<PAGE>   1
 
================================================================================
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             ---------------------
 
                                   FORM 10-K
                       FOR ANNUAL AND TRANSITION REPORTS
                    PURSUANT TO SECTIONS 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
 
<TABLE>
<S>               <S>
   (MARK ONE)
      [X]         ANNUAL REPORT PURSUANT UNDER SECTION 13 OR 15(D)
                  OF THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED JUNE 30, 1997

                                               OR

      [ ]         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
                  OF THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE TRANSITION PERIOD FROM TO
</TABLE>
 
                        COMMISSION FILE NUMBER: 0-24544
                             ---------------------
                             CYBERGUARD CORPORATION
             (Exact name of Registrant as specified in its charter)
 
<TABLE>
<S>                                       <C>
                FLORIDA                         65-0510339
    (State or other jurisdiction of          (I.R.S. Employer
     incorporation or organization)       Identification number)

     2000 WEST COMMERCIAL BOULEVARD
               SUITE 200
        FORT LAUDERDALE, FLORIDA                  33309
(Address of principal executive offices)        (Zip Code)
</TABLE>
 
      Registrant's telephone number, including area code:  (954) 958-3900
 
       Securities Registered Pursuant to Section 12(b) of the Act:  NONE
 
 Securities Registered Pursuant to Section 12(g) of the Act:  COMMON STOCK, PAR
                              VALUE $.01 PER SHARE
 
     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or 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 [X]  No [ ]
 
     The aggregate market value of voting stock held by nonaffiliates of the
Registrant was approximately $77,014,314 (based upon the closing sale price of
$9.88 per share on the Nasdaq National Market System on September 23, 1997).
 
     As of September 23, 1997 8,015,557 shares of the Registrant's $0.01 par
value Common Stock were outstanding.
 
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<PAGE>   2
 
                                     PART I
 
ITEM 1.  BUSINESS
 
OVERVIEW
 
     CyberGuard Corporation (the "Company") is a leading Internet and Intranet
security solutions provider to Fortune 1000 and other companies and Government
agencies worldwide. The Company's CyberGuard firewall and related security
products comprise a software suite of products that are designed to protect the
integrity of electronic data and customer applications from unauthorized
individuals and digital thieves. The Company extended its product offering with
the April 1997 formation of its TradeWave subsidiary. TradeWave provides digital
certificate authority products and services to safeguard electronic commerce
applications.
 
     The Company is the former Computer Systems Division of Harris Corporation
("Harris") and was incorporated in August 1994 for the purposes of consolidating
such division's Real-time and trusted computer businesses in a separate
corporate entity. On October 7, 1994, Harris effected a tax-free distribution,
on a pro rata basis to its shareholders, of all of the Company's issued and
outstanding capital stock. In May 1995 the Company separated its business
operations into two units: the Real-time Computing Business and the Trusted
Systems Division, which developed network security products. Effective June 30,
1996, the Company sold to Concurrent Computer Corporation ("Concurrent") the
assets of its Real-time computer business. With the completion of this
transaction, the Company is focused solely on the business of developing and
marketing security solutions which include firewall products, authentication
products, content/virus scanning products, certificate authority solutions and
comprehensive service and support.
 
     Unless otherwise indicated, references in this Item 1 to the "Company" with
respect to periods before the Real-time Sale (described below) are to the
Company's Trusted Systems Division.
 
     The Company expanded its security products and service offering with the
formation of its TradeWave electronic commerce subsidiary. The TradeWave
subsidiary, located in Austin, Texas, began operations in April 1997 following
the completion of the purchase of the related business assets from Sun River
Corporation. The Company's TradeWave subsidiary specializes in electronic
commerce solutions and operates OASIS, one of the largest electronic
commerce/certificate authority applications using the Internet. OASIS supports
the trading of excess electrical capacity for the public utility industry and
has over 400 customers trading in excess of $25 billion annually.
 
     Information in this report contains forward looking statements that involve
risks and uncertainties. The Company's actual accomplishments and results may
differ significantly from those discussed in the forward looking statements. See
Item 7, "Management's Discussion and Analysis" for a more complete statement of
information regarding forward looking statements.
 
INDUSTRY BACKGROUND
 
     CyberGuard competes in the network security and electronic commerce
markets. Network security has historically been the focus of primarily those
businesses in security-sensitive industries such as healthcare, financial
services, insurance, telecommunications, government and others. Businesses in
these industries historically maintained a secure network environment by
isolating their networks privately and allowing only authorized users to connect
to their privately managed networks.
 
     In recent years, organizations have increasingly begun using the TCP/IP
protocol for their enterprise networks or using the Internet as an inexpensive
alternative to establishing their own wide area networks. An enterprise network
that uses the TCP/IP protocol is called an "intranet." An intranet can extend
internal information systems and enterprise applications to geographically
dispersed facilities, remote offices and mobile employees using personal
computers running on incompatible operating systems. Using any "web browser," an
employee can view electronic information notwithstanding the incompatible
operating systems utilized by the employee and the information source. In many
cases, different departments within the same organization can create "home
pages" used to share information among coworkers. The increasing ability to
 
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<PAGE>   3
 
interconnect with disparate enterprise units has increased the use of mobile or
"nomadic" computing by which users connect to enterprise networks from remote
offices and while traveling. The increasing use of the non-proprietary TCP/IP
network protocol for internal network communications is due, in large part, to
(i) the widely distributed nature of such protocol, (ii) the fact that TCP/IP
network protocol support is available on nearly all types of computer systems
currently manufactured, and (iii) cost considerations.
 
     As popularity and use of the Internet and intranets for business
applications has increased, companies have become increasingly concerned that
data collected and stored electronically by organizations might be vulnerable to
access by unauthorized users, including certain of a company's own employees.
This concern is due in part to the fact that the TCP/IP protocol is particularly
susceptible to penetration, and, as a result, interest in and purchases of
firewall software to protect enterprise networks have increased. In February
1996, International Data Corporation ("IDC") estimated that the worldwide
firewall market would grow from $160 million in 1995 to an estimated $987
million in 2000.
 
     The Company believes that more than half of the firewall software and
services market is related to the use of firewalls within intranets. This is
because each intranet subnet can use a firewall to protect its data from the
numerous other subnets of the same intranet, whereas firewalls for Internet
access may protect only a small number of Internet connections, often only one.
The intranet-related firewall market is generally comprised of large, often
multinational corporations that typically segment their internal networks into a
number of subnets. The Company believes that worldwide demand for firewall
products will exceed the market growth rates expected in the United States.
 
     The following elements are principal means for protecting organizations
from digital mischief. These elements require substantial integration and
interoperability to smoothly implement an organization's security policy.
 
     Security Policy.  Security products will not do much good unless they
follow a well thought enterprise security policy. Creating a policy requires
cooperation between information technology staffers, business unit managers and
senior executives. Generally, a policy should follow one of two philosophies.
The first is, "That which is not expressly prohibited is permitted." The second
is, "That which is not expressly permitted is prohibited." The former is less
intrusive but will not provide maximum protection. The latter requires
discussion and support from management because it affects workflow of the entire
organization -- all the way down to rules for locking offices and filing
cabinets, and discarding waste paper. The use of security technology such as a
firewall generally is associated with the second philosophy.
 
     LAN Security.  Popular local area network operating system software
provides many security options -- many of which are seldom used. Network
managers can immediately improve protection by implementing security features
such as log-in restrictions on specific workstations, days of the week and hours
of the day. More stringent password policies also create extra barriers, such as
increasing the minimum password length and forcing regular password changes.
Another overlooked area is share-level security rarely used with appropriate
precision. Rigorous application of LAN security features can bolster protection
from internal breaches.
 
     Firewalls.  Firewalls provide access control. They usually are aimed at
preventing external security breaches, but also can provide additional internal
security for corporate intranets. Firewalls are a combination of software and
hardware, usually consisting of a fast workstation located outside the LAN but
inside the router link to the Internet. To be effective, all network traffic
must pass through the firewall, whether going to the outside world or entering
the LAN. The firewall permits only authorized traffic to pass either way. And
the firewall must be impervious to unauthorized penetration. Premium firewalls
run on special versions of the UNIX operating system, although Windows NT-based
versions are starting to see some use. Some firewalls also support ancillary
special features, such as Web URL filtering.
 
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     Firewall features and the underlying operating system of the firewall
generally determine the level of security which the firewalls provide. Presented
below is the security spectrum of firewall products available today.
 



                                     CHART




 
Generally, these technologies build on each other so that the most secure
technologies can also perform the functions of the less secure ones and,
depending on price and other factors, can serve markets for such products.
 
     Encryption.  Encryption is a data-scrambling technique that prevents
information from being read by unauthorized people. It is used to protect data
packets during transmission from one point to another. Encryption can be
implemented in two ways: from the PC that originates the data, or from the
server or Internet connection device that passes the data outside the LAN.
Protected data is decrypted by a reciprocating destination LAN server or PC.
Digital key technology is a common means of implementing encryption. A digital
key bearing a secret value is used to encrypt data. Decryption can occur only by
someone who possesses the same key -- much like secret agents passing coded
messages from behind enemy lines. Encryption is a common security technique used
to protect Virtual Private Networks (VPNs) and standard intranets.
 
     Anti-Virus.  A computer virus modifies programs and data, sometimes in an
innocuous manner and sometimes with malicious intent. Some viruses erase
applications and data from systems. Anti-virus protection software can be run
from individual workstations or from a network server or firewall. This software
scans incoming files and attachments to E-mail messages to protect PCs and the
LAN from infection.
 
     Identification and Authentication.  On the Internet, no one can see who is
using the system. Digital identification technology is used to identify who you
are before you start using an information system. Authentication is the means
for proving to the system that you actually are the person you claim to be. This
is similar to the process of signing a check, then showing a driver's license
and a major credit card to a store clerk. Digital identification and
authentication employs passwords, keys, physical tokens, badges and smart
cards -- even fingerprints or voiceprints in advanced systems. Digital
identification and authentication are particularly important for securing
electronic commerce which mostly operates outside the protection of a corporate
intranet's security infrastructure.
 
