##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended October 31, 2008
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                      to                     .
 Commission file number: 0-29911
 THE SCO GROUP, INC.
  Delaware
    
    87-0662823(State of incorporation)
    
    (I.R.S. EmployerIdentification No.)355 South 520 WestLindon, Utah 84042
    
    (801) 765-4999(Address of principal executive
    
    (Registrants telephoneoffices, including zip code)
    
    number, including area code)
 None
  Common Stock, par value $0.001 per share
Preferred Stock Purchase Rights
 o þ
 o þ
 þ o
 o
  Large accelerated filer o   
    Accelerated filer o
    Non-accelerated filer o
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




---



##### 



PageNumberPART I.Item 1. Business
    
    
    3Item 1A. Risk Factors
    
    
    11Item 1B. Unresolved Staff Comments
    
    
    20Item 2. Properties
    
    
    20Item 3. Legal Proceedings
    
    
    20Item 4. Submission of Matters to a Vote of Security Holders
    
    
    27PART II.Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    28Item 6. Selected Financial Data
    
    
    28Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    29Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    51Item 8. Financial Statements and Supplementary Data
    
    
    53Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
    
    
    85Item 9A.(T). Controls and Procedures
    
    
    85Item 9B. Other Information
    
    
    85PART III.Item 10. Directors, Executive Officers and Corporate Governance
    
    
    85Item 11. Executive Compensation
    
    
    86Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    86Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    86Item 14. Principal Accounting Fees and Services
    
    
    86PART IV.Item 15. Exhibits and Financial Statement Schedules
    
    
    86Signatures
    
    
    91EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2
  2




---



##### Table of Contents



PART I
 
 Item 1. Business
 The Business section and other parts of this Annual Report on Form 10-K ( Form 10-K ) contain
forward-looking statements relating to our business and strategy. These forward-looking statements
involve risks and uncertainties. Many forward-looking statements are located in Managements
Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of
this Form 10-K . Forward-looking statements can be identified by words such as intends,
anticipates, expects, believes, plans, predicts, 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 in the section entitled Risk
Factors under Part I, Item 1A of this Form 10-K . We assume no obligation to revise or update any
forward-looking statements for any reason, except as required by law.
 As used in the Form 10-K , SCO and OpenServer are trademarks or registered trademarks of
our Company in the United States and other countries. UNIX and UnixWare are registered
trademarks of The Open Group in the United States and other countries. All other brand or product
names are or may be trademarks of, and are used to identify the products and services of, their
respective owners. As used herein, the Company or us, we, ours, or similar terms refer to
The SCO Group, Inc. and our subsidiaries.
 Overview
   Recent Developments
 Novell, Inc. Ruling
  3




---



##### Table of Contents



4




---



##### Table of Contents



Bankruptcy Filing
      5




---



##### Table of Contents



UNIX Business
 Background
  6




---



##### Table of Contents



Current Status and Strategy
      Competition
  7




---



##### Table of Contents



Products and Services
 OpenServer.
 UnixWare
 Other Products.
 Technical Support Services.
  8




---



##### Table of Contents



Other Services.
 Mobility Products and Services.
 Strategic Alliances
  Sales and Marketing
  Americas.
 
    
    Channel Sales  ASMs manage our relationships with our resellers and vertical
solution providers. Resellers sell numerous solutions to small business customers in
their geographic territory. Vertical solution providers provide bundled applications to
specific vertical markets, which include retail point-of-sale, manufacturing, accounting
and medical/pharmaceutical. Many of our resellers and vertical solution providers
purchase operating system platform products directly from us. In order to efficiently
support the thousands of smaller resellers and vertical solution providers, we contract
with major distributors in a two-tier distribution model.
 9




---



##### Table of Contents




    
    Corporate Sales  ASMs also sell directly to our major corporate accounts with
branch offices or franchisees and other large corporations. Typically, these customers
have an existing suite of third-party or internally developed applications designed to run
on our dependable and scalable OpenServer or UnixWare operating systems. In many cases,
our operating system and the applications are then deployed in an identical fashion across
branch offices or franchisees.
 International.
   
    
    branding our UNIX and mobile products through public relations and web marketing
activities;
    
    maintaining an effective partner program to generate brand awareness and promote our
UNIX and mobile products; as well as
    
    increasing public awareness of our UNIX and mobile products by participating in
strategic tradeshows, conferences and technology forums.
  Software Engineering and Development
    10




---



##### Table of Contents



SCOsource Business
 Background
   Intellectual Property Protection
   Employees
  
 Item 1A. Risk Factors
  We do not have a history of profitable operations and our cash resources are limited.
 11




---



##### Table of Contents



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.
    12




---



##### Table of Contents



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.
  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.
 13




---



##### Table of Contents



14




---



##### Table of Contents



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.
   15




---



##### Table of Contents




    
    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 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;
 16




---



##### Table of Contents




    
    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, We
may not be able to obtain confirmation of our Chapter 11 plan, 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, and Operating under the U.S. Bankruptcy Code may restrict our
ability to pursue our business strategies
 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.
   17




---



##### Table of Contents



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.
  Our foreign-based operations and sales are subject to the imposition of governmental controls and
taxes and fluctuations in currency exchange rates that could hurt our results.
  
    
    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;
 18




---



##### Table of Contents




    
    fluctuations in currency exchange rates and economic instability;
    
    longer payment cycles for sales in foreign countries; and
    
    seasonal reductions in business activity.
   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.
  19




---



##### Table of Contents



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.
  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 1B. Unresolved Staff Comments
  
 Item 2. Properties
     
 Item 3. Legal Proceedings
 Bankruptcy Filing
   20




---



##### Table of Contents



21




---



##### Table of Contents



Item 1Recent Developments, Bankruptcy Filing.
 IBM Corporation
 The SCO Group, Inc. v.
International Business Machines Corporation, Civil No. 2:03CV0294.
      22




---



##### Table of Contents



Novell, Inc.
 The SCO Group, Inc.
v. Novell, Inc., Civil No. 2:04CV00139.
     23




---



##### Table of Contents



24




---



##### Table of Contents



IPO Class Action Matter
  25




---



##### Table of Contents



Red Hat, Inc.
  26




---



##### Table of Contents



AutoZone, Inc.
  Other Matters
    
 Item 4. Submission of Matters to a Vote of Security Holders
  27




---



##### Table of Contents



PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 Market Price of Our Common Stock
  SCO Common StockHigh
    
    LowYear Ended October 31, 2008Quarter ended January 31, 2008
    
    $
    0.34
    
    
    $
    0.05Quarter ended April 30, 2008
    
    
    0.40
    
    
    
    0.06Quarter ended July 31, 2008
    
    
    0.40
    
    
    
    0.10Quarter ended October 31, 2008
    
    
    0.29
    
    
    
    0.09Year Ended October 31, 2007Quarter ended January 31, 2007
    
    $
    2.98
    
    
    $
    0.85Quarter ended April 30, 2007
    
    
    1.19
    
    
    
    0.82Quarter ended July 31, 2007
    
    
    2.21
    
    
    
    0.77Quarter ended October 31, 2007
    
    
    1.66
    
    
    
    0.15
  Dividend Policy
  Issuer Purchases of Equity Securities
  
 Item 6. Selected Financial Data
   28




---



##### Table of Contents



Years Ended October 31,2008
    
    2007
    
    2006
    
    2005
    
    2004(In thousands, except per share data)Selected Statement of Operations Data:Total revenue
    
    $
    15,568
    
    
    $
    21,656
    
    
    $
    29,239
    
    
    $
    36,004
    
    
    $
    42,809Gross margin
    
    $
    9,715
    
    
    $
    14,785
    
    
    $
    12,036
    
    
    $
    17,691
    
    
    $
    15,711Loss from operations
    
    $
    (6,157
    )
    
    $
    (6,505
    )
    
    $
    (17,357
    )
    
    $
    (11,899
    )
    
    $
    (28,573
    )Net loss
    
    $
    (8,687
    )
    
    $
    (6,826
    )
    
    $
    (16,598
    )
    
    $
    (10,726
    )
    
    $
    (16,227
    )Basic net loss per common share
    
    $
    (0.40
    )
    
    $
    (0.32
    )
    
    $
    (0.80
    )
    
    $
    (0.60
    )
    
    $
    (1.07
    )Diluted net loss per common share
    
    $
    (0.40
    )
    
    $
    (0.32
    )
    
    $
    (0.80
    )
    
    $
    (0.60
    )
    
    $
    (1.07
    )Weighted average basic common shares
    
    
    21,589
    
    
    
    21,264
    
    
    
    20,802
    
    
    
    17,924
    
    
    
    15,155Weighted average diluted common shares
    
    
    21,589
    
    
    
    21,264
    
    
    
    20,802
    
    
    
    17,924
    
    
    
    15,155
 As of October 31,2008
    
    2007
    
    2006
    
    2005
    
    2004(In thousands)Selected Balance Sheet Data:Cash and cash equivalents
    
    $
    1,237
    
    
    $
    5,554
    
    
    $
    5,369
    
    
    $
    4,272
    
    
    $
    12,693Working capital
    
    
    2,273
    
    
    
    6,445
    
    
    
    7,144
    
    
    
    8,669
    
    
    
    15,413Total assets
    
    
    7,983
    
    
    
    14,309
    
    
    
    23,409
    
    
    
    28,948
    
    
    
    55,400Long-term liabilities
    
    
    68
    
    
    
    182
    
    
    
    192
    
    
    
    338
    
    
    
    343Liabilities subject to compromise
    
    
    6,700
    
    
    
    3,365
    
    
    
    
    
    
    
    
    
    
    
    Common stock subject to rescission
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,018
    
    
    
    528Total stockholders (deficit) equity
    
    
    (4,130
    )
    
    
    3,754
    
    
    
    8,082
    
    
    
