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SCO Files July MORs - Updated
Saturday, September 25 2010 @ 01:22 AM EDT

Finally, SCO filed its MORs for July. Is anybody noticing they don't seem to be reorganizing?

I need to lighten up, yo. This is *bankruptcy* court, and your checkbook isn't supposed to balance out. Just spend, spend, spend, and who's to check your hand? You want 4 hotels on Park Place and 6 houses on Baltic Avenue? Why not? No one will ever hold you accountable. It's not like us little people, who have to, you know, pay our debts and all.

Page 16 says that professional fees for July were $340,960. For one month. That is more than SCO paid its employees and more than it made in net profit from the business that month, but who's counting? Obviously not the US Bankruptcy Court in Delaware.

Guess how much the professional fees total since bankruptcy began? $5,738,877. It means, as I read it, that instead of paying Novell what SCO owes in damages, it paid professionals to help them try to avoid it.

Then there's the millions for the IBM and Novell litigation, if I've read these MORs right.

Here you go:

09/24/2010 - 1174 - Debtor-In-Possession Monthly Operating Report for Filing Period As of 7/31/10 (The SCO Group, Inc.; 07-11337) Filed by Edward N. Cahn, Chapter 11 Trustee for The SCO Group, Inc., et al.. (Attachments: # 1 Certificate of Service) (Fatell, Bonnie) (Entered: 09/24/2010)

09/24/2010 - 1175 - Debtor-In-Possession Monthly Operating Report for Filing Period As of 7/31/10 (SCO Operations, Inc.; 07-11338) Filed by Edward N. Cahn, Chapter 11 Trustee for The SCO Group, Inc., et al.. (Attachments: # 1 Certificate of Service) (Fatell, Bonnie) (Entered: 09/24/2010)

They made $0 from royalties in Japan and China. But they disbursed $182,697, "payments to subsidiaries under intercompany agency agreements & arrangements." Since the bankruptcy began, SCO has made $9,537,122 in such payments. Page 15 indicates that SCO is keeping Novell restricted cash in Japan. A lot. Can someone tell us why they don't just hand it over to Novell? Bankruptcy court is a Byzantine maze to me. Are they waiting for the appeal?

There is a footnote 1 explaining "Other":

(1) Adjustment to allocate legal expenses surrounding the IBM and Novell litigation to Cost of Goods Sold at Fiscal Quarter Closes (October,January, April & July).
Here's the breakdown of the other category:


BREAKDOWN OF "OTHER" CATEGORY07/01/2010 through 07/31/2010 Cumulative Filing to Date
Other Costs of Goods Sold --
Cost Overhead 25,492 $462,107
Cost Royalty 8,381 3,255,786
Cost Technology 184,054
Cost Other 1,498 2,166,400
TOTAL OTHER COST OF GOODS SOLD $35,371 $6,068,347
Other Operational Expenses --
Cost of Goods Sold Reclassification(1) $(206,797) $(5,376,672)
(1) Adjustment to allocate departmental expenses, including services, manufacturing and the legal expenses surrounding the IBM and Novell litigation, to Cost of Goods Sold at Fiscal Quarter Closes (October, January, April & July).


Does that makes sense to you? If so, please explain it to the rest of us. Exactly how much have they spent on lawyers? Any way to know? Which pea am I supposed to be looking at? I mean is this just IBM and Novell cases? Since IBM has been on hold except for one hearing, did SCO actually spend 5,376,672, more or less, on the Novell case since SCO filed for bankruptcy three years ago, even after SCO allegedly paid in full for both the IBM and the Novell cases? Whazzupwidat?

How is SCO doing otherwise? The total receipts for SCO Operations in July was $390,592. But page 16, Statement of Operations, shows $660,310 as Gross Revenues, $654,070 Net Revenue and $214,859 Net Profit in the Operating Expenses category. "The Statement of Operations is to be prepared on an accrual basis," it says at the top of that section. "The accrual basis of accounting recognizes revenue when it is realized and expenses when they are incurred, regardless of when cash is actually received or paid." I don't understand any of that. It's Monopoly money to me. Did you know that the first game that later became Monopoly was created to illustrate the disadvantages of allowing land to be monopolized. I think it applies to software too. Somebody should do a game to teach kids that.

