<PAGE>   1
 
================================================================================
 
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                           -------------------------
 
                                   FORM 10-K
(MARK ONE)
 
[X]              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended September 30, 1997 or
 
[ ]            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 0-26074
 
                                 SPYGLASS, INC.
             (Exact name of Registrant as Specified in its Charter)
 
                                    DELAWARE
                        (State or other jurisdiction of
                         incorporation or organization)
                                   37-1258139
                      (I.R.S. Employer Identification No.)
 
       1240 E. DIEHL ROAD, 4TH FLOOR, NAPERVILLE, IL 60563 (630) 505-1010
   (Address of principal executive offices, zip code, registrant's telephone
                          number, including area code)
 
        Securities registered pursuant to Section 12(b) of the Act: NONE
 
           Securities registered pursuant to Section 12(g)of the Act:
                          $0.01 PAR VALUE COMMON STOCK
                                (Title of Class)
 
                      Traded on the Nasdaq National Market
 
     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.     Yes [X]     No [ ]
 
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
 
     The aggregate market value of the Common Stock held by non-affiliates of
the registrant on October 31, 1997, based upon the closing sale price of the
Common Stock on the Nasdaq National Market on that date as reported in The Wall
Street Journal, was approximately $105,982,695.
 
     Registrant had 13,236,114 shares of Common Stock outstanding as of December
8, 1997.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
     Portions of the registrant's 1997 Annual Report to Stockholders for fiscal
1997 are incorporated by reference in Parts II and IV hereof. The Annual Report
shall be deemed "filed" with the Commission only with respect to those portions
specifically incorporated by reference herein. Portions of the registrant's
definitive Proxy Statement for its Annual Meeting of Stockholders for fiscal
1997, which will be filed with the Securities and Exchange Commission within 120
days after the end of the Company's fiscal year, are incorporated by reference
into Part III hereof.
 
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                                     PART I
 
ITEM 1. BUSINESS
 
GENERAL
 
     Spyglass(R), Inc. ( "Spyglass" or the "Company" ) develops, markets and
distributes Internet enabling technologies, content services and professional
services that enable various non-PC devices, including, but not limited to,
televisions, office equipment, television set-top boxes, network computers and
telephones, to work with the Internet (also referred to as "World Wide Web",
"WWW" or the "Web").
 
     The Company began operations in February 1990 and, until 1994, focused
substantially all of its resources on its data visualization products sold to
the scientific market. The Company sold its data visualization product line in
September 1995. Spyglass entered the Internet market during fiscal 1994 and from
fiscal 1994 through fiscal 1996, focused its efforts on developing, marketing
and distributing Internet client and server technologies for incorporation into
a variety of Internet-based software products and services. Beginning in fiscal
1997, the Company began focusing on the development, marketing and distribution
of its technologies and services to the non-PC Internet device marketplace.
 
     Spyglass markets embedded solutions to a variety of companies such as the
real time operating system (RTOS) vendors, consumer and industrial electronics
manufacturers, and office equipment suppliers. Spyglass also provides
infrastructure solutions to a variety of companies such as the Regional Bell
Operating Companies (RBOCs), telephone companies, cable companies, cellular
providers, Internet Service Providers (ISPs) and internetworking hardware
providers. These technologies enable Web connectivity through highly scalable
embedded browsers and servers, and provide performance enhancements, content
filtering and conversion through an integrated suite of infrastructure servers.
The Spyglass Professional Services group offers consulting, project management
and custom engineering for defining, developing and delivering complete,
end-to-end project solutions. Spyglass provides its customers with expertise,
software and services that enable them to rapidly deploy cost-effective
Web-enabled devices. Spyglass solutions have been integrated into a variety of
products, including but not limited to televisions, office equipment, television
set-top boxes, network computers, screen and cellular phones. In addition,
several major corporations have deployed SurfWatch, a leading content filtering
software designed to block unwanted material from the Internet.
 
     A central element of the Company's business strategy is a multi-channel
distribution model. The Company, through its scalable, adaptable, modular
Internet technologies and services, creates customized solutions for its
customers which are incorporated into their products and services for end-users.
The Company chose this approach to best meet the varying needs of its customers
and because it enables it to leverage the marketing, distribution and
development resources of much larger organizations that are strategically
focused on offering value-added products and services for the Internet. The
Company intends to continue to increase the performance, functionality and
flexibility of its technology offerings and breadth of its services to meet the
evolving needs of Internet users and to continue to invest in building customer
awareness of the Spyglass name and the range of Internet solutions available
from Spyglass.
 
     The Company's future results of operations will be largely dependent upon a
number of factors relating to development and acceptance of the Internet as a
commercial market, particularly use of the Internet through non-PC devices, and
the Company's ability to establish its solutions as widely-accepted in the
market. See the "Future Operating Results" section incorporated by reference
into Item 7 of this Annual Report on Form 10-K.
 
     During fiscal 1997, the Company first directed its strategic focus to the
Internet device and infrastructure market. Because this is a new and undeveloped
market, there can be no assurance as to the extent of the demand for product
offerings similar to those of the Company, or the extent to which the Company
will be successful in penetrating this market. Moreover, the Company expects
that its revenues and net income may be adversely affected during fiscal 1998 as
the Company continues to concentrate its business strategy on the Internet
device market, rather than on vendors of desktop software applications.
<PAGE>   3
 
     On November 14, 1997, the Company acquired AllPen Software ("AllPen").
AllPen, based in Los Gatos, California, is a leading systems integration and
software development firm focused on Internet technology for non-PC devices. In
consideration of the acquisition, Spyglass issued approximately 640,000 shares
of common stock and converted outstanding AllPen stock options into options for
approximately 360,000 shares of Spyglass common stock. The transaction has been
accounted for as a pooling of interests.
 