    11,337
    
    
    
    21,702
 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 This Managements Discussion and Analysis of Financial Condition and Results of Operations and
other parts of this Form 10-K 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, predicts, 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 discussed in the subsection entitled
Forward-Looking Statements and Factors That May Affect Future Results and Financial Condition and
the subsection entitled Risk Factors under Part I, Item 1A of this Form 10-K . The following
discussion should be read in conjunction with our consolidated financial statements and notes
thereto included in Part II, Item 8 of this Form 10-K . All information presented herein is based
on our fiscal year ended October 31, 2008. We assume no obligation to revise or update any
forward-looking statements for any reason, except as required by law.
 Recent Developments
 Novell, Inc. Ruling
  29




---



##### Table of Contents



30




---



##### Table of Contents



Bankruptcy Filing
      31




---



##### Table of Contents



Business Focus
 UNIX Business.
 32




---



##### Table of Contents



2008
    
    
    2007
    
    
    2006(In thousands)Revenue
    
    $
    15,568
    
    
    $
    21,623
    
    
    $
    29,123Cost of revenue
    
    
    2,053
    
    
    
    3,291
    
    
    
    4,896Gross margin
    
    
    13,515
    
    
    
    18,332
    
    
    
    24,227Sales and marketing
    
    
    8,255
    
    
    
    9,686
    
    
    
    12,048Research and development
    
    
    3,684
    
    
    
    6,077
    
    
    
    7,666General and administrative
    
    
    3,657
    
    
    
    5,527
    
    
    
    6,669Impairment of long-lived assets
    
    
    276
    
    
    
    
    
    
    
    Other (1)
    
    
    
    
    
    
    
    
    
    
    2,371Total operating expenses
    
    
    15,872
    
    
    
    21,290
    
    
    
    28,754Loss from operations
    
    $
    (2,357
    )
    
    $
    (2,958
    )
    
    $
    (4,527
    )
 
 (1)
    
    Other expense for the year ended October 31, 2006 represented
amortization of intangibles. The intangibles became fully amortized in October
2006.    SCOsource Business.
 33




---



##### Table of Contents



2008
    
    
    2007
    
    
    2006(In thousands)Revenue
    
    $
    
    
    
    $
    33
    
    
    $
    116Cost of revenue
    
    
    3,800
    
    
    
    3,580
    
    
    
    12,307Gross deficit
    
    
    (3,800
    )
    
    
    (3,547
    )
    
    
    (12,191
    )Sales and marketing
    
    
    
    
    
    
    
    
    
    
    1Research and development
    
    
    
    
    
    
    
    
    
    
    379General and administrative
    
    
    
    
    
    
    
    
    
    
    259Total operating expenses
    
    
    
    
    
    
    
    
    
    
    639Loss from operations
    
    $
    (3,800
    )
    
    $
    (3,547
    )
    
    $
    (12,830
    )
     Critical Accounting Estimates
  34




---



##### Table of Contents




    
    Revenue recognition;
    
    Valuation allowances against deferred income tax assets;
    
    Litigation reserves;
    
    Useful lives and impairment of property and equipment; and
    
    Allowances for doubtful accounts receivable.
 Revenue Recognition
      Valuation Allowances Against Deferred Income Tax Assets
 35




---



##### Table of Contents



Litigation Reserves.
 Part I, Item 3  Legal Proceedings.
  Useful Lives and Impairment of Property and Equipment
  Allowance for Doubtful Accounts Receivable
 36




---



##### Table of Contents



Results of Operations
  Years Ended October 31,2008
    
    
    2007
    
    
    2006(In thousands)Revenue:Products
    
    $
    12,974
    
    
    $
    17,488
    
    
    $
    24,063SCOsource
    
    
    
    
    
    
    33
    
    
    
    116Services
    
    
    2,594
    
    
    
    4,135
    
    
    
    5,060Total revenue
    
    
    15,568
    
    
    
    21,656
    
    
    
    29,239Cost of revenue:Products
    
    
    858
    
    
    
    1,329
    
    
    
    2,064SCOsource
    
    
    3,800
    
    
    
    3,580
    
    
    
    12,307Services
    
    
    1,195
    
    
    
    1,962
    
    
    
    2,832Total cost of revenue
    
    
    5,853
    
    
    
    6,871
    
    
    
    17,203Gross margin
    
    
    9,715
    
    
    
    14,785
    
    
    
    12,036Operating expenses:Sales and marketing
    
    
    8,255
    
    
    
    9,686
    
    
    
    12,049Research and development
    
    
    3,684
    
    
    
    6,077
    
    
    
    8,045General and administrative
    
    
    3,657
    
    
    
    5,527
    
    
    
    6,928Impairment of long-lived assets
    
    
    276
    
    
    
    
    
    
    
    Amortization of intangibles
    
    
    
    
    
    
    
    
    
    
    2,371Total operating expenses
    
    
    15,872
    
    
    
    21,290
    
    
    
    29,393Loss from operations
    
    
    (6,157
    )
    
    
    (6,505
    )
    
    
    (17,357
    )Equity in income (loss) of affiliate
    
    
    (17
    )
    
    
    108
    
    
    
    91Reorganization items
    
    
    (1,773
    )
    
    
    (700
    )
    
    
    Other income (expense), net
    
    
    (454
    )
    
    
    508
    
    
    
    759Provision for income taxes
    
    
    (286
    )
    
    
    (237
    )
    
    
    (91
    )Net loss
    
    $
    (8,687
    )
    
    $
    (6,826
    )
    
    $
    (16,598
    )
 Years Ended October 31, 2008, 2007 and 2006
 Revenue
 2008
    
    Change
    
    2007
    
    Change
    
    2006(Dollars in thousands)Revenue
    
    $
    15,568
    
    
    
    (28
    )%
    
    $
    21,656
    
    
    
    (26
    )%
    
    $
    29,239
   2008
    
    Change
    
    2007
    
    Change
    
    2006(Dollars in thousands)UNIX revenue
    
    $
    15,568
    
    
    
    (28
    )%
    
    $
    21,623
    
    
    
    (26
    )%
    
    $
    29,123Percentage of total revenue
    
    
    100
    %
    
    
    
    
    
    
    100
    %
    
    
    
    
    
    
    100
    %SCOsource revenue
    
    
    
    
    
    na
    
    
    33
    
    
    
    (72
    )%
    
    $
    116Percentage of total revenue
    
    
    0
    %
    
    
    
    
    
    
    0
    %
    
    
    
    
    
    
    0
    %
  37




---



##### Table of Contents



Products Revenue
 2008
    
    Change
    
    2007
    
    Change
    
    2006(Dollars in thousands)Product revenue
    
    $
    12,974
    
    
    
    (26
    )%
    
    $
    17,488
    
    
    
    (27
    )%
    
    $
    24,063Percentage of total revenue
    
    
    83
    %
    
    
    
    
    
    
    81
    %
    
    
    
    
    
    
    82
    %
    2008
    
    Change
    
    2007
    
    Change
    
    2006(Dollars in thousands)OpenServer revenue
    
    $
    8,814
    
    
    
    (18
    )%
    
    $
    10,729
    
    
    
    (24
    )%
    
    $
    14,098Percentage of products revenue
    
    
    68
    %
    
    
    
    
    
    
    62
    %
    
    
    
    
    
    
    59
    %UnixWare revenue
    
    
    3,032
    
    
    
    (37
    )%
    
    $
    4,782
    
    
    
    (36
    )%
    
    $
    7,521Percentage of products revenue
    
    
    23
    %
    
    
    
    
    
    
    27
    %
    
    
    
    
    
    
    31
    %Other products revenue
    
    
    1,128
    
    
    
    (43
    )%
    
    $
    1,977
    
    
    
    (19
    )%
    
    $
    2,444Percentage of products revenue
    
    
    9
    %
    
    
    
    
    
    
    11
    %
    
    
    
    
    
    
    10
    %
  38




---



##### Table of Contents



SCOsource Revenue
 2008
    
    Change
    
    2007
    
    Change
    
    2006(Dollars in thousands)SCOsource revenue
    
    $
    
    
    
    na
    
    $
    33
    
    
    
    (72
    )%
    
    $
    116Percentage of total revenue
    
    
    0
    %
    
    
    
    
    
    
    0
    %
    
    
    
    
    
    
    0
    %
  Services Revenue
 2008
    
    Change
    
    2007
    
    Change
    
    2006(Dollars in thousands)Services revenue
    
    $
    2,594
    
    
    
    (37
    )%
    
    $
    4,135
    
    
    
    (18
    )%
    
    $
    5,060Percentage of total revenue
    
    
    17
    %
    
    
    
    
    
    
    19
    %
    
    
    
    
    
    
    18
    %
   Cost of Products Revenue
 2008
    
    Change
    
    2007
    
    Change
    
    2006(Dollars in thousands)Cost of products revenue
    
    $
    858
    
    
    
    (35
    )%
    
    $
    1,329
    
    
    
    (36
    )%
    
    $
    2,064Percentage of products revenue
    
    
    7
    %
    
    
    
    
    
    
    8
    %
    
    
    
    
    
    
    9
    %
   Cost of SCOsource Revenue
 2008
    
    Change
    
    2007
    
    Change
    
    2006(Dollars in thousands)Cost of SCOsource revenue
    
    $
    3,800
    
    
    
    6
    %
    
    $
    3,580
    
    
    
    (71
    )%
    
    $
    12,307
  39




---



##### Table of Contents



Recent Developments,
  Cost of Services Revenue
 2008
    
    Change
    
    2007
    
    Change
    
    2006(Dollars in thousands)Cost of service revenue
    
    $
    1,195
    
    
    
    (39
    )%
    
    $
    1,962
    
    
    
    (31
    )%
    
    $
    2,832Percentage of service revenue
    
    
    46
    %
    
    
    
