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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    Form 10-K

     [X]       ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES
               EXCHANGE ACT OF 1934

                     For the fiscal year ended July 31, 2005

                                       Or

     [ ]       TRANSITION  REPORT  PURSUANT  TO  SECTION  13  OR  15(d)  OF  THE
               SECURITIES EXCHANGE ACT OF 1934.

                For the transition period from ______ to _______.

                        Commission File Number: 000-28369

                             VA Software Corporation
             (Exact name of Registrant as specified in its charter)


                 Delaware                                   77-0399299
     (State or other jurisdiction of                     (I.R.S. Employer
      incorporation or organization)                    Identification No.)

                46939 Bayside Parkway, Fremont, California, 94538
          (Address, including zip code, of principal executive offices)

                                 (510) 687-7000
              (Registrant's telephone number, including area code)

           Securities registered pursuant to Section 12(g) of the Act:
                         Common Stock, $0.001 par value
                                (Title of Class)

     Indicate  by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

     Indicate by check mark whether the Registrant is an  accelerated  filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [X] No [ ]

     Indicate  by check mark  whether  the  Registrant  is a shell  company  (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [ ] No [X]

     As of September 30, 2005, there were 61,690,872  shares of the Registrant's
Common Stock outstanding. The aggregate market value of the Common Stock held by
non-affiliates  of the  Registrant  as of January 31, 2005 (based on the closing
price for the  Common  Stock on the  NASDAQ  National  Market for such date) was
approximately $112,860,976.  Shares of common stock held by each of our officers
and directors and by each person or group who owns 5% or more of our outstanding
common stock have been  excluded in that such persons or groups may be deemed to
be our affiliate.  This  determination  of affiliate status is not necessarily a
conclusive determination for other purposes.


                                       1
<PAGE>

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Proxy Statement for the 2005 Annual Meeting of Stockholders
("Proxy Statement") to be held on December 10, 2005, and to be filed pursuant to
Regulation 14A within 120 days after the Registrant's fiscal year ended July 31,
2005, are incorporated by reference into Part III of this Form 10-K.

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<PAGE>
<TABLE>
<CAPTION>

                                                         Table of Contents


                                                              PART I
<S>       <C>                                                                                                                  <C>

Item 1    Business
               Overview....................................................................................................    4
               Sales and  Marketing........................................................................................    6
               Research and Development....................................................................................    6
               Competition.................................................................................................    7
               Intellectual Property Rights................................................................................    8
               Seasonality.................................................................................................    8
               Employees...................................................................................................    9
Item 2    Properties.......................................................................................................    9
Item 3    Legal Proceedings................................................................................................    9
Item 4    Submission of Matters to a Vote of Security Holders..............................................................    9

                                                             PART II

Item 5    Market for the Registrant's Common Stock and Related Stockholder Matters.........................................    9
Item 6    Selected Consolidated Financial Data.............................................................................    11
Item 7    Management's Discussion and Analysis of Financial Condition and Results of Operations............................    11
Item 7A   Quantitative and Qualitative Disclosures About Market Risk.......................................................    40
Item 8    Financial Statements and Supplementary Data......................................................................    41
Item 9    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............................    64
Item 9A   Controls and Procedures..........................................................................................    64


                                                             PART III

Item 10   Directors and Executive Officers of the Registrant...............................................................    71
Item 11   Executive Compensation...........................................................................................    71
Item 12   Security Ownership of Certain Beneficial Owners and Management...................................................    71
Item 13   Certain Relationships and Related Transactions...................................................................    71
Item 14   Principal Accounting Fees and Services. .........................................................................    71

                                                             PART IV

Item 15   Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................................    72
          Signatures.......................................................................................................    72
</TABLE>


                                                                3
<PAGE>

                                     PART I
Item 1.  Business

Special Note Regarding Forward-Looking Statements


     This Form 10-K contains  forward-looking  statements that involve risks and
uncertainties.  Words such as "intend," "expect,"  "believe," "in our view," and
variations of such words and similar expressions,  are intended to identify such
forward-looking  statements,  which include,  but are not limited to, statements
regarding our  expectations and beliefs  regarding future revenue growth;  gross
margins;  financial performance and results of operations;  technological trends
in,  and  emergence  of  the  market  for  collaborative   software  development
applications;   the  future  functionality,   business  potential,  demand  for,
efficiencies  created  by  and  adoption  of  SourceForge;   demand  for  online
advertising;  management's strategy, plans and objectives for future operations;
the impact of our
  and the amount of cash utilized by operations;
our  intent  to  continue  to  invest  significant   resources  in  development;
competition,  competitors  and our  ability to  compete;  liquidity  and capital
resources; the outcome of any litigation to which we are a party; our accounting
policies; and sufficiency of our cash resources,  cash generated from operations
and investments to meet our operating and working capital  requirements.  Actual
results  may  differ   materially  from  those  expressed  or  implied  in  such
forward-looking  statements due to various factors, including those set forth in
this Business section under  "Competition"  and in the Risk Factors contained in
the section of this Form 10-K entitled "Management's  Discussion and Analysis of
Financial  Condition and Results of  Operations."  We undertake no obligation to
update  the  forward-looking  statements  to  reflect  events  or  circumstances
occurring after the date of this Form 10-K.

Introduction

     We were  incorporated in California in January 1995 and  reincorporated  in
Delaware in December 1999.  From the date of our  incorporation  through October
2001, we sold Linux-based  hardware systems and services under the name VA Linux
Systems,  Inc.  On June  27,  2001,  we  announced  our  decision  to  exit  our
Linux-based hardware business.  Today, we do business under the name VA Software
Corporation  (the  "Company")  and we  develop,  market  and  support a software
application known as SourceForge Enterprise Edition ("SourceForge") and also own
and operate OSTG, Inc. ("OSTG") and its wholly-owned subsidiaries,  a network of
Internet web sites,  offering  advertising,  retail and  animation  services and
products.

     We are subject to the informational requirements of the Securities Exchange
Act of 1934 (the "Exchange Act").  Therefore,  we file periodic  reports,  proxy
statements and other  information  with the  Securities and Exchange  Commission
(the  "SEC").  Such  reports,  proxy  statements  and other  information  may be
obtained by visiting the Public  Reference Room of the SEC at 100 F Street,  NE,
Washington,  DC 20549 or by calling the SEC at 1-800-SEC-0330.  In addition, the
SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy
and information  statements and other  information  regarding  issuers that file
electronically.

    You can access other  information  at our Investor  Relations web site.  The
address  is  www.vasoftware.com/company/.  The  content  of this web site is not
intended to be incorporated by reference into this report or any other report we
file with the SEC.  We make  available,  free of  charge,  copies of our  annual
report on Form 10-K as soon as reasonably practicable after filing such material
electronically  or otherwise  furnishing it to the SEC, and have made our annual
reports on Form 10-K available on our web site since November 2002.

Business Overview

     We currently  view our business in four  operating  segments:  SourceForge,
Online Media, E-commerce and Online Images. For segment and geographic financial
information,  see Note 10 of the Notes to Consolidated  Financial  Statements of
this Annual Report on Form 10-K.

  SourceForge

     Our  SourceForge  segment  focuses on our  SourceForge  Enterprise  Edition
software products and services.

     SourceForge is a proprietary,  web-based software  application designed for
corporate and  public-sector  information  technology  ("IT")  professionals and
software  engineering  organizations.  SourceForge combines software development
and  collaboration  tools  with the  ability  to track,  measure,  and report on
software  project  activity in  real-time.  SourceForge  improves  the  software


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<PAGE>

development  process by  capturing  and  archiving  software  development  code,
documentation and  communication in a central  location.  It enables managers to
gain insight and improved visibility into software development activity, thereby
providing better resource and requirements  management,  defect tracking and the
ability  to  resolve  critical  problems  earlier  in  the  development   cycle.
Organizations with distributed,  offshore and/or outsourced software development
teams  can   achieve   improved   productivity,   communication,   coordination,
collaboration, project clarity and insight through SourceForge's standard set of
development tools and secure,  centralized code, documentation and communication
repository.

     Our SourceForge segment represented 23%, 17% and 12% of net revenues during
fiscal 2005, 2004 and 2003, respectively.

  Online Media

     Our  Online  Media  segment  consists  of a network of  Internet  web sites
serving the IT professional and software development  communities.  As of August
30, 2005, OSTG reaches more than 19 million unique visitors and serves more than
290  million  page views per month.  We  believe  that OSTG is the most  dynamic
community-driven  media network on the web and a cornerstone  of the open source
software  development  community.  OSTG attracts IT decision-makers  and buyers,
from chief technology  officers to project managers.  Technologists,  developers
and system  administrators turn to OSTG sites to create debate and make IT news.
OSTG is  supported  by  sponsors  and  advertisers  who want to reach the unique
demographic of IT  professionals  and developers  that visit our OSTG web sites.
Our OSTG web sites include:

     o    SourceForge.net,  our  flagship  web  site  and  software  development
          center.  As of August 30, 2005,  SourceForge.net  was the  development
          home for more than 100,000 software  development projects and had more
          than 1,000,000 registered users.

     o    Slashdot.org, our leading discussion site for technologically-inclined
          individuals.  Slashdot is dedicated  to providing  the IT and software
          development  communities  with  cutting-edge  technology,  science and
          culture news and interactive commentary.

     o    Linux.com,  our  comprehensive web site for Linux and open source news
          and information.  Linux.com caters to business and IT managers looking
          for migration strategies to Linux.

     o    Freshmeat.net,  one of the Internet's  most  comprehensive  indices of
          downloadable Linux, Unix and cross-platform software.

     o    NewsForge.com,  the  online  newspaper  of  record  for Linux and open
          source software.

     o    ITManagersJournal.com,  a web site delivering  strategic and technical
          information   to   help   top-level   IT    professionals    implement
          enterprise-level    open   source   and   proprietary    architecture,
          applications, and infrastructure solutions.

     Our Online  Media  segment  represented  25%,  33% and 43% of net  revenues
during fiscal 2005, 2004 and 2003, respectively.

   E-commerce

     Our  E-commerce  segment  provides  online  sales of a  variety  of  retail
products of interest to the  software  development  and IT  communities  through
ThinkGeek, Inc. ("ThinkGeek"),  a wholly-owned subsidiary of OSTG. We believe we
offer a significantly broader range of unique products in a centralized location
than are available in traditional stores. We do not have the shelf display space
limitations  that  brick-and-mortar  stores  do. Our  customers  are able to buy
electronics,  office gadgets, apparel,  caffeinated products and other specialty
items  with a single  check-out.  Consumers  can either  access the  information
directly  through  our web  site,  or get  free  help  from  our  customer  care
representatives and experts by contacting them by e-mail at orders@thinkgeek.com
or by telephone at 1-888-GEEKSTUFF.

     The E-commerce segment  represented 45%, 43% and 35% of net revenues during
fiscal 2005, 2004 and 2003, respectively.

   Online Images

     Our Online Images segment provides online sales of  three-dimensional  art,
animations  and  presentations   through  Animation  Factory,  Inc.  ("Animation
Factory"),  a  wholly-owned  subsidiary of OSTG.  Our online image  products are
either sold in the form of a CD or as a subscription  which offers subscribers a
dynamic  downloadable  collection of easy to use animations  that work in email,


                                       5
<PAGE>

web  pages  and  presentations.  We  believe  that we offer  an array of  unique
animations on the web giving  customers  access to over 300,000  animations  and
50,000 web designs. Consumers can either access the information directly through
our web site,  or get free  help  from our  customer  care  representatives  and
experts by  contacting  them by e-mail  through  www.animationfactory.com  or by
telephone at 1-800-525-2475.

     The Online Images segment represented 7% of net revenues during each fiscal
period 2005, 2004 and 2003, respectively.

Sales and Marketing

  SourceForge

     We primarily market and sell our SourceForge  software products  (software,
professional services, maintenance and support and training) directly to our end
users  through our  SourceForge  field sales  organization,  on the  Internet at
www.vasoftware.com  and  on  our  various  OSTG  web  sites.  Our  direct  sales
organization  includes  a  telesales  operation  to  augment  our  direct  sales
presence.

     We  maintain a complete  customer  service  and  support  organization  for
SourceForge,  which provides support for installation,  software usage,  updates
and system  administration.  Customer service and support are typically provided
as part of the SourceForge maintenance contract to ensure end user productivity.
We also release periodic bug or security fix updates and version upgrades.

  Online Media

     We primarily market and sell our Internet  advertisements via OSTG's direct
sales  organization  and its web  sites.  In  addition,  we  have  entered  into
co-marketing  agreements  with certain  third  parties with respect to marketing
and/or selling advertising space on OSTG web sites.

   E-commerce

     Our  E-commerce  marketing and  promotion  strategy is designed to increase
customer traffic to our on-line store, add new customers,  build strong customer
loyalty,   maximize   repeat   purchases   and   develop   incremental   revenue
opportunities.  In addition,  we have entered into co-marketing  agreements with
certain  third  parties with respect to marketing  our  E-commerce  web site. We
intend to continue to use the unique  capabilities of the Internet as a means to
encourage new and repeat customers to our web sites.  Our advertising  campaigns
are focused on the OSTG web sites which enables OSTG to direct  customers to our
products  through a link to our web site.  In  addition,  we  currently  offer a
customer retention program,  Geek Points, which is designed to add new customers
and build  customer  loyalty.  Through this program,  customers are rewarded for
shopping with us. When the customer  signs up for Geek Points,  they earn points
on all of their purchases.  Rewards for Geek Points participants include special
promotions,  discounts and access to products  available only to those customers
enrolled in the program.

   Online Images

     We  primarily  market  and sell our  Online  Images  products  through  the
Internet on our  www.animationfactory.com web site. In addition, we have entered
into  co-marketing  agreements  with  certain  third  parties  with  respect  to
marketing our Animation Factory web site.

Research and Development

  SourceForge

     We  believe  that the  success of  SourceForge  will  depend  partly on our
ability  to  enhance  our  product  to meet  the  needs  of a  rapidly  evolving
marketplace and increasingly  sophisticated and demanding customers.  Therefore,
we have devoted the majority of our research and development  budget to the goal
of improving  SourceForge.  We intend to extend and  strengthen  our software by
enhancing  existing  features,  adding  additional  features and offering higher
levels of  integration  with popular  software  development  tools.  Although we
primarily develop SourceForge technology internally, we may, based on timing and
cost considerations, acquire technologies or products from third parties.



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<PAGE>

  Online Media

     We believe  that the success of OSTG will  depend  partly on our ability to
enhance our web sites and  underlying  technology to meet the needs of a rapidly
evolving marketplace and increasingly  sophisticated and demanding customers. We
intend to extend and  strengthen  the  software  underlying  our online sites by
enhancing existing features and adding additional features. These include adding
the ability to deliver new ad types as they are developed,  as well as enhancing
our ability to track ads as they run.

    E-commerce

     We have  implemented  a broad  array of services  and systems for  customer
service,  product searching,  order processing and order fulfillment  functions,
including, among other things:

     o    Accepting and validating customer orders;

     o    Organizing,  placing and managing  orders with vendors and fulfillment
          partners;

     o    Receiving  product  and  reserving  inventory  for  specific  customer
          orders; and

     o    Managing  shipment of products to customers based on various  ordering
          criteria.

     These  services  and  systems  use a  combination  of our  own  proprietary
technologies and commercially  available,  licensed  technologies.  We focus our
internal   development  efforts  on  creating  and  enhancing  the  specialized,
proprietary software that is unique to our business.

     Our  core  online  merchandise   catalog,   customer   interaction,   order
collection,  fulfillment and back-end systems are proprietary to ThinkGeek.  The
systems  are  designed to provide  real-time  connectivity  to our  distribution
center systems.  These include an  inventory-tracking  system, a real-time order
tracking system, an executive information system and an inventory  replenishment
system.  Our  Internet  servers  use  SSL  technology  to  help  conduct  secure
communications  and  transactions.  We  continue  to  invest  in  improving  the
E-commerce customer service, order processing, shipping and tracking systems.

Competition

  SourceForge

     We  believe   SourceForge  gives  us  an  opportunity  to  operate  in  the
collaborative  software  development  market  without an entrenched  competitor.
However,  we face  competition  from  software  development  tools and processes
developed  internally by customers,  including ad hoc integrations of commercial
software  development  tools and  applications as well as open source  software.
There are also many  entrenched  competitors  in  closely  related  markets  who
compete for customer  budget  allocations.  Such  competition  could arise from,
among others,  Borland  Software  Corporation,  Collabnet,  Inc.,  International
Business Machines Corporation,  Microsoft Corporation, Serena Software, Inc., as
well  as  numerous  other  public  and  privately   held  software   application
development  and tools  suppliers.  Additionally,  recent  and  future  business
combinations  among companies in the software industry will permit the resulting
consolidated  companies to offer more extensive suites of software  products and
broader arrays of software  solutions,  some of which may compete  directly with
SourceForge.  Changes  resulting  from  current  and  future  software  industry
consolidation  may  negatively  impact our  competitive  position and  operating
results.

     Many  of  these  potential  competitors  are  likely  to  have  substantial
competitive  advantages  including  greater resources that can be devoted to the
development, promotion and sale of their products; more established sales forces
and  channels;   greater  software  development  experience;  and  greater  name
recognition.

  Online Media

     The market for Internet  services  provided by OSTG is highly  competitive.
Advertisers  have many  alternatives  available to reach their target  audience,
including print (e.g., Ziff Davis Media's eWeek and  International  Data Group's
Computerworld),  general portal sites (e.g., aol.com, yahoo.com,  google.com and
msn.com) and other web sites focused on vertical  markets (e.g.,  CNet Networks,
Inc.'s cnet.com and techrepublic.com).

     Similar to our potential competitors in our SourceForge  business,  many of
our  competitors  in our Online  Media  business  have  substantial  competitive
advantages  including  greater resources that can be devoted to the development,
promotion and sale of their online services;  more established  sales forces and
channels; greater software and web site development experience; and greater name
recognition.


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<PAGE>

   E-commerce

     The  market  for  Internet   products   provided  by  ThinkGeek  is  highly
competitive.  We compete with Internet portals and online service providers that
feature  shopping  services,  such as America Online,  MSN and Yahoo!,  and with
other  online or  mail-order  retailers.  We believe  that there are a number of
competitive  factors  in our  market,  including  company  credibility,  product
selection and  availability,  convenience,  price,  privacy,  web site features,
functionality  and  performance,  ease  of  purchasing,   customer  service  and
reliability and speed of order shipment.

     Similar to our potential  competitors in our  SourceForge  and Online Media
businesses,  many of our competitors in our E-commerce business have substantial
competitive  advantages  including  greater resources that can be devoted to the
development, promotion and sale of their online products; more established sales
forces and channels;  greater software and web site development experience;  and
greater name recognition.

     To be  competitive,  we  must  respond  promptly  and  effectively  to  the
challenges of  technological  change,  evolving  standards and our  competitors'
innovations by continuing to enhance our products. Any pricing pressures or loss
of potential  customers  resulting from our failure to compete effectively would
reduce our revenues.

   Online Images

     The market for online images provided by Animation  Factory is competitive.
Competitive  factors  in  this  industry  include  the  quality,  relevance  and
diversity of the image library, customer service, pricing,  accessibility of our
images and our speed of  fulfillment.  Our primary  competitor  is Jupiter Media
Corporation's   site,   Animation.com,   which  offers   similar  3-D  animation
subscriptions.

Intellectual Property Rights

     We protect our  intellectual  property  through a combination of copyright,
trademark, trade-secret laws, employee and third-party nondisclosure agreements,
and other methods of protection.

     SourceForge is licensed to our end-user  customers as proprietary  software
code  and  documentation.  We  require  our  customers  to  enter  into  license
agreements that impose  restrictions  on their ability to reproduce,  distribute
and utilize our software.  In addition, we seek to avoid disclosure of our trade
secrets through a number of means,  including  restricting  access to our source
code and object code and  requiring  those  entities  and persons with access to
agree to confidentiality terms which restrict their use and disclosure.

     SourceForge,  SourceForge.net,  Slashdot,  ThinkGeek,  Freshmeat,  OSTG, VA
Software,  the VA logo and Animation  Factory are some of our trademarks  and/or
registered trademarks that we use in the United States and in other countries.

     Because the  software  industry  is  characterized  by rapid  technological
change, we believe that factors such as the technological and creative skills of
our personnel,  new product developments,  frequent product  enhancements,  name
recognition and reliable product  maintenance are more important to establishing
and  maintaining  a  technology  leadership  position  than  the  various  legal
protections of our technology.

Seasonality

     With the exception of our E-commerce  business,  our revenues have not been
significantly  impacted by seasonality.  Our E-commerce  business,  however,  is
highly  seasonal,  reflecting  the general  pattern  associated  with the retail
industry of peak sales and earnings during the holiday shopping season.

     In the past several years, a substantial portion of our E-commerce revenues
occurred in our second fiscal  quarter,  which in fiscal year 2006 will begin on
November  1, 2005,  and end on  January  31,  2006.  As is typical in the retail
industry,  we generally  experience lower  E-commerce  revenues during the other
quarters.  Therefore,  our  E-commerce  revenue in a  particular  quarter is not
necessarily  indicative of future E-commerce revenue for a subsequent quarter or
our full fiscal year.


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<PAGE>

Employees

     We believe our  success  will  depend in part on our  continued  ability to
attract  and retain  highly  qualified  personnel  in a  competitive  market for
experienced and talented software  engineers and sales and marketing  personnel.
Our employees are not represented by any collective bargaining organization,  we
have never  experienced a work stoppage,  and we believe that our relations with
our  employees  are good.  As of July 31, 2005,  our employee  base totaled 127,
including  35 in  operations,  35 in sales and  marketing,  37 in  research  and
development and 20 in finance and administration.

Item 2.  Properties
<TABLE>
Our principal locations are as follows:
<CAPTION>

                                                                                         Approximate            Expiration
                                                                                            Size                    of
           Location                                   Purpose                         (in square feet)             Lease
-------------------------------     ---------------------------------------------    --------------------    ------------------
<S>                                 <C>                                                    <C>                      <C>
United States of America
Fremont, California                 100% sublet through lease expiration date              102,544                  2010
Fremont, California                 Corporate   headquarters;   SourceForge  and            36,767                  2010
                                    OSTG  sales and  marketing,  administration,
                                    research & development
Sunnyvale, California               100% sublet through lease expiration date               45,647                  2005
San Diego, California               100% sublet through lease expiration date               39,010                  2005
Fairfax, Virginia                   ThinkGeek operations                                     2,400                  2005
Sioux Falls, South Dakota           Animation Factory research & development                 3,160                  2006
</TABLE>


Item 3. Legal Proceedings

     Information  with  respect to this Item may be found in Note 5 of the Notes
to Consolidated  Financial  Statements of this Annual Report on Form 10-K, which
information is incorporated into this Item 3 by reference.

Item 4. Submission of Matters to a Vote of Security Holders

    Not applicable.

                                     PART II

Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters

     Our common stock is traded on the NASDAQ  National  Market System under the
symbol  LNUX.  As of October 10,  2005,  there were 865 holders of record of our
common stock. We have not declared any cash dividends since our inception and do
not expect to pay any  dividends  in the  foreseeable  future.  The high and low
closing sales prices, as reported by NASDAQ, of our common stock are as follows:

                                                         High       Low
                                                         ----       ---
   Fiscal Year Ended July 31, 2005:
   Fourth Quarter..................................     $  2.00   $  1.34
   Third Quarter...................................     $  2.08   $  1.32
   Second Quarter..................................     $  2.99   $  1.84
   First Quarter...................................     $  2.13   $  1.58
   Fiscal Year Ended July 31, 2004:
   Fourth Quarter..................................     $  2.48   $  1.69
   Third Quarter...................................     $  4.03   $  1.98
   Second Quarter..................................     $  5.26   $  2.98
   First Quarter...................................     $  5.84   $  1.92


                                       9
<PAGE>

     The foregoing reflects interdealer prices without retail markup,  markdown,
or commissions and may not necessarily reflect actual transactions.


Equity Compensation Plans

<TABLE>
     The following table summarizes our equity compensation plans as of July 31,
2005, all of which have been approved by our stockholders:
<CAPTION>


                            |            A                           B                                     C
                            |
     Plan Category (1)      |  Number of securities to        Weighted average        Number of securities remaining available for
                            |  be issued upon exercise        exercise price of      future issuance under equity compensation plan
                            |   of outstanding options       outstanding options      (excluding securities reflected in column A)
<S>                                <C>                           <C>                           <C>
 Equity compensation plans  |
 approved by stockholders   |      11,134,549 (2)                  $2.89                         13,970,399 (3) - (6)

<FN>
(1)      The table does not include information for equity compensation plans assumed by the Company in acquisitions. As of July 31,
         2005, a total of 91,497  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, 2005 is $39.12.  The Company does not grant  additional  awards
         under these assumed plans.

(2)      Includes  10,552,465  options  outstanding  under the Company's 1998 Stock Plan and 582,084 options  outstanding  under the
         Company's 1999 Director's Plan.

(3)      Includes 2,461,987 shares of common stock reserved for issuance under the Company's 1999 Employee Stock Purchase Plan.

(4)      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.

(5)      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.

(6)      Subject to the terms of the 1999 Employee Stock  Purchase  Plan, an annual  increase is to be added on the first day of the
         Company's fiscal year equal to the lesser of: 500,000 shares,  or 1% of the outstanding  shares on the first day of the new
         fiscal year or an amount determined by the Board of Directors.
</FN>
</TABLE>


                                                                 10
<PAGE>

Item 6.  Selected Consolidated Financial Data

     You should read the selected consolidated financial data set forth below in
conjunction with  "Management's  Discussion and Analysis of Financial  Condition
and Results of  Operations"  and our financial  statements and the related notes
included  elsewhere in this Form 10-K. The statement of operations  data for the
fiscal  years  ended  July 31,  2005,  July 31,  2004 and July 31,  2003 and the
balance  sheet data as of July 31, 2005 and July 31,  2004 are derived  from the
audited financial  statements and related notes appearing elsewhere in this Form
10-K. The statement of operations  data for the fiscal years ended July 27, 2002
and July 28, 2001 and the balance sheet data as of July 31, 2003,  July 27, 2002
and July 28, 2001 are derived from audited financial statements not appearing in
this Form 10-K.  Historical  results are not  necessarily  indicative of results
that may be expected for any future period.
<TABLE>
<CAPTION>
                                           Summary Financial Information
                                       (In thousands, except per share data)

                                                                                         For the years ended
                                                                   -------------------------------------------------------------
                                                                    July 31,     July 31,     July 31,     July 27,     July 28,
                                                                      2005         2004         2003         2002         2001
                                                                   ---------    ---------    ---------    ---------    ---------
<S>                                                                <C>          <C>          <C>          <C>          <C>
 Selected Consolidated Statements of Operations Data:
  Net revenues .................................................   $  32,887    $  29,261    $  24,228    $  20,385    $ 134,890
  Cost of revenues .............................................      16,434       15,537       12,780        9,661      154,103
                                                                   ---------    ---------    ---------    ---------    ---------
  Gross margin .................................................      16,453       13,724       11,448       10,724      (19,213)
  Loss from operations .........................................      (5,652)     (11,007)     (14,882)     (93,248)    (531,798)
  Net loss .....................................................      (4,694)      (7,640)     (13,798)     (91,038)    (525,268)
                                                                   =========    =========    =========    =========    =========
  Net loss attributable to common stockholders .................   $  (4,694)   $  (7,640)   $ (13,798)   $ (91,038)   $(525,268)
                                                                   =========    =========    =========    =========    =========

  Basic and diluted net loss per share .........................   $   (0.08)   $   (0.13)   $   (0.25)   $   (1.72)   $  (10.78)
                                                                   =========    =========    =========    =========    =========
  Shares used in computing basic and diluted net loss per share       61,454       59,684       54,110       53,064       48,741
                                                                   =========    =========    =========    =========    =========

Selected Balance Sheet data at year-end:
  Cash, cash equivalents and investments .......................   $  38,420    $  44,042    $  38,847    $  53,046    $  80,083
  Working capital ..............................................   $  34,369    $  25,866    $  28,825    $  33,486    $  62,444
  Total assets .................................................   $  47,381    $  53,679    $  48,495    $  66,968    $ 173,033
  Liabilities, net of current portion ..........................   $   7,378    $   9,192    $  11,953    $  15,575    $  13,178
  Total stockholders' equity (deficit) .........................   $  31,665    $  35,770    $  27,202    $  39,388    $ 126,362
</TABLE>


Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

     The following  discussion and analysis  should be read in conjunction  with
"Selected  Financial  Data" and our financial  statements  and the related notes
included elsewhere in this Form 10-K. This discussion  contains  forward-looking
statements that involve risks and uncertainties. Our actual results could differ
materially from those anticipated in the forward-looking  statements as a result
of certain factors including the risks discussed in "Risk Factors" and elsewhere
in this Form  10-K.  See Part I -- Item 1 --  "Special  Note  Regarding  Forward
Looking Statements."

Overview

     We were  incorporated in California in January 1995 and  reincorporated  in
Delaware in December 1999.  From the date of our  incorporation  through October
2001, we sold Linux-based  hardware systems and services under the name VA Linux
Systems,  Inc.  On June  27,  2001,  we  announced  our  decision  to  exit  our
Linux-based hardware business.  Today, we do business under the name VA Software
Corporation and we develop,  market and support a software  application known as
SourceForge  Enterprise Edition  ("SourceForge")  and also own and operate OSTG,
Inc.  ("OSTG")  and its  wholly-owned  subsidiaries,  a network of Internet  web
sites, offering advertising, retail and animation services and products.

     We currently  view our business in four  operating  segments:  SourceForge,
Online Media,  E-commerce and Online Images. Our SourceForge  segment focuses on
our  SourceForge  software  products  and  services.  Our Online  Media  segment
represents  a network of  Internet  web sites  serving the IT  professional  and


                                       11
<PAGE>

software development  communities.  Our E-commerce segment provides online sales
of a variety of retail  products of interest to the software  development and IT
communities through ThinkGeek,  Inc. ("ThinkGeek") a wholly-owned  subsidiary of
OSTG. Our Online Images segment provides online sales of digital  animation sold
in the form of CD's or as a  subscription  offered  through  Animation  Factory,
Inc., a wholly-owned subsidiary of OSTG.

     Our goals for fiscal 2005 were to continue to add new SourceForge customers
and broaden our advertising base for OSTG while increasing  traffic,  all with a
focus towards driving the Company towards profitability.

     Within the  SourceForge  segment,  we  continued  to increase the number of
customers to whom we have sold our  SourceForge  products,  totaling 130 at July
31, 2005.

     Within the Online Media  segment,  we reached  record levels of page views,
unique  visitors and  advertisers.  As of July 31, 2005,  OSTG reached nearly 19
million unique visitors and served more than 290 million page views per month.

     Within the E-commerce  segment, we continued to increase our customer base,
increasing the number of orders by 17% from the prior year.

     Within the Online Images segment, we grew our revenue by 19% from the prior
year.

