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

                                   FORM 10-K
                            ------------------------

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

                    FOR THE FISCAL YEAR ENDED JUNE 30, 1999

[ ] 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: 0-21432

                              AUSPEX SYSTEMS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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                  DELAWARE                                      93-0963760
       (STATE OR OTHER JURISDICTION OF                       (I.R.S. EMPLOYER
       INCORPORATION OR ORGANIZATION)                       IDENTIFICATION NO.)
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                            2300 CENTRAL EXPRESSWAY
                         SANTA CLARA, CALIFORNIA 95050
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

  REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 566-2000/WEB SITE
                                (WWW.AUSPEX.COM)

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                      NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                         COMMON STOCK, $.001 PAR VALUE

                        PREFERRED SHARE PURCHASE RIGHTS
                                (TITLE OF CLASS)

     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.    YES [ ]  NO [X]

     As of September 13, 1999, 27,443,990 shares of Common Stock of Registrant
were outstanding. The aggregate market value of the shares held by
non-affiliates of the Registrant (based upon the closing price of the
Registrant's Common Stock on September 13, 1999 of $9.75 per share) was
approximately $187,220,446.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Part III incorporates information by reference from the definitive proxy
statement for the Annual Meeting of Stockholders scheduled to be held on
November 18, 1999.

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                               TABLE OF CONTENTS

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PART I................................................................    4
ITEM 1.   BUSINESS....................................................    4
          The Company.................................................    4
          Markets and Customers.......................................    5
          Products....................................................    6
          Distribution................................................    9
          Customer Service and Support................................    9
          Manufacturing...............................................   10
          Research and Development....................................   10
          Competition.................................................   11
          Intellectual Property and Licenses..........................   11
          Employees...................................................   12
          Executive Officers of the Company...........................   12
ITEM 2.   PROPERTIES..................................................   14
ITEM 3.   LEGAL PROCEEDINGS...........................................   14
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........   14

PART II...............................................................   14
ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
          STOCKHOLDER MATTERS.........................................   14
ITEM 6.   SELECTED FINANCIAL DATA.....................................   15
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS...................................   16
          Results of Operations.......................................   16
          Revenues....................................................   16
          Gross Margin................................................   17
          Operating Expenses..........................................   17
          Other Income................................................   18
          Provision for Income Taxes..................................   18
          Quarterly Results of Operations.............................   19
          Liquidity and Capital Resources.............................   20
          Factors That May Affect Future Results......................   20
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
          RISKS.......................................................   26
ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................   26
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
          AND FINANCIAL DISCLOSURE....................................   26

PART III..............................................................   26
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..........   27
ITEM 11.  EXECUTIVE COMPENSATION......................................   27
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT..................................................   27
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............   27

PART IV...............................................................   27
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
          8-K.........................................................   27
          (a) 1. FINANCIAL STATEMENTS.................................   27
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          2. FINANCIAL STATEMENT SCHEDULES............................   28
          3. EXHIBITS.................................................   28
          (b) REPORTS ON FORM 8-K.....................................   31
SIGNATURES............................................................   31
POWER OF ATTORNEY.....................................................   31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS..............................   32
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS.............................  S-0
SUPPLEMENTAL SCHEDULES................................................  S-1
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                             INTRODUCTORY STATEMENT

     References made in this Annual Report on Form 10-K to "Auspex," the
"Company," or the "Registrant" refer to Auspex Systems, Inc. and its wholly
owned subsidiaries. AUSPEX, the Auspex logo design, DataGuard, DriveGuard, FMK,
FMP, Functional Multi-Processing, Functional Multi-Processing Kernel, Functional
Multi-Processor, Functional Multiprocessor NS5000 and ServerGuard are registered
trademarks of the Company. Auspex 4Front, Auspex Control Points, All the Data
All the Time, ClusterGuard, Continuous Data Access, Data Xcelerator Engines,
DataXpress, DataXpress kernel, FastFlo File System, NetOS, NetServer,
NeTservices, Playground, ServerGuard Global, Thrive Carefully and XceleRAID are
trademarks of the Company.

                           FORWARD-LOOKING STATEMENT

     FROM TIME TO TIME, THE COMPANY MAY PUBLISH STATEMENTS THAT ARE NOT
HISTORICAL FACTS BUT ARE FORWARD-LOOKING STATEMENTS RELATING TO SUCH MATTERS AS
ANTICIPATED FINANCIAL PERFORMANCE, BUSINESS PROSPECTS, TECHNOLOGICAL
DEVELOPMENTS, NEW PRODUCTS, RESEARCH AND DEVELOPMENT ACTIVITIES AND SIMILAR
MATTERS. SUCH STATEMENTS ARE GENERALLY IDENTIFIED BY THE USE OF FORWARD-LOOKING
WORDS AND PHRASES, SUCH AS "INTENDED," "EXPECTS," "ANTICIPATES" AND "IS (OR ARE)
EXPECTED (OR ANTICIPATED)." THESE FORWARD-LOOKING STATEMENTS INCLUDE BUT ARE NOT
LIMITED TO THOSE IDENTIFIED WITH AN ASTERISK (*) SYMBOL. ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS, AND
STOCKHOLDERS OF AUSPEX SHOULD CAREFULLY REVIEW THE CAUTIONARY STATEMENTS SET
FORTH IN THIS FORM 10-K, INCLUDING FACTORS THAT MAY AFFECT FUTURE RESULTS.
AUSPEX MAY FROM TIME TO TIME MAKE ADDITIONAL WRITTEN AND ORAL FORWARD-LOOKING
STATEMENTS, INCLUDING STATEMENTS CONTAINED IN AUSPEX'S FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION AND IN ITS REPORTS TO STOCKHOLDERS. AUSPEX
DOES NOT UNDERTAKE TO UPDATE ANY FORWARD-LOOKING STATEMENTS THAT MAY BE MADE
FROM TIME TO TIME BY OR ON BEHALF OF AUSPEX.

                                     PART I

ITEM 1. BUSINESS

THE COMPANY

     Auspex was formed in 1987 and was incorporated in Delaware in 1991. The
Company develops, manufactures, distributes and supports a line of
multi-protocol (NFS(1), CIFS(2) and FTP(3)) Network Attached Storage devices
also referred to as network file servers which include specialized software for
storing, serving and managing network data.

     In fiscal 1999, the Company completed a two-year transition in order to
increase market share by addressing a larger portion of the Network Attached
Storage ("NAS") market. The two-year process of corporate renewal included a
fundamental shift in the Company's business model and product development
strategy. The Company made significant investments to develop all-new core NAS
technologies and re-focused its product development plans to become
software-centric. The Company also changed its business

---------------

    1 NFS denotes the Network File System protocol, first promulgated by Sun
    Microsystems, Inc. ("Sun Microsystems"), and since widely adopted by the
    workstation market as a de facto standard for network file transfers.

    2 CIFS refers to the Common Internet File Service protocol developed by
    Microsoft Corporation as a networking protocol for PC clients to access
    files on a PC file server in a Local Area Network ("LAN") or Wide Area
    Network ("WAN").

    3 FTP ("File Transfer Protocol") is a standard protocol commonly used to
    retrieve or store files on network file servers. FTP is supported on UNIX,
    Windows, VMS, Macintosh and other popular desktop computers.
                                        4
<PAGE>   5

model from developing on a custom hardware platform to implementing its all-new
NAS data delivery software architecture on industry-standard hardware (Intel) in
order to improve price/performance and time-to-market. This process created the
all-new core software technologies that underpin the current generation of the
NetServer product line.

     In fiscal 1999, the Company also made substantial investments in its
customer service organization by redeploying its technical resource to the field
and increasing the engineering support organization to 178 at fiscal year-end.
The Company's customer support model is comprised of two components: the
Company's highly trained technical engineering support organization, which helps
customers solve complex problems associated with the network data delivery
chain, from the storage to the desktop. The Company utilizes NCR for straight
parts replacement.

     The Company's objective is to deliver mission-critical network data-access
solutions across heterogeneous platforms (UNIX, Windows NT). The Company
characterizes its new and broader vision as "All the data, All the time"(TM),
which reflects Auspex's objectives for reliability, scalability, network
Input/Output ("I/O") performance and customer support.

     The Company's heritage is based on the creation of a specialized
device -- the industry's first "thin" server or specialized file server -- which
utilizes highly efficient software to optimize I/O performance. The primary
market for the Company's product was known as the file server market, which
today is known as the Network Attached Storage (NAS) market. A leading
independent industry analyst projects the NAS market will grow from $986 million
in calendar year 1999 to more than $5 billion by the calendar year 2003 (Source:
International Data Corp., 1999).*

MARKETS AND CUSTOMERS

     Historically, the Company's customer base has been largely comprised of
Fortune 1000 customers in the enterprise technical computing market. Auspex has
twelve years of networking expertise in this market by delivering enterprise
class data availability and scalability solutions, which is a key competitive
differentiator versus mid-range NAS appliance as well as general-purpose server
companies. The Company believes this core competency creates a barrier for entry
into the NAS market for general-purpose server companies that may be looking to
establish a position in the high-growth NAS market. For the Company to increase
footprint in the enterprise market as well as extend its reach into department
and workgroup environments in the NAS market, it implemented a number of
strategies including improving price/performance three-fold over legacy models
and introducing a high-performance Windows NT software option in June of 1999 to
take advantage of the growth in heterogeneous UNIX and Windows NT environments.
In addition, during the last fiscal year, the Company achieved Oracle Storage
Compatibility Program certification, which opens an opportunity for NAS in the
commercial/database market. At the same time, based on the growth in the last
twelve months in e-commerce, the Internet market has begun to shift its purchase
criteria away from appliances and into building e-business, enterprise-class
network infrastructures that deliver high availability, scalability and
reliability. In the Internet market space, NetServers are deployed in much the
same way as they have been in the technical market -- as the key resource for
consolidation of data and delivery of content. The similarities between the
Internet space and the Company's core franchise in technical computing include
requirements for data availability and scalability. There can be no assurance,
however, that the Company will be able to adapt its NetServers to commercial and
e-business markets or that it will be able to penetrate such markets.*

     As of June 30, 1999, approximately 2,700 NetServers had been shipped to
over 500 customers worldwide. Reflecting the NetServer's particular suitability
to the performance requirements of large-scale client/server systems, networks
supporting more than 50 users account for more than 80% of the Company's
installed base. Within the NAS market, NetServers are used most commonly for the
following applications: software development, electronic computer-aided design
("ECAD") and electronic computer-aided engineering ("ECAE"), seismic and
geophysical modeling, scientific and academic research, mechanical
computer-aided design ("MCAD"), technical publishing and financial services.

---------------

* See "Forward-Looking Statements" on page 4.
                                        5
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     Sales of products and services to the following customers accounted for 10%
or more of total revenues in the periods indicated: fiscal 1997 -- Intel
Corporation ("Intel")(10%) and America Online ("AOL")(15%); fiscal
1998 -- Intel(20%); and fiscal year 1999 -- Intel(20%). Intel is not obligated
to purchase any minimum level of products from the Company. Accordingly, there
can be no assurance that sales of products and services to these customers will
not decline, either in absolute dollar amounts or as a percentage of total
revenues, in future periods and that any such declines will not have a material
adverse effect on the Company's results of operations.*

PRODUCTS

     In fiscal 1999, the Company introduced its new generation of NAS products.
The new system architecture is designed to store, manage and deliver data to
network clients with a continual focus on reliability, scalability, UNIX/Windows
NT file sharing and price/performance. The new 4Front(TM) NS2000 hardware design
is based on industry standard hardware integrated into simple, yet powerful
subsystems called I/O Nodes. Using an UltraSPARC Node, which runs standard
Solaris, the most widely used version of UNIX, the user can take advantage of
the large variety of management applications that exist for that platform.
Multiple I/O nodes can be connected to a single UltraSPARC Node, using the
Scalable Coherent Interface ("SCI") to create architecture that scales to
provide vast amounts of storage and network connectivity. Each I/O Node supports
multiple network connections -- including all common network interfaces -- and
connects directly to more than three terabytes of disk storage. A two-node
system will support six terabytes, and a three-node system will support nine and
one-half terabytes.

     The NS2000 is based on the Company's patented NerOS kernel, which underpins
its NAS architecture. NetOS separates network processing from storage
processing, independently scaling networks and storage. It also offers
multi-protocol support and provides parallel backup paths for rapid data
archiving.

     This architecture utilizes Functional Multi-Processing, which dedicates
processors to specific tasks, such as network protocol processing -- Network
File System ("NFS") and Common Internet File System ("CIFS") -- file system
management and storage management and control.

     The File and Storage Processing ("FSP") kernel incorporates the FastFLO
File System, that provides reliability and performance using advanced journaling
technology. The FSP also supports File and Block level Snapshots for consistent
system backup and data protection. Full support is provided on the host Node for
the Network Data Management Protocol ("NDMP"). NDMP-compliant backup software
executing on the host or another network system can be used to direct each I/0
Node to backup its data at high speeds by streaming data directly from disk to
tape using Data Xcelerator Engines.

     The Company has implemented a hardware RAID subsystem leveraging Mylex
technology with Auspex's XceleRAID firmware controllers to connect directly into
the high-density disk array ("HDDA"). The HDDA provides a very large amount of
storage in a package that has the same form factor as the I/O Node itself. All
drives in the array are hot-plugable to ensure rapid, on-line replacement in the
event of a problem. A single I/O Node maximally configured with three XceleRAID
controllers and three HDDAs will support a total of three terabytes of storage,
based on using 36-gigabyte drives. A two-node system will support six terabytes,
and three-node system will support nine and one-half terabytes. The Company
believes it has the highest storage density per floor tile in the industry.

     Using this system architecture delivers three key benefits: first, higher
reliability as there is no operating system in the data path; second, seamless
growth for networking and storage as users add I/O Nodes to their system
configuration; and third, because it appears to the system administrator as a
single system image, they can cost effectively, configure for maximum
performance based on the application environment.

---------------

* See "Forward-Looking Statements" on page 4.
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     The Company believes that the importance of the benefits of its new product
to large-scale client/server systems is demonstrated by the fact that over 80%
of the approximately 2,700 file servers shipped support networks with 50 - 800
users per server.*

OPTIONAL NS2000 SOFTWARE

     There are two software options that can be purchased with the NS200. The
first, DataGuard(TM), allows users to continuously access data in the event of a
disruption associated with the host operating system. Because the data movement
function is isolated from the Solaris, total system availability improves.

     The second product, NetServices 2.0, delivers seamless file sharing between
UNIX and Windows NT clients in order to facilitate collaboration and reduce the
total cost of ownership relative to replicating data on separate UNIX and
Windows NT servers. While UNIX continues to dominate the back-end, enterprise
environments are evolving to include Windows NT clients. Thus, the requirement
to integrate Windows (including NT, 98, 95 and Windows for Workgroups),
seamlessly into the enterprise has assumed a critical position. Combining
Windows and UNIX environments poses a very important data services challenge:
having separate, distributed data servers for Windows data versus consolidating
both types of data on a single platform. Significant benefits in the area of
performance, data management, availability and file sharing can be obtained by
consolidating UNIX and Windows data on a single, enterprise-class file server
platform.

     NetServices 2.0 delivers the Windows NT 4.0 networking environment
including directory services, file security and remote administration that is
essential for enterprise-level deployment of Windows-based networks.

     NetServices 2.0 is also the fastest Windows NT server available today,
based on independent industry standard benchmarks. The product's ZD NetBench
5.01 test results exceeded 58 megabytes per second throughout. NetServices 2.0
allows administrators to manage just one physical copy of the shared data, with
transparent, secure sharing of individual files by UNIX and Windows NT clients.
Because no client software is required, NetServices 2.0 does not create the
additional overhead of per-client administration. Locking mechanisms provide
data protection while there is concurrent file access by UNIX and Windows NT
clients. Fiscal 1999 software licenses represented approximately 3% of Company
revenue.

     NetServer prices range from approximately $53,000 to $1,200,000, depending
on the configuration. While system price varies considerably according to the
configuration purchased, the average sales price per system in fiscal year 1999
for North American direct sales was approximately $298,000, and for distributor
and international sales, approximately $113,000. Lower average sales prices per
system for international distributor sales are attributable to the fact that
most servers sold through these channels are sold in smaller configurations and
at higher discounts.

     The Company's strategy is to introduce new products and offer upgrades to
existing products periodically.* There can be no assurance that some customers
will not cancel orders for existing products or delay orders in anticipation of
new product availability, and should cancellations and delays occur, the
Company's revenues and operating results could be materially and adversely
affected.

TECHNOLOGY

     Underpinning the NS2000 product line are unique software technologies that
are dedicated to optimizing performance at each step of the data delivery chain,
including:

     System Management System management for the NS2000 is accomplished through
a simple but powerful browser interface, Control Point. Key functions of the
file server can be managed locally from the host console or remotely from any
compatible browser. Multiple servers can be monitored and managed from the same
console if desired. Control Point is implemented entirely in Java, providing for
advanced features

---------------

* See "Forward-Looking Statements" on page 4.
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beyond the abilities of simple HTML management tools, while ensuring portability
and ease of use. Command line equivalents are also available for all Control
Point functions.

     Data Management The DataXcelerator Engines are a unique data transfer
facility that use two data-moving engines -- the Block DataXcelerator ("BDX")
and the File DataXcelerator ("FDX") -- to provide acceleration for system backup
and data movement. The Block DataXcelerator provides the capability to stream
blocks of data from disk to tape, tape to disk, or disk to disk. BDX provides
the foundation for extremely rapid image backup. The File DataXcelerator
provides a similar interface that acts at the level of individual files,
streaming file data from file to file, from file to tape, or from tape to file.
FDX provides the basis for rapid file by file backup to direct-attached tape.
The DataXcelerator Engines provide the basis for advanced data management,
allowing data to be easily migrated between file systems, between disk volumes,
or between Nodes.

