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

                                    FORM 10-K

(Mark One)

|X|   Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
      Act of 1934 For the Fiscal Year Ended December 31, 1996

                                       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 0-27074

                          SECURE COMPUTING CORPORATION
-------------------------------------------------------------------------------
             (Exact name of Registrant as specified in its charter)



            Delaware                                             52-1637226
            --------                                             ----------
(State or other jurisdiction of                               (I.R.S. employer
 incorporation or organization)                              identification no.)


          2675 Long Lake Road
          Roseville, Minnesota                                      55113
          --------------------                                      -----
(Address of principal executive offices)                          (Zip code)


Registrant's telephone number, including area code:            (612) 628-2700
                                                               --------------

         Securities registered pursuant to Section 12(b) of the Act: None

         Securities registered pursuant to Section 12(g) of the Act:
                                          Common Stock, par value $.01 per share

         Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

         The aggregate market value of the Common Stock held by non-affiliates
of the Registrant as of March 21, 1997 was $52,860,958, based on the closing
sale price for the Company's Common Stock on that date. For purposes of
determining this number, all officers and directors of the Registrant are
considered to be affiliates of the Registrant, as well as individual
stockholders holding more than 10% of the Registrant's outstanding Common Stock.
This number is provided only for the purpose of this report on Form 10-K and
does not represent an admission by either the Registrant or any such person as
to the status of such person.

         As of March 21, 1997 the Registrant had 15,377,074 shares of Common
Stock issued and outstanding, which number includes (i) 4,127,520 Exchangeable
Shares that have the same voting and other rights as Common Stock and are
immediately exercisable for shares of Common Stock and (ii) securities that are
immediately convertible into 10,908 Exchangeable Shares.



                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the Registrant's definitive Proxy Statement for the
Registrant's Annual Meeting of Stockholders to be held May 14, 1997 for the year
ended December 31, 1996, a definitive copy of which the Registrant anticipates
will be filed on or about April 8, 1997, are incorporated by reference in Part
III.


                                     PART I

ITEM 1.  BUSINESS

         The Company produces and markets security products designed to enable
safe, secure and productive use of open networks, including the Internet, in
support of critical business activities. Prior to July 1989, when the Company
was spun off, the technical team was part of Honeywell's Systems and Research
Center, engaged in research and the development of computer security
technologies under US government contracts. At that time the Company developed
its core security technologies, including its patented "type enforcement"
technology ("Type Enforcement") for the National Security Agency ("NSA") and
other government agencies. These US government agencies continue to fund a major
portion of the Company's research and have also been the primary customers for
the Company's network security products.

         During 1996, the Company acquired Webster Network Strategies, Inc., a
Naples, Florida based developer of web monitoring and filtering software; Border
Network Technologies Inc. (now known as Secure Computing Canada, Ltd.), a
Toronto based network security software developer; and Enigma Logic, Inc., a
Concord, California based maker of network authentication software. Each entity
is a wholly-owned subsidiary of Secure Computing Corporation. The acquisitions
brought the Company Internet monitoring, improved identification and
authentication and complimentary firewall technologies as well as access to an
established global network of distributors and resellers.

         Based upon its understanding of the features in products and of the
services offered by the Company's competitors, the Company believes that its
products and services provide one of the most comprehensive network and
internetworking security solutions available in the market today.

INDUSTRY BACKGROUND

         PRIVATE NETWORKS. Enterprise computing has evolved over the past
twenty-five years from mainframe computers supporting a number of terminals
toward networks of inter-connected personal computers. As the cost of personal
computers has decreased, organizations increasingly began to connect personal
computers into local-area networks ("LANs") in order to share data and
applications within work groups. As network technology has advanced,
organizations have connected together geographically dispersed LANs into
wide-area networks ("WANs"). Originally each vendor provided network support
using its own proprietary suite of network, transport, and application
protocols, Novell IPX/SPX, IBM SNA, etc. Today, most vendors either support the
standard TCP/IP protocol suite either by providing an implementation with their
products and/or by providing gateways that translate between their proprietary
protocol suite and the TCP/IP suite. As a result, an increasing number of
businesses are using the standard TCP/IP protocol suite for at least some of
their internal network communications.

         This presents several advantages to an organization. They can combine
mainframes, UNIX servers and personal computers running on different operating
systems such as DOS, Windows 95 or NT, and the Macintosh operating system into a
single network. They can support remote access from other private networks to
provide customer support bulletin board services, ordering and acknowledgment
using electronic data interchange ("EDI"), and database sharing. Since TCP/IP is
an open standard maintained by the Internet Engineering Task Force ("IETF"),
there are a large number of researchers and vendors developing new protocols to
support applications ranging from electronic commerce and digital cash to video
conferencing. Thus the utility of corporate networks and the opportunities to
use them in support of enterprise critical operations are growing. Most
importantly, the adoption of the TCP/IP protocol suite enables an organization
to use the Internet to implement a WAN, thereby extending its internal
information systems and enterprise applications to geographically dispersed
facilities, remote offices and mobile employees. The Internet provides a lower
cost, though insecure, alternative to private company networks.

         THE INTERNET. The Internet, the publicly accessible global web of
inter-connected computer networks, allows any computer connected to it to
communicate with any other. Much of the recent rapid growth of the Internet and
the related World Wide Web is attributed to an increase in commercial access
providers and to organizations seeking to exploit the Internet for commercial
gain. Uses include intra- and inter-organizational communication and data
sharing, product marketing and advertising, interactive customer feedback, and
remote customer.

         However, there are limits to how some organizations have chosen to use
the Internet. Many commercial organizations have established a "home page"
giving them a presence on the Internet but have not connected mission critical
internal networks to the Internet. As a result, these organizations' personnel
do not have full access to the resources of the Internet, and the organization's
customers, suppliers, and other business partners do not have timely access to
the organization's personnel and data. The Company believes that, due to the
sensitive nature of the information involved, the growth of commercial
organizations fully connected to the Internet and the broad introduction of
significant additional commercial uses of the Internet have been slowed by
security concerns, and will continue to be slowed by such concerns until use of
the Internet can be made significantly more secure.

         NETWORK SECURITY. Networks and network transmissions are vulnerable to
a variety of attacks that can result in the compromise of either the secrecy or
the integrity of mission critical data or that can cause the loss of services
critical to the organization. The National Institute of Standards and Technology
(the "NIST") has identified the TCP/IP protocol suite and the Internet as
particularly vulnerable to attack. Individuals have been able to exploit
weaknesses in the protocol suite and network configurations to gain unauthorized
access to network transmissions and individual computers, and have used such
access to alter or steal data or, in some cases, to launch destructive attacks
on data and computers within a compromised network. A number of recent attacks
have garnered significant publicity and have brought attention to the attackers'
techniques (given colorful names such as "packet spoofing," "password sniffing,"
"Trojan horses" and "session hijacking"). Moreover, the Internet itself serves
as a threat multiplier. Knowledge of attacks and the software required to mount
these attacks spreads quickly through the hacker community. Thus, an attacker
does not need to be especially sophisticated. Moreover, the attacker can launch
the attack from anywhere on the Internet, often hopping from site to site to
hide his identify and true location.

         Security conscious industries such as financial services, insurance,
healthcare, telecommunications and defense have typically addressed network
security concerns by using private networks. This is not an alternative for some
organizations that want to take advantage of the business opportunities provided
by networked computing in general and the Internet in particular. Even within
private networks, the increasing number of authorized users having direct access
to expanding networks and the data contained on such networks has increased the
need to provide protection for financial results, personnel files, research and
development projects and other sensitive data. Moreover, these private networks
do not lend themselves to the rapid reconfiguration necessary to support the
dynamic needs of companies as they form new alliances and terminate old ones in
a constantly shifting sea of virtual enterprises. What is needed is an
integrated set of security products that enables a corporation to connect safely
to the Internet and to rapidly reconfigure its information security policy as
the business climate and alliances change.

         The Company believes that the combination of security concerns and the
relatively small number of businesses offering comprehensive, flexible,
enterprise-wide security solutions presents a significant commercial opportunity
for providers of network security products and services.

         ELEMENTS OF NETWORK SECURITY. The Company has identified a number of
key elements of an effective network security solution, each of which should be
addressed by an organization in order for it to secure its information networks
from unauthorized access. These features are security policy, identification and
authentication, access control, encryption, administration, and audit.

         * SECURITY POLICY -- the means by which an organization determines
which users and other network principals have access to its network, which
actions each principal is permitted to take, and how the network will be
managed. Security products must be flexible enough to support a variety of
polices and easy to reconfigure when an organization's policies change.

         * IDENTIFICATION AND AUTHENTICATION -- the means by which the
organization identifies principals attempting to gain access to a network, and
confirms the source of transmissions over the network.

         * ACCESS CONTROL -- the means by which a principal is prevented from
taking unauthorized actions, such as importing (exporting) information from (to)
the Internet.

         * ENCRYPTION -- the means by which information, whether in storage or
in transmission, is kept private and its integrity is maintained in the event
that a transmission is intercepted or the storage medium is stolen or tampered
with.

         * ADMINISTRATION -- the ability of a network administrator to configure
the network's security features to implement the organization's security policy.

         * AUDIT AND ACCOUNTING -- the ability to monitor activity in the
network, to detect and respond to abuse of information assets, and to hold
principals accountable for their actions.

SECURE COMPUTING'S SOLUTION

         Based upon its understanding of the features in products and of the
services offered by the Company's competitors, the Company believes that its
current family of products and services address the key elements of network
security and provide one of the most comprehensive solutions available in the
market today. The Company offers fee-based consulting services to assist
potential clients in identifying security threats and vulnerabilities and
designing security policies.

         Access control is implemented through the Company's firewalls and
Secure Network Server, which permit privilege to be determined by user,
application or data file and type of access to files (for example, read, write
or execute) and ensure that access to one set of applications and data files
does not enable access to system files or other types of files. The Company's
firewalls are also compatible with data encryption software and hardware
products currently available from third parties. The Company's SafeWord products
use one-time dynamically changing passwords to provide identification and
authentication. The Company's firewalls also currently support third-party
identification and authentication tokens. The Company's SmartFilter (formerly
WebTrack) product provides the ability to monitor and filter use of the Internet
at the server level to increase productivity while reducing exposure to
liability.

TECHNOLOGY

FIREWALLS

            The Company was among the first vendors of modern firewalls and, as
a result, has created technologies that provide the highest levels of security
with robust features. These technologies are described below.

         TYPE ENFORCEMENT. The key to the flexibility and effectiveness of
certain of the Company's firewalls is the Company's patented "Type Enforcement"
technology. Type Enforcement allows comprehensive control of a user's access to
data by type of access (read, write or execute). Type Enforcement serves two
critical security design functions: domain separation and network separation.

         Domain separation under Type Enforcement separates each such
application into a separate domain, and permits privilege within each domain to
be defined with a high degree of detail. Access to each application is
controlled by a domain definition to be defined with a high degree of detail.
Access to each application is controlled by a domain definition table which maps
out the various application functions and data files that can be accessed and
what type of access is allowed (for example, read, write or execute). This
feature is currently used to host read-only World Wide Web pages and to receive
anonymous FTP file transfers, which the firewall protects from being defaced or
otherwise altered by anyone other than the system administrator. Because the
operating system refers to this table at every system call or request, the
domain definition table cannot be circumvented. By preventing a breach in one
domain from allowing access to any other domain, the separation of domains
serves a function analogous to watertight compartments used in a ship.

         An organization's administrator defines privilege within domains.
System administration functions are in a domain separate from application
domains. In addition, critical security functions, such as programs for changing
the domain definition table and user lists, can only be executed while network
operations are disabled. This prevents an unauthorized user from observing the
domain definition table, or gaining access to the system files while the system
administrator is performing administrative functions.

         Network separation under Type Enforcement effectively separates a
firewall's connection to the internal, secure network from its connection to
external, insecure networks such as the Internet. Type Enforcement permits the
control not only of access by authenticated users to either network, but also of
the transfer of network applications, such as electronic mail, telnet (host
access) and file transfer, between the separated networks. Each network
connection has its own Internet address. The external address enables an
organization's presence to be visible to the Internet community. The internal
address is not visible from the Internet, which prevents the disclosure of the
organization's network configuration information, which could be used to locate
unprotected points of access to the protected network, or otherwise to
facilitate unauthorized access.

         With network separation, each type of network application, such as
electronic mail or FTP, runs in its own domain on both the external side and the
internal, secured network side. Transmissions are forced to take a specific
route when moving between the internal and external domains for each specific
application. As data is transferred between the external and internal network
domains, address information is removed and replaced. Special software filter
programs can also be executed at this time. Filters can be configured to prevent
passage of certain types of data, such as encrypted data, data marked
"proprietary" or "confidential", or files containing executable programs, which
can then be routed through a virus check program. Access to the external stack
cannot be used to gain access to the protected network, effectively stopping
most types of network attacks.

         Type Enforcement allows users to send and receive electronic mail,
search network news or the World Wide Web using standard web browsers, transfer
files, and access other Internet services without first logging onto a separate
Internet server. Unlike many encryption solutions, the use of Type Enforcement
results in no noticeable performance degradation in using network applications.

         HARDENED KERNEL. This technology enables the creation of a product that
may be used by individuals without a sophisticated knowledge of computer
systems. The core of the architecture of this operating system is a "hardened
kernel." To combat the inherent insecurity of standard operating systems, this
approach secures the operating system in order to create a solid foundation for
an all encompassing security solution, rather than attempting to wrap a layer or
layers of security around an existing operating system. The secure foundation
may then be combined with packet filtering, gateway proxies, secure application
servers, and encryption. Each subsequent layer of functionality is then secured
and integrated into the system, which allows the firewall to monitor, filter,
authenticate and control network and incoming traffic.

         This technology incorporates secured application servers, such as World
Wide Web and e-mail, directly into the firewall, fully integrating them into the
core security system and enabling them to run in independent isolated
environments in the firewall. In the event that a server or application is
compromised, the rest of the firewall's servers and applications are unaffected.

         An additional feature that may be incorporated with the "hardened
kernel" technology, Secure Server Net ("SSN") provides a secure network to house
third party network servers such as an interactive database or other information
server. Instead of placing these publicly accessible services on the external
network where they would be subject to attack, or on the protected network which
compromises internal security, the SSN provides a third network that is
protected by the firewall for the safe deployment of these services. Due to the
protected nature of the SSN, if one of these third party servers is penetrated,
the internal network remains uncompromised.

         COMPREHENSIVE AUDIT AND LOGGING. This technology allows the Company's
firewalls to provide comprehensive audit, logging and report generation tools to
enable effective management reporting of all access attempts. Special security
alarms and alert notifications bring unauthorized access attempts to the
immediate attention of the administrator. For example, an organization may
configure its firewall with traps which trigger an alarm, alerting a network
administrator (by paging the administrator if desired) to the attack in
progress. Moreover, the firewall can be configured to lure the unauthorized user
to continue the attack by making it appear that the attack is succeeding, while
implementing software countermeasures which log the attack and trace the attack
to its source. The triggers can also be configured to immediately terminate
access.

         TRANSPARENCY. This technology enables the Company's firewalls to
provide unobtrusive security by seamlessly integrating a firewall into new or
existing networks without interfering with legitimate corporate network services
and business requirements. As a result, the Company's firewalls do not alter the
work behavior of internal users nor do they require modification to existing or
new software in use on the protected network.

IDENTIFICATION AND AUTHENTICATION

         The Company's identification and authentication technology results from
more than a decade of efforts in network authenticating technology. The Company
has three patents for this technology. Described below are the significant
features of this technology.

         DYNAMIC PASSWORDS. Dynamic password technology is compatible with
existing computing and networking equipment utilized by most organizations.
Since each password only can be used one time, methods of electronically trying
many passwords have an extremely low mathematical probability of being
successful. Physical observation or electronic interception of the entered
password will not enable the eavesdropper to gain access, without calculating a
subsequent authorized dynamic password, a process made extremely unlikely by the
use of the Data Encryption Standard ("DES") algorithm. The DES algorithm is
widely recognized as a government certified and industry-tested standard.
Databases of user authentication codes and authorizations are themselves
encrypted utilizing the DES algorithm for further protection from unauthorized
access.