THE INTERNET
 
     The Internet is a worldwide network that links thousands of public and
private computer networks. The Internet began in 1969 as a project of the
Advanced Research Projects Agency ("ARPA") of the U.S. Department of Defense to
connect different types of computers across geographically disparate areas. The
ARPA network was designed to allow any computer on the network to communicate
with any other computer on the network through an open communications protocol
known as TCP/IP.
 
     Until the mid-1990's, use of the Internet was generally limited to
governmental, educational and commercial organizations with a working knowledge
of the UNIX operating system and commands, and the primary use of the Internet
was the communication of information via electronic mail. However, there has
been a significant growth in the use and popularity of the Internet in the past
several years, due in part to the introduction in 1992 of the World Wide Web, a
client/server system of hyperlinked multimedia databases.
 
     The WWW is based on a client/server system in which certain computers
("servers") store files and respond to requests issued by remote computers
("clients" ) to download the files, thus allowing multiple, geographically
dispersed users to view and use the information stored on a single server. The
client must contain software, known as a browser, that can read Hyper Text
Markup Language (HTML) documents and follow their hypertext links to retrieve
and display linked documents from servers. One limitation on the early growth of
the WWW was that the browser software initially provided by the European
Laboratory for Research Physics (CERN) was text-based and contained limited
retrieval and display capabilities.
 
     In January 1993, the National Center for Supercomputing Applications
("NCSA") at the University of Illinois at Urbana-Champaign introduced NCSA
Mosaic for X Window on the UNIX platform, the first intuitive, graphical user
interface browser for the WWW. The NCSA Mosaic graphical user interface allows
users to access the diverse information archives, data protocols and data
formats of the Internet using point-and-click, mouse-driven commands. NCSA
Mosaic is offered by NCSA to users on a free-with-copyright basis (making it
available for use without charge and without the right to distribute). NCSA
released a version of NCSA Mosaic for Windows in September 1993.
 
     In order to support the continued growth and popularity of the Internet,
certain "infrastructure" elements must expand to handle the resulting increases
in Internet demand and traffic. These elements include widespread, inexpensive
Internet access, either through Internet access providers or on-line services,
and widely available high-speed communications channels to accommodate the
increasing number and size of files available for downloading.
 
PRODUCTS AND TECHNOLOGIES
 
     Spyglass products and technologies deliver the embedded Internet and
infrastructure solutions needed to effectively connect a wide variety of devices
to the Internet and leverage the wealth of on-line information and communication
options. Spyglass products deliver benefits to a wide range of groups such as
consumers, device manufacturers, content providers, internetworking vendors and
Internet service providers
 
     Spyglass' solutions provide its partners with a complete array of software
and services necessary to make devices work with the Web. Spyglass solutions
enable Web connectivity from virtually any device, while providing the
infrastructure solutions needed to eliminate performance "bottlenecks" and
deliver value-added services such as content filtering and conversion. And,
critically important to the mass deployment of these new devices, these
solutions ensure that these devices have access to evolving Web content without
the need for changes in the original Web content or costly changes to the
device's software.
 
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  SPYGLASS DEVICE MOSAIC
 
     Spyglass Device Mosaic is the embedded industry's first full-featured, thin
browser. Occupying less than 675KB of code when compiled specifically for
devices, it supports the latest Internet standard technologies found in desktop
browsers many times larger. Moreover, Device Mosaic's modular design makes it
scalable across a broad range of devices. Features can be added to support the
latest needs of televisions and set-top boxes or a stripped down version can be
embedded in more memory-constrained screen phones and hand-held devices. Easily
ported to a variety of popular real-time operating systems, Device Mosaic
enables consumer electronics manufacturers to add Web functionality to products
quickly, cutting development dollars and sharply reducing time to market.
 
  SPYGLASS MICROSERVER
 
     Spyglass MicroServer is a small footprint embedded Web server that enables
full HTML page-based monitoring, management and control of devices such as
copiers, printers, hubs/routers and manufacturing equipment. It delivers
standards-based Web server functionality to multiple concurrent users in as
little as 36KB of RAM. Application user interfaces for MicroServer-enabled
devices are authored in HTML and may be used with any commercial Web browser.
Typical uses include providing operational or status information to a user,
updating a device's internal database through information collected via HTML
forms, or initiating a device action, such as running a diagnostic utility,
based on a user request. Developed specifically for the embedded systems market,
MicroServer has already been ported to many of the leading real-time operating
systems.
 
  SPYGLASS PRISM
 
     Spyglass Prism is a server-based content conversion solution designed to
optimize the performance of the new generation of Web-enabled devices, such as
hand-held PCs & Personal Digital Assistants ("PDA"s), televisions, smart phones,
cellular phones and pagers. Spyglass Prism can dynamically translate richly-
formatted Web content -- HTML, tables, JPEG, frames -- into formats that match
the relatively limited display capabilities of non-PC devices. For example, with
a PDA, Prism could convert memory and bandwidth intensive color images into a
simpler gray-scale format and then resize that image for the PDA's small display
screen. These conversions of graphic laden content can reduce access times by as
much as 90 percent. Performance is further enhanced by a caching feature that
stores previously converted, frequently requested Web content.
 
