<PAGE>   1

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

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

                                   FORM 10-Q/A

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

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001

              [ ] 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

                                TARANTELLA, 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) 427-7222

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
March 31, 2001 was 39,877,212.

<PAGE>   2

                                TARANTELLA, INC.

                                   FORM 10-Q/A

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001

                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                     PAGE
                                                                                     ----
<S>              <C>                                                                 <C>
PART I.  FINANCIAL INFORMATION

         ITEM 1. FINANCIAL STATEMENTS

                 a)  CONSOLIDATED STATEMENTS OF OPERATIONS
                     FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2001 AND 2000........1

                 b)  CONSOLIDATED BALANCE SHEETS
                     AS OF MARCH 31, 2001 AND SEPTEMBER 30, 2000.......................2

                 c)  CONSOLIDATED STATEMENTS OF CASH FLOWS
                     FOR THE SIX MONTHS ENDED MARCH 31, 2001 AND 2000..................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...........18

PART II. OTHER INFORMATION

         ITEM 6. EXHIBITS.............................................................19

SIGNATURES............................................................................20
</TABLE>

<PAGE>   3

                          Part I. Financial Information

                          Item I. Financial Statements

TARANTELLA, INC.

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

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                                                   THREE MONTHS ENDED           SIX MONTHS ENDED
                                                                        MARCH 31,                   MARCH 31,
                                                                   2001          2000          2001          2000
                                                                       (UNAUDITED)                 (UNAUDITED)
--------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>           <C>           <C>           <C>
NET REVENUES

    License, third parties                                       $ 22,040      $ 29,934      $ 43,007      $ 75,769

    License, related parties                                        2,125         1,878         4,019         5,481

    Service, third parties                                          2,638         2,965         5,649         6,142

    Service, related parties                                          548           765         1,131         1,803
--------------------------------------------------------------------------------------------------------------------
       Total net revenues                                          27,351        35,542        53,806        89,195
--------------------------------------------------------------------------------------------------------------------

COST OF REVENUES

    License, third parties                                          2,923         4,133         6,114        10,337

    License, related parties                                          589           834           877         1,322

    Service, third parties                                          3,011         4,402         6,029         8,276

    Service, related parties                                          608           888         1,192         2,154
--------------------------------------------------------------------------------------------------------------------
       Total cost of revenues                                       7,131        10,257        14,212        22,089
--------------------------------------------------------------------------------------------------------------------
       GROSS MARGIN                                                20,220        25,285        39,594        67,106
--------------------------------------------------------------------------------------------------------------------

OPERATING EXPENSES:

    Research and development                                        6,518        11,632        12,950        22,210

    Sales and marketing                                            16,675        23,723        33,006        49,022

    General and administrative                                      4,505         4,672         8,772         8,508

    Restructuring charges                                           1,133         5,887         1,133         5,887
--------------------------------------------------------------------------------------------------------------------
       Total operating expenses                                    28,831        45,914        55,861        85,627
--------------------------------------------------------------------------------------------------------------------
        OPERATING INCOME (LOSS)                                    (8,611)      (20,629)      (16,267)      (18,521)

OTHER INCOME (EXPENSE):

    Interest income, net                                              284           592           690         1,192

    Other income (expense), net                                     3,071           908         3,657         1,745
--------------------------------------------------------------------------------------------------------------------
       Income (loss) before income taxes                           (5,256)      (19,129)      (11,920)      (15,584)

    Income taxes                                                     (817)          680          (201)        1,350
--------------------------------------------------------------------------------------------------------------------
       NET INCOME (LOSS)                                           (4,439)      (19,809)      (11,719)      (16,934)

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX

    Unrealized gain (loss) on available-for-sale
       equity securities                                             (120)      (34,198)       (3,996)       21,665

    Foreign currency translation adjustment                           282           (79)          229           (78)
--------------------------------------------------------------------------------------------------------------------
       COMPREHENSIVE INCOME (LOSS)                               $ (4,277)     $(54,086)     $(15,486)     $  4,653
--------------------------------------------------------------------------------------------------------------------

       EARNINGS (LOSS) PER SHARE:
            Basic                                                $  (0.11)     $  (0.56)     $  (0.30)     $  (0.48)
            Diluted                                              $  (0.11)     $  (0.56)     $  (0.30)     $  (0.48)
--------------------------------------------------------------------------------------------------------------------

       SHARES USED IN EARNINGS (LOSS) PER SHARE CALCULATION:
            Basic                                                  39,733        35,596        39,586        35,154
            Diluted                                                39,733        35,596        39,586        35,154
--------------------------------------------------------------------------------------------------------------------
</TABLE>

          See accompanying notes to consolidated financial statements.