     Certificate Authority.  Applications requiring absolute user identification
employ digital signatures managed by a trusted organization called a certificate
authority. Digital signatures are locked and unlocked with electronic keys, and
filed in a directory of certificates that identify users owning the keys. A
trusted organization called a certificate authority manages and distributes
these certificates with their corresponding keys. A certificate authority can be
an in-house department or a third-party service provider. It is responsible for
the complex process of registering new users, securing Web servers, distributing
and updating private keys and certificates, recovering lost or forgotten keys
and maintaining audit trails. A certificate authority is required for large
electronic commerce applications such as the Open Access Same-time Information
System (OASIS), which underpins deregulated trade of electric power transmission
between more than 400 electric utilities and cooperatives throughout the United
States.
 
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<PAGE>   5
 
THE CYBERGUARD SOLUTION
 
     The Company's secure operating system and secure networking software
technologies allow it to position the CyberGuard product suite to address the
broad range of customer requirements in the commercial network security market.
Generically speaking, a firewall consists of a firewall application, an
operating system and networking software, each playing an important role in the
receipt and processing of data through the firewall. In standard network
security products, only the firewall application has been designed to resist
penetration by an attacker, leaving the operating system and network software
unsecure. Therefore, an attacker can penetrate a standard firewall through the
unsecure operating system or networking software. The Company's CyberGuard
Firewall uses a secure operating system and secure networking software to
prevent network penetration by requiring network communication to pass through
the firewall application.
 
     The graphic presentation below depicts the three major components of a
firewall system and demonstrates the fundamental security deficiency of an
application-only solution as compared to the CyberGuard Firewall.
 





                                     CHART






 
     Both the secure operating system and secure networking software are based
on multi-level security ("MLS"), that is, they restrict access to information
based on the sensitivity of the information and the access authorization of
system users. In an MLS system, a user cannot read data that has been labeled at
a level more sensitive than the security level given the user and cannot create
or modify data having a different security label. The operating system and
programs reside at a protected level that cannot be read or modified by network
users.
 
     The Company's secure operating system and networking software have been
rated by the Network Computer Security Center ("NCSC") at a B1 level. The NCSC
ratings range from D (systems with minimal security) to A1 (systems with assured
security). Certain agencies of the United States government have incorporated
the NCSC ratings into their procurement requirements, and commercial users,
while not having specific NCSC-rating requirements, often look to an NCSC rating
as an indication of the product's proven reliability. The Company's CyberGuard
Firewall is the only commercially available firewall built on an integrated
operating system and networking software with a rating as high as B1. These
components have also been successfully evaluated by the Centre d'Electronique de
l'Armement ("CELAR") in France and United Kingdom against the European
Information Technology Security Evaluation Criteria ("ITSEC"). The Company has
completed a two-year evaluation process with Logica U.K. and has received the E3
rating for its products which, in the Company's opinion, has increased the
marketability of the CyberGuard Firewall in
 
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<PAGE>   6
 
international markets. Logica U.K. is an international industry-sponsored
agency. Additionally, the Company has completed a similar E-3 evaluation process
with the Australian Defense Security Directorate (DSD) and has been granted the
E-3 level for that country.
 
     The Company's CyberGuard Firewall also addresses the high performance end
of the commercial network security market because the underlying operating
system and networking software were designed for demanding security
environments. The Company's secure operating system is designed to function as a
high performance, Real-time operating system able to process high levels of
throughput without time-consuming failures. This same operating system
technology underlies the Company's secure networking software and firewall
technology.
 
     The CyberGuard Firewall product is the basis for the Company's ability to
offer a complete suite of enterprise-wide security products including mobile
security applications, secure data base application, and network access control
filters.
 
STRATEGY
 
     The markets for network security products, systems and services continues
to grow at rapid rates. Strategically, CyberGuard believes that it has
established a core competence in the area of firewall application and related
secure operating systems and network programs. This competency should be
extensible into the related areas of authentication and encryption, in the form
of both products and services. The process for planning the extension of its
core competency and establishing the strategic direction for the Company
consists of identifying the markets the Company chooses to serve, the products
and services appropriate for those markets, and the distribution channels
required to deliver such products and services to such markets. Finally, the
overall business case for each possible extension or new market opportunity
remains the ultimate criteria for entry into new markets. Each of these
strategic process steps is briefly summarized below:
 
          The Markets CyberGuard Chooses to Serve.  The focus of the Company
     begins with its customers and determining which markets its chooses to
     serve. Market research, released in January 1997 by the United Bank of
     Switzerland (UBS) indicates that from 1995 through the year 2000, there is
     a projected revenue growth of 44% in the firewall market, which is
     currently the market for the Company's products. This is the core business
     area for the Company which it intends to continue to serve. The market
     research further indicates that the rapidly growing related product areas
     of authentication and encryption, which further extend the level of
     security provided to our customers by the firewall product, offer new
     business opportunities for CyberGuard. The Company plans to address these
     market opportunities as well.
 
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                CYBERGUARD -- ELECTRONIC INFOSEC SOFTWARE MARKET
 
CHART
 
CHART
 
CHART
---------------
 
Source: UBS Securities LLC January 1997
 
          Core Product Transition.  CyberGuard's core firewall business has been
     based upon the CyberGuard Firewall Release 2 product line which employs a
     proprietary hardware platform. A key part of the Company's strategy to
     improve the overall profitability of the business was the October 1996
     introduction of its CyberGuard Firewall new release 3 product line based
     upon the Intel(TM) Personal Computer (PC) platform. This product line
     offers the customer a broader choice of PC hardware platforms with better
     prices. Additionally this product line allows CyberGuard to transition to a
     software and services company; and provide significantly improved profit
     margins In the first quarter of introduction, Release 3 products accounted
     for nearly 40% of total unit sales. During the period January 1, 1997 to
     June 30, 1997, the Release 3 product was recognized with eight separate
     "best of breed awards" from major trade press evaluations. Most important
     was the positive impact on the Company's gross margin since introduction of
     the CyberGuard Firewall Release 3 into the CyberGuard product line (see
     Management and Discussion Analysis). The Company intends to further extend
     its core firewall product line to include intranet products with the
     introduction of a Microsoft NT(TM) based
 
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     CyberGuard Firewall. This product would be developed with specific product
     attributes such as proxies which support various work group environments to
     better position to address the Intranet market.
 
          Extending Distribution Channels.  CyberGuard has continued to focus on
     matching the company's distribution channels to the markets it serves and
     in particular to those vertical industries, such as finance, healthcare and
     communications, that account for a significant amount of the total dollars
     spent on network security products and services. On a world-wide basis, the
     Company's strategy is to increase the amount of product provided to the
     market through the reseller channel. Two key reseller relationships were
     entered into during the past year with Data General Corporation and with
     Tech Data Corporation. The Data General relationship includes their
     "pre-loading" the CyberGuard Firewall product on a Data General AViiON
     personal computer and offering the combined product to the market place as
     the "Firewall in a box" integrated system. Tech Data, with more than 70,000
     resellers worldwide, has agreed to distribute the CyberGuard product line
     beginning with the CyberGuard NT firewall.
 
          Strategic Corporate Initiatives.  The UBS market research indicates
     that the future market direction for the network security industry includes
     the growing demand for products and services associated with the
     authentication and encryption portions of network security. During this
     past year, CyberGuard acquired the assets of TradeWave, formerly an
     operating division of SunRiver Corporation. TradeWave develops and sells a
     suite of authentication and encryption products and services. TradeWave
     also operates one of the largest electronic commerce networks in the United
     States referred to as the OASIS network. The OASIS application is
     associated with the electric power utility industry and is projected to
     conduct more than $25 billion worth of transactions of this network in
     calendar year 1997. This acquisition is consistent with the market
     direction of the network security industry and allows CyberGuard rapid
     entry into this developing strategic market.
 
PRODUCTS AND SERVICES
 
  Products
 
     The Company's products are used to secure access to distributed electronic
data and to safeguard the integrity of electronic commerce applications. The
products offered by the Company include the CyberGuard Firewall, the TradeVPI
suite of software products developed by the Company's TradeWave subsidiary and
related third party products offered by the Company with its strategic partners.
Additional information regarding each of these products is presented below.
 
     CyberGuard Firewall.  The CyberGuard Firewall is built upon the Company's
B1-evaluated secure operating system and secure networking software. The
CyberGuard Firewall includes the following features:
 
          Packet Filtering.  The CyberGuard Firewall implements packet filtering
     technology allowing the firewall to expressly permit or deny connections
     using criteria based upon source and destination host or network and the
     type of network service being requested.
 
          Security Auditing and Alarms.  The CyberGuard Firewall incorporates a
     built-in auditing and alarm function that permits administrators to review
     a chronological record of system activities allowing the reconstruction of
     security sensitive activities. The CyberGuard Firewall can be configured to
     dynamically process the security auditing information and, in Real-time,
     take explicit actions in response to actions deemed security sensitive or
     possible attempts to attack the network or firewall.
 
          Application Proxies.  The CyberGuard Firewall supports a number of
     security enhanced application proxies for many network services, including
     remote login ("rlogin"), terminal emulation ("Telnet"), file transfer
     protocol ("FTP"), hypertext transport protocol ("HTTP") (used with the
     WWW), network news transport protocol ("NNTP"), simple mail transport
     protocol ("SMTP"), and simple network management protocol ("SNMP").
 
          Remote Administration.  The CyberGuard Firewall supports the ability
     to remotely monitor and administer a firewall from a "Network Operations
     Center." Using this remote administration capability, a
 
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     CyberGuard Firewall can be managed from a remote site as if the system
     administrator were physically located with the firewall.
 
          Network Address Translation.  The CyberGuard Firewall can be
     configured to translate all internal addresses to the firewall's network
     address. From the Internet, the firewall appears to be the only machine
     connected, reducing the risk of possible penetration attacks against the
     internal network.
 
          Graphical User Interface.  The CyberGuard Firewall provides a
     Motif-based graphical user interface, or "GUI," designed to facilitate
     system configuration and administration. A GUI is generally considered
     easier to use than the traditional command-line interface.
 
          Split Domain Name Service.  The CyberGuard Firewall can function as a
     Domain Name Service ("DNS") server. With Split DNS, the network responds to
     queries differently depending on their source. For example, responses to
     requests from the Internet might contain only the CyberGuard Firewall
     information; responses from internal requests might contain a complete list
     of hosts.
 
          Virtual Private Networking.  The CyberGuard Firewall supports a
     variety of Virtual Private Networking ("VPN") products, including the
     SafeNet product offered jointly by the Company and by Information Resource
     Engineering, Inc. ("IRE"). VPN products provide a mechanism for
     establishing a logically separate network between multiple CyberGuard
     Firewall systems. This logical network supports fully encrypted
     communication among the machines of the network. PVN supports
     high-performance encrypted communication between CyberGuard Firewalls,
     distributed SafeNet/LANs and any of three remote user options.
     Additionally, centralized security management of all encryption and
     firewall products is offered with the option of outsourcing management
     functions.
 
