,000
Director advances 151,820 444,826
----------------- -------------
Total current liabilities 7,518,032 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 8,164,629 2,852,949
Accumulated deficit (11,003,049) (7,980,480)
Deferred compensation (725,550) (75,000)
Foreign currency translation adjustment 248,754 211,355
----------------- -------------
Total stockholders' deficit (3,200,947) (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 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 (363,039) (120,787)
-------------- -------------
Net loss $ (3,022,569) (731,350)
============== =============
Loss per common share-basic and diluted $ (0.29) (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
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 $(3,022,569) (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 645,186 -
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 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
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
$11,003,049, total stockholders' deficit of $3,200,947, and negative
working capital of $3,372,043. 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 $137,000 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 $46,000 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 approximately $134,000 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 fair value of the warrants and the
conversion feature were determined to be $1,345,000 and $250,000,
respectively. The value of the unamortized discount at the time of the
conversion will be charged to Additional Paid-in Capital.
(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 and, accordingly, will record a charge of approximately
$2,124,000 in the nine month period ending March 31, 2000. This charge will
be recorded in the fiscal quarter ended March 31, 2000 as a $950,000
reduction to Additional Paid-in Capital based on the amount of cash
received in the merger, with the remainder ($1,174,000) shown as an
operating expense.
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). The Company did not repay this short-term loan on April 30, 2000
and is currently discussing repayment terms with this director.
<PAGE>
CorVu Corporation
PRO FORMA BLAANCE SHEET
<TABLE>
<CAPTION>
Pro Forma
MNAC Discontinued Pro Forma Other Pro MNAC As CorVu Corp. Pro Forma
Historical Operations Equity Sale Forma Adjusted Historical Pro Forma Combined
12/31/99 Favorite Mem LockerMate Adjustments 12/31/99 12/31/99 Adjustments CorVu MNAC
(A) (B)
Current Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 1,663,500 1,663,500
Director Advances 151,820 151,820
Total Current Liabilities 213,780 (11,887) (151,893) (50,000) - 7,518,032 7,518,032
Long Term Liabilities
Deferred Income Tax Liability 44,100 (44,100) - 0 0
Total Liabilities 257,880 (11,887) (195,993) (50,000) 0 7,518,032 7,518,032
Stockholders Equity
Series A Convertible Preferred
Stock; par value $10; issued
and outstanding 1999 56,726
shares 40,630 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 8,164,629 ($903,490)(6)(7) 9,016,563
Accumulated Deficit (1,008,591) ($67,799) 431,242 (645,148) (11,003,049) 889,206 (6) (11,003,049)
(83,000)(3)(161,058)(4,5)(244,058)
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 (3,200,947) (2,250,947)
-------------------- --------- ------------------- -----------
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>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Minnesota American, Inc.
Minnetonka, Minnesota
We have audited the accompanying consolidated balance sheets of
Minnesota American, Inc. and subsidiaries as of September 30, 1999 and 1998, and
the related consolidated statements of income, stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these 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 audits 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 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Minnesota American, Inc. and subsidiaries at September 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.
/s/ VIRCHOW, KRAUSE & COMPANY, LLP
Bloomington, Minnesota
November 17, 1999
<PAGE>
MINNESOTA AMERICAN, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS (Note 2) 1999 1998
-------------- --------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 253,288 $ 371,382
Trade accounts receivable, less allowance for doubtful
accounts 1999 $20,123; 1998 $15,000 and allowance
for sales returns 1999 $590,598; 1998 $370,447 (Note 7) 133,366 80,732
Inventories 442,455 278,052
Deferred income tax assets (Note 5) 194,600 149,900
Prepaid expenses and other 20,016 29,599
-------------- --------------
Total current assets 1,043,725 909,665
OTHER ASSETS 29,214 15,365
INVESTMENTS 50,000 -
EQUIPMENT (Notes 6 and 8):
Furniture and equipment 108,113 97,063
Dies and molds 532,277 596,835
-------------- --------------
640,390 693,898
Less accumulated depreciation 388,310 433,828
-------------- --------------
252,080 260,070
-------------- --------------
$ 1,375,019 $ 1,185,100
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturity of capital lease obligation $ - $ 2,859
Note payable, bank (Note 2) 50,000 -
Accounts payable 278,280 207,819
Accrued liabilities 24,817 23,892
Customer deposits 4,462 4,462
-------------- --------------
Total current liabilities 357,559 239,032
DEFERRED INCOME TAX LIABILITY (Note 5) 44,100 36,900
COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENT
(Notes 3, 8 and 12)
STOCKHOLDERS' EQUITY:
Series A convertible preferred stock, par value $10 per share, authorized
1,000,000 shares; issued and outstanding
1999 56,726; 1998 69,826 shares (Note 3) 488,943 601,857
Common stock, par value $.01 per share; authorized 10,000,000
shares; issued and outstanding 1999 3,809,610;
1998 3,532,810 shares (Notes 3 and 4) 38,096 35,328
Additional paid-in capital 1,291,908 1,146,712
Accumulated deficit (845,587) (874,729)
-------------- --------------
973,360 909,168
-------------- --------------
$ 1,375,019 $ 1,185,100
============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
MINNESOTA AMERICAN, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Net sales (Note 7) $ 2,628,837 $ 2,888,564
Cost of goods sold 1,371,392 1,586,299
-------------- --------------
Gross profit 1,257,445 1,302,265
Selling, general and administrative expenses 1,196,082 1,006,165
Impairment loss (Note 6) - 60,000
-------------- --------------
Operating income 61,363 236,100
Other income (expense):
Interest income 3,616 1,327
Interest expense (20,466) (30,207)
Gain on disposal of assets 8,942 -
-
Other expense (12,785) -
-------------- --------------
(20,693) (28,880)
-------------- --------------
Income before income taxes and extraordinary item 40,670 207,220
Federal and state income tax benefits (Note 5) 33,858 94,530
-------------- --------------
Income before extraordinary item 74,528 301,750
Extraordinary item (Note 10) - 86,816
-------------- --------------
Net income $ 74,528 $ 388,566
============== ==============
Basic earnings per share (Note 11):
Income before extraordinary item $ .01 $ .07
============== ==============
Net income $ .01 $ .10
============== ==============
Diluted earnings per share (Note 11):
Income before extraordinary item $ .01 $ .07
============== ==============
Net income $ .01 $ .10
============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
MINNESOTA AMERICAN, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
Series A Convertible Additional
Preferred Stock Common Stock Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
-------- --------- ----------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1997 69,826 $ 601,857 3,532,810 $ 35,328 $ 1,146,712 $(1,217,908) $ 565,989
Cash dividend paid on preferred stock -- -- -- -- -- (45,387) (45,387)
Net income -- -- -- -- -- 388,566 388,566
-------- --------- ----------- -------- ----------- ----------- -----------
Balance, September 30, 1998 69,826 601,857 3,532,810 35,328 1,146,712 (874,729) 909,168
Cash dividend paid on preferred stock -- -- -- -- -- (45,386) (45,386)
Exercise of stock options -- -- 172,000 1,720 33,330 -- 35,050
Preferred stock conversions (13,100) (112,914) 104,800 1,048 111,866 -- --
Net income -- -- -- -- -- 74,528 74,528
-------- --------- ----------- -------- ----------- ----------- -----------
Balance, September 30, 1999 56,726 $ 488,943 3,809,610 $ 38,096 $ 1,291,908 $ (845,587) $ 973,360
======== ========= =========== ======== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
MINNESOTA AMERICAN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 74,528 $ 388,566
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization 66,997 56,513
Provision for allowance for doubtful accounts and returns 225,274 65,447
Loss on impairment of assets - 60,000
Gain on disposal of equipment (8,942) -
Deferred income taxes (37,500) (67,500)
Settlement of liabilities - (115,755)
(Increase) decrease in assets:
Trade accounts receivable (277,908) 413,546
Inventories (164,403) (40,390)
Prepaid expenses and other 9,583 (18,057)
Other assets (13,849) 7,233
Increase (decrease) in liabilities:
Accounts payable 70,461 56,169
Accrued liabilities 925 (42,350)
-------------- --------------
Net cash provided by (used in) operating activities (54,834) 763,422
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (65,065) (69,007)
Proceeds from sale of equipment 15,000 -
Purchase of investment securities (50,000) -
--------------- --------------
Net cash used in investing activities (100,065) (69,007)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on revolving promissory note - (161,871)
Payments on note payable, bank - (150,000)
Borrowings on note payable, bank 50,000 -
Principal payments on capital lease (2,859) (5,459)
Dividends paid (45,386) (45,387)
Exercise of stock options 35,050 -
Payments on notes payable, stockholders - (1,000)
Payments on note payable, other - (1,600)
-------------- --------------
Net cash provided by (used in) financing activities 36,805 (365,317)
Increase (decrease) in cash and cash equivalents (118,094) 329,098
Cash and cash equivalents:
Beginning 371,382 42,284
-------------- --------------
Ending $ 253,288 $ 371,382
============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
MINNESOTA AMERICAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 1999 and 1998
Note 1. Nature of Business and Significant Accounting Policies:
Nature of business:
The Company currently has two wholly-owned subsidiaries,
LockerMate Corporation ("LockerMate") and Favorite Memories, Inc.
