SCO Warns SEC It Might Not Survive Novell Payoff

In its quarterly 10-Q filing with the US Securities and Exchange Commission on Tuesday, UNIX provider SCO Group expressed its fears that, if it were faced with a judgment ordering it to pay Novell for several years of using UNIX trademarks recently found to have been owned by Novell all this time, it may not be able to continue business.

"As a result of both the Court's August 10, 2007 ruling and the Company's entry into Chapter 11, there is substantial doubt about the Company's ability to continue as a going concern," the company stated in its SEC filing Tuesday. "Absent a significant cash payment to Novell for this matter, management believes it is remote that the undiscounted future cash flows generated by the Company would not be sufficient to recover the carrying values of the 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."

The company acknowledged Novell's claim that SCO may owe it as much as $30 million, plus interest, and would seek to have a trust established by the federal bankruptcy court appointed to SCO's case, for that purpose. Though a scheduled court proceeding on that matter was delayed on account of SCO's bankruptcy filing late last week, the delay was only for a day. On Tuesday, as reported by Groklaw - the virtual pool reporters for the entire world with respect to SCO - that court ruled against Novell's request for a trust establishment, on the grounds that Novell might be perceived as being given preferential treatment...when SCO has so many other creditors to address.

Thirty million may seem a small amount, but SCO remains a very small company, as the rest of its 10-Q report last Tuesday indicates. In the quarter ending last July, SCO made a little less than $4.7 million in revenue from the sale of UNIX, and precisely zero ($0) revenue from the licensing of its intellectual property. Given that the cost of its licensing business is something greater than zero, the profit numbers for that quarter remain somewhat below zero: at just over $2.5 million in loss.

Sadly, SCO is actually losing less money this quarter than it has in several previous quarters.

But the question of where much of this lost money is going may have to become more transparent as a bankruptcy court starts managing SCO's finances. In an 8-K filing yesterday, SCO revealed that just one day before filing Chapter 11, its board of directors approved a $50,000 raise for one of its board members, Ryan Tibbits, to $210,000 per year.

Elsewhere in that filing, the company admitted it had received a delisting notice from the NASDAQ stock exchange, which is common practice for a company that has just filed Chapter 11. While the company says it plans to appeal NASDAQ's decision, it may not have much to say about it in the end, and may simply want to let it put that issue - trading late this morning at 20 cents per share - out of its misery.