     Net  revenues  during  fiscal  2005  increased  as  compared to fiscal 2004
primarily  due to  increased  sales in our  SourceForge,  E-commerce  and Online
Images  businesses,  offset by a decrease in our Online Media business and other
revenue derived from our previous hardware business. SourceForge sales increased
due to an  increase  in the  number  of  customers  to  whom  we  have  licensed
SourceForge.  E-commerce and Online Images sales increased due to an increase in
our customer base related to these segments.

     Net  revenues  during  fiscal  2004  increased  as  compared to fiscal 2003
primarily  due to  increased  sales in our  SourceForge,  E-commerce  and Online
Images  businesses,  offset by a decrease in our Online Media business and other
revenue derived from our previous hardware business. SourceForge sales increased
due to an  increase  in the  number  of  customers  to  whom  we  have  licensed
SourceForge.  E-commerce and Online Images sales increased due to an increase in
our customer base related to these segments.

     Our sales continue to be primarily attributable to customers located in the
United States of America.

     For total operations, our net loss was $4.7 million, $7.6 million and $13.8
million during fiscal year 2005, 2004 and 2003,  respectively,  or $0.08,  $0.13
and $0.25, respectively, in basic and diluted net loss per share.

Critical Accounting Policies

     Accounting  policies,  methods and  estimates  are an integral  part of the
consolidated  financial  statements  prepared by  management  and are based upon
management's current judgments.  Those judgments are normally based on knowledge
and  experience  with regard to past and current  events and  assumptions  about
future  events.   Certain  accounting   policies,   methods  and  estimates  are
particularly sensitive because of their significance to the financial statements
and because of the  possibility  that future  events  affecting  them may differ
markedly  from  management's  current  judgments.  While  there  are a number of
accounting policies,  methods and estimates affecting our financial  statements,
areas that are particularly  significant include revenue  recognition  policies,
the assessment of impairment of long-lived  assets,  restructuring  reserves for
excess facilities for non-cancelable leases, income taxes, and contingencies and
litigation.

    Revenue Recognition

     SourceForge Revenues

     SourceForge  software revenues consist  principally of fees for licenses of
our SourceForge  software  products,  maintenance,  consulting and training.  We
recognize  all software  revenue using the residual  method in  accordance  with
Statement of Position ("SOP") 97-2,  "Software Revenue  Recognition," as amended
by SOP  98-9,  "Modification  of SOP 97-2,  Software  Revenue  Recognition  with
Respect to Certain  Transactions."  Under the residual method, the fair value of
the  undelivered   elements  is  deferred  and  the  remaining  portion  of  the


                                       12
<PAGE>

arrangement  fee is  recognized as revenue.  If evidence of the vendor  specific
fair value of one or more  undelivered  elements  does not exist,  revenues  are
deferred and  recognized  when  delivery of those  elements  occurs or when fair
value can be established.  Company-specific  objective evidence of fair value of
maintenance  and  other  services  is based on our  customary  pricing  for such
maintenance  and/or  services  when  sold  separately.  At  the  outset  of  the
arrangement  with the  customer,  we  defer  revenue  for the fair  value of its
undelivered elements (e.g., maintenance,  consulting and training) and recognize
revenue for the remainder of the  arrangement  fee  attributable to the elements
initially  delivered in the arrangement (i.e.,  software product) when the basic
criteria  in SOP 97-2 have been met.  If such  evidence  of fair  value for each
undelivered element of the arrangement does not exist, we defer all revenue from
the arrangement  until such time that evidence of fair value does exist or until
all elements of the arrangement are delivered.

     Under  SOP  97-2,  revenue   attributable  to  an  element  in  a  customer
arrangement is recognized when (i) persuasive evidence of an arrangement exists,
(ii)  delivery  has  occurred,  (iii)  the fee is  fixed or  determinable,  (iv)
collectibility  is probable and (v) the  arrangement  does not require  services
that are essential to the functionality of the software.

     Persuasive  evidence of an arrangement exists. We determine that persuasive
evidence  of an  arrangement  exists with  respect to a customer  when we have a
written  contract,  which is signed by both us and the  customer,  or a purchase
order from the customer  when the customer  has  previously  executed a standard
license arrangement with us. We do not offer product return rights.

     Delivery  has   occurred.   Our  software  may  be  either   physically  or
electronically  delivered  to the  customer.  We  determine  that  delivery  has
occurred  upon  shipment of the  software  pursuant to the billing  terms of the
agreement  or when  the  software  is made  available  to the  customer  through
electronic delivery.

     The  fee is  fixed  or  determinable.  If at  the  outset  of the  customer
engagement we determine that the fee is not fixed or determinable,  we recognize
revenue  when the fee becomes  due and  payable.  Fees due under a contract  are
generally deemed not to be fixed or determinable if a significant portion of the
fee is beyond our normal payment terms,  which are generally no greater than 120
days from the date of invoice.

     Collectibility is probable. We determine whether collectibility is probable
on a case-by-case basis. When assessing  probability of collection,  we consider
the number of years in business,  history of collection,  and product acceptance
for each customer.  We typically sell to customers,  for whom there is a history
of successful collection.  New customers are subject to a credit review process,
which evaluates the customer's financial position and ultimately such customer's
ability to pay.  If we  determine  from the outset  that  collectibility  is not
probable  based upon our review  process,  revenue is recognized as payments are
received.

     We allocate revenue on software arrangements involving multiple elements to
each element based on the relative fair value of each element. Our determination
of fair  value of each  element  in  multiple-element  arrangements  is based on
vendor-specific objective evidence ("VSOE"). We align our assessment of VSOE for
each element to the price charged when the same element is sold  separately.  We
have analyzed all of the elements included in our multiple-element  arrangements
and  determined  that  we  have  sufficient  VSOE  to  allocate  revenue  to the
maintenance,  support and  professional  services  components  of our  perpetual
license  arrangements.  We sell our professional  services separately,  and have
established VSOE for professional  services on that basis.  VSOE for maintenance
and support is determined  based upon the  customer's  annual  renewal rates for
these elements. Accordingly, assuming all other revenue recognition criteria are
met, we recognize  revenue  from  perpetual  licenses  upon  delivery  using the
residual method in accordance with SOP 98-9.

     Services revenues consist of professional services and maintenance fees. In
general, our professional services, which are comprised of software installation
and integration,  business process consulting and training, are not essential to
the  functionality of the software.  Our software  products are fully functional
upon delivery and implementation and do not require any significant modification
or  alteration  of  products  for  customer  use.   Customers   purchase   these
professional  services to facilitate the adoption of our technology and dedicate
personnel to  participate  in the services  being  performed,  but they may also
decide  to use  their  own  resources  or  appoint  other  professional  service
organizations to provide these services. Software products are billed separately
from professional  services,  which are generally billed on a time-and-materials
basis.  We  recognize  revenue  from  professional   services  as  services  are
performed.

     Maintenance  agreements  are typically  priced based on a percentage of the
product  license  fee and have a one-year  term,  renewable  annually.  Services
provided to customers under  maintenance  agreements  include  technical product
support and  unspecified  product  upgrades.  Deferred  revenues  from  advanced
payments for maintenance  agreements are recognized ratably over the term of the
agreement, which is typically one year.


                                       13
<PAGE>


     We expense all  manufacturing,  packaging and distribution costs associated
with software license sales as cost of license revenues.

     Online Media Revenues

     Online Media revenues are derived from the sale of advertising space on our
various web sites.  We recognize  Online Media revenues over the period in which
the  advertisements  are  displayed,  provided  that  persuasive  evidence of an
arrangement  exists,  no  significant  obligations  remain,  the fee is fixed or
determinable,  and  collection  of the  receivable is  reasonably  assured.  Our
obligations  typically  include  guarantees of a minimum number of "impressions"
(times that an advertisement is viewed by users of our online services).  To the
extent that minimum  guaranteed  impressions  are not met in the specified  time
frame,  we do not  recognize the  corresponding  revenues  until the  guaranteed
impressions  are  achieved.  Prior to the fiscal  year ended July 31,  2004,  we
recorded barter revenue  transactions at their estimated fair value based on our
historical experience of selling similar advertising for cash in accordance with
Emerging  Issues Task Force ("EITF") Issue 99-17,  "Accounting  for  Advertising
Barter  Transactions."  We broadcast banner  advertising in exchange for similar
banner  advertising  on  third-party  web  sites.  Our barter  arrangements  are
documented with our standard customer  insertion order (and  accompanying  terms
and  conditions) or, in certain limited  instances,  via an alternative  written
contract  negotiated  between the  parties.  The standard  terms and  conditions
include,  but are not  limited  to,  the web  sites for each  company  that will
display the impressions,  the time frame that the impressions will be displayed,
and the number, type and size of impressions to be delivered.

     E-commerce Revenues

     E-commerce  revenues are derived from the online sale of consumer goods. We
recognize E-commerce revenues from the sale of consumer goods in accordance with
SEC Staff Accounting Bulletin ("SAB") No. 104, "Revenue  Recognition." Under SAB
104, product revenues are recognized when persuasive  evidence of an arrangement
exists,  delivery has  occurred,  the sale price is fixed or  determinable,  and
collectibility  is  reasonably  assured.  In general,  we  recognize  E-commerce
revenue  upon the  shipment  of goods.  We do grant  customers a right to return
E-commerce  products.  Such  returns  are  recorded  as  incurred  and have been
immaterial for the periods presented.

     Online Images Revenues

     Software  revenues  related  to  digital  animations  consist  of fees  for
licenses and memberships for our animation software  products.  We recognize all
software  revenue  using the residual  method in  accordance  with  Statement of
Position ("SOP") 97-2,  "Software Revenue  Recognition," as amended by SOP 98-9,
"Modification of SOP 97-2,  Software Revenue Recognition with Respect to Certain
Transactions"  as  described in detail  above.  We offer two  Animation  Factory
membership  agreement  options:  Gold  and  Platinum.  Both  Gold  and  Platinum
memberships  are available for either a three-month or one-year  term.  Revenues
related to animation  memberships are recognized over the life of the membership
term.

     Impairment of Long-Lived Assets

     We continually evaluate whether events and circumstances have occurred that
indicate the remaining  estimated  useful life of long-lived  assets may warrant
revision  or  that  the  remaining  balance  of  long-lived  assets  may  not be
recoverable  in  accordance  with  Statement of Financial  Accounting  Standards
"SFAS"  No.  144,  "Accounting  for  Impairment  of  Long-Lived  Assets  and for
Long-Lived  Assets to be Disposed  of." When factors  indicate  that  long-lived
assets  should be evaluated for possible  impairment,  we use an estimate of the
related undiscounted future cash flows over the remaining life of the long-lived
assets in measuring whether they are recoverable.  If the estimated undiscounted
future cash flows exceed the carrying  value of the asset, a loss is recorded as
the excess of the asset's carrying value over fair value.  Long-lived assets and
certain  identifiable  intangible  assets to be disposed of are  reported at the
lower of carrying amount or fair value less costs to sell.

     Restructuring Costs and Other Special Charges

     As  discussed  in  Note  3 of  the  notes  to  the  consolidated  financial
statements,  we have recorded  significant  restructuring  charges in connection
with exiting our hardware systems,  managed services,  and professional services
and Linux software engineering services businesses during the fiscal years ended
2002 and  2001.  A  significant  portion  of these  charges  related  to  excess
facilities  primarily  from  non-cancelable   leases  or  other  costs  for  the
abandonment or disposal of property and  equipment.  During the third quarter of
fiscal 2004,  in  connection  with our original  2002  restructuring  plan which
included an assumption to sublet all idle facilities,  the Company relocated its


                                       14
<PAGE>

Fremont,  California  headquarters to a smaller building in the same complex. In
addition,  during  the third  quarter of fiscal  2004,  the  Company  reached an
agreement in  principal  to sublet  unoccupied  portions of  properties  that it
leases in Fremont,  California and Sunnyvale,  California (also included as part
of  the  original  2002  restructuring  plan).  As a  result  of the  change  in
circumstances,  original accruals were reevaluated and adjusted accordingly.  In
the second quarter of fiscal 2005, a minor credit adjustment of $0.1 million was
recorded  to  accurately  reflect  the  current  common  area  maintenance  fees
associated with the Fremont facilities. All charges as a result of restructuring
activities  have been  recorded in accordance  with  Emerging  Issues Task Force
"EITF" 94-3 "Liability Recognition for Certain Employee Termination Benefits and
Other  Costs  to  Exit  an  Activity  (including  Certain  Costs  incurred  in a
Restructuring)".  Restructuring  charges  recorded  in fiscal 2004 and 2005 were
considered   adjustments  to  the  original   restructuring  plans,   therefore,
Statements of Financial  Accounting  Standards  "SFAS" No. 146  "Accounting  for
Costs  Associated  with Exit or Disposal  Activities"  was not  applicable.  The
remaining  accrual  from  non-cancelable  lease  payments  is based  on  current
circumstances.  These accruals are subject to change should actual circumstances
change. We will continue to evaluate and update,  if applicable,  these accruals
quarterly.

     Income Taxes

    We are required to estimate our income taxes in each of the jurisdictions in
which we operate as part of the process in preparing our consolidated  financial
statements.  This process involves us estimating our actual current tax exposure
together with assessing temporary differences resulting from differing treatment
of items,  such as deferred  revenue,  for tax and  accounting  purposes.  These
differences  result in deferred tax assets or  liabilities.  We must then assess
the  likelihood  that our net deferred tax assets will be recovered  from future
taxable income and to the extent that we believe recovery is not likely, we must
establish a valuation allowance.  While we have considered future taxable income
in assessing the need for the valuation allowance,  in the event that we were to
determine that we would be able to realize our deferred tax assets in the future
in excess of its net recorded  amount,  an  adjustment to the deferred tax asset
valuation allowance would be made, increasing income in the period in which such
determination was made.

     Contingencies and Litigation

     We are subject to  proceedings,  lawsuits and other  claims.  We assess the
likelihood  of any adverse  judgments  or  outcomes to these  matters as well as
ranges of probable  losses.  A determination  of the amount of loss  contingency
required,  if any, is assessed in accordance with SFAS No. 5, "Contingencies and
Commitments"  and recorded if probable after careful analysis of each individual
matter.  The required loss  contingencies  may change in the future as the facts
and circumstances of each matter change.

Results of Operations

     We believe that the  application  of  accounting  standards is central to a
company's reported financial position,  results of operations and cash flows. We
review our annual and quarterly  results,  along with key  accounting  policies,
with our audit committee prior to the release of financial results. In addition,
we have not entered into any significant  transactions with related parties.  We
do not use off-balance-sheet  arrangements with unconsolidated  related parties,
nor do we use other forms of off-balance-sheet arrangements such as research and
development arrangements.


     The  following  table  sets forth our  operating  results  for the  periods
indicated as a percentage of net revenues,  represented  by selected  items from
the unaudited condensed consolidated statements of operations. This table should
be read in  conjunction  with  the  consolidated  financial  statements  and the
accompanying notes included in this Form 10-K.


                                                         For the years ended
                                                    ----------------------------
                                                    July 31,  July 31,  July 31,
                                                      2005      2004      2003
                                                     -----     -----     -----
Consolidated Statements of Operations Data:
  Net revenues ....................................  100.0     100.0     100.0
  Cost of revenues ................................   50.0      53.1      52.7
                                                     -----     -----     -----
  Gross margin ....................................   50.0      46.9      47.3
                                                     -----     -----     -----
  Operating expenses:
     Sales and marketing ..........................   30.6      34.5      40.4
     Research and development .....................   18.6      23.0      32.3
     General and administrative ...................   18.0      15.9      26.6
     Restructuring costs and other special charges    (0.3)     11.0      (1.1)
     Amortization of deferred stock compensation ..    0.0       0.1       0.6
     Amortization of goodwill and intangible assets    0.0       0.0       8.9
     Impairment of long-lived assets ..............    0.3       0.0       1.0
                                                     -----     -----     -----
       Total operating expenses ...................   67.2      84.5     107.7
                                                     -----     -----     -----
  Loss from operations ............................  (17.2)    (37.6)    (60.4)
  Remeasurement of warrant liability ..............    0.0       5.4       0.0
  Interest and other income, net ..................    2.9       6.2       4.5
                                                     -----     -----     -----
  Net loss ........................................  (14.3)%   (26.0)%   (56.9)%
                                                     =====     =====     =====


                                       15
<PAGE>
<TABLE>
<CAPTION>

  Net Revenues

                                                     Year Ended                             % Change          % Change
                               -----------------------------------------------------       Fiscal 2004       Fiscal 2003
($ in thousands)               July 31, 2005       July 31, 2004        July 31, 2003        to 2005           to 2004
----------------               -------------       -------------        -------------     -------------      -------------
<S>                               <C>                 <C>                  <C>                 <C>               <C>
SourceForge revenues              $ 7,555             $ 4,995              $ 2,918             51%               71%
Online Media revenues               8,130               9,728               10,405            (16%)              (7%)
E-commerce revenues                14,918              12,567                8,565             19%               47%
Online Images revenues              2,284               1,922                1,580             19%               22%
Other revenues                        --                   49                  760           (100%)             (94%)
                                  -------             -------              -------
Net revenues                      $32,887             $29,261              $24,228             12%               21%
                                  =======             =======              =======
</TABLE>


     Net revenues  increased  during  fiscal 2005 as compared to fiscal 2004 due
primarily  to an  increase  in our  SourceForge,  E-commerce  and Online  Images
businesses,  offset by a decrease in our Online Media  revenue and other revenue
derived from our previous hardware business.

     Net revenues  increased  during  fiscal 2004 as compared to fiscal 2003 due
primarily  to an  increase  in our  SourceForge,  E-commerce  and Online  Images
businesses,  offset by a decrease in our Online Media  revenue and other revenue
derived from our previous hardware business.

     Sales for the fiscal  years ended 2005,  2004,  and 2003 were  primarily to
customers located in the United States of America.

     For the fiscal  years  ended July 31,  2005 and 2004,  respectively  no one
customer  represented 10% or greater of net revenues.  Going forward,  we do not
anticipate that any one customer will represent more than 10% of net revenues.

     Net Revenues by Segment

     SourceForge Revenues
<TABLE>
<CAPTION>

                                                     Year Ended                             % Change          % Change
                               -----------------------------------------------------       Fiscal 2004       Fiscal 2003
($ in thousands)               July 31, 2005       July 31, 2004        July 31, 2003        to 2005           to 2004
----------------               -------------       -------------        -------------     -------------      -------------
<S>                               <C>                 <C>                  <C>                 <C>               <C>
SourceForge revenues              $7,555              $4,995               $ 2,918             51%               71%
Percentage of total
  net revenues                        23%                 17%                   12%
Aggregate # of customers sold to     130                  97                    55             34%               76%
Avg contract value                $  106              $   75               $    60             41%               25%
</TABLE>


     SourceForge  revenues  consist  principally  of fees  for  licenses  of our
SourceForge software products, maintenance, consulting and training.

     The growth  during  fiscal 2005 was  primarily  related to the  SourceForge
licensing and maintenance  components of SourceForge  revenue. We have increased
the  number  of  customers  to  whom  we have  licensed  SourceForge  to 130 and
increased  our average  value of contracts  sold during fiscal 2005 to $106,000.
This is compared to 97  customers to whom we had  licensed  SourceForge  with an
average value of contracts sold during fiscal 2004 of $75,000.


                                       16
<PAGE>

     The growth  during  fiscal 2004 was  primarily  related to the  SourceForge
licensing and maintenance  components of SourceForge  revenue.  We increased the
number of  customers to whom we licensed  SourceForge  to 97 and  increased  our
average value of contracts sold during fiscal 2004 to $75,000.  This is compared
to 55  customers to whom we had licensed  SourceForge  with an average  value of
contracts sold during fiscal 2003 of $60,000.

     We expect  SourceForge  revenues  to  continue  to  increase as our new and
returning customer base grows and our average contract value increases.

     Online Media Revenues
<TABLE>
<CAPTION>

                                                     Year Ended                             % Change          % Change
                               -----------------------------------------------------       Fiscal 2004       Fiscal 2003
($ in thousands)               July 31, 2005       July 31, 2004        July 31, 2003        to 2005           to 2004
----------------               -------------       -------------        -------------     -------------      -------------
<S>                               <C>                 <C>                  <C>                 <C>               <C>
Online Media revenues             $8,130              $9,728               $10,405            (16%)              (7%)
Percentage of total
  net revenues                       25%                  33%                   43%
</TABLE>

     Online Media  revenues are primarily  derived from cash and barter sales of
advertising  space on our various web sites,  as well as sponsorship and royalty
related  arrangements  associated  with  advertising on these web sites.  During
fiscal 2004 and 2003,  Online Media revenues also included $1.4 million and $2.0
million of barter revenue, respectively.

<TABLE>
<CAPTION>

                                                     Year Ended                             % Change          % Change
                               -----------------------------------------------------       Fiscal 2004       Fiscal 2003
($ in thousands)               July 31, 2005       July 31, 2004        July 31, 2003        to 2005           to 2004
----------------               -------------       -------------        -------------     -------------      -------------
<S>                               <C>                 <C>                  <C>                 <C>               <C>
Cash advertising                  $5,805              $6,744               $ 3,944            (14%)              71%
Barter advertising                   --                1,427                 1,957           (100%)             (27%)
Sponsorships                         390                 715                 4,350            (45%)             (84%)
Donations                             32                 412                   --             (92%)             100%
Other revenue                      1,903                 430                   154            343%              179%
                               -------------       -------------        -------------
Online Media revenues             $8,130              $9,728               $10,405            (16%)              (7%)
                               =============       =============        =============
</TABLE>

     Cash  advertising  revenue  is  derived  from  the  number  of  impressions
delivered  and the average CPM rate (i.e.,  the average rate at which we receive
revenue per 1,000 banner advertisements (impressions) we display to users of our
online services) charged for the impressions delivered.

     Barter advertising is derived from banner advertising delivered in exchange
for similar banner  advertising on  third-party  web sites.  Prior to our fiscal
year ended July 31,  2004,  we recorded  barter  revenue  transactions  at their
estimated  fair value  based on our  historical  experience  of selling  similar
advertising for cash.

     Sponsorship  revenue is derived from non-CPM  rate web  marketing  programs
that are used to increase brand  awareness.  Revenue  related to sponsorships is
recognized ratably over the term of the marketing program or in conjunction with
the delivery  requirements  set forth in the  contract.  Sponsorship  revenue in
fiscal 2005 and 2004 relates to certain  contracts  with one customer,  IBM. The
decrease  in  sponsorship  revenue in fiscal 2005 as compared to fiscal 2004 was
due to the  expiration  of one of those IBM  contracts in the fourth  quarter of
fiscal 2004.  Sponsorship  revenue in fiscal 2003 was primarily derived from one
customer,  Intel. The decrease in sponsorship revenue in fiscal 2003 as compared
to fiscal 2004 was the result of Intel not renewing its contract for fiscal 2004
and 2005.

    Other revenue includes paid search,  contextually-relevant  advertising, and
referral fees.
<TABLE>
<CAPTION>

                                                     Year Ended                             % Change          % Change
                               -----------------------------------------------------       Fiscal 2004       Fiscal 2003
($ in thousands)               July 31, 2005       July 31, 2004        July 31, 2003        to 2005           to 2004
----------------               -------------       -------------        -------------     -------------      -------------
<S>                               <C>                 <C>                  <C>                 <C>               <C>
Cash advertising                  $  5,805            $    6,744           $  3,944           (14%)              71%
Impressions delivered              538,151             1,162,028            563,795           (54%)             106%
Average CPM rate                  $  10.79            $     5.80           $   7.00            86%              (17%)
</TABLE>


                                       17
<PAGE>

     The decrease in cash advertising  revenue during fiscal 2005 as compared to
fiscal  2004 was due to a  significant  decrease  in the  number of  impressions
delivered,  offset by a substantial  increase in the average  contract CPM rate.
The decrease in the number of  impressions  delivered  was  primarily due to the
decline  in  online  advertising  associated  with an  individually  significant
customer who had received a volume  discount.  The increase in average CPM rates
was the result of the decline in advertising  associated with this  individually
significant customer,  which drove the average CPM rate for fiscal 2004 down. In
fiscal  2005,  this  customer  represented  only 4% of  total  cash  advertising
revenues.  However,  in fiscal 2004, this same customer  represented 29% of cash
advertising revenues.

     The increase in cash advertising  revenue during fiscal 2004 as compared to
fiscal  2003 was due to a  significant  increase  in the  number of  impressions
delivered,  offset by a decrease in the average  contract CPM rate. The increase
in the number of  impressions  delivered was  primarily due to increased  online
advertising  associated  with  an  individually  significant  customer  who  had
received a volume discount.  The decrease in average CPM rates was the result of
the  increased  advertising   associated  with  this  individually   significant
customer, which drove the average CPM rate for fiscal 2004 down. In fiscal 2004,
this customer  represented 29% of total cash advertising  revenues.  However, in
fiscal 2003, this same customer represented 17% of cash advertising revenues.

     We believe that our  prominent  position in serving the growing open source
software  and  Linux   markets,   along  with  our  favorable   online   visitor
demographics,   make  us  an  attractive  advertising  vehicle  for  advertising
customers.

     E-commerce Revenues
<TABLE>
<CAPTION>

                                                     Year Ended                             % Change          % Change
                               -----------------------------------------------------       Fiscal 2004       Fiscal 2003
($ in thousands)               July 31, 2005       July 31, 2004        July 31, 2003        to 2005           to 2004
----------------               -------------       -------------        -------------     -------------      -------------
<S>                               <C>                 <C>                  <C>                 <C>               <C>
E-commerce revenues               $ 14,918            $ 12,567             $  8,565            19%               47%
Percentage of total net
  revenues                              45%                 43%                  35%
# of Orders (per year)             235,375             201,542              138,495            17%               46%
Avg order size (in whole
  dollars)                        $  63.38            $  62.35             $  61.84             2%                1%
</TABLE>


     E-commerce  revenues  are derived  from the online sale of consumer  goods,
including shipping, net of any returns and allowances.

     The growth in fiscal 2005 and 2004 was primarily due to increased  consumer
awareness  of our site as a result of expanded  advertising,  a broader  product
offering  which   attracted  a  larger  customer  base,  as  well  as  web  site
enhancements  and  affiliate  programs that drove more traffic to our site. As a
result of our  efforts we  experienced  a 17% and 46%  increase in the number of
orders placed during fiscal 2005 and 2004, respectively.

     We  expect  E-commerce  revenues  to  continue  to grow  as our  E-commerce
customer base grows.

     Online Images Revenues
<TABLE>
<CAPTION>

                                                     Year Ended                             % Change          % Change
                               -----------------------------------------------------       Fiscal 2004       Fiscal 2003
($ in thousands)               July 31, 2005       July 31, 2004        July 31, 2003        to 2005           to 2004
----------------               -------------       -------------        -------------     -------------      -------------
<S>                               <C>                 <C>                  <C>                 <C>               <C>
Online Images revenues            $ 2,284             $ 1,922              $ 1,580             19%               22%
Percentage of total net
  revenues                              7%                  7%                   7%
</TABLE>

     Online   Images   revenues   are   derived   from   the   online   sale  of
three-dimensional art, animations and presentations.

     The growth in fiscal 2005 and 2004 was primarily due to increased  consumer
awareness of our site as a result of a broader product  offering which attracted
a larger customer base, as well as web site enhancements and affiliate  programs
that drove more traffic to our site.


                                       18
<PAGE>


     We expect Online  Images  revenues to continue to grow as our customer base
grows.

     Other Revenues
<TABLE>
<CAPTION>

                                                     Year Ended                             % Change          % Change
                               -----------------------------------------------------       Fiscal 2004       Fiscal 2003
($ in thousands)               July 31, 2005       July 31, 2004        July 31, 2003        to 2005           to 2004
----------------               -------------       -------------        -------------     -------------      -------------
<S>                               <C>                 <C>                  <C>                 <C>               <C>
Other revenues                    $   --              $   49               $  760            (100%)             (94%)
Percentage of total net
  revenues                            0.0%               0.2%                 3.1%
</TABLE>

     Other revenues were derived from our former hardware,  and related customer
support, and professional services businesses. The decrease in other revenues in
fiscal 2005 and 2004 is the direct result of exiting these former businesses. We
expect other revenues to remain at zero going forward.

    Our  revenue  recognition  policy  related  to our former  hardware  systems
business followed SAB 104, "Revenue  Recognition."  Under SAB 104, we recognized
product revenues from the sale of Linux-based servers,  components,  and desktop
computers when persuasive evidence of an arrangement existed, delivery occurred,
the sales price was fixed or  determinable  and  collectibility  was  reasonably
assured.  In general,  we recognized product revenue upon shipment of the goods.
We did not grant our customers any rights to return these products.

     We recognized  revenues from hardware related  customer  support  services,
including on-site maintenance and technical support on a pro-rata basis over the
term of the related  service  agreement.  We  recognized  revenues from hardware
related  professional service contracts upon completion of the project, or using
the percentage of completion  method of the project where project costs could be
reasonably  estimated.  We  recorded  any  payments  received  prior to  revenue
recognition as deferred revenue.

  Cost of Revenues/Gross Margin
<TABLE>
<CAPTION>

                                                     Year Ended                             % Change          % Change
                               -----------------------------------------------------       Fiscal 2004       Fiscal 2003
($ in thousands)               July 31, 2005       July 31, 2004        July 31, 2003        to 2005           to 2004
----------------               -------------       -------------        -------------     -------------      -------------
<S>                               <C>                 <C>                  <C>                 <C>               <C>
Cost of revenues                  $16,434             $15,537              $12,780              6%               22%
Gross margin                      $16,453             $13,724              $11,448             20%               20%
Gross margin %                         50%                 47%                  47%
</TABLE>

     Cost of revenues consist of personnel costs and related overhead associated
with  providing  software  professional  services,  personnel  costs and related
overhead associated with providing and running advertising campaigns and product
costs  associated  with our E-commerce and Online Images  businesses.  The above
analysis  is  inclusive  of  any  restructuring  charges  that  were  originally
classified as cost of revenues or adjustments  to those  original  restructuring
charges.  The  below  analysis  represents  cost  of  revenues,   excluding  all
restructuring charges and adjustments:

<TABLE>
<CAPTION>

                                                     Year Ended                             % Change          % Change
                               -----------------------------------------------------       Fiscal 2004       Fiscal 2003
($ in thousands)               July 31, 2005       July 31, 2004        July 31, 2003        to 2005           to 2004
----------------               -------------       -------------        -------------     -------------      -------------
<S>                               <C>                 <C>                  <C>                 <C>               <C>
Cost of revenues                  $16,434             $15,537              $12,780              6%               22%
Add back restructuring
  recoveries                         --                    12                  432           (100%)             (97%)
Cost of revenues (excl
  restructuring)                  $16,434             $15,549              $13,212              6%               18%
Gross margin (excl
  restructuring)                  $16,453             $13,712              $11,016             20%               24%
Gross margin % (excl
  restructuring)                       50%                 47%                  45%
</TABLE>


                                       19
<PAGE>

     The  restructuring  credits  in  fiscal  2004  and  2003  were  related  to
adjustments of prior period restructuring  charges associated with inventory and
warranty reserves in connection with our former hardware business.

