##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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, 2002

OR

o
    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 Incorporation or Organization)  |  | (I.R.S. Employer
Identification No.)
|                                                                |  |                                     
|2000 West Commercial Blvd., Suite 200,
Fort Lauderdale, Florida |  | 33309                               
|                                                                |  |                                     
|(Address of Principal 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 þ 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   þ
     No   o

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

Yes   þ
     No   o

As of November 7, 2002, 19,367,551 shares of the Registrants $0.01 par
value Common Stock were outstanding.





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##### 



TABLE OF CONTENTS

|                              |                                                                                               |  |  |    | 
|----------------------------- | --------------------------------------------------------------------------------------------- |  |  | -- | 
|PART I. FINANCIAL INFORMATION |                                                                                               |  |  |   
|                              | Item 1. Financial Statements                                                                  |  |  | 1  | 
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |  |  | 4  | 
|                              | Item 3. Quantitative and Qualitative Disclosures about Market Risk                            |  |  | 9  | 
|PART II. OTHER INFORMATION    |                                                                                               |  |  |   
|                              | Item 1. Legal Proceedings                                                                     |  |  | 9  | 
|                              | Item 2. Changes in Securities and Use of Proceeds                                             |  |  | 11 | 
|                              | Item 3. Defaults Upon Senior Securities                                                       |  |  | 11 | 
|                              | Item 4. Submission of Matters to a Vote of Security Holders                                   |  |  | 11 | 
|                              | Item 5. Other Information                                                                     |  |  | 11 | 
|                              | Item 6. Exhibits and Reports on Form 8-K                                                      |  |  | 11 | 
|SIGNATURES                    |                                                                                               |  |  |   
|EXHIBITS                      |                                                                                               |  |  |   





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##### 



PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

CYBERGUARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands)

|                                                                                                                                   |                   |                            |                                            |       |           |        |          |       |        |        | 
|---------------------------------------------------------------------------------------------------------------------------------- | ----------------- | -------------------------- | ------------------------------------------ | ----- | --------- | ------ | -------- | ----- | ------ | ------ | 
|                                                                                                                                   |                   |                            |                                            |       | Sept. 30, |        | June 30,
|                                                                                                                                   |                   |                            |                                            |       | 2002      |        | 2002    
|                                                                                                                                   |                   |                            |                                            |       |           |        |         
|ASSETS                                                                                                                             |                   |                            |                                            |       |           |        |          |      
|Cash and cash equivalents                                                                                                          |                   | $                          | 7,154                                      |       |           | $      | 6,166    |      
|Restricted cash                                                                                                                    |                   |                            | 31                                         |       |           |        | 44       |      
|Accounts receivable, less allowance for uncollectible accounts
of $282 at Sept. 30, 2002 and $109 at June 30, 2002                 |                   |                            | 5,053                                      |       |           |        | 5,152    |      
|Inventories, net                                                                                                                   |                   |                            | 291                                        |       |           |        | 442      |      
|Other current assets                                                                                                               |                   |                            | 1,202                                      |       |           |        | 801      |      
|                                                                                                                                   |                   |                            |                                            |       |           |        |          |      
|                                                                                                                                   |                   | Total current assets       |                                            |       | 13,731    |        |          |       | 12,605 |       
|Property and equipment at cost, less accumulated
depreciation of $2,547 at Sept. 30, 2002 and
$2,335 at June 30, 2002              |                   |                            | 1,326                                      |       |           |        | 1,212    |      
|Capitalized software, net                                                                                                          |                   |                            | 256                                        |       |           |        | 219      |      
|Other assets                                                                                                                       |                   |                            | 70                                         |       |           |        | 94       |      
|                                                                                                                                   |                   |                            |                                            |       |           |        |          |      
|                                                                                                                                   |                   |                            | Total assets                               |       | $         | 15,383 |          |       | $      | 14,130 | 
|                                                                                                                                   |                   |                            |                                            |       |           |        |          |      
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                               |                   |                            |                                            |       |           |        |          |      
|Note payable                                                                                                                       |                   |                            | 78                                         |       |           |        | 140      |      
|Accounts payable                                                                                                                   |                   |                            | 1,064                                      |       |           |        | 778      |      
|Deferred revenue                                                                                                                   |                   |                            | 3,644                                      |       |           |        | 3,951    |      
|Accrued expenses and other liabilities                                                                                             |                   |                            | 2,435                                      |       |           |        | 2,305    |      
|                                                                                                                                   |                   |                            |                                            |       |           |        |          |      
|                                                                                                                                   | Total liabilities |                            | $                                          | 7,221 |           |        | $        | 7,174 |       
|Commitments and Contingencies                                                                                                      |                   |                            |                                           |       |           |        |         |      
|Shareholders equity                                                                                                               |                   |                            |                                            |       |           |        |          |      
|Preferred Stock par value $0.01; authorized 5 shares; none issued                                                                  |                   |                            |                                           |       |           |        |         |      
|Common stock par value $0.01; authorized 50,000 shares
issued and outstanding 19,268 at Sept. 30, 2002
and 19,100 at June 30, 2002 |                   |                            | 193                                        |       |           |        | 191      |      
|Additional paid-in capital                                                                                                         |                   |                            | 88,966                                     |       |           |        | 88,673   |      
|Accumulated deficit                                                                                                                |                   |                            | (81,144                                    | )     |           |        | (82,075  | )    
|Accumulated other comprehensive income                                                                                             |                   |                            | 147                                        |       |           |        | 167      |      
|                                                                                                                                   |                   |                            |                                            |       |           |        |          |      
|                                                                                                                                   |                   | Total shareholders equity |                                            |       | 8,162     |        |          |       | 6,956  |       
|                                                                                                                                   |                   |                            |                                            |       |           |        |          |      
|                                                                                                                                   |                   |                            | Total liabilities and shareholders equity |       | $         | 15,383 |          |       | $      | 14,130 | 
|                                                                                                                                   |                   |                            |                                            |       |           |        |          |      

