More SCO Stock Being Offered for Sale by Shareholders

Thursday, September 18 2003 @ 09:39 PM EDT

Contributed by: PJ

Today, SCO filed with the SEC a Form S-3 informing the world that some folks are wishing to sell 130,934 shares of their stock. So who is selling? Who do you think? The same folks who sold 305,274 shares back in July. Here's the list: Vultus, Angel Partners, Michael Meservy, Ty D. Mattingly, Bruce K. Grant, Jr., and R. Kevin Bean.

I must have missed a step, because I understood the earlier filing to say that only Canopy was going to have any stock left after the previous sale. Evidently they got some more, and from the filing, it looks like there's more available any old time:

"We have authorized capital of 45,000,000 shares of common stock, par value $0.001 per share, and 5,000,000 shares of preferred stock, par value $0.001 per share. As of September 11, 2003, we have 13,976,731 shares of common stock and no shares of preferred stock issued and outstanding. Our board of directors has authority, without action or vote of the shareholders, to issue all or part of the authorized but unissued shares. Any such issuance will dilute the percentage ownership of shareholders and may dilute the book value of our common stock. . . . As of September 1, 2003, we have issued and outstanding options to purchase up to 3,602,551 shares of common stock with exercise prices ranging from $0.66 to $59.00 per share."

Here's what the filing tells us about Angel Partners:

"Ralph J. Yarro III, and Darcy Mott, Canopy's Chief Executive Officer and Chief Financial Officer, respectively, are both members of our board of directors. Ralph J. Yarro III is also on the board of trustees of Angel Partners, a charitable organization."

And Vultus? That is the company SCO just bought:

"Under the terms of an Asset Acquisition Agreement (the "Vultus Agreement") dated June 6, 2003, the Company acquired substantially all of the assets of Vultus, Inc. ("Vultus"), a corporation engaged in the web services interface business, in exchange for the issuance of 167,590 shares of the Company's common stock, of which The Canopy Group ('Canopy'), the Company's principal stockholder, received 36,656 shares, and the assumption of approximately $215,000 in accrued liabilities of Vultus. In addition, the Company assumed the obligations of Vultus under two secured notes payable to Canopy totaling $1,073,000. In connection with the assumption of the notes payable to Canopy, Canopy agreed to accept the issuance of 137,684 shares of the Company's common stock in full satisfaction of the obligations. Canopy was a stockholder and significant debt holder of Vultus. . . .

"The Canopy Group, Inc., ('Canopy') which owns approximately 40% of our outstanding common stock, was a stockholder of Vultus and held a significant portion of its debt."


Attached to this document as an exhibit is the Asset Purchase Agreement dated June 6, 2003 between SCO and Vultus. I'm thinking that could be interesting reading.

There is a very active discussion going on at Yahoo Finance, and you can plug into the discussion here. Bear in mind that a lot of what you read there may or may not be accurate, so use your common sense. But it's news, because, as you'll see, just because the number of comments being posted there seems so high.

Before you rush off to buy SCO stock, here are some risk factors they list:

"Risks Related to the Business

"We do not have a history of profitable operations.

"The July 31, 2003, quarter was our second consecutive quarter of profitability as a result of our SCOsource licensing revenue. If we do not receive SCOsource licensing revenue in future quarters and our revenue from the sale of our operating system platform products and services continues to decline, we will need to further reduce operating expenses to maintain profitability or generate positive cash flow. In our quarterly results of operations, we recognize revenue from agreements for support and maintenance contracts and other long-term contracts that have been previously invoiced and are included in deferred revenue. Our deferred revenue balance has declined from October 31, 2002 to July 31, 2003. Our future operating system platform revenue may be adversely impacted and may continue to decline if we are unable to replenish these deferred revenue balances with long-term maintenance and support contracts or replace them with other sustainable revenue streams. If we are unable to continue to generate positive cash flow and profitable operations, our operations may be adversely impacted.

"Our future SCOsource licensing revenue is uncertain.

"We initiated the SCOsource licensing effort in January 2003 to review the status of UNIX licensing and sublicensing agreements and to identify others in the industry that may be currently using our intellectual property without obtaining the necessary licenses. This effort resulted in the execution of two license agreements during the quarter ended April 30, 2003, and the receipt of additional license fees from these two contracts during the July 31, 2003 quarter. Due to a lack of historical experience and the uncertainties related to SCOsource licensing revenue, we are unable to estimate the amount and timing of future SCOsource licensing revenue, if any. If we do receive revenue from this source, it may be sporadic and fluctuate from quarter to quarter. Our SCOsource initiative is unlikely to produce stable, predictable revenue for the foreseeable future, and the success of this initiative in some part may depend on the perceived strength of our intellectual property rights and contractual claims regarding UNIX including, the strength of our claim that unauthorized UNIX System V source code and derivatives are prevalent in Linux."


They talk about the impact their litigation has had on them and mention the DDoS "attacks" once again:

" We are informed that participants in the Linux industry have attempted to influence participants in the markets in which we sell our products to reduce or eliminate the amount of our products and services that they purchase. They have been somewhat successful in those efforts and will likely continue. There is also a risk that the assertion of our intellectual property rights will be negatively viewed by participants in our marketplace and we may lose support from such participants. Any of the foregoing could adversely affect our position in the marketplace and our results of operations.

"As a result of our assertion of our intellectual property rights, we have been subjected to several denial of service attacks on our website which prevented web users from accessing our website and doing business with us for a period of time. If such attacks continue or if our customers and strategic partners are also subjected to similar attacks, our business and results of operations could be materially harmed."


They go on to discuss what is going on so far in Australia, Germany, Austria and Poland. This may be why I heard today from a guy in Ireland. He has persistently tried to get a license from SCO, and he was told the license plan has been delayed in Europe. It seems the light may be going on even in Utah. Here's two items on a list of factors that could adversely impact their business:

"changes in business attitudes toward UNIX as a viable operating system compared to other competing systems; and

"changes in attitudes of customers due to our aggressive position against the inclusion of our UNIX code in Linux."


Sales of UNIX have declined for the last 8 quarters, they report. More tidbits:

"While our SCOsource initiative has resulted in revenue of $15,530,000 and we continue negotiations with other industry participants that we believe may lead to additional SCOsource license agreements, we are currently unable to predict the level or timing of future revenue from this source, if any."

Looks like MS and Sun are it. The dynamic duo.

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