     The increase in gross  margins  excluding  the prior  period  restructuring
reserves   adjustments   was  primarily  the  result  of   improvements  in  the
SourceForge, E-commerce and Online Images businesses, offset by a decline in the
Online Media margins.

    Cost of Revenues/Gross Margin by Segment (Excluding Restructuring)

    SourceForge Cost of Revenues/Gross Margin
<TABLE>
<CAPTION>

                                                     Year Ended                             % Change          % Change
                               -----------------------------------------------------       Fiscal 2004       Fiscal 2003
($ in thousands)               July 31, 2005       July 31, 2004        July 31, 2003        to 2005           to 2004
----------------               -------------       -------------        -------------     -------------      -------------
<S>                               <C>                 <C>                  <C>                 <C>               <C>
SourceForge cost of revenues      $ 1,028             $ 1,860              $ 1,997            (45%)              (7%)
SourceForge gross margin          $ 6,527             $ 3,135              $   921            108%              240%
SourceForge gross margin %             86%                 63%                  32%
</TABLE>

     SourceForge  cost of revenues  consist of personnel and outside  contractor
costs associated with providing software customer and professional services.

     The increase in our SourceForge gross margin percentages for fiscal 2005 as
compared to fiscal 2004 was  primarily  the result of lower  outside  contractor
costs,  decreased  personnel costs due to a decrease in headcount and leveraging
our fixed personnel costs while increasing  revenue levels. The increased margin
associated with lower outside  contractor costs accounted for $0.3 million.  The
increased margin associated with decreased personnel accounted for $0.2 million,
and the increased  margin  associated  with leveraging our fixed personnel costs
accounted for $0.3 million.

     The increase in our SourceForge gross margin percentages for fiscal 2004 as
compared to fiscal 2003 was  primarily the result of decreased  personnel  costs
due to a decrease in headcount.  The increased margin  associated with decreased
personnel accounted for $0.2 million.

    Online Media Cost of Revenues/Gross Margin
<TABLE>
<CAPTION>

                                                     Year Ended                             % Change          % Change
                               -----------------------------------------------------       Fiscal 2004       Fiscal 2003
($ in thousands)               July 31, 2005       July 31, 2004        July 31, 2003        to 2005           to 2004
----------------               -------------       -------------        -------------     -------------      -------------
<S>                               <C>                 <C>                  <C>                 <C>               <C>
Online Media cost of revenues     $3,320              $2,969               $3,852              12%              (23%)
Online Media gross margin         $4,810              $6,759               $6,553             (29%)               3%
Online Media gross margin %           59%                 69%                  63%
</TABLE>

     Online  Media cost of  revenues  consist  of  personnel  costs and  related
overhead  associated  with  developing  the  editorial  content of the sites and
providing and running advertising campaigns.

     The decrease in Online Media gross  margin  percentages  for fiscal 2005 as
compared to fiscal 2004 was  primarily  driven by the  increase in Online  Media
cost  of  revenues  on  lower  overall  revenue  volumes,  primarily  due to our
elimination of our revenue  generating barter programs.  The increase in cost of
revenues  was  primarily  due to an  increase  in  personnel  costs  related  to
editorial  content  contractors  of $0.2  million and an  increase in  corporate
overhead  facilities  costs  of  $0.2  million  as  a  result  of  consolidating
operations,  offset by a decrease in  depreciation  expense and bandwidth  costs
associated with delivering advertising of $0.1 million.

     The increase in Online Media gross  margin  percentages  for fiscal 2004 as
compared  to fiscal  2003 was driven by the  decrease  in  depreciation  expense
associated with servers that deliver  editorial  content and advertising of $0.8
million.


                                       20
<PAGE>

    E-commerce Cost of Revenues/Gross Margin
<TABLE>
<CAPTION>

                                                     Year Ended                             % Change          % Change
                               -----------------------------------------------------       Fiscal 2004       Fiscal 2003
($ in thousands)               July 31, 2005       July 31, 2004        July 31, 2003        to 2005           to 2004
----------------               -------------       -------------        -------------     -------------      -------------
<S>                               <C>                 <C>                  <C>                 <C>               <C>
E-commerce cost of revenues       $11,591             $10,225              $7,025               13%              46%
E-commerce gross margin           $ 3,327             $ 2,342              $1,540               42%              52%
E-commerce gross margin %              22%                 19%                 18%
</TABLE>

     E-commerce  cost  of  revenues  consist  of  product  costs,  shipping  and
fulfillment  costs  and  personnel  costs  associated  with the  operations  and
merchandising functions.

     E-commerce gross margin  percentages  increased for fiscal 2005 as compared
to fiscal 2004 as a result of higher product  margins due to product mix, offset
by a slight  deterioration in shipping and fulfillment  margins. The increase in
E-commerce  cost of revenues  in absolute  dollars in fiscal 2005 as compared to
fiscal  2004 was  primarily  due to  increased  product  costs of $0.6  million,
shipping  costs of $0.6  million  and  fulfillment  costs of $0.2  million.  The
increase in product costs was the result of increased E-commerce revenue levels.
The increase in shipping costs was partially related to increased revenue levels
and partially due to rate increases and fuel surcharges by both UPS and DHL. The
increase in fulfillment  costs was partially related to increased revenue levels
and partially  due to the  transition  associated  with changing our third party
fulfillment partner in the later part of the fourth quarter of fiscal year 2004.

     E-commerce  gross margin  percentages  remained  relatively flat for fiscal
2004 as compared to fiscal 2003. The increase in E-commerce  cost of revenues in
absolute dollars in fiscal 2004 as compared to fiscal 2003 increased  consistent
with increased E-commerce revenue levels.

     We expect  E-commerce  cost of  revenues  in  absolute  dollars to increase
proportionately  with E-commerce  revenues.  In addition,  we expect  E-commerce
overall gross margins to continue to improve slightly as volume grows.

    Online Images Cost of Revenues/Gross Margin
<TABLE>
<CAPTION>

                                                     Year Ended                             % Change          % Change
                               -----------------------------------------------------       Fiscal 2004       Fiscal 2003
($ in thousands)               July 31, 2005       July 31, 2004        July 31, 2003        to 2005           to 2004
----------------               -------------       -------------        -------------     -------------      -------------
<S>                               <C>                 <C>                  <C>                 <C>               <C>
Online Images cost of revenues    $  495              $   495              $   339              0%               46%
Online Images gross margin        $1,789              $ 1,427              $ 1,241             25%               15%
Online Images gross margin %          78%                  74%                  79%
</TABLE>

     Online  Images  cost of  revenues  consist  of  direct  material  costs for
animation CDs and personnel costs associated with the operations.

     The increase in our Online Images gross margin  percentages for fiscal 2005
as compared to fiscal 2004 was primarily  due to increased  revenues as material
costs remained consistent year over year.

     The decrease in our Online Images gross margin  percentages for fiscal 2004
as compared to fiscal 2003 was  primarily due to increased  server  capacity and
bandwidth usage as the business had grown from year to year.

Operating Expenses

  Sales and Marketing Expenses

     Sales and marketing expenses consist primarily of salaries, commissions and
related  expenses for  personnel  engaged in sales,  marketing and sales support
functions,  as well as  costs  associated  with  trade  shows,  advertising  and
promotional activities.

<TABLE>
<CAPTION>

                                                     Year Ended                             % Change          % Change
                               -----------------------------------------------------       Fiscal 2004       Fiscal 2003
($ in thousands)               July 31, 2005       July 31, 2004        July 31, 2003        to 2005           to 2004
----------------               -------------       -------------        -------------     -------------      -------------
<S>                               <C>                 <C>                  <C>                 <C>               <C>
Sales & Marketing                 $10,060             $10,093              $9,791              --%                3%
Percentage of total net
  revenues                             31%                 34%                 40%
Headcount                              35                  30                   27
</TABLE>


                                       21
<PAGE>

     The slight  decrease  in  absolute  dollars in fiscal  2005 as  compared to
fiscal 2004 was  primarily  related to a decrease in our Online Media  marketing
expense  related to barter of $1.4  million,  offset by  increases  in  employee
expenses of $0.8 million,  commission expenses of $0.3 million, credit card fees
of $0.1 million and marketing expense of $0.2 million. The decline in our barter
marketing  expense was due to the elimination of our revenue  generating  barter
related  programs in the first quarter of fiscal 2005. The $0.8 million increase
in employee expense was primarily related to an increase in headcount.  The $0.3
million in commission  expense was a direct result of increased  revenue related
to our SourceForge  segment. The increase in credit card fees was related to our
ThinkGeek segment and was the result of increased sales volumes. The increase in
marketing  expense was related to public relations for our Online Media segment.
The  decrease as a  percentage  of net  revenues  was due to  increased  revenue
levels.

     The  increase  in  absolute  dollars in fiscal 2004 as compared to 2003 was
primarily related to an increase in employee expenses,  including commission, of
$0.5 million and an increase in credit card fees  associated with our e-commerce
business of $0.3 million. Of the $0.5 million in employee expenses, $0.4 million
was related to commission  expense and was a direct result of increased  revenue
across all businesses.  The increase in credit card fees was directly related to
our increase in E-commerce business year-over-year.  These increases were offset
by a decrease  in our Online  Media  marketing  expense  associated  with barter
programs of $0.6  million.  The decrease as a percentage of net revenues was due
to increased revenue levels.

     Going forward, we do not anticipate any expense related to barter programs.
We believe our sales and marketing expenses in absolute dollars will increase in
the future as we intend to grow our sales  force.  However,  in the  future,  we
expect sales and  marketing  expenses to decrease  slightly as a  percentage  of
revenue.


  Research and Development Expenses

     Research and development ("R&D") expenses consist primarily of salaries and
related  expenses  for  software  engineers.  We expense all of our research and
development costs as they are incurred.

<TABLE>
<CAPTION>

                                                     Year Ended                             % Change          % Change
                               -----------------------------------------------------       Fiscal 2004       Fiscal 2003
($ in thousands)               July 31, 2005       July 31, 2004        July 31, 2003        to 2005           to 2004
----------------               -------------       -------------        -------------     -------------      -------------
<S>                               <C>                 <C>                  <C>                 <C>               <C>
SourceForge R&D                   $3,726              $4,635               $6,186             (20%)             (25%)
Online Media R&D                   1,799               1,541                1,161              17%               33%
E-commerce R&D                       235                 178                  122              32%               46%
Online Images R&D                    362                 378                  346              (4%)              9%
                               -------------       -------------        -------------
Total Research & Development      $6,122              $6,732               $7,815              (9%)             (14%)
Percentage of total net
  revenues                            19%                 23%                  32%
Headcount                             37                  36                   34
</TABLE>

     The decrease in absolute  dollars in fiscal 2005 as compared to fiscal 2004
was primarily due to a decrease in allocated  facility expenses of $0.6 million.
The decrease in allocated  facility  expenses was primarily  related to rent and
depreciation.  Rent  expense has  decreased in fiscal 2005 as compared to fiscal
2004 as a result of our moving into a smaller facility late in the third quarter
of fiscal 2004.  Depreciation  expense has  decreased as well due to moving into
the smaller  facility and writing off the remaining  assets  associated with the
larger  facility  occupied in fiscal 2004.  The decrease as a percentage  of net
revenues was primarily due to our decreased  spending  levels as described above
as well as increased revenue levels.

     The decrease in absolute dollars in fiscal 2004 compared to fiscal 2003 was
primarily due to a decrease in the use of  SourceForge  outside  contractors  of
$0.4  million and  decreased  employee  related  expenses of $0.7  million.  The
decrease  in  SourceForge  contractors  was  specifically  related  to  Cybernet
Software Solutions, Inc. and was the direct result of completing the development
phase  of  SourceForge  3.4.  The  decrease  in  employee-related  expenses  was
primarily due to a reduction in salary expense during fiscal 2004 as the average
R&D headcount declined to 38 in fiscal 2004 from 42 in fiscal 2003. The decrease
as a percentage  of net revenues was  primarily  due to our  decreased  spending
levels  as  described  above as well as  increased  revenue  levels.  We  expect
research and development  expenses to increase  slightly in absolute dollars and
decrease as a percentage of revenue in the future.


                                       22
<PAGE>

     In accordance with Statement of Financial Accounting Standards ("SFAS") No.
86,  "Accounting  for the  Cost of  Computer  Software  to be Sold,  Leased,  or
Otherwise Marketed,"  development costs incurred in the research and development
of  new  software   products  are  expensed  as  incurred  until   technological
feasibility  in the form of a working model has been  established  at which time
such  costs are  capitalized,  subject  to a net  realizable  value  evaluation.
Technological  feasibility is  established  upon the completion of an integrated
working model. To date, our software  development has been completed  concurrent
with the  establishment  of  technological  feasibility  and,  accordingly,  all
software development costs have been charged to research and development expense
in the accompanying consolidated statements of operations. Going forward, should
technological  feasibility  occur  prior  to  the  completion  of  our  software
development,  all costs incurred between technological  feasibility and software
development completion will be capitalized.

  General and Administrative Expenses

     General  and  administrative  expenses  consist  of  salaries  and  related
expenses for finance and  administrative  personnel,  bad debts and professional
fees for accounting and legal services.

<TABLE>
<CAPTION>

                                                     Year Ended                             % Change          % Change
                               -----------------------------------------------------       Fiscal 2004       Fiscal 2003
($ in thousands)               July 31, 2005       July 31, 2004        July 31, 2003        to 2005           to 2004
----------------               -------------       -------------        -------------     -------------      -------------
<S>                               <C>                 <C>                  <C>                 <C>               <C>
General & Administrative          $5,925              $4,665               $6,455              27%              (28%)
Percentage of total net
  revenues                            18%                 16%                  27%
Headcount                             20                  19                   17
</TABLE>

    The  increase in absolute  dollars in fiscal 2005 as compared to fiscal 2004
was primarily  related to the reversal of legal expenses in the first quarter of
fiscal 2004 of $1.2 million,  $0.9 million of which was associated  with the IPO
Securities  Litigation  that was ultimately paid by one of our insurers and $0.3
million of which  related to a lawsuit that was  favorably  resolved.  Excluding
these  reversals,  general and  administrative  expenses  increased  slightly in
fiscal 2005 as compared to fiscal 2004.  The  increase,  excluding  reversals of
legal expenses,  was primarily  related to increased  accounting fees, offset by
decreased  employee  expenses,   recruiting   expenses  and  allocated  facility
expenses.  The increase in accounting fees of $0.9 million was due to additional
costs  associated  with  complying  with the  Sarbanes-Oxley  Act of  2002.  The
decrease in employee  expenses of $0.3 million was associated with lower bonuses
earned in fiscal 2005 as compared with those earned in fiscal 2004. The decrease
in recruiting expenses of $0.2 million was associated with the placement fee for
one of the company's  executives in the second and third  quarters of 2004.  The
decrease in allocated facility expenses of $0.5 million was primarily related to
rent and depreciation. Rent expense has decreased for fiscal 2005 as compared to
fiscal  2004 as a result of moving  into a  smaller  facility  late in the third
quarter of fiscal 2004. Depreciation expense has decreased as well due to moving
into the smaller facility and writing off the remaining  assets  associated with
the larger facility occupied in fiscal 2004. The increase as a percentage of net
revenues was primarily due to our increased expense levels as described above.

     The decrease in absolute  dollars in fiscal 2004 as compared to fiscal 2003
was primarily related to the reversal of legal expenses in 2004 of $1.4 million,
$0.9 million of which was associated with the IPO Securities Litigation that was
ultimately  paid by one of our  insurers,  $0.3  million  of which  related to a
lawsuit that was  favorably  resolved,  and $0.2  million of which  related to a
lawsuit that was  considered  probable at the time of accrual but was considered
highly unlikely at July 31, 2004. In addition,  fiscal 2003 expenses  included a
charge of $0.3 million  resulting from a California  Sales Tax audit  associated
with our former hardware  business.  In 2004, no expense was incurred related to
sales tax audits. The decrease as a percentage of net revenues was primarily due
to our decreased  expense levels  related to prior period  accrual  reversals as
described  above as well as  increased  revenue  levels.  We expect  general and
administrative  expenses  to decrease  from 2005 levels in absolute  dollars and
decrease as a percentage of revenue in the future.


                                       23
<PAGE>


  Restructuring Costs and Other Special Charges

     In fiscal 2001 and 2002, we adopted plans to exit our hardware  systems and
hardware-related  software engineering and professional services businesses,  as
well as exit a sublease  agreement and to reduce our general and  administrative
overhead  costs. We exited these  activities to pursue our current  SourceForge,
Online Media,  E-commerce and Online Images  businesses and reduce our operating
losses to improve cash flow. We recorded restructuring charges of $168.5 million
related to exiting  these  activities,  $160.4  million of which was included in
restructuring  charges and other special charges in operating  expenses and $8.1
million of which was  included in cost of sales.  Included in the  restructuring
were charges related to excess facilities from non-cancelable leases. During the
third quarter of fiscal 2004, in connection with our original 2002 restructuring
plan which  included an assumption to sublet all idle  facilities,  we relocated
our Fremont,  California headquarters to a smaller building in the same complex.
As a result of the change in  circumstances,  original accruals were reevaluated
and we accordingly recorded a restructuring adjustment of $2.9 million. Included
in the $2.9 million dollar restructuring  adjustment was $2.5 million of expense
related to writing off leasehold improvements and fixed assets and an additional
$0.4 million expense related to excess facilities from non-cancelable leases. In
addition,  during the third  quarter of fiscal 2004,  we reached an agreement in
principle  to  sublet  unoccupied  portions  of  properties  that  we  lease  in
Sunnyvale, California and Fremont, California, which was finalized in the fourth
quarter of fiscal 2004.  As a result of the change in  circumstances  due to the
agreement in principle,  original  accruals were  reevaluated and we accordingly
recorded a  restructuring  adjustment  of $0.3  million in the third  quarter of
fiscal 2004.  The $3.2 million  total  adjustment to  restructuring  expenses in
fiscal 2004 was recorded in the  consolidated  statement of operations  for that
period.  In the second quarter of fiscal 2005, a minor credit adjustment of $0.1
million was recorded to accurately  reflect the current common area  maintenance
fees  associated  with  the  Fremont  facilities.  The  remaining  accrual  from
non-cancelable lease payments,  which continue through 2010, is based on current
circumstances.  These accruals are subject to change should actual circumstances
change. We will continue to evaluate and update,  if applicable,  these accruals
quarterly.  As of July 31, 2005, we had an accrual of approximately $7.9 million
outstanding related to these non-cancelable  leases, all of which was originally
included in operating expenses.

     In addition to the above,  we recorded a net  restructuring  credit of $0.3
million for the fiscal year ended July 31, 2003.  This  included $0.4 million of
additional  charges  related to existing  excess  facilities  as a result of the
termination of a subtenant lease and $0.3 million of charges associated with our
fiscal 2002 plan to reduce our general and administrative overhead costs, net of
$1.0  million  in  credit  adjustments  to  previously  recorded   restructuring
reserves. As of July 31, 2004, no outstanding accruals remained related to these
net restructuring activities for fiscal year 2003 .

     All charges as a result of  restructuring  activities have been recorded in
accordance with Emerging  Issues Task Force "EITF" 94-3  "Liability  Recognition
for Certain  Employee  Termination  Benefits and Other Costs to Exit an Activity
(including  Certain Costs incurred in a Restructuring)".  Restructuring  charges
recorded  in  fiscal  2004  were   considered   adjustments   to  the   original
restructuring  plans,  therefore,  Statements of Financial  Accounting Standards
"SFAS"  No.  146  "Accounting  for  Costs   Associated  with  Exit  or  Disposal
Activities" was not applicable.

     Below is a summary of the restructuring  charges in operating  expenses (in
thousands):
<TABLE>
<CAPTION>

                                                          Total Charged                 Total Charged/   Total
                                                          To Operations  Total Charged  (Credited)To     Cash       Restructuring
                                                             Fiscal      To Operations  Operations     Receipts/    Liabilities at
                                                            2001-2003    Fiscal 2004    Fiscal 2005   (Payments)    July 31, 2005
                                                            ---------    -----------    -----------   ----------    -------------
<S>                                                         <C>          <C>             <C>           <C>            <C>
Cash Provisions:
  Other special charges relating to
    restructuring activities............................    $  1,349     $    --         $   --        $  (1,349)     $   --
  Facilities charges....................................      16,176          713           (101)         (8,933)       7,855
  Employee severance and other related charges..........       5,532          --             --           (5,532)         --
                                                            --------     --------        -------       ---------      -------
      Total cash provisions.............................      23,057          713           (101)      $ (15,814)     $ 7,855
                                                            --------     --------        -------       ---------      -------
Non-cash:
  Write-off of goodwill and intangibles.................      90,355          --             --

   Write-off of other special charges relating to
   restructuring activities.............................       9,323        2,496            --
  Write-off of accelerated options from
    terminated employees................................       1,352          --             --
   Acceleration of deferred stock compensation..........      36,064          --             --
                                                            --------     --------        -------
      Total non-cash provisions.........................     137,094        2,496            --
                                                            --------     --------        -------
      Total provisions..................................    $160,151     $  3,209        $  (101)
                                                            ========     ========        =======
</TABLE>


                                       24
<PAGE>

<TABLE>
Below is a summary of the changes to the restructuring liability (in thousands):
<CAPTION>
                                                                      Balance at     Charged to                    Balance at
                                                                      Beginning      Costs and                        End
     Changes in the total accrued restructuring liability             of Period      Expenses      Deductions      of Period
     ----------------------------------------------------             ---------      --------      ----------      ---------

<S>                                                                    <C>            <C>           <C>             <C>
        For the year ended July 31, 2003.......................        $17,994        $   306       $ (3,411)       $14,889
        For the year ended July 31, 2004.......................        $14,889        $   713       $ (4,319)       $11,283
        For the year ended July 31, 2005.......................        $11,283        $  (101)      $ (3,327)       $ 7,855

                                                                        Short           Long          Total
     Components of the total accrued restructuring liability            Term           Term        Liability
     -------------------------------------------------------            ----           ----        ---------

        As of July 31, 2003.....................................       $ 4,117        $10,772       $ 14,889
        As of July 31, 2004.....................................       $ 3,440        $ 7,843       $ 11,283
        As of July 31, 2005.....................................       $ 1,748        $ 6,107       $  7,855
</TABLE>

  Amortization of Deferred Stock Compensation

     In connection  with the grant of stock  options to employees  during fiscal
1999 and prior to our  initial  public  offering  in fiscal  2000,  we  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.  We expensed deferred stock compensation of $20,000 and $0.1 million
for fiscal years 2004 and 2003,  respectively.  Deferred stock  compensation was
fully  amortized  as of July 31,  2004.  As such,  there was no  deferred  stock
compensation expense during fiscal 2005.

     In December  2004,  the FASB issued SFAS  123--revised  2004 ("SFAS 123R"),
"Share-Based Payment" which requires the measurement of all share-based payments
to   employees,   including   grants  of  employee   stock   options,   using  a
fair-value-based  method and the  recording of such expense in our  consolidated
statements  of income.  Beginning in the first fiscal  quarter of 2006,  we will
adopt  SFAS  123R.  We expect the  adoption  of SFAS 132R to have a  significant
adverse  impact on our  consolidated  statements  of income  and net  income per
share.

     On June 8,  2005,  our  Compensation  Committee  of the Board of  Directors
approved the vesting  acceleration of certain unvested,  out-of-the-money  stock
options  outstanding  under our employee  stock option plans,  effective June 7,
2005. Vesting was accelerated for stock options that had exercise prices greater
than $1.67 per share, which was the closing price of our common stock on June 7,
2005. This action was taken to reduce the impact of future compensation  expense
that we  would  otherwise  be  required  to  recognize  in  future  consolidated
statements  of  operations  pursuant  to SFAS 123R,  which is  applicable  to us
beginning in the first fiscal quarter of 2006. As a result of the  acceleration,
we expect to reduce future  compensation  expense by approximately  $8.1 million
over fiscal years 2006, 2007 and 2008.


Intangible Assets

     Intangible assets are amortized on a straight-line basis over three to five
years.  Intangible asset  amortization of $12,000,  $12,000 and $2.1 million was
recorded in fiscal  2005,  2004 and 2003,  respectively.  The  intangible  asset
carrying  value at July 31, 2005 is $7,000 and relates to domain and trade names
associated with our current  SourceForge and OSTG  businesses.  This balance has
been  included  in  "Other  Assets"  in  the  Consolidated  Balance  Sheets.  We
continually evaluate whether events or circumstances have occurred that indicate
the  remaining  estimated  useful  lives of these  intangible  assets may not be
recoverable.  No events or  circumstances  occurred during fiscal year 2005 that
would indicate a possible  impairment in the carrying value of intangible assets
at July 31, 2005.

  Remeasurement of Warrant Liability, Interest and Other Income, Net

     On November 6, 2003,  we entered  into a securities  purchase  agreement in
which we completed a private  placement of 3,529,412  shares of our common stock
with The Riverview Group LLC  ("Riverview") at an issue price of $4.25 per share
for aggregate  proceeds of approximately $15 million (the "Private  Placement").
In connection with the Private  Placement,  the Company retained Wharton Capital


                                       25
<PAGE>


Partners Ltd.  ("Wharton") to act as a financial consultant and placement agent.
Also in connection with the Private  Placement,  Riverview and Wharton  received
three-year  warrants  to  purchase a total of 705,883  and 25,000  shares of our
common stock,  respectively,  at an exercise price of $6.00 and $6.14 per share,
respectively  (collectively,  the  "Warrants").  We entered into a  registration
rights  agreement with Riverview on November 6, 2003 (the  "Registration  Rights
Agreement") in which we agreed to provide certain  registration rights under the
Securities  Act of 1933,  as amended and the rules and  regulations  promulgated
thereunder,  and  applicable  state  securities  laws with respect to the common
stock and the Warrants issued to Riverview.

    Pursuant  to the  terms of the  Registration  Rights  Agreement,  we filed a
registration  statement (the  "Registration  Statement") on Form S-3 in order to
register the common stock and Warrants issued in the Private Placement.  The SEC
declared the  Registration  Statement  effective  on April 30, 2004.  Before the
effective  date of the  Registration  Statement,  the shares of our common stock
sold in the Private  Placement and the shares of our common stock underlying the
Warrants did not have the same rights as the other shares which were included in
the Equity section of the Consolidated Balance sheet.  Therefore,  the shares of
our common  stock  sold in the  Private  Placement  and the shares of our common
stock underlying the Warrants were classified as liabilities on the Consolidated
Balance  sheet.  Liabilities  must be  reported  at fair value as of the balance
sheet date.  Initially the Warrants were valued as of November 6, 2003, and were
revalued on January 31, 2004 using the  Black-Scholes  valuation model and then,
on April 30, 2004, the effective date of the  Registration  Statement,  revalued
again  using  the same  Black-Scholes  valuation  model.  As a  result  of these
remeasurements,  a non-cash  credit  adjustment  of $1.9 million was recorded to
properly  value the  liability.  This  credit  adjustment  was  offset by a $0.3
million non-cash expense which was recorded as a result of not having the common
stock shares associated with the Private Placement registered.  Both adjustments
have been recorded in "Remeasurement  of warrant  liability" in the Consolidated
Statement of Operations.  As a result of the S-3 becoming effective on April 30,
2004, the remaining  liability for the Warrants of $0.6 million was reclassified
to equity as of that date. The Company is required to maintain the effectiveness
of the Registration Statement on a commercially reasonable basis.

     Related Party Transactions

    As of July 31, 2005, we hold an investment of approximately  14% in VA Linux
Systems Japan, K.K. ("VA Linux Japan").  We continually  evaluate whether events
or  circumstances  have  occurred  that  indicate  the  remaining  value  of the
investment may be impaired. Based on the valuation performed at July 31, 2005, a
small  impairment  was recorded for $0.1  million  during the fourth  quarter of
fiscal 2005. There is no quoted market price for this  investment;  accordingly,
fair value was estimated by management  based on the estimated fair value of the
underlying  net  assets.  This  investment  is  reported  under our  SourceForge
segment.  The impairment has been included in "Impairment of long-lived  assets"
in  the   Consolidated   Statements  of  Operations   and  Other   Comprehensive
Income/(Loss)".  As of July  31,  2005,  we had an  investment  balance  of $0.4
million.  This balance has been included in "Other  Assets" in the  Consolidated
Balance  Sheets.  VA  Linux  Japan  acts as a  reseller  of the our  SourceForge
application to customers in Japan and,  pursuant to a license agreement with us,
resyndicates  certain OSTG Web sites for the Japanese market.  There are $59,000
of  related-party  receivables  and $47,000 of  related-party  deferred  revenue
associated  with VA Linux Japan as of July 31,  2005 that are  included in trade
receivables  and deferred  revenue in the  accompanying  Condensed  Consolidated
Balance Sheets.  There are no  related-party  receivables  and deferred  revenue
associated  with VA Linux Japan as of July 31,  2004 that are  included in trade
receivables  and deferred  revenue in the  accompanying  Condensed  Consolidated
Balance  Sheets.  There  were  $0.5  million,  $0.2  million  and  $0.1  million
related-party  revenues  associated with VA Linux Japan for the years ended July
31, 2005, July 31, 2004 and July 31, 2003, respectively.



  Interest and Other Income, Net

<TABLE>
<CAPTION>

                                                     Year Ended                             % Change          % Change
                               -----------------------------------------------------       Fiscal 2004       Fiscal 2003
($ in thousands)               July 31, 2005       July 31, 2004        July 31, 2003        to 2005           to 2004
----------------               -------------       -------------        -------------     -------------      -------------
<S>                               <C>                 <C>                  <C>                 <C>               <C>
Interest Income                   $914                $911                 $1,132               --%             (20%)
Interest Expense                  $(39)               $ (5)                $   (8)               *              (38%)
Other Income (Expense)            $ 83                $895                 $  (40)               *                *

<FN>
*Percentage not meaningful
</FN>
</TABLE>

     Interest income  remained  consistent for fiscal 2005 as compared to fiscal
2004 on lower cash levels due to increased returns on our cash.


                                       26
<PAGE>

     Although we received an  additional  $14.5  million in proceeds  associated
with a Private Placement offering,  net of issuance costs, in the second quarter
of fiscal 2004, we  experienced  a decline in interest  income in fiscal 2004 as
compared to fiscal 2003 as a result of the continuing decline in interest rates.

     We  expect  our cash  balance  to  continue  to  decrease  to  support  our
operations,  however, interest income may fluctuate as interest rates fluctuate.
For  additional   information,   please  refer  to  Item  7A  "Quantitative  and
Qualitative Disclosures About Market Risk".

     The increase in interest  expense in fiscal 2005 as compared to fiscal 2004
was due to the  equipment  capital  lease  that we  entered  into in the  second
quarter of fiscal 2005. The capital lease expires in October 2005.

     Other  income and  expenses  decreased in fiscal 2005 as compared to fiscal
2004  primarily due to proceeds  received  from a legal  settlement in the first
quarter of fiscal 2004 of $1.0 million.

     Other  income and  expenses  increased in fiscal 2004 as compared to fiscal
2003 primarily due to proceeds  received from a legal  settlement in fiscal 2004
of $1.0 million.


