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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549

FORM 10-Q

(Mark one)

|ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended APRIL 30, 2002

OR

|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission file number 0-29911

CALDERA INTERNATIONAL, INC.(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction of
incorporation or organization)

87-0662823(I.R.S. Employer Identification Number)


355 South 520 West
Suite 100
Lindon, Utah 84042(Address of principal executive office and zip code)

(801) 765-4999(Registrant's telephone number, including area code)

Indicate
by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past
90 days. Yes ý    No o

As of June 18, 2002, there were 13,929,343 shares of the Registrant's common stock outstanding.

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Caldera International, Inc.    Table of Contents

|         |  |                                                                                                                                   |  | Page
Number
|-------- |  | --------------------------------------------------------------------------------------------------------------------------------- |  | -----------
|PART I.  |  | FINANCIAL INFORMATION                                                                                                             |  |            
|Item 1.  |  | Financial Statements                                                                                                              |  |            
|         |  | Condensed Consolidated Balance Sheets as of April 30, 2002 and October 31, 2001                                                   |  | 3          
|         |  | Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended April 30, 2002 and 2001 |  | 4          
|         |  | Condensed Consolidated Statements of Cash Flows for the six months ended April 30, 2002 and 2001                                  |  | 5          
|         |  | Notes to Condensed Consolidated Financial Statements                                                                              |  | 7          
|Item 2.  |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                                             |  | 15         
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                                                        |  | 25         
|         |  | Risk Factors                                                                                                                      |  | 25         
|PART II. |  | OTHER INFORMATION                                                                                                                 |  |            
|Item 1.  |  | Legal Proceedings                                                                                                                 |  | 30         
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                                               |  | 30         
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                                                                  |  | 30         
|Item 7.  |  | Signatures                                                                                                                        |  | 31         

2

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CALDERA INTERNATIONAL, INC. AND SUBSIDIARIES        CONDENSED CONSOLIDATED BALANCE SHEETS        (in thousands)

|                                       |                                                                                                              | April 30,
2002                             |     | October 31,
2001 |       
|-------------------------------------- | ------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | --- | ---------------- | ------
|
|ASSETS                                 |                                                                                                             
|CURRENT ASSETS:                        |                                                                                                              |                                            |     |                  |       
|                                       | Cash and cash equivalents                                                                                    |                                            | $   | 21,826           |       
|                                       | Available-for-sale securities                                                                                |                                            |     |                 |       
|                                       | Accounts receivable, net of allowance for doubtful accounts of $488 and $362, respectively                   |                                            |     | 6,185            |       
|                                       | Other current assets                                                                                         |                                            |     | 3,586            |       
|                                       | Receivable from Tarantella, Inc.                                                                             |                                            |     | 107              |       
|                                       |                                                                                                              |                                            |     |                  |       
|                                       |                                                                                                              | Total current assets                       |     |                  | 31,704
|                                       |                                                                                                              |                                            |     |                  |       
|PROPERTY AND EQUIPMENT:                |                                                                                                              |                                            |     |                  |       
|                                       | Computer and office equipment                                                                                |                                            |     | 4,730            |       
|                                       | Leasehold improvements                                                                                       |                                            |     | 890              |       
|                                       | Furniture and fixtures                                                                                       |                                            |     | 263              |       
|                                       |                                                                                                              |                                            |     |                  |       
|                                       |                                                                                                              |                                            |     | 5,883            |       
|                                       | Less accumulated depreciation and amortization                                                               |                                            |     | (2,554           | )     
|                                       |                                                                                                              |                                            |     |                  |       
|                                       |                                                                                                              | Net property and equipment                 |     |                  | 3,329 
|                                       |                                                                                                              |                                            |     |                  |       
|OTHER ASSETS:                          |                                                                                                              |                                            |     |                  |       
|                                       | Goodwill, net                                                                                                |                                            |     |                 |       
|                                       | Intangibles, net                                                                                             |                                            |     | 12,726           |       
|                                       | Other assets, net                                                                                            |                                            |     | 947              |       
|                                       |                                                                                                              |                                            |     |                  |       
|                                       |                                                                                                              | Total other assets                         |     |                  | 13,673
|                                       |                                                                                                              |                                            |     |                  |       
|                                       |                                                                                                              | Total assets                               |     | $                | 48,706
|                                       |                                                                                                              |                                            |     |                  |       
|LIABILITIES AND STOCKHOLDERS' EQUITY   |                                                                                                             
|CURRENT LIABILITIES:                   |                                                                                                              |                                            |     |                  |       
|                                       | Accounts payable                                                                                             |                                            | $   | 2,416            |       
|                                       | Accrued payroll and benefits                                                                                 |                                            |     | 4,843            |       
|                                       | Other accrued liabilities                                                                                    |                                            |     | 8,139            |       
|                                       | Deferred revenue                                                                                             |                                            |     | 7,714            |       
|                                       | Royalties payable                                                                                            |                                            |     | 2,525            |       
|                                       | Current portion of note payable to Tarantella, Inc.                                                          |                                            |     |                 |       
|                                       | Taxes payable                                                                                                |                                            |     | 1,075            |       
|                                       | Payable to Tarantella, Inc.                                                                                  |                                            |     |                 |       
|                                       |                                                                                                              |                                            |     |                  |       
|                                       |                                                                                                              | Total current liabilities                  |     |                  | 26,712
|                                       |                                                                                                              |                                            |     |                  |       
|LONG-TERM LIABILITIES:                 |                                                                                                              |                                            |     |                  |       
|                                       | Note payable to Tarantella, Inc., net of current portion                                                     |                                            |     |                 |       
|                                       | Other long-term liabilities                                                                                  |                                            |     | 4,514            |       
|                                       |                                                                                                              |                                            |     |                  |       
|                                       |                                                                                                              | Total long-term liabilities                |     |                  | 4,514 
|                                       |                                                                                                              |                                            |     |                  |       
|COMMITMENTS AND CONTINGENCIES (Note 4) |                                                                                                              |                                            |     |                  |       
|MINORITY INTEREST                      |                                                                                                              |                                            | 150 |                  |       
|                                       |                                                                                                              |                                            |     |                  |       
|STOCKHOLDERS' EQUITY:                  |                                                                                                              |                                            |     |                  |       
|                                       | Preferred stock, $0.001 par value; 5,000 shares authorized, none outstanding                                 |                                            |     |                 |       
|                                       | Common stock, $0.001 par value; 45,000 shares authorized, 13,929 and 14,266 shares outstanding, respectively |                                            |     | 14               |       
|                                       | Additional paid-in capital                                                                                   |                                            |     | 217,749          |       
|                                       | Treasury stock, 500 and 0 shares, respectively, at cost                                                      |                                            |     | (555             | )     
|                                       | Deferred compensation                                                                                        |                                            |     | (859             | )     
|                                       | Accumulated other comprehensive income                                                                       |                                            |     | 34               |       
|                                       | Accumulated deficit                                                                                          |                                            |     | (199,053         | )     
|                                       |                                                                                                              |                                            |     |                  |       
|                                       |                                                                                                              | Total stockholders' equity                 |     |                  | 17,330
|                                       |                                                                                                              |                                            |     |                  |       
|                                       |                                                                                                              | Total liabilities and stockholders' equity |     | $                | 48,706
|                                       |                                                                                                              |                                            |     |                  |       

See accompanying notes to condensed consolidated financial statements.

3

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CALDERA INTERNATIONAL, INC. AND SUBSIDIARIES        CONDENSED CONSOLIDATED STATEMENTS OF  OPERATIONS AND COMPREHENSIVE LOSS        (in thousands, except per share data)

