<PAGE>   1
                       SECURITIES AND EXCHANGECOMMISSION
                              WASHINGTON, DC 20549


                                   FORM 10-Q


          (Mark One)

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

               For the quarterly period ended SEPTEMBER 30, 1999

                                       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 0-24544


                             CYBERGUARD CORPORATION
-------------------------------------------------------------------------------
             (Exact name of Registrant as Specified in Its Charter)

           FLORIDA                                    65-0510339
-------------------------------------------------------------------------------
(State or Other Jurisdiction of                   (I.R.S. Employer
 Incorporation or Organization)                  Identification No.)

2000 WEST COMMERCIAL BLVD., SUITE 200, FORT LAUDERDALE, FLORIDA           33309
-------------------------------------------------------------------------------
(Address of Principle Executive Offices)                             (Zip Code)

Registrant's Telephone Number, Including Area Code        954-958-3900

-------------------------------------------------------------------------------
              Former Name, Former Address and Former Fiscal Year,
                          if Changed Since Last Report

     Indicate by check [X] whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports),

Yes [X]   No [ ]

and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]   No [ ]

          As of November 10, 1999, 9,134,235 shares of the Registrant's $0.01
par value Common Stock were outstanding.

<PAGE>   2



CYBERGUARD CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)

PART 1: FINANCIAL INFORMATION

Item 1. Financial Statements

                             CYBERGUARD CORPORATION
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)
             (Dollars in thousands except share and per share data)

<TABLE>
<CAPTION>

                                                                Three Months Ended
                                                              ------------------------
                                                              Sept. 30,      Sept. 30,
                                                                1999            1998
                                                              ---------      ---------
<S>                                                            <C>            <C>
Revenues:
Products                                                       $3,263         $ 1,513
Services                                                        1,068             494
                                                           ----------      ----------
  Total revenues                                                4,331           2,007

Cost of revenues:
Products                                                          532             856
Services                                                          695             311
                                                           ----------      ----------
  Total cost of revenues                                        1,227           1,167
                                                           ----------      ----------
Gross profit                                                    3,104             840
                                                           ----------      ----------

Operating expenses:
Research and development                                          883             896
Selling, general and administrative                             2,451           3,701
                                                           ----------      ----------
  Total operating expenses                                      3,334           4,597

Operating loss                                                   (230)         (3,757)
                                                           ----------      ----------
Other income (expense)
Interest expense, net                                            (344)            (45)
Gain on sale of assets                                             14           1,820
Other income (expense)                                            (24)             67
                                                           ----------      ----------
  Total other income (expense)                                   (354)          1,842

Net loss                                                       $ (584)        $(1,915)
                                                           ==========      ==========
Basic and fully-diluted loss per common share                  $(0.06)        $ (0.21)
                                                           ==========      ==========
Weighted average number of common shares outstanding        9,088,680       8,909,315
                                                           ==========      ==========

</TABLE>



     See accompanying notes to condensed consolidated financial statements




                                       2
<PAGE>   3


                             CYBERGUARD CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                  (Unaudited)
                             (Dollars in thousands)

<TABLE>
<CAPTION>

                                                                     Sept. 30,      June 30,
                                                                       1999           1999
                                                                     ---------      --------
<S>                                                                   <C>           <C>
ASSETS
Cash and cash equivalents                                             $  2,223      $ 2,622
Restricted cash                                                            908          908
Accounts receivable, less allowance for uncollectible accounts
 of $285 at Sept. 30, 1999 and $407 at June 30, 1999                     2,906        2,021
Inventories, net                                                           158          210
Capitalized software, net                                                  247          185
Other current assets                                                       985          482
                                                                      --------     --------
 Total current assets                                                    7,427        6,428

Property and equipment at cost, less accumulated
 depreciation of $803 at Sept. 30, 1999 and
 $922 at June 30, 1999                                                   1,084        1,154
Non-compete agreements, net                                                490          560
Other assets                                                               145          135
                                                                      --------     --------
     Total assets                                                     $  9,146     $  8,277
                                                                      ========     ========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Line of credit and note payable                                          1,404        2,054
Accounts payable                                                         1,239        2,766
Deferred revenue                                                         2,546        2,047
Accrued expenses and other liabilities                                   2,127        3,210
                                                                      --------     --------
 Total current liabilities                                               7,316       10,077
Note Payable                                                               650           --
Convertible debenture, net                                               3,314          885
                                                                      --------     --------
 Total liabilities                                                      11,280       10,962
                                                                      --------     --------
Shareholders' deficit
Common stock par value $0.01 authorized 20,000,000 shares
 issued and outstanding 9,123,771 at Sept. 30, 1999
 and 9,064,756 at June 30, 1999                                             91           91
Additional paid-in capital                                              74,816       73,677
Accumulated deficit                                                    (77,058)     (76,475)
Accumulated other comprehensive income                                      17           22
                                                                      --------     --------
 Total shareholders' deficit                                            (2,134)      (2,685)
                                                                      --------     --------
     Total liabilities and shareholders' deficit                      $  9,146      $ 8,277
                                                                      ========     ========
</TABLE>


