SCO Hands in Its Homework

On Friday after the bell, SCO finally got its paperwork in to the Securities and Exchange Commission.

SCO filed amended Form 10-Qs for the quarters ended January 31, 2004, April 30, 2004, and July 31, 2004, and filed its Form 10-K for the fiscal year ended October 31, 2004.

SCO has two lines of business: Unix operating systems and software for small businesses and the SCOsource intellectual property-licensing program.

Revenue from Unix sales for fiscal year 2004 was $41.98 million, down 21 percent from $53.4 the previous year. The company lost $7.7 million overall, more than the $46,9 million it lost in 2003, but not as much as the $ 70.1 million losses in 2002.

Unix revenue for the quarter ending July 31, 2004 was $10.52 million, down 18 percent year-over-year. But the quarter was profitable, with $183,000 in income, as opposed to a loss of $2 million the previous quarter, thanks to cost cutting.

SCO said the decline in Unix revenue was due to increased competition from Linux.

“We believe the inclusion of our Unix code and derivative works in Linux has been a major contributor to the decline in our Unix business because users of Linux generally do not pay for the operating system but pay only minimal fees, if any, for service and maintenance,” the filing stated. “The decline in our Unix business revenue may be accelerated if industry partners withdraw their support as a result of our SCOsource initiatives,” it said.

SCO said it lost $7.5 million for the quarter on its licensing program; for the same quarter in 2003, it earned $5.48 million. The annual loss was $20.8 million; in 2003, it earned $7.3 million from licensing.

One interesting detail in the filing is that SCO dickered with its lawyers, including the high-priced firm of Boies, Schiller & Flexner, to get a flat rate for its services. SCO owed $13.9 million as of October 2004; Boies et alia will take $26 million for all past and future work. The lawyers also will get a percentage of any SCO winnings in the case.

“The payment of these fees has had and will continue to have a material impact on our cash position,” the company noted.

SCO faced delisting from the NASDAQ because it had missed two deadlines for filing its annual report.

The Linden, Utah-based company also said it would have to restate the first three quarters of 2004 because it issued employee stock and options without registering them with the SEC. Google made a similar blunder shortly before its IPO. Both companies must offer to buy back the shares.

The deadline for completing expert discovery in SCO’s copyright infringement suit against IBM is April 22, 2005, and the trial is scheduled to begin on November 1, 2005, unless the trend of postponements continues. SCO also is suing Novell, AutoZone and DaimlerChrysler for using Linux distributions that SCO claims contain its proprietary code.

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