Low Tech Blog

2 Mar 2005

Since SCOXE has delayed filing their 10-K for fiscal year 2004 (and subsequently their 10-Q for Q105) apparently due to some conflict between management and the auditing firm KPMG, I've decided to do an estimated cash flow analysis of their financial future while I wait for the good news. This analysis is based on my belief that SCOXE has given up actively pursuing a software business and is merely going through the motions while they wait for the outcome of their lawsuit against IBM. Links to the documents from which I took all of the historical data used in this analysis can be found in the references section at the bottom of this page. Here are my results.

Assumptions		Comment
Revenue Growth	-3.7%	Quarterly Compounded Rate from 2002 to 2004
Cost of Revenue	22.9%	Average of 2002 and 2004 (excludes SCOSource)
Operating Expenses	10,000	Estimated based on reported expenses for Q404
Adjustment to Income	776	Quarterly mean for FY2002 to FY2004
Provision for Taxes	1.66%	Annual mean for FY2002 to FY2004

I chose 2002 as my base year because I believe that is the last full year that SCOXE operated like a company interested in selling software and related services. I chose 2004 as indicative of the general trend of the company's ongoing operations. I believe that the numbers for fiscal year 2003 are skewed by the one-time payments made by Microsoft Corporation and Sun Microsystems and therefore I do not use them in estimating operating cash flows except in estimating the tax rate and adjustment to income.

The future cost associated with SCOSource revenue are estimated exclusively based on my reading of the "fee cap" 8-K filed with the SEC on 4 November 2004. This figure is conservative since the cost of expert, consulting and other expenses are excluded from the "fee cap" agreement and I made no attempt to estimate what these costs might be.

The future cost of products and services estimates assume that the current cost associated with SCOSource Revenue are not exclusively legal expenses. Estimates of future costs of SCOSource Revenue are limited to legal expenses.

Without further ado
Selected Income Statement highlights

	Q404	Q105	Q205	Q305	Q405	Q106	Q206	Q306	Q406	Q107
Revenue	10,075	9,702	9,343	8,998	8,665	8,344	8,035	7,738	7,452	7,176
Cost of Products and Services	1,718	2,222	2,140	2,060	1,984	1,911	1,840	1,772	1,706	1,643
Cost of SCOSource	4,257	14,600	2,000	2,000	2,000	2,000	0	0	0	0
Gross Margin	4,100	-7,120	5,203	4,938	4,681	4,433	6,195	5,966	5,746	5,533
Cost of Operation	10,710	10,000	10,000	10,000	10,000	10,000	10,000	10,000	10,000	10,000
Profit or Loss from Operations	-6,610	-17,120	-4,797	-5,062	-5,319	-5,567	-3,805	-4,034	-4,254	-4,467
Adjustment to Income	219	776	776	776	776	776	776	776	776	776
Income or Loss Before Taxes	-6,391	-16,344	-4,021	-4,286	-4,543	-4,971	-3,029	-3,258	-3,478	-3,691
Provision for Taxes	-125	-161	-155	-149	-144	-139	-134	-128	-124	-119
Net Income or Loss	-6,516	-16,505	-4,176	-4,435	-4,687	-4,930	-3,163	-3,386	-3,602	-3,810

Selected Balance Sheet highlights

	Q404	Q105	Q205	Q305	Q405	Q106	Q206	Q306	Q406	Q107
Current Assets	48,240	31,375	27,559	23,124	18,437	13,507	10,344	6,958	3,356	-454
Cash and Cash Equivalents (includes Restricted Cash)	27,976	11,471	7,295	2,860	-1,827	-6,757	-9,920	-13,306	-16,908	-20,718
Stockholder Equity	22,230	5,725	1,549	-2,886	-7,573	-12,503	-15,666	-19,052	-22,654	-26,464

Now, I don't actually expect Cash and Cash Equivalents to go negative. That's just the absolute latest that SCOXE can go without dipping into some other current assets. Similarly, I don't actually expect Current Assets to go negative, but that's the absolute latest that they can go without eating their seed corn. I do expect Stockholder Equity to go negative by the end of Q305, though.

You can find the spreadsheet (OpenOffice.org format) here. If you don't have OpenOffice.org, you can get it for free here. [UPDATE 2005-04-01: The speadsheet adjusted for the change in Stockholder Equity can be found here.

References

End of Fiscal Year 2004 8-K

Boies "fee cap" 8-K

10-K for Fiscal Year 2003