     See accompanying notes to condensed consolidated financial statements





                                       3
<PAGE>   4

                             CYBERGUARD CORPORATION
                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
                                  (Unaudited)
                             (Dollars in thousands)

<TABLE>
<CAPTION>


                                                                         Three Months Ended
                                                                       ------------------------
                                                                       Sept. 30,     Sept. 30,
                                                                         1999          1998
                                                                       ---------      ---------
<S>                                                                     <C>          <C>
Cash flows from operating activities
Net loss                                                                $  (584)     $(1,915)
Adjustment to reconcile net loss to net cash
  used by operating activities:
Depreciation                                                                104          217
Amortization                                                                102           76
Interest on retirement of convertible debt                                  240
Interest on new convertible debt                                             31
Compensation and benefits                                                    --           59
Provision for uncollectible accounts receivable                            (122)         243
Provision for inventory reserve                                              --           10
Gain on sale of business assets                                              --       (1,820)

Changes in assets and liabilities
Accounts receivable                                                        (763)         692
Other current assets                                                       (503)        (273)
Inventories                                                                  52          209
Accounts payable                                                         (1,527)          19
Accrued expenses and other liabilities                                     (802)         (37)
Deferred revenue                                                          1,149          865
Other, net                                                                   21          (24)
                                                                        -------      -------
  Net cash used by operating activities                                  (2,602)      (1,679)
                                                                        -------      -------

Cash flows provided by (used in) investing activities
Capitalized software costs                                                  (90)          --
Additions/deletions to PPE                                                  (34)         (58)
Proceeds from receivable on Arca sale                                        --          500
                                                                        -------      -------
  Net cash provided (used) by investing activities                         (124)         442
                                                                        -------      -------

Cash flows provided by (used in) financing activities
Proceeds from sale of business assets                                        --        1,820
Issuance of new convertible debt                                          4,313           --
Retirement of existing convertible debt                                  (1,125)          --
Notes Payable                                                              (334)          --
Repayments on revolving line of credit                                     (597)        (831)
Proceeds from sale of common stock                                           70           --
                                                                        -------      -------
  Net cash provided from financing activities                             2,327          989
                                                                        -------      -------

Net increase (decrease) in cash                                            (399)        (248)
Cash and cash equivalents at beginning of period                          2,622        1,773
                                                                        -------      -------
Cash and cash equivalents at end of period                              $ 2,223      $ 1,525
                                                                        =======      =======
Supplemental disclosure of cash flow information
Cash paid for interest                                                      400           62
                                                                        =======      =======
Cash paid for income taxes                                                   --           --
                                                                        =======      =======
Non-cash financing activities
Beneficial conversion feature on new convertible debt                     1,038           --
                                                                        =======      =======

</TABLE>





                                       4
<PAGE>   5

CYBERGUARD CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)


1. BASIS OF PRESENTATION

The Company has prepared the consolidated financial statements included herein,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission with respect to Form 10-Q. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures made are adequate so as to make the information contained not
misleading. These interim financial statements and the notes should be read in
conjunction with the financial statements and the notes included in the
Company's 10-K for the year ended June 30, 1999. In the Company's opinion, all
adjustments (consisting only of normal recurring adjustments) necessary for
fair presentation of the information shown have been included. Generally
accepted accounting standards also requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses, and disclose contingent assets and liabilities at the date of the
financial statements. Significant estimates include those made for software
development costs, reserve for inventories, the allowance for uncollectible
accounts, and contingencies. Actual results could differ from those estimates.

The results of operations for the three months ended September 30, 1999
presented are not necessarily indicative of the results of operations that may
be expected for the year ending June 30, 2000.

Basic loss per share is calculated by dividing net loss by the weighted average
number of common shares outstanding during the year. Diluted per share data
includes the dilutive effect s of options, warrants and convertible securities.
Since the effects of the outstanding options, warrants and convertible
securities are anti-dilutive, they are not included in the calculation of
diluted loss per share.