  Income Taxes

     As of July 31,  2005,  we had  $346.2  million  of  federal  and  state net
operating loss  carry-forwards  for tax reporting  purposes  available to offset
future  taxable  income.  We have not  recognized  any  benefit  from  these net
operating loss  carry-forwards  because a valuation  allowance has been recorded
for the  total  deferred  tax  assets  as a result  of  uncertainties  regarding
realization  of the assets  based on the lack of  profitability  to date and the
uncertainty  of future  profitability.  The federal and state net operating loss
carry-forwards  expire at various dates through fiscal year 2025 and fiscal year
2015, respectively,  to the extent that they are not utilized. The amount of net
operating losses that we can utilize is limited under tax regulations because we
have  experienced a cumulative  stock ownership change of more than 50% over the
last three years.

Liquidity and Capital Resources

                                                          Year Ended
                                               ---------------------------------
                                                July 31,   July 31,     July 31,
 (in thousands)                                   2005       2004         2003
                                               --------    --------    --------
Net cash provided by (used in):
     Operating activities                      $ (6,135)   $(10,912)   $(15,809)
     Investing activities                        (2,814)     (2,322)    (14,448)
     Financing activities                           552      17,840       1,400
Effect of exchange rate changes on cash
    and cash equivalents                            (69)         55          12
                                               --------    --------    --------
Net change in cash and cash equivalents        $ (8,466)   $  4,661    $(28,845)
                                               ========    ========    ========


     Our  principal  sources of cash as of July 31, 2005 are our existing  cash,
cash equivalents,  short-term and long-term investments of $38.4 million,  which
excludes  restricted cash of $1.0 million (refer to financing  activities  below
for discussion on restricted cash). Cash and cash equivalents  decreased by $8.5
million, and short-term and long-term  investments  increased by $2.8 million at
July 31, 2005 when compared to July 31, 2004. This overall decrease is primarily
due to cash used in  operations  and  payments  related to idle  facilities  and
capital expenditures.

     Our net change in cash and cash  equivalents  was positive  during the year
ended July 31, 2004 as the result of raising  $14.5 million in net proceeds as a
result of a private placement issuance of shares of our common stock.  Excluding
that financing activity, net cash would have declined by $9.8 million.

     The cash flow  discussion  below describes the cash used or provided in one
period as  compared  to the cash used or  provided  in the same  period  for the
previous  year.  As  such,  the  year  to  year  fluctuations  discussed  can be
calculated from the Consolidated Statements of Cash Flows.


                                       27
<PAGE>

    Operating Activities

     The decrease in cash usage related to operating activities, net of non-cash
expense, in fiscal 2005, as compared to fiscal 2004, was primarily the result of
a decrease in net loss, net of non-cash expense,  of $1.4 million, a decrease in
accounts  receivable of $1.6 million, a decrease in inventories of $0.9 million,
a decrease in cash payments related to excess  facilities of $1.0 million and an
increase in accrued  liabilities  and other of $2.2 million.  The increased cash
inflow  related to accounts  receivable  was  primarily  the result of increased
collections  in fiscal 2005 compared to fiscal 2004.  The increased  cash inflow
related to inventories was primarily the result of decreased  purchasing  levels
and increased  sales levels  compared to fiscal 2004.  The increased cash inflow
related to accrued  restructuring  was due to decreased cash payments related to
excess  facilities.  Cash payments  related to excess  facilities in fiscal 2005
were $3.3 million  compared to $4.3 million in fiscal 2004. The decreased change
in restructuring  liability for fiscal 2004 was due to a $0.7 million adjustment
recorded based on the change in events related to excess facilities in the third
quarter of fiscal 2004. The increased cash inflow related to accrued liabilities
and other was primarily  related to the reversal of legal  expenses in the first
quarter  of fiscal  2004 of $1.2  million  and  increasing  accounting  accruals
related to the Company's  Sarbanes-Oxley efforts in fiscal 2005 of $0.8 million.
The  increase in cash  inflow was offset by an  increase in accounts  payable of
$0.9 million as a result of the timing of payments and deferred  revenue of $0.6
million due to increased sales volume.

     The decrease in cash usage related to operating activities, net of non-cash
expense, in fiscal 2004, as compared to fiscal 2003, was primarily the result of
a decrease in net loss, net of non-cash expense of $3.4 million,  an increase in
accrued  liabilities  and other of $1.3  million  and an  increase  in  accounts
payable of $2.0 million.  The increased cash flow from accrued  liabilities  and
other was primarily related to the growth in SourceForge  bookings and therefore
deferred  revenue in 2004 as  compared  to 2003.  The  increased  cash flow from
accounts  payable was primarily the result of our continued  efforts to decrease
expenses as well as the timing of payments. The increase in cash flow was offset
by  an  increase  in  accounts  receivable  of  $0.9  million,  an  increase  in
inventories  of $0.6  million  and a decrease in accrued  restructuring  of $0.5
million.  The increased cash usage related to accounts  receivable was primarily
the result of increased  SourceForge  sales in July 2004  compared to July 2003.
The  increased  cash usage  related to  inventories  was primarily the result of
higher  volume  purchases in the fourth  quarter of fiscal 2004  compared to the
fourth  quarter of fiscal 2003.  These higher  volume  purchases  were made as a
result of long lead times and to secure  exclusive  inventory  that would not be
available  later in the year.  Finally,  the  increased  cash  usage  related to
accrued  restructuring was the result of increased payments on excess facilities
in 2004 compared to 2003 of $1.4 million,  offset by a decrease in cash payments
related to severance  agreements of $0.5  million.  Cash payments made on excess
facilities  in 2004 was $4.3  million,  compared  to $2.9  million in 2003.  The
variance in the restructuring  accrual compared to the payments made in 2004 was
the $0.7 million  adjustment  recorded  based on the change in events related to
excess facilities that occurred in the third and fourth quarters of fiscal 2004.
Payments made to former  employees  for  severance  agreements in 2003 were $0.5
million.  A decrease in cash  outflow of $0.5  million in 2004  compared to 2003
resulted as no restructuring related severance payments were made in 2004.

     We expect that the above cash  utilization  trends will continue as we grow
our  business  and pay off our  remaining  lease  obligations  related to excess
facilities.


    Investing Activities

     Our  investing  activities  primarily  include  purchases  of property  and
equipment and purchases and sales of marketable securities.

     The increase in cash usage related to investing  activities in fiscal 2005,
as compared to the fiscal 2004,  was  primarily the result of an increase in net
purchases of  marketable  securities  of $2.3  million,  offset by a decrease in
capital  expenditures  of  $0.4  million  and an  increase  in  cash  flow  from
restricted  cash.  During fiscal 2005, we purchased  (net) $2.8 million in short
and long-term  marketable  securities compared to a net purchase of $0.5 million
in fiscal 2004. The decrease in cash usage related to capital  expenditures  was
primarily  related to a  significant  purchase  of servers  associated  with our
Online Media  segment in the first quarter of 2004.  The  increased  cash inflow
from  restricted  cash was  related to the  release of  restricted  cash of $0.5
million in fiscal  2005  compared  to an  increase  in  restricted  cash of $0.5
million in fiscal 2004.

     The decrease in cash usage related to investing  activities in fiscal 2004,
as  compared  to fiscal  2003,  was  primarily  the result of a decrease  in net
purchases  of  marketable  securities  of $14.1  million.  The  decrease  in net
purchases of marketable  securities was the result of our strategic  decision in
fiscal 2003 to increase our short- and  long-term  investments  and decrease our
cash  equivalent  investments in an effort to maximize our rate of return.  As a
result,  in 2003 we experienced  much higher cash outflows related to marketable
security  purchases than we did 2004. This decrease was offset by higher capital
expenditures  of $0.7  million and an increase  in our  restricted  cash of $1.0
million in fiscal  2004,  as compared to 2003,  primarily  as a result of moving
into a new facility during fiscal 2004.


                                       28
<PAGE>

    Financing Activities

     Our investing  activities  have  primarily  included cash proceeds from the
sale of our common stock through  employee  benefit plans and private  placement
offerings, and payments on notes payable.

     The decrease in cash  provided by financing  activities  in fiscal 2005, as
compared  to fiscal  2004,  was the result of a private  placement  issuance  of
shares of our  common  stock  during the  second  quarter  of fiscal  2004 and a
decline in the cash generated from the issuance of common stock to our employees
in fiscal 2005 as compared to fiscal 2004. We are uncertain of the level of cash
that will be  generated  in the future from the  issuance of common stock to our
employees as the exercising of options is dependant upon several factors such as
the price of our common stock and the number of employees  participating  in our
stock option plans.

     The increase in net cash  provided by financing  activities in fiscal 2004,
as compared to fiscal 2003,  was  primarily due to the $14.5 million of proceeds
received upon the private  placement of 3,529,412 shares of our common stock. In
addition, net cash provided by financing activities increased in fiscal 2004, as
compared to fiscal 2003, due to an increase of $2.0 million in net proceeds from
the sale of common stock through our employee benefit plans.

     For the fiscal years ended July 31, 2005,  July 31, 2004 and July 31, 2003,
respectively  exchange  rate changes had an  immaterial  effect on cash and cash
equivalents. We expect that exchange rate changes will have an immaterial effect
on cash and cash  equivalents  in the near  future due to our focus on  US-based
business.

     As of July 31, 2005 and July 31, 2004, we had outstanding letters of credit
issued under a line of credit of  approximately  $1.0 million and $1.5  million,
respectively,  related to the corporate  facility  lease.  The amount related to
this  letter of credit is  recorded  in the  "Restricted  cash"  section  of the
condensed  consolidated  balance sheet.  The balance declined by $0.5 million in
the fourth  quarter of fiscal  year 2005 under the terms of our  existing  lease
agreement.  The remaining $1.0 million will decline as the Company meets certain
financial covenants.

     Our  liquidity  and  capital   requirements  depend  on  numerous  factors,
including market  acceptance of our software and online products,  the resources
we devote to  developing,  marketing,  selling and  supporting  our software and
online  products,   the  timing  and  expense   associated  with  expanding  our
distribution  channels,  potential  acquisitions and other factors. We expect to
devote capital  resources to continue our research and development  efforts,  to
invest in our sales, support,  marketing and product development  organizations,
to enhance and introduce  marketing  programs,  and for other general  corporate
activities.  We believe that our existing  cash  balances  will be sufficient to
fund our operations through fiscal 2006 under our current business strategy.

Contractual Obligations

The contractual obligations presented in the table below represent our estimates
of future payments under fixed contractual obligations and commitments.  Changes
in our business needs,  cancellation  provisions and other factors may result in
actual  payments  differing  from the  estimates.  We cannot  provide  certainty
regarding the timing and amounts of payments. The following table summarizes our
fixed  contractual   obligations  and  commitments  as  of  July  31,  2005  (in
thousands):
<TABLE>
<CAPTION>

Contractual Obligations                                         Less than                                   More than
                                                   Total          1 year        1-3 years     3-5 years      5 years
                                                   -----          ------        ---------     ---------      -------
<S>                                               <C>             <C>            <C>           <C>           <C>
Gross Operating Lease Obligations                 $17,821         $3,789         $7,127        $6,905        $   --
 Sublease Income                                    5,276          1,145          2,097         2,034            --
                                                  -------         ------         ------        ------        -------
Net Operating Lease Obligations                    12,545          2,644          5,030         4,871            --

Capital Lease Obligations                              11             11             --            --            --
Purchase Obligations                                1,194          1,194             --            --            --
                                                  -------         ------         ------        ------        -------
Total Obligations                                 $13,750         $3,849         $5,030        $4,871        $   --
                                                  =======         ======         ======        ======        =======
</TABLE>

Sublease income  represents our expectations of payments to be received from our
subtenants. As of July 31, 2005, all of our excess facilities are sublet through
the remainder of each facilities lease term.


                                       29
<PAGE>

    Financial Risk Management

     As a primarily  US-centric  company,  we face  limited  exposure to adverse
movements  in foreign  currency  exchange  rates and we do not engage in hedging
activity. We do not anticipate  significant currency gains or losses in the near
term.  These  exposures  may change over time as business  practices  evolve and
could have a material adverse impact on our financial results.

     We maintain  investment  portfolio  holdings of various issuers,  types and
maturities.   These  securities  are  classified  as   available-for-sale,   and
consequently are recorded on the  consolidated  balance sheet at fair value with
unrealized  gains and losses  reported as a separate  component  of  accumulated
other  comprehensive  income (loss).  These securities are not leveraged and are
held for purposes other than trading.

     Recent Accounting Pronouncements

     In  November  2004,  the FASB  issued SFAS No.  151,  Inventory  Costs,  an
amendment of ARB No. 43,  Chapter 4. SFAS No. 151 clarifies the  accounting  for
abnormal amounts of idle facility  expense,  freight,  handling costs and wasted
material.  SFAS No. 151 is effective for inventory  costs incurred during fiscal
years beginning in our first quarter of fiscal 2006. We do not believe  adoption
of SFAS No.  151 will  have a  material  effect  on our  consolidated  financial
position, results of operations or cash flows.

     In December,  2004, the FASB issued SFAS No. 153,  Exchanges of Nonmonetary
Assets,  an  amendment  of APB  Opinion  No.  29.  SFAS No.  153  addresses  the
measurement  of  exchanges  of  nonmonetary  assets and  redefines  the scope of
transactions  that  should be  measured  based on the fair  value of the  assets
exchanged.  SFAS No. 153 is effective for nonmonetary asset exchanges  beginning
in our first quarter of fiscal 2006. We do not believe  adoption of SFAS No. 153
will have a material effect on our consolidated  financial position,  results of
operations or cash flows.

     In December  2004,  the FASB issued SFAS  123--revised  2004 ("SFAS 123R"),
"Share-Based  Payment"  which  replaces SFAS 123,  "Accounting  for  Stock-Based
Compensation"  and  supersedes  APB No.  25,  "Accounting  for  Stock  Issued to
Employees."  SFAS 123R  requires the  measurement  of all  employee  share-based
payments to  employees,  including  grants of employee  stock  options,  using a
fair-value-based  method and the  recording of such expense in our  consolidated
statements of income.  The accounting  provisions of SFAS 123R are effective for
reporting periods beginning after June 15, 2005.

     We are required to adopt SFAS 123R in the first quarter of fiscal 2006. The
pro forma disclosures  previously  permitted under SFAS 123 no longer will be an
alternative  to  financial  statement  recognition.  See Note 2 in our  Notes to
Consolidated  Financial  Statements  for the pro forma net income and net income
per share amounts, for fiscal 2004 and fiscal 2005 presented,  as if we had used
a  fair-value-based  method  similar to the methods  required under SFAS 123R to
measure  compensation  expense for employee stock incentive awards.  Although we
have not yet determined whether the adoption of SFAS 123R will result in amounts
that are  similar to the current  pro forma  disclosures  under SFAS 123, we are
evaluating  the  requirements  under SFAS 123R and expect the adoption to have a
significant adverse impact on our consolidated  statements of operations and net
loss per share.

     In May 2005, the Financial  Accounting  Standards  Board,  or FASB,  issued
Statement  of  Financial  Accounting  Standards,  or SFAS,  No. 154,  Accounting
Changes  and Error  Corrections,  which  replaces  Accounting  Principles  Board
Opinion,  or APB,  No.  20,  Accounting  Changes,  and  SFAS  No.  3,  Reporting
Accounting  Changes in  Interim  Financial  Statements  -- An  Amendment  of APB
Opinion No. 28. SFAS No. 154 provides  guidance on accounting  for and reporting
changes in  accounting  principle and error  corrections.  SFAS No. 154 requires
that changes in accounting principle be applied  retrospectively to prior period
financial  statements and is effective for fiscal years beginning after December
15,  2005.  We do not  expect  SFAS No.  154 to have a  material  impact  on our
consolidated financial position, results of operations, or cash flows.


Risk Factors

CURRENT AND PROSPECTIVE  INVESTORS IN VA SOFTWARE  SECURITIES  SHOULD  CAREFULLY
CONSIDER THE RISKS  DESCRIBED  BELOW BEFORE  MAKING AN INVESTMENT  DECISION.  IN
ADDITION, THESE RISKS ARE NOT THE ONLY ONES FACING OUR COMPANY. ADDITIONAL RISKS


                                       30
<PAGE>

OF WHICH WE ARE NOT PRESENTLY AWARE OR THAT WE CURRENTLY  BELIEVE ARE IMMATERIAL
MAY ALSO IMPAIR OUR BUSINESS OPERATIONS.  OUR BUSINESS COULD BE HARMED BY ANY OF
THESE RISKS.  THE TRADING  PRICE OF OUR COMMON STOCK COULD DECLINE DUE TO ANY OF
THESE RISKS, AND INVESTORS MAY LOSE ALL OR PART OF THEIR INVESTMENT.

                    Risks Related To Our SourceForge Business

Because the market for our SourceForge  application  software is still emerging,
we do not know whether existing and potential customers will license SourceForge
in sufficient quantities for us to achieve profitability.

Our future growth and financial  performance will depend on market acceptance of
SourceForge and our ability to license our software in sufficient quantities and
under  acceptable  terms.  The number of customers  using  SourceForge  is still
relatively  small.  We expect that we will continue to need intensive  marketing
and sales efforts to educate  prospective clients about the uses and benefits of
SourceForge.  Various  factors  could  inhibit  the growth of the market for and
market  acceptance of  SourceForge.  In particular,  potential  customers may be
unwilling  to  make  the  significant   capital  investment  needed  to  license
SourceForge.  Many of our customers  have  licensed  only limited  quantities of
SourceForge,  and these or new  customers  may decide not to deploy our software
more  broadly.  We cannot be certain that a viable market for  SourceForge  will
emerge or, if it does  emerge,  that it will be  sustainable.  If a  sustainable
viable market for  SourceForge  fails to emerge,  this would have a significant,
adverse effect upon our software business and operating results.

We are devoting the  majority of our  research and  development  spending to our
SourceForge application,  so if this software does not achieve market acceptance
we are likely to experience continued operating losses.

Although in fiscal year 2005, which ended on July 31, 2005, approximately 23% of
our revenue was derived from our SourceForge  business,  we devoted 61%, or $3.7
million,  of our research and  development  spending to research and development
associated with our SourceForge software  application.  We expect to continue to
allocate the majority of our research and  development  resources to SourceForge
for the foreseeable future. There can be no assurance,  however, that we will be
sufficiently  successful  in  marketing,  licensing,  upgrading  and  supporting
SourceForge  to  offset  our  substantial   software  research  and  development
expenditures.  A failure  to grow  SourceForge  revenue  sufficiently  to offset
SourceForge's  significant  research and  development  costs will materially and
adversely affect our business and operating results.

If  we  fail  to  attract  and  retain  larger  corporate  and  enterprise-level
customers, our revenues will not grow and may decline.

We have  focused  our sales and  marketing  efforts  upon larger  corporate  and
enterprise-level  customers.  This  strategy  may  fail to  generate  sufficient
revenue to offset the  substantial  demands that this strategy will place on our
business,  in particular  the longer sales cycles,  higher levels of service and
support  and volume  pricing  and terms that  larger  corporate  and  enterprise
accounts  often  demand.  In addition,  these larger  customers  generally  have
significant financial and personnel resources.  As a result, rather than license
SourceForge, our target customers may develop collaborative software development
applications  internally,  including ad hoc development of applications based on
open  source  code.  A failure  to  successfully  obtain  revenues  from  larger
corporate or enterprise-level customers will materially and adversely affect our
operating results.

If we fail to  anticipate  or respond  adequately  to  technology  developments,
industry standards or practices, and customer requirements,  or if we experience
any significant  delays in product  development,  introduction,  or integration,
SourceForge may become obsolete or  unmarketable,  our ability to compete may be
impaired, and our SourceForge revenues may not grow or may decline.

Rapid technological advances, changes in customer requirements, and frequent new
product  introductions  and  enhancements  characterize  the  software  industry
generally.   We  must  respond  rapidly  to  developments  related  to  hardware
platforms, operating systems, and software development tools. These developments
will require us to make substantial product development investments.  We believe
the success of our SourceForge  business will become  increasingly  dependent on
our ability to:

     o    support  multiple  platforms,  including  Linux,  commercial  UNIX and
          Microsoft Windows;

     o    use  the  latest   technologies  to  continue  to  support   web-based
          collaborative software development; and

     o    continually  support  the  rapidly  changing   standards,   tools  and
          technologies used in software development.

                                       31
<PAGE>

Our SourceForge  application  software has a long and unpredictable sales cycle,
which  makes it  difficult  to  forecast  our future  results  and may cause our
operating results to vary significantly.

The period between initial contact with a prospective customer and the licensing
of SourceForge  varies and has often exceeded  three and  occasionally  exceeded
twelve  months.  Additionally,  our sales  cycle is  complex  because  customers
consider a number of factors before committing to license  SourceForge.  Factors
that our customers and potential customers have informed us that they considered
when  evaluating  SourceForge  include  product  benefits,   cost  and  time  of
implementation,  and the ability to operate with  existing  and future  computer
systems and applications. We have found that customer evaluation, purchasing and
budgeting  processes  vary  significantly  from  company  to  company.  We spend
significant  time  and  resources  informing  prospective  customers  about  our
SourceForge  products,  which  may not  result  in  completed  transactions  and
associated  revenue.  Even  if  SourceForge  has  been  chosen  by  a  customer,
completion of the  transaction  is subject to a number of  contingencies,  which
make our quarterly revenues difficult to forecast.  These contingencies  include
but are not limited to the following:

     o    Our ability to sell SourceForge licenses may be impacted by changes in
          the strategic  importance of software  projects due to our  customers'
          budgetary constraints or changes in customer personnel;

     o    A customer's internal approval and expenditure  authorization  process
          can be difficult and time consuming.  Delays in approvals,  even after
          we are  selected  as a vendor,  could  impact the timing and amount of
          revenues recognized in a quarterly period; and

     o    The number, timing and significance of enhancements to our SourceForge
          products and future  introductions  of new software by our competitors
          and us may affect customer-purchasing decisions.

If we do not  continue to receive  repeat  business  from  existing  SourceForge
customers, our revenue will not grow and may decline.

We  generate a  significant  amount of our  SourceForge  license  revenues  from
existing customers. Generally, our customers initially purchase a limited number
of licenses as they evaluate, implement and adopt SourceForge. Even if customers
successfully  use  SourceForge,  such  customers  may  not  purchase  additional
licenses to expand the use of our product.  Purchases of additional  licenses by
these  customers  will depend on their success in deploying  SourceForge,  their
satisfaction  with our product and support services and their use of competitive
alternatives.  A customer's  decision to widely deploy  SourceForge and purchase
additional  licenses  may also be  affected  by factors  that are outside of our
control or which are not related to our product or services.  In addition, as we
deploy new versions of  SourceForge,  or  introduce  new  products,  our current
customers may not require the  functionality of our new versions or products and
may decide not to license these products.


Increased  utilization and costs of our technical support services may adversely
affect our financial results.

Over the short  term,  we may be unable to respond to  fluctuations  in customer
demand for support  services.  We may also be unable to modify the format of our
support  services  to  compete  with  changes in support  services  provided  by
competitors.  Further,  customer demand for these services could cause increases
in the costs of providing  such  services  and  adversely  affect our  operating
results.

Contractual  issues may arise during the negotiation  process that may delay the
anticipated  closure of a  transaction  and our ability to recognize  revenue as
anticipated.  The occurrence of such issues might cause our SourceForge  revenue
and  operating  results  to fall  below our  publicly-stated  expectations,  the
expectations of securities analysts or the expectations of investors. Failure to
meet  public  expectations  is likely to  materially  and  adversely  affect the
trading price of our common stock.

Because we focus on selling  enterprise  solutions,  the process of  contractual
negotiation is critical and may be lengthy.  Additionally,  several  factors may
require us to defer  recognition of license revenue for a significant  period of
time after entering into a license agreement,  including  instances where we are
required to deliver either unspecified additional products or specified upgrades
for which we do not have vendor-specific objective evidence of fair value. While
we  have a  standard  software  license  agreement  that  provides  for  revenue
recognition  provided  that  delivery has taken place,  collectibility  from the
customer is reasonably assured and assuming no significant future obligations or
customer acceptance rights exist,  customer  negotiations and revisions to these
terms could impact our ability to recognize revenues at the time of delivery.


                                       32
<PAGE>

Many  enterprise  customers  negotiate  software  licenses  near the end of each
quarter. In part, this is because enterprise customers are able, or believe that
they are able, to negotiate  lower prices and more favorable terms at that time.
Our reliance on a large portion of SourceForge  revenue  occurring at the end of
the quarter and the increase in the dollar value of  transactions  that occur at
the end of a quarter can result in increased  uncertainty  relating to quarterly
revenues. Due to end-of-period variances,  forecasts may not be achieved, either
because  expected sales do not occur or because they occur at lower prices or on
terms that are less favorable to us.

In addition,  slowdowns in our  quarterly  license  contracting  activities  may
impact our service  offerings and may result in lower revenues from our customer
training, professional services and customer support organizations.  Our ability
to maintain or increase  service  revenues is highly dependent on our ability to
increase the number of license agreements we enter into with customers.

                   Risks Related To Our Online Media Business

If our online  business  fails to continue to deliver  original  and  compelling
content and services,  we will be unable to attract and retain users, which will
adversely affect our financial results.

The successful  development and production of content and services is subject to
numerous uncertainties, including our ability to:

     o    anticipate  and  successfully  respond  to rapidly  changing  consumer
          tastes and preferences;

     o    fund new program development; and

     o    attract and retain qualified editors, writers and technical personnel.


We cannot assure you that our online  content and services will be attractive to
a sufficient number of users to generate revenues  consistent with our estimates
or sufficient to sustain operations.  In addition, we cannot assure you that any
new content or services will be developed in a timely or cost-effective  manner.
If we are unable to  develop  content  and  services  that allow us to  attract,
retain and expand a loyal user base that is attractive to  advertisers,  we will
be unable to generate sufficient revenue to grow our online business.

If our online business fails to deliver innovative  marketing programs,  we will
be unable to attract and retain  advertisers,  which will  adversely  affect our
financial results.

The successful  development  and production of marketing  programs is subject to
numerous uncertainties, including our ability to:

     o    enable  advertisers to showcase  products,  services  and/or brands to
          their intended audience;

     o    anticipate  and  successfully  respond  to  emerging  trends in online
          advertising; and

     o    attract and retain qualified marketing and technical personnel.


We cannot  assure  you that our  online  marketing  programs  will  enable us to
attract  and  retain  advertisers  and  generate  revenues  consistent  with our
estimates or sufficient to sustain operations. In addition, we cannot assure you
that any new marketing  programs will be developed in a timely or cost-effective
manner. If we are unable to deliver innovative  marketing programs that allow us
to expand our advertiser base, we will be unable to generate  sufficient revenue
to grow our online business.


Decreases or delays in advertising  spending due to general economic  conditions
could harm our ability to generate  advertising  revenue,  which would adversely
affect our financial results.

Expenditures by advertisers  tend to be cyclical,  reflecting  overall  economic
conditions  as well as budgeting  and buying  patterns.  The overall  market for
advertising, including Internet advertising, has been generally characterized in
recent quarters by modest growth of marketing and advertising  budgets.  Because
we derive a large part of our revenues from  advertising  fees,  decreases in or
delays of advertising  spending  could reduce our revenues or negatively  impact
our  ability to grow our  revenues.  Even if  economic  conditions  continue  to
improve,  marketing  budgets and  advertising  spending  may not  increase  from
current levels.


                                       33
<PAGE>

If we fail to maintain our  strategic  relationship  with IDG,  our  advertising
revenue  will  not  grow as  anticipated  and  may  decline,  and our  financial
performance will suffer.

During the first  quarter of fiscal year 2005,  we entered into a marketing  and
sales agreement with International Data Group ("IDG").  Under the agreement with
IDG, IDG's Global Solution's sales force will sell international  advertising on
OSTG's network of Web sites, but it is not committed to providing any guaranteed
amount  of sales  of  referrals.  If we are  unable  to  expand  this  strategic
relationship  with  IDG,  our  ability  to  increase  our  online  international
advertising  sales  may  be  harmed.   In  addition,   IDG  can  terminate  this
relationship  with us,  pursue  other  relationships,  or  attempt to develop or
acquire  Web  sites  that  compete  with our Web sites  for  online  advertising
revenue.  Even if we succeed in maintaining or expanding our  relationship  with
IDG, the relationship may not result in additional online advertising  customers
or revenues.

                    Risks Related To Our E-Commerce Business

We cannot predict our E-commerce customers'  preferences with certainty and such
preferences may change rapidly.  If we fail to accurately assess and predict our
E-commerce  customers'  preferences,  it will  adversely  impact  our  financial
results.

Our E-commerce offerings on our ThinkGeek.com web site are designed to appeal to
IT professionals, software developers and others in technical fields. Misjudging
either the market for our  products  or our  customers'  purchasing  habits will
cause our sales to decline,  our  inventories  to increase  and/or require us to
sell our products at lower prices,  all of which would have a negative effect on
our business.

We are exposed to significant  inventory risks as a result of  seasonality,  new
product launches, rapid changes in product cycles and changes in consumer tastes
with  respect to our  products  offered at our  ThinkGeek  E-commerce  web site.
Failure  to  properly  assess our  inventory  needs  will  adversely  affect our
financial results.

In order to be successful,  we must accurately predict our customers' tastes and
avoid  overstocking or under-stocking  products.  Demand for products can change
significantly  between the time  inventory  is ordered and the date of sale.  In
addition,  when we begin selling a new product, it is particularly  difficult to
forecast  product  demand  accurately.  The  acquisition  of  certain  types  of
inventory,  or inventory from certain sources, may require significant lead-time
and  prepayment,  and such  inventory  may not be  returnable.  We carry a broad
selection and  significant  inventory  levels of certain  products and we may be
unable to sell products in sufficient  quantities or during the relevant selling
seasons.

If we do not  maintain  sufficient  E-commerce  inventory  levels,  or if we are
unable to  deliver  our  E-commerce  products  to our  customers  in  sufficient
quantities,   our  E-commerce  business  operating  results  will  be  adversely
affected.

We must be able to deliver our merchandise in sufficient  quantities to meet the
demands of our customers and deliver this  merchandise  to customers in a timely
manner. We must be able to maintain  sufficient  inventory levels,  particularly
during the peak holiday selling  seasons.  If we fail to achieve these goals, we
may be  unable  to meet  customer  demand,  and our  financial  results  will be
adversely affected.

Our  ThinkGeek  E-commerce  web  site is  dependent  upon a single  third  party
fulfillment and warehouse provider. The satisfaction of our E-commerce customers
is highly  dependent upon  fulfillment  of orders in a  professional  and timely
manner, so any decrease in the quality of service offered by our fulfillment and
warehouse  provider will  adversely  affect our reputation and the growth of our
E-commerce business.

