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SCO punts on Novell bankruptcy claim

Swerves the verge

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SCO, which Novell claims is on the verge of bankruptcy, had less than $13m at the close of its Q4, less than half the amount its legal adversary Novell says it is owed from the maker of Unix products and services.

SCO, which today released financial results for its Q4, said it burned about $10m in cash in fiscal 2006, which ended in October. About $12.3m of that was consumed funding lawsuits against IBM and Novell, which are contesting SCO's claim to intellectual property rights of Linux. That leaves the struggling company with about $12.6m in cash. (Some of the legal fees came out of an escrow account, explaining why legal fees were higher than over all cash burn.)

Novell last week said in a legal filing that SCO is on the verge of bankruptcy, not just in the event that SCO is ordered to pay $26m in contested licensing fees, but "because of its own financial missteps."

SCO last week responded by calling the claim FUD and a spokesman promised to report "all aspects of our business" during today's conference call.

Proving there are different interpretations of "all aspects," SCO never addressed the bankruptcy issue head on. Asked today whether insolvency was in fact imminent, SCO CEO Darl McBride would say only, "We're comfortable with our cash position." He then referred us to a court document SCO filed last week that he promised would more thoroughly respond to Novell's contention.

We checked but couldn't find a single sentence that addressed the claim that SCO's own missteps made bankruptcy imminent.

Novell says it is owed the $26m under terms of a Unix purchase agreement struck between the two companies. Novell argued it would be irreparably harmed if SCO didn't pay the fee immediately, before it was allowed to be put out to pasture.

McBride did say he expected legal costs to fall in 2007 compared to the previous year, now that fees for many expert and other expenses have been paid. He also said the company would realize savings from a recent round of employee layoffs, but declined to provide an estimate.

What remains clear is that SCO's losses have snowballed in recent quarters. Its fourth-quarter net loss widened to $3.7m compared with $3.4m in the same period last year. Revenue declined 14 percent to $7.3m from $8.5m.

For the year, the company's loss widened to $16.6m from $10.7m in 2005 as sales fell 19 percent to $29.2m.

McBride blamed the slide on competitive pressure on its Unix business, which he said will "level off" over the coming year. He also said a new mobile services business called Me Inc., which is made possible by SCO's back-end server offerings, was a "wild card" that could nonetheless improve SCO's fortunes.

SCO's ability to fund lawsuits claiming intellectual property rights to Linux are of interest to boosters of the open source OS, as well as Novell and IBM, another SCO adversary. ®

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