|                                             |                                                                                                            | Three Months Ended April 30,      |        | Six Months Ended April 30, |       
|-------------------------------------------- | ---------------------------------------------------------------------------------------------------------- | --------------------------------- | ------ | -------------------------- | ------
|
|
|REVENUE:                                     |                                                                                                            |                                   |        |                            |       
|                                             | Products                                                                                                   |                                   | $      | 12,606                     |       
|                                             | Services                                                                                                   |                                   |        | 2,870                      |       
|                                             |                                                                                                            |                                   |        |                            |       
|                                             |                                                                                                            | Total revenue                     |        |                            | 15,476
|                                             |                                                                                                            |                                   |        |                            |       
|COST OF REVENUE:                             |                                                                                                            |                                   |        |                            |       
|                                             | Products                                                                                                   |                                   |        | 2,199                      |       
|                                             | Services                                                                                                   |                                   |        | 3,173                      |       
|                                             |                                                                                                            |                                   |        |                            |       
|                                             |                                                                                                            | Total cost of revenue             |        |                            | 5,372 
|                                             |                                                                                                            |                                   |        |                            |       
|GROSS MARGIN (DEFICIT)                       |                                                                                                            |                                   | 10,104 |                            |       
|                                             |                                                                                                            |                                   |        |                            |       
|OPERATING EXPENSES:                          |                                                                                                            |                                   |        |                            |       
|                                             | Sales and marketing (exclusive of non-cash compensation of $56, $27, $113 and $167, respectively)          |                                   |        | 7,665                      |       
|                                             | Research and development (exclusive of non-cash compensation of $67, $107, $134 and $240, respectively)    |                                   |        | 4,159                      |       
|                                             | General and administrative (exclusive of non-cash compensation of $116, $123, $257 and $184, respectively) |                                   |        | 2,523                      |       
|                                             | Write-down of investments                                                                                  |                                   |        | 1,180                      |       
|                                             | Amortization of intangibles                                                                                |                                   |        | 779                        |       
|                                             | Restructuring charge                                                                                       |                                   |        |                           |       
|                                             | Cost-sharing arrangement with Tarantella, Inc.                                                             |                                   |        |                           |       
|                                             | Non-cash compensation                                                                                      |                                   |        | 239                        |       
|                                             |                                                                                                            |                                   |        |                            |       
|                                             |                                                                                                            | Total operating expenses          |        |                            | 16,545
|                                             |                                                                                                            |                                   |        |                            |       
|LOSS FROM OPERATIONS                         |                                                                                                            |                                   | (6,441 | )                          |       
|                                             |                                                                                                            |                                   |        |                            |       
|EQUITY IN LOSS OF AFFILIATE                  |                                                                                                            |                                   |       |                            |       
|                                             |                                                                                                            |                                   |        |                            |       
|OTHER INCOME (EXPENSE):                      |                                                                                                            |                                   |        |                            |       
|                                             | Interest income                                                                                            |                                   |        | 103                        |       
|                                             | Interest expense                                                                                           |                                   |        | (82                        | )     
|                                             | Other income (expense), net                                                                                |                                   |        | (156                       | )     
|                                             |                                                                                                            |                                   |        |                            |       
|                                             |                                                                                                            | Total other income (expense), net |        |                            | (135  
|                                             |                                                                                                            |                                   |        |                            |       
|LOSS BEFORE INCOME TAXES                     |                                                                                                            |                                   | (6,576 | )                          |       
|PROVISION FOR INCOME TAXES                   |                                                                                                            |                                   | (55    | )                          |       
|                                             |                                                                                                            |                                   |        |                            |       
|NET LOSS                                     |                                                                                                            | $                                 | (6,631 | )                          | $     
|                                             |                                                                                                            |                                   |        |                            |       
|BASIC AND DILUTED NET LOSS PER COMMON SHARE: |                                                                                                            | $                                 | (0.47  | )                          | $     
|                                             |                                                                                                            |                                   |        |                            |       
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING   |                                                                                                            |                                   | 14,235 |                            |       
|                                             |                                                                                                            |                                   |        |                            |       
|OTHER COMPREHENSIVE LOSS:                    |                                                                                                            |                                   |        |                            |       
|                                             | Net loss                                                                                                   |                                   | $      | (6,631                     | )     
|                                             | Unrealized gain (loss) on available-for-sale securities                                                    |                                   |        |                           |       
|                                             | Foreign currency translation adjustment                                                                    |                                   |        | 131                        |       
|                                             |                                                                                                            |                                   |        |                            |       
|COMPREHENSIVE LOSS:                          |                                                                                                            | $                                 | (6,500 | )                          | $     
|                                             |                                                                                                            |                                   |        |                            |       

See accompanying notes to condensed consolidated financial statements.

4

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CALDERA INTERNATIONAL, INC. AND SUBSIDIARIES        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS        (in thousands)        Increase (Decrease) in Cash and Cash Equivalents

|                                               |                                                                             | Six Months Ended April 30,                                                         |                             
|---------------------------------------------- | --------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | ----------------------------
|
|
|CASH FLOWS FROM OPERATING ACTIVITIES:          |                                                                             |                                                                                    |                             
|                                               | Net loss                                                                    |                                                                                    | $                           
|                                               | Adjustments to reconcile net loss to net cash used in operating activities: |                                                                                    |                             
|                                               |                                                                             | Amortization of intangibles                                                        |                             
|                                               |                                                                             | Depreciation and amortization                                                      |                             
|                                               |                                                                             | Loss on disposal of assets                                                         |                             
|                                               |                                                                             | Write-down of investments                                                          |                             
|                                               |                                                                             | Non-cash compensation                                                              |                             
|                                               |                                                                             | Issuance of common stock to certain members of the board of directors for services |                             
|                                               |                                                                             | Amortization of debt discount                                                      |                             
|                                               |                                                                             | Equity in loss of affiliate                                                        |                             
|                                               |                                                                             | Changes in operating assets and liabilities:                                       |                             
|                                               |                                                                             |                                                                                    | Accounts receivable, net    
|                                               |                                                                             |                                                                                    | Other current assets        
|                                               |                                                                             |                                                                                    | Other assets                
|                                               |                                                                             |                                                                                    | Accounts payable            
|                                               |                                                                             |                                                                                    | Payable to Tarantella, Inc. 
|                                               |                                                                             |                                                                                    | Accrued payroll and benefits
|                                               |                                                                             |                                                                                    | Other accrued liabilities   
|                                               |                                                                             |                                                                                    | Deferred revenue            
|                                               |                                                                             |                                                                                    | Royalties payable           
|                                               |                                                                             |                                                                                    | Taxes payable               
|                                               |                                                                             |                                                                                    | Other long-term liabilities 
|                                               |                                                                             |                                                                                    |                             
|                                               |                                                                             |                                                                                    |                             
|                                               |                                                                             |                                                                                    |                             
|CASH FLOWS FROM INVESTING ACTIVITIES:          |                                                                             |                                                                                    |                             
|                                               | Purchase of property and equipment                                          |                                                                                    |                             
|                                               | Advance to Tarantella, Inc.                                                 |                                                                                    |                             
|                                               | Deferred acquisition costs                                                  |                                                                                    |                             
|                                               | Proceeds from available-for-sale securities                                 |                                                                                    |                             
|                                               |                                                                             |                                                                                    |                             
|                                               |                                                                             |                                                                                    |                             
|                                               |                                                                             |                                                                                    |                             
|CASH FLOWS FROM FINANCING ACTIVITIES:          |                                                                             |                                                                                    |                             
|                                               | Payment on note payable to Tarantella, Inc.                                 |                                                                                    |                             
|                                               | Purchase of treasury shares                                                 |                                                                                    |                             
|                                               | Proceeds from sale of common stock through ESP program                      |                                                                                    |                             
|                                               | Minority interest in subsidiary                                             |                                                                                    |                             
|                                               | Proceeds from exercise of common stock options                              |                                                                                    |                             
|                                               |                                                                             |                                                                                    |                             
|                                               |                                                                             |                                                                                    |                             
|                                               |                                                                             |                                                                                    |                             
|NET DECREASE IN CASH AND CASH EQUIVALENTS      |                                                                             |                                                                                    | (542                        
|EFFECT OF FOREIGN EXCHANGE RATES ON CASH       |                                                                             |                                                                                    | (67                         
|CASH AND CASH EQUIVALENTS, beginning of period |                                                                             |                                                                                    | 22,435                      
|                                               |                                                                             |                                                                                    |                             
|CASH AND CASH EQUIVALENTS, end of period       |                                                                             | $                                                                                  | 21,826                      
|                                               |                                                                             |                                                                                    |                             

See accompanying notes to condensed consolidated financial statements.

5

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CALDERA INTERNATIONAL, INC. AND SUBSIDIARIES        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)        (in thousands)

|                                                                     |                                                                                    | Six Months Ended April 30,
|-------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | --------------------------
|
|
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                    |                                                                                    |                           
|                                                                     | Cash paid for income taxes                                                         |                           
|SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: |                                                                                    |                           
|                                                                     | Reclassification and write-down of equity method investment in marketable security |                           

See
accompanying notes to condensed consolidated financial statements.

6

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CALDERA INTERNATIONAL, INC. AND SUBSIDIARIES        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS        (Unaudited)

(1) ORGANIZATION AND DESCRIPTION OF BUSINESS

Caldera International, Inc. ("Caldera" or the "Company") was originally incorporated as Caldera Systems, Inc. ("Caldera Systems"), a Utah
corporation on August 21, 1998, and reincorporated as a Delaware corporation on March 6, 2000. In March 2000, Caldera Systems completed an initial public offering of its common
stock.

Caldera
Systems developed and marketed software and provided related services that enabled the development, deployment and management of Linux-based specialized servers and internet
devices that extended the eBusiness infrastructure. Caldera Systems sold and distributed its software and related products indirectly through distributors and solutions providers, which include
value-added resellers ("VARs"), original equipment manufacturers ("OEMs"), and systems integrators, as well as directly to end-user customers. These sales occurred throughout the United
States and in certain international locations.

On
May 7, 2001, a new holding company, Caldera International, Inc., was formed to acquire substantially all of the assets, liabilities and operations of the server and
professional services groups of Tarantella, Inc. ("Tarantella"), formerly The Santa Cruz Operation, Inc., pursuant to an Agreement and Plan of Reorganization (the "Agreement"), dated as
of August 1, 2000 as amended. Under the Agreement, Caldera acquired the tangible and intangible assets used in the server and professional services groups, including all of the capital stock of
certain Tarantella subsidiaries. In connection with this acquisition, Caldera Systems was acquired by the newly formed holding company. Each share of
existing Caldera Systems common stock, as well as options to purchase shares of Caldera Systems common stock, were converted into an equal number of shares of Caldera common stock and options to
purchase shares of Caldera common stock.

The
acquired operations provide server software for networked business computing and is a leading producer of UNIX server operating systems. In addition, these operations provide
professional services to implement and maintain UNIX system software products. The acquisition provided Caldera with international offices and a Linux/UNIX distribution channel with thousands of
resellers worldwide.

Caldera's
business is focused on serving the small business market's need to have reliable, cost effective Linux and UNIX operating systems and products. Caldera's Volution products
provide remote management applications to facilitate connections to the internet. This functionality will be increasingly important for small businesses or replicated site customers since Volution
provides software and application updates through the internet without the need for IT technicians to apply these updates to individual machines or servers. Volution also allows for the remote
management of software applications. Caldera continues to sell products and services to customers through an indirect, leveraged worldwide channel of partners, which includes distributors and solution
providers (collectively, "resellers"). The worldwide distribution channel is supported by Caldera offices worldwide, locally providing customers and resellers with minor modifications to fit the
particular country's unique needs.