LockerMate designs and markets specialty consumer locker shelving
and accessory organizer products. Promotion of products is
accomplished through trade shows, cooperative advertising, direct
mail and cross-marketing. Products are sold through manufacturers
representatives servicing most of the United States. LockerMate's
products are primarily sold by large discount retailers, discount
drug retailers, schools, specialty retailers, catalog companies
and grocery chains. LockerMate uses turn-key out-sourcing for
production, warehousing and shipping under an agreement expiring
on December 31, 1999, with automatic renewal on a calendar year
basis. Historically, most of the Company's sales occur between May
and August.
Favorite Memories, which was in the development stage, markets
photograph and memorabilia albums. Products are primarily sold by
large discount retailers throughout the United States. Subsequent
to year-end, the Company resolved to cease operations of the
subsidiary although no formal plan of disposal has been
determined. The Company and the prior owner of the trademark are
in discussions regarding the conveyance of certain assets of
Favorite Memories to the prior owner.
In February 1995, certain assets of Access Mobility Systems, Inc.
(a former subsidiary) including patents, customer lists and
product names were sold and operations ceased. The sale of the
subsidiary provides for receipts of royalty fees over a five-year
period up to a maximum of $400,000. No royalties were received
during the years ended September 30, 1999 and 1998. Remaining
assets are in the process of being collected/liquidated and
payables are being paid on a pro rata basis as funds are received
or settled for cash amounts when possible.
Principles of consolidation:
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All intercompany accounts and
transactions have been eliminated.
A summary of the Company's significant accounting policies
follows:
Cash and cash equivalents:
Cash includes checking deposits, savings accounts, money market
funds and interest-bearing investments with original maturities of
three months or less at the time of purchase. Cash on deposit in
excess of FDIC and similar insurance coverages are subject to the
usual banking risks of funds in excess of those limits.
Investments:
Investments market value in private company stocks are not readily
determinable and are therefore carried at estimated fair market
value as determined by management. The Company has recorded no
unrealized gains (losses) since fair market value estimates cost.
<PAGE>
Note 1. Nature of Business and Significant Accounting Policies (Continued):
Inventories:
Inventories are stated at the lower of cost (first-in, first-out
method) or market. Included in inventories are the deferred cost
of estimated sales returns which were approximately $163,000 and
$87,000 at September 30, 1999 and 1998, respectively.
Equipment:
Equipment is stated at cost. Betterments and renewals that extend
the life of an asset are capitalized and depreciated. Depreciation
for financial reporting purposes for furniture and equipment is
provided principally on the straight-line method based upon an
estimated five year useful life. Dies and molds used in inventory
production are depreciated using the units of production method.
Depreciation and amortization expense on equipment was $66,997 and
$56,513 during the years ended September 30, 1999 and 1998,
respectively.
Income taxes:
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to temporary differences between the
financial statement carrying amounts of assets and liabilities and
their respective tax bases.
Stock based compensation:
The Company accounts for its stock compensation plans in
accordance with Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees." The disclosures
required by SFAS No. 123, "Accounting for Stock-Based
Compensation," are included in Notes 3 and 4.
Per share information:
Beginning with the year ended September 30, 1998, the Company was
required to adopt Financial Accounting Standards Board No. 128,
"Earnings Per share" and retroactively adjust previously reported
EPS amounts, if necessary, to the revised calculations. The new
standard requires the presentation of basic earnings per share and
diluted earnings per share, instead of primary and fully diluted
earnings per share as previously required.
Recognition of revenue:
The Company records sales when products are shipped. Some product
sales are made with the right of return on unsold units. Estimated
reserves for future returns are established by management based on
customer sales and historical experience. Deferred costs, which
include the estimated value of projected product returns, are
included in inventories.
Advertising:
The Company expenses advertising costs as incurred. The Company
participates in a cooperative advertising program with its
customers. These costs are estimated by the Company at the time of
the sale of product to its customer. Total advertising expense for
the periods ended September 30, 1999 and 1998 was approximately
$123,000 and $86,000, respectively.
<PAGE>
Note 1. Nature of Business and Significant Accounting Policies (Continued):
Credit risk:
The Company grants credit to customers, most of which are
retailers and schools located throughout the United States. The
Company reviews customers' credit history before extending credit
and establishes an allowance for doubtful accounts based on
factors surrounding the credit risk of specific customers,
historical trends and other information. At September 30, 1999 and
1998, the Company had significant amounts recorded as receivables
from its major customers (see Note 7).
Estimates and assumptions:
The preparation of 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 contingent assets and
liabilities at the date of the financial statements and revenues
and expenses during the reporting period. Significant estimates in
these financial statements include the lives used for depreciation
of equipment, molds and dies, calculation of reserves for returns,
inventory valuations, valuation of deferred tax assets and
collectability of receivables. Actual results could differ from
those estimates.
Note 2. Notes Payable - Bank:
In March 1999, the Company and a stockholder jointly obtained a
bank note in the amount of $50,000. The note payable matures
September 2000 and interest is payable monthly at the base rate
(8.25% at September 30, 1999) plus .05%.
In March 1999, the Company obtained bank financing for LockerMate
Corporation in the form of a $1,300,000 revolving line of credit
and for Favorite Memories, Inc. in the form of a $400,000
revolving line of credit, both of which expire in March 2000 and
are due upon demand. No balance is outstanding at September 30,
1999. Interest accrues at the bank's base rate (8.25% at September
30, 1999) plus 2%. The line of credit is secured by substantially
all assets and is personally guaranteed. Line of credit financing
for an amount up to $1,300,000 with similar terms for LockerMate
Corporation expired in March 1999.
Note 3. Stockholders' Equity:
Stock warrants:
As of September 30, 1999, there were warrants outstanding to
purchase 365,000 shares of the Company's common stock at prices
ranging from $.30 to $.875 per share, expiring at various dates
from March 2001 to February 2004. No warrants were outstanding as
of September 30, 1998. During the years ended September 30, 1999
and 1998, no shares were issued through the exercise of warrants.
<PAGE>
Note 3. Stockholders' Equity (Continued):
Stock options:
Directors, officers and employees have unexpired options to
purchase common stock of the Company. At September 30, 1999, stock
options to purchase 377,000 shares of common stock at prices
ranging from $.13 to $.92 per share were outstanding. Activity for
the plan is as follows:
Options Price
Outstanding Per Share
Balance, September 30, 1997 367,500 $ .13 - .625
Granted 64,000 $ .20
Cancelled (32,500) $ .50
--------------
Balance, September 30, 1998 399,000 $ .13 - .625
Granted 204,000 $ .30 - .92
Exercised (172,000) $ .13 - .50
Cancelled (54,000) $ .13 - .625
--------------
Balance, September 30, 1999 377,000
==============
Exercisable, September 30, 1999 232,000 $ .13 - .92
==============
The options will expire at various dates from November 1999 to
February 2008.
Series A Convertible Preferred Stock:
In April 1993, the Company issued 69,826 shares of $10 par value
Series A Convertible Preferred Stock in a private placement. The
Series A Convertible Preferred Stock bears a 6.5% cumulative
dividend rate payable on January 1 and July 1 of each year. Each
share of Series A Convertible Preferred Stock is convertible into
eight shares of common stock. The holder of each share of Series A
Convertible Preferred Stock is entitled to eight votes, subject to
adjustment. Upon an involuntary or voluntary liquidation or
dissolution of the Company at any time, the holders of the Series
A Convertible Preferred Stock are entitled to receive a
liquidation preference of $10 per share. The preferred stock may
be called for redemption in whole or in part by the Company for a
redemption price of $11.70.
During the period ending September 30, 1999, 13,100 shares of $10
par value Series A Convertible Preferred Stock were converted.
Note 4. Stock Based Compensation:
In 1993, the Company established a stock incentive plan for the
benefit of its employees. The Company also has granted options to
its directors that are not part of the incentive plan. The Company
applies APB Opinion 25 and related interpretations in accounting
for its plans. No compensation cost has been recognized in these
financial statements as the exercise prices were higher than the
market prices at the grant dates. The Company estimates there
would have been only a negligible effect on net income and
earnings per share had the options values been determined based on
the fair value method prescribed by SFAS No. 123.
