##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended January 31, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the
transition period fromto
 Commission file number 0-29911
 THE SCO GROUP, INC.
  Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    87-0662823
(I.R.S. Employer Identification Number)
  
   þ o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company þ o þ




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##### 



The SCO Group, Inc.
 Table of Contents
 PageNumberPART I. FINANCIAL INFORMATIONItem 1. Unaudited Financial StatementsCondensed Consolidated Balance Sheets as of January 31, 2009 and October 31, 2008
    
    
    3Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended
January 31, 2009 and 2008
    
    
    4Condensed Consolidated Statements of Cash Flows for the three months ended January 31, 2009 and 2008
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    33Item 4T. Controls and Procedures
    
    
    34PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    34Item 1A. Risk Factors
    
    
    37Item 6. Exhibits
    
    
    45Signatures
    
    
    46EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



January 31,
    
    
    October 31,2009
    
    
    2008ASSETSCURRENT ASSETS:Cash
    
    $
    1,836
    
    
    $
    1,237Restricted cash
    
    
    3,766
    
    
    
    2,308Accounts receivable, net of allowance for doubtful accounts of $112 and $94, respectively
    
    
    2,302
    
    
    
    2,801Prepaid reorganization expenses
    
    
    254
    
    
    
    415Other
    
    
    625
    
    
    
    857Total current assets
    
    
    8,783
    
    
    
    7,618OTHER ASSETS
    
    
    
    
    
    
    365Total assets
    
    $
    8,783
    
    
    $
    7,983LIABILITIES AND STOCKHOLDERS DEFICITCURRENT LIABILITIES:Accounts payable
    
    $
    717
    
    
    $
    608Payable to Novell, Inc.
    
    
    2,142
    
    
    
    632Accrued payroll and benefits
    
    
    937
    
    
    
    875Accrued liabilities
    
    
    335
    
    
    
    537Accrued reorganization expenses
    
    
    180
    
    
    
    336Deferred revenues
    
    
    1,522
    
    
    
    1,619Royalties payable
    
    
    100
    
    
    
    107Income taxes payable
    
    
    590
    
    
    
    631Total current liabilities
    
    
    6,523
    
    
    
    5,345LONG-TERM LIABILITIES
    
    
    68
    
    
    
    68LIABILITIES SUBJECT TO COMPROMISE
    
    
    6,708
    
    
    
    6,700Total liabilities
    
    
    13,299
    
    
    
    12,113COMMITMENTS AND CONTINGENCIES (Notes 1 and 3)STOCKHOLDERS DEFICIT:Common stock, $0.001 par value: 45,000 shares authorized, 21,886 and 21,782 shares
outstanding, respectively
    
    
    22
    
    
    
    22Additional paid-in capital
    
    
    264,520
    
    
    
    264,339Common stock held in treasury; 297 shares outstanding
    
    
    (2,446
    )
    
    
    (2,446
    )Accumulated other comprehensive income
    
    
    900
    
    
    
    1,008Accumulated deficit
    
    
    (267,512
    )
    
    
    (267,053
    )Total stockholders deficit
    
    
    (4,516
    )
    
    
    (4,130
    )Total liabilities and stockholders deficit
    
    $
    8,783
    
    
    $
    7,983
  3




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Three Months Ended January 31,2009
    
    
    2008REVENUES:Products
    
    $
    2,547
    
    
    $
    4,039Services
    
    
    550
    
    
    
    833SCOsource
    
    
    
    
    
    
    Total revenues
    
    
    3,097
    
    
    
    4,872COST OF REVENUES:Products
    
    
    144
    
    
    
    288Services
    
    
    214
    
    
    
    431SCOsource
    
    
    109
    
    
    
    267Total cost of revenues
    
    
    467
    
    
    
    986GROSS MARGIN
    
    
    2,630
    
    
    
    3,886OPERATING EXPENSES:Sales and marketing
    
    
    1,326
    
    
    
    2,741General and administrative
    
    
    810
    
    
    
    924Research and development
    
    
    722
    
    
    
    1,273Total operating expenses
    
    
    2,858
    
    
    
    4,938LOSS FROM OPERATIONS
    
    
    (228
    )
    
    
    (1,052
    )EQUITY IN INCOME (LOSS) OF AFFILIATE
    
    
    5
    
    
    