    
    
    
    47
    %
    
    
    
    
    
    
    56
    %
   Sales and Marketing
 2008
    
    Change
    
    2007
    
    Change
    
    2006(Dollars in thousands)Sales and marketing expense
    
    $
    8,255
    
    
    
    (15
    )%
    
    $
    9,686
    
    
    
    (20
    )%
    
    $
    12,049Percentage of total revenue
    
    
    53
    %
    
    
    
    
    
    
    45
    %
    
    
    
    
    
    
    41
    %
   40




---



##### Table of Contents



Research and Development
 2008
    
    Change
    
    2007
    
    Change
    
    2006(Dollars in thousands)Research and development expense
    
    $
    3,684
    
    
    
    (39
    )%
    
    $
    6,077
    
    
    
    (24
    )%
    
    $
    8,045Percentage of total revenue
    
    
    24
    %
    
    
    
    
    
    
    28
    %
    
    
    
    
    
    
    28
    %
   General and Administrative
 2008
    
    Change
    
    2007
    
    Change
    
    2006(Dollars in thousands)General and administrative expense
    
    $
    3,657
    
    
    
    (34
    )%
    
    $
    5,527
    
    
    
    (20
    )%
    
    $
    6,928Percentage of total revenue
    
    
    23
    %
    
    
    
    
    
    
    26
    %
    
    
    
    
    
    
    24
    %
   Impairment of long-lived assets
 2008
    
    Change
    
    2007
    
    Change
    
    2006(Dollars in thousands)Impairment of assets
    
    $
    276
    
    
    na
    
    $
    
    
    
    na
    
    $
    Percentage of total revenue
    
    
    1.8
    %
    
    
    
    
    
    
    0
    %
    
    
    
    
    
    
    0
    %During the year ended October 31, 2008, we recorded an asset impairment of $276,000 relating
to our property and equipment. This impairment was recorded due to the uncertainties surrounding
the Novell Litigation, and our ability to emerge from bankruptcy, including confirmation of our
plan of reorganization by the Bankruptcy Court.Amortization of Intangibles2008
    
    Change
    
    2007
    
    Change
    
    2006(Dollars in thousands)Amortization of intangibles
    
    $
    
    
    
    na
    
    $
    
    
    
    na
    
    $
    2,371Percentage of total revenue
    
    
    0
    %
    
    
    
    
    
    
    0
    %
    
    
    
    
    
    
    8
    %
  41




---



##### Table of Contents



Equity in Income of Affiliate
   Reorganization items
 2008
    
    Change
    
    2007
    
    Change
    
    2006(Dollars in thousands)Reorganization items
    
    $
    1,773
    
    
    
    153
    %
    
    $
    700
    
    
    na
    
    $
    
  Other Income,(Expense) net
  2008
    
    
    2007
    
    
    2006(In thousands)Interest expense
    
    $
    (970
    )
    
    $
    
    
    
    $
    Interest income
    
    
    135
    
    
    
    441
    
    
    
    720Other income, net
    
    
    381
    
    
    
    67
    
    
    
    39Total other income (expense),net
    
    $
    (454
    )
    
    $
    508
    
    
    $
    759
 Recent Developments.
   Provision for Income Taxes
    42




---



##### Table of Contents



Quarterly Results of Operations
   Quarter Ended(In thousands, except per share data)January 31,
    
    April 30,
    
    July 31,
    
    October 31,2008
    
    2008
    
    2008
    
    2008Revenue
    
    $
    4,872
    
    
    $
    3,661
    
    
    $
    3,739
    
    
    $
    3,296Gross margin
    
    
    3,886
    
    
    
    2,859
    
    
    
    390
    
    
    
    2,580Loss from operations
    
    
    (1,052
    )
    
    
    (1,469
    )
    
    
    (2,972
    )
    
    
    (664
    )Net loss
    
    
    (1,488
    )
    
    
    (2,070
    )
    
    
    (4,065
    )
    
    
    (1,064
    )Basic and diluted net loss per common share
    
    $
    (0.07
    )
    
    $
    (0.10
    )
    
    $
    (0.19
    )
    
    $
    (0.04
    )Weighted average basic diluted common shares
    
    
    21,563
    
    
    
    21,589
    
    
    
    21,589
    
    
    
    21,589
 Quarter Ended(In thousands, except per share data)January 31,
    
    April 30,
    
    July 31,
    
    October 31,2007
    
    2007
    
    2007
    
    2007Revenue
    
    $
    6,015
    
    
    $
    6,014
    
    
    $
    4,686
    
    
    $
    4,941Gross margin
    
    
    4,425
    
    
    
    4,067
    
    
    
    2,753
    
    
    
    3,540Loss from operations
    
    
    (1,097
    )
    
    
    (1,231
    )
    
    
    (2,511
    )
    
    
    (1,666
    )Net loss
    
    
    (1,024
    )
    
    
    (1,143
    )
    
    
    (2,398
    )
    
    
    (2,261
    )Basic and diluted net loss per common share
    
    $
    (0.05
    )
    
    $
    (0.05
    )
    
    $
    (0.11
    )
    
    $
    (0.11
    )Weighted average basic diluted common shares
    
    
    21,186
    
    
    
    21,233
    
    
    
    21,372
    
    
    
    21,485
 Fluctuations in Quarterly Results
  
    
    the impact of the recent negative ruling in our litigation with Novell and our upcoming
trial with Novell and our Chapter 11 bankruptcy filing;
    
    the interest level of solution providers in recommending UNIX business solutions to end
users as well as the changing business attitudes toward UNIX as a viable operating system
alternative to other competing systems, especially Linux;
    
    the contingency fees we may pay to the Law Firms representing us in the SCO Litigation;
    
    the level, magnitude and timing of SCOsource license revenue;
 43




---



##### Table of Contents




    
    the amount of legal fees and related expenses incurred in connection with the SCO
Litigation;
    
    the introduction, development, timing, competitive pricing and market acceptance of our
products and services and those of our competitors; and
    
    changes in general economic conditions that could affect capital expenditures in the
UNIX market.
  Liquidity and Capital Resources
 Managements Discussion and Analysis of
Financial Condition and Results of OperationsRecent Developments, Bankruptcy Filing.
       44




---



##### Table of Contents




    
    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.
  45




---



##### Table of Contents



Contractual Obligations
   Less than
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    1 year
    
    1-3 years
    
    3-5 years
    
    5 years(Dollars in thousands)Operating lease obligations
    
    $
    1,300
    
    
    $
    354
    
    
    $
    720
    
    
    $
    226
    
    
    $
    
   Risk Factors Part I, Item 1A
   46




---



##### Table of Contents



Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes,
  47




---



##### Table of Contents



Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans,
 The Fair Value Option for Financial Assets
and Financial Liabilities  including an amendment of FAS 115.
 Business Combinations.
 Noncontrolling Interests in Consolidated
Financial Statements  an amendment of ARB No. 51.
 Accounting for Share Based Payments
 48




---



##### Table of Contents



Determination of the Useful Life of
Intangible Assets Goodwill and Other Intangible Assets.
 The Hierarchy of Generally Accepted Accounting
Principles The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles
 Determining Whether Instruments Granted
in Share-Based Payment Transactions are Participating Securities Earnings per Share
 Forward-Looking Statements and Factors That May Affect Future Results and Financial Condition
  
    
    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 defend 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;
 49




---



##### Table of Contents




    
    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 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 business and pursue the SCO Litigation;
    
    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 material 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 our sales channel should continue to provide reliable UNIX
operating systems for small-to-medium business customers;
    
    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 to continue to pursue the SCO Litigation and run our UNIX business,
subject to Bankruptcy Court approval;
    
    Our expectation that maintaining our strategic alliances with solution providers during
the year ending October 31, 2009 will be critical to the success of our UNIX business;
    
    Our intention to keep our relationships with key partners in certain vertical markets;
    
    Our belief that our bad debts and our allowance for doubtful accounts receivable will
remain consistent with our prior experience;
    
    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 for the year ending October 31, 2009 that the dollar amount of expert,
consulting and other expenses relating to our litigation with IBM will decrease, although
it will continue to be material to our financial statements and cash position;
    
    Our expectation for the year ending October 31, 2009 that the dollar amount of our cost
of products revenue will be lower than the dollar amount of our cost of products revenue
during the
 50




---



##### Table of Contents



year ended October 31, 2008 and the percentage of products revenue to be consistent with
the percentage achieved during the year ended October 31, 2008;
 
    
    Our expectation for the year ending October 31, 2009 that the dollar amount of our cost
of SCOsource revenue will be lower than for the year ended October 31, 2008, exclusive of
any potential contingency payments;
    
    Our expectation for the year ending October 31, 2009 that the dollar amount of our cost
of services revenue will be less than the dollar amount of our cost of services revenue
incurred for the year ended October 31, 2008 and that the cost of services revenue as a
percentage of revenue will be consistent to that generated for the year ended October 31,
2008;
    
    Our expectation for the year ending October 31, 2009 that the dollar amount of our
sales and marketing expenses will decrease from the year ended October 31, 2008;
    
    Our expectation for the year ending October 31, 2009 that the dollar amount of our
research and development expenses will decrease from the year ended October 31, 2008;
    
    Our expectation for the year ending October 31, 2009 that the dollar amount of our
general and administrative expenses will decrease from the year ended October 31, 2008;
and
    
    Our belief that certain legal actions to which we are a party will not have a material
adverse effect on us.
 Part I, Item 1A-Risk Factors
 
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk
 Foreign Currency Risk.
 Interest Rate Risk.
 Investment Risk.
 51




---



##### Table of Contents



52




---



##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 Index to Consolidated Financial Statements and Financial Statement Schedule
 PageConsolidated Financial Statements:Report of Independent Registered Public Accounting Firm
    