<PAGE>
Note 5. Income Taxes:
The provision for income taxes for the years ended September 30,
1999 and 1998 consists of the following:
1999 1998
-------- --------
Current tax expense (benefit) $ 3,642 $ 500
Deferred tax expense (benefit) (37,500) (95,030)
--------- --------
$(33,858) $(94,530)
======== ========
The income tax provision differs from the amount of income tax
determined by applying the U.S. federal income tax rate to pretax
income for the years ended September 30, 1999 and 1998 due to the
following:
<TABLE>
<CAPTION>
1999 1998
-------- ---------
<S> <C> <C>
Computed "expected" federal tax expense $ 13,000 $ 64,000
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal tax benefit 2,700 13,600
Nondeductible expenses 900 800
Change in valuation allowance and benefit of
net operating loss carryforwards, net (50,458) (172,930)
--------- ----------
$(33,858) $ (94,530)
======== =========
</TABLE>
Components of deferred tax assets and liabilities as of September
30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Deferred tax liabilities:
Tax depreciation in excess of financial
reporting depreciation $ 44,100 $ 36,900
Deferred tax assets:
Accounting reserves 111,900 96,400
Net operating loss carryforward 91,500 124,500
Other 13,000 11,500
-------- --------
216,400 232,400
Valuation allowance (21,800) (82,500)
-------- --------
Net deferred tax assets 194,600 149,900
-------- --------
Net deferred tax assets (liabilities) $150,500 $ 113,000
======== =========
</TABLE>
At September 30, 1999, net operating loss carryforwards of
approximately $199,000 and $223,000 are available for future
reductions of federal and state taxable income, respectively.
These carryforwards are subject to various limitations and expire
at various dates through the year ended September 30, 2019. The
Company has assessed its past earnings history and trends and
expiration dates of the carryforwards and periodically revises its
valuation allowance with regards to deferred tax assets. The
Company will continue to review this valuation allowance and make
adjustments as appropriate. In addition, federal tax rules impose
limitations on the utilization of loss carryforwards following
certain changes in ownership. If such changes were to occur, the
limitation could reduce the amount of benefits that would be
available to offset future taxable income each year, starting with
the year of ownership change.
<PAGE>
Note 6. Loss on Impairment:
During 1998, the Company recorded impairment losses related to
molds not currently being utilized in operations. The losses were
recorded in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." This statement requires losses to be recognized when
the sum of the expected future cash flows is less than the
carrying value of the asset. The expected future cash flows was
based on the estimated sales prices of the molds as determined by
the Company's management.
Note 7. Significant Customers:
Three customers accounted for 65% of net sales for the year ended
September 30, 1999, with approximately $597,000 in accounts
receivable at September 30, 1999.
Three customers accounted for 70% of net sales for the year ended
September 30, 1998, with approximately $348,000 in accounts
receivable at September 30, 1998.
Note 8. Commitments and Contingencies:
The Company leases office space under an agreement classified as
an operating lease. Under the terms of this lease, the Company is
required to pay a base rent plus a pro rata share of operating
costs each month. The monthly base rent is $2,358 beginning July
1997 and continues until the lease's termination in December 2001.
Total rent expense under this agreement for the years ended
September 30, 1999 and 1998 was $37,672 and $35,159, respectively.
The Company also rents warehouse space under an operating lease
arrangement. This agreement requires monthly payments of $1,750
during the non-shipping season. The agreement expires January 2000
and renews automatically for successive one year periods. Rent
expense for warehouse space was $12,321 and $13,077 during the
years ended September 30, 1999 and 1998, respectively.
In April 1994, the Company recorded a $20,446 five year 16.19%
capital lease for the purchase of computer equipment, of which
$2,859 was outstanding at September 30, 1998 and was paid off
during the period ending September 30, 1999.
The Company has an employment agreement with one of its
executives. The Company is required to compensate the individual
in accordance with the terms of the agreement. The agreement
expires on January 2000 and renews automatically for successive
one-year periods unless either party gives the other party 30 days
written notice prior to the expiration of the agreement of their
intent not to renew the agreement.
The Company has a financial consulting agreement with independent
consultants that in consideration of certain performed services
the Company issued 300,000 stock purchase warrants at an exercise
price of $.30 per share. The warrants have a term of five years
and contain a cashless exercise provision. In addition, if the
LockerMate and Favorite Memories subsidiaries are sold to a third
party, the Company is required to pay the consultants a cash fee
equal to 4% of the sale price.
<PAGE>
Note 9. Supplemental Disclosure of Cash Flow Information:
1999 1998
Cash paid during the year for:
Interest $ 20,466 $ 34,344
Income taxes 3,642 1,859
Note 10. Extraordinary Item:
During the period ending September 30, 1998, the Company was in
the process of settling liabilities incurred by its dissolved
subsidiary, Access Mobility Systems, Inc. The Company recorded any
income as a result of these settlements at the time of the
settlement and payment. The extraordinary item of $86,816
represents a gain of $115,755, net of the related income tax
effect of $28,939 for the period ended September 30, 1998.
Note 11. Earnings Per Share:
Basic earnings per share are computed by dividing earnings
available to common stockholders by the weighted average number of
common shares outstanding during the period. Diluted earnings per
share reflect per share amounts that would have resulted if
dilutive potential common stock had been converted to common
stock. The following reconciles amounts reported in the financial
statements:
<TABLE>
<CAPTION>
1999 1998
--------------------------------------- ---------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
<S> <C> <C> <C> <C> <C> <C>
Income before
extraordinary item $ 74,528 $ 301,750
Less preferred stock
dividends 45,386 45,387
----------- -----------
Income available to
common stockholders -
basic earnings per share 29,142 3,603,828 $ .01 256,363 3,532,810 $ .07
======== ========
Effect of dilutive securities:
Options and warrants - 406,528 - -
Preferred stock
conversion 45,386 453,808 45,387 558,608
----------- ----------- ----------- -----------
Income available to
common stockholders -
diluted earnings per
share $ 74,528 4,464,164 $ .01 $ 301,750 4,091,418 $ .07
=========== =========== ======== =========== =========== ========
</TABLE>
Options and warrants in 1998 were not considered in the above
calculations because their exercise price was higher than the
average market price of common stock during the periods.
<PAGE>
Note 12. Subsequent Event:
On November 17, 1999, the Company entered into a plan of
reorganization and agreement with another company to merge such
entity into Minnesota American, Inc. Each share of common stock
issued and outstanding in the merging entity shall be converted to
1.125 shares of common stock of Minnesota American, Inc. Each
share of common and preferred stock issued and outstanding in
Minnesota American, Inc. will remain unchanged by the merger. Each
option and warrant to purchase shares of the merging entity will
also be assumed by Minnesota American, Inc. at the conversion
rate. The agreement calls for 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. After such sale
transactions take place, Minnesota American, Inc. is required to
meet various minimum consideration and net worth requirements to
consummate the merger.
<PAGE>
MINNESOTA AMERICAN, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
--------------- --------------
CURRENT ASSETS:
<S> <C> <C>
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
----------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
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 American, 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.*
16. Letter from Virchow Krause & Company, LLP regarding change in
certifying accountant.**
22. List of the Subsidiaries of the Registrant.*
27.1 Financial Data Schedule for fiscal year 1999 (July 1, 1998 to June 30,
1999).**
27.2 Financial Data Schedule for the first half of fiscal year 2000 (July 1,
1999 to December 31, 1999).**
- ----------------
* Previously filed.
** Filed herewith.
*** Schedules and attachments have been omitted and will be provided to the
Commission upon request.
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this Amendment No. 2 to the registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
CorVu Corporation
Date: May 9, 2000
By /s/ David C. Carlson
David C, Carlson, Chief Financial Officer
EXHIBIT A
PLAN OF MERGER
THIS PLAN OF MERGER (the "Plan of Merger"), dated as of the 14th day of
January, 2000 is by and between CorVu Corporation, a Minnesota corporation
("Seller"), and Minnesota American, Inc., a Minnesota corporation (the
"Surviving Corporation").
WHEREAS, the respective Boards of Directors of the Seller and the
Surviving Corporation deem it advisable for the general welfare and advantage of
the respective corporations and their respective shareholders that, subject to
the terms and conditions contained in this Plan of Merger and in that certain
Agreement and Plan of Reorganization, dated the 17th day of November, 1999 (the
"Reorganization Agreement"), and in accordance with the applicable laws of the
State of Minnesota, Seller be merged with and into the Surviving corporation
(the "Merger");
NOW, THEREFORE, the parties hereto, subject to the approval of their
respective shareholders as required by law, in consideration of the premises and
of the mutual covenants and agreements contained herein and of the benefits to
accrue to the parties hereto, have agreed and do hereby agree that Seller be
merged with and into the Surviving Corporation pursuant to the laws of the State
of Minnesota, and do hereby agree upon, prescribe and set forth the terms and
conditions of the Merger, the method of carrying the same into effect, and the
manner and basis of converting shares of Seller into shares of Stock of the
Surviving Corporation and cash, as follows:
ARTICLE 1.