                                        1
<PAGE>   4

TARANTELLA, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands)

<TABLE>
<CAPTION>
                                                                      MARCH 31,       SEPTEMBER 30,
                                                                        2001              2000
                                                                     (UNAUDITED)
--------------------------------------------------------------------------------------------------
<S>                                                                   <C>             <C>
ASSETS

Current assets:

    Cash and cash equivalents                                         $  15,014         $  20,879
    Short-term investments                                                3,100             5,567
    Receivables, third parties, net                                      18,253            22,917
    Receivables, related parties                                          4,770             1,352
    Available-for-sale equity securities                                  6,055             7,119
    Other current assets                                                  7,769             4,358
--------------------------------------------------------------------------------------------------
       Total current assets                                              54,961            62,192
--------------------------------------------------------------------------------------------------
 Property and equipment, net                                              7,251             9,012
 Purchased software and technology licenses, net                          4,593             5,830
 Other assets                                                             4,755             5,168
--------------------------------------------------------------------------------------------------
          TOTAL ASSETS                                                $  71,560         $  82,202
--------------------------------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

    Trade accounts payable                                            $   2,667         $   5,521
    Royalties payable                                                     3,771             4,530
    Note Payable                                                          7,000                --
    Income taxes payable                                                  1,397             1,964
    Accrued restructuring charges                                         2,058             5,964
    Accrued expenses and other current liabilities                       22,835            20,225
    Deferred revenues                                                    10,968             7,334
--------------------------------------------------------------------------------------------------
       Total current liabilities                                         50,696            45,538
--------------------------------------------------------------------------------------------------
 Long-term lease obligations                                                  6               545
 Long-term deferred revenues                                              1,371             1,397
 Other long-term liabilities                                              2,982             3,520
--------------------------------------------------------------------------------------------------
       Total long-term liabilities                                        4,359             5,462
--------------------------------------------------------------------------------------------------

SHAREHOLDERS' EQUITY

    Common stock, no par value, net, authorized 100,000 shares
       Issued and outstanding 39,877 and 39,346 shares                  119,728           118,940
    Accumulated other comprehensive income                                1,719             5,486
    Accumulated deficit                                                (104,942)          (93,224)
--------------------------------------------------------------------------------------------------
       Total shareholders' equity                                        16,505            31,202
--------------------------------------------------------------------------------------------------
          TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                  $  71,560         $  82,202
--------------------------------------------------------------------------------------------------
</TABLE>

          See accompanying notes to consolidated financial statements.


                                        2
<PAGE>   5

TARANTELLA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
                                                                               SIX MONTHS ENDED
                                                                                   MARCH 31,
                                                                             2001            2000
                                                                         (UNAUDITED)
----------------------------------------------------------------------------------------------------
<S>                                                                        <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss                                                                   $(11,719)       $(16,934)
Adjustments to reconcile net loss to net cash
     used for operating activities -
      Depreciation and amortization                                           4,520           6,124
      Investment (gain) loss                                                 (2,011)
      Exchange (gain) loss                                                      336            (190)
      Gain on sale of marketable securities                                  (2,120)             --
      Non-cash restructuring charge                                              --           5,887
Changes in operating assets and liabilities -
      Receivables                                                             1,327           6,628
      Other current assets                                                   (3,443)            351
      Other assets                                                              136           1,328
      Royalties payable                                                        (748)         (2,787)
      Trade accounts payable                                                 (2,844)           (152)
      Income taxes payable                                                   (1,145)          1,295
      Accrued expenses and other current liabilities                          5,048          (6,743)
      Deferred revenues                                                       3,540               9
      Other long-term liabilities                                                (3)           (493)
----------------------------------------------------------------------------------------------------
          Net cash used for operating activities                             (9,126)         (5,677)
----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchases of property and equipment                                      (989)         (2,526)
      Purchases of software and technology licenses                            (341)           (433)
      Sales of short-term investments                                         2,500          11,725
      Purchases of short-term investments                                       (33)        (10,606)
      Proceeds from sale of marketable securities                             3,200              --
      Changes in other assets                                                  (736)         (2,869)
----------------------------------------------------------------------------------------------------
          Net cash provided by (used for) investing activities                3,601          (4,709)
----------------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:

      Payments on capital leases                                             (1,121)         (1,580)
      Net proceeds from sale of common stock                                    788          11,331
      Repurchases of common stock                                                --         (12,786)
----------------------------------------------------------------------------------------------------
          Net cash used for financing activities                               (333)         (3,035)
----------------------------------------------------------------------------------------------------
Effects of exchange rate changes on cash and cash equivalents                    (7)             33
----------------------------------------------------------------------------------------------------
Change in cash and cash equivalents                                          (5,865)        (13,388)
Cash and cash equivalents at beginning of period                             20,879          33,683
----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                                 $ 15,014        $ 20,295
----------------------------------------------------------------------------------------------------
    Cash paid-
      Income taxes                                                         $    641        $      5
      Interest                                                                   90             135
    Non-cash financing and investing activities-
      Unrealized gain (loss) on available-for-sale equity securities       $   (120)       $ 29,124
      Assets acquired under capital leases                                       --              20
----------------------------------------------------------------------------------------------------
</TABLE>

          See accompanying notes to consolidated financial statements.


                                        3
<PAGE>   6

TARANTELLA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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. The Company's original incorporated name was The Santa Cruz Operation,
Inc. As of May 7, 2001 the name has been changed to Tarantella, Inc.