    
    54Consolidated Balance Sheets as of October 31, 2008 and 2007
    
    
    55Consolidated Statements of Operations and Comprehensive Loss for the Years Ended October 31, 2008, 2007 and 2006
    
    
    56Consolidated Statements of Stockholders Equity (Deficit) for the Years Ended October 31, 2008, 2007 and 2006
    
    
    57Consolidated Statements of Cash Flows for the Years Ended October 31, 2008, 2007 and 2006
    
    
    58Notes to Consolidated Financial Statements
    
    
    59Financial Statement Schedule:Schedule II  Valuation and Qualifying Accounts
    
    
    84
 53




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
      
 54




---



##### Table of Contents



As of October 31,2008
    
    
    2007ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    1,237
    
    
    $
    5,554Restricted cash
    
    
    2,308
    
    
    
    3,099Accounts receivable, net of allowance for doubtful accounts
of $94 and $85, respectively
    
    
    2,801
    
    
    
    3,365Prepaid reorganization expenses
    
    
    415
    
    
    
    137Other
    
    
    857
    
    
    
    1,298Total current assets
    
    
    7,618
    
    
    
    13,453PROPERTY AND EQUIPMENT:Computer and office equipment
    
    
    
    
    
    
    2,006Leasehold improvements
    
    
    
    
    
    
    268Furniture and fixtures
    
    
    
    
    
    
    66
    
    
    
    2,340Less accumulated depreciation and amortization
    
    
    
    
    
    
    (1,981
    )Net property and equipment
    
    
    
    
    
    
    359OTHER ASSETS
    
    
    365
    
    
    
    497Total assets
    
    $
    7,983
    
    
    $
    14,309LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)CURRENT LIABILITIES:Accounts payable
    
    $
    608
    
    
    $
    252Payable to Novell, Inc.
    
    
    632
    
    
    
    1,148Accrued payroll and benefits
    
    
    875
    
    
    
    1,370Accrued liabilities
    
    
    537
    
    
    
    1,110Accrued reorganization expenses
    
    
    336
    
    
    
    253Deferred revenues
    
    
    1,619
    
    
    
    2,044Royalties payable
    
    
    107
    
    
    
    123Income taxes payable
    
    
    631
    
    
    
    708Total current liabilities
    
    
    5,345
    
    
    
    7,008LONG-TERM LIABILITIES
    
    
    68
    
    
    
    182LIABILITIES SUBJECT TO COMPROMISE
    
    
    6,700
    
    
    
    3,365Total liabilities
    
    
    12,113
    
    
    
    10,555COMMITMENTS AND CONTINGENCIES (Notes 1,4,5 and 7)STOCKHOLDERS EQUITY (DEFICIT):Common stock, $0.001 par value: 45,000 shares authorized,
21,886 and 21,782 shares outstanding, respectively
    
    
    22
    
    
    
    22Additional paid-in capital
    
    
    264,339
    
    
    
    262,659Common stock held in treasury: 297 shares
    
    
    (2,446
    )
    
    
    (2,446
    )Warrants outstanding
    
    
    
    
    
    
    856Accumulated other comprehensive income
    
    
    1,008
    
    
    
    1,029Accumulated deficit
    
    
    (267,053
    )
    
    
    (258,366
    )Total stockholders equity (deficit)
    
    
    (4,130
    )
    
    
    3,754Total liabilities and stockholders equity (deficit)
    
    $
    7,983
    
    
    $
    14,309
  55




---



##### Table of Contents



Year Ended October 31,2008
    
    
    2007
    
    
    2006REVENUES:Products
    
    $
    12,974
    
    
    $
    17,488
    
    
    $
    24,063SCOsource
    
    
    
    
    
    
    33
    
    
    
    116Services
    
    
    2,594
    
    
    
    4,135
    
    
    
    5,060Total revenues
    
    
    15,568
    
    
    
    21,656
    
    
    
    29,239COST OF REVENUES:Products
    
    
    858
    
    
    
    1,329
    
    
    
    2,064SCOsource
    
    
    3,800
    
    
    
    3,580
    
    
    
    12,307Services
    
    
    1,195
    
    
    
    1,962
    
    
    
    2,832Total cost of revenues
    
    
    5,853
    
    
    
    6,871
    
    
    
    17,203GROSS MARGIN
    
    
    9,715
    
    
    
    14,785
    
    
    
    12,036OPERATING EXPENSES:Sales and marketing
    
    
    8,255
    
    
    
    9,686
    
    
    
    12,049Research and development
    
    
    3,684
    
    
    
    6,077
    
    
    
    8,045General and administrative
    
    
    3,657
    
    
    
    5,527
    
    
    
    6,928Impairment of long-lived assets
    
    
    276
    
    
    
    
    
    
    
    Amortization of intangibles
    
    
    
    
    
    
    
    
    
    
    2,371Total operating expenses
    
    
    15,872
    
    
    
    21,290
    
    
    
    29,393LOSS FROM OPERATIONS
    
    
    (6,157
    )
    
    
    (6,505
    )
    
    
    (17,357
    )EQUITY IN INCOME (LOSS) OF AFFILIATE
    
    
    (17
    )
    
    
    108
    
    
    
    91OTHER INCOME (EXPENSE):Reorganization expense
    
    
    (1,773
    )
    
    
    (700
    )
    
    
    Interest expense
    
    
    (970
    )
    
    
    
    
    
    
    Interest income
    
    
    135
    
    
    
    441
    
    
    
    720Other income, net
    
    
    381
    
    
    
    67
    
    
    
    39Total other income (expense), net
    
    
    (2,227
    )
    
    
    (192
    )
    
    
    759LOSS BEFORE PROVISION FOR INCOME TAXES
    
    
    (8,401
    )
    
    
    (6,589
    )
    
    
    (16,507
    )BENEFIT (PROVISION) FOR INCOME TAXES
    
    
    (286
    )
    
    
    (237
    )
    
    
    (91
    )NET LOSS
    
    $
    (8,687
    )
    
    $
    (6,826
    )
    
    $
    (16,598
    )BASIC AND DILUTED NET LOSS PER COMMON SHARE
    
    $
    (0.40
    )
    
    $
    (0.32
    )
    
    $
    (0.80
    )WEIGHTED AVERAGE BASIC AND DILUTED COMMON SHARES OUTSTANDING
    
    
    21,589
    
    
    
    21,264
    
    
    
    20,802OTHER COMPREHENSIVE LOSS:Net loss
    
    $
    (8,687
    )
    
    $
    (6,826
    )
    
    $
    (16,598
    )Foreign currency translation adjustment
    
    
    (21
    )
    
    
    97
    
    
    
    58Unrealized gain on available-for-sale marketable securities
    
    
    
    
    
    
    
    
    
    
    40COMPREHENSIVE LOSS
    
    $
    (8,708
    )
    
    $
    (6,729
    )
    
    $
    (16,500
    )
  56




---



##### Table of Contents



AccumulatedAdditional
    
    
    Common Stock
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Paid-in
    
    
    Held in Treasury
    
    
    Warrants
    
    
    Comprehensive
    
    
    AccumulatedShares
    
    
    Amount
    
    
    Capital
    
    
    Shares
    
    
    Amount
    
    
    Outstanding
    
    
    Income
    
    
    Deficit
    
    
    TotalBalance, October 31, 2005
    
    
    18,331
    
    
    $
    18
    
    
    $
    246,985
    
    
    
    290
    
    
    $
    (2,414
    )
    
    $
    856
    
    
    $
    834
    
    
    $
    (234,942
    )
    
    $
    11,337Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,802
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,802Unrealized gain on available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40
    
    
    
    
    
    
    
    40Cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58
    
    
    
    
    
    
    
    58Issuance of common shares upon exercise of stock options
    
    
    29
    
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35Issuance of common shares under employee stock purchase program
    
    
    179
    
    
    
    
    
    
    
    613
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    613Issuance of common stock in a private placement, net of
issuance costs
    
    
    2,852
    
    
    
    3
    
    
    
    9,806
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,809Common stock subject to rescission
    
    
    
    
    
    
    
    
    
    
    1,018
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,018Acquisition of treasury shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    (32
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,598
    )
    
    
    (16,598
    )Balance, October 31, 2006
    
    
    21,391
    
    
    
    21
    
    
    
    260,259
    
    
    
    297
    
    
    
    (2,446
    )
    
    
    856
    
    
    
    932
    
    
    
    (251,540
    )
    
    
    8,082Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,908
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,908Cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    97
    
    
    
    
    
    
    
    97Issuance of common shares upon exercise of stock options
    
    
    52
    
    
    
    
    
    
    
    57
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57Issuance of common shares under employee stock purchase program
    
    
    339
    
    
    
    1
    
    
    
    435
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    436Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,826
    )
    
    
    (6,826
    )Balance, October 31, 2007
    
    
    21,782
    
    
    
    22
    
    
    
    262,659
    
    
    
    297
    
    
    
    (2,446
    )
    
    
    856
    
    
    
    1,029
    
    
    
    (258,366
    )
    
    
    3,754Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    802
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    802Cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21
    )
    
    
    
    
    
    
    (21
    )Shares returned by stockholder
    
    
    (12
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common shares under employee stock purchase program
    
    
    116
    
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22Expiration of warrants
    
    
    
    
    
    
    
    
    
    
    856
    
    
    
    
    
    
    
    
    
    
    
    (856
    )
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,687
    )
    
    
    (8,687
    )Balance, October 31, 2008
    
    
    21,886
    
    
    $
    22
    
    
    $
    264,339
    
    
    
    297
    
    
    $
    (2,446
    )
    
    $
    
    
    
    $
    1,008
    
    
    $
    (267,053
    )
    
    $
    (4,130
    )
  57




---



##### Table of Contents



Year Ended October 31,2008
    
    
    2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (8,687
    )
    