THE MERGER; CONVERSION OF SHARES
1.1 The Merger. Subject to the terms and conditions of this Plan of
Merger, at the Effective Time (as defined in Section 1.2 hereof), Seller shall
be merged with and into Surviving Corporation in accordance with the provisions
of the Minnesota Business Corporation Act (the "MBCA"), whereupon the separate
corporate existence of Seller shall cease, and Surviving Corporation shall
continue as the surviving corporation (the "Surviving Corporation"). From and
after the Effective Time, the Surviving Corporation shall possess all the
property, rights, privileges, immunities, powers, and franchises and be subject
to all the debts, liabilities, obligations, restrictions, disabilities, and
duties of Seller and Surviving Corporation, all as more fully described in the
MBCA.
1.2 Effective Time. The Merger shall be effective upon filing with the
Minnesota Secretary of State Articles of Merger including this Plan of Merger
(the "Effective Time").
<PAGE>
1.3 Conversion of Shares. At the Effective Time, by virtue of the
Merger and without any action on the part of Seller or Surviving Corporation or
any holder of any share of capital stock of Seller or Surviving Corporation:
(a) Each share of common stock of Seller, $.01 par value per share
("Seller Common Stock"), issued and outstanding immediately prior thereto
(except for shares as to which the holders thereof have asserted dissenters'
rights pursuant to Sections 302A.471 and 302A.473 of the MBCA and pursuant to
Section 1.4 below) shall be converted into, subject to Section 1.6(f), the right
to receive 1.125 (the "Conversion Ratio") shares of common stock of Surviving
Corporation, par value $.01 per share (the "Surviving Corporation Common
Stock").
(b) Each share of Surviving Corporation Common Stock and each share of
Surviving Corporation Preferred Stock issued and outstanding immediately prior
to the Effective Time shall (except for shares as to which the holders thereof
have asserted dissenters' rights pursuant to Sections 302A.471 and 302A.473 of
the MBCA and pursuant to Section 1.5 below) remain issued and outstanding and
unaffected by the Merger.
1.4 Seller Dissenters' Rights.
(a) Notwithstanding any provision of this Agreement to the
contrary, any shares of Seller Common Stock held by a holder who has
properly asserted dissenters' rights pursuant to Sections 302A.471 and
302A.473 of the MBCA with respect to such shares and who, as of the
Effective Time, has not effectively withdrawn or lost such rights shall
not be converted into or represent a right to receive shares of
Surviving Corporation Common Stock pursuant to Section 1.3(a), but the
holder thereof shall only be entitled to such rights as are granted by
the MBCA.
(b) Notwithstanding the provisions of subsection (a) of this
Section, if any holder of Seller Common Stock who asserts dissenters'
rights with respect to such Seller Common Stock under the MBCA
effectively withdraws or loses (through failure to perfect or
otherwise) such dissenters' rights then, as of the later of the
Effective Time or the occurrence of such event, such holder's Seller
Common Stock shall automatically be converted into and represent only
the right to receive the shares of Surviving Corporation Common Stock
as provided in Section 1.3(a), without interest thereon, upon surrender
of the certificate or certificates representing such Seller Common
Stock.
(c) Seller shall give Surviving Corporation (i) prompt notice
of any notice of intent to assert dissenters' rights with respect to
any Seller Common Stock, withdrawals of such notices, and any other
instruments served pursuant to the MBCA and received by Seller and (ii)
the opportunity to participate in all negotiations and proceedings with
respect to assertion of dissenters' rights with respect to Seller
Common Stock under the MBCA. Seller shall not, except with the prior
written consent of Surviving Corporation, voluntarily make any payment
with respect to any assertion of dissenters' rights with respect to
Seller Common Stock or offer to settle or settle any such demands.
<PAGE>
1.5 Surviving Corporation Dissenters' Rights
(a) Notwithstanding any provision of this Agreement to the
contrary, any shares of Surviving Corporation Common Stock or Surviving
Corporation Preferred Stock held by a holder who has properly asserted
dissenters' rights pursuant to Sections 302A.471 and 302A.473 of the
MBCA with respect to such shares and not otherwise withdrawn or lost
such rights with respect thereto shall not represent shares of Common
Stock or Preferred Stock of the Surviving Corporation, but the holder
thereof shall only be entitled to such rights as are granted by the
MBCA.
(b) Surviving Corporation shall give Seller (i) prompt notice
of any notice of intent to assert dissenters' rights with respect to
any Surviving Corporation Common Stock, withdrawals of such notices,
and any other instruments served pursuant to the MBCA and received by
Surviving Corporation and (ii) the opportunity to participate in all
negotiations and proceedings with respect to assertion of dissenters'
rights with respect to Surviving Corporation Common Stock under the
MBCA. Surviving Corporation shall not, except with the prior written
consent of Seller, voluntarily make any payment with respect to any
assertion of dissenters' rights with respect to Surviving Corporation
Common Stock or offer to settle or settle any such demands.
1.6 Exchange of Seller Common Stock.
(a) At or prior to the Effective Time, Surviving Corporation
shall cause Surviving Corporation's stock transfer agent to act as
exchange agent (the "Exchange Agent") hereunder. As promptly as
practicable after the Effective Time, with respect to the shares of
Surviving Corporation Common Stock into which shares of Seller Common
Stock have been converted pursuant to Section 1.3(a), Surviving
Corporation shall deliver written instructions to the transfer agent
instructing such transfer agent to issue such shares of Surviving
Corporation Common Stock pursuant to the provisions of this Section
1.6. As promptly as practicable after the Effective Time, Surviving
Corporation shall cause the Exchange Agent to mail to each holder of
record of a certificate or certificates that immediately prior to the
Effective Time represented outstanding shares of Seller Common Stock
("Seller Certificates"), who has not previously delivered such Seller
Certificates to Surviving Corporation at the Closing, a form letter of
transmittal and instructions for such holder's use in effecting the
surrender of the Seller Certificates in exchange for certificates
representing shares of Surviving Corporation Common Stock and cash in
lieu of any fractional shares.
(b) As soon as practicable after the Effective Time, the
Exchange Agent shall distribute to holders of shares of Seller Common
Stock, upon surrender to the Exchange Agent of one or more Seller
Certificates for cancellation, together with a duly executed letter of
transmittal, (i) one or more certificates representing the number of
whole shares of Surviving Corporation Common Stock
<PAGE>
into which the shares represented by the Seller Certificate(s) shall
have been converted pursuant to Section 1.3(a), (ii) a bank check in
the amount of cash into which the shares represented by the Seller
Certificate(s) shall have been converted pursuant to Section 1.6(f)
(relating to fractional shares), and (iii) any dividends or other
distributions to which such holder is entitled pursuant to Section
1.6(c), and the Seller Certificate(s) so surrendered shall be canceled.
In the event of a transfer of ownership of Seller Common Stock that is
not registered in the transfer records of Seller, it shall be a
condition to the issuance of shares of Surviving Corporation Common
Stock that the Seller Certificate(s) so surrendered shall be properly
endorsed or be otherwise in proper form for transfer and that such
transferee shall (i) pay to the Exchange Agent any transfer or other
taxes required or (ii) establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not payable.
(c) Holders of Seller Common Stock will be entitled to any
dividends or other distributions pertaining to the Surviving
Corporation Common Stock received in exchange therefor that become
payable to persons who are holders of record of Surviving Corporation
Common Stock as of a record date that follows the Effective Time, but
only after they have surrendered their Seller Certificates for
exchange. Surviving Corporation shall deposit with the Exchange Agent
any such dividend or other distributions, and subject to the effect, if
any, of applicable law, the Exchange Agent shall receive, hold, and
remit any such dividends or other distributions to each such record
holder entitled thereto, without interest, at the time that such Seller
Certificates are surrendered to the Exchange Agent for exchange.
(d) All certificates evidencing shares of Surviving
Corporation Common Stock that are issued upon the surrender for
exchange of Seller Certificates in accordance with the terms hereof,
together with any cash paid for fractional shares pursuant to Section
1.6(f) hereof, shall be deemed to have been issued in full satisfaction
of all rights pertaining to the shares of Seller Common Stock
represented by the surrendered Seller Certificates. All certificates
evidencing shares of Surviving Corporation Common Stock that are issued
in accordance with the terms hereof shall bear the following legend:
"The securities represented by this certificate have not been
registered under the federal Securities Act of 1933, as
amended, or applicable state securities laws and may not be
sold, transferred, assigned, pledged, offered or otherwise
disposed in the absence of an effective registration statement
under applicable securities laws or an opinion of counsel
reasonably satisfactory to the issuer that such registration
is not required."
