**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-K/A**

**(Amendment No.1)**

 

**(MarkOne)**

**ý****ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**For the fiscal year endedOctober 31, 2004**

 

**o****TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**For the transition period from             to               .**

 

**Commission file number: 0-29911**

 

**THE SCO GROUP, INC.**

(Exact name of registrant as specified in its charter)

 
| **Delaware**                                                              |       | **87-0662823**                                             |
|---------------------------------------------------------------------------|------------|------------------------------------------------------------|
| (State of incorporation)                                                  |       | (I.R.S. Employer  Identification No.)                      |
|                                                                      |       |                                                       |
| **355  South 520 West  Lindon, Utah 84042**                               |       | **(801)  765-4999**                                        |
| (Address of principal executive  offices, including zip code)             | ** ** | (Registrant’s telephone  number, including area code) |
|                                                                      |       |                                                       |
| Securities pursuant to Section 12(b) of the Act:**  None** |
| Securities registered pursuant to Section 12(g) of the Act:     |
|                                                                      |
| **Title  of Each Class  Common Stock, par value $.001 per share**         |

 

Indicateby check mark whether the Registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theRegistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. YES o  NOý

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof the Registrant’s knowledge, in definitive proxy or information statementsincorporated by reference on Part III of this Form 10-K or anyamendment to this Form 10-K.  o

 

Indicate by check mark whether the Registrant isan accelerated filer (as defined in Rule 12b-2 of the Act).  YES o  NOý

 

The aggregate market value of the common stockheld by non-affiliates of the Registrant already made $33,021,000 based on thereported last sale price of common stock on April 30, 2004, which is thelast business day of the Registrant’s most recently completed second fiscalquarter.

 

The number of shares of the Registrant’s commonstock outstanding as of March 30, 2005, was 17,915,292.

 

 

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**EXPLANATORYNOTE**

 

This Amendment No. 1 on Form 10-K/A (this “Amendment”)amends the Annual Report on Form 10-K (the “Original Annual Report”) for theyear ended October 31, 2004, which was originally filed with the Securities andExchange Commission (the “SEC”) on April 1, 2005.  We are filing this Amendment in response to acomment letter received from the SEC in connection with its review of ourregistration statement on Form S-1 (File No. 333-127000).  We have modified Item 9A, “Controls andProcedures,” in this Amendment in response to the comment letter to modify andenhance our disclosure regarding our disclosure controls and procedures and thematerial weakness in our internal controls over financial reporting describedin Item 9A.

 

We have included as exhibits to this Amendment newcertifications of our principal executive officer and principal financial andaccounting officer.

 

Except as described above, no attempt has been made inthis Amendment to modify or update other disclosures presented in the OriginalAnnual Report.  This Amendment does notreflect events occurring after the filing of the Original Annual Report or modifyor update those disclosures, including the exhibits to the Original AnnualReport affected by subsequent events. Accordingly, this Amendment should be read in conjunction with ourfilings with the SEC subsequent to the filing of the Original Annual Report,including any amendments to those filings.

 

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**PART II**

 

**Item 9A. Controls and Procedures**

 

Under the supervision and with the participation ofour management, including our Chief Executive Officer and Chief FinancialOfficer, we evaluated the effectiveness of the design and operation of ourdisclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)under the Securities Exchange Act of 1934 (the “Exchange Act”)).  Based upon that evaluation, and subsequentevaluations, the Chief Executive Officer and Chief Financial Officer concludedthat, as of the end of the period covered by this report and as a result of thematerial weakness in our internal controls described below, our disclosurecontrols and procedures were not effective to ensure that information requiredto be disclosed by us in the reports we file or submit under the Exchange Actis recorded, processed, summarized and reported within the time periodsspecified in applicable rules and forms. 

