<PAGE>   1

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                             ---------------------

                                  FORM 10-Q/A
                               (AMENDMENT NO. 1)

[X]             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 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)

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

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

       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
December 31, 2000 was 39,444,513.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2

                         THE SANTA CRUZ OPERATION, INC.

                                   FORM 10-Q
                FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2000

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                            PAGE
                                                                           NUMBER
                                                                           ------
<S>         <C>                                                            <C>
Part I. Financial Information
  Item 1.   Financial Statements
            (a) Consolidated Statements of Operations for the Three
            Months Ended December 31, 2000 and 1999.....................      1
            (b) Consolidated Balance Sheets as of December 31, 2000 and
            September 30, 2000..........................................      2
            (c) Consolidated Statements of Cash Flows for the Three
            Months Ended December 31, 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...................................     12

  Item 3.   Quantitative and Qualitative Disclosures About Market
            Risk........................................................     19

Part II. Other Information
  Item 6.   Exhibits....................................................     20
            Signatures..................................................     21
</TABLE>

                                        i
<PAGE>   3

                                    PART I.

                             FINANCIAL INFORMATION

ITEM I. FINANCIAL STATEMENTS

                         THE SANTA CRUZ OPERATION, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT AMOUNTS PER SHARE)

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                                                 DECEMBER 31,
                                                              ------------------
                                                                2000      1999
                                                              --------   -------
                                                                 (UNAUDITED)
<S>                                                           <C>        <C>
NET REVENUES
  License, third parties....................................  $ 20,967   $45,835
  License, related parties..................................     1,894     3,603
  Services, third parties...................................     3,011     3,177
  Services, related parties.................................       583     1,038
                                                              --------   -------
          Total net revenues................................    26,455    53,653
                                                              --------   -------
COST OF REVENUES
  License, third parties....................................     3,191     6,204
  License, related parties..................................       288       488
  Services, third parties...................................     3,018     3,874
  Services, related parties.................................       584     1,266
                                                              --------   -------
          Total cost of revenues............................     7,081    11,832
                                                              --------   -------
          GROSS MARGIN......................................    19,374    41,821
                                                              --------   -------
OPERATING EXPENSES:
  Research and development..................................     6,432    10,578
  Sales and marketing.......................................    16,331    25,299
  General and administrative................................     4,267     3,836
                                                              --------   -------
          Total operating expenses..........................    27,030    39,713
                                                              --------   -------
          OPERATING INCOME (LOSS)...........................    (7,656)    2,108
OTHER INCOME:
  Interest income, net......................................       194       600
  Other income, net.........................................       181       837
                                                              --------   -------
     Income (loss) before income taxes......................    (7,281)    3,545
  Income taxes..............................................       616       670
                                                              --------   -------
          NET INCOME (LOSS).................................    (7,897)    2,875
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
  Unrealized gain (loss) on available-for-sale equity
     securities.............................................    (3,158)   55,863
  Foreign currency translation adjustment...................       (53)        1
                                                              --------   -------
          COMPREHENSIVE INCOME (LOSS).......................  $(11,108)  $58,739
                                                              --------   -------
EARNINGS (LOSS) PER SHARE:
  Basic.....................................................  $  (0.20)  $  0.08
  Diluted...................................................  $  (0.20)  $  0.07
                                                              --------   -------
SHARES USED IN EARNINGS (LOSS) PER SHARE CALCULATION:
  Basic.....................................................    39,443    34,713
  Diluted...................................................    39,443    41,258
                                                              --------   -------
</TABLE>

          See accompanying notes to consolidated financial statements.

                                        1
<PAGE>   4

                         THE SANTA CRUZ OPERATION, INC.

                          CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                              DECEMBER 31,   SEPTEMBER 30,
                                                                  2000           2000
                                                              ------------   -------------
                                                              (UNAUDITED)
<S>                                                           <C>            <C>
                                          ASSETS

Current assets:
  Cash and cash equivalents.................................   $  10,009       $ 20,879
  Short-term investments....................................       3,100          5,567
  Receivables, third parties, net...........................      19,672         22,917
  Receivables, related parties..............................       2,483          1,352
  Available-for-sale equity securities......................       5,313          7,119
  Other current assets......................................       6,001          4,358
                                                               ---------       --------
          Total current assets..............................      46,578         62,192
                                                               ---------       --------
  Property and equipment, net...............................       7,906          9,012
  Purchased software and technology licenses, net...........       5,030          5,830
  Other assets..............................................       3,692          5,168
                                                               ---------       --------
          TOTAL ASSETS......................................   $  63,206       $ 82,202
                                                               ---------       --------

                           LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Trade accounts payable....................................   $   4,205       $  5,521
  Royalties payable.........................................       2,362          4,530
  Income taxes payable......................................       2,178          1,964
  Accrued restructuring charges.............................       2,903          5,964
  Accrued expenses and other current liabilities............      19,795         20,225
  Deferred revenues.........................................       6,174          7,334
                                                               ---------       --------
          Total current liabilities.........................      37,617         45,538
                                                               ---------       --------
  Long-term lease obligations...............................         346            545
  Long-term deferred revenues...............................       1,626          1,397
  Other long-term liabilities...............................       3,516          3,520
                                                               ---------       --------
          Total long-term liabilities.......................       5,488          5,462
                                                               ---------       --------
SHAREHOLDERS' EQUITY
  Common stock, no par value, authorized 100,000 shares;
     Issued and outstanding 39,445 and 39,436 shares........     118,947        118,940
  Accumulated other comprehensive income....................       2,275          5,486
  Accumulated deficit.......................................    (101,121)       (93,224)
                                                               ---------       --------
          Total shareholders' equity........................      20,101         31,202
                                                               ---------       --------
          TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........   $  63,206       $ 82,202
                                                               ---------       --------
</TABLE>

          See accompanying notes to consolidated financial statements.