See accompanying notes to consolidated financial statements





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##### 



CYBERGUARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except per share data)

|                                                     |                              |   |                    |       |           |   |        |       | 
|---------------------------------------------------- | ---------------------------- | - | ------------------ | ----- | --------- | - | ------ | ----- | 
|                                                     |                              |   | Three Months Ended
|                                                     |                              |   |                   
|                                                     |                              |   | Sept. 30,          |       | Sept. 30,
|                                                     |                              |   | 2002               |       | 2001     
|                                                     |                              |   |                    |       |          
|Revenues:                                            |                              |   |                    |       |           |   |        |      
|Products                                             |                              | $ | 4,874              |       |           | $ | 3,001  |      
|Services                                             |                              |   | 2,226              |       |           |   | 1,575  |      
|                                                     |                              |   |                    |       |           |   |        |      
|                                                     | Total revenues               |   |                    | 7,100 |           |   |        | 4,576 | 
|Cost of revenues:                                    |                              |   |                    |       |           |   |        |      
|Products                                             |                              |   | 1,224              |       |           |   | 736    |      
|Services                                             |                              |   | 552                |       |           |   | 451    |      
|                                                     |                              |   |                    |       |           |   |        |      
|                                                     | Total cost of revenues       |   |                    | 1,776 |           |   |        | 1,187 | 
|                                                     |                              |   |                    |       |           |   |        |      
|Gross profit                                         |                              |   | 5,324              |       |           |   | 3,389  |      
|                                                     |                              |   |                    |       |           |   |        |      
|Operating expenses:                                  |                              |   |                    |       |           |   |        |      
|Research and development                             |                              |   | 1,047              |       |           |   | 1,356  |      
|Selling, general and administrative                  |                              |   | 3,322              |       |           |   | 2,969  |      
|                                                     |                              |   |                    |       |           |   |        |      
|                                                     | Total operating expenses     |   |                    | 4,369 |           |   |        | 4,325 | 
|                                                     |                              |   |                    |       |           |   |        |      
|Operating income/(loss)                              |                              |   | 955                |       |           |   | (936   | )    
|                                                     |                              |   |                    |       |           |   |        |      
|Other income/(expense):                              |                              |   |                    |       |           |   |        |      
|Interest income/(expense), net                       |                              |   | 28                 |       |           |   | 22     |      
|Gain/(loss) on sale of assets                        |                              |   | (36                | )     |           |   | (3     | )    
|Other income                                         |                              |   | (16                | )     |           |   | 9      |      
|                                                     |                              |   |                    |       |           |   |        |      
|                                                     | Total other income/(expense) |   |                    | (24   | )         |   |        | 28    | 
|                                                     |                              |   |                    |       |           |   |        |      
|Net income/(loss)                                    |                              | $ | 931                |       |           | $ | (908   | )    
|                                                     |                              |   |                    |       |           |   |        |      
|Basic earnings/(loss) per common share               |                              | $ | 0.05               |       |           | $ | (0.05  | )    
|                                                     |                              |   |                    |       |           |   |        |      
|Weighted average number of common shares outstanding |                              |   | 19,181             |       |           |   | 18,552 |      
|                                                     |                              |   |                    |       |           |   |        |      
|Diluted earnings/(loss) per common share             |                              |   | 0.04               |       |           | $ | (0.05  | )    
|                                                     |                              |   |                    |       |           |   |        |      
|Diluted common shares outstanding                    |                              |   | 22,172             |       |           |   | 18,552 |      
|                                                     |                              |   |                    |       |           |   |        |      

