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SCO says there is 'substantial doubt' it will survive

In SEC filing, company cites cash problems, Chapter 11, legal setbacks

By Robert McMillan
September 18, 2007 12:00 PM ET

Computerworld - With its cash reserves running out and its legal case against IBM Corp. unraveling, The SCO Group Inc. says there is doubt that it will remain afloat.

SCO made the statement in its most recent quarterly U.S. Securities and Exchange Commission statement, filed today. The company cited its recent motion for Chapter 11 bankruptcy protection as well as a recent court setback relating to its intellectual-property claims as reasons for worry.

"As a result of both the court's August 10, 2007 ruling and the company's entry into Chapter 11, there is substantial doubt about the company's ability to continue as a going concern," SCO said in the filing.

Last month a judge with the U.S. District Court for the District of Utah ruled against SCO on several motions, finding that Novell Inc., rather than SCO, owned the Unix copyright. Novell had sold SCO some Unix rights in the mid-1990s, but the court said that copyright was never assigned.

"The effect of these rulings was to significantly reduce or to eliminate certain of the Company's claims in both the Novell and IBM cases, and possibly others," SCO said in its SEC filing. Several of the company's claims against IBM will be dismissed as a result of this ruling, SCO said in the filing, adding that there are still certain claims that remain viable, such as SCO's allegation that IBM engaged in unfair competition in its failed "Project Monterey" effort that was to create a Unix for 64-bit microprocessors.

The rulings may also cost SCO a lot of money. The court said SCO would have to pay Novell for past licensing deals it had struck with Sun Microsystems Inc. and Microsoft Corp. This could amount to more than $30 million, SCO said in its SEC filing. That's more than the $10.4 million in cash now held by SCO.

The rest of the 10-Q statement, which covers the quarter ended July 31, is a litany of bad news.

SCO's total revenue has dropped drastically year-over-year: Its Unix business is down 37%, it made nothing from its SCOsource Linux licensing program; short-sellers may further drive the stock down; and the bankruptcy proceedings will divert a "significant amount" of senior management's time away from business operations, the filing said.

SCO did not immediately return calls seeking comment.

The company's detractors were not so quiet. The filings show that by declaring bankruptcy, SCO is hoping to stave off paying Novell the money it owes, said Pamela Jones, editor of the Groklaw.net blog, which has closely followed SCO's litigation. "They are to my eyes saying they don't want to hand over the Sun and Microsoft 2003 monies, because it would put them out of business," she said via e-mail.





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