  SURFWATCH CLIENT
 
     SurfWatch Client from Spyglass is an easy-to-use, effective software
application for screening unwanted material from the Internet. SurfWatch Client
from Spyglass features:
 
     - The ability to block access to a comprehensive list of sites pertaining
       to violence, hate crimes, drugs/alcohol, and sex,
 
     - A subscription service for updating the SurfWatch content list,
 
     - A filter manager for defining custom content filters,
 
     - A password protected on/off switch,
 
     - The ability to block objectionable Web, News, FTP, Gopher, and Chat
       content, and
 
     - Multiple platform availability.
 
  SURFWATCH PROSERVER
 
     SurfWatch ProServer, based on SurfWatch Client, is installed on a Proxy
Server and blocks unwanted sexually explicit and other inappropriate material on
computers connected to the network-without restricting the access rights of
other Internet users. The SurfWatch ProServer software removes no material from
the
 
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Internet or any server, but simply blocks it at any local network where it is
installed. SurfWatch ProServer screens the World Wide Web, FTP, Gopher and other
services. In addition to filters for sexually explicit material, SurfWatch
ProServer includes filter options for violence, hate crimes, drugs, alcohol,
games, and gambling. SurfWatch ProServer is available in the following editions:
Microsoft Proxy Server, Netscape Proxy Server, Oracle Proxy Server, NetApp Proxy
Server, FireWall-1 and Spyglass Prism.
 
     The following products were obtained upon Spyglass' acquisition of AllPen
Software in November, 1997.
 
  NETHOPPER BROWSER TECHNOLOGY
 
     The NetHopper browser technology is a portable browser technology geared
for small memory footprint devices. NetHopper allows users to browse the web
from any location at any time, even wirelessly. The NetHopper browser technology
can be found in many popular consumer electronics products currently on the
market today such as Apple Computer's eMate 300 mobile computer. The NetHopper
browser is written to be completely modular. In this way, the NetHopper browser
can be ported to a number of other platforms, including several single-purpose
devices.
 
  NETHOPPER ENTERPRISE SERVER
 
     The NetHopper Enterprise Server is a Java-based server geared for mobile
and/or wireless, non-traditional web clients accessing traditional web-based
Internet/Intranet content. As more and more web content is being targeted at
large, desktop bound, multimedia computers, the NetHopper Enterprise Server
helps bridge the gap between the growing amount of desktop web content to
smaller, more consumer oriented devices. Java provides the ability for the
NetHopper web server to be scaled for use in large, powerful server computers to
much smaller Java-based devices.
 
  EMBEDDEDWEB FOR WINDOWS CE
 
     Targeted at mobile, small memory footprint electronic devices, AllPen's
EmbeddedWeb for Windows CE, a technology of AllPen Software, which was acquired
by Spyglass in November 1997, provides a means for remote devices to share and
publish data via standard web protocols (HTTP, HTML, etc.) By incorporating a
lightweight Web server into products such as automobiles, mobile phones, alarm
systems, fax machines and televisions, these devices can be easily accessed
and/or controlled through the Internet from a standard Web browser.
 
  ALLPEN MOBILE FORMS DATABASE
 
     The AllPen Mobile Forms Database is a mobile database and forms data
collection application for the Windows CE operating system. AllPen Mobile Forms
Database allows users to create powerful handheld databases that fit their
mobile data collection needs. The database exists on handheld devices for easy
collection of important data while freeing users from their desktops. All the
data collected on the mobile device can be uploaded to the Windows 95 desktop
via the Database Export functionality of the AllPen Mobile Forms Database
product. Additionally, any database that one may have on their desktop can be
imported into the AllPen Mobile Forms Database product for display and
manipulation on the mobile CE device.
 
     The AllPen Mobile Forms Database works with all the latest Windows CE
devices including the Philips Velo, the HP 320LX, Casio's Cassiopeia, Compaq's
PC Companion, LG's Phenom, and NEC's MobilePro.
 
  MARKETING, SALES, AND DISTRIBUTION
 
     The Company distributes its technologies through a multi-channel
distribution network of original equipment manufacturers ("OEMs"), value-added
resellers ("VARs") and distributors that incorporate Internet technology into
their products and services. Spyglass has adopted this distribution model to
increase its presence in the marketplace, and to leverage the marketing,
distribution and development resources of its
 
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customers. Certain products, such as the SurfWatch products, are also sold
directly to end users via direct marketing.
 
     As it expands its technologies to serve the non-PC marketplace, the Company
is focusing its marketing efforts on a variety of companies, including but not
limited to real time operating system (RTOS) vendors, consumer and industrial
device manufacturers, software developers, cable companies, Regional Bell
Operating Companies (RBOC) and Internet Service Providers (ISP). Efforts include
direct marketing campaigns, advertising campaigns and targeting the engineering
and trade conferences and shows focused on these markets and industries. In
addition, the Company is targeting public relations efforts at analysts, the
trade press and other media relevant to the Internet device market.
 
     The Company's license arrangements with its customers typically provide for
a non-exclusive license to incorporate Spyglass technology into the customer's
products and services and distribute the Spyglass technology. These licenses
generally provide for royalties based on the number of copies distributed and
generally include significant minimum royalty commitments.
 
     As of December 10, 1997, the Company had 18 employees in marketing and 18
in sales. The Company currently operates sales offices located in Cambridge,
Massachusetts, San Ramon, California, Morristown, New Jersey, Marina del Rey,
California, Berkshire, United Kingdom and Tokyo, Japan.
 
  PROFESSIONAL SERVICES
 
     The Spyglass Professional Services organization provides custom solutions
and support for its' customers through its professional services and customer
services groups. These custom solutions are essential to Spyglass' overall
strategy.
 