Caldera
is continuing to meet customers demands by providing solutions to transition customers' from legacy UNIX operating systems to the Linux environment by supplying deployment and
management solutions for both traditional and web delivered services. Caldera is also extending its product and program focus to a broader range of resellers through an extended services program.

7

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(2) SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Caldera and subsidiaries have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC") on the same basis as the Company's audited annual financial statements, and, in the opinion of management, reflect all normal recurring
adjustments necessary to present fairly the financial information set forth therein. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the
Company believes that the following disclosures, when read in conjunction with the financial statements and the notes thereto included in the Company's most recent Form 10-K, are
adequate to make the information presented not misleading.

The
condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the financial position and results of
operations of the Company as of the balance sheet dates and for the periods presented. Operating results for the three and six months ended April 30, 2002 are not necessarily indicative
of the results that may be expected for the year ending October 31, 2002. In addition, historical operating results for the three and six months ended April 30, 2002 are not
directly comparable to the corresponding prior year period due to the Tarantella acquisition that occurred May 7, 2001.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from these estimates. The Company's critical accounting policies and estimates include, among others, revenue recognition,
impairment of long-lived assets and allowances for doubtful accounts and product returns.

Revenue Recognition

The Company's revenue is primarily from two sources: (i) product license revenue, primarily from product sales to resellers and end users, including large
scale enterprises, and royalty revenue, primarily from initial license fees and ongoing royalties from product sales by source code OEMs (original equipment manufacturers); and
(ii) service and support revenue, primarily from providing software updates, support and education and consulting services to end users.

Prior
to the acquisition of the OpenServer and UNIXWare product lines from Tarantella, substantially all of the Company's revenue was derived from sales of Linux products and related
services. Currently, over 90 percent of the Company's total revenue is derived from UNIX related products and services. Revenue from UNIX related products and services have decreased since the
acquisition of Tarantella and are expected to continue to decline in future periods.

The
Company recognizes product revenue upon shipment if a signed contract exists, the fee is fixed and determinable, collection of resulting receivables is probable and product returns
are reasonably
estimable, except for sales to distributors, which are recognized upon sale by the distributor to resellers or end users.

8

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For
contracts involving multiple elements (i.e. delivered and undelivered products, maintenance and other services), the Company allocates revenue to each component of the contract based
on objective evidence of its fair value, which is specific to the Company. The fair value of each element is based on the price if sold separately. The Company recognizes revenue allocated to
undelivered products when the criteria for product revenue set forth above have been met.

The
Company recognizes revenue from maintenance fees for ongoing customer support and product updates ratably over the period of the maintenance contract. Payments for maintenance fees
are generally made in advance and are non-refundable. For revenue allocated to education and consulting services or derived from the separate sale of such services, the Company recognizes
revenue as the related services are performed.

The
Company recognizes product revenue from royalty payments upon receipt of quarterly royalty reports from OEMs related to their product sales.

The
Company performs ongoing credit evaluations of its customers' financial condition and does not require collateral. The Company maintains allowances for potential credit losses and
such losses have been within management's expectations.

Other Assets

During the three months ended April 30, 2002, the Company determined that the current carrying value of its investment in Lineo, Inc., an
affiliated entity, would not be realized and a write-down was necessary. The Company recorded a write-down of approximately $1.2 million related to this investment. As
of April 30, 2002, all of the Company's investments in other entities had been written down to $0.

Goodwill and Intangible Assets

Goodwill and intangible assets are the result of the acquisition of certain assets and operations from Tarantella and the acquisition of the WhatIfLinux
technology from Acrylis, Inc. Upon adoption of Statement of Financial Accounting Standards ("SFAS") No. 142, the Company reassessed the useful
lives of its intangible assets. As discussed in Note 3, all goodwill has been eliminated as of April 30, 2002. The following table summarizes the components of amortized intangible
assets and their useful lives:

|                             |                                |                         |         | As of April 30, 2002,
|---------------------------- | ------------------------------ | ----------------------- | ------- | ---------------------
|
|Amortized intangible assets: |                                |                         |         |                      
|                             | Distribution/reseller channel  |                         | 5 years |                      
|                             | Existing technologyTarantella |                         | 5 years |                      
|                             | Existing technologyAcrylis    |                         | 2 years |                      
|                             | Trade name and trademarks      |                         | 5 years |                      
|                             |                                |                         |         |                      
|                             |                                | Total intangible assets |         |                      
|                             |                                |                         |         |                      

Pursuant
to SFAS No. 142, the Company must test its intangible assets for impairment at least annually. The Company has performed the impairment test as of November 1,
2001, the date SFAS

9

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No. 142 was adopted, and concluded that no impairment needed to be recognized. Previously, during the fourth quarter of fiscal 2001, the Company had recorded a $73.7 million impairment
loss.

The
following table sets forth reported net loss and net loss per share, as adjusted, to exclude amortization of goodwill which would not have been recorded under SFAS No. 142:

|                                       |                   | Six Months Ended
April 30, 2002 |         | Six Months Ended
April 30, 2001 |  
|-------------------------------------- | ----------------- | ------------------------------- | ------- | ------------------------------- | -
|
|Net loss as reported                   |                   | $                               | (17,637 | )                               | $
|Amortization of equity method goodwill |                   |                                 |        |                                 |  
|                                       |                   |                                 |         |                                 |  
|                                       | Adjusted net loss |                                 | $       | (17,637                         | )
|                                       |                   |                                 |         |                                 |  

Restructuring Plans

The Company has recorded restructuring accruals for the abandonment of facilities and for severance costs of effected employees. As of October 31, 2001,
the Company had recorded $2.5 million related to restructurings. These amounts are either recorded in accrued liabilities or as other long-term liabilities depending on when payment
is due. During the six months ended April 30, 2002, the Company recorded additional restructuring accruals of approximately $5.3 million, and paid $3.2 million of
restructuring expenses previously accrued. As of April 30, 2002, the Company had restructuring accruals of $4.6 million.

Pro Forma Financial Information

The following table sets forth certain pro forma financial information for the three and six months ended April 30, 2001 had the Tarantella
acquisition and the WhatIfLinux technology acquisition been completed as of November 1, 2000 (in thousands):

|                                            |  | Three Months Ended
April 30, 2001 |         | Six Months Ended April
30, 2001 |  
|------------------------------------------- |  | --------------------------------- | ------- | ------------------------------- | -
|Revenue                                     |  | $                                 | 25,595  |                                 | $
|Net loss from operations                    |  |                                   | (20,702 | )                               |  
|Net loss                                    |  |                                   | (19,286 | )                               |  
|Basic and diluted net loss per common share |  | $                                 | (1.72   | )                               | $

Net Loss per Common Share

Basic net loss per common share ("Basic EPS") is computed by dividing net loss by the weighted average number of common shares outstanding. Diluted net loss per
common share ("Diluted EPS") is computed by dividing net loss by the sum of the weighted average number of common shares outstanding and the dilutive potential common share equivalents then
outstanding. Potential common share equivalents consist of shares issuable upon the exercise of outstanding stock options. There were 4.0 million and 1.4 million outstanding options to
purchase common shares during the three months ended April 30, 2002 and 2001, respectively, and 3.8 million and 1.5 million outstanding options to purchase common shares
during the six months ended April 30, 2002 and 2001, respectively, which were not included in the computation of diluted net loss per common share as their effect would have been
anti-dilutive, decreasing the net loss per common share.

10

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(3) EARLY REDEMPTION OF NOTE PAYABLE TO TARANTELLA

On March 28, 2002, Caldera completed an agreement with Tarantella for the early redemption of an $8.0 million face value note payable to Tarantella,
which originated as part of the acquisition of Tarantella's server and professional services divisions described in Note 1. This note payable was to be paid in four quarterly installments of
$2.0 million beginning in Caldera's 3rd quarter of 2002. Caldera agreed to pay $5.0 million as total settlement of the note. The difference between the carrying value of
the note payable of $7.8 million and the $5.0 million payment has been recorded as an adjustment to the purchase price paid by Caldera to Tarantella. As a result, goodwill was reduced
from $2.2 million to $0 and intangible assets were reduced by $0.6 million. Additionally, Tarantella paid Caldera $0.5 million for operating costs related to Tarantella's
operations. Prior to the settlement of the note payable, the collectibility of these items from Tarantella was uncertain and therefore the amounts paid had been expensed as incurred. Because the
payment of these costs by Tarantella occurred in connection with the note settlement, Caldera has also accounted for the $0.5 million as an adjustment to the initial purchase price and reduced
intangible assets.

(4) COMMITMENTS AND CONTINGENCIES

Litigation

Four class action lawsuits were filed against the Company, certain of its officers and directors, and the underwriters of the Company's Initial Public Offering in
the Unites States District Court for the Southern District of New York by parties alleging violations of the securities laws. The complaints allege certain improprieties regarding the circumstances
surrounding the underwriters' conduct during the IPO and the failure to disclose such conduct in the registration statement. The complaints have recently been amended and consolidated into a single
complaint. Over 340 other issuers, and their underwriters and officers and directors, have been sued in similar cases pending in the same court.

The
Company is not aware of any improper conduct by the Company, its officers and directors, or its underwriters, and the Company denies any liability relating thereto. The Company has
notified its underwriters and insurance carriers of the existence of the claims and plans to vigorously defend the action.

Operating Lease Guarantee

In connection with the acquisition of the server and professional services groups from Tarantella, the Company acquired Tarantella's subsidiary in the UK. The UK
subsidiary continued as the lessee on certain operating leases for facilities retained and used by Tarantella. As of April 30, 2002, the Company and Tarantella have either completed assignment
agreements or have reached an oral agreement with the respective lessors to assign the leases to Tarantella. Upon completion of these assignments, Tarantella will be the lease tenant. Upon completion
of the assignment, the Company's UK subsidiary will continue as a guarantor and may be liable under these obligations in the event that Tarantella defaults. Future minimum operating lease payments
under these leases extend through 2020 and total $10.9 million. As of April 30, 2002, the Company does not believe that it will be required to make any payments under this guarantee, and
therefore no liability has been recorded.

