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SCO's bankruptcy keeps rolling along ~pj - Updated
Wednesday, December 28 2011 @ 05:24 AM EST

SCO is still around. The bankruptcy continues, of course, because you can't get too much of a good thing. SCO has filed its monthly operating reports for November. And who should show up now but Riverside Claims LLC? Here's what they do. Perhaps they'd like to get their claims paid. What claims, you ask? Well, for example, the claim they had assigned [PDF] to them by a Chinese software provider, Shenyang Neusoft Co. Ltd, long, long ago, in 2008. My, they are patient. It's a claim for $11,364.81. Will they ever get paid? Good luck.

I don't know. It's their business, after all, to buy other people's claims and then make debtors pay up, so I don't count them out, but then again Blank Rome, the Chapter 11 Trustee's law firm, has filed some more bills, for September and October. I wonder who will get paid if there isn't enough to go around?


And judging by the MORs, I'd suggest there might not be much left in the kitty.

Here are the filings:

12/19/2011 - 1379 - Notice of Appearance. Filed by Riverside Claims LLC. (Herskowitz, Neil) (Entered: 12/19/2011)

12/22/2011 - 1380 - Debtor-In-Possession Monthly Operating Report for Filing Period as of November 30, 2011 (In re TSG Group, Inc. (f/k/a The SCO Group, Inc.), et al.; Case No. 07-11337) Filed by TSG Group, Inc. (f/k/a The SCO Group, Inc.), et al.. (Tarr, Stanley) (Entered: 12/22/2011)

12/22/2011 - 1381 - Debtor-In-Possession Monthly Operating Report for Filing Period as of November 30, 2011 (In re TSG Operations, Inc. (f/k/a SCO Operations, Inc.), et al.; Case No. 07-11338) Filed by TSG Group, Inc. (f/k/a The SCO Group, Inc.), et al.. (Tarr, Stanley) (Entered: 12/22/2011)

12/22/2011 - 1382 - Monthly Application for Compensation of Blank Rome LLP, Counsel to the Chapter 11 Trustee of TSG Group, Inc., et al., for the period September 1, 2011 to September 30, 2011 Filed by Blank Rome LLP. Objections due by 1/12/2012. (Attachments: # 1 Notice # 2 Exhibit # 3 Certificate of Service) (Tarr, Stanley) (Entered: 12/22/2011)

12/22/2011 - 1383 - Monthly Application for Compensation Blank Rome LLP, Counsel to the Chapter 11 Trustee of TSG Group, Inc., et al., for the period October 1, 2011 to October 31, 2011 Filed by Blank Rome LLP. Objections due by 1/12/2012. (Attachments: # 1 Notice # 2 Exhibit # 3 Certificate of Service) (Tarr, Stanley) (Entered: 12/22/2011)

As you can see in 1380 [PDF], SCO Group's MOR for November, SCO Group presents itself as having no assets, just liabilities. SCO Operations' November MOR [PDF] shows cash on hand at the end of the month at $251,280. When this bankruptcy started, SCO had almost $6 million in cash, just to put this into context. But they borrowed over 2 million, so whatever they have is the remains of that.

They don't call themselves SCO Operations now, after selling off pretty much all the business assets to UnXis. They now call themselves "TSG Operations, Inc. (f/k/a SCO Operations, Inc.)" -- so many names for the same folks over the years, but the game stays the same. As usual, I can't make heads or tails about how SCO is really doing, due to the way they present the numbers. Even they get confused, I think, sometimes. Footnote 1 reads:

(1) The initial MOR incorrectly included consolidated cash balances from subsidiaries. This amount reflects cash only held in TSG Operations, Inc. (f/k/a SCO Operations, inc.) bank accounts.
I don't see what the note refers to, since there is no number 1 anywhere else that I can find in that section. If you see it, sing out, please. Perhaps it is talking about the same theme in the disclaimer, which reads in part, and has for a long time:
This Monthly Operating Report is filed consistent with the format and allocations of liabilities as previously adopted by the Debtors prior to the appointment of the Chapter 11 Trustee. As the Trustee and its financial advisors have not had sufficient time to review all of the historical information previously reported by the Debtors, the Trustee reserves the right to amend these Monthly Operating Reports, including categorizing some liabilities as pre or post petition obligations. Filing this Monthly Operating Report shall not be deemed an admission by the Trustee as to the characterization of an obligation as pre or post petition.

