SCO Losses Rise, Revenues Drop in 2004

Revenues fell and losses deepened for SCO Group during
the company’s final fiscal quarter, driven by changes to its operations,
officials announced Tuesday.

The company declared a net loss of $6.5 million for the fourth quarter, down
from a loss of $1.4 million in the same period last year. In fiscal year
2004, the company reported a net loss of $23.4 million, compared to a net
income of $5.4 million in 2003. Included in the net loss were charges
related to a workforce reduction, a restructuring of continuing operations
and the disposition of long-lived assets totaling $2.7 million, officials

Revenues for the quarter dropped from a year ago, from $24.3 million to
$10.1 million. For the year, 2004 revenues were $43 million, down from
$79.3 million in 2003.

Officials explained that the drop was primarily due to a decrease in licensing revenues and increased competitive pressures. Revenues from the controversial SCOsource
licensing program
for SCO’s Unix intellectual property were down from $10.3 million in the fourth quarter of 2003 to $120,000 this quarter. In fiscal 2004, SCOsource licensing revenues were $829,000, a sharp drop from $26 million in 2003.

Still, Darl McBride, SCO CEO, said the core Unix business provided a ray of
sunshine to dispel some of the gloom created by the steep losses. In
addition to the previously announced cap on legal
expenses, $13 million of which was paid in the fourth quarter and $2 million
a quarter for the next five quarters, the company’s product and services
business is showing promise. More new Unix products have come out in 2004 than in recent years, he said.

“If you think of our business in two simple buckets — you’ve got the core
business bucket, and then you’ve got the litigation bucket — the litigation
bucket is now funded, has a set of funds and the fees are capped with the
law firm,” he said in an investor’s conference Tuesday. “Now, you come back
to the core business, the core business is cash flow positive, and we’re
coming out with some new products. We’re fairly excited about going into
this new year with the increased flexibility we now have.”

The company expects to release its next version of OpenServer, code-named
Legend, next year in the second quarter, a slight delay, McBride said, from
its original first quarter launch target. Earlier this year, the company announced updates to its UnixWare and OpenServer products.

The company also will record a $500,000 gain from a deal originally brokered
in April 2003 with a company called Center 7, where SCO gave the company its
half of the copyright applications, trademarks, patents and contracts
related to a joint venture, originally formed in November 2002, called
Volution Technologies. In exchange, SCO received a $500,000 promissory note due in
April 2005. The software was later passed to a company called Vintela, and
SCO arranged a deal with the new owners to forgo any interest payments for
an immediate payment on the note, which was made Dec. 9.

SCO is embroiled in a heated legal battle with IBM over a
contract, with SCO accusing Big Blue of passing some of its
proprietary Unix source code used in IBM’s AIX operating system to bolster
Linux kernel development.

A jury trial, McBride said, is scheduled for Nov. 1, 2005.

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