See accompanying notes to consolidated financial statements





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##### 



CYBERGUARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)

|                                                                                                  |                                                     |   |                    |       |           |   |       |        |  
|------------------------------------------------------------------------------------------------- | --------------------------------------------------- | - | ------------------ | ----- | --------- | - | ----- | ------ | -
|                                                                                                  |                                                     |   | Three Months Ended
|                                                                                                  |                                                     |   |                   
|                                                                                                  |                                                     |   | Sept. 30,          |       | Sept. 30,
|                                                                                                  |                                                     |   | 2002               |       | 2001     
|                                                                                                  |                                                     |   |                    |       |          
|Cash flows from operating activities                                                              |                                                     |   |                    |       |           |   |       |       
|Net income/(loss)                                                                                 |                                                     | $ | 931                |       |           | $ | (908  | )     
|Adjustment to reconcile net income/(loss) to net cash
provided by/(used in) operating activities: |                                                     |   |                    |       |           |   |       |       
|Depreciation                                                                                      |                                                     |   | 219                |       |           |   | 195   |       
|Amortization                                                                                      |                                                     |   | 66                 |       |           |   | 195   |       
|Loss on disposal of fixed assets                                                                  |                                                     |   | 36                 |       |           |   | 24    |       
|Interest on convertible debt                                                                      |                                                     |   |                   |       |           |   | 2     |       
|Provision for uncollectible accounts receivable                                                   |                                                     |   | 173                |       |           |   | 19    |       
|Provision for inventory reserve                                                                   |                                                     |   | 20                 |       |           |   | 3     |       
|Compensation expense related to stock options                                                     |                                                     |   | 50                 |       |           |   | 27    |       
|Non cash expense for company 401(k) match                                                         |                                                     |   | 41                 |       |           |   |      |       
|Translation adjustment                                                                            |                                                     |   | (20                | )     |           |   | 32    |       
|Changes in assets and liabilities                                                                 |                                                     |   |                    |       |           |   |       |       
|Restricted cash                                                                                   |                                                     |   | 13                 |       |           |   | 65    |       
|Accounts receivable                                                                               |                                                     |   | (74                | )     |           |   | (554  | )     
|Other current assets                                                                              |                                                     |   | (401               | )     |           |   | (17   | )     
|Inventories                                                                                       |                                                     |   | (2                 | )     |           |   | (135  | )     
|Accounts payable                                                                                  |                                                     |   | 286                |       |           |   | (537  | )     
|Accrued expenses and other liabilities                                                            |                                                     |   | 130                |       |           |   | (556  | )     
|Deferred revenue                                                                                  |                                                     |   | (307               | )     |           |   | 1,015 |       
|Other, net                                                                                        |                                                     |   | 24                 |       |           |   |      |       
|                                                                                                  |                                                     |   |                    |       |           |   |       |       
|                                                                                                  | Net cash provided by/(used in) operating activities |   |                    | 1,185 |           |   |       | (1,130 | )
|                                                                                                  |                                                     |   |                    |       |           |   |       |       
|Cash flows used in investing activities                                                           |                                                     |   |                    |       |           |   |       |       
|Capitalized software costs                                                                        |                                                     |   | (103               | )     |           |   |      |       
|Purchase of property & equipment                                                                  |                                                     |   | (236               | )     |           |   | (118  | )     
|                                                                                                  |                                                     |   |                    |       |           |   |       |       
|                                                                                                  | Net cash used in investing activities               |   |                    | (339  | )         |   |       | (118   | )
|                                                                                                  |                                                     |   |                    |       |           |   |       |       
|Cash flows provided by financing activities                                                       |                                                     |   |                    |       |           |   |       |       
|Repayment of notes payable                                                                        |                                                     |   | (62                | )     |           |   | (8    | )     
|Net borrowings under revolving line of credit                                                     |                                                     |   |                   |       |           |   | 124   |       
|Proceeds from stock options exercised                                                             |                                                     |   | 168                |       |           |   | 132   |       
|Proceeds from sale of common stock in stock purchase plan                                         |                                                     |   | 36                 |       |           |   | 162   |       
|                                                                                                  |                                                     |   |                    |       |           |   |       |       
|                                                                                                  | Net cash provided by financing activities           |   |                    | 142   |           |   |       | 410    |  
|                                                                                                  |                                                     |   |                    |       |           |   |       |       
|Net increase/(decrease) in cash                                                                   |                                                     |   | 988                |       |           |   | (838  | )     
|Cash and cash equivalents at beginning of period                                                  |                                                     |   | 6,166              |       |           |   | 4,771 |       
|                                                                                                  |                                                     |   |                    |       |           |   |       |       
|Cash and cash equivalents at end of period                                                        |                                                     | $ | 7,154              |       |           | $ | 3,933 |       
|                                                                                                  |                                                     |   |                    |       |           |   |       |       
|Supplemental disclosure of cash flow information                                                  |                                                     |   |                    |       |           |   |       |       
|Cash paid for interest                                                                            |                                                     |   | 2                  |       |           |   | 20    |       
|                                                                                                  |                                                     |   |                    |       |           |   |       |       
|Cash paid for income taxes                                                                        |                                                     |   |                   |       |           |   |      |       
|                                                                                                  |                                                     |   |                    |       |           |   |       |       

During January 2001, approximately 310 options to purchase shares of the
Companys common stock were issued at a below market price, which required the
Company to record approximately $5 and $27 in compensation expense for the
quarter ended September 2002 and 2001 respectively.

