Below is a summary of the restructuring charges in operating expenses (in thousands):
Below is a summary of the changes to the restructuring liability (in thousands):
The Company’s restructuring liability is comprised of non-cancelable operating lease payments of $1.6 million, $1.6 million, $1.6 million and $1.3 million for the years ended July 31, 2007, July 31, 2008, July 31, 2009 and July 31, 2010, respectively.
The Company leases its facilities under operating leases that expire at various dates through fiscal year 2010. Future minimum lease payments under non-cancelable operating leases, net of sublease income, as of July 31, 2006 are as follows (in thousands):
At July 31, 2006, the Company’s restructuring liability included net operating lease payments of $1.6 million, $1.6 million, $1.6 million and $1.3 million for the years ended July 31, 2007, July 31, 2008, July 31, 2009 and July 31, 2010, respectively.
Gross rent expense for the years ended July 31, 2006, July 31, 2005 and July 31, 2004 was approximately $2.6 million, $2.8 million and $3.0 million, respectively. This rent expense was offset by sublease income of $1.6 million, $1.8 million and $1.1 million for the years ended July 31, 2006, July 31, 2005 and July 31, 2004, respectively. In addition, rent expense of $0.7 million was recorded as a result of idle facilities charges for the year ended July 31, 2004. No rent expense as a result of idle facilities charges was recorded for the years ended July 31, 2006 and July 31, 2005. The idle facilities charges for the year ended July 31, 2004 has been recorded as restructuring costs and other special charges in the consolidated statements of operations.
5. Litigation
The Company, two of its former officers (the “Former Officers”), and the lead underwriter in its initial public offering (“IPO”) were named as defendants in a consolidated shareholder lawsuit in the United States District Court for the Southern District of New York, captioned In re VA Software Corp. Initial Public Offering Securities Litigation, 01-CV-0242. This is one of a number of actions coordinated for pretrial purposes as In re Initial Public Offering Securities Litigation, 21 MC 92 with the first action filed on January 12, 2001. Plaintiffs in the coordinated proceeding are bringing claims under the federal securities laws against numerous underwriters, companies, and individuals, alleging generally that defendant underwriters engaged in improper and undisclosed activities concerning the allocation of shares in the IPOs of more than 300 companies during late 1998 through 2000. Among other things, the plaintiffs allege that the underwriters’ customers had to pay excessive brokerage commissions and purchase additional shares of stock in the aftermarket in order to receive favorable allocations of shares in an IPO. The consolidated amended complaint in the Company’s case seeks unspecified damages on behalf of a purported class of purchasers of its common stock between December 9, 1999 and December 6, 2000. Pursuant to a tolling agreement, the individual defendants were dismissed without prejudice. On February 19, 2003, the court denied the Company’s motion to dismiss the claims against it. The litigation is now in discovery. In June 2004, a stipulation of settlement and release of claims against the issuer defendants, including the Company, was submitted to the court for approval. The terms of the settlement if approved, would dismiss and release all claims against the participating defendants (including the Company). In exchange for this dismissal, D&O insurance carriers would agree to guarantee a recovery by the plaintiffs from the underwriter defendants of at least $1 billion, and the issuer defendants would agree to an assignment or surrender to the plaintiffs of certain claims the issuer defendants may have against the underwriters. On August 31, 2005, the court confirmed preliminary approval of the settlement. The proposed settlement remains subject to a number of conditions, including receipt of final approval of the court. If the settlement does not occur, and litigation against the Company continues, the Company believes it has meritorious defenses and intends to defend the case vigorously.
On Nov 9, 2001, a former employee of the Company, who had worked as a sales person in the Company’s former hardware business, filed a complaint captioned Okerman v. VA Linux Systems, Inc. & Larry Augustin, Civil No. 01-01825 (Norfolk Superior Court), in the Commonwealth of Massachusetts. As amended, the complaint alleges that changes made to certain commission and bonus plans during the plaintiff’s tenure at the Company entitled him to recover damages for Breach of Contract, Breach of the Implied Covenant of Good Faith and Fair Dealing, violation of the Massachusetts Wage Act Statute, Promissory Estoppel, and Quantum Meruit. On June 25, 2002, the Court dismissed the Massachusetts Wage Act claim brought against the Company’s former chief executive officer. On July 26, 2002, dismissal of the Wage Act claim in favor of the Company’s former chief executive officer was upheld on interlocutory appeal. On July 9, 2003, the Court granted summary judgment in the Company’s favor regarding claims for Breach of Contract, Promissory Estoppel, and Quantum Meruit, and granted judgment on the pleadings in favor of the Company regarding the Massachusetts Wage Act claim. On September 24, 2004, following a jury trial on the sole remaining claim for Breach of the Covenant of Good Faith and Fair Dealing, a jury awarded damages of $136,876 to the plaintiff, which have been included in accrued liabilities and other in the Company’s Consolidated Balance Sheet as of July 31, 2006. The plaintiff has since filed a notice of appeal of his previously-dismissed claims and the judgment for Breach of Contract and Breach of the Covenant of Good Faith and Fair Dealing, and the Company has filed a notice of appeal of the judgment for Breach of the Covenant of Good Faith and Fair Dealing.
The Company is subject to various claims and legal actions arising in the ordinary course of business. The Company has accrued for estimated losses in the accompanying consolidated financial statements for those matters where it believes that the likelihood that a loss will occur is probable and the amount of loss is reasonably estimable.
6. Guarantees and Indemnifications
As permitted under Delaware law, the Company has agreements whereby the Company’s officers and directors are indemnified for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has director and officer liability insurance designed to limit the Company’s exposure and to enable the
59
Company to recover a portion of any future amounts paid. As a result of the Company’s insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal. Accordingly, the Company has no liabilities recorded for these agreements as of July 31, 2006.
The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to these agreements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally, the Company’s business partners, subsidiaries and/or customers, in connection with any patent, copyright or other intellectual property infringement claim by any third party with respect to the Company’s products. The term of these indemnification agreements is generally perpetual any time after execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. The Company has not incurred significant costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the estimated fair value of these agreements is insignificant. Accordingly, the Company has no liabilities recorded for these agreements as of July 31, 2006.
The Company warrants that its software products will perform in all material respects in accordance with the Company’s standard published specifications in effect at the time of delivery of the licensed products to the customer for a specified period, which generally does not exceed ninety days. Additionally, the Company warrants that its maintenance services will be performed consistent with generally accepted industry standards through the completion of the agreed upon services. If necessary, the Company would provide for the estimated cost of product and service warranties based on specific warranty claims and claim history, however, the Company has not incurred significant expense under its product or services warranties. As a result, the Company believes the estimated fair value of these agreements is minimal. Accordingly, the Company has no liabilities recorded for these agreements as of July 31, 2006.
