<PAGE>
                        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, 2001

                                       OR

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

          For the transition period from ___________ to _____________

                         Commission file number 0-24544

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

<TABLE>
<CAPTION>

                     Florida                                                                65-0510339
--------------------------------------------------------------                 ------------------------------------
<S>                                                                            <C>
(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 Principle Executive Offices)                                                     (Zip Code)

</TABLE>

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

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

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

Yes [X] No [ ]

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

Yes [X] No [ ]

          As of November 13, 2001, 18,672,884 shares of the Registrant's $0.01
par value Common Stock were outstanding.


<PAGE>




PART I: FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

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


<TABLE>
<CAPTION>
                                                                   Three Months Ended
                                                                -----------------------------
                                                                Sept. 30,           Sept. 30,
                                                                  2001                2000
                                                                --------            ---------
<S>                                                             <C>                  <C>
Revenues:
Products                                                        $  3,001             $  2,941
Services                                                           1,575                1,107
                                                                --------             --------
  Total revenues                                                   4,576                4,048

Cost of revenues:
Products                                                             736                  658
Services                                                             451                  522
                                                                --------             --------
  Total cost of revenues                                           1,187                1,180
                                                                --------             --------
Gross profit                                                       3,389                2,868
                                                                --------             --------

Operating expenses:
Research and development                                           1,356                1,314
Selling, general and administrative                                2,969                3,229
                                                                --------             --------
  Total operating expenses                                         4,325                4,543
                                                                --------             --------
Operating loss                                                      (936)              (1,675)
                                                                --------             --------

Other income/(expense):
Interest income/(expense), net                                        22                 (199)
Gain/(loss) on sale of assets                                         (3)                  13
Other income                                                           9                    2
                                                                --------             --------
  Total other income/(expense)                                        28                 (184)
                                                                --------             --------

Net loss                                                        $   (908)            $ (1,859)
                                                                ========             ========

Basic and fully-diluted loss per common share                   $  (0.05)            $  (0.19)
                                                                ========             ========

Weighted average number of common shares outstanding              18,552                9,849
                                                                ========             ========

</TABLE>


      See accompanying notes to condensed consolidated financial statements




                                       2
<PAGE>
                         CYBERGUARD CORPORATION
                  CONDENSED CONSOLIDATED BALANCE SHEET
                              (Unaudited)
                         (Amounts in thousands)

<TABLE>
<CAPTION>

                                                                       Sept. 30,        June 30,
                                                                         2001             2001
                                                                       ---------        --------
<S>                                                                    <C>              <C>
ASSETS
Cash and cash equivalents                                              $  3,933         $  4,771
Restricted cash                                                             715              780
Accounts receivable, less allowance for uncollectible accounts
  of $56 at Sept. 30, 2001 and $36 at June 30, 2001                       4,682            4,147
Inventories, net                                                            426              294
Other current assets                                                      1,082            1,065
                                                                       --------         --------
  Total current assets                                                   10,838           11,057

Property and equipment at cost, less accumulated
  depreciation of $1,899 at Sept. 30, 2001 and
  $1,710 at June 30, 2001                                                 1,111            1,211
Capitalized software, net                                                   546              741
Other assets                                                                 90               90
                                                                       --------         --------
        Total assets                                                   $ 12,585         $ 13,099
                                                                       ========         ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Line of credit and note payable                                           1,034              919
Accounts payable                                                            430              967
Convertible debenture, net                                                   62               62
Deferred revenue                                                          3,324            2,308
Accrued expenses and other liabilities                                    1,814            2,369
                                                                       --------         --------
 Total liabilities                                                        6,664            6,625

Shareholders' equity

Common stock par value $0.01 authorized 50,000 shares
   issued and outstanding 18,633 at Sept. 30, 2001
   and 18,429 at June 30, 2001                                              186              184
Additional paid-in capital                                               87,877           87,557
Accumulated deficit                                                     (82,374)         (81,467)
Accumulated other comprehensive income                                      232              200
                                                                       --------         --------
  Total shareholders' equity                                              5,921            6,474
                                                                       --------         --------
        Total liabilities and shareholders' equity                     $ 12,585         $ 13,099
                                                                       ========         ========


