As SCO faced a bankruptcy judge for the first time today, a recently filed 10-Q form reveals that the company doubts its ability to survive if it is required to make significant payments to Novell for UNIX licensing royalties that a judge ruled were wrongfully retained.

The SEC filling paints a grim picture of SCO's prospects for recovery. "As a result of both the Court's August 10, 2007 ruling and our entry into Chapter 11, there is substantial doubt about our ability to continue as a going concern," reads the filing. "If a significant cash payment [to Novell] is required, or significant assets are put under a constructive trust, the carrying amount of our long-lived assets may not be recovered."

The 10-Q also provides more insight into just how badly SCO's UNIX business is failing. SCO's UNIX revenue decreased by 37 percent for the three months ended July 31, the filing shows. "We do not have a history of profitable operations and our cash resources are limited," warns SCO.

SCO also showed up in bankruptcy court today, and Groklaw has published some reader narratives which describe today's proceedings. According to the reports, little of actual relevance has transpired thus far, but the stage has been set, and the initial statements have been made.

The judge granted SCO's request for permission to spend approximately $60,000 on taxes, $6,000 on utilities debt to keep the lights on, and $20,000 on accounting temp workers because the company's entire accounting department has already fled or been laid off.

SCO claimed that its new software offerings in the mobile market, which involve a mobile phone group messaging service and mobile UNIX administration tools, could enable it to compete directly with companies like Research in Motion and Motorola. The company attributed its steady decline in revenue to competition from Linux, which it described as a "knock off" of its own UNIX products. While describing SCO's prospects for growth, a company representative claimed that seven out of ten retail systems utilize Novell technologies, and then corrected himself, saying that he meant SCO. According to a Groklaw reader present at the hearing, this little gaffe elicited laughter from those present in the courtroom.

A Novell representative also spoke and explained that under the terms of SCO's agreement with Novell, 95 percent of the revenue generated by SCO's licensing agreements for original UNIX intellectual property belong to Novell's and should not be used to keep SCO running. Novell wants the money now, but the judge declined Novell's request because he didn't want to give preferential treatment to Novell over other debtors who "could be in the same position." The bench trial that was originally scheduled to begin yesterday has been stayed, but the judge told Novell that it could move to have the stay removed.

The court proceedings and 10-Q filing paint a dire picture for SCO. It looks as though the serial litigator has virtually no chance of recovery and will likely have to dissolve if forced to pay a significant portion of the $30 million claimed by Novell.