7. Retirement Savings Plan
The Company maintains an employee savings and retirement plan which is qualified under Section 401(k) of the Internal Revenue Code and is available to substantially all full-time employees of the Company. The plan provides for tax deferred salary deductions and after-tax employee contributions. Contributions include employee salary deferral contributions and discretionary employer contributions. To date, there have been no employer discretionary contributions.
8. Common Stock
Warrants
On November 6, 2003, the Company issued two warrants to purchase up to 705,883 and 25,000 shares of common stock to The Riverview Group LLC and Wharton Capital Partners Ltd., respectively in connection with a private placement of the Company’s common stock. These warrants are exercisable at exercise prices of $6.00 and $6.14 per share. The terms of these warrants expire in November 2006. At July 31, 2006 both of these warrants remained outstanding.
Stock option plans
In fiscal year 1999, the Company adopted and the board of directors approved the 1998 Stock Option Plan (the “1998 Plan”). Since inception, a total of 37,824,386 shares of common stock have been reserved for issuance under the 1998 Plan, subject to an annual increase of the lesser of 4,000,000 shares or 4.9% of the then outstanding common stock or an amount to be determined by the board of directors. Through July 31, 2006, 47,605,687 options have been granted under the 1998 Plan. Under the 1998 Plan, the board of directors may grant to employees and consultants options and/or stock purchase rights to purchase the Company’s common stock at terms and prices determined by the board of directors. The 1998 Plan will terminate in 2008. Nonqualified options granted under the 1998 Plan must be issued at a price equal to at least 85% of the fair market value of the Company’s common stock at the date of grant. All options may be exercised at any time within 10 years of the date of grant or within one month of termination of employment, or such shorter time as may be provided in the stock option agreement, and vest over a vesting schedule determined by the board of directors. The Company’s policy is to issue new shares upon exercise of options under the 1998 Plan.
The Company’s 1999 Director’s Option Plan (the “Directors’ Plan”) was adopted by the Company’s board of directors in October 1999. Since inception, a total of 1,500,000 shares of common stock have been reserved for issuance under the Directors’ Plan, subject to an annual increase of the lesser of 250,000 shares, or 0.5% of the then outstanding common stock or an amount determined by the board of directors. Through July 31, 2006, 1,030,000 options have been granted under the Directors’ Plan. Under the Directors’ Plan,
60
options are granted when a non-employee director joins the board of directors and at each annual meeting where the director continues to serve on the board of directors. The Directors’ Plan establishes an automatic grant of 80,000 shares of common stock to each non-employee director who is elected. The Directors’ Plan also provides that upon the date of each annual stockholders’ meeting, each non-employee director who has been a member of the board of directors for at least six months prior to the date of the stockholders’ meeting will receive automatic annual grants of options to acquire 20,000 shares of common stock. Each automatic grant has an exercise price per share equal to the fair market value of the common stock at the date of grant, vest 25% immediately upon the grant date, one thirty-sixth per month thereafter and become fully vested three years after the date of grant. Each automatic grant has a term of ten years. In the event of a merger with another corporation or the sale of substantially all of its assets, each non-employee director’s outstanding options will become fully vested and exercisable. Options granted under the Directors’ Plan must be exercised within 3 months of the end of the non-employee director’s tenure as a member of the board of directors, or within 12 months after a non-employee director’s termination by death or disability, provided that the option does not terminate earlier under its terms earlier. Unless terminated sooner, the Directors’ Plan terminates automatically in 2009. The Company’s policy is to issue new shares upon exercise of options under the Director’s Plan.
The Company has assumed certain option plans and the underlying options of companies which the Company has acquired (the “Assumed Plans”). Options under the Assumed Plans have been converted into the Company’s options and adjusted to effect the appropriate conversion ratio as specified by the applicable acquisition agreement, but are otherwise administered in accordance with the terms of the Assumed Plans. Options under the Assumed Plans generally vest over four years and expire ten years from the date of grant. No additional options will be granted under the Assumed Plans.
As of July 31, 2006, the Company had reserved shares of its common stock for future issuance as follows:
1998 Stock Option Plan and Assumed Plans | | | 18,738,097 | |
1999 Director Option Plan | | | 1,278,334 | |
| |
|
| |
| | | 20,016.431 | |
| |
|
| |
The following table summarizes all option activities from July 31, 2004 through July 31, 2006:
| | | | | Options Outstanding | |
| | | | |
| |
| | Available for
Grant | | Number
Outstanding | | Weighted-
Average Exercise
Price per Share | |
| |
|
| |
|
| |
|
| |
Balance at July 31, 2004 | | | 10,908,627 | | | 12,131,872 | | $ | 3.58 | |
Granted | | | (1,552,900 | ) | | 1,552,900 | | $ | 2.05 | |
Exercised | | | — | | | (300,374 | ) | $ | 1.09 | |
Cancelled | | | 2,152,685 | | | (2,158,352 | ) | $ | 5.27 | |
| |
|
| |
|
| | | | |
Balance at July 30, 2005 | | | 11,508,412 | | | 11,226,046 | | $ | 3.11 | |
Granted | | | (1,902,000 | ) | | 1,902,000 | | $ | 3.68 | |
Exercised | | | — | | | (2,847,520 | ) | $ | 2.00 | |
Cancelled | | | 1,317,974 | | | (1,327,111 | ) | $ | 3.28 | |
| |
|
| |
|
| | | | |
Balance at July 31, 2006 | | | 10,924,386 | | | 8,953,415 | | $ | 3.56 | |
| |
|
| |
|
| | | | |
The total intrinsic value of options exercised was $5.5 million, $0.3 million and $5.8 million during the years ended July 31 2006, July 31, 2005 and July 31, 2004, respectively. The Company issues new shares upon the exercise of options. During the year ended July 31, 2006, the Company realized a tax benefit of $0.1 million from exercised options. For the years ended July 31, 2005 and July 31, 2004 there was no tax benefit realized from exercised options.