(e) After the Effective Time, there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Seller Common Stock that were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Seller Certificates representing such shares are presented to the
Surviving Corporation, they shall be canceled and exchanged as provided
in this Article 1. As of the Effective Time, the holders of Seller
Certificates representing shares of Seller Common Stock shall cease to
have any rights as stockholders of Seller, except such rights, if any,
as they may have pursuant to the MBCA or this Plan of Merger. Except as
provided above, until such Seller Certificates are surrendered for
exchange, each such Seller Certificate shall, after the Effective Time,
<PAGE>
represent for all purposes only the right to receive a certificate or
certificates evidencing the number of whole shares of Surviving
Corporation Common Stock into which the shares of Seller Common Stock
shall have been converted pursuant to the Merger as provided in Section
1.3(a) hereof, the right to receive the cash value of any fraction of a
share of Surviving Corporation Common Stock as provided in Section
1.6(f) hereof and the right to receive any dividends or distributions
as provided in Section 1.6(c).
(f) No fractional shares of Surviving Corporation Common Stock
and no certificates or scrip therefor, or other evidence of ownership
thereof, shall be issued in connection with the Merger, no dividend or
other distribution of Surviving Corporation shall relate to any
fractional share, and such fractional share interests shall not entitle
the owner thereof to vote or to any rights of a shareholder of
Surviving Corporation. All fractional shares of Surviving Corporation
Common Stock to which a holder of Seller Common Stock immediately prior
to the Effective Time would otherwise be entitled, at the Effective
Time, shall be aggregated if and to the extent multiple Seller
Certificates of such holder are submitted together to the Exchange
Agent. If a fractional share results from such aggregation, then (in
lieu of such fractional share) the Exchange Agent shall pay to each
holder of shares of Seller Common Stock who otherwise would be entitled
to receive such fractional share of Surviving Corporation Common Stock
an amount of cash (without interest) determined by multiplying (i) the
average of the closing "bid" and "ask" prices of a share of Surviving
Corporation Common Stock as reported by the Nasdaq OTC Bulletin Board
on the Closing Date (or if no prices are quoted for such Closing Date,
the most recent trading day preceding the Closing Date), by (ii) the
fractional share of Surviving Corporation Common Stock to which such
holder would otherwise be entitled. Surviving Corporation will make
available to the Exchange Agent any cash necessary for this purpose.
(g) In the event any Seller Certificates shall have been lost,
stolen, or destroyed, the Exchange Agent shall issue in respect of such
lost, stolen, or destroyed Seller Certificates, upon the holder thereof
making of an affidavit of such fact and agreeing to indemnify and hold
harmless Surviving Corporation from any costs and expenses of such lost
certificate later being presented for exchange, such shares of
Surviving Corporation Common Stock, cash for fractional shares, if any,
and dividends or other distributions, if any, as may be required
pursuant to this Article 1.
1.7 Stock Options and Warrants.
(a) Each option or warrant to purchase shares of Seller Common
Stock that is outstanding at the Effective Time, whether or not
exercisable and whether or not vested (a "Seller Option"), shall,
without any action on the part of Seller or the holder thereof, be
assumed by Surviving Corporation in such manner that Surviving
Corporation (i) is a corporation "assuming a stock option in a
transaction to which Section 424(a) applies" within the meaning of
Section 424 of the Code and the regulations thereunder, or (ii) to the
extent that Section 424 of the Code does not apply to any such Seller
<PAGE>
Option, would be such a corporation if Section 424 of the Code were
applicable to such Seller Option. Surviving Corporation shall assume
Seller's 1996 Stock Option Plan (the "Seller Option Plan"). From and
after the Effective Time, all references to Seller in the Seller
Options shall be deemed to refer to the Surviving Corporation. The
Seller Options assumed by Surviving Corporation shall be exercisable
upon the same terms and conditions as under the Seller Options
(including provisions regarding vesting and the acceleration thereof)
except that (i) such Seller Options shall entitle the holder to
purchase from the Surviving Corporation the number of shares of
Surviving Corporation Common Stock (rounded down to the nearest whole
number of such shares) that equals the product of the Conversion Ratio
multiplied by the number of shares of Seller Common Stock subject to
such Seller Option immediately prior to the Effective Time, (ii) the
option exercise price per share of Surviving Corporation Common Stock
shall be an amount (rounded up to the nearest full cent) equal to the
exercise price per share of Seller Common Stock in effect immediately
prior to the Effective Time divided by the Conversion Ratio, and (iii)
the Seller Options shall vest to the extent required pursuant to the
current terms of such Seller Options. Except to the extent required
pursuant to the current terms of such Seller Options, Seller shall not
take any action to accelerate the vesting of any Seller Options.
(b) As promptly as practicable after the Effective Time, the
Surviving Corporation shall issue to each holder of a Seller Option a
written instrument informing such holder of the assumption by Surviving
Corporation of such Seller Option. Surviving Corporation shall take all
corporate action necessary to reserve for issuance a sufficient number
of shares of Surviving Corporation Common Stock for delivery upon
exercise of Seller Options pursuant to the terms set forth in this
Section 1.7. Surviving Corporation shall use its commercially
reasonable efforts to cause those Seller Options that qualified as
incentive stock options prior to the Effective Time to continue to
qualify as incentive stock options immediately after the Effective
Time. As promptly as practicable after the Surviving Corporation
becomes subject to the reporting obligations of Section 13 of the
Securities Exchange Act of 1934 (the "1934 Act"), Surviving Corporation
shall file a registration statement on Form S-8 (or any successor form)
with respect to the shares of Surviving Corporation Common Stock
subject to Seller Options issued under the Seller Option Plan and shall
use commercially reasonable efforts to maintain such registration
statement (or any successor form), including the current status of any
related prospectus or prospectuses, for so long as such Seller Options
remain outstanding.
1.8 Capitalization Changes. If at the Effective Time, the outstanding
shares of Surviving Corporation Common Stock or Seller Common Stock shall have
been changed into or exchanged in accordance with the terms of Sections 1.1 or
1.2, respectively, for a different number of shares or a different class by
reason of any reorganization, reclassification, subdivision, recapitalization,
split-up, combination, exchange of shares, stock dividend or other similar
transaction, the Conversion Ratio and calculations set forth in this Plan of
Merger shall be appropriately adjusted to reflect such reorganization,
reclassification, subdivision, recapitalization, split-up, combination, exchange
of shares, stock dividend or other similar transaction. This section shall not
constitute either party's consent to the other party effecting such
reorganization, reclassification, subdivision, recapitalization, split-up,
combination, exchange of shares, stock dividend or other similar transaction.
<PAGE>
1.9 Articles of Incorporation of the Surviving Corporation. The
Articles of Incorporation of Surviving Corporation, as in effect immediately
prior to the Effective Time shall be amended as of the Effective Time to read as
set forth on Exhibit B, a copy of which is attached hereto.
1.10 Bylaws of the Surviving Corporation. The Bylaws of Surviving
Corporation, as in effect immediately prior to the Effective Time, shall be
amended as of the Effective Time to read as set forth on Exhibit C to
Reorganization Agreement, a copy of which is on file with the Surviving
Corporation and will be made available to shareholders of the Surviving
Corporation upon request.
1.11 Directors and Officers of the Surviving Corporation. As of the
Effective Time, the officers and directors of Surviving Corporation shall resign
and be replaced by such persons as are designated by Seller; provided that
Seller agrees to (i) designate an uneven number of members of the Surviving
Corporation's Board of Directors with a majority being outside directors, and
(ii) designate two members of the current Surviving Corporation Board of
Directors to serve as directors of the Surviving Corporation in accordance with
the MBCA and the Articles of Incorporation and Bylaws of the Surviving
Corporation.
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made and entered into as of
January 14, 2000, between MINNESOTA AMERICAN, INC., a Minnesota corporation
which will change its name to "CorVu Corporation" ("MNAC"), and each of the
shareholders of CorVu (as defined below) who become a party hereto by executing
a signature page hereto (the "CorVu Shareholders").
WITNESSETH
WHEREAS, MNAC has entered into an Agreement and Plan of Reorganization
dated November 17, 1999 between MNAC and CorVu Corporation, a Minnesota
corporation ("CorVu"), with respect to the merger of CorVu with and into MNAC
(the "Merger"); and
WHEREAS, in the Merger each outstanding share of CorVu Common Stock
will be converted into the right to receive one and one-eighth (1.125) shares of
Common Stock, $.01 par value, of MNAC as the surviving corporation; and
WHEREAS, each CorVu Shareholder is the legal owner of the number of
issued and outstanding shares of CorVu Common Stock, $.01 par value, set forth
on such shareholder's signature page hereto; and
WHEREAS, MNAC's and CorVu's willingness and obligation to consummate
the Merger are subject to the condition that MNAC and the CorVu Shareholders
enter into this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. The following terms used in this Agreement shall be
defined as follows:
"Agreement" means this Registration Rights Agreement.
"MNAC Common Stock" means the Common Stock, $.01 par value, of MNAC as
the surviving corporation of the Merger.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder.
<PAGE>
"CorVu Shareholder(s)" means those holders of CorVu Common Stock that
become parties to this Agreement by completing and signing the signature page
hereto.
"Merger" means the merger of CorVu with and into MNAC.