     Network Processing The DataXpress Kernel is a very efficient software
kernel that interfaces to the network client and acts as the manager of all data
requests. DataXpress provides greater software reliability and improved
performance. Unlike conventional operating systems, the DataXpress kernel does
not use virtual memory. All necessary code is stored in local memory so that it
can be immediately executed when needed. Because the kernel working set is
typically small, processors get the greatest possible advantage from their
built-in instruction caches, typically finding needed code already cached.
Therefore, not only does DataXpress avoid disk accesses to retrieve
instructions, even memory accesses are often avoided.

     File System Processing The file system plays a critical role in data
management. As the demand for disk storage continues to grow, the file system
must scale to handle huge file systems, very large files, and very large numbers
of files, single directories with thousands of entries and the file semantics
and attributes of both UNIX and Windows NT environments. At the same time, the
file system must be able to maintain its internal accounting and recover quickly
in the event of an unexpected power outage or other failure. Auspex licensed
file system technology from PLC and integrated it with the Company's patented
NetOS system software for performance, scalability and reliability. Auspex's
file system software -- FastFLO -- uses journaling technology to ensure the file
system's structural integrity. It also incorporates advanced software for File
Layout Optimization and writes clustering techniques to minimize file
fragmentation and enhance read operations. FastFLO supports both UNIX and
NT/Windows security and access control natively in the file system. This
protects files access security attributes for UNIX and Windows NT files during
backup and restore because the attributes are not stored in a separate file -- a
limitation in some NT/Windows emulation software solutions currently on the
market.

     In addition, FastFLO includes a very large disk buffers cache (I/O cache
memory) on the network and file processing element, which gives users the
flexibility to configure the amount of memory to meet their application
performance needs.

     Storage Processing Auspex's XceleRAID firmware acts as the interface to
storage and provides multiple high-speed RAID controllers to deliver high
availability and protect data from disk failure. Supported RAID levels include:
RAID 0, RAID 1, RAID 5 and RAID 7 (JBOD). XceleRAID is responsible for virtual
partition management on the storage devices, write acceleration, channel
management, disk and tape control and data transfers to I/O cache memory.

LEGACY MODELS

     In the first quarter of fiscal 1999, the Company introduced new high-end
servers, the NS8000/850 and NS8000/350, which superseded the NS7000 line of
products. By improving upon the strengths of the NS7000, the NS8000/850
delivered improved price/performance, higher density disk packaging and new
networking capabilities. The high-density disk packaging provided a migration
path for customers to the Company's next-generation platform, the NS2000,
introduced in March 1999.

     The NS7000 NetServer line of products was introduced in fiscal 1996 and
evolved into the NS8000. Each product in the NS7000 line of products could
simultaneously support applications such as high-speed, on-line

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system backup as well as NFS I/O operations without one activity impairing the
performance of the other. Predecessors of the NS7000 line of products were the
NS5000, NS5500 and NS6000 NetServers.

     Legacy software In fiscal 1995, the Company commenced shipment of its first
software product, DataGuard(TM), which allowed users to continuously access
their data in the event of a disruption associated with the UNIX host operating
system. In March 1996, the Company began shipping its second software product,
ServerGuard(TM). ServerGuard(TM) operated between multiple Auspex servers
providing the industry's first local and wide area network-based fail-over and
disaster recovery system for uninterrupted service. In fiscal 1997, the Company
introduced FastBackup(TM), a software product that enabled a customer to achieve
DLT-based backup and restore throughput of up to 100 gigabytes per hour
cost-effectively. The Company also introduced DriveGuard(TM), an embedded RAID 5
solution for high-availability data protection in fiscal 1997. DriveGuard(TM)
provided mission-critical data security, at a significantly lower cost than that
of mirrored configurations. In fiscal 1998, the Company introduced NeTservices
1.0, a software product that allowed UNIX and Windows NT clients to share files
on the same platform with reliability, performance and scalability.

DISTRIBUTION

     In order to leverage the Company's investment in all-new core NAS
technology, during fiscal 1999, the Company initiated a strategy to expand
overall sales capacity through the addition of direct and indirect channels.

     In fiscal 1999, product sales to end users in North America were primarily
through a direct sales force. However, with the introduction of the Company's
enterprise-class and appliance products, the Company began to implement an
indirect sales strategy and infrastructure in North America. Because the success
of the Company's direct sales efforts in North America is dependent in part upon
a sophisticated analysis of the customers' networking requirements, the
Company's system engineers work closely with the Company's sales
representatives. The Company has a direct sales organization in the United
Kingdom, France and Germany, and employs distributors in other selected European
markets. In the Pacific Rim (primarily Japan), the Company has a sales team to
support an indirect sales model.

     Historically, in the Pacific Rim, the Company's distribution strategy
included original equipment manufacturer ("OEM") and distribution agreements
with Fuji Xerox and Nissho, respectively, in Japan. In fiscal 1997, the Company
realigned its channel distribution strategy by signing a Master Value Added
Distributor Agreement ("MVAD") with Fuji Xerox, and redefined its relationship
with Nissho. Under the MVAD, Fuji Xerox, formerly the Company's OEM partner in
Japan acts as a non-exclusive supplier of the Company's products to resellers in
Japan.

     Auspex believes that the large installed base of UNIX systems in Europe
represents a significant opportunity for future NetServer sales*. To address
this opportunity, the Company has direct sales and support facilities in the
United Kingdom, France and Germany. The Company also has entered into agreements
with distributors covering other selected markets in Europe. The Company has
continued to invest in sales and marketing efforts in Europe.

CUSTOMER SERVICE AND SUPPORT

     Auspex's corporate policies are based on a commitment to customer
satisfaction and product quality.

     The Company provides customer training and installs, maintains and supports
systems sold directly in North America and Europe. End-user customers purchasing
through indirect channels are generally serviced by the Company's distributors
or OEMs. In all cases, however, customers have direct access to Auspex service
and support through a toll-free telephone hotline available to customers,
distributors and service partners. All customer service call management and
software support is handled directly by Auspex through its technical

---------------

* See "Forward-Looking Statements" on page 4.
                                        9
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support centers twenty-four (24) hours a day, three hundred sixty-five (365)
days a year, by highly trained and experienced technical support engineers.

     In addition to the technical support center located in Santa Clara,
California, the Company has established a second U.S. support center in Cary,
North Carolina and a European technical support center in the United Kingdom to
handle service calls from its European customers. In fiscal 1998, the Company
shifted 60 percent of service personnel into the field in order to increase
responsiveness and enhance customer support. To supplement direct service and
support and to ensure the highest quality service while containing costs, Auspex
has entered into strategic service agreement with NCR Corporation for on-site
hardware support. The Company's contract provide end users with a warranty for
parts and labor on its products, generally range from ninety (90) days to one
year. The Company's warranty policy for product sales other than to end-users
depends on the requirements of the particular distribution channel. The Company
offers its customers service agreements of varying duration. Service revenue is
recognized ratably over the contractual period as service is provided.

MANUFACTURING

     Auspex's manufacturing operations, located in Santa Clara, California,
consists of product assurance, quality control and final product assembly and
test. The Company relies principally on contract manufacturers for sub-assembly
and testing of certain key NetServer components. These manufacturers have
continued to operate under the terms of their business relationships with the
Company on a month-to-month basis. The Company's manufacturing strategy has been
to develop close relationships with its suppliers, exchange critical information
and implement joint quality training programs. This manufacturing strategy
minimizes capital investment and overhead expenditures and creates flexibility
by providing the capacity for rapid expansion. Although the Company to date has
not experienced any significant production difficulties resulting from its
reliance on these manufacturers, it is possible that production difficulties,
including capacity constraints and quality control issues, could arise in the
future, which could materially and adversely affect the Company's results of
operations.

     Although the Company generally uses standard parts and components for its
products, a number of key components used in the Company's NetServer products
currently are available or purchased from sole or single sources. These
components include disk and tape drives, microprocessors, connectors, printed
circuit boards, cable assemblies, power supplies and ASICs. Some of the
suppliers of these components have divisions which compete with the Company.
(See "Business -- Competition.") The Company generally has agreements with its
sole source suppliers with terms ranging from one to five years and believes
that alternative sources of supply and assembly for most of its sole-source
components could be obtained within a commercially practicable period.* As a
precaution, the Company carries extra inventory of some of its sole-source
components to provide additional time to develop an alternate supply source or
redesign the component. However, the lack of sufficient quantities of sole or
single source components, or the inability to develop alternative sources for
these items, could result in delays or reductions in product shipments which
would materially and adversely affect the Company's results of operations.

RESEARCH AND DEVELOPMENT

     The market for high-performance network data servers has been characterized
by rapid technological advances in both hardware and software development. The
Company believes that the speed of technological advancement in its industry
requires it to invest significant amounts in research and development, and that
in order to maintain its competitive position, the Company must continue to
enhance and improve its existing products as well as to develop and successfully
introduce new products. During fiscal 1999, the Company introduced the
4Front(TM) product family. The Auspex 4Front(TM) NS2000 is the flagship product
which incorporates significant new software technology that utilizes
industry-standard platforms in order to deliver network data rapidly and
reliably to vast number of heterogeneous clients and servers. The Auspex
4Front(TM)

---------------

* See "Forward-Looking Statements" on page 4.
                                       10
<PAGE>   11

Appliances are tuned to deliver the right amount of performance at the right
price with the functionality and ease-of-use to minimize overhead.

     By continuing to introduce new product features, the Company believes it
has maintained a leadership position in the network attached storage market.
However, there can be no assurance that the Company's products will continue to
be successful commercially. Furthermore, there can be no assurance that the
Company will be able to develop or introduce other new products in the future in
a timely manner, or that such products will be a commercial success. The Company
intends to continue to invest substantially in product development.* Current
research and development efforts are focused on delivering additional optional
software products and increasing the functionality, client protocol support,
performance, capacity, scalability and availability of its products.

     The Company's research and development expenses during fiscal years 1999,
1998 and 1997 were approximately $35.3 million, $34.0 million and $24.4 million
respectively.

COMPETITION

     The network attached storage market is very competitive. Within the
NFS-compatible, UNIX data server market segment, manufacturers of
general-purpose multiprocessor servers represent the Company's primary source of
competition. These manufacturers include Network Appliance, Sun Microsystems,
Hewlett-Packard Company, Silicon Graphics, Inc. and IBM. Traditional storage
vendors, such as EMC Corporation, are also attempting to expand into network
attached storage. Sun Microsystems is the Company's main competitor. All of
these competitors possess substantially greater financial, technical and
marketing resources than Auspex, as well as substantially larger product
installed bases. While the Company believes that the price/performance
characteristics of its products are competitive, increased competition created
pricing pressures in fiscal 1999, which materially and adversely affected the
Company's results of operations.

     The Company derives a significant portion of its revenues from sales of
product upgrades to its installed base, including additional processors (or
upgrades to existing processors), memory, disk and tape drive and software.
Although the Company has to date experienced limited competition in the sale of
upgrades, increased competition against these products may occur in the future
which could materially and adversely affect the Company's revenues and results
of operations.

     Auspex believes that an important competitive factor is hardware and
software solutions for data availability and network data server performance.
Other important factors include product reliability, availability, scalability,
upgradeability, price, and overall cost of ownership and technical service and
support. The Company's ability to maintain its competitive position will depend,
in addition to these factors, upon its success anticipating industry trends,
investing in product research and development and effectively managing the
introduction of new products into targeted markets.*

INTELLECTUAL PROPERTY AND LICENSES

     The Company relies on a combination of patent, copyright, trademark and
trade secret laws, employee and third-party non-disclosure agreements and other
intellectual property protection methods to protect its proprietary hardware,
software and technological expertise. The Company believes, however, that its
continued success will depend principally on continuing innovation,
technological expertise, knowledge of networking, storage and applications,
distribution strength and, to a lesser extent, on its ability to protect its
proprietary technology.* Furthermore, there can be no assurance that the
Company's current or future competitors will not independently develop
technologies that are substantially equivalent or superior to the Company's
technology.

---------------

* See "Forward-Looking Statements" on page 4.
                                       11
<PAGE>   12

     Auspex currently holds fourteen United States patents for certain
fundamental aspects of its FMP data server architecture and has related foreign
patents and foreign patent applications for proprietary Auspex technologies.

     The Company's NetServer host processors and network processors operate in
conjunction with software licensed to the Company by Sun Microsystems. Although
the license is perpetual, or automatically renewable unless cancelled, there can
be no assurance that the Company will be able to continue such license renewals
with Sun Microsystems on favorable terms, or at all. The Company also licenses
software and hardware from several other companies and these licenses are also
perpetual unless cancelled or subject to periodic renewal, which cannot be
assured. There can be no assurance that these vendors will continue in business
or that the licenses will continue to be available on favorable terms in the
future, or at all.

EMPLOYEES

     As of June 30, 1999, the Company employed 615 people. The recruitment of
experienced, highly-skilled individuals is a top priority in an exceptionally
competitive recruiting environment. Equally important in this environment is the
retention of key talent. The Company has significantly increased its recruiting
activities and is reviewing all employee programs to ensure the retention and
continued development of its employees. Hiring and retaining key employees in
the Silicon Valley employment market has been a challenge, and there can be no
assurance that the Company will be successful in hiring and retaining qualified
employees in the future. None of the Company's employees are represented by a
labor union. The Company believes that its relations with its employees are
good.

EXECUTIVE OFFICERS OF THE COMPANY

     The following sets forth-certain information with respect to the executive
officers of the Company as of September 13, 1999:

<TABLE>
<CAPTION>
            NAME              AGE                          POSITION
            ----              ---                          --------
<S>                           <C>   <C>
Bruce N. Moore(1)...........  48    Chief Executive Officer, President and Chairman
Fred J. Wiele...............  60    Vice President of Marketing
R. Marshall Case............  41    Vice President of Finance and Chief Financial Officer
Stephen L. Aleshire.........  47    Vice President of Worldwide Sales and Customer Service
John P. Livingston..........  47    Vice President of Operations
Hans H. Schwarz(2)..........  54    Sr. Vice President of Engineering
R. Stephen Cheheyl(3)(4)....  53    Director
W. Frank King(3)(4).........  59    Director
</TABLE>

---------------
(1) Member of the Stock Option Committee

(2) Employment with Company scheduled to commence on October 1, 1999*

(3) Member of the Audit Committee

(4) Member of the Compensation Committee

     Mr. Bruce N. Moore joined the Company in June 1995 as President, Chief
Operating Officer and a member of the Board of Directors. In January 1996, Mr.
Moore assumed the additional role of Chief Executive Officer and relinquished
the role of Chief Operating Officer. Mr. Moore joined Auspex from Diasonics
Ultrasound, Inc., a provider of diagnostic ultrasound equipment, where he held
the position of President and Chief Executive Officer from December 1993 to
December 1994. His eleven-year career at Diasonics included various senior
management positions in marketing and business development. Mr. Moore started
his career as a sales representative in IBM's Data Processing Division in 1976.

---------------

* See "Forward-Looking Statements" on page 4.
                                       12
<PAGE>   13

     Mr. Fred J. Wiele joined the Company in August 1998 as Vice President of
Marketing. From June 1996 to June 1998, Mr. Wiele served as Senior Vice
President of Sales and Marketing at Komag Corporation, a provider of thin-film
disks. Prior to that, Mr. Wiele was with IBM for 31 years in various senior
sales and marketing capacities, including General Manager and Vice President of
Worldwide Sales and Marketing for the IBM Storage Products Company. Also, during
his tenure at IBM, Mr. Wiele was U.S. Director of Marketing and Support for the
IBM AS/400, and spent 13 years with IBM Europe.

     Mr. R. Marshall Case joined the Company in February 1998 as Vice President
of Finance and Chief Financial Officer. From September 1997 to February 1998,
Mr. Case served as Vice President, Finance and Administration at Viking Freight,
Inc., a subsidiary of FDX Corporation, a provider of services. Prior to that,
Mr. Case was Vice President of Financial Planning and Analysis at Amdahl
Corporation, a provider of information technology products, from November 1995
to September 1997. Mr. Case previously served as Executive Vice President,
Martin Marietta Overseas Corporation and held a variety of increasingly
responsible financial management positions while at General Electric Corporation
for 12 years.

     Mr. Stephen L. Aleshire joined the Company in November 1997 as Vice
President of Customer Service. In July 1999, Mr. Aleshire assumed the role of
Vice President of Worldwide Sales and Customer Service. From September 1994 to
November 1997, Mr. Aleshire served as Director of Customer Service-American
Operations at Sequent Computer Systems, a provider of high-end scalable
data-center-ready open systems solutions for large organizations. Prior to that,
Mr. Aleshire held a variety of management positions while at Digital Equipment
Corporation for 17 years.

     Mr. John P. Livingston joined the Company in April 1999 as Vice President
of Operations. From June 1997 to April 1999, Mr. Livingston served as Vice
President, Engineering and Operations at Electroglas, Inc., a provider of
process management tools to the global semiconductor industry. Prior to that,
Mr. Livingston was Vice President and CIO at Adaptec, Inc., a provider of
bandwidth solutions that enhance total system performance, from April 1994 to
June 1997. Mr. Livingston previously served as Vice President of Quality and
Services at Maxtor, Inc. from July 1990 to April 1994. Prior to that, Mr.
Livingston held the position of Director of Product Support-Service Engineering
at Apple Computer, Inc. from October 1983 to April 1990. Mr. Livingston also
held a variety of management positions while at Texas Instruments for 11 years.

     Mr. Hans H. Schwarz will serve as Sr. Vice President of Engineering
commencing on October 1, 1999.* From October 1997 to September 1999, Mr. Schwarz
served as Sr. Vice President and General Manger for IP/Telephony and Enterprise
Data Network business unit of Siemens. Prior to that, Mr. Schwarz was Sr.
Vice-President for Development and Product Management for Siemens Business
Communication, Inc. Mr. Schwarz previously served as Vice President of Hardware
Development at Siemens Rolm from October 1991 to February 1994. Mr. Schwarz also
held a variety of management positions while at Siemens for 18 years.