                                        2
<PAGE>   5

                         THE SANTA CRUZ OPERATION, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                                                 DECEMBER 31,
                                                              ------------------
                                                                2000      1999
                                                              --------   -------
                                                                 (UNAUDITED)
<S>                                                           <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...........................................  $ (7,897)  $ 2,875
Adjustments to reconcile net income (loss) to net cash
  provided by (used for) operating activities --
  Depreciation and amortization.............................     2,432     2,874
  Exchange gain.............................................       (41)      (80)
  Changes in operating assets and liabilities --
     Receivables............................................     2,112     6,868
     Other current assets...................................    (1,695)    1,002
     Other assets...........................................        75       543
     Trade accounts payable.................................    (1,317)   (1,618)
     Royalties payable......................................    (2,163)      723
     Income taxes payable...................................       239       785
     Accrued restructuring charges..........................    (3,061)       --
     Accrued expenses and other current liabilities.........        12    (3,035)
     Deferred revenues......................................      (900)   (2,457)
     Other long-term liabilities............................        (4)     (908)
                                                              --------   -------
          Net cash provided by (used for) operating
           activities.......................................   (12,208)    7,572
                                                              --------   -------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment.......................      (191)   (1,258)
  Purchases of software and technology licenses.............      (198)     (108)
  Sales of short-term investments...........................     2,500     6,500
  Purchases of short-term investments.......................       (33)   (6,886)
  Increase in other assets..................................      (145)   (1,505)
                                                              --------   -------
          Net cash provided by (used for) investing
           activities.......................................     1,933    (3,257)
                                                              --------   -------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Payments on capital leases................................      (585)     (835)
  Net proceeds from sale of common stock....................         7     6,883
  Repurchases of common stock...............................        --    (6,278)
                                                              --------   -------
          Net cash used for financing activities............      (578)     (230)
                                                              --------   -------
Effects of exchange rate changes on cash and cash
  equivalents...............................................       (17)       99
                                                              --------   -------
Change in cash and cash equivalents.........................   (10,870)    4,184
Cash and cash equivalents at beginning of period............    20,879    33,683
                                                              --------   -------
Cash and cash equivalents at end of period..................  $ 10,009   $37,867
                                                              --------   -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid --
     Income taxes...........................................  $    383   $  (121)
     Interest...............................................        55        86
  Non-cash financing and investing activities --
     Unrealized gain (loss) on available-for-sale equity
      securities............................................  $ (3,158)  $76,854
                                                              --------   -------
</TABLE>

          See accompanying notes to consolidated financial statements.

                                        3
<PAGE>   6

                         THE SANTA CRUZ OPERATION, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

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 2000 report on
Form 10-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, 2000 balance sheet
was derived from audited financial statements, and is included for comparative
purposes.

2. ACCRUED RESTRUCTURING CHARGE

     During fiscal 2000, the Company recorded $10.7 million in restructuring
charges, including $7.3 million of severance and benefits, $1.9 million of
facilities charges, $0.7 million of technology charges and $0.8 million of fixed
asset disposals.

  Second Quarter Restructuring Plan

     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 Company 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 charge included
a reduction in personnel of 70 employees, write-off of certain acquired
technologies, write-off 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
restructuring charge related to cash expenditures included $3.6 million for
severance costs and $1.0 million for facilities costs. Included in the non-cash
charges were technology write-offs of $0.7 million relating to technology
associated with the Unixware 7 product. This technology had previously been
capitalized as it had alternative future use. However, in conjunction with the
restructuring, certain personnel associated with product development of Unixware
7 were terminated and future development related to this technology was
terminated. As a result, the technology had no other use and was written off.
The disposal of fixed assets was comprised of computer equipment that will no
longer be used due to the reduction in development personnel. The computer
equipment was taken out of service and disposed of during the third and fourth
quarters of fiscal 2000 and the first quarter of fiscal 2001. The timing of the
fixed asset disposals directly corresponds to the time of the employee
terminations. The write-offs of the computer equipment occurred at the time that
the equipment was no longer in use and taken out of service. Depreciation, where
applicable, continued on these assets until disposal. The computer equipment was
scrapped or sold to the terminated employees. The proceeds from the sale of
these assets were not significant. Additionally, the disposal of fixed assets
includes writeoffs of leasehold improvements relating to the abandonment of
certain leased space at the Company's Watford United Kingdom facility. All fixed
asset disposals were related to the Server Software division. Included in the
facilities charge are amounts relating to the abandonment of certain leased
space at the Company's Watford, United Kingdom facility. The space is being
reconfigured in preparation for subletting. The restructuring provision includes
the estimated costs associated with the reconfiguring and the rent associated
with the unoccupied space prior to sublet. The facility closure affected the
Server Software Division.

     The second quarter restructuring charges affected the Server Software
Division and the Professional Services Division. The Professional Services
Division had $0.1 million of severance costs accrued for the
                                        4
<PAGE>   7
                         THE SANTA CRUZ OPERATION, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

restructuring. The balance of the second quarter restructuring charge of $5.8
million related to the Server Software Division. The majority of the reduction
in force was in product development for the Server Software Division. As of
December 31, 2000, a total of 70 positions were eliminated including 66 in the
Server Software Division and 4 in the Professional Services Division.

     The Company recorded an adjustment to the fiscal 2000 second quarter
restructuring provision of $0.9 million in severance costs in the fourth quarter
of fiscal 2000. The severance costs were adjusted to reflect changes to the
estimated expenses as actual payments were made.