The same page says there were $158,583 in intercompany transfers that month, and since the bankruptcy began the figure is $10,429,634, with a total loss since the bankruptcy began of $10,691,888. The net loss in July was $279,752, and since bankruptcy began, $16,497,749.

Who is going to buy this turkey?

Update: A comment phrases my question that I couldn't find the right words for:

Didn't Darl McBride tell the Judge, the Court, and the SEC (not to mention his shareholders) that they didn't need the copyrights to sell their UNIX product line? If that's so, then how in the world can litigation surrounding those same copyrights be considered as a cost of selling those products?
Someone else contributes this link to a definition of accrual basis accounting, with links to more detailed information.

  


SCO Files July MORs - Updated | 150 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
SCO Files July MORs
Authored by: whoever57 on Saturday, September 25 2010 @ 02:04 AM EDT
You are looking at 2 separate but related figures. The receipts are actual cash
received during the month, while revenue is based on what was billed during that
month. Those bill won't be paid by SCO's customers for 30, 68, or 90 days, so
the accrued revenue won't turn into received money (receipts) for a month or
two.

[ Reply to This | # ]

Corrections Thread
Authored by: bugstomper on Saturday, September 25 2010 @ 02:09 AM EDT
Please summarize error->correction or s/error/correction in the Title box for
easy scanning

[ Reply to This | # ]

Off Topic threads
Authored by: bugstomper on Saturday, September 25 2010 @ 02:11 AM EDT
Please stay off topic here. Use HTML to make your clickies clicky.

[ Reply to This | # ]

News Picks Thread
Authored by: bugstomper on Saturday, September 25 2010 @ 02:13 AM EDT
Pick your News here. Remember to put the title of the News Pick article in the
Title box of your comment, and include a link to the article for when it scrolls
off the News Picks sidebar.

[ Reply to This | # ]

COMES goes here
Authored by: bugstomper on Saturday, September 25 2010 @ 02:15 AM EDT
Until they're all done, keep them Come-ing. Comes transcripts go here, with HTML
markup but posted as Plain Old Text to make it easy for PJ to copy and paste
it.

[ Reply to This | # ]

"SCO is keeping Novell restricted cash in Japan"
Authored by: Yossarian on Saturday, September 25 2010 @ 02:41 AM EDT
The interesting question is what will happen in SCO Japan will
file for bankruptcy protection in Japan. Who will get this
money and why?

My guess is that SCO holds this money as a carrot for Novell.
If Novell will settle with SCO then it will get some of this
money. If not then it will get nothing.

Can somebody who know Japanese law make some comments on my guess?

[ Reply to This | # ]

it's Accounting 101
Authored by: Anonymous on Saturday, September 25 2010 @ 03:10 AM EDT
The accrual basis of accounting recognizes revenue when it is realized and expenses when they are incurred, regardless of when cash is actually received or paid.
It means, don't count your chicks until the hen starts squawking, and if you owe someone eggs, you don't get to count those eggs as yours, even if they're still in your basket.

Okay, I'm being cute, but check this.

[ Reply to This | # ]

SCO Files!!!
Authored by: Ian Al on Saturday, September 25 2010 @ 04:11 AM EDT
I think I can see signs of hacksaw cuts, hammer blows and chisel marks as well. I can't quite see what they were trying to make it fit, though.

I think it is telling us that SCOG don't count, any more. Not that, it seems, they were ever very good at counting, going by the following extract,

Historically, the Company may not have distinguished between direct liabilities of debtor and non -debtor companies. The Trustee with its financial advisors is conducting a thorough analysis of the intercompany arrangement among the debtors and the non-debtor subsidiaries and reserves the right to modify these MOR's upon completion of its review.
'With a rebel yell, we cried, MOR, MOR, MOR!'