</TABLE>

      See accompanying notes to condensed consolidated financial statements




                                       3
<PAGE>
                         CYBERGUARD CORPORATION
              CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
                               (Unaudited)
                         (Amounts in thousands)


<TABLE>
<CAPTION>

                                                                       Three Months Ended
                                                                    -------------------------
                                                                    Sept. 30,       Sept. 30,
                                                                       2001            2000
                                                                    ---------       ---------
<S>                                                                  <C>             <C>
Cash flows from operating activities
Net loss                                                             $  (908)        $(1,859)
Adjustment to reconcile net loss to net cash
  used in operating activities:
Depreciation                                                             195             178
Amortization                                                             195             248
Disposal of property & equipment                                          24              --
Interest on convertible debt                                               2              36
Provision for uncollectible accounts receivable                           19              28
Provision for inventory reserve                                            3               1
Compensation expense related to modification of stock options             27              --
Translation Adjustment                                                    32              --

Changes in assets and liabilities
Restricted cash                                                           65              --
Accounts receivable                                                     (554)          1,029
Other current assets                                                     (17)           (201)
Inventories                                                             (135)           (157)
Accounts payable                                                        (537)            296
Accrued expenses and other liabilities                                  (556)            257
Deferred revenue                                                       1,015            (259)
Other, net                                                                --             175
                                                                     -------         -------
  Net cash used in operating activities                               (1,130)           (228)
                                                                     -------         -------

Cash flows used in investing activities
Purchase of property & equipment                                        (118)           (252)
                                                                     -------         -------
  Net cash used in investing activities                                 (118)           (252)
                                                                     -------         -------

Cash flows provided by (used in) financing activities
Restricted cash                                                           --              53
Repayment of notes payable                                                (8)           (169)
Net borrowings/(repayments) under revolving line of credit               124            (654)
Proceeds from stock options exercised                                    132             102
Proceeds from sale of common stock                                       162              51
                                                                     -------         -------
  Net cash used in from financing activities                             410            (617)
                                                                     -------         -------

Net decrease in cash                                                    (838)         (1,097)
Cash and cash equivalents at beginning of period                       4,771           2,497
                                                                     -------         -------
Cash and cash equivalents at end of period                           $ 3,933         $ 1,400
                                                                     =======         =======

Supplemental disclosure of cash flow information
Cash paid for interest                                                    20              93
                                                                     =======         =======
Cash paid for income taxes                                                --              --
                                                                     =======         =======

</TABLE>


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 $27 in compensation expense for the quarter
ended September 2001.


      See accompanying notes to condensed consolidated financial statements




                                       4
<PAGE>
CYBERGUARD CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 2001
(Amounts in Thousands, Except Per Share Data)
(Unaudited)

1. BASIS OF PRESENTATION

     CyberGuard Corporation (the "Company") has prepared the consolidated
financial statements included herein, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission with respect to Form 10-Q.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures made are adequate so as to make the
information contained not misleading. These interim financial statements and the
notes should be read in conjunction with the financial statements and the notes
included in the Company's 10-K for the year ended June 30, 2001. In the
Company's opinion, all adjustments (consisting only of normal recurring
adjustments) necessary for fair presentation of the information shown have been
included. Generally accepted accounting standards also requires management to
make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and disclose contingent assets and
liabilities at the date of the financial statements. Significant estimates
include those made for software development costs, reserve for inventories, the
allowance for uncollectible accounts, and contingencies. Actual results could
differ from those estimates.

     The results of operations for the three months ended September 30, 2001 are
not necessarily indicative of the results of operations that may be expected for
the year ending June 30, 2002.

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

     The Company's operating results and financial condition may be impacted by
a number of factors including, but not limited to the following, any of which
could cause actual results to vary materially from current and historical
results or the Company's anticipated future results. A portion of the Company's
revenue is derived from its international operations and sources. As a result,
the Company's operations and financial results 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 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.

2. 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.



                                       5
<PAGE>
CYBERGUARD CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 2001
(Amounts in Thousands, Except Per Share Data)
(Unaudited)


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) 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 plaintiff's Second Consolidated and
Amended Class Action Complaint. On April 20, 2001, the plaintiffs filed amended
motion for class certification. Both parties are currently conducting class
certification and limited merits discovery. The trial date is set to begin on
June 2, 2003.