The Company's operating results and financial condition may be impacted by a
number of factors including, but not limited to the following, any of which
could cause actual results to vary materially from current and historical
results or the Company's anticipated future results. A portion of the Company's
revenue is derived from its international operations and sources. As a result,
the Company's operations and financial results have been affected by
international factors such as changes in foreign currency exchange rates or
weak economic conditions in the international markets in which the Company
distributes its products. The network security industry is highly competitive
and competition is expected to intensify. There are numerous companies
competing in segments of the market in which the Company does business.
Competitors include organizations significantly larger and with more
development, marketing and financial resources than the Company. In addition,
the Company is subject to risks and uncertainties which include, but are not
limited to, the timely development of and acceptance of new products, impact of
competitive products, regulation, inventory obsolescence, the ultimate outcome
of certain litigation matters, and cash balances in excess of federally insured
limits.


2. LITIGATION

In August 1998, the Company and certain current and former officers and
directors were named as defendants in 25 shareholder lawsuits filed in the
United States District Court for the Southern District of Florida. All of the
lawsuits purport to be brought on behalf of a class of all persons who
purchased or otherwise acquired the Company's common stock during various
periods from October 7, 1997, through August 24, 1998. The lawsuits allege,
among other things, that as a result of accounting issues relating to the
Company's revenue recognition practices, defendants knowingly or recklessly
caused the Company to publish false and misleading financial statements which




                                       5
<PAGE>   6

CYBERGUARD CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)


caused the Company's common stock prices to rise artificially. One lawsuit also
alleges violations of common law. The plaintiffs are seeking an unspecified
amount of damages, interest, costs and attorney fees. These cases have been
transferred and consolidated into a single case for purposes of all pre-trial
matters and trial (the "Shareholder Litigation"). An amended consolidated
complaint was filed on August 23, 1999, after the filing of the Company's
restated financial results. On October 30, 1999, the Company filed a Motion to
Dismiss Plaintiffs' Amended Class Action Complaint.

The Company's obligation to indemnify its officers and directors under the
aforementioned lawsuits is insured to the extent of the limits of the
applicable insurance policies. The Company has notified its insurance carrier
of the existence of the lawsuits, and the carrier has sent the Company a
reservation of rights letter. The Company intends to vigorously defend these
actions, and believes that in the event that it is unsuccessful, insurance
coverage will be available to defray a portion, or substantially all, of the
expense of defending and settling the lawsuits or paying a judgment. However,
the Company is unable to predict the ultimate outcome of the litigation. There
can be no assurance that the Company will be successful in defending the
lawsuits or if unsuccessful, insurance will be available to pay all or any
portion of the expense of the lawsuits. If the Company is unsuccessful in
defending the lawsuits and the insurance coverage is unavailable or
insufficient, the resolution of the lawsuits could have a material adverse
effect on the Company's consolidated financial position, results of operations,
and cash flows. The Company's consolidated financial statements do not include
any adjustments related to these matters.

On April 30, 1999, the Company sold substantially all of the assets of its
TradeWave division to Digital Signature Trust Company ("DST"). In June 1999,
CyberGuard filed a lawsuit against DST and Zions First National Bank, N.A. that
alleged breach of contract, tortious interference and fraud. Also in June 1999,
DST filed a lawsuit against the Company alleging fraud, negligent
misrepresentation, and unjust enrichment, with unspecified damages, and
rescission and reformation of contract. The Company and DST agreed to settle
both actions on October 29, 1999.

On September 16, 1999, the Company filed a lawsuit against KPMG Peat Marwick
LLP ("KPMG") and August A. Smith, the KPMG engagement partner, Case No.
99-21700CA05, in the Circuit Court of the 11th Judicial Circuit in and for
Miami-Dade County. The Company alleges KPMG failed to properly audit the
Company's financial statements and provided inaccurate advice on accounting
matters for fiscal years 1997 and 1998 and on accounting treatment of certain
matters at the end of fiscal year 1996. The action alleges professional
malpractice, breach of fiduciary duty, breach of contract and trade libel and
seeks damages in excess of $10 million.

The Company is involved from time to time in other litigation on various
matters relating to the conduct of its business. The Company believes that
these other litigation matters, single or collective, will not have a material
adverse effect on its consolidated financial position, results of operations or
cash flows.

3. RELATED PARTY TRANSACTIONS

On August 26, 1999, certain directors, officers and employees invested in the
Company's convertible debenture offering, contributing a total of $614,000. The
interest rate on the convertible debt is 11.5% per annum. The debt can be
converted into approximately 614,000 shares of common stock at a conversion
price equal to $1.00 per share. In addition, the Company issued approximately
614,000 warrants to purchase the Company's common stock at $2.00 per share. The
warrants are exercisable any time before August 2004. The terms of the debt
agreement permit the conversion of the debt to common stock at a discount to
market. This discount is considered a beneficial conversion feature and, at the
date of




                                       6
<PAGE>   7

CYBERGUARD CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)


issuance of the debt, is being recognized as interest expense over the shortest
possible conversion period. The convertible debt is subordinated to the
Company's senior debt.

