SCO Trumpets More Revenue from SCOsource

SCO Group reported revenue of $7.3 million from its
SCOsource licensing business Thursday, down from the $8.3 million in
revenue it reported from the initiative in its second quarter.

However, the company said the results for SCOsource, as well as the $12.8
million in revenue from the company’s operating system platforms (down from
$13.1 million in the second quarter), was in the range of previous
guidance.

The SCOsource revenue does not reflect revenue from sales of its new binary license, which it says protects Linux users from copyright infringement, because the license was only introduced last week, and the first transaction announced Monday.

Overall, the company reported its second-ever net income. It came in with
$3.1 million in net income, or 19 cents per diluted share, on revenue of
$20.1 million for its third fiscal quarter, which ended July 31. That
compares to a net loss of $4.5 million, or 35 cents per diluted share, in
the year ago quarter. In the second quarter, the company reported net
income of $4.5 million, 33 cents per diluted share, on revenue of $21.4
million.

“During the quartered ended July 31, 2003, SCOsource, our division for
licensing and protecting the company’s Unix intellectual property,
generated $7.3 million in revenue and contributed $5.6 million to gross
margin,” said SCO President and CEO Darl McBride. “Our SCOsource initiative
continues to gain momentum as we pursue enforcement of the company’s
intellectual property rights.”

McBride said the income will be used to continue funding the company’s
intellectual property legal actions and licensing initiatives, and will
also be put behind SCOx, the company’s Web services strategy.

He added that the company predicts revenue in the range of $22 million to
$25 million in its fourth quarter, with growing revenue from SCOsource.

“The magnitude of our SCOsource licensing opportunities and our confidence
in the SCOsource revenue pipeline is growing each quarter,” McBride said.

However, he also said that SCO has not yet factored revenue from its new binary license into its guidance, noting that the company needs a few more months before it can accurately make forecasts on that front.

“It’s difficult to quantify at this time,” McBride told investors Thursday.

He added, “The opportunity is in the multi-billion dollars.”

SCOsource, launched in January of this year, is SCO’s weapon for taking on tech giant IBM
and the rest of the Linux community, with allegations that
Linux is an unauthorized derivative of Unix. The company has launched a multi-billi
on dollar suit against IBM for allegedly breaching its licensing
contract with SCO by providing the open source community with Unix source
code and derivative works. The firm has also threatened
legal action against Linux end users if they don’t buy a runtime
license through SCOsource.

IBM has since launched a
countersuit, and Red Hat has also called SCO
to the ring with a seven count complaint filed in a Delaware court.

Also on Thursday, the company moved to defend the sale of about 117,616
shares of company common stock by six officers, saying that the sales were
made according to plans “designed to qualify for the protections provided
by Rule 10b5-1 under the Securities Exchange Act of 1934.”

The company said CFO Robert Bench, Senior Vice President of Marketing Jeff
Hunsaker, Senior Vice President of International Sales Reg Broughton and
Vice President of Finance/Controller Michael Olson sold 88,000 shares under
the approved 10b5-1 plans during the company’s third fiscal quarter.

“These plans have been implemented primarily for the purpose of providing
liquidity to the participants to meet sizable personal tax liabilities
resulting from the vesting of restricted stock awards,” the company said.

The company said the four officers may sell up to 141,000 additional shares
in the fourth fiscal quarter if conditions of various plans are met.

Also, the company said two other executive officers sold 29,616 shares
during the fiscal third quarter in company-approved open trading windows.
The firm did not identify those two officers. It did say that no other
directors or executive officers have implemented a 10b5-1 trading plan to
sell shares during the coming quarter. The company said its directors and
officers hold about 6 million shares and options to acquire an additional 2
million shares.

“I’ve been a shareholder in the company since early 2000. I have a lot of shares that are available for selling right now. I haven’t sold a single share,” McBride assured investors.

Bench added that the company’s executives took “substantial” cuts in salary over the past year as part of the company’s drive to profitability, and are now selling shares primarily to cover tax liabilities as their options vest.