Our ThinkGeek  E-commerce  web site's ability to receive  inbound  inventory and
ship completed orders efficiently to our customers is substantially dependent on
a third-party contract fulfillment and warehouse provider.  We currently utilize
the services of Dotcom Distribution,  Inc. ("Dotcom  Distribution"),  located in
Edison, New Jersey. If Dotcom Distribution fails to meet our future distribution
and fulfillment needs, our relationship with and reputation among our E-commerce
customers  will suffer and this will  adversely  affect our  E-commerce  growth.
Additionally,   if  Dotcom   Distribution   cannot  meet  our  distribution  and
fulfillment needs,  particularly during the peak holiday selling seasons, or our
contract with Dotcom Distribution  terminates,  we may fail to secure a suitable
replacement or second-source distribution and fulfillment provider on comparable
terms, which would adversely affect our E-commerce financial results.


                                       34
<PAGE>

                     Risks Related To Our Financial Results

We cannot predict our Online Images  customers'  preferences  with certainty and
such preferences may change rapidly. If we fail to accurately assess and predict
our Online Images customers' preferences, it will adversely impact our financial
results.

Our Online images offerings on our AnimationFactory.com web site are designed to
appeal to small  businesses,  educational and religious groups and hobbyists and
individuals.  Misjudging  either the market for our  products or our  customers'
purchasing habits will cause our sales to decline.


                     Risks Related To Our Financial Results

If we fail to adequately  monitor and minimize our use of existing  cash, we may
need additional capital to fund continued operations beyond fiscal year 2006.

Since becoming a public  company,  we have  experienced  negative cash flow from
operations.  Our average net monthly  cash flow  shortfall  during  fiscal 2005,
which ended July 31, 2005 was approximately $0.5 million.  Although this average
net monthly cash flow  shortfall  approximation  should not be relied upon as an
indicator  of our average  net monthly  cash flow  shortfall  in the future,  it
further  illustrates that unless we monitor and minimize the level of use of our
existing  cash,  cash  equivalents  and  marketable  securities,  we may require
additional  capital to fund  continued  operations  beyond our fiscal year 2006.
While we  believe  we will not  require  additional  capital  to fund  continued
operations  through fiscal year 2006, we may require  additional  funding within
this time frame, and this additional funding, if needed, may not be available on
terms  acceptable  to us, or at all. A slowdown  in  technology  or  advertising
spending,  as well as other  factors  that may  arise,  could  affect our future
capital  requirements and the adequacy of our available  funds. As a result,  we
may be required to raise  additional  funds through private or public  financing
facilities, strategic relationships or other arrangements. Any additional equity
financing  would  likely be dilutive to our  stockholders.  Debt  financing,  if
available,  may involve  restrictive  covenants on our  operations and financial
condition.  Our inability to raise capital when needed could  seriously harm our
business.

Certain  factors  specific to our  businesses  over which we have  limited or no
control may  nonetheless  adversely  impact our  quarterly  total  revenues  and
financial results.

The primary  factors over which we have limited or no control that may adversely
impact our quarterly total revenues and financial results include the following:

     o    specific economic conditions relating to IT spending;

     o    the  discretionary  nature of our software and online media customers'
          purchase and budget cycles;

     o    the size and timing of software and online media customer orders;

     o    long software and online media sales cycles;

     o    our ability to retain skilled engineering and sales personnel;

     o    economic  conditions  relating to online  advertising and sponsorship,
          and E-commerce;

     o    our  ability  to  demonstrate  and  maintain  attractive  online  user
          demographics;

     o    the addition or loss of specific online  advertisers or sponsors,  and
          the size  and  timing  of  advertising  or  sponsorship  purchases  by
          individual  customers;  and  o our  ability  to  keep  our  web  sites
          operational at a reasonable cost.


                                       35
<PAGE>

If  our  revenues  and  operating  results  fall  below  our  expectations,  the
expectations  of  securities  analysts or the  expectations  of  investors,  the
trading  price of our  common  stock will  likely be  materially  and  adversely
affected. You should not rely on the results of our business in any past periods
as an indication of our future financial performance.

Future guidelines and  interpretations  regarding  software revenue  recognition
could cause delays in our ability to  recognize  revenue,  which will  adversely
impact our quarterly financial results.

From time to time,  the  American  Institute  of  Certified  Public  Accountants
("AICPA"),  the Public Company Accounting  Oversight Board ("PCAOB") and the SEC
may issue  guidelines and  interpretations  regarding the recognition of revenue
from software and other  activities.  These new guidelines  and  interpretations
could result in a delay in our ability to recognize revenue.  If the Company has
to delay the recognition of a significant amount of revenue in the future,  this
will have a material impact on the Company's reported financial results.

We have a history of losses and expect to  continue  to incur net losses for the
foreseeable  future.  Failure to become and remain profitable may materially and
adversely  affect the market  price of our common stock and our ability to raise
capital and continue operations.

We incurred a loss of $1.0 million for our fourth fiscal  quarter ended July 31,
2005, and we had an  accumulated  deficit of $752.1 million as of July 31, 2005.
We  may  continue  to  incur  net  losses  in  the  future.  If  we  do  achieve
profitability,  we may not be able to sustain  it.  Failure to become and remain
profitable may  materially  and adversely  affect the market price of our common
stock and our ability to raise capital and continue operations beyond our fiscal
year 2006.

Despite  reductions in the size of our workforce,  our business may fail to grow
rapidly enough to offset our ongoing operating expenses.

During fiscal years 2001,  2002 and 2003, we  substantially  reduced the size of
our  workforce.  As of July  31,  2005,  we had  127  employees.  Despite  these
reductions  in our  workforce,  our business may fail to grow rapidly  enough to
offset our ongoing  operating  expenses.  As a result,  our quarterly  operating
results could fluctuate,  and such fluctuation could adversely affect the market
price of our common stock.

                          Risks Related To Competition

If we do not effectively compete with new and existing competitors, our revenues
will not  grow and may  decline,  which  will  adversely  impact  our  financial
results.

We believe that the emerging collaborative software development market continues
to be  fragmented,  subject to rapid change and highly  sensitive to new product
introductions  and marketing  efforts by industry  participants.  Competition in
related markets is intense.  If our products gain market  acceptance,  we expect
the competition to rapidly  intensify as new competitors  enter the marketplace.
Our  potential  competitors  include  companies  entrenched  in closely  related
markets who may choose to enter and focus on collaborative software development.
We expect competition to intensify in the future if the market for collaborative
software development applications continues to expand. Our potential competitors
include  providers  of software  and related  services as well as  providers  of
hosted   application   services.   Many  of  our  potential   competitors   have
significantly more resources,  more experience,  longer operating  histories and
greater  financial,  technical,  sales and  marketing  resources  than we do. In
addition,  open  source  code can be  obtained  through  commercial  vendors  or
downloaded  and used on an ad hoc basis to address some  collaborative  software
development  challenges.  We cannot  guarantee  that we will be able to  compete
successfully against current and future competitors or that competitive pressure
and/or the availability of open source code will not result in price reductions,
reduced  operating  margins  and loss of market  share,  any one of which  could
seriously harm our business.  Because  individual  product sales often lead to a
broader customer relationship, our products must be able to successfully compete
with and  complement  numerous  competitors'  current and  potential  offerings.
Moreover, we may be forced to compete with our strategic partners, and potential
strategic  partners,  and this may  adversely  impact our  relationship  with an
individual  partner or a number of  partners.  Consolidation  is underway  among
companies in the software  industry as firms seek to offer more extensive suites
of software products and broader arrays of software solutions. Changes resulting
from this  consolidation  may  negatively  impact our  competitive  position and
operating results.

Online  competition  is  intense.  Our  failure  to compete  successfully  could
adversely affect our revenue and financial results.

The market for  Internet  content and  services  is  intensely  competitive  and
rapidly  evolving.  It is not difficult to enter this market and current and new
competitors  can launch new Internet  sites at  relatively  low cost.  We derive
revenue  from online  advertising  and  sponsorships,  for which we compete with
various media including newspapers, radio, magazines and various Internet sites.


                                       36
<PAGE>

We also  derive  revenue  from  E-commerce,  for  which we  compete  with  other
E-commerce  companies as well as traditional,  "brick and mortar" retailers.  We
may fail to compete  successfully with current or future competitors.  Moreover,
increased competition could result in price reductions,  reduced margins or loss
of market share, any of which could have a material adverse effect on our future
revenue and financial results.  If we do not compete  successfully for new users
and advertisers, our financial results may be materially and adversely affected.

                     Risks Related To Intellectual Property

We are vulnerable to claims that our products infringe third-party  intellectual
property  rights.  Any resulting  claims against us could be costly to defend or
subject us to significant damages.

We  expect  that  our  software   products  will   increasingly  be  subject  to
infringement  claims as the number of products and  competitors  in our industry
segment grows and the  functionality of products in different  industry segments
overlaps.  In addition,  we may receive patent  infringement claims as companies
increasingly  seek to patent their software.  Our developers may fail to perform
patent  searches and may therefore  unwittingly  infringe on third-party  patent
rights.  We cannot  prevent  current or future patent holders or other owners of
intellectual  property from suing us and others seeking  monetary  damages or an
injunction against shipment of our software offerings.  A patent holder may deny
us a license  or force us to pay  royalties.  In  either  event,  our  operating
results could be seriously harmed. In addition, employees hired from competitors
might  utilize  proprietary  and trade  secret  information  from  their  former
employers  without our  knowledge,  even though our  employment  agreements  and
policies clearly prohibit such practices.

Any litigation regarding our intellectual property, with or without merit, could
be costly and time  consuming to defend,  divert the attention of our management
and key  personnel  from our  business  operations  and cause  product  shipment
delays.  Claims of intellectual  property  infringement  may require us to enter
into  royalty  and  licensing  agreements  that  may not be  available  on terms
acceptable to us, or at all. In addition,  parties  making claims against us may
be able to obtain  injunctive or other equitable  relief that could  effectively
block our ability to sell our products in the United States and abroad and could
result in an award of substantial  damages against us. Defense of any lawsuit or
failure to obtain any required  license could delay shipment of our products and
increase  our costs.  If a  successful  claim is made  against us and we fail to
develop or license a substitute technology, our business, results of operations,
financial condition or cash flows could be immediately and materially  adversely
affected.

If we fail to adequately protect our intellectual  property rights,  competitors
may use our  technology  and  trademarks,  which  could  weaken our  competitive
position, reduce our revenues, and increase our costs.

We rely on a combination of copyright, trademark and trade-secret laws, employee
and third-party nondisclosure agreements,  and other arrangements to protect our
proprietary  rights.   Despite  these  precautions,   it  may  be  possible  for
unauthorized  third  parties to copy our products or obtain and use  information
that we regard as proprietary to create products that compete against ours. Some
license provisions protecting against unauthorized use, copying,  transfer,  and
disclosure  of our  licensed  programs  may be  unenforceable  under the laws of
certain jurisdictions and foreign countries.

In addition, the laws of some countries do not protect proprietary rights to the
same extent as do the laws of the United States.  To the extent that we increase
our international  activities,  our exposure to unauthorized  copying and use of
our products and proprietary information will increase.

Our collection of trademarks is important to our business.  The protective steps
we take  or have  taken  may be  inadequate  to  deter  misappropriation  of our
trademark rights. We have filed  applications for registration of and registered
some of our  trademarks  in the  United  States and  internationally.  Effective
trademark  protection may not be available in every country in which we offer or
intend to offer our  products  and  services.  Failure to protect our  trademark
rights  adequately  could  damage our brand  identity  and impair our ability to
compete  effectively.  Furthermore,  defending or enforcing our trademark rights
could  result  in  the  expenditure  of  significant  financial  and  managerial
resources.

The scope of United  States patent  protection  in the software  industry is not
well defined and will evolve as the United States  Patent and  Trademark  Office
grants additional patents.  Because patent applications in the United States are
not publicly  disclosed until the patent is issued,  applications  may have been
filed that would relate to our products.

Our  software  business  success  depends  significantly  upon  our  proprietary
technology. Despite our efforts to protect our proprietary technology, it may be
possible for unauthorized third parties to copy certain portions of our products
or to reverse engineer or otherwise obtain and use our proprietary  information.
We do not have any software  patents,  and existing  copyright  laws afford only
limited  protection.  In  addition,  we cannot be certain  that  others will not


                                       37
<PAGE>

develop substantially equivalent or superseding proprietary technology,  or that
equivalent  products  will not be marketed  in  competition  with our  products,
thereby  substantially  reducing the value of our proprietary  rights. We cannot
assure you that we will develop  proprietary  products or technologies  that are
patentable,  that any patent,  if issued,  would provide us with any competitive
advantages or would not be challenged by third  parties,  or that the patents of
others will not adversely  affect our ability to do business.  Litigation may be
necessary  to  protect  our  proprietary  technology.  This  litigation  may  be
time-consuming and expensive.

                   Other Risks Related To Our Overall Business


Failure to remediate our material  weaknesses in internal control over financial
reporting in a timely  manner,  or at all,  could harm our operating  results or
cause us to fail to meet our regulatory or reporting obligations.

Pursuant to Section 404 of the  Sarbanes-Oxley  Act of 2002 ("Section  404"), we
evaluated the effectiveness of our internal control over financial  reporting as
of July 31, 2005 as well as our  disclosure  controls and  procedures.  Based on
this  evaluation,  management  concluded  that as of July 31, 2005,  neither our
internal  control  over  financial  reporting  nor our  disclosure  controls and
procedures were effective  because of certain  material  weaknesses  detailed in
Item 9A, Part II (Controls and  Procedures)  of this Annual Report on Form 10-K.
In  particular,  the material  weaknesses  that we  identified  included lack of
sufficient personnel and technical accounting and financial reporting expertise,
inadequate controls over period-end financial reporting,  inadequate controls in
the areas of revenue and accounts receivable, inadequate controls in the area of
purchases,  inadequate controls in the area of information technology,  and lack
of  internal  control  reports  (under SAS 70) from  critical  external  service
providers.  While we  believe  that  these  material  weaknesses  did not have a
material  effect  on  our  reported  results,   they  nevertheless   constituted
deficiencies in our internal controls over financial reporting.  In addition, to
remediate  the material  weaknesses  summarized  above,  we may need to increase
staffing  levels,  hire personnel  with more  specialized  technical  accounting
expertise and/or upgrade our financial systems to a higher degree of automation.
If,  despite  our  remediation  efforts,  we fail  to  ameliorate  our  material
weaknesses,  we could be subject  to  regulatory  scrutiny  and a loss of public
confidence in our internal controls over financial reporting.  These remediation
efforts will likely increase our general and administration  expenses and could,
therefore, have an adverse effect on our reported net income.

Even if we are to successfully  remediate such material  weaknesses,  because of
its inherent limitations,  our internal control over financial reporting may not
prevent  or detect  misstatements  or  material  omissions.  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.

We may be subject to claims as a result of  information  published on, posted on
or  accessible  from our  Internet  sites,  which  could be costly to defend and
subject us to significant damage claims.

We may be subject to claims of  defamation,  negligence,  copyright or trademark
infringement (including  contributory  infringement) or other claims relating to
the  information  contained  on our  Internet  sites,  whether  written by third
parties or us. These types of claims have been brought  against online  services
in the past and can be costly to defend  regardless of the merit of the lawsuit.
Although  federal  legislation  protects  online  services from some claims when
third parties write the material, this protection is limited.  Furthermore,  the
law in this area  remains  in flux and varies  from  state to state.  We receive
notification from time to time of potential claims, but have not been named as a
party to litigation  involving such claims. While no formal complaints have been
filed  against us to date,  our business  could be seriously  harmed if one were
asserted.

We may be subject to product  liability  claims if people or property are harmed
by the products we sell on our  E-commerce  web sites,  which could be costly to
defend and subject us to significant damage claims.

Some of the  products  we offer for sale on our  E-commerce  web sites,  such as
consumer electronics, toys, computers and peripherals, toiletries, beverages and
clothing, may expose us to product liability claims relating to personal injury,
death or property  damage  caused by such  products,  and may require us to take
actions such as product recalls.  Although we maintain liability  insurance,  we
cannot be certain that our coverage  will be adequate for  liabilities  actually
incurred or that insurance  will continue to be available to us on  economically
reasonable terms, or at all. In addition, some of our vendor agreements with our
suppliers do not indemnify us from product liability.

If we are unable to implement  appropriate systems,  procedures and controls, we
may not be able to successfully offer our services and grow our business.

Our ability to successfully offer our services and grow our business requires an
effective  planning  and  management  process.  We updated  our  operations  and
financial  systems,  procedures and controls following our strategic decision to
exit the  hardware  business.  Our systems will  continue to require  additional
modifications  and  improvements to respond to current and future changes in our
business. If we cannot grow our businesses,  and manage that growth effectively,
or if we fail to  implement in a timely  manner  appropriate  internal  systems,
procedures,  controls and  necessary  modifications  and  improvements  to these
systems, our businesses will suffer.


If  we  lose  key   personnel  or  fail  to  integrate   replacement   personnel
successfully, our ability to manage our business could be impaired.

Our future  success  depends upon the continued  service of our key  management,
technical,  sales,  and other  critical  personnel.  Our  officers and other key
personnel are  employees-at-will,  and we cannot assure you that we will be able
to retain them. Key personnel have left our company in the past and there likely
will be additional  departures of key personnel from time to time in the future.
The loss of any key employee  could  result in  significant  disruptions  to our
operations,  including  adversely  affecting the timeliness of product releases,
the successful  implementation  and completion of company  initiatives,  and the
results of our operations.  Competition for these individuals is intense, and we
may not be able to attract,  assimilate  or retain highly  qualified  personnel.
Competition  for  qualified  personnel in our industry and the San Francisco Bay
Area, as well as other  geographic  markets in which we recruit,  is intense and
characterized by increasing salaries,  which may increase our operating expenses
or hinder  our  ability  to  recruit  qualified  candidates.  In  addition,  the
integration  of  replacement  personnel  could  be  time  consuming,  may  cause
additional disruptions to our operations, and may be unsuccessful.


                                       38
<PAGE>

Our stock price has been volatile historically and may continue to be volatile.

The trading price of our common stock has been and may continue to be subject to
wide  fluctuations.  During the fourth  quarter of fiscal year 2005, the closing
sale  prices of our common  stock on the Nasdaq  ranged  from $1.34 to $2.00 per
share and the closing sale price on July 29, 2005 was $1.72 per share. Our stock
price may  fluctuate  in  response  to a number of events and  factors,  such as
quarterly  variations  in  operating  results,  announcements  of  technological
innovations  or new  products  and media  properties  by us or our  competitors,
changes in financial estimates and recommendations by securities  analysts,  the
operating and stock price performance of other companies that investors may deem
comparable to us, and news reports  relating to trends in our markets or general
economic conditions.

In  addition,   the  stock  market  in  general,   and  the  market  prices  for
Internet-related companies in particular, have experienced volatility that often
has been unrelated to the operating  performance of such companies.  These broad
market and industry  fluctuations  may adversely  affect the price of our stock,
regardless of our operating performance.  Additionally,  volatility or a lack of
positive  performance  in our stock  price may  adversely  affect our ability to
retain key employees, all of whom have been granted stock options.

Sales of our common stock by significant stockholders may cause the price of our
common stock to decrease.

Several of our  stockholders  own  significant  portions of our common stock. If
these  stockholders  were to sell  significant  amounts of their holdings of our
common  stock,  then the market  price of our common  stock could be  negatively
impacted.  The effect of such  sales,  or of  significant  portions of our stock
being  offered  or made  available  for sale,  could  result in strong  downward
pressure  on our  stock  price.  Investors  should  be  aware  that  they  could
experience  significant  short-term volatility in our stock if such stockholders
decide to sell a  substantial  amount of their  holdings of our common  stock at
once or within a short period of time.

Our networks may be vulnerable to  unauthorized  persons  accessing our systems,
which could disrupt our  operations  and result in the theft of our  proprietary
information.

A party who is able to circumvent  our security  measures  could  misappropriate
proprietary  information or cause  interruptions or malfunctions in our Internet
operations.  We may be required to expend  significant  capital and resources to
protect against the threat of security breaches or to alleviate  problems caused
by breaches in security.

Increasing  regulation of the Internet or imposition of sales and other taxes on
products sold or distributed over the Internet could harm our business.

The  electronic  commerce  market on the Internet is relatively  new and rapidly
evolving.  While this is an  evolving  area of the law in the United  States and
overseas,  currently there are relatively few laws or regulations  that directly
apply to commerce on the Internet.  Changes in laws or regulations governing the
Internet and electronic commerce, including, without limitation, those governing
an  individual's  privacy  rights,  pricing,  content,   encryption,   security,
acceptable  payment  methods and  quality of  products or services  could have a
material  adverse  effect  on our  business,  operating  results  and  financial
condition. Taxation of Internet commerce, or other charges imposed by government
agencies  or by  private  organizations,  may  also  be  imposed.  Any of  these
regulations could have an adverse effect on our future sales and revenue growth.

Business disruptions could affect our future operating results.

Our operating results and financial  condition could be materially and adversely
affected in the event of a major earthquake,  fire or other catastrophic  event.
Our  corporate  headquarters,  the  majority  of our  research  and  development
activities  and  certain  other  critical  business  operations  are  located in
California,  near major earthquake  faults. A catastrophic event that results in
the  destruction  of any of our  critical  business  or  information  technology
systems could severely affect our ability to conduct normal business  operations
and as a result our future operating results could be adversely affected.

System disruptions could adversely affect our future operating results.

Our  ability to attract and  maintain  relationships  with  users,  advertisers,
merchants and strategic  partners will depend on the  satisfactory  performance,
reliability   and   availability   of  our   Internet   channels   and   network
infrastructure.  Our Internet advertising revenues relate directly to the number
of advertisements  delivered to our users.  System  interruptions or delays that
result in the  unavailability  of Internet channels or slower response times for
users would  reduce the number of  advertisements  and sales leads  delivered to
such users and reduce the  attractiveness  of our  Internet  channels  to users,
strategic partners and advertisers or reduce the number of impressions delivered
and thereby reduce  revenue.  In the past twelve months,  some of our sites have
experienced a small number of brief service  interruptions.  We will continue to
suffer future  interruptions from time to time whether due to natural disasters,
telecommunications failures, other system failures, rolling blackouts,  viruses,
hacking or other events.  System  interruptions  or slower  response times could
have a material adverse effect on our revenues and financial condition.


                                       39
<PAGE>

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

     The primary objective of our investment activities is to preserve principal
while at the same time  maximizing  the income we receive  from our  investments
without  significantly  increasing  risk.  Some of the  securities  that we have
invested  in may be  subject  to  market  risk.  This  means  that a  change  in
prevailing  interest  rates may cause the principal  amount of the investment to
fluctuate.  For  example,  if we hold a security  that was  issued  with a fixed
interest rate at the then-prevailing rate and the prevailing interest rate later
rises, the principal amount of our investment will probably decline. To minimize
this risk, we maintain a portfolio of cash equivalents,  short-term  investments
and  long-term  investments  in a variety of  securities,  including  commercial
paper, money market funds and government and non-government debt securities.  In
general,  money market funds are not subject to market risk because the interest
paid on such funds fluctuates with the prevailing interest rate.

     The  following  table  presents  the  amounts  of  our  cash   equivalents,
short-term investments and long-term investments (in thousands) that are subject
to market risk and  weighted-average  interest  rates,  categorized  by expected
maturity  dates,  as of July 31, 2005.  This table does not include money market
funds because those funds are not subject to market risk.
<TABLE>
<CAPTION>
                                                 Maturing         Maturing within three           Maturing
(in thousands)                             Within three months     months to one year      Greater than one year
--------------                             -------------------     ------------------      ---------------------
<S>                                               <C>                   <C>                     <C>
As of July 31, 2005
Cash equivalents                                  $1,550
    Weighted-average interest rate                3.28%
Short-term investments                                                  $33,126
    Weighted-average interest rate                                       3.72%
Long-term investments                                                                           $1,806
    Weighted-average interest rate                                                               3.66%
</TABLE>

     We have operated  primarily in the United  States,  and virtually all sales
have  been  made in U.S.  dollars.  Accordingly,  we have  not had any  material
exposure to foreign currency rate fluctuations.

     The estimated  fair value of our cash,  cash  equivalents  and  investments
approximate carrying value. We do not currently hold any derivative  instruments
and do not engage in hedging activities.


                                       40
<PAGE>


    Item 8.  Consolidated Financial Statements and Supplementary Data

                                TABLE OF CONTENTS

                                                                          Page
Reports of Independent Registered Public Accounting Firm.............      42
Consolidated Balance Sheets..........................................      44
Consolidated Statements of Operations and Other
  Comprehensive Income (Loss)........................................      45
Consolidated Statements of Stockholders' Equity......................      46
Consolidated Statements of Cash Flows................................      47
Notes to Consolidated Financial Statements...........................      48
Schedule II - Valuation and Qualifying Accounts......................      74

     All other  schedules  are  omitted  because  they are not  applicable,  not
required,  or because the required  information is included in the  consolidated
financial statements or notes thereto.


                                       41
<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Board of Directors and Stockholders of VA Software Corporation:

    We have audited the accompanying  consolidated balance sheets of VA Software
Corporation  (the  "Company")  as of July 31,  2005 and  2004,  and the  related
consolidated  statements of operations  and other  comprehensive  income (loss),
stockholders'  equity,  and cash  flows for each of the two years in the  period
ended July 31,  2005.  We have also  audited the  financial  statement  schedule
listed in the Index at Item 15(a) as of July 31, 2005 and 2004,  and for each of
the two years in the period ended July 31, 2005. These financial  statements and
schedule are the responsibility of the Company's management.  Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.

    We  conducted  our audits 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 the
financial  statements and schedule are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures  in the financial  statements  and schedule.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as  evaluating  the overall  presentation  of the financial
statements and schedule.  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 VA Software
Corporation at July 31, 2005 and 2004, and the results of its operations and its
cash  flows for each of the two years in the  period  ended  July 31,  2005,  in
conformity with accounting principles generally accepted in the United States.

    Also, in our opinion,  the financial  statement schedule as of July 31, 2005
and  2004,  and  for  each of the two  years  in the  period  then  ended,  when
considered  in  relation  to the basic  financial  statements  taken as a whole,
presents fairly in all material respects the information set forth therein.

    We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of the VA Software
Corporation's  internal  control over  financial  reporting as of July 31, 2005,
based on criteria established in Internal  Control--Integrated  Framework issued
by the Committee of Sponsoring  Organizations of the Treadway  Commission (COSO)
and our report  dated  October  31, 2005  expressed  an  unqualified  opinion on
management's  assessment of the effectiveness of internal control over financial
reporting and an adverse opinion on the  effectiveness  of internal control over
financial reporting due the existence of material weaknesses.



/s/ BDO Seidman, LLP

San Jose, California
October 31, 2005



                                       42
<PAGE>


              REPORT OF INDEPENDENT REGISTERD PUBLIC ACCOUNTING FIRM



To the Board of Directors and Stockholders of

VA Software Corporation

    In our opinion,  the consolidated  statement of operations and comprehensive
loss, of stockholders'  equity and of cash flows present fairly, in all material
respects,  the financial position of VA Software  Corporation and the results of
their  operations  and their  cash  flows for the year  ended  July 31,  2003 in
conformity with accounting principals generally accepted in the United States of
America. In addition, in our opinion, the financial statement schedule listed in
the index  appearing  under Item 15 (a)(2) on page 66  presents  fairly,  in all
material  respects,  the  information set forth therein when read in conjunction
with the related consolidated  financial statements.  These financial statements
and  financial  statement  schedule  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements and financial  statement  schedule based on our audits.  We conducted
our audit of these  statements  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 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,   assessing  the  accounting  principles  used  and
significant  estimates made by management,  and evaluating the overall financial
statement presentation. We believe that our audit provide a reasonable basis for
our opinion.