     Professional Services
 
     The Professional Services group provides strategic consulting, custom
engineering, development, systems integration and project management services.
These services are provided on a project basis to assist customers in developing
unique products or services utilizing Spyglass technologies and other third
party technologies. This organization consists of senior consulting managers,
experienced engineering developers, senior technologists and architects,
technical writers and quality assurance specialists.
 
     Customer Services
 
     Most of the Company's customers enter into support agreements with the
Company for annual fees based upon on the number of products licensed, platforms
supported and copies distributed. These support agreements entitle the customer
to the backup technical support described below, product upgrades and
enhancements, and access to certain complementary technologies that are made
available by the Company for distribution without charge.
 
     The Company tracks all support requests through a series of customer
databases that maintain current status reports as well as historical logs of
customer interaction. The Company also assigns a support specialist to each of
its customers as a point of contact for resolving issues. These support
specialists diagnose and solve technical problems related not only to the
Company's products, but also to other software and technologies with which the
Company's products interact. In addition, support specialists provide the
customer with direct access to the Company's development engineers and report
customer and end-user feedback to the Company's development staff. Other types
of support provided to the customer include technical reports, documentation,
status reports for product upgrades and updates, and support during Beta test
and pre-release cycles.
 
     As of December 10, 1997, the Company employed 31 employees in its
Professional Services group.
 
PRODUCT DEVELOPMENT
 
     An important factor in the Company's ability to deliver state-of-the-art
solutions to its customers is the technology base the Company can leverage in
the creation of customized solutions for its customers. The
 
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Company has a suite of embedded Internet and infrastructure solutions that it
continues to develop in order to support the latest Internet technologies and
standards. These core technologies form the basis for most of the Company's
customer solutions.
 
     The Company's primary development efforts are focused on embedded Internet
technologies for HTML rendering and browsing and infrastructure technologies
that enhance the performance and functionality of non-PC devices connected to
the Internet.
 
     In order to respond to rapidly changing competitive and technological
conditions, the Company may seek to enhance or expand its product offerings by
licensing one or more complementary technologies or products or acquiring one or
more complementary companies.
 
     Because many of the significant technologies incorporated in the Spyglass
product suite are implementations of Internet standard protocols which are
constantly evolving, the Company actively participates in a number of Internet
standards-setting groups and technical conferences.
 
     As of December 10, 1997, the Company's research and development staff,
which is responsible for product development, quality assurance, technical
communication and product coordination, consisted of 59 full-time employees.
From time to time the Company employs independent contractors for software
development, documentation, artistic design and quality reviews. For the fiscal
years ended September 30, 1997, 1996 and 1995, research and development expenses
were $13,644,000, $6,801,000 and $2,756,000, respectively, which represented
64%, 30% and 23% of revenues, respectively.
 
  COMPETITION
 
     The market for Internet software is extremely competitive. Moreover,
because the Internet is an open system designed to be freely available to
computer users worldwide, and because of the increasing popularity of the
Internet, the Company expects that it will encounter increased competition in
the future. In developing and licensing its technologies, products and services,
the Company competes with other Internet device technology and software vendors,
on-line service companies, Internet access providers and networking software
companies that have developed their own WWW browsers or server products. In
addition, the Company considers a significant source of competition to be the
prospective customer's internal software development resources.
 
     Spyglass MicroServer competes with other thin, embeddable Web server
technologies, including those provided by 3Soft, Agranat, emWare, Integrated
Systems, Inc. and Wind River Systems. The embedded server market is
characterized by an abundance of small competitors and two RTOS developers. Many
of the smaller competitors are offering their products at extremely competitive
prices in an attempt to establish a market position. The RTOS developers have
the advantage of being able to offer embedded Web server functionality along
with their operating systems. The barriers to entry for the embedded Web server
market are very low, as the amount of software required for a server is very
small.
 
     Spyglass Device Mosaic also competes with several companies who are
providing lightweight Web browsers for the emerging Internet device marketplace.
Spyglass competes with a number of small start-up companies in specific vertical
markets. Spyglass also competes with Microsoft's Pocket Internet Explorer
offering on WindowsCE, Network Computer, Inc. (an Oracle subsidiary) and
JavaSoft, which is attempting to adapt the Java environment to embedded devices.
All of these companies are licensing their Web browser and other solutions to
OEMs.
 
     At this time, the Company believes there are no other content conversion
servers that are being offered to the OEM market that directly compete with
Spyglass Prism.
 
     The Company also faces competition for its SurfWatch Client product from
other companies who have filtering products, such as Cyber Patrol.
 
     In its professional services offerings, Spyglass competes with other
technology consulting firms as well as other technology competitors and
customers' in-house research and development staff.
 
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     Competition among the current and future suppliers of Internet software
could result in significant price competition and reductions in the selling
price of the Company's products. Moreover, many of the Company's current and
potential competitors have significantly greater financial, technical, marketing
and other resources than the Company. There can be no assurance that the Company
will be able to compete successfully against current and future sources of
competition or that the competitive pressures faced by the Company will not
adversely affect the Company's revenues or gross margins.
 
  PROPRIETARY RIGHTS
 
     One of the Company's products, Spyglass Device Mosaic, is based in part on
technology licensed to the Company under an agreement with the University of
Illinois at Urbana-Champaign. This agreement grants the Company the exclusive
(subject to previously granted licenses described below) worldwide right to
develop, distribute and sublicense commercial derivative versions of NCSA
Mosaic, the Web browser that was originally developed at the National Center for
Supercomputing Applications on the University of Illinois campus. The University
Agreement provides for royalties based on Spyglass' net revenues from Device
Mosaic. This University Agreement has an initial term of five years, with
automatic one-year renewals, and is terminable in the event of a material breach
by the Company of its obligations thereunder.
 
