<PAGE>
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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                ________________

                                    FORM 10-Q


     X     QUARTERLY  REPORT  PURSUANT  TO  SECTION  13  OR  15  (D)
     -
                     OF  THE  SECURITIES  EXCHANGE  ACT  OF  1934


                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000


          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 0-21484

                              THE SANTA CRUZ OPERATION, INC.

             (EXACT NAME OF REGISTRANT AS SPECIFIED IN THIS CHARTER)


      CALIFORNIA                                            94-2549086
    (State  or  other jurisdiction of                    (I.R.S. Employer
    incorporation  or  organization)                      Identification  No.)


            425  ENCINAL  STREET,  SANTA  CRUZ,  CALIFORNIA         95060
              (Address  of principal executive office)           (Zip Code)


        Registrant's telephone number, including area code (831) 425-7222



Indicate  by  check  mark whether the registrant (1) has filed all reports 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 such filing requirements for
the  past  90  days.
Yes      X        No
        --


The number of shares outstanding of the registrant's common stock as of June 30,
                              2000 was 35,947,635.





<PAGE>



                         THE SANTA CRUZ OPERATION, INC.

                                    FORM 10-Q

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000

                                TABLE OF CONTENTS

PART  I.  FINANCIAL  INFORMATION
<TABLE>
<CAPTION>




ITEM 1.       FINANCIAL STATEMENTS                                                          PAGE
                                                                                            ----
<S>                                                                                          <C>

A)  CONSOLIDATED STATEMENTS OF OPERATIONS
      FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2000 AND 1999 . .. . . . . . . . . . . . . .1

B)  CONSOLIDATED BALANCE SHEETS
      AS OF JUNE 30, 2000 AND SEPTEMBER 30, 1999 . . . . . . . . . . . . . . . . . . . . . . .2

C)  CONSOLIDATED STATEMENTS OF CASH FLOWS
      FOR THE NINE MONTHS ENDED JUNE 30, 2000 AND 1999 . . . . . . . . . . . . . . . . . . . .3

D)  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . .4

ITEM 2  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
  RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . . . . . . . . . . . 13

PART II.  OTHER INFORMATION

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . . . . . . . . . . 14

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

</TABLE>


<PAGE>
                         Part I.  Financial Information
                          Item I.  Financial Statements


THE  SANTA  CRUZ  OPERATION,  INC.


CONSOLIDATED  STATEMENTS  OF  OPERATIONS
(In  thousands,  except  earnings  per  share)
----------------------------------------------

<TABLE>
<CAPTION>



                                                               THREE MONTHS ENDED       NINE MONTHS ENDED
                                                                     JUNE 30,              JUNE 30,
                                                                  2000       1999       2000        1999
                                                                    (UNAUDITED)           (UNAUDITED)
---------------------------------------------------------------------------------------------------------
  NET REVENUES
<S>                                                           <C>         <C>        <C>        <C>
    Licenses                                                  $  23,493   $ 53,218   $104,743   $154,263
    Services                                                      3,438      3,842     11,383     11,241
---------------------------------------------------------------------------------------------------------
      Total net revenues                                         26,931     57,060    116,126    165,504
---------------------------------------------------------------------------------------------------------
  COST OF REVENUES
    Licenses                                                      5,000      7,698     16,659     23,349
    Services                                                      4,680      4,976     15,110     14,149
---------------------------------------------------------------------------------------------------------
      Total cost of revenues                                      9,680     12,674     31,769     37,498
---------------------------------------------------------------------------------------------------------
      GROSS MARGIN                                               17,251     44,386     84,357    128,006
---------------------------------------------------------------------------------------------------------
  OPERATING EXPENSES:
    Research and development                                      9,532     10,772     31,742     31,630
    Sales and marketing                                          20,969     24,657     69,991     71,982
    General and administrative                                    5,348      4,473     13,856     12,957
    Restructuring charges                                             -          -      5,887          -
---------------------------------------------------------------------------------------------------------
      Total operating expenses                                   35,849     39,902    121,476    116,569
---------------------------------------------------------------------------------------------------------
      OPERATING INCOME (LOSS)                                   (18,598)     4,484    (37,119)    11,437
  OTHER INCOME (EXPENSE):
    Interest income, net                                            408        458      1,600      1,532
    Other income (expense), net                                    (168)       598      1,577      1,034
---------------------------------------------------------------------------------------------------------
      Income (loss) before income taxes                         (18,358)     5,540    (33,942)    14,003
    Income taxes                                                    882      1,005      2,232      2,520
---------------------------------------------------------------------------------------------------------
      NET INCOME (LOSS)                                         (19,240)     4,535    (36,174)    11,483
---------------------------------------------------------------------------------------------------------
  OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
    Unrealized gain (loss) on available-for-sale
      equity securities                                         (16,249)         -      5,416          -
    Foreign currency translation adjustment                        (226)       (26)      (304)      (879)
---------------------------------------------------------------------------------------------------------
      COMPREHENSIVE INCOME (LOSS)                             $ (35,715)  $   4,509  $(31,062)  $ 10,604
---------------------------------------------------------------------------------------------------------
      EARNINGS (LOSS) PER SHARE:
           Basic                                              $   (0.54)  $    0.13  $  (1.02)  $   0.33
           Diluted                                            $   (0.54)  $    0.13  $  (1.02)  $   0.32
---------------------------------------------------------------------------------------------------------
      SHARES USED IN EARNINGS (LOSS) PER SHARE CALCULATION:
           Basic                                                 35,860      33,951    35,390     34,351
           Diluted                                               35,860      36,082    35,390     35,521
---------------------------------------------------------------------------------------------------------
</TABLE>
          See accompanying notes to consolidated financial statements.

                                        1
<PAGE>

THE  SANTA  CRUZ  OPERATION,  INC.