    $
    (6,826
    )
    
    $
    (16,598
    )Adjustments to reconcile net loss to net cash used in operating
activities:Amortization of intangibles (including $0, $0 and $336
classified as cost of SCOsource, respectively)
    
    
    
    
    
    
    
    
    
    
    2,707Stock-based compensation
    
    
    802
    
    
    
    1,908
    
    
    
    1,802Depreciation and amortization
    
    
    219
    
    
    
    306
    
    
    
    302Loss on disposition and impairment of long-lived assets
    
    
    297
    
    
    
    33
    
    
    
    8Equity in income (loss) of affiliate
    
    
    17
    
    
    
    (108
    )
    
    
    (91
    )Reorganization expense
    
    
    1,773
    
    
    
    700
    
    
    
    Changes in operating assets and liabilities:Restricted cash
    
    
    275
    
    
    
    3,213
    
    
    
    (2,171
    )Accounts receivable, net
    
    
    564
    
    
    
    1,758
    
    
    
    1,220Other current assets
    
    
    441
    
    
    
    216
    
    
    
    940Other assets
    
    
    
    
    
    
    133
    
    
    
    Accounts payable
    
    
    356
    
    
    
    (287
    )
    
    
    141Accrued payroll and benefits
    
    
    (495
    )
    
    
    (967
    )
    
    
    (149
    )Accrued liabilities
    
    
    (573
    )
    
    
    (776
    )
    
    
    (59
    )Deferred revenue
    
    
    (425
    )
    
    
    (950
    )
    
    
    (847
    )Royalties payable
    
    
    (16
    )
    
    
    (211
    )
    
    
    33Income taxes payable
    
    
    (77
    )
    
    
    (112
    )
    
    
    (402
    )Long-term liabilities
    
    
    (114
    )
    
    
    (10
    )
    
    
    (146
    )Liabilities subject to compromise
    
    
    3,335
    
    
    
    
    
    
    
    Payments for reorganization expense
    
    
    (1,968
    )
    
    
    (584
    )
    
    
    Net cash used in operating activities
    
    
    (4,276
    )
    
    
    (2,546
    )
    
    
    (13,310
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property and equipment
    
    
    (157
    )
    
    
    (90
    )
    
    
    (340
    )Dividends received
    
    
    115
    
    
    
    
    
    
    
    308Purchase of available-for-sale marketable securities
    
    
    
    
    
    
    
    
    
    
    (6,691
    )Proceeds from sale of available-for-sale marketable securities
    
    
    
    
    
    
    2,249
    
    
    
    10,607Net cash (used in) provided by investing activities
    
    
    (42
    )
    
    
    2,159
    
    
    
    3,884CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from sale of common stock through employee stock
purchase program
    
    
    22
    
    
    
    436
    
    
    
    613Proceeds from exercise of common stock options
    
    
    
    
    
    
    57
    
    
    
    35Repurchase of common stock
    
    
    
    
    
    
    
    
    
    
    (32
    )Proceeds from sale of common stock in a private placement, net
of issuance costs
    
    
    
    
    
    
    
    
    
    
    9,809Net cash provided by financing activities
    
    
    22
    
    
    
    493
    
    
    
    10,425NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (4,296
    )
    
    
    88
    
    
    
    999EFFECT OF FOREIGN EXCHANGE RATES ON CASH
    
    
    (21
    )
    
    
    97
    
    
    
    98CASH AND CASH EQUIVALENTS, beginning of period
    
    
    5,554
    
    
    
    5,369
    
    
    
    4,272CASH AND CASH EQUIVALENTS, end of period
    
    $
    1,237
    
    
    $
    5,554
    
    
    $
    5,369SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid for income taxes
    
    $
    190
    
    
    $
    300
    
    
    $
    286SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:Non cash financing activity  expiration of warrants
    
    $
    856
    
    
    $
    
    
    
    $
    Non cash financing activity  decrease in common stock
subject to rescission
    
    $
    
    
    
    $
    
    
    
    $
    (1,018
    )
  58




---



##### Table of Contents



THE SCO GROUP, INC. AND SUBSIDIARIES (DEBTORS-IN-POSSESSION)
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (1) DESCRIPTION OF THE BUSINESS AND GOING CONCERN
      Novell, Inc. Ruling.
  59




---



##### Table of Contents



60




---



##### Table of Contents



Bankruptcy Filing
        61




---



##### Table of Contents



Going Concern
 .
 (2) SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
  Financial
Reporting by Entities in Reorganization under Bankruptcy Code (SOP 90-7)
 62




---



##### Table of Contents



Use of Estimates in the Preparation of Financial Statements
  Principles of Consolidation
   Subsidiary
    
    LocationSCO Operations, Inc.
    
    United StatesSCO Global, Inc.
    
    United StatesSCO Software (UK) Ltd.
    
    United KingdomSCO Japan, Ltd.
    
    JapanSCO Canada, Inc.
    
    CanadaThe SCO Group (Deutschland) GmbH
    
    GermanyThe SCO Group (France) Sarl
    
    FranceSCO Software (India) Private Ltd.
    
    IndiaME Inc.
    
    United StatesCattleback Intellectual Property Holdings, Inc.
    
    United States
 Fair Value of Financial Instruments
  Foreign Currency Translation
  63




---



##### Table of Contents



Cash and Cash Equivalents
  Restricted Cash and Payable to Novell, Inc.
   Allowance for Doubtful Accounts Receivable
  Inventories
   Capitalized Software Costs
 Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed
 Impairment of Long-Lived Assets
  64




---



##### Table of Contents



Property and Equipment
    Revenue Recognition
      65




---



##### Table of Contents



Royalty Costs
  Advertising
  Income Taxes
  Comprehensive Loss
  Net Loss per Common Share
   66




---



##### Table of Contents



(3) INVESTMENTS IN NON-MARKETABLE SECURITIES
    Investment Impairments and Write-offs
  (4) COMMON STOCK SUBJECT TO RESCISSION
     67




---



##### Table of Contents



(5) STOCKHOLDERS EQUITY
 Stock Options
      68




---



##### Table of Contents



Weighted AverageOptions
    
    Exercise Price(Options in thousands)Balance, October 31, 2005
    
    
    3,824
    
    
    $
    4.17Granted
    
    
    1,065
    
    
    
    3.84Exercised
    
    
    (29
    )
    
    
    1.21Cancelled
    
    
    (139
    )
    
    
    3.97Balance, October 31, 2006
    
    
    4,721
    
    
    
    4.12Granted
    
    
    1,279
    
    
    
    1.88Exercised
    
    
    (52
    )
    
    
    1.09Cancelled
    
    
    (932
    )
    
    
    4.36Balance, October 31, 2007
    
    
    5,016
    
    
    
    3.53Granted
    
    
    986
    
    
    
    0.23Exercised
    
    
    
    
    
    
    Cancelled
    
    
    (814
    )
    
    
    4.12Balance, October 31, 2008
    
    
    5,188
    
    
    $
    2.82
   Options Outstanding
    
    Options ExercisableWeighted
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    Average
    
    
    
    
    
    AverageOptions
    
    Contractual
    
    Exercise
    
    Options
    
    ExerciseExercise Prices
    
    Outstanding
    
    Life
    
    Price
    
    Exercisable
    
    Price$0.08 - $  1.10
    
    
    2,081
    
    
    7.10
    years
    
    $
    0.55
    
    
    
    1,113
    
    
    $
    0.79$1.12 - $  2.30
    
    
    1,180
    
    
    
    5.86
    
    
    
    1.99
    
    
    
    947
    
    
    
    1.91$3.00 - $  3.78
    
    
    559
    
    
    
    6.83
    
    
    
    3.68
    
    
    
    431
    
    
    
    3.68$3.93 - $  4.86
    
    
    917
    
    
    
    6.09
    
    
    
    4.44
    
    
    
    892
    
    
    
    4.44$5.05 - $24.00
    
    
    451
    
    
    
    4.89
    
    
    
    11.08
    
    
    
    451
    
    
    
    11.085,188
    
    
    6.42
    years
    
    $
    2.82
    
    
    
    3,834
    
    
    $
    3.45
  2000 Employee Stock Purchase Plan
  69




---



##### Table of Contents



Stock-based Compensation
 Accounting for Stock
Issued to Employees
 Share Based Payment
  2008
    
    
    2007
    
    
    2006(In thousands)Cost of products
    
    $
    4
    
    
    $
    7
    
    
    $
    19Cost of SCOsource
    
    
    220
    
    
    
    282
    
    
    
    231Cost of services
    
    
    26
    
    
    
    41
    
    
    
    67Sales and marketing
    
    
    184
    
    
    
    376
    
    
    
    371Research and development
    
    
    52
    
    
    
    200
    
    
    
    140General and administrative
    
    
    316
    
    
    
    1,002
    
    
    
    974Total stock-based compensation
    
    $
    802
    
    
    $
    1,908
    
    
    $
    1,802
  70




---



##### Table of Contents



2008
    
    2007
    
    2006Risk-free interest rate
    
    
    3.0
    %
    
    
    4.5
    %
    
    
    4.8
    %Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Volatility
    
    
    187.7
    %
    
    
    116.7
    %
    
    
    66.2
    %Expected exercise life (in years)
    
    
    5.6
    
    
    
    5.0
    
    
    
    5.0
  Repurchase of Common Stock
  Stockholder Rights Plan
   Change in Control Agreements
   Accounting for Certain Transactions Involving Stock Compensation,
  71




---



##### Table of Contents



(6) INCOME TAXES
  2008
    
    
    2007
    
    
    2006(In thousands)Domestic U.S. Operations
    
    $
    (8,931
    )
    
    $
    (7,263
    )
    
    $
    (16,817
    )Foreign operations
    
    
    530
    
    
    
    674
    
    
    
    310Total
    
    $
    (8,401
    )
    
    $
    (6,589
    )
    
    $
    (16,507
    )
  2008
    
    
    2007
    
    
    2006(In thousands)CurrentU.S. state
    
    $
    
    
    
    $
    
    
    
    $
    Non-U.S.
    