11

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(5) STOCKHOLDERS' EQUITY

Reverse Stock Split

On December 17, 2001, Caldera's board of directors approved a one-for-four reverse stock split for holders of common stock. On
March 4, 2002, the stockholders approved this reverse stock split. As of March 14, 2002, the Company's outstanding common shares were reduced from 57.6 million shares to
approximately 14.4 million shares. The reverse stock split has been retroactively reflected in the accompanying consolidated financial statements and notes thereto for all periods presented.

Stock-Based Compensation

During the three months ended April 30, 2002, the Company granted 30,000 stock options with an average exercise price of $2.68 per share. None of
these stock options were granted at prices that were below the quoted market price on the date of grant. During the six months ended April 30, 2002, options to purchase 46,000 shares of common
stock were exercised at an average exercise price of $2.45 per share. As of April 30, 2002, there were approximately 3.9 million stock options outstanding with a weighted average
exercise price of $7.40 per share.

Amortization
of deferred compensation was $0.2 million during the quarter ended April 30, 2002 and $0.3 million during the quarter ended April 30, 2001.
Amortization of deferred compensation was $0.4 million during the six-month period ended April 30, 2002 and $0.6 million during the six-month period ended
April 30, 2001. Additionally, during the six months ended April 30, 2002 the Company recorded $0.1 million of compensation related to modifications to certain options.

For
fiscal 2002, certain members of Caldera's board of directors elected to receive shares of Caldera stock in lieu of cash compensation for their services. The value of the shares
received by these board members was determined using the closing price of Caldera' stock on the date the shares were issued. Through the first two quarters of 2002, Caldera recorded $126,000 in
non-cash compensation for these services.

Employee Stock Purchase Plan

On November 30, 2001, employees participating in the Company's employee stock purchase plan acquired 87,500 shares of common stock at a price of $2.62 per
share.

Stock Buyback From Tarantella

In connection with the early redemption of the note payable discussed above in Note 3, Caldera agreed to acquire 500,000 shares of Caldera common stock
that were held by Tarantella. Caldera paid $555,100 for these shares.

(6) SEGMENT INFORMATION

The Company's resources are allocated and reviewed to the operating income (loss) level for each of the Company's three geographic units. The geographic units
consist of the Americas, EMEA (Europe, Middle East and Africa) and Asia. The Company made the decision to review and allocate resources by geography during a corporate restructuring announced
subsequent to April 30, 2002.

12

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It
is impractical to provide historical information for these three divisions for periods prior to fiscal 2002 as internal information was not tracked and recorded in this format.
Segment disclosures for the Company's operating divisions are as follows for the three months ended April 30, 2002 (in thousands):

|                           |                          | Americas |       | EMEA   |   | Asia  |        | Corporate |       | Total |  
|-------------------------- | ------------------------ | -------- | ----- | ------ | - | ----- | ------ | --------- | ----- | ----- | -
|Revenue                    |                          | $        | 7,769 |        | $ | 6,025 |        | $         | 1,682 |       | $
|Cost of goods sold         |                          |          | 3,358 |        |   | 1,466 |        |           | 548   |       |  
|                           |                          |          |       |        |   |       |        |           |       |       |  
|                           | Gross margin             |          |       | 4,411  |   |       | 4,559  |           |       | 1,134 |  
|                           |                          |          |       |        |   |       |        |           |       |       |  
|Sales and marketing        |                          |          | 2,998 |        |   | 3,400 |        |           | 1,267 |       |  
|Research and development   |                          |          | 2,088 |        |   | 1,619 |        |           | 452   |       |  
|General and administrative |                          |          | 1,267 |        |   | 982   |        |           | 274   |       |  
|Other                      |                          |          |      |        |   |      |        |           |      |       |  
|                           |                          |          |       |        |   |       |        |           |       |       |  
|                           | Total operating expenses |          |       | 6,353  |   |       | 6,001  |           |       | 1,993 |  
|                           |                          |          |       |        |   |       |        |           |       |       |  
|                           | Loss from operations     |          | $     | (1,942 | ) | $     | (1,442 | )         | $     | (859  | )
|                           |                          |          |       |        |   |       |        |           |       |       |  

Segment
disclosures for the Company's operating divisions are as follows for the six months ended April 30, 2002 (in thousands):

|                           |                          | Americas |        | EMEA   |   | Asia   |        | Corporate |       | Total  |  
|-------------------------- | ------------------------ | -------- | ------ | ------ | - | ------ | ------ | --------- | ----- | ------ | -
|Revenue                    |                          | $        | 16,827 |        | $ | 13,030 |        | $         | 3,532 |        | $
|Cost of goods sold         |                          |          | 7,244  |        |   | 2,907  |        |           | 817   |        |  
|                           |                          |          |        |        |   |        |        |           |       |        |  
|                           | Gross margin             |          |        | 9,583  |   |        | 10,123 |           |       | 2,715  |  
|                           |                          |          |        |        |   |        |        |           |       |        |  
|Sales and marketing        |                          |          | 6,984  |        |   | 6,567  |        |           | 2,485 |        |  
|Research and development   |                          |          | 4,802  |        |   | 3,718  |        |           | 1,006 |        |  
|General and administrative |                          |          | 2,644  |        |   | 2,047  |        |           | 556   |        |  
|Other                      |                          |          |       |        |   |       |        |           |      |        |  
|                           |                          |          |        |        |   |        |        |           |       |        |  
|                           | Total operating expenses |          |        | 14,430 |   |        | 12,332 |           |       | 4,047  |  
|                           |                          |          |        |        |   |        |        |           |       |        |  
|                           | Loss from operations     |          | $      | (4,847 | ) | $      | (2,209 | )         | $     | (1,332 | )
|                           |                          |          |        |        |   |        |        |           |       |        |  

The
Company generates products and services revenue in geographic locations outside of the United States. Revenue attributed to individual countries or regions based on the location of
sales to

13

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unaffiliated customers for the three and six months ended April 30, 2002 and 2001 is as follows (in thousands):

|         |                                | Three Months Ended April 30, |   | Six Months Ended April 30,
|-------- | ------------------------------ | ---------------------------- | - | --------------------------
|
|Revenue: |                                |                              |   |                           
|         | United States                  |                              | $ | 7,195                     
|         | Europe, Middle East and Africa |                              |   | 6,025                     
|         | Asia                           |                              |   | 1,682                     
|         | Canada and Latin America       |                              |   | 574                       
|         |                                |                              |   |                           
|         |                                | Total revenue                |   | $                         
|         |                                |                              |   |                           

Long-lived
assets, which include property and equipment as well as goodwill and intangible assets, by location consists of the following as of April 30, 2002 and
October 31, 2001 (in thousands):

|                   |               | April 30,
2002          |   | October 31,
2001
|------------------ | ------------- | ----------------------- | - | ----------------
|Long-lived assets: |               |                         |   |                 
|                   | United States |                         | $ | 15,203          
|                   | International |                         |   | 852             
|                   |               |                         |   |                 
|                   |               | Total long-lived assets |   | $               
|                   |               |                         |   |                 

(7) RESTRUCTURING PLAN

On May 8, 2002, Caldera announced a corporate restructuring that included the termination of approximately 15 percent of the Company's workforce and
the closing of two facilities. These costs will be recorded as a restructuring charge in Caldera's 3rd quarter consolidated statement of operations.

14

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto, included elsewhere in this
quarterly filing and our financial statements and management's discussion included in our annual report on Form 10-K for the year ended October 31, 2001 filed with the
Securities and Exchange Commission, including the audited financial statements contained therein. This discussion contains forward-looking statements that involve risks and uncertainties often
indicated by such words as "estimates", "anticipates", "continue", "expects", "intends", "believes" and similar expressions. Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including those set forth below under "Risk Factors" and elsewhere in this quarterly filing.

Recent Developments

On May 30, 2002, Caldera and other Linux vendors including Connectiva, SuSe and TurboLinux announced the organization of UnitedLinux, a new initiative that
will streamline Linux development and certification around a global, uniform distribution of Linux for business. UnitedLinux addresses enterprise customers' need for a standard business-focused Linux
product that is certified to work across hardware and software platforms and will accelerate the adoption of Linux and increase the number of business applications. Each of the four Linux companies
involved in the initiative will collaborate on the development of one common core Linux environment. Caldera will bundle current product offerings and services with the UnitedLinux operating system
and will sell these products under the Caldera brand.

A
significant number of vendors supplying technology infrastructure used by businesses have supported the UnitedLinux initiative. Some of these vendors include AMD, Borland Software,
Computer Associates, Fujitsu Siemens, Hewlett-Packard, IBM, Intel, NEC, Progress Software and SAP. UnitedLinux will significantly diminish the number of Linux distributions these partners will be
required to certify on and will provide a true standards-based Linux operating environment.

Under
the initiative, Caldera will contribute and fund a portion of the total engineering efforts for the development of UnitedLinux. Additionally, for products that incorporate
UnitedLinux that Caldera sells under its own brand, a per unit royalty will be paid. The amounts Caldera expects to pay under the
UnitedLinux initiative will be considerably less than the costs being incurred by Caldera to fund its own Linux development.