<TABLE>
<CAPTION>


                                                                   JUNE 30,     SEPTEMBER 30,
CONSOLIDATED BALANCE SHEETS                                          2000           1999
(In thousands)                                                   (UNAUDITED)
-----------------------------------------------------------------------------------------------
<S>                                                              <C>           <C>
  ASSETS
  Current assets:
    Cash and cash equivalents                                    $    12,078   $       33,683
    Short-term investments                                            19,267           29,161
    Receivables, net                                                  19,205           32,309
    Available-for-sale equity securities                              10,504                -
    Deferred tax assets                                                    3            1,202
    Other current assets                                               5,042            6,310
---------------------------------------------------------------  ------------  ---------------
      Total current assets                                            66,099          102,665
---------------------------------------------------------------  ------------  ---------------
  Property and equipment, net                                         10,160           12,234
  Purchased software and technology licenses, net                      7,195           10,431
  Long-term deferred tax assets                                        6,623            6,623
  Other assets                                                         7,349            7,331
---------------------------------------------------------------  ------------  ---------------
        TOTAL ASSETS                                             $    97,426   $      139,284
---------------------------------------------------------------  ------------  ---------------
  LIABILITIES AND SHAREHOLDERS' EQUITY
  Current liabilities:
    Trade accounts payable                                       $     5,057   $        7,482
    Royalties payable                                                  4,194            7,217
    Income taxes payable                                               3,638            1,983
    Deferred income taxes                                              2,388                -
    Restructuring charge                                               4,042                -
    Accrued expenses and other current liabilities                    24,135           32,314
    Deferred revenues                                                  8,346            8,856
---------------------------------------------------------------  ------------  ---------------
      Total current liabilities                                       51,800           57,852
---------------------------------------------------------------  ------------  ---------------
  Long-term lease obligations                                            840            2,332
  Long-term deferred revenues                                          1,465            2,571
  Other long-term liabilities                                          4,755            6,191
---------------------------------------------------------------  ------------  ---------------
      Total long-term liabilities                                      7,060           11,094
---------------------------------------------------------------  ------------  ---------------
  SHAREHOLDERS' EQUITY
    Common stock, no par value, net, authorized 100,000 shares
      Issued and outstanding 35,948 and 34,346 shares                105,491          106,201
    Accumulated other comprehensive income                             5,520              408
    Accumulated deficit                                              (72,445)         (36,271)
---------------------------------------------------------------  ------------  ---------------
      Total shareholders' equity                                      38,566           70,338
---------------------------------------------------------------  ------------  ---------------
        TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY               $    97,426   $      139,284
---------------------------------------------------------------  ------------  ---------------
</TABLE>
          See accompanying notes to consolidated financial statements.


                                        2
<PAGE>

THE  SANTA  CRUZ  OPERATION,  INC.

CONSOLIDATED  STATEMENTS  OF  CASH  FLOWS
(In  thousands)

<TABLE>
<CAPTION>


                                                                     NINE MONTHS ENDED
                                                                  -----------------------
                                                                          JUNE 30,
                                                                    2000            1999
                                                                        (UNAUDITED)
------------------------------------------------------------------------------------------
<S>                                                               <C>          <C>
  CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                               $  (36,174)  $ 11,483
  Adjustments to reconcile net income (loss) to net cash
       provided by (used for) operating activities -
    Depreciation and amortization                                      8,827      9,434
    Exchange (gain) loss                                                (115)      (166)
  Changes in operating assets and liabilities -
    Receivables                                                       12,632     (3,253)
    Other current assets                                               1,231      3,519
    Other assets                                                       1,370      1,224
    Royalties payable                                                 (3,030)     1,397
    Trade accounts payable                                            (2,336)      (113)
    Income taxes payable                                               1,780      1,187
    Restructuring charge                                               4,042          -
    Accrued expenses and other current liabilities                    (6,783)     2,932
    Deferred revenues                                                 (1,526)    (3,968)
----------------------------------------------------------------------------------------
        Net cash provided by (used for) operating activities         (20,082)    23,676
----------------------------------------------------------------------------------------
  CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchases of property and equipment                               (2,601)    (4,773)
    Purchases of software and technology licenses                       (617)    (2,266)
    Sales of short-term investments                                   20,570     20,576
    Purchases of short-term investments                              (10,676)   (22,029)
    Investments in other assets                                       (3,554)      (138)
----------------------------------------------------------------------------------------
        Net cash provided by (used for) investing activities           3,122     (8,630)
----------------------------------------------------------------------------------------
  CASH FLOWS FROM FINANCING ACTIVITIES:
    Payments on capital leases                                        (2,274)    (2,678)
    Net proceeds from sale of common stock                            11,978      1,690
    Repurchases of common stock                                      (12,786)   (10,806)
    Other long-term liabilities                                       (1,339)    (1,184)
----------------------------------------------------------------------------------------
        Net cash used for financing activities                        (4,421)   (12,978)
----------------------------------------------------------------------------------------
  Effects of exchange rate changes on cash and cash equivalents         (224)      (716)
----------------------------------------------------------------------------------------
  Change in cash and cash equivalents                                (21,605)     1,352
  Cash and cash equivalents at beginning of period                    33,683     23,758
----------------------------------------------------------------------------------------
  Cash and cash equivalents at end of period                      $   12,078   $ 25,110
----------------------------------------------------------------------------------------
  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
      Non-cash financing and investing activities-
    Unrealized gain on available-for-sale equity securities       $    9,002   $      -
    Assets recorded under capital leases                                  20         21
----------------------------------------------------------------------------------------
</TABLE>
          See accompanying notes to consolidated financial statements.

                                        3
<PAGE>

THE  SANTA  CRUZ  OPERATION,  INC.

NOTES  TO  CONSOLIDATED  FINANCIAL  STATEMENTS


1.     BASIS  OF  PRESENTATION

In  the  opinion  of  management,  the  accompanying  unaudited,  consolidated
statements  of operations, balance sheets and statements of cash flows have been
prepared in accordance with generally accepted accounting principles and include
all  material  adjustments  (consisting  of  only  normal recurring adjustments)
necessary  for  their  fair  presentation.  The financial statements include the
accounts  of  the  Company  and its wholly owned subsidiaries after all material
intercompany  balances  and  transactions  have  been  eliminated.  The Notes to
Consolidated  Financial  Statements  contained in the fiscal year 1999 report on
Form10-K  should  be  read  in  conjunction  with  these  Consolidated Financial
Statements.  The  consolidated  interim  results  presented  are not necessarily
indicative of results to be expected for a full year.  Certain reclassifications
have  been  made  for  consistent  presentation.  The September 30, 1999 balance
sheet  was  derived  from  audited  financial  statements,  and  is included for
comparative  purposes.


2.     RESTRUCTURING  CHARGE

During  the second quarter of fiscal 2000, the Company announced and completed a
restructuring  plan,  which  resulted in a one-time charge of $5.9 million.  The
charge  included  a  reduction  in  headcount  of  approximately  70  employees,
write-offs of certain acquired technologies, write-offs of certain fixed assets,
and  elimination  of non-essential facilities.  Of the $5.9 million charge, $4.6
million  related  to  cash  expenditures  and  $1.3  million related to non-cash
charges.  The  Company  has  restructured  its  business  operations  into three
independent  divisions,  each  with  a  separate  management  team and dedicated
development,  marketing  and sales organizations - the Server Software Division,
the  Tarantella  Division  and  the Professional Services Division.  The Company
believes  this  reorganization creates independent focused teams that can pursue
revenue  in  their  respective  markets  and  was  effective April 1, 2000.  The
Company  believes  that  as  a  result  of  creating  these independent, focused
organizations the Company will be better able to control and measure the success
of  these  businesses.  The  restructuring  charge  related to cash expenditures
included $3.6 million for severance costs and $1.0 million for facilities costs.
The majority of the reduction in force was in product development for the Server
Software  Division.  As  of  June  30,  2000,  a total of 56 positions have been
eliminated.  The  Company  anticipates that the majority of the payments will be
made  by  the  end  of  fiscal  2000.