 

We have a material weakness with respect to accountingfor non-routine capital stock and stock option transactions.  Our material weakness was identified in lateJanuary 2005 by Company management. Company management concluded the material weakness was indicative of theaggregate effects of three accounting errors relating to accounting fornon-routine capital stock and stock option transactions.  The first of these accounting errors was discoveredby Company management in the quarter ended April 30, 2004.  The three accounting errors are described asfollows: 

 

•              First,in the quarter ended January 31, 2004, we incorrectly accounted forcompensation expense by not properly accounting for a non-routine stock optiongrant to a non-employee.  When weidentified this error in the quarter ended April 30, 2004, all compensationcost had been fully recognized and the error did not impact future accountingperiods.  In that quarter, we completedan analysis in accordance with Staff Accounting Bulletin (“SAB”) No. 99 anddetermined that this accounting error was not material to the financialstatements as of and for the quarters ended January 31, 2004 and April 30,2004. 

 

•              Second,for the quarters ended January 31, 2004 and April 30, 2004, we incorrectlyaccounted for dividends on our now retired Series A Convertible Preferred Stockby incorrectly recording dividends payable on such preferred stock as acomponent of stockholders’ equity instead of as dividends payable.  When we identified this error in the quarterended July 31, 2004, all outstanding shares of our Series A-1 ConvertiblePreferred Stock, which had previously been exchanged for all outstanding sharesof Series A Convertible Preferred Stock, had been converted to shares of commonstock, and we were no longer required to accrue for dividends.  At July 31, 2004, we completed a secondanalysis in accordance with SAB No. 99 and determined that this accountingerror individually, as well as when aggregated with the accounting errordescribed in the preceding bullet, was not material to the financial statementsfor any of the quarters affected by this accounting error. 

 

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•              Third,near the end of the quarter ended January 31, 2005, we discovered that we haveissued certain shares of our common stock under our equity compensation planswithout complying with the registration requirements of federal and applicablestate securities laws.  As a result, theholders of such shares may have a rescission right, and, consequently, certainamounts the Company received upon purchase of such shares should have beenreclassified from permanent equity to temporary equity.  Company management determined that thisaccounting error, when aggregated with the errors described in the precedingbullets, were evidence of a material weakness in our controls over financialreporting with respect to accounting for non-routine capital stock and stockoption transactions.  In addition, onFebruary 28, 2005, upon recommendation from Company management,  the Audit Committee of our Board of Directorsconcluded that, due to the aggregate effects of these accounting errors, theCompany’s financial statements for the quarters ended January 31, 2004, April30, 2004 and July 31, 2004 should no longer be relied upon and should berestated. 

 

The Company believes that its material weakness firstbegan in the quarter ended January 31, 2004, which was the first period inwhich all three accounting errors described above combined to materially affectthe Company’s financial statements for that period.  As of October 31, 2004, the end of the fiscalyear covered by this Form 10-K, the material weakness still existed and noremedial measures for the material weakness had been undertaken by theCompany.  No remedial measures for thematerial weakness were undertaken before the second quarter of fiscal year 2005because Company management did not identify we had a material weakness untillate January 2005. 

 

In April 2005, the Company restated its financialstatements for the first three quarters of the fiscal year ended October 31,2004 and filed with the SEC amended quarterly reports on Form 10-Q for suchquarters correcting all three accounting errors for non-routine capital stockand stock option transactions described above. 

 

Our internal controls over financial reporting did notidentify the third accounting error concerning our failure to classify astemporary equity amounts we received from share purchasers under the ESPPentitled to rescission rights prior to the completion of the financialstatements for the fiscal year ended October 31, 2004.  However, our internal controls over financialreporting identified the third accounting error during the quarter endedJanuary 31, 2005.  Company management hadpreviously requested its external legal counsel to undertake a review of theCompany’s equity incentive plans.  As aresult of this review and the discovery of the third accounting error, andgiven the prior accounting errors described above, Company managementdetermined a material weakness related to non-routine capital stock and stockoption transactions existed in late January 2005. 

 

We have discussed the material weakness in ourinternal controls over financial reporting with the Audit Committee of theBoard of Directors and with KPMG LLP, our independent registered publicaccounting firm for the period covered by this Form 10-K  In response, beginning in February 2005, webegan taking measures to remediate the material weakness in our internalcontrols, which measures have included the following: 

 

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•              Wehave implemented additional transactional controls concerning equity awardsunder our equity compensation plans, which principally include reconciling on aquarterly basis the number of common shares available for issuance under ourequity compensation plans to the number of shares that have been registered forissuance under the Securities Act of 1933 and qualified for issuance under applicablestate “blue sky” laws.