Overview

We originally incorporated as Caldera Systems, Inc. ("Caldera Systems"), a Utah corporation on August 21, 1998, and reincorporated as a Delaware
corporation on March 6, 2000. In March 2000, we completed an initial public offering of our common stock. On May 7, 2001, we formed a new holding company, Caldera International
("Caldera"), to acquire substantially all of the assets and operations of the server and professional services groups of Tarantella Inc., formerly known as The Santa Cruz
Operation, Inc., pursuant to an Agreement and Plan of Reorganization, dated August 1, 2000 and as subsequently amended (the "Tarantella Acquisition"). In connection with this
acquisition, Caldera Systems was acquired by the newly formed holding company. Former holders of shares and options to purchase shares of Caldera Systems received an equal number of shares and options
to purchase shares in Caldera International.

Prior
to the acquisition of the OpenServer and UNIXWare product lines from Tarantella, substantially all of our revenue was derived from sales of Linux products and related services.
Currently, over 90 percent of our total revenue is derived from UNIX related products and services.

15

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RESULTS OF OPERATIONS

The
Tarantella Acquisition significantly increased our net revenue and operating expenses. Operating results for the first six months of fiscal 2002 are not directly comparable to
the same period in fiscal 2001 because of the acquired operations. Accordingly, a pro forma analysis has been included below.

We
have reduced our headcount from 664 at the time of the Tarantella Acquisition to 489 as of April 30, 2002, and subsequent to April 30, 2002, announced plans to reduce
our headcount by an additional 15 percent. During the third and fourth quarters of fiscal 2001 and the first and second quarters of fiscal 2002, we implemented cost cutting measures related to
personnel and excess facilities and have reduced overall operating expenses, and anticipate we will continue to make cost-cutting decisions in our efforts to attain profitability. The
following table shows our improvement in ongoing operating expenses over the past four quarters.

|                           |       | April 30,
2002 |       | January 31,
2002 |   | October 31,
2001 |        | July 31,
2001
|-------------------------- | ----- | -------------- | ----- | ---------------- | - | ---------------- | ------ | -------------
|Sales and marketing        |       | $              | 7,665 |                  | $ | 8,371            |        | $            
|Research and development   |       |                | 4,159 |                  |   | 5,367            |        |              
|General and administrative |       |                | 2,523 |                  |   | 2,724            |        |              
|                           |       |                |       |                  |   |                  |        |              
|                           | Total |                | $     | 14,347           |   | $                | 16,462 |              
|                           |       |                |       |                  |   |                  |        |              

PRO FORMA THREE AND SIX MONTHS ENDED APRIL 30, 2002 AND 2001

The
following table shows our pro forma results of operations for the second quarter of 2001 and the first two quarters of 2001 assuming the Tarantella Acquisition had been completed at
the beginning of the first quarter of 2001 (in thousands):

|                           |                          | 3 Months Ended April 30, 2001 |      
|-------------------------- | ------------------------ | ----------------------------- | -----
|
|Revenue                    |                          | $                             | 1,598
|Cost of revenue            |                          |                               | 1,807
|                           |                          |                               |      
|                           | Gross margin (deficit)   |                               |      
|                           |                          |                               |      
|Sales and marketing        |                          |                               | 4,859
|Research and development   |                          |                               | 2,226
|General and administrative |                          |                               | 1,333
|Other                      |                          |                               | 4,567
|                           |                          |                               |      
|                           | Total operating expenses |                               |      
|                           |                          |                               |      
|                           | Loss from operations     |                               | $    
|                           |                          |                               |      

16

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|                           |                          | 6 Months Ended April 30, 2001 |       
|-------------------------- | ------------------------ | ----------------------------- | ------
|
|Revenue                    |                          | $                             | 2,652 
|Cost of revenue            |                          |                               | 2,984 
|                           |                          |                               |       
|                           | Gross margin (deficit)   |                               |       
|                           |                          |                               |       
|Sales and marketing        |                          |                               | 10,379
|Research and development   |                          |                               | 4,095 
|General and administrative |                          |                               | 3,081 
|Other                      |                          |                               | 5,503 
|                           |                          |                               |       
|                           | Total operating expenses |                               |       
|                           |                          |                               |       
|                           | Loss from operations     |                               | $     
|                           |                          |                               |       

The
pro forma adjustments above consist primarily of the amortization of goodwill and intangible assets as a result of the Tarantella Acquisition. The following discussion assumes the
Tarantella Acquisition had been in effect for the three and six months ended April 30, 2001.

Revenue

Revenue was $15.5 million for the second quarter of 2002 and $25.6 million (pro forma) for the second quarter of 2001, a decrease of
$10.1 million, or 40 percent. Revenue was $33.4 million for the first two quarters of 2002 and $51.1 million (pro forma) for the first two quarters of 2001, a decrease of
$17.7 million, or 35 percent. During the second quarter of 2002, 81 percent of our revenue was generated from the sale of products. During the second quarter of 2001,
88 percent of pro forma revenue was generated from the sale of products. During the first two quarters of 2002, 82 percent of our revenue was generated from the sale of products. During
the first two quarters of 2001, 86 percent of pro forma revenue was generated from the sale of products. The slight decrease in product revenue as a percentage of total revenue is attributed to
decreasing product revenue while services revenue has remained relatively flat over the same period.

The
decrease in total revenue during the second quarter as well as the first two quarters of 2002 compared to the comparable 2001 periods is attributable to decreased sales of UNIX
related products. These product lines are mature and we anticipate that sales of these products will continue to decline for the upcoming quarters. However, we are seeking to offset this anticipated
revenue decline with revenue derived from existing and future management product offerings.

Cost of Revenue and Gross Margin

Cost of revenue was $5.4 million for the second quarter of 2002 and $8.7 million (pro forma) for the second quarter of 2001, a decrease of
$3.3 million or 38 percent. Cost of revenue was $11.0 million for the first two quarters of 2002 and $16.7 million (pro forma) for the first two quarters of 2001, a
decrease of $5.8 million or 34 percent. The decrease in cost of revenue during the 2002 periods was attributable to decreased revenue. Gross margin for the second quarter of 2002 was
65 percent and the gross margin for the second quarter of 2001 was 66 percent. Gross margin for the first two quarters of 2002 and the first two quarters of 2001 were consistent at
67 percent.

Operating Expenses

Sales and Marketing.Sales and marketing expenses were $7.7 million for the second quarter of 2002 and
$16.0 million (pro forma) for the second quarter of 2001, a decrease of $8.3 million or 52 percent. Sales and marketing expenses were $16.0 million for the first two
quarters of 2002 and

17

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$32.3 million (pro forma) for the first two quarters of 2001, a decrease of $16.3 million or 50 percent. Sales and marketing expenses represented 50 percent of total
revenue for the second quarter of 2002, a decline from 63 percent of total revenue for the second quarter of 2001. Sales and marketing expenses represented 48 percent of total revenue
for the first two quarters of 2002, a decline from 63 percent of total revenue for the first two quarters of 2001. The significant decrease in sales and marketing expenses is attributable to
our recent restructuring activities that have resulted in reduced employees and related costs. Other decreases in sales and marketing expenses have resulted from decreased travel, lower commissions
and less co-operative advertising as a result of lower revenue.

Research and Development.Research and development expenses were $4.2 million for the second quarter of 2002 and
$7.2 million (pro forma) for the second quarter of 2001, a decrease of $3.0 million, or 42 percent. Research and development expenses were $9.5 million for the first two
quarters of 2002 and $14.2 million (pro forma) for the first two quarters of 2001, a decrease of $4.7 million, or 33 percent. Research and development expenses represented
27 percent of total revenue for the second quarter of 2002, a slight decrease from 28 percent of total revenue for the second quarter of 2001. Research and development expenses
represented 29 percent of total revenue for the first two quarters of 2002, a slight increase from 28 percent of total revenue for the first two quarters of 2001. The decrease in the
dollar amount of research and development costs in the 2002 quarters compared to the 2001 quarters is primarily attributable to fewer employees and our efforts to consolidate development work on our
Linux and UNIX operating systems.

General and Administrative.General and administrative expenses were $2.5 million for the second quarter of 2002 and
$4.4 million (pro forma) for the second quarter of 2001, a decrease of $1.9 million, or 43 percent. General and administrative expenses were $5.2 million for the first two
quarters of 2002 and $9.1 million (pro forma) for the first two quarters of 2001, a decrease of $3.9 million, or 43 percent. General and administrative expenses represented
16 percent of total revenue for the second quarter of 2002, a decrease from 17 percent of total revenue for the second quarter of 2001. General and administrative expenses represented
16 percent of total revenue for the first two quarters of 2002, a decrease from 18 percent of total revenue for the first two quarters of 2001. The decrease in general and administrative
expenses is primarily attributable to our recent restructuring activities that has resulted in reduced employees and related costs.

Other.Other expenses consist primarily of amortization of intangible assets, non-cash compensation,
restructuring charges and the write-down of investments. Other expenses were $2.2 million for the second quarter of 2002 and $10.0 million (pro forma) for the second quarter
of 2001. Other expenses
were $8.6 million for the first two quarters of 2002 and $17.1 million (pro forma) for the first two quarters of 2001. Other expense for the first two quarters of 2002 consisted
primarily of restructuring charges of $5.3 million and non-cash amortization of $1.6 million and a write-down of an investment of $1.2 million. Included in
other expenses for the first two quarters of 2001 was the write-off of investments for $4.3 million and non-cash amortization of $10.6 million. The significant
decrease in non-cash amortization was attributed to a fourth quarter 2001 write-off of $73.7 million for goodwill and intangible assets acquired during fiscal 2001.

HISTORICAL THREE AND SIX MONTHS ENDED APRIL 30, 2002 AND 2001

During
fiscal 2002, we anticipate that as a percentage of total revenue, sales and marketing, research and development and general and administrative expenses will decrease significantly
from fiscal 2001 due to cost-cutting measures and reductions in operating expenses. For the second quarter of 2001, and the first two quarters of 2001, the high sales and marketing,
product development and general and administrative expense as a percentage of revenue was attributed to lower than anticipated Linux revenue due in part to the economic slowdown and increased spending
in anticipation of the completion of the Tarantella Acquisition.