The  restructuring  charge  payable  can  be  summarized  as  follows:

<TABLE>
<CAPTION>
                                  Reduction
(In thousands)                    in Force     Facilities   Technology    Other    Total
-------------------------------  -----------  ------------  -----------  -------  --------
<S>                              <C>          <C>           <C>          <C>      <C>
Restructuring charge accrued     $    3,574   $     1,052   $       667  $  594   $ 5,887
Quarterly payments/adjustments       (1,740)          (36)            -     (69)   (1,845)
                                 -----------  ------------  -----------  -------  --------

Accrual at June 30, 2000         $    1,834   $     1,016   $       667  $  525   $ 4,042
                                 ===========  ============  ===========  =======  ========
</TABLE>


1.     SEGMENT  INFORMATION

For the quarter ended June 30, 2000, the Company reviewed the performance of its
three divisions - the Server Software Division, the Tarantella Division, and the
Professional  Services  Division.  Each  segment  markets the Company's software
products  and  services  to  companies  in  a  number  of  industries  including
telecommunications,  manufacturing  and  government  bodies.  These products and
services  are  either sold directly by each segment's sales force or are sold to
end  users  through  distributors  or  OEMs.
                                        4
<PAGE>

The  following  table  presents  information  about  reportable  segments
(in thousands):

<TABLE>
<CAPTION>

                                           Three Months Ended          Nine Months Ended
                                                June 30,                    June 30,
                                            2000         1999          2000          1999
                                          --------     --------      --------      -------
                                                           (unaudited)
Net Revenues:
<S>                                       <C>          <C>           <C>          <C>
   Server software division               $24,757      $54,346       $107,129     $155,908
   Tarantella division                      2,528        2,223          8,519        7,795
   Professional services division             842          912          3,018        2,222
   Corporate adjustments                   (1,196)        (421)        (2,540)        (421)
                                          --------     --------      --------      -------
Total net revenues                        $26,931      $57,060       $116,126      $165,50
                                          =======      ========      ========      =======

Gross Margin:
   Server software division               $16,715      $43,215        $80,598     $123,792
   Tarantella division                      1,854        1,734          6,412        5,982
   Professional services division            (591)        (563)        (1,926)      (1,768)
   Corporate adjustments                     (727)         ---           (727)         ---
                                          --------     --------      --------      -------
Total gross margin                        $17,251      $44,386        $84,357     $128,006
                                          =======      ========      ========      =======

Operating Income (Loss):
   Server software division               $(8,510)      $7,626       $(15,909)     $19,116
   Tarantella division                     (8,538)      (2,271)       (11,895)      (5,011)
   Professional services division          (1,550)        (871)        (3,428)      (2,668)
   Corporate adjustments                      ---          ---         (5,887)         ---
                                          --------     --------      --------      -------
Total operating income (loss)            $(18,598)       $4,484      $(37,119)     $11,437
                                          =======      ========      ========      =======
</TABLE>


4.     COMPREHENSIVE  INCOME

The  components  of  other  comprehensive  income are as follows (in thousands):

<TABLE>
<CAPTION>
                                                 Three Months Ended             Nine Months Ended
                                                    June 30,                         June 30,
                                                2000           1999          2000           1999
                                              ---------     ---------     ---------       ---------
                                                                   (unaudited)
<S>                                           <C>            <C>          <C>             <C>
Net income (loss)                             $(19,240)      $4,535       $(36,174)        $11,483
Other comprehensive income (loss):
  Foreign currency translation adjustment         (226)         (26)          (304)           (879)
  Unrealized gain (loss) on equity security    (20,122)          --          9,002              --
  Gross tax benefit (provision) on               9,212           --         (2,388)             --
       unrealized loss/gain
  Reversal (provision) of deferred
       tax valuation allowance                  (5,339)          --         (1,198)             --
                                              ---------      -------      ---------         ------
Total comprehensive income (loss)             $(35,715)       $4,509      $(31,062)        $10,604
                                              =========      =======      =========        =======
</TABLE>


5.     EARNINGS  (LOSS)  PER  SHARE  (EPS)  DISCLOSURES

The  Company  calculates  earnings  (loss)  per  share  in  accordance  with the
provisions  of  Statement  of Financial Accounting Standards No. 128 (SFAS 128),
Earnings  Per  Share.  SFAS  128  requires the presentation of basic and diluted
earnings  per  share.  Basic  EPS  is  computed  by dividing income available to
common  shareholders by the weighted average number of common shares outstanding
for the period.  Diluted EPS is computed giving effect to all dilutive potential
common  shares  that  were  outstanding  during  the period.  Dilutive potential
common  shares  consist  of  the  incremental  common  shares  issuable upon the
exercise  of stock options for all periods. Basic and diluted earnings per share
were  calculated  as follows during the three month and nine month periods ended
June  30,  2000  and  1999:
                                        5
<PAGE>


<TABLE>
<CAPTION>
(In thousands, except per share data)         Three Months Ended           Nine months Ended
                                                    June 30,                      June 30,
                                                2000          1999          2000         1999
                                              --------     --------      ---------     --------
                                                                   (unaudited)
<S>                                           <C>           <C>           <C>          <C>
Basic:
Weighted average shares                         35,860       33,951         35,390      34,351
                                              ========       ======         ======      ======
Net income (loss)                             $(19,240)     $ 4,534       $(36,174)    $11,483
                                              =========     =======       =========    =======
Earnings (loss) per share                     $  (0.54)       $0.13         $(1.02)      $0.33
                                              =========     =======       =========    =======

Diluted:
Weighted average shares                         35,860       33,951         35,390      34,351
Common equivalent shares from
stock options and warrants                           0        2,131              0       1,170
                                               -------      -------        -------     -------
Shares used in per share calculation            35,860       36,082         35,390      35,521
                                              =========     =======       =========    =======
Net income (loss)                             $(19,240)     $ 4,534       $(36,174)    $11,483
                                              =========     =======       =========    =======
Earnings (loss) per share                     $  (0.54)       $0.13         $(1.02)      $0.33
                                              =========     =======       =========    =======

Options outstanding at 6/30/00 and at 6/30/99
not included in computation of diluted
EPS because the exercise price was greater
than the average market price.                   3,103       1,608           1,644       2,381

Options outstanding at 6/30/00 and at 6/30/99
not included in computation of diluted
EPS because their inclusion would have
an anti-dilutive effect.                         7,537       ----            8,996        ----
</TABLE>