     Mr. R. Stephen Cheheyl has served as a Director of the Company since April
1995. Since he retired in December 1995, Mr. Cheheyl has been a private investor
and independent consultant. From October 1994 until then, Mr. Cheheyl served as
an Executive Vice President of Bay Networks, Inc., which was formed through the
merger of Wellfleet Communications, Inc. ("Wellfleet") and Synoptics
Communications Inc. From December 1990 to October 1994, Mr. Cheheyl served as
Senior Vice President of Finance and Administration at Wellfleet. He also serves
as a director of MCMS, Inc. and Sapient Corporation.

     Dr. W. Frank King has served as a Director of the Company since October
1994. Dr. King has been a private investor since October 1998. Prior to that
time, from October 1992 through October 1998, Dr. King served as President,
Chief Executive Officer and a Director of PSW Technologies, Inc., a software
services firm that provides high value solutions to technology vendors and
business end-users by mastering and applying critical emerging technologies.
From 1992 to October 1996, Dr. King served as President of Pencom Software, a
division of Pencom Systems, Inc. From 1988 to 1992, Dr. King was Senior Vice
President of the Software Business group of Lotus, a software publishing
company. Prior to joining Lotus, Dr. King was with IBM, a technology company,
for 19 years, where his last position was Vice President of Development for the
Personal Computing Division. Dr. King earned a doctorate in electrical
engineering from Princeton University,

---------------

* See "Forward-Looking Statements" on page 4.
                                       13
<PAGE>   14

a master's degree in electrical engineering from Stanford University and a
bachelor's degree in electrical engineering from the University of Florida. He
also serves on the boards of directors of Best Software, Inc., Excalibur
Technologies Corporation, PSW Technologies, Inc., SystemSoft, Inc., Cortelco
Systems, Inc. and Natural Microsystems, Inc.

ITEM 2. PROPERTIES

     The Company is headquartered in Santa Clara, California, where it leases an
aggregate of approximately 269,000 square feet of space which houses
administrative, finance, sales and marketing, manufacturing, customer service
and product development activities. The lease for these facilities expires in
February 2010. In addition, the lease agreement contains three successive
options to extend the lease term for sixty months each. The Company leases
additional sales and support offices located in the United States, Canada, the
United Kingdom, France, Germany and Japan. The Company believes that its
facilities are adequate to meet the Company's current business requirements, and
that suitable additional space will be available as needed to accommodate
further physical expansion of corporate operations and for additional sales and
support offices.* See also Note 5 of Notes to Consolidated Financial Statements.

ITEM 3. LEGAL PROCEEDINGS

     From time to time, the Company is involved in legal proceedings incidental
to the conduct of its business. The Company believes that the litigation,
individually or in the aggregate, to which it is currently a party, is not
likely to have a material adverse effect on the Company's results of operations
or financial condition.*

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

     Not Applicable.

                                    PART II

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

     The Company's Common Stock has been approved for quotation on The Nasdaq
National Market under the symbol ASPX since the Company's initial public
offering in May 1993. The following table sets forth, for the periods indicated,
the range of high and low sales prices on the Nasdaq Composite, as reported in
The Wall Street Journal.

<TABLE>
<CAPTION>
                                                                HIGH        LOW
                                                              --------    -------
<S>                                                           <C>         <C>
Fourth Quarter of 1999......................................  $11.875     $     7.125
Third Quarter of 1999.......................................  $12.50      $     3.875
Second Quarter of 1999......................................  $ 4.3275    $     1.6875
First Quarter of 1999.......................................  $ 5.125     $     1.75
Fourth Quarter of 1998......................................  $ 9.25      $     4.25
Third Quarter of 1998.......................................  $10.6875    $     7.75
Second Quarter of 1998......................................  $12.625     $     9.1875
First Quarter of 1998.......................................  $13.125     $     7.50
</TABLE>

     The Company believes that a number of factors including, but not limited
to, quarterly fluctuations in results of operations may cause the market price
of its common stock to fluctuate significantly. See "Management's Discussion and
Analysis -- Factors That May Affect Future Results."

     As of September 13, 1999, the approximate number of common stockholders of
record was 603.

---------------

* See "Forward-Looking Statements" on page 4.
                                       14
<PAGE>   15

     The Company has not, to date, paid cash dividends on its capital stock. The
Company currently intends to retain earnings for use within its business and
does not anticipate paying cash dividends in the foreseeable future.*

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                            FISCAL YEAR ENDED
                                      -------------------------------------------------------------
                                      JUNE 30,   JUNE 30,      JUNE 30,    JUNE 30,        JUNE 30,
                                        1999       1998          1997        1996            1995
                                      --------   --------      --------    --------        --------
                                                (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                   <C>        <C>           <C>         <C>             <C>
Revenues............................  $113,475   $168,912      $202,486    $162,640        $115,625
Income(loss) before income taxes....   (38,828)   (26,668)       24,362      29,597          15,912
Net income (loss)...................   (39,045)   (17,334)       13,420      19,830          12,411
Net income (loss) per share
  Basic.............................  $  (1.50)  $  (0.69)     $   0.54    $   0.84        $   0.54
  Diluted...........................  $  (1.50)  $  (0.69)(1)  $   0.52(2) $   0.77        $   0.51
Shares used for net income (loss)
  per share
  Basic.............................    25,978     25,268        24,641      23,701          23,029
  Diluted...........................    25,978     25,268        25,658      25,702          24,371
          Total assets..............  $115,048   $147,193      $157,152    $135,844        $106,526
Long-term obligations...............  $  1,304   $     --      $     --    $     --        $    159
Cash dividends declared per common
  share.............................  $     --   $     --      $     --    $     --        $     --
</TABLE>

---------------
(1) Includes the costs associated with write-down of disk drive inventory to its
    net realizable value as a result of rapid price declines of 4-gigabyte disk
    drives and restructuring charges. Exclusive of these charges, diluted net
    loss per share for fiscal 1998 would have been $0.26.

(2) Includes the write-off of in-process research and development associated
    with the acquisition of Alphatronix, Inc. in the fourth quarter of fiscal
    1997. Exclusive of this write off, diluted net earnings per share for fiscal
    1997 would have been $0.81.

---------------

* See "Forward-Looking Statements" on page 4.
                                       15
<PAGE>   16

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

RESULTS OF OPERATIONS

     The following table sets forth for the fiscal years indicated the
percentage of total revenues represented by certain line items in the Company's
Statement of Operations:

<TABLE>
<CAPTION>
                                                              YEARS ENDED JUNE 30,
                                                              --------------------
                                                              1999    1998    1997
                                                              ----    ----    ----
<S>                                                           <C>     <C>     <C>
Revenues....................................................  100%    100%    100%
Cost of revenues............................................   58      56      47
                                                              ---     ---     ---
Gross margin................................................   42      44      53
                                                              ---     ---     ---
Operating Expenses
  Marketing and sales.......................................   38      31      23
  Research and development..................................   31      20      12
  General and administrative................................    9       6       4
  Restructuring charges.....................................   --       4      --
  In-process research and development.......................   --      --       3
                                                              ---     ---     ---
  Income (loss) from operations.............................  (36)    (17)     11
  Other income..............................................    2       1       1
                                                              ---     ---     ---
  Income (loss) before income taxes.........................  (34)    (16)     12
  Provision for (benefit from) income taxes.................   --      (6)      5
                                                              ---     ---     ---
  Net income (loss).........................................  (34)%   (10)%     7%
                                                              ===     ===     ===
</TABLE>

REVENUES

     Product revenue includes hardware sales and software license fees. The
installation of the Company's systems is not considered a significant obligation
and acceptance by the customer is not considered a significant uncertainty.
Revenues from upgrade sales are generally recognized at the time the equipment
is shipped. Provisions for product sales returns and allowances are recorded in
the same period as the related revenue. Revenue earned under software license
agreements with end-users are generally recognized when the software has been
shipped and there are no significant obligations remaining.

     Service revenue includes installation, maintenance and training and is
recognized ratably over the contractual period or as the services are provided.

     Revenues for the fiscal year ended June 30, 1999 of $113.5 million
decreased 32.8% over fiscal year 1998 revenues of $168.9 million.

     The following table sets forth the principal components of the Company's
revenues (in thousands):

<TABLE>
<CAPTION>
                                                                   YEARS ENDED JUNE 30,
                                                             --------------------------------
                                                               1999        1998        1997
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
Product revenue............................................  $ 81,737    $142,812    $182,533
Service revenue............................................    31,738      26,100      19,953
                                                             --------    --------    --------
          Total revenues...................................  $113,475    $168,912    $202,486
                                                             ========    ========    ========
</TABLE>

     Product revenue decreased $61.1 million or 43% in fiscal 1999 as compared
to fiscal 1998, and decreased $39.7 million, or 22% in fiscal 1998 as compared
to fiscal 1997. The fiscal 1999 decrease primarily related to the Company's
focus on new product introductions of its UNIX and Windows NT product lines,
which resulted in delayed customer orders, and increased competitive pressures.
The fiscal 1998 decrease was due to a $30.5 million one-time order from a large
internet service provider in fiscal 1997 and a $10.1 million decrease in revenue
from Japan, which made revenue comparisons difficult, compounded by product
transition issues and increased competitive pressures. Revenue from product
upgrades, which primarily consist of

                                       16
<PAGE>   17

additional processors (or upgrades of existing processors), memory and disk and
tape drives, decreased to 31% of total revenue in fiscal 1999. Revenue from
product upgrades remained relatively stable as a percentage of total revenue in
fiscal 1998. Revenue from product upgrades increased to 43% in fiscal 1997.

     The Company provides ongoing support and maintenance to its end-user
customers, distributors and OEMs, generally under annual service agreements.
Service revenue as a percentage of total revenues increased to 28% in fiscal
1999 from 15% in fiscal 1998 and from 10% in fiscal 1997. The increase in
service revenue as a percentage of total revenues was due to the Company's
investment in expanding its Customer Service organization, growth in installed
base and also due to a decline in product revenues.

     The following table sets forth the Company's revenue by geographic area (in
thousands):

<TABLE>
<CAPTION>
                                                          YEARS ENDED JUNE 30,
                                           --------------------------------------------------
                                                1999              1998              1997
                                           --------------    --------------    --------------
<S>                                        <C>        <C>    <C>        <C>    <C>        <C>
North America............................  $ 80,692    71%   $116,835    69%   $142,536    70%
Pacific Rim..............................    13,453    12%     23,388    14%     31,759    16%
Europe...................................    19,330    17%     28,689    17%     28,191    14%
                                           --------   ---    --------   ---    --------   ---
          Total revenues.................  $113,475   100%   $168,912   100%   $202,486   100%
                                           ========   ===    ========   ===    ========   ===
</TABLE>

     Revenue from North America decreased $36.1 million in fiscal 1999 compared
to fiscal 1998 and decreased $25.7 million in fiscal 1998 compared to fiscal
1997. The fiscal 1999 decrease primarily related to the timing of new product
introductions and increased competitive pressures. The fiscal 1998 decrease was
due to a $30.5 million one-time order from a large internet service provider in
fiscal 1997. Revenue from the Pacific Rim decreased $9.9 million in fiscal 1999
compared to fiscal 1998 and decreased $8.4 million in fiscal 1998 compared to
fiscal 1997. The decrease in Pacific Rim revenue as a percentage of total
revenue and in absolute dollars in fiscal 1999, 1998 and 1997 was primarily due
to timing of new product introductions, the reorganization of a major OEM
partner and weakness in the Japanese economy.

     Sales of products and services to Intel accounted for 20% of total revenues
for the fiscal years ended June 30, 1999 and 1998, respectively, and 10% of
total revenues for the fiscal year ended June 30, 1997. Sales to AOL accounted
for 15% of total revenues for the fiscal year ended June 30, 1997. No other
customer accounted for 10% or more of total revenues for any of the three years
in the period ended June 30, 1999. Intel is not obligated to purchase any
minimum level of products from the Company. Accordingly, there can be no
assurance that sales of products and services to Intel will not decline, either
in absolute dollar amounts or as a percentage of total revenues, in future
periods and that any such declines will not have a material adverse effect on
the Company's results of operations.

GROSS MARGIN

     The Company's gross margin was 42%, 44% and 53% in fiscal 1999, 1998 and
1997, respectively. Costs of revenues include material costs, manufacturing and
service overhead costs, installation and warranty expenses, obsolescence, the
cost of spare parts and other related costs. The decrease in gross margins in
fiscal 1999 compared to fiscal 1998 was due to lower prices on systems sales due
to competitive pressures and timing of new product introductions which
contributed to below break-even operations. The decrease in gross margins in
fiscal 1998 compared to fiscal 1997 was primarily due to $9.4 million of charges
incurred for the write-down of disk drive inventory to its net realizable value
as a result of rapid price declines of four-gigabyte drives coupled with an
accelerated transition by the Company to nine-gigabyte drive technology and
product obsolescence.

OPERATING EXPENSES

     Marketing and sales expenses decreased $8.6 million in fiscal 1999 compared
to fiscal 1998 and increased $5.9 million in fiscal 1998 compared to fiscal
1997, and were 38%, 31% and 23% of total revenue in fiscal 1999, 1998 and 1997,
respectively. The fiscal 1999 decrease in absolute dollars reflects steps the
Company has taken to streamline operations and reduce overall costs. The
increase as a percentage of total revenues for the comparison periods is a
result of lower revenues in fiscal 1999. The fiscal 1998 increase in absolute
dollars and

                                       17
<PAGE>   18

as a percentage of sales was the result of an expansion of the North American
direct sales operations, the growth of direct sales operations of the Company's
international subsidiaries and lower total revenues in fiscal 1998.

     Research and development expenses increased $1.3 million in fiscal 1999
compared to fiscal 1998 and increased $9.6 million in fiscal 1998 compared to
fiscal 1997, and represented 31% and 20% of total revenues in fiscal 1999 and
1998, respectively, and 12% of total revenues in fiscal 1997. The increase in
research and development expenses in fiscal 1999, 1998 and 1997 was primarily
due to new product development efforts. The Company believes that in order to
remain competitive, it will need to continue to make substantial investments in
new and enhanced products.

     General and administrative expenses increased $1.4 million in fiscal 1999
compared to fiscal 1998, and increased $1.4 million in fiscal 1998, compared to
fiscal 1997. Such expenses represented approximately 9% of total revenue in
fiscal 1999, and 6% and 4% of total revenues in fiscal 1998 and 1997,
respectively. General and administrative expenses increased in absolute dollars
in fiscal 1999 and 1998 compared to fiscal 1997 primarily due to the cost of
expanding new facilities occupied in February 1998.

     In the fourth quarter of fiscal 1998, the Company recorded a $7.3 million
restructuring charge to cover the planned costs of reducing certain sectors of
its workforce, scaling back its facilities and writing-down equipment and other
assets. These charges reflect steps the Company has taken to improve its product
development efforts, streamline operations and reduce overall costs.

     On June 30, 1997, the Company acquired all of the outstanding shares of
Alphatronix for a total purchase price of $7.7 million. The acquisition was
accounted for using the purchase method of accounting. A portion of the purchase
price was allocated to assets acquired and liabilities assumed based on their
estimated fair value. The fair value of tangible assets acquired and liabilities
assumed was $300,000 and $300,000, respectively. In addition, $7.4 million of
the purchase price was allocated to in-process research and development projects
that had not reached technological feasibility and had no probable alternative
future uses, which the Company expensed in fiscal 1997 as a non-recurring
charge. The remainder of the purchase price, $300,000, was allocated to goodwill
and is being amortized over five years on a straight-line basis. See Note 3 of
Notes to the Consolidated Financial Statements. Alphatronix's R&D projects
relate primarily to developing a suite of network data management software
applications. There can be no assurance that the Company will succeed in making
commercially viable products from the Alphatronix research and development.

OTHER INCOME

     Other income and expense resulted in income of $2.0 million, $1.7 million
and $2.4 million in fiscal 1999, 1998 and 1997 respectively. Other income and
expense includes interest income, interest expense and foreign exchange gains
and losses. Interest income was $2.0 million, $2.4 million and $2.3 million in
fiscal 1999, 1998 and 1997 respectively.

PROVISION FOR INCOME TAXES

     As of June 30, 1999, the Company had gross deferred tax assets of
approximately $13.6 million. Management has determined, based on the Company's
history of prior operating earnings, the ability to carry back net operating
losses to prior periods and its expectations for future years, that it is more
likely than not that the deferred tax asset is not realizable.* No assurances
can be given that sufficient taxable income will be generated in future years
for the utilization of the deferred tax asset. Accordingly, the Company has
provided a valuation allowance for the entire deferred tax asset as of June 30,
1999.

     The Company's income tax rate for fiscal 1999 was 0% compared with income
tax benefit rate of 35% for fiscal 1998. The Company recognized a tax benefit of
approximately $9.3 million for fiscal 1998, due to the carryback of current net
operating losses to prior periods. The provision for income taxes was
approximately $10.9 million in fiscal 1997 representing effective tax rate of
approximately 45%. The effective tax rate in

---------------

* See "Forward-Looking Statements" on page 4.
                                       18
<PAGE>   19

fiscal 1997 was higher than the statutory rate due to the fact that the Company
had not provided any tax benefits related to the write-off of in-process
research and development expenses of approximately $7.4 million resulting from
the acquisition of Alphatronix in fiscal 1997. Excluding the write-off of
in-process research and development expenses, which accounts for an increase of
10.5% in the effective tax rate in fiscal 1997, the Company's effective tax rate
would have been 34.5%.