18

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Revenue

Revenue was $15.5 million for the second quarter of 2002, and $1.6 million for the second quarter of 2001. During the second quarter of 2002,
81 percent of our revenue was generated from the sale of products. During the second quarter of 2001, 87 percent of our revenue was generated from the sale of products. Revenue from
international customers accounted for 54 percent of total revenue for the second quarter of 2002 and 11 percent for the second quarter of 2001. The increase in international revenue and
product revenue are the result of our worldwide infrastructure that was acquired during our third quarter of fiscal 2001 that provided us with the ability to sell products and services to customers on
a global basis.

Revenue
was $33.4 million for the first two quarters of 2002, and $2.7 million for the first two quarters of 2001. During the first two quarters of 2002, 82 percent
of our revenue was generated from the sale of products. During the first two quarters of 2001, 70 percent of our revenue was generated from the sale of products. Revenue from international
customers accounted for 54 percent of total revenue for the first two quarters of 2002 and 19 percent for the first two quarters of 2001.

The
significant increase in revenue during the first two quarters of 2002 compared to the first two quarters of 2001 was attributable almost solely to the revenue generated from the sale
of UNIX-based products and services acquired from Tarantella in May 2001.

Products.Product revenue was $12.6 million for the second quarter of 2002 and $1.4 million for the second
quarter of 2001. The increase in product revenue during the second quarter of 2002 over the second quarter of 2001 was primarily attributable to sales of OpenServer and UNIXWare products. Product
revenue derived from Linux products and integrated Linux and UNIX products was approximately 5 percent of total product revenue during the second quarter of 2002.

Product
revenue was $27.3 million for the first two quarters of 2002 and $1.8 million for the first two quarters of 2001. The increase in product revenue during the first
two quarters of 2002 over the first two quarters of 2001 was primarily attributable to sales of UNIX-based products.

Services.Service revenue was $2.9 million for the second quarter of 2002 and $0.2 million for the second
quarter of 2001. The increase in service revenue during the second quarter of 2002 over the second quarter of 2001 was primarily attributable to support, maintenance and professional services provided
to customers with UNIX-based operating systems. The majority of our services revenue continues to be derived from customers with UNIX-based operating systems.

Service
revenue was $6.0 million for the first two quarters of 2002 and $0.8 million for the first two quarters of 2001. We are continuing to enhance our current services
offerings in an effort to grow our future services revenue and complement our current products. This will be facilitated with the introduction of management and web-based services
offerings including programs, subscription services and professional services.

Cost of Revenue

Cost of Products Revenue.Cost of products revenue was $2.2 million for the second quarter of 2002 and
$1.4 million for the second quarter of 2001. Cost of products revenue as a percentage of products revenue was 17 percent for the second quarter of 2002 and 103 percent for the
second quarter of 2001. The decrease in the cost of products revenue percentage for the second quarter of 2002 compared to the second quarter of 2001 was attributable to a higher proportion of
internet and electronic distribution orders associated with sales of UNIX and Linux products as well as from decreased manufacturing and overhead costs.

19

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Cost of products revenue was $4.6 million for the first two quarters of 2002 and $1.7 million for the first two quarters of 2001. Cost of products revenue as a percentage
of products revenue was 17 percent for the first two quarters of 2002 and 90 percent for the first two quarters of 2001.

For
the remainder of fiscal 2002, we expect the cost of products revenue as a percentage of products revenue to remain consistent with the first two quarters of fiscal 2002.

Cost of Services Revenue.Cost of services revenue was $3.2 million for the second quarter of 2002 and
$0.4 million for the second quarter of 2001. Cost of services revenue as a percentage of services revenue was 111 percent for the second quarter of 2002 and 183 percent for the
second quarter of 2001. The higher cost of services revenue as a percentage of services revenue for the second quarter of 2001 compared to the second quarter of 2002 was attributable to our initial
costs to establish a support services department that was not yet generating sufficient revenue to cover all related expenses.

Cost
of services revenue was $6.4 million for the first two quarters of 2002 and $1.3 million for the first two quarters of 2001. Cost of services revenue as a percentage
of services revenue was 105 percent for the first two quarters of 2002 and 164 percent for the first two quarters of 2001.

For
the remainder of fiscal 2002, we expect cost of services revenue as a percentage of services revenue will decline slightly from the first two quarters of fiscal 2002 and we
anticipate that by the end of the our fourth quarter of 2002 our services revenue will be equal to our cost of services revenue.

Operating Expenses

Sales and Marketing.Sales and marketing expenses were $7.7 million for the second quarter of 2002 and
$4.9 million for the second quarter of 2001. Sales and marketing expenses represented 50 percent of total revenue for the second quarter of 2002 and were 304 percent of total
revenue for the second quarter of 2001. Sales and marketing expenses were $16.0 million for the first two quarters of 2002 and $10.4 million for the first two quarters of 2001. Sales and
marketing expenses represented 48 percent of
total revenue for the first two quarters of 2002 and were 391 percent of total revenue for the first two quarters of 2001. The increase in the dollar amount of sales and marketing expense in
the second quarter and first two quarters of 2002 compared to the second quarter and first two quarters of 2001 was attributable to increased personnel and related costs, including commissions,
increased spending related to the branding and marketing of Caldera International and expenses for product launches and advertising campaigns. For the second quarter of 2001 and the first two quarters
of 2001, the high sales and marketing expense as a percentage of revenue was attributed to lower than anticipated Linux revenue and increased spending in anticipation of the completion of the
Tarantella Acquisition.

Research and Development.Research and development expenses were $4.2 million for the second quarter of 2002 and
$2.2 million for the second quarter of 2001. Research and development costs represented 27 percent of total revenue for the second quarter of 2002 and 139 percent of total revenue
for the second quarter of 2001. Research and development expenses were $9.5 million for the first two quarters of 2002 and $4.1 million for the first two quarters of 2001. Research and
development costs represented 29 percent of total revenue for the first two quarters of 2002 and 154 percent of total revenue for the first two quarters of 2001. The increase in the
dollar amount of research and development expenses in the second quarter and first two quarters of 2002 compared to the second quarter and first two quarters of 2001 was attributable to increased
personnel and related costs as a result of the acquisitions of the WhatiIfLinux technology from Acrylis and operations from Tarantella as our personnel focused on the development and integration of
Linux and UNIX operating systems as well as new management product offerings.

General and Administrative.General and administrative expenses were $2.5 million for the second quarter of 2002 and
$1.3 million for the second quarter of 2001. General and administrative expenses

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represented 16 percent of total revenue for the second quarter of 2002 and 83 percent of total revenue for the second quarter of 2001. General and administrative expenses were
$5.2 million for the first two quarters of 2002 and $3.1 million for the first two quarters of 2001. General and administrative expenses represented 16 percent of total revenue
for the first two quarters of 2002 and 116 percent of total revenue for the first two quarters of 2001. The increase in general and administrative expenses in the second quarter and first two
quarters of 2002 compared to the second quarter and first two quarters of 2001 was primarily attributable to increased personnel and related costs to support our worldwide operations as a result of
the acquisition of the operations from Tarantella. Other increases in general and administrative expenses were for increased professional services and facilities costs.

Write-down of Investments.During the second quarter of 2002, the Company determined that the current carrying
value of its investment in Lineo, Inc. would not be realized and a write-down was necessary. The Company recorded a write-down of approximately $1.2 million
related to this investment. The Company had investment impairment charges during the second quarter of 2001 of approximately $4.3 million. As of April 30, 2002, all of the Company's
investments in other entities had been written down to $0.

Amortization of Intangibles.We recorded $0.8 million of amortization in the second quarter of 2002 and
$1.6 million in amortization in the first two quarters of 2002 related to the amortization of intangible assets in connection with the acquisition of the assets and operations from Tarantella
and the
WhatIfLinux technology acquired from Acrylis, Inc. During the second quarter of 2001 and the first two quarters of 2001, we did not have any intangible assets to amortize.

Effective
November 1, 2001, we ceased amortizing goodwill in accordance with the adoption of SFAS No. 142.

Restructuring Charge.During the second quarter of 2002 we did not record any restructuring charge. We recorded a
restructuring charge of $5.3 million related to worldwide corporate restructurings during the first two quarters of 2002. Our restructuring consisted primarily of severance expenses related to
a reduction in personnel, the accrual of future lease payments related to the elimination of permanently idle and non-essential portions of facilities and the write-off of
long-term assets and leasehold improvements. During the second quarter of 2001 and the first two quarters of 2001 we did not have a restructuring charge.

Non-cash Compensation.In connection with stock option grants made to employees in prior years, we
recorded non-cash compensation of $0.2 million for the second quarter of 2002 and $0.3 million for the second quarter of 2001. We recorded non-cash compensation
of $0.5 million for the first two quarters of 2002 and $0.6 million for the first two quarters of 2001.

Cost-sharing Arrangement with Tarantella, Inc.After entering into the reorganization agreement with
Tarantella to acquire the server software and professional services groups, we agreed to reimburse Tarantella for certain employee payroll and related costs attributed to employees critical to our
future success. We recorded $0.6 million for the cost-sharing arrangement during the first two quarters of 2001. During the first two quarters of 2002, we had no such
cost-sharing arrangement with Tarantella.