     The fiscal 2000 second quarter restructuring charge is summarized as
follows:

                      SECOND QUARTER RESTRUCTURING ACCRUAL

<TABLE>
<CAPTION>
                                    REDUCTION                             DISPOSAL OF
                                    IN FORCE    FACILITIES   TECHNOLOGY   FIXED ASSETS    TOTAL
                                    ---------   ----------   ----------   ------------   -------
                                                           (IN THOUSANDS)
<S>                                 <C>         <C>          <C>          <C>            <C>
Restructuring charge accrued......   $ 3,574      $1,052       $ 667          $594       $ 5,887
Payments/utilization of the
  accrual.........................    (2,660)        (94)       (667)         (256)       (3,677)
Provision adjustment..............      (914)         --          --            --          (914)
                                     -------      ------       -----          ----       -------
Accrual at September 30, 2000.....        --         958          --           338         1,296
Payments/utilization of the
  accrual.........................        --         (75)         --            (4)          (79)
                                     -------      ------       -----          ----       -------
Accrual at December 31, 2000......   $    --      $  883       $  --          $334       $ 1,217
                                     =======      ======       =====          ====       =======
</TABLE>

  Fourth Quarter Restructuring Plan

     In the fourth quarter of fiscal 2000, in connection with management's plan
to reduce operating expenses, the Company announced a further restructuring
plan, which resulted in a one-time charge of $5.7 million. The restructuring
included the elimination of various regional offices in the United States,
United Kingdom, Latin America and Asia Pacific. The charge included a reduction
in personnel of 170 employees, write-off of certain fixed assets and the
elimination of nonessential facilities. The restructuring charges affect the
Server Software Division of the Company as well as corporate general and
administrative areas. Of the $5.7 million charge, $5.5 million related to cash
expenditures and $0.2 related to non-cash charges. The restructuring charge
related to cash expenditures included $4.7 million for severance costs and $0.8
million for facilities costs.

     The severance charges include elimination of 75 positions in the United
States, 66 positions in the United Kingdom, 16 positions in Europe, 9 positions
in Latin America and 4 position in the Asia Pacific region.

     The United States regional facilities and the Watford, United Kingdom
facility have been or will be vacated and restored, and subsequently sub-let or
terminated by the second quarter of 2001. The remaining international offices
are expected to be vacated immediately. The majority of the facility closures
relate to the Server Division. A minor portion of the facility closure relates
to the Corporate Division and is comprised primarily of the finance and general
and administrative functions of the Company's United Kingdom subsidiary. The
Company anticipates that all of the payments, with the exception of the facility
lease payment, will be made by the end of fiscal 2001.

     The non-cash charges were made up of fixed asset disposal costs at the
Company's U.S. and Watford, U.K. locations. The fixed assets being disposed of
are made up of computer equipment that will no longer be in use due to the
reduction in personnel. The computer equipment will be taken out of service and
disposed. Depreciation, where applicable, will continue on these assets until
disposal. These assets will be scrapped or sold to the terminated employees. Any
gain realized on the sale of these assets will be recorded as other income in
the statement of operations. The disposal of fixed assets affects both the
Server Software Division and the Corporate Division. As of December 31, 2000 a
total of 170 positions have been eliminated: 91 positions in the Server Software
Division, 72 in the Corporate Division, and 7 in the Tarantella Division. The
Corporate Division is allocated to the three primary Company divisions for
segment reporting purposes.

                                        5
<PAGE>   8
                         THE SANTA CRUZ OPERATION, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The fiscal 2000 fourth quarter restructuring charge is summarized as
follows:

                      FOURTH QUARTER RESTRUCTURING ACCRUAL

<TABLE>
<CAPTION>
                                              REDUCTION                DISPOSAL OF
                                              IN FORCE    FACILITIES   FIXED ASSETS    TOTAL
                                              ---------   ----------   ------------   -------
                                                              (IN THOUSANDS)
<S>                                           <C>         <C>          <C>            <C>
Restructuring charge accrued................   $ 4,658      $ 804          $248       $ 5,710
Payments/utilization of the accrual.........    (1,042)        --            --        (1,042)
                                               -------      -----          ----       -------
Accrual at September 30, 2000...............     3,616        804           248         4,668
Payments/utilization of the accrual.........    (2,794)      (167)          (21)       (2,982)
                                               -------      -----          ----       -------
Accrual at December 31, 2000................   $   822      $ 637          $227       $ 1,686
                                               =======      =====          ====       =======
</TABLE>

     As of December 31, 2000 all terminations had been made but payments to the
terminated employees had not been made. These payments will be made during the
second quarter of fiscal 2001.

3. SEGMENT INFORMATION

     For the quarter ended December 31, 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.

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

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                                                 DECEMBER 31,
                                                              -------------------
                                                                2000       1999
                                                              --------   --------
<S>                                                           <C>        <C>
Net revenues:
  Server software division..................................  $23,026    $49,496
  Tarantella division.......................................    3,178      3,499
  Professional services division............................      861      1,284
  Corporate adjustments.....................................     (610)      (626)
                                                              -------    -------
          Total net revenues................................  $26,455    $53,653
                                                              =======    =======
Gross margin:
  Server software division..................................  $16,951    $39,501
  Tarantella division.......................................    2,583      2,845
  Professional services division............................     (106)      (525)
  Corporate adjustments.....................................      (54)        --
                                                              -------    -------
          Total gross margin................................  $19,374    $41,821
                                                              =======    =======
Operating income (loss):
  Server software division..................................  $  (210)   $ 3,615
  Tarantella division.......................................   (6,524)      (732)
  Professional services division............................     (930)      (775)
  Corporate adjustments.....................................        8         --
                                                              -------    -------
          Total operating income (loss).....................  $(7,656)   $ 2,108
                                                              =======    =======
</TABLE>