         AUTHENTICATION PROTOCOLS AND INTERFACE MODULES. This technology
supports existing and emerging authentication protocols, including four TCP/IP
based protocols, XTACACS, TACACS+, RADIUS and EASSP. Certain of these
authentication protocols have been adopted by many manufacturers of access
equipment, and permit transmission of a user's name and password from numerous
connection points and through various network connectors, gateways, routers,
servers and ports to the authentication server. In addition, a linkable library
of files, allows customers to create support for other levels of authentication
at either the application or the transaction level. The application interface
can be linked by a customer with virtually any application or new or customized
authentication products. After such linkage, execution of the application will
permit the application or product to pass a user-entered name and dynamic
password to the application interface, which after communicating through the
software returns the result of the authentication query to the application or
product.

         OPEN ARCHITECTURE AND INTER-OPERABILITY. The Company's identification
and authentication technology has been designed to allow its operation on a wide
variety of platforms and to be compatible with a wide range of
telecommunications products and protocols, which is important to organizations
operating a heterogeneous computing environment. Moreover, it supports multiple
token types manufactured by the Company and others with a single network.

         SCALABILITY. One database can support greater than one million users,
and each authentication server can contain several databases. Further a high
volume of user authentication requests may occur through the use of multiple
servers which are automatically synchronized.

         FULLY DOWNLOADABLE, ALL SOFTWARE SOLUTION. The technology permits a
downloadable, all software solution. Thus, through the use of a combination of
the Company's network authentication software and software password generators
or "tokens", an organization can achieve an all-software authentication solution
for its network. Such an all software solution reduces the aggregate cost of the
authentication systems and, since the basic software may be down-loaded from the
Company's World Wide Web site, allows for rapid installment of an authentication
system on an organization's network.

         FAULT TOLERANCE. With this feature, databases are automatically
mirrored on each of up to four servers on a network to achieve fault tolerance.
As a result, a computer hardware failure of one server does not prevent the
authentication of users.

INTERNET MONITORING AND FILTERING

         The Company's Internet monitoring and filtering technology includes
three main elements: control list, multiple platform functionality and
programming toolkit.

         CONTROL LIST. Control List is a database of URLs for major Internet
protocols (HTTP, FTP, NNTP, and GOPHER) representing sites, portions of sites,
or discrete documents available on the Internet that meet the criteria of one or
more of the 27 categories the control list currently supports. The distributed
form of the control list is binary, using a secure hash algorythm to both
protect the actual contents of the database, and to form the basis of efficient
runtime access for URL filtering. Proprietary tools are used to perform updates
to the control list efficiently and effectively, including Human-Computer
Interface and automated web robots (variations on the spiders used by most
Internet search engines), which provide candidate URLs from a variety of sources
for review by list technicians.

         MULTIPLE PLATFORM FUNCTIONALITY. Multiple Platform Functionality
includes Web proxies for UNIX and Windows NT, plug-ins for leading
general-purpose proxies such as Netscape Proxy Server and Microsoft Proxy
Server, and proxy-based enhancements to the Company's line of firewall products.
In all cases the monitoring and filtering applications leverage the widely
accepted concept of proxies for fundamental Internet protocols.

         PROGRAMMING TOOLKIT. Programming Toolkit is an application programming
interface to the core functionality of the control list which is used as a
high-level development tool for developing customized monitoring and filtering
applications. The Programming Toolkit is used internally and externally by
third-party vendors.

PRODUCTS AND SERVICES

         The Company's security products are designed to enable secure and
productive electronic commerce. Based upon its understanding of the features in
products and of the services offered by the Company's competitors, the Company
believes that its products, in combination with its consulting services, provide
one of the most comprehensive network security solutions available in the market
today.

         SIDEWINDER. The Sidewinder(TM) 3.0 Internet Firewall provides perimeter
security, IPSec interoperable encryption, strong identification and
authentication using DES or FORTEZZA, and binary and keyword e-mail filtering to
perform context sensitive scanning. Sidewinder is a user-transparent,
high-assurance application gateway firewall that employs Type Enforcement(TM)
technology which divides the firewall into domains and controls the processes
run in each. Sidewinder incorporates S/WAN, SmartFilter(TM), an enhanced GUI,
remote management, enhanced audit and reporting, FDDI, fast Ethernet
connections, and the ability to connect up to four networks. To date, the
Sidewinder Internet challenge site, which encourages attackers to breach the
firewall's security for a cash reward, has never been breached in over 4,000
attacks. The Sidewinder firewall has received the 1995 "Security Product of the
Year" award from LAN MAGAZINE, the "Best New Security Product" and "Best
Internet Firewall" readers' choice awards in 1995 and 1996 from INFOSECURITY
NEWS and in 1995 a BYTE MAGAZINE editor's choice award.

         BORDERWARE FIREWALL SERVER. The BorderWare(TM) Firewall Server 4.0 is a
combined Internet gateway and application gateway firewall security system. It
combines Internet application-level servers -- including World Wide Web, Mail,
News and Name Services, with proxies for applications such as Mosaic, Telnet,
and File Transfer -- with a transparent Internet Protocol firewall. The
BorderWare Firewall Server is a turnkey, plug-and-play firewall and Internet
gateway system using hardened kernel technology. The simplicity of installation
and use make BorderWare well suited to a multi-level distribution strategy.
BorderWare finished first in the November, 1996 INFOWORLD firewall comparison
and in May 1996, NETWORK WORLD recommended the BorderWare Firewall Server as one
of the three leading products that should be considered when purchasing a
firewall.

         SECURE COMPUTING FIREWALL FOR NT. Introduced in March, 1997, Firewall
for NT is a user-transparent application gateway firewall designed specifically
for the Microsoft Windows NT operating system. Firewall for NT interoperates
with the Company's SmartFilter and SafeWord product lines. Firewall for NT uses
Protocal Capture Engine Technology ("ProCap") which captures all network packets
for firewall analysis. Further security is provided through the interoperating
Suspicious Activity Monitor, access control lists, and automated audit, logging
and reporting.

         SECURE NETWORK SERVER. The Company sells its Secure Network Server
products to government customers. The Company's current Secure Network Server
product, LOCKguard, is a UNIX-based computer which uses dual protocol stacks,
Type Enforcement, filtering and message encryption to serve as a highly secure
e-mail firewall.

         SAFEWORD. SafeWord provides centralized identification and logon
service to ensure secure access to remote data communications products, Internet
firewalls and networked hosts for any enterprise, avoiding the risks associated
with the use of static passwords. By supporting a broad array of authenticators,
SafeWord allows customers to protect investments in existing tokens. The
SafeWord family of products was designed and developed to provide technological
features that are intended to make the products particularly attractive to most
large organizations.

         SafeWord network authentication software operates on a wide variety of
platforms, including various versions of UNIX, VAX, IBM mainframes, Tandem,
Stratus, Novell and other systems, and is compatible with a wide range of
telecommunications products and protocols, including those offered by Cisco
Systems, Inc., Ascend Communications, Inc., Shiva Corp., 3Com Corp. and Bay
Networks, which is important to organizations operating a heterogeneous
computing environment. SafeWord also works in conjunction with existing
authorization software developed for IBM mainframe systems including RACF, ACF2
and Top Secret, which is valuable to customers using a large number of existing
business applications and databases residing on such systems.

         SafeWord network authentication software supports a large number of
hardware token alternatives, including tokens manufactured by AssureNet
Pathways, Inc., Racal-Guardata, Inc., CryptoCard, Digiline, ActivCard, Inc.,
Leemah DataCom Security Corporation and others, most of which utilize the DES
algorithm. SafeWord databases of authenticated users are encrypted utilizing the
DES algorithm for further protection from unauthorized access. A computer
hardware failure of one SafeWord AS server does not disable the customer's
ability to authenticate users because SafeWord AS is designed to be fault
tolerant. SafeWord AS offers high throughput, which enables users to support a
high volume of user authentication requests through the use of multiple servers
which SafeWord AS keeps automatically synchronized. SafeWord AS software is
flexible in allowing the customer to use fixed password security, dynamic
password security or, in the future, card readers and/or biometric security
methods, giving customers flexibility in determining which methods are
appropriate for given users, processes, systems or applications.

         The Company also currently offers hardware tokens or SafeWord SofToken,
a software based password generator, or "token".

         LOCKOUT. LOCKout's strong authentication allows remote access security
login over networks by employing dynamic password techniques using DES and/or
FORTEZZA-based encryption standards.

         SMARTFILTER. SmartFilter, formerly known as WebTrack, controls and
monitors Internet use within an enterprise to ensure enterprise productivity. By
employing a customizable control list, this software application restricts
non-business related browsing on the Internet. SmartFilter can prevent
degradation of network performance and protect an enterprise from undesirable
content entering the workplace or educational institution. SmartFilter logs all
Internet access, report usage statistics and block for HTTP, FTP, GOPHER and
NNTP. The control list is updated weekly which eliminates the need to
continually search and identify inappropriate or undesirable Internet sites.

         CONSULTING SERVICES. The Company provides consulting services to help
clients improve their network security. Clients receive the assistance of the
Company's staff, which is experienced in the practical application of security
principles and suitable technology to minimize the risks of continued business
operations conducted over networks.

         The standard consulting product of the Company is the investigation and
analysis of a client's operational and information security issues. The
investigation includes a variety of interviews, observations, and technical
tools. The Company's security experience is applied to the analysis of a
client's critical information assets and systems, business objectives and
operational environment, and the subsequent identification of potential threats
and risks. The process is documented in written reports and oral presentations
which clearly describe what action the client should take to improve their
security posture. Recommended actions may include network redesign, policies,
procedures, and training, as well as specific technology such as cryptography,
authentication tools and firewalls. Additional consulting services include
customized security policies, security architecture, and a variety of either
standard or customized security related training, as well as fully customized
consulting, based on specific customer needs.

CUSTOMER SUPPORT

         In addition to the services described above, the Company provides
on-site installation assistance and training for its products. The Company also
offers specialized training at the Company's facilities in Roseville, Minnesota,
Concord, California and Vienna, Virginia.

         Customers may purchase a software support and upgrade service for an
annual fee. Product feature upgrades released with new features or capabilities
are made available to software support subscribers. Basic hardware support is
provided pursuant to the Company's basic warranty terms. Extended warranties are
available for an annual fee. Enhanced hardware support may be purchased either
to provide service during normal business hours or at all times (24 hours a day,
7 days a week) for up to three years. The Company currently provides hardware
support through contracts with third party support vendors and by using Company
employees. Software updates and technical support are provided through program
fix releases to customers, when necessary to fix bugs or to provide enhancements
to existing software features.

         The Company provides limited hardware and software warranties to users
for one year from acceptance of a product, and will provide contractual
maintenance, service of the hardware and upgrades of software for a fee after
warranty expiration. In many instances the Company's warranties are in turn
supported by warranties received by the Company from its manufacturers and
suppliers.

GOVERNMENT CONTRACTS

         From its inception, the Company has been engaged in research and
development of security technology under contracts with departments and agencies
of the U.S. government, including the NSA. Government contracts have provided
substantial revenue in each year of its existence, providing the Company with
the financial resources to assemble what the Company believes is the largest
group of scientists and engineers dedicated to computer system security employed
by any commercial enterprise. Government agencies under directives to comply
with the NSA's standards represent a base of potential customers.

         Most of the Company's contracts require the Company to perform
specified services, for which the Company is reimbursed for actual cost plus a
fee. The Company's NSA Secure Network Server research and development contract
accounts for a majority of the Company's government development contract
business. A contract modification was executed in early July 1996 that changed
the contract to a fixed-fee basis and increased the contract to $54 million from
$35 million, of which $44 million has been recognized through February 28, 1997.
The revised scheduled completion date is November 1997. The Company estimates
that the aggregate fee to be received over the course of the contract will be
approximately 6%. The Company used a rate of 5.5% in recognizing revenue in
1996, based on its estimate of the remaining award fee to be earned under the
contract.

         Under its cost-reimbursement contracts, the Company bears the risk that
increased or unexpected costs required to perform the specified services may
reduce the Company's fee. Pursuant to their terms, these contracts are generally
also subject to termination at the convenience of the applicable government
agency. If a contract is terminated, the Company typically would be reimbursed
for its costs to the date of its termination plus the cost of an orderly
termination plus the cost of an orderly termination and paid a portion of the
fee. No terminations of the Company's cost-reimbursement contracts have
occurred.

         The Company's U.S. government contracts are subject to audit by a
designated government audit agency, which currently is the DCAA. The DCAA has
periodically audited the Company's contracts without any material cost
disallowances.

CUSTOMERS

         The Company's current commercial customers and prospects are likely to
consider network security solutions a high priority, because they routinely deal
with proprietary or highly sensitive information.

         Based upon its experience and understanding of the existing network
security market, the Company believes that the Company's customer base will
broaden as a result of the continuing education of purchasers through trade and
other publications discussing the relative merits and limitations of
commercially available security products.

         Customers within the U.S. government for the Company's products and
services include the Department of Defense (both directly and through the NSA),
which is the single largest government user of classified processing systems,
and the Department of Energy. The Company also targets other agencies within the
U.S. government.

         The Company also has foreign governments and businesses as customers.
The Company sells its products in western Europe, the Middle East, Australia and
the Pacific Rim, mainly through reseller channels.

SALES AND MARKETING

         SALES. The Company currently sells its products in domestic markets
through both a direct sales force and distributor/reseller networks. Based upon
its experience and understanding of the existing network security market, the
Company believes that the network security market can require a high degree of
direct interaction with and education of potential customers. The Company
believes that a direct sales force is necessary, especially for larger
corporations, to differentiate the Company's products from those of its
competitors, to work with customers to provide security solutions for the
protection of network resources and to obtain insights into customers' future
security requirements. The Company's direct sales staff solicits prospective
customers and provides technical advice and support with respect to the
Company's products. At March 21, 1997, the Company had a sales force of 41
individuals, of whom 5 individuals sold solely to the U.S. government. As sales
of the Company's commercial products increase, the Company will hire additional
sales staff. In addition, the Company has significant experience in selling
security products to the U.S. government. The Company plans to continue to
direct sell its products to the U.S. government utilizing its internal
government sales force. From time to time, the Company may enter into teaming
relationships with third-party government contractors.

         The Company also, however, has created a multi-channel network of
distributors and other resellers. This network sells mainly to the mid-size and
small business markets, specializing in the Company's "channel ready" products.
Channel ready indicates the products are fairly standardized with less
customized features, easy to install and require less ongoing customer support.
The Company will seek relationships with additional distributors and other
resellers in order be in a position to sell through alternate channels as these
channels develop.

         The Company currently sells its products outside of the United States
through an international distribution network. The Company believes that
international markets present a potentially large market for network security
products. Export controls on cryptographic products may place limits on the
export of the Company's products to certain countries identified from time to
time by the U.S. Department of State. In addition, certain of the Company's
government products are subject to U.S. government contracting regulations and
to the International Trade in Arms Regulation ("ITAR"), which restricts the
export of certain products affecting national security. These regulations could
restrict the Company's ability to sell its products to foreign governments and
businesses identified from time to time by the U.S. Department of State,
creating delays in the introduction of the Company's products in international
markets.

         The Company attempts to limit its liability to customers, including
liability arising from a failure of the security features contained in the
Company's products, through contractual limitations of warranties and remedies.
However, some courts have held similar contractual limitations of liability, or
the "shrinkwrap licenses" in which they are often embodied, to be unenforceable.
Accordingly, there can be no assurance that such limitations will be enforced.

