SCO's 10Q |
|
Saturday, March 17 2007 @ 01:42 PM EDT
|
Here's SCO's 10Q for the quarterly period ended January 31, 2007. What stands out the most is that SCO says that it believes it has "sufficient liquidity resources" to fund its operations through October of *this* year. That's all? Then what happens? So do they actually have enough funds to make it to trial? After all, the Novell litigation goes first and is currently set to begin on September 17, 2007. There is currently no date set for the IBM litigation to even go to trial, but we do know it is expected to last for about 5 weeks. If Novell starts on September 17 and runs for even half that long, oops. Insufficient liquidity resources, I'm thinking, to make it to trial with IBM after that. No wonder SCO asked the court to have IBM go first. That's if either case ever does go to trial. SCO again admits neither may ever make it to a jury. I'm no math whiz, but doesn't it look to you like SCO needs some more money to finish the litigation it started? Unless it mentions October because that is the end of its fiscal year, and it is being mysterious about after that? Either way, SCO is running low. O, PIPE Fairy, PIPE Fairy, wherefor art thou, PIPE Fairy? -- PIPE Fairy's Auntie? -- Too busy with patent agreements and such?
And that's if Novell doesn't shut it down first. SCO hinted a denial that bankruptcy is imminent and inevitable, as Novell charged in one of its filings. Darl said that isn't what keeps him up at night, remember? Maybe it should, dude. SCO says this about Novell's Motion for a Preliminary Injunction and Partial Summary Judgment, the give-us-our-money motion: Novell has moved for a preliminary injunction and partial summary judgment. The Company has opposed these filings and filed a cross-motion for partial summary judgment. Those motions were argued on January 23, 2007, before the District Court in Utah. If Novell prevails on these motions, some or all of the Company’s cash and cash equivalents could be encumbered. Could be, indeed. Here's what it told the court [PDF], though, in opposing Novell's motion, on page 29: The preliminary injunction Novell seeks would likely preclude SCO from sustaining its operation. That sounds worse, don't you think? Somehow that sentence didn't make it into the 10Q. So when you read that SCO's finances are improving, one has to ask, in what practical sense?
And this is the first time I recall SCO mentioning the possibility of losing its listing on Nasdaq: We could lose our listing on the Nasdaq Capital Market if our stock price falls below $1.00 for 30
consecutive business days, and the loss of the listing would make our stock significantly less
liquid and would affect its value.
Our common stock is listed on the Nasdaq Capital Market and had a closing price of $0.96 at
the close of the market on March 14, 2007. If the price of our common stock falls below $1.00 and
for 30 consecutive business days remains below $1.00, we will receive a deficiency notice from
NASDAQ advising us that we have been afforded a 180-calendar day compliance period. If our stock
fails to maintain a minimum bid price of $1.00 for 10 consecutive business days during a 180-day
compliance period on the Nasdaq Capital Market or a 360-day grace period if compliance with certain
core listing standards are demonstrated, we could receive a delisting notice from the Nasdaq
Capital Market, and, under certain circumstances, even if our stock maintains a minimum bid price
of $1.00 for 10 consecutive business days, we may receive a delisting notice from the Nasdaq
Capital Market. Upon delisting from the Nasdaq Capital Market, our stock would be traded
over-the-counter, more commonly known as OTC. OTC transactions involve risks in addition to those
associated with transactions in securities traded on the Nasdaq Capital Market. Many OTC stocks
trade less frequently and in smaller volumes than securities traded on the Nasdaq Capital Market.
Accordingly, our stock would be less liquid than it would otherwise be, and the value of our stock
could decrease. And I can't help but notice this:
Revenue from our SCOsource business decreased slightly from $30,000 for the three months
ended January 31, 2006 to $23,000 for the three months ended January 31, 2007.
Revenue in the above mentioned periods was primarily attributable to sales of our SCOsource IP
agreements. What I draw from that is an admission that SCO continues to be guilty of violating the GPL into January of this year, at least, making it quite logical for IBM to tell the court that it needs an injunction to make SCO cease and desist.
Here is the meat of the 10Q. You can follow the link, above, to read every word. I've marked in red the parts that stand out as significant to me. You'll likely notice other parts, depending on your fields of expertise:
*********************************
THE SCO GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
January 31, |
|
|
October 31, |
|
|
|
2007 |
|
|
2006 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
7,137 |
|
|
$ |
5,369 |
|
Restricted cash |
|
|
4,498 |
|
|
|
8,024 |
|
Available-for-sale marketable securities |
|
|
500 |
|
|
|
2,249 |
|
Accounts receivable, net of allowance for doubtful accounts of
$79 and $106, respectively |
|
|
4,010 |
|
|
|
5,123 |
|
Other |
|
|
1,332 |
|
|
|
1,514 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
17,477 |
|
|
|
22,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT: |
|
|
|
|
|
|
|
|
Computer and office equipment |
|
|
2,221 |
|
|
|
2,259 |
|
Leasehold improvements |
|
|
262 |
|
|
|
316 |
|
Furniture and fixtures |
|
|
78 |
|
|
|
78 |
|
|
|
|
|
|
|
|
|
|
|
2,561 |
|
|
|
2,653 |
|
Less accumulated depreciation and amortization |
|
|
(2,042 |
) |
|
|
(2,045 |
) |
|
|
|
|
|
|
|
Net property and equipment |
|
|
519 |
|
|
|
608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS: |
|
|
431 |
|
|
|
522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
18,427 |
|
|
$ |
23,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
1,659 |
|
|
$ |
2,338 |
|
Payable to Novell, Inc. |
|
|
519 |
|
|
|
2,978 |
|
Accrued payroll and benefits |
|
|
1,792 |
|
|
|
2,507 |
|
Accrued liabilities |
|
|
2,685 |
|
|
|
3,059 |
|
Deferred revenue |
|
|
2,681 |
|
|
|
2,994 |
|
Royalties payable |
|
|
322 |
|
|
|
439 |
|
Income taxes payable |
|
|
786 |
|
|
|
820 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
10,444 |
|
|
|
15,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES |
|
|
191 |
|
|
|
192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Note 3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY: |
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 45,000 shares authorized,
21,531 and 21,391 shares outstanding, respectively |
|
|
22 |
|
|
|
21 |
|
Additional paid-in capital |
|
|
260,968 |
|
|
|
260,259 |
|
Common stock held in treasury, 297 shares |
|
|
(2,446 |
) |
|
|
(2,446 |
) |
Warrants outstanding |
|
|
856 |
|
|
|
856 |
|
Accumulated other comprehensive income |
|
|
956 |
|
|
|
932 |
|
Accumulated deficit |
|
|
(252,564 |
) |
|
|
(251,540 |
) |
|
|
|
|
|
|
|
Total stockholders’ equity |
|
|
7,792 |
|
|
|
8,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
|
$ |
18,427 |
|
|
$ |
23,409 |
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
- 3 -
THE SCO GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, |
|
|
|
2007 |
|
|
2006 |
|
REVENUE: |
|
|
|
|
|
|
|
|
Products |
|
$ |
4,866 |
|
|
$ |
6,000 |
|
SCOsource licensing |
|
|
23 |
|
|
|
30 |
|
Services |
|
|
1,126 |
|
|
|
1,313 |
|
|
|
|
|
|
|
|
Total revenue |
|
|
6,015 |
|
|
|
7,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF REVENUE: |
|
|
|
|
|
|
|
|
Products |
|
|
377 |
|
|
|
584 |
|
SCOsource licensing |
|
|
654 |
|
|
|
4,010 |
|
Services |
|
|
559 |
|
|
|
637 |
|
|
|
|
|
|
|
|
Total cost of revenue |
|
|
1,590 |
|
|
|
5,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS MARGIN |
|
|
4,425 |
|
|
|
2,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
2,440 |
|
|
|
2,688 |
|
Research and development |
|
|
1,759 |
|
|
|
1,871 |
|
General and administrative |
|
|
1,323 |
|
|
|
1,592 |
|
Amortization of intangibles |
|
|
— |
|
|
|
592 |
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
5,522 |
|
|
|
6,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS |
|
|
(1,097 |
) |
|
|
(4,631 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY IN INCOME (LOSS) OF AFFILIATE |
|
|
42 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
Interest income |
|
|
114 |
|
|
|
152 |
|
Other income (expense), net |
|
|
29 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
Total other income, net |
|
|
143 |
|
|
|
145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE PROVISION FOR INCOME TAXES |
|
|
(912 |
) |
|
|
(4,494 |
) |
|
|
|
|
|
|
|
|
|
PROVISION FOR INCOME TAXES |
|
|
(112 |
) |
|
|
(87 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS |
|
$ |
(1,024 |
) |
|
$ |
(4,581 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED NET LOSS PER COMMON SHARE |
|
$ |
(0.05 |
) |
|
$ |
(0.23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE BASIC AND DILUTED COMMON
SHARES OUTSTANDING |
|
|
21,186 |
|
|
|
20,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE LOSS: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(1,024 |
) |
|
$ |
(4,581 |
) |
Foreign currency translation adjustment |
|
|
24 |
|
|
|
(6 |
) |
Unrealized loss on available-for-sale marketable securities |
|
|
— |
|
|
|
34 |
|
|
|
|
|
|
|
|
COMPREHENSIVE LOSS |
|
$ |
(1,000 |
) |
|
$ |
(4,553 |
) |
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
- 4 -
THE SCO GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, |
|
|
|
2007 |
|
|
2006 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(1,024 |
) |
|
$ |
(4,581 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
476 |
|
|
|
401 |
|
Depreciation and amortization |
|
|
88 |
|
|
|
79 |
|
Loss on disposition and write-downs of long-lived assets |
|
|
20 |
|
|
|
5 |
|
Equity in (income) loss of affiliate |
|
|
(42 |
) |
|
|
8 |
|
Amortization of intangibles (including $0 and $85 classified as cost of SCOsource
licensing revenue) |
|
|
— |
|
|
|
677 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Restricted cash |
|
|
1,067 |
|
|
|
1,117 |
|
Accounts receivable, net |
|
|
1,113 |
|
|
|
1,426 |
|
Other current assets |
|
|
315 |
|
|
|
303 |
|
Accounts payable |
|
|
(679 |
) |
|
|
44 |
|
Accrued payroll and benefits |
|
|
(715 |
) |
|
|
(820 |
) |
Accrued liabilities |
|
|
(374 |
) |
|
|
248 |
|
Deferred revenue |
|
|
(313 |
) |
|
|
(204 |
) |
Royalties payable |
|
|
(117 |
) |
|
|
(16 |
) |
Income taxes payable |
|
|
(34 |
) |
|
|
(63 |
) |
Long-term liabilities |
|
|
(1 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(220 |
) |
|
|
(1,379 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(22 |
) |
|
|
(69 |
) |
Purchase of available-for-sale marketable securities |
|
|
— |
|
|
|
(1,031 |
) |
Proceeds from sale of available-for-sale marketable securities |
|
|
1,749 |
|
|
|
— |
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
1,727 |
|
|
|
(1,100 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from sale of common stock through employee stock purchase program |
|
|
230 |
|
|
|
301 |
|
Proceeds from exercise of common stock options |
|
|
4 |
|
|
|
23 |
|
Repurchase of common stock |
|
|
— |
|
|
|
(32 |
) |
Proceeds from sale of common stock in a private placement, net of issuance costs |
|
|
— |
|
|
|
9,905 |
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
234 |
|
|
|
10,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
1,741 |
|
|
|
7,718 |
|
EFFECT OF FOREIGN EXCHANGE RATES ON CASH |
|
|
27 |
|
|
|
28 |
|
CASH AND CASH EQUIVALENTS, beginning of period |
|
|
5,369 |
|
|
|
4,272 |
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of period |
|
$ |
7,137 |
|
|
$ |
12,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes |
|
$ |
103 |
|
|
$ |
125 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in common stock subject to rescission |
|
$ |
— |
|
|
$ |
(1,018 |
) |
See accompanying notes to condensed consolidated financial statements.
- 5 -
THE SCO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS
The business of The SCO Group, Inc. (the “Company”) focuses on marketing reliable,
cost-effective UNIX software products and related services for the small-to-medium sized business
market, including replicated site franchises of Fortune 1000 companies. The Company has operations
in a number of countries that provide support services to customers and resellers. During the year
ended October 31, 2003, the Company initiated its SCOsource business to protect and defend its UNIX
intellectual property rights. The Company acquired certain intellectual property rights
surrounding UNIX and UNIX System V source code in May 2001 from The Santa Cruz Operation, which
changed its name to Tarantella, Inc., and was subsequently acquired by Sun Microsystems.
The Company incurred a net loss of $1,024,000 for the three months ended January 31, 2007, and
during that same period used cash of $220,000 in its operating activities. As of January 31, 2007,
the Company had a total of $7,137,000 in cash and cash equivalents, $500,000 in available-for-sale
marketable securities, and $4,498,000 in restricted cash, of which $3,979,000 is designated to pay
for experts, consultants and other expenses in connection with the litigation between the Company
and IBM, Novell and Red Hat (the “SCO Litigation”), and the remaining $519,000 of restricted cash
is payable to Novell for its retained binary royalty stream.
(2) SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have
been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange
Commission (“SEC”) on a basis consistent with the Company’s audited annual financial statements
and, in the opinion of management, reflect all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial information set forth therein. Certain
information and footnote disclosures normally included in financial statements prepared in
accordance with U.S. generally accepted accounting principles have been condensed or omitted
pursuant to SEC rules and regulations, although the Company believes that the following
disclosures, when read in conjunction with the audited annual financial statements and the notes
thereto included in the Company’s most recent annual report on Form 10-K, are adequate to make the
information presented not misleading. Operating results for the three months ended January 31,
2007 are not necessarily indicative of the operating results that may be expected for the year
ending October 31, 2007.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the reporting periods.
Actual results could differ from these estimates. The Company’s critical accounting policies and
estimates include: revenue recognition, allowances for doubtful accounts
- 6 -
receivable, impairment and
useful lives of long-lived assets, litigation reserves, and valuation allowances against deferred
income tax assets.
Revenue Recognition
The Company recognizes revenue in accordance with Statement of Position (“SOP”) 97-2, as
modified by SOP 98-9. The Company’s revenue has historically been from three sources: (i) product
license revenue, primarily from product sales to resellers, end users and original equipment
manufacturers (“OEMs”); (ii) technical support service revenue, primarily from providing technical
support and consulting services to end users; and (iii) revenue from SCOsource licensing.
The Company recognizes product revenue upon shipment if a signed contract exists, the fee is
fixed or determinable, collection of the resulting receivable is probable and product returns are
reasonably estimable.