RESTATEMENT

Statement of Financial Accounting Standard No. 133, Accounting for Derivative
Instruments and Hedging Activities, was effective for the Company beginning
October 1, 2000. Accordingly, any derivative investment held by the Company as
of that date is required to be recorded at its fair value and then revalued at
each period end with a corresponding adjustment to income. Upon further analysis
by the Company, it was determined the Company obtained and held warrants in a
private company which was purchased by a publicly traded entity during the
Company's first quarter ended December 31, 2000. Under FAS 133 and as part of
the restatement, these warrants were deemed derivatives and their fair values
were recorded by the Company and revalued at the current market value at each
period end. In addition, the Company held investments in a private entity that
was purchased by a publicly traded entity and the exchange created a new cost
basis for the investments at the date of exchange. The increase in the cost
basis of the investment created a gain of $1.39 million in other income for the
three month period ended March 31, 2001. Due to the new cost basis there was a
decrease to unrealized loss of $1.86 million on available for sale equity
securities, which resulted in a decrease of $1.86 million in comprehensive
income for the six month period ended March 31, 2001. The financial statements
for the three and six months ended March 31, 2001 have been restated to reflect
these changes. The restatement does not affect previously reported net cash
flows for the periods. The effects of this restatement on previously reported
consolidated financials are as follows (amounts in thousands except per share
data):


                                       4
<PAGE>   7

<TABLE>
<CAPTION>
                                                                               Three Months Ended           Six Months Ended
                                                                                  March 31, 2001              March 31, 2001
                                                                           As previously                As previously
                                                                             reported       Restated      reported      Restated
                                                                             ---------      ---------     --------      --------
<S>                                                                          <C>            <C>           <C>           <C>
STATEMENT OF OPERATIONS:
    Other income, (expense)
        Interest income, net                                                 $     284      $     284     $    478      $    690
        Other income (expense), net                                              1,677          3,071        1,858         3,657
    Net income (loss)                                                           (5,833)        (4,439)     (13,730)      (11,719)
    Other comprehensive income (loss)
        Unrealized gain (loss) on available-for-sale equity securities          (1,976)          (120)      (5,134)       (3,996)
        Foreign currency translation adjustment                                    282            282          229           229
    Earnings (loss) per share                                                $   (0.15)     $   (0.11)    $  (0.35)     $  (0.30)

BALANCE SHEET:
    Available-for-sale equity securities                                         2,905          6,055
    Accumulated other comprehensive income                                         581          1,719
    Accumulated deficit                                                       (106,954)      (104,942)
</TABLE>

1.  TRANSACTION WITH CALDERA

    On May 7, 2001, the Company consummated the sale of its Server Software and
Professional Services Divisions to Caldera Systems, Inc. Under the terms of the
transaction, SCO received cash consideration of $23.0 million, of which $7.0
million had already been received, as well as a note from Caldera Systems, Inc.
for $8.0 million due in four quarterly installments in the second year after the
close of the transaction. Additionally, SCO received 16 million shares of
Caldera International, Inc., the resulting newly created company that combines
the assets of Caldera Systems, Inc. and the newly acquired Server Software and
Professional Services Divisions. In connection with the sale, the Company will
also be entitled to receive earn-out payments from Caldera International Inc.
determined as 45% of the amount by which OpenServer revenues exceed certain
specified threshold amounts during the three year period following the closing.

    The Company has changed its corporate name to Tarantella, Inc. The company
has also changed its NASDAQ trading symbol to TTLA to reflect the new corporate
name

    The following table presents the effects of the transaction on revenues and
net income; had the transaction been consummated at the beginning of the
quarter. The following amounts do not include any gains or losses from the
transaction with Caldera. The Company, Tarantella Inc., anticipates no changes
to the accounting methods that have been historically used.


                                       5
<PAGE>   8

<TABLE>
<CAPTION>
                                                       Three Months Ended
                                                         March 31, 2001
                                                             2001
                                                          (Unaudited)
-------------------------------------------------------------------------
<S>                                                    <C>
TOTAL (PRO FORMA) NET REVENUES                                4,028
-------------------------------------------------------------------------

(PRO FORMA) NET LOSS                                         (2,799)

(PRO FORMA) LOSS PER SHARE:
     Basic                                                  $ (0.07)
     Diluted                                                $ (0.07)
-------------------------------------------------------------------------

SHARES USED IN (PRO FORMA) LOSS PER SHARE CALCULATION:
     Basic                                                   39,733
     Diluted                                                 39,733
-------------------------------------------------------------------------
</TABLE>

2.  ACCRUED RESTRUCTURING CHARGE

FISCAL 2001

    During the second quarter of fiscal 2001, the Company announced and
completed a restructuring plan, which resulted in a one-time charge of $1.6
million, which when taken with an adjustment to a previously established
restructuring reserve, resulted in the net charge of $1.1 million. The Company
has reduced its spending levels to align its operating expenses with the
Company's revenues. The restructuring charge is related to the Tarantella
division and includes a reduction in personnel of 28 employees and a planned
elimination and sublet of unused facilities. The entire $1.6 million relates to
cash expenditures.

    The severance charges of $1.5 million include the elimination of 16
positions in the United States, 4 positions in the United Kingdom, and 8
positions in various other geographies. The reductions in force affect the
sales, marketing and general and administrative functions of the Company. As of
March 31, 2001 a total of 23 positions have been eliminated.