6.     SUBSEQUENT  EVENT

On  August  1, 2000, the Company entered into an agreement with Caldera Systems,
Inc.  in  which Caldera Systems, Inc. will acquire the Company's Server Software
and  Professional  Services  Divisions.  Caldera  Systems,  Inc. will form a new
holding  company,  Caldera,  Inc.,  to  acquire assets from the Company's Server
Software  Division  and  the Company's Professional Services Division, including
its  employees,  products  and  channel  resources.  Caldera,  Inc.  will  have
exclusive  distribution  rights  for  the SCO OpenServer product line.  SCO will
receive  a  28% ownership interest in Caldera, Inc., which is estimated to be an
aggregate  of  approximately  17.54  million  shares of Caldera stock (including
approximately 2 million shares reserved for employee options assumed by Caldera,
Inc.  for  options  currently  held by SCO employees joining Caldera, Inc.), and
$7.0  million  in  cash.  In conjunction with the acquisition, The Canopy Group,
Inc.,  a  major  stockholder  of Caldera Systems, Inc., has agreed to loan $18.0
million  to  the Company.  The terms of this loan are still to be negotiated but
both  parties  have agreed the terms will be reasonable and customary.  Further,
Caldera Systems, Inc. has agreed to loan $7.0 million to the Company in the form
of  a  short-term  note repayable at the consummation of the transaction between
SCO  and  Caldera Systems, Inc.  SCO will retain its Tarantella Division and the
SCO  OpenServer  revenue  stream  and  intellectual  properties.  The  boards of
directors  of  both companies have unanimously approved the acquisition which is
subject  to  the approval of Caldera Systems, Inc. and The Santa Cruz Operation,
Inc.  stockholders,  and  regulatory  agencies, as well as meeting certain other
closing  conditions.  The  companies  anticipate  closing the transaction during
October  2000.

7.     RECENT  ACCOUNTING  PRONOUNCEMENTS

In  June  2000,  the  Financial  Accounting  Standards  Board  issued  Financial
Accounting  Standard  No.  138  (FAS  138),  Accounting  for  Certain Derivative
Instruments - an amendment of FAS 133, Accounting for Derivative instruments and
Hedging  Activities.  FAS  138 shall be effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000.  The Company does not expect this to
have  a  material  impact  on  our financial position and results of operations.

In  March  2000,  the  Financial  Accounting  Standards Board (FASB) issued FASB
Interpretation  No.  44,  Accounting  for  Certain  Transactions Involving Stock
Compensation  -  an  interpretation of APB Opinion No. 25.  FIN 44 clarifies the
application  of  Opinion  25  for (a) the definition of employee for purposes of
applying  Opinion  25, (b) the criteria for determining whether a plan qualifies
as  a  noncompensatory  plan,  (c)  the  accounting  consequence  of  various
modifications  to the terms of a previously fixed stock option or award, and (d)
the  accounting  for  an  exchange  of  stock  compensation awards in a business
                                        6
<PAGE>
combination.  FIN  44  is  effective July 1, 2000, but certain conclusions cover
specific  events that occur after either December 15, 1998, or January 12, 2000.
The  adoption  of  the  conclusions  covering  the  specific events after either
December  15,  1998  or  January  12, 2000 did not have a material effect on the
financial position or results of operations of the Company.  Management believes
that  the  impact of the remaining provisions of FIN 44 will not have a material
effect  on  the  financial  position  or  results  of operations of the Company.

In  December  1999,  the Securities and Exchange Commission ("SEC") issued Staff
Accounting  Bulletin  No.  101  (SAB  101),  Revenue  Recognition  in  Financial
Statements,  which  provides  guidance  on  the  recognition,  presentation  and
disclosure  of  revenue  in financials filed with the SEC.  SAB 101 outlines the
basic  criteria  that must be met to recognize revenue and provides guidance for
disclosures related to revenue recognition policies.  The Company must adopt SAB
101 in the first quarter of fiscal 2001.  Management believes that the impact of
SAB  101 will not have a material effect on the financial position or results of
operations  of  the  Company.  However,  the  interpretation of SAB 101 is still
under  discussion  by the Securities and Exchange Commission and may be revised.
Such revisions could have a material effect on the financial position or results
of  operations  of  the  Company.

In  December 1998, the Accounting Standards Executive Committee issued Statement
of  Position  98-9  (SOP  98-9),  Modification  of  SOP  97-2  Software  Revenue
Recognition.  SOP  98-9  amends  SOP  97-2  to  require that an entity recognize
revenue for multiple element arrangements by means of the "residual method" when
(1)  there  is vendor-specific objective evidence ("VSOE") of the fair values of
all  the  undelivered  elements that are not accounted for by means of long-term
contract  accounting,  (2)  VSOE of fair value does not exist for one or more of
the  delivered  elements,  and  (3) all revenue recognition criteria of SOP 97-2
(other  than  the  requirement  for  VSOE  of  the  fair value of each delivered
element)  are satisfied.  The provisions of SOP 98-9 that extend the deferral of
certain  paragraphs  of  SOP  97-2  became  effective  December 15, 1998.  These
paragraphs of SOP 97-2 and SOP 98-9 were effective for transactions entered into
for  fiscal  years  beginning after March 15, 1999.   Retroactive application is
prohibited.  The  adoption  of SOP 98-9 did not have a significant impact on the
Company's  financial  statements.

In  June  1998,  the  Financial  Accounting  Standards Board issued Statement of
Financial  Accounting  Standards  No.  133 (SFAS 133), Accounting for Derivative
Instruments  and  Hedging Activities, which establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires that an
entity  recognize  all  derivatives  as  either  assets  or  liabilities  in the
statement  of financial position and measure those instruments at fair value. In
June  1999,  the FASB issued Statement of Financial Accounting Standards No. 137
(No.  137),  Accounting  for  Derivative Instruments - Deferral of the Effective
Date  of SFAS Statement No. 133.  SFAS 137 defers the effective date of SFAS 133
until  June  15,  2000.  Management  does  not believe this will have a material
effect on the Company's financial statements. The Company will adopt SFAS 133 as
required  for  its  first  quarterly  filing  of  fiscal  year  2001.



                                        7
<PAGE>

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

In  addition  to  historical  information  contained herein, this Discussion and
Analysis  contains  forward-looking  statements.  These statements involve risks
and  uncertainties  and  can  be  identified  by  the  use  of  forward-looking
terminology  such  as "estimates," "projects," "anticipates," "plans," "future,"
"may,"  "will,"  "should,"  "predicts,"  "potential,"  "continue,"  "expects,"
"intends,"  "believes,"  and  similar  expressions.  Examples of forward-looking
statements  include  those  relating to financial risk management activities and
the  adequacy  of  financial  resources  for  operations.  These  and  other
forward-looking  statements  are  only  estimates  and  predictions.  While  the
Company  believes  that  the  expectations  reflected  in  the  forward-looking
statements are reasonable, the Company's actual results could differ materially.
Readers  are  cautioned  not  to  place  undue reliance on these forward-looking
statements,  which reflect management's expectations only as of the date hereof.
The  Company  undertakes  no  obligation  to publicly release the results of any
revision  to  these  forward-looking  statements,  which  may be made to reflect
events  or  circumstances  after the date hereof or to reflect the occurrence of
unanticipated  events.

RESULTS  OF  OPERATIONS

NET  REVENUES
The  Company's  net  revenues  are  derived  from  two primary sources, software
licenses  and  fees for services which include engineering services, consulting,
custom  engineering,  support  and  training.