The weighted-average grant-date fair value of options granted during the year ended July 31, 2006 was $2.74. The value of the option grants has been calculated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:
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| | Year Ended July 31, 2006 | |
| |
|
| |
Expected life (years) | | | 6.5 | |
Risk-free interest rate | | | 4.87% | |
Volatility | | | 83% | |
Dividend yield | | | None | |
The options outstanding and currently exercisable by exercise price at July 31, 2006 were as follows (in thousands, except years and per-share amounts):
| | OPTIONS OUTSTANDING | | OPTIONS EXERCISABLE | |
| |
| |
| |
Range of Exercise Prices | | Number
Outstanding | | Weighted
Average
Remaining
Life (in
years) | | Weighted
Average
Exercise
Price | | Shares | | Weighted
Average
Exercise
Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
$ 0.02 - $ 0.96 | | | 544 | | | 2.27 | | $ | 0.04 | | | 539 | | $ | 0.03 | |
$ 0.99 - $ 0.99 | | | 989 | | | 5.20 | | | 0.99 | | | 989 | | | 0.99 | |
$ 1.00 - $ 1.90 | | | 1,005 | | | 7.91 | | | 1.58 | | | 593 | | | 1.54 | |
$ 1.91 - $ 2.33 | | | 603 | | | 8.15 | | | 2.08 | | | 579 | | | 2.08 | |
$ 2.45 - $ 2.45 | | | 1,113 | | | 7.92 | | | 2.45 | | | 1,113 | | | 2.45 | |
$ 2.49 - $ 2.98 | | | 965 | | | 7.43 | | | 2.89 | | | 922 | | | 2.89 | |
$ 3.00 - $ 3.46 | | | 906 | | | 5.23 | | | 3.09 | | | 844 | | | 3.06 | |
$ 3.79 - $ 4.12 | | | 898 | | | 9.48 | | | 4.06 | | | 146 | | | 4.01 | |
$ 4.13 - $ 4.74 | | | 1,187 | | | 8.64 | | | 4.57 | | | 544 | | | 4.54 | |
$ 4.90 - $64.12 | | | 743 | | | 4.36 | | | 14.27 | | | 739 | | | 14.33 | |
| |
|
| | | | | | | |
|
| | | | |
$ 0.02 $64.12 | | | 8,953 | | | 6.92 | | $ | 3.56 | | | 7,008 | | $ | 3.53 | |
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|
| | | | | | | |
|
| | | | |
The total intrinsic value of stock options outstanding and stock options exercisable as of July 31, 2006 was $12.2 million and $11.1 million, respectively. The intrinsic value is calculated as the difference between the market value as of July 31, 2006 and the exercise price of the shares. The market value as of July 31, 2006 was $3.97 as reported by the NASDAQ Global Market System. The weighted-average remaining contractual life of options exercisable as of July 31, 2006 was 6.18 years. The total number of in-the-money options exercisable as of July 31, 2006 was 5.6 million. As of July 31, 2006, 7 million outstanding options were exercisable, and the weighted average exercise price was $3.53.
The total fair value of options vested during the years ended July 31, 2006, July 31, 2005 and July 31, 2004 were $0.9 million, $0.9 million, and $0.7 million, respectively. As of July 31, 2006, total compensation cost related to nonvested stock options not yet recognized was $5.3 million which is expected to be recognized over a weighted-average term of 3.7 years.
Valuation and Expense Information under SFAS 123(R)
On August 1, 2005, the Company adopted SFAS 123(R), which requires the measurement and recognition of compensation expense for all share-based payment awards made to the Company’s employees and directors, including employee stock options based on estimated fair values. The following table summarizes stock-based compensation expense related to employee stock options under SFAS 123(R) which was allocated as follows (in thousands):
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| | Year Ended July 31,
2006 | |
| |
|
| |
Software cost of revenue | | $ | 7 | |
Online Media cost of revenue | | | 14 | |
E-commerce cost of revenue | | | 9 | |
| |
|
| |
Included in cost of revenue | | | 30 | |
| |
|
| |
Sales and marketing | | | 82 | |
Research and development | | | 74 | |
General and administrative | | | 545 | |
| |
|
| |
Included in operating expenses | | | 701 | |
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|
| |
Discontinued operations | | | 9 | |
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|
| |
Total share-based compensation expense | | $ | 740 | |
| |
|
| |
The table below reflects net loss and diluted net loss per share compared with the pro forma information for the years ended July 31, 2005 and 2004 as follows (in thousands except per-share amounts):
| | Year Ended July 31, | |
| |
| |
| | 2005 | | 2004 | |
| |
|
| |
|
| |
Net loss from continuing operations — as reported | | $ | (5,649 | ) | $ | (8,262 | ) |
Add back employee stock-based compensation expense related to stock options included in reported net loss | | | 68 | | | 213 | |
Stock-based compensation expense related to employee stock options | | | (13,236 | ) | | (6,386 | ) |
| |
|
| |
|
| |
Net loss, including the effect of stock-based compensation expense | | $ | (18,817 | ) | $ | (14,435 | ) |
| |
|
| |
|
| |
Diluted net loss per share — as reported | | $ | (0.09 | ) | $ | (0.14 | ) |
| |
|
| |
|
| |
Diluted net loss per share, including the effect of stock-based compensation expense | | $ | (0.31 | ) | $ | (0.24 | ) |
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|
| |
|
| |
The weighted-average estimated value of employee stock options granted during the years ended July 31, 2005 and July 31, 2004 was $1.51 and $2.24, respectively using the Black-Scholes model with the following weighted-average assumptions:
| | Year Ended July 31, | |
| |
| |
| | 2005 | | 2004 | |
| |
|
| |
|
| |
Expected life (years) | | | 4.8 | | | 4.9 | |
Risk-free interest rate | | | 3.6% | | | 3.5% | |
Volatility | | | 98% | | | 106% | |
Dividend yield | | | None | | | None | |
Upon adoption of SFAS 123(R), the Company began estimating the value of employee stock options on the date of grant using the Black-Scholes model. The Company has used the simplified method for determining the expected term of options granted during fiscal 2006. Prior to fiscal 2006, the value of each employee stock option was estimated on the date of grant using the Black-Scholes model for the purpose of pro forma financial information in accordance with SFAS 123.
As stock-based compensation expense recognized in the Consolidated Statement of Operations for the year ended July 31, 2006 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience. In the Company’s pro forma information required under SFAS 123 for the periods prior to August 1, 2005, the Company accounted for forfeitures as they occurred.