 

•              Wehave required Company management to regularly perform the procedures outlinedin an equity compliance checklist which include: 

 

•              confirmingthat the reconciliation in the first bullet above occurs quarterly, 

 

•              documentingany non-routine issuances of equity awards to employees and non-employees, and 

 

•              preparingand approving by Company management all required equity disclosures in ourperiodic filings with the SEC. 

 

•              Wehave added additional review and approval requirements for non-routine equitytransactions by requiring documented approval by our Chief Financial Officerand Chairman of our Audit Committee of such transactions. 

 

During the most recent quarter ended October 31, 2004,there has been no change in our internal control over financial reporting (asdefined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting. However, as discussed above, changes have been implemented subsequent tothe period covered by this Form 10-K to add additional controls to correct thematerial weakness in internal control over financial reporting. 

 

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**PART IV.**

 

**ITEM 15.               Exhibitsand Financial Statement Schedules**

 

Note:  Item 15 in the Form 10-K,as originally filed, is unchanged except for the filing of additionalcertifications of our principal executive officer and principal financial andaccounting officer.

 

(b)           The following exhibits are includedas part of this Form 10-K/A.

 
| 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 Bert Young, 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 Bert Young, 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**

 

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the Registrant has duly caused the report to be signed on itsbehalf by the undersigned, thereunto duly authorized, on October 26, 2005. 

 
|   | THE SCO GROUP, INC. |
|--------|---------------------|
|   |                |   |
|   | By:                 | /s/ Bert B. Young |   |
|   |                | Bert B. Young |
|   |                | Chief Financial  Officer   |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the Registrant and inthe capacities and on the dates indicated.

 

 
| **Signature**                                    | ** ** | **Title**                  | ** ** | **Date**         |
|--------------------------------------------------|------------|----------------------------|------------|------------------|
| ** **                                       | ** ** | ** **                 | ** ** | ** **       |
| **Principal  Executive Officer:**                | ** ** | ** **                 | ** ** | ** **       |
|                                             |       |                       |       |             |
| /s/ Darl C.  McBride                             |       | President, Chief Executive |       | October 26, 2005 |
| Darl C. McBride                                  |       | Officer and Director       |       |             |
|                                             |       |                       |       |             |
| **Principal Financial and  Accounting Officer:** | ** ** | ** **                 | ** ** | ** **       |
|                                             |       |                       |       |             |
| /s/ Bert B.  Young                               |       | Chief Financial Officer    |       | October 26, 2005 |
| Bert B. Young                                    |       |                       |       |             |
|                                             |       |                       |       |             |
| **Additional Directors:**                        | ** ** | ** **                 | ** ** | ** **       |
|                                             |       |                       |       |             |
| /s/ Ralph J.  Yarro III                          |       | Chairman of the Board      |       | October 26, 2005 |
| Ralph J. Yarro III                               |       |                       |       |             |
|                                             |       |                       |       |             |
| /s/ Darcy G.  Mott                               |       | Director                   |       | October 26, 2005 |
| Darcy G. Mott                                    |       |                       |       |             |
|                                             |       |                       |       |             |
| /s/ Edward E.  Iacobucci                         |       | Director                   |       | October 26, 2005 |
| Edward E. Iacobucci                              |       |                       |       |             |
|                                             |       |                       |       |             |
| /s/ R. Duff  Thompson                            |       | Director                   |       | October 26, 2005 |
| R. Duff Thompson                                 |       |                       |       |             |
|                                             |       |                       |       |             |
| /s/ Daniel W.  Campbell                          |       | Director                   |       | October 26, 2005 |
| Daniel W. Campbell                               |       |                       |       |             |
|                                             |       |                       |       |             |
| /s/ Omar T. Leeman                               |       | Director                   |       | October 26, 2005 |
| Omar T. Leeman                                   |       |                       |       |             |
|                                             |       |                       |       |             |
| /s/ J. Kent Millington                           |       | Director                   |       | October 26, 2005 |
| J. Kent Millington                          |       |                       |       |             |

 

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**Exhibit Index**

 
| 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 Bert Young, 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 Bert Young, 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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