Net  revenues  for  the  three months ended June 30, 2000 decreased 53% to $26.9
million  from  $57.0  million  in  the same period in fiscal 1999.  For the nine
months  ended  June  30, 2000, net revenues decreased 30% to $116.1 million from
$165.5  million for the nine months ended June 30, 1999.  The decline in revenue
performance  was worldwide across most geographies and is attributable to delays
in  large  project  deals  as well as continued customer delays due to Year 2000
issues  and other market factors.  The recovery of the customer channel from the
impact  of  Year  2000 has been slower than expected.  No one customer accounted
for more than 10% of net revenues in the third quarter ended June 30, 2000 or in
the  same  period  in  the  prior  year.

License  revenue  for  the  three  months  ended June 30, 2000 was $23.5 million
compared  to  $53.2  million  in  the same quarter of fiscal 1999.  For the nine
months  ended  June  30,  2000,  license  revenue was $104.7 million compared to
$154.3  million  for the same period in 1999.  This decline is attributed to the
lack  of  channel  recovery  from  the  impact of Y2K as well as delays in large
project  deals.

Service  revenues  decreased to $3.4 million for the three months ended June 30,
2000,  from  $3.8 million in the same period in 1999, a decline of 11%.  For the
nine  months ended June 30, 2000, service revenue totaled $11.4 million compared
to  $11.2  million  in  the  same period of fiscal 1999, a 1% increase.  Service
revenue  was  13%  of the total revenue for the third quarter, compared to 7% in
the  prior  fiscal  year.

International  revenues continue to represent a significant portion of total net
revenues comprising 54% of the revenues for the third fiscal quarter of 2000 and
56%  for  the  same  quarter  in  fiscal  1999.

COSTS  AND  EXPENSES
Cost  of  revenues as a percentage of net revenues increased to 36% in the third
quarter  of fiscal 2000 from 22% in the same period of 1999.  For the nine month
periods  ended  June 30, 2000 and 1999, cost of revenues represented 27% and 23%
of  net  revenues, respectively.  A significant portion of cost of goods sold is
fixed  and the decrease in revenue seriously impacted gross margin.  These fixed
costs  include  technology  and  overhead  costs.  Additionally,  there  was  an
increase  in  the  royalty  expense due to a higher-royalty bearing product mix.

Research  and  development  expenses  decreased 12% to $9.5 million in the third
quarter  of  fiscal  2000 from $10.8 million in the comparable quarter of fiscal
1999,  or  35%  and 19% of net revenues, respectively.  The decrease in spending
was  primarily due to lower labor costs driven by lower headcount as a result of
a planned reduction in force.  For the nine months ended June 30, 2000, research
and  development  expenses  increased to $31.7 million compared to $31.6 million
for  the  same  period  in 1999.  This represented 27% of net revenues in fiscal
2000 and 19% in fiscal 1999.  The increase in spending for the nine month period
relates  primarily  to  one-time  technology  charges.
                                        8
<PAGE>

Sales and marketing expenses decreased 15% to $21.0 million in the third quarter
of  fiscal 2000 from $24.7 million for the comparable quarter of the prior year.
Sales  and  marketing  expenses  represented  78%  of  net revenues in the third
quarter  of  fiscal  2000  and  43% in 1999.  For the nine months ended June 30,
2000,  sales  and  marketing  expenses  decreased  to  $70.0 million (60% of net
revenues)  from  $72.0  million (43% of net revenues) for the same period of the
prior  fiscal  year.   The  decline  is due to reductions in sales program costs
that  vary  directly  with  revenue,  including  commissions  and  cooperative
advertising.

General  and  administrative  expenses  increased  to $5.3 million for the third
quarter  of  fiscal  2000 from $4.5 million for the comparable quarter of fiscal
1999,  representing  20%  and  8%  of  net revenues, respectively.  For the nine
months  ended  June  30,  2000, general and administrative expenses increased to
$13.9  million,  or 12% of net revenues, compared to $13.0 million, or 8% of net
revenues,  for  the  same  period  in  1999.   The  increase  in  general  and
administrative  expenses  is  primarily  driven by the transfer of certain staff
from  other  functions  due  to  the  creation  of  the  Company's  divisions.

Non-recurring  charges  of  $5.9  million were incurred in the second quarter of
fiscal  2000  related  to  a  worldwide  restructuring,  representing  5% of net
revenues  for the nine month period ending June 30, 2000.  The charge included a
reduction  in  headcount  of  approximately  70 employees, write-offs of certain
acquired  technologies,  write-offs  of certain fixed assets, and elimination of
non-essential  facilities.  Of  the  $5.9  million, $4.6 million related to cash
expenditures  and  $1.3  million  related  to non-cash charges.  The Company has
restructured its business operations into three independent divisions, each with
a  separate  management  team  and  dedicated  development,  marketing and sales
organizations  -  the  Server Software Division, the Tarantella Division and the
Professional  Services  Division.  The  Company  believes  this  reorganization
creates  independent  focused  teams that can pursue revenue in their respective
markets  and was effective April 1, 2000.  The Company believes that as a result
of  creating these independent, focused organizations the Company will be better
able  to control and measure the success of these businesses.  The restructuring
charge  related  to  cash expenditures included $3.6 million for severance costs
and  $1.0  million for facilities costs.  The majority of the reduction in force
was  in  product  development  for the Server Software Division.  As of June 30,
2000,  a  total  of  56 positions have been eliminated.  The Company anticipates
that  the  majority  of  the  payments  will  be made by the end of fiscal 2000.

Other  income  consists  of net interest income, foreign exchange gain and loss,
and realized gain and loss on investments, as well as other miscellaneous income
and  expense  items.  For  the third quarter of fiscal 2000, net interest income
was  $0.4 million, compared to $0.5 million for the same quarter of fiscal 1999.
For the nine months ended June 30, 2000, net interest income was $1.6 million as
compared  to  $1.5  million for the same period in 1999.  Other expense was $0.2
million  in the third quarter of fiscal 2000, compared to income of $0.6 million
for  the  same  period of fiscal 1999.  For the nine months ended June 30, 2000,
other income was $1.6 million as compared to $1.0 million for the same period in
1999.  The  year  to date growth in other income was due to the gain on the sale
of  an  equity  security  investment.

The  provision for income taxes was $0.9 million for the third quarter of fiscal
2000  compared to $1.0 million for the same period of the prior fiscal year, and
$2.2  million  for the nine months ended June 30, 2000, compared to $2.5 million
for  the  corresponding  fiscal  1999  period.  The tax provisions for the third
quarter  and nine month periods of the current fiscal year reflect foreign taxes
payable.  The  tax  provisions  for  the third quarter and nine month periods of
fiscal  1999  reflects foreign taxes payable and the realization of certain U.S.
deferred  tax assets for which a valuation allowance was previously established.