     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,
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.

     In August 1998, the Securities and Exchange Commission ("SEC") commenced an
informal inquiry into certain accounting and financial reporting practices of
the Company and its officers, directors and employees. On March 25, 1999, the
SEC issued a formal order of investigation (which the Company learned of on
September 27, 1999) into certain accounting and financial reporting practices of
the



                                       6
<PAGE>

CYBERGUARD CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 2001
(Amounts in Thousands, Except Per Share Data)
(Unaudited)


Company and its officers, directors and employees. The SEC staff ("Staff")
recently advised the Company that the Staff has made a preliminary determination
to recommend bringing a civil enforcement action against the Company based on
allegations that the Company violated the Exchange Act in connection with its
financial statements during the period from the quarter ended June 30, 1996
through the quarter ended March 31, 1998. The Company is aware that the
potential range of sanctions against the Company, should an enforcement
proceeding be brought, could include injunctive relief against the Company
prohibiting future violations of the Exchange Act. The Company is also aware
that the Staff has advised several former executive officers of the Company of
its intention to recommend the bringing of enforcement actions against them
based on allegations that they violated the Exchange Act. The Company is aware
that the potential range of sanctions against the former executive officers
could include injunctive relief against future violations of the Exchange Act as
well as civil monetary penalties and bars against their serving as officers and
directors of a public Company. The Company is seeking to resolve the issues with
the SEC.

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

3.  SUBSEQUENT EVENTS

     The Company's backlog for the quarter ended September 30, 2001 was $270 as
compared to $6,390 million for the quarter ended December 31, 2000. The decrease
resulted from the default by one customer in taking delivery of a large purchase
commitment over a 12-month period. On November 2, 2001, the Company filed a
complaint against the customer for breach of contract.

     During October 2001, approximately 52 employees elected to participate in a
special stock option program offered by the Company, whereby a base salary
reduction entitles an employee to receive a specified number of stock options to
purchase shares of the Company's common stock at $1.30 per share. Approximately
1,800 stock options, with a one-year vesting period that will expire 10 years
from the grant date, will be issued related to this offering.



                                       7
<PAGE>


CYBERGUARD CORPORATION
September 30, 2001
(Amounts in Thousands, Except Per Share Data)


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

     The Company is a leading provider of network security solutions designed to
protect enterprises that use the Internet for electronic commerce and secure
communication. The Company's CyberGuard firewall provides a level of security,
features and availability that the Company believes is not matched in the
industry. Through a combination of proprietary and third-party technology (such
as Virtual Private Network ("VPN"), authentication, virus scanning, encryption,
advanced reporting, high availability and centralized management), the Company
provides a full suite of products and services that are designed to protect the
integrity of electronic data and customer applications from unauthorized
individuals and digital thieves.

RESULTS OF OPERATIONS

THE QUARTER ENDED SEPTEMBER 30, 2001 COMPARED TO THE QUARTER ENDED
SEPTEMBER 30, 2000

NET REVENUES

     Net revenues consist primarily of network security products and services,
including third party security products and service, and support related to
security products. For the quarter ended September 30, 2001, net revenues were
$4,576 compared to $4,048 for the quarter ended September 30, 2000. The increase
was comprised of an increase of $60 in network security product revenues and an
increase of $468 in service revenues. The increase in network security product
revenues was primarily the result of continued acceptance of the Company's full
suite of appliance products. The increase in service revenue corresponds to the
growth in the Company's customer base. Network security products accounted for
65.6% for revenues during the quarter ended September 30, 2001 as compared to
72.7% for the quarter ended September 30, 2000. Support services for network
security products accounted for 34.4% of revenues during the quarter ended
September 30, 2001 as compared to 27.3% of revenues during the quarter ended
September 30, 2000.

GROSS PROFIT

     Gross Profit as a percentage of revenues increased to 74.1% for the quarter
ended September 30, 2001 from 70.8% for the quarter ended September 30, 2000.
The increase reflects reduced cost of service associated with support revenue
generated during the quarter, and non-recurring inventory adjustment.