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.

I wonder when that review will be done? Thorough analyses take time, but considering how many years this bankruptcy has been going on, by the time they finish analyzing SCO's books, who will care? Can anyone outside figure out such bookkeeping as this?

Well, I can't. The way they account for everything seems complex and it makes it hard to look over their shoulder.

I see UnXis was paid $27,833 in "Settlement payments to Unxis", and the cumulative payments are $470,804. But what is that? They list "Cash received in error to be returned" in the amount of $7,162, but to whom are they returning this money and who paid it in error? Then there is $7,174 in "AR Collections on Unxis Invoices - Due to Unxis."

Nothing for Novell, of course. But SCO paid the International Chamber of Commerce $2500 in May of 2011. Why in the world? On the next page, listing money in various banks, they list (2,202) as "Restricted Cash - Novell SVRx" but nothing seems to have been paid, but they paid $2500 to the International Chamber of Commerce. So whatever there is, mostly Unxis is getting it.

Well. Unxis and all the lawyers and professionals helping SCO die slowly. There are pages and pages of professional fees and expenses listed for the entire time that SCO has been in the bankruptcy, month after month, year after year. Grand total in professional fees? $7,040,000, plus $492,981 in expenses, according to the total on that schedule.

But later, under Reorganization Items, I see Professional Fees totaling $88,433 this month, and a cumulative total of $7,144.973. Don't ask me, but whichever number is accurate, that's really where all the money has gone. Litigation is expensive. So is bankruptcy. Under "Other Operational Expenses" under the subhead "Breakdown of "Other" Category, we see "Cost of Goods Sold Reclassification" with another footnote:

(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).
The cumulative total on that is $(5,711,908). And two more footnotes:
(1) Total Pre-Petition Liabilities does not reconcile to the amount stated on the Schedules of Assets and Liabilities filed on October 15, 2007 due to timing differences and allocation of accruals.

(2) Due to the allocation of accruals and adjustments booked at month end, the net loss for the 9/15/07 to 9/30/07 period does not reconcile to the change in retained earnings. There will not be an unreconciled difference in future periods as Company reporting periods will correspond with the Monthly Operating Report periods.

See what I mean? Who can figure out if the numbers are accurate? On page 20, I see "Intercompany Receivables - SCO Group" in the amount of $1,120,205 under "Assets" - "Book value at November 30, 2011." I see $392,292 "Accrued Expense - Chapter 11 Fees" and what in the world is this, in the category of "Adjustments to Owner Equity":
Dividends Declared 2,399,095
Treasury Stock (2,445,757)
Since the 2,399,095 is the cumulative total, does that mean it happened in November? What happened? Perhaps you brainiacs can explain this to me.

I see on page 21 that the loan from Yarro and his boys is still outstanding, $2,082,684. Other unpaid post petition debts are $10,982 "accounts payable" ($1,148,719 due for over 90 days and $24,794 over 30 days) and $416,601 in "other post petition liabilities", but who knows what that is.

And the money is still dribbling away. Blank Rome wants $26,805.50 in professional fees in September. If anyone was watching and actually cared, maybe they'd question all the instructing of paralegal listings. For example they charged $450 for one hour of Stanley B. Tarr's time reviewing the 19th and 20th fee applications, then editing and instructing the paralegal "regarding filing of same".

Like the paralegal doesn't know how to file a fee application by now.