QUARTERLY RESULTS OF OPERATIONS

     The following table sets forth selected unaudited quarterly financial
information for the Company's last eight quarters. This unaudited information
has been prepared on the same basis as the audited information and in
management's opinion reflects all adjustments (which include only normal
recurring adjustments) necessary for the fair presentation of the information
for the periods presented. Based on the Company's operating history and factors
that may cause fluctuations in the quarterly results, quarter-to-quarter
comparisons should not be relied upon as indicators of future performance.
Although the Company's revenues are not generally seasonal in nature, the
Company has experienced decreases in first quarter revenue versus the preceding
fourth quarter which are believed to result primarily from the capital asset
purchase cycle of the Company's customers.

     The level of the Company's operating expenses is partially based on its
expectations of future revenue. The Company's results of operations may be
adversely affected if revenue does not materialize in a period as expected.
Since expense levels are usually committed in advance of revenue and because
only a small portion of expenses vary with revenue, the Company's results of
operations may be impacted significantly by lower revenue. The Company's revenue
was lower each quarter in fiscal 1999 compared to the corresponding quarter in
the prior year. This decrease was due principally to lower sales volume and
lower average selling prices of the Company's products as a result of product
transition issues, which resulted in delayed orders from customers, and
increased competitive pressures.

<TABLE>
<CAPTION>
                                  FIRST      SECOND         THIRD       FOURTH          YEAR
                                 -------    --------       --------    --------       --------
                                           (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                              <C>        <C>            <C>         <C>            <C>
1999 SUMMARY BY QUARTER
Revenues.......................  $30,057    $ 30,564       $ 26,769    $ 26,085       $113,475
Gross margin...................   13,920      12,754         11,184       9,823         47,681
Loss before taxes..............   (6,745)     (7,792)       (10,891)    (13,400)       (38,828)
Net loss.......................   (6,789)     (7,815)       (10,931)    (13,510)       (39,045)
Net loss per share
  Basic........................  $  (.26)   $   (.30)      $   (.41)   $   (.51)      $  (1.50)
  Diluted......................  $  (.26)   $   (.30)      $   (.41)   $   (.51)      $  (1.50)
</TABLE>

<TABLE>
<CAPTION>
                                  FIRST      SECOND         THIRD       FOURTH          YEAR
                                 -------    --------       --------    --------       --------
                                           (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                              <C>        <C>            <C>         <C>            <C>
1998 SUMMARY BY QUARTER
Revenues.......................  $48,588    $ 43,442       $ 40,386    $ 36,496       $168,912
Gross margin...................   24,608      11,830         20,524      16,526         73,488
Income (loss) before taxes.....    2,756     (11,668)        (3,578)    (14,178)       (26,668)
Net income (loss)..............    1,791      (7,584)        (2,326)     (9,215)       (17,334)
Net income (loss) per share
  Basic........................  $  0.07    $  (0.30)      $  (0.09)   $  (0.36)      $  (0.69)
  Diluted......................  $  0.07    $  (0.30)(1)   $  (0.09)   $  (0.36)(2)   $  (0.69)(3)
</TABLE>

---------------
(1) Includes the costs associated with write-down of disk drive inventory to its
    net realizable value as a result of rapid price declines of 4-gigabyte disk
    drive of $9,389,000. Exclusive of this charge, net diluted loss per share
    for second quarter 1998 would have been $0.06.

(2) Includes the costs associated with restructuring charges of $7,349,000.
    Exclusive of this charge, net diluted loss per share for fourth quarter 1998
    would have been $0.17.

                                       19
<PAGE>   20

(3) Includes the costs associated with write-down of disk drive inventory to its
    net realizable value as a result of rapid price declines of 4-gigabyte disk
    drives and restructuring charges. Exclusive of these charges, net diluted
    loss per share for fiscal 1998 would have been $0.26.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's cash, cash equivalents and short-term investments decreased
$8.1 million as of June 30, 1999, compared to June 30, 1998. The Company used
cash of approximately $6.6 million in operating activities in fiscal 1999. The
Company generated cash of approximately $14.6 million and $28.4 million in cash
from operating activities in fiscal 1998 and 1997, respectively. The decrease in
net cash from operating activities in each of fiscal 1999 and 1998 was primarily
due to the Company's net loss for the respective years.

     The Company's principal investing activities consisted of the purchase of
property and equipment amounting to $15.2 million, $28.9 million and $16.4
million in fiscal 1999, 1998 and 1997, respectively. These expenditures were for
leasehold improvements, equipment for research and development, manufacturing
test equipment, office equipment and spare parts to support customer service
contracts. Additionally, the Company disbursed $17.2 million in connection with
capital expenditures and leasehold improvements for a new facility, which it
occupied in February 1998. Purchases of short-term investments represent
reinvestment of the proceeds from sale and maturities of short-term investments
and investment of cash and cash equivalents into short-term investments. The
Company also used net cash of $5.6 million for the acquisition of Alphatronix in
fiscal 1997.

     The Company's primary financing activities included proceeds from the sale
of its Common Stock pursuant to employee benefit plans of $3.1 million, $4.3
million and $4.1 million in fiscal 1999, 1998 and 1997, respectively. During
fiscal 1999, the Company also generated approximately $10.9 million in proceeds
from sale and leaseback of furniture, fixtures and computer equipment.

     At June 30, 1999, the Company's principal sources of liquidity included
$42.6 million in cash, cash equivalents and short-term investments and $15.0
million available under a secured United States currency bank line of credit,
expiring October 1, 2000. At June 30, 1999, the Company had no outstanding
balance under this line of credit.

     As of June 30, 1999, working capital was $49.3 million as compared with
$79.4 million as of June 30, 1998. Based on its current operating plans, the
Company believes that its existing cash, cash equivalents and short-term
investments and cash flow from operations will be sufficient to meet its working
capital and capital expenditures requirements at least through the next 12
months.*

FACTORS THAT MAY AFFECT FUTURE RESULTS

  Potential Significant Fluctuations in Quarterly Results

     The Company's operating results may fluctuate significantly from quarter to
quarter due to a combination of factors. These factors include the timing of
orders, the timing of new product introductions by the Company or its
competitors, and the mix of distribution channels through which the Company's
products are sold. The Company generally realizes higher gross margins on sales
of systems to end users and on single-system sales than on systems sold through
distributors and OEMs and on multiple-system sales. In addition, given the
Company's focus on highly configured enterprise class systems, the loss or delay
in a given quarter of a relatively limited number of system sales could
adversely affect the Company's revenues. Historically, the Company often has
recognized a substantial portion of its revenues in the last month of any given
quarter. Because the Company's operating expenses are based on anticipated
revenue levels and because a high percentage of the Company's expenses are
relatively fixed, a small variation in the timing of the recognition of revenues
could cause significant variations in operating results from quarter to quarter.

---------------

* See "Forward-Looking Statements" on page 4.
                                       20
<PAGE>   21

  Competitive Market

     The market for the Company's products is highly competitive. The Company
experiences substantial competition, principally from Sun Microsystems, Network
Appliance, EMC Corporation, Hewlett-Packard Company and SGI, among others. Some
companies have introduced proprietary products to provide network attached
storage. Most of the Company's competitors are better known and have
substantially greater financial, technological, production and marketing
resources than the Company. While the Company believes that the
price/performance characteristics of its products are competitive, price
competition in the markets for the Company's products is intense. Any material
reduction in the price of the Company's products without corresponding decreases
in manufacturing costs and increases in unit volume would negatively affect
gross margins, which could in turn have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
also derives a significant portion of its revenues from sales of product
upgrades to its installed base of customers, including additional processors,
memory and disk. Increased competition for the Company's products that results
in lower product sales could also adversely impact the Company's upgrades sales.
In addition, decisions by customers not to increase capacity to their current
systems could adversely impact the Company's revenues and results of operations.
The Company's ability to maintain its competitive position will depend upon,
among other factors, its success in anticipating industry trends, investing in
product research and development, developing new products with improved price/
performance characteristics and effectively managing the introduction of new
products into targeted markets.

  Dependence on Key Personnel

     Competition for employees with technical, management and other skills is
intense in the computer industry and is particularly intense in the San
Francisco Bay Area. The Company has recently encountered some difficulties in
fulfilling its hiring needs and retaining key employees in this employment
market, and there can be no assurance that the Company will be successful in
hiring and retaining qualified employees in the future. The Company's failure to
retain the services of key personnel or to attract additional qualified
employees could have a material adverse effect on the Company's business,
financial condition and results of operations.

  Software Product Risks

     The Company markets optional software products in addition to its line of
network file servers. These software products include: NeTservices(TM),
DriveGuard(TM), FastBackup(TM), ServerGuard(TM), ServerGuard Global(TM) and
DataGuard(TM). The Company also expects to release enhancements and new features
for these products from time to time.* Although the Company performs extensive
testing prior to releasing software products, such products may contain
undetected errors or bugs when first released. These may not be discovered until
the product has been used by customers in different application environments.
Failure to discover product deficiencies or bugs could delay product
introductions, require design modifications to previously shipped products,
cause unfavorable publicity or negatively impact system shipments; any of which
could result in a materially adverse effect on the Company's business, financial
condition and results of operations.

  New Products

     New product introductions by the Company or its competitors carry the risk
that customers could delay or cancel orders for existing products pending
shipment of the new products. For instance, product transition issues had an
adverse impact on North America, Europe and Pacific Rim revenue in fiscal 1999.
The Company's strategy is to continue to introduce new products and upgrades to
existing products on an ongoing basis. There can be no assurance that the
Company will not experience difficulties that delay or prevent the successful
development, introduction or marketing of these products and enhancements or
that these new products and enhancements will adequately address market
requirements, achieve market acceptance or generate substantial sales.
Additionally, delays in the launch or lack of availability of new products could
have a material adverse effect on the Company's business, financial condition
and results of operations.

---------------

* See " Forward-Looking Statements" on page 4.
                                       21
<PAGE>   22

  Dependence on Established Standards

     The rapid emergence of new or alternate standards, such as Windows NT and
Linux, which replace or diminish the market acceptance of UNIX operating systems
or NFS, on which the Company's products are currently based, could materially
and adversely affect the Company's results of operations unless the Company is
able to incorporate any such standards in the Company's products in a timely
manner.

  Dependence on Certain Customers/Distributors

     For each of fiscal 1999, 1998 and 1997, direct sales of products and
services to Intel represented approximately 20%, 20% and 10%, respectively, of
the Company's revenues. Also in fiscal 1997, direct sales of products and
services to AOL represented approximately 15% of the Company's revenues. Intel
and AOL are not obligated to purchase any minimum level of products from the
Company. Additional significant reductions in product sales to Intel or AOL
would materially and adversely affect the Company's business, financial
condition and results of operations. For example, the reduced purchases by AOL
contributed to lower revenue in fiscal 1999 and 1998.

  Dependence on Certain Suppliers

     Certain of the Company's products contain critical components supplied by a
single or limited number of third parties. While the Company has an inventory of
these critical components, any significant or prolonged shortage of these
components or the failure of the third-party suppliers to maintain or enhance
these components could materially and adversely affect the Company's results of
operations.

  Excess or Obsolete Inventory

     Managing the Company's inventory of components and finished products is a
complex task. A number of factors, including but not limited to, the need to
maintain a significant inventory of certain components which are in short supply
or which must be purchased in bulk to obtain favorable pricing, the general
unpredictability of demand for specific products and customer requests for quick
delivery schedules, may result in the Company maintaining large amounts of
inventory. Other factors, including changes in market demand and technology, may
cause inventory to become obsolete. Any excess or obsolete inventory could
result in price reductions and/or inventory write-downs, which in turn could
adversely affect the Company's business and results of operations.

  Risks of International Sales; European and Japanese Market Risks

     During fiscal 1999 and 1998, approximately 29% and 31%, respectively, of
the Company's total revenues were derived from markets outside of North America.
The Company expects that sales to the Pacific Rim and Europe will continue to
represent a significant portion of its business.* However, there can be no
assurance that the Company's Pacific Rim or European operations will continue to
be successful.

     The Company's international business may be affected by changes in demand
resulting from localized economic and market conditions. For example, the
Company experienced a decrease in revenues from the Pacific Rim during fiscal
1999 due to further weakness in the Japanese economy and effects from continuing
organizational change at one of the Company's major Japanese distributors. In
addition, the Company's international business may be affected by fluctuations
in currency exchange rates and currency restrictions. The Company purchases the
majority of its materials and services in U.S. dollars, and most of its foreign
sales are transacted in U.S. dollars. Continued increases in the value of the
U.S. dollar relative to foreign currencies will make the Company's products sold
internationally less price competitive. The Company has offices in a number of
foreign countries, the operating expenses of which are also subject to the
effects of fluctuations in foreign exchange rates. Financial exposure may result
due to the timing of transactions and movement of exchange rates. The Company's
international business may further be affected by risks such as trade

---------------

* See "Forward-Looking Statements" on page 4.
                                       22
<PAGE>   23

restrictions, increases in tariff and freight rates and difficulties in
obtaining necessary export licenses and meeting appropriate local regulatory
standards. For example, the Company has had to modify its products in minor
respects in Japan to comply with local electromagnetic emissions standards, and
must also comply with corresponding European Economic Community standards. In
marketing its products to the European Economic Community, the Company also must
face the challenges posed by a fragmented market complicated by local
distribution channels and local cultural considerations. For international
sales, the Company has largely relied on distributors or OEMs, most of who are
entitled to carry products of the Company's competitors. There can be no
assurance that any of the foregoing risks or issues will not have a material
adverse effect on the Company's business, financial condition and results of
operations.

  Stock Market Fluctuations

     In recent years, the stock market in general and the market for technology
stocks in particular, including the Company's Common Stock, have experienced
extreme price fluctuations. The market price of the Company's Common Stock may
be significantly affected by various factors such as quarterly variations in the
Company's operating results, changes in revenue growth rates for the Company as
a whole or for specific geographic areas or products, changes in earning
estimates by market analysts, the announcements of new products or product
enhancements by the Company or its competitors, speculation in the press or
analyst community, and general market conditions or market conditions specific
to particular industries. There can be no assurance that the market price of the
Company's Common Stock will not experience significant fluctuations in the
future.

  Intellectual Property and Proprietary Rights

     The Company currently relies on a combination of patent, copyright,
trademark and trade secret laws and contractual provisions to protect its
proprietary rights in its hardware and software products. The Company currently
holds fourteen United States patents and has filed applications for additional
patents. The Company also has filed applications for counterpart patents in
foreign countries, including Japan. There can be no assurance that the Company's
present or future competitors will not independently develop technologies that
are substantially equivalent or superior to the Company's technology. Further,
there can be no assurance that the Company's patent applications will result in
issued patents, or that the Company's issued patents will be upheld if
challenged. Additionally, there can be no assurance that third parties will not
assert intellectual property infringement claims against the Company in the
future with respect to current or future projects or that any such assertions
may not require the Company to refrain from the sale of its products, enter into
royalty arrangements or undertake costly litigation.

     The Company's adherence to industry standards with respect to its products
limits the Company's opportunities to provide proprietary features, which may be
protected. In addition, the laws of various countries in which the Company's
products may be sold may not protect the Company's products and intellectual
property rights to the same extent as the laws of the United States.

     YEAR 2000 COMPLIANCE

     The Company is aware of the issues associated with the programming code in
existing computer systems as the Year 2000 approaches. The Year 2000 problem is
pervasive and complex, as virtually every computer operation will be affected in
some way by the rollover of the two-digit year value to "00". Systems that do
not properly recognize date-sensitive information when the year changes to 2000
could generate erroneous data or cause a system to fail. Significant uncertainty
exists in the software industry concerning the potential effects associated with
the Year 2000 problem. The Company's new products, as of fiscal 1998, are being
designed to be Year 2000 compliant (as the Company has defined that term in its
published statements). However, some of the Company's older products will not be
Year 2000 compliant and, as a result, the Company's customers will be required
to upgrade these products. Although products have undergone, or will undergo,
the Company's normal quality testing procedures, there can be no assurance that
the Company's products will

                                       23
<PAGE>   24

contain all necessary date code changes.* Any failure of the Company's products
to perform, including system malfunctions due to the onset of Year 2000, could
result in claims against the Company, which could have a material adverse effect
on the Company's business, financial condition and results of operations.
Moreover, the Company's customers could choose to convert to other Year 2000
compliant products or to develop their own products in order to avoid such
malfunctions, either of which could have a material adverse effect on the
Company's business, financial condition and results of operations.

     The Company currently is in the process of auditing its own information
technology infrastructure for Year 2000 compliance, including reviewing what
actions are required to make all software systems Year 2000 compliant as well as
actions needed to mitigate the risks of Year 2000. Such actions include a review
of vendors' contracts, attention to Year 2000 issues in future contracts with
vendors and formal communications with suppliers requesting that they certify
that their products are Year 2000 compliant.

     State of Readiness

     The Company has been actively addressing the Year 2000 issues since fiscal
1997. The following sections broadly address Year 2000 matters with respect to
the Company's (a) suppliers, (b) facilities and infrastructure, (c) information
technology systems, (d) engineering infrastructure, and (e) manufacturing
operation Year 2000 compliance assessment.

     Suppliers

     During fiscal year 1998 the Company sent out a Year 2000 Readiness
Letter/Questionnaire to its supply chain. 98% of the supply chain contacted has
responded to the inquiries and all responding have indicated they are, or will
be, fully compliant by December 31, l999. The outstanding suppliers still
needing to respond are actively being solicited for their position. This
activity should be completed by September 30, 1999. Any suppliers responding in
the negative will be placed in a probationary status and, wherever possible, an
alternate source of supply who meet the Year 2000 requirements, identified and
qualified.* There can be no assurance that the Company will be able to find
suitable alternate suppliers and contract with them on reasonable terms, or at
all, and such inability could have a material and adverse impact on the
Company's business and results of operations.

     Facilities and Infrastructure

     The Company's new headquarters facility in Santa Clara and domestic remote
sites are believed to be Year 2000 compliant with respect to building automation
systems, electronic security systems and utilities. The Company has presented
formal queries to local fire departments with regard to Year 2000 compliance/
readiness. Formal responses have not been received as of this filing. The
Company believes that its English, French, German and Japanese facilities are
Year 2000 compliant.