Net  loss for the third quarter of fiscal 2000 was $19.2 million compared to net
income  of  $4.5  million  for  the  same quarter in fiscal 1999.   For the nine
months ended June 30, 2000, net loss was $36.2 million compared to net income of
$11.5  million  in  the  same  period  in  1999.

FACTORS  THAT  MAY  AFFECT  FUTURE  RESULTS

The  Company's  future  operating  results  may be affected by various uncertain
trends  and  factors  which  are  beyond  the  Company's control.  These include
adverse  changes  in general economic conditions and rapid or unexpected changes
in the technologies affecting the Company's products.  The process of developing
new  high  technology  products  is  complex and uncertain and requires accurate
anticipation  of  customer  needs  and  technological  trends.  The industry has
become increasingly competitive and, accordingly, the Company's results may also
be  adversely  affected  by  the  actions  of  existing  or  future competitors,
including the development of new technologies, the introduction of new products,
and  the reduction of prices by such competitors to gain or retain market share.
The  Company's  results  of  operations  could  be adversely affected if it were
required  to  lower  its  prices  significantly.
                                        9
<PAGE>

The  Company  participates in a highly dynamic industry and future results could
be  subject  to  significant volatility, particularly on a quarterly basis.  The
Company's  revenues  and  operating  results  may  be  unpredictable  due to the
Company's  shipment patterns. The Company operates with little backlog of orders
because  its products are generally shipped as orders are received.  In general,
a  substantial portion of the Company's revenues have been booked and shipped in
the  third  month  of the quarter, with a concentration of these revenues in the
latter  half  of  that third month.  In addition, the timing of closing of large
license  contracts and the release of new products and product upgrades increase
the  risk  of  quarter  to quarter fluctuations and the uncertainty of quarterly
operating  results.  The  Company's  staffing  and  operating expense levels are
based  on an operating plan and are relatively fixed throughout the quarter.  As
a result, if revenues are not realized in the quarter as expected, the Company's
expected  operating  results  and cash balances could be adversely affected, and
such  effect  could  be  substantial  and  could result in an operating loss and
depletion of the Company's cash balances.  In such event, it may not be possible
for  the  Company  to  secure  sources  of  cash  to  maintain  operations.

The Company experiences seasonality of revenues for both the European market and
the U.S. federal government market.  European revenues during the quarter ending
June 30 are historically lower or relatively flat compared to the prior quarter.
This  reflects  a  reduction  of  customer  purchases in anticipation of reduced
selling activity during the summer months.  Sales to the U.S. federal government
generally  increase  during  the  quarter  ending  September  30.  This seasonal
increase  is primarily attributable to increased purchasing activity by the U.S.
federal  government  prior  to  the close of its fiscal year.  Additionally, net
revenues  for  the  first  quarter  of  the  fiscal  year are typically lower or
relatively  flat  compared  to  net  revenues  of  the  prior  quarter.

The  overall  cost  of  revenues  may  be  affected by changes in the mix of net
revenue  contribution  between  licenses  and  services,  product  families,
geographical  regions and channels of distribution, as the costs associated with
these  revenues  may  have substantially different characteristics.  The Company
may  also  experience  a  change  in margin as net revenues increase or decrease
since  technology  costs,  service  costs  and production costs are fixed within
certain  volume  ranges.

The  Company's  results  of operations could be adversely affected if it were to
lower  its  prices  significantly.  In the event the Company reduced its prices,
the  Company's  standard  terms  for  selected  distributors  provide credit for
inventory  ordered  in the previous 180 days, such credits to be applied against
future  purchases.  The  Company,  as a matter of policy, does not allow product
returns  for  refund.  Product returns are generally allowed for stock balancing
and are accompanied by compensating and offsetting orders. Revenues are net of a
provision  for  estimated  future  stock  balancing  and excess quantities above
levels  the  Company believes are appropriate in its distribution channels.  The
Company  monitors  the  quantity  and  mix  of  its  product  sales.

The  Company depends on information received from external sources in evaluating
the  inventory  levels at distribution partners in the determination of reserves
for  the  return  of  materials  not  sold, stock rotation and price protection.
Significant  effort  has  gone  into  developing  systems  and  procedures  for
determining  the  appropriate  reserve  level.

Substantial  portions  of  the  Company's  revenues  are  derived  from sales to
customers  outside  the  United  States.  Trade sales to international customers
represented  54%  and 56% of total revenues for the third quarter of fiscal 2000
and  1999, respectively.  A substantial portion of the international revenues of
the  Company's U.K. subsidiary are denominated in the U.S. dollar, and operating
results can vary with changes in the U.S. dollar exchange rate to the U.K. pound
sterling.  The  Company's  revenues  can  also  be  affected by general economic
conditions  in  the  United States, Europe and other international markets.  The
Company's  operating  strategy and pricing take into account changes in exchange
rates  over  time.  However,  the  Company's  results  of  operations  may  be
significantly  affected  in  the  short term by fluctuations in foreign currency
exchange  rates.

The  Company's  policy is to amortize purchased software and technology licenses
using the straight-line method over the remaining estimated economic life of the
product,  or  on  the  ratio  of  current  revenues  to  total projected product
revenues,  whichever is greater.  Due to competitive pressures, it is reasonably
possible  that  those  estimates  of  anticipated  future  gross  revenues,  the
remaining  estimated  economic  life  of  the  product, or both, will be reduced
significantly  in the near future.  As a result, the book value of the Company's
purchased software and technology licenses may be reduced materially in the near
future  and,  therefore,  could create an adverse impact on the Company's future
reported  earnings.

On  August  1, 2000, the Company entered into an agreement with Caldera Systems,
Inc.  ("Caldera")  in  which  Caldera will acquire the Company's Server Software
Division  and  its  Professional Services Division.  This transaction involves a
                                       10
<PAGE>
number of risks, including but not limited to i) the potential disruption of the
Company's  business that might result from employee or customer uncertainty, and
lack  of  focus  following  announcement  of  the transaction in connection with
integrating  the  operations  of  Caldera and the Company; ii) the risk that the
announcement  of the transaction could result in decisions by customers to defer
purchases  of  products;  iii) the substantial charges to be incurred due to the
transaction;  iv)  the  difficulties  of  managing  geographically  dispersed
operations;  and  v)  the  possibility that the transactions contemplated in the
agreement  with  Caldera  might  not  be  consummated.

Further,  once  the aforesaid transaction is consummated, the ongoing operations
will be significantly altered.  The Company's revenues will be derived from only
two  product  lines  -  Tarantella  products,  which  have  only  been  recently
introduced by the Company, and OpenServer products, which are mature products to
be  distributed  on the Company's behalf by Caldera.  While the Company believes
that  its  staffing  plan  following  the  consummation  of  the  transaction is
reasonable,  it  is  possible that the Company may find itself to be overstaffed
or,  on  the  other hand, unable to retain sufficient staff to sustain efficient
operations.  Following  the  close  of the transaction, the company will hold in
its  treasury  a  significant  investment  in Caldera, the value of which may be
subject  to  significant  fluctuations.

