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SCO 10Q: the MOU with Norris Ain't Carved in Stone, Y'all
Monday, March 17 2008 @ 11:20 PM EDT

SCO's latest 10Q is now filed, along with a couple of exhibits, Exhibit 10-1 the 2nd Amendment to Lease, that's the one in New Jersey, and Exhibit 10-2, 5th Amendment to Canopy Sublease, the lease in Utah.

In this 10Q, SCO cries some more about its sad state, worries about its future, and tells us that the MOU with Stephen Norris isn't carved in stone. Uh oh. Somebody doing some due diligence? Or were they just kidding around?

Here's the wording:

On February 13, 2008, the Company entered into a Memorandum of Understanding (the “MOU”) with Stephen Norris Capital Partners, LLC, a Delaware limited liability company (“SNCP”), whereby, SNCP agreed to provide financing to fund the Company’s plan of reorganization filed on February 29, 2008 in the Company’s Chapter 11 bankruptcy case presently pending in the United States Bankruptcy Court for the District of Delaware, In Re: The SCO Group, Inc, Case No. 07-11337(KG). The Company on the same day filed its disclosure statement in connection with the plan of reorganization, under the terms contemplated by the MOU.

The MOU is not a definitive agreement. It is a non-binding summary of the intentions of the parties and is subject to change. As such, the MOU, the plan of reorganization and the transactions they contemplate are subject to various changes and conditions precedent , including: (1) SNCP’s due diligence and (2) the Bankruptcy Court’s approval. A hearing to approve the adequacy of the Disclosure Statement is scheduled before the Bankruptcy Court on April 2, 2008.

On February 15, 2008, the Company filed Form S-8 for the registration of 644,543 additional shares of common stock for issuance as it relates to rights to purchase common stock under the Company’s 2004 Omnibus Stock Incentive Plan.

Well. Who'd ever think SCO would make a huge announcement about buckets of money coming their way, see the stock price go up temporarily, and then let us know it ain't necessarily so. That seems so totally out of character.

As to SCO's future, I believe this section says it all:

In the event that any substantial amount of the Company’s assets are frozen or if its assets or resources are further depleted, the Company may not be able to appeal the August 10, 2007 ruling....As a result of both the Court’s August 10, 2007 order and the Company’s entry into Chapter 11, among other factors, there is substantial doubt about the Company’s ability to continue as a going concern including continuing the SCO Litigation or appealing the adverse ruling of August 10, 2007.

The accompanying financial statements do not include any adjustments that might result from the outcome of these uncertainties. Absent a significant cash payment to Novell for this matter, management believes that the undiscounted future cash flows generated by the Company will be sufficient to recover the carrying values of the Company’s long-lived assets over their expected remaining useful lives. However, if a significant cash payment is required, or significant assets are put under a constructive trust, the carrying amount of the Company’s long-lived assets may not be recovered....

The Debtors are operating pursuant to Chapter 11 of the Bankruptcy Code and continuation of the Company as a going concern is contingent upon, among other things, the Debtors’ ability to (i) construct and obtain confirmation of a plan of reorganization under the Bankruptcy Code; (ii) reduce payroll and benefits costs and liabilities under the bankruptcy process; (iii) achieve profitability; (iv) achieve sufficient cash flows from operations; and (v) to obtain financing sources to meet the Company’s future obligations. These matters as well as the aforementioned ruling in favor of Novell create substantial doubt about the Company’s ability to continue as a going concern.

Woe is me. There might be no appeal? No more SCO? Everything depends on money in a reorg? Plus figuring out how to actually make a profit going forward?

Now if only someone would loan SCO some eggs, at 20% interest, SCO could serve up some dancing baloney and eggs.

How do you like this news, about more downsizing ahead:

Reduction in Force.

On January 31, 2008, in an effort to reduce ongoing operating expenses and to conform our business to our current objectives and opportunities, we began the implementation of a reduction in force. We anticipate that we will reduce our workforce by approximately 30 positions or a reduction of approximately 26% of our total workforce and this reduction will be completed in April 2008. We believe that this reduction in force will allow us to continue to focus on and serve our UNIX customer base and to deliver on key opportunities with our mobile products and services.