     Information Technology Systems

     Over the past several years, the Company has invested in a number of Year
2000 compliant PBX and voice-mail systems. No effort has been spent on verifying
Year 2000 compliance of local telephone systems of most sales offices and the
Company does not expect to have verified such compliance as the Company believes
that there will be no Year 2000 problem with the local telephone systems of the
sales offices.*

     The Company believes that its internal production data communication
network is Year 2000 compliant. A majority of the key components, which the
Company believes to be Year 2000 compliant, of the network were installed within
the past fiscal year. The Company's wide-area network requirements are provided
by a major national and international carrier. The Company believes there is
some uncertainty between these carriers due to the fact testing between carriers
cannot commence until each carrier is Year 2000 compliant. No significant effort
has been spent on verifying Year 2000 compliance for local services that are
provided by local carriers and the Company does not expect to have verified such
compliance as the Company believes, more likely than not, there is no
significant uncertainty.

---------------

* See "Forward-Looking Statements" on page 4.
                                       24
<PAGE>   25

     The Company has replaced or upgraded, or is in the process of
replacing/upgrading, many of its core applications systems. A new Year 2000
compliant enterprise resource planning package was installed in the first
calendar quarter of 1998. An upgrade to a newer version of this package was
completed during the fourth calendar quarter of 1998 which incorporates several
Year 2000 compliance -- related bug fixes. The upgrade to a newer version of the
Company's payroll and human resources systems to Year 2000 compliant systems was
completed during September 1998. The Company's customer call tracking system is
being upgraded to provide additional functionality and stability and the Company
will complete such upgrade during September 1999.* During fiscal 1998, the
Company invested in a desktop upgrade program. Vendors have affirmed that the
standard personal computers and laptop computing installed during 1998 are Year
2000 compliant. Testing has confirmed that commonly used functions operate
satisfactorily.*

     Engineering Infrastructure

     The Company's engineering infrastructure is in a continual state of change
due to the dynamic nature of the Company's business and focus on new products.
As older products are retired and new products developed, the tools, equipment
and laboratory environments change. The Company completed the assessment of year
2000 issues of its engineering infrastructure during the fourth calendar quarter
of 1998 and has resolved all significant issues. Testing has affirmed that
commonly used functions operate satisfactorily.*

     Manufacturing Operations

     The Company is primarily an assemble-to-order manufacturing operation.
There is no significant automated assembly equipment on its manufacturing shop
floor. The company completed the assessment of Year 2000 issues of its
manufacturing operations during the fourth calendar quarter of 1998 and has
resolved all significant issues. Testing has affirmed that commonly used
functions operate satisfactorily.*

     Costs to Address Year 2000 Issues

     The Company expects to incur total software-, hardware- and systems-related
costs of approximately $1.9 million and solutions providers' costs of
approximately $500,000 in connection with remediations of Year 2000 compliance
issues, in addition to incurring payroll costs for our Information Technology
staff.* There can be no assurance that the cost estimates associated with the
Company's Year 2000 issues will prove to be accurate or that the actual costs
will not have a material adverse effect on the Company's results of operations
and financial condition.

     Year 2000 Issues

     The Company's Technical Support representatives work closely with customers
to resolve problems, issues and questions. The Company's Customer Service
organization uses several toll free phone numbers to address customer problems,
issues and questions. These calls are logged and tracked using a call management
system. Customer Service has a significant reliance on communications,
voice-mail, email, paging, Web and file transfer program services and data
communications. Given the number and variety of suppliers and their
inter-dependencies, the number and location of worldwide customers and the
number and locations of the various Technical Support offices, it is not
feasible to fully test whether the Company will be able to guarantee that each
customer will be able to contact and/or do business with Customer Service
without disruption on or about the beginning of 2000. The Company expects an
increase in calls on or about the beginning of Year 2000, which will likely
impact Customer Service responsiveness.

     Contingency Plans

     The Company has completed the preparation of general contingency plans,
which includes adequate staffing requirements to handle all inquiries, for the
Year 2000 compliance issues areas noted above. There can be no assurance that
such measures will prevent the occurrence of Year 2000 problems, which could
have a material adverse effect upon the Company's business, operating results
and financial condition.

                                       25
<PAGE>   26

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

     Interest Rate Risk

     The Company's exposure to market risk for changes in interest rates relate
primarily to the Company's investment portfolio. The Company does not use
derivative financial instruments in its investment portfolio. The Company
invests in high-credit quality issuers and, by policy, limits the amount of
credit exposure to any one issuer. As stated in its policy, the Company ensures
the safety and preservation of its invested principal funds by limiting default
risk, market risk and reinvestment risk.

     The Company mitigates default risk by investing in safe and high-credit
quality securities and by constantly positioning its portfolio to respond
appropriately to a significant reduction in a credit rating of any investment
issuer, guarantor or depository. The portfolio includes only marketable
securities with active secondary or resale markets to ensure portfolio
liquidity.

     The table below presents principal amounts and related weighted average
interest rates by year of maturity for the Company's investment portfolio.

<TABLE>
<CAPTION>
                                                             YEARS ENDED JUNE 30,
                                         -------------------------------------------------------------
                                          2000      2001     2002   2003   2004   THEREAFTER    TOTAL
                                         -------    -----    ----   ----   ----   ----------   -------
                                                                (IN THOUSANDS)
<S>                                      <C>        <C>      <C>    <C>    <C>    <C>          <C>
Cash equivalents and short-term
  investments
  Fixed rate investments...............  $28,126    $ 990    --     --     --        --        $29,116
  Average interest rate................     5.04%    5.57%   --     --     --        --           5.07%
</TABLE>

  Foreign Currency Exchange Risk

     The Company transacts business in various foreign countries. Its primary
foreign currency cash flows are in certain European countries. During fiscal
1999, 1998 and 1997, the Company employed a foreign currency-hedging program
utilizing foreign currency forward exchange contracts to hedge local currency
cash flows for payroll and other operating expenditures in these European
countries. Under this program, increases or decreases in the Company's local
currency operating expenses and other cash outflows, as translated into U.S.
dollars, are partially offset by realized gains and losses on the hedging
instruments. The goal of this hedging program is to economically guarantee or
lock in the exchange rates on the Company's foreign currency cash outflows
rather than to eliminate the possibility of short-term earnings volatility. As
of June 30, 1999, the Company's foreign currency forward exchange contracts were
comprised of $4.8 million in British Pounds and $1.3 million in German Marks.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The financial statements required by this item are incorporated by
reference from Part IV Item 14(a) 1 and 2 hereof. The selected quarterly
supplementary data is included as part of Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

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

     Not applicable.

                                    PART III

     Certain information required by Part III is omitted from this Annual Report
on Form 10-K because the Registrant will file a definitive proxy statement
within one hundred twenty (120) days after the end of its fiscal year pursuant
to Regulation 14A (the "Proxy Statement") for its Annual Meeting of Stockholders
currently scheduled for November 18, 1999, and the information included in the
Proxy Statement is incorporated herein by reference.

                                       26
<PAGE>   27

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information regarding the directors of the Company is incorporated by
reference to the information under the heading "Election of Directors" in the
Registrant's Proxy Statement.

     Information regarding the executive officers of the Company is incorporated
by reference to the section of Part I of this Annual Report on Form 10-K
entitled "Item 1 -- Business -- Executive Officers of the Company".

     Information regarding compliance with Section 16 of the Securities Exchange
Act of 1934, as amended, is incorporated by reference to the information under
the heading "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Registrant's Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

     Information regarding the compensation of executive officers and directors
of the Company is incorporated by reference to the information under the heading
"Executive Compensation" and "Certain Transactions with Management" in the
Registrant's Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Incorporated by reference to the information under the heading "Security
Ownership of Certain Beneficial Owners and Management" in the Registrant's Proxy
Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Incorporated by reference to the information under the caption "Certain
Transactions with Management" in the Registrant's Proxy Statement.

                                    PART IV

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

     (a) The following documents are filed as a part of this Annual Report on
Form 10-K.

     The following consolidated financial statements of Auspex Systems, Inc. are
filed as part of this Annual Report on Form 10-K.

1. FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of Arthur Andersen LLP, Independent Public
  Accountants...............................................   32
Consolidated Statements of Operations for the years ended
  June 30, 1999, 1998 and 1997..............................   33
Consolidated Statements of Comprehensive Income for years
  ended June 30, 1999, 1998 and 1997........................   34
Consolidated Balance Sheets as of June 30, 1999 and 1998....   35
Consolidated Statements of Stockholders' Equity for the
  years ended June 30, 1999, 1998 and 1997..................   36
Consolidated Statements of Cash Flows for the years ended
  June 30, 1999, 1998 and 1997..............................   37
Notes to Consolidated Financial Statements..................   38
</TABLE>

                                       27
<PAGE>   28

2. FINANCIAL STATEMENT SCHEDULES

     The following consolidated financial statement schedules for each of the
three years in the period ending June 30, 1999, 1998 and 1997 are submitted
herewith:

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Schedule II -- Valuation and Qualifying Accounts and
  Reserves..................................................   48
</TABLE>

(All other schedules are omitted because they are not applicable or the required
      information is shown in the Financial Statements or notes thereto.)

3. EXHIBITS

     The following exhibits are included in this Annual Report on Form 10-K
(numbered in accordance with Item 601 of Regulation S-K):

<TABLE>
<CAPTION>
   EXHIBIT
    NUMBER                               DESCRIPTION
   -------                               -----------
<C>              <S>
3.1(1)           Certificate of Incorporation of Registrant as amended and
                 restated to date.
3.2(1)           By-laws of Registrant as amended to date.
4.1(2)           Preferred Shares Rights Agreement between the Registrant and
                 The First National Bank of Boston as Rights Agent dated
                 April 19, 1995.
10.1(1)(3)       1988 Stock Option Plan and forms of Incentive Stock Option
                 Agreements and Nonstatutory Stock Option Agreements, as
                 amended to date.
10.2(1)(3)(4)    1993 Directors' Stock Option Plan and forms of Option
                 Agreements, as amended to date.
10.3(1)(3)(4)    1993 Employee Stock Purchase Plan and forms of Agreements,
                 as amended to date.
10.4(1)(3)       401(k) Plan, as amended to date.
10.5(1)(3)       Summary of Executive Bonus Program.
10.6(1)(3)       Form of Directors' and Officers' Indemnification Agreement
                 with all of its Directors and Officers.
10.9(1)(5)       OEM Agreement dated March 9, 1993 between the Registrant and
                 Fuji Xerox Company, Ltd.
10.10(A)(1)(5)   Distributor Agreement dated June 6, 1990 between the
                 Registrant and Nissho Electronics Corporation.
10.10(B)(5)      Distributor Agreement dated June 6, 1990 between the
                 Registrant and Nissho Electronics Corporation, as amended on
                 July 29, 1997.
10.11(1)(5)      Agreement between the Registrant and Solectron Corporation
                 dated May 20, 1991, as amended on November 18, 1992.
10.12(1)         U.S. OEM Discount Agreement between the Registrant and Sun
                 Microsystems, Inc. effective as of August 18, 1988, as
                 amended by Addendum dated September 8, 1988 and Addendum
                 dated September 14, 1989.
10.13(1)         Source Code License between the Registrant and Sun
                 Microsystems, Inc. dated August 31, 1988, as amended on
                 April 30, 1991, February 11, 1992 and March 18, 1992.
10.14(1)         NFS Software Agreement between the Registrant and Sun
                 Microsystems, Inc. dated September 29, 1988.
10.15(6)(7)      Software Agreement between the Registrant and AT&T
                 Information Systems Inc. dated June 2, 1988, as amended by
                 Supplement Number 1, Supplement Number 2 dated August 5,
                 1988 and Supplement Number 3 dated August 10, 1990, as
                 amended on June 28, 1993.
</TABLE>

                                       28
<PAGE>   29

<TABLE>
<CAPTION>
   EXHIBIT
    NUMBER                               DESCRIPTION
   -------                               -----------
<C>              <S>
10.16(6)(7)      Sublicensing Agreement between the Registrant and AT&T
                 Information Systems Inc. dated August 30, 1988, as amended
                 on June 28, 1993.
10.17(1)         Software Agreement between the Registrant and UNIX System
                 Laboratories, Inc. dated April 29, 1992.
10.18(1)         License Agreement with the Regents of the University of
                 California dated June 9, 1988, as amended by Addendum dated
                 October 21, 1988.
10.19(8)(9)      Intel Corporation Purchase Agreement between Intel
                 Corporation and the Registrant dated March 22, 1994.
10.20(10)        Warranty and Service Provider Agreement between the
                 Registrant and AT&T Global Information Systems dated April
                 15, 1994.
10.21(10)        SunSoft Technology License and Distribution Agreement
                 between the Registrant and SunSoft, Inc. dated December 17,
                 1993.
10.23(10)        Amendment No. 2 to Lease Agreement between the Registrant
                 and WHC-SIX Real Estate dated February 28, 1996.
10.24(10)        Interactive SPARC Software and Sublicensing Agreement
                 between Auspex Systems, Inc. and Interactive systems
                 Corporation, dated November 15, 1991.
10.25(11)        Lease Agreement by and Between South Bay/San Tomas
                 Associates and Auspex Systems, Inc. dated January 14, 1997,
                 for 2800 Scott Boulevard, Santa Clara facility.
10.26(11)        Lease Agreement by and Between South Bay/San Tomas
                 Associates and Auspex Systems, Inc. dated January 14, 1997,
                 for 2300, 2320, 2330 Central Expressway, Santa Clara
                 facility.
10.27(3)(12)     1997 Stock Option Plan and Forms of Incentive Stock Option
                 Agreements and Nonstatutory Stock Option Agreements, as
                 amended to date.
10.28(3)         1998 Non-Statutory Stock Plan and Form of Option Agreements.
10.29(13)        Form of Change of Control Severance Agreement, filed on May
                 12, 1999.
10.30            Form of Change of Control Severance Agreement entered into
                 the form of the Company and Bruce N. Moore, President and
                 Chief Executive Officer, dated June 16, 1999.
10.31            Software Support Agreement between the Registrant and AT&T
                 dated July 10, 1997.
10.32            Software Licensing Agreement between the Registrant and AT&T
                 Corporation dated June 3, 1997, as amended on September 14,
                 1998.
10.33            Source License Agreement between the Registrant and
                 Programmed Logic Corp. dated July 1, 1998; Bundled Hardware
                 OEM Binary License Agreement between the Registrant and
                 Programmed Logic Corp. dated July 1, 1998; Read-Only License
                 Agreement between the Registrant and Programmed Logic Corp.
                 dated July 1, 1998.
10.34            Master Value Added Distribution Agreement between the
                 Registrant and Fuji Xerox Co. Ltd. dated May 21, 1997.
21.1             Subsidiaries of Registrant.
23.1             Consent of Arthur Andersen LLP, Independent Public
                 Accountants.
24.1             Power of Attorney (See Page 31).
27.1             Financial Data Schedule.
</TABLE>

---------------
 (1) Incorporated by reference to exhibits filed in response to Item 16(a),
     "Exhibits," of the Registrant's Registration Statement on Form S-1, as
     amended (File No. 33-60052), which was declared effective on May 11, 1993.

                                       29
<PAGE>   30

 (2) Incorporated by reference to Exhibit 1 filed in connection with the
     Registrant's Form 8-A which was filed on April 20, 1995.

 (3) Designates management contract or compensatory plan arrangements required
     to be filed as an exhibit of this Annual Report on Form 10-K pursuant to
     Item 14(c).

 (4) Incorporated by reference to exhibits filed in connection with Registrants'
     Proxy Statement for the 1997 Annual Meeting of Stockholders, which was
     filed on October 14, 1997.

 (5) Confidential treatment granted by order effective May 11, 1993.

 (6) Incorporated by reference to identically numbered exhibits filed in
     connection with Registrant's Form 10-K for the fiscal year ended June 25,
     1993 (File No. 33-60052).

 (7) Confidential treatment granted by order effective January 14, 1994.

 (8) Incorporated by reference to Exhibit 10.1 filed in connection with
     Registrant's Form 10-Q for the quarter ended March 31, 1994 (File No.
     0-21432), which was filed on May 16, 1994.

 (9) Confidential treatment granted by order effective July 7, 1994.

(10) Incorporated by reference to exhibits filed in connection with the
     Registrant's Form 10-K for the fiscal year ended June 30, 1994 (File No.
     0-21432), which was filed on September 28, 1994 and confidential treatment
     granted by order effective December 5, 1994.

(11) Incorporated by reference to exhibits filed in connection with Registrant's
     Form 10-K for the fiscal year ended June 30, 1997 (File No. 0-21432), which
     was filed on September 24, 1997.

(12) Incorporated by reference to exhibits filed in connection with Registrants'
     Proxy Statement for the Special Meeting of Stockholders held on April 23,
     1998 which was filed on March 20, 1998.

(13) Incorporated by reference to exhibits in connection with Registrant's Form
     10-Q for the quarter ended March 31, 1999, which was filed on May 12, 1999,
     Form of Change of Control Severance Agreement entered into the form of the
     Company and each of:

        -- Steve Aleshire, Vice President of World Wide Customer Services

        -- R. Marshall Case, Vice President of Finance and Chief Financial
           Officer

        -- John S. Coviello, Vice President of Research and Development

        -- Dorothy Krier, Vice President of Human Resources

        -- John P. Livingston, Vice President of Operations

        -- Fred J. Wiele, Vice President of Marketing, dated November 25, 1998

                                       30
<PAGE>   31

     (B) REPORTS ON FORM 8-K:

     No report on Report Form 8-K was filed during the last quarter of the
fiscal year ended June 30, 1999.

                                   SIGNATURES

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

                                          AUSPEX SYSTEMS, INC.

