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To read comments to this article, go here
Open Source Wall Street Does Some Math & Administrative Details on Novell
Sunday, November 14 2004 @ 05:45 PM EST

Dion Cornett's November 8, 2004 edition of Open Source Wall Street has a paragraph on the SCO legal cap I thought you might be interested in. Even though I don't personally agree with his premise that the new agreement reflects Boies confidence -- in fact, I came to the opposite conclusion -- I thought Cornett's math was well worth sharing.

Also, in case you noticed on Pacer, Novell has been granted permission to file their overlength reply memorandum, and there is this Pacer notation as well:

11/10/04 59 Notice of filing by Novell Inc re: Original Declaration of Kellie Carlton in Support of Dft Novell's Motion to Dismiss, which contained a faxed signature page. (tsh) [Entry date 11/12/04]

While it is hard to be sure of clerk notations, this probably just means that somehow when the Kellie Carlton Declaration was filed on November 8, it didn't have an original signature. Evidently it needed to be faxed to Novell's attorneys, and now they have filed the original with Ms. Carlton's signature, because with courts, there has to be an original filed, with a signature. A Xeroxed copy doesn't count, especially not for something being sworn to. It is too easy to Wite-Out a signature or a section of something and redo, Xerox it, and bingo, a plausible-looking fake document. Courts have seen it all, so they require originals. And I gather the Novell attorneys noticed the other side's attorneys, so they can make a federal case out of it if they want to. Joke. Joke. It's not a big deal normally.

Here is OSWS on the SCO legal cap:

SCOX’s viability strengthened but not without meaningful dilution

We believe that the SCO Group’s (SCOX: Market Perform) announced agreement last week with legal counsel to cap expenses will leave the Company with roughly $8 million in cash (see table below). The agreement tends to suggest continued confidence on the part of Boies, given that much of the $2 million that his firm will collect quarterly for the next six quarters will obstensibly be used to pay third-party law firms assisting in the litigation. Unfortunately, his renewed vote of confidence also comes with further increased dilution for shareholders, including rights to 33% of proceeds associated with the core software business – monies that were previously excluded. It is our belief that Boies expects to be able to sway a jury and then negotiate some greatly reduced settlement prior to appeals. In this computation, he may have miscalculated IBM’s (IBM: not rated) strategic commitment to Linux or the ability of the cases to survive pending motions, but even if he wins a $120 million settlement, investors now receive just $4 per share in proceeds versus the $5 per share given the previous 20% payout and exclusion for prior value. We commend SCOX’s management team for addressing the viability risk, but are disappointed that they did so in a way the allows Boies to capture one-third of remaining value, even if he loses.

$ 43,027 cash reported at Q3 end
$ (7,956) Payment to Boies 20% PIPE deal proceeds
$ (6,400) Accrued fees owed Boies within $13,824 Q3 "accrued expenses"
$ (3,500) Accrued fees owed other law firms within $13,824 Q3 "accrued expenses"
$ (12,000) $2M qrtly legal payments, accrual starting Sept. 1, 2004
$ (5,000) escrow account for other legal expenses e.g. travel, expert witnesses, mock juries
_______________________________________
$8,171 Remaining cash after six quarters

As you know, I am not a math whiz, and I find Wall Street logic impossible to figure out, and I couldn't see where he got the $13,824 from, so I wrote and asked. He replied that this can be found in their recent earnings releases and SEC filings. The main point, and even I can get it, is that with the new legal agreement, shareholders will get less than under the old one.

According to Dion, so will Boies, as far as cash payments are concerned, because he credits the company's claim that $2M is roughly what has been paid to third-party firms on a quarterly basis, and so Boies will pocket very little, if any of the quarterly payments going forward, particularly when you consider legal costs were $7.3M last quarter, he tells me.

Well, all right, if you say so. All I know from my experience is, lawyers get paid. One way or another, unless they are public interest lawyers, they get paid, even if it's just by spoken or unspoken promises of future work from the client or a friend of the client. But somehow, they get paid. You can take that to the bank.