See accompanying notes to consolidated financial statements





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CYBERGUARD CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 2002
Amounts in thousands, except per share data
(Unaudited)

1. Basis of Presentation

CyberGuard Corporation (the Company) has prepared the condensed
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, 2002 and the risk factors set forth in the Companys annual
report on Form 10-K, including, without limitation, risk related to the factors
listed below. In the Companys opinion, all adjustments (consisting only of
normal recurring adjustments) necessary for fair presentation of the
information shown have been included. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported
in the consolidated financial statements and accompanying notes. On an
on-going basis, we evaluate significant estimates used in preparing our
financial statements, including revenue recognition, bad debt, software
development cost, inventory valuation, and deferred taxes. We based our
estimates on historical experience and various other assumptions that we
believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions.

2. Summary of Significant Accounting Policies

Software Development CostsThe Company capitalizes costs related to the
development of certain software products in accordance with Statement of
Financial Accounting Standards No. 86, Accounting For the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed (SFAS No. 86) which
requires capitalization to begin when technological feasibility has been
established and ends when the product is available for general release to
customers. Software development costs incurred prior to technological
feasibility, defined by implementation of a beta project, are considered
research and development costs and are expensed as incurred. Capitalized costs
are amortized on a straight-line method over two years. The Company capitalized
$103 in software development costs for the quarter ended September 30, 2002.

Revenue RecognitionRevenues from product sales are recognized only when a
contract or agreement has been executed, delivery of the product has occurred,
the fee is fixed and determinable and we believe collection is probable. While
we generally recognize product revenue on product shipment, we defer revenues
on product sales for value added resellers until the partners demonstrate
consistency of payment within terms and no product returns for a three month
period. Service revenues are recognized ratably on a monthly basis over the
service contract term. Service revenues primarily include the annual fee for
maintenance, which is sold as part of our security solutions, and for
subscription renewals from our existing customers and end users. These
services provide our customers access to our worldwide support organization for
product updates, general security information and technical support. During the
quarter ended September 30, 2002, fourteen (14) resellers were changed from
cash basis to accrual, based on a reasonable assurance of collectibility from
evaluating their payment histories. The impact was to increase revenue by
approximately $252 for the quarter ended September 30, 2002.





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CYBERGUARD CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 2002
Amounts in thousands, except per share data
(Unaudited)

Revenue on post-contract customer support is deferred and amortized by the
straight-line method over the term of the contracts. The Company also provides
professional support services, which are available under service agreements and
charged for separately. These services are generally provided under time and
materials contracts and revenue is recognized as the service is provided.

Principles of ConsolidationThe consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions are eliminated in consolidation.

Net Income Per ShareBasic income/(loss) per share is computed by dividing
net income/(loss) available to common shareholders by the weighted-average
number of common shares outstanding for the period. Diluted earnings/(loss) per
share data is computed on the basis of the weighted average number of common
shares outstanding plus the effect of outstanding stock options and warrants
using the treasury method. When the effects of the outstanding stock options,
warrants and/or convertible securities are anti-dilutive, they are not included
in the calculation of diluted earnings/(loss) per share.

The table below illustrates the components of earnings per share:

|                                                     |  |                    |        |                    |  |   |        |  
|---------------------------------------------------- |  | ------------------ | ------ | ------------------ |  | - | ------ | -
|                                                     |  | Three Months Ended |        | Three Months Ended
|                                                     |  | September 30, 2002 |        | September 30, 2001
|                                                     |  |                    |        |                   
|Net Income/(loss)                                    |  | $                  | 931    |                    |  | $ | (908   | )
|                                                     |  |                    |        |                    |  |   |        |  
|Weighted average number
of common shares
outstanding |  |                    | 19,181 |                    |  |   | 18,552 |  
|Dilutive effect of:                                  |  |                    |        |                    |  |   |        |  
|Employee stock options                               |  |                    | 2,307  |                    |  |   | 0      |  
|Warrants                                             |  |                    | 684    |                    |  |   | 0      |  
|                                                     |  |                    |        |                    |  |   |        |  
|Weighted average number
of common shares
outstanding |  |                    | 22,172 |                    |  |   | 18,552 |  
|                                                     |  |                    |        |                    |  |   |        |  
|Earnings/(loss) per share                            |  |                    |        |                    |  |   |        |  
|Basic                                                |  |                    | 0.05   |                    |  |   | (0.05  | )
|Diluted                                              |  |                    | 0.04   |                    |  |   | (0.05  | )

The results of operations for the three months ended September 30, 2002
are not necessarily indicative of the results of operations that may be
expected for the year ending June 30, 2003.