    The Company intends to partially sublet space in the Santa Cruz, California
office. This space will be vacated and restored and subsequently sublet. The
Company anticipates this will be complete within six months.

    The fiscal 2001 second quarter restructuring charge is summarized as
follows:

                FISCAL 2001 SECOND QUARTER RESTRUCTURING ACCRUAL

<TABLE>
<CAPTION>
                                            Reduction
(In thousands)                               in Force    Facilities    Total
------------------------------------------------------------------------------
<S>                                         <C>          <C>           <C>
Restructuring charge accrued                  $1,499        $ 64       $1,563
Payments/utilization of the accrual             (885)         --         (885)
------------------------------------------------------------------------------
Accrual at March 31, 2001                        614          64          678
------------------------------------------------------------------------------
</TABLE>

FISCAL 2000

    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.


                                       6
<PAGE>   9

FISCAL 2000 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. During the second quarter of fiscal 2001, the Company disposed of fixed
assets related to this restructuring accrual. Additionally, the Company made
payments on facilities costs related to this restructuring during the second
quarter of fiscal 2001.

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

                FISCAL 2000 SECOND QUARTER RESTRUCTURING ACCRUAL

<TABLE>
<CAPTION>
                                          Reduction                          Disposal of
(In thousands)                            in Force   Facilities  Technology  Fixed Assets   Total
---------------------------------------------------------------------------------------------------
<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
Payments/utilization of the accrual            --        (169)        --         (334)        (503)
---------------------------------------------------------------------------------------------------
Accrual at March 31, 2001                      --         714         --           --          714
---------------------------------------------------------------------------------------------------
</TABLE>

FISCAL 2000 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. During the second
quarter of fiscal 2001 the Company made payments related to facilities costs and
severance costs associated with this restructuring. Also during the second
quarter of fiscal 2001, the Company disposed of certain fixed assets related to
this restructuring. The Company recorded an adjustment to the fiscal 2000 fourth
quarter restructuring provision of $0.4 million in severance costs in the second
quarter of fiscal 2001. The severance costs were adjusted to reflect changes to
the estimated expenses as actual payments were made.

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

                FISCAL 2000 FOURTH QUARTER RESTRUCTURING ACCRUAL

<TABLE>
<CAPTION>
                                          Reduction                   Disposal of
(In thousands)                             in Force      Facilities   Fixed Assets      Total
-----------------------------------------------------------------------------------------------
<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
Payments/utilization of the accrual           (392)         (157)          (41)           (590)
Provision adjustment                          (430)           --            --            (430)
-----------------------------------------------------------------------------------------------
Accrual at March 31, 2001                       --           480           186             666
-----------------------------------------------------------------------------------------------
</TABLE>

3.  SEGMENT INFORMATION


                                       7
<PAGE>   10

    For the quarter ended March 31, 2001, 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           Six Months Ended
                                                         March 31,                   March 31,
                                                    2001          2000          2001          2000
------------------------------------------------------------------------      ----------------------
Net revenues:                                                         (Unaudited)
<S>                                               <C>           <C>           <C>           <C>
    Server software division                      $ 23,523      $ 32,876      $ 46,549      $ 82,372
    Tarantella division                              4,028         2,492         7,206         5,991
    Professional services division                     474           892         1,335         2,176
    Corporate adjustments                             (674)         (718)       (1,284)       (1,344)
                                                  --------      --------      --------      --------
          Total net revenues                      $ 27,351      $ 35,542      $ 53,806      $ 89,195
                                                  ========      ========      ========      ========

Gross margin:
    Server software division                      $ 17,530      $ 24,382      $ 34,481      $ 63,883
    Tarantella division                              3,371         1,713         5,954         4,558
    Professional services division                    (410)         (810)         (516)       (1,335)
    Corporate adjustments                             (271)           --          (325)           --
                                                  --------      --------      --------      --------
          Total gross margin                      $ 20,220      $ 25,285      $ 39,594      $ 67,106
                                                  ========      ========      ========      ========

Restructuring credit:
    Server software division                      $    430      $ (5,768)     $    430      $ (5,768)
    Tarantella division                             (1,563)           --        (1,563)           --
    Professional services division                      --          (119)           --          (119)
                                                  --------      --------      --------      --------
          Total restructuring (charge) credit     $ (1,133)     $ (5,887)     $ (1,133)     $ (5,887)
                                                  ========      ========      ========      ========

Operating loss:
    Server software division                      $   (400)     $(16,781)     $   (610)     $(13,166)
    Tarantella division                             (6,971)       (2,626)      (13,495)       (3,358)
    Professional services division                  (1,269)       (1,222)       (2,199)       (1,997)
    Corporate adjustments                               29            --            37            --
                                                  --------      --------      --------      --------
           Total operating loss                   $ (8,611)     $(20,629)     $(16,267)     $(18,521)
                                                  --------      --------      --------      --------
</TABLE>