Date: September 24, 1999                  By:      /s/ BRUCE N. MOORE
                                            ------------------------------------
                                            Bruce N. Moore
                                            President and Chief Executive
                                              Officer

                               POWER OF ATTORNEY

     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Bruce N. Moore and R. Marshall Case,
jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Annual Report on Form 10-K, and to file the same, with exhibits thereto and
other documents in connection therewith with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of these
attorneys-in-fact, or his or her substitute or substitutes may do, or cause to
be done, by virtue hereof.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities and on
the dates indicated.

<TABLE>
<CAPTION>
              SIGNATURE                                      TITLE                               DATE
              ---------                                      -----                               ----
<S>                                    <C>                                                <C>
/s/ BRUCE N. MOORE                     President and Chief Executive Officer and          September 24, 1999
------------------------------------   Director (Principal Executive Officer)
(Bruce N. Moore)

/s/ R. MARSHALL CASE                   Vice President of Finance and Chief Financial      September 24, 1999
------------------------------------   Officer (Principal Financial and Principal
(R. Marshall Case)                     Accounting Officer)

/s/ R. STEPHEN CHEHEYL                 Director                                           September 24, 1999
------------------------------------
(R. Stephen Cheheyl)

/s/ W. FRANK KING                      Director                                           September 24, 1999
------------------------------------
(W. Frank King)
</TABLE>

                                       31
<PAGE>   32

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Auspex Systems, Inc.:

     We have audited the accompanying consolidated balance sheets of Auspex
Systems, Inc. (a Delaware corporation) and subsidiaries as of June 30, 1999 and
1998, and the related consolidated statements of operations, comprehensive
income, stockholders' equity and cash flows for each of the three years in the
period ended June 30, 1999. 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 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 provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Auspex Systems, Inc. and
subsidiaries as of June 30, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1999 in conformity with generally accepted accounting principles.

     Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed under Item 14(a) is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements, and in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

                                                         /s/ ARTHUR ANDERSEN LLP

San Jose, California
July 23, 1999

                                       32
<PAGE>   33

                              AUSPEX SYSTEMS, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                         YEARS ENDED
                                                       -----------------------------------------------
                                                         JUNE 30,         JUNE 30,         JUNE 30,
                                                           1999             1998             1997
                                                       -------------    -------------    -------------
<S>                                                    <C>              <C>              <C>
Revenues
  Product revenue....................................    $ 81,737         $142,812         $182,533
  Service revenue....................................      31,738           26,100           19,953
                                                         --------         --------         --------
          Total revenues.............................     113,475          168,912          202,486
                                                         --------         --------         --------
Cost of Revenues
  Cost of product revenue............................      42,196           74,407           79,062
  Cost of service revenue............................      23,598           21,017           16,420
                                                         --------         --------         --------
          Total cost of revenues.....................      65,794           95,424           95,482
                                                         --------         --------         --------
  Gross margin.......................................      47,681           73,488          107,004
                                                         --------         --------         --------
Operating Expenses
  Marketing and sales................................      42,808           51,438           45,573
  Research and development...........................      35,272           34,000           24,449
  General and administrative.........................      10,466            9,110            7,672
  Restructuring charges..............................          --            7,349               --
  In-process research and development................          --               --            7,354
                                                         --------         --------         --------
          Total operating expenses...................      88,546          101,897           85,048
                                                         --------         --------         --------
  Income (loss) from operations......................     (40,865)         (28,409)          21,956
                                                         --------         --------         --------
Other Income
  Interest income....................................       2,039            2,430            2,265
  Interest expense...................................         (35)             (38)             (20)
  Other income (expense).............................          33             (651)             161
                                                         --------         --------         --------
          Total other income.........................       2,037            1,741            2,406
                                                         --------         --------         --------
  Income (loss) before income taxes..................     (38,828)         (26,668)          24,362
Provision for (benefit from) income taxes............         217           (9,334)          10,942
                                                         --------         --------         --------
Net income (loss)....................................    $(39,045)        $(17,334)        $ 13,420
                                                         ========         ========         ========
Net income (loss) per share
  Basic..............................................    $  (1.50)        $  (0.69)        $   0.54
                                                         ========         ========         ========
  Diluted............................................    $  (1.50)        $  (0.69)        $   0.52
                                                         ========         ========         ========
Number of shares used in per share computations
  Basic..............................................      25,978           25,268           24,641
                                                         ========         ========         ========
  Diluted............................................      25,978           25,268           25,658
                                                         ========         ========         ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                       33
<PAGE>   34

                              AUSPEX SYSTEMS, INC.

                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                         YEARS ENDED
                                                       -----------------------------------------------
                                                       JUNE 30, 1999    JUNE 30, 1998    JUNE 30, 1997
                                                       -------------    -------------    -------------
<S>                                                    <C>              <C>              <C>
Net Income (loss)....................................    $(39,045)        $(17,334)         $13,420
Other comprehensive income (loss):
  Unrealized holding gains (losses) on
     available-for-sale securities, net of tax.......         (81)              28               (3)
  Foreign currency translation adjustment, net of
     tax.............................................         (34)            (103)            (220)
                                                         --------         --------          -------
Comprehensive income (loss)..........................    $(39,160)        $(17,409)         $13,197
                                                         ========         ========          =======
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                       34
<PAGE>   35

                              AUSPEX SYSTEMS, INC.

                          CONSOLIDATED BALANCE SHEETS
                 (IN THOUSANDS, EXCEPT SHARE PER SHARE AMOUNTS)

                                     ASSETS

<TABLE>
<CAPTION>
                                                              JUNE 30, 1999    JUNE 30, 1998
                                                              -------------    -------------
<S>                                                           <C>              <C>
Current Assets
  Cash and cash equivalents.................................    $ 26,592         $ 23,312
  Short-term investments....................................      16,045           27,449
  Accounts receivable, net of allowances of $1,407 and
     $1,709 respectively....................................      20,374           25,642
  Inventories...............................................      10,905           12,208
  Income tax receivable.....................................       4,865            9,010
  Prepaid expenses and other................................       5,054            4,849
  Deferred tax assets.......................................          --            8,970
                                                                --------         --------
          Total current assets..............................      83,835          111,440
Property and Equipment
  Computer and manufacturing equipment......................      39,292           38,624
  System spares.............................................      15,992           17,391
  Furniture and fixtures....................................       1,466            6,248
  Leasehold improvements....................................      13,679           13,100
                                                                --------         --------
                                                                  70,429           75,363
  Less -- accumulated depreciation and amortization.........     (41,588)         (41,746)
                                                                --------         --------
          Total property and equipment, net.................      28,841           33,617
Other Assets................................................       2,372            2,136
                                                                --------         --------
                                                                $115,048         $147,193
                                                                ========         ========
</TABLE>

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                              JUNE 30, 1999    JUNE 30, 1998
                                                              -------------    -------------
<S>                                                           <C>              <C>
Current Liabilities
  Accounts payable..........................................    $ 13,316         $ 10,066
  Accrued liabilities.......................................      11,975           12,488
  Deferred revenue..........................................       9,276            9,450
                                                                --------         --------
          Total current liabilities.........................      34,567           32,004
Long-Term Liabilities
  Deferred revenue..........................................       1,304               --
Stockholders' Equity
  Common stock, $.001 par value -- 50,000,000 shares
     authorized; 26,734,762 and 25,694,040 shares issued and
     outstanding, respectively..............................          27               26
  Additional paid-in capital................................      85,903           82,756
  Retained earnings (deficit)...............................      (6,118)          32,927
  Unrealized gain (loss) from available-for-sale
     securities.............................................         (43)              38
  Cumulative translation adjustment.........................        (592)            (558)
                                                                --------         --------
          Total stockholders' equity........................      79,177          115,189
                                                                --------         --------
                                                                $115,048         $147,193
                                                                ========         ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                       35
<PAGE>   36

                              AUSPEX SYSTEMS, INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                    FOR THE THREE YEARS ENDED JUNE 30, 1999
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                           UNREALIZED
                                                                                           (LOSS) GAIN
                                                                                              FROM
                                  COMMON STOCK       ADDITIONAL                RETAINED    AVAILABLE-    CUMULATIVE
                               -------------------    PAID-IN       NOTES      EARNINGS     FOR SALE     TRANSLATION
                                 SHARE      AMOUNT    CAPITAL     RECEIVABLE   (DEFICIT)   SECURITIES    ADJUSTMENT     TOTAL
                               ----------   ------   ----------   ----------   ---------   -----------   -----------   --------
<S>                            <C>          <C>      <C>          <C>          <C>         <C>           <C>           <C>
BALANCE, JUNE 30, 1996.......  24,360,507    $24      $73,169        $(49)     $ 36,841       $ --          $(172)     $109,813
Issuance of common stock to
  employees..................     652,859      1        4,097          --            --         --             --         4,098
Repayment of notes
  receivable.................          --     --           --          49            --         --             --            49
Repurchase of previously
  exercised stock options....      (8,401)    --          (10)         --            --         --             --           (10)
Tax benefits related to
  exercise of stock
  options....................          --     --        1,179          --            --         --             --         1,179
Unrealized loss on
  available-for-sale
  securities.................          --     --           --          --            --         (5)            --            (5)
Translation adjustment.......          --     --           --          --            --         --           (228)         (228)
Net Income...................          --     --           --          --        13,420         --             --        13,420
                               ----------    ---      -------        ----      --------       ----          -----      --------
BALANCE, JUNE 30, 1997.......  25,004,965     25       78,435          --        50,261         (5)          (400)      128,316
Issuance of common stock to
  employees..................     689,075      1        3,715          --            --         --             --         3,716
Tax benefits related to
  exercise of stock
  options....................          --     --          606          --            --         --             --           606
Unrealized gain on
  available-for-sale
  securities.................          --     --           --          --            --         43             --            43
Translation adjustment.......          --     --           --          --            --         --           (158)         (158)
Net loss.....................          --     --           --          --       (17,334)        --             --       (17,334)
                               ----------    ---      -------        ----      --------       ----          -----      --------
BALANCE, JUNE 30, 1998.......  25,694,040     26       82,756          --        32,927         38           (558)      115,189
Issuance of common stock to
  employees..................   1,040,722      1        3,147          --            --         --             --         3,148
Unrealized gain on available
  for-sale-securities........          --     --           --          --            --        (81)            --           (81)
Translation adjustment.......          --     --           --          --            --         --            (34)          (34)
Net loss.....................          --     --           --          --       (39,045)        --             --       (39,045)
                               ----------    ---      -------        ----      --------       ----          -----      --------
BALANCE, JUNE 30, 1999.......  26,734,762    $27      $85,903        $ --      $ (6,118)      $(43)         $(592)     $ 79,177
                               ==========    ===      =======        ====      ========       ====          =====      ========
</TABLE>

    The accompanying notes are integral part of these financial statements.
                                       36
<PAGE>   37

                              AUSPEX SYSTEMS, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                       YEARS ENDED
                                                             --------------------------------
                                                             JUNE 30,    JUNE 30,    JUNE 30,
                                                               1999        1998        1997
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
Cash Flows from Operating Activities
  Net income (loss)........................................  $(39,045)   $(17,334)   $ 13,420
  Adjustments to reconcile net income (loss) to net cash
     provided by (used in) operating activities
     Depreciation and amortization.........................    13,332      14,378      12,435
     Restructuring charges, net of tax.....................        --       5,903          --
     In-process research and development...................        --          --       7,354
     Changes in assets and liabilities:
       (Increase) decrease in accounts receivable..........     5,268      17,488      (5,282)
       (Increase) decrease in inventories..................    (2,931)      2,188      (1,966)
       (Increase) decrease in income tax receivable........     4,145      (9,010)         --
       (Increase) decrease in deferred tax assets..........     8,970      (1,661)        289
       (Increase) decrease in prepaid expenses and other...      (205)        157      (1,687)
       Increase in accounts payable........................     3,250       3,160         741
       Increase (decrease) in accrued liabilities..........      (513)       (666)        232
       Increase (decrease) in deferred revenue.............     1,130         (41)      2,913
                                                             --------    --------    --------
     Net cash (used in) provided by operating activities...    (6,599)     14,562      28,449
                                                             --------    --------    --------
Cash Flows from Investing Activities
  Purchases of available-for-sale short-term investments...   (38,016)    (25,096)    (38,220)
  Proceeds from sales/maturities of available-for-sale
     short-term investments................................    49,339      33,520      30,734
  Payment for Alphatronix, Inc. acquisition, net of cash
     acquired..............................................        --          --      (5,600)
  Purchase of property and equipment.......................   (15,205)    (28,894)    (16,385)
  Change in other assets...................................      (236)         --          --
                                                             --------    --------    --------
     Net cash used in investing activities.................    (4,118)    (20,470)    (29,471)
                                                             --------    --------    --------
Cash Flows from Financing Activities
  Proceeds from sale of common stock.......................     3,148       4,322       4,147
  Repurchase of common stock...............................        --          --         (10)
  Proceeds from sale and leaseback of equipment............    10,883          --          --
                                                             --------    --------    --------
     Net cash provided by financing activities.............    14,031       4,322       4,137
                                                             --------    --------    --------
Effect of Exchange Rate Changes on Cash....................       (34)       (158)       (228)
                                                             --------    --------    --------
Net Increase (Decrease) in Cash and Cash Equivalents.......     3,280      (1,744)      2,887
Cash and Cash Equivalents, Beginning of Year...............    23,312      25,056      22,169
                                                             --------    --------    --------
Cash and Cash Equivalents, End of Year.....................  $ 26,592    $ 23,312    $ 25,056
                                                             ========    ========    ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                       37
<PAGE>   38

                              AUSPEX SYSTEMS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

     Auspex Systems, Inc. (the "Company") was incorporated in 1987 in California
and reincorporated in Delaware in 1991. The Company develops, manufactures,
markets, sells and supports a line of high-performance UNIX/Windows NT
multi-protocol network file/data servers for the technical workstation market.
The Company's markets are principally in North America, Pacific Rim and Europe
and include customers in the technical and commercial computing market. See Note
9 for information on revenues by geographic area.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Principals of Consolidation  The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries after elimination
of intercompany accounts and transactions.

     Estimates in the Preparation of Consolidated Financial Statements  The
preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

     Foreign Currency Translations  The functional currency of the Company's
foreign subsidiaries is the local currency. Accordingly, gains and losses
resulting from the translation of the subsidiaries' financial statements are
reported as a separate component of stockholders' equity.

     Revenue Recognition  Product revenue includes hardware sales and software
license fees. Effective July 1, 1997, the Company changed its revenue
recognition policy on system sales to end users such that revenues from system
sales are generally recognized upon shipment. Previously, the Company generally
recognized system sales to end users when the equipment had been shipped,
installed and accepted by the end user. The reason for this change was to better
conform the Company's policy with industry practices. The impact of this change
did not have a material effect on the Company's financial statements. The
installation of the Company's systems is not considered a significant obligation
and acceptance by the customer is not considered a significant uncertainty.
Revenues from upgrade sales are generally recognized at the time the equipment
is shipped. Provisions for product sales returns and allowances are recorded in
the same period as the related revenue. Revenues earned under software license
agreements with end users are generally recognized when the software has been
shipped and there are no significant obligations remaining.

     Service revenue includes installation, maintenance and training, and is
recognized ratably over the contractual period or as the services are provided.

     Cash, Cash Equivalents and Short-Term Investments  For purposes of the
statement of cash flows, all cash equivalents consist of investments in
certificates of deposits, money market deposits, and municipal bonds with
original maturities of three months or less. Substantially all short-term
investments consist of municipal bonds, which the Company intends to hold
between three and twelve months.

     The Company classifies its investments in debt and equity securities as
available-for-sale in accordance with Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Securities classified as available-for-sale are reported at fair
market value with the related unrealized gains and losses, reported as a
separate component of stockholders' equity. Realized gains and losses and
declines in value judged to be other than temporary are included in other
income.

     At June 30, 1999, the Company's available-for-sale securities had
contractual maturities that expire at various dates through June 2000. The fair
value of available-for-sale securities was determined based on quoted market
prices at the reporting date for those securities.

                                       38
<PAGE>   39
                              AUSPEX SYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     At June 30, 1999 and 1998, the amortized cost basis, aggregate fair value
and gross unrealized holding gains (losses) by major security type are as
follows (in thousands):

<TABLE>
<CAPTION>
                                                             AMORTIZED    AGGREGATE      UNREALIZED
                       JUNE 30, 1999                           COST       FAIR VALUE   GAINS (LOSSES)
                       -------------                         ---------    ----------   --------------
<S>                                                          <C>          <C>          <C>
Available-for-Sale Securities
  US Agency (Gov't)........................................   $13,308      $13,281          $(27)
  Auction rate securities..................................     2,900        2,900            --
  Certificate of deposit...................................     1,999        1,996            (3)
  Corporate bonds..........................................     2,507        2,498            (9)
  Money market.............................................     3,380        3,380            --
  Commercial paper.........................................     5,022        5,018            (4)
                                                              -------      -------          ----
          Total Investment in Securities...................   $29,116      $29,073          $(43)
                                                              =======      =======          ====
JUNE 30, 1998
-----------------------------------------------------------
Available-for-Sale Securities
  Municipal bonds..........................................   $34,861      $34,899          $ 38
  Commercial paper.........................................     1,417        1,417            --
                                                              -------      -------          ----
          Total Investment in Securities...................   $36,278      $36,316          $ 38
                                                              =======      =======          ====
</TABLE>

     In fiscal year 1999, there were no significant gains or losses realized on
the Company's cash equivalents or short-term investments. Available-for-sale
securities sold in fiscal year 1999 generated proceeds of $20,877,000 and
provided a realized gain of $57,690 (the realized gain was calculated using the
'specific identification' method).