                                        6
<PAGE>   9
                         THE SANTA CRUZ OPERATION, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                                                 DECEMBER 31,
                                                              -------------------
                                                                2000       1999
                                                              --------   --------
<S>                                                           <C>        <C>
Net revenues:
  United States.............................................  $12,270    $19,204
  Canada and Latin America..................................    2,047      2,753
  Europe, Middle East, India and Africa.....................    9,780     25,762
  Asia Pacific..............................................    2,091      3,147
  Corporate Adjustments.....................................      267      2,787
                                                              -------    -------
          Total net revenues................................  $26,455    $53,653
                                                              =======    =======
Gross margin:
  United States.............................................  $ 9,879    $12,977
  Canada and Latin America..................................    1,707      1,994
  Europe, Middle East, India and Africa.....................    6,599     21,482
  Asia Pacific..............................................    1,536      2,581
  Corporate Adjustments.....................................     (347)     2,787
                                                              -------    -------
          Total gross margin................................  $19,374    $41,821
                                                              =======    =======
Long-lived assets:
  United States.............................................  $13,468    $42,689
  Canada and Latin America..................................    2,799      5,221
  Europe, Middle East, India and Africa.....................      156        148
  Asia Pacific..............................................      205        236
  Corporate Adjustments.....................................       --         --
                                                              -------    -------
          Total long-lived assets...........................  $16,628    $48,294
                                                              =======    =======
</TABLE>

     Revenue is allocated to geographical segments based on the location from
which the sale is satisfied and long-lived asset information is based on the
physical location of the asset.

4. INVESTMENTS

     AVAILABLE FOR SALE EQUITY SECURITIES.  In January 1995, the Company
purchased 10% of the preferred stock of Rainmaker Systems, Inc. ("Rainmaker"),
one of the Company's domestic distribution partners, in exchange for cash,
product and equipment valued at $1.0 million. In addition, the Company loaned
$1.0 million to Rainmaker in exchange for convertible debentures. In February
1999, the Company exchanged the preferred stock and debentures for shares of
Series D Convertible Participating Preferred Stock (the "Series D Preferred").
During fiscal year 1999, the Company sold approximately 1,704,011 shares of
Series D with a cost basis of $0.6 million, and received cash proceeds of $3.8
million. The Company's interest of ownership of Rainmaker before and after the
sale was 15.2% and 10.3% respectively. On November 17, 1999, Rainmaker completed
an initial public offering of its common stock. At which time, the shares of
Series D Preferred held by the Company automatically converted into shares of
Rainmaker's common stock on a one-for-one basis. At December 31, 2000, the
Company held 3,705,767 shares of Rainmaker's common stock. The Company accounts
for these shares as available for sale securities and records them at fair
market value, based on quoted market prices with any unrealized gains or losses
included as part of accumulated other comprehensive income.

                                        7
<PAGE>   10
                         THE SANTA CRUZ OPERATION, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Unrealized gains and losses on available for sale investments as of
December 31, 2000 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                      FAIR MARKET            GROSS UNREALIZED
                                                         VALUE       COST      GAIN (LOSS)
                                                      -----------   ------   ----------------
<S>                                                   <C>           <C>      <C>
Rainmaker...........................................    $4,632      $1,251        $3,381
Other investments...................................       682       1,602          (920)
                                                        ------      ------        ------
                                                        $5,314      $2,853        $2,461
                                                        ======      ======        ======
</TABLE>

     Rainmaker's common stock is traded on the Nasdaq National Market under the
symbol "RMKR." The Company no longer has the right to appoint a member to the
Board of Directors.

5. PROPOSED TRANSACTION WITH CALDERA

     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. 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 the second quarter of 2001.

6. COMPREHENSIVE INCOME

     The following table presents the calculation of comprehensive income as
required by SFAS 130. The components of other comprehensive income (loss) for
the three months ended December 31, 2000 and 1999 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                2000       1999
                                                              --------   --------
<S>                                                           <C>        <C>
Net income (loss)...........................................  $ (7,897)  $  2,875
Other comprehensive income:
  Foreign currency translation adjustment...................       (53)         1
  Unrealized gain (loss) on available-for-sale equity
     securities.............................................    (3,158)    76,854
  Gross tax on unrealized gain (loss) on available-for-sale
     equity securities......................................        --    (30,611)
  Release of deferred tax valuation allowance...............        --      9,620
                                                              --------   --------
          Total other comprehensive income (loss)...........  $(11,108)  $ 58,739
                                                              ========   ========
</TABLE>

                                        8
<PAGE>   11
                         THE SANTA CRUZ OPERATION, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. EARNINGS PER SHARE (EPS) DISCLOSURES

     Basic and diluted earnings per share were calculated as follows during the
three months ended December 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                                               2000      1999
                                                              -------   -------
<S>                                                           <C>       <C>
Basic:
  Weighted average shares...................................   39,443    34,713
                                                              -------   -------
  Net income (loss).........................................  $(7,897)  $ 2,875
                                                              =======   =======
  Earnings (loss) per share.................................  $ (0.20)  $  0.08
                                                              =======   =======
Diluted:
  Weighted average shares...................................   39,443    34,713
  Common equivalent shares from stock options and
     warrants...............................................       --     6,545
                                                              -------   -------
  Shares used in per share calculation......................   39,443    41,258
                                                              =======   =======
  Net income (loss).........................................  $(7,897)  $ 2,875
                                                              =======   =======
  Net income (loss) per share...............................  $ (0.20)  $  0.07
                                                              =======   =======
Options and warrants outstanding at 12/31/00 and at 12/31/99
  not included in computation of diluted EPS because the
  exercise price was greater than the average market
  price.....................................................   11,958         9
Options outstanding at 12/31/00 and at 12/31/99 not included
  in computation of diluted EPS because their inclusion
  would have an anti-dilutive effect........................      797        --
</TABLE>