The  Company  continually  evaluates  potential  acquisition  candidates.  Such
candidates  are selected based on products or markets which are complementary to
those  of  the  Company's.  Acquisitions  involve  a  number  of  special risks,
including the successful combination of the companies in an efficient and timely
manner,  the  coordination  of  research  and development and sales efforts, the
retention  of  key  personnel,  the  integration  of  the acquired products, the
diversion  of  management's  attention  to  assimilation  of  the operations and
personnel  of the acquired companies, and the difficulty of presenting a unified
corporate  image.  The  Company's  operations  and  financial  results  could be
significantly  affected  by  such  an  acquisition.

The  Company is exposed to equity price risk regarding the marketable portion of
equity securities in its portfolio of investments entered into for the promotion
of  business  and  strategic  objectives.  This risk will increase significantly
after  the consummation of the transaction with Caldera.  The Company is exposed
to  fluctuations in the market values of our portfolio investments.  The Company
maintains  investment  portfolio  holdings  of  various  issuers,  types  and
maturities.  These securities are generally classified as available for sale and
consequently,  are  recorded  on the balance sheet at fair value with unrealized
gains  or  losses  reported  as  a  separate  component  of  accumulated  other
comprehensive  income,  net  of  tax.  Part  of this portfolio includes minority
equity investments in several publicly traded companies, the values of which are
subject  to  market  price volatility.  The Company has also invested in several
privately  held  companies, many of which can still be considered in the startup
or development stages.  These investments are inherently risky as the market for
the  technologies  or  products they have under development are typically in the
early  stages  and  may  never  materialize.  The  Company could lose its entire
initial  investment  in these companies.  The Company typically does not attempt
to  reduce  or  eliminate  its  market  exposure  pertaining  to  these  equity
securities.

As  the  Company  determines whether its tax carryforwards will more likely than
not  be  utilized  in  the  future,  or  as  new tax legislation is enacted, the
Company's effective tax rate is subject to change. In the event that the Company
does  not  show  sufficient  profitability  in  the  future,  the Company may be
required  to  write  off  portions  of  the  net  deferred tax assets previously
recognized  in  income  up  to  the  entire  amount  of  $7.8  million.

The  Company's  continued  success  depends  to  a  significant extent on senior
management  and  other key employees.  None of these individuals is subject to a
long-term  employment  contract or a non-competition agreement.  Competition for
qualified  people  in the software industry is intense.  The loss of one or more
key  employees  or  the  Company's  inability  to  attract  and retain other key
employees  could  have  a  material  adverse  effect  on  the  Company.

The  stock  market in general, and the market for shares of technology companies
in  particular,  have  experienced  extreme price fluctuations, which have often
been  unrelated  to  the  operating  performance  of the affected companies.  In
addition,  factors  such  as  new  product  introductions  by the Company or its
competitors  may  have a significant impact on the market price of the Company's
Common  Stock.  Furthermore,  quarter-to-quarter  fluctuations  in the Company's
results  of  operations  caused  by  changes  in  customer  demand  may  have  a
significant  impact  on  the  market  price  of  the  Company's  stock.  These
conditions,  as  well as factors which generally affect the market for stocks of
high  technology  companies,  could  cause  the  price of the Company's stock to
fluctuate  substantially  over  short  periods.

The Company is aware of the issues associated with the new European economic and
monetary  union  (the  "EMU").  One  of  the  changes  resulting from this union
required  EMU  member states to irrevocably fix their respective currencies to a
new  currency,  the  Euro,  on  January 1, 1999.  On that day, the Euro became a
functional  legal  currency  within these countries.  During the next two years,
                                       11
<PAGE>
business  in  the  EMU  member  states will be conducted in both the 25 existing
national  currencies,  such  as  the Franc or Deutsche Mark, and the Euro.  As a
result,  companies operating in or conducting business in EMU member states will
need  to  ensure  that their financial and other software systems are capable of
processing  transactions  and  properly handling these currencies, including the
Euro.  The  Company  has  done  a  preliminary  assessment of the impact the EMU
formation  will  have on both its internal systems and the products it sells and
has  commenced  appropriate  actions.  The Company has not yet determined all of
the  cost  related  to addressing this issue, and there can be no assurance that
this  issue  and  its related costs will not have a materially adverse affect on
the  Company's  business,  operating  results  and  financial  condition.

LIQUIDITY  AND  CAPITAL  RESOURCES

Cash, cash equivalents and short-term investments were $31.3 million at June 30,
2000,  representing  32%  of  total  assets.  The six month decrease in cash and
short-term  investments  of  $31.5  million  was  primarily  attributable to the
decrease  in  revenue and a decrease in sales linearity, resulting in lower cash
collections.  The  Company's operating activities used cash of $20.1 million for
the  first  nine  months  of  fiscal 2000, compared to $23.7 million provided by
operating  activities  for  fiscal  1999.  Cash provided by investing activities
during  the  nine  month period was $3.1 million in fiscal 2000 compared to $8.6
million  used  for investing activities in fiscal 1999.  In both fiscal 2000 and
1999  cash  was  used  for  purchases  of  property  and equipment, common stock
repurchases  and  short-term  investments.  The  sales of short-term investments
contributed  to the cash provided by investing activities for fiscal 2000.  Cash
used  for  financing  activities  was  $4.4 million for the first nine months of
fiscal  2000 compared with $13.0 million for the same period in fiscal 1999.  In
both  fiscal 2000 and 1999, proceeds from the issuance of common stock were more
than  offset  by  the  Company's stock repurchases and payments on capital lease
obligations.

The  Company's  financial  position may be improved by one or any combination of
the  following:  an  increase  in revenues, a decrease in expenses or by raising
additional working capital from external sources.  The Company believes that the
sale  of  the  Server  and  Professional  Services  Divisions  to  Caldera  will
substantially  reduce expenses, but not in the short-term as the Company will be
required  to  maintain  staffing  until  the  consummation  of  the transaction.

At  June  30,  2000,  the Company had available lines of credit of approximately
$15.9  million.  The  Company  maintains  a  $0.9  million  line  of  credit
internationally  under  which  the  Company  had  $0.8  million  in  outstanding
borrowings.  The  domestic  line  of  credit  of $15.0 million required that the
Company  maintain  certain  financial  ratios  with which the Company was not in
compliance  as  of  June  30,  2000,  and  received  a  waiver  for the specific
violation.  The  Company  does  not have any outstanding borrowings against this
line  of  credit.  The  Company  believes  that its existing cash and short-term
investments,  funds  generated  from  operations  and  available  borrowing
capabilities  will  be  sufficient to meet its operating requirements through at
least  the  end  of  the  fiscal  year.  Further,  the  Company  is  engaged  in
transactions  with  Caldera  and the Canopy Group, Inc. regarding loans of up to
$25.0  million, as well as potential equity financing provided by other parties.