Who is "we"? Who's left? The board, of course. But of all the names we know, who is left? Once McBride goes, are any famous folks still there? Wouldn't it be funny if they all ended up in the same place, all working for whoever York was fronting for or something?


  


SCO 10Q: the MOU with Norris Ain't Carved in Stone, Y'all | 220 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
Corrections
Authored by: Anonymous on Monday, March 17 2008 @ 11:22 PM EDT
If any.

---
--Bill P, not a lawyer. Question the answers, especially if I give some.

[ Reply to This | # ]

Off Topic
Authored by: Anonymous on Monday, March 17 2008 @ 11:22 PM EDT
Please try to stay off topic, here.

---
--Bill P, not a lawyer. Question the answers, especially if I give some.

[ Reply to This | # ]

News Picks Discussion
Authored by: Anonymous on Monday, March 17 2008 @ 11:23 PM EDT
Please use your title to give us a hint...

---
--Bill P, not a lawyer. Question the answers, especially if I give some.

[ Reply to This | # ]

MS wouldn't hire an incompetent like McBride
Authored by: kawabago on Tuesday, March 18 2008 @ 12:33 AM EDT
They hire the best and do the wrong thing anyway.

[ Reply to This | # ]

SCO 10Q: the MOU with Norris Ain't Carved in Stone, Y'all
Authored by: eschasi on Tuesday, March 18 2008 @ 12:58 AM EDT
I kinda hate to say it, but those look like perfectly reasonable conditions to
me. Point 1 (SNCP’s due diligence) is the sort of thing that all companies go
through at some point in what is essentially a purchase agreement. You hammer
out a basic deal with each side putting on its best face, then you open the
kimono to verify. That verification is due diligence.

As for the Bankruptcy Court’s approval, well duh.

[ Reply to This | # ]

There's at least one more trick left in this game.
Authored by: Anonymous on Tuesday, March 18 2008 @ 03:14 AM EDT
The SNCP deal will probably go the way of the York deal. I don't think that Yarrow and McBride are about to give up though. The Novell case can only turn out bad for SCO, so they have to find a way to salvage something before it comes to trial.

They could split out the litigation rights into a separate subsidiary and ask the bankruptcy court for the right to sell *that* asset. They could call it Linux Lawsuits R Us (LLRU). They could put a very low valuation on that subsidiary and find a buyer who wants to take a chance on a pure IP trolling investment without having to also take on an ongoing Unix business. A low valuation could be shown to be reasonable considering SCO's current stock price. The litigation rights could be vague, as in "LLRU gets whatever rights SCO had", without specifying what rights those may have been. LLRU could then be a pure troll, targeting small companies for moderate amounts of money. Yarrow and Darl would be the logical executives for LLRU because of their valuable experience in the field.

That would leave SCO with the Unix business (sans litigation rights) and with the Novell and IBM cases. The upcoming Novell trial is strictly about how much money SCO owes Novell, so it doesn't affect the FUD valuation. The Novell case will probably result in SCO being extinguished, so SCO (or the bankruptcy trustee) will have to follow up with settlement offers to Novell on any remaining issues, and to IBM on their counter claims.

SCO could try to keep the settlements narrowly focused on Novell and IBM in order to have the minimum impact on LLRU. The settlements would be with those parties, not the world at large. It would take a lawyer to tell you just what the documents meant, and of course another lawyer to tell you that the first one was wrong. If the settlements were sealed, it would be even better for LLRU.

SCO would be dead, but LLRU would still be alive and able to target anyone except IBM or Novell. EV1 settled with SCO without even knowing what they were buying, so there is a potential market. LLRU could try to focus on many small successes instead of looking for a single big payoff. If SCO had followed this path to begin with, they might have been much more successful than they are today.