"Merger Shares" means the shares of MNAC Common Stock issued to the
CorVu Shareholders in the Merger.
"person" means an individual, partnership, corporation, estate or trust
or other entity.
"Registration Statement" means a registration statement filed by MNAC
with the SEC for a public offering and sale of securities of MNAC (other than a
registration statement on Form S-8, Form S-4, any successor form thereto, or any
other form covering only securities proposed to be issued in exchange for
securities or assets of another corporation).
"Registration Expenses" means the expenses described in Section 3.5.
"Registrable Shares" means (i) the Merger Shares, (ii) any shares of
MNAC Common Stock issued to CorVu Shareholders upon exercise of options or
warrants to purchase CorVu Common Stock which are assured by MNAC in the Merger
and exercised at a time when there is no Registration Statement in effect
covering such issuance, and (iii) any other shares of MNAC Common Stock issued
in respect of such shares in connection with any stock split, stock dividend,
reclassification, recapitalization, or similar event; provided, however, that
such shares shall cease to be Registrable Shares upon any sale thereof pursuant
to a Registration Statement or Rule 144 under the Securities Act.
"SEC" means the Securities and Exchange Commission, or any other
Federal agency at the time administering the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Selling Holder" means as defined in Section 3.4(c).
ARTICLE 2
INVESTMENT INTENT
2.1 Knowledge of Reliance. The CorVu Shareholders acknowledge that
MNAC, in claiming exemption from applicable securities laws for the issuance of
the Merger Shares, is relying upon the statements and representations made
herein.
2.2 Domicile and Accredited Investor Status. Each CorVu Shareholder
represents that the information regarding such CorVu Shareholder set forth on
such CorVu Shareholder's signature page hereto is true and correct.
<PAGE>
2.3 Investment Purpose in Acquiring the Merger Shares. Each of the
CorVu Shareholders is acquiring the Merger Shares for his/her/its own account
for investment purposes only and not with a view to their resale or
distribution. None of the CorVu Shareholders has any present intention to divide
its participation with others or to resell or otherwise dispose of all or any
part of the Merger Shares. In making these representations, the CorVu
Shareholders understand that the statutory exemptions from registration under
applicable securities laws being relied upon may not be available if,
notwithstanding its representations, such CorVu Shareholder has a present
intention of acquiring the Merger Shares for resale upon the occurrence or
nonoccurrence of some predetermined event.
2.4 Information About MNAC. Each of the CorVu Shareholders acknowledges
receipt of business information about MNAC, including a draft of MNAC's
Registration Statement on Form 10-SB to be filed with the SEC as soon as
practicable after the Merger or before the Merger but with the effectiveness
thereof delayed until after the Merger, and the Proxy Statement to MNAC
shareholders in connection with the MNAC Special Meeting at which the Merger was
approved. Each of the CorVu Shareholders further acknowledges that he/she/it has
discussed the business and affairs of MNAC with an officer of MNAC and has
received such information concerning MNAC as such CorVu Shareholder considers
necessary or advisable in order to form a decision concerning acquisition of the
Merger Shares.
2.5 Restriction on Transfer; Compliance with Securities Act. Each of
the CorVu Shareholders understands that the Merger Shares are not freely
transferable and that such CorVu Shareholder may in fact be prohibited from
selling the Merger Shares for an extended period of time. If any CorVu
Shareholder sells or distributes the Merger Shares in the future, he/she/it
shall sell or distribute them pursuant to the requirements of the Securities Act
and other applicable securities laws. The CorVu Shareholders will not transfer
any part of the Merger Shares without (i) effective registration under the
Securities Act and other applicable securities laws, or (ii) obtaining an
opinion of counsel satisfactory in form and substance to MNAC stating that the
proposed transaction, if effected without such registration, will not result in
a violation of the Securities Act and other applicable securities laws.
2.6 Restrictive Legend. MNAC may place a restrictive legend on all
certificates representing Merger Shares containing substantially the following
language:
"The securities represented by this certificate have not been
registered under the federal Securities Act of 1933, as amended, or
applicable state securities laws and may not be sold, transferred,
assigned, pledged, offered or otherwise disposed in the absence of an
effective registration statement under applicable securities laws or an
opinion of counsel reasonably satisfactory to the issuer that such
registration is not required."
The foregoing legend shall be removed from the certificates representing the
Merger Shares, at the request of the holder thereof, at such time as MNAC
receives an opinion of counsel satisfactory to MNAC that such Merger Shares are
no longer subject to the restrictions set forth in Article 2 hereof.
<PAGE>
2.7 Stop Transfer Order. MNAC may place a stop transfer order with its
registrar and stock transfer agent covering all certificates representing Merger
Shares.
ARTICLE 3
REGISTRATION RIGHTS
3.1 Demand Registrations.
(a) At any time after the Closing of the Merger, a holder or holders of
an aggregate of at least 20% of the Registrable Shares may request, in writing,
that MNAC effect the registration of at least 20% of the Registrable Shares. If
the holder or holders initiating the registration intend to distribute the
Registrable Shares by means of an underwriting, they shall so advise MNAC in
their request. In the event such registration is underwritten, the holders of a
majority of the Registrable Shares requested to be registered shall be entitled
to select the managing underwriter of such offering, subject to MNAC's approval,
and the right of other holders of Registrable Shares to participate shall be
conditioned on such holders' participation in such underwriting. Upon receipt of
any such request, MNAC shall promptly give written notice of such proposed
registration to all holders of Registrable Shares. Such holders of Registrable
Shares shall have the right, by giving written notice to MNAC within 30 days
after MNAC provides its notice, to elect to have included in such registration
such of their Registrable Shares as such holders may request in such notice of
election, subject to the approval of the underwriter managing the offering as
provided below. Thereupon, MNAC shall, as expeditiously as possible, use its
best efforts to effect the registration of all Registrable Shares which MNAC has
been requested to so register. Notwithstanding any other provision of this
Section 3.1, if the managing underwriter advises the holders of Registrable
Shares initiating the registration in writing that the number of Registrable
Shares requested to be included in such registration exceeds the number which
can be sold without adversely affecting the marketability of the offering, then
the holders of Registrable Shares initiating the registration shall so advise
all holders of Registrable Shares which would otherwise be included in the
underwriting and the number of Registrable Shares that may be included in the
underwriting shall be allocated among all such holders of Registrable Shares,
including the holders of Registrable Shares initiating the registration, in
proportion (as nearly as practicable) to the amount of Registrable Shares owned
by each such holder. If the managing underwriter does not limit the number of
Registrable Shares to be underwritten, MNAC or other holders of securities of
MNAC who have registration rights similar to those set forth in Section 3.2
hereof may include Common Stock for their respective accounts in such
registration if the managing underwriter states that such inclusion would not
adversely affect the offering of Registrable Shares and if the number of
Registrable Shares which would otherwise have been included in such registration
and underwriting will not thereby be limited or reduced.
(b) MNAC shall not be required to effect more than two registrations
pursuant to paragraph (a) above. In addition, MNAC shall not be required to
effect any registration within six months after the effective date of any other
Registration Statement of MNAC.
<PAGE>
(c) If at the time of any request to register Registrable Shares
pursuant to this Section 3.1, MNAC is engaged or has fixed plans to engage,
within 60 days of the time of the request, in a registered public offering as to
which the holders of Registrable Shares may include Registrable Shares pursuant
to Section 3.2 or in any other activity which, in the good faith determination
of MNAC's Board of Directors, would be materially adversely affected by the
requested registration then MNAC may at its option direct that such request be
delayed for a period not in excess of six months from the date of such request.
Such right to delay a request may not be exercised by MNAC more than once in any
12-month period.
3.2 "Piggy-back" Registration.
(a) Whenever MNAC proposes to file a Registration Statement (other than
pursuant to Section 3.1) at any time and from time to time, it will, prior to
such filing, give written notice to all holders of Registrable Shares of its
intention to do so and, upon the written request of a holder or holders of
Registrable Shares given within 20 days after MNAC provides such notice (which
request shall state the intended method of disposition of such Registrable
Shares), MNAC shall include all Registrable Shares which MNAC has been requested
by such holder or holders to register to be registered under the Securities Act
to the extent necessary to permit their sale or other disposition in accordance
with the intended methods of distribution specified in the request of such
holder or holders; provided that, MNAC shall have the right to postpone or
withdraw any registration effected pursuant to this Section 3.2 without
obligation to any holder of Registrable Shares; and further provided that,
during the first two years after the date of this Agreement, the Indemnifying
Shareholders shall not have a right to include any Registrable Shares in such
proposed Registration Statement.
(b) In connection with any offering under this Section 3.2 involving an
underwriting, MNAC shall not be required to include any Registrable Shares in
such underwriting unless the holders thereof accept the terms of the
underwriting as agreed upon between MNAC and the underwriters selected by it.