The majority of the Company’s revenue transactions relate to product-only sales. On occasion,
the Company has revenue transactions that have multiple elements (such as software products,
maintenance, technical support services, and other services). For software agreements that have
multiple elements, the Company allocates revenue to each component of the contract based on the
relative fair value of the elements. The fair value of each element is based on vendor specific
objective evidence (”VSOE”). VSOE is established when such elements are sold separately. The
Company recognizes revenue when the criteria for product revenue recognition set forth above have
been met. If VSOE of all undelivered elements exists, but VSOE does not exist for one or more
delivered elements, then revenue is recognized using the residual method. Under the residual
method, the fair value of the undelivered elements is deferred and the remaining portion of the
license fee is recognized as revenue in the period when persuasive evidence of an arrangement is
obtained assuming all other revenue recognition criteria are met.
The Company recognizes product revenue from OEMs when the software is sold by the OEM to an
end-user customer. Revenue from technical support services and consulting services is recognized
as the related services are performed. Revenue for maintenance is recognized ratably over the
maintenance period.
The Company considers an arrangement with payment terms longer than the Company’s normal
business practice not to be fixed or determinable and revenue is recognized when the fee becomes
due. The Company typically provides stock rotation rights for sales made through its distribution
channel and sales to distributors are recognized upon shipment by the distributor to end users.
For direct sales not through the Company’s distribution channel, sales are typically non-refundable
and non-cancelable. The Company estimates its product returns based on historical experience and
maintains an allowance for estimated returns, which is recorded as a reduction to accounts
receivable and revenue.
The Company’s SCOsource revenue to date has been primarily generated from agreements to
utilize the Company’s UNIX source code as well as from intellectual property agreements. The
Company recognizes revenue from SCOsource agreements when a signed contract exists, the fee is
fixed or determinable, collection of the receivable is probable and delivery has occurred. If the
payment terms extend beyond the Company’s normal payment terms, revenue is recognized as the
payments become due.
Cash and Cash Equivalents
The Company considers all investments purchased with original maturities of three or fewer
months to be cash equivalents. Cash equivalents were $4,480,000 and $2,555,000 as of
- 7 -
January 31,
2007 and October 31, 2006, respectively. Cash was $2,657,000 and $2,814,000 as of January 31, 2007
and October 31, 2006, respectively. The Company has $100,000 of cash that is federally insured.
All remaining amounts of cash and cash equivalents as well as restricted cash exceed federally
insured limits.
Available-for-Sale Marketable Securities
Available-for-sale marketable securities are recorded at fair market value, based on quoted
market prices, and unrealized gains and losses are recorded as a component of comprehensive loss.
Realized gains and losses, which are calculated based on the specific-identification method, are
recorded in operations as incurred.
Available-for-sale marketable securities totaled $500,000 as of January 31, 2007.
Available-for-sale marketable securities in an unrealized loss position as of January 31, 2007 were
not impaired at acquisition and the decline in fair value is primarily attributable to interest
rate fluctuations. A decline in the market value of any available-for-sale marketable security
below cost that is deemed other than temporary results in a charge to the statement of operations
and establishes a new basis for the security.
Net Loss Per Common Share
Basic net income or loss per common share (“Basic EPS”) is computed by dividing net loss by
the weighted average number of common shares outstanding. Diluted net income or loss per common
share (“Diluted EPS”) is computed by dividing net loss by the sum of the weighted average number of
common shares outstanding and the dilutive potential common share equivalents then outstanding.
Potential common share equivalents consist of the weighted average number of shares issuable upon
the exercise of outstanding stock options and warrants to acquire common stock. If dilutive, the
Company computes Diluted EPS using the treasury stock method.
Due to the fact that for all periods presented the Company has incurred net losses, common
share equivalents of 5,604,000 and 4,874,000 for the three months ended January 31, 2007 and 2006,
respectively, are not included in the calculation of diluted net loss per common share because they
are anti-dilutive.
(3) COMMITMENTS AND CONTINGENCIES
Litigation
IBM Corporation
On or about March 6, 2003, the Company filed a civil complaint against IBM. The case is
pending in the United States District Court for the District of Utah, under the title The SCO
Group, Inc. v. International Business Machines Corporation, Civil No. 2:03CV0294. In this action,
the Company claims that IBM breached its UNIX source code licenses (both the IBM and Sequent
Computer Systems, Inc. (“Sequent”) licenses) by disclosing restricted information concerning the
UNIX source code and derivative works and related information
On or about March 6, 2003, the Company notified IBM that IBM was not in compliance with the
Company’s UNIX source code license agreement and on or about June 13, 2003, the Company delivered
to IBM a notice of termination of that agreement, which underlies IBM’s
- 8 -
AIX software. On or about
August 11, 2003, the Company sent a similar notice terminating the Sequent source code license.
IBM disputes the Company’s right to terminate those licenses. In the event the Company’s
termination of those licenses is valid, the Company believes IBM is exposed to substantial damages
and injunctive relief claims based on its continued use and distribution of the AIX operating
system. On June 9, 2003, Novell sent the Company a notice purporting to waive the Company’s claims
against IBM regarding its license breaches. The
Company does not believe that Novell had the right to take any such action relative to the
Company’s UNIX source code rights.
On February 27, 2004, the Company filed a second amended complaint which alleges 9 causes of
action that are similar to those set forth above, adds a new claim for copyright infringement, and
removes the claim for misappropriation of trade secrets. IBM filed an answer and 14 counterclaims.
Among other things, IBM has asserted that the Company does not have the right to terminate IBM’s
UNIX license and IBM has claimed that the Company has breached the GNU General Public License and
has infringed certain patents held by IBM. IBM’s counterclaims include claims for breach of
contract, violation of the Lanham Act, unfair competition, intentional interference with
prospective economic relations, unfair and deceptive trade practices, promissory estoppel, patent
infringement and a declaratory judgment claim for non-infringement of copyrights. On October 6,
2005, IBM voluntarily dismissed with prejudice its claims for patent infringement.
On December 22, 2005, the Company filed a voluminous report detailing IBM’s misuse of the
Company’s proprietary material. The Company’s December 2005 report included 293 total disclosures
which the Company claims violate its contractual rights and copyrights. These reports and the
disclosures identified are the result of analysis from experienced outside technical consultants.
On February 13, 2006, IBM filed a motion with the court seeking to limit the Company’s claims
as set forth in the December 2005 report. IBM argued that of the 293 items the Company had
identified, 201 did not meet the level of specificity required by the Court. IBM requested that
the Company be limited to 93 items set forth in the December 2005 filing which IBM claims meet the
required level of specificity. On June 28, 2006, the Magistrate Judge issued a ruling striking
over 180 of the technology disclosures challenged by the Company from the case. This ruling is a
limitation of the number of technology disclosures the Company challenged in its December 2005
filing, but means that over 100 of the challenged items remain in the case. On July 13, 2006, the
Company filed objections to the Magistrate Judge’s order with the District Court; those objections
challenged the process and the result embodied in the Magistrate Judge’s order. On November 29,
2006, the District Court issued a ruling sustaining in full the Magistrate Judge’s ruling of June
28, 2006. The Company has filed a motion to reconsider this ruling and a motion to amend its
technology disclosures of December 2005.
On June 8, 2006, IBM filed a motion to confine the Company’s claims to, and strike allegations
in excess of, the final disclosures. In this motion, IBM claims that the Company’s technology
expert reports go beyond the disclosures contained in the Company’s December 2005 submission to the
Court and that those expert reports should be restricted to that extent. On December 21, 2006, the
Magistrate Judge granted IBM’s motion. The Company has filed objections to that order with the
District Court.
Both parties have filed expert reports and substantially finished expert discovery. IBM has
filed 6 motions for summary judgment that, if granted in whole or in substantial part, could
resolve the Company’s claims in IBM’s favor or substantially reduce the Company’s claims. The
Company has filed 3 motions for summary judgment. The summary judgment motions were heard by the
Court on March 1, 5 and 7, 2007, as scheduled, and the Court took all motions
- 9 -
under advisement and
will issue rulings at some point in the future. A trial date will be set pending the outcome of
those motions.
Novell, Inc.
On January 20, 2004, the Company filed suit in Utah state court against Novell, Inc. for
slander of title seeking relief for its alleged bad faith effort to interfere with the Company’s
ownership of copyrights related to the Company’s UNIX source code and derivative works and the
Company’s UnixWare product. The case is pending in the United States District Court for
the District of Utah under the caption, The SCO Group, Inc. v. Novell, Inc., Civil No.
2:04CV00139. In the lawsuit, the Company requested preliminary and permanent injunctive relief as
well as damages. Through these claims, the Company seeks to require Novell to assign to the
Company all copyrights that the Company believes Novell has wrongfully registered, to prevent
Novell from claiming any ownership interest in those copyrights, and to require Novell to retract
or withdraw all representations it has made regarding its purported ownership of those copyrights
and UNIX itself.
Novell filed two motions to dismiss claiming, among other things, that Novell’s false
statements were not uttered with malice and are privileged under the law. The court denied both of
Novell’s motions to dismiss. On July 29, 2005, Novell filed its answer and counterclaims against
the Company, asserting counterclaims for the Company’s alleged breaches of the Asset Purchase
Agreement between Novell and the Company’s predecessor-in-interest, The Santa Cruz Operation, for
slander of title, restitution/unjust enrichment, an accounting related to Novell’s retained binary
royalty stream, and for declaratory relief regarding Novell’s alleged rights under the Asset
Purchase Agreement. On or about December 30, 2005, the Company filed a motion for leave to amend
its complaint to assert additional claims against Novell including copyright infringement, unfair
competition and a breach of Novell’s limited license to use the Company’s UNIX code. Novell
consented to the Company’s filing of these additional claims.
On or about April 10, 2006, Novell filed a motion to stay the case in Utah pending a request
for arbitration that Novell and SuSE Linux, GmbH (“SuSE”) filed on the same date in the
International Court of Arbitration in France. Through these proceedings, Novell claims that the
Company granted SuSE the right to use its intellectual property through the Company’s participation
in the UnitedLinux initiative in 2002 and through its acquisition of SuSE, Novell acquired SuSE’s
rights as a member of UnitedLinux. On August 21, 2006, the District Court ordered that portions of
claims relating to the SuSE arbitration should be stayed but the other portions of claims in the
case should proceed. Trial for the remaining matters has been set for September 2007.
The three-person arbitration panel has been selected for the SuSE arbitration in Switzerland,
and that process has commenced. The arbitration has been set for December 2007. The proceedings
in early 2007 will determine the scope of the arbitration.
In September 2006, Novell filed an Amended Counterclaim asserting 9 claims for relief
including, among other things, claims for slander of title, breach of contract, declaratory relief
and claims for an accounting, and for a constructive trust over certain revenue the Company
collected from Sun and Microsoft in 2003. Novell has moved for a preliminary injunction and
partial summary judgment. The Company has opposed these filings and filed a cross-motion for
partial summary judgment. Those motions were argued on January 23, 2007, before the District Court
in Utah. If Novell prevails on these motions, some or all of the Company’s cash and cash
equivalents could be encumbered. No ruling on the motions has been issued and it is not known when
a ruling will be issued.
- 10 -
IPO Class Action Matter
The Company is an issuer defendant in a series of class action lawsuits involving over 300
issuers that have been consolidated under; In re Initial Public Offering Securities Litigation, 21
MC 92 (SAS). The consolidated complaint alleges, among other things, certain improprieties
regarding the underwriters’ conduct during the Company’s initial public offering and the failure to
disclose such conduct in the registration statement in violation of the Securities Act of 1933, as
amended. Class standing was certified for all of these cases by the Southern District Court of New
York.
The plaintiffs, the issuers and the insurance companies negotiated and executed an agreement
to settle the dispute between the plaintiffs and the issuers. While the settlement
agreement was awaiting approval by the district court, the court of appeals overturned the
class certification on December 5, 2006. It is unlikely a settlement of a class action can remain
effective as the class is de-certified. If the decision by the court of appeals is not reversed,
the Company does not believe the settlement will stand, and it is possible the lawsuit may fragment
into individual actions. At this time, the Company does not know and cannot predict the legal or
procedural results of such an action. If the de-certification is reversed, and if thereafter the
settlement agreement is approved by the court, and if no cross-claims, counterclaims or third-party
claims are later asserted, this action will be dismissed with respect to the Company and its
directors. If the settlement agreement is not approved by the court, the matter will continue
unless another settlement agreement is reached.
The Company has notified its underwriters and insurance companies of the existence of the
claims. Management presently believes, after consultation with legal counsel, that the ultimate
outcome of this matter will not have a material adverse effect on the Company’s results of
operations or financial position and will not exceed the $200,000 self-insured retention already
paid or accrued by the Company.
Red Hat, Inc.
On August 4, 2003, Red Hat, Inc. filed a complaint against the Company. The action is pending
in the United States District Court for the District of Delaware under the case caption, Red Hat,
Inc. v. The SCO Group, Inc., Civil No. 03-772. Red Hat asserts that the Linux operating system
does not infringe on the Company’s UNIX intellectual property rights and seeks a declaratory
judgment for non-infringement of copyrights and no misappropriation of trade secrets. In addition,
Red Hat claims the Company has engaged in false advertising in violation of the Lanham Act,
deceptive trade practices, unfair competition, tortious interference with prospective business
opportunities, trade libel and disparagement. On April 6, 2004, the court denied the Company’s
motion to dismiss this case; however, the court stayed the case and requested status reports every
90 days regarding the case against IBM. Red Hat filed a motion for reconsideration, which the
court denied on March 31, 2005. The Company intends to vigorously defend this action. In the
event the stay is lifted and Red Hat is allowed to pursue its claims, the Company will likely
assert counterclaims against Red Hat.
Other Matters
In April 2003, the Company’s former Indian distributor filed a claim in India, requesting
summary judgment for payment of approximately $1,428,000, and an order that the Company trade in
India only through the distributor and/or give a security deposit until the claim is paid. The
distributor claims that the Company is responsible to repurchase certain software products and to
reimburse the distributor for certain other operating costs. Management does not believe that the
Company is responsible to reimburse the distributor for any operating costs and also
- 11 -
believes that
the return rights related to any remaining inventory have lapsed. The distributor additionally
requested that the Indian courts grant interim relief in the form of attachment of local assets.
These requests for interim relief have failed in the court, and discovery has commenced and
hearings on the main claims have been held and are ongoing. The Company intends to vigorously
defend this action.
