SCO in Danger of NASDAQ Delisting

SCO's failure to turn in financial reports has the NASDAQ stock market warning the company that it may be delisted.

The SCO Group Inc. was warned by NASDAQ Wednesday that it is in danger of being delisted from the NASDAQ SmallCap Market stock market because it has failed to file its 2004 annual report by its deadline.

SCO failed to file its Form 10-K for its fiscal year ended Oct. 31, 2004, in a timely fashion, as required under Market Place Rule 4310(c)(14). This notice by itself does not mean that SCO will be immediately delisted.

The Lindon, Utah-based Unix company had already missed several deadlines. Its annual report was due 90 days after Oct. 31. SCO was granted an extension to Jan. 31, but it missed that deadline as well. As of Thursday morning, the company still has not filed.

SCO is expected to request a hearing on the delisting notice. If it does not, it will be delisted at the opening of business on Feb. 25. However, beginning Friday, Feb. 18, NASDAQ will add an "E" to the end of SCOs trading symbol, making it SCOXE to warn investors that the stock is in danger of being taken off the market.

Even if the company does get a hearing with the NASDAQ Listing Qualifications Panel, the panel can still to decide to delist the company.

In a press release, SCO explained that it had been unable to file its Form 10-K for 2004 because it is examining matters related to the issuance of shares of the companys common stock pursuant to its equity compensation plans. SCO said it is working to resolve these matters as soon as possible and expects to file its Form 10-K upon completion of its analysis.

"My understanding is that this is related to the companys year 2000 Employee Stock Purchase Program and possibly other items related to the companys compensation program," an SCO source said. "We believe that we can get this resolved in short order."

Another source close to SCO said that in part the questions about the stock purchase plan had to do with matters related to stock issued to Canopy Group, SCOs parent company.

In December, Ralph Yarro, president, chairman and chief executive of Canopy, also based in Lindon, and Darcy Mott, Canopys chief financial officer, were fired without explanation.

Yarro and others then sued Canopy, claiming that they were illegally fired by a group led by Val Noorda Kriedel, the daughter of Canopy founder Ray Noorda; Canopy investment adviser Terry Peterson; and William Mustard, an outside executive who is currently serving as head of Canopy.

In a countersuit, Canopy states that it is seeking "damages arising from a series of self-dealing and wasteful transactions pursuant to which Defendants [Yarro and others], in breach of their fiduciary duty of loyalty to Canopy and its shareholders, paid themselves and other employees excessive and unfair equity and incentive compensation and ceded undue control of Canopy to its employees."

SCO has also been rocked in recent weeks by its Pyrrhic victory over IBM in its Linux/Unix copyright and contract case. In the judges statement, it became clear that he is unimpressed with SCOs case to date.

Resource Library:

For more on the SCO vs. IBM saga, read Steven Vaughan-Nichols column "What Comes the Day After SCO Dies?"

At LinuxWorld in Boston, as news slowly spread in the morning crowds of SCOs plight, the mood could best be called cheerful.

"Its about time," said one midlevel executive from a hardware vendor. "This has just been getting in everybodys way, and if they go under, maybe we can finally get back to work instead of worrying with this junk."

"[This] is sure to undermine the confidence of the companys customers, investors and the industry-at-large [in SCO]," said Laura DiDio, a Yankee Group senior analyst.

"Customers and investors will be watching closely to see if there are legitimate reasons for the delay and if SCO will be able to resolve these matters to the satisfaction of all concerned and avoid delisting by the NASDAQ exchange. Unless or until the reasons for the delay are clarified, things look grim for SCO," DiDio said.

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