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 could be 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

2



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CYBERGUARD CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 2002
Amounts in thousands, except per share data
(Unaudited)

products, impact of competitive products, competition for and
retention of key management and technology employees, possible attacks on our
networks causing changes to the publics perception of the Company, the ability
to secure additional financing, government regulation, inventory obsolescence,
the ultimate outcome of certain litigation matters, and cash balances in excess
of federally insured limits.

3. Recent Accounting Pronouncements

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities (SFAS 146). SFAS 146 addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring), as liabilities for these costs are now recognized when
incurred rather than at the date an entity commits to an exit plan. The
provisions of SFAS 146 are effective, on a prospective basis, for exit or
disposal activities initiated by the Company after December 31,
2002. The Company believes SFAS 146
will not have any impact on the Company at this time.

4. Contingencies

Refer to PART II, Item 1.

3



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CYBERGUARD CORPORATION
September 30, 2002
(Dollars in thousands, except per share data)

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

This Form 10-Q contains forward-looking statements about future results,
which are subject to risks, and uncertainties, including those discussed below.
These statements relate to future events or our future financial performance.
In many cases you can identify forward-looking statements by terminology such
as may, will, should, expects, plans, anticipates, believes,
estimates, predicts, potential, intend, or continue, or the negative
of such terms and other comparable terminology. However, the absence of these
words does not mean that the statements are not forward-looking.
Forward-looking statements include statements about our plans, objectives,
expectations, intentions and other statements that are not historical facts.
They are subject to known and unknown risks and uncertainties and assumptions
that could cause our actual results to differ materially from those expected or
implied by the forward-looking statements. Our actual results could differ
materially from those anticipated in the forward-looking statements for many
reasons, including, but not limited to, the risks described in Part II, Item 7,
of the Companys 10-K for the year ended June 30, 2002. You should not unduly
rely on these forward-looking statements, which apply only as of the date of
this quarterly report. We undertake no obligation to update any
forward-looking statements to reflect new information, circumstances or events
after the date of this report. These forward-looking statements are only
predictions.

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

Results of Operations

The quarter ended September 30, 2002 compared to the quarter ended September
30, 2001

Net Revenues

Net revenues consist primarily of the network security products and
support related to these products. For the quarter ended September 30, 2002,
net revenues increased by $2,524 to $7,100 compared to $4,576 for the quarter
ended September 30, 2001. The increase was comprised of an increase in product
sales of $1,873 and services of $651. Total international revenue represented
approximately 50% of total revenues for the three months ended September 30,
2002 compared to approximately 49% for the three months ended September 30,
2001.

The increase in revenues for the quarter ended September 30, 2002 is the
result of increased focus in the security industry by consumers in both
commercial and government sectors. All three worldwide regions experience
significant product revenue growth during the quarter ended September 30, 2002.
This growth is attributable to several key factors:



| |  |  | New channel partner traction                          
| | - |  | ------------------------------------------------------
|
| |  |  | Worldwide government purchases                        
|
| |  |  | Continuing development of our Middle East market space
|
| |  |  | More seasoned sales force                             

Service revenue includes maintenance contracts related to new product
sales, renewal maintenance contracts for products previously deployed,
training, installation and consulting services. The increase in service
revenue corresponds to the growth in the Companys customer base and its timing
of renewal maintenance. Support services for network security products
accounted for 31% of revenues during the
4

CYBERGUARD CORPORATION
September 30, 2002
(Dollars in thousands, except per share data)

quarter ended September 30, 2002 as compared to 34% of revenues during the
quarter ended September 30, 2001.

Gross Profit

Gross Profit as a percentage of revenues was at 75% for the quarter ended
September 30, 2002 compared to 74% for the quarter ended September 30, 2001.

The Companys gross margin has been, and will continue to be, affected by
a variety of factors including, competition, the mix and average selling prices
of products, new product introductions and enhancements, and the fluctuations
in manufacturing volumes. We must continue to manage each of these factors
effectively for our gross margins to remain at their current level.

Operating Expenses, Other Income and Expense and Net Income/(Loss)

Research and development expense includes salaries, non-capitalized
equipment, software tools, and depreciation from capital equipment and
software. Research and development expense decreased by $309 to $1,047 for the
quarter ended September 30, 2002 compared to $1,356 for the quarter ended
September 30, 2001. The decrease is in part the result of a reduction in
headcount and the reduction in salary expense related to the special option
program discussed in Part I, Item 1, Footnote 7 of the 10Q filed with the SEC
for quarter ending December 31, 2001. Additionally, approximately $103 of
research and development cost was capitalized during the quarter ended
September 30, 2002. As a percentage of total revenue, research and development
expense decreased to 15% for the quarter ended September 30, 2002 from 30% for
the quarter ended September 30, 2001.

We expect to increase our research and development costs in total dollars
to enhance and expand our current product offerings and develop new products.
We also expect research and development costs to increase at a slower rate than
revenues. We plan to continue to make the necessary investment in research and
development to keep our products at a competitive advantage.