    (11
    )OTHER INCOME (EXPENSE):Reorganization expense
    
    
    (237
    )
    
    
    (844
    )Interest expense
    
    
    (44
    )
    
    
    Interest income
    
    
    11
    
    
    
    67Other income, net
    
    
    95
    
    
    
    463Total other (expense), net
    
    
    (175
    )
    
    
    (314
    )LOSS BEFORE PROVISION FOR INCOME TAXES
    
    
    (398
    )
    
    
    (1,377
    )PROVISION FOR INCOME TAXES
    
    
    (61
    )
    
    
    (111
    )NET LOSS
    
    $
    (459
    )
    
    $
    (1,488
    )BASIC AND DILUTED NET LOSS PER COMMON SHARE
    
    $
    (0.02
    )
    
    $
    (0.07
    )WEIGHTED AVERAGE BASIC AND DILUTED COMMON
SHARES OUTSTANDING
    
    
    21,589
    
    
    
    21,563OTHER COMPREHENSIVE LOSS:Net loss
    
    $
    (459
    )
    
    $
    (1,488
    )Foreign currency translation adjustment
    
    
    (108
    )
    
    
    30COMPREHENSIVE LOSS
    
    $
    (567
    )
    
    $
    (1,458
    )
  4




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Three Months Ended January 31,2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (459
    )
    
    $
    (1,488
    )Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:Stock-based compensation
    
    
    181
    
    
    
    114Depreciation and amortization
    
    
    
    
    
    
    58Loss on disposition and write-downs of long-lived assets
    
    
    
    
    
    
    2Equity in (income) loss of affiliate
    
    
    (5
    )
    
    
    10Reorganization expense
    
    
    237
    
    
    
    844Changes in operating assets and liabilities:Restricted cash
    
    
    52
    
    
    
    32Accounts receivable, net
    
    
    499
    
    
    
    (656
    )Other current assets
    
    
    232
    
    
    
    394Accounts payable
    
    
    109
    
    
    
    315Accrued payroll and benefits
    
    
    62
    
    
    
    325Accrued liabilities
    
    
    (202
    )
    
    
    (452
    )Deferred revenue
    
    
    (97
    )
    
    
    (82
    )Royalties payable
    
    
    (7
    )
    
    
    88Income taxes payable
    
    
    (41
    )
    
    
    158Liabilities subject to compromise
    
    
    8
    
    
    
    (2
    )Payments for reorganization expense
    
    
    (232
    )
    
    
    (465
    )Net cash provided by (used in) operating activities
    
    
    337
    
    
    
    (805
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property and equipment
    
    
    
    
    
    
    (4
    )Dividends received
    
    
    370
    
    
    
    Net cash provided by (used in) investing activities
    
    
    370
    
    
    
    (4
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from sale of common stock through employee stock purchase program
    
    
    
    
    
    
    22Net cash provided by financing activities
    
    
    
    
    
    
    22NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    707
    
    
    
    (787
    )EFFECT OF FOREIGN EXCHANGE RATES ON CASH
    
    
    (108
    )
    
    
    30CASH AND CASH EQUIVALENTS, beginning of period
    
    
    1,237
    
    
    
    5,554CASH AND CASH EQUIVALENTS, end of period
    
    $
    1,836
    
    
    $
    4,797SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid for income taxes
    
    $
    45
    
    
    $
    11
  5




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(1) ORGANIZATION AND DESCRIPTION OF BUSINESS
       6




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Bankruptcy Filing
    7




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Going Concern
  8




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(2) SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
  Financial Reporting by Entities in Reorganization under Bankruptcy Code
  Use of Estimates in the Preparation of Financial Statements
  Revenue Recognition
   9




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Cash and Cash Equivalents
  Net Loss Per Common Share
   (3) COMMITMENTS AND CONTINGENCIES
 IBM Corporation
  10




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11




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Novell, Inc.
        12




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13




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IPO Class Action Matter
      14




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Red Hat, Inc
  AutoZone, Inc.
  Other Matters
    (4) STOCKHOLDERS EQUITY
 Equity Plans
 15




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Three Months Ended January 31,2009
    
    
    2008(In thousands)Cost of products
    
    $
    1
    
    
    $
    Cost of SCOsource
    
    
    39
    
    
    
    34Cost of services
    
    
    7
    
    
    
    5Sales and marketing
    
    
    47
    
    
    
