To paraphrase a line from Mr Twain, the rumors of our death have been greatly exaggerated, wrote Lindon, Utah-based SCO’s Darl McBride in a letter that was recently filed with the Securities and Exchange Commission.
While McBride’s letter did not mention any suggestions of its demise directly, it can be seen as a reference to recent claims made by Novell Inc in their ongoing battle of the Unix copyrights. Waltham, Massachusetts-based Novell recently declared in a court paper that SCO’s bankruptcy was both imminent and inevitable.
The demise of SCO has been rumored since it launched its legal claims against Linux and IBM Corp in 2003, but while McBride admitted that legal expenses have weighed the company down, he insisted that its demise is far from certain.
We recognize we have invested heavily in protecting our intellectual property. While we expect to continue incurring legal expenses in 2007, our expectation is that those expenses will be less than they have been in prior years, he wrote. Some of the larger expenses related to IBM discovery, expert witness and technical expert reports are now behind us. With these expenditures behind us, the outlook for the company’s cash expenditures for the upcoming fiscal year is in a very manageable position.
SCO had cash and cash equivalents of $8.8m at the end of its third quarter 2006 when it made a loss of $3.6m on revenue of $7.4m. It will report its fourth-quarter and full-year 2006 figures later this week. The company is also rumored to be announcing a workforce reduction and other plans to cut costs.
Novell is especially interested in SCO’s financial position given that it claims it is entitled to 95% of the $25.9m SCO made from its SCOsource licensing business in royalty payments.
In October 2006, Novell filed for summary judgment that it was entitled to the majority of the money SCO earned from its SCOsource Unix intellectual property licensing program, referencing the terms by which it sold its former Unix business to Santa Cruz Operation Inc in 1995. Santa Cruz later sold the business on to Caldera, which changed it name to SCO.
Novell also asked the court for an injunction placing the money in a constructive trust should its request for partial summary judgment fail. SCO has denied that Novell is entitled to the revenue, but in response admitted that it needs the funds to fight its case against IBM. The relief Novell seeks would bind SCO’s hands just when SCO needs the flexibility and resources to devote to the SCO vs IBM litigation, it stated in an October court filing.
Novell took that as an indication of how important it is that the court grant its request for a trust to ensure that SCO cannot spend the money. In a court filing earlier this month, it argued that contrary to SCO’s assertion that a preliminary injunction should be denied because it may accelerate SCO’s bankruptcy, SCO’s imminent bankruptcy is a compelling reason to grant Novell’s motion. For SCO, bankruptcy is inevitable; it characterizes its assets as merely those ‘remaining’ and does not rebut Novell’s arguments that its bankruptcy is imminent, it added.
In his letter, McBride insisted that SCO is in better health than some would believe, maintaining that the vantage point of the CEO’s office provides a perspective that others are not giving. Hardware partners continue to support and certify their servers to the company’s UnixWare operating system, he insisted, while he said its Me Inc mobile software is attracting new customers.
We are committed to operating our Unix business on a cash flow positive basis and we will make any necessary adjustments in our business in 2007 to accomplish that. With the combination of our existing Unix business coupled with our new Me Inc mobile products and services, I believe SCO is positioned to see improved results during this fiscal year, he wrote.
While court activity has not exactly been going in SCO’s favor (in December the judge affirmed an earlier ruling to throw out 198 of the 293 items of evidence SCO filed with the court), McBride also maintained that the company is not ready to raise the white flag just yet.
Our efforts to protect our intellectual property continue through the legal system. We continue to believe in the merits of our cases with IBM and Novell and look forward to a successful resolution of those claims. Although we have had a few setbacks in the court proceedings, important and significant claims remain in the case, he said.