         The following table summarizes information about the Company's foreign
and domestic sales and operations:

                                      YEAR ENDED DECEMBER 31,
                                     ------------------------
(In thousands)                         1996           1995
-------------------------------------------------------------

Revenue:
      United States customers         $31,683       $24,028
      International customers           8,579         3,902
                                      -------       -------
                                      $40,262       $27,930
                                      =======       =======
Operating income (loss):
   United States operations          ($17,709)        ($682)
   International operations            (7,385)           50
                                      -------       -------
                                     ($25,094)        ($632)
                                      =======       =======


                                      YEAR ENDED DECEMBER 31,
                                      -----------------------
(In thousands)                         1996           1995
-------------------------------------------------------------
Identifiable Assets:
United States operations              $32,259       $42,963
International operations                4,516         1,298
                                      -------       -------
                                      $36,775       $44,261
                                      =======       =======

         Substantially all of the Company's sales and operations in 1994 were
based in the United States.

         MARKETING. At March 21, 1997 the Company had 25 marketing employees. In
support of its sales efforts, the Company conducts sales training courses, and
deploys comprehensive targeted marketing programs, including direct mail, public
relations, advertising, seminars and trade shows, and ongoing customer and
third-party communications programs. The current marketing emphasis of the
Company is targeted advertising and other direct marketing programs, whereas
previously the Company emphasized trade shows. The Company has entered into
strategic marketing relationships with various vendors of communications,
security, and network management products. Certain of these vendors recommend
Secure Computing products along with their solutions to meet customers' security
needs. The potential increased revenues from such relationships may be reduced
by requirements to provide volume price discounts and other allowances, and
significant costs incurred in customizing the Company's products. Although the
Company does not intend that such relationships be exclusive, the Company may be
required to enter into an exclusive relationship or forego a significant sales
opportunity. To the extent the Company becomes dependent on actions by such
parties, the Company could be adversely affected if the parties fail to perform
as expected.

         The Company also seeks to stimulate interest in network security
through its public relations program, speaking engagements, white papers,
technical notes and other publications, and through its Sidewinder Challenge
Site. Although the success of the challenge site has generated publicity for the
Company and helped to establish a favorable reputation for the Company's
security products, the Company expects that, as attack methods become
increasingly sophisticated, the Sidewinder challenge eventually could be met.
The Company uses information gained from attacks to help it improve its
products.

COMPETITION

         The market for network security products is intensely competitive and
characterized by rapid technological change. The Company believes that
competition in this market is likely to persist and to intensify as a result of
increasing demand for network security products. The principal competitors for
the Company's existing products include Advanced Network & Services, Inc. (which
is owned by America Online, Inc.), CheckPoint Software Technologies Ltd., Raptor
Systems, Inc., CyberGuard Corporation, Sun Microsystems, Inc., Trusted
Information Systems Inc., Security Dynamics, Inc., AssureNet Pathways, Inc., CKS
Group, Inc., Blockade, Leemah DataCom Security Corporation and Racal-Guardata,
Inc.

         The Company may also face competition from these and other parties in
the future that develop computer and network security products based upon
approaches similar to or different from those employed by the Company. There can
be no assurance that the market for network security products will not
ultimately be dominated by approaches other than the approach marketed by the
Company. While the Company believes that it does not compete against
manufacturers of other classes of security products (such as encryption) due to
the complementary functions performed by such other classes, there can be no
assurance that the Company's customers will not perceive such other companies as
competitors of the Company.

         The Company believes that the principal competitive factors affecting
the market for computer and network security products include level of security,
technical features, ease of use, capabilities, reliability, customer service and
support, distribution channels and price. Based upon its understanding of the
features in products and of the services offered by the Company's competitors,
the Company believes that its products currently compete favorably with respect
to such factors.

         Current and potential competitors have established or may in the future
establish cooperative relationships among themselves or with third parties to
increase the ability of their products to address the security needs of the
Company's prospective customers. Accordingly, it is possible that new
competitors or alliances may emerge and rapidly acquire significant market
share. If this were to occur, the financial condition or results of operations
of the Company could be materially adversely affected.

BACKLOG

         The Company's backlog for commercial products as of February 28, 1997
was approximately $500,000. The Company does not believe that its commercial
backlog at any particular point in time is indicative of future sales levels.
The Company's backlog relating to its government contracts as of February 28,
1997 was approximately $13.7 million. Backlog historically has represented firm
government orders for research and development services. Funded backlog
represents that portion of backlog for which the Company's government customers
have actually obligated payment. At February 28, 1997, approximately $2 million
of the Company's government contract backlog was funded.

MANUFACTURING

         The Company's hardware manufacturing operations consist primarily of
purchasing of hardware components, final assembly and system testing. Hardware
components used in certain of the Company's products consist of commercially
available computers, memory, displays, power supplies and third party
peripherals such as hard drives and network interface cards. The Company also
purchases software media and user documentation for its software products and
uses subcontractors for its duplication services. The Company's manufacturing
processes utilize principles that conform to ISO 9001 standards for which the
Company received full certification in 1996.

         The Company generally obtains most parts and components from a single
vendor to maintain quality control and enhance its working relationship with
suppliers. While the Company believes that alternate sources of supply could be
obtained, the Company's inability to develop alternative sources if and as
required in the future could result in delays or reductions in product shipment
which could have a material adverse effect on the Company's operations.

         The hardware component of the SafeWord system involves hardware tokens
and token programmers. The Company has historically contracted for the
manufacture of its hardware tokens with Kwang Woo Electronics, Inc. ("Kwang
Woo"), an assembly subcontractor located in South Korea. Through 1997, the
Company anticipates that a substantial portion of tokens it contracts for will
be produced by Kwang Woo. After delivery, the tokens are checked for quality
and, if desired by the end-user, programmed.

         The Company currently has limited sources for the manufacture of its
hardware tokens and token programmers. While the Company has generally been able
to obtain adequate supplies of these products in a timely manner from current
vendors and believes that alternate vendors can be identified if current vendors
are unable to fulfill its needs, delays or failure to identify alternate
vendors, or a reduction or interruption in supply or a significant increase in
the manufacturing costs could materially adversely affect the results of
operations.

RESEARCH AND DEVELOPMENT

         Internal development of new products and features is performed by the
Company's internal engineering staff. The Company's government contracts support
a far larger research and development program than the Company's own independent
research and development efforts. Of the Company's total of 196 engineering
employees at February 28, 1997, 51 hold post-graduate degrees.

         The Company intends to keep its products broadly compatible with a
variety of host computer configurations and other network security products and
other network applications, and will introduce new products as market demand
develops for such products. The Company researches and attempts to design its
products to be able to support emerging security standards, such as the secure
socket layer and secure http protocols.

         The Company will continue to seek government research and development
contracts to maintain its high technology base and its reputation as a security
technology leader. The Company currently has research and development contracts
with government agencies, including the NSA. These contracts address information
security for operating systems, secure applications for database management
systems and security policy research. The Company continuously pursues
additional contracts with these organizations.

PATENTS AND PROPRIETARY TECHNOLOGY

         The Company relies on patent, trademark, copyright and trade secret
laws, employee and third-party non-disclosure agreements and other methods to
protect its proprietary rights. The Company currently holds eight patents and
has fifteen patent applications pending in the United States relating to
computer security software and hardware products. The Company has also filed
patent applications in Western Europe, Japan, Israel and Australia. The Company
believes that its patents are broad and fundamental to network security computer
products. While the Company believes that the pending applications relate to
patentable devices or concepts, there can be no assurance that any pending or
future patent applications will be granted or that any current or future patent,
regardless of whether the Company is an owner or a licensee of such patent, will
not be challenged, invalidated or circumvented or that the rights granted
thereunder or under licensing agreements will provide competitive advantages to
the Company.

         The Company's success is dependent in part upon its proprietary
software and security technology. The Company also relies on trade secrets and
proprietary know-how which it seeks to protect, in part, through confidentiality
agreements with employees, consultants and other parties. There can be no
assurance that these agreements will not be breached, that the Company will have
adequate remedies for any breach, or that the Company's trade secrets will not
otherwise become known to or independently developed by competitors. In
addition, under its contracts with the Company, U.S. government agencies have
the right to disclose certain technology developed with government funding to
competitors of the Company as part of the establishment by the Government of
second-source manufacturing arrangements or competitive bidding.

         The Company is not aware of any patent infringement charge or any
material violation of other proprietary rights claimed by any third party
relating to the Company or the Company's products. The computer technology
market is characterized by frequent and substantial intellectual property
litigation. Intellectual property litigation is complex and expensive, and the
outcome of such litigation is difficult to predict.

         The Company has received or applied for trademark protection in the
United States for its Sidewinder, Borderware, SafeWord and SmartFilter marks.

REGULATION AND GOVERNMENT CONTRACTS

         Other than government contracting regulations described above under
"Government Contracts," the Company is not currently subject to direct
regulation by any government agency, other than regulations applicable to
businesses generally. There are currently few laws or regulations directly
applicable to access to or commerce on the Internet. However, due to the
increasing popularity and use of the Internet, it is possible that a number of
laws and regulations may be adopted with respect to the Internet, covering
issues such as user privacy, pricing and characteristics and quality of products
and services. In addition, the adoption of laws or regulations may decrease the
growth of the Internet, which could in turn decrease the demand for the
Company's products and increase the Company's cost of doing business or
otherwise have an adverse effect on the Company's business, operating results or
financial condition.

EMPLOYEES

         At February 28, 1997, the Company employed 375 full-time and 25
part-time employees. No employee of the Company is represented by a labor union
or is subject to a collective bargaining agreement. All employees are covered by
agreements containing confidentiality provisions. The Company believes it
maintains good relations with its employees.

EXECUTIVE OFFICERS

         The executive officers of the Registrant are:

         NAME                   AGE             POSITION
         ----------------------------------------------------------------------
         Jeffrey H. Waxman      50     Chairman of the Board, Chief Executive
                                         Officer, President and Director
         Timothy P. McGurran    34     Vice President of Finance and Operations,
                                         Treasurer and Chief Financial Officer
         James Boyle            55     Vice President and General Manager,
                                         Government Division
         Christine Hughes       50     Vice President of Marketing
         Gary D. Taggart        43     Vice President of Sales
         Glenn G. Mackintosh    34     Vice President and General Manager,
                                         Firewall Division

         JEFFREY H. WAXMAN has been Chairman of the Board since January 1997 and
President, Chief Executive Officer and director of the Company since November
1996. From June 1995 through August 1996, Mr. Waxman was the Executive Vice
President and General Manager of the Application Group of Novell Inc., a network
software provider. From November 1992 through June 1995, Mr. Waxman was the
President and Chief Executive Officer of ServiceSoft Corporation. From November
1991 through January 1992, Mr. Waxman was the Chief Executive Officer of
Uniplex, Inc. Mr. Waxman currently serves on the Board of Directors of Cable-Sat
Systems, Inc. which is doing business as Compressent.

         TIMOTHY P. MCGURRAN has been the Vice President of Finance and
Operations, Treasurer and Chief Financial Officer of the Company since May 1996.
Mr. McGurran was at Ernst & Young LLP from December 1984 to May 1996, where his
last position was Senior Manager.

         JAMES BOYLE has been Vice President and General Manager of the
Government Division since August 1996 and was Vice President of Advanced
Research of Secure from April 1996 to August 1996 and was Government Program
Manager from October 1995 to May 1996. Mr. Boyle was an independent consultant
in the government contracting field from January 1991 to September 1995. From
1989 to January 1991, Mr. Boyle was Director of Government and Aerospace
Marketing at Convex Computer Corporation.

         CHRISTINE HUGHES has been the Vice President of Marketing since
November 1996. Ms. Hughes was the Senior Vice President, Corporate Marketing at
Novell, Inc., a network software provider from December 1994 to August 1996.
From June 1991 to November 1994 Ms. Hughes was a Vice President at Xerox
Corporation.

         GARY D. TAGGART joined the Company as Vice President of Sales --
Americas in October 1996 and became Vice President of Sales in January 1997.
Prior to joining Secure, Mr. Taggart was Vice President of Americas Sales for
Eicon Technology Inc., a Canadian manufacturer of communications products, from
December 1994 through September 1996. From 1989 to 1994, Mr. Taggart was Vice
President of Worldwide Sales for Storage Dimensions, Inc., a San Jose-based
manufacturer of network storage subsystems.

         GLENN G. MACKINTOSH has been Vice President and General Manager of
Firewall Division and a director since August 1996. He was a co-founder of
Secure Computing Canada Ltd. formerly known as Border Network Technologies, Inc.
in January 1994 where he was Executive Vice-President from February 1996 to
August 1996 and Vice-President of Technology from January 1994 to February 1996.
Prior to co-founding Border Network Technologies, Inc., Mr. Mackintosh served as
Senior Network Specialist at the University of Toronto from 1991 to 1992 and
then as Supervisor of External Networks and Facilities Management Group from
June 1992 to August 1994.

         Executive officers are elected annually by the Board of Directors and
serve a term of one year or until their successors are elected. None of the
above executive officers is related to each other or to any director of the
Company.


ITEM 2.  PROPERTIES

         The Company is headquartered in approximately 65,000 square feet of
office and production space in Roseville, Minnesota. The Company occupies these
premises under leases expiring at various times through the year 2006. The
annual base rent for this facility is approximately $920,000. The Company's
subsidiaries located in Toronto, Ontario, Concord, California and Naples,
Florida also lease office space totaling 54,000 square feet and with annual rent
totaling approximately $1,010,000. The Company recently opened a dedicated sales
and marketing office in San Jose, California with 7,000 square feet and annual
rent of $197,000. In support of its eastern U.S. field sales and support
organization, the Company also leases approximately 6,000 square feet of office
space in Vienna, Virginia. The annual rent for this facility is approximately
$146,000. The Company also has foreign offices in London, England and Munich,
Germany. The Company's principal facilities are highly utilized but adequate for
the Company's immediate needs. The Company has an agreement for an additional
10,000 square feet of space adjacent to the Roseville facility beginning in 1999
and believes that suitable additional space adjacent to current facilities will
be available to meet its needs, although the rent per square foot may exceed the
rate it is currently paying.


ITEM 3.  LEGAL PROCEEDINGS

         Not Applicable.


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

         No matters were submitted to a vote of security holders by the
Registrant during the fourth quarter of the fiscal year covered by this report.


                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

         The Company's Common Stock trades on the Nasdaq National Market under
the symbol SCUR. The following table sets forth, for the fiscal quarters
indicated, a summary of the high and low closing prices of the Common Stock as
reported by the Nasdaq National Market.


                                                High              Low
                                                ----              ---
1995
Fourth Quarter (from 11/17/95)......           $60.50           $47.50

1996
First Quarter.......................           $52.00           $21.00
Second Quarter......................           $35.25           $20.50
Third Quarter.......................           $25.25            $9.50
Fourth Quarter......................           $12.50            $8.13

         As of March 21, 1997, the Company had 235 stockholders of record which
includes thirteen holders of Exchangeable Shares and two holders of securities
that are immediately convertible into Exchangeable Shares and approximately
5,200 beneficial holders of its Common Stock.

         The Company has never declared or paid any dividends on its Common
Stock. The Company currently intends to retain any earnings for use in its
business and therefore does not anticipate paying any dividends in the
foreseeable future.


ITEM 6.  SELECTED FINANCIAL DATA

         The following selected financial data is qualified in its entirety by
and should be read in conjunction with the more detailed consolidated financial
statements and related notes and "Management's Discussion and Analysis of
Financial Conditions and Results of Operations" included elsewhere herein.
During 1996, Secure Computing Corporation ("Secure") acquired Border Network
Technologies, Inc. ("Border") and Enigma Logic, Inc. ("Enigma") in transactions
accounted for as poolings of interests. All financial information has been
restated to reflect the combined operations of Secure, Border and Enigma.