    29General and administrative
    
    
    72
    
    
    
    33Research and development
    
    
    15
    
    
    
    13Total stock-based compensation
    
    $
    181
    
    
    $
    114
   16




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Three months endedJanuary 31, 2008Risk-free interest rate
    
    
    2.7
    %Expected dividend yield
    
    
    0.0
    %Volatility
    
    
    327.2
    %Expected exercise life (in years)
    
    
    5.5
  (5) SEGMENT INFORMATION
  Three Months Ended January 31, 2009UNIX
    
    
    SCOsource
    
    
    Total(In thousands)Revenues
    
    $
    3,097
    
    
    $
    
    
    
    $
    3,097Cost of revenues
    
    
    358
    
    
    
    109
    
    
    
    467Gross margin (deficit)
    
    
    2,739
    
    
    
    (109
    )
    
    
    2,630Sales and marketing
    
    
    1,326
    
    
    
    
    
    
    
    1,326General and administrative
    
    
    810
    
    
    
    
    
    
    
    810Research and development
    
    
    722
    
    
    
    
    
    
    
    722Total operating expenses
    
    
    2,858
    
    
    
    
    
    
    
    2,858Loss from operations
    
    $
    (119
    )
    
    $
    (109
    )
    
    $
    (228
    )
 Three Months Ended January 31, 2008UNIX
    
    
    SCOsource
    
    
    Total(In thousands)Revenues
    
    $
    4,872
    
    
    $
    
    
    
    $
    4,872Cost of revenues
    
    
    719
    
    
    
    267
    
    
    
    986Gross margin (deficit)
    
    
    4,153
    
    
    
    (267
    )
    
    
    3,886Sales and marketing
    
    
    2,741
    
    
    
    
    
    
    
    2,741General and administrative
    
    
    924
    
    
    
    
    
    
    
    924Research and development
    
    
    1,273
    
    
    
    
    
    
    
    1,273Total operating expenses
    
    
    4,938
    
    
    
    
    
    
    
    4,938Loss from operations
    
    $
    (785
    )
    
    $
    (267
    )
    
    $
    (1,052
    )
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Managements Discussion and Analysis of Financial Condition and Results of Operations and
other parts of this quarterly report on Form 10-Q contain forward-looking statements that involve
risks and uncertainties. Forward-looking statements can also be identified by words such as
intends, anticipates, expects, believes, plans, and similar terms. Forward-looking
statements are not guarantees of future performance and our actual results may differ significantly
from the results discussed in the forward-looking statements. Factors that might cause such
differences include, but are not limited to, those set forth below under Forward-Looking
Statements and Factors that May Affect Future Results and Financial Condition and Part II, Item
1A  Risk Factors and elsewhere in this Form 10-Q. The following discussion should be read in
conjunction with our unaudited condensed consolidated financial statements and notes thereto
included in this Form 10-Q and our audited consolidated financial statements and notes thereto
included in our annual report on Form 10-K for the year ended October 31, 2008 filed with the Securities and Exchange Commission and
managements discussion and analysis contained therein. All information presented herein is based
on the three months ended January 31, 2009 and 2008. We assume no obligation to revise or update
any forward-looking statements for any reason, except as required by law.
 17




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Recent Developments
 Novell, Inc. Ruling
      18




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Bankruptcy Filing
     19




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Business Focus
 UNIX Business.
 20




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Three Months Ended January 31,2009
    
    
    2008(In thousands)Revenue
    
    $
    3,097
    
    
    $
    4,872Cost of revenue
    
    
    358
    
    
    
    719Gross margin
    
    
    2,739
    
    
    
    4,153Sales and marketing
    
    
    1,326
    
    
    
    2,741General and administrative
    
    
    810
    
    
    
    924Research and development
    
    
    722
    
    
    
    1,273Total operating expenses
    
    
    2,858
    
    
    
    4,938Loss from operations
    
    $
    (119
    )
    
    $
    (785
    )
    SCOsource Business.
   21




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Three Months Ended January 31,2009
    
    
    2008(In thousands)Revenue
    
    $
    
    
    
    $
    Cost of revenue
    
    
    109
    
    
    
    267Gross margin
    
    
    (109
    )
    
    
    (267
    )Sales and marketing
    
    
    
    
    
    
    General and administrative
    
    
    
    
    
    
    Research and development
    
    
    