8. RECENT ACCOUNTING PRONOUNCEMENTS

     In November, 2000, the Emerging Issue Task Force ("EITF") issued EITF
Abstract No. 00-19 (EITF 00-19), Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company's Own Stock. EITF 00-19
applies to all freestanding derivative financial instruments that are indexed
to, and potentially settled in, a company's own stock and discusses the
classification and measurement of these financial instruments. It suggests that
an entity recognizes all freestanding derivative financial instruments as equity
or as either assets or liabilities, and measure those instruments at fair value.
The guidance is effective for all new contracts and contract modifications
entered into after September 20, 2000. For contracts that exist on September 20,
2000, EITF 00-19 should be applied on June 30, 2001, based on the contract terms
then in place. Management is in the process of evaluating the effect this
guidance will have on its financial statements.

     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 has adopted SAB
101 effective with the first quarter of fiscal 2001. Management believes that
the implementation of SAB 101 did not have a material effect on the financial
position or results of operations of the Company.

     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

                                        9
<PAGE>   12
                         THE SANTA CRUZ OPERATION, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Standards No. 137 (SFAS 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. The Company has adopted SFAS 133 as
required for its first quarterly filing of fiscal year 2001. SFAS 133 shall be
effective for all subsequent quarters and annual filings. The adoption of SFAS
133 did not have a material effect on the financial position or results of
operations of the Company.

9. SUBSEQUENT EVENTS

     In January 2001, EBIZ Enterprises, Inc. ("EBIZ") acquired all the
outstanding shares in one of the Company's domestic distribution channel
partners. The Company had an investment in the distribution channel partner as
discussed in Note 16 of the Company's fiscal year 2000 report on Form 10-K. In
exchange for its shares in this distribution channel partner, the Company
received a 6.6% direct ownership in EBIZ common stock which, when combined with
other shares of EBIZ held by the Company, results in a total direct ownership of
13.7%. Should the proposed transaction with Caldera Systems discussed in Note 5
be completed, the Company will indirectly own an additional 3.5% in EBIZ through
its investment in Caldera.

     The Company will account for its direct investment in EBIZ as an
available-for-sale-security at its fair market value based on quoted market
prices and will include unrealized gains or losses in other comprehensive
income.

     In connection with the proposed transaction with Caldera, the Company
entered into a Loan Agreement and a Secured Convertible Promissory Note
effective January 8, 2001, with The Canopy Group ("Lender") under which the
Company can borrow up to $18.0 million. Drawings on this line of credit are
repayable on December 31, 2001 and bear interest at a rate per annum of 10%. Any
drawings on the line of credit are convertible into common stock, subject to
certain limitations, at the option of the Lender at the closing price of SCO
common stock on the date of issuance. At the date of issuance, the closing price
of SCO common stock was $1.5625. The unconverted principal is repayable in cash.
Drawings on the line of credit are collateralized by the Company's tangible and
intangible assets.

     In connection with the Loan Agreement, the Company also issued to the
Lender warrants to purchase 1,440,000 shares of common stock at an exercise
price of $1.5625. In addition, the Company is obligated to issue additional
warrants to purchase shares of SCO common stock at an exercise price of $1.5625
to the extent advances on the line of credit exceed $9.0 million. The number of
shares that may be purchased under these additional warrants equals the product
of the amounts advanced in excess of $9.0 million multiplied by 0.25 and divided
by the exercise price. The exercise price is $1.5625 per share; the term of the
warrants is 2 years. The Company has not made any drawings on this line of
credit.

     In conjunction with the signing of the reorganization agreement, Caldera
agreed to advance $7.0 million of the purchase price for the server and
professional services division in the form of a promissory note that matures on
either the closing of the combination or the date of termination of the
reorganization agreement. The loan was made on January 29, 2001. If the
combination closes, the loan will be treated by Caldera and the Company as cash
consideration to the Company for the server and professional services groups.
The loan is secured by a first priority security interest in all of the
Company's assets and is convertible at Caldera's option into the Company's
common stock at a price per share of $2.75, the closing price of the Company's
common stock on January 29, 2001.

     The number of shares that can be converted by The Canopy Group under the
Secured Convertible Promissory Note and by Caldera under the promissory note are
limited such that the aggregate of shares issued upon conversion, when combined
with the number of shares issued under the warrants described above may not
exceed 19% of the total outstanding shares of the Company's outstanding common
stock as of January 8, 2001.

                                        10
<PAGE>   13
                         THE SANTA CRUZ OPERATION, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In January 2001, the Company sold 3,200,000 shares of its Rainmaker stock
for $1.00 per share, and received cash proceeds of $3.2 million. The cost basis
of the sale was $1.1 million, and the Company realized a gain of $2.1 million
from this sale.

