Low Tech Blog

23 Feb 2005

[Note: I originally posted this article here on Yahoo! Finance's SCOXE message board.]

Why I think that the 10-K issue *may* be over doubts over SCOXE's ability to continue as a going concern:

FY04 Income (loss) from operations (28,573)
Oct31 2004 Stockholder's equity 22,230

Now SCOXE has tried to hide legal costs in the SCOSource Cost of Revenue, which is a new line item in the Income Statement as of 2003, and thus that number is included in the operating loss of 28,573 for FY04. But if we make the perfectly justified assumption that SCOXE 2004 is no more efficient at generating real revenue than they were in 2002, then their operating loss was still 13,680, which, if Boies were to work FY05 billing nothing, would leave shareholder equity at 8,550.

Now, the 8-K outlining the Boies "fee cap" has Boies being payed $12.6MM upon Execution of the Agreement, which was the last day of Q404. But there is no charge that large in the last quarter of Q4 according to the CC 8-K, the total cost of operations for Q404 was $10.7MM -- thus they can't have accounted for the $12.6MM. Additionally, Boies will bill $2MM per quarter. This contractually obligates SCOXE to pay Boies $20.6MM. Add to that a minimum likely operating loss of $13.7MM this bleeds SCOXE coffers a total of $34.3MM.

Even assuming nobody blinks when shareholder equity goes negative, this exceeds the $31.4MM cash. OK, so $5MM of the $8.3MM restricted cash is said to be set aside "to pay for certain expenses associated with our intellectual property litigation," so they could still have $2.1MM cash and a $12.1MM shareholder deficit to carry them into FY06.

I'd say that there are real questions regarding whether or not SCOXE can continue to pay its bills.

References:

Conference Call 8-K
"fee cap" 8-K
FY03 10-K