Selling, general and administrative expense includes salaries,
commissions, costs associated with the executive, human resource, finance and
administrative support functions, and legal and accounting professional
services. Selling, general and administrative expense increased by $353 to
$3,322 for the quarter ended September 30, 2002 from $2,969 for the quarter
ended September 30, 2001.

The increase in selling, general and administrative expenses for the
quarter ended September 30, 2002, of $353 is attributable to increases in the
sales and marketing area related to increased headcount for additional inside
sales people, severance costs related to employee termination in the Europe,
Middle East and Africa region and expansion of personnel within our US
Government sales force.

Total Other Expense increased $52 for the quarter ended September 30, 2002
to $24 compared to income of $28 for the quarter ended September 30, 2001. The
increase in expense is due to loss on sale of assets during the quarter of $36,
and the net effect of a foreign currency loss for the quarter.

Net income for the quarter ended September 30, 2002 was $931 compared to a
net loss of $908 for the quarter ended September 30, 2001. The Company did not
provide for income taxes due to its estimate of the effective tax rate expected
to be applicable for the full fiscal year and the significant net operating
loss carryforwards available.

5



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##### 



CYBERGUARD CORPORATION
September 30, 2002
(Dollars in thousands, except per share data)

Liquidity and Capital Resources

The Company has generally 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, 2002, the Company earned net income of approximately $931
on revenues of approximately $7,100. For the quarter ended September 30, 2001,
the Company incurred a net loss of approximately $908 on revenues of
approximately $4,576.

At September 30, 2002, the Company had cash and cash equivalents on hand
of $7,154 representing an increase of $988 from $6,166 as of June 30, 2002.
Accounts payable and accrued liabilities increased $416, accounts receivable
increased $74, property and equipment increased $236, and other current assets
increased by $401 compared to June 30, 2001.

The Companys principal sources of liquidity at September 30, 2002,
consisted of cash, accounts receivable, and vendor trade credit.

We believe our existing cash; cash equivalents and short-term investments
will be sufficient to meet our cash requirements at least through the next
twelve months. However, we may be required or could elect to seek additional
funding prior to that time. Our future capital requirements will depend on many
factors, including our rate of revenue growth, the timing and extent of
spending on support, product development efforts and expansion of sales and
marketing, the timing of introductions of new products and enhancement to
existing products, and market acceptance of our products. 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 Item on Form 10-Q.

We have no other agreements or arrangements for third parties to provide
us with sources of liquidity and capital resources, including off
balance sheet arrangements.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of financial conditions and results of
operations is based on our consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles in the
United States. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. On an on-going basis, we evaluate
significant estimates used in preparing our financial statements, including
revenue recognition, bad debt, software development cost, inventory valuation,
and deferred taxes. We based our estimates on historical experience and
various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.

We believe the following critical accounting policies affect the more
significant judgments and estimates used in preparing our consolidated
financial statements:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Revenue Recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | Revenue recognition rules for software companies are very complex.
CyberGuard follows very specific and detailed guidelines in measuring
revenue; however, certain judgments affect the application of our revenue
policy. The discretion involved in this process makes revenue results
difficult to predict, and any shortfall in revenue or delay in
recognizing revenue could cause our
operating results to vary significantly from quarter to quarter and could
result in future operating losses.

6



---



##### 



CYBERGUARD CORPORATION
September 30, 2002
(Dollars in thousands, except per share data)



| |                              
| | -----------------------------
| | We generate revenues through:



| |      
Sales of product and services subscriptions indirectly
through our reseller network at a discount from list price;
| | -------------------------------------------------------------------------------------------------------------------------
|
| |      
Sales of products and services subscriptions directly to our
end users.                                           



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Service revenues primarily include the annual fee for maintenance, which
is sold as part of our security solutions, and for subscription renewals
from our existing customers and end users. These services provide our
customers access to our worldwide support organization for product
updates, general security information and technical support.                                                                                                                                                                                                  
|
| | We recognize revenues for product sales only when a contract or agreement
has been executed, delivery of the product has occurred, the fee is fixed
and determinable and we believe collection is probable. While we
generally recognize product revenue on product shipment, we defer
revenues on product sales for value added resellers until the partners
demonstrate consistency of payment within terms and no product returns
for a three-month period. Service revenues are recognized ratably on a
monthly basis over the service contract term.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Bad Debts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | We maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments.
Significant judgment is required when we assess the ultimate realization
of receivables, including the probability of collection and the
credit-worthiness of each customer. In estimating the allowance for
doubtful accounts, we analyze our accounts receivable aging, historical
bad debts, customer credit-worthiness, current economic trends and other
factors. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make
payments, additional allowance might be required.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Software Development Costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | The Company capitalizes costs related to the development of certain
software products in accordance with Statement of Financial Accounting
Standards No. 86, Accounting For the Costs of Computer Software to be
Sold, Leased, or Otherwise Marketed (SFAS No. 86) which requires
capitalization to begin when technological feasibility has been
established and ends when the product is available for general release to
customers. Software development costs incurred prior to technological
feasibility, defined by implementation of a beta project, are considered
research and development costs and are expensed as incurred. Capitalized
costs are amortized on a straight-line method over two years.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Inventory Valuation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | Inventories consist primarily of component parts and computer hardware
and are carried at the lower of cost, determined by the
First-In-First-Out (FIFO) method, or market. We write our inventories
down to estimated market value based on assumptions of our future demand,
based on projected product releases and market conditions. Variation in
market trends, customer preferences, introduction of new products
(replacing existing products) or technological advances could, however,
significantly affect these estimates and result in additional inventory
write-downs.

