Press Release Index

VA Linux Reports Results for Fourth Fiscal Quarter, 2001

FREMONT, Calif. August 23, 2001 VA Linux Systems, Inc. (Nasdaq: LNUX) today reported results for its fiscal fourth quarter and year ended July 28, 2001. As indicated in its June 27, 2001 press release, VA Linux has now exited the systems hardware business in all regions except for Japan. Final systems hardware orders and deliveries of systems, excluding Japan, have now been completed and closed.

Fourth quarter revenue totaled $16.0 million. Net loss per share for the quarter was ($5.58), primarily due to $267 million of non-cash charges for goodwill and intangible assets and restructuring charges associated with the exit from the systems hardware business. At the end of the fourth quarter, the Company had approximately $83 million of cash and marketable securities.

The VA Linux business model has dramatically evolved. The Company is now primarily focused on its SourceForge application software business. With the new model, the Company expects revenue in the first quarter of fiscal 2002, excluding August hardware shipments, to fall in the range of $3 to $4 million, with a net loss from operations in the range of $10 to $13 million. Cash usage is expected to exceed the net loss by approximately $6 million in this quarter, due to payments related to previously accrued restructuring charges.

"We have made a significant transition over the past two months," said VA Linux CEO Larry M. Augustin. "We are now focused on delivering our software expertise through our new application software strategy, with our SourceForge product at its core. Our reduced levels of operating expense and cash use will provide stability as we further develop and improve SourceForge."

A conference call to review results and the new VA Linux business model will be held at 2:00 pm (Pacific) today. The call may be accessed via webcast at or by dialing (800) 450-0785 (access code 595202).

VA Linux now offers two editions of the SourceForgeTM collaborative software development (CSD) platform to its customers.

Strategic Focus on SourceForge

  • SourceForge Enterprise Edition. Installed behind corporate firewalls, SourceForge Enterprise Edition helps customers maximize efficiencies and cut costs by enabling collaborative software development. Major customers include R&D organizations in Global 2000 companies, as well as IT organizations.
  • SourceForge Portal Edition. Developer relations organizations in leading technology companies use SourceForge Portal Edition to build external developer communities supporting their technologies.
    By using the same software used by more than 25,000 projects and over 230,000 users on OSDN's incorporating key features for enterprise integration-VA Linux is bringing a proven, scalable CSD platform to the enterprise market.

About VA Linux Systems

VA Linux Systems is a provider of application software, featuring the SourceForge collaborative software development platform; Linux software development and consulting services; and OSDN, the Open Source Development Network.

Note Regarding Forward-Looking Statements: This press release contains forward-looking statements that involve risks and uncertainties, including statements regarding the Company's: future financial performance and results of operations, including anticipated revenue, cash usage and net loss from operations; ability to improve cash flow and reduce operating losses; sales strategy and anticipated benefits from such strategy; expectations of future growth and market acceptance of SourceForge software; demand for the Company's consulting services and OSDN; and anticipated benefits from cost-cutting and other restructuring actions. Actual results may differ materially from those expressed or implied in such forward-looking statements due to various factors, including: unforeseen expenses that VA Linux may incur in future quarters; the possibility that VA Linux will not identify sufficient sources of expense reduction; VA Linux's quarterly sales cycle and fluctuation in demand for our products and services; competition with, and pricing pressures from, more established competitors; VA Linux's success in expanding its CSD, OSDN and Linux software development and consulting services businesses; the risk that VA Linux's restructuring efforts will not succeed; VA Linux's ability to successfully attract, retain and motivate employees; the possibility of further deterioration in the general economy and its impact on VA Linux and its current and potential customers; the rate of growth and acceptance of a software development model incorporating both Open Source and proprietary software; VA Linux's reliance upon strategic relationships with other companies and its ability to negotiate, close and implement specific terms relating to them; the enforceability of the Mozilla Public License; and rapid technological and market change. Investors should consult VA Linux's filings with the Securities and Exchange Commission, including its Quarterly Report on Form 10-Q for the quarter ended April 28, 2001, for further information regarding these and the other risks of the Company's business. These documents are available at the SEC Web site: VA Linux assumes no obligation to update the forward-looking information contained in this news release.

Note to Editors: VA Linux, SourceForge and OSDN are trademarks of VA Linux Systems, Inc. Linux is a trademark of Linus Torvalds. All other trademarks are property of their respective owners.

(In thousands, except per share data)

  Three Months Ended Year Ended
  July 28, 2001 July 28, 2000 July 28, 2001 July 28, 2000
Net Revenues 15,981 50,662 134,890 120,296
Cost of Revenues 35,864 39,499 154,103 98,181
Gross margin (19,883) 11,163 (19,213) 22,115
Operating expenses:
Sales and marketing 7,266 9,711 39,981 29,479
Research and development 3,570 4,173 17,959 12,363
General and administrative 3,761 3,760 22,012 8,985
Restructuring costs and other special charges 69,916 - 113,302 -
Amortization of deferred stock compensation (415) 5,178 7,667 16,877
Amortization of compensation expense related to acquisitions 593 16,967 53,601 22,623
Amortization of goodwill and intangible assets 26,504 16,286 97,887 18,175
Impairment of goodwill and intangibles assets 160,000 - 160,000 -
Write-off of in-process research and development - 5,000 - 9,000
Total operating expenses 271,195 61,075 512,409 117,502
Loss from operations (291,078) (49,912) (531,622) (95,387)
Interest and other income, net 960 2,398 6,354 5,629
Net loss (290,118) (47,514) (525,268) (89,758)
Dividend related to convertible preferred stock - - - (4,900)
Net loss attributable to common stockholders (290,118) (47,514) (525,268) (94,658)
Basic and diluted net loss per share $(5.58) $(1.15) $(10.78) $(3.52)
Weighted-average shares outstanding: Basic and diluted (5) 52,006 41,172 48,706 26,863


(In thousands)

  July 28, 2001 July 28, 2000
Current assets:
Cash and cash equivalents 60,347 123,849
Marketable securities 22,595 52,433
Accounts receivable, net 10,107 31,842
Inventories 343 1,018
Prepaid expenses and other current assets 3,895 2,156
Total current assets 97,287 211,298
Property and equipment, net 17,703 10,316
Goodwill and intangible assets, net 56,730 362,744
Other assets 1,313 741
  $173,033 $585,099
Current liabilities:
Accounts payable 14,319 26,715
Accrued liabilities and other 30,188 11,285
Current portion of loans and notes payable 756 1,568
Total current liabilities 45,263 39,568
Notes payable, net of current portion 42 1,104
Other long-term liabilities 1,366 552
Stockholders' equity:
Common stock 54 52
Additional paid-in capital 768,793 763,175
Deferred stock compensation (6,108) (109,686)
Accumulated other comprehensive loss (1,490) (47)
Accumulated deficit (634,887) (109,619)
Total stockholders' equity 126,362 543,875
  $173,033 $585,099

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