The Company's third quarter ended June 30, 2000 Days Sales Outstanding (DSO) was
64.2 days, a decrease of 0.8 days from the second quarter of fiscal 2000, and an
increase  of  14.2  days  when  compared  to  September  30,  1999  DSO.

The  Company is engaged in a systematic repurchase of the Company's Common Stock
for  the  funding  of its employee stock programs.  Additionally, the Company is
authorized  to buy back up to 6,000,000 additional shares under a non-systematic
repurchase  program.  As of June 30, 2000, 3,104,050 shares had been repurchased
and  retired  under  this  non-systematic  program.

As  of June 30, 2000, the Company had an equity investment in Rainmaker Systems,
Inc.  having  a  fair  market  value  of  $8.7  million and a cost basis of $1.3
million.  The fair market value of this investment could fluctuate substantially
due  to  changing  stock prices.  This investment is available-for-sale, and the
Company  may choose to sell a portion of this investment position in the future.

RECENT  ACCOUNTING  PRONOUNCEMENTS

In  June 2000, the Financial Accounting Standards Board issued Financial Account
Standard  No.  138 (FAS 138), Accounting for Certain Derivative Instruments - an
amendment  of  FAS  133,  Accounting  for  Derivative  Instruments  and  Hedging
Activities.  FAS  138  shall  be effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000.  The Company does not expect this to have a
material  impact  on  our  financial  position  and  results  of  operations.
                                       12
<PAGE>

In  March  2000,  the  Financial  Accounting  Standards Board (FASB) issued FASB
Interpretation  No.  44,  Accounting  for  Certain  Transactions Involving Stock
Compensation  -  an  interpretation of APB Opinion No. 25.  FIN 44 clarifies the
application  of  Opinion  25  for (a) the definition of employee for purposes of
applying  Opinion  25, (b) the criteria for determining whether a plan qualifies
as noncompensatory plan, (c) the accounting consequence of various modifications
to the terms of a previously fixed stock option or award, and (d) the accounting
for  an exchange of stock compensation awards in a business combination.  FIN 44
is  effective  July  1, 2000, but certain conclusions cover specific events that
occur  after  either December 15, 1998 or January 12, 2000.  The adoption of the
conclusions  covering  the  specific  events  after  either December 15, 1998 or
January  12,  2000  did  not have a material effect on the financial position or
results  of  operations  of the Company.  Management believes that the impact of
the  remaining  provisions  of  FIN  44  will  not have a material effect on the
financial  position  or  results  of  operations  of  the  Company.

In  December  1999,  the Securities and Exchange Commission ("SEC") issued Staff
Accounting  Bulletin  No.  101  (SAB  101),  Revenue  Recognition  in  Financial
Statements,  which  provides  guidance  on  the  recognition,  presentation  and
disclosure  of  revenue  in financials filed with the SEC.  SAB 101 outlines the
basic  criteria  that must be met to recognize revenue and provides guidance for
disclosures related to revenue recognition policies.  The Company must adopt SAB
101 in the first quarter of fiscal 2001.  Management believes that the impact of
SAB  101 will not have a material effect on the financial position or results of
operations  of  the  Company.  However,  the  interpretation of SAB 101 is still
under  discussion by the Securities and Exchange Commissions and may be revised.
Such revisions could have a material effect on the financial position or results
of  operations  of  the  Company.

In  December 1998, the Accounting Standards Executive Committee issued Statement
of  Position  98-9  (SOP  98-9),  Modification  of  SOP  97-2  Software  Revenue
Recognition.  SOP  98-9  amends  SOP  97-2  to  require that an entity recognize
revenue for multiple element arrangements by means of the "residual method" when
(1)  there  is vendor-specific objective evidence ("VSOE") of the fair values of
all  the  undelivered  elements that are not accounted for by means of long-term
contract  accounting,  (2)  VSOE of fair value does not exist for one or more of
the  delivered  elements,  and  (3) all revenue recognition criteria of SOP 97-2
(other  than  the  requirement  for  VSOE  of  the  fair value of each delivered
element)  are satisfied.  The provisions of SOP 98-9 that extend the deferral of
certain  paragraphs  of  SOP  97-2  became  effective  December 15, 1998.  These
paragraphs of SOP 97-2 and SOP 98-9 were effective for transactions entered into
for  fiscal  years  beginning after March 15, 1999.   Retroactive application is
prohibited.  The  adoption  of SOP 98-9 did not have a significant impact on the
Company's  financial  statements.

In  June  1998,  the  Financial  Accounting  Standards Board issued Statement of
Financial  Accounting  Standards  No.  133 (SFAS 133), Accounting for Derivative
Instruments  and  Hedging Activities, which establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires that an
entity  recognize  all  derivatives  as  either  assets  or  liabilities  in the
statement  of financial position and measure those instruments at fair value. In
June  1999,  the FASB issued Statement of Financial Accounting Standards No. 137
(No.  137),  Accounting  for  Derivative Instruments - Deferral of the Effective
Date  of SFAS Statement No. 133.  SFAS 137 defers the effective date of SFAS 133
until  June  15,  2000.  Management  does  not believe this will have a material
effect on the Company's financial statements. The Company will adopt SFAS 133 as
required  for  its  first  quarterly  filing  of  fiscal  year  2001.

ITEM  3.  QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK

The  information  called  for  by  this  item  is  provided  under the paragraph
beginning  with  the  sentence  "The  Company  is  exposed  to equity price risk
regarding  the  marketable  portion  of  equity  securities  in its portfolio of
investments  entered  into  for  the  promotion  of  business  and  strategic
objectives,"  under  the  caption "Factors That May Affect Future Results" under
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of  Operations.




                                       13
<PAGE>


                           PART II. OTHER INFORMATION

ITEM  6.  EXHIBITS

(a)  Exhibits

27     Financial  Data  Schedule.

(b)  Report  on  Form  8-K

On  August  11,  2000,  the Company filed a Current Report on Form 8-K to report
that  the Company and Caldera Systems, Inc.  (Caldera) entered into an Agreement
and  Plan  of Reorganization dated August 1, 2000, in which Caldera will acquire
the  Company's  Server  Software  and  Professional  Services  Divisions.


ITEMS  1,  2,  4  AND  5  ARE  NOT  APPLICABLE  AND  HAVE  BEEN  OMITTED.
                                       14
<PAGE>



                                   Signatures


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




                                   The  Santa  Cruz  Operation,  Inc.


Date:  August  14,  2000                          By:  /s/Randall  Bresee
                                           ------------------------------------
                                                     Randall  Bresee
                                                 Senior Vice President,
                                              and Chief Financial Officer



                                                  By:  /s/  Jenny  Twaddle
                                           ------------------------------------
                                                       Jenny  Twaddle
                                           Vice President, Corporate Controller





                                       15
<PAGE>

                                                                EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibits
<S>     <C>
27      Financial Data Schedule.
</TABLE>