    
    
    
    Total operating expenses
    
    
    
    
    
    
    Loss from operations
    
    $
    (109
    )
    
    $
    (267
    )
     Critical Accounting Policies
  
    
    Revenue recognition;
    
    Valuation allowances against net deferred income tax assets;
    
    Litigation reserves;
    
    Useful lives and impairment of property and equipment; and
    
    Allowances for doubtful accounts receivable.
 Revenue Recognition
   22




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Valuation Allowances Against Net Deferred Income Tax Assets
 Litigation Reserves. Part II, Item I  Legal Proceedings
  Useful Lives and Impairment of Property and Equipment
 Allowance for Doubtful Accounts Receivable
 23




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Results of Operations
  Three Months Ended January 31,2009
    
    
    2008(In thousands)Revenue:Products
    
    $
    2,547
    
    
    $
    4,039Services
    
    
    550
    
    
    
    833SCOsource
    
    
    
    
    
    
    Total revenue
    
    
    3,097
    
    
    
    4,872Cost of revenue:Products
    
    
    144
    
    
    
    288Services
    
    
    214
    
    
    
    431SCOscource
    
    
    109
    
    
    
    267Total cost of revenue
    
    
    467
    
    
    
    986Gross margin
    
    
    2,630
    
    
    
    3,886Operating expenses:Sales and marketing
    
    
    1,326
    
    
    
    2,741General and administrative
    
    
    810
    
    
    
    924Research and development
    
    
    722
    
    
    
    1,273Total operating expenses
    
    
    2,858
    
    
    
    4,938Loss from operations
    
    
    (228
    )
    
    
    (1,052
    )Equity in income (loss) of affiliate
    
    
    5
    
    
    
    (11
    )Other expense, net
    
    
    (175
    )
    
    
    (314
    )Provision for income taxes
    
    
    (61
    )
    
    
    (111
    )Net loss
    
    $
    (459
    )
    
    $
    (1,488
    )
 THREE MONTHS ENDED JANUARY 31, 2009 AND 2008
 Revenue
 Three Months Ended January 31,2009
    
    Change
    
    2008(Dollars in thousands)Revenue
    
    $
    3,097
    
    
    
    (36
    )%
    
    $
    4,872
   Three Months Ended January 31,2009
    
    Change
    
    2008(Dollars in thousands)UNIX revenue
    
    $
    3,097
    
    
    
    (36
    )%
    
    $
    4,872Percentage of total revenue
    
    
    100
    %
    
    
    
    
    
    
    100
    %SCOsource revenue
    
    $
    
    
    
    
    n/a
    
    
    $
    Percentage of total revenue
    
    
    0
    %
    
    
    
    
    
    
    0
    %
  24




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Products Revenue
 Three Months Ended January 31,2009
    
    Change
    
    2008(Dollars in thousands)Products revenue
    
    $
    2,547
    
    
    
    (37
    )%
    
    $
    4,039Percentage of total revenue
    
    
    82
    %
    
    
    
    
    
    
    83
    %
    Three Months Ended January 31,2009
    
    Change
    
    2008(Dollars in thousands)OpenServer revenue
    
    $
    1,792
    
    
    
    (39
    )%
    
    $
    2,938Percentage of products revenue
    
    
    70
    %
    
    
    
    
    
    
    73
    %UnixWare revenue
    
    $
    403
    
    
    
    (53
    )%
    
    $
    851Percentage of products revenue
    
    
    16
    %
    
    
    
    
    
    
    21
    %Other products revenue
    
    $
    352
    
    
    
    40
    %
    
    $
    250Percentage of products revenue
    
    
    14
    %
    
    
    
    
    
    
    6
    %
  25




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SCOsource Revenue
 Three Months Ended January 31,2009
    
    Change
    
    2008(Dollars in thousands)SCOsource revenue
    
    $
    
    
    
    
    n/a
    
    
    $
    
   Services Revenue
 Three Months Ended January 31,2009
    
    Change
    
    2008(Dollars in thousands)Services revenue
    
    $
    550
    
    
    
    (34
    )%
    
    $
    833Percentage of total revenue
    
    
    18
    %
    
    
    
    
    
    
    17
    %
   Cost of Products Revenue
 Three Months Ended January 31,2009
    
    Change
    
    2008(Dollars in thousands)Cost of products revenue
    
    $
    144
    
    
    