/s/ PricewaterhouseCoopers LLP

San Jose, California
August 20, 2003


                                       43
<PAGE>
<TABLE>

                                              VA SOFTWARE CORPORATION

                                            CONSOLIDATED BALANCE SHEETS
                                   (In thousands, except per share information)
<CAPTION>

                                                                                     July 31,      July 31,
                                                                                       2005         2004
                                                                                    ---------    ---------
                                     ASSETS
<S>                                                                                 <C>          <C>
Current assets:
  Cash and cash equivalents .....................................................   $   2,498    $  10,964
  Short-term investments ........................................................      34,116       17,145
  Restricted cash, current ......................................................        --            450
  Accounts receivable, net of allowances of $166 and $127, respectively .........       4,306        3,909
  Inventories ...................................................................         773        1,069
  Prepaid expenses and other assets .............................................       1,014        1,046
                                                                                    ---------    ---------
          Total current assets ..................................................      42,707       34,583
Property and equipment, net .....................................................         736        1,208
Long-term investments ...........................................................       1,806       15,933
Restricted cash, non current ....................................................       1,000        1,000
Other assets ....................................................................       1,132          955
                                                                                    ---------    ---------
          Total assets ..........................................................   $  47,381    $  53,679
                                                                                    =========    =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable ..............................................................       1,574        1,674
  Accrued restructuring liabilities, current portion ............................       1,748        3,440
  Accrued compensation ..........................................................       1,258          981
  Deferred revenue ..............................................................       2,134        1,750
  Accrued accounting ............................................................         970          191
  Accrued liabilities and other .................................................         654          681
                                                                                    ---------    ---------
          Total current liabilities .............................................       8,338        8,717
Accrued restructuring liabilities, net of current portion .......................       6,107        7,843
Other long-term liabilities .....................................................       1,271        1,349
                                                                                    ---------    ---------
          Total liabilities .....................................................      15,716       17,909
Commitments and contingencies (Notes 4,5,6 and 7)
Stockholders' equity:
  Common stock, $0.001 par value; authorized -- 250,000,000; issued and
     outstanding -- 61,659,119 shares in 2005 and 61,184,857 shares in 2004 .....          62           62
  Treasury stock ................................................................          (4)          (4)
  Additional paid-in capital ....................................................     783,895      783,246
  Accumulated other comprehensive gain (loss) ...................................        (231)        (171)
  Accumulated deficit ...........................................................    (752,057)    (747,363)
                                                                                    ---------    ---------
          Total stockholders' equity ............................................      31,665       35,770
                                                                                    ---------    ---------
          Total liabilities and stockholders' equity ............................   $  47,381    $  53,679
                                                                                    =========    =========

<FN>
 The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>


                                       44
<PAGE>

<TABLE>
                             VA SOFTWARE CORPORATION

   CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME/(LOSS)
                    (In thousands, except per share amounts)
<CAPTION>

                                                                                   Year Ended
                                                                         July 31,    July 31,    July 31,
                                                                           2005        2004        2003
                                                                        --------    --------    --------
<S>                                                                     <C>         <C>         <C>
Net revenues
  SourceForge revenues ..............................................   $  7,555    $  4,995    $  2,918
  Online Media revenues .............................................      8,130       9,728      10,405
  E-commerce revenues ...............................................     14,918      12,567       8,565
  Online Images revenues ............................................      2,284       1,922       1,580
  Other revenues ....................................................       --            49         760
                                                                        --------    --------    --------
     Net revenues ...................................................     32,887      29,261      24,228
Cost of revenues
  SourceForge cost of revenues ......................................      1,028       1,860       1,997
  Online Media cost of revenues .....................................      3,320       2,969       3,802
  E-commerce cost of revenues .......................................     11,591      10,225       7,025
  Online Images cost of revenues ....................................        495         495         339
  Other cost of revenues ............................................       --           (12)       (383)
                                                                        --------    --------    --------
  Cost of revenues ..................................................     16,434      15,537      12,780
                                                                        --------    --------    --------
     Gross margin ...................................................     16,453      13,724      11,448
                                                                        --------    --------    --------
Operating expenses:
  Sales and marketing ...............................................     10,060      10,093       9,791
  Research and development ..........................................      6,122       6,732       7,815
  General and administrative ........................................      5,925       4,665       6,455
  Restructuring costs and other special charges .....................       (101)      3,209        (263)
  Amortization of deferred stock compensation .......................       --            20         144
  Amortization of intangible assets .................................         12          12       2,149
  Impairment of long-lived assets ...................................         87        --           239
                                                                        --------    --------    --------
          Total operating expenses ..................................     22,105      24,731      26,330
                                                                        --------    --------    --------
Loss from operations ................................................     (5,652)    (11,007)    (14,882)
Remeasurement of warrant liability ..................................       --         1,566        --
Interest income .....................................................        914         911       1,132
Interest expense ....................................................        (39)         (5)         (8)
Other income (expense), net .........................................         83         895         (40)
                                                                        --------    --------    --------
Net loss ............................................................   $ (4,694)   $ (7,640)   $(13,798)
Other comprehensive income (loss):
      Unrealized (loss) gain on marketable securities and investments          9        (354)         30
      Foreign currency translation gain (loss) ......................        (69)         55          12
                                                                        --------    --------    --------
Comprehensive loss ..................................................   $ (4,754)   $ (7,939)   $(13,756)
                                                                        ========    ========    ========

Net loss ............................................................   $ (4,694)   $ (7,640)   $(13,798)
                                                                        ========    ========    ========
Basic and diluted net loss per share ................................   $  (0.08)   $  (0.13)   $  (0.25)
                                                                        ========    ========    ========
Shares used in computing basic and diluted net loss per share .......     61,454      59,684      54,110
                                                                        ========    ========    ========
<FN>
 The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>


                                       45
<PAGE>


                             VA SOFTWARE CORPORATION

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                   Common Stock                      Additional
                                                             ---------------------       Treasury     Paid-in
                                                             Shares          Amount        Stock      Capital
                                                             ------          ------        -----      -------
<S>                                                          <C>               <C>          <C>      <C>
BALANCE AT JULY 27, 2002 .............................       54,165     $      54    $      (4)    $ 765,422

Issuance of common stock for cash related to options .        1,578             2           --         1,442

Repurchase of common stock for cash related to options         (273)           --           --            (2)

Amortization of deferred stock compensation ..........           --            --           --           (76)

Acceleration and forfeiture of stock options and
deferred stock compensation related to
terminations, restructuring ..........................           --            --           --           (21)

Foreign currency translation adjustment and
  unrealized gain or loss on marketable securities ...           --            --           --            --
                                                         ----------     ----------   ----------    ----------

Net loss .............................................           --            --           --            --

BALANCE AT JULY 31, 2003 .............................       55,470            56           (4)      766,765

Issuance of common stock for cash related to options .        2,186             2           --         3,402

Issuance of common stock related to Private
 Placement, net of issuance costs ....................        3,529             4           --        12,866

Amortization of deferred stock compensation ..........           --            --           --            --

Acceleration of stock options related to
 terminations ........................................           --            --           --           213

Foreign currency translation adjustment and
  unrealized gain or loss on marketable securities ...           --            --           --            --

Net loss .............................................           --            --           --            --
                                                         ----------     ----------   ----------    ----------

BALANCE AT JULY 31, 2004 .............................       61,185            62           (4)      783,246

Issuance of common stock for cash related to options .          474            --           --           595

Issuance costs associated with Private ...............           --            --           --           (14)
Placement

Amortization of deferred stock compensation ..........           --            --           --            --

Acceleration of stock options related to
terminations .........................................           --            --           --            68

Foreign currency translation adjustment and
  unrealized gain or loss on marketable securities ...           --            --           --            --

Net loss .............................................           --            --           --            --
                                                         ----------     ----------   ----------    ----------

BALANCE AT JULY 31, 2005 .............................       61,659     $      62    $      (4)    $ 783,895
                === ====                                 ==========     ==========   ==========    ==========
<FN>
              The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>


                             VA SOFTWARE CORPORATION

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (In thousands) (cont)
<TABLE>
<CAPTION>

                                                                                 Accumulated
                                                                   Deferred        Other                          Total
                                                                    Stock       Comprehensive   Accumulated    Stockholders'
                                                                 Compensation   Income (Loss)     Deficit         Equity
                                                                 ------------   -------------     -------         ------
<S>                                                               <C>             <C>          <C>             <C>
BALANCE AT JULY 27, 2002 .............................            $ (245)      $    86          $(725,925)    $  39,388

Issuance of common stock for cash related to options .                --            --                 --         1,444

Repurchase of common stock for cash related to options                --            --                 --            (2)

Amortization of deferred stock compensation ..........               220            --                 --           144

Acceleration and forfeiture of stock options and
deferred stock compensation related to
terminations, restructuring ..........................                 5            --                 --           (16)

Foreign currency translation adjustment and
  unrealized gain or loss on marketable securities ...                --            42                 --            42
                                                                  ------       -------          ---------     ---------

Net loss .............................................                --            --            (13,798)      (13,798)

BALANCE AT JULY 31, 2003 .............................               (20)          128           (739,723)       27,202

Issuance of common stock for cash related to options .                --            --                 --         3,404

Issuance of common stock related to Private
 Placement, net of issuance costs ....................                --            --                 --        12,870

Amortization of deferred stock compensation ..........                20            --                 --            20

Acceleration of stock options related to
 terminations ........................................                --            --                 --           213

Foreign currency translation adjustment and
  unrealized gain or loss on marketable securities ...                --          (299)                --          (299)
                                                                  ------       -------          ---------     ---------

Net loss .............................................                --            --             (7,640)       (7,640)

BALANCE AT JULY 31, 2004 .............................                --          (171)          (747,363)       35,770

Issuance of common stock for cash related to options .                --            --                 --           595
Issuance costs associated with Private ...............                --            --                 --           (14)
Placement

Amortization of deferred stock compensation ..........                --            --                 --            --

Acceleration of stock options related to
terminations .........................................                --            --                 --            68

Foreign currency translation adjustment and
  unrealized gain or loss on marketable securities ...                --           (60)                --           (60)

Net loss .............................................                --            --             (4,694)       (4,694)
                                                                  ------       -------          ---------     ---------
BALANCE AT JULY 31, 2005 .............................            $   --       $  (231)         $(752,057)    $  31,665
                                                                  ======       =======          =========     =========
<FN>
              The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>

                                       46
<PAGE>

                             VA SOFTWARE CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                              Year Ended
                                                                                 -----------------------------------
                                                                                  July 31,     July 31,     July 31,
                                                                                    2005         2004         2003
                                                                                    ----         ----         ----
<S>                                                                              <C>          <C>          <C>
Cash flows from operating activities:
  Net loss ..................................................................    $ (4,694)    $ (7,640)    $(13,798)
  Adjustments to reconcile net loss to net cash used in operating activities:
    Depreciation and amortization ...........................................         941        1,468        5,351
    Remeasurement of warrant liability ......................................          --       (1,566)          --
    Provision for bad debts .................................................          40           56          (19)
    Provision for excess and obsolete inventory .............................          57            9           (6)
    Loss on disposal of assets ..............................................           9           --           35
    Amortization of deferred stock compensation .............................          --           20          144
    Non-cash compensation expense ...........................................          68          213           --
    Non-cash restructuring expense ..........................................        (101)       2,496         (569)
    Impairment of long-lived assets .........................................          87           --          239
    Changes in assets and liabilities:
      Accounts receivable ...................................................        (438)      (2,036)      (1,178)
      Inventories ...........................................................         239         (690)         (82)
      Prepaid expenses and other assets .....................................        (238)         157          286
      Accounts payable ......................................................        (101)         812       (1,212)
      Accrued restructuring liabilities .....................................      (3,327)      (3,606)      (3,105)
      Accrued liabilities and other .........................................       1,401         (773)      (2,098)
      Other long-term liabilities ...........................................         (78)         168          203
                                                                                 --------     --------     --------
         Net cash used in operating activities ..............................      (6,135)     (10,912)     (15,809)
                                                                                 --------     --------     --------
Cash flows from investing activities:
  Change in restricted cash .................................................         450         (550)         450
  Purchase of property and equipment ........................................        (475)        (880)        (289)
  Sale of property and equipment ............................................          49           --            8
  Purchase of marketable securities .........................................     (25,622)     (44,976)     (34,335)
  Sale of marketable securities .............................................      22,788       44,443       19,688
  Other, net ................................................................          (4)        (359)          30
                                                                                 --------     --------     --------
         Net cash used in investing activities ..............................      (2,814)      (2,322)     (14,448)
                                                                                 --------     --------     --------
Cash flows from financing activities:
  Payments on notes payable .................................................         (29)          --          (42)
  Proceeds from issuance of common stock ....................................         581       17,840        1,444
  Repurchase of common stock ................................................          --           --           (2)
                                                                                 --------     --------     --------
         Net cash provided by financing activities ..........................         552       17,840        1,400
                                                                                 --------     --------     --------
 Effect of exchange rate changes on cash and cash equivalents ...............         (69)          55           12
                                                                                 --------     --------     --------
 Net increase (decrease) in cash and cash equivalents .......................      (8,466)       4,661      (28,845)
 Cash and cash equivalents, beginning of year ...............................      10,964        6,303       35,148
                                                                                 --------     --------     --------
 Cash and cash equivalents, end of year .....................................    $  2,498     $ 10,964     $  6,303
                                                                                 ========     ========     ========
Supplemental cash flow information:
 Cash paid for state taxes ..................................................    $     36     $     26     $     16
 Cash paid for interest .....................................................    $     39     $      5     $      8

<FN>
              The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>


                                       47
<PAGE>

                             VA SOFTWARE CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  Organization and Operations of the Company:

Overview

     VA Software  Corporation  ("VA Software" or the "Company") was incorporated
in California in January 1995 and  reincorporated  in Delaware in December 1999.
From the date of its  incorporation  through  October  2001,  the  Company  sold
Linux-based hardware systems and services under the name VA Linux Systems,  Inc.
On June 27, 2001,  the Company  announced  its decision to exit its  Linux-based
hardware  business.  Today, the Company does business under the name VA Software
Corporation and it develops,  markets and supports a software  application known
as SourceForge  Enterprise Edition  ("SourceForge")  and owns and operates OSTG,
Inc. ("OSTG") and its wholly-owned subsidiaries, a network of Internet web sites
offering advertising, retail and animation services and products.

2.  Summary of Significant Accounting Policies:

     Use of Estimates in Preparation of Consolidated Financial Statements

     The  preparation of  consolidated  financial  statements in conformity with
accounting  principles  generally  accepted  by the  United  States  of  America
requires  management to make estimates and assumptions  that affect the reported
amounts of assets and  liabilities  and the disclosure of contingent  assets and
liabilities  at the date of such financial  statements,  as well as the reported
amounts of revenue and expenses  during the periods  indicated.  Actual  results
could differ from those estimates.

     Reclassifications

     Certain  reclassifications  have been made to the prior  year  consolidated
financial  statements  to  conform  to  the  current  year  presentation.  These
reclassifications have no impact on previously reported net loss or cash flows.

     Principles of Consolidation

These  consolidated  financial  statements  include  the  accounts of VA and its
wholly-owned   subsidiaries.   All   significant   intercompany   accounts   and
transactions  have been  eliminated in  consolidation.  In September  2000,  the
Company  acquired  68% of the  outstanding  shares of  common  stock of VA Linux
Systems   Japan,   K.K.  ("VA  Linux  Japan")  for  a  cash  purchase  price  of
approximately $6.9 million. Effective January 11, 2002, VA sold 13,500 shares of
VA Linux Japan stock to a third party for approximately $5.1 million, the effect
of which decreased the Company's  investment in VA Linux Japan to  approximately
11%.  As of July 31,  2005,  VA  Software's  investment  in VA Linux  Japan  was
approximately  14%. As the Company holds less than 20% of the voting stock of VA
Linux Japan and does not  otherwise  exercise  significant  influence,  VA Linux
Japan has been  accounted  for under the cost  method as of January 11, 2002 and
thereafter.  The operations of VA Linux Japan primarily  relate to the Company's
former  systems  and  services  business;  however VA Linux Japan also acts as a
reseller of the  Company's  SourceForge  application  to customers in Japan and,
pursuant to a license agreement with the Company,  resyndicates certain OSTG Web
sites for the Japanese market.  There are $59,000 of  related-party  receivables
and $47,000 of related-party  deferred revenue associated with VA Linux Japan as
of July 31, 2005 that are included in trade  receivables and deferred revenue in
the  accompanying   Condensed   Consolidated   Balance  Sheets.   There  are  no
related-party receivables and deferred revenue associated with VA Linux Japan as
of July 31, 2004 that are included in trade  receivables and deferred revenue in
the accompanying Condensed Consolidated Balance Sheets. There were $0.5 million,
$0.2 million and $0.1 million  related-party  revenues  associated with VA Linux
Japan  for the years  ended  July 31,  2005,  July 31,  2004 and July 31,  2003,
respectively.

     Foreign Currency Translation

     The functional  currency of all the Company's  foreign  subsidiaries is the
country's local  currency.  Operations  related to all of the Company's  foreign
subsidiaries  were  discontinued  in 2001 and were  included  in the fiscal 2001
restructuring plan. Although the legal entities still exist as of July 31, 2005,
no revenues were generated from these entities for any of the periods  presented
and the  expenses  were  administrative  in nature  and were  immaterial  to the


                                       48
<PAGE>


consolidated  results of  operations  for all periods  presented.  Minimal  cash
balances have been  maintained in these entities for legal  purposes.  Remaining
balance  sheet  accounts  are  translated  into U.S.  dollars at exchange  rates
prevailing at balance sheet dates.  Expenses are translated into U.S. dollars at
average rates for the period.  Gains and losses  resulting from  translation are
charged  or  credited  in  other   comprehensive   income  as  a  component   of
stockholders'  equity.  As of July 31, 2005 the Company did not hold any foreign
currency  derivative  instruments.  The  Company is in the  process of  formally
liquidating all of its foreign subsidiaries.

Segment and Geographic Information

     Statement of Financial Accounting Standards ("SFAS") No. 131,  "Disclosures
about Segments of an Enterprise and Related Information,"  establishes standards
for  reporting  information  regarding  operating  segments in annual  financial
statements and requires selected  information for those segments to be presented
in  interim  financial  reports  issued  to  stockholders.  SFAS  No.  131  also
establishes  standards for related  disclosures  about products and services and
geographic  areas.  Operating  segments  are  identified  as  components  of  an
enterprise about which separate discrete financial  information is available for
evaluation by the chief operating  decision-maker,  or decision-making group, in
making decisions how to allocate resources and assess performance. The Company's
chief  decision-making  group,  as  defined  under SFAS No.  131,  are the Chief
Executive Officer and the executive team. The Company currently operates as four
reportable business segments:  SourceForge,  Online Media, E-commerce and Online
Images.

     The Company  markets its products in the United  States  through its direct
sales force and online web sites.  Revenues for each of the years ended July 31,
2005, July 31, 2004 and July 31, 2003 were primarily generated from sales to end
users in the United States.

  Cash, Cash Equivalents, Short-Term Investments and Long-Term Investments

     The  Company  considers  all highly  liquid  investments  with an  original
maturity  of  three  months  or less  to be  cash  equivalents.  Cash  and  cash
equivalents  consist  principally of cash deposited in money market and checking
accounts.

     The Company  accounts for its investments  under the provisions of SFAS No.
115,  "Accounting  for  Certain  Investments  in Debt  and  Equity  Securities."
Investments in highly liquid  financial  instruments  with remaining  maturities
greater than three months and maturities of less than one year are classified as
short-term investments.  Financial instruments with remaining maturities greater
than one year are  classified  as long-term  investments.  All  investments  are
classified  as  available-for-sale  and are  reported  at fair  value  with  net
unrealized   gains   (losses)   reported,   net  of  tax,   using  the  specific
identification  method  as  other  comprehensive  gain/(loss)  in  stockholders'
equity.  The cost of the  investments was not  significantly  different than the
fair  value for the fiscal  years  presented.  The fair  value of the  Company's
available-for-sale  securities  are based on quoted market prices at the balance
sheet dates.

    Cash, cash equivalents and investments, of which $35.5 million mature within
one year, consist of the following (in thousands) at market value:


                                                             July 31,   July 31,
                                                               2005       2004
                                                             -------    -------
Government securities ....................................   $22,103    $22,465
Corporate securities .....................................    12,357     14,134
Asset backed securities ..................................     2,021      2,731
Money market funds .......................................       788      1,056
Commercial paper .........................................        --        911
                                                             -------    -------
          Total Investments ..............................   $37,269    $41,297
                                                             -------    -------

Operating cash ...........................................     1,151      2,745
Restricted cash ..........................................     1,000      1,450
                                                             -------    -------
Total  cash,  cash  equivalents, short-term  investments &
long-term investments ....................................   $39,420    $45,492
                                                             =======    =======

Included in cash and cash equivalents ....................   $ 1,347    $ 8,219
Included in short-term investments .......................    34,116     17,145
Included in long-term investments ........................     1,806     15,933
                                                             -------    -------
          Total Investments ..............................   $37,269    $41,297
                                                             =======    =======


                                       49
<PAGE>

  Restricted Cash

     During  fiscal  year 2000,  the  Company  established  letters of credit of
approximately  $2.3 million that are used to  collateralize  payments related to
the Fremont  building lease,  which had been reduced to $0.9 million at July 31,
2003.  During  fiscal year 2004,  the Company  revised the  remaining  letter of
credit  used  to  collateralize  the  Fremont  building  lease  as a  result  of
subletting the unoccupied space and moving into the smaller facility in the same
complex.  The  revised  letter of  credit  associated  with this  lease was $1.5
million at July 31, 2004. In the fourth quarter of fiscal 2005, $0.5 million had
been released from  restricted  cash in accordance  with the terms of the lease.
The remaining amount restricted at July 31, 2005 was $1.0 million.

   Trade Accounts Receivable

     Trade accounts  receivable are recorded at the invoiced  amount and are not
interest  bearing.  The Company  maintains an allowance for doubtful accounts to
reserve for  potentially  uncollectible  trade  receivables.  The  Company  also
reviews its trade receivables by aging category to identify  specific  customers
with known disputes or collectibility  issues.  The Company  exercises  judgment
when  determining  the adequacy of these  reserves and evaluates  historical bad
debt   trends,   general   economic   conditions   in  the  United   States  and
internationally, and changes in customer financial conditions.

  Inventories

     Inventories related to the Company's  E-commerce and Online Images segments
consist  solely of finished goods that are valued using the average cost method.
Provisions, when required, are made to reduce excess and obsolete inventories to
their estimated net realizable values.

  Property and Equipment

     Property and  equipment  are stated at cost and are  depreciated  using the
straight-line  method over the estimated  useful lives of the assets.  Leasehold
improvements  are amortized over the lesser of the estimated useful lives or the
corresponding  lease term.  Property and equipment  consist of the following (in
thousands):
<TABLE>
<CAPTION>

                                                                                    July 31,     July 31,
                                                                                      2005         2004
                                                                                   --------     --------
<S>                                                                                <C>          <C>
Computer and office equipment (useful lives of 2 to 3 years) ..................    $  3,811     $  6,820
Furniture and fixtures (useful lives of 2 to 4 years) .........................         484        1,199
Leasehold improvements (useful lives of lesser of estimated life or lease term)         285          271
Software (useful lives of  2 to 5 years) ......................................       2,064        2,092
                                                                                   --------     --------
          Total property and equipment ........................................       6,644       10,382
Less: Accumulated depreciation and amortization ...............................      (5,908)      (9,174)
                                                                                   --------     --------
          Property and equipment, net .........................................    $    736     $  1,208
                                                                                   ========     ========
</TABLE>

     Depreciation  expense for the years ended July 31, 2005, July 31, 2004, and
July 31, 2003 was $0.9 million, $1.4 million, and $3.2 million, respectively.

  Intangible Assets

     Intangible assets are amortized on a straight-line basis over three to five
years.  Intangible asset  amortization of $12,000,  $12,000 and $2.1 million was
recorded in fiscal  2005,  2004 and 2003,  respectively.  The  intangible  asset
carrying  value at July 31, 2005 is $7,000 and relates to domain and trade names
associated with our current  SourceForge and OSTG  businesses.  This balance has
been included in "Other Assets" in the Consolidated  Balance Sheets. The Company
continually  evaluates  whether  events  or  circumstances  have  occurred  that
indicate the remaining estimated useful lives of these intangible assets may not
be recoverable. No events or circumstances occurred during fiscal year 2005 that
would indicate a possible  impairment in the carrying value of intangible assets
at July 31, 2005.


                                       50
<PAGE>

     The changes in the carrying amount of the intangible  assets are as follows
(in thousands):
<TABLE>
<CAPTION>

                                    As of July 31, 2005          As of July 31, 2004
                                    -------------------          -------------------
                               Gross Carrying   Accumulated  Gross Carrying  Accumulated
                                  Amount       Amortization      Amount      Amortization
                                  ------       ------------      ------      ------------
<S>                              <C>             <C>            <C>            <C>
Domain and trade  names ......   $ 5,932         $(5,925)       $ 5,927        $(5,913)
Purchased technology .........     2,534          (2,534)         2,534         (2,534)
                                 -------         -------        -------        -------
Total intangible assets ......   $ 8,466         $(8,459)       $ 8,461        $(8,447)
                                 =======         =======        =======        =======
</TABLE>


   Impairment of Long-Lived Assets

    As of July 31, 2005, the Company held an investment of approximately  14% in
VA Linux  Systems  Japan,  K.K.  ("VA Linux  Japan").  The  Company  continually
evaluates  whether  events or  circumstances  have  occurred  that  indicate the
remaining  value of the  investment  may be  impaired.  Based  on the  valuation
performed  at July 31, 2005,  a small  impairment  was recorded for $0.1 million
during the fourth  quarter of fiscal 2005.  There is no quoted  market price for
this  investment;  accordingly,  fair value was estimated by management based on
the  estimated  fair value of the  underlying  net assets.  This  investment  is
reported  under our  SourceForge  segment.  The  impairment has been included in
"Impairment of long-lived  assets" in the Consolidated  Statements of Operations
and Other Comprehensive Income/(Loss)".  As of July 31, 2005, the Company had an
investment  balance of $0.4  million in VA Linux  Japan.  This  balance has been
included in "Other Assets" in the Consolidated Balance Sheets.

Revenue Recognition

SourceForge Revenues

     Software  revenues  are derived  from fees for  licenses  of the  Company's
SourceForge software products, maintenance, consulting and training. The Company
recognizes  all software  revenue using the residual  method in accordance  with
Statement of Position ("SOP") 97-2,  "Software Revenue  Recognition," as amended
by SOP  98-9,  "Modification  of SOP 97-2,  Software  Revenue  Recognition  with
Respect to Certain  Transactions."  Under the residual method, the fair value of
the  undelivered   elements  is  deferred  and  the  remaining  portion  of  the
arrangement  fee is  recognized as revenue.  If evidence of the vendor  specific
fair value of one or more  undelivered  elements  does not exist,  revenues  are
deferred and  recognized  when  delivery of those  elements  occurs or when fair
value can be established.  Company-specific  objective evidence of fair value of
maintenance  and  other  services  is based on our  customary  pricing  for such
maintenance  and/or  services  when  sold  separately.  At  the  outset  of  the
arrangement with the customer,  the Company defers revenue for the fair value of
its  undelivered  elements  (e.g.,  maintenance,  consulting  and  training) and
recognizes  revenue for the remainder of the arrangement fee attributable to the
elements initially  delivered in the arrangement  (i.e.,  software product) when
the basic criteria in SOP 97-2 have been met. If such evidence of fair value for
each  undelivered  element of the arrangement does not exist, the Company defers
all revenue  from the  arrangement  until such time that  evidence of fair value
does exist or until all elements of the arrangement are delivered.

     Under  SOP  97-2,  revenue   attributable  to  an  element  in  a  customer
arrangement is recognized when (i) persuasive evidence of an arrangement exists,
(ii)  delivery  has  occurred,  (iii)  the fee is  fixed or  determinable,  (iv)
collectibility  is probable and (v) the  arrangement  does not require  services
that are essential to the functionality of the software.

     Persuasive  evidence of an arrangement  exists. The Company determines that
persuasive evidence of an arrangement exists with respect to a customer when the
Company  has a written  contract,  which is signed by both the  Company  and the
customer, or a purchase order from the customer when the customer has previously
executed a standard license  arrangement with the Company.  The Company does not
offer product return rights.

     Delivery has occurred.  The Company's  software may be either physically or
electronically  delivered to the customer.  The Company determines that delivery
has occurred upon shipment of the software  pursuant to the billing terms of the
agreement  or when  the  software  is made  available  to the  customer  through
electronic delivery.

     The  fee is  fixed  or  determinable.  If at  the  outset  of the  customer
engagement the Company determines that the fee is not fixed or determinable, the
Company recognizes revenue when the fee becomes due and payable.  Fees due under
a contract are generally deemed not to be fixed or determinable if a significant
portion of the fee is beyond  the  Company's  normal  payment  terms,  which are
generally no greater than 120 days from the date of invoice.

     Collectibility is probable.  The Company determines whether  collectibility
is probable on a case-by-case  basis. When assessing  probability of collection,
the Company  considers the number of years in business,  history of  collection,
and  product  acceptance  for each  customer.  The  Company  typically  sells to
customers,  for whom there is a history of successful collection.  New customers
are subject to a credit review process, which evaluates the customer's financial
position  and  ultimately  such  customer's  ability  to  pay.  If  the  Company
determines  from the outset that  collectibility  is not probable based upon its
review process, revenue is recognized as payments are received.


                                       51
<PAGE>

     The Company allocates revenue on software  arrangements  involving multiple
elements to each element based on the relative  fair value of each element.  The
Company's  determination  of fair  value  of each  element  in  multiple-element
arrangements  is based  on  vendor-specific  objective  evidence  ("VSOE").  The
Company aligns its assessment of VSOE for each element to the price charged when
the same  element  is sold  separately.  The  Company  has  analyzed  all of the
elements  included in its  multiple-element  arrangements and determined that it
has  sufficient  VSOE  to  allocate  revenue  to the  maintenance,  support  and
professional  services  components of its perpetual  license  arrangements.  The
Company sells its professional services separately, and has established VSOE for
professional  services  on that  basis.  VSOE for  maintenance  and  support  is
determined  based upon the customer's  annual renewal rates for these  elements.
Accordingly,  assuming  all other  revenue  recognition  criteria  are met,  the
Company  recognizes  revenue from  perpetual  licenses upon  delivery  using the
residual method in accordance with SOP 98-9.

     Services revenues consist of professional services and maintenance fees. In
general, the Company's  professional  services,  which are comprised of software
installation and integration,  business process consulting and training, are not
essential to the functionality of the software.  The Company's software products
are fully  functional  upon delivery and  implementation  and do not require any
significant  modification or alteration of products for customer use.  Customers
purchase these professional services to facilitate the adoption of the Company's
technology  and  dedicate   personnel  to  participate  in  the  services  being
performed,  but they may also decide to use their own resources or appoint other
professional service organizations to provide these services.  Software products
are billed separately from professional services,  which are generally billed on
a  time-and-materials  basis. The Company  recognizes  revenue from professional
services as services are performed.

     Maintenance  agreements  are typically  priced based on a percentage of the
product  license  fee and have a one-year  term,  renewable  annually.  Services
provided to customers under  maintenance  agreements  include  technical product
support and  unspecified  product  upgrades.  Deferred  revenues  from  advanced
payments for maintenance  agreements are recognized ratably over the term of the
agreement, which is typically one year.

     Online Media Revenues

    Online media  revenues are  primarily  derived from cash and barter sales of
advertising space on the Company's various web sites, as well as sponsorship and
royalty related arrangements associated with advertising on these web sites. The
Company   recognizes  Online  Media  revenues  over  the  period  in  which  the
advertisements   are  displayed,   provided  that  persuasive   evidence  of  an
arrangement  exists,  no  significant  obligations  remain,  the fee is fixed or
determinable,  and  collection  of the  receivable is  reasonably  assured.  The
Company's  obligations  typically  include  guarantees  of a  minimum  number of
"impressions"  (times  that an  advertisement  is viewed by users of our  online
services).  To the extent that minimum guaranteed impressions are not met in the
specified time frame, the Company does not recognize the corresponding  revenues
until the guaranteed impressions are achieved.  Prior to the year ended July 31,
2004, the Company  recorded barter revenue  transactions at their estimated fair
value based on our historical experience of selling similar advertising for cash
in accordance with Emerging Issues Task Force ("EITF") Issue 99-17,  "Accounting
for Advertising Barter  Transactions." The Company broadcasts banner advertising
in  exchange  for similar  banner  advertising  on  third-party  web sites.  The
Company's  barter   arrangements  are  documented  with  its  standard  customer
insertion order (and  accompanying  terms and conditions) or, in certain limited
instances,  via an alternative  written contract negotiated between the parties.
The standard terms and conditions include, but are not limited to, the web sites
for each  company  that will  display the  impressions,  the time frame that the
impressions will be displayed,  and the number,  type and size of impressions to
be  delivered.  There were no barter  revenue  transactions  for the fiscal year
ended July 31, 2005. Barter revenue  transactions  totaled $1.4 million and $2.0
million  for  the  fiscal   years  ended  July  31,  2004  and  July  31,  2003,
respectively.

     E-commerce Revenues

     E-commerce revenues are derived from the online sale of consumer goods. The
Company  recognizes  E-commerce  revenues  from  the sale of  consumer  goods in
accordance  with  SEC  Staff  Accounting  Bulletin  ("SAB")  No.  104,  "Revenue
Recognition."  Under SAB 104,  product  revenues are recognized  when persuasive
evidence of an  arrangement  exists,  delivery has  occurred,  the sale price is
fixed or determinable, and collectibility is reasonably assured. In general, the
Company  recognizes  E-commerce  revenue upon the shipment of goods. The Company
does grant  customers a right to return  E-commerce  products.  Such returns are
recorded as incurred and have been immaterial for the periods presented.


                                       52
<PAGE>

     Online Images Revenues

     Online   Images   revenues   are   derived   from   the   online   sale  of
three-dimensional  art,  animations and  presentations  that consist of fees for
software  licenses  and  memberships  for  these  animation  software  products.
Software  revenues  related  to  digital  animations  are  recognized  using the
residual method in accordance with Statement of Position ("SOP") 97-2, "Software
Revenue  Recognition,"  as  amended  by SOP  98-9,  "Modification  of SOP  97-2,
Software Revenue Recognition with Respect to Certain  Transactions" as described
in detail  above.  Revenues  recognized  related to  animation  memberships  are
recognized over the life of the membership, typically 3 months or 12 months.

