The SCO Group, Inc. ("SCO") (Nasdaq: SCOX - News), a leading provider of UNIX® software technology for distributed, embedded and network-based systems, today announced an advanced networking platform, providing feature-rich consumer and business digital services for smart phones and other intelligent mobile devices. SCO's Me Inc. digital services platform is being unveiled this week at the DEMO conference, the technology industry's premier event for the unveiling of promising new products and services.

Me Inc. provides a new approach to mobile communications, collaboration and control that allows users of smart handheld devices, such as the Palm Treo, to be more productive and effective. In the near future, SCO plans to make Me Inc. available to users of other popular handheld devices such as RIM BlackBerry, and those that run Microsoft Windows Mobile and the Symbian OS.

Me Inc. operates using unique edge processor software technology running in a network-based UNIX or Microsoft Windows operating environment to simplify integration of mobile devices with backend resources. The Me Inc., edge processor offloads logic and data from end-point devices, enables secure, efficient access to enterprise and Internet-based information, services and resources, and enables a new level of coordination, communication and control for mobile work groups of any size.

You'll notice the press release says the product is SCO's Me Inc. No comma. But their April 2005 trademark application, which we told you about in June, is for "Me, Inc.", *with* a comma. So, when does SCO get anything right? Someone seriously needs to tell their PR people to get the trademark right, or they could lose it, if it's possible to even get one on something called Me, Inc. But what really caught my eye in the press release is this detail:

Me Inc. has been a multi-year development effort by SCO and builds on technologies that the company gained through a Web Services technology acquisition in 2003.

Hmm. Multi-year effort, they say. This is 2005, so that means at least two years of effort, does it not? So I take it SCO has been working on Me, Inc. since at least the fall of 2003, or it couldn't accurately be described as a multiyear effort.

What did SCO acquire in 2003? SCO bought Vultus back in July of 2003. Sorta bought Vultus, in a Monopoly kind of way. Well, it acquired it, anyway.

News.com reported at the time, "Financial terms of the Vultus acquisition were not disclosed."

That didn't stop Frank Hayes of ComputerWorld, who took a look at the SEC filings to try to figure it all out. Longtime Groklaw readers will recall that we pointed you to his article in ComputerWorld, "SCO's Shell Game," which said that SCO's Linux threats were tied to the Vultus deal like this:

Trying to make sense of The SCO Group's threat last week to sue any Linux user who doesn't buy a Unix license? Forget the threat. Instead, look at the announcement SCO made the following day -- the one in which SCO said it's now in the Web services business thanks to its acquisition of Vultus Inc. . . .

SCO's tactics don't make business sense, either. SCO is a software company that has slashed its R&D budget, alienated its customers and demolished the value of its brand. That's not the way you build a business.

So, what do you do when you have no real business but your stock price keeps going up? We all learned that lesson during the dot-com bubble: You use that stock as currency.

That brings us back to Vultus, which was majority-owned by The Canopy Group, former Novell boss Ray Noorda's personal investment fund. . . .It turns out SCO didn't simply use stock to buy another company. SCO printed up about $3 million in new stock. Then, in the complicated deal in which SCO acquired Vultus, the stock was cashed out, with most of the proceeds going to Canopy. . . .

Got all that? If it sounds like a shell game, well, that's the way Canopy likes to move its companies around. But in effect, Canopy used SCO's stock price, boosted by SCO's Linux threats, to rake in a couple of million dollars in cash behind the scenes.

Funny. Today's press release says the new product is based on tech they acquired in a 2003 deal. But when the Vultus acquisition happened, assuming that is the tech referred to in the press release, this is what they told the SEC in their 10Q filed in July of 2003:

No current assets or tangible assets of significant value were acquired. Based on the nature and status of the research and development projects at the date of acquisition, none of the purchase price has been allocated to in-process research and development.

But wait a sec. Hold on. In the 10Q for the period ending April 2004, SCO told us they'd never get any cash flow from the Vultus assets:

Impairment of Long-lived Assets.

We review our long-lived assets for impairment when events or changes in circumstances indicate that the book value of an asset may not be recoverable. We evaluate, at each balance sheet date, whether events and circumstances have occurred which indicate possible impairment. The carrying value of a long-lived asset is considered impaired when the anticipated cumulative undiscounted cash flows of the related asset or group of assets is less than the carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the estimated fair market value of the long-lived asset.