On August 26, 1999, David R. Proctor, Chairman and Chief Executive Officer,
signed a promissory note in the amount of $100,000 to facilitate his
participation in the convertible debt offering. The interest rate on the note is
11.5% per annum. The promissory note is being repaid bi-weekly in lieu of
salary, including any bonus payments. The note is expected to be paid in full by
March 2000.

4. SUBSEQUENT EVENTS

On October 11, 1999, the Company appointed the accounting firm of Grant
Thornton LLP as the Company's independent accountants for fiscal year 2000 and
dismissed PricewaterhouseCoopers LLP effective with such appointment. The
decision to dismiss PricewaterhouseCoopers LLP and appoint Grant Thornton LLP
was approved by the Audit Committee of the Company's Board of Directors.

On October 29, 1999, the Company and DST agreed to settle both lawsuits
resulting from the sale of CyberGuard's TradeWave division to DST on April 30,
1999. The Company will receive $135,000 from funds being held in escrow and
will execute a $60,000 non-interest-bearing promissory note with a maturity date
of October 28, 2000.

On October 30, 1999, the Company filed a Motion in the Shareholder Litigation to
Dismiss Plaintiffs' Amended Class Action Complaint, which was filed on August
23, 1999, after the filing of the Company's restated financial results.





                                       7
<PAGE>   8

CYBERGUARD CORPORATION
SEPTEMBER 30, 1999
(DOLLARS IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)


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

The Company provides a full suite of products and services for the network
security industry. The products offered by the Company include the
CyberGuard(R) Firewall, proprietary and third-party technology (such as Virtual
Private Network, authentication, virus scanning, encryption, advanced
reporting, high availability and centralized management), and consulting,
support, and installation services.

As previously announced, due to a review of its revenue recognition policy
relating to distributors and resellers, the Company has restated the results
for the first three quarters of fiscal year ended June 30, 1998, as filed in
the Form 8K, July 30, 1999, and included in the Form 10K filed on August 31,
1999. As a result, the financial information regarding the 1998 fiscal year
presented in this Item 2 and elsewhere in the Form 10-Q, is as restated, unless
otherwise indicated.

RESULTS OF OPERATIONS

The quarter ended September 30, 1999 compared to the quarter ended September
30, 1998

NET REVENUES

Net revenues consist primarily of network security products and services
including third party security products and service and support related to
security products. For the quarter ended September 30, 1999, net revenues
increased by $2.3 million when compared to the quarter ended September 30,
1998. The $2.3 million increase was comprised of an increase of $1.7 million in
network security product revenues and an increase of $0.6 million in service
revenues. The $1.7 million or 116% increase in network security product revenues
is due primarily to the Company's recovery from the effect of the announcement
on August 24, 1998 regarding the expected restatement of the prior year
financial results. That announcement had a dampening effect on revenues for the
quarter ended September 30, 1998. Revenues from support services related to
firewall products and certificate authority increased $0.5 million from $0.5
million for the three months ended September 30, 1998 to $1.0 million for the
three months ended September 30, 1999. This increase is due to the continued
growth in the number of installed units over the prior year. Support services
for network security products accounted for 24.7% of revenues during the quarter
ended September 30, 1999, as compared to 24.6% of revenues during the quarter
ended September 30, 1998.

GROSS PROFIT

Gross Profit as a percentage of revenues increased to 72% from 41% for the
quarter ended September 30, 1999. The increase is attributable to the increased
level of revenues relative to the fixed cost components of cost of revenues, to
the shift in product mix to predominately software only sales, and to the
absence of any former TradeWave Division operations.

OPERATING EXPENSES, OTHER INCOME AND EXPENSE AND NET LOSS

Overall, operating expenses decreased $1.3 million for the quarter ended
September 30, 1999 to $3.3 million. This is due to decreased compensation and
related employee costs (the Company's headcount decreased 31% compared to
September 30, 1998), reduced level of professional accounting and legal fees,
and better cost controls over outside consulting and other third party
contracts.

Other Income and Expense decreased $2.1 million for the quarter ended September
30, 1999 to ($0.3) million. This is due in part to a one-time gain on sale of
assets of $1.8 million during 1998 related to the sale of the Company's Galaxy





                                       8
<PAGE>   9
CYBERGUARD CORPORATION
SEPTEMBER 30, 1999
(DOLLARS IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)


Search Engine. It is also in part related to an increase in interest expense of
$0.3 million associated with the issuance of the new convertible debt, the
payment of the original convertible debt, and the revolving line of credit.

The net loss for the quarter ended September 30, 1999 was $0.6 million compared
to $1.9 for the quarter ended September 30, 1998. The Company did not provide
for income taxes due to the significant net operating loss carryforwards
available.