     Other Revenues

    The Company's  revenue  recognition  policy  related to its former  hardware
systems business followed SEC SAB No. 104, "Revenue  Recognition." Under SAB No.
104,  the  Company  recognized  product  revenues  from the sale of  Linux-based
servers,  components,  and  desktop  computers  when  persuasive  evidence of an
arrangement   existed,   delivery  occurred,   the  sales  price  was  fixed  or
determinable and collectibility was reasonably assured. In general,  the Company
recognized product revenue upon shipment of the goods. The Company did not grant
customers any rights to return these products.

     The Company  recognized  revenues from hardware  related  customer  support
services,  including  on-site  maintenance  and technical  support on a pro-rata
basis over the term of the related  service  agreement.  The Company  recognized
revenues from hardware related professional service contracts upon completion of
the project,  or using the percentage of completion  method of the project where
project costs could be reasonably  estimated.  The Company recorded any payments
received prior to revenue recognition as deferred revenue.

   Advertising Expenses

     The Company  expenses  advertising  costs as  incurred.  Total  advertising
expenses  were $0.9  million,  $2.1  million and $2.5  million for fiscal  years
ending July 31, 2005, July 31, 2004 and July 31, 2003, respectively.

  Stock-Based Compensation

     The  Company  has   elected  to  account  for  its   employee   stock-based
compensation  plans in  accordance  with  Accounting  Principles  Board  ("APB")
Opinion  No. 25,  "Accounting  for Stock  Issued to  Employees,"  and  Financial
Accounting  Standards Board ("FASB")  Interpretation No. ("FIN") 44, "Accounting
for Certain Transactions Involving Stock Compensation--an  Interpretation of APB
Opinion No. 25," and complies  with the  disclosure  provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation."  Accordingly, no compensation cost is
recognized  for any of the Company's  fixed stock  options  granted to employees
when the  exercise  price of the option  equals or exceeds the fair value of the
underlying common stock as of the grant date for each stock option.  The Company
accounts for equity  instruments  issued to non-employees in accordance with the
provisions  of  SFAS  No.  123  and  EITF  No.  96-18,  "Accounting  for  Equity
Instruments  That Are  Issued  to Other  Than  Employees  for  Acquiring,  or in
Conjunction with Selling, Goods or Services".  Deferred stock-based compensation
is included as a component  of  stockholders'  equity and is being  amortized by
charges to  operations  over the vesting  period of the  options and  restricted
stock consistent with the method described in FIN No. 28,  "Accounting for Stock
Appreciation Rights and Other Variable Stock Option or Award Plans."

    The following table  illustrates the effect if the Company had accounted for
its stock  option plans and Employee  Stock  Purchase  Plan under the fair value
method  of  accounting  under  Statement  123,  as  amended  by  Statement  148,
"Accounting  for  Stock-Based  Compensation--Transition  and  Disclosure"  (SFAS
148)(in thousands, except per share amounts):
<TABLE>
<CAPTION>
                                                                              Fiscal Year Ended
                                                                    -----------------------------------
                                                                     July 31,     July 31,     July 31,
                                                                      2005         2004         2003
                                                                    --------     --------     --------
<S>                                                                 <C>          <C>          <C>
Net loss as reported ...........................................    ($ 4,694)    ($ 7,640)    ($13,798)
Add back employee stock-based compensation expense related to
    stock options included in reported net loss ................          68          213          144
Less employee stock-based compensation expense determined under
   fair value based method for all employee stock option awards,
 net  of related tax effects ...................................     (13,335)      (6,410)      (8,774)
                                                                    --------     --------     --------
Pro forma net loss .............................................    ($17,961)    ($13,837)    ($22,428)
                                                                    ========     ========     ========
Basic and diluted net loss per share ...........................    ($  0.08)    ($  0.13)    ($  0.25)
                                                                    --------     --------     --------
Pro forma basic and diluted net loss per share .................    ($  0.29)    ($  0.23)    ($  0.41)
                                                                    --------     --------     --------
</TABLE>

                                       53
<PAGE>


     The Company  calculated  the fair value of each option grant on the date of
the grant and stock purchase right using the Black-Scholes  option-pricing model
as prescribed by SFAS. No. 123 using the following assumptions:

<TABLE>
<CAPTION>
                                       Stock option Plans                     ESPP Plans
                                   For the fiscal year ended          For the fiscal year ended
                                   -------------------------          -------------------------
                                July 31,    July 31,    July 31,    July 31,   July 31,   July 31,
                                  2005        2004        2003        2005       2004       2003
                                  ----        ----        ----        ----       ----       ----
<S>                               <C>         <C>         <C>         <C>        <C>        <C>
Expected life (years) .....       4.8         4.9         4.8         0.5        0.5        0.5
Risk-free interest rate ...       3.6%        3.5%        3.0%        2.1%       1.0%       1.1%
Volatility ................        98%        106%        108%         64%        98%        95%
Dividend yield ............       None        None        None        None       None       None
</TABLE>

     The weighted  average  fair value of options  granted  during  fiscal years
2005, 2004 and 2003 was $1.51, $2.24 and $0.97, respectively.

     For  purposes  of pro forma  disclosure,  the  estimated  fair value of the
options was amortized to expense over the options'  vesting  period for employee
stock options,  and the six-month purchase period, for stock purchases under the
Employee  Stock  Purchase  Plan and were  included in the pro forma  information
above.

     On June 8, 2005, the Compensation Committee of the Board of Directors of VA
Software approved the vesting acceleration of certain unvested, out-of-the-money
stock  options  outstanding  under VA  Software's  employee  stock option plans,
effective  June 7, 2005.  Vesting was  accelerated  for stock  options  that had
exercise prices greater than $1.67 per share,  which was the closing price of VA
Software's  common  stock on June 7, 2005.  This  action was taken to reduce the
impact of future  compensation  expense  that VA  Software  would  otherwise  be
required to recognize in future  consolidated  statements of operations pursuant
to SFAS 123R,  which is applicable to VA Software  beginning in the first fiscal
quarter of 2006. As a result of the acceleration,  VA Software expects to reduce
future  compensation  expense by  approximately  $8.1  million over fiscal years
2006, 2007 and 2008.


  Software Development Costs

     In  accordance  with  SFAS No.  86,  "Accounting  for the Cost of  Computer
Software to be Sold, Leased, or Otherwise Marketed,"  development costs incurred
in the  research  and  development  of new  software  products  are  expensed as
incurred until technological feasibility in the form of a working model has been
established  at  which  time  such  costs  are  capitalized,  subject  to a  net
realizable value evaluation.  Technological  feasibility is established upon the
completion of an  integrated  working  model.  To date,  the Company's  software
development   has  been  completed   concurrent   with  the   establishment   of
technological feasibility and, accordingly,  all software development costs have
been  charged  to  research  and   development   expense  in  the   accompanying
consolidated statements of operations.

     In accordance with SOP 98-1  "Accounting for the Cost of Computer  Software
Developed or Obtained for Internal Use," costs incurred  related to internal use
software are capitalized and amortized over their useful lives.

  Computation of Per Share Amounts

    In  accordance  with SFAS No. 128  "Earnings  Per Share," basic net loss per
common share has been calculated using the weighted-average  number of shares of
common stock outstanding  during the period,  less shares subject to repurchase.
For the fiscal years ended July 31, 2004,  July 31, 2003 and July 27, 2002,  the
Company has excluded  all stock  options and warrants  from the  calculation  of
diluted net loss per common share because all such  securities are  antidilutive
for those periods.


                                       54
<PAGE>

     The following  table presents the calculation of basic and diluted net loss
per share (in thousands, except per share data):
<TABLE>
<CAPTION>

                                                                               Year Ended
                                                                   ------------------------------------
                                                                   July 31,     July 31,     July 31,
                                                                     2005         2004         2003
                                                                   --------     --------     --------
<S>                                                                <C>          <C>          <C>
Net loss ......................................................    $ (4,694)    $ (7,640)    $(13,798)
                                                                   ========     ========     ========
Basic and diluted:
  Weighted average shares of common stock outstanding .........      61,454       59,684       54,117
  Less: Weighted average shares subject to repurchase .........          --           --           (7)
                                                                   --------     --------     --------
  Shares used in computing basic and diluted net loss per share      61,454       59,684       54,110
                                                                   ========     ========     ========
  Basic and diluted net loss per share ........................    $  (0.08)    $  (0.13)    $  (0.25)
                                                                   ========     ========     ========
</TABLE>

     The  following   potential  common  shares  have  been  excluded  from  the
calculation of diluted net loss per share for all periods presented because they
are anti-dilutive (in thousands):

                                                        Year Ended
                                               --------------------------------
                                               July 31,     July 31,    July 31,
                                                 2005        2004         2003
                                                ------      ------       -----
Anti-dilutive securities:
     Options to purchase common stock ......    11,226      12,132       9,433
     Warrants ..............................       731         731          --
                                                ------      ------       -----
Total Anti-dilutive securities .............    11,957      12,863       9,433
                                                ======      ======       =====


  Comprehensive Loss

     Comprehensive  loss is comprised of net loss and other non-owner changes in
stockholders'  equity,  including foreign currency translation gains or loss and
unrealized gains or losses on available-for sale marketable securities.

   Income Taxes

     The  Company  accounts  for  income  taxes  using the  liability  method in
accordance  with  SFAS  No.  109,  "Accounting  for  Income  Taxes."  Due to the
Company's  loss  position  in fiscal  years  2005,  2004 and 2003,  there was no
provision  for income taxes in these years.  Deferred tax assets are  recognized
for anticipated future tax consequences  attributable to differences between the
financial statement carrying amounts of existing assets and their respective tax
bases. A valuation allowance has been recorded for the total deferred tax assets
as management  believes it is more likely than not that these assets will not be
realized as a result of uncertainties  regarding realization of the assets based
on  the  lack  of   profitability   to  date  and  the   uncertainty  of  future
profitability.

  Recent Accounting Pronouncements

    In  November  2004,  the FASB  issued  SFAS No.  151,  Inventory  Costs,  an
amendment of ARB No. 43,  Chapter 4. SFAS No. 151 clarifies the  accounting  for
abnormal amounts of idle facility  expense,  freight,  handling costs and wasted
material.  SFAS No. 151 is effective for inventory  costs incurred during fiscal
years  beginning  in our first  quarter of fiscal  2006.  The  Company  does not
believe adoption of SFAS No. 151 will have a material effect on our consolidated
financial position, results of operations or cash flows.

    In December,  2004,  the FASB issued SFAS No. 153,  Exchanges of Nonmonetary
Assets,  an  amendment  of APB  Opinion  No.  29.  SFAS No.  153  addresses  the
measurement  of  exchanges  of  nonmonetary  assets and  redefines  the scope of
transactions  that  should be  measured  based on the fair  value of the  assets
exchanged.  SFAS No. 153 is effective for nonmonetary asset exchanges  beginning
in our first  quarter of fiscal 2006.  The Company does not believe  adoption of
SFAS No. 153 will have a material effect on our consolidated financial position,
results of operations or cash flows.

     In December  2004,  the FASB issued SFAS  123--revised  2004 ("SFAS 123R"),
"Share-Based  Payment"  which  replaces SFAS 123,  "Accounting  for  Stock-Based
Compensation"  and  supersedes  APB No.  25,  "Accounting  for  Stock  Issued to
Employees."  SFAS 123R  requires the  measurement  of all  employee  share-based
payments to  employees,  including  grants of employee  stock  options,  using a
fair-value-based  method and the  recording of such expense in our  consolidated
statements of income.  The accounting  provisions of SFAS 123R are effective for
reporting periods beginning after June 15, 2005.

    The Company is  required  to adopt SFAS 123R in the first  quarter of fiscal
2006. The pro forma  disclosures  previously  permitted under SFAS 123 no longer
will be an alternative  to financial  statement  recognition.  See Note 2 "Stock
Based  Compensation" in our Notes to Consolidated  Financial  Statements for the
pro forma net income and net income


                                       55
<PAGE>


per share amounts, for fiscal 2004 and fiscal 2005 presented,  as if we had used
a  fair-value-based  method  similar to the methods  required under SFAS 123R to
measure  compensation  expense for employee stock incentive awards.  Although we
have not yet determined whether the adoption of SFAS 123R will result in amounts
that are  similar to the  current  pro forma  disclosures  under  SFAS 123,  the
Company is evaluating the  requirements  under SFAS 123R and expect the adoption
to  have  a  significant  adverse  impact  on  our  consolidated  statements  of
operations and net loss per share.


    In May 2005,  the Financial  Accounting  Standards  Board,  or FASB,  issued
Statement  of  Financial  Accounting  Standards,  or SFAS,  No. 154,  Accounting
Changes  and Error  Corrections,  which  replaces  Accounting  Principles  Board
Opinion,  or APB,  No.  20,  Accounting  Changes,  and  SFAS  No.  3,  Reporting
Accounting  Changes in  Interim  Financial  Statements  -- An  Amendment  of APB
Opinion No. 28. SFAS No. 154 provides  guidance on accounting  for and reporting
changes in  accounting  principle and error  corrections.  SFAS No. 154 requires
that changes in accounting principle be applied  retrospectively to prior period
financial  statements and is effective for fiscal years beginning after December
15, 2005. The Company does not expect SFAS No. 154 to have a material  impact on
our consolidated financial position, results of operations, or cash flows.


  Supplier Concentration

     No  supplier  concentration  exists in the  Company's  SourceForge,  Online
Media, E-commerce and Online Images businesses.

  Concentrations of Credit Risk and Significant Customers

     The  Company's   investments   are  held  with  two   reputable   financial
institutions;  both  institutions are  headquartered  in the United States.  The
Company's  investment  policy  limits  the  amount of risk  exposure.  Financial
instruments that  potentially  subject the Company to  concentrations  of credit
risk consist primarily of cash trade  receivables.  The Company provides credit,
in the normal course of business,  to a number of companies and performs ongoing
credit  evaluations  of its  customers.  The credit risk in the Company's  trade
receivables  is  substantially  mitigated by its credit  evaluation  process and
reasonably short collection terms. The Company maintains  reserves for potential
credit losses and such losses have been within management's expectations.  As of
July 31, 2005 and July 31, 2004, no gross accounts receivables were concentrated
with one customer.

    For the fiscal  years ended July 31, 2005 and July 31, 2004 no one  customer
represented  more than 10% of net  revenues.  For the fiscal year ended July 31,
2003, one customer,  Intel  Corporation,  accounted for approximately 17% of net
revenues.  Going forward,  the company does not anticipate that any one customer
will represent more than 10% of net revenues.

3.  Restructuring Costs and Other Special Charges

     In fiscal 2001 and 2002,  the Company  adopted  plans to exit its  hardware
systems and  hardware-related  software  engineering and  professional  services
businesses,  as well as exit a sublease  agreement  and reduce its  general  and
administrative overhead costs. The Company exited these activities to pursue its
SourceForge,  Online Media,  E-commerce and Online Images  businesses and reduce
its operating  losses to improve cash flow. The Company  recorded  restructuring
charges of $168.5 million related to exiting these activities, $160.4 million of
which was  included  in  restructuring  charges  and other  special  charges  in
operating  expenses  and $8.1  million of which was  included  in cost of sales.
Included in the  restructuring  were charges  related to excess  facilities from
non-cancelable  leases.  During the third  quarter of fiscal 2004, in connection
with its original 2002 restructuring plan which included an assumption to sublet
all idle facilities, the Company relocated its Fremont,  California headquarters
to a  smaller  building  in the same  complex.  As a  result  of the  change  in
circumstances,  original  accruals were  reevaluated and accordingly the Company
recorded  a  restructuring  adjustment  of $2.9  million.  Included  in the $2.9
million dollar  restructuring  adjustment was $2.5 million of expense related to
writing off  leasehold  improvements  and fixed  assets and an  additional  $0.4
million expense  related to excess  facilities from  non-cancelable  leases.  In
addition,  during  the third  quarter of fiscal  2004,  the  Company  reached an
agreement in  principal  to sublet  unoccupied  portions of  properties  that it


                                       56
<PAGE>

leases in  Sunnyvale,  California  and Fremont,  California.  As a result of the
change in  circumstances  due to the agreement in principal,  original  accruals
were  reevaluated  and,  accordingly,   the  Company  recorded  a  restructuring
adjustment of $0.3 million in the third quarter of fiscal 2004. The $3.2 million
total adjustment to  restructuring  expenses in fiscal 2004 has been recorded in
the consolidated  statement of operations for that period. In the second quarter
of fiscal  2005,  a minor  credit  adjustment  of $0.1  million was  recorded to
accurately  reflect the current common area maintenance fees associated with the
Fremont facilities.  The remaining accrual from  non-cancelable  lease payments,
which continue through 2010, is based on current  circumstances.  These accruals
are subject to change  should  actual  circumstances  change.  The Company  will
continue to evaluate and update, if applicable,  these accruals quarterly. As of
July 31,  2005,  the  Company  had an  accrual  of  approximately  $7.9  million
outstanding related to these non-cancelable  leases, all of which was originally
included in operating expenses.

     In addition to the above, the Company recorded a net  restructuring  credit
of $0.3  million for the fiscal year ended July 31,  2003.  This  included  $0.4
million of additional  charges related to existing excess facilities as a result
of the termination of a subtenant  lease and $0.3 million of charges  associated
with the  Company's  fiscal 2002 plan to reduce its  general and  administrative
overhead costs, net of $1.0 million in credit adjustments to previously recorded
restructuring  reserves.  As of July 31, 2005, no outstanding  accruals remained
related to these restructuring charges.

     All charges as a result of  restructuring  activities have been recorded in
accordance  with  EITF  94-3,   "Liability   Recognition  for  Certain  Employee
Termination  Benefits  and Other  Costs to Exit an Activity  (including  Certain
Costs incurred in a  Restructuring)."  Restructuring  charges recorded in fiscal
2004 were considered adjustments to the original restructuring plans, therefore,
SFAS  No.  146,   "Accounting  for  Costs   Associated  with  Exit  or  Disposal
Activities," was not applicable.

     Below is a summary of the restructuring  charges in operating  expenses (in
thousands):
<TABLE>
<CAPTION>

                                                                  Total
                                                                 Charged                       Total         Total     Restructuring
                                                              To Operations  Total Charged   Charged To       Cash      Liabilities
                                                                 Fiscal      To Operations   Operations     Receipts/       at
                                                                2001-2003     Fiscal 2004    Fiscal 2005   (Payments)  July 31, 2005
                                                                ---------     -----------    -----------   ----------  -------------
<S>                                                             <C>           <C>           <C>            <C>            <C>
Cash Provisions:
  Other special charges relating to
    restructuring activities ...............................    $  1,349      $     --      $     --       $ (1,349)      $     --
  Facilities charges .......................................      16,176           713          (101)        (8,933)         7,855
  Employee severance and other related charges .............       5,532            --            --         (5,532)            --
                                                                --------      --------      --------       --------       --------
      Total cash provisions ................................      23,057           713          (101)      $(15,814)      $  7,855
                                                                --------      --------      --------       ========       ========
Non-cash:
  Write-off of goodwill and intangibles ....................      90,355            --            --
   Write-off of other special charges relating to
   restructuring activities ................................       9,323         2,496            --
  Write-off of accelerated options from
    terminated employees ...................................       1,352            --            --
   Acceleration of deferred stock compensation .............      36,064            --            --
                                                                --------      --------      --------
      Total non-cash provisions ............................     137,094         2,496            --
                                                                --------      --------      --------
      Total provisions .....................................    $160,151      $  3,209      $   (101)
                                                                ========      ========      ========
</TABLE>


     Below is a  summary  of the  changes  to the  restructuring  liability  (in
thousands):
<TABLE>
<CAPTION>


     Changes in the total accrued restructuring  liability                 Balance at     Charged to                  Balance at
     -----------------------------------------------------                 Beginning      Costs and                     End
                                                                           of Period      Expenses      Deductions    of Period
                                                                           ---------      --------      ----------    ---------
<S>                                                                        <C>           <C>           <C>           <C>
        For the year ended July 31, 2003.............................       $17,994       $   306       $ (3,411)     $ 14,889
        For the year ended July 31, 2004.............................       $14,889       $   713       $ (4,319)     $ 11,283
        For the year ended July 31, 2005.............................       $11,283       $  (101)      $ (3,327)     $  7,855

     Components of the total accrued restructuring liability                 Short         Long          Total
     -------------------------------------------------------                 Term          Term        Liability
                                                                             ----          ----        ---------
        As of July 31, 2003..........................................       $ 4,117       $10,772       $ 14,889
        As of July 31, 2004..........................................       $ 3,440       $ 7,843       $ 11,283
        As of July 31, 2005..........................................       $ 1,748       $ 6,107       $  7,855
</TABLE>


                                       57
<PAGE>

4.  Commitments and Contingencies

     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, 2004 are
as follows (in thousands):
<TABLE>
<CAPTION>
                                                                        Gross Operating                   Net Operating
                                                                            Leases       Sublease Income     Leases
<C>                                                                         <C>              <C>             <C>
2006..............................................................          $3,789           $1,145          $2,644
2007..............................................................           3,511            1,033           2,478
2008..............................................................           3,616            1,064           2,552
2009..............................................................           3,724            1,096           2,628
2010..............................................................           3,181              938           2,243
                                                                           -------           ------         -------
      Total minimum lease payments.........................                $17,821           $5,276         $12,545
                                                                           =======           ======         =======
</TABLE>


     Gross rent  expense  for the years ended July 31,  2005,  July 31, 2004 and
July 31, 2003 was  approximately  $2.8  million,  $3.0 million and $3.9 million,
respectively.  This rent expense was offset by sublease  income of $1.8 million,
$1.1 million and $2.4  million for the years ended July 31, 2005,  July 31, 2004
and July 31, 2003,  respectively.  In addition, rent expense of $0.7 million and
$0.1 million was recorded as a result of idle  facilities  charges for the years
ended July 31, 2004 and July 31, 2003, respectively. No rent expense as a result
of idle  facilities  charges was recorded for the year ended July 31, 2005.  The
idle facilities charges for the years ended July 31, 2004 and July 31, 2003 have
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  Condensed  Consolidated  Balance  Sheets as of April 30,
2005.   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.


                                       58
<PAGE>

     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 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, 2005.

     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, 2005.

     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, 2005.

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

     In  October   1999,   the  Company's   board  of  directors   approved  the
reincorporation  into Delaware by way of a merger with a  newly-formed  Delaware
subsidiary in connection  with the Company's IPO. In  conjunction  with the IPO,
the  Company  issued  4,400,000  shares of common  stock with an initial  public
offering price of $30.00 per share. Upon closing of the initial public offering,
all of the outstanding shares of convertible  preferred stock were automatically
converted into 19,921,322 shares of common stock. In addition,  the underwriters
exercised  their  option  to  purchase  660,000  additional  shares to cover the
over-allotments of shares at the $30.00 per share offering price. The IPO raised
approximately  $141,000,000  after  underwriting fees and $139,000,000 after all
other direct costs.  In fiscal year 2005,  the Company did not cancel any shares
of its common stock. In fiscal year 2004, the Company  cancelled  104,127 shares
of  its  common  stock,  which  had  been  recorded  as  treasury  stock  in the
consolidated  balance sheets and statement of  stockholders'  equity.  In fiscal
2003,  the Company  cancelled  270,407 shares of its common stock which had been
recorded as treasury stock in the  consolidated  balance sheets and statement of
stockholders' equity.

    On  November  6,  2003,  the  company  entered  into a  securities  purchase
agreement in which the company completed a private placement of 3,529,412 shares
of its common stock with The Riverview Group LLC ("Riverview") at an issue price
of $4.25 per share for  aggregate  proceeds of  approximately  $15 million  (the
"Private  Placement").  In connection  with the Private  Placement,  the Company
retained  Wharton  Capital  Partners  Ltd.  ("Wharton")  to act  as a  financial
consultant and placement agent.  Also in connection with the Private  Placement,
Riverview  and  Wharton  received  three-year  warrants  to  purchase a total of
705,883 and 25,000 shares of the company's  common  stock,  respectively,  at an
exercise  price of $6.00 and $6.14 per share,  respectively  (collectively,  the
"Warrants").  The company  entered into a  registration  rights  agreement  with
Riverview on November 6, 2003 (the "Registration Rights Agreement") in which the
company agreed to provide certain  registration  rights under the Securities Act
of 1933, as amended and the rules and regulations  promulgated  thereunder,  and
applicable  state  securities  laws with  respect  to the  common  stock and the
Warrants issued to Riverview.

    Pursuant  to the terms of the  Registration  Rights  Agreement,  the company
filed a  registration  statement (the  "Registration  Statement") on Form S-3 in
order to register the common stock and Warrants issued in the Private Placement.
The SEC declared the Registration  Statement effective on April 30, 2004. Before
the effective date of the  Registration  Statement,  the shares of the company's
common  stock sold in the Private  Placement  and the shares of the common stock
underlying  the  Warrants did not have the same rights as the other shares which
were  included  in  the  Equity  section  of  the  Consolidated  Balance  sheet.
Therefore,  the  shares  of the  company's  common  stock  sold  in the  Private
Placement  and the shares of the  common  stock  underlying  the  Warrants  were
classified as liabilities on the Consolidated Balance sheet. Liabilities must be
reported at fair value as of the balance sheet date. Initially the Warrants were
valued as of November 6, 2003,  and were  revalued on January 31, 2004 using the
Black-Scholes valuation model and then, on April 30, 2004, the effective date of
the  Registration  Statement,   revalued  again  using  the  same  Black-Scholes
valuation  model.  As a  result  of  these  remeasurements,  a  non-cash  credit
adjustment of $1.9 million was recorded to properly  value the  liability.  This
credit  adjustment  was  offset by a $0.3  million  non-cash  expense  which was
recorded as a result of not having the common stock shares  associated  with the
Private   Placement   registered.   Both   adjustments  have  been  recorded  in
"Remeasurement   of  warrant   liability"  in  the  Consolidated   Statement  of
Operations.  As a result of the S-3 becoming  effective  on April 30, 2004,  the
remaining  liability for the Warrants of $0.6 million was reclassified to equity
as of that date.

     As of July 31, 2005 there were 61,659,119 shares of common stock issued and
outstanding.  The Company is  authorized to issue  250,000,000  shares of common
stock,  $0.001 par value.  Each share of common stock has the right to one vote.


                                       59
<PAGE>

The  holders of common  stock are also  entitled to receive  dividends  whenever
funds  are  available  and when  declared  by the  Board of  Directors.  No cash
dividends have been declared or paid through July 31, 2005.

     As of July 31, 2005,  the Company had  reserved  shares of its common stock
for future issuance as follows:

     1998 Stock Option Plan and Assumed Plans..........    21,397,374
     1999 Director Option Plan.........................     1,337,084
     1999 Employee Stock Purchase Plan.................     2,461,987
                                                          -----------
                                                           25,196,445
                                                          ===========

   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, 2005 both of these warrants remained outstanding.

  Stock Option Plan

     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, 2005, 45,843,687 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  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, 2005, 890,000 options have been granted
under the Directors' Plan. Under the Directors' Plan, 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
by its terms earlier.  Unless terminated  sooner, the Directors' Plan terminates
automatically in 2009.

     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.


                                       60
<PAGE>

     The  following is a summary of the option  activity  under all of the stock
option plans for the years ended July 31, 2005, July 31, 2004 and July 31, 2003.

<TABLE>
<CAPTION>
                                                                                            Options Outstanding
                                                                                         ---------------------------
                                                                             Options                       Weighted
                                                                            Available     Number of       Average
                                                                            for Grant      Shares     Exercise Price
                                                                           ----------    ----------   --------------
<S>                                                                        <C>          <C>                <C>
   Balance at July 27, 2002.........................................        8,628,437    12,307,901         4.94
     Authorized.....................................................        2,904,105            --           --
     Granted........................................................       (1,584,600)    1,584,600         1.25
     Exercised......................................................               --    (1,499,274)        0.92
     Cancelled......................................................        2,906,164    (2,960,715)        9.24
     Repurchases....................................................            2,500            --           --
                                                                           ----------    ----------
   Balance at July 31, 2003.........................................       12,856,606     9,432,512         3.61
                                                                           ==========    ==========
     Authorized.....................................................        2,968,033            --           --
     Granted........................................................       (6,226,221)    6,226,221         2.87
     Exercised......................................................               --    (2,199,992)        1.47
     Cancelled......................................................        1,310,209    (1,326,869)        3.95
     Repurchases....................................................               --            --           --
                                                                           ----------    ----------
   Balance at July 31, 2004.........................................       10,908,627    12,131,872         3.58
                                                                           ==========    ==========
     Authorized.....................................................               --            --           --
     Granted........................................................       (1,552,900)    1,552,900         2.05
     Exercised......................................................               --      (300,374)        1.09
     Cancelled......................................................        2,152,685    (2,158,352)        5.27
     Repurchases....................................................               --            --           --
                                                                           ----------    ----------
   Balance at July 31, 2005.........................................       11,508,412    11,226,046         3.11
                                                                           ==========    ==========
</TABLE>

<TABLE>
<CAPTION>
        Outstanding Options                                                                     Options Exercisable
                                                                                                -------------------
                                                                       Weighted
                                                                        Average    Weighted                Weighted
                                                                       Remaining    Average                 Average
            Range of                                       Number      Life (in    Exercise                Exercise
         Exercise Prices                                  Outstanding    years)      Price       Shares     Price
         ---------------                                  -----------    ------      -----       ------     -----
<S>                                                       <C>         <C>       <C>           <C>       <C>
        $ 0.02 - $ 0.96...........................           631,304     3.51      $  0.09       598,156   $  0.05
        $ 0.99 - $ 0.99...........................         1,381,677     6.20      $  0.99     1,217,792   $  0.99
        $ 1.00 - $ 1.77...........................         1,123,502     7.68      $  1.37       769,491   $  1.37
        $ 1.79 - $ 2.24...........................         1,201,209     9.12      $  1.99     1,157,875   $  1.99
        $ 2.26 - $ 2.33...........................           857,226     8.21      $  2.28       857,226   $  2.28
        $ 2.45 - $ 2.45...........................         2,094,077     8.92      $  2.45     2,094,077   $  2.45
        $ 2.49 - $ 2.93...........................           355,850     8.57      $  2.68       283,346   $  2.64
        $ 2.98 - $ 2.98...........................         1,207,659     8.36      $  2.98     1,207,659   $  2.98
        $ 3.00 - $ 4.57...........................         1,560,161     6.97      $  3.67     1,517,657   $  3.66
        $ 4.90 - $64.12...........................           813,381     5.29      $ 14.98       813,381   $ 14.98
                                                          ----------                          ----------
        $ 0.02 - $64.12...........................        11,226,046     7.52      $  3.11    10,516,660   $  3.21
                                                          ==========                          ==========
</TABLE>

    During  fiscal  years  2005,  2004 and 2003,  there were no options or stock
purchase  rights granted  outside of either the 1998 Plan or the Directors' Plan
outstanding.  Total options  exercisable at July 31, 2005 and July 31, 2004 were
10,516,660 and 4,536,731, respectively.