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Employee Stock Purchase Plan
In October 1999, the Company adopted an Employee Stock Purchase Plan (“ESPP”). Under the terms of the ESPP, as authorized by the Board of Directors in September 2003, the maximum aggregate number of shares of stock that may be issued under the ESPP is 3,000,000, cumulatively increased annually by an amount equal to the lesser of (a) 1% of the then issued and outstanding shares of common stock, (b) an amount determined by the board of directors, or (c) 500,000 shares of common stock. During each six-month offering period, employees can choose to have up to 10% of their annual base earnings withheld to purchase the Company’s common stock. The purchase price of the common stock is 85% of the lesser of the fair value as of the beginning or ending of the offering period. A total of 173,888 shares of common stock were issued under the ESPP through July 31, 2005. The Company cancelled its Employee Stock Purchase Plan on July 28, 2005.
Deferred Stock Compensation
In connection with the grant of stock options to employees during fiscal 1999 and prior to the Company’s initial public offering in fiscal 2000, the Company recorded deferred stock compensation within stockholders’ equity that was amortized on an accelerated basis in accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. (“FIN”) 28 over the vesting period for the individual award. The amortization expense relates to options awarded to employees in all operating expense categories, however, the amortization of deferred stock compensation has not been separately allocated to these categories. The Company expensed deferred stock compensation of $20,000 for fiscal years 2004. Deferred stock compensation was fully amortized as of July 31, 2004. As such, there was no deferred stock compensation expense during fiscal 2005.
9. Income Taxes
The Company provides for income taxes using an asset and liability approach, under which deferred income taxes are provided based upon enacted tax laws and rates applicable to periods in which the taxes become payable.
Income (loss) from continuing operations before income taxes consists of the following components (in thousands):
| | Year Ended July 31, | |
| |
| |
($ in thousands) | | 2006 | | 2005 | | 2004 | |
| |
|
| |
|
| |
|
| |
United States | | $ | (766 | ) | $ | (8,179 | ) | $ | (9,398 | ) |
Foreign | | | 2,081 | | | 2,530 | | | 1,136 | |
| |
|
| |
|
| |
|
| |
| | $ | 1,315 | | $ | (5,649 | ) | $ | (8,262 | ) |
| |
|
| |
|
| |
|
| |
The components of the provision for income taxes from continuing operations for the year ended July 31, 2006 were benefits of $13,000 and $3,000, for Federal and foreign current tax, respectively, and a state tax expense of $16,000.
A summary of total tax expense, by classification, included in the accompanying consolidated statements of income is as follows (in thousands):
| | Year Ended July 31, | |
| |
| |
($ in thousands) | | 2006 | | 2005 | | 2004 | |
| |
|
| |
|
| |
|
| |
Continuing operations | | $ | 1 | | $ | — | | $ | — | |
Discontinued operations | | | 287 | | | — | | | — | |
| |
|
| |
|
| |
|
| |
| | $ | 288 | | $ | — | | $ | — | |
| |
|
| |
|
| |
|
| |
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Deferred tax assets (liabilities) consist of the following (in thousands):
| | Year Ended July 31, | |
| |
| |
($ in thousands) | | 2006 | | 2005 | | 2004 | |
| |
|
| |
|
| |
|
| |
Deferred tax assets: | | | | | | | | | | |
Accruals and reserves | | $ | 6,636 | | $ | 9,092 | | $ | 12,722 | |
Net operating loss carryforwards | | | 93,796 | | | 94,519 | | | 86,796 | |
Research and development credit carryforward | | | 2,819 | | | — | | | — | |
| |
|
| |
|
| |
|
| |
Gross deferred tax asset | | | 103,251 | | | 103,611 | | | 99,518 | |
Valuation allowance | | | (103,251 | ) | | (103,611 | ) | | (99,518 | ) |
| |
|
| |
|
| |
|
| |
Net deferred tax asset | | $ | — | | $ | — | | $ | — | |
| |
|
| |
|
| |
|
| |
Reconciliation of the statutory federal income tax to the Company’s effective tax for the year ended July 31, 2006 is as follows:
Tax at Federal statutory rate | | | 34.0 | % |
State, net of Federal benefit | | | 0.8 | % |
Meals and entertainment | | | 3.0 | % |
Stock compensation | | | 16.4 | % |
Fines and penalties | | | 0.1 | % |
Foreign income exclusion | | | (51.9 | )% |
Research and development credit | | | (1.5 | )% |
Change in valuation allowance | | | (0.9 | )% |
| |
|
| |
Provision for taxes | | | 0.0 | % |
| |
|
| |
A reconciliation for fiscal years ended July 31, 2005 and July 31, 2004, is not presented as the Company incurred losses during those periods.
Included in the July 31, 2006 valuation allowance is approximately $31 million related to stock options, which will be credited to stockholder’s equity when realized for tax purposes.
Based on available objective evidence at July 31, 2006, management believed that, based on a number of factors, the available objective evidence created sufficient uncertainty regarding the realizability of the deferred tax assets such that a full valuation allowance was recorded.
As of July 31, 2006, the Company has approximately $262.1 million of federal net operating losses available to offset future federal taxable income, which expire at various dates through fiscal year 2026. This amount includes approximately $12.5 million of net operating loss carryforwards from the acquisition of Andover.net in fiscal 2000. The deferred tax assets related to this of approximately $5.6 million as of June 7, 2000, may be used to reduce the tax provision if and when realized. Approximately $23.2 million of federal net operating losses usage is limited pursuant to section 382 of the Internal Revenue Code due to certain changes in the Company’s ownership which occurred between 1996 and 1999, and a change in ownership resulting from the Company’s June 2000 acquisition of Andover.net. The Company also has California net operating loss carryforwards of approximately $80.4 million to offset future California taxable income, which expire at various dates through fiscal year 2016. The net operating loss carryforwards stated above are reflective of various federal and state tax limitations.
10. Segment and Geographic Information
The Company’s operating segments are significant strategic business units that offer different products and services. The Company has three operating segments: Online Media, E-commerce and Software. In December 2005, the Company completed the sale of its Online Images business to Jupitermedia Corporation and no longer has operations in this segment.
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The Company’s Online Media segment consists of a network of Internet web sites serving the IT professional and software development communities. The Company’s E-commerce segment provides online sales of a variety of retail products of interest to the software development and IT communities. The Company’s Software segment focuses on its SFEE software products. Other includes revenue and costs associated with the Company’s former hardware business as well as all corporate expenses, such as restructuring charges, legal judgments and settlements, amortization of intangible assets and amortization of deferred stock, that are not allocated to the individual operating segments and are not considered by the Company’s chief decision-making group in evaluating the performance of the operating segments.