OPERATING EXPENSES, OTHER INCOME AND EXPENSE AND NET LOSS

     Overall, operating expenses decreased $218 for the quarter ended September
30, 2001 to $4,325. This is primarily due to a decrease in legal and advertising
costs.

     Other Income and Expense decreased $212 to $28 for the quarter ended
September 30, 2001. This is due to a decrease in interest expense of $221
primarily due to the conversion of the convertible debt and warrants during
fiscal year 2001.

     The net loss for the quarter ended September 30, 2001 was $908 compared to
$1,859 for the quarter ended September 30, 2000. The Company did not provide for
income taxes due to the significant net operating loss carryforwards available.



                                       8
<PAGE>
CYBERGUARD CORPORATION
September 30, 2001
(Amounts in Thousands, Except Per Share Data)


LIQUIDITY AND CAPITAL RESOURCES

     The Company has experienced losses since its inception as a network
security company. The Company's historical uses of cash have been to fund net
losses from operations, establish inventory stocking levels, and fund capital
expenditures for property, equipment and software. For the quarter ended
September 30, 2001, the Company incurred a net loss of approximately $908 on
revenues of approximately $4,576. For the quarter ended September 30, 2000, the
Company incurred a net loss of approximately $1,859 on revenues of approximately
$4,048.

     The consolidated financial statements do not include any adjustments
relating to the realization of assets and the recognition and satisfaction of
liabilities that might be necessary as a result of the matters described in this
Item 2 or Part II, Item 1 of this report.

     At September 30, 2001, the Company had cash and cash equivalents on hand of
$3,933 representing a decrease of $838 from $4,771 as of June 30, 2001. Accounts
payable and accrued liabilities decreased by $1,092, accounts receivable
increased by $535, property and equipment decreased by $100, and inventory
levels increased by $132 compared to June 30, 2001.

     The Company's principal sources of liquidity at September 30, 2001,
consisted of cash, accounts receivable, a revolving line of credit with Coast
Business Credit, and vendor trade credit. The revolving line of credit with
Coast Business Credit is based on available eligible account receivables and
inventory. The revolving line of credit increased $123, from $113 to $236
compared to June 30, 2001. The amount available under the line as of September
30, 2001 was $791. The maturity date on the revolving line of credit is December
31, 2001, and will not be renewed.

     In March 2001, the Company purchased products from a third-party supplier
for resale to the Company's customer. The customer returned the products to the
Company for defectiveness and the Company subsequently returned the products for
defectiveness to the third-party supplier and has not paid for the products. The
third-party supplier demanded payment. The Company believes it does not have any
obligation to pay for those products. The total amount in dispute is
approximately $300.

     The Company uses the U.S. Dollar as its reporting currency for financial
statement purposes. The Company conducts business in numerous countries around
the world through its international subsidiary that uses the local currency to
denominate its transactions. Therefore, the Company is subject to certain risks
associated with fluctuating foreign currencies. The resulting changes in the
financial statements do not indicate any underlying changes in the financial
position of the international subsidiary, but merely reflect the adjustment in
the carrying value of the net assets of this subsidiary at the current U.S.
dollar exchange rate.

     Due to the long-term nature of the Company's investment in this subsidiary,
the translation adjustments resulting from these exchange rate fluctuations are
excluded from the results of operations and recorded in a separate component of
consolidated stockholders' equity. The Company monitors its currency exposure
but does not hedge its translation exposure due to the high economic costs of
such a program and the long-term nature of its investment in its European
subsidiary.

     Based upon information currently available to the Company, including the
Company's current level of sales, its margins on sales, its expected levels of
expense, opportunities for selling additional network security products and the
availability of additional equity and debt financing, the Company believes that
it has an opportunity to execute on its business plans and achieve profitability
in the long term. There can be no assurance, however, that the Company will be
able to execute on its business plans, or that it will not be required to obtain
additional financing or capital infusions. There can be no assurance that the




                                       9
<PAGE>

CYBERGUARD CORPORATION
September 30, 2001
(Amounts in Thousands, Except Per Share Data)


Company will be able to secure additional financing or that such additional
financing will be on terms and conditions acceptable to the Company. Any
additional financing may involve dilution of the interests of the Company's then
existing shareholders. The future liquidity of the Company will be affected by
numerous factors, including sales volumes, gross margins, the levels of selling,
general and administrative expenses, levels of required capital expenditures and
access to external sources of financing. Other recent and possible future events
that could also materially impact the Company's ability to successfully execute
on its business plans are described in Information Relating to Forward Looking
Statements of this Report on Form 10-Q.

