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SCO restates 2004 financial details

Company finds accounting errors related to stock-based compensation and other issues, submits new results for first three quarters.

The SCO Group restated financial results for the first three quarters of its last fiscal year after finding accounting errors related to stock-based compensation and other issues.

The company, which rose to prominence after launching a major legal attack on Linux and IBM in 2003, said in a regulatory filing Thursday that it had three accounting problems in the quarters. The changes don't affect net loss or earnings per share for the fiscal year, which ended Oct. 31, 2004, the company said. SCO has yet to file final results for the last quarter of the year.

SCO's finances are only part of its troubles. It also faces dwindling revenue from its Unix product sales and significant skepticism from the judge overseeing its case against IBM.

For the first, second and third quarters of the company's fiscal 2004 SCO issued stock as part of its compensation plans "without complying with the registration requirements of federal and applicable state securities laws." The company will reclassify that stock as temporary equity instead of permanent equity and may offer to reverse those share grants.

The amounts reclassified are $272,000, $231,000 and $557,000 for the first, second and third quarters, respectively, SCO said. There could be a financial effect from the situation if SCO has to offer to buy back the stock, issued to employees through a purchase plan, and the market price of the stock is lower than the stock price when it was issued, spokesman Blake Stowell said.

The second problem concerned incorrect classification of dividends related to the company's repurchase of preferred shares relating to a $50 million investment in the company. The company is reclassifying $879,000 from the first quarter and $1,619,000 from the second quarter as current liabilities instead of equity.

The change has to do with dividends SCO had to allocate in relation to the preferred shares but that it never had to pay because it repurchased those shares, Stowell said.

The third problem was that $233,000 in stock-based compensation was recorded in the second quarter but actually accrued in the first, SCO said.

In February, Nasdaq removed SCO's stock from its SmallCap Market because the company failed to file its annual report for the fiscal year ended Oct. 31. SCO's stock now trades under the symbol SCOXE instead of SCOX, but the company has a March 17 hearing scheduled to discuss the matter.

Stowell said SCO expects eventually to file its annual report and be relisted.