Equity in Loss of Affiliate

Until January 5, 2001, we had been accounting for our investment in Ebiz Enterprises, Inc. ("Ebiz") using the equity method of accounting. Under the
equity method, we recognized our portion of the net income or net loss of Ebiz in our consolidated statements of operations. During the first two quarters of 2001 we recognized $0.6 million
related to our portion of Ebiz's net loss and the amortization of the difference between our investment and the amount of underlying equity in the net assets of Ebiz. Subsequent to January 5,
2001, the investment in Ebiz was accounted for under the cost method, and has since been written down to $0.

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Other Income (Expense), net

Other income (expense), net, which consists principally of interest expense, interest income and other income, was $(0.1) million for the second quarter of
2002 and $1.6 million for the second quarter of 2001. Net other expense for the second quarter of 2002 was primarily attributed to losses on the disposal of property and equipment offset by
interest income received on cash balances. Other income (expense) was $(0.5) million for the first two quarters of 2002 and $2.6 million for the first two quarters of 2001. The
significant change between the second quarter of 2002 and the first two quarters of 2002 compared to the prior periods is primarily attributable to lower interest income from decreased cash balances.

Provision for Income Taxes

The provision for income taxes was $55,000 for the second quarter of 2002 and $22,000 for the second quarter of 2001. The provision for income taxes was $217,000
for the first two quarters of 2002 and $49,000 for the first two quarters of 2001. The provision for income taxes was primarily related to earnings of foreign subsidiaries.

LIQUIDITY AND CAPITAL RESOURCES

Since
inception, we have funded our operations primarily through loans from our major stockholder and through sales of common and preferred stock.

As
of April 30, 2002, we had cash and cash equivalents of $21.8 million and working capital of $5.0 million. Our total cash and marketable securities decreased by
$6.6 million from October 31, 2001 to April 30, 2002. This decrease resulted from cash used in operations in addition to $5.0 million of cash used in the early redemption
of our $8.0 million face value note payable to Tarantella.

Our
net cash used in operations during the six months ended April 30, 2002 was $1.2 million. Cash used in operations was primarily attributable to the net loss of
$17.6 million, of which $5.3 million related to restructuring activities. The net loss was partially offset by non-cash expenses of $6.5 million and cash provided by
changes in operating assets and liabilities of $9.9 million. Cash used in operations has declined primarily due to our recent cost-cutting actions as well as improved collections on
our accounts receivable.

Our
investing activities have historically consisted of equipment purchases, investing in strategic partners and the purchase and sale of available-for-sale
securities. During the six months ended April 30,
2002, cash provided by investing activities was $5.9 million, which was primarily generated from the sale of available-for-sale securities.

Our
financing activities used $5.2 million during the six months ended April 30, 2002 and was comprised of a $5.0 million early note payment to Tarantella and
$0.6 million for the purchase of 0.5 million shares of our common stock held by Tarantella. These were offset by the exercise of vested stock options and the purchase of shares of common
stock by our employees through the employee stock purchase program.

We
do not engage in any off balance sheet financing arrangements.

Our
net accounts receivable balance decreased from $16.7 million as of October 31, 2001 to $6.2 million as of April 30, 2002, primarily related to strong
collection efforts and a decline in revenue. The allowance for doubtful accounts was $0.5 million as of April 30, 2002, which represented approximately 5 percent of the gross
accounts receivable balance. Our write-offs of uncollectable accounts have not been material.

We
generate revenue in Central and South America. Historically, revenue and expenses in this region have not been significant. In recent quarters, the economies of the countries of this
region,

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Argentina in particular, have experienced significant volatility. We have reviewed our sales to customers and our accounts receivable from customers in this region and have established reserves for
potential bad debts as we believe appropriate. We believe our overall exposure related to transactions in this region is not material.

We
have entered into operating leases for our corporate offices located in the United States and our international sales offices. We have commitments under these leases that extend
through fiscal 2008. In recent corporate restructuring activities, we have partially vacated some of these facilities, but still have contractual obligations to continue to make ongoing lease payments
that will use available cash. We have pursued and will pursue sublease opportunities, as available, to minimize this use of cash; however, there can be no assurance that we will be successful in
eliminating or reducing cash expenditures for these leases.

The
following table summarizes our contractual obligations as of April 30, 2002 (in thousands):

|                    |                | Operating
Leases
|------------------- | -------------- | ----------------
|Less than one year  |                | $               
|One to three years  |                |                 
|Three or more years |                |                 
|                    |                |                 
|                    | Total payments |                 
|                    |                |                 

In
connection with the acquisition of the server and professional services groups from Tarantella, Tarantella agreed to continue as the lessee for certain facilities in the UK that it
would retain and use. The Company and Tarantella have either completed assignment agreements or have reached agreement with the respective landlords to assign the leases and are in the process of
completing the appropriate agreements. Upon completion of these assignments, Tarantella is or will be the lease tenant and will bear full financial responsibility for these leases. Our UK subsidiary
has been named as a second guarantor on these operating leases, and could be liable under these lease obligations in the event that Tarantella defaults. Future operating lease payments under these
leases extend through 2020 and total $10.9 million.

We
believe that our current liquidity position, including approximately $21.8 million of cash and cash equivalents, will be sufficient to meet our operating requirements for at
least the next twelve months. We are continuing to implement cost cutting measures in our efforts to achieve profitability. However, there can be no assurance that we will be successful in
achieving our revenue and operating expense projections. Accordingly, we may be required to obtain additional equity or debt funding to finance our operations. We cannot provide any assurance that
additional funding will be available in amounts or on terms acceptable to us. If sufficient funds are not available or are not available on acceptable terms, our operations could be adversely impacted
and our ability to fund expansion, take advantage of acquisition opportunities, develop or enhance our products and services, or otherwise respond to competitive or operational pressures could be
significantly limited.

CRITICAL ACCOUNTING POLICIES

Our
critical accounting policies include the following:

We
recognize revenue in accordance with Statement of Accounting Position ("SOP") 97-2, as amended, and Staff Accounting Bulletin ("SAB") 101. Revenue recognition in
accordance with these

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pronouncements can be complex due to the nature and variability of our sales transactions. We recognize product revenue upon shipment if a signed contract exists, the fee is fixed and determinable,
collection of resulting receivables is probable and product returns are reasonably estimable, except for sales to distributors, which are recognized upon sale by the distributor to resellers or end
users. For contracts involving multiple elements (i.e. delivered and undelivered products, maintenance and other services), we allocate revenue to each component of the contract based on objective
evidence of its fair value, which is specific to us. The fair value of each element is based on the price if sold separately. We recognize revenue allocated to undelivered products when the criteria
for product revenue set forth above have been met.

We
recognize revenue from maintenance fees for ongoing customer support and product updates ratably over the period of the maintenance contract. Payments for maintenance fees are
generally made in advance and are non-refundable. For revenue allocated to education and consulting services or derived from the separate sale of such services, we recognize revenue as the
related services are performed. We recognize product revenue from royalty payments upon receipt of quarterly royalty reports from OEMs related to their product sales.

Further
implementation guidelines relating to SOP 97-2 and related modifications may result in unanticipated changes in our revenue recognition practices and such changes
could significantly affect our future revenue and results of operations.

We
review our long-lived assets for impairment when events or changes in circumstances indicate that the book value of an asset may not be recoverable. We evaluate, at each
balance sheet date, whether events and circumstances have occurred which indicate possible impairment. The carrying value of a long-lived asset is considered impaired when the anticipated
cumulative undiscounted cash flows of the related asset or group of assets is less than the carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds
the estimated fair market value of the long-lived asset.

Subsequent
to the acquisition of certain assets and operations from Tarantella, we experienced significant unanticipated decreases in actual and forecasted revenue of the acquired
operations, a significant decline in market valuations and general conditions, particularly in the information
technology sector, a weakening of partner relationships, the loss of certain key executives and other factors which indicated the recorded values of the long-lived assets were impaired. As
a result, we performed a valuation of our long-lived assets as of October 31, 2001 and concluded that a $73.7 million write-down of goodwill and intangible assets
was necessary. As a result of this write-down and other smaller purchase price adjustments, at April 30, 2002, we have a net remaining balance for intangible assets of
$12.7 million and a net remaining balance for goodwill of $0.

Had
different assumptions or criteria been used to evaluate and measure the impairment, the amount of the impairment write-off could have been materially different than the
$73.7 million recorded. Further write downs of goodwill and intangibles may be necessary if the future discounted cash flows of these assets are less than the carrying value.

We
offer credit terms on the sale of our products to a significant majority of our customers and require no collateral from these customers. We perform ongoing credit evaluations of our
customers' financial condition and maintain an allowance for doubtful accounts receivable based upon our historical collection experience and expected collectibility of all accounts receivable. We
also maintain an allowance for estimated returns based on our historical experience. Our actual bad debts and returns may differ from our estimates and the differences may be material.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FOREIGN CURRENCY RISK

We
have many foreign offices and operations primarily in Europe and Asia. As a result, a substantial portion of our revenue is derived from sales to customers outside the United States.
Most of this international revenue is denominated in U.S. dollars. However, a substantial portion of the operating expenses related to the foreign-based sales are denominated in foreign currencies and
therefore operating results are affected by changes in the U.S. dollar exchange rate in relation to foreign currencies such as the U.K. pound sterling and the Euro, among others. If the U.S. dollar
weakens compared to the U.K. pound sterling and the Euro, our operating expenses of foreign operations will be higher when translated back into U.S. dollars and additional funds may be required to
meet these obligations. Our revenue can also be affected by general economic conditions in the United States, Europe and other international markets. Our results of operations may be affected in the
short term by fluctuations in foreign currency exchange rates. Historically, these amounts have not been significant.

INTEREST RATE RISK

The
primary objective of our cash management strategy is to invest available funds in a manner that assures maximum safety and liquidity and maximizes yield within such constraints. We
do not borrow money for short-term investment purposes.

