New SCO SEC Filing Reveals Accounting Irregularities

According to the new
8K filed at the SEC

On February 28, 2005, on management’s recommendation, the
Audit Committee of the Board of Directors of The SCO Group,
Inc. (the “Company”) concluded, and KPMG LLP, the Company’s
independent auditors agreed, that, due to certain
accounting errors, the Company’s financial statements for
the quarters ending January 31, 2004, April 30, 2004 and
July 31, 2004 should no longer be relied upon and should be


For the first, second and third quarters, the Company
expects to reclassify amounts related to certain shares of
common stock that the Company may have issued under its
equity compensation plans without complying with the
registration requirements of federal and applicable state
securities laws from permanent equity to temporary equity
in the amounts of approximately $272,000, $231,000, and
$557,000, respectively. The Company may make a rescission
offer to holders of certain shares and expects an amount to
be classified as temporary equity until the completion of a
rescission offer or until the Company no longer has an
obligation to the holders of such shares.

For the first quarter and the second quarter, the Company
expects to reclassify accrued dividends related to the
Company’s previously issued Series A and Series A-1
Convertible Preferred Stock from equity to current
liabilities in the amounts of approximately $879,000 and
$1,619,000, respectively. In October 2003, the Company
issued shares of Series A Convertible Preferred Stock in
connection with its $50,000,000 private placement, which
shares were subsequently exchanged for and replaced with
shares of Series A-1 Convertible Preferred Stock. When the
Company repurchased all outstanding shares of Series A-1
Convertible Preferred Stock in July 2004, the Company’s
obligation to pay dividends on such shares terminated. The
accrued dividends were never paid and ultimately were
recorded in equity upon the completion of the repurchase
transaction. In addition, the dividends were properly
captured in the calculation of earnings per share in the
periods above.

For the first and second quarter, the Company expects to
restate approximately $233,000 of stock-based compensation
expense which was recorded in the second quarter, but
incurred in the first quarter. There will be no change to
the total stock-based compensation expense for the fiscal
year ended October 31, 2004.

Oh dear, oh dear, oh dear..

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