     The University informed the Company that, prior to appointing the Company
as its exclusive licensing agent, the University granted certain rights with
respect to NCSA Mosaic and the Mosaic trademark to approximately 10
organizations, some of which have developed and market WWW browsers based on
NCSA Mosaic.
 
     The University Agreement gives the Company the exclusive right (with
certain limited exceptions) to use the University's trademarks "Mosaic" and
"NCSA Mosaic" and its spinning globe logo in connection with Spyglass Mosaic
products on a royalty-free basis (with certain limited exceptions). In addition,
the Company has the exclusive right (with certain limited exceptions) to use
these marks in connection with the sale of other products for a royalty payment
based on net revenues derived from such products. The University has filed an
application to register the "NCSA Mosaic" and "Mosaic" trademarks and the
spinning globe logo in the United States.
 
     Spyglass has registered the name "Spyglass", the red "S" logo and the tag
line "Make The Net Work" in the United States. In addition, the Company has
filed applications to register the name "Spyglass" in various foreign
jurisdictions. Spyglass has also registered the name "SurfWatch" in the United
States.
 
     AllPen Software, Inc. has registered the following trademarks in the United
States: "AllPen", "Nethopper" and "The World in the Palm of your Hand". AllPen
Software, Inc. also has filed applications to register the name "Nethopper" in
Canada and France and "EmbeddedWeb" in the United States.
 
     The Company relies upon copyright law, trade secret protection and
confidentiality and/or license agreements with its employees, customers and
others to protect its proprietary technology. Effective trademark, copyright and
trade secret protection may not be available in every foreign country in which
the Company's products are distributed. The University has no patent protection
for NCSA Mosaic, and the Company has filed only one patent application to date
to protect its products. There can be no assurance that the steps taken by the
Company (or the University) to protect their respective proprietary technologies
will be adequate to prevent misappropriation of their technology by third
parties, or that third parties will not be able to independently develop similar
technology. In addition, there can be no assurance that other parties will not
assert technology infringement claims against the Company.
 
     The Company licenses technology from a number of third party product
vendors for incorporation into the Company's products. Examples of such licensed
technologies include security products, image conversion products and databases.
Specifically, the Company announced on September 13, 1995 an agreement with RSA
Data Security, Inc. ("RSA") allowing the Company to bundle RSA-security products
with its technology offerings. The agreement allows Spyglass to use RSA's BSAFE
and TIPEM software developer's kits to build security into Spyglass' technology
offerings. BSAFE is a well-known cryptographer's tool kit,
 
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providing the means to add multiple algorithms and modules for encryption and
authentication features to any application.
 
     On November 3, 1995, the Company entered into an agreement with the Java
Products Group of Sun Microsystems, Inc. to license the JAVA programming
language, the HOT JAVA browser and related technology. Under the agreement, the
Company is granted the right to distribute the JAVA Runtime interpreter, the HOT
JAVA browser and certain JAVA classes and interfaces developed by both Sun and
the Company. The Company also has the right to port so-called "platform
dependent parts" to other platforms.
 
  EMPLOYEES
 
     As of December 10, 1997, Spyglass employed 162 persons, including 36 in
sales and marketing, 59 in research and development, 5 in customer services, 31
in professional services and 31 in finance and administrative functions. None of
the Company's employees are represented by a labor union and Spyglass considers
its employee relations to be good.
 
ITEM 2. PROPERTIES
 
     The Company's executive offices are located in Naperville, Illinois (27,841
square feet) and are occupied under a lease that expires in December 1999. The
Company also leases research and development facilities Cambridge,
Massachusetts, Los Gatos, California and Los Altos, California. The Company
leases sales offices in San Ramon, California, Morristown, New Jersey, Marina
del Rey, California, Berkshire, United Kingdom and Tokyo, Japan.
 
ITEM 3. LEGAL PROCEEDINGS
 
     Unisys Corporation ("Unisys") has announced its intention to require the
payment of royalties for the use of compression technology associated with the
Graphics Interchange Format ("GIF"), a popular file format based on compression
technology patented by Unisys. Spyglass Device Mosaic has the ability to
decompress files, including files stored in GIF. The assertion of these patent
rights by Unisys, if successful, could result in additional royalty costs to the
Company or prevent the Company's products from enabling users to view files
compressed in GIF.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     No matters were submitted to a vote of the Company's security holders
during the quarter ended September 30, 1997.
 
EXECUTIVE OFFICERS OF THE REGISTRANT
 
<TABLE>
<CAPTION>
NAME                                            AGE                POSITION(S) WITH THE COMPANY
----                                            ---                ----------------------------
<S>                                              <C>       <C>
Douglas P. Colbeth........................       42        President, Chief Executive Officer and
                                                           Director
Randall T. Littleson......................       32        Vice President, Marketing
Michael F. Tyrrell........................       38        Executive Vice President, Business Development
Gary L. Vilchick..........................       43        Executive Vice President, Finance,
                                                           Administration and Operations and Chief
                                                           Financial Officer
Timothy M.P. Seamans......................       38        Vice President and General Manager,
                                                           Professional Services and Chief Information
                                                           Officer
Richard M. Houle..........................       42        Executive Vice President, Development and
                                                           Services
Michael Sears.............................       40        Vice President and General Manager, SurfWatch
                                                           Software Division
</TABLE>
 
     Mr. Colbeth has been President, Chief Executive Officer and a director of
the Company since he joined the Company in April 1991. Prior to joining the
Company, Mr. Colbeth spent four years at Stellar/Stardent
 
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Computer Corp., a high-end graphics workstation supplier, in various management
positions, most recently as Vice President/General Manager of its AVS software
business unit. From January 1979 until March 1987, Mr. Colbeth was employed in
various sales and management positions at Prime Computer, Inc., a minicomputer
vendor. Mr. Colbeth received his B.S. degree in economics from Siena College in
1977 and has completed graduate studies in managerial economics at Rensselaer
Polytechnic Institute.
 