If, in the written opinion of the managing underwriter, the registration of all,
or part of, the Registrable Shares which the holders have requested to be
included in such registration exceed the number of shares which can be sold
without adversely affecting the marketability of the offering, then MNAC shall
be required to include in the underwriting only that number of Registrable
Shares equal to the greater of (i) [20%] of the number of shares to be sold by
MNAC in such offering, or (ii) the number of Registrable Shares which the
managing underwriter believes may, when added to the number of shares of Common
Stock which other holders entitled to include shares of Common Stock in such
registration have requested to be included therein, be sold without causing such
adverse effect. If the number of Registrable Shares to be included in the
underwriting in accordance with the foregoing is less than the total number of
shares which the holders of Registrable Shares have requested to be included,
then the holders of Registrable Shares who have requested registration and other
holders of shares of Common Stock entitled to include shares of Common Stock in
such registration shall participate in the underwriting pro rata based upon
their total ownership of shares of Common Stock of MNAC, and subject to the
right of holders of Registrable Shares to have included in such registration at
least 20% of the number of shares to be sold by MNAC in such offering. If any
holder would thus be entitled to include more shares than such holder requested
<PAGE>
to be registered, the excess shall be allocated among other requesting holders
pro rata based upon their total ownership of Registrable Shares.
3.3 Form S-3 Registration. At any time at least one year after MNAC
becomes subject to the reporting requirements of the Exchange Act, a holder or
holders of an aggregate of at least 10% of the Registrable Shares issued to the
CorVu Shareholders may request, in writing, that MNAC effect the registration on
Form S-3 under the Securities Act (or any comparable or successor form) of at
least 50% of such holder's Registrable Shares. Upon receipt of any such request,
MNAC shall promptly give written notice of such proposed registration to all
CorVu Shareholders, who shall have the right, by giving written notice to MNAC
within 30 days after MNAC provides its notice, to elect to have included in such
registration such of their Registrable Shares as such holders may request in
such notice of election. Thereupon, MNAC shall, as expeditiously as possible,
use its best efforts to effect the registration of all Registrable Shares which
MNAC has been requested to so register. In addition, MNAC shall not be required
to effect any registration within 120 days after the effective date of any other
Registration Statement of MNAC. If at the time of any request to register
Registrable Shares pursuant to this Section 3.3, MNAC is engaged or has fixed
plans to engage, within 60 days of the time of the request, in a registered
public offering as to which the holders of Registrable Shares may include
Registrable Shares pursuant to Section 3.2 or in any other activity which, in
the good faith determination of MNAC's Board of Directors, would be materially
adversely affected by the requested registration then MNAC may at its option
direct that such request be delayed for a period not in excess of six months
from the date of such request.
3.4 Registration Procedures. If and whenever MNAC is required by the
provisions of this Agreement to use its best efforts to effect the registration
of any of the Registrable Shares under the Securities Act, MNAC shall:
(a) file with the SEC a Registration Statement with respect to such
Registrable Shares and use its best efforts to cause that Registration Statement
to become and remain effective;
(b) as expeditiously as possible prepare and file with the SEC any
amendments and supplements to the Registration Statement and the prospectus
included in the Registration Statement as may be necessary to keep the
Registration Statement effective for a period of not less than 120 days (180
days for a registration under Section 3.3) from the effective date;
(c) as expeditiously as possible furnish to each holder of Registrable
Shares who is selling shares pursuant to such registration (a "Selling Holder")
such reasonable number of copies of the prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as the Selling Holder may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Shares owned
by the Selling Holder;
(d) as expeditiously as possible use its best efforts to register or
qualify the Registrable Shares covered by the Registration Statement under the
securities or Blue Sky laws of such states as the Selling Holders shall
reasonably request, and do any and all other acts and things that may be
<PAGE>
necessary or desirable to enable the Selling Holders to consummate the public
sale or other disposition in such states of the Registrable Shares owned by the
Selling Holder; provided, however, that MNAC shall not be required in connection
with this paragraph (d) to qualify as a foreign corporation or execute a general
consent to service of process in any jurisdiction; and
(e) if MNAC has delivered preliminary or final prospectuses to the
Selling Holders and after having done so the prospectus is amended to comply
with the requirements of the Securities Act, promptly notify the Selling Holders
and, if requested, the Selling Holders shall immediately cease making offers of
Registrable Shares and return all prospectuses to MNAC. MNAC shall promptly
provide the Selling Holder with revised prospectuses and, following receipt of
the revised prospectuses, the Selling Holders shall be free to resume making
offers of the Registrable Shares.
3.5 Allocation of Expenses. MNAC will pay all of the Registration
Expenses of all registrations under Sections 3.1 and 3.2; provided, however,
that if a registration under Section 3.1 is withdrawn at the request of the
holders of Registrable Shares requesting such registration and if the requesting
holders elect not to have such registration counted as a registration requested
under Section 3.1, the requesting holders shall pay the Registration Expenses of
such registration pro rata in accordance with the number of their Registrable
Shares included in such registration. The Selling Holders will pay, pro rata
based on the number of Registrable Shares included in such offering, the first
$5,000 of Registration Expenses of the registrations under Section 3.3. For
purposes of this Section, the term "Registration Expenses" shall mean all
expenses incurred by MNAC in complying with this Agreement including, without
limitation, all registration and filing fees, exchange listing fees, printing
expenses, fees and disbursements of counsel for MNAC and the fees and expenses
of one counsel selected by the Selling Holders to represent the Selling Holders,
state Blue Sky fees and expenses, and the expense of any special audits incident
to or required by any such registration, but excluding the following expenses
which shall in all events be paid by the Selling Holders: underwriting discounts
and selling commissions with respect to such Selling Holders' shares, and the
fees and expenses of the Selling Holders' own counsel (other than the counsel
selected to represent all of the Selling Holders).
3.6 Indemnification. In the event of any registration of any of the
Registrable Shares under the Securities Act pursuant to this Agreement, MNAC
will indemnify and hold harmless the seller of such Registrable Shares, each
underwriter of such Registrable Shares, and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities Act or
the Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act, the Exchange Act, state securities or Blue Sky
laws or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
<PAGE>
or alleged untrue statement of any material fact contained in any Registration
Statement under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus contained in the
Registration Statement, or any amendment or supplement to such Registration
Statement, or arise out of or are based upon the omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; and MNAC will reimburse such seller,
underwriter and each such controlling person for any legal or any other expenses
reasonably incurred by such seller, underwriter or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that MNAC will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon any untrue statement or omission made in such Registration
Statement, preliminary prospectus or prospectus, or any such amendment or
supplement, in reliance upon and in conformity with information furnished to
MNAC, in writing, by or on behalf of such seller, underwriter or controlling
person specifically for use in the preparation thereof.
In the event of any registration of any of the Registrable Shares under
the Securities Act pursuant to this Agreement, each seller of Registrable
Shares, severally and not jointly, will indemnify and hold harmless MNAC, each
of its directors and officers and each underwriter (if any) and each person, if
any, who controls MNAC or any such underwriter within the meaning of the
Securities Act or the Exchange Act, against any losses, claims, damages or
liabilities, joint or several, to which MNAC, such directors and officers,
underwriter or controlling person may become subject under the Securities Act,
Exchange Act, state securities or Blue Sky laws or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement under which such
Registrable Shares were registered under the Securities Act, any preliminary
prospectus or final prospectus contained in the Registration Statement, or any
amendment or supplement to the Registration Statement, or arise out of or are
based upon any omission or alleged omission to state a material fact required to
be stated therein or necessary to make the statements therein not misleading, if
the statement or omission was made in reliance upon and in conformity with
information furnished in writing to MNAC by or on behalf of such seller,
specifically for use in connection with the preparation of such Registration
Statement, prospectus, amendment or supplement; provided, however, that the
obligations of such seller of Registrable Shares hereunder shall be limited to
an amount equal to the net proceeds to each seller of Registrable Shares from
the sale of Registrable Shares as contemplated herein.
Each party entitled to indemnification under this Section 3.6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided that, counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
<PAGE>
withheld). The Indemnified Party may participate in such defense at such party's
expense; provided, however, that the Indemnifying Party shall pay such expense
if representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between the Indemnified Party and any other party represented by such
counsel in such proceeding. No Indemnifying Party, in the defense of any such
claim or litigation shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect of such
claim or litigation, and no indemnified Party shall consent to entry of any
judgment or settle such claim or litigation without the prior written consent of
the Indemnifying Party.
3.7 Indemnification with Respect to Underwritten Offering. In the event
that Registrable Shares are sold pursuant to a Registration Statement in an
underwritten offering pursuant to Section 3.1(a), MNAC agrees to enter into an
underwriting agreement containing customary representations and warranties with
respect to the business and operations of an issuer of the securities being
registered and customary covenants and agreements to be performed by such
issuer, including without limitation customary provisions with respect to
indemnification by MNAC of the underwriters of such offering.