    (50
    )%
    
    $
    288Percentage of products revenue
    
    
    6
    %
    
    
    
    
    
    
    7
    %
  26




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Cost of SCOsource Revenue
 Three Months Ended January 31,2009
    
    Change
    
    2008(Dollars in thousands)Cost of SCOsource revenue
    
    $
    109
    
    
    
    (59
    )%
    
    $
    267
    Cost of Services Revenue
 Three Months Ended January 31,2009
    
    Change
    
    2008(Dollars in thousands)Cost of services revenue
    
    $
    214
    
    
    
    (50
    )%
    
    $
    431Percentage of services revenue
    
    
    39
    %
    
    
    
    
    
    
    52
    %
  Sales and Marketing
 Three Months Ended January 31,2009
    
    Change
    
    2008(Dollars in thousands)Sales and marketing expenses
    
    $
    1,326
    
    
    
    (52
    )%
    
    $
    2,741Percentage of total revenue
    
    
    43
    %
    
    
    
    
    
    
    56
    %
   27




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Research and Development
 Three Months Ended January 31,2009
    
    Change
    
    2008(Dollars in thousands)Research and development expenses
    
    $
    722
    
    
    
    (43
    )%
    
    $
    1,273Percentage of total revenue
    
    
    23
    %
    
    
    
    
    
    
    26
    %
   General and Administrative
 Three Months Ended January 31,2009
    
    Change
    
    2008(Dollars in thousands)General and administrative expenses
    
    $
    810
    
    
    
    (12
    )%
    
    $
    924Percentage of total revenue
    
    
    26
    %
    
    
    
    
    
    
    19
    %
   Equity in Income (Loss) of Affiliate
  Reorganization items
 Three Months Ended January 31,2009
    
    Change
    
    2008(Dollars in thousands)Reorganization items
    
    $
    237
    
    
    
    (72
    )%
    
    $
    844
 28




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Other Income (Expense), net
  Three Months Ended January 31,2009
    
    
    Change
    
    
    2008(Dollars in thousands)Interest expense
    
    $
    (44
    )
    
    
    n/a
    
    
    $
    Interest income
    
    
    11
    
    
    
    (84
    )%
    
    
    67Other income (expense), net
    
    
    92
    
    
    
    n/a
    
    
    
    463Total
    
    $
    59
    
    
    
    
    
    
    $
    530
 Recent Developments.
   Provision for Income Taxes
  Liquidity and Capital Resources
     29




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
    
    33 percent of any aggregate recovery amounts received up to $350,000,000, reduced by
all professional fees previously paid relating to these proceedings;
    
    plus 25 percent of any aggregate recovery amounts above $350,000,000 but less than or
equal to $700,000,000;
    
    plus 20 percent of any aggregate recovery amounts in excess of $700,000,000.
  Contractual Obligations
 30




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Less than
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    1 year
    
    1 - 3 years
    
    3 - 5 years
    
    5 years(In thousands)Operating lease obligations
    
    $
    1,197
    
    
    $
    248
    
    
    $
    723
    
    
    $
    226
    
    
    $
    
    Forward-Looking Statements and Factors That May Affect Future Results and Financial Condition
 With the exception of historical facts, the statements contained in Managements Discussion
and Analysis of Financial Condition and Results of Operations are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995, which reflect our
current expectations and beliefs regarding our future results of operations, performance and
achievements. These statements are subject to risks and uncertainties and are based upon
assumptions and beliefs that may or may not materialize. These forward-looking statements include,
but are not limited to, statements concerning:
 
    
    Our intention to continue to pursue our appeal of the adverse rulings in the Courts
August 10, 2007 and July 16, 2008 orders in the Novell Litigation, and our belief
concerning the strength of our appeal;
    
    Our intention to maintain business operations throughout the reorganization process;
    
    Our intention to use our cash, restricted cash and subsequent cash inflows to meet our
working capital needs throughout the reorganization process;
    
    Our intention to continue operating, to have our plan of reorganization confirmed with
the Bankruptcy Court and to pursue the strategy described in the plan;
    
    Our intention to vigorously pursue legal claims and counterclaims brought against us by
others;
    
    Our belief that our allowance for doubtful accounts receivable is adequate and that
write-offs of uncollectible accounts will not materially exceed that allowance;
    