---
Regards
Ian Al
SCOG, what ever happened to them? Whatever, it was less than they deserve.

[ Reply to This | # ]

Why doesn't someone with standing go to a US Attorney somewhere
Authored by: jws on Saturday, September 25 2010 @ 04:39 AM EDT
And see if this farce can be stopped. I know of a couple of
operations I've worked with that are penny stocks, and at
their worst, they never pulled anything like this out of fear
of crossing from the civil to criminal courts.

[ Reply to This | # ]

Mind the GAAP
Authored by: benw on Saturday, September 25 2010 @ 05:16 AM EDT
I am pretty sure that "The accrual basis of accounting recognizes revenue
when it is realized and expenses when they are incurred, regardless of when cash
is actually received or paid" isn't how the Generally Accepted Accounting
Principles work.

[ Reply to This | # ]

SCO Files July MORs
Authored by: Steve Martin on Saturday, September 25 2010 @ 06:43 AM EDT

Adjustment to allocate legal expenses surrounding the IBM and Novell litigation to Cost of Goods Sold
English translation: The SCO Group sold the world a bill of goods, and this is what it continues to cost them to perpetuate that myth. That's the only thing that makes any sense to me. Obviously I Am Not An Accountant, but I can't for the life of me see how paying lawyers to sue someone can be construed as "cost of selling Unixware and OpenServer".

Didn't Darl McBride tell the Judge, the Court, and the SEC (not to mention his shareholders) that they didn't need the copyrights to sell their UNIX product line? If that's so, then how in the world can litigation surrounding those same copyrights be considered as a cost of selling those products?

---
"When I say something, I put my name next to it." -- Isaac Jaffe, "Sports Night"

[ Reply to This | # ]

I'm really surprised
Authored by: Anonymous on Saturday, September 25 2010 @ 06:57 AM EDT
I did not expect to see another MOR before a decision on the sale.

[ Reply to This | # ]

SCO Files July MORs
Authored by: Anonymous on Saturday, September 25 2010 @ 07:14 AM EDT
SCO's plan is to spend well into negative balances while in bankruptcy.

[ Reply to This | # ]

I don't think things are broken in Delaware - This is by design
Authored by: SilverWave on Saturday, September 25 2010 @ 07:34 AM EDT
Its not a bug its a feature.

No Really! This is one way that Delaware makes money... and a lot of money it
is.

---
RMS: The 4 Freedoms
0 run the program for any purpose
1 study the source code and change it
2 make copies and distribute them
3 publish modified versions

[ Reply to This | # ]

PJ, this is standard accounting terminology
Authored by: hopethishelps on Saturday, September 25 2010 @ 07:36 AM EDT

"The accrual basis of accounting recognizes revenue when it is realized and expenses when they are incurred, regardless of when cash is actually received or paid." I don't understand any of that.

Almost all businesses use accrual accounting because it gives a truer picture of the state of the business than cash accounting. Here's what it means in terms of examples.

Suppose a business pays salaries for each month on the 4th of the following month. So on 31st December, it owes its employees their December salaries, but it hasn't paid them yet - the cash is still in its bank account.

Accrual accounting recognizes the December salaries as an expense, and puts the amount on the income statement for December as an expense, even though the company still has the cash.

Similarly, if a customer has placed an order for some widgets, and the widgets have been delivered and the customer has been billed, the billed amount is recognized as revenue even though the customer typically has 30 days to pay.

[ Reply to This | # ]

Cahn is gaming the system
Authored by: Anonymous on Saturday, September 25 2010 @ 09:36 AM EDT
The monthly hearing was canceled then the DIP was filed. This means Yarro was
denied an opportunity to react to the DIP and get a motion for repaying the loan
into the hearing. SCO's assets are going up for sale.

Cahn gamed the system in delaying the DIP until after the monthly hearing was
canceled.