  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. At July 31, 2005,  2,461,987  shares were available for issuance.  The
Company cancelled its Employee Stock Purchase Plan on July 28, 2005.


                                       61
<PAGE>

  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 and $0.1
million  for  fiscal  years  2004  and  2003,   respectively.   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  accounts  for income  taxes in  accordance  with SFAS No. 109,
"Accounting  for Income  Taxes." Due to the  Company's  loss  position in fiscal
years 2005,  2004 and 2003,  there was no provision for federal income taxes for
those years. A valuation  allowance has been recorded for the total deferred tax
assets as management believes there are uncertainties  regarding  realization of
the  assets  based  on the  lack of  consistent  profitability  to date  and the
uncertainty of future profitability.

    The components of the net deferred tax assets are as follows (in thousands):

                                              July 31,     July 31,     July 31,
                                               2005          2004         2003
                                               ----          ----         ----
  Net operating loss carryforwards.......   $  94,519     $ 86,796    $  83,577
  Other reserves and accruals............       9,092       12,722       13,081
                                            ---------     --------    ---------
                                              103,611       99,518       96,658
  Valuation allowance....................    (103,611)     (99,518)     (96,658)
                                            ---------     --------    ---------
  Net deferred income tax asset..........   $      --     $     --    $      --
                                            =========     ========    =========

     As of July 31, 2005,  the Company has net operating loss  carryforwards  of
approximately  $263.2 million to offset future  federal  taxable  income,  which
expire  at  various  dates  through  fiscal  year 2025.  This  amount  includes
approximately  $12.5  million  of net  operating  loss  carryforwards  from  the
acquisition of OSTG. The deferred tax assets related to the  acquisition of OSTG
of approximately $5.6 million as of June 7, 2000, will be used to reduce the tax
provision if and when  realized.  The Company also has  California net operating
loss  carryforwards of approximately  $83.0 million to offset future  California
taxable income,  which expire at various dates through fiscal year 2015. The net
operating loss carryforwards also include  approximately $29.1 million resulting
from  employee  exercises  of  non-qualified   stock  options  or  disqualifying
dispositions,  the tax benefits of which, when realized,  will be recorded as an
addition to additional  paid-in capital rather than a reduction of the provision
for income taxes. The operating loss carryforwards to be used in future years is
limited in accordance  with the  provisions of the Tax Reform Act of 1986 as the
Company has  experienced a cumulative  stock  ownership  change of more than 50%
over the last three years. 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 four  operating
segments: SourceForge, Online Media, E-commerce and Online Images.

     The  Company's  SourceForge  segment  focuses on its  SourceForge  software
products.  The Company's  Online Media segment  represents 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 Online Images segment provides online sales of three-dimensional  art,
animations and presentations.  Other includes revenues 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
goodwill  and  intangibles,   amortization  of  deferred  stock,  impairment  of
long-lived assets and interest income,  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


                                       62
<PAGE>


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.
<TABLE>
<CAPTION>

                                                            Online                    Online                                 Total
     (in thousands)                          SourceForge    Media       E-commerce    Images        Other   Eliminations    Company
     --------------                          -----------    -----       ----------    ------        -----   ------------    -------
<S>                                           <C>          <C>          <C>          <C>         <C>          <C>          <C>
Year Ended July 31, 2005
Revenue from external customers ..........    $  7,555     $  8,130     $ 14,918     $  2,284    $     --     $     --     $ 32,887
  Revenue from intersegments .............    $     --     $    279     $     --     $      1    $     --     $   (280)    $     --
  Cost of revenues .......................    $  1,028     $  3,320     $ 11,591     $    495    $     --     $     --     $ 16,434
  Gross margin ...........................    $  6,527     $  5,089     $  3,327     $  1,790    $     --     $   (280)    $ 16,453
  Operating income (loss) ................    $ (5,392)    $ (1,624)    $    673     $    955    $   (264)    $     --     $ (5,652)
  Depreciation expense ...................    $    550     $    346     $     29     $      4    $     --     $     --     $    929
Year Ended July 31, 2004
Revenue from external customers ..........    $  4,995     $  9,728     $ 12,567     $  1,922    $     49     $     --     $ 29,261
  Revenue from intersegments .............    $     --     $    238     $     --     $     --    $     --     $   (238)    $     --
  Cost of revenues .......................    $  1,860     $  2,969     $ 10,225     $    495    $    (12)    $     --     $ 15,537
  Gross margin ...........................    $  3,135     $  6,997     $  2,342     $  1,427    $     61     $   (238)    $ 13,724
  Operating income (loss) ................    $ (8,900)    $   (431)    $     79     $    622    $ (2,377)    $     --     $(11,007)
  Depreciation expense ...................    $  1,123     $    260     $     30     $     43    $     --     $     --     $  1,456
Year Ended July 31, 2003
  Revenue from external customers ........    $  2,918     $ 10,405     $  8,565     $  1,580    $    760     $     --     $ 24,228
  Revenue from intersegments .............    $     --     $    163     $     --     $     --    $     --     $   (163)    $     --
  Cost of revenues .......................    $  1,997     $  3,852     $  7,025     $    338    $   (432)    $     --     $ 12,780
  Gross margin ...........................    $    921     $  6,716     $  1,540     $  1,242    $  1,192     $   (163)    $ 11,448
  Operating income (loss) ................    $(13,575)    $   (376)    $   (162)    $    353    $ (1,122)    $     --     $(14,882)
  Depreciation expense ...................    $  2,129     $  1,049     $     12     $     12    $     --     $     --     $  3,202
</TABLE>

     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.  Revenues for each of the fiscal years ended July 31, 2005, July 31, 2004
and July 31, 2003 were primarily generated from sales to end users in the United
States of America.
<TABLE>
Quarterly Financial Data
<CAPTION>
                                                                                          Fiscal Year 2005
                                                                                          ----------------
                                                                                   For the three months ended
                                                                     ------------------------------------------------------
                                                                     October 31     January 31     April 30        July 31
                                                                     ----------     ----------     --------        -------
<S>                                                                  <C>            <C>            <C>            <C>
Net revenues ..................................................      $  6,998       $  9,927       $  7,611       $  8,351
Gross margin ..................................................         3,479          4,316          4,029          4,629
Loss from operations ..........................................        (1,871)          (918)        (1,617)        (1,246)
Net loss attributable to common stockholders ..................      $ (1,616)      $   (702)      $ (1,376)      $ (1,000)
Per share amounts:
  Basic and diluted net loss per share ........................      $  (0.03)      $  (0.01)      $  (0.02)      $  (0.02)
  Shares used in computing basic and diluted net loss per share        61,296         61,412         61,523         61,586
</TABLE>

<TABLE>
<CAPTION>
                                                                                          Fiscal Year 2004
                                                                                          ----------------
                                                                                   For the three months ended
                                                                     ------------------------------------------------------
                                                                     October 31     January 31     April 30        July 31
                                                                     ----------     ----------     --------        -------
<S>                                                                  <C>            <C>            <C>            <C>
Net revenues ..................................................      $  5,797       $  8,856       $  7,291       $  7,317
Gross margin ..................................................         2,547          3,542          3,778          3,857
Loss from operations ..........................................        (2,402)        (2,309)        (5,265)        (1,031)
Net loss attributable to common stockholders ..................      $ (1,223)      $ (1,431)      $ (4,125)      $   (861)
Per share amounts:
  Basic and diluted net loss per share ........................      $  (0.02)      $  (0.02)      $  (0.07)      $  (0.01)
  Shares used in computing basic and diluted net loss per share        56,255         60,355         60,882         61,141
</TABLE>


                                       63
<PAGE>

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
fiscal third  quarter  ended April 30, 2005, a  disagreement  arose  between the
Company and BDO  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-Q for the period ended April 30, 2005,
BDO notified the Company's  Audit  Committee  and the Company's  management of a
control  deficiency 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 a material  weakness,  because the control  deficiency
resulted in more than a remote  likelihood  that a material  misstatement  could
occur  in the  Company's  annual  or  interim  financial  statements  and not be
prevented or detected.  The material weakness identified by BDO pertained to the
need for additional resources and technical accounting expertise to be available
to the  Company's  accounting  and  financial  reporting  function to assist the
Company in addressing  relatively complex  transactions and/or accounting issues
that arise from time to time in the course of the Company's operations.


    In addition, on October 10, 2005, the Company filed a current report on Form
8-K to report a change in the Company's independent registered public accounting
firm.


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  Exchange  Act) as of July  31,  2005.  Based on this
evaluation,  the Company's chief executive  officer and chief financial  officer
concluded  that as of July 31,  2005,  the  Company's  disclosure  controls  and
procedures  were not  effective  because of the  material  weaknesses  described
below.

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 by the SEC,  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.

                                       64
<PAGE>

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, 2005
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 the material  weaknesses  described in the  following
paragraphs,  management  has concluded  that, as of July 31, 2005, the Company's
internal  control over  financial  reporting  was not  effective  based on those
criteria.  As defined by Public Company  Accounting  Oversight  Board  ("PCAOB")
Auditing Standard No. 2, a material weakness is a significant control deficiency
or a combination of significant control deficiencies that results in there being
more than a remote  likelihood  that a  material  misstatement  of the annual or
interim financial statements will not be prevented or detected.

Based upon our  management's  assessment of our internal  control over financial
reporting  as of July  31,  2005,  we have  identified  the  following  material
weaknesses:

    o   Lack of  sufficient  personnel and  technical  accounting  and financial
        reporting   expertise  within  the  Company's   accounting  and  finance
        function.  As of July 31, 2005, we did not have sufficient personnel and
        technical  accounting  and  financial  reporting  expertise  within  our
        accounting   function  to  sufficiently   address   relatively   complex
        transactions and/or accounting and financial reporting issues that arise
        from time to time in the course of our  operations.  This  situation was
        exacerbated  by the  additional  demands  placed upon our accounting and
        finance personnel as we worked to meet the internal control requirements
        under  Section  404 of the  Sarbanes-Oxley  Act of 2002.  We  previously
        disclosed  this material  weakness in our Quarterly  Report on Form 10-Q
        for the  quarter  ended  April 30,  2005.  At that  time,  the  material
        weakness was identified as a result of our  misapplication  of generally
        accepted  accounting  principles  pertaining to the  accounting  for our
        volume-based  sales  incentive  programs.  Further,  in connection  with
        preparing  our  fiscal  2005  annual  financial  statements,  we did not
        initially  classify a material  amount of deferred  sublease  income and
        prepaid royalties correctly between current assets and long-term assets.
        The proper  classification was identified by our independent  registered
        public  accounting firm and was adjusted in the Company's  balance sheet
        at July 31, 2005.

        This material  weakness  resulted in adjustments to our fiscal year 2005
        annual and interim financial statements. Further, this material weakness
        could  result  in  material  misstatements  to  our  annual  or  interim
        financial statements that would not be prevented or detected.

    o   Inadequate controls over period-end financial reporting.  As of July 31,
        2005,  our Chief  Financial  Officer 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.  This review
        represents an important  detective  control in our internal control over
        financial reporting.  Because there was no separate independent detailed
        review  of this  critical  financial  information,  there is a risk that
        inaccurate information may be reported and errors may not be identified.

        This material  weakness did not result in adjustments to our fiscal year
        2005 annual or interim  financial  statements.  However,  this  material
        weakness could result in material misstatements to our annual or interim
        financial statements that would not be prevented or detected.


    o   Inadequate  controls  in the areas of revenue and  accounts  receivable.
        During the fiscal year ended July 31, 2005, there were certain instances
        in which fully  executed  contracts were not obtained in a timely manner
        in connection with providing online advertising services.  Further, in a
        limited  number of  situations,  revenue  was not  adjusted  to properly
        reflect   below-estimated   "click-throughs"   on  certain   advertising
        sponsorship  buttons and links.  In addition,  in certain  instances the
        same individual had authority for activities which should be segregated,
        such  as  processing  of  orders  and  authorization  of  shipping;  and
        invoicing  and  collections.  Furthermore,  we  did  not  have  adequate
        oversight and review of these personnel to compensate for the inadequate
        segregation  of  duties.   These   weaknesses   individually   represent
        significant  deficiencies  and, in the  aggregate,  represent a material
        weakness.

        This material  weakness did not result in adjustments to our fiscal year
        2005 annual or interim  financial  statements.  However,  this  material
        weakness could result in material misstatements to our annual or interim
        financial statements that would not be prevented or detected.


                                       65
<PAGE>


    o   Inadequate  controls  in the area of  purchases.  During the fiscal year
        ended  July 31,  2005,  management  did not  ensure  that the  Company's
        Purchasing Policy was strictly enforced,  including  instances 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. In addition, we did
        not  maintain  adequate  segregation  of  duties  among  members  of our
        purchasing and receiving departments.  In several instances,  we had the
        same personnel performing duties that were not compatible.  Furthermore,
        we did not have  adequate  oversight  and review of these  personnel  to
        compensate for the inadequate  segregation of duties. We determined that
        we have  compensating  controls in place to mitigate the risk that these
        control  deficiencies  could  result in a material  misstatement  to our
        annual or interim financial statements;  however, due to the opportunity
        for invalid and unauthorized purchases, we determined that these control
        deficiencies, in the aggregate, represent a material weakness.

        This material  weakness did not result in adjustments to our fiscal year
        2005 annual or interim  financial  statements.  However,  this  material
        weakness could result in material misstatements to our annual or interim
        financial statements that would not be prevented or detected.

    o   Inadequate  controls in the area of information  technology.  As of July
        31, 2005,  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.  Specifically,  certain of
        our   accounting   users  with   financial,   accounting  and  reporting
        responsibilities  also had inappropriate access to financial application
        programs and data. Such access was not in compliance with segregation of
        duties  requirements  nor was this access  independently  monitored.  In
        addition,  the  documentation  regarding  access  privileges  of certain
        individuals to the accounting system was not reflective of actual access
        privileges.  Further, we did not maintain adequate controls in the areas
        of system  development  life  cycle,  or SDLC,  and  Change  Management.
        Management  determined  that  these  weaknesses  individually  represent
        significant  deficiencies  and, in the  aggregate,  represent a material
        weakness.

        This material  weakness did not result in adjustments to our fiscal year
        2005 annual or interim  financial  statements.  However,  this  material
        weakness could result in material misstatements to our annual or interim
        financial statements that would not be prevented or detected. .

    o   Lack of internal  control reports (under SAS 70) from critical  external
        service providers.  As of July 31, 2005, we were unable to obtain proper
        "Report  on  Controls   Placed  in  Operation   and  Test  of  Operating
        Effectiveness"   (issued  under  SAS  70)  from  two  external   service
        providers.  These include the provider of our hosted  accounting  system
        and  the  provider  of our  hosted  advertising  servicing  system.  The
        services  performed by these service  providers were deemed material and
        significant to the Company's business and accurate financial reporting.

        This material  weakness did not result in adjustments to our fiscal year
        2005 annual or interim  financial  statements.  However,  this  material
        weakness could result in a risk that integrity of critical  company data
        could be compromised at external service providers which could result in
        material  misstatements  to our annual or interim  financial  statements
        that would not be prevented or detected.

In  light of these  material  weaknesses  and the  requirements  enacted  by the
Sarbanes-Oxley Act of 2002 and the related rules and regulations  adopted by the
SEC, our chief executive  officer and chief financial officer concluded that, as
of July  31,  2005,  our  internal  control  over  financial  reporting  was not
effective.

Our independent  registered public accounting firm, BDO Seidman, LLP, 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 on
page 68.

                                       66
<PAGE>

Completed  and  Planned   Remediation   Actions  to  Address   Internal  Control
Deficiencies


Management  believes  the  actions  that we have taken  since July 31,  2005 and
actions  that will be taken in fiscal year 2006,  along with other  improvements
yet to be formally  identified,  will  address the  material  weaknesses  in our
internal control over financial reporting noted above. Some of these remediation
actions are discussed below.

    o   In relation to the material  weakness in the area of lack of  sufficient
        personnel and technical  accounting  and financial  reporting  expertise
        within the Company's  accounting and finance function,  we are committed
        to hiring a sufficient number of technically-qualified  employees and/or
        consultants  to ensure  that all  significant  accounting  issues,  both
        routine  and  non-routine,  are  identified,   researched  and  properly
        concluded upon.  Further, we will implement a detailed review of balance
        sheet classifications.

    o   In relation to the material weakness in the area of inadequate  controls
        over period-end financial reporting, to remedy this deficiency,  we will
        ensure that the internal reporting package is reviewed and signed off by
        a person other than the preparer.

    o   In relation to the material weakness in the area of inadequate  controls
        in the  area  of  revenue  and  accounts  receivable,  we  are  strictly
        enforcing  the policy of obtaining  fully-executed  contracts  from each
        customer  before  running  the  customer's  ads and  have  put in  place
        processes to  independently  review all sponsorship  and  "non-standard"
        impression  contracts to ensure that they are captured and accounted for
        correctly.  In addition,  we will monitor job  responsibilities  for all
        accounting  personnel and ensure that employees are not expected to take
        on multiple conflicting duties.

    o   In relation to the material weakness in the area of inadequate  controls
        in the area of  purchases,  we are  strictly  enforcing  the  purchasing
        policy,  including,  but not limited to,  requiring  that  approvals  be
        obtained  before the Company  issues a purchase order and requiring that
        all packing slips be signed off as evidence of quantities purchased.  We
        will also monitor job  responsibilities for all accounting personnel and
        ensure that  employees are not expected to take on multiple  conflicting
        duties.

    o   In relation to the material weakness in the area of inadequate  controls
        in the area of information  technology,  we are  periodically  reviewing
        access  rights  and are  enforcing  compliance  to our SDLC  and  Change
        Management policies. In addition, we will update documentation regarding
        access  privileges of certain  individuals to the  accounting  system to
        reflect actual access privileges.

    o   In relation to the  material  weakness in the area of a lack of internal
        control reports (under SAS 70) from critical external service providers,
        we received a SAS 70 report from the  provider of our hosted  accounting
        system in October  2005 and  expect to receive a SAS 70 report  from the
        provider of our hosted ad servicing  system in March 2006.  In addition,
        we will work with our external service providers to obtain timely SAS 70
        reports;  in those instances  where a timely report is  unavailable,  we
        will undertake  additional  testing to ensure  adequate  controls are in
        place and effective.

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.


                                       67
<PAGE>

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 did not maintain effective internal control over financial
reporting as of July 31, 2005, because of the effects of the material weaknesses
identified in management's assessment, 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
opinions.

    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 accounting principles generally accepted in the United States of America. 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 accounting principles generally accepted in the United States of
America,  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.

    A material  weakness  is a control  deficiency,  or  combination  of control
deficiencies,  that  results  in more than a remote  likelihood  that a material
misstatement of the annual or interim financial statements will not be prevented
or detected. The following material weaknesses have been identified and included
in management's assessment:


    o   Lack of  sufficient  personnel and  technical  accounting  and financial
        reporting   expertise  within  the  Company's   accounting  and  finance
        function.  As of July 31,  2005,  the  Company  did not have  sufficient
        personnel and technical  accounting  and financial  reporting  expertise
        within  its  accounting  function  to  sufficiently  address  relatively
        complex  transactions  and/or accounting and financial  reporting issues
        that  arise  from  time to time in the  course of its  operations.  This
        situation was  exacerbated  by the  additional  demands  placed upon the
        Company's  accounting  and  finance  personnel  as it worked to meet the
        internal control  requirements  under Section 404 of the  Sarbanes-Oxley
        Act of 2002. The Company previously  disclosed this material weakness in
        the Company's  Quarterly Report on Form 10-Q for the quarter ended April
        30, 2005. At that time, the material weakness was identified as a result
        of  the  Company's   misapplication  of  generally  accepted  accounting
        principles  pertaining  to the  accounting  for its  volume-based  sales
        incentive  programs.  Further,  in connection  with preparing its fiscal
        2005 annual financial statements, the Company did not initially classify
        a material  amount of deferred  sublease  income and  prepaid  royalties
        correctly  between  current  assets  and  long-term  assets.  The proper
        classification was ultimately adjusted in the Company's balance sheet at
        July 31, 2005.


                                       68
<PAGE>

        This material  weakness  resulted in adjustments to the Company's fiscal
        year  2005  annual  and  interim  financial  statements.  Further,  this
        material  weakness  could  result  in  material   misstatements  to  the
        Company's  annual or  interim  financial  statements  that  would not be
        prevented or detected.

    o   Inadequate controls over period-end financial reporting.  As of July 31,
        2005,  the  Company's  Chief  Financial   Officer  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. This review represents an important detective control in the
        Company's internal control over financial  reporting.  Because there was
        no  separate  independent  detailed  review of this  critical  financial
        information, there is a risk that inaccurate information may be reported
        and errors may not be identified.

        This material  weakness did not result in  adjustments  to the Company's
        fiscal year 2005 annual or interim financial  statements.  However, this
        material  weakness  could  result  in  material   misstatements  to  the
        Company's  annual or  interim  financial  statements  that  would not be
        prevented or detected.


    o   Inadequate  controls  in the areas of revenue and  accounts  receivable.
        During the fiscal year ended July 31, 2005, there were certain instances
        in which fully  executed  contracts were not obtained in a timely manner
        in connection with providing online advertising services.  Further, in a
        limited  number of  situations,  revenue  was not  adjusted  to properly
        reflect   below-estimated   "click-throughs"   on  certain   advertising
        sponsorship  buttons and links.  In addition,  in certain  instances the
        same individual had authority for activities which should be segregated,
        such  as  processing  of  orders  and  authorization  of  shipping;  and
        invoicing and collections. Furthermore, management did not have adequate
        oversight and review of these personnel to compensate for the inadequate
        segregation  of  duties.   These   weaknesses   individually   represent
        significant  deficiencies  and, in the  aggregate,  represent a material
        weakness.

        This material  weakness did not result in  adjustments  to the Company's
        fiscal year 2005 annual or interim financial  statements.  However, this
        material  weakness  could  result  in  material   misstatements  to  the
        Company's  annual or  interim  financial  statements  that  would not be
        prevented or detected.

    o   Inadequate  controls  in the area of  purchases.  During the fiscal year
        ended  July 31,  2005,  management  did not  ensure  that the  Company's
        Purchasing Policy was strictly enforced,  including  instances 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.  In addition,  the
        Company did not maintain adequate segregation of duties among members of
        its  purchasing and receiving  departments.  In several  instances,  the
        Company  had  the  same  personnel   performing  duties  that  were  not
        compatible,  such as purchasing and receiving.  Furthermore,  management
        did not  have  adequate  oversight  and  review  of these  personnel  to
        compensate for the inadequate  segregation of duties.  These  weaknesses
        individually  represent significant  deficiencies and, in the aggregate,
        represent a material weakness.

        This material  weakness did not result in  adjustments  to the Company's
        fiscal year 2005 annual or interim financial  statements.  However, this
        material  weakness  could  result  in  material   misstatements  to  the
        Company's  annual or  interim  financial  statements  that  would not be
        prevented or detected.


                                       69
<PAGE>

    o   Inadequate  controls in the area of information  technology.  As of July
        31, 2005, the Company did not maintain effective controls over access to
        the  accounting  system  and in some  cases  did not  maintain  complete
        documentation  regarding these access rights.  Specifically,  certain of
        the Company's accounting users with financial,  accounting and reporting
        responsibilities  also had inappropriate access to financial application
        programs and data. Such access was not in compliance with segregation of
        duties  requirements  nor was this access  independently  monitored.  In
        addition,  the  documentation  regarding  access  privileges  of certain
        individuals to the accounting system was not reflective of actual access
        privileges.  Further,  the Company did not maintain adequate controls in
        the  areas  of  system  development  life  cycle,  or SDLC,  and  Change
        Management.   These  weaknesses   individually   represent   significant
        deficiencies and, in the aggregate, represent a material weakness.

        This material  weakness did not result in  adjustments  to the Company's
        fiscal year 2005 annual or interim financial  statements.  However, this
        material  weakness  could  result  in  material   misstatements  to  the
        Company's  annual or  interim  financial  statements  that  would not be
        prevented or detected.

    o   Lack of internal  control reports (under SAS 70) from critical  external
        service providers. As of July 31, 2005, the Company was unable to obtain
        proper  "Report on Controls  Placed in  Operation  and Test of Operating
        Effectiveness"   (issued  under  SAS  70)  from  two  external   service
        providers. These include the provider of the Company's hosted accounting
        system and the provider of its hosted advertising  servicing system. The
        services  performed by these service  providers were deemed material and
        significant to the Company's business and accurate financial reporting.

        This material  weakness did not result in  adjustments  to the Company's
        fiscal year 2005 annual or interim financial  statements.  However, this
        material  weakness  could  result  in  material   misstatements  to  the
        Company's  annual or  interim  financial  statements  that  would not be
        prevented or detected.

These material weaknesses were considered in determining the nature, timing, and
extent  of  audit  tests  applied  in our  audit  of VA  Software  Corporation's
consolidated  financial  statements  as of and for the year ended July 31, 2005,
and this  report  does not affect our report  dated  October  31,  2005 on those
consolidated financial statements.

    In our opinion, management's assessment that VA Software Corporation did not
maintain  effective  internal  control over  financial  reporting as of July 31,
2005,  is  fairly  stated,  in all  material  respects,  based  on the  criteria
established in Internal Control--Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Also in our opinion,
because  of the  effects  of the  material  weaknesses  described  above  on the
achievement of the objectives of the control criteria,  VA Software  Corporation
has not maintained  effective  internal  control over financial  reporting as of
July 31, 2005, based on the criteria established in Internal Control--Integrated
Framework  issued by the Committee of Sponsoring  Organizations  of the Treadway
Commission (COSO).

    We do not express an opinion or any other form of assurance on  management's
statements  regarding  corrective  actions  taken by the Company  after July 31,
2005.

    We also have audited, in accordance with the standards of the Public Company
Accounting  Oversight  Board  (United  States),  the  accompanying  consolidated
balance sheets of VA Software  Corporation as of July 31, 2005 and 2004, and the
related  consolidated   statements  of  operations,   stockholders'  equity  and
comprehensive  income  (loss),  and cash  flows for each of the two years in the
period  ended July 31, 2005 and our report dated  October 31, 2005  expressed an
unqualified opinion thereon.


/s/ BDO Seidman, LLP

San Jose, California
October 31, 2005

                                       70
<PAGE>

                                    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  2005  Proxy  Statement,  which  will be
delivered to stockholders in connection with the Company's annual  stockholders'
meeting to be held on December 7, 2005.

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/Code_of_Ethics_for_Senior_Financial_Officers.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  2005 Proxy  Statement,  which will be  delivered to  stockholders  in
connection  with  the  Company's  annual  stockholders'  meeting  to be  held on
December 7, 2005.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

     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 2005 Proxy Statement,  which
will be  delivered to  stockholders  in  connection  with the  Company's  annual
stockholders' meeting to be held on December 7, 2005.

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  2005 Proxy  Statement,  which will be  delivered to  stockholders  in
connection  with  the  Company's  annual  stockholders'  meeting  to be  held on
December 7, 2005.

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 2005
Proxy Statement,  which will be delivered to stockholders in connection with the
Company's annual stockholders' meeting to be held on December 7, 2005


                                       71
<PAGE>


                                     PART IV

Item 15.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

    (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.



                                   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 31, 2005


                                       72
<PAGE>


                                                 POWER OF ATTORNEY

     KNOW ALL  PERSONS  BY THESE  PRESENTS,  that each  person  whose  signature
appears below hereby constitutes and appoints Ali Jenab and Kathleen R. McElwee,
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.
<TABLE>
<CAPTION>

           Signature                                                 Title                                   Date
           ---------                                                 -----                                   ----
<S>                                             <C>                                                    <C>
   /s/  ALI JENAB                                     Chief Executive Officer, President               October 31, 2005
------------------------------------              (principle executive officer) and Director
           Ali Jenab


   /s/  KATHLEEN R. MCELWEE                    Senior Vice President and Chief Financial Officer       October 31, 2005
------------------------------------                    (principle accounting officer)
      Kathleen R. McElwee


   /s/  ANDREW ANKER                                               Director                            October 31, 2005
------------------------------------
         Andrew Anker


   /s/  LARRY M. AUGUSTIN                             Chairman of the Board of Directors               October 31, 2005
------------------------------------
       Larry M. Augustin


   /s/  ANDRE M. BOISVERT                                          Director                            October 31, 2005
------------------------------------
       Andre M. Boisvert


   /s/  RAM GUPTA                                                  Director                            October 31, 2005
------------------------------------
           Ram Gupta


   /s/  ROBERT M. NEUMEISTER, JR.                                  Director                            October 31, 2005
------------------------------------
   Robert M. Neumeister, Jr.


   /s/  CARL REDFIELD                                              Director                            October 31, 2005
------------------------------------
         Carl Redfield

   /s/ DAVID B. WRIGHT                                             Director                            October 31, 2005
------------------------------------
        David B. Wright

</TABLE>


                                       73
<PAGE>

                             VA SOFTWARE CORPORATION

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                 Balance at   Charged to              Balance at
                                                                  Beginning    Costs and                  End
    Description                                                   of Period    Expenses   Deductions   of Period
    -----------                                                   ---------    --------   ----------   ---------
<S>                                                               <C>         <C>          <C>         <C>
    Year Ended July 27, 2003
      Allowance for doubtful accounts........................     $  1,166    $     (19)   $  1,003    $   144
      Allowance for excess and obsolete inventory............     $     30    $      (6)   $     --    $    24
    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
</TABLE>


                                       74
<PAGE>

                                  EXHIBIT INDEX
<TABLE>
<CAPTION>

   Exhibit
   Number
   ------
<S>              <C>   <C>
   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

  23.1           --    Consent of BDO Seidman, LLP, Independent Registered Public Accounting Firm

  23.2           --    Consent of PricewaterhouseCoopers, LLP, Independent Registered Public Accounting Firm

  24.1           --    Power of Attorney (see signature page)

  31.01          --    Certification Of Chief Executive Officer Pursuant To Section 302 Of The Sarbanes-Oxley Act Of 2002

  31.02          --    Certification Of Chief Financial Officer Pursuant To Section 302 Of The Sarbanes-Oxley Act Of 2002

  32.01                Certification Of Chief Executive Officer Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002

  32.02                Certification Of Chief Financial Officer Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002
</TABLE>

____________

+   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.


(1) Incorporated by reference to the corresponding  exhibit of Registrant's form
    S-1 and the amendment thereto (Commission registration no. 333-88687).

(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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<PAGE>


(3) Incorporated  by reference from Exhibit 10.16 of  Registrant's  form S-1 and
    the amendments thereto (Commission registration no. 333-88687).

(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).

(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).

(6) Incorporated by reference from Exhibit 10.2 of  Registrant's  Current Report
    on Form 8-K filed on November 7, 2003.

(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  28, 2005
    (Commission file number 000-28369).

(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  28, 2005
    (Commission file number 000-28369).

(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  28, 2005
    (Commission file number 000-28369).

++  Denotes a management contract or compensatory plan or arrangement.


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