     Mr. Littleson joined the Company as Director, Product Marketing in June
1996 and was promoted to Vice President, Marketing in October 1996. Prior to
joining the Company, Mr. Littleson was employed by Seagate Software (formerly
Palindrome Corp.), a computer technology company, since 1990, most recently as
Director, Product Marketing. Mr. Littleson received his B.S. degree from the
University of Michigan in 1987 and his M.B.A. from Keller Graduate School of
Management in 1994.
 
     Mr. Tyrrell joined the Company in June 1990 as Vice President, Sales. Mr.
Tyrrell has served as Executive Vice President, Business Development since
November 1995. Prior to joining the Company, Mr. Tyrrell spent three years as a
regional sales manager for Multiflow Computer, Inc., a supercomputer company.
Mr. Tyrrell's prior experience includes five years of sales and sales management
at Celerity Computing and Prime Computer, Inc. Mr. Tyrrell received his B.S.
degree in business administration from the University of New Hampshire.
 
     Mr. Vilchick joined the Company in December 1995 as Executive Vice
President, Finance, Administration and Operations and Chief Financial Officer.
Prior to joining the Company, Mr. Vilchick was the Vice President of Finance for
Pitney Bowes Logistics Systems for three years, and Controller for Pitney Bowes
Management Services for four years prior to that. Mr. Vilchick received his B.S.
degree in accounting from the University of Rhode Island. Mr. Vilchick is a
Certified Public Accountant.
 
     Mr. Seamans joined the Company in July 1996 as Chief Information Officer
and was promoted to Vice President and General Manager, Professional Services in
addition to Chief Information Officer in May 1997. Prior to joining the Company,
Mr. Seamans was Vice President, Product Development and Technology for Pitney
Bowes from 1993 to 1996, Director, Large Accounts for J.D. Edwards in 1992 and
System Development Manger for Pitney Bowes for six years. Mr. Seamans received
his B.S. degree in Business Administration from Bryant College in 1992 with a
major in computer science.
 
     Mr. Houle joined the Company in November 1996 as Executive Vice President,
Development and Services. Prior to joining the Company, Mr. Houle was employed
as the Executive Vice President, Operations for Trimark Technology, Inc. from
September 1995 through October 1996. Prior to Trimark, Mr. Houle was employed
with Sun Microsystems, Inc. from 1988 through 1995, most recently as Systems
Engineering Director.
 
     Mr. Sears joined the Company in June 1997 as Vice President and General
Manager of its SurfWatch Software Division. Prior to joining the Company, Mr.
Sears was principal of The Reticle Group, a Silicon Valley-based management
consulting firm providing business and development counsel for technology
companies, from 1996 through June 1997. Prior to that, he spent six years at Sun
Microsystems, Inc., most recently serving as chief of staff for SunSoft, Sun's
software division. Mr. Sears received a master's degree in business
administration from the Stanford Graduate School of Business and a juris
doctorate degree from Stanford Law School. Mr. Sears graduated from the United
States Naval Academy, and served for five years with the United States Marine
Corps, where he rose to the rank of Captain.
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
     The information required by this Item is incorporated herein by reference
from the sections entitled "Selected Quarterly Data" and "Shares Listed" in the
Company's Annual Report to stockholders for the fiscal year ended September 30,
1997 (the "Annual Report").
 
                                        9
<PAGE>   11
 
ITEM 6. SELECTED FINANCIAL DATA
 
     The information required by this Item is incorporated herein by reference
from the section entitled "Selected Financial Data" in the Annual Report.
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
     The information required by this Item is incorporated herein by reference
from the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Annual Report.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 
     The information required by this Item is not applicable.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
     The information required by this Item is incorporated herein be reference
from the financial statements contained in the Annual Report.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
 
     The Company changed its independent accountants in July 1997 as reported in
its Current Report on Form 8-K dated July 15, 1997.
 
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     The information required by this Item concerning directors of the Company
is incorporated herein by reference from the section entitled "Election of
Directors" included in the Company's definitive Proxy Statement for the Annual
Meeting of Stockholders for the fiscal year ended September 30, 1997, which will
be filed with the Securities and Exchange commission within 120 days of the
Company's fiscal year end (the "1997 Proxy Statement"). The information required
by this Item concerning executive officers of the Company is included in Part I
of this Annual Report on Form 10-K under the section captioned "Executive
Officers of the Registrant". The information required by this Item concerning
compliance with Section 16(a) of the Securities Exchange Act of 1934, as
amended, is incorporated herein by reference from the section entitled "Section
16(a) Beneficial Ownership Reporting Compliance" included in the 1997 Proxy
Statement.
 
ITEM 11. EXECUTIVE COMPENSATION
 
     The information required by this Item is incorporated herein by reference
from the sections entitled "Compensation Committee Interlocks and Insider
Participation", "Compensation of Directors", "Executive Compensation" and
"Employment Agreements" included in the 1997 Proxy Statement.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     The information required by this Item is incorporated herein by reference
from the section entitled "Beneficial Ownership of Voting Stock" included in the
1997 Proxy Statement.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     The information required by this Item is not applicable.
 