    
    286
    
    
    
    237
    
    
    
    91Total current
    
    
    286
    
    
    
    237
    
    
    
    91Deferred:U.S. federal
    
    
    (3,612
    )
    
    
    (1,902
    )
    
    
    (6,221
    )U.S. state
    
    
    (600
    )
    
    
    (283
    )
    
    
    (925
    )Change in valuation allowance
    
    
    4,216
    
    
    
    2,185
    
    
    
    7,146Total deferred
    
    
    
    
    
    
    
    
    
    
    Total provision for income taxes
    
    $
    286
    
    
    $
    237
    
    
    $
    91
   2008
    
    
    2007(In thousands)Deferred income tax assets:Net operating loss carry-forward
    
    $
    70,348
    
    
    $
    66,714Intangible assets
    
    
    5,161
    
    
    
    6,248Tax basis in excess of book basis
related to acquired assets
    
    
    2,401
    
    
    
    2,896Reserves and accrued expenses
    
    
    2,401
    
    
    
    401Stock compensation
    
    
    1,743
    
    
    
    1,434Book depreciation in excess of tax
    
    
    217
    
    
    
    321Deferred revenue
    
    
    283
    
    
    
    242Basis difference in investments
    
    
    232
    
    
    
    181Capital loss carry-forward
    
    
    
    
    
    
    133Total deferred income tax assets
    
    
    82,786
    
    
    
    78,570Valuation allowance
    
    
    (82,786
    )
    
    
    (78,570
    )Net deferred income tax assets
    
    $
    
    
    
    $
    
  72




---



##### Table of Contents



2008
    
    2007
    
    2006Benefit at statutory rate
    
    
    (35.0
    )%
    
    
    (35.0
    )%
    
    
    (35.0
    )%Permanent financial reporting to tax difference
    
    
    0.1
    %
    
    
    0.2
    %
    
    
    0.2
    %Foreign income taxes
    
    
    3.2
    %
    
    
    3.3
    %
    
    
    0.5
    %Change in valuation allowance
    
    
    35.1
    %
    
    
    34.8
    %
    
    
    34.8
    %Total provision for income taxes
    
    
    3.4
    %
    
    
    3.3
    %
    
    
    0.5
    %
 (7) COMMITMENTS AND CONTINGENCIES
 IBM Corporation
 The SCO Group, Inc. v. International Business Machines Corporation, Civil No. 2:03CV0294.
   73




---



##### Table of Contents



Novell, Inc.
 The SCO Group, Inc. v. Novell, Inc., Civil No. 2:04CV00139
  74




---



##### Table of Contents



75




---



##### Table of Contents



de minimis
      76




---



##### Table of Contents



IPO Class Action Matter
       Red Hat, Inc.
 Red
Hat, Inc. v. The SCO
 77




---



##### Table of Contents



Group, Inc., Civil No. 03-772
 AutoZone, Inc.
  Other Matters
    Operating Lease Agreements
  78




---



##### Table of Contents



OperatingLeases(In thousands)Year ending October 31,2009
    
    $
    3542010
    
    
    2692011
    
    
    2252012
    
    
    2262013
    
    
    226Thereafter
    
    
    Total minimum payments
    
    $
    1,300
  Contingency Arrangement with Law Firms
  
    
    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.
  (8) RELATED PARTY TRANSACTIONS
   (9) EMPLOYEE BENEFIT PLAN
  (10) CONCENTRATION OF RISK
  79




---



##### Table of Contents



80




---



##### Table of Contents



(12) SEGMENT INFORMATION AND GEOGRAPHIC REGIONS
 Segments
  Year Ended October 31, 2008UNIX
    
    
    SCOsource
    
    
    Total(In thousands)Revenue
    
    $
    15,568
    
    
    $
    
    
    
    $
    15,568Cost of revenue
    
    
    2,053
    
    
    
    3,800
    
    
    
    5,853Gross margin (deficit)
    
    
    13,515
    
    
    
    (3,800
    )
    
    
    9,715Sales and marketing
    
    
    8,255
    
    
    
    
    
    
    
    8,255Research and development
    
    
    3,684
    
    
    
    
    
    
    
    3,684General and administrative
    
    
    3,657
    
    
    
    
    
    
    
    3,657Impairment of long-lived assets
    
    
    276
    
    
    
    
    
    
    
    276Total operating expense
    
    
    15,872
    
    
    
    
    
    
    
    15,872Loss from operations
    
    $
    (2,357
    )
    
    $
    (3,800
    )
    
    $
    (6,157
    )
 Year Ended October 31, 2007UNIX
    
    
    SCOsource
    
    
    Total(In thousands)Revenue
    
    $
    21,623
    
    
    $
    33
    
    
    $
    21,656Cost of revenue
    
    
    3,291
    
    
    
    3,580
    
    
    
    6,871Gross margin (deficit)
    
    
    18,332
    
    
    
    (3,547
    )
    
    
    14,785Sales and marketing
    
    
    9,686
    
    
    
    
    
    
    
    9,686Research and development
    
    
    6,077
    
    
    
    
    
    
    
    6,077General and administrative
    
    
    5,527
    
    
    
    
    
    
    
    5,527Total operating expense
    
    
    21,290
    
    
    
    
    
    
    
    21,290Loss from operations
    
    $
    (2,958
    )
    
    $
    (3,547
    )
    
    $
    (6,505
    )
 Year Ended October 31, 2006UNIX
    
    
    SCOsource
    
    
    Total(In thousands)Revenue
    
    $
    29,123
    
    
    $
    116
    
    
    $
    29,239Cost of revenue
    
    
    4,896
    
    
    
    12,307
    
    
    
    17,203Gross margin (deficit)
    
    
    24,227
    
    
    
    (12,191
    )
    
    
    12,036Sales and marketing
    
    
    12,048
    
    
    
    1
    
    
    
    12,049Research and development
    
    
    7,666
    
    
    
    379
    
    
    
    8,045General and administrative
    
    
    6,669
    
    
    
    259
    
    
    
    6,928Other
    
    
    2,371
    
    
    
    
    
    
    
    2,371Total operating expense
    
    
    28,754
    
    
    
    639
    
    
    
    29,393Loss from operations
    
    $
    (4,527
    )
    
    $
    (12,830
    )
    
    $
    (17,357
    )
 81




---



##### Table of Contents



Geographic Regions
  Year Ended October 31, 2008Americas
    
    
    International
    
    
    Corporate
    
    
    Total(In thousands)Revenue
    
    $
    6,729
    
    
    $
    8,839
    
    
    $
    
    
    
    $
    15,568Cost of revenue
    
    
    4,466
    
    
    
    1,139
    
    
    
    248
    
    
    
    5,853Gross margin (deficit)
    
    
    2,263
    
    
    
    7,700
    
    
    
    (248
    )
    
    
    9,715Sales and marketing
    
    
    3,490
    
    
    
    4,581
    
    
    
    184
    
    
    
    8,255Research and development
    
    
    1,570
    
    
    
    2,061
    
    
    
    53
    
    
    
    3,684General and administrative
    
    
    1,444
    
    
    
    1,897
    
    
    
    316
    
    
    
    3,657Impairment of long-lived assets
    
    
    254
    
    
    
    22
    
    
    
    
    
    
    
    276Total operating expense
    
    
    6,758
    
    
    
    8,561
    
    
    
    553
    
    
    
    15,872Loss from operations
    
    $
    (4,495
    )
    
    $
    (861
    )
    
    $
    (801
    )
    
    $
    (6,157
    )
 Year Ended October 31, 2007Americas
    
    
    International
    
    
    Corporate
    
    
    Total(In thousands)Revenue
    
    $
    10,737
    
    
    $
    10,919
    
    
    $
    
    
    
    $
    21,656Cost of revenue
    
    
    4,981
    
    
    
    1,560
    
    
    
    330
    
    
    
    6,871Gross margin (deficit)
    
    
    5,756
    
    
    
    9,359
    
    
    
    (330
    )
    
    
    14,785Sales and marketing
    
    
    4,609
    
    
    
    4,688
    
    
    
    389
    
    
    
    9,686Research and development
    
    
    2,913
    
    
    
    2,961
    
    
    
    203
    
    
    
    6,077General and administrative
    
    
    1,886
    
    
    
    2,630
    
    
    
    1,011
    
    
    
    5,527Total operating expense
    
    
    9,408
    
    
    
    10,279
    
    
    
    1,603
    
    
    
    21,290Loss from operations
    
    $
    (3,652
    )
    
    $
    (920
    )
    
    $
    (1,933
    )
    
    $
    (6,505
    )
 Year Ended October 31, 2006Americas
    
    
    International
    
    
    Corporate
    
    
    Total(In thousands)Revenue
    
    $
    15,749
    
    
    $
    13,490
    
    
    $
    
    
    
    $
    29,239Cost of revenue
    
    
    14,960
    
    
    
    1,926
    
    
    
    317
    
    
    
    17,203Gross margin (deficit)
    
    
    789
    
    
    
    11,564
    
    
    
    (317
    )
    
    
    12,036Sales and marketing
    
    
    4,896
    
    
    
    6,782
    
    
    
    371
    
    
    
    12,049Research and development
    
    
    4,258
    
    
    
    3,647
    
    
    
    140
    
    
    
    8,045General and administrative
    
    
    3,207
    
    
    
    2,747
    
    
    
    974
    
    
    
    6,928Other
    
    
    
    
    
    
    
    
    
    
    2,371
    
    
    
    2,371Total operating expense
    
    
    12,361
    
    
    
    13,176
    
    
    