Pursuit and defense of the above-mentioned matters will be costly, and management expects the
costs for legal fees and related expenses will be substantial. A material, negative impact on the
Company’s results of operations or financial position from the Red Hat, Inc., IPO Class Action, or
Indian Distributor matters, or the IBM or Novell counterclaims is neither probable nor estimable.
The Company is a party to certain other legal proceedings arising in the ordinary course of
business. Management believes, after consultation with legal counsel, that the ultimate
outcome of these legal proceedings will not have a material adverse effect on the Company’s
results of operations, financial position or liquidity.
(4) STOCKHOLDERS’ EQUITY
Issuance of Common Stock
On November 29, 2005, the Company entered into a Common Stock Purchase Agreement (“Purchase
Agreement”) with several institutional investors and one member of the Company’s board of
directors. On November 30, 2005, the Company sold to the investors approximately 2,852,000 shares
of the Company’s common stock for gross proceeds of approximately $10,005,000. The costs to
facilitate the private placement of the common stock were approximately $196,000. The shares
issued to the institutional investors were issued at $3.50 per share and the shares issued to the
board member were issued at $3.92 per share. Pursuant to the Purchase Agreement, the Company
agreed to use its best efforts to file a registration statement with the SEC covering the resale of
this common stock, and to use its commercially reasonable efforts to have such registration
statement declared effective. On May 25, 2006, this registration statement was declared effective
by the SEC.
Equity Plans
The Company has established the 1998 Stock Option Plan (the “1998 Plan”), 1999 Omnibus Stock
Incentive Plan (the “1999 Plan”), the 2002 Omnibus Stock Incentive Plan (the “2002 Plan”) and the
2004 Omnibus Stock Incentive Plan (the “2004 Plan”) for the award of stock options, stock
appreciation rights, restricted stock, phantom stock rights, and stock bonuses to employees,
executive officers, members of the Board of Directors and outside consultants. The Compensation
Committee of the Board of Directors has the ability to determine the terms of the option, the
exercise price, the number of shares subject to each option, and the exercisability of the options.
The Company’s current practice is for the Compensation Committee to recommend option grants
subject to the approval and ratification of the entire Board of Directors at regularly scheduled
board meetings. Under the terms of the 1998, 1999, 2002 and 2004 Plans, options generally expire
10 years from the date of grant or within 90 days of termination. Options granted under these
plans generally vest 25 percent after the completion of one year of service and then 1/36 per month
for the remaining three years and become fully vested at the end of four years. Pursuant to the
terms of their grant agreements, certain of the options granted under these plans may be subject to
accelerated vesting upon a change in control of the Company.
The Company has also established an employee stock purchase plan, which is designed to allow
eligible employees of the Company and its participating subsidiaries to purchase shares of the
Company’s common stock, at semi-annual intervals, through periodic payroll deductions.
- 12 -
Prior to October 31, 2005, as permitted under Statement of Financial Accounting Standards
(“SFAS”) No. 123, the Company accounted for its stock option plans following the recognition and
measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock
issued to Employees,” and related interpretations. Accordingly, no stock-based compensation
expense had been reflected in the Company’s statements of operations as all options granted had an
exercise price equal to the market value of the underlying common stock on the date of grant and
the related number of shares granted was fixed at that point in time.
In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123(R),
“Share Based Payment.” This statement revised SFAS No. 123 by eliminating the option to account
for employee stock options under APB No. 25 and requiring companies to recognize the cost of
employee services received in exchange for awards of equity instruments based on the grant-date
fair value of those awards.
Effective November 1, 2005, the Company adopted the fair value recognition provisions of SFAS
No. 123(R) using the modified prospective application method. Under this transition method, the
Company recorded compensation expense on a straight-line basis for the three months ended January
31, 2007 and 2006, for: (a) the vesting of options granted prior to November 1, 2005 (based on the
grant-date fair value estimated in accordance with the original provisions of SFAS No. 123, and
previously presented in the pro-forma footnote disclosures), and (b) stock-based awards granted
subsequent to November 1, 2005 (based on the grant-date fair value estimated in accordance with the
provisions of SFAS No. 123(R)).
The effect of accounting for stock-based awards under SFAS No. 123(R) for the three months
ended January 31, 2007 and 2006 was to record $476,000 and $401,000, respectively, of stock-based
compensation expense. For the three months ended January 31, 2007 and 2006, the Company has
allocated stock-based compensation expense to the following statement of operations captions:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, |
|
|
2007 |
|
2006 |
|
|
|
Cost of products |
|
$ |
— |
|
|
$ |
2,000 |
|
Cost of SCOsource licensing |
|
|
70,000 |
|
|
|
53,000 |
|
Cost of services |
|
|
3,000 |
|
|
|
12,000 |
|
Sales and marketing |
|
|
111,000 |
|
|
|
68,000 |
|
Research and development |
|
|
43,000 |
|
|
|
20,000 |
|
General and administrative |
|
|
249,000 |
|
|
|
246,000 |
|
|
|
|
Total stock-based compensation |
|
$ |
476,000 |
|
|
$ |
401,000 |
|
|
|
|
With respect to stock options granted during the three months ended January 31, 2007 and
2006, the assumptions used in the Black-Scholes option-pricing model are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, |
|
|
2007 |
|
2006 |
|
|
|
Risk-free interest rate |
|
|
4.8 |
% |
|
|
4.4 |
% |
Expected dividend yield |
|
|
0.0 |
% |
|
|
0.0 |
% |
Volatility |
|
|
85.9 |
% |
|
|
63.0 |
% |
Expected exercise life (in years) |
|
|
5.0 |
|
|
|
5.0 |
|
The estimated fair value of stock options and ESPP shares are amortized over the vesting
period of the award.
- 13 -
During the three months ended January 31, 2007, the Company granted options to purchase
approximately 869,000 shares of common stock with an average exercise price of $2.30 per share.
None of these stock options were granted with an exercise price below the quoted market price on
the date of grant. During the three months ended January 31, 2007, options to purchase
approximately 5,000 shares of common stock were exercised with an average exercise price of
$0.87 per share. As of January 31, 2007, there were approximately 5,369,000 stock options
outstanding with a weighted average exercise price of $3.82 per share.
(5) SEGMENT INFORMATION
The Company’s resources are allocated and operating results managed to the operating income
(loss) level for each of the Company’s segments: UNIX and SCOsource. Both segments are based on
the Company’s UNIX intellectual property. The UNIX business sells and distributes UNIX products
and services through an extensive distribution channel and to corporate end-users and the SCOsource
business enforces and protects the Company’s UNIX intellectual property. Segment disclosures for
the Company are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, 2007 |
|
|
UNIX |
|
SCOsource |
|
Total |
|
|
|
Revenue |
|
$ |
5,992,000 |
|
|
$ |
23,000 |
|
|
$ |
6,015,000 |
|
Cost of revenue |
|
|
936,000 |
|
|
|
654,000 |
|
|
|
1,590,000 |
|
|
|
|
Gross margin (deficit) |
|
|
5,056,000 |
|
|
|
(631,000 |
) |
|
|
4,425,000 |
|
|
|
|
Sales and marketing |
|
|
2,440,000 |
|
|
|
— |
|
|
|
2,440,000 |
|
Research and development |
|
|
1,759,000 |
|
|
|
— |
|
|
|
1,759,000 |
|
General and administrative |
|
|
1,323,000 |
|
|
|
— |
|
|
|
1,323,000 |
|
|
|
|
Total operating expenses |
|
|
5,522,000 |
|
|
|
— |
|
|
|
5,522,000 |
|
|
|
|
Loss from operations |
|
$ |
(466,000 |
) |
|
$ |
(631,000 |
) |
|
$ |
(1,097,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, 2006 |
|
|
UNIX |
|
SCOsource |
|
Total |
|
|
|
Revenue |
|
$ |
7,313,000 |
|
|
$ |
30,000 |
|
|
$ |
7,343,000 |
|
Cost of revenue |
|
|
1,221,000 |
|
|
|
4,010,000 |
|
|
|
5,231,000 |
|
|
|
|
Gross margin (deficit) |
|
|
6,092,000 |
|
|
|
(3,980,000 |
) |
|
|
2,112,000 |
|
|
|
|
Sales and marketing |
|
|
2,688,000 |
|
|
|
— |
|
|
|
2,688,000 |
|
Research and development |
|
|
1,777,000 |
|
|
|
94,000 |
|
|
|
1,871,000 |
|
General and administrative |
|
|
1,532,000 |
|
|
|
60,000 |
|
|
|
1,592,000 |
|
Amortization of intangibles |
|
|
592,000 |
|
|
|
— |
|
|
|
592,000 |
|
|
|
|
Total operating expenses |
|
|
6,589,000 |
|
|
|
154,000 |
|
|
|
6,743,000 |
|
|
|
|
Loss from operations |
|
$ |
(497,000 |
) |
|
$ |
(4,134,000 |
) |
|
$ |
(4,631,000 |
) |
|
|
|
- 14 -
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations and
other parts of this quarterly report on Form 10-Q contain forward-looking statements that involve
risks and uncertainties. Forward-looking statements can also be identified by words such as
“intends,” “anticipates,” “expects,” “believes,” “plans,” “predicts,” and similar terms.
Forward-looking statements are not guarantees of future performance and our actual results may
differ significantly from the results discussed in the forward-looking statements. Factors that
might cause such differences include, but are not limited to, those set forth below under
“Forward-Looking Statements and Factors that May Affect Future Results and Financial Condition” and
Part II, Item 1A – Risk Factors and elsewhere in this Form 10-Q. The following discussion should be
read in conjunction with our unaudited condensed consolidated financial statements and notes
thereto included in this Form 10-Q and our audited consolidated financial statements included in
our annual report on Form 10-K for the year ended October 31, 2006 filed with the Securities and
Exchange Commission and management’s discussion and analysis contained therein. All information
presented herein is based on the three months ended January 31, 2007 and 2006. We assume no
obligation to revise or update any forward-looking statements for any reason, except as required by
law.
Business Focus
UNIX Business. Our UNIX business serves the needs of small-to-medium sized businesses,
including replicated site franchisees of Fortune 1000 companies, by providing reliable, cost
effective UNIX software technology for distributed, embedded and network-based systems. Our
largest source of UNIX business revenue is derived from existing customers through our worldwide,
indirect, leveraged channel of partners, which includes distributors and independent solution
providers. We have a presence in a number of countries that provide support and services to
customers and resellers. The other principal channel for selling and marketing our UNIX products
is through existing customers that have a large number of replicated sites or franchisees.
We access these corporations through their information technology or purchasing departments
with our Area Sales Managers (“ASMs”) in the United States and through our reseller channel in
countries outside the United States. In addition, we also sell our operating system products to
original equipment manufacturers (“OEMs”). Our sales of UNIX products and services during the last
several years have been primarily to existing UNIX customers and not newly acquired customers. Our
UNIX business revenue depends significantly on our ability to market and sell our products to
existing customers and to generate upgrades from existing customers.
The following table shows the operating results of the UNIX business for the three months
ended January 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, |
|
|
2007 |
|
2006 |
|
|
|
Revenue |
|
$ |
5,992,000 |
|
|
$ |
7,313,000 |
|
Cost of revenue |
|
|
936,000 |
|
|
|
1,221,000 |
|
|
|
|
Gross margin |
|
|
5,056,000 |
|
|
|
6,092,000 |
|
|
|
|
Sales and marketing |
|
|
2,440,000 |
|
|
|
2,688,000 |
|
Research and development |
|
|
1,759,000 |
|
|
|
1,777,000 |
|
General and administrative |
|
|
1,323,000 |
|
|
|
1,532,000 |
|
Amortization of intangibles |
|
|
— |
|
|
|
592,000 |
|
|
|
|
Total operating expenses |
|
|
5,522,000 |
|
|
|
6,589,000 |
|
|
|
|
Loss from operations |
|
$ |
(466,000 |
) |
|
$ |
(497,000 |
) |
|
|
|
- 15 -
Revenue from our UNIX business decreased by $1,321,000, or 18%, for the three months
ended January 31, 2007 compared to the three months ended January 31, 2006. The revenue from this
business has been declining over the last several years primarily as a result of increased
competition from alternative operating systems, particularly Linux. We believe the inclusion of
our UNIX code and derivative works in Linux has been a contributor to the decline in our UNIX
business because users of Linux generally do not pay for the operating system itself, but pay for
services and maintenance. The Linux operating system competes directly with our OpenServer and
UnixWare products and has taken significant market share from these products.
Operating costs for our UNIX business decreased from $6,589,000 for the three months ended
January 31, 2006 to $5,522,000 for the three months ended January 31, 2007. This decrease was
primarily attributable to reduced headcount and related costs as well as from the elimination of
amortization expense from intangible assets. Our intangible assets became fully amortized during
the three months ended October 31, 2006.
The decline in our UNIX business revenue may be accelerated if industry partners withdraw
their support for our products. The decline in our UNIX business and our SCOsource business may
cause industry partners, developers and hardware and software vendors to choose not to support or
certify to our UNIX operating system products. This would lead to an accelerated decline in
revenue and negative cash flows from our UNIX business.
SCOsource Business. During the year ended October 31, 2003, we became aware that our UNIX
code and derivative works had been inappropriately included by others in the Linux operating
system. We believe the inclusion of our UNIX code and derivative works in Linux has been a
contributor to the decline in our UNIX business because users of Linux generally do not pay for the
operating system itself, but pay for services and maintenance. The Linux operating system competes
directly with our OpenServer and UnixWare products and has taken significant market share from
these products.
In an effort to protect and defend our UNIX intellectual property rights, we initiated our
SCOsource business. We have incurred significant legal costs in an effort to defend and protect
our UNIX intellectual property rights and expect that costs and expenses for this business for the
year ending October 31, 2007 will be material.
The following table shows the operating results of the SCOsource business for the three months
ended January 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, |
|
|
2007 |
|
2006 |
|
|
|
Revenue |
|
$ |
23,000 |
|
|
$ |
30,000 |
|
Cost of revenue |
|
|
654,000 |
|
|
|
4,010,000 |
|
|
|
|
Gross deficit |
|
|
(631,000 |
) |
|
|
(3,980,000 |
) |
|
|
|
Research and development |
|
|
— |
|
|
|
94,000 |
|
General and administrative |
|
|
— |
|
|
|
60,000 |
|
|
|
|
Total operating expenses |
|
|
— |
|
|
|
154,000 |
|
|
|
|
Loss from operations |
|
$ |
(631,000 |
) |
|
$ |
(4,134,000 |
) |
|
|
|
Revenue from our SCOsource business decreased slightly from $30,000 for the three months
ended January 31, 2006 to $23,000 for the three months ended January 31, 2007.
