SCOs Income Continues Its Fall

But with the bulk of its legal costs behind it soon, SCO hopes to be profitable in 2006.

The SCO Group Inc.s bad financial news continues as the company reported its financial results on Wednesday for its fourth quarter and year ending Oct. 31.

SCOs revenue for the quarter ending Oct. 31 was just over $8.5 million, compared with just over $10 million for the comparable quarter of the prior year. SCO blamed this decline primarily on the continuing decrease of its Unix revenue due to competition from Linux.

The net loss attributable to common stockholders for the three months ended Oct. 31 was not quite $3.5 million, or 19 cents per diluted common share. This was still better though than a net loss attributable to common stockholders of just over $6.5 million, or 37 cents per diluted common share, for the comparable quarter of the prior year. That was because the net loss attributable to common stockholders for the three months that ended Oct. 31, 2004, included $2.7 million for restructuring charges and other losses.

The news was also dismal for the financial year as a whole.

For the year ended Oct. 31, revenue was $36 million, compared with revenue of close to $43 million for the year ended Oct. 31, 2004. And this years net loss attributable to common stockholders was well over $10 million, or 60 cents per diluted common share. Again, though this was better than the previous year, where there was a net loss attributable to common stockholders of over $16 million, or $1.07 per diluted common share for the year.

Darl McBride, president and CEO of SCO, pointed out that the cost of the companys continuing lawsuits against IBM, Novell Inc. and Linux-using companies continues to drain SCOs cash reserves.

"Even though the company incurred net losses during the fourth quarter and fiscal year 2005 as a result of expenditures for its continuing litigation, the management team accomplished its objective of returning the Unix business to profitability and generating positive cash flow during fiscal year 2005," said McBride.

"While we will continue to focus resources on our Unix business and expect this business to generate positive cash flow again in fiscal year 2006, we are excited about the prospects of our recently announced Me Inc. technology platform for smart handheld devices."

Bert Young, SCOs chief financial officer, said in a press conference that, by itself, "SCOs Unix business was cash-flow positive." McBride said that SCOs flagship operating system, OpenServer 6, is continuing to show increases.

"While most of these sales have been to OpenServer 5 customers," McBride also expects "that the partnership of MySQL and SCO will lead to increased sales of OpenServer to new customers."

SCOsource income, which comes from licensing of Unix intellectual property rights, was $34,000. Young expects as SCO Linux litigation continues for this income to improve.

Young, in particular, wanted to make it clear that much of SCOs losses had come from its legal expenses. Following the end of January 2006, SCO will have fulfilled its major litigation billings so this load will no longer be impacting the companys bottom line.

Indeed, Young said that if were not for the IP legal costs, SCO would have been profitable not only in the last quarter, but in the last year as well.

McBride believes that SCOs recent partnership with MySQL will pay off. "By having MySQL in there, going forward were going to have a strengthening of our core business. This is a good move for us, and for MySQL."

This should result, McBride said, in better results for OpenServer 6 sales both to old and new customers.

"Additionally, with the closing of our $10 million private placement in November 2005, we are confident that we will be able to execute on our business strategies and see our litigation through to its conclusion," said McBride.

Before this investment by institutional investors and a member of SCOs board of directors, SCO had cash and available-for-sale securities in the amount of approximate $10.5 million on Oct. 31.

This did not include $2,875 million of cash, which is being held in an escrow account for legal expense payments.

SCO stated that the proceeds of this financing, combined with the companys cash balances, are expected to provide the company with adequate funding to pursue its existing business strategies, including the resolution of its litigation.

SCO maintains that it will win its case against IBM, which is now scheduled to go to court in February 2007, and against Novell, which is to go to trial on June 26, 2007.


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