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SCO's 10Q - Where's the Money? Where's the Plan?
Monday, June 16 2008 @ 10:42 PM EDT

SCO has filed its 10Q and all the certifications, for the quarterly period ending April 30, 2008, and here's a snip:
It is the Company’s intent to appeal the adverse August 10, 2007 summary judgment ruling as soon as that opportunity is available to the Company. However, the Company must complete further legal proceedings before it can take such an appeal. 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.

The Company’s management and Board of Directors determined that filing for relief under Chapter 11 of the United States Bankruptcy Code was appropriate and necessary. 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 being required by the final resolution 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.

What about the reorganization plan? Where's all the money they told us was flowing their way from the Middle East?

Here's what they say about that:

On May 12, 2008, the Debtors filed a motion seeking an extension of their exclusive periods to submit and solicit acceptances of a plan of reorganization to August 11 and October 13, 2008, respectively. A hearing to consider that motion is scheduled for June 17, 2008. If our motion is denied, creditors may file their own proposed plans of reorganization, which might not provide for as favorable treatment to the Company’s equity securities as the Company plan.

Under the priority scheme established by the Bankruptcy Code, unless creditors agree otherwise, post-petition liabilities and prepetition liabilities must be satisfied in full before stockholders are entitled to receive any distribution or retain any property under a plan of reorganization. The ultimate recovery to creditors and/or stockholders, if any, will not be determined until confirmation of a plan or plans of reorganization. No assurance can be given as to what values, if any, will be ascribed in the Chapter 11 cases to each of these constituencies or what types or amounts of distributions, if any, they would receive, or as to the timing of such distributions if any. A plan of reorganization could result in holders of the Company’s stock receiving no distribution on account of their interests and cancellation of their existing stock. If certain requirements of the Bankruptcy Code are met, a plan of reorganization can be confirmed notwithstanding its rejection by the class comprising the interests of the Company’s equity security holders.

Under the supervision of the Bankruptcy Court, management may decide to pursue various strategic alternatives as deemed appropriate by the Company’s Board of Directors to serve the best interests of the Company and its stakeholders, including asset sales or strategic partnerships.

So where's all that Middle Eastern money they were telling us about? Here's what SCO says about that:

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 was scheduled before the Bankruptcy Court on April 2, 2008. The April 2, 2008 hearing proceeded as a status conference regarding the Company’s progress towards a new MOU with SNCP. Therefore, the Company indicated that it was not presently seeking approval of the adequacy of the Disclosure Statement, which would need to be amended to reflect the changes to the MOU. On May 12, 2008, the Company filed a motion seeking an extension of its exclusive periods to submit and solicit acceptances of a plan of reorganization to August 11 and October 13, 2008, respectively. A hearing to consider that motion is scheduled for June 17, 2008.

So the bottom line is there is no firm agreement, and there is no plan, and SCO wants more time to come up with one. When you consider the headlines SCO got from its announcement of beellions and gazillions, it's a bit of a let down, wouldn't you say? Here's Novell's objection to SCO's motion to extend its exclusivity time period. Why would they want to avoid having creditors file a plan?

The plans of reorganization proposed by creditors may be less favorable to our stockholders.


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