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SCO faces financial crunch after Unix defeat

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The company at the centre of an intellectual property dispute with IBM that has lasted for years is facing the prospect of financial ruin. The SCO Group said it may be unable to continue operating as a company.

SCO challenged IT giants IBM and Novell over the rights to the Unix operating system in a set of court cases which began in 2003. On 10 August the company lost its case against Novell when a court ruled that Novell and not SCO owned copyrights to the Unix system.

One month after the ruling the company filed for Chapter 11 bankruptcy, a US process in which the company is shielded from creditors while it reorganises itself. The company has now lodged a filing with financial regulator the Security and Exchange Commission (SEC) which casts doubt on the future of the company.

"As a result of both the Court's 10 August, 2007, ruling and the company's entry into Chapter 11, there is substantial doubt about the company's ability to continue as a going concern," said the filing.

The court ruling meant SCO now owes royalty payments to Novell, rather than the other way round. Novell is seeking $30m plus interest from SCO.

"If a significant cash payment is required, or significant assets are put under a constructive trust, the carrying amount of our long-lived assets may not be recovered," said SCO's filing.

When the company filed for bankruptcy protection last week, chief executive Darl McBride had said customers will be able to rely on the firm. "We want to assure our customers and partners that they can continue to rely on SCO products, support and services for their critical business operations," McBride said.

But in this week's filing, the firm explicitly recognised the possibility of its being unable to emerge from the bankruptcy process.

"If we require additional financing during the Chapter 11 cases and we are unable to obtain the financing on favorable terms or at all, our chances of successfully reorganising our businesses may be seriously jeopardised," it said.

To add to the company's financial worries, it has been told that it will be de-listed from the Nasdaq stock exchange as early as next week. It has asked for an appeal hearing, but it will have to present a Nasdaq committee with a viable business plan if it is to be given permission to stay on the exchange.

On the day that the US court announced its decision SCO shares began the day trading at $1.49, but this week those shares were languishing at 20 cents each.

Copyright © 2007, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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