Here is a more detailed look at the raw material for Dion's math. He actually sent me a graphic, but it was too large for Geeklog and when I reduced it, you couldn't read it, and the thought of hand coding it was stomach-turning, so I asked a friend, Alan Canon, if there is a pain-free way to do this, and presto, here is the result. I thought he did some computer magic. It turns out he did it by hand, meaning, it was pain-free to *me*. Thank you, Alan:

Fiscal Year End October
2001
2002
Jan-03
Apr-03
Jul-03
Oct-03
2003
Jan-04
Apr-04
Jul-04
Current Assets
Cash & Securities
Restricted Cash
Accounts Receivable
Other Current Assets

$22,435

$16,742
$9,381

$8,589
$1,428
$8,622
$4,483

$4,942
$1,250
$9,489
$3,902

$10,015
$1,779
$8,793
$4,392

$14,661
$1,428
$7,398
$2,943

$68,523
$2,025
$9,282
$2,450

$88,523
$2,024
$9,282
$2,450

$64,707
$550
$9,151
$1,864

$61,346
$3,203
$8,811
$2,531

$43,027
$13,506
$5,954
$2,466
Total Current Assets

Property and Equipment
Intangibles
Other Assets
$48,558

$8,116
$15,408
$4,777
$21,122

$2,021
$11,258
$3,005
$19,583

$1,742
$10,473
$2,064
$24,979

$1,331
$9,689
$1,873
$26,430

$1,561
$11,431
$3,210
$82,280

$1,148
$10,452
$1,072
$82,280

$1,148
$10,452
$1,072
$76,272

$1,051
$9,581
$1,311
$73,891

$872
$6,767
$1,347
$64,953

$799
$6,090
$1,390
Total Assets

Current Liabilities
Accounts Payable
Accrued Expenses
Payable to BayStar Capital II, LLP
Accrued Comp to law firms
Current Portion of Deferred revenue
Derivative related to convertible
Other Current Liabilities
$74,859


$2,881
$13,641


$8,241

$9,394
$37,406


$2,467
$10,849


$10,056

$4,082
$33,862


$2,051
$5,700


$9,802

$5,816
$37,872


$1,978
$5,709


$9,218

$6,620
$42,632


$1,788
$5,559


$6,822

$8,254
94,952


$1,978
$8,506

$10,556
$5,501
$15,224
$3,347
$94,952


$1,978
$8,506

$10,556
$5,501
$15,224
$3,347
$88,215


$1,418
$9,192

$7,956
$8,952
$11,600
$1,824
$87,877


$2,831
$10,993

$7,956
$7,554

$5,001
$73,232


$1,825
$13,824
$13,000
$7,956
$5,936

$2,038
Total Current Liabilities

Long Term Liabilities
Minority Interest
Convertible Preferred Stock
Stockholders Equity
$34,157

$5,925
$173

$34,604
$27,454

$1,625
$150

$8,177
$23,369

$2,340
$150

$8,003
$23,525

$618
$150

$13,579
$20,423

$611
$150

$13,579
$45,112

$508
$145
$29,671
$19,516
$45,112

$508
$145
$29,671
$19,516
$38,942

$578
$145
$29,671
$18,879
$34,335

$535
$0
$45,065
$2,942
$44,579

$501
$0
$0
$28,152
Total Liab & Equity


Cash per share
Book Value per Share
DSO's
$74,859


$0.47
$0.72
$37,406


$0.51
$0.63
$33,862


$0.44
$0.71
63
$37,872


$0.73
$0.99
$37
$34,763


$0.91
$0.84
33
$94,952


$4.04
$1.15
34
$94,952


$4
$1
$34
$88,215


$4.68
$1.37
72
$82,877


$4.35
$2.16
60
$72,232


$2.16
$1.41
48


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