Revenue in the above mentioned periods was primarily attributable to sales of our SCOsource IP
agreements.
- 16 -
Cost of revenue, which primarily includes legal and professional fees incurred in connection
with defending our UNIX intellectual property rights in the SCO Litigation, decreased from
$4,010,000 for the three months ended January 31, 2006 to $654,000 for the three months ended
January 31, 2007. The decrease in cost of revenue was primarily attributable to the absence of the
$2,000,000 quarterly payment for Boies, Schiller & Flexner LLP, Kevin McBride and Berger Singerman
(the “Law Firms”) (which quarterly payments ended during the three months ended January 31, 2006),
and by significant decreases in legal services provided by technical, industry, damage and other
experts in connection with the SCO Litigation. In addition to the expenses incurred above, we must
also pay one or more contingency fees upon any amount we or our stockholders may receive as a
result of a settlement, judgment, or a sale of our company.
Because of the unique and unpredictable nature of the SCO Litigation, the occurrence and
timing of certain expenses such as damage, industry and technical review and other consultants is
difficult to predict, and it will be difficult to predict the total cost of revenue for the
upcoming quarters.
Because of the uncertainties related to our SCOsource business, the success of the SCOsource
business depends on the strength of our intellectual property rights and claims regarding UNIX,
including our claims against Novell and the strength of our claim that unauthorized UNIX source
code and derivative works are contained in Linux.
Critical Accounting Policies
Our critical accounting policies and estimates include the following:
|
• |
|
Revenue recognition; |
|
|
• |
|
Deferred income taxes and related valuation allowances; |
|
|
• |
|
Litigation reserves; |
|
|
• |
|
Impairment of property and equipment; and |
|
|
• |
|
Allowances for doubtful accounts. |
Revenue Recognition. We recognize revenue in accordance with Statement of Position (“SOP”)
97-2, as modified by SOP 98-9. Our revenue has historically been from three sources: (i) product
license revenue, primarily from product sales to resellers, end users and OEMs; (ii) technical
support service revenue, primarily from providing technical support and consulting services to end
users; and (iii) revenue from SCOsource licensing.
We recognize product revenue upon shipment if a signed contract exists, the fee is fixed or
determinable, collection of the resulting receivable is probable and product returns are reasonably
estimable.
The majority of our revenue transactions relate to product-only sales. On occasion, we have
revenue transactions that have multiple elements (such as software products, maintenance, technical
support services, and other services). For software agreements that have multiple elements, we
allocate revenue to each component of the contract based on the relative fair value of the
elements. The fair value of each element is based on vendor specific objective evidence (”VSOE”).
VSOE is established when such elements are sold separately. We recognize revenue when the criteria
for product revenue recognition set forth above have been met. If VSOE of all undelivered elements
exists, but VSOE does not exist for one or more delivered elements, then revenue is recognized
using the residual method. Under the residual method, the fair value of the undelivered elements
is deferred and the remaining portion of the license fee is recognized
as
- 17 -
revenue in the period when persuasive evidence of an arrangement is obtained assuming all
other revenue recognition criteria are met.
We recognize product revenue from OEMs when the software is sold by the OEM to an end-user
customer. Revenue from technical support services and consulting services is recognized as the
related services are performed. Revenue for maintenance is recognized ratably over the maintenance
period.
We consider an arrangement with payment terms longer than our normal business practice not to
be fixed or determinable and revenue is recognized when the fee becomes due. We typically provide
stock rotation rights for sales made through our distribution channel and sales to distributors are
recognized upon shipment by the distributor to end users. For direct sales not through our
distribution channel, sales are typically non-refundable and non-cancelable. We estimate our
product returns based on historical experience and maintain an allowance for estimated returns,
which is recorded as a reduction to accounts receivable and revenue.
Our SCOsource revenue to date has been primarily generated from agreements to utilize our UNIX
source code as well as from intellectual property compliance agreements. We recognize revenue from
SCOsource agreements when a signed contract exists, the fee is fixed or determinable, collection of
the receivable is probable and delivery has occurred. If the payment terms extend beyond our
normal payment terms, revenue is recognized as the payments become due.
Deferred Income Tax Assets and Related Valuation Allowance. The amount, and ultimate
realization, of our deferred income tax assets depends, in part, upon the tax laws in effect, our
future earnings, if any, and other future events, the effects of which cannot be determined. We
have provided a valuation allowance of $76,385,000 against our entire net deferred income tax
assets as of October 31, 2006. The valuation allowance was recorded because of our history of net
operating losses and the uncertainties regarding our future operating profitability and taxable
income.
Litigation Reserves. We are party to a number of legal matters described in more detail
elsewhere in this Form 10-Q, including under Part II, Item I – Legal Proceedings. Pursuit and
defense of these matters will be costly, and management expects the costs for legal fees and
related expenses will be substantial. A material, negative impact on our results of operations or
financial position from the Red Hat, Inc., IPO Class Action, or Indian Distributor matters, or the
IBM and Novell counterclaims is neither probable nor estimable. Because these matters are not
probable or estimable, we have not recorded any reserves or contingencies related to these legal
matters. In the event that our assumptions used to evaluate these matters as neither probable nor
estimable change in future periods, we may be required to record a liability for an adverse
outcome, which could have a material adverse effect on our results of operations, financial
position and liquidity.
Impairment of Property and Equipment. We review our long-lived assets for impairment at each
balance sheet date and when events or changes in circumstances indicate that the carrying value of
an asset may not be recoverable. 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. Economic useful
lives of long-lived assets are assessed and adjusted as circumstances dictate.
- 18 -
Write-downs of long-lived assets may be necessary if the future fair value of these assets is
less than the carrying value. If the operating trends for our UNIX or SCOsource businesses
continue to decline, we may be required to record an impairment charge in a future period related
to the carrying value of our long-lived assets.
Allowance for Doubtful Accounts Receivable. We offer credit terms on the sale of our products
to a majority of our customers and require no collateral from these customers. We perform ongoing
credit evaluations of our customers’ financial condition and maintain an allowance for doubtful
accounts based upon our historical collection experience and a specific review of customer balances
to determine expected collectibility. Our policies for determining allowances for doubtful
accounts have been applied consistently. Our allowance for doubtful accounts receivable was
$79,000 as of January 31, 2007. We have not experienced material differences from the actual
amounts provided for bad debts and our recorded estimates. However, our actual bad debts in future
periods may differ from our current estimates and the differences may be material, which may have
an adverse impact on our future accounts receivable and cash position.
Results of Operations
The following table presents our results of operations for the three months ended January
31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, |
Statement of Operations Data: |
|
2007 |
|
2006 |
Revenue: |
|
|
|
|
|
|
|
|
Products |
|
$ |
4,866,000 |
|
|
$ |
6,000,000 |
|
SCOsource licensing |
|
|
23,000 |
|
|
|
30,000 |
|
Services |
|
|
1,126,000 |
|
|
|
1,313,000 |
|
|
|
|
Total revenue |
|
|
6,015,000 |
|
|
|
7,343,000 |
|
|
|
|
Cost of revenue: |
|
|
|
|
|
|
|
|
Products |
|
|
377,000 |
|
|
|
584,000 |
|
SCOsource licensing |
|
|
654,000 |
|
|
|
4,010,000 |
|
Services |
|
|
559,000 |
|
|
|
637,000 |
|
|
|
|
Total cost of revenue |
|
|
1,590,000 |
|
|
|
5,231,000 |
|
|
|
|
Gross margin |
|
|
4,425,000 |
|
|
|
2,112,000 |
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
2,440,000 |
|
|
|
2,688,000 |
|
Research and development |
|
|
1,759,000 |
|
|
|
1,871,000 |
|
General and administrative |
|
|
1,323,000 |
|
|
|
1,592,000 |
|
Amortization of intangibles |
|
|
— |
|
|
|
592,000 |
|
|
|
|
Total operating expenses |
|
|
5,522,000 |
|
|
|
6,743,000 |
|
|
|
|
Loss from operations |
|
|
(1,097,000 |
) |
|
|
(4,631,000 |
) |
|
|
|
Equity in income (loss) of affiliate |
|
|
42,000 |
|
|
|
(8,000 |
) |
Other income, net |
|
|
143,000 |
|
|
|
145,000 |
|
Provision for income taxes |
|
|
(112,000 |
) |
|
|
(87,000 |
) |
|
|
|
Net loss |
|
$ |
(1,024,000 |
) |
|
$ |
(4,581,000 |
) |
|
|
|
THREE MONTHS ENDED JANUARY 31, 2007 AND 2006
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, |
|
|
2007 |
|
Change |
|
2006 |
Revenue |
|
$ |
6,015,000 |
|
|
|
(18 |
)% |
|
$ |
7,343,000 |
|
- 19 -
Revenue for the three months ended January 31, 2007 decreased by $1,328,000, or 18%, from
the three months ended January 31, 2006. This decrease was primarily attributable to a
continued decline in our UNIX business as a result of continued competitive pressure from
competing operating systems, particularly Linux.
Revenue generated from our UNIX business and SCOsource business is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, |
|
|
2007 |
|
Change |
|
2006 |
UNIX revenue |
|
$ |
5,992,000 |
|
|
|
(18 |
)% |
|
$ |
7,313,000 |
|
Percent of total revenue |
|
|
100 |
% |
|
|
|
|
|
|
100 |
% |
SCOsource revenue |
|
|
23,000 |
|
|
|
(23 |
)% |
|
|
30,000 |
|
Percent of total revenue |
|
|
0 |
% |
|
|
|
|
|
|
0 |
% |
The decrease in revenue in the UNIX business of $1,321,000, or 18%, for the three months
ended January 31, 2007 compared to the three months ended January 31, 2006 was primarily
attributable to continued competition from other operating systems, particularly Linux. We
anticipate that for the remainder of the year ending October 31, 2007 our UNIX business and the
related revenue from the UNIX business will continue to face significant competition from Linux and
other operating systems.
Sales of our UNIX products and services during the three months ended January 31, 2007 and
2006 were primarily to existing customers. Our UNIX business revenue depends significantly on our
ability to market our products to existing customers and to generate upgrades from existing
customers. Our UNIX revenue may be lower than currently anticipated if (1) we are not successful
with our existing customers, (2) we lose the support of any of our existing hardware and software
vendors, or (3) our key industry partners withdraw their marketing and certification support or
direct their support to our competitors.
Products Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, |
|
|
2007 |
|
Change |
|
2006 |
Products revenue |
|
$ |
4,866,000 |
|
|
|
(19 |
)% |
|
$ |
6,000,000 |
|
Percent of total revenue |
|
|
81 |
% |
|
|
|
|
|
|
82 |
% |
Our products revenue consists of software licenses for UNIX products such as OpenServer
and UnixWare, as well as sales of UNIX-related products. Products revenue also includes revenue
derived from OEMs, distribution partners and large accounts. We rely heavily on our two-tier
distribution channel and any disruption in our distribution channel could have an adverse impact on
future revenue.
The decrease in products revenue of $1,134,000, or 19%, for the three months ended January 31,
2007 compared to the three months ended January 31, 2006 was primarily attributable to decreased
sales of OpenServer and other products revenue primarily resulting from increased competition in
the operating system market, particularly from Linux.
Our products revenue was derived primarily from sales of our OpenServer and UnixWare products.
Other products revenue consists mainly of product maintenance and other UNIX-related products.
Revenue for these products was as follows:
- 20 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, |
|
|
2007 |
|
Change |
|
2006 |
OpenServer revenue |
|
$ |
2,978,000 |
|
|
|
(18 |
)% |
|
$ |
3,622,000 |
|
Percent of products revenue |
|
|
61 |
% |
|
|
|
|
|
|
60 |
% |
UnixWare revenue |
|
|
1,471,000 |
|
|
|
(15 |
)% |
|
|
1,725,000 |
|
Percent of products revenue |
|
|
30 |
% |
|
|
|
|
|
|
29 |
% |
Other products revenue |
|
|
417,000 |
|
|
|
(36 |
)% |
|
|
653,000 |
|
Percent of products revenue |
|
|
9 |
% |
|
|
|
|
|
|
11 |
% |
The decrease in revenue for OpenServer and UnixWare for the three months ended January
31, 2007 compared to the three months ended January 31, 2006 is primarily the result of continued
competition from other operating systems, particularly Linux. The decrease in other products
revenue is primarily attributable to decreased sales of UNIX-related products and decreased sales
of product maintenance.
SCOsource Licensing Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, |
|
|
2007 |
|
Change |
|
2006 |
SCOsource licensing revenue |
|
$ |
23,000 |
|
|
|
(23 |
)% |
|
$ |
30,000 |
|
We initiated our SCOsource business for the purpose of protecting and defending our
intellectual property rights in our UNIX source code and derivative works. SCOsource licensing
revenue was $30,000 for the three months ended January 31, 2006 compared to $23,000 for the three
months ended January 31, 2007. Revenue in the above mentioned periods was primarily attributable
to sales of our SCOsource IP agreements.
We are unable to predict the amount and timing of future SCOsource licensing revenue, and if
generated, the revenue will be sporadic.
Services Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, |
|
|
2007 |
|
Change |
|
2006 |
Services revenue |
|
$ |
1,126,000 |
|
|
|
(14 |
)% |
|
$ |
1,313,000 |
|
Percent of total revenue |
|
|
19 |
% |
|
|
|
|
|
|
18 |
% |
Services revenue consists primarily of technical support fees, engineering services fees,
professional services fees and consulting fees. These fees are typically charged and invoiced
separately from UNIX products sales. The decrease in services revenue of $187,000, or 14%, for the
three months ended January 31, 2007 as compared to the three months ended January 31, 2006 was
primarily attributable to the renewal of fewer support and engineering services contracts.
The majority of our support and professional services revenue continues to be derived from
services for UNIX-based operating system products. Our future level of services revenue depends in
part on our ability to generate UNIX products revenue from new customers as well as to renew annual
support and services agreements with existing UNIX customers.
- 21 -
Cost of Products Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, |
|
|
2007 |
|
Change |
|
2006 |
Cost of products revenue |
|
$ |
377,000 |
|
|
|
(35 |
)% |
|
$ |
584,000 |
|
Percent of products revenue |
|
|
8 |
% |
|
|
|
|
|
|
10 |
% |
Cost of products revenue consists of manufacturing costs, royalties to third-party
vendors, technology costs and overhead costs. Cost of products revenue decreased by $207,000, or
35%, for the three months ended January 31, 2007 as compared to the three months ended January 31,
2006. The decrease in the dollar amount of cost of products revenue was primarily attributable to
lower products revenue as margins did not vary considerably.
