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April 4, 2005

SCO files delayed results, dismisses IBM’s evidence deadline request

Unix vendor SCO Group has finally published its delayed financial filings for 2004, and has also dismissed IBM's request for a deadline for evidence in their ongoing contract and copyright legal dispute.

By CBR Staff Writer

The Lindon, Utah-based company has filed its amended financial reports for full-year 2004 and the first three quarters of the fiscal year with the Securities and Exchange Commission after discovering accounting errors in early March.

The filings may not be enough to prevent delisting from the Nasdaq Smallcap market, however, as the knock-on effect has also caused the company to delay the filing of its quarterly report for the first quarter of 2005. In late March, Nasdaq’s listings panel decided to consider the late filing of all forms before deciding on whether SCO should be delisted.

The original fiscal 2004 filing was delayed after SCO announced in February that together with its auditors, KPMG, it needed more time to examine matters related to shares of common stock issued as part of its equity compensation plans.

That examination led the company in early March to reclassify just over $1m in total across the first three quarters of 2004 from permanent equity to temporary equity, and just under $2.5m in total across the first two quarters of 2004 from equity to current liabilities.

SCO also said it would restate $233,000 of stock-based compensation from the second quarter to the first quarter. Revenue and net income figures for fiscal 2004 were unaffected.

Meanwhile, SCO has dismissed a request from IBM that the court hearing the two-year-old contract and copyright case between the two set a deadline for both companies to detail their claims and evidence.

Last week IBM asked the court to consider an interim deadline of June 11, to be followed by a final deadline of August 11, to give it time to investigate the claims before the end of the discovery process.

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SCO has responded by stating that the deadlines would place IBM at an unfair advantage as it would not allow the Unix vendor enough time to analyze the estimated two billion lines of code that IBM was ordered to hand over to SCO in January.

The sheer volume of that code, which is made up of all versions of IBM’s AIX and Dynix Unix variants, as well as all changes made to them, prompted Magistrate Judge Brooke Wells to ask SCO and IBM to come up with a new negotiated schedule for the court case.

The companies failed to do so, with IBM blaming SCO’s reluctance to agree to a deadline for evidence. SCO has maintained, however, that the reasons are more complicated, with IBM wanting to allow time for the court to reconsider its January order to hand over the code and other information, and IBM resisting SCO’s plans to amend its complaint for a third time among the sticking points.

The two scheduling memorandums are the latest round in a legal argument that long ago began to develop a pattern: IBM asks SCO to detail what it’s claims are; SCO asks IBM to hand over some code so that it can analyze it and then detail what its claims are; IBM asks SCO to detail what its claims are…

The Unix vendor launched its legal battle with IBM in March 2003, claiming that IBM breached a contract with it by contributing Unix code to the Linux open source operating system. It has repeatedly said publicly that it has evidence against IBM but has declined to produce it in court until it has fully analyzed the code it wants from IBM.

The tactic has not necessarily worked in SCO’s favor. In February Judge Dale Kimball voiced his frustration: it is astonishing that SCO has not offered any competent evidence to create a disputed fact regarding whether IBM has infringed SCO’s alleged copyrights through IBM’s Linux activities, he wrote, although he still denied IBM’s motion for summary judgment that its Linux activities do not infringe SCO copyright.

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