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


                                       8
<PAGE>   11


<TABLE>
<CAPTION>
                                               Three Months Ended         Six Months Ended
                                                     March 31,                 March 31,
(In thousands)                                  2001         2000         2001         2000
-------------------------------------------------------------------     ---------------------
Net revenues:                                                   (Unaudited)
<S>                                           <C>           <C>         <C>           <C>
    United States                             $ 13,363      $17,386     $ 25,637      $36,590
    Canada and Latin America                     1,093        1,373        3,140        4,126
    Europe, Middle East, India and Africa       10,174       14,339       19,954       40,101
    Asia Pacific                                 2,553        2,272        4,644        5,419
    Corporate Adjustments                          168          172          431        2,959
                                              --------      -------     --------      -------
          Total net revenues                  $ 27,351      $35,542     $ 53,806      $89,195
                                              ========      =======     ========      =======

Gross margin:
    United States                             $  9,911      $11,332     $ 19,790      $24,309
    Canada and Latin America                       856        1,008        2,563        3,002
    Europe, Middle East, India and Africa        7,923       10,889       14,522       32,371
    Asia Pacific                                 2,038        1,885        3,574        4,466
    Corporate Adjustments                         (508)         171         (855)       2,958
                                              --------      -------     --------      -------
          Total gross margin                  $ 20,220      $25,285     $ 39,594      $67,106
                                              --------      -------     --------      -------
</TABLE>

        Revenue is allocated to geographical segments based on the location from
which the sale is satisfied.

4.  INVESTMENTS

    AVAILABLE FOR SALE EQUITY SECURITIES During the second quarter of fiscal
2001, the Company sold 3.2 million shares of Series D of the preferred stock of
Rainmaker Systems, Inc. ("Rainmaker") with a cost basis of $1.1 million, and
received cash proceeds of $3.2 million. At March 31, 2001, the Company held
505,767 shares of Rainmaker's 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.

Unrealized gains and losses on available for sale investments as of March 31,
2001 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                     Unrealized
                                                   FMV       Cost    Gain/Loss
<S>                                               <C>       <C>       <C>
        Caldera                                       83       250       (167)
        Ebiz Stock                                 5,592     3,140      1,580
        Rainmaker                                    380       171        209
                                                  ------    ------    -------
        Total Stock                                6,055     3,561      1,622
                                                  ------    ------    -------
        Ebiz Warrants                                        1,051         --
                                                  ------    ------    -------
        Total Available for Sale Equity
         Securities                               $6,055    $4,612    $ 1,622
                                                  ------    ------    -------
</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.  COMPREHENSIVE INCOME


                                       9
<PAGE>   12

    The following table presents the calculation of comprehensive income as
required by SFAS 130. The components of other comprehensive income (loss) for
the three and six months ended March 31, 2001 and 2000 are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                      Three Months Ended           Six Months Ended
                                                           March 31,                   March 31,
                                                      2001          2000          2001          2000
                                                     -------      --------      --------      --------
<S>                                                  <C>          <C>           <C>           <C>
Net loss                                             $(4,439)     $(19,809)     $(11,719)     $(16,934)
Other comprehensive income (loss):
    Foreign currency translation adjustment              282           (79)          229           (78)
    Unrealized gain (loss) on available-for-sale        (120)      (47,730)       (3,996)       29,124
         equity securities
    Gross tax on unrealized gain (loss) on                --        19,011            --       (11,600)
         available-for-sale equity securities
    Release of deferred tax valuation allowance           --        (5,479)           --         4,141
                                                     -------      --------      --------      --------
Total other comprehensive income (loss)              $(4,277)     $(54,086)     $(15,486)     $  4,653
                                                     =======      ========      ========      ========
</TABLE>

6.  EARNINGS PER SHARE (EPS) DISCLOSURES

    Basic and diluted earnings per share were calculated as follows during the
three and six months ended March 31, 2001 and 2000 (in thousands):

<TABLE>
<CAPTION>
                                                       Three Months Ended           Six Months Ended
                                                            March 31,                  March 31,
                                                       2001          2000          2001          2000
                                                     --------      --------      --------      --------
<S>                                                  <C>           <C>           <C>           <C>
Basic:
    Weighted average shares                            39,733        35,596        39,586        35,154
                                                     --------      --------      --------      --------
    Net loss                                         $ (4,439)     $(19,809)     $(11,719)     $(16,934)
                                                     ========      ========      ========      ========
    Net loss per share                               $  (0.11)     $  (0.56)     $  (0.30)     $  (0.48)
                                                     ========      ========      ========      ========

Diluted:
    Weighted average shares                            39,733        35,596        39,586        35,154

    Shares used in per share calculation               39,733        35,596        39,586        35,154
                                                     ========      ========      ========      ========
    Net loss                                         $ (4,439)     $(19,809)     $(11,719)     $(16,934)
                                                     ========      ========      ========      ========
    Net loss per share                               $  (0.11)     $  (0.56)     $  (0.30)     $  (0.48)
                                                     ========      ========      ========      ========

Options and warrants outstanding at 3/31/01
    and at 3/31/00 not included in computation
    of diluted EPS because the exercise price
    was greater than the average market price          11,651           495        11,636           519

Options outstanding at 3/31/01 and at 3/31/00
    not included in computation of diluted EPS
    because their inclusion would have an anti-
    dilutive effect                                     1,051        10,462         1,515        10,438
</TABLE>

7.  RECENT ACCOUNTING PRONOUNCEMENTS


                                       10
<PAGE>   13

    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 and financial statement 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. 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. Adoption of the standard required the
Company to recognize the fair value of derivatives held during the first quarter
ended December 31,2000. The cumulative effect of the adjustment was an increase
in available-for-sale securities of $0.2 million at March 31, 2001 and an
increase to net income of $1.1 million for the six-month period ended March 31,
2001.