The accounting policies of the segments are consistent with those described in the summary of significant accounting policies. All intersegment sales have been stated separately in the table below. The Company’s chief decision-making group, as defined under SFAS No. 131, consists of the Chief Executive Officer and the executive team. The Company’s chief decision-making group excludes all intersegment sales when evaluating the performance of the segments. The Company’s assets and liabilities are not discretely allocated or reviewed by operating segment. The depreciation of the Company’s property, equipment and leasehold improvements are allocated based on headcount, unless specifically identified by operating segment.
(in thousands) | | Software | | Online Media | | E-commerce | | Other | | Eliminations | | Total
Company | |
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|
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| |
|
| |
|
| |
Year Ended July 31, 2006 | | | | | | | | | | | | | | | | | | | |
Revenue from external customers | | $ | 9,974 | | $ | 13,242 | | $ | 20,416 | | $ | — | | $ | — | | $ | 43,632 | |
Revenue from intersegments | | $ | — | | $ | 60 | | $ | — | | $ | — | | $ | (60 | ) | $ | — | |
Cost of revenue | | $ | 1,334 | | $ | 3,732 | | $ | 15,605 | | $ | — | | $ | — | | $ | 20,671 | |
Gross margin | | $ | 8,640 | | $ | 9,570 | | $ | 4,811 | | $ | — | | $ | (60 | ) | $ | 22,961 | |
Operating income (loss) | | $ | (2,688 | ) | $ | 360 | | $ | 1,999 | | $ | 6 | | $ | — | | $ | (323 | ) |
Depreciation expense | | $ | 304 | | $ | 218 | | $ | 14 | | $ | — | | $ | — | | $ | 536 | |
Year Ended July 31, 2005 | | | | | | | | | | | | | | | | | | | |
Revenue from external customers | | $ | 7,555 | | $ | 8,130 | | $ | 14,918 | | $ | — | | $ | — | | $ | 30,603 | |
Revenue from intersegments | | $ | — | | $ | 279 | | $ | — | | $ | — | | $ | (279 | ) | $ | — | |
Cost of revenue | | $ | 1,028 | | $ | 3,320 | | $ | 11,591 | | $ | — | | $ | — | | $ | 15,939 | |
Gross margin | | $ | 6,527 | | $ | 5,089 | | $ | 3,327 | | $ | — | | $ | (279 | ) | $ | 14,664 | |
Operating income (loss) | | $ | (5,392 | ) | $ | (1,624 | ) | $ | 673 | | $ | (264 | ) | $ | — | | $ | (6,607 | ) |
Depreciation expense | | $ | 550 | | $ | 346 | | $ | 29 | | $ | — | | $ | — | | $ | 925 | |
Year Ended July 31, 2004 | | | | | | | | | | | | | | | | | | | |
Revenue from external customers | | $ | 4,995 | | $ | 9,728 | | $ | 12,567 | | $ | 49 | | $ | — | | $ | 27,339 | |
Revenue from intersegments | | $ | — | | $ | 238 | | $ | — | | $ | — | | $ | (238 | ) | $ | — | |
Cost of revenue | | $ | 1,860 | | $ | 2,969 | | $ | 10,225 | | $ | (12 | ) | $ | — | | $ | 15,042 | |
Gross margin | | $ | 3,135 | | $ | 6,997 | | $ | 2,342 | | $ | 61 | | $ | (238 | ) | $ | 12,297 | |
Operating income (loss) | | $ | (8,900 | ) | $ | (431 | ) | $ | 79 | | $ | (2,377 | ) | $ | — | | $ | (11,629 | ) |
Depreciation expense | | $ | 1,123 | | $ | 260 | | $ | 30 | | $ | — | | $ | — | | $ | 1,413 | |
During the time period covered by the table above, the Company marketed its products in the United States through its direct sales force and its online web sites. Revenue for each of the fiscal years ended July 31, 2006, July 31, 2005 and July 31, 2004 were primarily generated from sales to end users in the United States of America.
11. Discontinued Operations
In December 2005, the Company sold the assets, net of deferred revenue, of its Online Images business to Jupitermedia Corporation (“Jupitermedia”) for $9.4 million. The Company received $8.4 million in cash, and $0.9 million has been placed in escrow with respect to certain standard representations and warranties made by the Company. The Company has included the escrowed amount in the calculation of the gain on sale of the Online Images business due to the Company’s assessment, beyond a reasonable doubt, that no liabilities will arise under the indemnification provisions of the asset purchase agreement with Jupitermedia. In June 2006, the Company received $0.6 million from the escrow account and in July 2006 approximately $0.2 million of the escrow balance was paid to Jupitermedia based on their claim that funds related to the Online Images segment which were deposited into the Company’s bank accounts had not been remitted to them on a timely basis. Following payment to Jupitermedia, the Company reduced the carrying value of the amount due to Jupitermedia for these collected funds. At July 31, 2006, $0.1 million remains in escrow and is included in other current assets in the accompanying consolidated balance sheet. As specified in the agreement, the assets sold to Jupitermedia consisted primarily of intellectual property, inventories and property and equipment.
66
Income from discontinued operations consists of direct revenue and direct expenses of the Online Images business, including cost of revenue, as well as other fixed and allocated costs. A summary of the operating results of the Online Images business included in discontinued operations in the accompanying condensed consolidated statements of income is as follows:
| | Year Ended July 31, | |
| |
| |
($ in thousands) | | 2006 | | 2005 | | 2004 | |
| |
|
| |
|
| |
|
| |
Net revenue | | $ | 914 | | $ | 2,284 | | $ | 1,922 | |
| |
|
| |
|
| |
|
| |
Income from operations before income taxes | | $ | 340 | | $ | 955 | | $ | 622 | |
Income taxes | | | 10 | | | — | | | — | |
| |
|
| |
|
| |
|
| |
Income from operations, net of income taxes | | $ | 330 | | $ | 955 | | $ | 622 | |
| |
|
| |
|
| |
|
| |
Gain from sale of assets before income taxes | | $ | 9,595 | | $ | — | | $ | — | |
Income taxes | | | 278 | | | — | | | — | |
| |
|
| |
|
| |
|
| |
Gain from sale, net of income taxes | | $ | 9,317 | | $ | — | | $ | — | |
| |
|
| |
|
| |
|
| |
There were no assets or liabilities related to discontinued operations as of July 31, 2006. Assets and liabilities related to discontinued operations as of July 31, 2005 consisted primarily of accounts receivable of $0.1 million, deferred revenue of $0.7 million and accounts payable and accrued liabilities of $0.1 million.