    The strength of our intellectual property rights and contractual claims regarding UNIX
generally and specifically the strength of our claim that unauthorized UNIX source code and
derivatives of UNIX source code are prevalent in Linux;
    
    Our belief that competition from Linux will continue during the year ending October 31, 2009
and future periods;
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
    
    Our expectation that we will continue to be unable to predict the amount and timing of
SCOsource revenue, and when generated, the revenue will be sporadic, unpredictable, and
dependent on the outcome of the SCO Litigation;
    
    Our expectation that future services revenue will depend in part on our ability to
generate UNIX products revenue from new customers as well as the renewal of annual support
and services agreements from existing UNIX customers;
    
    Our expectation that for the year ending October 31, 2009, our total UNIX revenue will
decline from UNIX revenue generated in the year ended October 31, 2008 as a result of
continued competition and negative publicity;
    
    Our intention to use cash to run our UNIX and mobility businesses and pursue the SCO
Litigation subject to Bankruptcy Court approval;
    
    Our intention to continue to pay for expert, consulting and other expenses through the
conclusion of our litigation with IBM, and our expectation that although these expenses are
expected to decrease for the year ending October 31, 2009, as compared to the year ended
October 31, 2008, that they will continue to be significant to our financial statements;
    
    Our intention to continue our UNIX development and marketing efforts while at the same
time developing and marketing our mobility products and services;
    
    Our belief that the market for mobility products and services is poised for rapid growth;
    
    Our belief that the success of our mobility products and services offerings will
depend, in part, on the level of commitment and resources we are able to devote to these
offerings, the partnerships we are able to establish, our ability to attract and retain new
customers and partners, and the strength of our mobility offerings;
    
    Our operating strategy to continue to support our existing users of our UNIX operating
system products and protect our intellectual property rights;
    
    Our belief that our OpenServer and UnixWare products will continue to provide a revenue
stream in the year ending October 31, 2009, and our belief that revenue from such products
will continue to decline;
    
    Our expectation that hardware and software vendors, as well as software developers,
will continue to turn their certification and application development efforts toward Linux
and may elect not to continue to support or certify to our UNIX operating system products;
    
    Our intention and ability to keep our relationships with key partners in certain vertical
markets;
    
    Our expectation that future services revenue will depend, in part, on our ability to
generate UNIX products revenue from new customers as well as the renewal of annual support
and services agreements from existing UNIX customers;
    
    Our belief that a key to our future success will be our ability to provide additional
products and services to our reseller channel and to communicate our product and corporate
strategy to these resellers;
    
    Our expectation that enhancements to our UNIX software products will not result in
significant revenue increases in the short-term;
    
    Our belief that a movement in interest rates, either up or down of up to 2%, would not
have a material adverse impact on our cash;
    
    Our expectation that the cost of SCOsource revenue in the future will be difficult to
predict and that the cost of SCOsource revenue for the three months ending April 30, 2009
or for future periods could be higher than the three months ended January 31, 2009,
especially if the payment of a contingency fee is required;
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
    
    Our expectation for the three months ending April 30, 2009 that the dollar amount of
our sales and marketing expenses will be generally consistent with that incurred during the
three months ended January 31, 2009;
    
    Our expectation for the three months ending April 30, 2009 that the dollar amount of
our research and development expenses will be generally consistent with that incurred
during the three months ended January 31, 2009;
    
    Our expectation for the three months ending April 30, 2009 that the dollar amount of
our general and administrative expenses will be generally consistent with that incurred
during the three months ended January 31, 2009;
    
    Our belief that certain legal actions to which we are a party will not have a material
adverse effect on us;
    
    Our belief that upon completion of the dissolution of the Chinese company in which we
owned a minority interest, that the majority shareholder of the Chinese company will enter
into a distribution agreement with our Company;
    
    Our expectation that a decision on the appeal of the Courts rulings in the Novell
Litigation could be forthcoming in the next five to eight months;
    
    Our expectation that certain assets of the Company, including our mobility business
assets and our OpenServer operating system assets, may be sold through an open auction and
that enough consideration may be obtained to pay our creditors and continue operations as
set forth in the proposed bankruptcy reorganization plan; and
    
    Our expectation that we, in the event Company assets are not sold as planned through an
auction, will continue to support our UNIX and mobility business, as well as focus on the
following key provisions: (a) an enhanced pricing and discount strategy, (b) an updated
true-up licensing program with current customers, (c) reducing overall operating costs,
(d) delivering SCO UNIX Virtual product lines for VMware and Hyper-V to allow SCO legacy
applications to run on modern hardware and (e) shipping FCmobilelife and FCtasks for the
iPhone with a new pricing structure.
 Part II, Item 1A-Risk Factors
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Foreign Currency Risk.
 Interest Rate Risk.
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Investment Risk.
 