LIQUIDITY AND CAPITAL RESOURCES

The Company has experienced losses since its inception as a network security
company. The Company's historical uses of cash have been to fund net losses
from operations, establish inventory stocking levels, and fund capital
expenditures for property, equipment and software. For the quarter ended
September 30, 1999, the Company incurred a net loss of approximately $584,000
on revenues of approximately $4.3 million. For the quarter ended September 30,
1998, the Company incurred a net loss of approximately $1.9 million on revenues
of approximately $2.0 million.

The Company and certain former officers and directors were named in twenty-five
shareholder lawsuits. The plaintiffs sued for unspecified compensatory damages,
legal fees, and litigation costs. The Company is unable to predict the ultimate
outcome or potential financial impact of this litigation.

The consolidated financial statements do not include any adjustments relating
to the realization of assets and the recognition and satisfaction of
liabilities that might be necessary as a result of the matters described in
this Item 2 or Part II, Item 1 of this report. At September 30, 1999, the
Company had cash and cash equivalents on hand of $2.2 million representing a
decrease of $0.4 million from $2.6 million as of June 30, 1999. Accounts
payable and accrued liabilities decreased by $2.6 million, accounts receivable
increased by $.9 million, property and equipment decreased $0.07 million, and
inventory levels decreased by $0.05 million compared to June 30, 1999.

The Company's principal sources of liquidity at September 30, 1999, consisted
of cash, accounts receivable, a revolving line of credit with Coast Business
Credit, and vendor trade credit. The revolving line of credit with Coast
Business Credit is based on available eligible account receivables and
inventory. The line of credit decreased $.6 million, from $2.0 million to $1.4
million compared to June 30, 1999.

On August 26, 1999, the Company entered into a financing transaction with
Fernwood Partners II, LLC ("Fernwood") and certain officers, directors and
employees of the Company, through which the Company obtained a total amount of
$4,313,484 (the "Fernwood Financing"). In the Fernwood Financing, Fernwood
provided $3,699,484 and certain other directors, executive officers and
employees of the Company provided $614,000. All of the financing consisted of
promissory notes convertible into the Company's Common Stock at $1 per share
and warrants to purchase an equivalent number of shares of the Company's Common
Stock at $2.00 per share. The terms of the debt agreement permit the conversion
of the debt to common stock at a discount to market. This discount is
considered a beneficial conversion feature. The beneficial conversion feature
at the date of issuance of the debt of $1,069,621 is being recognized over the
thirty-four month conversion period. The Fernwood Financing bears interest at a
rate of 11.5% per annum and is secured by a lien on all of the Company's assets.
Part of the proceeds from this financing was used to repay a $1,125,000 loan and
accrued interest to Fernwood Partners, LLC, a limited liability company that
provided financing to the Company in December 1998.

The Company uses the U.S. Dollar as its reporting currency for financial
statement purposes. The Company conducts business in numerous countries around
the world through its international subsidiary that uses the local currency to
denominate its transactions. Therefore, the Company is subject to certain risks
associated with fluctuating foreign currencies. The resulting changes in the
financial statements do not indicate any underlying changes in the financial




                                       9
<PAGE>   10
CYBERGUARD CORPORATION
SEPTEMBER 30, 1999
(DOLLARS IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)


position of the international subsidiary, but merely reflect the adjustment in
the carrying value of the net assets of this subsidiary at the current U.S.
dollar exchange rate.

Due to the long-term nature of the Company's investment in this subsidiary, the
translation adjustments resulting from these exchange rate fluctuations are
excluded from the results of operations and recorded in a separate component of
consolidated stockholders' equity. There was no significant change for the
quarter ended September 30, 1999. The Company monitors its currency exposure
but does not hedge its translation exposure due to the high economic costs of
such a program and the long-term nature of its investment in its European
subsidiary.

Based upon information currently available to the Company, including the
Company's current level of sales, its margins on sales, its expected levels of
expense, opportunities for selling additional network security products and the
availability of additional equity and debt financing, the Company believes that
it has an opportunity to execute on its business plans and achieve
profitability in the long term. There can be no assurance, however, that the
Company will be able to execute on its business plans, or that it will not be
required to obtain additional financing or capital infusions. There can be no
assurance that the Company will be able to secure additional financing or that
such additional financing will be on terms and conditions acceptable to the
Company. Any additional financing may involve dilution of the interests of the
Company's then existing shareholders. The future liquidity of the Company will
be affected by numerous factors, including sales volumes, gross margins, the
levels of selling, general and administrative expenses, levels of required
capital expenditures and access to external sources of financing. Other recent
and possible future events that could also materially impact the Company's
ability to successfully execute on its business plans are described in
Information Relating to Forward Looking Statements of this Report on Form 10-Q.