For the three months ending April 30, 2007, we expect the dollar amount of our cost of
products revenue to be generally consistent with the cost of products revenue incurred during the
three months ended January 31, 2007 and that cost of products revenue as a percent of products
revenue for the three months ending April 30, 2007 will be generally consistent with that incurred
during the three months ended January 31, 2007.
Cost of SCOsource Licensing Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, |
|
|
2007 |
|
Change |
|
2006 |
Cost of SCOsource licensing revenue |
|
$ |
654,000 |
|
|
|
(84 |
)% |
|
$ |
4,010,000 |
|
Cost of SCOsource licensing revenue includes legal and professional fees incurred in
connection with our SCO Litigation, the salaries and related personnel costs of SCOsource
employees, and an allocation of corporate costs.
Cost of SCOsource licensing revenue decreased by $3,356,000, or 84%, during the three months
ended January 31, 2007 as compared to the three months ended January 31, 2006. The decrease in
cost of SCOsource licensing revenue was primarily attributable to the absence of the $2,000,000
quarterly payment and related expense for the Law Firms (which quarterly payments ended during the
three months ended January 31, 2006), and significant decreases in legal services provided by
technical, industry, damage and other experts in connection with the SCO Litigation.
Because of the unique and unpredictable nature of the SCO Litigation, the occurrence and
timing of certain expenses is difficult to predict, and will be difficult to predict for the
upcoming quarters. We will continue to make payments for technical, damage and industry experts,
consultants and for other fees. However, future legal fees may include contingency payments made
to the Law Firms as a result of a settlement, judgment, or a sale of our Company, which could cause
the cost of SCOsource licensing revenue for the three months ending April 30, 2007 or for future
periods to be higher than the costs incurred for the three months ended January 31, 2007.
Cost of Services Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, |
|
|
2007 |
|
Change |
|
2006 |
Cost of services revenue |
|
$ |
559,000 |
|
|
|
(12 |
)% |
|
$ |
637,000 |
|
Percent of services revenue |
|
|
50 |
% |
|
|
|
|
|
|
49 |
% |
- 22 -
Cost of services revenue includes the salaries and related personnel costs of employees
delivering services revenue as well as third-party service agreements. Cost of services revenue
decreased by $78,000, or 12%, for the three months ended January 31, 2007 compared to the three
months ended January 31, 2006. This decrease was primarily attributable to reduced employee and
employee-related costs.
For the three months ending April 30, 2007, we expect the dollar amount of our cost of
services revenue to be generally consistent with the cost of services revenue incurred during the
three months ended January 31, 2007 and that cost of services revenue as a percent of services
revenue for the three months ending April 30, 2007 will be generally consistent with that incurred
during the three months ended January 31, 2007.
Sales and Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, |
|
|
2007 |
|
Change |
|
2006 |
Sales and marketing expenses |
|
$ |
2,440,000 |
|
|
|
(9 |
)% |
|
$ |
2,688,000 |
|
Percent of total revenue |
|
|
41 |
% |
|
|
|
|
|
|
37 |
% |
Sales and marketing expenses consist of the salaries, commissions and other personnel
costs of employees involved in the revenue generation process, as well as advertising and corporate
allocations. The decrease in sales and marketing expenses of $248,000, or 9%, for the three months
ended January 31, 2007 compared with the three months ended January 31, 2006 was primarily
attributable to lower travel expenses and reduced discretionary marketing spending as a result of
lower revenue. Included in sales and marketing expenses for the three months ended January 31,
2007 and 2006 was $111,000 and $102,000, respectively, for stock-based compensation.
For the three months ending April 30, 2007, we anticipate that the dollar amount of sales and
marketing expenses will be generally consistent with that incurred during the three months ended
January 31, 2007.
Research and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, |
|
|
2007 |
|
Change |
|
2006 |
Research and development expenses |
|
$ |
1,759,000 |
|
|
|
(6 |
)% |
|
$ |
1,871,000 |
|
Percent of total revenue |
|
|
29 |
% |
|
|
|
|
|
|
25 |
% |
Research and development expenses consist of the salaries and benefits of software
engineers, consulting expenses and corporate allocations. Research and development expenses
decreased by $112,000, or 6%, for the three months ended January 31, 2007 compared with the three
months ended January 31, 2006. The decrease in research and development expenses was primarily
attributable to reduced employee and employee-related costs. Included in research and development
expenses for the three months ended January 31, 2007 and 2006 was $43,000 and $41,000,
respectively, of stock-based compensation.
For the three months ending April 30, 2007, we anticipate that the dollar amount of research
and development expenses will be generally consistent with that incurred during the three months
ended January 31, 2007.
- 23 -
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, |
|
|
2007 |
|
Change |
|
2006 |
General and administrative expenses |
|
$ |
1,323,000 |
|
|
|
(17 |
)% |
|
$ |
1,592,000 |
|
Percent of total revenue |
|
|
22 |
% |
|
|
|
|
|
|
22 |
% |
General and administrative expenses consist of the salaries and benefits of finance,
human resources, and executive management and expenses for professional services and corporate
allocations. General and administrative expenses decreased by $269,000, or 17%, during the three
months ended January 31, 2007 as compared to the three months ended January 31, 2006. The decrease
in general and administrative expenses was primarily attributable to decreased professional
services costs. Included in general and administrative expenses for the three months ended January
31, 2007 and 2006 was $249,000 and $264,000, respectively, of stock-based compensation.
For the three months ending April 30, 2007, we anticipate that the dollar amount of general
and administrative expenses will be generally consistent with that incurred during the three months
ended January 31, 2007.
Amortization of Intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, |
|
|
2007 |
|
Change |
|
2006 |
Amortization of intangibles |
|
$ |
— |
|
|
|
(100 |
)% |
|
$ |
592,000 |
|
Percent of total revenue |
|
|
0 |
% |
|
|
|
|
|
|
8 |
% |
As of October 31, 2006, all intangible assets had been fully amortized and therefore no
amortization expense was recorded during the three months ended January 31, 2007.
Equity in Income (Loss) of Affiliate
We account for our ownership interests in companies in which we own at least 20% and less than
50% using the equity method of accounting. Under the equity method, we record our portion of the
entities’ net income or net loss in our consolidated statements of operations. As of January 31,
2007, the carrying value of our investment of $431,000 was for our 30% ownership in a Chinese
company.
During the three months ended January 31, 2007 and 2006, we recorded $42,000 and $(8,000),
respectively, representing our portion of the net income (loss) in this entity.
Other Income (Expense), net
Other income (expense) consisted of the following components for the three months ended
January 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended January 31, |
|
|
2007 |
|
2006 |
|
|
|
Interest income |
|
$ |
114,000 |
|
|
$ |
152,000 |
|
Other income (expense), net |
|
|
29,000 |
|
|
|
(7,000 |
) |
|
|
|
Total |
|
$ |
143,000 |
|
|
$ |
145,000 |
|
|
|
|
- 24 -
Interest income decreased by $38,000 for the three months ended January 31, 2007 as
compared to the three months ended January 31, 2006 and was primarily attributable to lower cash
and available-for-sale marketable securities balances.
The increase in other income (expense), net, of $36,000 for the three months ended January 31,
2007 as compared to the three months ended January 31, 2006 was primarily attributable to an
increase in realized gains as a result of changes in foreign currency rates and balances.
Provision for Income Taxes
The provision for income taxes was $112,000 for the three months ended January 31, 2007 and
$87,000 for the three months ended January 31, 2006. Our provision for income taxes is primarily
related to earnings in foreign subsidiaries as well as from withholding taxes on revenue generated
in certain foreign locations.
Liquidity and Capital Resources
Our cash and cash equivalents balance increased from $5,369,000 as of October 31, 2006 to
$7,137,000 as of January 31, 2007. During this same time period, our investment in
available-for-sale marketable securities decreased from $2,249,000 as of October 31, 2006 to
$500,000 as of January 31, 2007. Total cash and cash equivalents and available-for-sale marketable
securities was $7,637,000 as of January 31, 2007. As of January 31, 2007, we also had $4,498,000
of restricted cash, of which $3,979,000 is set aside to cover expert and other costs related to our
SCO Litigation and $519,000 is set aside for royalties payable to Novell.
We intend to use the cash and cash equivalents and available-for-sale marketable securities as
of January 31, 2007 to run our UNIX business and pursue the SCO Litigation andbelieve that we have
sufficient liquidity resources to fund our operations through October 31, 2007.
Our net cash used in operating activities during the three months ended January 31, 2007 was
$220,000 and was attributable to a net loss of $1,024,000, non-cash items of $542,000 and changes
in operating assets and liabilities of $262,000.
Our net cash used in operating activities during the three months ended January 31, 2006 was
$1,379,000 and was attributable to a net loss of $4,581,000, non-cash items of $1,170,000 and
changes in operating assets and liabilities of $2,032,000.
Our investing activities have historically consisted of equipment purchases and the purchase
and sale of available-for-sale marketable securities. During the three months ended January 31,
2007, cash provided by investing activities was $1,727,000, which was primarily a result of
proceeds from the sale of available-for-sale marketable securities of $1,749,000 offset by
purchases of equipment of $22,000.
During the three months ended January 31, 2006, cash used in investing activities was
$1,100,000, which was primarily a result of purchases of available-for-sale marketable securities
of $1,031,000, and purchases of equipment of $69,000.
Our financing activities provided $234,000 of cash during the three months ended January 31,
2007. The primary sources of cash were from the exercise of options to acquire common stock of
$4,000 and proceeds of $230,000 received from the sale of common stock through our employee stock
purchase plan.
- 25 -
Our financing activities provided $10,197,000 of cash during the three months ended January
31, 2006. The primary sources of cash were the net proceeds from the issuance of approximately
2,852,000 shares of our common stock for $9,905,000, the exercise of options to
acquire common stock of $23,000 and proceeds of $301,000 received from the sale of common
stock through our employee stock purchase plan, offset, in part, by the repurchase of shares of our
common stock made in connection with the completion of our rescission offer of $32,000.
Our net accounts receivable balance decreased from $5,123,000 as of October 31, 2006 to
$4,010,000 as of January 31, 2007, primarily as a result of lower sales (and related invoicing)
generated during the three months ended January 31, 2007 as compared to the three months ended
October 31, 2006. The majority of our accounts receivable are current and our allowance for
doubtful accounts was $79,000 as of January 31, 2007, which represented approximately 2 percent of
our gross accounts receivable balance. This percentage of gross accounts receivable is consistent
with our experience in prior periods, and we expect this trend to continue. Our write-offs of
uncollectible accounts during the three months ended January 31, 2007 and 2006 were not
significant.
As described elsewhere in this Form 10-Q, we are continuing to pay for expert, consulting and
other expenses relating to our litigation with IBM. These expenses have been material in the past
and even though we expect these expenses to be lower for the year ending October 31, 2007 as
compared to the year ended October 31, 2006, we expect them to continue to be material to our
financial statements.
In addition to the cash expenditures mentioned above, we must also pay one or more contingency
fees upon any amount we or our stockholders may receive as a result of a settlement, judgment, or a
sale of our company. The contingency fee amounts payable to the Law Firms will be, subject to
certain credits and adjustments, as follows:
|
• |
|
33 percent of any aggregate recovery amounts received up to $350,000,000; |
|
|
• |
|
plus 25 percent of any aggregate recovery amounts above $350,000,000 but less than or
equal to $700,000,000; |
|
|
• |
|
plus 20 percent of any aggregate recovery amounts in excess of $700,000,000. |
The Engagement Agreement provides that, except for the compensation obligations specifically
described above, we will not be obligated to pay any legal fees, whether hourly, contingent or
otherwise, to the Law Firms, or any other law firms that may be engaged by the Law Firms, in
connection with the SCO Litigation through the end of the current litigation between us and IBM,
including any appeals.
We have entered into operating leases for our corporate offices located in the United States
and our international sales offices. We have commitments under these leases that extend through
the year ending October 31, 2008.
The following table summarizes our contractual operating lease obligations as of January 31,
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
More than |
|
|
Total |
|
1 year |
|
1 – 3 years |
|
3 -5 years |
|
5 years |
Operating lease obligations |
|
$ |
1,738,000 |
|
|
$ |
1,305,000 |
|
|
$ |
433,000 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
As of January 31, 2007, we did not have any long-term debt obligations, purchase
obligations or material capital lease obligations.
- 26 -
Our ability to reduce costs to offset revenue declines in our UNIX business is limited because
of contractual commitments to maintain and support our existing UNIX customers. The decline in our
UNIX business may be accelerated if industry partners withdraw their support as a result of the SCO
Litigation. In addition, the SCO Litigation may cause industry partners, developers and hardware
and software vendors to choose not to support or certify to
our UNIX operating system products. This would lead to an accelerated decline in our UNIX
products and services revenue. If our UNIX products and services revenue is less than expected,
our liquidity will be adversely impacted.
In the event that cash required to fund operations and strategic initiatives exceeds our
current cash resources, we will be required to reduce costs and perhaps raise additional capital.
We may not be able to reduce costs in a manner that does not impair our ability to maintain our
UNIX business and pursue the SCO Litigation. We may not be able to raise capital for any number of
reasons including those listed under the section “Risk Factors” under Part II, Item 1A of this Form
10-Q. If additional equity financing is available, it may not be available to us on attractive
terms and may be dilutive to our existing stockholders. In addition, if our stock price declines,
we may not be able to access the public equity markets on acceptable terms, if at all. Our ability
to effect acquisitions for our common stock would also be impaired.