[ Reply to This | # ]

Intercompany transfers
Authored by: Anonymous on Saturday, September 25 2010 @ 03:58 PM EDT

The same page says there were $158,583 in intercompany transfers that month, and since the bankruptcy began the figure is $10,429,634, with a total loss since the bankruptcy began of $10,691,888. The net loss in July was $279,752, and since bankruptcy began, $16,497,749.

Intercompany transfers are an important part of ensuring that SCO's puppeteers come out rich. What would you do, knowing that you are going to lose the case eventually? If you aren't particularly honest, you might consider taking money from the company and stashing it in a subsidiary in Japan. It is then forwarded to the subsidiary's subsidiary in Panama, then to the Panamanian entity's subsidiary in Belize, which finally moves it to a private foundation in Liechtenstein. That foundation happens to be a trust owned by ... ? Why yes, the puppeteers.

[ Reply to This | # ]

GAAP and systematic Legal Looting of a Company
Authored by: Anonymous on Saturday, September 25 2010 @ 06:02 PM EDT
Accrual method gives a more precise method of accounting. For example in the
vineyard business we typically harvest at the end of the year and are paid at
the beginning of the next (according to weight, Brix etc...). Accrual accounting
allows us to match actual expenses to income for the crop regardless when we are
paid. If we used cash accounting we could be in a situation of a good harvest
year followed by a harvest year disaster. But because of the carry-over of
payments we could look unprofitable for the good harvest year, and profitable
for the bad year when in reality exactly the opposite is true.

But SCO is a different kind of business model. From the very beginning it looked
really iffy as a serious case. In retrospect it looks a lot more like a
systematic looting of the assets of SCO by the legal profession. I don't think
GAAP has a set of guidelines for that ...yet.

[ Reply to This | # ]

Transparency WILL change much of this...eventually
Authored by: SK8TRBOI on Sunday, September 26 2010 @ 01:28 AM EDT
This is simply sickening. No other way to describe it at
this point, IMHO.

PJ made a very accurate comment a few weeks back where, in
an article, she opined that "some of (her) subscribers were
losing faith in the US legal system." How sadly true. How
sadly true.

I'm one of those subscribers. And what makes Groklaw such a
revolutionary experiment in journalism is that PJ has opened
the doors wide on a whole host of legal proceedings
that have historically been carried out far from the public
eye - the latest recipient of "PJ's Sunshine" being the
goings-on in Delaware with the SCOX Chapter 11.

PJ has inserted a very new concept to our legal system: near
absolute transparency. I am certain that many a lawyer, law
firm, and ex-judge fervently wished this transparency-thing
would get back in the bottle. Well, we all know the genie
won't go back in the bottle (transparency, and its close
cousin, "Truth", are like that. Pesky things, transparency
and the truth.

Perhaps one day (hopefully soon, but I'm not holding my
breath or anything) this transparency will "help" these
lawyers, law firms and ex-judges to rediscover right from
wrong, moral from immoral, what is honorable productive work
for a society...and what is not.

Until that time, if I were one of the many professional
'enablers' in this farce, I would not be able to look my
kids in the eye and answer the question: "What do you do
for a living, Daddy?"

---
SK8TRBOI

[ Reply to This | # ]

    Perhaps that was one of the reasons Darl was let go.
    Authored by: Anonymous on Sunday, September 26 2010 @ 06:26 AM EDT
    "Didn't Darl McBride tell the Judge, the Court, and the SEC (not to mention
    his shareholders) that they didn't need the copyrights to sell their UNIX
    product line?"

    SCO could claim that his opinion on the matter was incorrect.

    [ Reply to This | # ]

    Someone needs to complain
    Authored by: Anonymous on Sunday, September 26 2010 @ 11:56 PM EDT
    Someone needs to complain to the bankruptcy judge that SCO will NEVER EVER
    plan on reorganizing.

    Please.

    Let there be an end to this misery.

    [ Reply to This | # ]

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