     On February 9, 2001, the Company entered into a Third Amendment to the
Agreement and Plan of Reorganization entered into on August 1, 2000 (as
subsequently amended on September 13, 2000 and December 12, 2000) (collectively,
the "Amended Reorganization Agreement") with Caldera Systems, Inc. and Caldera
International, Inc. ("Caldera International"). Under the terms of the Amended
Reorganization Agreement, (i) Caldera International will acquire the Company's
Server Software and Professional Services divisions and the Company's OpenServer
product line, including the intellectual property and revenue derived therefrom,
(ii) the Company will receive cash consideration of $23.0 million at the close
of the transaction ($7.0 million of which has been previously advanced to the
Company) as well as a note for $8.0 million due in four quarterly installments
beginning in the second year following the close of the transaction and 16
million shares of Caldera International common stock, initially representing
approximately 25.9% of Caldera International, (iii) Caldera International will
also share revenue from the OpenServer products for a period of three years, if
sales exceed pre-defined levels during that time and (iv) Caldera International
will receive an assignment by the Company of its accounts receivable from
certain long-term agreements that become due subsequent to the close of the
transaction. These receivables will vary depending on the timing of the
transaction and product usage by customers, currently estimated to be $3-4
million.

                                        11
<PAGE>   14

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 software licenses and fees for
services, which include engineering services, consulting, custom engineering,
support and training.

     Net revenues for the three months ended December 31, 2000 decreased 51% to
$26.5 million from $53.7 million in the same period in fiscal 2000. The decline
in revenue performance was worldwide across all geographies and is attributable
to fewer large project deals, as well as other market factors. The Company's
revenues were directly impacted by the reduction in information technology
("IT") investments by companies for application server software and service
initiatives. Furthermore, the Company is also experiencing the impact of being
involved in a protracted transaction involving the sale of a majority of the
Company. No one customer accounted for more than 10% of net revenues in the
first quarter ended December 31, 2000 or in the same period in the prior year.

     License revenue for the three months ended December 31, 2000 was $22.9
million compared to $49.4 million in the same quarter of fiscal 2000. This
decline is attributed to delays in large project deals.

     Service revenues decreased to $3.6 million for the three months ended
December 31, 2000, from $4.2 million in the same period in 2000, a decline of
15%. The decline of $0.6 million was primarily due to customer delays in
implementing services. Service revenue was 14% of the total revenue of the first
quarter, compared to 8% in the prior year. The percentage increase is due to the
decline in license revenues.

     International revenues continue to represent a significant portion of total
net revenues comprising 54% of the revenues for the first fiscal quarter of 2001
and 59% for the same quarter in fiscal 2000.

  COSTS AND EXPENSES

     Cost of license revenues for the three months ended December 31, 2000
decreased by 48% to $3.5 million compared to $6.7 million in the same period of
fiscal 2000. The declining cost of revenues is primarily due to lower sales.
Additionally, material costs continue to decline as a result of the increasing
number of internet orders and certain fixed costs such as technology and
overhead also declined.

     Cost of service revenues for the three months ended December 31, 2000
decreased by 30% to $3.6 million compared to $5.1 million in the same period of
fiscal 2000. This decline is primarily a result of reduced staffing levels in
both the support and professional services organizations due to realignments of
these organizations.

     Total cost of revenues as a percentage of net revenues increased to 27% in
the first quarter of fiscal 2001 from 22% in the same period of fiscal 2000. The
percentage increases are due to the decline in total revenue. A significant
portion of cost of goods sold is fixed and the decrease in revenue impacted
gross margin. These fixed costs include technology and overhead costs and
certain of these fixed costs declined during the first quarter of fiscal 2001.
                                        12
<PAGE>   15

     Research and development expenses decreased 39% to $6.4 million in the
first quarter of fiscal 2001 from $10.6 million in the comparable quarter of
fiscal 2000, or 24% and 20% of net revenues, respectively. The decrease in
research and development expenses can be attributed to lower labor costs driven
by lower headcount as a result of a planned reduction in force and higher than
normal attrition.

     Sales and marketing expenses decreased 35% to $16.3 million in the first
quarter of fiscal 2001 from $25.3 million for the comparable quarter of the
prior year. Sales and marketing expenses represented 62% of net revenues in the
first quarter of fiscal 2001 and 47% in 2000. The decrease is due to lower labor
costs as a result of a planned reduction in force and attrition, combined with
reductions in sales program costs that vary directly with revenue, including
cooperative advertising.

     General and administrative expenses increased to $4.3 million for the first
quarter of fiscal 2001 compared with $3.8 million in the first quarter of fiscal
2000, representing 16% and 7% of net revenues, respectively. The increase of
$0.5 million was due to increases in data processing costs, rent, and a one-time
facility repair.

     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. Net interest income was $0.2 million for the first
quarter of fiscal 2001 and $0.6 million for the comparable quarter in the prior
year. Other income was $0.2 million in the first quarter of fiscal 2001,
compared to $0.8 million for the same period of fiscal 2000. The decrease in
interest income is due to the lower cash and short-term investment balances in
the first quarter of fiscal 2001. In the first quarter of fiscal 2000, other
income included a gain on the sale of an equity security investment. There was
no corresponding sale in fiscal 2001.

     The provision for income taxes was $0.6 million for the first quarter of
fiscal 2001 compared to $0.7 million for the same period of the prior fiscal
year. The tax provisions for the first quarters of the current and prior fiscal
years reflect foreign taxes payable.

     Net loss for the first quarter of fiscal 2001 was $7.9 million compared to
net income of $2.9 million for 2000.

     SEGMENT INFORMATION.  The Company began reviewing its performance on the
basis of its three divisions during the third quarter of fiscal 2000. Prior year
financial information has been revised for divisional comparison purposes and is
disclosed in Note 3.

     SERVER SOFTWARE DIVISION.  Net revenues for the server division for the
three months ended December 31, 2000 decreased 54% to $23.0 million from $49.5
million in the same period in fiscal 2000. The decline in revenue performance
was worldwide across all geographies and is attributable to fewer large project
deals, as well as other market factors.