Forward-Looking Statements and Factors That May Affect Future Results and Financial Condition
With the exception of historical facts, the statements contained in Management’s Discussion
and Analysis of Financial Condition and Results of Operations are “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act of 1995, which reflect our
current expectations and beliefs regarding our future results of operations, performance and
achievements. These statements are subject to risks and uncertainties and are based upon
assumptions and beliefs that may or may not materialize. These forward-looking statements include,
but are not limited to, statements concerning:
|
• |
|
Our intention to vigorously defend legal claims and counterclaims brought against
us by others; |
|
|
• |
|
Our intention to continue to pursue the SCO Litigation; |
|
|
• |
|
Our belief that our allowance for doubtful accounts receivable will remain
consistent with our prior experience and that write-offs of uncollectible accounts
will not materially exceed that allowance; |
|
|
• |
|
The strength of our intellectual property rights and contractual claims regarding
UNIX generally and specifically the strength of our claim that unauthorized UNIX
source code and derivatives of UNIX source code are prevalent in Linux; |
|
|
• |
|
Our belief that competition from Linux will continue during the year ending October
31, 2007 and future periods; |
|
|
• |
|
Our expectation that we will continue to be unable to predict the amount and timing
of SCOsource licensing revenue, and when generated, the revenue will be sporadic; |
|
|
• |
|
Our expectation that future services revenue will depend in part on our ability to
generate UNIX products revenue from new customers as well as the renewal of annual
support and services agreements from existing UNIX customers; |
|
|
• |
|
Our expectation for the three months ending April 30, 2007 that the dollar amount
of our cost of products revenue and that cost of products revenue as a percent of
products revenue will be generally consistent to that incurred during the three months
ended January 31, 2007; |
|
|
• |
|
Our expectation for the three months ending April 30, 2007 that the dollar amount
of our cost of services revenue and that cost of services revenue as a percent of |
- 27 -
|
|
|
services revenue will be generally consistent to that incurred during the three months
ended January 31, 2007; |
|
|
• |
|
Our expectation for the three months ending April 30, 2007 that the dollar amount
of our sales and marketing expenses will be generally consistent to that incurred
during the three months ended January 31, 2007; |
|
|
• |
|
Our expectation for the three months ending April 30, 2007 that the dollar amount
of our research and development expenses will be generally consistent to that incurred
during the three months ended January 31, 2007; |
|
|
• |
|
Our expectation for the three months ending April 30, 2007 that the dollar amount
of our general and administrative expenses will be generally consistent to that
incurred during the three months ended January 31, 2007; |
|
|
• |
|
Our intention to use cash and cash equivalents and available-for-sale marketable
securities to run our UNIX business and pursue the SCO Litigation; |
|
|
• |
|
Our intention to continue to pay for expert, consulting and other expenses through
the conclusion of our litigation with IBM, and our expectation that although these
expenses are expected to decrease for the year ending October 31, 2007 as compared to
the year ended October 31, 2006, that they will continue to be material to our
financial statements; |
|
|
• |
|
Our expectation for the three months ending April 30, 2007 that because of the
unique and unpredictable nature of the SCO Litigation, the occurrence and timing of
certain expenses is difficult to predict, and will be difficult to predict for the
upcoming quarters; and |
|
|
• |
|
Our belief that certain legal actions to which we are a party will not have a
material adverse effect on us. |
We wish to caution readers that our operating results are subject to various risks and
uncertainties that could cause our actual results and outcomes to differ materially from those
discussed or anticipated, including the resolution of the SCO Litigation, competition from other
operating systems, particularly Linux, the amount and timing of SCOsource licensing revenue, our
ability to enhance our UNIX operating systems and maintain our UNIX business, and the factors set
forth below in Part II, Item 1A-Risk Factors. We also wish to advise readers not to place any
undue reliance on the forward-looking statements contained in this report, which reflect our
beliefs and expectations only as of the date of this report. We assume no obligation to update or
revise these forward-looking statements to reflect new events or circumstances or any changes in
our beliefs or expectations, other than as required by law.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Risk. We have foreign offices and operations in Europe and Asia. As a
result, a portion of our revenue is derived from sales to customers outside the United States. Our
international revenue is primarily denominated in U.S. dollars, Euros and United Kingdom Pounds.
Most of the operating expenses related to our foreign-based operations are denominated in foreign
currencies and therefore operating results are affected by changes in the U.S. dollar exchange rate
in relation to foreign currencies such as the Euro, among others. If the U.S. dollar weakens
compared to the Euro and other currencies, our operating expenses for foreign operations will be
higher when translated back into U.S. dollars. Our revenue can also be affected by general
economic conditions in the United States, Europe and other international markets. Our results of
operations may be affected in the short term by fluctuations in foreign currency exchange rates.
- 28 -
Interest Rate Risk. The primary objective of our cash management strategy is to invest
available funds in a manner that assures safety and liquidity and maximizes yield within such
constraints. We believe that a hypothetical movement in interest rates, either up or down of up to
2%, would not have a material adverse impact on our cash and cash equivalents and
available-for-sale marketable securities. We do not borrow money for short-term investment
purposes.
Investment Risk. We have historically invested in equity instruments of privately held and
public companies in the technology industry for business and strategic purposes.
Investments are accounted for under the cost method if our ownership is less than 20 percent
and we are not able to exercise influence over operations. We account for our ownership interests
in companies in which we own at least 20% and less than 50% using the equity method of accounting.
Under the equity method, we record our portion of the entities’ net income or net loss in our
consolidated statements of operations. Our investment policy is to regularly review the
assumptions and operating performance of these companies and to record impairment losses when
events and circumstances indicate that these investments may be impaired. As of January 31, 2007,
we did not hold any cost method investments. As of January 31, 2007, the carrying value of our
equity method investment of $431,000 was for our 30% ownership in a Chinese company.
The stock market in general, and the market for shares of technology companies in particular,
has experienced price fluctuations. In addition, factors such as new product introductions by our
competitors or developments in the SCO Litigation may have a significant impact on the market price
of our common stock. Furthermore, quarter-to-quarter fluctuations in our results of operations may
have a significant impact on the market price of our common stock. These conditions could cause
the price of our common stock to fluctuate substantially over short periods of time.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures. Under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief Financial Officer,
we evaluated the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange
Act”)). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that, as of the end of the period covered by this report, our disclosure controls and
procedures were effective.
Changes in internal control over financial reporting. During the most recent fiscal quarter
covered by this report, there has been no change in our internal control over financial reporting
(as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Certain legal proceedings in which we are involved are discussed in Part I, Item 3, of our
Annual Report on Form 10-K for the year ended October 31, 2006. In addition, for more information
regarding our legal proceedings, please see Note 3 included in Part 1, Item 1. Unaudited Financial
Statements – Notes to Condensed Consolidated Financial Statements, which information is
incorporated herein by reference.
- 29 -
ITEM 1A. RISK FACTORS
Investing in our securities involves a high degree of risk. In addition to the other
information contained in this Form 10-Q, you should consider the following risk factors before
investing in our securities.
We do not have a history of profitable operations and our cash resources are limited.
Our year ended October 31, 2003 was the first full year we were profitable in our operating
history. Our profitability for the year ended October 31, 2003 resulted primarily from our
SCOsource business. For the years ended October 31, 2006, 2005 and 2004, we incurred net losses
applicable to common stockholders of $16,598,000, $10,726,000 and $16,227,000, respectively, and
for the three months ended January 31, 2007 we incurred a net loss of $1,024,000. As of January
31, 2007, our accumulated deficit was $252,564,000.
If our revenue from the sale of our UNIX products and services continues to decline, or if we
continue to devote significant cash resources to the SCO Litigation, we will need to further reduce
operating expenses to generate positive cash flows. During October 2006, we implemented a
reduction in force and decreased our ongoing operating expenses in an effort to decrease our total
costs. We may not be able to further reduce operating expenses without damaging our ability to
support our existing UNIX business. Additionally, we may not be able to achieve profitability
through additional cost-cutting actions.
As of January 31, 2007, we had a total of $7,637,000 in cash and cash equivalents and
available-for-sale marketable securities and an additional $4,498,000 of restricted cash to be used
to pursue the SCO Litigation. Since October 31, 2004, we have spent a total of $11,021,000 for
expert, consulting and other costs and fees as agreed to in the Engagement Agreement with our legal
counsel in the SCO Litigation. Our limited cash resources may not be sufficient to fund continuing
losses from operations and the expenses of the SCO Litigation.
We may not prevail in our lawsuits with IBM, Novell and others, which may adversely affect our
ability to continue in business.
We continue to pursue the SCO Litigation and believe in the merits of our cases. With respect
to our litigation with IBM, both parties are preparing for summary judgment arguments scheduled for
March 2007. IBM has filed 6 motions for summary judgment that, if granted in whole or in
substantial part, could resolve our claims in IBM’s favor or substantially reduce our claims. We
have filed 3 motions for summary judgment. Arguments on the motions were heard in early March
2007. The Court took the matters under advisement and will issue rulings at some point in the
future.
On November 29, 2006, the District Court issued a ruling upholding the June 28, 2006
Magistrate Judge’s ruling that removed over 180 (out of 293) of our technology disclosure claims
from the case. Additionally, on December 21, 2006, the Magistrate Judge signed an order which held
that certain items of technology included in our expert reports go beyond the technology disclosure
claims contained in our December 22, 2005 filing. We have filed objections to that order with the
District Court. The result of these recent rulings is that we still have over 100 technology
disclosure claims from the December 22, 2005 filing in the case with IBM.
With respect to our litigation with Novell, Novell claims it did not sell The Santa Cruz
Operation, Inc. the UNIX copyrights and it claims it has the right to waive our claims against UNIX
source licensees, such as IBM. Novell has filed a motion for preliminary injunction and a motion
for partial summary judgment. We also filed a cross-motion for partial summary judgment. The
Court heard arguments on these motions on January 23, 2007, and as of the date
- 30 -
of filing of this
Form 10-Q, no ruling had been made. If Novell prevails on its motion, some or all of our cash and
cash equivalents could be encumbered.
We can not guarantee whether our claims against IBM or Novell will be heard by a jury. The
lawsuits with IBM and Novell will continue to be costly. In the event we are not successful with
the IBM or Novell motions, or the continuing litigation requires more cash than expected, our
business and operations would be materially harmed.
If we do not prevail in our action against IBM, or if IBM is successful in its counterclaims
against us, our business and results of operations would be materially harmed. Additionally, the
market price of our common stock may be negatively affected as a result of developments in our
legal action against IBM that may be, or may be perceived to be, adverse to us.
We must continue to pay for expert, consulting and other expenses through the conclusion of
our litigation with IBM and Novell. As we continue with discovery and other trial preparations, we
may be required to place additional amounts into the escrow account, which could further reduce our
liquidity position.
Our claims relating to our UNIX intellectual property may subject us to additional legal
proceedings.
In August 2003, Red Hat brought a lawsuit against us asserting that the Linux operating system
does not infringe our UNIX intellectual property rights and seeking a declaratory judgment for
non-infringement of copyrights and no misappropriation of trade secrets. In addition, Red Hat
claims we have engaged in false advertising in violation of the Lanham Act, deceptive trade
practices, unfair competition, tortious interference with prospective business opportunities, and
trade libel and disparagement. Although this case is currently stayed pending the resolution of
our suit against IBM, we intend to vigorously defend this action. However, if Red Hat is
successful in its claim against us, our business and results of operations could be materially
harmed.
Our Engagement Agreement with the Law Firms representing us in the SCO Litigation requires us to
pay for expert, consulting and other costs, which could harm our liquidity position if these costs
are higher than anticipated.
On October 31, 2004, the Company entered into an engagement agreement (the “Engagement
Agreement”) with Boies, Schiller & Flexner LLP, Kevin McBride and Berger Singerman (the “Law
Firms”). This Engagement Agreement supercedes and replaces the original engagement agreement that
was entered into in February 2003. The Engagement Agreement governs the relationship between the
Company and the Law Firms in connection with their representation of the Company in the SCO
Litigation.
On June 5, 2006, we entered into an amendment to the Engagement Agreement and agreed with the
Law Firms to deposit an additional $5,000,000 into the escrow account to cover additional expert,
consulting and other expenses. During October 2006, we deposited an additional $5,000,000 into the
escrow account. In the event that we exhaust these funds, we must continue to pay for expert,
consulting and other expenses through the conclusion of our litigation with IBM. As we continue
with discovery and other trial preparations, we may be required to place additional amounts into
the escrow account, which could further reduce our liquidity position. As of January 31, 2007, we
had a total of $7,637,000 in cash and cash equivalents and available-for-sale marketable securities
and an additional $4,498,000 of restricted cash to be used to pursue the SCO Litigation. Since
October 31, 2004, we have spent a total of $11,021,000 for expert, consulting and other costs and
fees as agreed to in the Engagement Agreement with our legal counsel in the SCO Litigation.
- 31 -
Developments in the SCO Litigation and fluctuations in our operating results or the failure of our
operating results to meet the expectations of public market analysts and investors may negatively
impact our stock price.
Developments in the SCO Litigation and fluctuations in our operating results or our failure to
meet the expectations of analysts or investors, even in the short-term, could cause our stock price
to decline significantly. Because of the potential for fluctuations in our expenses related to the
SCO Litigation in any particular period, you should not rely on comparisons of our results of
operations as an indication of future performance.
Factors that may affect our results include:
|
• |
|
results of, developments in, or costs of the SCO Litigation as well as
adverse publicity regarding our business and the SCO Litigation; |
|
|
• |
|
changes in business attitudes toward UNIX as a viable operating system
compared to other competing systems, especially Linux; |
|
|
• |
|
the outcome of pending motions for summary judgment and a preliminary
injunction motion; |
|
|
• |
|
changes in general economic conditions, such as recessions, that could affect
capital expenditures in the software industry; |
|
|
• |
|
the interest level of resellers in recommending our UNIX business solutions
to end users and the introduction, development, timing, competitive pricing and market
acceptance of our products and services and those of our competitors; |
|
|
• |
|
the contingency and other costs we may pay to the Law Firms representing us
in our efforts to establish and defend our intellectual property rights; |
|
|
• |
|
changes in attitudes of customers and partners due to the decline in our UNIX
business and our position against the inclusion of our UNIX code and derivative works
in Linux; and |
|
|
• |
|
the activities of short sellers. |
We also experience fluctuations in operating results in interim periods in Europe and the Asia
Pacific regions due to seasonal slowdowns and economic conditions in these areas. Seasonal
slowdowns in these regions typically occur during the summer months.
As a result of the factors listed above and elsewhere, it is possible that our results of
operations may be below the expectations of public market analysts and investors in any particular
period. This could cause our stock price to decline. If revenue falls below our expectations, and
we are unable to quickly reduce our spending in response, our operating results will be lower than
expected. Our stock price may fall in response to these events.
We operate in a highly competitive market and face significant competition from a variety of
current and potential sources; many of our current and potential competitors have greater financial
and technical resources than we do; thus, we may fail to compete effectively.
In the operating system market, our competitors include IBM, Red Hat, Novell, Sun, Microsoft,
and other UNIX and Linux distributors. These and other competitors are aggressively pursuing the
current UNIX operating system market. Many of these competitors have access to substantially
greater resources than we do. The major competitive alternative to our UNIX products is Linux.
The expansion of our competitors’ offerings may restrict the overall market available for our UNIX
products, including some markets where we have been successful in the past.