RISK RELATED TO YEAR 2000 PROBLEM

The Year 2000 problem stems from the use of a two-digit date to represent the
year (e.g., 85 = 1985) in computer software and firmware. As a result, many
currently installed computer systems are not capable of distinguishing dates
beginning with the year 2000 from dates prior to the year 2000. Computer
systems or applications used by many companies in a wide variety of industries
may experience operating difficulties unless the systems or applications are
modified to process adequately information related to the date change.
Significant uncertainty exists in the software and other industries concerning
the scope and magnitude of problems associated with the century change. To the
extent Year 2000 issues cause significant delays in or cancellation of
decisions to purchase products or product support, due to the reallocation of
resources to address Year 2000 issues or otherwise, the Company's business
could be materially adversely affected.

The Company recognizes the need to ensure Year 2000 issues will not adversely
impact its operations. The Company has put into place a Year 2000 risk
management initiative. This initiative's scope covers both the Company's
information technology (IT) systems and non-IT systems and addresses all areas
of the Year 2000 issues as defined by the Information Technology Association of
America (ITAA).

Based on the ongoing assessment relative to the Company's current software
service offerings, the Company believes that the current versions of its
products are Year 2000 compliant. The Company has reviewed, and continues to
review, internal management information and other systems in order to identify
and to further modify those products, services or systems that may not be Year





                                      10
<PAGE>   11
CYBERGUARD CORPORATION
SEPTEMBER 30, 1999
(DOLLARS IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)


2000 compliant. Based on the Company's assessment to date, the Company believes
that internal management information and other systems are either Year 2000
compliant or will not require substantial effort or cost to make them Year 2000
compliant.

The Company's Year 2000 initiative also addresses vendor relationships (both IT
and non-IT) and their readiness/preparedness relating to Year 2000 issues. IT
vendors include software providers, hardware providers, service providers,
off-the-shelf software publishers and IT consultants. Non-IT providers include
electric power suppliers; vendors of uninterruptable power supplies and
generators, telecommunications service and equipment providers, business
partners, facilities maintainers and other non-IT service contractors. In the
event that third parties cannot provide the Company with products, services or
systems that are Year 2000 compliant on a timely basis, the Company's business
could be materially adversely affected. To date, the Company has not discovered
nor does it anticipate any material Year 2000 issues with vendors and service
providers. Evaluation of vendor Year 2000 preparedness is an on-going process.
As the Company's Year 2000 evaluation does not evaluate its vendors' vendors
nor its vendors' customer base viability issues, the Company may be required to
develop contingency plans to address specific vendor/service provider concerns.
Many of the Company's customers maintain their Internet operations on servers,
which may be impacted by Year 2000 complications. The failure of the Company's
customers to ensure that their servers are Year 2000 compliant could have a
material adverse effect on the Company's customers, which in turn could have a
material adverse affect on the Company's business, if the Company's customers
are forced to cease or interrupt Internet operations or experience malfunctions
related to their equipment.

While the Company believes its Year 2000 initiative is appropriate given its
available resources, there can be no assurance that the Company will identify
and remedy all Year 2000 problems in a timely fashion, that any remedial
efforts in this regard will not involve significant time and expense, or that
such problems will not have a material adverse affect on the Company's
business. The Company has been addressing these makers on an ongoing basis for
the past two years and has incurred minimal cost to date, due to the dynamic
nature of the development process.

INFORMATION RELATING TO FORWARD LOOKING STATEMENTS

Statements regarding future products, future prospects, future profitability,
business plans and strategies, future revenues and revenue sources, future
liquidity and capital resources, computer network security market directions,
future acceptance of the Company's products, possible growth in markets, as
well as all other statements contained in this Report on Form 10-Q that are not
purely historical are forward-looking statements.

These statements are based upon assumptions and analyses made by the Company in
light of current conditions, future developments and other factors the Company
believes are appropriate in the circumstances, or information obtained from
third parties and are subject to a number of assumptions, risks and
uncertainties. Readers are cautioned that forward-looking statements are not
guarantees of future performance and that the actual results might differ
materially from those suggested or projected in the forward-looking statements.
Accordingly, there can be no assurance that the forward-looking statements will
occur, or that results will not vary significantly from those described in the
forward-looking statements. Some of the factors that might cause future actual
events to differ from those predicted or assumed include: future advances in
technologies and computer security; the Company's history of significant annual
operating losses and the financing of these losses through the sale of assets
and newly issued Company securities; risks related to the early stage of the
Company's existence and its products' development; the Company's history of
losses; the Company's ability to execute on its business plans; the Company's