[ Reply to This | # ]

Reduction in force - typical
Authored by: bradley13 on Tuesday, March 18 2008 @ 03:39 AM EDT
Of course, that is 25% of the work force, most or all of which will be employees
working on product, and none of which will be from the upper levels of
management.

[ Reply to This | # ]

PJ's identity?
Authored by: MadTom1999 on Tuesday, March 18 2008 @ 06:15 AM EDT
I'm beginning to wonder if PJ is perhaps from the UK.
There seem to be occasional subtle uses of sarcasm that are not from the US
cannon.
I think she may be English with a sleep disorder!

[ Reply to This | # ]

Only shareholders can vote on the reorg plan
Authored by: Anonymous on Tuesday, March 18 2008 @ 08:32 AM EDT
I brought this up a couple of days ago in a thread under another article, and PJ
asked me to cite specific quotes from the Joint Reorganization Plan (BK docket #
368) where I was getting my information. In Article 3 there is a table listing
the various "Classes" of "Claims Aganst and Equity Interest In
Debtors". This table lists many different classes of claims and equity
interest in both SCO Group and Operations. The right column lists the Voting
rights of each of these Classes, and all of the listed Classes are described as
"Not entitled to vote" with the exception of Class 5, defined as
"Equity Interests in SCO Group". This basically means that only
shareholders will get to vote on the approval or disapproval of the Joint
Reorganization Plan. All other Classes are defined as "Unimpaired",
with no voting rights, because they are all going to be "Paid in
full". I agree that most of the creditors will be paid in full with the $5
million, but Class 4, defined as "General Unsecured Claims against SCO
Group in respect of Pending Litigation", which means Novell & IBM, and
maybe Redhat & Autozone, are to be paid out of loans from the $95 million
dollars that SNCP has not really promised that they might or might not loan to
SCO. If these loans are not guaranteed, then how can SCO claim that Class 4 is
Unimpaired and will be paid in Full, when they don't even know if the $95
million loans will be there when they need them, or if $95 million is even going
to be enough?

[ Reply to This | # ]

Where's the Mobile Services Income?
Authored by: bezz on Tuesday, March 18 2008 @ 09:08 AM EDT
I thought Mobile Services were the potentially lucrative new product that will
make SCO a bundle of money. That's on record from the First Day hearing. But
here is what they say on page 29 of the 10-Q:

"Our products revenues were derived primarily from sales of our OpenServer
and UnixWare products. Other products revenues consist mainly of product
maintenance and other UNIX-related products."

And Other Product Revenues accounted for only $250,000 of income, down 40% from
one year earlier. R&D still accounts for 26% of revenues, but there is no
descrition of WHAT they are R'ing & D'ing. Over $1 million per quarter is a
lot of money to spend on years of Mobile Services development and new UNIX
products that are not hitting the market.

They have a history of losing money, enumerated glaringly on page 39:

"For the years ended October 31, 2007, 2006 and 2005, we incurred net
losses applicable to common stockholders of $6,826,000, $16,598,000 and
$10,726,000, respectively, and for the three months ended January 31, 2008 we
incurred a net loss of $1,488,000. As of January 31, 2008, our accumulated
deficit was $259,854,000."

Yet all we see about Me or mobile services is on page 23 (repeated on 36), where
they say they intend to:

"continue to focus on and serve our UNIX customer base and to deliver on
key opportunities with our mobile products and services."

and page 37 where they say they might not have enough cash to develop and market
their existing products and Me mobile services.

Pretend you are doing the due diligence. Does this sound like a wise
investment? Declining revenues for existing products. History of losing money.
A new product in development with all the promise of Duke Nukem Forever.

Oh wait. I forgot the litigation assets. Perhaps they can convince a PIPE
Fairy to say that lottery ticket of an asset isn't already scratched.

[ Reply to This | # ]

Re: Reduction in force
Authored by: Anonymous on Tuesday, March 18 2008 @ 09:48 AM EDT
"We believe that this reduction in force will allow us to continue to focus
on and serve our UNIX customer base and to deliver on key opportunities with our
mobile products and services."