<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                   ----------------------------------------------------------------------
                                       1996          1995           1994            1993          1992
                                       ----          ----           ----            ----          ----
STATEMENT OF OPERATIONS DATA:
<S>                                <C>           <C>            <C>             <C>            <C>
   Revenue:

     Products and services.....     23,290,000    13,081,000       4,051,000      1,598,000     1,454,000

     Government contracts......    $16,972,000   $14,849,000    $ 13,744,000   $  9,389,000   $ 5,265,000
                                   -----------   -----------    ------------   ------------   -----------
         Total revenue.........     40,262,000    27,930,000      17,795,000     10,987,000     6,719,000

   Gross profit................     21,465,000    13,079,000       7,120,000      4,244,000     2,933,000

   Acquisition costs...........     13,069,000            --              --             --            --

   Operating income (loss).....    (26,473,000)     (633,000)      1,220,000        215,000      (922,000)

   Net income (loss)...........    (25,094,000)     (632,000)      1,541,000        731,000     1,843,000)

   Net income (loss) per share.          (1.76)         (.05)            .17            .14          (.49)



                                                                DECEMBER 31,
                                    ----------------------------------------------------------------------
                                        1996         1995           1994           1993            1992
                                        ----         ----           ----           ----            ----

BALANCE SHEET DATA:

   Working capital (deficit)...    $18,886,000   $34,292,000    $  1,991,000    $  (731,000)  $  (150,000)

   Total assets................     36,775,000    44,261,000       7,727,000      4,495,000     3,200,000

   Long-term debt, less current
   portion and redeemable
   convertible preferred stock.             --     1,879,000      10,659,000      8,620,000    10,566,000

   Stockholder's equity (deficit)   26,232,000    36,208,000      (5,996,000)    (7,081,000)   (9,574,000)

</TABLE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

OVERVIEW

         The Company produces and markets products designed to enable electronic
commerce by protecting an organization's computer network from access by
unauthorized users. Secure was organized in July 1989 to acquire certain assets
of a division of Honeywell, Inc., then engaged in research and development of
computer network security technology under a U.S. government contract. The
Comapny was reorganized in September 1995 as a Delaware corporation. In August
1996, the Company acquired Border Network Technologies Inc. ("Border") and
Enigma Logic, Inc. ("Enigma") in poolings of interests. All historical
information presented in this Item 7 has been restated to reflect these
combinations. Also in 1996, the Company purchased Webster Network Strategies,
Inc. ("Webster").

         PRODUCTS AND SERVICES. The Company sells its products and services to
commercial and government customers. The Company's SafeWord identification and
authentication server products were introduced prior to 1994. During 1994 and
1995, significant resources were invested in the development of the Company's
Sidewinder and BorderWare firewall products. Both firewalls had significant
sales beginning in 1995. In 1996, the Company's SmartFilter internet filtering
product (formerly known as WebTrack) was introduced. The Company expects that
the percentage of its revenues derived from products and related services will
increase in future years, as the Company increasingly focuses on product sales.

         During 1997, the Company plans to continue its research and development
investment and general and administrative spending at current levels and to
increase its sales and marketing expenditures over 1996 levels. The Company
expects that operating expenses as a percentage of revenues will decline in
1997. Planned levels of operating expenses are based in part on its expectations
of higher revenue from increased product sales. The Company has planned for
increased costs associated with selling and marketing in connection with the
release of new products.

         GOVERNMENT CONTRACTS. From the time of its organization, Secure has
been engaged in research and development of computer network security technology
under contracts with departments and agencies of the U.S. government.

         The Company's Secure Network Server development contract with the
National Security Agency ("NSA") accounted for approximately 33 percent, 43
percent and 57 percent of the Company's total revenue for the years ended
December 31, 1996, 1995 and 1994, respectively. The Company signed a contract
modification to convert the contract to a cost plus fixed fee type in July 1996.
The Company estimates that the aggregate fee to be received over the course of
the contract will be approximately 6 percent and is currently using a rate of
5.5 percent in recognizing revenue in 1996 based on its current estimate of the
remaining fee to be earned under the contract. The NSA contract now extends to
September 1997 due to the contract modification.

         Most of the Company's government research and development contracts
provide for compensation to the Company in the form of reimbursement of costs
plus a fee. The Company typically bills government agencies, including the NSA,
monthly for a ratable portion of the fee expected to be received over the life
of the contract and current expenses. Under these government contracts, the
Company is entitled to recover direct labor costs, engineering overhead and
certain general and administrative expenses.

         Under its government contracts, the Company bears the risk that
increased or unexpected costs required to perform specified services may reduce
the amount of the Company's fee and are subject to audit. Pursuant to their
terms, these contracts are generally also subject to termination for the
convenience of the applicable government agency. If the contract is terminated,
the Company typically would be reimbursed at its costs to the date of its
termination, plus the costs of an orderly termination, and paid a portion of the
fee.

RESULTS OF OPERATIONS

         The following table sets forth, for the periods indicated, certain
items from the consolidated statements of operations of the Company expressed as
a percentage of revenue:

                                               YEAR ENDED DECEMBER 31,
                                     ------------------------------------------
                                       1996             1995              1994
-------------------------------------------------------------------------------

Revenue:
   Products and services               57.8%             46.8%            22.8%
   Government contracts                42.2              53.2             77.2
-------------------------------------------------------------------------------
         Total revenue                100.0             100.0            100.0
Cost of revenue                        46.7              53.2             60.0
-------------------------------------------------------------------------------
Gross profit                           53.3              46.8             40.0
Operating expenses:
   Selling and marketing               45.8              19.3             10.4
   Research and development            23.8              17.4             10.5
   General and administrative          17.1              12.4             12.3
   Acquisition costs                   32.4               -                -
-------------------------------------------------------------------------------
         Total operating expenses     119.1              49.1             33.2
-------------------------------------------------------------------------------
Operating income (loss)               (65.8)             (2.3)             6.8

Interest and other income               3.8               0.9              0.7
Interest expense                       (0.3)             (0.8)            (1.7)
-------------------------------------------------------------------------------
Income (loss) before income taxes     (62.3)             (2.2)             5.8

Income tax expense (benefit)            -                 0.1             (2.8)
-------------------------------------------------------------------------------
Net income (loss)                     (62.3)%            (2.3)%            8.6%
===============================================================================


COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995.

         REVENUE. The Company's revenue increased 44.2 percent to $40.3 million
in 1996, up from $27.9 million in 1995. Products and services revenue was $23.3
million in 1996, an increase of 78.0 percent over 1995, and was attributable
mainly to increased sales of firewall products and related services. The
increase in government contracts revenue in 1996 reflects the continuation of
increased efforts on the Secure Network Server program for the NSA.

         GROSS PROFIT. Gross profit as a percentage of revenue increased to 53.3
percent in 1996 from 46.8 percent in 1995. The difference between periods was
the result of increased products and services revenue which carries higher
margins than government contracts.

         SELLING AND MARKETING. Selling and marketing expenses increased by
242.7 percent in 1996 to $18.4 million from $5.4 million in 1995. The increase
was due primarily to additions to the Company's sales and marketing staff and
higher expenditures for advertising, trade shows and product literature.

         RESEARCH AND DEVELOPMENT. Research and development expenses increased
by 96.7 percent to $9.6 million in 1996 from $4.9 million in 1995. The increase
resulted primarily from increased development efforts on the Company's firewall
and identification and authentication products.

         GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased by 98.1 percent to $6.9 million in 1996 from $3.5 million in 1995. The
increase was due primarily to additions to administration staff and increased
professional and other outside fees.

         ACQUISITION COSTS. Certain acquisition costs were recognized in the
second quarter of 1996 relating to the Webster, Border and Enigma acquisitions.
Purchased research and development in process of $3,894,000 was expensed in
connection with the Webster acquisition in accordance with purchase accounting
rules. Also, $9,175,000 of acquisition costs were recorded for investment
banking, professional fees and other expenses for the Border and Enigma
acquisitions in accordance with pooling rules.

         INTEREST AND OTHER INCOME. The difference in interest and other income
between the periods reflects interest earned in 1996 by the Company on cash and
investments generated from its initial public offering in November, 1995 and
sales of Common Stock in early 1996.

         INTEREST EXPENSE. Interest expense decreased to $129,000 in 1996 from
$239,000 in 1995, due to the repayment of all outstanding debt in 1996.

         INCOME TAXES. The Company recognized no income tax expense for 1996
compared to $21,000 in 1995. Management believes it is more likely than not that
deferred tax assets, which total $1,373,000 at December 31, 1996, will be
realized. The computation of the Company's deferred tax assets and valuation
allowance are based in part on taxable income expected to be earned on existing
government contracts and projected interest income. The amount of the deferred
tax assets considered realizable could be reduced in the near term if estimates
of future taxable income are reduced. The Company had total net operating loss
carryforwards of approximately $30.3 million at December 31, 1996. Of these
carryforwards, $7.0 million relate to deductions for disqualifying dispositions
of stock options. As these deductions are realized, the benefit will not reduce
income tax expense, rather it will be recorded as additional paid-in-capital. Of
the remaining benefit associated with the carryforwards, approximately $20.3
million had yet to be recognized as a benefit in the statement of operations.
However, there can be no assurance that these carryforwards will be available to
offset future income tax expense when taxable income is realized.

COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994.

         REVENUE. The Company's revenue increased by 57.0 percent to $27.9
million in 1995 up from $17.8 million in 1994. Products and services revenue was
$13.1 million in 1995, an increase of 222.9 percent over 1994, and was
attributable mainly to increased sales of firewall products and related
services. The increase in government contracts revenue in 1995 reflects the
Company's increased efforts on the Secure Network Server program for the NSA.

         GROSS PROFIT. Gross profit as a percentage of revenue increased to 46.8
percent in 1995 from 40.0 percent in 1994. The increase resulted mainly from
products and services revenue, which carry higher margins than contracts,
gaining as a percentage of the revenue mix.

         SELLING AND MARKETING. Selling and marketing expenses increased by
189.7 percent to $5.4 million in 1995 from $1.9 million in 1994. The increase
reflects the Company's additional sales and marketing effort for products and
services.

         RESEARCH AND DEVELOPMENT. Company-sponsored research and development
expenses increased substantially by 162.1 percent to $4.9 million in 1995
compared to $1.9 million in 1994. Research and development expenses as a
percentage of revenue also increased substantially to 17.4 percent, up from 10.5
percent. This increase is directly attributable to a significant commitment to
the development of the Company's firewall products.

         GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased by 58.6 percent to $3.5 million compared to $2.2 million in 1994. As a
percentage of revenue, these expenses remained consistent between 1995 and 1994.

         INTEREST AND OTHER INCOME. Interest income increased to $261,000 in
1995, up from $18,000 in 1994, primarily due to higher cash balances resulting
from the proceeds of the Company's initial public offering. In 1994, other
income of $108,000 was recorded for costs recovered in connection with a 1992
financing transaction which was not consummated.

         INTEREST EXPENSE. Interest expense decreased from $307,000 in 1994 to
$239,000 in 1995, due to reductions in the Company's outstanding debt.

         INCOME TAX EXPENSE (BENEFIT). The Company recognized income tax expense
for 1995 of $21,000 compared to a $502,000 benefit for 1994. The income tax
benefit recognized in 1994 related to a reduction in the valuation allowance
against the Company's deferred tax assets, primarily the tax benefit associated
with net operating loss carryforwards. The allowance had been reduced based on
the Company's estimate of the amount of net operating loss carryforwards more
likely than not to be utilized to offset future taxable income.

LIQUIDITY AND CAPITAL RESOURCES

         Since its organization, the Company has financed its operations through
the issuance of equity securities and notes to stockholders, long-term debt,
short-term borrowings and cash generated from operations. In 1996, the Company
raised $12.0 million through sales of Common Stock and stock option exercises
and, in 1995, raised $32.7 million through the initial public offering of its
Common Stock, $1.7 million in net proceeds from the exercise of warrants to
purchase convertible redeemable preferred stock and $470,000 from the issuance
of its Common Stock upon the exercise of options and warrants. In 1994, the
Company raised $967,000 in net proceeds from the sale of convertible redeemable
preferred stock.

         The Company's cash and cash equivalents decreased by approximately
$20.8 million from 1995 to 1996. The decrease resulted primarily from incurring
operating losses, acquisition costs, purchases of investments, purchases of
capital equipment and the repayment of debt which were partially offset by
proceeds from Common Stock sales. As of December 31, 1996, the Company had
working capital of $18.9 million. The Company has lines of credit totaling $1
million for short-term working capital needs. The Company anticipates using
available cash to fund growth in operations, invest in capital equipment and to
acquire businesses or license technology or products related to the Company's
line of business.

         Capital expenditures for property and equipment were $5.0 million, $2.3
million and $933,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. These expenditures have generally consisted of computer
workstations, office furniture and equipment, and leasehold improvements.

         At its current level of operations, the Company believes that its
existing cash and cash equivalents are sufficient to meet the Company's current
working capital and capital expenditure requirements through at least the next
12 months.

INFLATION

         To date, the Company has not been significantly impacted by inflation.

FORWARD LOOKING STATEMENTS

         Certain statements made above, which are summarized below, are
forward-looking statements that involve risks and uncertainties, and actual
results may be materially different. Factors that could cause actual results to
differ include those identified below:

*    THE COMPANY EXPECTS THAT THE PERCENTAGE OF ITS REVENUES DERIVED FROM
     PRODUCTS AND RELATED SERVICES WILL INCREASE IN FUTURE YEARS, AS THE COMPANY
     INCREASINGLY FOCUSES ON PRODUCT SALES -- Meeting this expectation depends
     upon the Company's ability to achieve a higher level of products and
     services revenue, which may not occur for a variety of reasons, including
     general market conditions for the Company's products and services,
     development and acceptance of new products offered by the Company, and
     introduction of products by competitors. In addition, this expectation
     depends upon the successful integration of the acquisitions described
     above, which may not occur. If such integration did not occur as
     anticipated, revenues from products and services could be expected to
     decrease.

*    DURING 1997, THE COMPANY PLANS TO CONTINUE ITS RESEARCH AND DEVELOPMENT
     INVESTMENT AND GENERAL AND ADMINISTRATIVE SPENDING AT CURRENT LEVELS AND TO
     INCREASE ITS SALES AND MARKETING EXPENDITURES OVER 1996 LEVELS. THE COMPANY
     EXPECTS THAT OPERATING EXPENSES AS A PERCENTAGE OF REVENUES WILL DECLINE IN
     1997. -- This expectation depends on the Company maintaining the current
     anticipated level of product development, which may not occur due to
     unexpected increases in such costs or because of a need to accelerate or
     begin new product development and also may be impacted by current plans for
     a full scale product marketing and branding campaign being curtailed or
     delayed or decreased products and services revenue resulting in lower
     selling expense. Fluctuations in revenue from quarter to quarter will
     likely have an increasingly significant impact on the Company's results of
     operations. Additionally, meeting this expectation depends upon the
     Company's ability to control costs and achieve a higher level of revenue,
     which may not occur for a variety of reasons, including general market
     conditions for the Company's products and services, development and
     acceptance of new products offered by the Company, and introduction of
     products by competitors. Furthermore, this expectation depends upon the
     successful integration of the acquisitions described above.

*    MANAGEMENT BELIEVES IT IS MORE LIKELY THAN NOT THAT DEFERRED TAX ASSETS,
     WHICH TOTAL $1,373,000 AT DECEMBER 31, 1996, WILL BE REALIZED -- This
     expectation depends mainly on the Company maintaining at current levels its
     existing government contract business. If these contracts were lost or
     adjusted downward, deferred tax assets would be expected to be written down
     with a corresponding charge to income tax expense recorded.

*    AT ITS CURRENT LEVEL OF OPERATIONS, THE COMPANY BELIEVES THAT ITS EXISTING
     CASH AND CASH EQUIVALENTS ARE SUFFICIENT TO MEET THE COMPANY'S CURRENT
     WORKING CAPITAL AND CAPITAL EXPENDITURE REQUIREMENTS THROUGH AT LEAST THE
     NEXT 12 MONTHS -- the Company's ability to generate revenue as currently
     expected, unexpected expenses and the need for additional funds to react to
     changes in the marketplace, including unexpected increases in personnel
     costs and selling and marketing expenses or currently unplanned
     acquisitions may impact whether the Company has sufficient cash resources
     to fund its product development and marketing and sales plans for 1997 and
     early 1998.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         See Part IV, Item 14 of this Form 10-K.


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         Not applicable.