 ITEM 4T. CONTROLS AND PROCEDURES
 Evaluation of disclosure controls and procedures.
 Changes in internal control over financial reporting.
 
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 in Part 1, Item 1. Unaudited Financial
Statements  Notes to Condensed Consolidated Financial Statements,
 Novell, Inc. Ruling
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35




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IPO Class Action Matter
       AutoZone, Inc.
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ITEM 1A. RISK FACTORS
  We do not have a history of profitable operations and our cash resources are limited.
    A long period of operating under Chapter 11 may harm our business.
   We may not be able to obtain confirmation of our Chapter 11 plan; we may not be able to emerge from
bankruptcy and our assets may be liquidated.
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A plan of reorganization may result in holders of our common stock receiving no distribution on
account of their interests and cancellation of their common stock.
  Operating under the U.S. Bankruptcy Code may restrict our ability to pursue our business
strategies.
  
    
    sell assets outside the ordinary course of business;
    
    consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and
    
    obtain financing secured by the Companys assets.
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We suffered a significant setback in our lawsuit with Novell that has significantly limited our
claims and raises substantial doubt about our ability to continue as a going concern and we may not
prevail in our lawsuits with IBM, Novell and others.
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Our claims relating to our UNIX intellectual property may subject us to additional legal
proceedings.
  Our Engagement Agreement with the Law Firms representing us in the SCO Litigation requires us to
pay for expert, consulting and other costs, which could harm our liquidity position.
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
    
    33 percent of any aggregate recovery amounts received up to $350,000,000;
    
    plus 25 percent of any aggregate recovery amounts above $350,000,000 but less than or equal
to $700,000,000;
    
    plus 20 percent of any aggregate recovery amounts in excess of $700,000,000.
   Developments in the SCO Litigation and fluctuations in our operating results or the failure of our
operating results to meet the expectations of public market analysts and investors may negatively
impact our stock price and our ability to continue in business.
   
    
    our ability to operate effectively under Chapter 11 protection and changes in business
attitudes toward UNIX as a viable operating system compared to other competing operating systems,
especially Linux, as well as the possibility that the automatic stay triggered by our Chapter 11
filing will be lifted or modified, or our reorganization plan will not be confirmed by the
Bankruptcy Court;
    
    the outcome of pending litigation with Novell, including the appeal and pending motions for
summary judgment in our lawsuit with IBM, adverse rulings relating to IBMs counterclaims, and
results of, developments in, or costs of the SCO Litigation as well as adverse publicity regarding
our business and the SCO Litigation;
    
    changes in general economic conditions, such as recessions, that could affect capital
expenditures in the software industry;
    
    the interest level of resellers in recommending our UNIX business solutions to end users and
the introduction, development, timing, competitive pricing and market acceptance of our products
and services and those of our competitors;
    
    the contingency and other costs we may pay to the Law Firms representing us in our efforts
to establish and defend our intellectual property rights;
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
    
    changes in attitudes of customers and partners due to the decline in our UNIX business and
our position against the inclusion of our UNIX code and derivative works in Linux; and
    
    the activities of short sellers.
   Managements Discussion and Analysis of Financial Condition and Results of OperationsRecent
Developments Novell, Inc. Ruling A long period of operating under Chapter 11 may harm our business
 If we are unable to retain key personnel in an intensely competitive environment, our operations
could be adversely affected.
 A long period of
operating under Chapter 11 may harm our business.
 We operate in a highly competitive market and face significant competition from a variety of
current and potential sources; many of our current and potential competitors have greater financial
and technical resources than we do; thus, we may fail to compete effectively.
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If the market for UNIX continues to contract, our business will be harmed
  We may lose the support of industry partners leading to an accelerated decline in our UNIX products
and services revenue.
  We rely on our indirect sales channel for distribution of our products, and any disruption of our
channel at any level could adversely affect the sales of our products.
    