                                       10
<PAGE>   12
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
     (a) The following financial information is incorporated by reference into
Part II hereof from the Annual Report
 
     1.Financial Statements:
 
       Report of Independent Auditors
 
       Consolidated Balance Sheets at September 30, 1997 and 1996
 
       Consolidated Statements of Operations for the three years ended September
       30, 1997
 
       Consolidated Statements of Changes in Redeemable Convertible Preferred
       Stock and Stockholders' Equity for the three years ended September 30,
       1997
 
       Consolidated Statements of Cash Flows for the three years ended September
       30, 1997
 
       Notes to the Consolidated Financial Statements
 
     2.Financial Statement Schedules:
 
       Report of Independent Auditors on Financial Statement Schedule
 
       Schedule VIII -- Valuation and Qualifying Accounts
 
       All other schedules have been omitted because they are not applicable,
       not required, or the information required is included in the financial
       statements or notes thereto.
 
     3.Exhibits:
 
       The exhibits are listed in the accompanying Index to Exhibits immediately
       following the signature page.
 
     (b) Reports on Form 8-K
 
         Current Reports on Form 8-K were filed dated July 15, 1997 to report a
         change in the Company's independent accountants and dated November 21,
         1997 to report the acquisition of AllPen Software.
 
                                       11
<PAGE>   13
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) 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.
 
                                          Spyglass, Inc.
                                          --------------------------------------
                                          Registrant

Date: December 18, 1997                          /s/ GARY L. VILCHICK
                                           -------------------------------------
                                                     Gary L. Vilchick
                                            Executive Vice President, Finance,
                                            Administration and Operations and
                                                 Chief Financial Officer
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below as of December 18, 1997 by the following persons on
behalf of the registrant and in the capacities indicated.
 
<TABLE>
<CAPTION>
                      SIGNATURE
                      ---------
<C>                                                         <S>
 
               /s/ DOUGLAS P. COLBETH                       President, Chief Executive Officer and
-----------------------------------------------------         Director (Principal Executive Officer)
                 Douglas P. Colbeth
 
                /s/ GARY L. VILCHICK                        Executive Vice President, Finance,
-----------------------------------------------------         Administration and Operations and Chief
                  Gary L. Vilchick                            Financial Officer (Principal Financial and
                                                              Accounting Officer)
 
                  /s/ TIM KRAUSKOPF                         Director
-----------------------------------------------------
                    Tim Krauskopf
 
                /s/ BRIAN J. JACKMAN                        Director
-----------------------------------------------------
                  Brian J. Jackman
 
                  /s/ RAY ROTHROCK                          Director
-----------------------------------------------------
                    Ray Rothrock
 
              /s/ STEVEN R. VANA-PAXHIA                     Director
-----------------------------------------------------
                Steven R. Vana-Paxhia
</TABLE>
 
                                       12
<PAGE>   14
 
                         REPORT OF INDEPENDENT AUDITORS
                        ON FINANCIAL STATEMENT SCHEDULE
 
To the Board of Directors and Stockholders of Spyglass, Inc.
 
     We have audited the consolidated financial statements of Spyglass, Inc. and
subsidiaries as of September 30, 1997, and for the year then ended, and have
issued our report thereon dated October 24, 1997. Our audit also included the
financial statement schedule listed in the Index at Item 14(a). This schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion based on our audit. The consolidated financial statements and
financial statement schedule of Spyglass, Inc. and subsidiaries as of September
30, 1996 and for the years ended September 30, 1996 and 1995 were audited by
other auditors whose report dated October 25, 1996 expressed an unqualified
opinion on those statements and schedule.
 
     In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
 
                                          /s/ ERNST & YOUNG LLP
                                           -------------------------------------
                                          Ernst & Young LLP
 
Chicago, Illinois
October 24, 1997
 
                                       13
<PAGE>   15
 
                                 SPYGLASS, INC.
                                  SCHEDULE II
 
                       VALUATION AND QUALIFYING ACCOUNTS
 
<TABLE>
<CAPTION>
                                            BALANCE AT    CHARGED TO    CHARGED                   BALANCE AT
                                            BEGINNING     COSTS AND     TO OTHER       (1)          END OF
              DESCRIPTION                   OF PERIOD      EXPENSES     ACCOUNTS    DEDUCTIONS      PERIOD
              -----------                   ----------    ----------    --------    ----------    ----------
<S>                                         <C>           <C>           <C>         <C>           <C>
SEPTEMBER 30, 1997
  Allowance for doubtful accounts.......    $  470,000    1,029,051        --       1,149,051     $  350,000
SEPTEMBER 30, 1996
  Allowance for doubtful accounts.......    $  180,209      301,034        --          11,243     $  470,000
SEPTEMBER 30, 1995
  Allowance for doubtful accounts.......    $    2,300      184,070        --           6,161     $  180,209
 
SEPTEMBER 30, 1997
  Valuation allowance for income
  taxes.................................    $1,477,000    3,093,000        --              --     $4,570,000
SEPTEMBER 30, 1996
  Valuation allowance for income
  taxes.................................    $        0    1,477,000        --              --     $1,477,000
SEPTEMBER 30, 1995
  Valuation allowance for income
  taxes.................................    $        0           --        --              --     $        0
</TABLE>
 