                                      11
<PAGE>   12
CYBERGUARD CORPORATION
SEPTEMBER 30, 1999
(DOLLARS IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)


dependence on outside parties such as its key customers and alliance partners;
competition from major computer hardware, software, and networking companies;
risks relating to the year 2000 problem; risk and expense of government
regulation and effects on changes in regulation; the limited experience of the
Company in marketing its products; uncertainties associated with product
performance liability; risks associated with growth and expansion; risks
associated with obtaining patent and intellectual property right protection;
uncertainties in availability of expansion capital in the future and other
risks associated with capital markets. In addition, certain recent events that
have occurred also are factors that might cause future actual events to differ
from those predicted or assumed, including: the impact of the restatement of
financial results for the Company's fiscal year ended June 30, 1997, and
quarters ended September 30, 1997, December 31, 1997, and March 31, 1998; the
completion of the numerous organizational changes and the assembly of a new
management team for CyberGuard; the outcome of a purported class action lawsuit
against the Company and certain current and former officers and directors
relating to the restatement of financial results for the fiscal periods noted
above and an SEC investigation regarding these matters; the delisting of the
Company from the NASDAQ National Market; and the Company's past delinquency in
filing reports that were required to be filed under the Securities Exchange Act
of 1934 (which, among other things, restricts the Company from being able to
use Form S-3, a simplified method of registering securities for sale with the
Securities and Exchange Commission). In addition, the forward-looking
statements herein involve assumptions, risks and uncertainties, including, but
not limited to economic, competitive, operational, management, governmental,
regulatory, litigation and technological factors affecting the Company's
operations, liquidity, capital resources, markets, strategies, products, prices
and other factors discussed elsewhere herein and in the other documents filed
by the Company with the Securities and Exchange Commission. Many of the
foregoing factors are beyond the Company's control.

The Company's future success is based largely on its ability to develop and
sell increasingly technologically advanced network security solutions at
sufficient volume and prices to become profitable on a consistent basis. The
velocity of technological change has accelerated and the Company believes that
it is important to its future that it keeps pace with these changes. The
Company believes that competition will continue to intensify in the rapidly
evolving markets in which the Company is involved, and that the continued
development of technologically advanced products will be necessary to keep its
products current. The Company believes that its ability to generate adequate
cash flow from operations will be critical to its future.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES CONCERNING MARKET RISK

We have limited exposure to financial market risks, including changes in
interest rates. The fair value of our investment portfolio or related income
would not be significantly impacted by a 100 basis point increase or decrease
in interest rates due mainly to the short-term nature of the major portion of
our investment portfolio. A fluctuation in interest rates would not
significantly affect interest expense on debt obligations since a significant
portion of the debt obligation is at a fixed rate of interest.

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On August 24, 1998, the Company announced, among other things, that due to a
review of its revenue recognition policies relating to distributors and
resellers, it would restate prior financial results. After the August 24, 1998
announcement, twenty-five purported class action lawsuits were filed by alleged
shareholders against the Company and certain current and former officers and
directors. Each of these lawsuits was filed in the United States District Court
for the Southern District of Florida. These actions seek damages purportedly on




                                      12
<PAGE>   13
CYBERGUARD CORPORATION
SEPTEMBER 30, 1999
(DOLLARS IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)


behalf of all persons who purchased or otherwise acquired the Company's common
stock during various periods from October 7, 1997 through August 24, 1998. The
complaints allege, among other things, that as a result of accounting
irregularities relating to the Company's revenue recognition policies, the
Company's previously issued financial statements were materially false and
misleading and that the defendants knowingly or recklessly published these
financial statements which caused the Company's common stock prices to rise
artificially. The actions allege violations of Section 10(b) of the Securities
Exchange Act of 1934 (the "Exchange Act") and SEC Rule 10b-5 promulgated
thereunder and Section 20(a) of the Exchange Act. One action also alleges
violations of common law. Pursuant to an order issued by the Court, these
actions have been consolidated into one action, styled Stephen Cheney, et al.
v. CyberGuard Corporation, Robert L. Carberry and William D. Murray, Case No.
98-6879-CIV-Gold, in the United States District Court, Southern District of
Florida. An amended consolidated complaint was filed on August 23, 1999, after
the filing of the Company's restated financial results. On October 30, 1999,
the Company filed a Motion to Dismiss Plaintiffs' Amended Class Action
Complaint.

On April 30, 1999, the Company sold substantially all of the assets of its
TradeWave division to Digital Signature Trust Company ("DST"). In June 1999,
CyberGuard filed a lawsuit against DST and Zions First National Bank, N.A. in
state court in Austin, Texas. The action was removed to United States District
Court, Western District of Texas, Case No. 99-CA-431-JN. The Company alleged
breach of contract, tortious interference and fraud. Also in June 1999, DST
filed a lawsuit against the Company in United States District Court, District
of Utah, Case No. 99CV 0417G, alleging fraud, negligent misrepresentation,
unjust enrichment, with unspecified damages, and rescission and reformation of
contract. The Company and DST agreed to settle both actions on October 29, 1999.
The Company will receive $135,000 from funds being held in escrow and will
execute a $60,000 non-interest-bearing promissory note with a maturity date of
October 28, 2000.

