Bankrupt SCO Fights To Stave Off Collapse

A quarterly financial report released Tuesday painted a dire picture of SCO's current situation. Its revenue for the first nine months of 2007 was $16.7 million, down 23 percent from its total for the same period in 2006. SCO's net loss for the period was $4.6 million, and its cash stockpile stands at around $10 million.

SCO's potential death blow came in a ruling last month, as Judge Dale Kimball of Utah's U.S. District Court ruled that Novell still owned the Unix and UnixWare copyrights that formed the basis of SCO's grievance. Kimball's order is likely to cripple SCO's flagship Linux case, the extensive complaint against IBM it filed in 2003.

It also, ironically, left SCO needing protection from the financial consequences of its own lawsuits. Since the Utah court ruled that Novell owned the Unix copyrights, it also determined that Novell was entitled to a share of royalties SCO has earned from licensing those copyrights. Novell and SCO were slated to begin trial yesterday to determine the amount SCO would need to fork over, but SCO's last-minute bankruptcy filing prompted a postponement of the Novell trial.

SCO's financial report plays up the potentially lethal effect any compelled payments to Novell could have on SCO's remaining operations. If SCO is left to continue its business in peace, the company's management considers chances "remote" that it won't be able to generate enough cash to recover the value of its existing assets -- but if SCO is forced to cough up cash or has its assets placed in a restrictive trust, it may not be able to capitalize on the value of its assets, according to the filing.

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One of those key assets is SCO's partner channel, the company said in a post-bankruptcy court filing: "SCO considers its indirect sales channel as one of its most valuable assets," it wrote in a declaration filed with the Delaware bankruptcy court. "[SCO] has a seasoned, mature sales channel of resellers focused on the small-to-medium sized business market. This channel is a unique asset that should allow SCO to continue to provide reliable UNIX operating systems for small-to-medium sized business customers."

VARs who partner with SCO are left wondering about the fate of the company and its product line. PC-Pros Inc. in Port Washington, N.Y., has been working with OpenServer Unix for decades, dating back to its '80s origins as Xenix. The rock-solid operating system is popular with legacy clients, according to President Mark Schneider.

"We're definitely concerned," Schneider said. "It's a significant portion of our business, and we'd like it to continue."

So far, SCO has managed to insulate partners and customers from its corporate woes, Schneider said. The company still provides PC-Pros with product support resources, and a recent support call was quickly resolved.

But SCO's bankruptcy filing could further ravage an already distressed company. Half of SCO's seven-person finance department headed out the door after the company's bankruptcy filing, and others among the company's 120 employees are likely to follow suit, a risk the company acknowledged in its Delaware court filing.

"While the employees have demonstrated loyalty to SCO during the years prior to the commencement of these cases, their search for a sense of stability with regard to compensation and benefits may lead to an epidemic of employee departures," SCO wrote.