     Supplemental Statement of Cash Flows Disclosures  Cash paid for interest
during fiscal 1999, 1998 and 1997 was approximately $11,000, $38,000 and
$20,000, respectively. Cash paid for income taxes during fiscal 1999, 1998 and
1997 was approximately $726,000, $1,621,000 and $6,052,000, respectively. In
fiscal 1999, net inventory capitalized into property and equipment was
$4,234,000. No inventory was capitalized into property and equipment in fiscal
1998. In fiscal 1998, non-cash activity consisted of $606,000 from tax benefits
related to exercise of stock options.

     Concentrations of Credit Risk  Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of cash
investments and accounts receivables. The Company's cash investment policy
limits the amount of credit exposure to any one issuer and restricts purchase of
these investments to issuers evaluated as creditworthy. Concentrations of credit
risk in trade receivables is limited as a result of the large number of
customers comprising the Company's customer base and their dispersion across
many different industries and geographies.

     Inventories  Inventories are stated at the lower of cost (first-in,
first-out) or market, and include material, labor and manufacturing overhead
costs. Inventories consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                     JUNE 30, 1999    JUNE 30, 1998
                                                     -------------    -------------
<S>                                                  <C>              <C>
Purchased materials................................     $ 4,158          $ 5,615
Systems in process.................................       4,044            4,041
Finished goods.....................................       2,703            2,552
                                                        -------          -------
                                                        $10,905          $12,208
                                                        =======          =======
</TABLE>

     Inventories contained components and assemblies in excess of the Company's
current estimated requirements and were fully reserved at June 30, 1999 and
1998.

                                       39
<PAGE>   40
                              AUSPEX SYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Certain of the Company's products contain critical components supplied by a
single or a limited number of third-parties. The Company has an inventory of
these critical components so as to ensure an available supply of products for
its customers. Any significant shortage of these components or the failure of
the third party suppliers to maintain or enhance these components could
materially and adversely affect the Company's results of operations.

     Property And Equipment  Property and equipment are stated at cost.
Depreciation and amortization are computed using the straight-line method over
the following estimated useful lives:

<TABLE>
<S>                                        <C>
Computer and manufacturing equipment.....  1.5 to 5 years
System spares............................  2 to 3 years
Furniture and fixtures...................  3 years
Leasehold improvements...................  Shorter of the lease term or estimated
                                           useful life
</TABLE>

     Software Development Costs  The Company accounts for software development
costs in compliance with Statement of Financial Accounting Standards (SFAS) No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed". Capitalization of software development costs begins upon
the determination of technological feasibility. The determination of
technological feasibility and the ongoing assessment of the recoverability of
these costs require considerable judgment by management with respect to certain
external factors including anticipated future gross product revenues, estimated
economic life and changes in hardware and software technology. No amounts were
capitalized in fiscal 1999, 1998 and 1997.

     Amortization of capitalized software development costs begins when the
products are available for general release to customers and is computed on an
individual product basis and is the greater of the amount computed on a
units-sold basis or straight-line basis over the estimated economic life of the
product. Amortization of software development costs amounted to $12,000,
$343,000 and $411,000 for the fiscal years ended June 30, 1999, 1998 and 1997,
respectively.

     Accrued Liabilities  Accrued liabilities consisted of the following (in
thousands):

<TABLE>
<CAPTION>
                                                             JUNE 30, 1999    JUNE 30, 1998
                                                             -------------    -------------
<S>                                                          <C>              <C>
Payroll, bonus and vacation................................     $ 6,616          $ 5,901
Other......................................................       5,359            6,587
                                                                -------          -------
                                                                $11,975          $12,488
                                                                =======          =======
</TABLE>

     Net Income (Loss) Per Share  Basic net income (loss) per share is computed
based only on the weighted average number of common shares outstanding during
the period and does not give effect to the dilutive effect of common equivalent
shares, such as stock options. Diluted net income per share is computed

                                       40
<PAGE>   41
                              AUSPEX SYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

based on the weighted average number of common shares plus dilutive potential
common shares calculated in accordance with the treasury stock method.

<TABLE>
<CAPTION>
                                                                    YEAR ENDED JUNE 30,
                                                              -------------------------------
                                                                1999        1998       1997
                                                              --------    --------    -------
<S>                                                           <C>         <C>         <C>
Net income (loss)...........................................  $(39,045)   $(17,334)   $13,420
                                                              ========    ========    =======
Basic Earnings Per Share
  Income (loss) available to common stockholders............  $(39,045)   $(17,334)   $13,420
  Weighted average common shares outstanding................    25,978      25,268     24,641
                                                              --------    --------    -------
  Basic earnings (loss) per share...........................  $  (1.50)   $  (0.69)   $  0.54
                                                              ========    ========    =======
Diluted Earnings Per Share
  Income (loss) available to common stockholders............  $(39,045)   $(17,334)   $13,420
                                                              --------    --------    -------
  Weighted average common shares outstanding................    25,978      25,268     24,641
  Dilutive potential common shares from stock options.......        --          --      1,017
                                                              --------    --------    -------
  Weighted average common shares and dilutive potential
     common shares..........................................    25,978      25,268     25,658
                                                              --------    --------    -------
  Diluted earnings (loss) per share.........................  $  (1.50)   $  (0.69)   $  0.52
                                                              ========    ========    =======
</TABLE>

     Options to purchase 639,051 weighted shares outstanding during 1997 were
excluded from the computation of diluted earnings per share because the options
exercise prices were greater than the average market price of the Company's
common stock during those years. All options outstanding during fiscal 1999 and
1998, approximately 4,887,000 and 4,583,000 shares respectively, were excluded
from the computation of diluted earnings per share since their inclusion would
have been, anti-dilutive due to the loss available to common stockholders.

     Employee Stock Plans  In accordance with the provisions of SFAS No. 123,
the Company applies APB Opinion No. 25 and related interpretations to account
for its employee stock option and stock purchase plans, and accordingly, does
not recognize compensation expense. Note 7 of the Consolidated Financial
Statements contains a summary of the pro forma effects to reported net income
and earnings per share as if the Company had elected to recognize compensation
expense based on the fair value of the options granted at grant date as
prescribed by SFAS No. 123.

     Comprehensive Income  The Company adopted SFAS No. 130, "Reporting
Comprehensive Income," in the first quarter of fiscal 1999. SFAS No. 130
establishes standards for disclosure and financial statement display for
reporting total comprehensive income and its individual components.
Comprehensive income as defined includes all changes in equity during a period
from non-owner sources. The Company's comprehensive income includes net income
and foreign currency translation adjustments.

     The following table sets forth the components of other comprehensive income
(loss) net of income tax for the year ended June 30 (in thousands):

<TABLE>
<CAPTION>
                                                                       YEAR ENDED JUNE 30,
                                 ------------------------------------------------------------------------------------------------
                                              1999                             1998                             1997
                                 ------------------------------   ------------------------------   ------------------------------
                                              TAX       NET-OF-                TAX       NET-OF-                TAX       NET-OF-
                                 PRE-TAX   (EXPENSE)      TAX     PRE-TAX   (EXPENSE)      TAX     PRE-TAX   (EXPENSE)      TAX
                                 AMOUNT    ON BENEFIT   AMOUNT    AMOUNT    ON BENEFIT   AMOUNT    AMOUNT    ON BENEFIT   AMOUNT
                                 -------   ----------   -------   -------   ----------   -------   -------   ----------   -------
<S>                              <C>       <C>          <C>       <C>       <C>          <C>       <C>       <C>          <C>
Other comprehensive income
  (loss):
Unrealized holding gains
  (losses) on
  available-for-sale
  securities...................   $ (81)      $--        $ (81)    $  43       $(15)      $  28     $  (5)      $  2       $  (3)
Foreign currency Translation
  adjustment...................     (34)       --          (34)     (159)        56        (103)     (400)       180        (220)
                                  -----       ---        -----     -----       ----       -----     -----       ----       -----
                                  $(115)      $--        $(115)    $(116)      $ 41       $ (75)    $(405)      $182       $(223)
                                  =====       ===        =====     =====       ====       =====     =====       ====       =====
</TABLE>

                                       41
<PAGE>   42
                              AUSPEX SYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Segments  In June 1997, the Financial Accounting Standards Board issued
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information." SFAS No. 131 changes the way companies report selected segment
information in annual financial statements and also requires companies to report
selected segment information in interim financial reports to stockholders. The
Company operates in one reportable segment. SFAS No. 131 has been implemented by
the Company. Note 9 of the Consolidated Financial Statements contains a summary
table of industry segment, geographic and customer information.

     New Accounting Pronouncements  In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. It requires that a reporting entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The Company is
required to adopt SFAS No. 133 in the first quarter of fiscal 2001. The impact
of adopting SFAS No. 133 to the Company has not been determined.

     Reclassification  The Company has reclassified certain prior year balances
from selling, general and administrative expenses to cost of service revenues to
reflect costs associated with service revenue to conform to the current year
presentation. The amount of reclassification for years ended June 30, 1998 and
June 30, 1997 were $3,045,000 and $2,474,000, respectively.

3. ALPHATRONIX, INC. ACQUISITION

     On June 30, 1997, the Company acquired all of the outstanding shares of
Alphatronix, Inc. ("Alphatronix"), a developer and marketer of
open-systems-based storage management solutions, for a total purchase price of
$7.7 million. The acquisition was accounted for using the purchase method of
accounting. A portion of the purchase price was allocated to assets acquired and
liabilities assumed based on their estimated fair value. The fair value of
tangible assets acquired and liabilities assumed was $300,000 and $300,000,
respectively. In addition, $7.4 million of the purchase price was allocated to
in-process research and development projects that had not reached technological
feasibility and had no probable alternative future uses, which the Company
expensed at the date of the acquisition as a non-recurring charge. The remainder
of the purchase price, $300,000, was allocated to goodwill and is being
amortized over five years on a straight-line basis. Comparative pro forma
information has not been presented, as the results of operations for Alphatronix
are not material to the Company's financial statements.

4. LINE OF CREDIT

     In March 1999, the Company entered into a revolving line of credit
agreement with a bank under which it can borrow up to $15,000,000. The line of
credit bears interest at the Prime Rate for advances under $1,000,000 (the Prime
Rate at June 30, 1999 was 7.75%), or for advances of $1,000,000 and above, the
line of credit bears interest at the LIBOR Rate plus 2.0%. The line of credit
expires on October 1, 2000. At June 30, 1999 there were no borrowings
outstanding under the line of credit agreement. There were commitments against
the line of credit, for two letters of credit totaling approximately $3,700,000,
as of June 30, 1999. The line of credit is secured by the Company's inventory
and accounts receivable. The line of credit agreement contains certain financial
covenants determined on a quarterly basis.

5. COMMITMENTS AND CONTINGENCIES

     Facilities and equipment are leased under various operating leases. Rent
expense was approximately $5,204,000, $4,720,000 and $3,197,000, for fiscal
1999, 1998 and 1997, respectively. During 1997, the Company entered into lease
agreements for four buildings in Santa Clara, California. The leases for these
facilities commenced in March 1998 and expire in February 2010. In addition, the
lease agreements contain

                                       42
<PAGE>   43
                              AUSPEX SYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

three successive options to extend the lease terms for sixty months each. During
fiscal 1999, the Company entered into a sub-lease agreement for one building in
its Santa Clara facility.

     As of June 30, 1999, future minimum gross lease payments under
non-cancelable leases were as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                           NET
                                                              OPERATING    SUB-LEASE    OPERATING
                   YEARS ENDING JUNE 30,                       LEASES      PAYMENTS      LEASES
                   ---------------------                      ---------    ---------    ---------
<S>                                                           <C>          <C>          <C>
  2000......................................................   $11,116      $(1,538)     $ 9,578
  2001......................................................    10,543       (1,575)       8,968
  2002......................................................     8,227       (1,613)       6,614
  2003......................................................     5,806           --        5,806
  2004......................................................     4,664           --        4,664
  Thereafter................................................    24,099           --       24,099
                                                               -------      -------      -------
          Total minimum lease payments......................   $64,455      $(4,726)     $59,729
                                                               =======      =======      =======
</TABLE>

     As of both June 30, 1999 and 1998, the cost of leased equipment was
approximately $1,401,000 and was fully amortized.

6. RESTRUCTURING COSTS

     In the quarter ended June 30, 1998, the Company recorded restructuring
charges totaling $7,349,000. These charges reflect steps the Company took to
improve its product development efforts streamline operations and reduce overall
costs. The restructuring charges comprised $1,100,000 for severance and benefits
related to reduction of personnel due to consolidation of certain operations,
$1,200,000 for consolidation of excess facilities and $5,049,000 to write off or
write down equipment and other assets related to operations and activities that
the Company has exited. In connection with the restructuring charges taken in
the quarter ended June 30, 1998, the Company terminated 84 employees as of
fiscal year ended June 30, 1998. The employee groups affected by the reduction
in force included engineering, sales, marketing, customer service and
operations. The implementation of the restructuring plan was substantially
completed at the end of September 1998.

     The following table summarizes the Company's restructuring activity for the
fiscal year ended June 30, 1999 (in thousands):

<TABLE>
<CAPTION>
                                                                                 EXCESS
                                                                                EQUIPMENT
                                                    SEVERANCE       EXCESS       & OTHER
                                                    & BENEFITS    FACILITIES     ASSETS       TOTAL
                                                    ----------    ----------    ---------    -------
<S>                                                 <C>           <C>           <C>          <C>
Restructuring amounts.............................   $ 1,100        $1,200       $ 5,049     $ 7,349
Cash charges......................................    (1,100)         (800)           --      (1,900)
Non-cash charges..................................        --            --        (4,034)     (4,034)
                                                     -------        ------       -------     -------
Reserve balances, June 30, 1998...................   $    --        $  400       $ 1,015     $ 1,415
                                                     -------        ------       -------     -------
Non-cash charges..................................        --           (86)         (877)       (963)
                                                     -------        ------       -------     -------
Reserve balances, June 30, 1999...................   $    --        $  314       $   138     $   452
                                                     =======        ======       =======     =======
</TABLE>

7. STOCK OPTION AND STOCK PURCHASE PLANS

     The Company has four stock option plans, the 1988 Employee Stock Option
Plan ("1988 Plan"), the 1997 Stock Plan ("1997 Plan"), the 1998 Non-Statutory
Stock Option Plan ("1998 Plan") and the Directors' Stock Option Plan
("Directors' Plan"), and an employee stock purchase plan ("1993 Employee Stock

                                       43
<PAGE>   44
                              AUSPEX SYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Purchase Plan"). The Company accounts for these plans under APB Opinion No. 25,
under which no compensation cost has been recognized.

     Had compensation cost for these plans been determined consistent with SFAS
No. 123, the Company's net income (loss) and diluted earnings (loss) per share
would have been adjusted to the following pro forma amounts (in thousands,
except per share data):

<TABLE>
<CAPTION>
                                                                1999        1998       1997
                                                              --------    --------    -------
<S>                                                           <C>         <C>         <C>
Net income (loss):
  As reported...............................................  $(39,045)   $(17,334)   $13,420
  Pro forma.................................................  $(43,676)   $(22,301)   $ 6,165
Diluted earnings (loss) per share:
  As reported...............................................  $  (1.50)   $  (0.69)   $  0.52
  Pro forma.................................................  $  (1.68)   $  (0.88)   $  0.24
</TABLE>

     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997, respectively: risk-free
interest rates of 5.0%, 5.5% and 6.0%, respectively; expected volatility of 81%,
68% and 69%, respectively; no expected dividends, and an expected life of 0.4
years beyond the vest date for each year's vesting increment of an option.

     Since the SFAS No. 123 method of accounting has not been applied to options
granted prior to July 1, 1995, the resulting pro forma compensation cost may not
be representative of that to be expected in future years.

     In August 1998, the Company offered its employees the ability to reprice
stock options granted prior to June 30, 1998 to the current fair market value.
As a result, the Company repriced 3,739,857 options at prices ranging from $2.75
to $18.25 per share at the then current fair market value of $2.75 per share.
Employees who submitted their option grants for repricing agreed to forgo
exercising their vested options for six months.

     In November 1996, the Company offered its employees the option of
exchanging and canceling stock options granted from June 1995 through October
1996 for new options priced as of November 1, 1996. As a result, the Company
canceled 1,933,592 options at prices ranging from $10.75 to $23.125 per share
and reissued the same number of options at the then current fair market value of
$10.25 per share. Employees who submitted their option grants for repricing had
their vesting schedules amended by moving their vesting back three months or
restarting the vesting as of the new grant date, depending on the date of the
grant.

     The Company may sell up to 1,300,000 shares of stock to its full-time
employees under the 1993 Employee Stock Purchase Plan. The Company has sold
357,101, 282,337 and 218,684 shares in 1999, 1998 and 1997, respectively, and
has sold 1,291,441 shares through June 30, 1999. The Company sells shares at 85%
of the lower of the stock's closing market price on the first or last day of the
six-month offering period. The weighted-average fair value of shares sold in
1999, 1998 and 1997, respectively, was $3.71, $6.00, and $9.00, respectively.

     The Company could grant options for up to 10,000,000 shares under the 1988
Plan which expired in April 1988. The option exercise price is not less than
100% of the fair value of the shares on the date of grant, except that
non-statutory options may be granted at 85% of such fair value. The 1988 Plan
options are fully vested after five years and expire after ten years. For
options granted after November 20, 1997, options are generally fully vested
after four years and expire after ten years.

     Stockholders approved the 1997 Plan in April 1998. The Company may grant
options for up to 1,250,000 shares under the 1997 Plan. The Company has granted
options on 781,937 shares through June 30, 1999. The option exercise price is
not less than 100% of the fair value of the shares on the date of grant, except

                                       44
<PAGE>   45
                              AUSPEX SYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

that non-statutory options may be granted at 85% of such fair value. The 1997
Plan options are generally fully vested after four years and expire after ten
years.

     The Board of Directors approved the 1998 Plan in August 1998. The Company
may grant options for up to 3,000,000 shares under the 1998 Plan. The Company
granted options on 1,685,782 shares through June 30, 1999. The options exercise
price is not less than 100% of the fair value of the shares on the date of
grant. The 1998 Plan options are generally fully vested after four years and
expire after ten years.

