October 21, 2005
Via EDGAR and Overnight Courier
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Mr. David Edgar
United States Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re: VA Software Corporation
Form 8-K dated September 23, 2005
Form 10-Q for the Quarter Ended April 30, 2005
File No. 000-28369
Dear Mr. Edgar:
This letter is being submitted on behalf of VA Software Corporation ("we",
the "Company", the "Registrant", or "VA Software"), in response to the letter
from the staff of the Securities and Exchange Commission (the "Staff") dated
October 6, 2005, relating to the Company's Form 8-K dated September 23, 2005 and
Form 10-Q for the Quarter Ended April 30, 2005. In this letter we have recited
the Staff's comments in bold type above our responses to such comments.
Form 8-K dated September 23, 2005
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1. Provide us with a copy of any management letters from BDO Siedman, LLP
("BDO") to the audit committee or Board of Directors, as well as copies of
any correspondence, reports, or notes to and from the company that address
the reportable conditions related to your controls and procedures for each
of the years ended July 31, 2005 and 2004 and subsequent interim period.
On October 13, 2005, the Company supplementally provided the Staff with
copies of certain management letters from BDO to the audit committee or
Board of Directors, as well as copies of certain correspondence, reports,
or notes to and from the Company that address the reportable conditions
related to its controls and procedures for each of the years ended July 31,
2005 and 2004 and the subsequent interim period. Additional materials that
are responsive to this request have been supplementally provided to the
Staff.
Mr. David Edgar
United States Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Page 2
2. Provide us with a list of closing or adjusting entries you recorded to
close the books or in connection with, or as a result of, the audit for the
years ended July 31, 2005 and 2004 or the review of the subsequent interim
periods. Disclose the dollar effect of each adjustment to earnings. Briefly
explain each entry.
On October 13, 2005, the Company supplementally provided the Staff with a
list of closing or adjusting entries it recorded to close the books or in
connection with, or as a result of, the audit for the years ended July 31,
2005 and 2004 or the review of the subsequent interim periods, disclosed
the dollar effect of each adjustment to earnings, and briefly explained
each entry.
3. We note your statement that BDO declined to stand for reelection but
continues to serve as the Company's independent accountants. Please be
advised that once your relationship with BDO ceases, that date should be
disclosed in Form 8-K. Please include your exhibit 16 letter from your
former accountant in the amendment.
We supplementally confirm to the Staff that we will file an additional
Current Report on Form 8-K to disclose the date on which the Company's
relationship with BDO ceases.
Form 10-Q for the Quarter Ended April 30, 2005
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Item 4. Controls and Procedures, page 40
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4. We note that your disclosure controls and procedures were ineffective due
to the material weakness identified by your independent accountants. Revise
to disclose when the material weakness first began. To the extent the
material weakness existed during the quarters ended January 31, 2005 and
October 31, 2004, revise disclosure in your Forms 10-Q for those periods
and reconsider the conclusions reached regarding the effectiveness of your
disclosure controls and procedures.
As noted in the Registrant's Quarterly Report on Form 10-Q for the quarter
ended April 30, 2005 (the "April 10-Q"), the material weakness identified
by the Registrant's independent accountants pertained to the need for
additional resources and technical accounting expertise to be available to
the Registrant's accounting and financial reporting function to assist the
Registrant in addressing relatively complex transactions and/or accounting
issues that arise from time to time in the course of the Registrant's
operations.
The Registrant's resources and technical accounting expertise have been
relatively constant since the Registrant exited its Linux-based hardware
systems and services business in June, 2001. During that time period, there
have been certain relatively complex transactions that were properly
accounted for by the Registrant. The identification of the material
weakness associated with the need for additional resources and technical
accounting expertise arose during the quarter ended April 30, 2005, in
Mr. David Edgar
United States Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Page 3
connection with the Registrant's accounting for its volume-based sales
incentive program related to rewarding recurring purchases by customers of
its ThinkGeek.com Internet-based consumer retail site and, specifically,
whether the Registrant had developed sufficient historical experience to
begin calculating the amount of the accrued liability pertaining to such
program based on estimated future redemption rates of customer incentive
rewards as compared to continuing to calculate the liability based on
actual expirations of such incentive rewards.
The Registrant and the Registrant's independent registered public
accountants ultimately agreed on the appropriate accounting for the sales
incentive program prior to the filing of the Registrant's April 10-Q;
however the Registrant was required to record a post-closing adjustment as
of April 30, 2005 to adjust the reserve relating to the accrued liability
of customer incentive rewards to eliminate the Registrant's previously
estimated future redemption rates of such incentive rewards as compared to
the actual expirations based on the measurement period discussed with the
Registrant's independent registered public accountants. The Registrant's
independent registered public accountants concluded that the nature, timing
and amount of this post-closing entry were indicative of a material
weakness in the Registrant's internal control over financial reporting for
the period ending April 30, 2005, which conclusion was confirmed by the
Registrant.
Prior to the beginning of the quarterly period ended April 30, 2005, the
Registrant had encountered certain relatively complex transactions;
however, management had not previously determined that any material
weaknesses existed due to a lack of technical accounting expertise, nor had
the Registrant been advised by its independent registered public
accountants that such conditions existed. The Registrant notes that while
the Registrant's resources and technical accounting expertise have been
relatively constant since the Registrant exited its Linux-based hardware
systems and services business in June, 2001, during the second-half of
fiscal 2005 such technical resources had additional demands placed upon
them as the Registrant has been required to devote considerable time and
energy towards its documentation, testing and assessment of the
Registrant's internal control over financial reporting in compliance with
section 404 of the Sarbanes-Oxley Act of 2002. In light of the foregoing,
the Registrant concluded that the material weakness began in the quarter
ended April 30, 2005. The Registrant has taken steps to remediate this
control deficiency; however, management is still assessing whether such
steps have been effective in sufficiently remediating this control
deficiency.
As requested by the Staff, the Company acknowledges that:
o the Company is responsible for the adequacy and accuracy of the disclosure
in its filings with the Securities and Exchange Commission;
Mr. David Edgar
United States Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Page 4
o Staff comments or changes to disclosure in response to Staff comments do
not foreclose the Securities and Exchange Commission from taking any action
with respect to such filings; and
o the Company may not assert Staff comments as a defense in any proceeding
initiated by the Securities and Exchange Commission or any person under the
federal securities laws of the United States.
We would like to discuss these comments and responses at your earliest
convenience. Bret DiMarco at Wilson Sonsini Goodrich and Rosati, P.C., can be
reached at (650) 320-4638, and I can be reached at (510) 687-7074. Please feel
free to contact either of us.
Sincerely,
VA SOFTWARE CORPORATION
/s/ Kathleen R. McElwee
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Kathleen R. McElwee
Enclosures
cc: Jay Seirmarco, Esq.
Linda Chan, Esq.
Bret M. DiMarco, Esq.