          High Availability CyberGuard Firewall.  The CyberGuard Firewall
     supports an optional High Availability configuration, which combines two
     firewalls to operate as a single logical unit. If the primary firewall
     should fail, the secondary firewall takes over to provide nearly continuous
     network connectivity. For critical connections, such as electronic commerce
     sites, this High Availability configuration minimizes the risk of loss
     network connectivity.
 
     Originally introduced in October 1994, the CyberGuard Firewall was a
combined hardware/software solution which ran exclusively on the Concurrent
Nighthawk UNIX platform. In October 1996, the Company introduced the version 3
CyberGuard Firewall which is based on the SCO UNIXWare(TM) operating system. The
version 3 CyberGuard product is a "software only" solution that runs on all
industry-standard Intel(TM) pentium-based platform from leading suppliers such
as IBM, Hewlett Packard, Compaq and Data General. The recently introduced
version 4 CyberGuard Firewall includes new product features such as centralized
firewall management and embedded virus checking.
 
<TABLE>
<CAPTION>
                                                       DATE OF
                                                        FIRST
PRODUCT                                                SHIPMENT               DESCRIPTION
-------                                                --------               -----------
                                         (CALENDAR QUARTERS)
<S>                                                    <C>       <C>
CyberGuard Firewall:
  Version 1..........................................   Q4 1994  Commercial firewall built on an evaluated
  Version 2..........................................   Q1 1995    secure operating system and secure
  Version 3..........................................   Q4 1996    networking software. Features included
  Version 4..........................................   Q3 1997    packet filtering, security alarms,
                                                                   auditing and application proxies.
Graphical User Interface.............................   Q1 1996  Point-and-click administration
Split Domain Name Service............................   Q1 1996  Hides internal host names to
                                                                   complicate hacker attempts
High Availability CyberGuard Firewall................   Q1 1996  CyberGuard feature designed to ensure
                                                                   minimal network downtime
Virtual Private Networking...........................   Q4 1995  Encrypted firewall-to-firewall link
WebTrack URL Blocker.................................   Q1 1996  Monitors and controls access to
                                                                   selected WWW sites
</TABLE> 

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<TABLE>
<CAPTION>
                                                       DATE OF
                                                        FIRST
PRODUCT                                                SHIPMENT               DESCRIPTION
-------                                                --------               -----------
                                         (CALENDAR QUARTERS)
<S>                                                    <C>       <C>
Token Authentication Devices:
  Enigma Logic.......................................   Q3 1995  Authenticates network users through use
  Axent Technologies.................................   Q1 1997    of token authentication cards in place
  Security Dynamics..................................   Q2 1996    of static password
Informix Online/Client Server Systems................   Q4 1992  Secure database tool for server and
                                                                   electronic commerce applications
CX/SX Secure Operating System........................   Q2 1989  B1-evaluated secure operating system
LAN/SX Secure Networking Software....................   Q3 1990  B1-evaluated secure networking software
Centralized Management...............................   Q3 1997  Allows multiple firewalls to be
                                                                   administered and monitored from a
                                                                   central location
Virus scanning.......................................   Q3 1997  Scans packets and files at the
                                                                   Firewall to detect computer viruses
</TABLE>
 
     TradeVPI.  The TradeVPI product suite from TradeWave provides a software
framework for secure electronic commerce transactions: encryption,
authentication, integrity, non-repudiation and authorization. The current
TradeVPI product family includes:
 
<TABLE>
<CAPTION>
                                                       DATE OF
                                                        FIRST
PRODUCT                                                SHIPMENT               DESCRIPTION
-------                                                --------               -----------
                                         (CALENDAR QUARTERS)
<S>                                                    <C>       <C>
Trade VPI............................................   Q2 1997  TradeAgent Client software for Web
                                                                   browsers, TradeAgent Server
                                                                   software for Web servers, and
                                                                   TradeAccess Control Server software
                                                                   for certificate-based access
                                                                   management
TradeAgent SDK.......................................   Q2 1997  Software developer's toolkit to
                                                                   support secure programmatic access
                                                                   without a browser or interactive
                                                                   user
TradeAuthority.......................................   Q2 1997  Third party certificate authority.
                                                                   Online registration and approval
                                                                   according to an organization's
                                                                   security policies
</TABLE>
 
     Third Party Products and Services.  Through strategic alliances, the
Company offers certain network security products for use with the CyberGuard
Firewall. These products include:
 
          WebTrack URL Blocking.  Together with its CyberGuard Firewall, the
     Company offers WebTrack, a product developed by Webster Network Strategies
     (a division of Secure Computing). WebTrack is a software product that
     monitors and controls access to non-business related WWW sites such as
     pornography, hate speech, on-line shopping, job searching and sports. The
     Company offers WebTrack through a strategic alliance with Webster Network
     Strategies.
 
          Token Authentication Products.  With the CyberGuard Firewall, the
     Company offers a number of third-party token authentication devices,
     including those offered by the Company through alliances with Axent
     Technologies, Security Dynamics and Enigma Logic, among others. Token
     authentication devices provide for an alternative to the use of static
     passwords for user authentication, resulting in reduced likelihood of
     system penetration through the reuse of an old password.
 
          Informix Online/Secure Client Server Systems.  The Company, through a
     strategic alliance with Informix, Inc. ("Informix"), offers the Informix
     Online/Secure B1-evaluated secure relational database management system
     ("Online/Secure"). Online/Secure extends the Company's security policy into
     the
 
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     relational database product technology of Informix, providing a fully
     secure, high-performance, multi-level secure database environment for
     secure transaction processing and secure database applications.
 
          Secure Operating Systems.  The Company offers secure operating systems
     based on the Intel Pentium and Motorola RISC technologies. The Company's
     CX/SX operating system is a multi-threaded, fully preemptive operating
     system for high performance, secure UNIX-based applications. The Company's
     CX/SX operating system has received rigorous evaluation from the NCSC in
     the United States and CELAR in France. The NCSC performed an evaluation of
     the Company's CX/SX operating system and subsequently granted it a B1
     security rating. The Company anticipates it will submit its latest secure
     operating system release based upon UnixWare 2.0, as well as future
     releases for secure Windows NT-based systems, for similar U.S. and
     international-based evaluations.
 
          Secure Networking Software.  The Company's LAN/SX product is a secure
     network software product that provides a multi-level secure interface
     between CX/SX and a heterogeneous networking environment. The NCSC
     performed an evaluation of the Company's LAN/SX operating system and
     subsequently granted it a B1 rating.
 
  Services
 
     System Integration Services.  The Company offers a number of systems
integration services, both directly and through strategic alliances, with the
purpose of offering customers network security expertise for their particular
networking environment. In addition, the Company markets several specific types
of pre-packaged consulting services relating to, among others, penetration
testing, Internet gateway security and technical evaluation, system security,
corporate data security policies and management control, network security policy
and management control, Internet security policy and management controls,
network security analysis, and information security training.
 
     Key Management Services.  The Company has announced and is currently
bidding service-type arrangements to outsource the setup and sustaining
operations for customers who wish to employ Virtual Private Networks and
certificate authorities. The Company will manage network security products such
as encryption tokens and firewalls as a turn-key option through the partnerships
with IBM, IRE and other potential third party providers.
 
PRODUCT DEVELOPMENT
 
     The following table shows the significant products and product enhancements
that the Company expects to introduce during the last quarter of calendar year
1997 and during calendar year 1998.
 
<TABLE>
<CAPTION>
PRODUCT                                                   INTRODUCTION                 DESCRIPTION
-------                                                -------------------             -----------
                                            (CALENDAR QUARTERS)
<S>                                                    <C>                   <C>
CyberGuard Intranet Firewall.........................        Q4 1997         Windows NT based firewall with
                                                                               intranet-specific features
Integrated link-level encryption.....................        Q1 1998         Provides secure communications
                                                                               from firewall-to-firewall and
                                                                               remote user-to- firewall.
                                                                               This effort will integrate
                                                                               CyberGuard firewall and
                                                                               TradeWave Trade VPI
                                                                               technologies
</TABLE>
 
                                       10
<PAGE>   12
<TABLE>
<CAPTION>
PRODUCT                                                   INTRODUCTION                 DESCRIPTION
-------                                                -------------------             -----------
                                            (CALENDAR QUARTERS)
<S>                                                    <C>                   <C>
ITSEC Evaluated Firewall.............................        Q2 1998         ITSEC Evaluation of Windows NT
                                                                               and UNIXWare firewalls
Firewall integration with B2 operating system........        Q2 1998         Firewall product which is
                                                                               integrated with an operating
                                                                               system which has received a
                                                                               "B2" evaluation from the NCSC
NT based Internet Firewall...........................           1998         Microsoft NT based firewall
                                                                               with Internet features similar
                                                                               to the UNIX-based firewall
Browser-based administration.........................           1998         Firewall administration via
                                                                               Netscape/Microsoft Explorer
                                                                               based browsers.
</TABLE>
 
     The expected dates of introduction in the above table are forward looking
statements and are based on certain assumptions, including certain assumed
levels of staffing and capital resources, contractual arrangements with
suppliers, customers or strategic allies, market conditions, overall product
development costs and related sales and marketing expenses, the nature of
available competing and complementary technologies and products, and other
assumptions. Should these assumptions change or prove to be inaccurate, or
should the Company's plans change due to certain unforeseen factors, the
development of such products may be delayed or discontinued.
 
     Development of new products and features is performed by the Company's
internal engineering staff and through third-party licensing. The Company has 45
employees devoted to product development and expects to increase this number
modestly during fiscal year 1998. The Company supplements the development staff
from time to time with contract engineers as needed to meet product demands in
the market. For the fiscal year ended June 30, 1997, the nine-month period ended
June 30, 1996 and the fiscal years ended September 30, 1995 and June 30, 1994,
the Company spent $4.7 million, $2.9 million and $1.5 million and $1.6 million,
respectively, on research and development, an equivalent of 30%, 40%, 31%, and
18% of total sales during such periods, respectively. These amounts include
software development costs that have been capitalized during such periods.
 
