SCO on verge of collapse

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Having told a US bankruptcy court it could remain solvent, embattled SCO now doubts it can remain a going concern.

The vendor filed for bankruptcy protection as part of a company reorganisation late last week, citing the financial pressures of its ongoing lawsuit against Novell and other vendors for infringing on Unix patents as the primary cause for major cashflow problems.

But in its regular, 'Q10' statement filing with the US Securities and Exchange Commission (SEC) yesterday, it painted a much gloomier picture.

The vendor lost ground in its long running court case against Novell last month, when the federal judge overseeing the lawsuit ruled in favour of Novell on several of the summary judgement motions. It found that Novell had sold SCO some Unix rights in the mid-1990s, but the court said that copyright was never assigned, effectively torpedoing the premise on which SCO lawsuits rested.

"The effect of these rulings was to significantly reduce or to eliminate certain of the company's claims against Novell, IBM and possibly others," stated SCO in the Q10 filing.

SCO estimates that the resulting settlement payment award to Novell from SCO could be anywhere from a nominal amount to in excess of $30 million (£15.1 million) - the latter amount being the amount claimed by Novell, including interest and exceeding the cash SCO currently holds by $10.4 million.

Since the August ruling, Novell has sought to impose a constructive trust on the company's current funds derived from these sources, which could result in a freeze of SCO's assets, and which the court indicated it would address as well.

But these issues were stayed as a result of SCO's filing a voluntary petition for relief under Chapter 11 of the US Bankruptcy Code on 14 September, the same day the trial proper against Novell was due to begin.

SCO is now saying its cash reserves and future cash flow are unlikely to cover the costs of the case, causing "substantial doubt about the company's ability to continue as a going concern," it stated.

It said it intends to maintain business operations throughout the bankruptcy case. Subject to the Bankruptcy Court's approval, its will use its cash, cash equivalents, restricted cash and subsequent cash inflows to meet its working capital needs throughout the reorganisation process.

But the Q10 filing also revealed SCO's total revenue plummeted year-over-year, with its Unix business dropping off by 37 per cent.

Pamela Jones, editor of open source legal weblog, Groklaw wondered whether SCO was trying to salvage the company by attempting to avoid paying Novell. "I gather SCO believes the only way to keep going is to stiff Novell. But I question if that is going to be possible," she wrote.

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