We performed an impairment analysis as of April 30, 2004 in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets" and SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," and determined that the goodwill and intangible assets related to the Vultus technology, which we acquired from Vultus, Inc. ("Vultus") in June 2003, had been impaired. We concluded that an impairment-triggering event occurred during the second quarter of fiscal year 2004 as an impending partnership that would solidify the Vultus revenue and cash flow opportunities did not materialize. Additionally, we had a reduction in force that impacted our ability to move the Vultus initiative forward on a stand-alone basis. Consequently, we have concluded that no significant future cash flows related to its Vultus assets would be realized. As a result of these analyses, we wrote-down the carrying value of our goodwill related to the Vultus acquisition from $1,166,000 to $0 and wrote-down intangible assets related to our Vultus acquisition from $973,000 to $0.

But if Me Inc. was a multiyear development effort, which "builds on technologies that the company gained through a Web Services technology acquisition in 2003," would SCO not have been developing it when they penned those gloomy words? Am I missing something? That's been known to happen, of course.

A Stroll Down Memory Lane - The Vultus History

Hayes had discerned some of the Vultus story, but as we learned in the vicious Canopy v. Yarro "shoot-to-kill" litigation, if I may call it that, apparently Hayes didn't know the half of it.

The Introduction to the Canopy Motion to remove Yarro as a director began like this:

By this Motion, Canopy and the Noordas seek Yarro's removal from Canopy's Board of Directors for fraudulent and dishonest conduct and gross abuse of authority and discretion. Through a series of self-dealing and wasteful transactions, Yarro, aided and abetted by defendants Darcy G. Mott and Brent D. Christensen, wrongfully enriched himself and others at the expense of Canopy and the Noorda Family Trust, its majority shareholder. Although the precise amount of damages suffered by virtue of Yarro 's conduct is not yet known, the evidence will show at least $20 million has been misappropriated.

Any time any Canopy company got acquired or sold, cream got skimmed off into Yarro and favored executives' pockets as an incentive bonus, according to the claims in that litigation, which was quickly settled. There were accusations regarding "excessive" stock options agreements too.

Anyway, the SCO-Vultus deal was all in the Canopy family, you might say. In covering the acquisition at the time, before we knew all that, I pointed out some of the relationships:

Note that Michael Meservy, mentioned in an SEC filing as one of the SCO shareholders planning to sell SCO shares is the President and CEO of Vultus. Ty Mattingly is also mentioned as a SCO shareholder about to sell and is also a Vultus executive. And Ralph J. Yarro, President and CEO of the Canopy Group is also on the board of Vultus. Pics and bios of all three here. Vultus, being privately owned, isn't in SEC records.

www.vultus.com no longer is accessible, so the link to the pics and bios isn't there any more. But Wayback provides the management team as of July 13, 2003, Mike Meservy, Kevin Auger, Scott Lemon, and Bruce Grant. And then you can see what I think is the same Board of Directors page that I originally linked to, or at least it shows pics and bios for Meservey, Yarro and Mattingly in August of 2003.

Oddly the Vultus press release about the acquisition is missing from Wayback too, although you can find others. Here's one from October of 2002, for example, to give you an idea of what Vultus was doing at the time.

Here's the corporate history of Vultus, from their now extinct corporate history page from Wayback:

Formerly iBase Systems, Inc., the company was originally founded in 1998 as a high-tech consulting firm specializing in high- to mid-range system development. Backed by a technical team with years of experience in traditional client/server application development and Internet commerce, the company built a business model focused on helping enterprise-level organizations utilize the latest technologies to migrate existing applications into an easier-to-use, more productive computing environment. The team has extensive experience on many platforms including: Sun, IBM and Intel. Customers included Questar Gas, the Utah Department of Public Safety and the Wyoming Department of Public Safety.

In the early half of 2000, the company began utilizing Java, XML and other Web protocols to enhance system delivery. In January 2002, the Canopy Group Investment Company supplied initial seed funding to support the growth of the company and its technologies. Canopy began as a technology accelerating venture capital firm with a focus on growing the high-tech industry: first by funding and influencing emerging leading-edge technologies, then by providing a nurturing and dynamic environment in which iBase Systems could thrive and grow.

In April 2002, iBase Systems officially changed its name to Vultus, Inc. to support its business realignment to become the leader in advanced Web Service user interfaces (UIs). At this time, the company chose Vultus, a Latin word for "face", as its new name because it better reflected the company's current mission to become the preferred presentation layer or face of Web services. In February 2002, Vultus moved its headquarters from Draper, Utah to the Orem/Lindon, Utah area.