-------------------------
(1) Bad debt write-offs
 
                                       14
<PAGE>   16
 
                               INDEX TO EXHIBITS
 
<TABLE>
<CAPTION>
EXHIBIT NO.                           DESCRIPTION
-----------                           -----------
<C>           <S>
    3.1 (1)   Amended and Restated Certificate of Incorporation of the
              Registrant, as amended
    3.2 (2)   By-laws of the Registrant
    4.1 (2)   Specimen certificate for shares of Common Stock
   10.1 (2)   1991 Stock Option Plan
   10.2 (4)   1995 Stock Incentive Plan, as amended
   10.3 (2)   1995 Director Stock Option Plan
   10.4 (2)   Employment and Confidentiality Agreement between the
              Registrant and Douglas P. Colbeth dated April 1, 1991
   10.5 (2)   Employment and Confidentiality Agreement between the
              Registrant and Michael F. Tyrrell dated April 29, 1991
   10.6 (7)   Senior Management Retention Agreement between the Registrant
              and Doug Colbeth, dated November 1, 1996
   10.7 (7)   Senior Management Retention Agreement between the Registrant
              and Tim Krauskopf, dated November 1, 1996
   10.8 (7)   Senior Management Retention Agreement between the Registrant
              and Michael Tyrrell, dated November 1, 1996
   10.9 (7)   Senior Management Retention Agreement between the Registrant
              and Gary Vilchick, dated November 1, 1996
   10.10(7)   Senior Management Retention Agreement between the Registrant
              and Randall T. Littleson, dated November 1, 1996
   10.11(7)   Senior Management Retention Agreement between the Registrant
              and Richard Houle, dated November 1, 1996
   10.12      Senior Management Retention Agreement between the Registrant
              and Michael Sears, dated June 2, 1997
   10.13      Senior Management Retention Agreement between the Registrant
              and Timothy Seamans, dated November 1, 1996
   10.14(3)   Standard form of Employment and Confidentiality Agreement
   10.15(2)   NCSA Mosaic Software License Agreement between the
              Registrant and the Board of Trustees for the University of
              Illinois dated May 10, 1994, as amended by amendment No. 1
              dated May 10, 1994, amendment No. 2 dated August 4, 1994 and
              amendment No. 3 dated March 21, 1995(5)
   10.16(3)   Amendment No. 4 to NCSA Mosaic Software License Agreement
              between the Registrant and the Board of Trustees for the
              University of Illinois, dated June 28, 1995(5)
   10.17(2)   OEM/Source License Agreement, dated December 12, 1994,
              between the Registrant and Microsoft Corporation.
   10.18(4)   Amendment No. 1 to the OEM/Source License Agreement between
              the Registrant and Microsoft Corporation, dated September
              26, 1995(5)
   10.19(4)   Technology Cooperation Agreement, Including Amendment of
              OEM/Source License Agreement between the Registrant and
              Microsoft Corporation dated December 6, 1995(5)
   10.20(7)   Amendment No. 1, dated September 30, 1996, to the Technology
              Cooperation Agreement, Including Amendment of OEM/Source
              License Agreement between the Registrant and Microsoft
              Corporation, dated December 6, 1995(5)
</TABLE>
 
                                       15
<PAGE>   17
 
<TABLE>
<C>            <S>
      10.21(8) Amendment No. 2 to the Technology Cooperation Agreement, Including Amendment of OEM/Source License
               Agreement between the Registrant and Microsoft Corporation, dated January 21, 1997.
      10.22(3) RSA Data Security, Inc.-BSAFE/TIPEM OEM Master License Agreement dated August 8, 1995(5)
      10.23(6) Sub-Lease Agreement between Rust Environment & Infrastructure, Inc. and the Registrant dated February
               6, 1996
      10.24    Office Lease Agreement between American National Bank and Trust Company of Chicago Trust No. 43194
               and the Registrant dated May 28, 1997
      10.25(6) Standard Form of Invention and Non-Disclosure Agreement
      10.26(6) Standard Form of Non-Disclosure Agreement
      11.1     Statement Regarding Computation of Earnings per Share
      13.1     Portions of the Annual Report to Shareholders for the fiscal year ended September 30, 1997 (only
               those portions specifically incorporated by reference herein are filed herewith).
      21       Subsidiaries of the Registrant
      23.1     Consent of Ernst & Young LLP
      23.2     Consent of Independent Accountants
      27       Financial Data Schedule
</TABLE>
 
-------------------------
(1) Incorporated herein by reference from the Company's Registration Statement
    on Form S-8 (File No. 333-04357) filed on May 23, 1996.
 
(2) Incorporated herein by reference from the Company's Registration Statement
    on Form S-1 (File No. 33-92174).
 
(3) Incorporated herein by reference from the Company's Annual Report on Form
    10-K for the fiscal year ended September 30, 1995, as amended by an Annual
    Report on Form 10-K/A filed on May 17, 1996.
 
(4) Incorporated herein by reference from the Company's Quarterly Report on Form
    10-Q for the quarter ended December 31, 1995, as amended by a Quarterly
    Report on Form 10-Q/A filed on May 17, 1996.
 
(5) Confidential treatment previously granted by the Securities and Exchange
    Commission as to certain portions.
 
(6) Incorporated herein by reference from the Company's Quarterly Report on Form
    10-Q for the quarter ended March 31, 1996.
 
(7) Incorporated herein by reference from the Company's Annual Report on Form
    10-K for the fiscal year ended September 30, 1996.
 
(8) Incorporated herein by reference from the Company's Quarterly Report on Form
    10-Q for the quarter ended December 31, 1996.
 
                                       16