INVESTMENT RISK

We
have invested in equity instruments of privately held and public companies in the high-technology industry for business and strategic purposes. Investments are accounted
for under the cost method if our ownership is less than 20 percent and we are not able to exercise influence over operations. Our investment policy is to regularly review the assumptions and
operating performance of these companies and to record impairment losses when events and circumstances indicate that these investments may be impaired. As of April 30, 2002, all of the
Company's investments in other entities had been written down to $0.

The
stock market in general, and the market for shares of technology companies in particular, has experienced extreme price fluctuations. In addition, factors such as new product
introductions by our competitors and us may have a significant impact on the market price of our common stock. Furthermore, quarter-to-quarter fluctuations in our results of
operations caused by changes in customer demand may have a significant impact on the market price of our stock. These conditions could cause the price of our stock to fluctuate substantially over
short periods of time.

Risk Factors

We have not been profitable and we expect our losses to continue.

We have not been profitable. The operations recently acquired from Tarantella have not recently been profitable and their revenue has been declining. If our
revenue continues to decline or we are unable to efficiently further reduce operating expenses, we may not achieve profitability or generate positive cash flow. For the three months ended
April 30, 2002, we incurred a net loss of $6.6 million. We may find it necessary to accelerate expenditures relating to product development and support and our sales and marketing
efforts beyond our current expectations or otherwise increase our financial commitment to creating and maintaining brand awareness among potential customers. If we are unable to achieve positive cash
flow from operations, we will not be able to implement our business plan without additional funding, which may not be available to us.

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You should not rely on our quarterly operating results as an indication of our future results. Fluctuations in our operating results or the failure of our operating results to
meet the expectations of public market analysts and investors may negatively impact our stock price.

Fluctuations in our quarterly operating results or our failure to meet the expectations of analysts or investors, even in the short-term, could cause
our stock price to decline. You should not rely on quarter-to-quarter comparisons of our results of operations as an indication of future performance. Factors that may affect
our quarterly results include:



We
also experience fluctuations in operating results in interim periods in Europe and the Asia Pacific regions due to seasonal slowdowns and economic conditions in these areas. These
periods typically occur during the summer months.

As
a result of the factors listed above and elsewhere, it is possible that our results of operations may be below the expectations of public market analysts and investors in any
particular period. This could cause our stock price to decline. If revenue falls below our expectations and we are unable to quickly reduce our spending in response, our operating results would be
lower than expected and our stock price may fall.

We rely on our indirect sales channel for distribution of our products, and any disruption of our channel at any level could adversely affect the sales of our products.

We have a two-tiered distribution channel. The relationships we have developed with resellers allow us to offer our Linux and UNIX products and
services to a much larger customer base than we would otherwise be able to reach through our own direct sales and marketing efforts. Some electronic solution providers also purchase solutions through
our resellers, and we anticipate they will continue to do so as we expand our product offerings. Because we usually sell indirectly through resellers, we cannot control the relationships through which
solution providers or equipment integrators purchase our products. In turn, we do not control the presentation of our products to end-users. Therefore, our sales could be affected by
disruptions in the relationships between our resellers and electronic solution providers or between electronic solution providers and end users. Also, resellers and electronic solution providers may
choose not to emphasize our products to their customers. Any of these occurrences could diminish the effectiveness of our distribution channel and lead to decreased sales.

Our business model, which relies on a combination of open source software and proprietary technology, is unproven.

Our business model incorporates as integral elements of our product offerings both commercial products and open source software. We know of no company that has
built a profitable business based in whole or in part on open source software. By incorporating open source components in our product offerings, we face many of the same risks that other open source
companies experience, including the inability to offer warranties and indemnities on products and services. The open source components included in our products are available for free from other
sources. In addition, by including proprietary

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technology in our products that is not freely downloadable we may run counter to the perception of Linux as an open source model and may alienate the Linux community. Negative reaction such as this,
if widely shared by our customers, developers or the open source community, could harm our reputation, diminish our brand and decrease our revenue. Our business will fail if we are unable to
successfully implement our business model.

Our
business model also depends upon incorporating contributions from the open source community into our products. The viability of our product offerings depends in part upon the efforts
of the open source community in enhancing products and making them compatible for use across multiple software and hardware platforms. There are no guarantees that the open source community will
embrace these products such that programmers will contribute sufficient resources for their development. If the open source community does not embrace products that we view as integral to providing
eBusiness solutions, we will be required to devote significant resources to develop these products on our own.

If the market for Linux business solutions does not grow as we anticipate, we may not be able to grow our business.

Our strategy for marketing Linux solutions to businesses depends in part upon our belief that many businesses will follow a trend away from the use of networked
computers linked by centralized servers and move toward the use of distributed applications through the internet. We also are relying on electronic solution providers making these technologies
available on Linux and Linux then becoming a desirable operating system under these circumstances. However, if businesses, which at present favor Microsoft and other non-Linux operating
systems, do not adopt these trends in the near future, or if Linux is not viewed as a desirable operating system in connection with these trends, a significant market for our products may not develop.
Factors that may keep businesses from adopting these trends include:



Even
if these trends toward distributed applications are adopted, if the development of Linux products and Linux applications is not sufficient, a significant market for Linux business
solutions such as ours may not materialize.

We operate in a highly competitive market and face significant competition from a variety of current and potential sources, including Red Hat and Sun Microsystems; many of our
current and potential competitors have greater financial and technical resources than we do; thus, we may fail to compete effectively.

Our principal competitors in the Linux market include Red Hat, Sun and SuSe. In addition, due to the open source nature of Linux, anyone can freely download Linux
and many Linux applications and modify and re-distribute them with few restrictions. For example, solution providers upon whom we depend for the distribution of our products could instead
create their own Linux solutions to provide to
their customers. Also, established companies and other institutions could easily produce competing versions of Linux software.

In
the Intel UNIX operating system market, our competitors include Microsoft, Hewlett Packard and Sun. These competitors are aggressively pursuing the current UNIX operating system
market.

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Many of these competitors have access to greater resources that we do. More recently, the major competitive alternative to our UNIX and Linux products is Microsoft's NT. While we believe that our
server products retain a competitive advantage in a number of targeted application areas, the expansion of Microsoft's and our other competitors' offerings may restrict the overall market available
for our server products, including some markets where we have been successful in the past.

Our foreign-based operations and sales create special problems, including the imposition of governmental controls and fluctuations in currency exchange rates that could hurt
our results.

We have foreign operations, including development facilities, sales personnel and customer support operations in Europe, Latin America and Southeast Asia. These
foreign operations are subject to certain inherent risks, including:



In
addition, certain of our operating expenses are denominated in local currencies, creating risk of foreign currency translation losses that could harm our financial results and cash
flows. When we generate profits or losses in foreign countries, our effective income tax rate is increased, even though we generate consolidated net losses.

In
Latin America and Southeast Asia in particular, several countries have suffered and may be especially susceptible to recessions and economic instability which may lead to increased
governmental ownership or regulation of the economy, higher interest rates, increased barriers to entry such as higher tariffs and taxes, and reduced demand for goods manufactured in the United States
resulting in lower revenue.

Our competitive position could decline if we are unable to obtain additional financing.

We believe that our current cash and cash equivalents will be sufficient to fund our working capital and capital expenditure requirements for at least the next
twelve months. However, we may need to raise additional funds to support operations, respond to competitive pressures, acquire complementary businesses or technologies or respond to
unanticipated requirements. We cannot assure you that additional funding will be available to us in amounts or on terms acceptable to us. If sufficient funds are not available or are not available on
acceptable terms, our ability to fund our expansion, take advantage of acquisition opportunities, develop or enhance our services or products, or otherwise respond to competitive pressures would be
significantly limited.

The impact of domestic and global economic conditions may adversely impact our operations.

During the last several quarters the U.S. economy has experienced an economic slowdown that has affected the purchasing habits of many consumers across many
industries and across many geographies. This has caused the delay, or even cancellation of technology purchases. The ultimate impact of the slowdown in the United States is difficult to predict, but
has resulted in decreased sales of our products, longer sales cycles and lower prices. If the current slowdown continues, our revenue and

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results of operations may continue to be lower than expected. In addition, the slowdown may also affect the end-user market making it more difficult for our reseller channel to sell our
products.

Our
operations are vulnerable to fires, earthquakes, power loss, telecommunications failure, and other events outside our control. The occurrence of any one of these events may have a
material adverse impact on our results of operations.

Future sales of our common stock may negatively affect our stock price.

The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market, or the perception that such
sales could occur. As a result of the registration that occurred in connection with the Tarantella transaction, we have a large number of shares of common stock outstanding and available for resale.
This also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. Certain holders of our common stock also have certain demand
and piggyback registration rights obligating us to register their shares under the Securities Act for sale.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In September and October 2001, Caldera was named as a defendant in three different actions filed by former employees in the Superior Court of
California, County of Santa Clara, claiming breach of contract regarding the payment of bonuses and severance payments. During the second quarter of 2002, the Company settled these three matters. The
amounts paid in the settlement agreements were not materially different than the amounts previously accrued by the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the three months ended April 30, 2002, the following matters were submitted and approved by the stockholders of Caldera Systems, at the
annual meeting held March 4, 2002 (votes in thousands):

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

None.

On
April 2, 2002, we filed a report on Form 8-K disclosing we had entered into an agreement with Tarantella to pay off our $8.0 million face value note
payable for $5.0 million, acquire a paid-up perpetual license for certain Tarantella technology bundled in certain of our products and acquire 500,000 shares of Caldera common stock
held by Tarantella.

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ITEM 7. SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

|Date: June 18, 2002 |  | CALDERA SYSTEMS, INC.
|------------------- |  | ---------------------
|                    |  | By:                  

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