    
    potential loss of developed technology through piracy, misappropriation, or more
lenient laws regarding intellectual property protection;
    
    imposition of governmental controls, including trade restrictions and other tax
requirements;
    
    fluctuations in currency exchange rates and economic instability;
    
    longer payment cycles for sales in foreign countries; and
    
    seasonal reductions in business activity.
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We have lost our listing on the Nasdaq Capital Market as a result of our bankruptcy filing and the
loss of our listing has made our stock significantly less liquid and has significantly reduced its
value.
   Our stock price is volatile.
  There are risks associated with the potential exercise of our outstanding options.
  Our stock price could decline further because of the activities of short sellers.
  The right of our board of directors to authorize additional shares of preferred stock could
adversely impact the rights of holders of our common stock.
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Our stockholder rights plan could make it more difficult for a hostile bid for our company or a
change of control transaction to succeed at current market prices for our stock.
  
 ITEM 6. EXHIBITS
 (a)
    
    Exhibits3.1
    
    Amended and Restated Certificate of Incorporation of Caldera
International, Inc. (incorporated by reference to Exhibit 3.1 to
SCOs Registration Statement on Form 8-A12G/A (File No. 000-29911)).3.2
    
    Certificate of Amendment to Amended and Restated Certificate of
Incorporation regarding consolidation of outstanding shares
(incorporated by reference to Exhibit 3.2 to SCOs Registration
Statement on Form 8-A12G/A (File No. 000-29911)).3.3
    
    Certificate of Amendment to Amended and Restated Certificate of
Incorporation regarding change of name to The SCO Group, Inc.
(incorporated by reference to Exhibit 3.3 to SCOs Registration
Statement on Form 8A12G/A (File No. 000-29911)).3.4
    
    Amended and Restated Bylaws (incorporated by reference to Exhibit
3.4 to SCOs Registration Statement on Form 8-A12G/A (File No.
000-29911)).3.5
    
    Amendment to the Amended and Restated Bylaws (incorporated by
reference to Exhibit 3.1 to SCOs Current Report on Form 8-K filed
on January 4, 2008 (File No. 000-29911)).31.1
    
    Certification of Darl C. McBride, President and Chief Executive
Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Kenneth R. Nielsen, Chief Financial Officer,
pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Darl C. McBride, President and Chief Executive
Officer, pursuant to Section 1350, Chapter 63 of Title 18, United
States Code, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Kenneth R. Nielsen, Chief Financial Officer,
pursuant to Section 1350, Chapter 63 of Title 18, United States
Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
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SIGNATURES
  Date: March 23, 2009
    THE SCO GROUP, INC.By:
    /s/ Kenneth R. NielsenKenneth R. NielsenDuly Authorized Officer and Chief Financial Officer
(Principal Financial and Accounting Officer) 46




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EXHIBIT INDEX
 ExhibitNumber
    
    Exhibit Description3.1
    
    Amended and Restated Certificate of Incorporation of Caldera International, Inc.
(incorporated by reference to Exhibit 3.1 to SCOs Registration Statement on Form 8-A12G/A
(File No. 000-29911)).3.2
    
    Certificate of Amendment to Amended and Restated Certificate of Incorporation regarding
consolidation of outstanding shares (incorporated by reference to Exhibit 3.2 to SCOs
Registration Statement on Form 8-A12G/A (File No. 000-29911)).3.3
    
    Certificate of Amendment to Amended and Restated Certificate of Incorporation regarding
change of name to The SCO Group, Inc. (incorporated by reference to Exhibit 3.3 to SCOs
Registration Statement on Form 8A12G/A (File No. 000-29911)).3.4
    
    Amended and Restated Bylaws (incorporated by reference to Exhibit 3.4 to SCOs Registration
Statement on Form 8-A12G/A (File No. 000-29911)).3.5
    
    Amendment to the Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to
SCOs Current Report on Form 8-K filed on January 4, 2008 (File No. 000-29911)).31.1
    
    Certification of Darl C. McBride, President and Chief Executive Officer, pursuant to Rule
13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.31.2
    
    Certification of Kenneth R. Nielsen, Chief Financial Officer, pursuant to Rule 13a-14(a) of
the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Darl C. McBride, President and Chief Executive Officer, pursuant to
Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Kenneth R. Nielsen, Chief Financial Officer, pursuant to Section 1350,
Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 47