67
Quarterly Financial Data
| | For the three months ended | |
| |
| |
(in thousands) | | October 31 | | January 31 | | April 30 | | July 31 | |
| |
|
| |
|
| |
|
| |
|
| |
Fiscal Year 2006 | | | | | | | | | | | | | |
Net revenue | | $ | 7,588 | | $ | 14,726 | | $ | 10,826 | | $ | 10,492 | |
Gross margin | | | 3,607 | | | 6,949 | | | 6,316 | | | 6,089 | |
Operating income (loss) | | | (1,751 | ) | | 823 | | | 587 | | | 18 | |
Income (loss) from continuing operations | | | (1,473 | ) | | 1,072 | | | 997 | | | 719 | |
Net income (loss): | | $ | (1,234 | ) | $ | 10,503 | | $ | 997 | | $ | 696 | |
Income (loss) per share from continuing operations: | | | | | | | | | | | | | |
Basic | | $ | (0.02 | ) | $ | 0.02 | | $ | 0.02 | | $ | 0.01 | |
Diluted | | $ | (0.02 | ) | $ | 0.02 | | $ | 0.02 | | $ | 0.01 | |
Net income (loss) per share: | | | | | | | | | | | | | |
Basic | | $ | (0.02 | ) | $ | 0.17 | | $ | 0.02 | | $ | 0.01 | |
Diluted | | $ | (0.02 | ) | $ | 0.17 | | $ | 0.02 | | $ | 0.01 | |
Fiscal Year 2005 | | | | | | | | | | | | | |
Net revenue | | $ | 6,474 | | $ | 9,359 | | $ | 6,991 | | $ | 7,779 | |
Gross margin | | | 3,085 | | | 3,874 | | | 3,539 | | | 4,166 | |
Operating loss | | | (2,071 | ) | | (1,140 | ) | | (1,909 | ) | | (1,490 | ) |
Loss from continuing operations | | | (1,816 | ) | | (924 | ) | | (1,668 | ) | | (1,244 | ) |
Net loss | | $ | (1,616 | ) | $ | (702 | ) | $ | (1,376 | ) | $ | (1,000 | ) |
Loss per share from continuing operations: | | | | | | | | | | | | | |
Basic | | $ | (0.03 | ) | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.02 | ) |
Diluted | | $ | (0.03 | ) | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.02 | ) |
Net loss per share: | | | | | | | | | | | | | |
Basic | | $ | (0.03 | ) | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.02 | ) |
Diluted | | $ | (0.03 | ) | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.02 | ) |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
During its review of the Company’s interim financial statements for the third quarter of fiscal 2005, which ended April 30, 2005, a disagreement arose between the Company and BDO Seidman, LLP (“BDO”), the Company’s predecessor independent registered public accounting firm regarding the application of accounting principles, which disagreement ultimately was resolved to BDO’s satisfaction. The disagreement concerned the accounting for one of the Company’s volume-based sales incentive programs, specifically, whether the Company had developed sufficient historical experience to begin calculating the amount of the accrued liability pertaining to such programs based on estimated future expiration rates versus continuing to calculate the liability based on actual expirations. The Audit Committee discussed this disagreement with BDO.
As disclosed in the Company’s Form 10-K for the year ended July 31, 2005, BDO notified the Company’s Audit Committee and the Company’s management of control deficiencies in the Company’s internal control structure involving the design or operation of the Company’s internal controls over financial reporting that BDO considered to be material weaknesses, because the control deficiencies resulted in more than a remote likelihood that a material missatement could occur in the Company’s annual or interim financial statements and not be prevented or detected. The material wea
| • | Lack of sufficient personnel and technical accounting and financial reporting expertise within the Company’s accounting and finance function; |
| • | Inadequate controls over period-end financial reporting, where our CFO was responsible for preparing or compiling certain critical portions of the quarterly and annual internal financial information and was also responsible for performing a review of this information to monitor the results of operations; |
knesses identified by BDO were due to the following:
68
| • | Inadequate controls in the areas of revenue and accounts receivable, where there were certain instances in which fully executed contracts were not obtained in a timely manner in connection with providing online advertising services, where, in a limited number of situations, revenue was not adjusted to properly reflect below-estimated “click-throughs” on certain advertising sponsorship buttons and links, and where the same individual had authority for activities which should be segregated; |
| • | Inadequate controls in the area of purchases, where the purchasing manager did not obtain appropriate approvals for purchasing and the facilities manager did not always sign off on the packing slips to provide evidence of the actual quantity received and we did not maintain adequate segregation of duties among members of our purchasing and receiving departments; |
| • | Inadequate controls in the area of information technology where we did not maintain effective controls over access to the accounting system and in some cases did not maintain complete documentation regarding these access rights and we did not maintain adequate controls in the areas of system development life cycle and change management; and |
| • | Lack of internal control reports (under SAS 70) from critical external service providers. |
Since November 1, 2005 and through the date of the filing of this Form 10-K, and in response to the material weaknesses identified as of July 31, 2005, we have implemented the following steps to remediate the deficiencies in our disclosure controls and procedures and material weaknesses in our internal control over financial reporting as follows:
| • | The Company has hired new employees within its accounting and financial reporting function and identified an accounting firm with whom we will consult in the event of a technical accounting question; |
| • | The Company has revised its processes to allow for its finance department to prepare substantially all of the quarterly and annual internal financial information and also ensure that those portions of the quarterly and annual internal financial information prepared by the CFO are well documented and reviewed by the CEO; |
| • | The Company has enforced its policy of obtaining fully executed contracts in a timely manner in connection with providing online advertising services; |
| • | The Company has enforced its policies of requiring appropriate approvals on all purchase orders and requiring the facilities manager sign off on packing slips. In addition, the Company segregated duties between its purchasing and receiving departments; |
| • | The Company has consistently documented its controls over access to the accounting system and has maintained adequate controls in the area of change management; and |
| • | The Company has received an internal control report (under SAS 70) from the provider of its hosted accounting system. The provider of its hosted advertising servicing system has been acquired by another service provider. They are able to provide a SAS 70 report as of October 31, 2005 and have also provided the Company with internal representation in June 2006 that there have been no changes to their internal controls since the date of the SAS 70 report. |
The Company identified no material weaknesses as of July 31, 2006.