Of course, at the time of the acquisition, SCO said they'd be offering Vultus' wonderful web services product to customers, as you can see in their SCO press release about the acquisition:

Lindon, Utah -- July 22, 2003 -- The SCO® Group (SCO)(Nasdaq: SCOX), a leading provider of business software solutions, today announced the recent strategic acquisition of the assets, engineering personnel, and technology of Vultus, Inc., including the WebFace Solution Suite. The Web Services acquisition is a key element of SCOx, a framework that will allow SCO, its resellers and developers to provide the benefits of Web Services to enterprise customers, small-to-medium businesses (SMBs) and branch offices.

SCO WebFace Solution Suite substantially lowers development costs by providing an integrated development environment that is specifically designed to help developers rapidly create and deploy feature-rich, secure, intelligent Web application interfaces that can easily reface any existing or new application. Built on the SCO UNIX operating system, ebusiness services and industry standards (such as XML, SOAP and UDDI), SCOx and WebFace will provide the tools and foundation to allow partners to easily migrate legacy systems to the Web, seamlessly integrate service-oriented architectures and build next generation applications in a Web Services framework.

“This step is strategic in bringing together a Web Services framework that SCO can provide to our customers,” said Jeff Hunsaker, Senior VP of Marketing, The SCO Group. “SCO is targeting web services as a platform for growth. We look forward to introducing many of these technologies at SCO Forum August 17-20 in Las Vegas.”

The WebFace Solution Suite is a next generation Web application development environment, allowing customers to easily create and deploy applications in a browser without the need for installed plug-ins or Java. WebFace Solution Suite—consisting of WebFace Browser Application Platform and WebFace Studio—enables developers to migrate existing applications onto the Web, regardless of operating system or back-end technology. In addition, WebFace greatly enhances the end-user experience for SOAs and seamlessly integrates with any Web Services platform, such as J2EE, WebSphere, WebLogic or .NET.

”The bottom line is better service to SCO customers through cost-effective Web solutions and technologies,” explains Mike Meservy, CEO, Vultus, Inc. “We’re extremely excited to introduce Web Service-enabling technology into the SCO channel and developer network. We’re also excited about SCO’s Global Services division and the key role it will play in supporting current and future WebFace customers, as the technology grows and expands across multiple industry segments.”

A significant benefit of this acquisition includes a professional services team that is skilled in complex Web application migration, integration and development. For more information on SCO Web Services products, training or consulting services, contact SCO by calling (800) 726-8649 or visit the SCO Web site at www.sco.com .

Here's the Registration Statement on Form S-3 SCO filed with the SEC in July 8, 2003, relating to "the public offering or distribution by selling stockholders of up to 305,274 shares of common stock, par value $0.001 per share, of The SCO Group, Inc." The shares were being sold by Vultus, Inc., The Canopy Group, Inc., Angel Partners Inc., Michael Meservy, Bruce K. Grant Jr., Ty D. Mattingly and R. Kevin Bean. The price for SCO stock back then, on July 3, 2003, was considerably higher than it is today: "the last price for our common stock, as reported by the Nasdaq National Market, was $10.71.

After they decided the Vultus prospects weren't so wonderful after all, and SCO decided to write down the Vultus investment, they filed a 10Q for the quarter ending April 30, 2004, filed with the SEC June 2004:

The Company recorded a loss on impairment of long-lived assets totaling $2,139,000, which related to an impairment on intangible assets of $973,000 and an impairment of goodwill of $1,166,000 for the three and six months ended April 30, 2004. The impairment related to goodwill and intangible assets acquired in connection with the acquisition of Vultus, Inc. ('Vultus') in June 2003. The Company concluded that an impairment-triggering event occurred during the three months ended April 30, 2004 as an impending partnership that would solidify the Vultus revenue and cash flow opportunities did not materialize. Additionally, the Company had a reduction in force that impacted the Company's ability to move the Vultus initiative forward on a stand-alone basis. Consequently, the Company has concluded that no significant future cash flows related to its Vultus assets would be realized. The Company performed an impairment analysis of its recorded goodwill related to the Vultus reporting unit in accordance with SFAS No. 142. Additionally, an impairment analysis of the intangible assets was performed in accordance with SFAS No. 144. As a result of these analyses, the Company wrote-down the carrying value of its goodwill related to the Vultus acquisition from $1,166,000 to $0 and wrote-down intangible assets related to its Vultus acquisition from $973,000 to $0.