JOINT PRODUCT DEVELOPMENT AND STRATEGIC ALLIANCES
 
     In July 1996, the Company entered into an agreement with Information
Resource Management Inc. ("IRE") of Baltimore, Maryland to jointly develop and
market a family of security products for VPN applications on the Internet. VPN's
offer a secure, cost-effective alternative to private leased communication
lines. This suite of products, offered under the Safenet/Enterprise name, first
shipped in December 1996 and is currently marketed and sold through the direct
sales forces and reseller partners of each company. The Company believes the
Safenet/Enterprise products offer advantages in the cost and implementation of
processing secure encrypted information as a turnkey security solution.
 
     In December 1996, CyberGuard and Santa Cruz Operations (SCO), the world's
largest supplier of UNIX server and host applications, announced a strategic
joint marketing agreement that allows the two companies to market the CyberGuard
Firewall to SCO's premier resellers and major accounts worldwide. SCO's premier
resellers consist of over 100 top resellers who specialize in UNIX application
software integration and training. Since January 1997, the Company has signed
several of the SCO premier resellers who actively market and/or recommend the
products of both CyberGuard and SCO.
 
     In June 1997, the Company and Data General Corp. entered into a joint
development and marketing agreement to offer the CyberGuard Firewall on Data
General's AViiON line of network servers. As part of the agreement, Data General
announced its SECURELiiNE product offering which includes a preconfigured
hardware/software "firewall in the box" solution featuring the CyberGuard
Firewall product. This product is expected to be marketed through Data General's
direct sales force and authorized reseller channels. Another aspect of the Data
General agreement calls for Data General to include CyberGuard's NT-based
Firewall into
 
                                       11
<PAGE>   13
 
the SECURELiiNE offering following its introduction which is expected in Q4 of
calendar 1997. Finally, under the development portion of the agreement, the
Company has committed to port its CyberGuard Firewall product to Data General's
DG/UX "secure" operating system which is currently being evaluated for B-2
certification by the NCSC.
 
     To complement CyberGuard Firewall product sales, the Company offers
consulting and security products through a series of strategic alliances with
prominent organizations. The Company has formed alliances with several
consulting partners world-wide, including with EG&G, Inc. and Coopers & Lybrand
Consulting since 1995 and with Coopers & Lybrand L.L.P. since February 1996.
Consulting services include network and on-site analysis services, network
penetration testing, security policy and management control, migration planning
and security training.
 
     The Company has alliances for the purpose of reselling the Company's
products with several strategic partners, including BTG Inc. and Electronic Data
Systems Corp. ("EDS"). The Company has additional strategic resellers outside
the United States, which include Nissin Electric Co., Ltd., and Hucom, Inc.
(Japan), Concurrent Computer Company (Russia) and QPSX Communications Limited, a
subsidiary of Australia's Telstra Corporation.
 
     The Company has also entered into product-related strategic alliances with
Axent Technologies Inc., Security Dynamics, Inc., Entrust and PC Security Ltd.
to offer a variety of value-added products to its CyberGuard Firewall and
TradeVPI family of products. In March 1996, the Company announced a strategic
alliance with Webster Network Strategies to provide the WebTrack Internet
monitoring and blocking service on the CyberGuard Firewall. In June 1997, the
Company announced a strategic alliance with Elia Shim Inc. to include its virus
scanning software engine as a standard feature for CyberGuard Firewall products.
The Company also has strategic alliances with Informix, Inc. and Oracle
Corporation to provide database or database proxy support on the Company's
Firewall and Secure Server products. As a charter member of the IBM Commerce
Print Program, the Company's TradeWave subsidiary has partnered successfully
with IBM. Today the two companies jointly support the certificate authority
processing for the OASIS Program.
 
     The Company is actively seeking additional strategic alliances for product
development and sales and marketing purposes. The Company expects such alliances
to contribute to efforts to develop additional products or enhancements to its
existing product offerings, particularly those relating to encryption, token
authentication and virus detection. The Company is also actively pursuing sales
and marketing alliances, particularly with value added resellers and
distributors, in order to expand the geographic distribution of the Company's
products.
 
CUSTOMERS AND MARKETS
 
     End-users of CyberGuard products include commercial businesses, government
agencies, public-utility consortiums, and educational institutions. In most
cases, CyberGuard supplies its product to authorized resellers, distributors,
business partners, or system integrators who ultimately sell to and support the
end-users. The Company in turn supports these reseller channels which are
marketed by the Company's direct sales force. The Company's current and
prospective commercial customers include medium to large domestic and
multinational companies that routinely create and store proprietary and/or
highly sensitive information which is accessible via corporate networks
including Intranets and Extranets (wide area networks). These customers are
likely to consider network security and network throughput performance as
decisive factors in their procurement decisions. Target markets for the
Company's products include financial institutions, financial news services,
insurance companies, health care institutions and companies who market
electronic commerce applications to businesses and consumers.
 
     For the year ended June 30, 1997 sales to Hucom Inc., a Japanese reseller
of CyberGuard product, accounted for 11% of the total revenues of the Company.
No other single customer accounted for more than 10% of sales for the current
fiscal year. See note 19 of Notes to the Company's Consolidated Financial
Statements. The loss of Hucom as a customer could have a material adverse effect
on the Company's business, financial conditions and results of operations.
 
                                       12
<PAGE>   14
 
Sales of CyberGuard Firewalls and related products include government-related
customers, but are sold on the same terms and conditions as to
non-government-related commercial customers. During the fiscal years ended June
30, 1997, June 30, 1996 and September 30, 1995 sales of CyberGuard Firewalls and
related products to agencies of the United States government and its contractors
accounted for 9%, 51% and 43% respectively of overall sales for such products.
Sales of secure operating systems and secure networking software sold separately
from CyberGuard Firewalls have been primarily to government agencies (both in
the United States and internationally), including the United States government
and government contractors. During the nine-month period ended June 30, 1996,
total sales to the British MOD were 8% of the Company's sales, and during the
fiscal year ended September 30, 1995, a single government-related customer
accounted for 39% of the Company's sales. There were no equivalent sales for the
fiscal year ended June 30, 1997.
 
SALES, MARKETING AND DISTRIBUTION
 
     The Company has established a broad range of indirect channels by which to
market its products in the United States and internationally, including VARs,
distributors and manufacturers' representatives, as well as direct sales
representatives. Within the last 18 months, the Company has entered into
contracts with over 40 VARs, distributors, and manufacturing representatives to
resell its products. Key resellers and distributors include: Hucom Inc., EDS,
Tech Data Corporation, Dacom Corp., EMJ America, Inc., Lucent, QPSX
Communications Limited, a subsidiary of Australia's Telestra Corporation, Public
IP Exchange Limited, a U.K. subsidiary of UUnet Technologies, and Nissin
Electric Co. LTD (a member of Japan's Sumitomo Group). During the year ended
June 30, 1997, the indirect marketing channels for the Company's products
accounted for 57% of the Company's sales. See also "Strategic Alliances" above.
The Company is seeking to expand its indirect sales channels for the marketing
of its products and has a goal to have its indirect channels account for 80% of
its sales by the end of fiscal year 1998.
 
     The Company employs 24 sales representatives and maintains sales offices in
Atlanta, Georgia; Boston,Massachusetts; Chicago, Illinois; Dayton, Ohio; Fort
Lauderdale, Florida; Dallas and Austin, Texas; Los Angeles and San Francisco,
California; New York, New York; Washington, D.C.; London, England; Paris,
France; Munich, Germany and Ottawa, Canada. The sales force focuses its sales
and marketing efforts towards customers and VARs in selected vertical markets
such as healthcare, financial services, insurance, telecommunications and
electronic commerce application providers. The Company's sales staff also
solicits prospective customers and provides technical advice and support with
respect to the Company's products.
 
     In support of its sales efforts, the Company markets its products through
direct mail, advertising, seminars, trade shows, telemarketing, and on-going
customer and third-party communications programs. The Company has entered into
strategic marketing relationships with various vendors of communications,
security and network management products and consulting services. Certain of
these vendors recommend the Company's products along with their own solutions to
meet a customer's security needs. The Company also seeks to generate interest
in, and to educate potential customers about, computer and network security
through its speaking engagements, contributed articles, interviews and
documentaries.
 
     The Company focuses its direct and indirect marketing efforts on commercial
businesses that the Company perceives as having a need for network security due
to the sensitive nature of data they collect or due to the devastating potential
impact of computer "hacking." The Company intends to address this market both
with its direct sales force and through indirect channels such as VARs and
systems integrators who already serve such markets. The Company also believes
its products are particularly well suited to Internet service providers ("ISP"),
electronic commerce service providers ("ESPs") and Internet-based retailers of
subscription products and services.
 
COMPETITION
 
     The market for network security products is intensely competitive and
characterized by frequent technological change. The Company believes that
competition in this market is likely to persist and to intensify if demand for
network security products continues to increase.
 
                                       13
<PAGE>   15
 
     In the market segments requiring the highest levels of network security,
the Company competes with Secure Computing and Trusted Information Systems Inc.,
which also offer a firewall with a security enhanced operating system. The
Company also competes with manufacturers of proxy application firewalls and
hybrid systems, such as Check Point Software Technologies LTD, V-One Corp., ANS
Inc. and Raptor, whose products lack a secure operating system but might
nonetheless be considered competing products by some consumers. The Company
competes with a number of manufacturers, such as Cisco, whose products consist
mainly of network routers which offer embedded firewall features (such as packet
filtering rules). These products may be considered to be alternatives to the
Company's. In addition, companies such as IBM, DEC and Sun sell products with
similar features and functions that could be considered competitors of the
Company's. In addition, certain companies, such as Microsoft and McAfee, that
have historically provided shrink-wrapped software products have now begun to
offer network related security products that could eventually compete with the
Company's firewall products.
 
     With the acquisition of TradeWave Corporation in April 1997, the Company
now competes in the relatively new and rapidly evolving market for electronic
commerce security products. Within this market, the Company competes with
digital certificate providers such as Verisign Inc., as well as traditional Web
browser products such as Navigator from Netscape and Explorer from Microsoft.
Additionally, since many of the electronic commerce applications require some
level of customization or multi-product integration, customers may elect to
develop the products "in-house" after procuring the underlying software
technology from companies such as Entrust. While the Company believes that it
does not compete against manufacturers of other classes of security products,
such as token authentication or encryption, due to the complementary functions
performed by such other classes, the Company's customers may perceive such other
companies as competitors of the Company.
 
