SCO can file delisting appeal
SCO Group shares teeter on the brink of delisting by the Nasdaq Stock Market today, given the company's failure to file its long-overdue fiscal 2004 report with federal regulators Thursday.
Already having been forced to add the dreaded "E" to its ticker symbol, an indication of its noncompliance with federal Securities and Exchange Commission reporting rules, SCO has only one card to play to avoid being dropped from Nasdaq altogether - an appeal.
The Lindon software company, best known for its $5 billion lawsuit against IBM and other litigation claiming its own Unix code appears in the freely distributed Linux operating system, had until the end of trading Thursday to file its form 10-K with the SEC.
The annual report remained unfiled, apparently still being scrutinized by SCO auditors, when the markets closed with SCO shares at $4.11, up 5 cents. A first-quarter report for the 2005 fiscal year, expected this past Wednesday, also remained unfiled.
"All I can say is SCO declines to comment at this time, pending any securities filings on Friday," company spokesman Blake Stowell said.
However, SCO is expected to file a form 8-K after markets open today.
Form 8-Ks are generally statements of extraordinary importance, reporting breaking developments, appointments, etc. SCO's statement likely will note it is seeking to appeal Nasdaq's Feb. 16 notice that the company's stock will be dropped from the exchange todayFriday.
An appeal could buy SCO weeks - possibly months - before its stock could be removed by Nasdaq, said David A. Donohoe Jr. of Donohoe Advisory Associates in Rockville, Md. He knows the procedure, having served as chief counsel for Nasdaq's Listing Qualifications Department.
Once the company files an appeal, the delisting action will be put on hold pending a written decision by a panel that will determine whether to delist the company's shares or grant an exception to the filing requirement, he said.
If the panel eventually decides to proceed with delisting, SCO could appeal once more to the Nasdaq Listing and Hearing Review Council. However, that second appeal would not halt the delisting itself, only seek to overturn it.
Nasdaq itself refuses to discuss pending delisting cases. However, Donohoe said the exchange does consider "the filing requirement as its most important listing standard."
Typically, a company appealing delisting is scheduled for a hearing within three to four weeks of the request. Decisions are rendered anywhere from a week to several weeks after arguments are heard.
The continuing 10-K delay, added to the delisting procedure and now overdue first quarter report, all concern Laura DiDio, an analyst with the Boston-based Yankee Group.
"The fact that SCO is late in filing both [earnings reports] augurs badly for all concerned: SCO, its customers and investors," she said. "The questions surrounding SCO's fiscal solvency can only undermine the confidence of customers and prospective customers and make investors extremely nervous."
To Gordon Haff, an analyst and information technology adviser for Nashua, N.H.'s Illuminata Inc., the filing delays "are just part of a larger picture in which SCO has essentially moved from being a Unix product company to a litigation company with a tangled web of backers and investors."
Even though SCO's staff of 190 continues to develop new Unix products, Haff said, the company's future now is "irrevocably tied to the outcome of its various lawsuits."