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-K 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, 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.
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 purported
class action lawsuit against the Company and former executive officers and
directors of the Company, relating to the restatement of financial results for
the fiscal periods noted above and a Securities and Exchange Commission
investigation regarding these matters; and the de-listing of the Company from
the NASDAQ National Market. In addition, the forward-looking statements herein
involve assumptions, risks and uncertainties, including, but not limited to
economic, competitive, operational, management, governmental, regulatory,
litigation and technological factors affecting the Company's operations,
liquidity, capital resources, markets, strategies, products, prices and other
factors discussed elsewhere herein and in the other documents filed by the
Company with the Securities and Exchange Commission. Many of the foregoing
factors are beyond the Company's control.

     The Company's future success is based largely on its ability to develop and
sell increasingly technologically advanced network security solutions in
sufficient volume and at sufficient prices to become




                                       10
<PAGE>
CYBERGUARD CORPORATION
September 30, 2001
(Amounts in Thousands, Except Per Share Data)


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 its products current. The Company believes that its ability to generate
adequate cash flow from operations will be critical to its future.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES CONCERNING MARKET RISK

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

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     On August 24, 1998, the Company announced, among other things, that due to
a review of its revenue recognition 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) 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




                                       11
<PAGE>
CYBERGUARD CORPORATION
September 30, 2001
(Amounts in Thousands, Except Per Share Data)


Complaint to include amended claims against C. Shelton James. On May 10, 2001,
the Company filed an answer and affirmative defenses to plaintiff's Second
Consolidated and Amended Class Action Complaint. On April 20, 2001, the
plaintiffs filed amended motion for class certification. Both parties are
currently conducting class certification and limited merits discovery. The trial
date is set to begin on June 2, 2003.

     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,
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.

     In August 1998, the Securities and Exchange Commission ("SEC") commenced an
informal inquiry into certain accounting and financial reporting practices of
the Company and its officers, directors and employees. On March 25, 1999, the
SEC issued a formal order of investigation (which the Company learned of on
September 27, 1999) into certain accounting and financial reporting practices of
the Company and its officers, directors and employees. The SEC staff ("Staff")
recently advised the Company that the Staff has made a preliminary determination
to recommend bringing a civil enforcement action against the Company based on
allegations that the Company violated the Exchange Act in connection with its
financial statements during the period from the quarter ended June 30, 1996
through the quarter ended March 31, 1998. The Company is aware that the
potential range of sanctions against the Company, should an enforcement
proceeding be brought, could include injunctive relief against the Company
prohibiting future violations of the Exchange Act. The Company is also aware
that the Staff has advised several former executive officers of the Company of
its intention to recommend the bringing of enforcement actions against them
based on allegations that they violated the Exchange Act. The Company is aware
that the potential range of sanctions against the former executive officers
could include injunctive relief against future violations of the Exchange Act as
well as civil monetary penalties and bars against their serving as officers and
directors of a public Company. The Company is seeking to resolve the issues with
the SEC.

     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.



                                       12
<PAGE>
CYBERGUARD CORPORATION
September 30, 2001
(Amounts in Thousands, Except Per Share Data)


     The Company is involved from time to time in other litigation on various
matters relating to the conduct of its business. The Company believes that these
other litigation matters 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:

     Exhibit No.      Exhibit Description
     -----------      -------------------

     None

(b)  Reports filed on Form 8-K during the quarter ended September 30, 2001:
     During the quarter ended September 30, 2001, the Company filed no reports
     on Form 8-K.



                                       13
<PAGE>
                                   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 14, 2001                CYBERGUARD CORPORATION



                                       By: /s/ Scott J. Hammack
                                           -------------------------------------
                                           Chairman and Chief Executive Officer



                                       By: /s/ Michael D. Matte
                                           -------------------------------------
                                           Chief Financial Officer
                                           (Principal Financial and
                                           Accounting Officer)







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