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Incorporated herein by reference is the information under the heading
"Election of Directors" and "Section 16(a) Reporting", in the Registrant's Proxy
Statement to be filed on or about April 8, 1997. See also Part I, Item 1
"Executive Officers" of this Form 10-K.


ITEM 11. EXECUTIVE COMPENSATION

         Incorporated herein by reference is the information appearing in the
Registrant's Proxy Statement which the Registrant anticipates filing on April 8,
1997 under the headings "Election of Directors -- Committees of the Board of
Directors and Meeting Attendance", "Executive Compensation", "Summary
Compensation Table", "Option Grants in Last Fiscal Year", "Aggregated Option
Exercises in Last Fiscal Year and Fiscal Year-End Option Values", "Employment
Contracts; Severance, Termination of Employment and Change-in-Control
Arrangements", and "Performance Evaluation".


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Incorporated herein by reference is the information appearing under the
heading "Security Ownership of Principal Stockholders and Management", in the
Registrant's Proxy Statement which the Registrant anticipates will be filed on
or about April 8, 1997.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Incorporated herein by reference is the information appearing under the
heading "Certain Transactions", in the Registrant's Proxy Statement which the
Registrant anticipates will be filed on or about April 8, 1997.


                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)      DOCUMENTS FILED AS PART OF THIS REPORT:

         1.       Consolidated Financial Statements:

                  Consolidated Balance Sheets as of December 31, 1996 and 1995
                  Consolidated Statements of Operations for the years ended
                        December 31, 1996, 1995 and 1994
                  Consolidated Statement of Stockholders' Equity for the years
                        ended December 31, 1996, 1995 and 1994
                  Consolidated Statements of Cash Flows for the years ended
                        December 31, 1996, 1995 and 1994
                  Notes to Consolidated Financial Statements
                  Report of Independent Auditors (Ernst & Young LLP)
                  Report of Independent Accountants
                        (Price Waterhouse LLP -- San Jose California)
                  Auditors' Report (Price Waterhouse -- Ontario, Canada)
                  Auditors' Report (McClurkin Ahier & Company)

         2.       Consolidated Financial Statement Schedules:

                  Schedule II - Valuation and Qualifying Accounts. Such schedule
                  should be read in conjunction with the Consolidated Financial
                  Statements. All other supplemental schedules are omitted
                  because of the absence of conditions under which they are
                  required.

(b)      REPORTS ON FORM 8-K

         1.       The Company's Form 8-K filed on July 23, 1996. (File No.
                  0-27074)

         2.       The Company's Form 8-K filed on September 12, 1996. (File No.
                  0-27074)

         3.       The Company's Form 8-K/A filed on November 12, 1996. (File No.
                  0-27074)

         4.       The Company's Form 8-K filed on November 25, 1996 (File No.
                  0-27074)

(c)      EXHIBITS

         The following exhibits are filed as part of this Annual Report on Form
10-K for the fiscal year ended December 31, 1996:

         2.1      Agreement and Plan of Merger among Secure Computing
                  Corporation, Owl Acquisition, Inc. and Enigma Logic, Inc.
                  dated as of June 24, 1996, as amended as of July 31, 1996.(1)

         2.2      Acquisition and Pre-Amalgamation Agreement among Secure
                  Computing Corporation, Edge Acquisition Inc. and Border
                  Network Technologies, Inc. dated as of May 28, 1996, as
                  amended as of July 31, 1996.(1)

         2.3      Amalgamation Agreement dated as of August 29, 1996.(2)

         3.1      Restated Certificate of Incorporation of Registrant.(3)

         3.2      By-Laws of the Registrant.(4)

         4.1      Specimen of Common Stock certificate.(5)

         4.2      Certificate of Designation.(6)

        10.1      Registration Rights Agreement among ITI, Incorporated, Grotech
                  Partners II, L.P., Ideas, Inc. and Bernard Farkas dated July
                  14, 1989.(7)

        10.2      Purchase Agreement among ITI Incorporated, Grotech Partners
                  II, L.P., Ideas Inc. and Bernard Farkas dated July 14,
                  1989.(8)

        10.3      Purchase Agreement among ITI Incorporated and Corporate
                  Venture Partners dated December 13, 1989.(9)

        10.4      First Amendment dated December 13, 1989 among ITI,
                  Incorporated, Grotech Partners II, L.P., Ideas, Inc., and
                  Bernard Farkas and Corporate Venture Partners to Registration
                  Rights Agreement among ITI, Incorporated, Grotech Partners II,
                  L.P., Ideas, Inc. and Bernard Farkas dated July 14, 1989.(10)

        10.5      Software Agreement between AT&T Information Systems Inc. and
                  ITI, Incorporated, Agreement No. SOFT-01701, dated April 2,
                  1990, including Supplement No. 1, UNIX System V Release 3.0,
                  Supplement No. 2 dated August 10, 1990; Sublicensing Agreement
                  between AT&T Information Systems, Inc.; Letter Agreement
                  between UNIX System Laboratories, Inc. and ITI, Inc. dated
                  April 15, 1991; Letter Agreement modifying Software Agreement
                  No. SOFT-01701 dated October 22, 1992; and Software Agreement
                  between AT&T Information Systems Inc. and ITI, Incorporated,
                  Agreement No. SOFT-02036, dated July 26, 1991.(11)

        10.6      Agreement and Plan of Merger and Reorganization among ITI
                  Incorporated and Secure Computing Technology Company dated May
                  29, 1992.(12)

        10.7      Contract between the United States of America and Secure
                  Computing Corporation, Contract No. MDA904-93-C-C034, dated
                  December 16, 1992, including Amendment No. P00001 dated
                  January 25, 1993; Amendment No. P00002 dated March 10, 1993;
                  Amendment No. P00003 dated February 18, 1993; Amendment No.
                  P00004 dated March 15, 1993; Amendment No. P00005 dated
                  October 27, 1993; Amendment No. P00006 dated December 13,
                  1993; Amendment No. P00007 dated December 30, 1993; Amendment
                  No. P00008 dated April 29, 1994; Amendment No. P00009 dated
                  October 14, 1994; Amendment No. P00010 dated November 30,
                  1994; Amendment No. P00011 dated December 21, 1994; Amendment
                  No. P00012 dated January 25, 1995; Amendment No. P00013 dated
                  May 3, 1995; Amendment No. P00014 dated May 26, 1995;
                  Amendment No. P00015 dated June 28, 1995; Amendment No. P00016
                  dated July 24, 1995; Amendment No. P00017 dated October 4,
                  1995; Amendment No. A00001 dated January 11, 1993; Amendment
                  No. A00002 dated March 24, 1993; Amendment No. A00003 dated
                  March 30, 1993; Amendment No. A00004 dated May 1, 1993;
                  Amendment No. A00005 dated July 8, 1993.(13)

        10.8      The following amendments to Contract between the United States
                  of America and Secure Computing Corporation, Contract No.
                  MDA904-93-C-C034: Amendment No. A00006 effective June 4, 1996,
                  Amendment No. P00018 effective October 13, 1995, Amendment No.
                  P00019 effective November 13, 1995, Amendment No. P00020
                  effective December 15, 1995, Amendment No. P00021 effective
                  December 11, 1995, Amendment No. P00022 effective January 5,
                  1996, Amendment No. P00023, effective January 22, 1996,
                  Amendment No. P00024 effective January 29, 1996, Amendment No.
                  P00025 effective February 12, 1996, Amendment No. P00026
                  effective March 11, 1996, Amendment No. P00027 effective April
                  10, 1996, Amendment No. P00028 effective April 11, 1996,
                  Amendment No. P00029 effective April 24, 1996, Amendment No.
                  P00030 effective June 6, 1996, Amendment No. P00031 effective
                  June 6, 1996, Amendment No. P00032 effective July 2, 1996,
                  Amendment No. P00033 effective September 12, 1996, and
                  Amendment No. P00034 effective October 31, 1996.

        10.9      Secure Computing Corporation Profit Sharing and Retirement
                  Plan--Summary Plan Description dated February 1, 1994.(14)

        10.10     Software License Agreement between Berkeley Software Design,
                  Inc. and Secure Computing Corporation, dated February 7,
                  1994.(15)

        10.11     Second Amendment to Purchase Agreement among Secure Computing
                  Corporation, Grotech Partners II, L.P., Corporate Venture
                  Partners, L.P., Ideas, Inc. and Bernard Farkas dated September
                  19, 1994, to Purchase Agreement dated July 14, 1989 among ITI,
                  Incorporated, Grotech Partners II, L.P., Ideas, Inc. and
                  Bernard Farkas.(16)

        10.12     Purchase Agreement between Secure Computing Corporation and
                  FBL Ventures of South Dakota, Inc. dated September 20,
                  1994.(17)

        10.13     Employment Agreement between Secure Computing Corporation and
                  Jeffrey H. Waxman dated November 4, 1997.(18) +

        10.14     Employment Agreement between Secure Computing Corporation and
                  Kermit M. Beseke dated December 31, 1994.(19) +

        10.15     Employment Agreement between Secure Computing Corporation and
                  James Boyle dated October 7, 1996.(20) +

        10.16     Employment Agreement between Secure Computing Corporation and
                  Christine Hughes dated November 8, 1996, including the letter
                  agreement dated November 7, 1996.(21) +

        10.17     Employment Agreement between Secure Computing Corporation and
                  Donald Whitbeck dated August 29, 1996.(22) +

        10.18     Employment Agreement between Secure Computing Corporation and
                  Timothy P. McGurran dated August 27, 1996.(23) +

        10.19     Employment Agreement between Secure Computing Corporation and
                  Gary D. Taggart dated October 2, 1996. +

        10.20     Employment Agreement between Secure Computing Corporation and
                  Glenn G. Mackintosh dated August 29, 1996. (24)+

        10.21     Employment Agreement between Secure Computing Corporation and
                  Craig A. Alesso dated September 16, 1995.(25) +

        10.22     Employment Agreement between Secure Computing Corporation and
                  Gene C. Leonard dated September 1, 1995.(26) +

        10.23     Employment Agreement between Secure Computing Corporation and
                  Dean Nordahl dated September 28, 1995.(27) +

        10.24     Employment Agreement between Secure Computing Corporation and
                  Joe Anzures dated September 28, 1995.(28) +

        10.25     Description of Secure Computing Corporation Management
                  Incentive Plan.(29) +

        10.26     Secure Computing Corporation Amended and Restated 1995 Omnibus
                  Stock Plan. +

        10.27     Secure Computing Corporation Management Incentive Plan for
                  1996 for Kermit M. Beseke.(30) +

        10.28     Secure Computing Corporation Employee Stock Purchase Plan(31)+

        11.1      Statement of Computation of Earnings Per Share.

        23.1      Consent of Ernst & Young LLP.

        23.2      Consent of Price Waterhouse, Chartered Accountants, Toronto,
                  Canada.

        23.3      Consent of Price Waterhouse LLP, San Jose, California.

        23.4      Consent of McClurkin Ahier & Company, Chartered Accountants.

        24.1      Powers of Attorney

        27.1      Financial Data Schedule.

-----------------------
1    Incorporated by reference to Appendix A to the Company's Definitive Proxy
     Statement dated August 5, 1996 and filed August 7, 1996 with the Securities
     and Exchange Commission (File No. 0-27074).

2    Incorporated herein by reference to Exhibit 2.3 to the Company's Current
     Report on Form 8-K filed September 12, 1996 (File No. 0-27074).

3    Incorporated herein by reference to Exhibit 3.2 to the Company's Form 10-K
     filed on March 28, 1996 (File No. 0-27074).

4    Incorporated herein by reference to Exhibit 3.3 to the Company's
     Registration Statement on Form S-1 (Registration Number 33-97838).

5    Incorporated herein by reference to the same numbered Exhibit to Amendment
     No. 2 to the Company's Registration Statement on Form S-1 (Registration
     Number 33-97838).

6    Incorporated herein by reference to Exhibit 4.1 to the Company's Current
     Report on Form 8-K filed on September 12, 1996 (File No. 0-27074).

7    Incorporated herein by reference to Exhibit 10.2 to the Company's
     Registration Statement on Form S-1 (Registration Number 33-97838).

8    Incorporated herein by reference to Exhibit 10.4 to the Company's
     Registration Statement on Form S-1 (Registration Number 33-97838).

9    Incorporated herein by reference to Exhibit 10.6 to the Company's
     Registration Statement on Form S-1 (Registration Number 33-97838).

10   Incorporated herein by reference to Exhibit 10.7 to the Company's
     Registration Statement on Form S-1 (Registration Number 33-97838).

11   Incorporated herein by reference to Exhibit 10.9 to the Company's
     Registration Statement on Form S-1 (Registration Number 33-97838).

12   Incorporated herein by reference to Exhibit 10.12 to the Company's
     Registration Statement on Form S-1 (Registration Number 33-97838).

13   Incorporated herein by reference to Exhibit 10.13 to the Company's
     Registration Statement on Form S-1 (Registration Number 33-97838).

14   Incorporated herein by reference to Exhibit 10.15 to the Company's
     Registration Statement on Form S-1 (Registration Number 33-97838).

15   Incorporated herein by reference to Exhibit 10.16 to the Company's
     Registration Statement on Form S-1 (Registration Number 33-97838).

16   Incorporated herein by reference to Exhibit 10.21 to the Company's
     Registration Statement on Form S-1 (Registration Number 33-97838).

17   Incorporated herein by reference to Exhibit 10.22 to the Company's
     Registration Statement on Form S-1 (Registration Number 33-97838).

18   Incorporated herein by reference to Exhibit 10.4 to the Company's Form 10-Q
     filed on November 14, 1996 (File No. 0-27074).

19   Incorporated herein by reference to Exhibit 10.23 to the Company's
     Registration Statement on Form S-1 (Registration Number 33-97838).

20   Incorporated by reference to Exhibit 10.5 to the Company's Form 10-Q filed
     on November 14, 1996 (File No. 0-27074).

21   Incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q filed
     on November 14, 1996 (File No. 0-27074).

22   Incorporated by reference to Exhibit 10.7 to the Company's form 10-Q filed
     on November 14, 1996 (File No. 0-27074).

23   Incorporated by reference to Exhibit 10.8 to the Company's Form 10-Q filed
     on November 14, 1996 (File No. 0-27074).

24   Incorporated herein by reference to Exhibit 10.6 to the Company's Form 10-Q
     filed on November 14, 1996 (File No. 0-27074).

25   Incorporated herein by reference to Exhibit 10.24 to the Company's
     Registration Statement on Form S-1 (Registration Number 33-97838).

26   Incorporated herein by reference to Exhibit 10.25 to the Company's
     Registration Statement on Form S-1 (Registration Number 33-97838).

27   Incorporated herein by reference to Exhibit 10.26 to the Company's
     Registration Statement on Form S-1 (Registration Number 33-97838).

28   Incorporated herein by reference to Exhibit 10.27 to the Company's
     Registration Statement on Form S-1 (Registration Number 33-97838).

29   Incorporated herein by reference to Exhibit 10.28 to the Company's
     Registration Statement on Form S-1 (Registration Number 33-97838).

30   Incorporated herein by reference to Exhibit 10.24 to the Company's Form
     10-K filed on March 28, 1996 (File No. 0-27074).

31   Incorporated herein by reference to Exhibit 4.03 to the Company's
     Registration Statement on Form S-8 (Registration Number 333-114151)

+    Management Contract or compensatory plan or arrangement required to be
     filed as an exhibit hereto pursuant to Item 14(c) of Form 10-K and Item 601
     of Regulation S-K.