3.8 Information by Holder. Each holder of Registrable Shares included
in any registration shall furnish to MNAC such information regarding such holder
and the distribution proposed by such holder as MNAC may request in writing and
as shall be required in connection with any registration, qualification or
compliance referred to in this Agreement.
3.9 Rule 144 Requirements. MNAC shall use its best efforts to cause the
MNAC Common Stock to be registered under Section 12 of the Exchange Act as soon
as reasonably practicable after the date hereof, and thereafter, MNAC agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
(b) use its best efforts to file with the SEC in a timely manner all
reports and other documents required of MNAC under the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) furnish to any holder of Registrable Shares upon request a written
statement by MNAC as to its compliance with the reporting requirements of said
Rule 144 (at any time after 90 days following the closing of the first sale of
securities by MNAC pursuant to a Registration Statement), and of the Securities
Act and the Exchange Act (at any time after it has become subject to such
reporting requirements), a copy of the most recent annual or quarterly report of
MNAC, and such other reports and documents of MNAC as such holder may reasonably
request to avail itself of any similar rule or regulation of the SEC allowing it
to sell any such securities without registration.
3.10 Transfers of Registration Rights.
Subject to Section 4.4, the rights granted to each holder of
Registrable Shares pursuant to Article 3 of this Agreement may be transferred by
such holder to another holder of Registrable Shares or to any person or entity
acquiring record ownership of at least [one thousand (1,000)] Registrable Shares
(such number being subject to adjustment for any stock dividend, stock split,
subdivision, combination or other recapitalization of the Common Stock of MNAC).
<PAGE>
3.11 Additional Registration Rights. MNAC shall not grant registration
rights to any third party unless such registration rights are on a parity with,
or subordinate to, the rights of the holders of the Registrable Shares
hereunder.
ARTICLE 4
MISCELLANEOUS
4.1 Specific Performance. The parties hereto acknowledge that in the
event of any breach of the provisions of this Agreement, the nonbreaching party
would be irreparably harmed and could not be made whole by monetary damages. It
is accordingly agreed that, in addition to any other remedy to which a party may
be entitled at law or in equity, the obligations of the parties hereunder shall
be specifically enforceable and no party shall take any action to impede the
others from seeking to enforce such right of specific performance.
4.2 Severability. If the final determination of a court of competent
jurisdiction declares, after the expiration of the time within which judicial
review (if permitted) of such determination may be perfected, that any term of
provision hereof is invalid or unenforceable, (a) the remaining terms and
provisions hereof shall be unimpaired, and (b) the invalid or unenforceable term
or provision shall be deemed replaced by a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision.
4.3 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given when delivered personally by commercial
courier service or otherwise, or by telecopier, or three days after such notice
is mailed by registered or certified mail (return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) If to an CorVu Shareholder, to such persons last address on file
with MNAC.
(b) If to MNAC, to:
CorVu Corporation (f/k/a Minnesota American, Inc.)
Attention: David Carlson
3400 West 66th Street, Suite 445
Edina, MN 55435
Fax No: 612/843-7752
<PAGE>
with a copy to:
Fredrikson & Byron, P.A.
Attention: John H. Stout, Esq.
1100 International Centre
900 Second Avenue South
Minneapolis, MN 55402
Fax No.: (612) 347-7077
4.4 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties to this Agreement and their successors or
assigns; provided that, none of the parties may assign its rights or obligations
hereunder without the prior written consent of the other party.
4.5 Headings. The descriptive headings of the several Articles and
Sections of this Agreement and of the several Schedules to this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
This Agreement shall be construed without regard to any presumption or other
rule requiring construction hereof against the party causing this Agreement to
be drafted.
4.6 Entire Agreement; Modification and Waiver. This Agreement
represents the only agreement among the parties concerning the subject matter
hereof and supersedes all prior agreements whether written or oral, relating
thereto. No purported amendment, modification or waiver of any provision hereof
shall be binding unless set forth in a written document signed by all parties
(in the case of amendments or modifications) or by the party to be charged
thereby (in the case of waivers). Any waiver shall be limited to the provision
hereof and the circumstance or event specifically made subject thereto and shall
not be deemed a waiver of any other term hereof or of the same circumstance or
event upon any recurrence thereof.
4.7 Publicity. Each of the parties represents and warrants to the other
party that it will make no announcement to public officials or the press in any
way relating to the transaction described herein without the prior written
consent of the other party, except as may be required of MNAC under the 1933 Act
and 1934 Act and under the rules of the Nasdaq National Market.
4.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the law of the State of Minnesota without regard to the
conflicts of laws rules thereof.
4.9 Benefit. Nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties or their respective
successors or assigns, any rights, remedies, obligations or liabilities under or
by reason of this Agreement.
4.10 Survival. All of the representations, warranties, and
indemnifications made in this Agreement, and all terms and provisions hereof
intended to be observed and performed by the parties after the Closing or the
termination hereof, shall survive the Closing or such termination and continue
thereafter in full force and effect, subject to applicable statutes of
limitations.
<PAGE>
4.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
IN WITNESS WHEREOF, the parties have duly executed this Registration
Rights Agreement, as of the day and year first written above.
MINNESOTA AMERICAN, INC.
By:
Pierce McNally, Chairman and
Chief Executive Officer
(CorVu Shareholder Signature Pages attached)
<PAGE>
CorVu Shareholder Signature Page
The undersigned shareholder of CorVu Corporation ("CorVu") hereby
becomes a party to the foregoing Registration Rights Agreement dated
__________________, 1999 between Minnesota American, Inc. ("MNAC") and certain
shareholders of CorVu. The undersigned represents and warrants to MNAC as
follows:
(a) The undersigned is a bona fide resident of (or if an entity is
organized or incorporated under the laws of, and is domiciled in),
_________________ [INSERT NAME OF STATE OR COUNTRY].
(b) [MUST CHECK EITHER (1) OR (2):]
(1) The undersigned is an "accredited investor" as
defined in Rule 501 of Regulation D under the
Securities Act.
(2) The undersigned is not an "accredited investor" as
defined in Rule 501 of Regulation D under the
Securities Act.
(c) [THIS SUBSECTION (c) APPLIES ONLY TO PERSONS WHO ARE NOT
"ACCREDITED INVESTORS"] The undersigned has made previous investments in
publicly-traded equity securities. The undersigned is experienced and
knowledgeable in financial and business matters and is capable of evaluating the
merits and risks of an investment in MNAC Common Stock, or alternatively, if the
undersigned is not an "accredited investor" so experienced and capable,
Shareholder has checked the box below:
[CHECK ONLY IF THE FOLLOWING SENTENCE IS APPLICABLE]
The undersigned is not an "accredited investor" and does not
have sufficient experience and knowledge in financial and
business matters or is otherwise incapable of evaluating the
merits and risks of an investment in MNAC Common Stock, and
therefore appoints and designates ___________________ [INSERT
NAME] as the undersigned's purchaser representative. [If this
sentence is checked, the undersigned agrees to ensure that
such designated person meets the definition of a "purchaser
representative" in Rule 501 of Regulation D under the
Securities Act.]
(d) The undersigned is the legal owner of ________ shares of CorVu
Common Stock.
<PAGE>
IF AN INDIVIDUAL: IF AN ENTITY:
- ------------------------------ ------------------------------
Signature Signature
- ------------------------------ ------------------------------
Name (Typed or Printed) Name (Typed or Printed) and Title
- ------------------------------ ------------------------------
Signature of Joint Owner Name of Entity
(If held jointly)
- ------------------------------
Name (Typed or Printed)
ALL SHAREHOLDERS MUST COMPLETE:
-------------------------------------------
-------------------------------------------
-------------------------------------------
[Address]
-------------------------------------------
Business Telephone Number
-------------------------------------------
Fax Telephone Number
-------------------------------------------
Tax Identification or Social Security Number
Virchow, Krause & Company, LLP
Certified Public Accountants & Consultants
7900 Xerxes Avenue South, Suite 2300
Bloomington, MN 55431-1115
612/835-1344
FAX 612/835-5845
Securities and Exchange Commission
Washington, DC 20549
We were previously the independent accountants for Minnesota American, Inc.
(MNAC). Following the merger of MNAC with CorVu Corporation on January 14, 2000,
we are dismissed as independent accountants of MANC. MNAC changed its name in
the merger to "CorVu Corporation" (CorVu).
We have read CorVu's statements included under Part II, Item 3 of its Form 10-SB
as amended, and we agree with such statements.
VIRCHOW, KRAUSE & COMPANY, LLP
/s/ Virchow, Krause & Company, LLP
Bloomington, Minnesota
May 2, 2000
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<S> <C>
<PERIOD-TYPE> YEAR
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<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
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<SECURITIES> 0
<RECEIVABLES> 3,863,628
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0
0
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<TABLE> <S> <C>
<ARTICLE> 5
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<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
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0
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