On the 23rd, he reads an email from the US Trustee and instructs the paralegal again "regarding CNO filing" and reviews an invoice. $270 for that. Then on the 26th, he lists "attention to filing of CNOs, including instructions to paralegal and review of CNOs." Another $180. This is a mighty forgetful paralegal. That's all I'll say. Except to add that, being a paralegal, I can tell you truthfully that it's the paralegals usually explaining to the lawyers how to file stuff. That's what paralegals do. I'm just saying.

You will find more instructions to the paralegal on the 8th, the 20th, the 21st (two different times, one instructions on filing MORs), the 22nd (again instructions on filing the OPA CNO), the 26th (again instructions on filing MORs) and then again on the 30th. I mean, really? How slow is this paralegal to catch on?

On September 23rd, Bonnie Fatell is meeting with Tarr "to review status of open items" and then there is a notation "telephone M. Gonzalez regarding IBM claims" and both notations are for 0.20 and $146 each. And then there are a couple of other items I can't explain, mentioning a ComputerShare agreement, an AIB Letter and a "Netting Agreement". That's on page 8 of Exhibit A attached to the Blank Rome bill for September.

October's bill from Blank Rome is for only $13,539.50, so I gather the paralegals got with it and there's a lot less going on. Bonnie Fatell lists a phone call with "J. Loeb" regarding the IBM litigation and the same day, October 6, a phone call with Boies Schiller guys and Tarr "regarding Utah litigation" and Tarr lists researching "issue" and a "BSF Memos Regarding Same" and drafting a motion. On the 11th he lists emails with BSF regarding the motion.

On the 17th, Tamara L. Moody, one of the two listed paralegals, efiled and served the September MORS. Whew. $92 for that. Wait, underneath it Tarr is instructing the paralegal that very day "regarding filing" the MORs. I find this a bit amusing, frankly.

Moody on the 18th lists "updated 2002 service information". If you look at the very first breakdown of the first Blank Rome bill [PDF], you find Ms. Moody doing a number of tasks, including "coordinating with debtors counsel and word processing regarding 2002 service list and labels". I do see in that first bill one day when Tarr conferenced with several people, including "paralegal", but other than that, Moody seems to have handled all her duties, including filing documents, without any instructions from Tarr being specifically mentioned.

Just to be fair, I also looked at the itemization of the March bill [PDF], and again Moody is listed as doing quite a lot without Tarr billing for giving her instructions. Look at page 29, for example, at all she was doing in March. One can't help but believe she knows perfectly well how to do what she is supposed to do. You do see Tarr billing for "attending" to various matters, and it's possible that included giving instructions to Moody or other paralegals, but in my quick look, this seems to be something new, listing instructions to paralegals as billable events.

There are numerous entries for Moody in October, where she's doing plenty without any instruction at all from anyone again, at least not that they charged for. And she has been a paralegal since 1996, working on the SCO bankruptcy since Blank Rome took it over. I believe, consequently, that she knows how to file a monthly operating report, if you catch my drift.

I was trying to remember if any lawyer ever billed anybody for giving me instructions, and I can't recall that ever happening. Either someone new is preparing the bills, or unusual things happened in the month that required special instructions, like maybe a new paralegal was hired, or the firm is running out of things to bill for. That's my cynical side, that last, but then, SCO brings out the cynic in a person. I mean, if there is a new paralegal, even, why would you bill the client for getting the paralegal up to snuff? Like I say, I can't explain SCO. Their bookkeeping isn't something I can track from the outside. You'd have to be one of the lenders and have access to all the books and access to Blank Rome people to explain things to you. All I can do is highlight items, and down the road we may learn more and be able to put it all into the right slots.

Update: There's more. Blank Rome has now filed its bills for November:

12/27/2011 - 1384 - Monthly Application for Compensation of Blank Rome LLP (Twenty-Fifth) for the period November 1, 2011 to November 30, 2011 Filed by Blank Rome LLP. Objections due by 1/16/2012. (Attachments: # 1 Notice # 2 Exhibit A # 3 Exhibit B) (Tarr, Stanley) (Entered: 12/27/2011)

I haven't read it yet, so we can do that together.

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