                          Secure Computing Corporation

                           Consolidated Balance Sheets
                      (in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                                     DECEMBER 31
                                                                                1996              1995
                                                                       ------------------------------------
<S>                                                                           <C>              <C>
ASSETS
Current assets:
   Cash and cash equivalents                                                  $12,130          $32,924
   Investments                                                                  5,935                -
   Accounts receivable (net of allowance for doubtful accounts of
     1996 - $290; 1995 - $131)                                                  7,098            5,750
   Deferred income taxes                                                        1,083              936
   Inventory                                                                    1,908              606
   Other current assets                                                         1,275              250
                                                                       ------------------------------------
Total current assets                                                           29,429           40,466

Property and equipment:
   Equipment                                                                    7,843            4,690
   Furniture and fixtures                                                       2,067              914
   Leasehold improvements                                                         929              292
                                                                       ------------------------------------
                                                                               10,839            5,896
   Accumulated depreciation                                                    (4,993)          (3,050)
                                                                       ------------------------------------
                                                                                5,846            2,846

Intangible assets (net of accumulated amortization of
   1996 - $425; 1995 - $238)                                                    1,082              449
Other assets                                                                      418              500

                                                                       ------------------------------------
Total assets                                                                  $36,775          $44,261
                                                                       ====================================



                                                                                      DECEMBER 31
                                                                                 1996              1995
                                                                       ------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                          $  3,727         $  2,119
   Accrued payroll liabilities                                                  2,031            1,653
   Accrued acquisition liabilities                                              1,083                -
   Other accrued liabilities                                                    1,947              870
   Deferred revenue                                                             1,755            1,465
   Current portion of long-term debt                                                                67
                                                                       ------------------------------------
Total current liabilities                                                      10,543            6,174

Long-term debt                                                                      -               34
Stockholder debt                                                                    -            1,845


Stockholders' equity:
   Common Stock, par value $.01 per share:
     Issued and outstanding shares--December 31,
       1996 - 15,101,152 and December 31, 1995 - 12,542,196                       151              125
   Additional paid-in capital                                                  65,208           50,116
   Accumulated deficit                                                        (39,127)         (14,033)
                                                                       ------------------------------------
Total stockholders' equity                                                     26,232           36,208
                                                                       ------------------------------------
Total liabilities and stockholders' equity                                    $36,775          $44,261
                                                                       ====================================
</TABLE>

SEE ACCOMPANYING NOTES.


<TABLE>
<CAPTION>
                          Secure Computing Corporation

                      Consolidated Statements of Operations
                    (in thousands, except per share amounts)

                                                                 YEAR ENDED DECEMBER 31
                                                        1996              1995             1994
                                                  -----------------------------------------------------
<S>                                                   <C>                <C>              <C>
Revenue:
     Products and services                             $  23,290          $13,081          $  4,051
     Government contracts                                 16,972           14,849            13,744
                                                  -----------------------------------------------------
                                                          40,262           27,930            17,795
  Cost of revenue                                         18,797           14,851            10,675
                                                  -----------------------------------------------------
  Gross profit                                            21,465           13,079             7,120

  Operating expenses:
     Selling and marketing                                18,425            5,376             1,856
     Research and development                              9,575            4,869             1,858
     General and administrative                            6,869            3,467             2,186
     Acquisition costs                                    13,069                -                 -
                                                  -----------------------------------------------------
                                                          47,938           13,712             5,900
                                                   =====================================================
 Operating income (loss)                                (26,473)            (633)            1,220

  Interest expense                                          (129)            (239)             (307)
  Interest and other income                                1,508              261               126
                                                  -----------------------------------------------------
  Income (loss) before income taxes                      (25,094)            (611)            1,039
  Income tax expense (benefit)                                 -               21              (502)
                                                  -----------------------------------------------------
  Net income (loss)                                     $(25,094)        $   (632)         $  1,541
                                                  =====================================================

   Net income (loss) per share:
     Primary                                            $  (1.76)        $   (.08)         $    .14
     Fully diluted                                      $  (1.76)        $   (.06)         $    .16
     Supplementary                                             -         $   (.05)         $    .17

  Weighted average shares outstanding:
     Primary                                              14,222            7,665             7,342
     Fully diluted                                        14,222           10,425             9,792
     Supplementary                                             -           10,500             9,917
</TABLE>

SEE ACCOMPANYING NOTES.


<TABLE>
<CAPTION>
                          Secure Computing Corporation

                 Consolidated Statement of Stockholders' Equity
                      (in thousands, except share amounts)


                                               COMMON              ADDITIONAL
                                    ------------------------------   PAID-IN      ACCUMULATED
                                        SHARES         AMOUNT        CAPITAL        DEFICIT         TOTAL
                                    ---------------------------------------------------------------------------
<S>                                    <C>             <C>         <C>            <C>           <C>
Balance at December 31, 1993            2,370,945       $  23       $  7,246       $(14,350)     $  (7,081)
Exercise of incentive stock options        60,906           1              6              -              7
Common Stock issued                     4,000,000          40            (12)             -             28
Preferred Stock accretion                       -           -             (6)            (3)            (9)
Dividends accrued on Preferred Stock            -           -              -           (482)          (482)
Net income for the year                         -           -              -          1,541          1,541
                                    ---------------------------------------------------------------------------
Balance at December 31, 1994            6,431,851          64          7,234        (13,294)        (5,996)
Exercise of incentive stock options       223,820           2             99              -            101
Exercise of Common Stock warrants         164,619           2            367              -            369
Common Stock issued for services           11,271           -             50              -             50
Initial public offering of Common
   Stock, net of expenses               2,250,000          22         32,687              -         32,709
Preferred Stock conversion              3,460,635          35         10,119              -         10,154
Preferred Stock accretion                       -           -            (11)             -            (11)
Dividends accrued on Preferred Stock            -           -           (429)          (107)          (536)
Net loss for the year                           -           -              -           (632)          (632)
                                    ---------------------------------------------------------------------------
Balance at December 31, 1995           12,542,196         125         50,116        (14,033)        36,208
Exercise of incentive stock options       426,394           4            991              -            995
Common Stock issued under Employee
   Stock Purchase Plan                     34,155           -            277              -            277
Compensation expense on options               -             -            197              -            197
Common Stock issued                     1,142,908          12          6,350              -          6,362
Exercise of Common Stock warrants         955,499          10          7,277              -          7,287
Net loss for the year                           -           -              -        (25,094)       (25,094)
                                    ---------------------------------------------------------------------------
Balance at December 31, 1996           15,101,152        $151        $65,208       $(39,127)       $26,232
                                    ===========================================================================
</TABLE>

SEE ACCOMPANYING NOTES.



                          Secure Computing Corporation

                      Consolidated Statements of Cash Flows
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31
                                                                     1996             1995              1994
                                                              ------------------------------------------------------
<S>                                                                <C>              <C>               <C>
OPERATING ACTIVITIES
Net income (loss)                                                   $(25,094)        $    (632)        $  1,541
Adjustments to reconcile net income (loss) to net cash
   provided by (used in) operating activities:
     Purchased research and development in process and
       goodwill write-off                                              4,994                 -                -
     Depreciation                                                      2,030             1,037              679
     Amortization                                                        187                39               39
     Other                                                               409               104             (457)
     Changes in operating assets and liabilities:
       Accounts receivable                                            (1,348)           (3,050)          (1,253)
       Inventory                                                      (1,302)             (337)            (165)
       Other current assets                                           (1,315)             (128)             (75)
       Accounts payable                                                1,608             1,468             (208)
       Accrued liabilities and reserves                                2,009             1,031              525
       Deferred revenue                                                  290               793              526
                                                              ------------------------------------------------------
Net cash provided by (used in) operating activities                  (17,532)              325            1,152

INVESTING ACTIVITIES
Purchases of investments                                              (8,645)                -                -
Proceeds from sales of investments                                     3,000                 -                -
Cash paid in purchase of Webster Network Strategies, Inc.               (759)                -                -
Cash paid in purchase of remaining interest in Border Network
   Technologies Europe Ltd.                                             (989)                -                -
Purchase of property and equipment                                    (5,030)           (2,314)            (933)
Increase in intangible and other assets                                 (885)             (121)             (74)
                                                              ------------------------------------------------------
Net cash used in investing activities                                (13,308)           (2,435)          (1,007)

FINANCING ACTIVITIES
Payments on notes payable and long-term debt                          (1,943)           (1,259)          (1,750)
Proceeds from notes and long-term debt                                     -               189            1,532
Proceeds from issuance of Common Stock                                11,989            33,179               35
Proceeds from issuance of Preferred Stock                                  -             1,661              967
                                                              ------------------------------------------------------
Net cash provided by financing activities                             10,046            33,770              784
                                                              ------------------------------------------------------

Increase (decrease) in cash and cash equivalents                     (20,794)           31,660              929
Cash and cash equivalents at beginning
   of year                                                            32,924             1,264              335
                                                              ------------------------------------------------------
Cash and cash equivalents at end of year                            $ 12,130           $32,924         $  1,264
                                                              ======================================================

SEE ACCOMPANYING NOTES.
</TABLE>


FOOTNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT
SHARE AND PER SHARE AMOUNTS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Secure Computing Corporation (the "Company") designs and assembles products to
enable electronic commerce by protecting an organization's computer network and
its computers from access by unauthorized users. The Company's principal markets
are commercial companies and the United States government for its network
security products and the United States government under development contracts.

BASIS OF PRESENTATION

The consolidated financial statements are presented giving retroactive
effect to the Company's mergers with Border Network Technologies Inc. (now known
as Secure Computing Canada Ltd.) and Enigma Logic, Inc. which have been
accounted for under the pooling of interests method (see Note 2.)

The consolidated financial statements include the accounts of the Company and
its subsidiaries. All intercompany balances and transactions have been
eliminated in consolidation.

REVENUE RECOGNITION

Products and Services

The Company recognizes product revenues at the time of shipment. The Company has
entered into customer support and maintenance agreements with various customers.
These obligations are recognized either ratably as the obligations are fulfilled
or upon completion of performance.

Government Contracts

Government contract revenues for cost-plus-fixed-fee contracts are recognized on
the basis of costs incurred during the period plus the fee earned. Award fees
are recognized based upon the percentage of completion and forecasted profit. A
provision is made for the estimated loss, if any, on government contracts.

Under its government contracts, the Company bears the risk that increased or
unexpected costs required to perform specified services may reduce the amount of
the Company's fee. In addition, recoverable expenses billed by the Company are
subject to review and audit by the Defense Contract Audit Agency, which could
result in amounts previously billed being renegotiated. Pursuant to their terms,
these contracts are generally also subject to termination at the convenience of
the applicable government agency. If the contract is terminated, the Company
typically would be reimbursed for its costs to the date of its termination plus
the cost of an orderly termination, and paid a portion of the fees.

At December 31, 1996 and 1995, the Company had deferred revenue of $178
and $382, respectively, related to government contracts.

CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.

INVENTORY

Inventory consists mainly of purchased components and prepaid licenses and is
valued at the lower of cost (first-in, first-out method) or market.

PROPERTY AND EQUIPMENT

Property and equipment are carried at cost. Depreciation is computed using
accelerated methods over the estimated useful lives of the assets.

INTANGIBLE ASSETS

Intangible assets consist of patents and trademarks and are amortized using the
straight-line method over the estimated useful lives of the assets, which range
up to ten years.

FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS

Foreign assets and liabilities are translated using the year-end rates of
exchange. Results of operations are translated using the average exchange rates
throughout the period. Translation gains or losses, net of applicable deferred
taxes, are accumulated as a separate component of stockholders' equity.

RESEARCH AND DEVELOPMENT

Research and development expenditures are charged to operations as incurred.
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed", requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility.

Based on the Company's product development process, technological feasibility is
established upon completion of a working model. Costs incurred by the Company
between completion of the working model and the point at which the product is
generally available for sale are capitalized and amortized over their estimated
useful life of one year.

USE OF ESTIMATES

The preparation of consolidated 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. Actual results could differ from those
estimates.

NET INCOME (LOSS) PER SHARE

Net income (loss) per share is computed using the weighted average number of
shares of common stock and common stock equivalents, if dilutive, outstanding
during the periods presented after giving effect to the application of
Securities and Exchange Commission Staff Accounting Bulletin No. 83 ("SAB No.
83"). Pursuant to SAB No. 83, all common shares issued and stock options and
warrants granted by the Company at a price less than the initial public offering
price during the twelve months preceding the offering date (using the treasury
stock method until shares are issued) have been included in the calculation of
common and common equivalent shares outstanding for all periods up to the
initial public offering date. The fully diluted income (loss) per share is
presented using the "if converted" method and reflects the impact of the
conversion of the preferred stock to common stock at the beginning of the
earliest period presented or at the date of issuance, if later.

In computing supplementary net income (loss) per share, interest expense related
to bank debt retired with the proceeds of Common Stock issued in the initial
public offering has been added back to net income (loss). The weighted average
number of shares used in the calculation consists of common and common
equivalent shares, if dilutive, outstanding during the period after giving
effect to the conversion of all preferred stock to Common Stock, additional SAB
No. 83 shares as determined above and the required shares of Common Stock issued
to repay bank debt.

STOCK OPTIONS

The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation", regarding
disclosure of pro-forma information for stock compensation. As is allowed by
Statement No. 123, the Company will continue to measure compensation cost using
the methods described in Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees".

RECLASSIFICATIONS

Certain amounts presented in the 1995 and 1994 consolidated financial
statements have been reclassified to conform with the 1996 presentation.

2. ACQUISITIONS

In May 1996, the Company acquired Webster Network Strategies, Inc. ("Webster"),
a Florida based Internet software developer, for 102,000 shares of Common Stock
and $749 cash, which includes expenses of $249, in exchange for all outstanding
common stock of Webster. The acquisition has been accounted for using the
purchase method. Subsequent to the acquisition, the Company expensed all
purchased research and development in process of $3,894 based upon an
independent appraisal.

In August 1996, the Company acquired network security software developers Border
Network Technologies, Inc. ("Border") and Enigma Logic, Inc. ("Enigma"). Both
the Border and the Enigma acquisitions were accounted for under the pooling of
interests method. As a result of the Border acquisition, the Company exchanged
approximately 6,000,000 shares of Common Stock, in the form of Secure Computing
Canada exchangeable shares ("exchangeable shares"), for all of the outstanding
common stock of Border. The exchangeable shares may be converted at any time
into Common Stock on a one to one basis at each stockholders' option. In the
Enigma acquisition, approximately 2,060,000 shares of Common Stock were
exchanged for all of the outstanding common stock of Enigma. In addition,
outstanding Border and Enigma stock options were converted into options to
purchase approximately 1,160,000 shares of the Company's Common Stock. Separate
results of operations for the periods prior to the acquisitions are as follows:

                         SIX MONTHS ENDED
                              JUNE 30             YEAR ENDED DECEMBER 31
                               1996               1995              1994
                        --------------------------------------------------------
                            (UNAUDITED)
   Revenue:
     Secure                  $  13,438            $20,712           $15,230
     Border                      4,506              3,317               139
     Enigma                      2,478              3,901             2,426
                        --------------------------------------------------------
   Combined                  $  20,422            $27,930           $17,795
                        ========================================================

   Net income (loss):
     Secure                  $  (9,189)          $   (974)          $ 1,493
     Border                     (4,474)                50                (9)
     Enigma                     (2,857)               292                57
                        --------------------------------------------------------
   Combined                   $(16,520)          $   (632)          $ 1,541
                        ========================================================

Also in May 1996, Border acquired the remaining 68% interest it did not own in
Border Network Technologies Europe Limited for Border common shares equivalent
to 40,908 shares of Common Stock and $989 in cash. Goodwill of $1,100 that was
recorded in this transaction was subsequently expensed as acquisition costs when
Border was acquired by the Company.

3. INVESTMENTS

At December 31, 1996, investments consist of U.S. Treasury bills with original
maturities of less than one year. The investments are stated at cost plus
accrued interest which approximates fair market value.

4. ACCOUNTS RECEIVABLE

Approximately 26% and 46% of accounts receivable were due from the United States
government at December 31, 1996 and 1995, respectively. Unbilled accounts
receivable from all customers were $202 and $640 at December 31, 1996 and 1995,
respectively.

5. STOCKHOLDER DEBT

A stockholder of the Company had made cash advances in exchange for notes
bearing interest at rates ranging from 9.5% to 12%. The notes were fully repaid
in 1996. Accrued interest of $562 is included in the balance at December 31,
1995.

In August 1994, the holder of a convertible debenture converted the $250 in
principal and all accrued and unpaid interest into 136,409 shares of the
Company's Series A Cumulative Redeemable Convertible Preferred Stock at a
conversion rate of $2.24 per share.