     Most of the Company's competitors offer network security products based
upon Microsoft's NT operating system that compete with the Company's products.
The Company believes that its customer base will broaden as a result of the
commercial introduction of its own NT firewall scheduled for introduction in
calendar Q4 1997. However, there can be no assurance that the Company's NT
firewall product, if introduced as planned, will achieve broad market acceptance
or that the Company can maintain its competitive position against current and
potential competitors, especially those with significantly greater financial,
marketing, service, support, technical and other competitive resources. Certain
of the Company's competitors may determine, for strategic reasons, to
consolidate, substantially lower the price of their network security products or
bundle their products with other products, such as hardware products or other
enterprise software products. In addition, current and potential competitors
have established or may establish financial or strategic relationships among
themselves, with existing or potential customers, resellers or other third
parties. For example, Compaq Computer Corporation maintains a financial interest
in Raptor and agreed to bundle Raptor's network security software with certain
of its product offerings.
 
     The Company believes that the principal competitive factors affecting the
market for computer and network security products include the product's level of
security, performance and reliability (particularly maximum levels of
throughput), technical features including interoperability, ease of use,
capabilities, customer service and support, distribution channels and price.
Based upon its understanding of the features of the products and services
offered by the Company's competitors, the Company believes that its products
currently compete favorably with respect to such factors. Based upon its
experience and understanding of the existing network security market, the
Company believes that potential purchasers of the Company's security products
who do not differentiate between the level of security provided by competing
security products are as likely to base their purchasing decisions on price,
ease of use, or other considerations as they are to base such decisions on the
level of security provided. In circumstances where a potential purchaser's
primary concern is the level of security provided by products being considered,
the Company, based upon its understanding of the features in products and of the
services offered by the Company's competitors, believes that its products
compete favorably.
 
     Additionally, the Company believes a key competitive factor in the network
security market is a computer system's security rating by intelligence and other
government agencies such as the NCSC and ITSEC. The CyberGuard Firewall is the
only commercially available firewall built on an integrated secure
 
                                       14
<PAGE>   16
 
operating system and secure networking software components that are rated B1 by
the NCSC. The Company's secure operating system has also successfully completed
evaluation by CELAR. In March 1997 the CyberGuard firewall successfully
completed its ITSEC Certification testing in the United Kingdom and was awarded
an E-3 rating allowing it to be utilized for restricted government programs. The
CyberGuard Firewall was the first commercially available firewall to receive
such a rating. In July 1997 the Australian government also awarded its E-3
Certification to the CyberGuard Firewall. Certain of the Company's competitors
have either recently received an ITSEC Certification or have submitted their
products for review against the ITSEC E-3 Requirements. As a result, the Company
anticipates greater competition for government firewall procurements in the
United Kingdom and Australia in the future.
 
PATENTS AND PROPRIETARY TECHNOLOGY
 
     The Company relies upon license agreements with customers; trademark,
copyright and trade secret laws; employee conflict of interest and third-party
non-disclosure agreements and other methods to protect the trade secrets,
proprietary know-how and other proprietary rights on which the Company's
business depends. There can be no assurance that these agreements will not be
breached, that the Company will have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known to or independently
developed by competitors. The Company currently holds patents acquired through
its acquisition of the TradeWave operating unit from Sun River Corporation. It
has no pending patent applications to cover any aspects of its technology. The
Company intends to introduce patent applications to protect aspects of its
technology; however, there can be no assurance that any future patent
applications will be granted or that any future patent applications will not be
challenged, invalidated or circumvented or that the rights granted thereunder
will provide competitive advantages to the Company.
 
     The Company is not aware of any patent infringement charge or any violation
of other proprietary rights claimed by any third party relating to the Company
or the Company's products. In response to certain public statements made by
CheckPoint Software Technologies, Inc. related to a patented technology referred
to as "Statefull Inspection", the Company retained patent counsel in February
1997 to thoroughly review the patent as compared to the Company's intellectual
property and associated products. The patent counsel has completed such a review
and rendered a documented legal opinion that the Company does not infringe this
third party patent. The computer technology market is characterized by frequent
and substantial intellectual property litigation. Intellectual property
litigation is complex and expensive, and the outcome of such litigation is
difficult to predict.
 
     The Company has received trademark registration in the United States,
Canada and numerous other countries for its "CyberGuard Firewall" marks and its
CyberGuard logo. The Company has acquired certain other logo's and trademarks as
a result of the acquisition of the TradeWave subsidiary.
 
REGULATION
 
     The Company is not currently subject to direct regulation by any government
agency other than regulations applicable to businesses generally and U.S.
Commerce Department licensing of export of cryptographic products. Export
controls on cryptographic products restrict the export of the Company's products
outside the U.S. In addition, certain of the Company's government products are
subject to U.S. government contracting regulations and to the International
Trade in Arms Regulation ("ITAR"), which restricts the exports of certain
products affecting national security. These regulations could restrict the
Company's ability to sell its products to foreign governments and businesses
identified from time to time by the U.S. Department of State. The combined
effect of these regulations is to create delays in the introduction of the
Company's products in international markets, and in some cases to prohibit them
altogether.
 
     There are currently few laws or regulations directly applicable to access
to or commerce on the Internet. The Communications Reform Act, which applies to,
among other things, communications over the Internet, became effective in 1996,
and additional laws and regulations could be adopted with respect to the
Internet, covering issues such as user privacy, pricing and characteristics and
quality of products and services. The Company believes that some regulations
could be addressed by application of the Company's Internet-related
 
                                       15
<PAGE>   17
 
network security products and that certain types of regulation would be
beneficial to the Company. However, the adoption of laws or regulations may
decrease the growth of the Internet, which could in turn decrease the demand for
the Company's products and increase the Company's cost of doing business or
otherwise have an adverse effect on the Company's business, operating results or
financial condition.
 
EMPLOYEES
 
     On September 24, 1997, the Company employed 97 employees through its Fort
Lauderdale headquarters, an additional nine employees throughout its European
field offices, and twenty-five employees at the TradeWave subsidiary location in
Austin, Texas. The Company also utilizes the services of approximately fifteen
contract engineers on a temporary basis for software development or
documentation. All employees are bound by agreement containing confidentiality
and conflict of interest provisions.
 
     CyberGuard's future success will depend in significant part on the
continued service of its key technical, sales and senior management personnel.
Competition for such personnel is intense and there can be no assurance that
CyberGuard can retain its key managerial, sales and technical employees, or that
it can attract, assimilate or retain other highly qualified technical, sales and
managerial personnel in the future. None of CyberGuard's employees is
represented by a labor union. CyberGuard has not experienced any work stoppages
and considers its relations with its employees to be good.
 
EXECUTIVE OFFICERS
 
     The Company's executive officers are as follows:
 
<TABLE>
<CAPTION>
NAME                       AGE                             POSITION
----                       ---                             --------
<S>                        <C>   <C>
Robert L. Carberry.......  54    President, Chief Executive Officer and Chairman of the Board
                                   of Directors
Patrick O. Wheeler.......  38    Vice President Finance and Chief Financial Officer, Acting
                                   Vice President of Sales -- North America
Katherine K. Hutchison...  39    Executive Vice President and General Manager, TradeWave
                                   Corporation
Tom Patterson............  37    Corporate Vice President and Senior Vice President,
                                   TradeWave Corporation
Robert L. Lawten.........  50    Vice President Marketing
Bradley C. Lesher........  61    Vice President International Operations
Robert F. Perks..........  53    Vice President North American Operations
Rick A. Siebenaler.......  34    Vice President Software Development
</TABLE>
 
     Robert L. Carberry.  Mr. Carberry was appointed Chairman, President and
Chief Executive Officer of CyberGuard Corporation in June 1996. Before joining
the Company, Mr. Carberry served as Vice President, New Technology for
Blockbuster/Viacom Group and Vice President, Managing Executive for Blockbuster
Technology Holding Corporation. Prior to Blockbuster, Mr. Carberry's 20-year
career with IBM included positions of President of Multimedia Investment
Organization, a division of IBM; Vice President Technology/Business Development
for the Personal Computer Division; Director of the Large Systems Programming
Laboratory; and IBM Corporate Director of Technology.
 
     Patrick O. Wheeler.  Mr. Wheeler was appointed Chief Financial Officer and
Vice President Finance for CyberGuard Corporation in April 1996. Additionally,
in July 1997, Mr. Wheeler was appointed Acting Vice President of Sales for North
America. Mr. Wheeler previously held various financial and sales positions of
increasing responsibility with the Company including Midwest Regional Sales
Manager, Director of Accounting and Senior Account Manager. Prior to joining the
Company in 1984, Mr. Wheeler was employed by Price Waterhouse L.L.P.
 
     Katherine K. Hutchison.  Ms. Hutchison was appointed Executive Vice
President and General Manager of TradeWave Corporation, CyberGuard's electronic
commerce subsidiary, in April 1997. Prior to this, Ms. Hutchison held various
positions of increasing responsibility with the Company, including Vice
President
 
                                       16
<PAGE>   18
 
of Business Development and Director of Marketing. Ms. Hutchison joined the
Company in 1993 from Texas Instruments where she spent 11 years in various
management positions in the Information Technology Group. She also served as an
engineer with the Optical Technology Division of Perkin-Elmer Corporation.
 
     Tom Patterson.  Mr. Patterson joined CyberGuard Corporation in July 1997 as
Corporate Vice President and Senior Vice President of TradeWave Corporation. He
was formerly the chief strategist for electronic commerce at IBM. Prior to IBM,
Mr. Patterson was Information Security Director for MicroElectronics and
Computer Technology Corp. (MCC), leading the development of secure web products
and the first certificate authority. Prior to MCC, he led the development and
marketing of a line of PC and network security products for Centel Corp. With
over 15 years of experience in information security and electronic commerce, Mr.
Patterson has advised the White House, U.S. Congress, National Information
Infrastructure Committee, Departments of Defense, Treasury, Energy and Commerce,
and scores of large businesses and organizations around the world on electronic
commerce issues.
 
     Robert L. Lawten.  Mr. Lawten joined CyberGuard Corporation as vice
president of worldwide marketing in April 1997. He was formerly the Director of
Entertainment on Demand Market Development for Viacom's Blockbuster
Entertainment Group. Prior to this, Mr. Lawten served as vice president and
managing director of a semiconductor unit of Western Digital Corporation. He was
previously employed with IBM for 23 years, primarily in marketing and sales
management positions.
 