8.  SUBSEQUENT EVENTS

    On May 7, 2001, the Company consummated the sale of its Server Software and
Professional Services Divisions to Caldera Systems, Inc. Under the terms of the
transaction, SCO received cash consideration of $23.0 million, of which $7.0
million had already been received, as well as a note from Caldera Systems, Inc.
for $8.0 million due in four quarterly installments in the second year after the
close of the transaction. Additionally, SCO received 16 million shares of
Caldera International, Inc., the resulting newly created company that combines
the assets of Caldera Systems, Inc. and the newly acquired Server Software and
Professional Services Divisions. In connection with the sale, the Company will
also be entitled to receive earn-out payments from Caldera International Inc.
determined as 45% of the amount by which OpenServer revenues exceed certain
specified threshold amounts during the three year period following the closing.

    The Company has changed its corporate name to Tarantella, Inc. The company
has also changed its NASDAQ trading symbol to TTLA to reflect the new corporate
name.


                                       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 March 31, 2001 decreased 23% to
$27.3 million from $35.5 million in the same period in fiscal 2000. For the six
months ended March 31, 2001, net revenues decreased 40% to $53.8 million from
$89.2 million for the six months ended March 31, 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 experienced the impact of being involved
in a protracted transaction involving the sale of a majority of the Company. For
the three month period ended March 31, 2001, one customer accounted for 13.8% of
the Company's net revenues. No one customer accounted for more than 10% of the
Company's net revenues for same period in the prior year.

    License revenue for the three months ended March 31, 2001 was $24.2 million
compared to $31.8 million in the same quarter of fiscal 2000. For the six months
ended March 31, 2001, license revenues decreased 42% to $47.0 million from $81.3
million for the six months ended March 31, 2000. This decline is attributed to
fewer large project deals and other market factors.

    Service revenues decreased to $3.2 million for the three months ended March
31, 2001, from $3.7 million in the same period in 2000, a decline of 15%.
Service revenue was 12% of the total revenue of the second quarter, compared to
10% in the prior year. The decline in service revenues was primarily in
professional services area and is the result of re-focusing of the professional
services division on the implementation of new strategies.

    International revenues continue to represent a significant portion of total
net revenues comprising 50% of the revenues for the second fiscal quarter of
2001 and 51% for the same quarter in fiscal 2000.

COSTS AND EXPENSES

    Cost of license revenues for the three months ended March 31, 2001 decreased
by 30% to $3.5 million compared to $5.0 million in the same period of fiscal
2000. For the six months ended March 31, 2001, cost of license revenues
decreased 40% to $7.0 million from $11.7 million for the six months ended March
31, 2000. The declining cost of revenues is primarily due to expirations of
several technology obligations. Additionally, material costs continue to decline
as a result of the increasing number of internet orders. Also certain fixed
costs such as technology and overhead declined.


                                       12
<PAGE>   15
    Cost of service revenues for the three months ended March 31, 2001 decreased
by 32% to $3.6 million compared to $5.3 million in the same period of fiscal
2000. For the six months ended March 31, 2001, cost of service revenues was $7.2
million as compared to $10.4 million for the same period in 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 decreased to 26% in
the second quarter of fiscal 2001 from 29% in the same period of fiscal 2000.
For the six month periods ended March 31, 2001 and 2000, cost of revenues
represented 26% and 25% of net revenues, respectively. 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 both the second quarter of fiscal 2001 and the six
month period ended March 31, 2001.

    Research and development expenses decreased 44% to $6.5 million in the
second quarter of fiscal 2001 from $11.6 million in the comparable quarter of
fiscal 2000, or 24% and 33% of net revenues, respectively. For the six months
ended March 31, 2001, research and development expenses decreased 42% to $ 13.0
million compared to $22.2 million for the same period in 2000. 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 , as well as, a significant decrease in allocating the
corporate overhead costs to research and development.

    Sales and marketing expenses decreased 30% to $16.7 million in the second
quarter of fiscal 2001 from $23.7 million for the comparable quarter of the
prior year. Sales and marketing expenses represented 61% of net revenues in the
second quarter of fiscal 2001 and 67% in 2000. For the six months ended March
31, 2001, sales and marketing expenses decreased to $33.0 million (61% of net
revenues) from $49.0 million (55% of net revenues) for the same period of the
prior fiscal year. The decrease is due to lower labor costs as a result of a
reduction in force and attrition, combined with reductions in sales program
costs that vary directly with revenue, including cooperative advertising.

    General and administrative expenses decreased to $4.5 million for the second
quarter of fiscal 2001 compared with $4.7 million in the second quarter of
fiscal 2000, representing 16% and 13% of net revenues, respectively. For the six
months ended March 31, 2001, general and administrative expenses increased $8.8
million, or 16% of net revenues, compared to $8.5 million, or 10% of net
revenues, for the same period in 2000. The decline in general and administrative
expense for the three months ended March 31, 2001 can be attributed to reduced
spending for travel, and legal expenses and lower depreciation costs. The six
month increase in general and administrative expenses of $0.3 million is due to
a one-time facility repair and higher data processing costs in the first fiscal
quarter.