After Yarro was frog-marched out of Canopy Group, we find SCO, where Yarro is still Chairman of the Board, redoing the indemnification and compensation packages for SCO execs and the Board this July. More complete details on compensation packages here and here.

Interestingly, here's what happened in 2003, from the same July SEC filing quoted from earlier:

During the quarter ended April 30, 2003, the Company’s board of directors approved a resolution to receive remaining amounts owed to them for services provided during the 2002 fiscal year in the form of stock awards.

April of 2003 is just before the July Vultus acquisition, just after the IBM lawsuit was filed, and a month before SCO began mouthing off about Linux end users and the peril they were supposedly in. That is when their stock started to really take off for a while.

This July, 2005, SCO directors were granted stock options. Of course, by then, the stock was at a low ebb, and so they were given 45,000 shares each, non-qualified stock options (right to buy) at the relatively low price of $3.93, exercisable on 6/28/06.

Now, after telling us Vultus was worthless, that there would never be any significant future cash flows related to the Vultus assets, the new Me, Inc. product is announced. If the product takes off, what might those directors' shares be worth on 6/28/06, do you think? More, maybe?

I know. It's all perfectly innocent, just a coincidence, nothing planned. Maybe Darl woke up some time after the Vultus writedown with a Eureka moment. Or maybe an angel sent him a dream about how to turn Vultus into Me, Inc. and, purely coincidentally, make those stock options pick up in value after all. What a lucky break.

No. That can't be right. The dates don't line up right. As late as 2004, they said there'd never be any cash flow from Vultus. So either Me, Inc. isn't from Vultus, or the timing is off. 'Tis a puzzlement. I guess I just can't solve this one.

You don't suppose they are talking man years, do you? Chris Sontag of SCOsource fame, already a man-year mathematician of note, is quoted in the press release:

"Me Inc. is an innovative digital services platform that SCO has worked on for more than 30 man years," said Chris Sontag, senior vice president and general manager for Me Inc., The SCO Group, Inc.

Ah, mystery solved. It was a multi-*man*year development effort. Of course! I knew it couldn't be that SCO just wasn't being straightforward with us.

Here's SCO's 8-K about Me, Inc. and here's the complete SCO press release about it:

**********************************************

SCO Unveils Innovative Platform for Mobile Digital Services

Monday September 19, 8:00 am ET

New Me Inc. Digital Network Services Platform Positions Company To Deliver Mobile Solutions Into The Fast Growing Smart Handheld Device Market

HUNTINGTON BEACH, Calif., DEMO Conference, Sept. 19 /PRNewswire-FirstCall/ -- The SCO Group, Inc. ("SCO") (Nasdaq: SCOX - News), a leading provider of UNIX® software technology for distributed, embedded and network-based systems, today announced an advanced networking platform, providing feature-rich consumer and business digital services for smart phones and other intelligent mobile devices. SCO's Me Inc. digital services platform is being unveiled this week at the DEMO conference, the technology industry's premier event for the unveiling of promising new products and services.

Me Inc. provides a new approach to mobile communications, collaboration and control that allows users of smart handheld devices, such as the Palm Treo, to be more productive and effective. In the near future, SCO plans to make Me Inc. available to users of other popular handheld devices such as RIM BlackBerry, and those that run Microsoft Windows Mobile and the Symbian OS.

Me Inc. operates using unique edge processor software technology running in a network-based UNIX or Microsoft Windows operating environment to simplify integration of mobile devices with backend resources. The Me Inc., edge processor offloads logic and data from end-point devices, enables secure, efficient access to enterprise and Internet-based information, services and resources, and enables a new level of coordination, communication and control for mobile work groups of any size.

Me Inc. has been a multi-year development effort by SCO and builds on technologies that the company gained through a Web Services technology acquisition in 2003.

The Me Inc. networking software platform is designed to allow service providers and carriers to create and deploy new digital services for a market that is seeing significant growth. According to IT industry research firm IDC, smartphones will make up approximately 85 percent of all intelligent mobile device shipments by the year 2007. Research from The Radicati Group indicates that the worldwide mobile workforce will grow from 17 percent of corporate professionals in 2004 to 89 percent in 2008.

"SCO is a company that has been creating innovative technology and Me Inc. is a result of the creative ideas and hard work coming from our employees," said Darl McBride, president and CEO, The SCO Group, Inc. "We've successfully used Me Inc. internally during the past year to improve the way we work as a company and we've anxiously anticipated the time when we would deliver it to the marketplace. We're pleased with the early customer acceptance of Me Inc. and look forward to making it broadly available in the coming weeks."