I guess the proof in the pudding is where this 26% comes from. I'll wager it is
the developers of their UNIX and mobile products, and not 1 single lawyer. Now,
what does that say about what their "core business" is?

[ Reply to This | # ]

Cutting more costs? How about those bonuses eh?
Authored by: Anonymous on Tuesday, March 18 2008 @ 10:26 AM EDT
Give me a break, they want to pay York, they want to give overcompensated
bonuses, yet they have to do layoffs. Whatever SCO. Your a genius!

[ Reply to This | # ]

RIFed - SCO 10Q: the MOU with Norris Ain't Carved in Stone, Y'all
Authored by: Anonymous on Tuesday, March 18 2008 @ 10:53 AM EDT
"...reduce payroll and benefits costs..."

Last on out, turn out the lights.

They need two offices for ninety people?

Ninety people are going to provide world wide services?

I remember Lee Iacocca taking a one dollar salary to help Chrysler when it was
struggling. Can we see that kind of symbolic leadership here?

[ Reply to This | # ]

SCO 10Q: the MOU with Norris Ain't Carved in Stone, Y'all
Authored by: Anonymous on Tuesday, March 18 2008 @ 01:35 PM EDT
"Well. Who'd ever think SCO would make a huge announcement about buckets of
money coming their way, see the stock price go up temporarily, and then let us
know it ain't necessarily so. That seems so totally out of character."

Most public companies (and private companies going public) have stock sale
lockouts around things like a big new investment or going public. If SCO isn't
doing this, SEC might do something about it.

Dan

[ Reply to This | # ]

Any names we know left?
Authored by: Anonymous on Tuesday, March 18 2008 @ 01:51 PM EDT
Yarro. He's the one constant (even McBride was expendable). Yarro's the one
running this show.

MSS2

[ Reply to This | # ]

10Qs and CFOs
Authored by: mexaly on Tuesday, March 18 2008 @ 02:28 PM EDT
Interesting how forthright the 10Qs are now that there is a new CFO. Perhaps
the new accountant wants to stay out of jail?

---
My thanks go out to PJ and the legal experts that make Groklaw great.

[ Reply to This | # ]

Accounting Question
Authored by: mexaly on Tuesday, March 18 2008 @ 02:33 PM EDT
Reading today's LamLaw article, a question came to me.

If this white knight commits to loan money to SCO, is that an asset to SCO?

Especially considering that the loan would be post-petition, while SCO is about
to get a tab for substantial pre-petition obligations.

Can the trustee force SCO to borrow post-petition money to pay pre-petition
obligations?

---
My thanks go out to PJ and the legal experts that make Groklaw great.

[ Reply to This | # ]

Knowing SCOspeak is more marketing then realistic....
Authored by: Anonymous on Tuesday, March 18 2008 @ 03:38 PM EDT

Hmm... how to interpret....

    ...the carrying values of the Company's long-lived assets over their expected remaining useful lives...
The key with that is the "remaining useful lives". Unix Sys V is how old? That would be a long-lived asset. Is it perchance coming near the end of it's "remaining useful life"? The key points raised from the question is: "Long-lived" could mean "is already old". "Remaining useful life" could be "will soon pass away".

One's initial instinct is to assume that long-lived is interpreted in relation to "just started it's life" and "remaining useful life" is - in relation to starting it's life - some time yet to come. One could be very wrong though.

    ...the carrying amount of the Company's long-lived assets may not be recovered...
I suppose that all depends on how one defines the original costs - or "carrying amount" - of such assets. If one takes a mature product that has already paid for itself several times over and suddenly tack on an expensive lawsuit starting the total balance sheet from scratch....

Ah well... when one plays the "lottery", one must expect to loose money. Only a fool does otherwise.

RAS

[ Reply to This | # ]

Interesting coincidence
Authored by: Anonymous on Tuesday, March 18 2008 @ 04:22 PM EDT
SCO's loss per share for the quarter ending 31st Jan 2008 was almost identical
to their share price on that date... Pretty meaningless coincidence, but still
interesting, I think.

[ Reply to This | # ]

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