     Gross margin for the server division declined 57% to $17.0 million for the
first quarter of fiscal 2001 compared to $39.5 million for the same period of
fiscal 2000. The decline in gross margin is mainly attributable to lower sales.

     The server division's operating loss for the three months ended December
31, 2000 was $0.2 million, a decline of $3.8 million from the operating income
of $3.6 million in the same period of fiscal 2000. The decline is due to lower
operating expenses which declined year over year due to lower labor costs caused
by a planned reduction in force and higher than normal attrition combined with
reductions in sales program costs that vary directly with revenue, including
cooperative advertising, and was partially offset by lower revenues in fiscal
2001.

     TARANTELLA DIVISION.  Net revenues for the Tarantella division for the
three months ended December 31, 2000 decreased 9% to $3.2 million from $3.5
million in the three months ended December 31, 2000. Tarantella division
revenues include several products including the Tarantella product, Customer
Support and the Vision Family products. The revenue for the Tarantella product
line saw growth of 79%, and support revenues increased by 114%. These increases
were offset by the decline in the Vision Family product revenue of 54%. Vision
Family revenues declined because this is an older product that is near the end
of its life. The Company expects to see revenues continue declining for this
product line over the next few years.

                                        13
<PAGE>   16

     Gross margin for the Tarantella division was $2.6 million for the three
months ended December 31, 2000 compared with gross margin of $2.8 million for
the same period in fiscal 2000, a decrease of 9%. As the Company continues to
develop new products in the Tarantella family, there will continue to be some
variations in the gross margin percentages.

     The operating loss reported by the Tarantella division for the three months
ended December 31, 2000 was $6.5 million, compared to a loss of $0.7 million in
fiscal 2000. The Company has developed a dedicated, focused team for the
Tarantella division and has increased the resources used by the division.

     PROFESSIONAL SERVICES DIVISION.  Net revenues for the professional services
division for the three month period ended December 31, 2000 declined to $0.9
million compared to $1.3 million for the same period in fiscal 2000. The revenue
decrease can be attributed to customer delays in implementing services.

     Gross loss for the professional services division was $0.1 million for the
three months ended December 31, 2000 compared with a loss of $0.5 million for
the same period in fiscal 2000, an reduction of 80%. The reduction in gross loss
is directly attributable to improved control of operating expenses.
Additionally, the fiscal 2001 numbers include the transfer of certain staff to
general and administrative functions as a result of the creation of the
Company's divisions.

     The operating loss for the professional services division for the three
months ended December 31, 2000 was $0.9 million, compared to the operating loss
of $0.8 million in fiscal 2000. The relatively stable loss reflects improved
spending controls offset by lower revenues during the first quarter of fiscal
2001.

  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.

     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 in 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.

                                        14
<PAGE>   17

     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 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 59% of total revenues for the first quarter of fiscal 2001
and 2000, 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.

     As the Company determines whether its tax carryforwards will more likely
than not be utilized in the future, or as new legislation is enacted, the
Company's effective tax rate is subject to change.

     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 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. The Company has experienced significant delays in closing the
transaction with Caldera, during which time the Company has been obligated to
maintain the business divisions to be sold to Caldera in their present state,
which has caused the Company's cash position to deteriorate. In the event the
closing is further delayed, or in the event the transaction ultimately fails to
close, the Company may have inadequate cash resources to maintain the business
at sufficient operating levels.

     Further, once the aforesaid transaction is consummated, the ongoing
operations will be significantly altered. The Company's revenues will be derived
from only one product line: Tarantella products, which have only been recently
introduced by the Company. 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

                                        15
<PAGE>   18

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.

     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. Through December 31, 2001,
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 $13.1 million at
December 31, 2000, representing 21% of total assets. The three month decrease in
cash and short-term investments of $13.4 million was a result of the decline in
revenue and a decrease in sales linearity, resulting in lower cash collections.
Additionally, the Company made cash payments for restructuring charges during
the quarter. The Company's operating activities used cash of $12.2 million in
the first quarter of fiscal 2001, compared with $7.6 million provided by
operating activities for the same period of fiscal 2000. The cash used by
operating activities has

                                        16
<PAGE>   19

declined due to the restructuring efforts of the Company, but did not reach a
level on a par with the first quarter revenues of the Company. Cash provided by
investing activities during the quarter ending December 31, 2000 was $1.9
million compared with cash used for investing activities of $3.3 million in the
same period of fiscal 2000. In both fiscal 2001 and 2000, cash was used to fund
purchases of property and equipment, and short-term investments. The sales of
short-term investments contributed to the cash provided by investing activities
for fiscal 2001. Cash used for financing activities was $0.6 million for the
first quarter of fiscal 2001 compared with $0.2 million for the first quarter of
fiscal 2000. In the first quarter of both fiscal 2001 and fiscal 2000, 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 first quarter ended December 31, 2000 Days Sales Outstanding
(DSO) was 75.4 days, an increase of 9 days from the fourth quarter of fiscal
2000, and an increase of 32.6 days when compared to the December 1999 DSO. The
increase in DSO is due to a decline in sales linearity as well as an increase in
longer term product sales.

     As of December 31, 2000, the Company had an equity investment in Rainmaker
Systems having a fair market value of $4.6 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.
In January 2001, the Company sold 3,200,000 shares of its Rainmaker stock for
$1.00 per share, and received cash proceeds of $3.2 million. The cost basis of
the sale was $1.1 million, and the Company realized a gain of $2.1 million from
this sale.