    Restructuring charges decreased to $1.1 million in the second quarter of
fiscal 2001 from $5.9 million for the comparable quarter of the prior year.
During the second quarter of fiscal 2001, the Company announced and completed a
restructuring plan, which resulted in a one-time charge of $1.6 million. The
Company has reduced its spending levels to align its operating expenses with the
Company's revenues. The restructuring charge is related to the Tarantella
division and includes a reduction in personnel of 28 employees and an
elimination and sublet of unused facilities. The entire $1.6 million relates to
cash expenditures. The severance charges of $1.5 million include the elimination
of 16 positions in the United States, 4 positions in the United Kingdom, and 8
positions in various other geographies. The reductions in force affect the
sales, marketing and general and administrative functions of the Company. As of
March 31, 2001 a total of 23 positions have been eliminated. The Company intends
to partially sublet space in the Santa Cruz, California office. This space will
be vacated and restored and subsequently sublet. The Company anticipates this
will be complete within six months. Additionally, the Company recorded an
adjustment to the fiscal 2000 fourth quarter restructuring provision of $0.4
million in severance costs in the second quarter of fiscal 2001. The severance
costs were adjusted to reflect changes to the estimated expenses as actual
payments were made.

    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 $0.3 million for the second
quarter of fiscal 2001 and $0.6 million for the comparable quarter in the prior
year. For the six months ended March 31, 2001, net interest income was $0.7
million as compared to $1.2 million for the same period in 2000. Other income
was $3.1 million in the second quarter of fiscal 2001, compared to $0.9 million
for the same period of fiscal 2000. For the six months ended March 31, 2001,
other income was $3.7 million as compared to $1.7 million for the same period in
2000. The decrease in interest income is due to lower cash balances compared to
last


                                       13
<PAGE>   16

year and a higher exchange rate variance in the second quarter of fiscal 2001.
The increase of other income in the second quarter of fiscal 2001 included a
gain of $2.1 million realized on the liquidation of certain available-for-sale
securities and a $1.4 million dollar gain on a derivative recognized under SFAS
133.

    The benefit from income taxes was $0.8 million for the second quarter of
fiscal 2001 compared to a provision of $0.7 million for the same period of the
prior fiscal year, and a benefit of $0.2 million for the six months ended March
31, 2001, compared to a provision of $1.4 million for the corresponding fiscal
2000 period. The income tax benefits are the result of foreign losses and the
resolution of foreign audit issues.

    Net loss for the second quarter of fiscal 2001 was $4.4 million compared to
net loss of $19.8 million for 2000. For the six months ended March 31, 2001, net
loss was $11.7 million compared to net loss of $16.9 million in the same period
in 2000.

    Segment Information. The Company began reviewing its performance on the
basis of its three divisions during the third quarter of fiscal 2000. Further
information is disclosed in Note 3.

    Server Software Division. Net revenues for the server division for the three
months ended March 31, 2001 decreased 28% to $23.5 million from $32.9 million in
the same period in fiscal 2000. For the six months ended March 31, 2001, net
revenues for the server division was $46.5 million as compared to $82.3 million
for the same period in 2000. The decline in revenue performance is attributable
to fewer large project deals, as well as other market factors.

    Gross margin for the server division declined 28% to $17.5 million for the
second quarter of fiscal 2001 compared to $24.4 million for the same period of
fiscal 2000. For the six months ended March 31, 2001, gross margin for the
server division was $34.5 million as compared to $63.9 million for the same
period in 2000. The decline in gross margin is mainly attributable to lower
sales. Gross margin as a percentage of revenues was 74.5% for the second quarter
of fiscal 2001 compared to 74.2% for the same period of fiscal 2000 for the
server division.

    The server division's operating loss for the three months ended March 31,
2001 was $0.4 million, compared to an operating loss of $16.8 million in the
same period of fiscal 2000. For the six months ended March 31, 2001, operating
loss for the server division was $0.6 million as compared to $13.2 million for
the same period in 2000. The decline is due to lower operating expenses
attributable to lower labor costs caused by a 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 March 31, 2001 increased 62% to $4.0 million from $2.5 million in
the three months ended March 31, 2000. For the six months ended March 31, 2001,
net revenues for the Tarantella division was $7.2 million as compared to $6.0
million for the same period in 2000. The increase in net revenues is due to an
overall increase in the repeat business of current customers as well as an
increase in the number of new customers. Additionally, there is an increase in
the average deal size that is a result of a recent re-alignment of sales
structure. Tarantella revenues increased 27% in the second quarter of fiscal
2001 when compared to the first quarter of this fiscal year.

    Gross margin for the Tarantella division was $3.3 million for the three
months ended March 31, 2001 compared with gross margin of $1.7 million for the
same period in fiscal 2000, an increase of 97%. Gross margin as a percentage of
net revenues improved to 83.7% in the second quarter of fiscal 2001 compared to
68.7% for the comparable period of the prior year. For the six months ended
March 31, 2001, gross margin for the Tarantella division was $6.0 million as
compared to $4.6 million for the same period in 2000. The increase is attributed
to improvement due to technology and overhead savings.