Our future success may depend in part on our ability to continue to meet the increasing needs
of our customers by supporting existing and emerging technologies. If we do not have the
- 32 -
resources
to enhance our products to meet these evolving needs, we may not remain competitive and be able to
sustain our business. Additionally, because technological advancement in the UNIX operating system
market and alternative operating system markets is progressing at an advanced pace, we will have to
develop and introduce enhancements to our existing products and any new products on a timely basis
to keep pace with these developments, evolving industry standards, changing customer requirements
and keeping
current on certifications. Our failure to meet any of these and other competitive pressures
may render our existing products and services obsolete, which would have an adverse impact on our
revenue and operations.
The success of our UNIX business will depend on the level of commitment and certification we
receive from industry partners and developers. In recent years, we have seen hardware and software
vendors as well as software developers turn their certification and application development efforts
toward Linux and elect not to continue to support or certify to our UNIX operating system products.
If this trend continues, our competitive position will be adversely impacted and our future
revenue from our UNIX business will decline. The decline in our UNIX business may be accelerated
if industry partners withdraw their support from us for any reason, including our SCO Litigation.
If the market for UNIX continues to contract, our business will be harmed.
Our revenue from the sale of UNIX products has declined over the last several years. This
decrease in revenue has been attributable primarily to increased competition from other operating
systems, particularly Linux. Our sales of UNIX products and services are primarily to existing
customers. If the demand for UNIX products continues to decline, and we are unable to develop UNIX
products and services that successfully address a market demand, our UNIX revenue will continue to
decline, industry participants may not certify to our operating system and products, we may not be
able to attract new customers or retain existing customers and our business and results of
operations will be adversely affected. Because of the long adoption cycle for operating system
purchases and the long sales cycle of our operating system products, we may not be able to reverse
these revenue declines quickly.
We may lose the support of industry partners leading to an accelerated decline in our UNIX products
and services revenue.
The decline in our UNIX business may cause industry partners, developers, customers and
hardware and software vendors to choose not to support or certify to our UNIX operating system
products. This would lead to an increased decline in our UNIX products and services revenue and
would adversely impact our results of operations and liquidity.
We rely on our indirect sales channel for distribution of our products, and any disruption of our
channel at any level could adversely affect the sales of our products.
We have a two-tiered distribution channel. The relationships we have developed with resellers
allow us to offer our products and services to a much larger customer base than we would otherwise
be able to reach through our own direct sales and marketing efforts. Some solution providers also
purchase solutions through our resellers, and we anticipate they will continue to do so. Because
we usually sell indirectly through resellers, we cannot control the relationships through which
resellers, solution providers or equipment integrators purchase our products. In turn, we do not
control the presentation of our products to end users. Therefore, our sales could be affected by
disruptions in the relationships between us and our resellers, between our resellers and solution
providers, or between solution providers and end users. Also, resellers and solution providers may
choose not to emphasize our products to their
- 33 -
customers. Any of these occurrences could diminish
the effectiveness of our distribution channel and lead to decreased sales.
Our foreign-based operations and sales create special problems, including the imposition of
governmental controls and taxes and fluctuations in currency exchange rates that could hurt our
results.
We have employees or contractors in certain locations in Europe, the Middle East, Latin
America, and Asia. These foreign operations are subject to certain inherent risks, including:
|
• |
|
potential loss of developed technology through piracy, misappropriation, or
more lenient laws regarding intellectual property protection; |
|
|
• |
|
imposition of governmental controls, including trade restrictions and other
tax requirements; |
|
|
• |
|
fluctuations in currency exchange rates and economic instability; |
|
|
• |
|
longer payment cycles for sales in foreign countries; and |
|
|
• |
|
seasonal reductions in business activity. |
In addition, certain of our operating expenses are denominated in local currencies, creating
risk of foreign currency translation losses that could reduce our financial results and cash flows.
When we generate profits in foreign countries, our effective income tax rate is increased.
During the three months ended April 30, 2004, our Indian office was assessed withholding taxes
by the Government of India Income Tax Department. The Tax Department assessed a 15% withholding
tax on certain revenue transactions in India that the Tax Department deemed royalty revenue under
the Income Tax Act. We have filed an appeal with the Tax Department and believe that revenue from
our packaged software does not qualify for royalty treatment and therefore would not be subject to
withholding tax. However, we may be unsuccessful in our appeal against the Tax Department and be
obligated to pay the assessed taxable amounts. Because of our international operations, we may be
subject to additional withholding or other taxes from other international jurisdictions.
If we are unable to retain key personnel in an intensely competitive environment, our operations
could be adversely affected.
We need to retain our key management, technical and support personnel. Competition for
qualified professionals in the software industry is intense, and departures of existing personnel
could be disruptive to our business and might result in the departure of other employees. During
October 2006 we were required to reduce our operating expenses and eliminated certain positions
within our worldwide workforce in an effort to reduce operating costs. The loss or departure of
any officers or key employees could harm our ability to implement our business plan and could
adversely affect our operations. Our future success depends to a significant extent on the
continued service and coordination of our management team, particularly Darl C. McBride, our
President and Chief Executive Officer.
We could lose our listing on the Nasdaq Capital Market if our stock price falls below $1.00 for 30
consecutive business days, and the loss of the listing would make our stock significantly less
liquid and would affect its value.
Our common stock is listed on the Nasdaq Capital Market and had a closing price of $0.96 at
the close of the market on March 14, 2007. If the price of our common stock falls below $1.00 and
for 30 consecutive business days remains below $1.00, we will receive a deficiency notice from
NASDAQ advising us that we have been afforded a 180-calendar day compliance period. If our stock
fails to maintain a minimum bid price of $1.00 for 10 consecutive business
- 34 -
days during a 180-day
compliance period on the Nasdaq Capital Market or a 360-day grace period if compliance with certain
core listing standards are demonstrated, we could receive a delisting notice from the Nasdaq
Capital Market, and, under certain circumstances, even if our stock maintains a minimum bid price
of $1.00 for 10 consecutive business days, we may receive a delisting notice from the Nasdaq
Capital Market. Upon delisting from the Nasdaq Capital Market, our stock would be traded
over-the-counter, more commonly known as OTC. OTC transactions involve risks in addition to those
associated with transactions in securities traded on the Nasdaq Capital Market. Many OTC stocks
trade less frequently and in smaller volumes than securities traded on the Nasdaq Capital Market.
Accordingly, our stock would be less liquid than it would otherwise be, and the value of our stock
could decrease.
Our stock price is volatile.
The trading price for our common stock has been volatile during the last several years and our
share price has changed dramatically over short periods. We believe that changes in our stock
price are affected by the factors mentioned above under the caption entitled “Fluctuations in our
operating results or the failure of our operating results to meet the expectations of public market
analysts and investors may negatively impact our stock price” as well as from changing public
perceptions concerning the strength of the SCO Litigation and other factors beyond our control.
Public perception can change quickly and without any change or development in our underlying
business or litigation position. An investment in our stock is subject to such volatility and,
consequently, is subject to significant risk.
There are risks associated with the potential exercise of our outstanding options.
As of February 28, 2007, we have issued outstanding options to purchase up to approximately
5,369,000 shares of common stock with an average exercise price of $3.82 per share. The existence
of such rights to acquire common stock at fixed prices may prove a hindrance to our efforts to
raise future equity and debt funding, and the exercise of such rights will dilute the percentage
ownership interest of our stockholders and may dilute the value of their ownership. The possible
future sale of shares issuable on the exercise of outstanding options could adversely affect the
prevailing market price for our common stock. Further, the holders of the outstanding stock
options may exercise them at a time when we would otherwise be able to obtain additional equity
capital on terms more favorable to us.
Common stock available for resale may depress the market price of our common stock.
We have filed a post-effective amendment to a registration statement with the Securities and
Exchange Commission (“SEC”), which has been declared effective, covering the potential resale by
two of our stockholders of up to 923,019 shares of common stock, or 4.3% of our outstanding common
stock. The selling stockholders are bound by certain selling limitations, which limit the numbers
of shares of our common stock that may be sold at one time. In addition, we have filed a
registration statement with the SEC, which has been declared effective, covering the potential
resale by some of our stockholders of up to 2,852,449 shares of our common stock, or 13.4% of our
outstanding common stock. The existence of a substantial number of shares of common stock subject
to immediate resale could depress the market price for our common stock and impair our ability to
raise needed capital.
Our stock price could decline further because of the activities of short sellers.
Our stock has attracted significant interest from short sellers. The activities of short
sellers could further reduce the price of our stock or inhibit increases in our stock price.
- 35 -
The right of our Board of Directors to authorize additional shares of preferred stock could
adversely impact the rights of holders of our common stock.
Our Board of Directors currently has the right, with respect to the 5,000,000 shares of our
preferred stock, to authorize the issuance of one or more additional series of our preferred stock
with such voting, dividend and other rights as our directors determine. The Board of Directors can
designate new series of preferred stock without the approval of the holders of our common stock.
The rights of holders of our common stock may be adversely affected by the rights of any holders of
additional shares of preferred stock that may be issued in the future, including without
limitation, further dilution of the equity ownership percentage of our holders of common stock and
their voting power if we issue preferred stock with voting rights. Additionally, the issuance of
preferred stock could make it more difficult for a third party to acquire a majority of our
outstanding voting stock.
|
|
Authored by: stites on Saturday, March 17 2007 @ 01:57 PM EDT |
Please place off topic posts in this
section.
------------------
Steve Stites
[ Reply to This | # ]
|
- LaCie spits on the GPL - Authored by: Anonymous on Saturday, March 17 2007 @ 03:01 PM EDT
- UK citizens - "Ofcom, dividends, and Sky stocks" - You have the weekend to respond - Authored by: Brian S. on Saturday, March 17 2007 @ 04:14 PM EDT
- SCO to raise prices 20% on May 1st - Authored by: hamjudo on Saturday, March 17 2007 @ 04:35 PM EDT
- Meanwhile, back at the FSF - Authored by: raindog on Saturday, March 17 2007 @ 09:45 PM EDT
- The first time SCO got it right: - Authored by: bigbert on Saturday, March 17 2007 @ 10:15 PM EDT
- [OT] The Scientific Method patent - Authored by: Aladdin Sane on Sunday, March 18 2007 @ 01:46 AM EDT
- Speaking of DMCA and etc... - Authored by: MDT on Sunday, March 18 2007 @ 02:19 AM EDT
- The sheer arrogance of Novell! - Authored by: tiger99 on Sunday, March 18 2007 @ 07:57 AM EDT
- Balmer on Google - Authored by: JamesK on Sunday, March 18 2007 @ 09:03 AM EDT
- Is this what Novell was trying to say? - Authored by: SirHumphrey on Sunday, March 18 2007 @ 09:09 AM EDT
- M$ showing off it's customer service... again... - Authored by: MDT on Sunday, March 18 2007 @ 01:22 PM EDT
- SCO (STILL) repudiating the GPL - Authored by: swengr on Sunday, March 18 2007 @ 03:26 PM EDT
- A blast from the past... - Authored by: Jude on Sunday, March 18 2007 @ 08:52 PM EDT
- WineHQ: "Ironically, Wine continued to be six months to a year from release for the next decade" - Authored by: Brian S. on Sunday, March 18 2007 @ 10:04 PM EDT
- whereefor art thou (grammar police) - Authored by: jo_dan_zukiger on Saturday, March 24 2007 @ 12:56 AM EDT
|
Authored by: stites on Saturday, March 17 2007 @ 02:00 PM EDT |
Please place corrections here.
------------------
Steve
Stites
[ Reply to This | # ]
|
|
Authored by: Peter Baker on Saturday, March 17 2007 @ 02:29 PM EDT |
The preliminary injunction Novell seeks would likely preclude SCO from
sustaining its operation.
I'm no finance buff, but if that
statement isn't in the 10Q it appears the hapless investor that would somehow be
deluded in buying this stock would not be receiving accurate
information.
SEC, where art thou?
--- = P =
[ Reply to This | # ]
|
|
Authored by: Reven on Saturday, March 17 2007 @ 02:56 PM EDT |
What kind of business model is this:Our sales of UNIX products
and services during the last several years have been primarily to existing UNIX
customers and not newly acquired customers. Our UNIX business revenue depends
significantly on our ability to market and sell our products to existing
customers and to generate upgrades from existing customers. I
mean, this is almost by definition unsustainable. Natural attrition is going to
remove a certain amount of customers each year. This has "new customers stay
away" written all over it. Think of it, as a potential new customer reading
that, I would get the impression that there aren't going to be a lot of other
new customers. Which says to me that the user base is not growing, that the
company has little experience with new installation issues, and that I'm likely
to be part of a shrinking user base. So their own statements become a
self-fulfilling prophecy. Talk about shooting themselves in the
foot.
Add to that the fact that OpenServer 6 is essentially a launch
platform for open source software: Apache, Samba, MySQL, OpenSSH, Firefox,
KDE... they have to know that Linux, as the development platform of choice for
almost all of those projects, is also going to be the server platform of choice
for people wanting to run them in a production environment. Not to mention
their lovely open letter calling the
GPL evil - someone has to know this is self-defeating behavior.
Maybe
McBride & Yarro think that they can crusade against open source as martyrs.
Go down with the ship, then come back afterwards to say "see, the GPL really is
evil, look what it did to us".
If one or either of these two were bought
off, I have to respect one thing, though. At least they have the honor once
they are bought to stay bought. That has to take some guts
considering.
--- Ex Turbo Modestum [ Reply to This | # ]
|
|
Authored by: AcousticZen on Saturday, March 17 2007 @ 02:57 PM EDT |
Those SCO managers sure now how to run a business. Their "SCOsource"
endevour, as shown in the 10-Q, nets them:
Revenue $ 23,000
Cost of revenue 654,000
Gross deficit (631,000)
That's a -2,843% gross profit. Brilliant work, SCO!
AZ [ Reply to This | # ]
|
|
Authored by: Anonymous on Saturday, March 17 2007 @ 03:05 PM EDT |
I think the reason that SCO talks about "sufficient liquidity to fund its
operations through October" is that is the end of their fiscal year. Their
auditor would be required to put a "continuing concern" note in their
yearly audit if it didn't look like like they had enough money to make it
through the year. Each year it becomes increasingly interesting to see if the
"continuing concern" note shows up.
[ Reply to This | # ]
|
|
Authored by: lordshipmayhem on Saturday, March 17 2007 @ 03:07 PM EDT |
Riiight. Volatile.
It hasn't budged far from the $1 mark in months. Right now it's only a few
pennies off that price. To all practical intents and purposes, the price is
frozen in stone.