7



---



##### 



CYBERGUARD CORPORATION
September 30, 2002
(Dollars in thousands, except per share data)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Deferred Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | We provide a valuation allowance for deferred tax assets, that cannot be
currently recognized due to our cumulative losses and the uncertainty as
to future recoverability. While we have considered future taxable income
and ongoing prudent and feasible tax planning strategies in assessing the
need for the valuation allowance, in the event we were to determine that
we would be able to realize the deferred tax asset, in the future, an
adjustment to the deferred tax asset would increase income in the period
the determination was made.

Information Relating to Forward Looking Statements

Statements regarding future products, prospects, profitability, business
plans and strategies, future revenues and revenue sources, future liquidity and
capital resources, future computer network security market directions, future
acceptance of the Companys products and 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.

Forward-looking 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 annual net operating losses and the
financing of these losses through the sale of assets and newly issued Company
securities; the Companys ability to execute on its business plans; the
Companys dependence on outside parties such as its key customers and alliance
partners; competition from major computer hardware, software, and networking
companies; 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; global economic conditions, overall network
security spending, risks associated with obtaining and maintaining patent and
intellectual property right protection, uncertainties in availability of
expansion capital in the future and other risks associated with capital
markets, including the events of September 11, 2001 and its repercussions. In
addition, certain 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 class action lawsuit against the Company relating to the restatement of financial
results for the fiscal periods noted above. 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.

8



---



##### 



CYBERGUARD CORPORATION
September 30, 2002
(Dollars in thousands, except per share data)

The Companys future success is based largely on its ability to develop
and sell increasingly technologically advanced network security solutions in
sufficient volume and at sufficient prices to become profitable on a consistent
basis. In addition, the network security market is characterized by extremely
rapid technological change, requiring rapid product development. 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 our 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 investments 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
investments. 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.

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 European subsidiary that uses the local currency to
denominate its transactions. Therefore, the Company is subject to certain risks
associated with fluctuating foreign currencies.

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. 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.

PART II: OTHER INFORMATION

Item 1. Legal Proceedings

Litigation

On August 24, 1998, the Company announced, among other things, that due to
a review of its revenue recognition practices 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 former officers and directors.
Pursuant to an order issued by the Court, these actions have been consolidated
into one action, styled Stephen Cheney, et al. v. CyberGuard Corporation, et
al., Case No. 98-6879-CIV-Gold, in the United States District Court, Southern
District of Florida. On August 23, 1999, the plaintiffs filed a Consolidated
and Amended Class Action Complaint. This action seeks damages purportedly on
behalf of all persons who purchased or otherwise acquired the Companys common
stock during various periods from November 7, 1996 through August 24, 1998.
The complaint alleges, 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 action alleges violations of
Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and SEC
Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act.
Subsequently, the defendants, including the Company, filed their respective
motions to dismiss the Consolidated and Amended Class Action Complaint. On
July 31, 2000, the Court issued a ruling denying the Companys and Robert L.
Carberrys (the Companys CEO from June 1996 through August 1998)
9

CYBERGUARD CORPORATION
September 30, 2002
(Dollars in thousands, except per share data)

motions to
dismiss. The court granted the motions to dismiss with prejudice for
defendants William D. Murray (the Companys CFO from November 1997 through
August 1998), Patrick O. Wheeler (the Companys CFO from April 1996 through
October 1997), C. Shelton James (the Companys former Audit Committee
Chairman), and KPMG Peat Marwick LLP (KPMG). On August 14, 2000, the
plaintiffs filed a motion for reconsideration of that order. The Company filed
an answer to the plaintiffs Consolidated and Amended Class Action Complaint on
August 24, 2000. On March 20, 2001, the Court ruled on the plaintiffs motion
for reconsideration that the previously dismissed defendants William D. Murray,
Patrick O. Wheeler and C. Shelton James should not have been dismissed from the
action and shall be defendants in this action under the control person
liability claims under Section 20(a) of the Exchange Act, and that the
plaintiffs may amend the Consolidated and Amended Class Action Complaint to
bring claims against C. Shelton James under Section 10(b) of the Exchange Act
and Rule 10b-5 promulgated thereunder. On April 5, 2001, the plaintiffs filed
their Second Consolidated and Amended Class Action Complaint to include amended
claims against C. Shelton James. On May 10, 2001, the Company filed an answer
and affirmative defenses to plaintiffs Second Consolidated and Amended Class
Action Complaint. On August 14, 2002, the Court granted the plaintiffs Motion
for Class Certification and certified the class to include all investors who
acquired the Companys common stock between November 7, 1996 and August 24,
1998 and were damaged by the purchase of such stock. The trial is scheduled for
March 2004. The parties are currently conducting discovery.