     Bradley C. Lesher.  Mr. Lesher joined CyberGuard in July 1994 from IBM
where he served as General Manager of the Latin American Caribbean operations
since November 1991. From 1988 to 1991 Mr. Lesher served as Director of General
Business Systems in IBM's Latin American Headquarters Operation. In this
capacity, Mr. Lesher was responsible for developing and supporting a
distribution channel network of over 200 dealer and agent organizations. He
joined IBM in 1957 and has over 30 years of diverse international management
experience including 19 years of living abroad.
 
     Robert F. Perks.  Mr. Perks was appointed Vice President North American
Operations for CyberGuard in July 1996, responsible for worldwide customer
support, Government program sales and integration, and manufacturing. In the
prior year, he served as Director of North American Sales for the Company. Mr.
Perks was employed by Computer Products' Real Time Products Corporation from
1992 to 1995 as Director, Customer Service. He was employed by Harris
Corporation from 1977 to 1992.
 
     Rick A. Siebenaler.  Mr. Siebenaler was appointed Vice President of
Software Development for CyberGuard Corporation in April 1996. He also serves as
CyberGuard's Chief Security Technologist. From 1994 to 1996, Mr. Siebenaler
served as Director of Software Development for the Company, and from 1991 to
1994, he served as Chief Engineer. Mr. Siebenaler was previously employed by the
National Security Agency (NSA), an agency within the US Department of Defense,
as chief scientist for the Division of Standards and Guidelines.
 
ITEM 2.  PROPERTIES
 
     The Company's principal administrative, sales and marketing, development,
engineering, production and support facilities are located in Fort Lauderdale,
Florida. In August 1997, the Company relocated its principle offices to a new
location in Fort Lauderdale, Florida and now occupies approximately 26,000
square feet of leased office space. The lease on the facility expires in August
2007, although the Company has retained sublease provisions from its landlord.
Additionally, the Company maintains two other offices which perform sales and
product development functions. These facilities, located in Austin, Texas and
London, England also function as the administrative offices for the Company's
two subsidiaries, TradeWave Corporation and CyberGuard -- Europe, respectively.
 
     The Company leases its sales office locations in the United States and
abroad. CyberGuard believes that its existing facilities are adequate for its
current needs and additional space will be available at current market rates as
required in the future.
 
                                       17
<PAGE>   19
 
ITEM 3.  LEGAL PROCEEDINGS
 
     There are no material legal proceedings pending to which the Company or any
of its subsidiaries is a party or to which any of the Company's or any of its
subsidiaries' property is subject. To the Company's knowledge, there are no
material legal proceedings to which any director, officer or affiliate of the
Company, or any beneficial owner of more than five percent (5%) of Common Stock,
or any associate of any of the foregoing, is a party adverse to the Company or
any of its subsidiaries.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     There were no matters submitted to a vote of security holders during the
quarter ended June 30, 1997.
 
                                       18
<PAGE>   20
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
     The Company's Common Stock is quoted and traded on the Nasdaq/NMS under the
symbol "CYBG." There were approximately 6,998 holders of record of Common Stock
as of September 23, 1997. The table below sets forth, for the quarters
indicated, the high and low bid prices of the Company's Common Stock as reported
by the Nasdaq/NMS.
 
<TABLE>
<CAPTION>
                                                                  BID PRICES(1)
                                                              ----------------------
                                                                HIGH          LOW
                                                              ---------    ---------
<S>                                                           <C> <C>      <C> <C>
FISCAL YEAR 1996
Quarter Ended December 31, 1995.............................  $ 5 1/2      $ 3 5/64
Quarter Ended March 31, 1996................................   16 21/64      3 35/64
Quarter Ended June 30, 1996.................................   23 1/4       13 1/2
 
FISCAL YEAR 1997
Quarter Ended September 30, 1996............................  $17 1/4      $ 8 1/2
Quarter Ended December 31, 1996.............................   14            8
Quarter Ended March 31, 1997................................   11 3/4        9
Quarter Ended June 30, 1997.................................   10 1/2        8 1/2
</TABLE>
 
---------------
 
(1) Adjusted to reflect a three-for-one split of the Company's Common Stock
    effective March 18, 1996.
 
     The Company has never paid dividends on its Common Stock. The Company
intends to retain earnings, if any, to finance future operations and expansion
and, therefore, does not anticipate paying any cash dividends in the foreseeable
future. Any future payment of dividends will depend upon the financial
condition, capital requirements and earnings of the Company, as well as upon
other factors that the Board of Directors may deem relevant.
 
ITEM 6.  SELECTED FINANCIAL DATA
 
     The following table sets forth, for the twelve months ended June 30, 1997
and the nine months ended June 30, 1996, and for the fiscal years ended
September 30, 1995, and June 30, 1994 and 1993, selected historical consolidated
financial data for the Company, which combines the Trusted Systems Division (the
operations of which continue to be carried on by the Company) and the Real-time
Business (which, effective June 30, 1996, was sold to Concurrent). The financial
data for the fiscal year ended June 30, 1997, nine-months ended June 30, 1996
and the fiscal year ended September 30, 1995 have been derived from audited
financial statements of the Company for such periods audited by KPMG Peat
Marwick LLP. Such data have been derived from, and should be read in conjunction
with, the audited financial statements and other financial information,
including the notes thereto, appearing elsewhere in this Annual Report. The
consolidated financial data that relate to the year ended June 30, 1994 has been
derived from consolidated financial statements audited by Ernst & Young LLP.
Financial data for the nine months ended June 1995 and the fiscal years ended
June 30, 1994 and 1993 have been derived from unaudited consolidated financial
statements that include all adjustments that the Company considers necessary for
a fair presentation of the financial data set forth therein, in accordance with
generally accepted accounting principles. Because the Company did not become an
independent entity until October 1994, the historical financial statements do
not necessarily reflect
 
                                       19
<PAGE>   21
 
the results of operations or financial position that would have been attained if
the Company had been a separate, independent company.
 
<TABLE>
<CAPTION>
                                   FISCAL YEAR    NINE MONTHS               FISCAL YEAR ENDED
                                      ENDED          ENDED       ---------------------------------------
                                    JUNE 30,       JUNE 30,      SEPTEMBER 30,    JUNE 30,      JUNE 30,
                                      1997          1996(B)         1996(B)         1994          1993
                                   -----------    -----------    -------------    --------      --------
                                                   (IN THOUSANDS EXCEPT PER SHARE DATA)
<S>                                <C>            <C>            <C>              <C>           <C>
Revenues.........................  1$5,621...      $ 37,411        $ 45,111       $64,640       $55,540
Cost of Sales....................  7,240....         21,022          25,764        31,236        29,863
                                    --------       --------        --------       -------       -------
Gross Profit.....................  8,381....         16,389          19,347        33,404        25,677
Selling, General and
  Administrative expenses........     11,410         18,021          22,984        19,791        19,770
Research and development.........  4,723....          5,360           7,903         6,725         6,850
Other operating expenses.........        262          4,253(C)           --            --            --
                                    --------       --------        --------       -------       -------
Operating Income (loss)..........     (8,014)       (11,245)        (11,540)        6,888          (943)
Interest Income (expense), net...        646            180             456            (4)           --
Other Income (expense), net......     (5,122)(D)        103              (4)       (1,271)       (1,074)
Loss on Sale of Real-time
  Business.......................         --        (15,160)             --            --            --
                                    --------       --------        --------       -------       -------
Net income (loss) before income
  tax............................    (12,490)       (26,122)        (11,088)        5,613        (2,017)
Income tax expense (benefit).....         --             --              --         1,086        (1,560)
                                    --------       --------        --------       -------       -------
Net income (loss) before
  cumulative effect of change in
  accounting principal...........    (12,490)       (26,122)        (11,088)        4,527          (457)
Cumulative effect of change in
  accounting principal...........         --             --              --          (135)           --
                                    --------       --------        --------       -------       -------
Net income (loss)................   $(12,490)      $(26,122)       $(11,088)      $ 4,392       $  (457)
                                    ========       ========        ========       =======       =======
Loss per share...................   $  (1.76)      $  (4.32)       $  (1.88)           --(E)         --(E)
                                    ========       ========        ========       =======       =======
</TABLE>
 
---------------
 
(A) During fiscal year 1995, the Company changed its fiscal year end from June
    30 to September 30.
(B) Coinciding with the sale of the Real-time Business to Concurrent on June 26,
    1996, the Company elected to change its fiscal year end from September 30 to
    June 30.
(C) In 1997, represents the write-off of purchased in-process research and
    development. In 1996, represents the write-off of capitalized software
    ($3,244) and costs associated with a canceled secondary offering ($1,009).
(D) Includes a loss of $4,414 on the sale of investments.
(E) Because the Company operated as a division of Harris Corp. prior to October
    1994, loss per share data for the fiscal years ended June 30, 1994 and 1993
    have been excluded.
 
     The Company's audited financial statements included in Item 8 are as of and
for the year ended June 30, 1997, as of and for the nine months ended June 30,
1996, and as of for the year ended September 30, 1995. To facilitate
comparability between periods and for the purposes of this Item 7, management
has prepared the following table to effectively annualize the nine months ended
June 30, 1996 to the year ended June 30, 1996. Such annualization was
accomplished by adding the results of operations for the three months ended
September 30, 1995 (which three month period is unaudited but, in the opinion of
management, contains all adjustments necessary to present the information
fairly) to the nine months ended June 30, 1996.
 