    3,856
    
    
    
    29,393Loss from operations
    
    $
    (11,572
    )
    
    $
    (1,612
    )
    
    $
    (4,173
    )
    
    $
    (17,357
    )
  October 31,2008
    
    
    2007(In thousands)Long-lived assets:Americas
    
    $
    
    
    
    $
    294International
    
    
    
    
    
    
    65Total long-lived assets
    
    $
    
    
    
    $
    359
 82




---



##### Table of Contents



(13) SUBSEQUENT EVENT
  83




---



##### Table of Contents



THE SCO GROUP, INC. AND SUBSIDIARIES
 SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
 Year Ended October 31, 2008Balance at
    
    Charged to
    
    
    
    
    
    Balance atBeginning
    
    Costs and
    
    
    
    
    
    End ofDescription
    
    of Period
    
    Expenses
    
    Deductions
    
    Period(In thousands)Allowance for doubtful
accounts receivable:Year ended October 31, 2008
    
    $
    85
    
    
    $
    186
    
    
    $
    (177
    ) a
    
    $
    94Year ended October 31, 2007
    
    
    106
    
    
    
    (1
    )
    
    
    (20
    ) a
    
    
    85Year ended October 31, 2006
    
    
    144
    
    
    
    10
    
    
    
    (48
    ) a
    
    
    106Inventory reserves:Year ended October 31, 2008
    
    
    53
    
    
    
    3
    
    
    
    
    
    
    
    56Year ended October 31, 2007
    
    
    29
    
    
    
    24
    
    
    
    
    
    
    
    53Year ended October 31, 2006
    
    
    71
    
    
    
    (42
    )
    
    
    
    
    
    
    29Allowance for sales returns:Year ended October 31, 2008
    
    
    315
    
    
    $
    (198
    )
    
    $
    (15
    ) b
    
    $
    102Year ended October 31, 2007
    
    
    308
    
    
    
    301
    
    
    
    (294
    ) b
    
    
    315Year ended October 31, 2006
    
    
    587
    
    
    
    (23
    )
    
    
    (256
    ) b
    
    
    308
 a
    
    Represents write-offs of uncollectible accounts receivableb
    
    Represents product returns 84




---



##### Table of Contents



Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
 Evaluation of disclosure controls and procedures.
 Managements annual report on internal control over financial reporting.
    Changes in internal control over financial reporting.
 
 Item 9B. Other Information
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
  85




---



##### Table of Contents



Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  
 Item 13. Certain Relationships and Related Transactions, and Director Independence
  
 Item 14. Principal Accounting Fees and Services
  
 PART IV.
 
 Item 15. Exhibits and Financial Statement Schedules
 (a)
    
    The following documents are filed as part of this report:
 (1)
    
    Consolidated Financial Statements: See Index to Consolidated Financial
Statements at Item 8 on page 54 of this report.(2)
    
    Financial Statement Schedule: See Index to Consolidated Financial
Statements at Item 8 on page 54 of this report.(3)
    
    Exhibits are incorporated herein by reference or are filed with this
report as indicated below:
 ExhibitNumber
    
    Description2.1
    
    Agreement and Plan of Reorganization by and among Caldera Systems,
Inc., Caldera International, Inc., now known as The SCO Group, Inc.
(the Registrant), and The Santa Cruz Operation, Inc., and related
amendments (incorporated by reference to Exhibit 2.1 to the
Registrants Registration Statement on Form S-4 (File No.
333-45936)).3.1
    
    Amended and Restated Certificate of Incorporation of Caldera
International, Inc. (incorporated by reference to Exhibit 3.1 to
the Registrant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 the Registrants
Registration Statement on Form 8-A12G/A (File No. 000-29911)).
 86




---



##### Table of Contents



ExhibitNumber
    
    Description3.3
    
    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 the Registrants
Registration Statement on Form 8-A12G/A (File No. 000-29911)).3.4
    
    Amended and Restated Bylaws (incorporated by reference to Exhibit
3.4 to the Registrant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 the Registrants Current Report on Form
8-K filed on January 4, 2008 (File No. 000-29911).3.6
    
    Certificate of Designation of Series A Junior Participating
Preferred Stock (incorporated by reference to Exhibit 4.1 to the
Registrants Current Report on Form 8-K filed on September 1, 2004
(File No. 000-29911)).3.7
    
    Certificate of Correction correcting the Certificate of Designation
of Series A Junior Participating Preferred Stock (incorporated by
reference to Exhibit 4.2 to the Registrants Current Report on Form
8-K filed on September 1, 2004 (File No. 000-29911)).4.1
    
    Specimen Common Stock Certificate (incorporated by reference to
Exhibit 4.1 to the Registrants Registration Statement on Form
8-A12G/A (File No. 000-29911)).4.2
    
    Rights Agreement dated as of August 10, 2004 by and between the
Company and Computershare Trust Company, Inc. (incorporated by
reference to Exhibit 4.3 to the Registrants Current Report on Form
8-K filed on September 1, 2004 (File No. 000-29911)).10.1*
    
    1998 Stock Option Plan (incorporated by reference to Exhibit 10.3
to the Registrants Registration Statement on Form S-1 (File No.
333-94351)).10.2*
    
    Amendment No. 1 to 1998 Stock Option Plan. (incorporated by
reference to Exhibit 10.2 to the Registrants Annual Report on Form
10-K for the fiscal year ended October 31, 2004 (File No.
000-29911).10.3*
    
    Form Notice of Grant of Stock Options for 1998 Stock Option Plan.
(incorporated by reference to Exhibit 10.3 to the Registrants
Annual Report on Form 10-K for the fiscal year ended October 31,
2004 (File No. 000-29911).10.4*
    
    1999 Omnibus Stock Incentive Plan, as amended (incorporated by
reference to Exhibits 10.4 through 10.8 of the Registrants
Registration Statement on Form S-4 (File No. 333-45936)).10.5*
    
    Amendment No. 5 to 1999 Omnibus Stock Incentive Plan (incorporated
by reference to Exhibit 10.5 to the Registrants Annual Report on
Form 10-K for the fiscal year ended October 31, 2004 (File No.
000-29911).10.6*
    
    Amendment No. 6 to 1999 Omnibus Stock Incentive Plan (incorporated
by reference to Exhibit 10.6 to the Registrants Annual Report on
Form 10-K for the fiscal year ended October 31, 2004 (File No.
000-29911).10.7*
    
    Form Notice of Grant of Stock Options for 1999 Omnibus Stock
Incentive Plan (incorporated by reference to Exhibit 10.7 to the
Registrants Annual Report on Form 10-K for the fiscal year ended
October 31, 2004 (File No. 000-29911).10.8*
    
    2000 Employee Stock Purchase Plan, as amended (incorporated by
reference to Exhibit 10.9 to the Registrants Registration
Statement on Form S-4 (File No. 333-45936)).10.9*
    
    Amendment No. 2 to 2000 Employee Stock Purchase Plan (incorporated
by reference to Exhibit 10.9 to the Registrants Annual Report on
Form 10-K for the fiscal year ended October 31, 2004 (File No.
000-29911).10.10*
    
    Amendment No. 3 to 2000 Employee Stock Purchase Plan (incorporated
by reference to Exhibit 10.10 to the Registrants Annual Report on
Form 10-K for the fiscal year ended October 31, 2004 (File No.
000-29911).10.11*
    
    Amendment No. 4 to 2000 Employee Stock Purchase Plan (incorporated
by reference to Exhibit 10.2 to the Registrants Quarterly Report
on Form 10-Q for the fiscal quarter ended July 31, 2003 (File No.
000-29911)).
 87




---



##### Table of Contents



ExhibitNumber
    
    Description10.12*
    
    Amendment No. 5 to 2000
Employee Stock Purchase Plan (incorporated by reference to Exhibit
10.12 to the Registrants  Annual Report on Form 10-K for the
fiscal year ended October 31, 2006 (File No. 000-29911)).10.13*
    
    2002 Omnibus Stock Incentive Plan (incorporated by reference to
Exhibit 10.1 to the Registrants Quarterly Report on Form 10-Q for
the fiscal quarter ended July 31, 2003 (File No. 000-29911)).10.14*
    
    Form Notice of Grant of Stock Options for 2002 Omnibus Stock
Incentive Plan (incorporated by reference to Exhibit 99.3 to the
Registrants Current Report on Form 8-K filed on January 27, 2006
(File No. 000-29911).10.15
    
    Office Sublease Agreement by and among the Registrant, Canopy
Properties, Inc. and Gateway Technology Center, LLC, dated January
10, 2002 (incorporated by reference to Exhibit 10.6 to the
Registrants Annual Report on Form 10-K for the fiscal year ended
October 31, 2003 (File No. 000-29911)).10.16
    
    First Amendment to Office Sublease Agreement by and among the
Registrant and Canopy Properties, Inc., dated September 15, 2003
(incorporated by reference to Exhibit 10.7 to the Registrants
Annual Report on Form 10-K for the fiscal year ended October 31,
2003 (File No. 000-29911)).10.17
    
    Engagement Letter by and among the Registrant and Morgan Keegan &
Company, Inc., dated August 16, 2002 (incorporated by reference to
Exhibit 10.8 to the Registrants Annual Report on Form 10-K for the
fiscal year ended October 31, 2003 (File No. 000-29911)).10.18
    
    First Amendment to Engagement Letter by and among the Registrant
and Morgan Keegan & Company, Inc., dated February 13, 2003
(incorporated by reference to Exhibit 10.9 to the Registrants
Annual Report on Form 10-K for the fiscal year ended October 31,
2003 (File No. 000-29911)).10.19
    
    Second Amendment to Engagement Letter by and among the Registrant
and Morgan Keegan & Company, Inc., dated August 16, 2003
(incorporated by reference to Exhibit 10.10 to the Registrants
Annual Report on Form 10-K for the fiscal year ended October 31,
2003 (File No. 000-29911)).10.20
    