    The operating loss reported by the Tarantella division for the three months
ended March 31, 2001 was $7.0 million, compared to a loss of $2.6 million in
fiscal 2000. For the six months ended March 31, 2001, the operating loss for the
Tarantella division was $13.5 million as compared to $3.4 million for the same
period in 2000. The decrease is a result of the impact of being involved in a
protracted transaction which more recently involves the re-alignment of the
Tarantella sales structure. 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 March 31, 2001 declined to $0.5
million compared to $0.9 million for the same period in fiscal 2000. For the six
months ended March 31, 2001, the net revenues for the professional services
division was $1.3 million as compared to $2.2


                                       14
<PAGE>   17

million for the same period in 2000. The revenue decrease can be attributed to a
shift in strategies undertaken to accommodate the future transaction.

    Gross loss for the professional services division was $0.4 million for the
three months ended March 31, 2001 compared with a loss of $0.8 million for the
same period in fiscal 2000, a reduction of 49%. For the six months ended March
31, 2001, the gross loss for the professional services division was $0.5 million
as compared to $1.3 million for the same period in 2000. The reduction in gross
loss is directly attributable to improved control of operating expenses.

    The operating loss for the professional services division remained
relatively stable. For the three months ended March 31, 2001 was $1.3 million,
compared to the operating loss of $1.2 million in fiscal 2000. For the six
months ended March 31, 2001, the operating loss for the professional services
division was $2.2 million as compared to $2.0 million for the same period in
2000.

FACTORS THAT MAY AFFECT FUTURE RESULTS

    On May 7, 2001, the Company consummated the sale of its Server Software and
Professional Services Divisions to Caldera Systems, Inc. Caldera may experience
difficulty in integrating the assets and the employees acquired from the
Company. There can be no assurance that the combination will create positive
results for Caldera in which the Company will be a major shareholder. The
successful combination will require substantial effort from each company.

    The Company's Tarantella products are still in the early stages of the
product life-cycle. Furthermore, the market in which the products are sold is a
new market. Therefore, it is difficult to assess the market potential and the
ability of the products to meet the requirements of the market. As a small
company, the Company may not have credibility with enterprise customers, which
is critical to its success.

    Historically, revenues generated by the Server Software business and
Professional Services have been a significant portion of the Company's total
revenues. The Company's revenues derived from the distribution of Tarantella
products will be but a fraction of historical revenues, and the Company's
success will be dependent upon relatively significant revenue growth.

    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


                                       15
<PAGE>   18

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 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 50% and 51% of total revenues for the second 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.

    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.

    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


                                       16
<PAGE>   19

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 $18.1 million at
March 31, 2001, representing 26% of total assets. The six month decrease in cash
and short-term investments of $8.3 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 $9.1 million for
the first six months of fiscal 2001, compared to $5.7 million used for operating
activities for fiscal 2000. Cash provided by investing activities during the six
month period was $3.6 million in fiscal 2001 compared to cash used for investing
of $4.7 million in fiscal 2000. In both fiscal 2001 and 2000 cash was used to
fund purchases of property and equipment and short-term investments. In fiscal
2000 cash was used for common stock repurchases. Cash used for financing
activities was $0.3 million for the first six months of fiscal 2001 compared
with $3.0 million for the same period in fiscal 2000.

    The Company's second quarter ended March 31, 2001 Days Sales Outstanding
(DSO) remained relatively flat from 75.8 days, an increase of 0.4 days from the
first quarter of fiscal 2001.

    As of March 31, 2001, the Company had an equity investment in Rainmaker
Systems having a fair market value of $0.4 million and a cost basis of $0.2
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 $8.6
million during the second quarter of fiscal 2001 and $20.6 million during fiscal
2000 and revenues have declined from $35.5 million for the second quarter of
fiscal 2000 to $27.4 million for the same quarter of fiscal 2001. For the six
month period ended fiscal 2001 losses from operations were $16.3 million and
$18.5 million during the comparable quarters in fiscal 2000. Revenues declined
from $89.1 million for the six months ended fiscal 2000 to $53.8 million for the
same period of fiscal 2001. Revenues have declined $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 March 31, 2001. 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


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<PAGE>   20

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.

    In connection with the 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.

    At March 31, 2001, the Company had available lines of credit of
approximately $0.9 million under which the Company had $0.3 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 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 and financial statement 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. 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. Adoption of the standard required the
Company to recognize the fair value of derivatives held during the first quarter
ended December 31,2000. The cumulative effect of the adjustment was an increase
in available-for-sale securities of $0.2 million at March 31, 2001 and an
increase to net income of $1.1 million for the six-month period ended March 31,
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.


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<PAGE>   21

                           PART II. OTHER INFORMATION


ITEMS 1, 2, 3, 4, 5 AND 6 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.





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                                   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.


                                                     Tarantella, Inc.


        Date: August 29, 2001           By:       /s/ Randall Bresee
                                            -----------------------------------
                                                      Randall Bresee
                                                  Senior Vice President,
                                                  Chief Financial Officer


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



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