On September 16, 1999, the Company filed a lawsuit against KPMG Peat Marwick
LLP ("KPMG") and August A. Smith, the KPMG engagement partner, Case No.
99-21700CA05, in the Circuit Court of the 11th Judicial Circuit in and for
Miami-Dade County. The Company alleges KPMG failed to properly audit the
Company's financial statements and provided inaccurate advice on accounting
matters for fiscal years 1997 and 1998 and on accounting treatment of certain
matters at the end of fiscal year 1996. The action alleges professional
malpractice, breach of fiduciary duty, breach of contract and trade libel and
seeks damages in excess of $10 million.

In August 1998, the Securities and Exchange Commission (the "SEC") began an
informal investigation into certain accounting and financial reporting
practices of the Company and its officers, directors and employees. In
September 1999, the Company was notified that the SEC had begun a formal
investigation into certain accounting and financial reporting practices of the
Company and its officers, directors and employees.

The Company is unable to predict the ultimate outcome of the litigation and
investigation described above in this Part II, Item 1. The resolution of such
matters could have a material adverse affect on the Company's results of
operations and financial position. The Company's financial statements do not
include any adjustments related to these matters.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

On December 17, 1998, the Company executed an agreement to issue $1,125,000 of
convertible debt. The debt was convertible into 750,000 shares of Company common
stock at a conversion price equal to $1.50 per share. In addition, the Company
issued the debt holders 500,000 warrants to purchase the Company's common stock
at $2.00.




                                      13
<PAGE>   14
CYBERGUARD CORPORATION
SEPTEMBER 30, 1999
(DOLLARS IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)


On August 26, 1999, the Company closed an additional offering of convertible
debt in the approximate amount of $4,300,000, from which the prior $1,125,000
convertible debt was repaid. The majority of the new debt is with the same debt
holders as the previous transaction. The interest rate is 11.5% per annum. The
debt can be converted, at the debt holder's option, into approximately 4,300,000
shares of Company common stock at a conversion price equal to $1.00 per share.
In addition, the warrants from the December 1998 transaction were cancelled and
the Company issued approximately 4,300,000 warrants to purchase the Company's
common stock at $2.00 per share. The warrants are exercisable at any time before
August 2004. The terms of the debt agreement permit the conversion of the debt
to Company common stock at a discount to market. This discount is considered a
beneficial conversion feature and, at the date of issuance of the debt, is being
recognized as interest expense over the shortest possible conversion period. The
convertible debt is subordinated to the Company's senior debt.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

During September 1999, the Company's senior creditor, Coast Business Credit
("Coast''), notified the Company it was no longer in default under the loan
agreement between the Company and Coast. As a result, the Company reclassified
the three-year note to non-current. In addition, pursuant to the Coast loan
agreement, the interest rate was adjusted to prime plus 2%.

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

None.

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits:

     Exhibit No.    Exhibit Description
     -----------    -------------------
     3.1     --     Bylaws of the Company
     10.1    --     Loan and Security Agreement dated December 29, 1997 between
                    the Company, TradeWave Corporation and Coast Business
                    Credit, as amended.(i)
     10.2    --     Amendment Nr. 2 to Loan and Security Agreement, dated
                    October 6, 1999 between the Company and Coast Business
                    Credit.
     10.3    --     Loan Agreements dated August 26, 1999, between (i) the
                    Company and Fernwood Partners II, LLC; (ii) the Company and
                    certain officers, directors and employees of the Company;
                    and (iii) the Company and David R. Proctor.
     27.1    --     Financial Data Schedule
     -----------------

     (i) Filed with the Company's Quarterly Report on Form 10-Q for the period
         filed on February 13, 1998 and incorporated herein by reference.

(b) Reports filed on Form 8-K during the quarter ended September 30, 1999:

     On July 30, 1999 - Audited Financial Statements for the fiscal years ended
     June 30, 1998 and 1997 and Quarterly Restatements for fiscal years 1998
     and 1997.




                                      14
<PAGE>   15
                                   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.


Date: November 11, 1999                            CYBERGUARD CORPORATION



                                       By: /s/ David R. Proctor
                                           ------------------------------------
                                           Chairman and Chief Executive Officer



                                       By: /s/ Terrence A. Zielinski
                                           ------------------------------------
                                           Vice President of Finance and Chief
                                           Financial Officer (Principal
                                           Financial and Accounting Officer)







                                      15