The Companys obligation to indemnify its officers and directors under the
aforementioned lawsuit 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 lawsuit, and the carrier has sent the Company a reservation of
rights letter. The Company intends to vigorously defend this action, 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 lawsuit 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 lawsuit or, if
unsuccessful, that insurance will be available to pay all or any portion of the
expense of the lawsuit. If the Company is unsuccessful in defending the lawsuit
and the insurance coverage is unavailable or insufficient, the resolution of
the lawsuit 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 September 16, 1999, the Company filed a lawsuit against KPMG and August
A. Smith, the KPMG engagement partner. The lawsuit is pending in the Circuit
Court of the 17th Judicial Circuit in and for Broward County, Case No.
00-004102-CACE-14. On May 1, 2000, the Company filed the First Amended
Complaint, alleging that KPMG failed to properly audit the Companys financial
statements and provided inaccurate advice on accounting matters for fiscal
years 1996, 1997 and 1998. The action alleges professional malpractice, breach
of fiduciary duty, breach of contract and breach of implied duty of good faith,
and seeks damages in excess of $10 million. KPMG and Mr. Smith filed motions to
dismiss, which were denied. In August 2000, KPMG and Mr. Smith filed their
answers and KPMG filed counterclaims against the Company, alleging the
Companys breach of contract, negligent misrepresentation and abuse of process,
and seeking an unspecified amount of damages consisting of unpaid service fees
and legal fees
and costs. The Company filed an answer to KPMGs counterclaims and moved
to dismiss KPMGs abuse of process counterclaim. On April 9, 2001, the Court
dismissed the abuse of process counterclaim with prejudice. The parties are
currently conducting discovery.

10



---



##### 



CYBERGUARD CORPORATION
September 30, 2002
(Dollars in thousands, except per share data)

On November 2, 2001, the Company filed a lawsuit against Data Return
Corporation in the United States District Court of the Southern District of
Florida, alleging breach of contract, and seeking, among other remedies,
damages of approximately $4.2 million. On November 26, 2001, Data Return
Corporation filed an answer and affirmative defenses. On or about January 15,
2002, Data Return Corporation filed a motion challenging the jurisdiction of
the U.S. District Court, Southern District of Florida. On or about March 27,
2002, the U.S. District Court for the Southern District of Florida dismissed
the action on jurisdictional grounds. The Company continues to consider its
alternatives with respect to this litigation, including whether to re-file the
action in a different jurisdiction.

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

Item 2. Changes in Securities and Use of Proceeds

None

Item 3. Defaults upon Senior Securities

None

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:
|--- |  | ---------
|   

|      |  |   |  |                                                                                                                                                                      
|----- |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1  |  |  |  | Retirement
Savings Plan, as amended and restated on July 1, 2002(1).                                                                                                 
|99.01 |  |  |  | Certification by
Scott J. Hammack, Chief Executive
Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|99.02 |  |  |  | Certification by Michael D. Matte, Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. 



---

|(1) |  | Incorporated herein by
reference to the Companys Registration Statement on
Form S-8 (Commission File Number 333-58262), filed on
July 19, 2002.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------



|(b) |  | Reports filed on Form 8-K during the quarter ended September 30, 2002:
The Company filed no reports on Form 8-K during the quarter ended
September 30, 2002.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------





---



##### 



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 7, 2002 |  | CYBERGUARD CORPORATION
|                      
|                       |  | By:                    |  | /s/ Scott J. Hammack                                                                              
|                       |  |                        |  |                                                                                                   
|                       |  |                        |  | Chairman and Chief Executive Officer                                                              
|                       |  |                        |  |                                                                                                   
|                       |  | By:                    |  | /s/ Michael D. Matte                                                                              
|                       |  |                        |  |                                                                                                   
|                       |  |                        |  | Vice President of Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)





---



##### 



CERTIFICATIONS

I, Scott J. Hammack, certify that:

1.     I have reviewed this quarterly report on Form 10-Q for CyberGuard
Corporation;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) Designed such disclosure controls and procedures to ensure the
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;



| |                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b) Evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and



| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):



| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and



| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 7, 2002

/S/ SCOTT J. HAMMACK



Scott J. Hammack
Chief Executive Officer





---



##### 



I, Michael D. Matte, certify that:

1.     I have reviewed this quarterly report on Form 10-Q for CyberGuard
Corporation;

2.     Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) Designed such disclosure controls and procedures to ensure the
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;



| |                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b) Evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and



| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):



| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and



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| | b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 7, 2002

/S/ MICHAEL D. MATTE

Michael D. Matte
Chief Financial Officer