     The Company may grant options for up to 325,000 shares under the Directors'
Plan. The Company granted options on 76,000 shares (net of lapsed and terminated
options) through June 30, 1999. The option exercise price equals the closing
price of the stock on the day of the grant. The options are generally fully
vested after four years and expire after ten years.

     A summary of the status of the Company's stock option plans at June 30,
1999, 1998 and 1997 incorporating changes during the years then ended is
presented in the table below (share amounts in thousands):

<TABLE>
<CAPTION>
                                             1999                  1998                  1997
                                      ------------------    ------------------    ------------------
                                        WEIGHTED-AVG.         WEIGHTED-AVG.         WEIGHTED-AVG.
                                      ------------------    ------------------    ------------------
                                                EXERCISE              EXERCISE              EXERCISE
                                      SHARES     PRICE      SHARES     PRICE      SHARES     PRICE
                                      ------    --------    ------    --------    ------    --------
<S>                                   <C>       <C>         <C>       <C>         <C>       <C>
Outstanding at beginning of year....   4,583     $9.45       4,080     $ 9.07      4,088     $10.56
Granted.............................   2,610     $6.34       2,565     $ 9.71      3,574     $10.86
Exercised...........................    (684)    $2.67        (410)    $ 4.89       (434)    $ 4.85
Cancelled...........................  (1,622)    $6.13      (1,652)    $10.04     (3,148)    $13.66
                                      ------                ------                ------
Outstanding at end of year..........   4,887     $4.68       4,583     $ 9.45      4,080     $ 9.07
                                      ======                ======                ======
Exercisable end of year.............   1,158     $3.42       1,303     $ 8.91      1,145     $ 7.21
                                      ------                ------                ------
Weighted fair value per option
  granted...........................             $1.83                 $ 4.71                $ 3.50
                                                 -----                 ------                ------
</TABLE>

<TABLE>
<CAPTION>
                                                    JUNE 30, 1999
                     ----------------------------------------------------------------------------
                                  OPTIONS OUTSTANDING                     OPTIONS EXERCISABLE
                     ----------------------------------------------    --------------------------
     RANGE OF                  WEIGHTED-AVERAGE    WEIGHTED-AVERAGE              WEIGHTED-AVERAGE
  EXERCISE PRICES    NUMBER    REMAINING YEARS      EXERCISE PRICE     NUMBER     EXERCISE PRICE
  ---------------    ------    ----------------    ----------------    ------    ----------------
  <S>                <C>       <C>                 <C>                 <C>       <C>
  $0.25 - $ 2.56...    189           8.83               $2.21             10          $0.50
  $2.75 - $ 2.75...  2,750           7.59               $2.75            977          $2.75
  $2.81 - $ 7.13...    985           9.54               $5.80            124          $6.56
  $7.50 - $14.88...    963           9.73               $9.82             47          $9.64
                     -----                                             -----
  $0.25 - $14.88...  4,887           8.45               $4.74          1,158          $3.42
                     =====                                             =====
</TABLE>

     Stockholder Rights Plan  During 1995, the Company established a stock
purchase rights plan ("the Rights Plan"), under which stockholders may be
entitled to purchase stock in the Company, or in an acquirer of the Company at a
discounted price in the event of certain efforts to acquire control of the
Company. The rights expire on the earliest of (a) April 19, 2005, (b) exchange
or redemption of the rights pursuant to the Rights Plan, or (c) consummation of
a merger or consolidation.

                                       45
<PAGE>   46
                              AUSPEX SYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. INCOME TAXES

     The provision (benefit from) is based upon the income (loss) before income
taxes as follows:

<TABLE>
<CAPTION>
                                                                1999        1998       1997
YEAR ENDED JUNE 30,                                           --------    --------    -------
<S>                                                           <C>         <C>         <C>
Domestic....................................................  $(39,381)   $(29,032)   $24,362
Foreign.....................................................  $    533    $  2,364    $     0
                                                              --------    --------    -------
          Total.............................................  $(38,828)   $(26,668)   $24,362
                                                              ========    ========    =======
</TABLE>

     The provision for (benefit from) income taxes consisted of the following
(in thousands):

<TABLE>
<CAPTION>
                                                                 YEARS ENDED JUNE 30,
                                                              --------------------------
                                                              1999     1998       1997
                                                              ----    -------    -------
<S>                                                           <C>     <C>        <C>
Current:
  Federal...................................................  $ --    $(6,992)   $ 8,371
  State.....................................................    --        (68)     1,297
  Foreign...................................................   217      1,049         --
                                                              ----    -------    -------
                                                               217     (6,011)     9,668
                                                              ----    -------    -------
Deferred (benefit):
  Federal...................................................    --     (3,278)     1,083
  State.....................................................    --        (45)       191
                                                              ----    -------    -------
                                                                --     (3,323)     1,274
                                                              ----    -------    -------
Net tax (benefit) provision.................................  $217    $(9,334)   $10,942
                                                              ====    =======    =======
</TABLE>

     The provision for (benefit from) income taxes is reconciled with the
Federal statutory rate as follows:

<TABLE>
<CAPTION>
                                                                   YEARS ENDED JUNE 30,
                                                              ------------------------------
                                                                1999       1998       1997
                                                              --------    -------    -------
<S>                                                           <C>         <C>        <C>
Provision (benefit) computed at Federal statutory @ 35%
  rate......................................................  $(13,590)   $(9,334)   $ 8,526
Increase in valuation allowance.............................    13,590         --         --
State taxes, net of Federal tax benefit.....................        --       (113)     1,078
Research and development and other credits..................        --     (1,300)      (650)
In-process research and development write-off...............        --         --      2,180
FSC commission..............................................        --         --       (746)
Foreign taxes and other.....................................       217      1,413        554
                                                              --------    -------    -------
Net tax provision (benefit).................................  $    217    $(9,334)   $10,942
                                                              ========    =======    =======
Net effective tax rate......................................         0%        35%        45%
                                                              ========    =======    =======
</TABLE>

     The components of the net deferred tax asset are as follows:

<TABLE>
<CAPTION>
                                                              JUNE 30, 1999    JUNE 30, 1998
                                                              -------------    -------------
<S>                                                           <C>              <C>
Net operating losses........................................    $  8,009          $   --
Depreciation and asset basis differences....................       1,782           1,496
Inventory reserve...........................................       3,028           4,625
Other reserves and accruals, not currently deductible for
  tax purposes..............................................         996           2,901
Other & Credits.............................................        (225)            (52)
                                                                --------          ------
Gross deferred tax asset....................................    $ 13,590          $8,970
Less: valuation allowance...................................     (13,590)             --
                                                                --------          ------
Net deferred tax asset......................................    $     --          $8,970
                                                                ========          ======
</TABLE>

                                       46
<PAGE>   47
                              AUSPEX SYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     As of June 30, 1999, the Company had gross deferred tax assets of
approximately $15.3 million. Due to the uncertainty surrounding the realization
of the future tax attributes, the Company has recorded a valuation allowance
against its net deferred tax assets.

     As of June 30, 1999, the Company had NOL carryforwards of approximately
$19,000,000 and $40,000,000 for federal and state tax purposes, respectively.
The Federal NOL carryforwards expire through 2019 and the state NOL's expire
through 2004. The Company also has research credits of approximately $1,100,000
and $600,000 for federal and state tax purposes, respectively.

9. INDUSTRY SEGMENT, GEOGRAPHIC AND CUSTOMER INFORMATION

     The Company, which operates in one reportable industry segment, develops,
manufactures, distributes and supports a line of multi-protocol high performance
network file servers and high availability enterprise data management software
solution for storing, serving and managing multiple terabytes of network data
for the technical network market.

     Export revenues and long-lived assets (net of accumulated depreciation)
consisted of the following (in thousands):

     Revenues and long-lived assets by geography (net of accumulated
depreciation) consisted of the following for the years ended June 30, (in
thousands):

<TABLE>
<CAPTION>
                                   1999                      1998                      1997
                          ----------------------    ----------------------    ----------------------
                                      LONG LIVED                LONG LIVED                LONG LIVED
                          REVENUE       ASSETS      REVENUE       ASSETS      REVENUE       ASSETS
                          --------    ----------    --------    ----------    --------    ----------
<S>                       <C>         <C>           <C>         <C>           <C>         <C>
United States...........  $ 75,951     $27,966      $110,801     $32,523      $135,746     $18,410
Europe..................    19,330         625        28,689         860        28,191       1,526
Pacific Rim.............    13,453         249        23,388         229        31,759          89
Canada..................     4,741           1         6,034           5         6,790          11
                          --------     -------      --------     -------      --------     -------
          Total.........  $113,475     $28,841      $168,912     $33,617      $202,486     $20,036
                          ========     =======      ========     =======      ========     =======
</TABLE>

     One customer accounted for 20% of total revenues in each of fiscal 1999 and
1998, and 10% of total revenues in fiscal 1997. One other customer accounted for
15% of total revenues in fiscal 1997. No other customers accounted for 10% or
more of total revenues in these years.

                                       47
<PAGE>   48

                              AUSPEX SYSTEMS, INC.

                                  SCHEDULE II
                       VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                      ADDITIONS    ADDITIONS
                                        BALANCE AT     CHARGED      CHARGED                   BALANCE AT
                                        BEGINNING        TO         AGAINST                      END
             DESCRIPTION                OF PERIOD      EXPENSE     REVENUES     DEDUCTIONS    OF PERIOD
             -----------                ----------    ---------    ---------    ----------    ----------
<S>                                     <C>           <C>          <C>          <C>           <C>
Accounts Receivable Allowances:
  Year ended June 30, 1997............    $1,535       $  109        $582        $(1,033)       $1,193
  Year ended June 30, 1998............     1,193          220         556           (260)        1,709
  Year ended June 30, 1999............     1,709          408          51           (761)        1,407
Restructuring Reserve:
  Year ended June 30, 1998............    $   --       $7,349        $ --        $(5,934)       $1,415
  Year ended June 30, 1999............     1,415           --          --           (963)          452
</TABLE>

                                       48
<PAGE>   49

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
   EXHIBIT
    NUMBER                               DESCRIPTION
   -------                               -----------
<C>              <S>
3.1(1)           Certificate of Incorporation of Registrant as amended and
                 restated to date.
3.2(1)           By-laws of Registrant as amended to date.
4.1(2)           Preferred Shares Rights Agreement between the Registrant and
                 The First National Bank of Boston as Rights Agent dated
                 April 19, 1995.
10.1(1)(3)       1988 Stock Option Plan and forms of Incentive Stock Option
                 Agreements and Nonstatutory Stock Option Agreements, as
                 amended to date.
10.2(1)(3)(4)    1993 Directors' Stock Option Plan and forms of Option
                 Agreements, as amended to date.
10.3(1)(3)(4)    1993 Employee Stock Purchase Plan and forms of Agreements,
                 as amended to date.
10.4(1)(3)       401(k) Plan, as amended to date.
10.5(1)(3)       Summary of Executive Bonus Program.
10.6(1)(3)       Form of Directors' and Officers' Indemnification Agreement
                 with all of its Directors and Officers.
10.9(1)(5)       OEM Agreement dated March 9, 1993 between the Registrant and
                 Fuji Xerox Company, Ltd.
10.10(A)(1)(5)   Distributor Agreement dated June 6, 1990 between the
                 Registrant and Nissho Electronics Corporation.
10.10(B)(5)      Distributor Agreement dated June 6, 1990 between the
                 Registrant and Nissho Electronics Corporation, as amended on
                 July 29, 1997.
10.11(1)(5)      Agreement between the Registrant and Solectron Corporation
                 dated May 20, 1991, as amended on November 18, 1992.
10.12(1)         U.S. OEM Discount Agreement between the Registrant and Sun
                 Microsystems, Inc. effective as of August 18, 1988, as
                 amended by Addendum dated September 8, 1988 and Addendum
                 dated September 14, 1989.
10.13(1)         Source Code License between the Registrant and Sun
                 Microsystems, Inc. dated August 31, 1988, as amended on
                 April 30, 1991, February 11, 1992 and March 18, 1992.
10.14(1)         NFS Software Agreement between the Registrant and Sun
                 Microsystems, Inc. dated September 29, 1988.
10.15(6)(7)      Software Agreement between the Registrant and AT&T
                 Information Systems Inc. dated June 2, 1988, as amended by
                 Supplement Number 1, Supplement Number 2 dated August 5,
                 1988 and Supplement Number 3 dated August 10, 1990, as
                 amended on June 28, 1993.
10.16(6)(7)      Sublicensing Agreement between the Registrant and AT&T
                 Information Systems Inc. dated August 30, 1988, as amended
                 on June 28, 1993.
10.17(1)         Software Agreement between the Registrant and UNIX System
                 Laboratories, Inc. dated April 29, 1992.
10.18(1)         License Agreement with the Regents of the University of
                 California dated June 9, 1988, as amended by Addendum dated
                 October 21, 1988.
10.19(8)(9)      Intel Corporation Purchase Agreement between Intel
                 Corporation and the Registrant dated March 22, 1994.
10.20(10)        Warranty and Service Provider Agreement between the
                 Registrant and AT&T Global Information Systems dated April
                 15, 1994.
10.21(10)        SunSoft Technology License and Distribution Agreement
                 between the Registrant and SunSoft, Inc. dated December 17,
                 1993.
</TABLE>
<PAGE>   50

<TABLE>
<CAPTION>
   EXHIBIT
    NUMBER                               DESCRIPTION
   -------                               -----------
<C>              <S>
10.23(10)        Amendment No. 2 to Lease Agreement between the Registrant
                 and WHC-SIX Real Estate dated February 28, 1996.
10.24(10)        Interactive SPARC Software and Sublicensing Agreement
                 between Auspex Systems, Inc. and Interactive systems
                 Corporation, dated November 15, 1991.
10.25(11)        Lease Agreement by and Between South Bay/San Tomas
                 Associates and Auspex Systems, Inc. dated January 14, 1997,
                 for 2800 Scott Boulevard, Santa Clara facility.
10.26(11)        Lease Agreement by and Between South Bay/San Tomas
                 Associates and Auspex Systems, Inc. dated January 14, 1997,
                 for 2300, 2320, 2330 Central Expressway, Santa Clara
                 facility.
10.27(3)(12)     1997 Stock Option Plan and Forms of Incentive Stock Option
                 Agreements and Nonstatutory Stock Option Agreements, as
                 amended to date.
10.28(3)         1998 Non-Statutory Stock Plan and Form of Option Agreements.
10.29(13)        Form of Change of Control Severance Agreement, filed May 12,
                 1999.
10.30            Form of Change of Control Severance Agreement entered into
                 the form of the Company and Bruce N. Moore, President and
                 Chief Executive Officer, dated June 16, 1999.
10.31            Software Support Agreement between the Registrant and AT&T
                 dated July 10, 1997.
10.32            Software Licensing Agreement between the Registrant and AT&T
                 Corporation dated June 3, 1997, as amended on September 14,
                 1998.
10.33
10.34            Master Value Added Distribution Agreement between the
                 Registrant and Fuji Xerox Co. Ltd. dated May 21, 1997.
21.1             Subsidiaries of Registrant.
23.1             Consent of Arthur Andersen LLP, Independent Public
                 Accountants.
24.1             Power of Attorney (See Page 32).
27.1             Financial Data Schedule.
</TABLE>

---------------
 (1) Incorporated by reference to exhibits filed in response to Item 16(a),
     "Exhibits," of the Registrant's Registration Statement on Form S-1, as
     amended (File No. 33-60052), which was declared effective on May 11, 1993.

 (2) Incorporated by reference to Exhibit 1 filed in connection with the
     Registrant's Form 8-A which was filed on April 20, 1995.

 (3) Designates management contract or compensatory plan arrangements required
     to be filed as an exhibit of this Annual Report on Form 10-K pursuant to
     Item 14(c).

 (4) Incorporated by reference to exhibits filed in connection with Registrants'
     Proxy Statement for the 1997 Annual Meeting of Stockholders, which was
     filed on October 14, 1997.

 (5) Confidential treatment granted by order effective May 11, 1993.

 (6) Incorporated by reference to identically numbered exhibits filed in
     connection with Registrant's Form 10-K for the fiscal year ended June 25,
     1993 (File No. 33-60052).

 (7) Confidential treatment granted by order effective January 14, 1994.

 (8) Incorporated by reference to Exhibit 10.1 filed in connection with
     Registrant's Form 10-Q for the quarter ended March 31, 1994 (File No.
     0-21432), which was filed on May 16, 1994.

 (9) Confidential treatment granted by order effective July 7, 1994.

(10) Incorporated by reference to exhibits filed in connection with the
     Registrant's Form 10-K for the fiscal year ended June 30, 1994 (File No.
     0-21432), which was filed on September 28, 1994 and confidential treatment
     granted by order effective December 5, 1994.
<PAGE>   51

(11) Incorporated by reference to exhibits filed in connection with Registrant's
     Form 10-K for the fiscal year ended June 30, 1997 (File No. 0-21432), which
     was filed on September 24, 1997.

(12) Incorporated by reference to exhibits filed in connection with Registrants'
     Proxy Statement for the Special Meeting of Stockholders held on April 23,
     1998 which was filed on March 20, 1998.

(13) Incorporated by reference to exhibits in connection with Registrant's Form
     10-Q for the quarter ended March 31, 1999, which was filed on May 12, 1999,
     Form of Change of Control Severance Agreement entered into the form of the
     Company and each of:

        -- Steve Aleshire, Vice President of World Wide Customer Services

        -- R. Marshall Case, Vice President of Finance and Chief Financial
           Officer

        -- John S. Coviello, Vice President of Research and Development

        -- Dorothy Krier, Vice President of Human Resources

        -- John P. Livingston, Vice President of Operations

        -- Fred J. Wiele, Vice President of Marketing, dated November 25, 1998