6. DEBT

Long-term debt consists of the following:

                                              DECEMBER 31
                                        1996              1995
                                  ------------------------------------

   Bank line of credit                     $-            $  50
   Term note                                -                8
   Bank installment loan                    -               43
                                  ------------------------------------
                                            -              101
   Less current portion                     -              (67)
                                  ------------------------------------
                                           $-            $  34
                                  ====================================

The Company has a $1,000 short-term line of credit, on which none has been drawn
as of December 31, 1996. The line bears interest on the outstanding balance at
an annual rate equal to the prime rate plus 1% and is secured by the general
business assets of the Company.

7. LEASES

The Company leases office space for all of its locations. Future lease payments
for all operating leases, excluding executory costs such as management and
maintenance fees, are as follows:

   1997                           $  1,756
   1998                              1,615
   1999                              1,562
   2000                              1,557
   2001                              1,285
   Thereafter                        4,878
                             -------------------
                                   $12,653
                             ===================

Rent expense was $2,488, $916 and $605 for the years ended December 31, 1996,
1995 and 1994, respectively.

8. CAPITAL STOCK

1995 REORGANIZATION AND STOCK SPLIT

On September 30, 1995, the Company effected a reorganization (the "1995
Reorganization") which included a 1.25-for-1 split of the Company's Common
Stock. Accordingly, all share, per share, weighted average share information and
redeemable convertible preferred stock have been restated to reflect the split.

Following the 1995 Reorganization, the Company had 30,460,635 shares of
authorized capital stock, consisting of 25,000,000 shares of Common Stock and
5,460,635 shares of Preferred Stock, of which 3,127,302 shares were designated
Series A Convertible Preferred Stock, 333,333 were designated Series B
Convertible Preferred Stock and 2,000,000 shares of Preferred Stock undesignated
as to its series. In December 1995, the Board of Directors elected to decrease
the amount of authorized Preferred Stock to 2,000,000 undesignated shares.

INITIAL PUBLIC OFFERING

In November 1995, the Company sold 2,250,000 shares of Common Stock in an
initial public offering from which the Company received $33,480 before deducting
expenses.

PREFERRED STOCK

Upon the conclusion of the Company's initial public offering, all outstanding
shares of preferred stock were converted on a one for one basis to Common Stock.
Prior to that date, the Company had issued 3,127,302 shares of $2.24 Series A
Cumulative Redeemable Convertible Preferred Stock and 333,333 shares of $3.00
Series B Cumulative Redeemable Convertible Preferred Stock.

Series A and B Preferred Stock accrued cumulative dividends at $.20 and $.24 per
share per annum, respectively. Dividends in arrears prior to conversion for
Series A Convertible Preferred Stock at November 17, 1995 and December 31, 1994
were $2,093 and $1,624, respectively, and for Series B Cumulative Redeemable
Convertible Preferred Stock at November 17, 1995 and December 31, 1994 were $90
and $23, respectively. Upon conversion, all rights to receive the dividends in
arrears ceased.

WARRANTS

Warrants for the purchase of 164,619 shares of Common Stock at $2.24 per share
and warrants for the purchase of 741,494 shares of Series A Convertible
Preferred Stock at $2.24 per share that were outstanding at December 31, 1994
were fully exercised during 1995.

9. STOCK OPTIONS

In September 1995, the Board of Directors and the stockholders approved the
Company's 1995 Omnibus Stock Plan (the "Stock Plan"). Under the terms of the
Stock Plan, key employees and non-employees may be granted options to purchase
up to 3,944,131 shares of the Company's Common Stock. Options granted typically
have ten year terms and vest annually over three years.

A summary of changes in outstanding options and common shares reserved under the
Stock Plan are as follows:

<TABLE>
<CAPTION>

                                                                                  WEIGHTED AVERAGE
                                          SHARES AVAILABLE        OPTIONS        EXERCISE PRICE PER
                                              FOR GRANT         OUTSTANDING             SHARE
                                         -----------------------------------------------------------
<S>                                            <C>               <C>              <C>
   Balance at December 31, 1993                   322,144            607,585       $    .43
     Shares authorized                            350,430                  -              -
     Granted or became exercisable               (502,251)           502,251           1.02
     Exercised                                          -            (60,906)           .10
     Canceled                                      45,765            (45,765)           .55
                                         -----------------------------------------------------------
   Balance at December 31, 1994                   216,088          1,003,165            .73
     Shares authorized                            379,390                  -              -
     Granted or became exercisable               (445,790)           445,790           4.10
     Exercised                                          -           (225,445)           .39
     Canceled                                      90,957            (92,044)           .73
                                         -----------------------------------------------------------
   Balance at December 31, 1995                   240,645          1,131,466           2.14
     Shares authorized                          2,084,570                  -              -
     Granted or became exercisable             (2,397,152)         2,397,152          10.29
     Exercised                                          -           (426,394)          2.33
     Canceled                                     188,188           (188,188)          6.88
                                         -----------------------------------------------------------
   Balance at December 31, 1996                   116,251          2,914,036           9.01
                                         ===========================================================
</TABLE>

The following table summarizes information about the stock options outstanding
at December 31, 1996:

<TABLE>
<CAPTION>
                                                Options Outstanding                      Options Exercisable
                                 --------------------------------------------------- -----------------------------
                                                                        Weighted-                     Weighted-
                                                      Weighted-          Average                       Average
                                     Number       Average Remaining      Exercise        Number        Exercise
    Range of Exercise Price       Outstanding      Contractual Life       Price       Exercisable       Price
-------------------------------- --------------- --------------------- ------------- --------------- -------------
<S>                                <C>               <C>                <C>            <C>               <C>
$.01 - $1.60                          488,834         7.5 years          $    .91         419,634         $   .90
$2.22 - $3.66                         502,251         8.5 years              3.19         456,268            3.13
$6.66 - $8.50                         353,401           9 years              6.97         129,185            6.97
$9.75                                 750,000          10 years              9.75            -                  -
$10.50 - $30.00                       819,550         9.5 years             18.00          57,833           14.07
-------------------------------- --------------- --------------------- ------------- --------------- ------------
$.01 - $30.00                       2,914,036           9 years              9.01       1,062,920         $  3.32
================================ =============== ===================== ============= =============== =============
</TABLE>

Options outstanding under the Stock Plan expire at various dates from 2002 to
2006. The number of options exercisable as of December 31, 1996, 1995 and 1994
were 1,062,920, 565,496 and 482,181, respectively. The weighted average fair
value of options granted and the weighted average remaining contractual life of
options granted during 1996 and 1995 are $10.29 and $4.26 and 9.5 and 8.5 years,
respectively.

The Company also has an Employee Stock Purchase Plan under which 150,000 shares
have been reserved for purchase by employees. The purchase price of the shares
under the plan is the lesser of 85% of the fair market value on the first or
last day of the offering period. Offering periods are each three months.
Employees may designate up to 10% of their compensation for the purchase of
stock under the Plan.

Pro forma information regarding net loss and loss per share is required by
Statement No. 123, and has been determined as if the Company had accounted for
its employee stock options under the fair value method of that Statement. The
fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1996 and 1995, respectively: risk-free interest rates of 6.0%;
volatility factors of the expected market price of the Company's Common Stock of
 .80 and 3.51; and a weighted average expected life of the option of 5 years.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information is as follows:

                                              YEAR ENDED DECEMBER 31
                                             1996              1995
                                       ------------------------------------

   Pro forma net loss                        $(30,217)          $(956)
                                       ====================================

   Pro forma loss per share                  $  (2.12)          $(.09)
                                       ====================================

The pro forma effect on the net loss for 1996 and 1995 is not representative of
the pro forma effect on net income (loss) in future years because it does not
take into consideration pro forma compensation expense related to grants made
prior to 1995.

10. INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's net deferred tax assets are as follows:

<TABLE>
<CAPTION>
                                                                   DECEMBER 31
                                                             1996              1995
                                                       ------------------------------------
  <S>                                                      <C>               <C>
   Deferred tax assets:
     Accrued liabilities                                    $   1,110         $    585
     Book over tax depreciation and amortization                  167              113
     Income tax credits                                           312              260
     Net operating loss carryforward                           12,117            5,963
                                                       ------------------------------------
     Total deferred tax assets                                 13,706            6,921
     Less valuation allowance                                 (12,333)          (5,548)
                                                       ------------------------------------
   Net deferred tax assets                                  $   1,373          $ 1,373
                                                       ====================================
</TABLE>

Management believes it is more likely than not that the net deferred tax assets
of $1,373 at December 31, 1996 will be realized. However, the amount of the
deferred tax assets considered realizable could be reduced in the near term if
estimates of future taxable income are reduced.

At December 31, 1996, the Company had a net operating loss carryforward (NOL) of
approximately $30,300 which is available to offset taxable income through 2011.
For financial reporting purposes, a valuation allowance has been recorded to
offset deferred tax assets that may not be realized. Included in the NOL is
approximately $7,000 of deductions resulting from disqualifying dispositions of
stock options. These deductions currently have a full valuation allowance and
when realized for financial statement purposes they will not result in a
reduction in income tax expense. Rather, the benefit will be recorded as
additional paid-in-capital.

Section 382 of the Internal Revenue Code restricts the annual utilization of the
NOL's incurred prior to a change in ownership. Such a change in ownership may
have occurred in connection with stock transactions in 1993 and 1996, and the
Company is currently assessing possible restrictions on the use of its NOL as a
result of such possible change in ownership. There can be no assurance that
certain of the Company's NOL will be available for use in the future.

Significant components of income tax expense (benefit) are foreign income taxes
in 1995 of $21 and deferred federal and state taxes of $(502) in 1994. In 1995,
$25 of taxes were paid. No income taxes were paid in 1996 or 1994.

A reconciliation of statutory federal income taxes to the income tax expense
(benefit) recorded is as follows:

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31
                                                  1996             1995              1994
                                           ------------------------------------------------------

<S>                                              <C>            <C>                <C>
   Income taxes at statutory rate                 $(8,785)       $  (239)           $  367
   State taxes, net of federal benefit             (1,255)           (34)               52
   Foreign taxes                                        -             21                 -
   Change in valuation allowance                    5,539            391              (894)
   Use of net operating loss carryforwards              -           (102)              (20)
   Non-deductible acquisition costs                 4,470              -                 -
   Other                                               31            (16)               (7)
                                           ------------------------------------------------------
                                                  $     -        $    21            $ (502)
                                           ======================================================
</TABLE>

The change in the valuation allowance includes the effect of disqualifying
dispositions of stock options which as discussed above do not impact tax
expense.

11. EMPLOYEE BENEFIT PLAN

The Company has a voluntary defined contribution plan under Section 401(k) of
the Internal Revenue Code which covers substantially all U.S. employees of the
Company. The Company also has voluntary defined contribution plans which cover
substantially all employees of the Company. Contributions to the latter are
limited to the employer's discretionary annual contribution.

The Company recognized expense for contributions to the plans as follows:

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31
                                                  1996             1995              1994
                                           ------------------------------------------------------
<S>                                             <C>               <C>              <C>
   Defined contribution plan (401K)              $  61             $  44            $  31
   Voluntary contribution plans                    367               451              287
                                           ------------------------------------------------------
                                                  $428              $495             $318
                                           ======================================================
</TABLE>

12. FOREIGN SALES

Sales to foreign customers accounted for 21%, 14% and 3% of total revenue in the
years ended December 31, 1996, 1995 and 1994, respectively.

13. CONTINGENCIES

The Company is engaged in certain legal proceedings and claims arising in the
ordinary course of its business. The ultimate liabilities, if any, which may
result from these or other pending or threatened legal actions against the
Company cannot be determined at this time. However, in the opinion of
management, the facts known at the present time do not indicate that there is a
probability that such litigation will have a material effect on the financial
position of the Company.



                         Report of Independent Auditors

The Board of Directors
Secure Computing Corporation

We have audited the accompanying consolidated balance sheets of Secure Computing
Corporation as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1996. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These
consolidated financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits. We did not audit the
financial statements of Enigma Logic, Inc. and Border Network Technologies Inc.,
which statements reflect total assets constituting 7% in 1995, and total
revenues constituting 26% in 1995 and 14% in 1994 of the related consolidated
totals. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to data included for
Enigma Logic, Inc. and Border Network Technologies, Inc., is based solely on the
report of other auditors.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Secure Computing
Corporation at December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, based upon our audits and the report of other auditors,
the related financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

/s/ Ernst & Young LLP
Minneapolis, Minnesota
January 30, 1997


                       Report of Independent Accountants

To the Board of Directors and Shareholders of
     Enigma Logic, Inc.

In our opinion, the accompanying balance sheets and the related statements of
operations, shareholder' deficit and cash flows present fairly, in all material
respects, the fiancial position of Enigma Logic, Inc. at December 31, 1995 and
1994 and the results of its operations and its cash flows for the three years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting princples used
and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

/s/ Price Waterhouse LLP
Price Waterhouse LLP
San Jose, California
March 1, 1996




PRICE WATERHOUSE

March 29, 1996

AUDITORS' REPORT

To the Shareholders of
Border Network Technologies Inc.

We have audited the consolidated balance sheet of Border Network Technologies
Inc. as at December 31, 1995 and the consolidated statements of operations and
retained earnings (deficit) and changes in financial position for the year then
ended. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at December 31, 1995
and the results of its operations and the changes in its financial position for
the year then ended in accordance with generally accepted accounting principles.

The financial statements as at December 31, 1994 and for the period then ended
were audited by other auditors who expressed an opinion without reservation on
those statements in their report dated October 2, 1995.

/s/ Price Waterhouse
Chartered Accountants
Toronto, Ontario



                                AUDITORS' REPORT

TO THE SHAREHOLDERS
BORDER NETWORK TECHNOLOGIES INC.

We have audited the balance sheet of Border Network Technologies Inc. as at
December 31, 1994 and the statements of loss and deficit and changes in
financial position for the period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.

In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1994 and the
results of its operations and the changes in its financial position for the
period then ended in accordance with generally accepted accounting principles.

Mississauga, Ontario                               /s/ McClurkin Ahier & Company
October 2, 1995                                    CHARTERED ACCOUNTANTS

57 Queen Street South, Mississauga. Ontario L5M lK5 Tel: (905) 858-4147
Fax: (905) 858-1162



                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

                                     SECURE COMPUTING CORPORATION

Date:  March 31, 1997                By /s/ Jeffrey H. Waxman
                                        -------------------------------------
                                        Jeffrey H. Waxman
                                        President and Chief Executive Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant, and in the capacities indicated on March 31, 1997.

Signature                                        Title

     /s/ Jeffrey H. Waxman              President and Chief Executive Officer
--------------------------------        and Director
Jeffrey H. Waxman                       (Principal Executive Officer)


     /s/ Timothy P. McGurran            Chief Financial Officer
--------------------------------        (Principal Financial and Accounting
Timothy P. McGurran                     Officer)

         *                              Director
--------------------------------
Robert Forbes

         *                              Director
--------------------------------
Robert J. Frankenberg

         *                              Director
--------------------------------
Timothy H. Hanson

         *                              Director
--------------------------------
Ervin F. Kamm, Jr.

         *                              Director
--------------------------------
Glenn G. Mackintosh

         *                              Director
--------------------------------
Stephen M. Puricelli

         *                              Director
--------------------------------
Eric P. Rundquist

         *                              Director
--------------------------------
Dennis J. Shaughnessy

* Jeffrey H. Waxman by signing his name hereto, does hereby sign this document
on behalf of each of the above named directors of the Registrant pursuant to
power of attorney duly executed by such persons.