    Warrant to Purchase Shares of Common Stock issued by the Registrant
to Morgan Keegan & Company, Inc., dated August 16, 2002
(incorporated by reference to Exhibit 10.11 to the Registrants
Annual Report on Form 10-K for the fiscal year ended October 31,
2003 (File No. 000-29911)).10.21
    
    Common Stock Warrant issued by the Registrant to, and accepted and
agreed to by, Sun Microsystems, Inc., dated March 11, 2003
(incorporated by reference to Exhibit 10.12 to the Registrants
Annual Report on Form 10-K for the fiscal year ended October 31,
2003 (File No. 000-29911)).10.22
    
    Common Stock Warrant issued by the Registrant to, and accepted and
agreed to by, Sun Microsystems, Inc., dated July 31, 2003
(incorporated by reference to Exhibit 10.13 to the Registrants
Annual Report on Form 10-K for the fiscal year ended October 31,
2003 (File No. 000-29911)).10.23
    
    Common Stock Warrant issued by the Registrant to, and accepted and
agreed to by, Sun Microsystems, Inc., dated October 31, 2003
(incorporated by reference to Exhibit 10.14 to the Registrants
Annual Report on Form 10-K for the fiscal year ended October 31,
2003 (File No. 000-29911)).10.24
    
    Independent Contractor Agreement by and among the Registrant and S2
Strategic Consulting, LLC, dated July 1, 2003 (incorporated by
reference to Exhibit 10.15 to the Registrants Annual Report on
Form 10-K for the fiscal year ended October 31, 2003 (File No.
000-29911)).10.25
    
    Common Stock Warrant issued by the Registrant to, and accepted and
agreed to by, S2 Strategic Consulting, LLC, dated July 1, 2003
(incorporated by reference to Exhibit 10.16 to the Registrants
Annual Report on Form 10-K for the fiscal year ended October 31,
2003 (File No. 000-29911)).10.26*
    
    Severance Agreement between Ransom H. Love and Caldera
International, Inc. (incorporated by reference to Exhibit 10.16 to
the Registrants Annual Report on Form 10-K for the fiscal year
ended October 31, 2002 (File No. 000-29911)).10.27
    
    Securities Purchase Agreement dated as of October 16, 2003 between
the Registrant and the persons listed therein as Purchasers
(incorporated by reference to Exhibit 10.1 to the Registrants
Current Report on Form 8-K filed on October 17, 2003 (File No.
000-29911)).
 88




---



##### Table of Contents



ExhibitNumber
    
    Description10.28
    
    Registration Rights Agreement dated as of October 16, 2003 between
the Registrant and the persons listed therein as Purchasers
(incorporated by reference to Exhibit 10.2 to the Registrants
Current Report on Form 8-K filed on October 17, 2003 (File No.
000-29911)).10.29
    
    Letter Agreement dated December 8, 2003 among the Registrant,
BayStar Capital II, L.P., Royal Bank of Canada and Acknowledged by
Boies, Schiller & Flexner LLP (incorporated by reference to Exhibit
99.3 to the Registrants Current Report on Form 8-K filed on
December 9, 2003 (File No. 000-29911)).10.30
    
    Asset Purchase Agreement dated June 6, 2003 between the Registrant
and Vultus, Inc. (incorporated by reference to Exhibit 2.1 to
Amendment No. 1 to the Registrants Registration Statement on Form
S-3 (File No. 333-106885)).10.31
    
    Exchange Agreement dated as of February 5, 2004 among SCO, BayStar
Capital II, L.P. and Royal Bank of Canada (incorporated by
reference to Exhibit 99.1 to SCOs Current Report on Form 8-K filed
on February 9, 2004 (File No. 000-29911)).10.32
    
    Stock Repurchase Agreement dated as of May 31, 2004 between the
Registrant and BayStar (incorporated by reference to Exhibit 99.1
to the Registrants Current Report on Form 8-K filed on June 2,
2004 (File No. 000-29911)).10.33
    
    Letter Agreement dated October 31, 2004 among Boies, Schiller &
Flexner LLP, Kevin McBride, Berger Singerman and SCO (incorporated
by reference to Exhibit 99.1 to the Registrants Current Report on
Form 8-K filed on November 4, 2004 (File No. 000-29911)).10.34*
    
    First Amendment to the Letter Agreement dated October 31, 2004
among The SCO Group, Inc., Boies, Schiller & Flexner LLP, Kevin
McBride, and Berger Singerman (incorporated by reference to Exhibit
99.1 to SCOs Current Report on Form 8-K filed on June 8, 2006).10.35*
    
    2004 Omnibus Stock Incentive Plan (incorporated by reference to
Exhibit 10.34 to the Registrants Annual Report on Form 10-K for
the fiscal year ended October 31, 2004 (File No. 000-29911).10.36*
    
    Form Notice of Grant of Stock Options for 2004 Omnibus Stock
Incentive Plan (incorporated by reference to Exhibit 99.1 to SCOs
Current Report on Form 8-K filed on July 15, 2005 (File
No. 000-29911)).10.37*
    
    Form of Executive Officer Stock Option Agreement (incorporated by
reference to Exhibit 10.3 to the Registrants Quarterly Report on
Form 10-Q for the fiscal quarter ended January 31, 2005 (File No.
000-29911)).10.38*
    
    Form of Executive Officer Stock Option Agreement for the 2002
Omnibus Stock Incentive Plan (incorporated by reference to Exhibit
99.3 to the Registrants Current Report on Form 8-K filed on
November 17, 2006 (File No. 000-29911)).10.39*
    
    The SCO Group Employee Incentive Bonus Program for Fiscal Year 2006
(incorporated by reference to Exhibit 99.2 to the Registrants
Current Report on Form 8-K filed on January 26, 2006 (File No.
000-29911)).10.40*
    
    The SCO Group Employee Incentive Bonus Program for Fiscal Year 2007
(incorporated by reference to Exhibit 99.2 to the Registrants
Current Report on Form 8-K filed on November 17, 2006 (File No.
000-29911)).10.41*
    
    Form of Change in Control Agreement (incorporated by reference to
Exhibit 99.1 to the Registrants Current Report on Form 8-K filed
on December 16, 2004 (File No. 000-29911)).10.42*
    
    Form of Indemnification Agreement for directors and officers
(incorporated by reference to Exhibit 10.36 to Post-Effective
Amendment No. 1 to Form S-3 on Form S-1 filed on May 18, 2005 (File
No. 333-116732)).10.43
    
    Common Stock Purchase Agreement dated as of November 29, 2005 among
the Registrant and the persons listed therein as Purchasers
(incorporated by reference to Exhibit 10.43 to Form S-1 filed on
December 22, 2005 (File No. 333-130609)).
 89




---



##### Table of Contents



ExhibitNumber
    
    Description10.44*
    
    America Sales Compensation Plan for Fiscal Year 2006 (incorporated
by reference to Exhibit 99.1 to the Registrants Current Report on
Form 8-K filed on January 27, 2006 (File No. 000-29911)).10.45*
    
    Sales Compensation Plan for Fiscal Year 2007 (incorporated by
reference to Exhibit 99.1 to the Registrants Current Report on
Form 8-K filed on November 17, 2006 (File No. 000-29911)).10.46
    
    Fifth Amendment to Sublease dated January 10, 2002 between Canopy
Properties, Inc. and the Registrant dated December 14, 2007
(incorporated by reference to Exhibit 10.2 to the Registrants
Quarterly Report on Form 10-Q for the fiscal quarter ended January
31, 2008 (File No. 000-29911)).10.47
    
    Second Amendment to Lease by GRE Mountain Heights Property LLC and
the Registrant dated December 28, 2007 (incorporated by reference
to Exhibit 10.1 to the Registrants Quarterly Report on Form 10-Q
for the fiscal quarter ended January 31, 2008 (File No.
000-29911)).10.48
    
    Lease Agreement between Vreeland SPVEF Venture, LLC and the
Registrant dated August 5, 2008 (incorporated by reference to
Exhibit 10.1 to the Registrants Quarterly Report on Form 10-Q for
the fiscal quarter ended July 31, 2008 (File No. 000-29911)).21.1
    
    Subsidiaries of the Registrant.23.1
    
    Consent of Tanner LC, Independent Registered Public Accounting Firm.31.1
    
    Certification of Darl C. McBride, President and Chief Executive
Officer, pursuant to Rule 13a-14(a) of the Securities 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 Securities 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.
 
 *
    
    These items identify a management contract or compensatory plan. 90




---



##### Table of Contents



Signatures
  THE SCO GROUP, INC.By:
    /s/ Kenneth R. NielsenKenneth R. NielsenChief Financial Officer/

Principal Financial and

Accounting Officer  Signature
    
    Title
    
    DatePrincipal Executive Officer:/s/ Darl C. McBride
Darl C. McBride
    
    President, Chief Executive
Officer and Director
    
    January 29, 2009Principal Financial and
     Accounting Officer:/s/ Kenneth R. Nielsen
Kenneth R. Nielsen
    
    Chief Financial Officer
    
    January 29, 2009Directors:/s/ Ralph J. Yarro III
Ralph J. Yarro III
    
    Chairman of the Board
    
    January 29, 2009/s/ Darcy G. Mott
Darcy G. Mott
    
    Director
    
    January 29, 2009/s/ R. Duff Thompson
R. Duff Thompson
    
    Director
    
    January 29, 2009/s/ J. Kent Millington
J. Kent Millington
    
    Director
    
    January 29, 2009/s/ Daniel W. Campbell
Daniel W. Campbell
    
    Director
    
    January 29, 2009/s/ Omar T. Leeman
Omar T. Leeman
    
    Director
    
    January 29, 2009
 91