On October 10, 2005, the Company filed a current report on Form 8-K to report a change in the Company’s certifying accountant.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s chief executive officer and chief financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of July 31, 2006. Based on this evaluation, the Company’s chief executive officer and chief financial officer concluded that as of July 31, 2006, the Company’s disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
No change in the Company’s internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act) occurred during the fourth quarter ended July 31, 2006, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
69
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. As defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, internal control over financial reporting is a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
The Company’s internal control over financial reporting is supported by written policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of the Company’s management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
In connection with the preparation of the Company’s annual financial statements, management of the Company has undertaken an assessment of the effectiveness of the Company’s internal control over financial reporting as of July 31, 2006 based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Framework”). Management’s assessment included an evaluation of the design of the Company’s internal control over financial reporting and testing of the operational effectiveness of the Company’s internal control over financial reporting. As a result of this assessment, management has concluded that, as of July 31, 2006, the Company’s internal control over financial reporting was effective based on those criteria.
Our independent registered public accounting firm, Stonefield Josephson, Inc., has issued an attestation report on management’s assessment of our internal control over financial reporting, which is included in this Annual Report on Form 10-K.
Limitations on Effectiveness of Controls
VA Software’s management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
70
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of VA Software Corporation:
We have audited management’s assessment, included in the accompanying “Management’s Report on Internal Control over Financial Reporting”, that VA Software Corporation maintained effective internal control over financial reporting as of July 31, 2006, based on criteria established in Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). VA Software Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that VA Software Corporation maintained effective internal control over financial reporting as of July 31, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, VA Software Corporation maintained, in all material respects, effective internal control over financial reporting as of July 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the balance sheet and the related statements of income and comprehensive loss, stockholders’ equity and cash flows of VA Software Corporation as of July 31, 2006 and our report dated September 29, 2006 expressed an unqualified opinion thereon.
/s/ Stonefield Josephson, Inc. | |
| |
San Francisco, California | |
September 29, 2006 | |
71
PART III
Item 10. Directors and Executive Officers of the Registrant
The information called for by this item is incorporated by reference to the sections entitled “Certain Beneficial Owners”, “Security Ownership of Directors and Executive Officers” and “Information About The Directors, Nominees And Executive Officers” in the Company’s 2006 Proxy Statement, which will be delivered to stockholders in connection with the Company’s annual stockholders’ meeting to be held on December 6, 2006.
Code of Ethics
In addition to the Company’s Code of Business Conduct and Ethics that is applicable to all employees and directors, the Company has adopted a Code of Ethics for Principal Executive and Senior Financial Officers. The Company has posted the text of its Code of Ethics for Principal Executive and Senior Financial Officers on its Internet web site at:
http://www.vasoftware.com/company/docs/governance/VA_Financial_Officer_Code_7_29_2003.pdf
Item 11. Executive Compensation
The information called for by this item is incorporated by reference to the section entitled “Compensation of Directors and Executive Officers” in the Company’s 2006 Proxy Statement, which will be delivered to stockholders in connection with the Company’s annual stockholders’ meeting to be held on December 6, 2006.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Equity Compensation Plans
The following table summarizes our equity compensation plans as of July 31, 2006, all of which have been approved by our stockholders:
| | A | | B | | C |
Plan Category (1) | | Number of securities to be
issued upon exercise of
outstanding options | | Weighted average
exercise price of
outstanding options | | Number of securities remaining available for
future issuance under equity compensation plan
(excluding securities reflected in column A) |
| |
| |
| |
|
Equity compensation plans approved by stockholders | | 8,871,055(2) | | $3.22 | | 10,924,386(3)-(4) |
|
(1) | The table does not include information for equity compensation plans assumed by the Company in acquisitions. As of July 31, 2006, a total of 82,360 shares of the Company’s common stock remain issuable and outstanding upon exercise of options granted under plans assumed by the Company in its acquisition of OSTG. The weighted average exercise price of all outstanding options granted under these plans at July 31, 2006 is $39.51. The Company does not grant additional awards under these assumed plans. |
(2) | Includes 8,207,721 options outstanding under the Company’s 1998 Stock Plan and 663,334 options outstanding under the Company’s 1999 Director’s Plan. |
(3) | Subject to the terms of the 1998 Stock Plan, an annual increase is to be added on the first day of the Company’s fiscal year equal to the lesser of: 4,000,000 shares, or 4.9% of the outstanding shares on the first day of the new fiscal year or an amount determined by the Board of Directors. |
(4) | Subject to the terms of the 1999 Directors Plan, an annual increase is to be added on the first day of the Company’s fiscal year equal to the lesser of: 250,000 shares, or 0.5% of the outstanding shares on the first day of the new fiscal year or an amount determined by the Board of Directors. |
The information called for by this item is incorporated by reference to the sections entitled “Certain Beneficial Owners” and “Security Ownership of Directors and Executive Officers” in the Company’s 2006 Proxy Statement, which will be delivered to stockholders in connection with the Company’s annual stockholders’ meeting to be held on December 6, 2006.
72
Item 13. Certain Relationships and Related Transactions
The information called for by this item is incorporated by reference to the section entitled “Certain Relationships and Related Transactions” in the Company’s 2006 Proxy Statement, which will be delivered to stockholders in connection with the Company’s annual stockholders’ meeting to be held on December 6, 2006.
Item 14. Principal Accountant Fees and Services.
The information called for by this item is incorporated by reference to the section entitled “Principal Accountant Fees and Services” in the Company’s 2006 Proxy Statement, which will be delivered to stockholders in connection with the Company’s annual stockholders’ meeting to be held on December 6, 2006.