Me Inc. will initially provide a number of digital service components that can be used individually or integrated into custom mobile applications and services. At introduction, Me Inc. component digital services will include the following:

Shout -- A highly flexible way to capture, communicate and share multimedia messages. Shout allows users to distribute voice or text communications to individuals or groups of any size.

Action -- A mobile way to easily plan, delegate, track and report on the progress of projects, goals, objectives and action items of individuals and groups.

Vote -- A rapid and reliable way to conduct and display opinion polling and other real-time research data capture.

People -- Allows users to create groups with enhanced multimedia profiles of people from existing directories or a users' mobile service.

"Me Inc. is an innovative digital services platform that SCO has worked on for more than 30 man years," said Chris Sontag, senior vice president and general manager for Me Inc., The SCO Group, Inc. "With Me Inc., SCO is providing a platform for digital network services that will allow us to enter new markets while also leveraging our SCO UNIX technology for a demanding edge processing environment. SCO has created a rich mobile experience that we believe will resonate with end users and provide them with new ways to connect, communicate, coordinate, and control their information in a mobile computing environment."

Initial Me Inc. user feedback has shown enhanced business effectiveness in those organizations that have tested it and has resulted in signed deals with SCO even prior to the product's announcement. Musco Food Corporation, a premier distributor of Italian food products based in Maspeth, New York, was looking for a more reliable way for their field sales representatives to enter and process orders while onsite with customers. ASK Technologies, the reseller and technology consultant for Musco, recommended Me Inc. as the solution because it would allow cost-effective mobile access to current product and inventory information and enable mobile order entry and reporting. SCO and ASK were able to develop and provision this solution for Musco in less than 12 business hours thanks to Me Inc.'s advanced design.

"SCO has provided a smart phone-based transactional order entry system for Musco that gives field reps instant access to inventory, pricing and product promotions which allows them to satisfy more customers per day then ever before," said Stephen Pirolli, principal, ASK Technologies, Inc. "With SCO's Me Inc. system, Musco Food Corporation anticipates saving thousands of dollars per month in order processing, fulfillment and customer service costs. The new system will ease the difficulties in providing same day confirmation and next day delivery of orders for the first time in the company's history. This higher level of customer service will give Musco Food Corporation an edge in their competitive business environment."

Utah State University recently used the Me Inc. Shout service to alert their school's sports booster organization to a game cancellation when Hurricane Katrina made it impossible for the Thibodaux, Louisiana-based Nicholls State University team to travel to Utah.

"Using Shout, I was able to inform hundreds of USU boosters of our game cancellation with a simple 12 second audio message from my Treo, so boosters were informed through a Shout message on their desktop or mobile device of the cancellation before the media reported on it," said Tom Hale, executive director of Utah State's Big Blue booster program. "Shout allowed me to reach out to my constituents in a personalized way and communicate quickly and effectively. Boosters were blown away at the effectiveness of our outreach."

Availability & Pricing

SCO will sell Me Inc. digital services through qualified channel resellers and will also make the services available for download from www.sco.com beginning in October. Me Inc. digital services will be sold on a subscription basis and pricing will be announced as the product gets closer to shipping.

About SCO

The SCO Group (Nasdaq: SCOX - News) is a leading provider of UNIX software technology for distributed, embedded and network-based systems, offering SCO OpenServer for small to medium business, UnixWare for enterprise applications, and Me Inc. for digital network services. SCO's highly innovative and reliable solutions help millions of customers grow their businesses everyday, from SCO OpenServer on main street to UnixWare on Wall Street, and beyond. SCO owns the core UNIX operating system, originally developed by AT&T/Bell Labs and is the exclusive licensor to Unix-based system software providers.

Headquartered in Lindon, Utah, SCO has a worldwide network of thousands of resellers and developers. SCO Global Services provides reliable localized support and services to partners and customers. For more information on SCO products and services, visit www.sco.com.

SCO, SCO OpenServer and the associated SCO logo, are trademarks or registered trademarks of The SCO Group, Inc. in the U.S. and other countries. UNIX and UnixWare are registered trademarks of The Open Group. Windows is a registered trademark of Microsoft Corporation. All other brand or product names are or may be trademarks of, and are used to identify products or services of, their respective owners.

Forward Looking Statement

This press release contains forward-looking statements related to the success of the launch of Me Inc. digital network services from The SCO Group, Inc., and is subject to certain risks and uncertainties including market acceptance, competition and other factors noted in our filings with the Securities and Exchange Commission.