<TABLE>
<CAPTION>
                                                         TWELVE MONTHS ENDED   NINE MONTHS ENDED
                                                              JUNE 30,              JUNE 30,
                                                         -------------------   ------------------
                                                           1997       1996       1996      1995
                                                         --------   --------   --------   -------
                                                         (DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
<S>                                                      <C>        <C>        <C>        <C>
Revenues...............................................  $ 15,621   $ 46,118   $ 37,411   $36,404
Cost of sales..........................................     7,240     26,177     21,022    20,609
                                                         --------   --------   --------   -------
Gross profit...........................................     8,381     19,941     16,389    15,795
Selling, general and administrative expenses...........    11,410     25,266     18,021    15,739
Research and development...............................     4,723      7,293      5,360     5,970
Transaction expense....................................        --      1,009      1,009        --
Write-off Capitalized software.........................       262      3,244      3,244        --
                                                         --------   --------   --------   -------
Operating income (loss)................................    (8,014)   (16,871)   (11,245)   (5,914)
Interest income (expense), net.........................       646        275        180       361
</TABLE>
 
                                       20
<PAGE>   22
<TABLE>
<CAPTION>
                                                         TWELVE MONTHS ENDED   NINE MONTHS ENDED
                                                              JUNE 30,              JUNE 30,
                                                         -------------------   ------------------
                                                           1997       1996       1996      1995
                                                         --------   --------   --------   -------
                                                         (DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
<S>                                                      <C>        <C>        <C>        <C>
Other income (expense), net............................   (5,122)         --        103     (232)
Loss on Sale of Real-time Business.....................        --   (15,160)   (15,160)        --
                                                         --------   --------   --------   -------
Net income (loss) before income tax....................  $(12,490)  $(31,425)  $(26,122)  $(5,785)
                                                         ========   ========   ========   =======
Loss per share.........................................   $(1.76)    $(5.20)    $(4.32)    $(.98)
                                                         ========   ========   ========   =======
</TABLE>
 
---------------
 
(a) Unaudited Statements-Information represented for the twelve months ended
    June 30, 1996 are derived from audited information.
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
 
     The following information contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ significantly
from the results discussed in the forward-looking statements. A more complete
statement of information regarding forward looking statements is contained at
the end of this item 7. References to the Company's results of operations from
October 7, 1994 are to the Company's Trusted Systems Division and, prior to such
time, to the Company's network security business and operations as part of the
Computer Systems Division of Harris Corporation. The following information
should be read in conjunction with the financial statements of the Company's
appearing elsewhere in this Report.
 
OVERVIEW
 
     The Company is a leading developer and marketer of commercial network
security products designed to protect data on computer networks from
unauthorized users. The Company began marketing its CX/SX secure operating
system in 1989 and its LAN/SX secure networking software in 1990. In 1993, these
products received a B1 rating from the NCSC, which qualified the products for a
number of government and civilian applications and resulted in increased
marketability of such products. Until the introduction of the CyberGuard
Firewall during the first quarter of fiscal year 1995, the Company's sales were
attributable exclusively to sales of its secure operating system and secure
networking software on Night Hawk computer platforms, and largely to government
customers. During fiscal year 1993 and 1994, the Company derived substantial
revenues from two contracts: a multi-unit government contract with the British
Ministry of Defense ("British MOD") and a secure operating system porting
contract with IBM.
 
     In May 1995, in response to initial and anticipated market acceptance of
the CyberGuard Firewall, the Company established a sales force separate from the
sales force of its former Real-time Business to focus on the Company's network
security products. At the same time, the Company began an aggressive expansion
of indirect sales channels to market its products in the United States and
internationally and since May 1995 has formed relationships with more than 45
VARs, distributors and manufacturers' representatives. As a result of these and
other efforts since such time, which coincided with greater market acceptance of
firewall products in general, sales of the Company's network security products
have shown strong quarter-to-quarter increases. However, given the Company's
short operating history in the commercial network security market, the Company
believes that period-to-period comparisons of its financial results are not
necessarily meaningful and should not be relied upon as an indicator of future
performance. The Company intends to increase its marketing staff to promote its
products and also to continue to invest a significant amount of resources in the
continued development of the CyberGuard technologies, including Windows NT based
products and products that support interoperability with industry standard
communication protocols, computer platforms and networks. The Company's planned
levels of investment are based on an expectation of higher revenue from
increased product sales. As a result, net income for a given period could be
disproportionately affected by any reductions in sales.
 
                                       21
<PAGE>   23
 
     Prior to June 30, 1996, the Company's operations included the Real-time
Business, which provided significant cash flows and certain economies of scale
with respect to sales, general and administrative costs. Many of the Company's
sales and administrative personnel and facilities were transferred to Concurrent
in connection with the Real-time Sale. As a result, the Company incurred
significant costs during fiscal year 1997 to establish the administrative,
logistical, and support groups necessary to operate the Company as a stand-alone
entity.
 
     The Company reported certain non-recurring charges for the fiscal year
ended June 30, 1997 and the nine months ended June 30, 1996. During fiscal year
1997, the Company recognized a loss of approximately $4.4 million on the sale of
securities of Concurrent which were originally received in June 1996 as
consideration for the sale of the Company's Real-time Business operations. Other
non-recurring transactions for the current fiscal year included a write-off of
$.5 million for accumulated transaction adjustment of foreign currency-based
assets relating to the Company's former international subsidiaries sold to
Concurrent in June 1996, and $0.3 in expensed Research and Development related
to the purchase of the Company's TradeWave operations from SunRiver Corp. in
April 1997. For the nine months ended June 30, 1996, the Company incurred a loss
of approximately $15.2 million on the sale of the Real-time Business (based on a
market price of Concurrent Common Stock of $1.70 per share); approximately $3.2
million for the write-off of certain capitalized software; and approximately
$1.0 million in additional expenses related to the Company's canceled public
stock offering.
 
     In July 1996, the Company changed its fiscal year end to June. Accordingly,
the information contained herein relating to the nine-month period ended June
30, 1996 represents the Company's 1996 fiscal year. Such period, along with the
current fiscal year ended June 30, 1997 have been audited by the Company's
independent auditors and the financial statements related thereto are attached
to this Annual Report. The information contained herein relating to the
unaudited twelve months ended June 30, 1996 and the nine months ended June 30,
1995 are derived from audited information.
 
RESULTS OF OPERATIONS
 
Twelve-month Period Ended June 30, 1997 Compared to the twelve-month Period
Ended June 30, 1996
 
     Net Revenues.  For the 12 months ended June 30, 1997 net revenues were
derived solely from the sale of the Company's firewall systems, add-on security
products, and service and support related to security products. For the 12
months ended June 30, 1996, a substantial portion of the net revenues of the
company were related to the sale of the Real-time computer systems and services,
a segment of the business which was sold to Concurrent Computer Corporation on
June 26, 1996. Specifically, net revenues for the 12 months ended June 30, 1997
were $15.6 million compared to $46.1 million for the 12 months ended June 30,
1996. This represents a decrease of $30.5 million or 66.1%. Of the $46.1 million
in net revenues for the 12 month period ended June 30, 1996, approximately $38.0
million or 82.4% represented sales and services for Real-time products. Net
revenues from the sales and service of security products increased by $7.4
million or 90.2% from $8.2 million for the 12 months ended June 30, 1996 to
$15.6 million for the 12 months ended June 30, 1997. The increase in net
revenues from security products for 1997 is the result of continued customer
acceptance of firewall technology as an adequate safeguard for electronic data
and increased customer awareness of the CyberGuard Firewall based upon numerous
positive reviews from leading-industry publications of the company's
softwareonly Version 3 firewall introduced in October 1996. Net product and
services revenues for the 12 months ended June 30, 1997 include the operations
of the company's TradeWave subsidiary which was established in April 1997. The
TradeWave subsidiary accounted for $.4 million in total revenues or 2.6% of
total revenues for the 12 months ended June 30, 1997. Additionally, the company
realized strong growth internationally during the 12 months ended June 30, 1997.
International revenues for security products and services were $9.1 million , up
$5.4 million or 144.0% compared to $3.7 million for the same 12 month period in
1996. This increase in International security products revenues is attributable
to (1) the expansion of the company's reseller channels in the Pacific-Rim
region, most notably Japan, Korea and Taiwan, and (2) to the increase in
customer orders in the United Kingdom and Western Europe following the formal
award of the ITSEC E3 certification standard to the CyberGuard Firewall in March
1997.
 
                                       22
<PAGE>   24
 
     For the year ended June 30, 1997 the Company shipped a total of 667
firewall units compared to 203 for the 12 months ended June 30, 1996. One
customer, Hucom, Inc. accounted for 11% of the revenues during the 12 months
ended June 30, 1997. There were no other customer that accounted for more than
10% of the revenues during the 12 months ended June 30, 1996.
 
     CyberGuard provides its customer base with a comprehensive service offering
which includes the installation of its firewall and TradeWave products, customer
support including hotline assistance, and product training and consulting. For
the 12 month period ended June 30, 1997 the Company reported service revenue for
its security products of $1.0 million an increase of $.6 or 150% compared to the
like-type revenues of $.4 for the 12 months ending June 30, 1996. As a
percentage of total security revenues, service revenues accounted for 6.7% in
1997 compared to 1% in 1996. The increase in net revenues from services is
attributable to a larger base of customers under maintenance agreements in 1997
stemming from increased product shipments.
 
     Gross Profit.  CyberGuard's Cost of sales includes license fees to third
parties, media and packaging costs, equipment costs, and certain presales,
post-sales and contract labor support costs. The Company's overall gross profit
declined by $11.6 million from $19.9 million for the 12 months ended June 30,
1996 to $8.4 million for the 12 months ended June 30, 1997. The results for 1996
include the operations of the Real-time Division which accounted for $17.0
million or 85% of the total gross profit. Comparing only the sales of security
products and services, gross profits increased by $5.5 million or 189% from $2.9
million for the 12 months ended June 30, 1996 to $8.4 million for the 12 months
ended June 30, 1997. Gross margin percentages for security products and services
also increased during 1997. For the 12 months ended June 30, 1997 gross margin
percentage for security products was 53.6% compared to 35.6% for the 12 month
period ended June 30, 1996. The increase in both gross profit and gross margin
percentages for 1997 is attributable to an overall increase in unit volume
shipments and the transition of product line revenues towards the version 3
(software only) CyberGuard Firewall. Introduced in October 1996, the version 3
CyberGuard Firewall is a software-based product with substantially higher gross
margin percentages than the Company's historical Firewall products which were
only available as a combined hardware/software product. The Company has
recognized continued gross margin percentage improvements for each successive
quarter of fiscal year 1997 as a result of higher percentage shipments of the
version 3 CyberGuard Firewall as compared to the previous product versions.
 
     Gross profit for security-related services, as measured in dollars and as a
percentage of service revenues, was $.47 million and 45% respectively for the 12
months ended June 30, 1997 compared to $.24 million or 55% respectively for the
12 months ended June 30, 1996. The increase in service related gross profit is
the result of a greater number of customers under firewall maintenance support
contracts and the addition of OASIS customer support contracts through the
Company's TradeWave subsidiary. The decline in gross margin percentage for
security services is attributable to increased staffing of CyberGuard's customer
support operations to support the larger installed based of end-customers and
authorized CyberGuard distributors and resellers.
 