                                                 /s/ Jeffrey H. Waxman
                                           -----------------------------------
                                           Jeffrey H. Waxman, Attorney in fact


<TABLE>
<CAPTION>
                          Secure Computing Corporation

                                   Schedule II
                        Valuation and Qualifying Accounts
                  Years Ended December 31, 1996, 1995 and 1994

                                                    Additions
                                      Balance at    Charged to
                                      Beginning     Costs and       Less         Balance at
 Description                          of Year       Expenses      Deductions     End of Year
                                      ---------     ---------     ----------     -----------
<S>                                  <C>           <C>           <C>            <C>
 Year Ended 12/31/96:

  Contract loss reserve               $ 250,000     $    --       $    --        $ 250,000

  Warranty reserves                     120,000        35,000       (90,000)        65,000

  Sales return allowance                 70,000        50,000          --          120,000

  Allowance for doubtful accounts       131,000       462,000      (303,000)       290,000

  Inventory reserve                        --         150,000          --          150,000
                                      =========     =========     =========      =========
      Total                           $ 571,000     $ 697,000     $(393,000)     $ 875,000
                                      =========     =========     =========      =========
Year Ended 12/31/95:

  Contract loss reserve               $ 200,000     $  50,000     $    --        $ 250,000

  Warranty reserve                       34,000        86,000          --          120,000

  Sales return allowance                   --          70,000          --           70,000

  Allowance for doubtful accounts       165,000       115,000      (149,000)       131,000

                                      =========     =========     =========      =========
      Total                           $ 399,000     $ 321,000     $(149,000)     $ 571,000
                                      =========     =========     =========      =========
Year Ended 12/31/94:

  Contract loss reserve               $ 154,000     $  46,000     $    --        $ 200,000

  Allowance for doubtful accounts       150,000        65,000       (50,000)       165,000

  Warranty reserves                        --          34,000          --           34,000
                                      =========     =========     =========      =========
      Total                           $ 304,000     $ 145,000     $ (50,000)     $ 399,000
                                      =========     =========     =========      =========
</TABLE>


<TABLE>
<CAPTION>

                                INDEX TO EXHIBITS


EXHIBIT     DESCRIPTION                                                                                     PAGE
-------     -----------                                                                                     ----
<S>        <C>                                                                                         <C>
  2.1       Agreement and Plan of Merger among Secure Computing Corporation,  Owl Acquisition,  Inc.    Incorporated by
            and Enigma Logic, Inc. dated as of June 24, 1996, as amended as of July 31, 1996.(1)        reference


  2.2       Acquisition and  Pre-Amalgamation  Agreement among Secure  Computing  Corporation,  Edge    Incorporated
            Acquisition  Inc. and Border  Network  Technologies,  Inc.  dated as of May 28, 1996, as    by reference
            amended as of July 31, 1996.(1)

  2.3       Amalgamation Agreement dated as of August 29, 1996.(2)                                      Incorporated by
                                                                                                        reference

  3.1       Restated Certificate of Incorporation of Registrant.(3)                                     Incorporated by
                                                                                                        reference

  3.2       By-Laws of the Registrant.(4)                                                               Incorporated by
                                                                                                        reference

  4.1       Specimen of Common Stock certificate.(5)                                                    Incorporated by
                                                                                                        reference

  4.2       Certificate of Designation.(6)                                                              Incorporated by
                                                                                                        reference

 10.1       Registration  Rights  Agreement  among ITI,  Incorporated,  Grotech  Partners  II, L.P.,    Incorporated by
            Ideas, Inc. and Bernard Farkas dated July 14, 1989.(7)                                      reference

 10.2       Purchase  Agreement among ITI  Incorporated,  Grotech  Partners II, L.P., Ideas Inc. and    Incorporated by
            Bernard Farkas dated July 14, 1989.(8)                                                      reference

 10.3       Purchase   Agreement  among  ITI  Incorporated  and  Corporate  Venture  Partners  dated    Incorporated by
            December 13, 1989.(9)                                                                       reference

 10.4       First Amendment dated December 13, 1989 among ITI, Incorporated, Grotech Partners II,
            Incorporated by L.P., Ideas, Inc., and Bernard Farkas and Corporate Venture Partners to
            Registration reference Rights Agreement among ITI, Incorporated, Grotech Partners II,
            L.P., Ideas, Inc. and Bernard Farkas dated July 14, 1989.(10)

 10.5       Software  Agreement  between  AT&T  Information  Systems  Inc.  and  ITI,  Incorporated,    Incorporated by
            Agreement  No. SOFT-01701,  dated April 2, 1990, including Supplement No. 1, UNIX System    reference
            V Release 3.0,  Supplement No. 2 dated August 10, 1990;  Sublicensing  Agreement between
            AT&T Information Systems, Inc.; Letter Agreement between UNIX System Laboratories,  Inc.
            and ITI, Inc. dated April 15, 1991; Letter Agreement  modifying  Software  Agreement No.
            SOFT-01701  dated  October 22, 1992;  and Software  Agreement  between AT&T  Information
            Systems Inc. and ITI, Incorporated, Agreement No. SOFT-02036, dated July 26, 1991.(11)

 10.6       Agreement  and Plan of Merger  and  Reorganization  among ITI  Incorporated  and  Secure    Incorporated by
            Computing Technology Company dated May 29, 1992.(12)                                        reference

 10.7       Contract between the United States of America and Secure Computing Corporation, Contract    Incorporated by
            No. MDA904-93-C-C034, dated December 16, 1992, including Amendment No. P00001 dated         reference
            January 25, 1993; Amendment No. P00002 dated March 10, 1993; Amendment No. P00003 dated
            February 18, 1993; Amendment No. P00004 dated March 15, 1993; Amendment No. P00005 dated
            October 27, 1993; Amendment No. P00006 dated December 13, 1993; Amendment No. P00007
            dated December 30, 1993; Amendment No. P00008 dated April 29, 1994; Amendment No. P00009
            dated October 14, 1994; Amendment No. P00010 dated November 30, 1994; Amendment No.
            P00011 dated December 21, 1994; Amendment No. P00012 dated January 25, 1995; Amendment
            No. P00013 dated May 3, 1995; Amendment No. P00014 dated May 26, 1995; Amendment No.
            P00015 dated June 28, 1995; Amendment No. P00016 dated July 24, 1995; Amendment No.
            P00017 dated October 4, 1995; Amendment No. A00001 dated January 11, 1993; Amendment No.
            A00002 dated March 24, 1993; Amendment No. A00003 dated March 30, 1993; Amendment No.
            A00004 dated May 1, 1993; Amendment No. A00005 dated July 8, 1993.(13)

 10.8       The following amendments to Contract between the United States of America and Secure Filed  Filed
            Computing Corporation, Contract No. MDA904-93-C-C034: Amendment No. A00006 effective June   Electronically
            4, 1996, Amendment No. P00018 effective October 13, 1995, Amendment No. P00019 effective
            November 13, 1995, Amendment No. P00020 effective December 15, 1995, Amendment No. P00021
            effective December 11, 1995, Amendment No. P00022 effective January 5, 1996, Amendment No.
            P00023, effective January 22, 1996, Amendment No. P00024 effective January 29, 1996,
            Amendment No. P00025 effective February 12, 1996, Amendment No. P00026 effective March 11,
            1996, Amendment No. P00027 effective April 10, 1996, Amendment No. P00028 effective April
            11, 1996, Amendment No. P00029 effective April 24, 1996, Amendment No. P00030 effective
            June 6, 1996, Amendment No. P00031 effective June 6, 1996, Amendment No. P00032 effective
            July 2, 1996, Amendment No. P00033 effective September 12, 1996, and Amendment No. P00034
            effective October 31, 1996.

 10.9       Secure  Computing   Corporation   Profit  Sharing  and  Retirement   Plan--Summary  Plan    Incorporated by
            Description dated February 1, 1994.(14)                                                     reference

 10.10      Software License Agreement  between Berkeley Software Design,  Inc. and Secure Computing    Incorporated by
            Corporation, dated February 7, 1994.(15)                                                    reference

 10.11      Second Amendment to Purchase Agreement among Secure Computing Corporation, Grotech
            Incorporated by Partners II, L.P., Corporate Venture Partners, L.P., Ideas, Inc. and
            Bernard Farkas reference dated September 19, 1994, to Purchase Agreement dated July 14,
            1989 among ITI, Incorporated, Grotech Partners II, L.P., Ideas, Inc. and Bernard
            Farkas.(16)

 10.12      Purchase  Agreement  between  Secure  Computing  Corporation  and FBL  Ventures of South    Incorporated by
            Dakota, Inc. dated September 20, 1994.(17)                                                  reference

 10.13      Employment  Agreement  between Secure Computing  Corporation and Jeffrey H. Waxman dated    Incorporated by
            November 4, 1997.(18) +                                                                     reference

 10.14      Employment  Agreement  between Secure Computing  Corporation and Kermit M.  Beseke dated    Incorporated by
            December 31, 1994.(19) +                                                                    reference

 10.15      Employment  Agreement  between  Secure  Computing  Corporation  and  James  Boyle  dated    Incorporated by
            October 7, 1996.(20)                                                                        reference

 10.16      Employment  Agreement  between Secure  Computing  Corporation and Christine Hughes dated    Incorporated by
            November 8, 1996, including the letter agreement dated November 7, 1996. (21) +             reference

 10.17      Employment  Agreement  between Secure  Computing  Corporation  and Donald Whitbeck dated    Incorporated by
            August 29, 1996. (22) +                                                                     reference

 10.18      Employment Agreement between Secure Computing Corporation and Timothy P.  McGurran dated    Incorporated by
            August 27, 1996. (23) +                                                                     reference

 10.19      Employment  Agreement  between Secure  Computing  Corporation  and Gary D. Taggart dated    Filed
            October 2, 1996. +                                                                          Electronically

 10.20      Employment Agreement between Secure Computing Corporation and Glenn G. Mackintosh dated     Filed
            August 29, 1996. (24) +                                                                     Electronically

 10.21      Employment  Agreement  between Secure  Computing  Corporation and Craig A.  Alesso dated    Incorporated by
            September 16, 1995.(25) +                                                                   reference

 10.22      Employment  Agreement  between Secure  Computing  Corporation and Gene C.  Leonard dated    Incorporated by
            September 1, 1995.(26) +                                                                    reference

 10.23      Employment  Agreement  between  Secure  Computing  Corporation  and Dean  Nordahl  dated    Incorporated by
            September 28, 1995.(27) +                                                                   reference

 10.24      Employment  Agreement  between  Secure  Computing  Corporation  and  Joe  Anzures  dated    Incorporated by
            September 28, 1995.(28) +                                                                   reference

 10.25      Description of Secure Computing Corporation Management Incentive Plan.(29) +                Incorporated by
                                                                                                        reference

 10.26      Secure Computing Corporation Amended and Restated 1995 Omnibus Stock Plan. +                Filed
                                                                                                        Electronically

 10.27      Secure Computing Corporation Management Incentive Plan for 1996 for Kermit M. Beseke.(30)+  Incorporated by
                                                                                                        reference

 10.28      Secure Computing Corporation Employee Stock Purchase Plan(31)+                              Incorporated by
                                                                                                        reference

 11.1       Statement of Computation of Earnings Per Share.                                             Filed
                                                                                                        Electronically

 23.1       Consent of Ernst & Young LLP.                                                               Filed
                                                                                                        Electronically

 23.2       Consent of Price Waterhouse, Chartered Accountants, Toronto, Canada.                        Filed
                                                                                                        Electronically

 23.3       Consent of Price Waterhouse, LLP, San Jose, California.                                     Filed
                                                                                                        Electronically

 23.4       Consent of McClurkin Ahier & Company, Chartered Accountants.                                Filed
                                                                                                        Electronically

 24.1       Powers of Attorney                                                                          Filed
                                                                                                        Electronically

 27.1       Financial Data Schedule.                                                                    Filed
                                                                                                        Electronically

</TABLE>
-------------

1        Incorporated by reference to Appendix A to the Company's Definitive
         Proxy Statement dated August 5, 1996 and filed August 7, 1996 with the
         Securities and Exchange Commission (File No. 0-27074).

2        Incorporated herein by reference to Exhibit 2.3 to the Company's
         Current Report on Form 8-K filed September 12, 1996 (File No. 0-27074).

3        Incorporated herein by reference to Exhibit 3.2 to the Company's Form
         10-K filed on March 28, 1996 (File No. 0-27074).

4        Incorporated herein by reference to Exhibit 3.3 to the Company's
         Registration Statement on Form S-1 (Registration Number 33-97838).

5        Incorporated herein by reference to the same numbered Exhibit to
         Amendment No. 2 to the Company's Registration Statement on Form S-1
         (Registration Number 33-97838).

6        Incorporated herein by reference to Exhibit 4.1 to the Company's
         Current Report on Form 8-K filed on September 12, 1996 (File No.
         0-27074).

7        Incorporated herein by reference to Exhibit 10.2 to the Company's
         Registration Statement on Form S-1 (Registration Number 33-97838).

8        Incorporated herein by reference to Exhibit 10.4 to the Company's
         Registration Statement on Form S-1 (Registration Number 33-97838).

9        Incorporated herein by reference to Exhibit 10.6 to the Company's
         Registration Statement on Form S-1 (Registration Number 33-97838).

10       Incorporated herein by reference to Exhibit 10.7 to the Company's
         Registration Statement on Form S-1 (Registration Number 33-97838).

11       Incorporated herein by reference to Exhibit 10.9 to the Company's
         Registration Statement on Form S-1 (Registration Number 33-97838).

12       Incorporated herein by reference to Exhibit 10.12 to the Company's
         Registration Statement on Form S-1 (Registration Number 33-97838).

13       Incorporated herein by reference to Exhibit 10.13 to the Company's
         Registration Statement on Form S-1 (Registration Number 33-97838).

14       Incorporated herein by reference to Exhibit 10.15 to the Company's
         Registration Statement on Form S-1 (Registration Number 33-97838).

15       Incorporated herein by reference to Exhibit 10.16 to the Company's
         Registration Statement on Form S-1 (Registration Number 33-97838).

16       Incorporated herein by reference to Exhibit 10.21 to the Company's
         Registration Statement on Form S-1 (Registration Number 33-97838).

17       Incorporated herein by reference to Exhibit 10.22 to the Company's
         Registration Statement on Form S-1 (Registration Number 33-97838).

18       Incorporated herein by reference to Exhibit 10.4 to the Company's Form
         10-Q filed on November 14, 1996 (File No. 0-27074).

19       Incorporated herein by reference to Exhibit 10.23 to the Company's
         Registration Statement on Form S-1 (Registration Number 33-97838).

20       Incorporated by reference to Exhibit 10.5 to the Company's Form 10-Q
         filed on November 14, 1996 (File No. 0-27074).

21       Incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q
         filed on November 14, 1996 (File No. 0-27074).

22       Incorporated by reference to Exhibit 10.7 to the Company's form 10-Q
         filed on November 14, 1996 (File No. 0-27074).

23       Incorporated by reference to Exhibit 10.8 to the Company's Form 10-Q
         filed on November 14, 1996 (File No. 0-27074).

24       Incorporated herein by reference to Exhibit 10.6 to the Company's Form
         10-Q filed on November 14, 1996 (File No. 0-27074).

25       Incorporated herein by reference to Exhibit 10.24 to the Company's
         Registration Statement on Form S-1 (Registration Number 33-97838).

26       Incorporated herein by reference to Exhibit 10.25 to the Company's
         Registration Statement on Form S-1 (Registration Number 33-97838).

27       Incorporated herein by reference to Exhibit 10.26 to the Company's
         Registration Statement on Form S-1 (Registration Number 33-97838).

28       Incorporated herein by reference to Exhibit 10.27 to the Company's
         Registration Statement on Form S-1 (Registration Number 33-97838).

29       Incorporated herein by reference to Exhibit 10.28 to the Company's
         Registration Statement on Form S-1 (Registration Number 33-97838).

30       Incorporated herein by reference to Exhibit 10.24 to the Company's Form
         10-K filed on March 28, 1996 (File No. 0-27074).

31       Incorporated herein by reference to Exhibit 4.03 to the Company's
         Registration Statement on Form S-8 (Registration Number 333-114151)

+        Management Contract or compensatory plan or arrangement required to be
         filed as an exhibit hereto pursuant to Item 14(c) of Form 10-K and Item
         601 of Regulation S-K.