     The Company has incurred losses from operations of approximately $7.9
million during the first quarter of fiscal 2001 and $57.0 million during fiscal
2000 and revenues have declined from $49.4 million for the first quarter of
fiscal 2000 to $22.9 million for the same quarter of fiscal 2001. Revenues have
declined from $223.6 million for the year ended September 30, 1999 to $148.9
million for the year ended September 30, 2000 and the Company has an accumulated
deficit as of December 31, 2000. These factors have caused management to
evaluate the Company's liquidity and to establish plans to reduce costs, and
increase revenues and improve margins. The Company has recently announced cost
reduction plans in order to reduce operating expenses to levels consistent with
current revenues and is investigating financing alternatives. There can be no
assurance that such cost reduction measures will be adequate or such financing
will be available, if at all, on terms acceptable to the Company.

     On February 9, 2001, the Company entered into a Third Amendment to the
Agreement and Plan of Reorganization entered into on August 1, 2000 (as
subsequently amended on September 13, 2000 and December 12, 2000) (collectively,
the "Amended Reorganization Agreement") with Caldera Systems, Inc. and Caldera
International, Inc. ("Caldera International"). Under the terms of the Amended
Reorganization Agreement, (i) Caldera International will acquire the Company's
Server Software and Professional Services divisions and the Company's OpenServer
product line, including the intellectual property and revenue derived therefrom,
(ii) the Company will receive cash consideration of $23.0 million at the close
of the transaction ($7.0 million of which has been previously advanced to the
Company) as well as a note for $8.0 million due in four quarterly installments
beginning in the second year following the close of the transaction and 16
million shares of Caldera International common stock, initially representing
approximately 25.9% of Caldera International, (iii) Caldera International will
also share revenue from the OpenServer products for a period of three years, if
sales exceed pre-defined levels during that time and (iv) Caldera International
will receive an assignment by the Company of its accounts receivable from
certain long-term agreements that become due subsequent to the close of the
transaction. These receivables will vary depending on the timing of the
transaction and product usage by customers, currently estimated to be $3-4
million.

     There can be no assurance that the transaction with Caldera Systems will be
completed. If the transaction with Caldera Systems is not completed the Company
will need to evaluate ways to further reduce costs in order to generated
positive cash flows in the future or obtain additional financing until cash
flows generated from the sale of the Company's products are sufficient to meet
expenses. These cost reductions could include restructuring the Company to
reduce operating expenses to levels that could be financed by revenues
generated. Such reductions in expenditures may include actions similar or
greater in scope to the cost

                                        17
<PAGE>   20

reduction exercises undertaken in fiscal 2000. There can be no assurance that
such cost reduction measures would be successful in completely eliminating the
difference between expenditures and revenues or that such actions would not have
a harmful effect on the Company's business and results of operations. In
addition, there can be no assurance that if the Company were to seek additional
financing that it would be available at all or on terms which are acceptable to
the Company.

     In connection with the proposed transaction with Caldera, the Company
entered into a Loan Agreement and a Secured Convertible Promissory Note
effective January 8, 2001, with The Canopy Group for borrowings up to $18.0
million. Drawings on the financing agreement are repayable on December 31, 2001
and bear interest at a rate per annum of 10%. Drawings are collateralized by the
Company's tangible and intangible assets and are convertible into common stock
at the option of the lender at the closing price of SCO common stock on the date
of issuance, subject to certain limitations. The unconverted principal is
repayable in cash. The Company has not made any drawings on this line of credit.
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 the Company and Caldera Systems, Inc.

     At December 31, 2000, the Company had available lines of credit of
approximately $0.9 million under which the Company had $0.5 million in
outstanding borrowings. The Company believes that, based on its current plans,
which include the completion of the transaction with Caldera discussed above,
its existing cash and cash equivalents, short-term investments, funds generated
from operations and available borrowing capabilities will be sufficient to meet
its operating requirements through fiscal 2001, however additional financing may
be required thereafter.

  RECENT ACCOUNTING PRONOUNCEMENTS

     In November, 2000, the Emerging Issue Task Force ("EITF") issued EITF
Abstract No. 00-19 (EITF 00-19), Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company's Own Stock. EITF 00-19
applies to all freestanding derivative financial instruments that are indexed
to, and potentially settled in, a company's own stock and discusses the
classification and measurement of these financial instruments. It suggests that
an entity recognizes all freestanding derivative financial instruments as equity
or as either assets or liabilities, and measure those instruments at fair value.
The guidance is effective for all new contracts and contract modifications
entered into after September 20, 2000. For contracts that exist on September 20,
2000, EITF 00-19 should be applied on June 30, 2001, based on the contract terms
then in place. Management is in the process of evaluating the effect this
guidance will have on its financial statements.

     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 has adopted SAB
101 effective with the first quarter of fiscal 2001. Management believes that
the implementation of SAB 101 did not have a material effect on the financial
position or results of operations of the Company.

     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
(SFAS 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. The Company has adopted SFAS 133 as required for its first
quarterly filing of fiscal year 2001. SFAS 133 shall be effective for all
subsequent quarters and annual filings. The adoption of SFAS 133 did not have a
material effect on the financial position or results of operations of the
Company.

                                        18
<PAGE>   21

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.

                                        19
<PAGE>   22

                                    PART II.

                               OTHER INFORMATION

ITEM 6. EXHIBITS

     (a) Exhibits

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
           27            -- Financial Data Schedule.
</TABLE>

ITEMS 1, 2, 3, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.

                                        20
<PAGE>   23

                                   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.

                                            By:     /s/ RANDALL BRESEE
                                              ----------------------------------
                                                       Randall Bresee
                                                   Senior Vice President,
                                                  Chief Financial Officer

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

Date: March 23, 2001

                                        21
<PAGE>   24

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
           27            -- Financial Data Schedule.
</TABLE>