Look at Friday's trades: Closing price up 1.73%. Woop-de-doo. For volatile,
I'd think more like at least 5.00%, preferably the double-digit rate, especially
downwards. A couple of pennies a share isn't volatile, not to my eye, when the
price is at this level.[ Reply to This | # ]
|
|
Authored by: Anonymous on Saturday, March 17 2007 @ 03:17 PM EDT |
I run a business.
Just a week ago, I had a meeting with my financial controller. We have some
reserves, but not enough to last through to, say, this October.
Am I worried? Nope. So long as there's income, the company is alive and well
on modest reserves.[ Reply to This | # ]
|
- That's the spirit! - Authored by: billyskank on Saturday, March 17 2007 @ 04:20 PM EDT
- Yeah, right - Authored by: tknarr on Saturday, March 17 2007 @ 04:39 PM EDT
- End of the Road - Authored by: Anonymous on Sunday, March 18 2007 @ 10:34 AM EDT
- Yeah, right - Authored by: LaurenceTux on Saturday, March 17 2007 @ 06:52 PM EDT
- If you are in the red every quarter, you should worry - Authored by: Anonymous on Saturday, March 17 2007 @ 10:56 PM EDT
- Yeah, right - Authored by: Anonymous on Monday, March 19 2007 @ 03:45 PM EDT
|
Authored by: enigma_foundry on Saturday, March 17 2007 @ 04:11 PM EDT |
If a company goes bankrupt, what happens the their IP? Does it get auctioned
off, or does it become part of the public domain?
Also, if SCO gets a sudden cash infusion, I am sure that there will be many who
will just "follow the money"
If MS suddenly decides they want to liscence some more SCO "IP" and
gives them a cash infusion, is there any point at which IBM could bring MS into
the lawsuit?
---
enigma_foundry
Ask the right questions
[ Reply to This | # ]
|
|
Authored by: grouch on Saturday, March 17 2007 @ 04:42 PM EDT |
The weasels have nearly finished cleaning out the henhouse so it does not
matter that the farmer is coming down the path. His protests will bring neither
chickens nor eggs back. All he can do is try to make some use of the fertilizer
that's left behind.
My suspicion is that all of this will conclude with a
fizzle. IBM will write off some fees as losses. Novell will feel smug when
comparing the collaborator's fees to the lost license fees. SCOG will simply
cease to exist. Then-former SCOG executives will tally their gains and look
around for another kamikaze corporation to drain. SCOG lawyers will congratulate
each other on their timing and advertise their ability to hold giant IBM at bay
for so long with so little. No veils will be pierced. No penalties will be
imposed, beyond a few 'stern' words to the perpetrators. The preciousss, old
UNIX code may yet be fertilizer from which some developer may grow something
useful.
Perhaps the gain represented by Groklaw, and the ripples from it, is
enough to have made it worthwhile.
--- -- grouch
http://edge-op.org/links1.html
[ Reply to This | # ]
|
- Worthwhile? - Authored by: Anonymous on Saturday, March 17 2007 @ 05:54 PM EDT
- Justice delayed ... - Authored by: Anonymous on Saturday, March 17 2007 @ 06:30 PM EDT
- On the contrary - Authored by: Anonymous on Saturday, March 17 2007 @ 10:47 PM EDT
- IANAF - Authored by: Aladdin Sane on Sunday, March 18 2007 @ 02:10 AM EDT
- Maybe not the end - Authored by: Anonymous on Sunday, March 18 2007 @ 07:20 PM EDT
|
Authored by: Crocodile_Dundee on Saturday, March 17 2007 @ 06:48 PM EDT |
In Australia directors of a company are shielded from any personal liability for
the debts of a company (in most cases), however if they allow the company to
trade whilst insolvent they are at risk of becoming personally liable for some
portion of the companies debts.
Is there something similar in the US?
Because I could imagine that if SCO were in Australia, and the court were to
find that the money owed to Novel was due x years ago, and if SCO appointed an
Administrator (or one was appointed by the shareholders or the courts) then the
Administrator would be cery carefully looking at when the company became
technically insolvent, and what debts were incurred after this event.
If this was in Australia, I know what Darl would be losing sleep over.
What's the case over there?
---
---
That's not a law suit. *THIS* is a law suit![ Reply to This | # ]
|
|
Authored by: Anonymous on Saturday, March 17 2007 @ 07:04 PM EDT |
I see where the Liability called "Payable to Novell, Inc." dropped
from approx
3,000,000 to 519,000. That's interesting.[ Reply to This | # ]
|
|
Authored by: John Hasler on Saturday, March 17 2007 @ 07:07 PM EDT |
> What I draw from that is an admission that SCO continues to
> be guilty of violating the GPL into January of this year...
Depends on how hard TSG is straining to classify revenue as SCOSource.
---
IOANAL. Licensed under the GNU General Public License[ Reply to This | # ]
|
|
Authored by: tce on Saturday, March 17 2007 @ 07:11 PM EDT |
PJ, MathFox, the the rest of the "Groklaw Core Team"...
What if the central list of articles was split into two columns...one for SCO
and attacks on F/OSS, and one for constant work on International open document
standards?
We have five months to counter MS strong arming, and MS voting for itself in any
ISO JTC1 national committee where it has a seat (e.g. they have a board seat on
both ANSI and INCITS in the USA). Even if a new article only comes along every
couple of weeks, by having its own front page thread, the Groklaw community
would have a central place to share ideas and action.
PJ, and all, with your help we have learned much from TSCOG vs the Real World.
I consider the community you have created and trained to now be poised to have
direct impact on open standards defense, whereas with SCOX vs IBM, we have had
to just watch and learn.
So, please consider some approach to leveraging the traffic of repeat members,
new visitors, and other media that looks to groklaw, to drive community action
on the current MS effort of Document Destandardization.
Thanks, hope you're better,
Tom
[ Reply to This | # ]
|
|
Authored by: Anonymous on Saturday, March 17 2007 @ 07:19 PM EDT |
OK, I know they have to put this there to avoid getting dinged for not keeping
any cash reserve in case they lose, but this strikes me as a stretch. It's not
probable they will lose on any of these actions, including the class action case
that got decertified?
There's a great Dilbert on this I can't dig up, and hopefully I can paraphrase
without running afoul of the law...
The Boss: I need you to fire everyone in the Research Department. Meanwhile,
I'll tell the press that we expect huge profits from our Research Department
this year.
Dilbert: Isn't that illegal?
The Boss: There's no law against optimism. I checked![ Reply to This | # ]
|
|
Authored by: Jamis on Saturday, March 17 2007 @ 07:58 PM EDT |
"We do not have a history of profitable operations and our cash resources
are limited."
Well, duh! But the band plays on.
It's not in red, but it still stands out to me.[ Reply to This | # ]
|
|
Authored by: Anonymous on Saturday, March 17 2007 @ 08:27 PM EDT |
" What I draw from that is an admission that SCO continues to be guilty of
violating the GPL into January of this year, at least, making it quite logical
for IBM to tell the court that it needs an injunction to make SCO cease and
desist."
If they received the $23,000 on the first day of the three month period, they
*could* have cleaned up their act on the second day. More precise figures would
be needed to prove your assumption.
[ Reply to This | # ]
|
|
Authored by: Anonymous on Saturday, March 17 2007 @ 08:59 PM EDT |
At least thinking of your employees would and should be the end game now. But i
don't see it.
lets see:
Novell
IBM
Red Hat
Some Indian distributor.
like my question is who(m) gets the assets 1st and thats a lot a work PJ, and i
actually have looked over the assets etc and having scored a 87% in accounting i
can say this company is finished. It's only hope is to drop suit and decalre
bankruptcy and let someone try and buy the assests.
I can say that i htink SCO's goal is not to have the novell case get to court in
reality as that leaves the unix copyright issues up in air.
This IBM hting can be lived with and i highly doubt even MS would try IBM on it.
Honestly the end comes.
So who gets the pieces if say it were to end right now?[ Reply to This | # ]
|
|
Authored by: Anonymous on Saturday, March 17 2007 @ 10:44 PM EDT |
PROPERTY AND EQUIPMENT:
Computer and office equipment
2,221
Leasehold improvements
262
Furniture and fixtures
78
Total
2,561
Less accumulated depreciation and amortization
(2,042 )
Net property and equipment
519
Are they really burning four times of the remaining value?
[ Reply to This | # ]
|
|
Authored by: Khym Chanur on Saturday, March 17 2007 @ 10:50 PM EDT |
If a company knows that it would run out of money during the middle of
a trail, what happens? Or, I guess I should say, if the judge in a lawsuit
knows one of the companies will go bankrupt during the middle of the trial? The
bankruptcy trustee might decide to throw in the towl and settle, which would
make the effort put into the trial a waste of time. But even so, the company
still has a right to a trial by jury, so... --- Give a man a match, and
he'll be warm for a minute, but set him on fire, and he'll be warm for the rest
of his life. (Paraphrased from Terry Pratchett) [ Reply to This | # ]
|
- Wrong! - Authored by: Ian Al on Sunday, March 18 2007 @ 05:19 AM EDT
- Wrong! - Authored by: Anonymous on Monday, March 19 2007 @ 07:24 AM EDT
|
Authored by: Anonymous on Saturday, March 17 2007 @ 10:52 PM EDT |
Revenue from our SCOsource business decreased slightly from
$30,000 for the three months ended January 31, 2006 to $23,000 for the
three months ended January 31, 2007.
That's 'slightly' as in
23%...!
[ Reply to This | # ]
|
|
Authored by: belzecue on Sunday, March 18 2007 @ 12:04 AM EDT |
"As of January 31, 2007, our accumulated deficit was
$252,564,000."
accumulated deficit: The term used in place of retained earnings
when a corporation has a negative (debit) balance in its account Retained
Earnings.
retained
earnings: When Assets are greater Liabilities you have a positive Equity or
stockholders' equity. When it is not you have a negative stockholders' equity
also rarely called stockholders' deficit. Stockholders' deficit does not entail
that stockholders owe money. It just means that the value of the assets of the
company will have to rise above its liabilities before the stockholders will
reap any value (above zero) from owning the company's
stock.
So, SCO has accumulated a quarter of a billion dollars
worth of stockholder' deficit... W00t!! :-) [ Reply to This | # ]
|
|
Authored by: Anonymous on Sunday, March 18 2007 @ 01:02 AM EDT |
It should be entertaining to see what justification is given for Darl's
performance bonus this year! How do you calculate a fair amount for losing
$40,000,000 over the last 4 years and having not a single hope to show for it?
[ Reply to This | # ]
|
|
Authored by: klog on Sunday, March 18 2007 @ 06:56 AM EDT |
I don't get it...
Not a single mention of "Me Inc" anywhere?
[ Reply to This | # ]
|
- Me Inc? - Authored by: tiger99 on Sunday, March 18 2007 @ 07:44 AM EDT
|
Authored by: belboz on Sunday, March 18 2007 @ 10:14 AM EDT |
Interesting. This is the first 10Q that I have seen from them that is coming
close to paint a true picture of their grim situation.
Well better late than never (or is that safe than sorry?) - when they fold in Q4
2007, they at least can claim, that they had made an effort to inform SEC of
their dire situation.
It is a sad read, and I pity the poor employees of SCO (NOT the incompetent to
leaders).[ Reply to This | # ]
|
|
Authored by: Sunny Penguin on Sunday, March 18 2007 @ 10:24 AM EDT |
PROPERTY AND EQUIPMENT:
Computer and office equipment 2,221 2,259
Leasehold improvements 262 316
Furniture and fixtures 78 78
<no listing of what this is> 2,561 2,653
Then they list it again, minus the accumulated depreciation and amortization
(2,042 ) (2,045 )
I wonder what they are listing as an asset here?
Can you just add "blank" sections with numbers as an asset?
---
If you love your bike, let it go.
If it comes back, you high sided.....[ Reply to This | # ]
|
|
Authored by: Anonymous on Sunday, March 18 2007 @ 10:35 AM EDT |
Could this be what gives Ball mer the guts to state Linux violates Microsofts
sooper seckret IP??[ Reply to This | # ]
|
|
Authored by: jog on Sunday, March 18 2007 @ 12:48 PM EDT |
e360 seeks to uncover Spamhaus funding source
http://www.mediabuyerplanner.com/2007/03/15/e360-aims-to-smoke-spamhaus-out/
jog[ Reply to This | # ]
|
- Dead Horse. - Authored by: Anonymous on Sunday, March 18 2007 @ 04:29 PM EDT
- Dead Horse. - Authored by: PM on Sunday, March 18 2007 @ 04:47 PM EDT
- Dead Horse. - Authored by: Anonymous on Sunday, March 18 2007 @ 06:16 PM EDT
|
Authored by: Anonymous on Sunday, March 18 2007 @ 08:08 PM EDT |
Revenue from ScoSource business declined slightly?
They call 23% reduction in profits slight!
It seems they hold their sharehoders in some contempt to expect them to buy that
line!
Stevieboy[ Reply to This | # ]
|
|
Authored by: devil's advocate on Sunday, March 18 2007 @ 08:49 PM EDT |
... the top falls over. This is what SCO's management really think about
their business prospects.
For the years ended October 31, 2006,
2005 and 2004, we incurred net losses applicable to common stockholders of
$16,598,000, $10,726,000 and $16,227,000, respectively, and for the
three months ended January 31, 2007 we incurred a net loss of $1,024,000. As
of January 31, 2007, our accumulated deficit was
$252,564,000.
What amazes me is, how can the shareholders
sit and watch their money go down the drain like this? [ Reply to This | # ]
|
|
Authored by: LaurenceTux on Sunday, March 18 2007 @ 10:15 PM EDT |
so given the info that they "have enough assets" until October what
happens between now and 01 November 2007?
are we in final Jeopardy 3rd round second round?[ Reply to This | # ]
|
|
Authored by: Anonymous on Monday, March 19 2007 @ 03:09 AM EDT |
Thatg SCO was going to be broke at the time of going to court was part of the
plan.
Either they lose nothing, or win everything.
Yes, it is cheating.
Which is why there is reason fro Novell, IBM, Redhat to be angry.
SCO has been allowed to inclict all this damage, and in return SCO does not risk
a penny, except their own litigation cost.
If they had a case, I could see it, but when the whole thing is a sham, I feel
that the litigants must be held personally liable.[ Reply to This | # ]
|
|
Authored by: Anonymous on Monday, March 19 2007 @ 11:36 AM EDT |
<blockquote>We do not have a history of profitable operations and our cash
resources are limited.</blockquote>
This line wasn't highlighted, but seems like something I'd hate to see in a 10Q
of a company I've invested or consider investing in.[ Reply to This | # ]
|
|
|
|