PART IV
Item 15. Exhibits and Financial Statement Schedule
| (a) | The following documents are filed as part of this report: |
| | |
| | 1. | All Financial Statements: |
| | | |
| See the Consolidated Financial Statements and notes thereto in Item 8 above. |
| |
| | 2. | Schedule II — Valuation and Qualifying Accounts are filed as part of this Form 10-K. |
| | | |
| | 3. | Exhibits: |
| | | |
| See the Exhibit Index. |
73
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| VA SOFTWARE CORPORATION |
| |
| By: | /s/ ALI JENAB |
| |
|
| | Ali Jenab |
| | Chief Executive Officer and President |
Date: October 16, 2006 | | |
74
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Ali Jenab and Patricia S. Morris, and each of them, his true and lawful attorneys-in-fact, each with full power of substitution, for him and all capacities, to sign any amendments to this report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission and does hereby ratify and confirm all that each of said attorneys-in-fact or their substitute or substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature | | Title | | Date |
| |
| |
|
/s/ ALI JENAB | | Chief Executive Officer, President
(principle executive officer) and Director | | October 16, 2006 |
| | |
Ali Jenab | | |
| | | | |
/s/ PATRICIA S. MORRIS | | Senior Vice President and Chief Financial Officer
(principle accounting officer) | | October 16, 2006 |
| | |
Patricia S. Morris | | |
| | | | |
/s/ ANDREW ANKER | | Director | | October 16, 2006 |
| | |
Andrew Anker | | |
| | | | |
/s/ LARRY M. AUGUSTIN | | Chairman of the Board of Directors | | October 16, 2006 |
| | |
Larry M. Augustin | | |
| | | | |
/s/ ANDRE M. BOISVERT | | Director | | October 16, 2006 |
| | |
Andre M. Boisvert | | |
| | | | |
/s/ RAM GUPTA | | Director | | October 16, 2006 |
| | |
Ram Gupta | | |
| | | | |
/s/ ROBERT M. NEUMEISTER, Jr. | | Director | | October 16, 2006 |
| | |
Robert M. Neumeister, Jr. | | |
| | | | |
/s/ CARL REDFIELD | | Director | | October 16, 2006 |
| | |
Carl Redfield | | |
| | | | |
/s/ DAVID B. WRIGHT | | Director | | October 16, 2006 |
| | |
David B. Wright | | |
75
VA SOFTWARE CORPORATION
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Description | | Balance
Beginning of
Period | | Charged to
Costs and
Expenses | | Deductions | | Balance End
of Period | |
| |
|
| |
|
| |
|
| |
|
| |
Year Ended July 31, 2004 | | | | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 144 | | | 56 | | | 73 | | $ | 127 | |
Allowance for excess and obsolete inventory | | $ | 24 | | | 9 | | | — | | $ | 33 | |
Year Ended July 31, 2005 | | | | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 127 | | | 40 | | | 1 | | $ | 166 | |
Allowance for excess and obsolete inventory | | $ | 33 | | | 57 | | | 31 | | $ | 59 | |
Year Ended July 31, 2006 | | | | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 166 | | | 230 | | | 194 | | $ | 202 | |
Allowance for excess and obsolete inventory | | $ | 59 | | | 40 | | | 3 | | $ | 96 | |
76
EXHIBIT INDEX
Exhibit
Number | | |
| |
|
3.1(1) | — | Amended and Restated Certificate of Incorporation of the Registrant |
| | |
3.2(1) | — | Bylaws of the Registrant |
| | |
4.1(1) | — | Specimen Common Stock Certificate |
| | |
4.2(2) | — | Warrant to Purchase Shares of Common Stock issued to The Riverview Group LLC |
| | |
10.1(1) ‡ | — | Form of Indemnification Agreement between the Registrant and each of its directors and officers |
| | |
10.2(1) ‡ | — | 1998 Stock Plan and forms of agreement thereunder |
| | |
10.3(1) ‡ | — | 1999 Employee Stock Purchase Plan |
| | |
10.4(1) ‡ | — | 1999 Director Option Plan |
| | |
10.6†(3) | — | Master Lease Agreement between Boca Global, Inc. and Bordeaux Partners LLC |
| | |
10.7†(4) | — | Master Lease Agreement between Registrant and Renco Investment Company |
| | |
10.8(5) | — | Consent of Linus Torvalds |
| | |
10.9 (7) | — | Sublease between registrant and @Road, Inc., dated June 9, 2004. |
| | |
10.10 (8) | — | Consent to Sublease Agreement between registrant, @Road, Inc. and Renco Investment Company, dated June 9, 2004. |
| | |
10.11(6) | — | Registration Rights Agreement between Registrant and certain holders of Common Stock, dated November 6, 2003 |
| | |
10.12 (9) | — | First Amendment to Registration Rights Agreement between Registrant and certain holders of Common Stock, dated October 13, 2004 |
| | |
10.13 (10) | — | Asset Purchase Agreement dated December 23, 2005 by and between JupiterImages Corporation, VA Software Corporation, and Animation Factory, Inc. |
| | |
23.1 | — | Consent of Stonefield Josephson, Inc., Independent Registered Public Accounting Firm |
| | |
23.2 | — | Consent of BDO Seidman, LLP, Independent Registered Public Accounting Firm |
| | |
24.1 | — | Power of Attorney (see signature page) |
| | |
31. 1 | — | Certification of Chief Executive Officer Pursuant to Section 302 of The Sarbanes-Oxley Act Of 2002 |
| | |
31.2 | — | Certification of Chief Financial Officer Pursuant to Section 302 of The Sarbanes-Oxley Act Of 2002 |
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32.1 | — | Certification of Chief Executive Officer Pursuant to Section 906 of The Sarbanes-Oxley Act Of 2002 |
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32.2 | — | Certification of Chief Financial Officer Pursuant to Section 906 of The Sarbanes-Oxley Act Of 2002 |
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† | Confidential treatment has been requested by the Registrant as to certain portions of this exhibit. The omitted portions have been separately filed with the Commission. |
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(1) | Incorporated by reference to the corresponding exhibit of Registrant’s form S-1 and the amendment thereto (Commission registration no. 333-88687). |
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(2) | Incorporated by reference from Exhibit 4.1 of Registrant’s Current Report on Form 8-K filed on November 7, 2003. |
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(3) | Incorporated by reference from Exhibit 10.16 of Registrant’s form S-1 and the amendments thereto (Commission registration no. 333-88687). |
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(4) | Incorporated by reference from Exhibit 10.14 of Registrant’s Annual Report on Form 10-K for the period ended June 28, 2000 filed on October 26, 2000 (Commission file number 000-28369). |
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(5) | Incorporated by reference from Exhibit 10.18 of Registrant’s Quarterly Report on Form 10-Q for the period ended January 28, 2000 filed on March 13, 2000 (Commission file number 000-28369). |
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(6) | Incorporated by reference from Exhibit 10.2 of Registrant’s Current Report on Form 8-K filed on November 7, 2003. |
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(7) | Incorporated by reference from Exhibit 10.42 of Registrant’s Annual Report on Form 10-K for the period ended July 31, 2004 filed on October 31, 2005 (Commission file number 000-28369). |
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(8) | Incorporated by reference from Exhibit 10.43 of Registrant’s Annual Report on Form 10-K for the period ended July 31, 2004 filed on October 31, 2005 (Commission file number 000-28369). |
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(9) | Incorporated by reference from Exhibit 10.12 of Registrant’s Annual Report on Form 10-K for the period ended July 31, 2004 filed on October 31, 2005 (Commission file number 000-28369). |
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(10) | Incorporated by reference from Exhibit 2.1 of Registrant’s Quarterly Report on Form 10-Q for the period ended January 31, 2006 filed on April 10, 2006 (Commission file number 000-28369). |
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‡ | Denotes a management contract or compensatory plan or arrangement. |
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