     Operating Expenses.  The primary operating expenses of the Company are
research and development costs and sales, general and administration costs.
Research and development costs consist primarily of personnel-related costs
including salaries, benefits, payments to third-party or contract labor
development firms, travel, training and other personnel-related expenses to
determine the technical feasibility of products, develop the necessary product
features/functions for marketability, and maintain the product after customer
installation. The Company expenses all research and development costs as
incurred. Sales, general and administrative costs consist of personnel costs
including commissions, bonuses, and benefits, travel, communication including
MIS-related costs, marketing-related costs such as advertising, trade shows,
seminars, finance and accounting expenses, legal, insurance, company general
management, and other professional services.
 
     CyberGuard currently anticipates that both Research and Development, and
Sales, General and Administrative expenses may increase in absolute dollars in
the future as the Company commits substantial resources to develop complementary
security products and features, and to garner a greater market percentage of
world-wide security product procurements.
 
                                       23
<PAGE>   25
 
     For the 12 months ended June 30, 1997 the Company reported total operating
expenses of $16.4 million compared to $36.8 million for the 12 months ended June
30, 1996. For the 12 months ended June 30, 1996, $23.4 million or 64% of the
total operating expenses related to the operations of the Company's Real-time
Business which was sold to Concurrent in June 1996. The operating expenses for
both 12-month periods include certain non-recurring charges. For the 12 months
ended June 30, 1997, the Company expensed $0.3 million of in-process research
and development work related to the purchase of the TradeWave business assets
from SunRiver Corporation in April 1997. The operating expenses for the 12
months ended June 30, 1996 include a provision for $1.0 million in costs
associated with the Company's canceled public stock offering in July 1996, and a
charge to write off approximately $3.2 in previously capitalized Software
Development costs. Excluding these one-time charges and the operating expenses
for the Real-time Business in 1996, total operating expenses for the 12 months
ended June 30, 1997 would be $16.1 million compared to $9.1 million for the same
12-month period in 1996. This increase of $7.0 million is the result of expanded
world-wide sales and marketing efforts to promote the Company's Firewall
products during 1997, and increased costs incurred in the 4th fiscal quarter of
1997 to operate the TradeWave subsidiary. Additionally, the operational expenses
for the 12 months ended June 30, 1997 include expenditures to develop an
NT-based firewall, and to co-develop the Safenet Enterprise Firewall Product
with Information Resource Management Corp. No similar expenses were incurred
during the 12 months ended June 30, 1996.
 
     Net Loss.  For the 12 months ended June 30, 1997 the Company recognized a
net loss of $12.5 million compared to a net loss of $31.4 million for the 12
months ended June 30, 1996. The net loss for the 12 months ended June 30, 1997
included a non-recurring charge of $4.4 million on the disposition of the common
stock of Concurrent Computer Corporation received in June 1996 in exchange for
assets of the Real-time Business of the Company. An additional non-cash charge
of $0.5 million was taken during the 12 months ended June 30, 1997 to write-off
the cumulative translation adjustment of the former European subsidiaries of the
Company which were sold to Concurrent in June 1996. The net loss for the 12
months ended June 30, 1996 includes a $15.2 million provision for the loss on
the sale of the Real Time Operating Division to Concurrent.
 
Nine-month Period Ended June 30, 1996 Compared to Nine-month Period Ended June
30, 1995
 
     Net Revenues.  Net revenues consist primarily of Firewall Systems,
Real-time Computer Systems, system integration and support services and sales
relating to third party security products. Overall revenue increased by $1
million to $37.4 million for the nine months ended June 30, 1996 compared to the
nine months ended June 30, 1995. This overall increase in net sales is
attributable to an increase in firewall product sales for the Trusted Systems
Division which offset lower sales for Real-time related products. Specifically,
the Company shipped 184 turn-key firewall systems during the nine months ended
June 30, 1996 compared to 72 units for the same period in 1995. Firewall and
related security products revenues increased by 86% during the nine months ended
June 30, 1996 when compared to the nine months ended June 30, 1995. The nine
months ended June 30, 1995 included a $1.9 million sale (or 48% of total secure
revenues) to one government related customer for 43 units; the nine months ended
June 30, 1996 included sales to a single international customer of approximately
$.6 million or 8% of total secure revenues. There were no sales in the year
ended June 30, 1996 for more than five units to any one customer. The increase
in product sales is the result of increased acceptance in the commercial
marketplace for the CyberGuard Firewall. The Company also experienced a strong
increase in sales leads during the nine months ended June 30, 1996 as several
prominent periodicals and industry-based magazines rated the CyberGuard highly
based upon their published testing results. During the nine months ended June
30, 1996, 71% of the Company's sales were to commercial customers, compared to
39% for the same period in 1995.
 
     Compared to the corresponding prior year period international secure
product revenues increased $2.2 million to $3.3 million for the nine months
ended June 30, 1996, and domestic sales increased $1.2 million to $4.0 million.
The domestic sales figure for the year ended September 30, 1995 includes $1.9
million in sales to one domestic customer.
 
     Gross Profit.  The Company's overall gross profit increased $.6 million to
$16.4 million for the nine months ended June 30, 1996 from the nine months ended
June 30, 1995. The Company's overall gross margin percentages remained constant
at approximately 43.5% for both periods. The gross margin percentages for the
 
                                       24
<PAGE>   26
 
CyberGuard and related security product sales remained constant at 37% for the
nine months ended June 30, 1995 and 1996.
 
     Net Loss.  The Company experienced a net loss of approximately $26.1
million for the nine-month period ended June 30, 1996, compared to a loss of
$5.8 million for nine-month period ended June 30, 1995. The Company's operating
expenses increased by $5.9 million from $21.7 million for the nine months ended
June 30, 1995 to $27.6 million for the nine months ended June 30, 1996. The 1996
results include several significant non-recurring charges, including the
write-off of approximately $3.2 million in previously capitalized software
developments costs (see Note 16 to the accompanying consolidated financial
statements) and a provision of approximately $1.0 million for costs associated
with the Company's canceled secondary stock offering (see Note 4 to the
accompanying consolidated financial statements). In addition to these one-time
charges, the Company also recognized a loss of $15.2 million on the sale of the
Real-time Business during the nine months ended June 30, 1996. The major
components of this loss were the change, between the date that the Real-time
Sale was approved by the Company and the transaction closing date, in the value
of the Company's common stock issued by the Company to Concurrent; the transfer
to Concurrent of $5.6 million-worth of capitalized software at a minimal cost to
Concurrent, and approximately $2.7 million in transaction-related expenses.
Reducing the June 30, 1996 net loss by these non-recurring charges results in an
adjusted net loss of $6.7 million compared to $5.8 million for the same period
in 1995. The increased net loss of $0.9 million for nine months ended June 30,
1996 is attributable to an increase in expenses to enhance the marketability of
the CyberGuard Firewall and to increase its features and functionality.
Additionally, the results for the nine-month period ended June 30, 1996 include
costs associated with the product definition, technical feasibility study, and
efforts related to the "porting" of the Company's Secure UNIX Operating System
to an Intel-based P.C. running a secure version of UNIX. No similar expenses
were incurred for the nine months ended June 30, 1995.
 
Fiscal Year Ended September 30, 1995 Compared to Fiscal Year Ended June 30, 1994
 
     During fiscal year 1995, the Company operated both its Real-time Business
(which has been sold to Concurrent) and the Trusted System Division, the
operations of which are continued by the Company. During the fiscal year ended
September 30, 1995, the Company's principal products were the Night Hawk
Real-time computer (the "Real-time system"), the Power UX Real-time operating
systems as sold on Motorola's Power PC 604 CPU boards or computers, the Night
Hawk Real-time computer as enhanced with either the Company's CX/SX or Power UX
secure Real-time operating system (the "trusted system"), the commercial
CyberGuard Firewall product and maintenance and support of its installed
computer systems.
 
     Net Sales, consolidated.  During the year ended September 30, 1995, the
Company's net sales decreased to $45.1 million for fiscal year 1995 from $64.6
million for fiscal year 1994. Net product sales for fiscal year 1995 were $31.2
million as compared to $50.1 million for fiscal year 1994. Fiscal year 1995 net
sales attributable to Real-time open systems were $26.4 million as compared to
$37.0 million for fiscal year 1994. Management believes that approximately $5.7
million of the decrease in revenue from Real-time open systems was the result of
the implementation of the Company's income-recognition policies related to
Real-time systems that were ordered in fiscal year 1994 but, due to delays in
receiving acceptable Motorola 88110 microprocessor chips, were not shipped until
fiscal year 1995. During fiscal year 1995, the Company also experienced a slow
down in Real-time product sales due to the inability of IBM Corporation to
complete a secondary cache chip critical to the Company's Real-time product.
Also, the Company was not successful in moving its Real-time products to a more
commercial focus and as such experienced the delays inherent in the government
markets. Fiscal year 1995 net sales attributable to Real-time proprietary
systems, reflecting sales for replacement or add-on parts for the Company's
installed base of proprietary systems, were $3.3 million as compared to $4.3
million for fiscal year 1994.
 
     Maintenance revenue decreased to $13.6 million for fiscal year 1995 from
$14.5 million for fiscal year 1994. This decrease was principally a result of
the shift in market demand to open systems. The Company's Real-time open systems
required less maintenance as compared to proprietary systems, and open systems
could, in many cases, be serviced by the customers themselves. Maintenance
revenues also declined as the Company's installed base of proprietary systems
reached the end of its useful life.
 
                                       25
<PAGE>   27
 
     During fiscal year 1995, the Company's net product sales to agencies of the
United States government and their prime contractors were $14.6 million and
maintenance revenue was $8.4 million. During fiscal year 1994, the comparable
net product sales were $25.7 million and the comparable maintenance revenue was
$7.4 million.
 
     International net sales decreased to $11.9 million for fiscal year 1995
from $16.8 million for fiscal year 1994. This decrease is attributable
principally to the completion during fiscal year 1994 of a trusted systems
contract with a government contractor in the U.K., which had resulted in $4.9
million of revenue during fiscal year 1994.
 
     Net Sales, Trusted Systems Division.  The Trusted System Division's net
sales decreased to $4.8 million for fiscal year 1995 compared to $8.5 million
for fiscal year 1994. Sales in fiscal year 1994 included $5.4 million in sales
of the Company's secure operating system to the British MOD for a single project
involving the deployment of secure office automation systems and $1.6 million in
sales of the Company's secure operating system to IBM. Sales in fiscal year 1995
included sales of $1.9 million (or 39% of total sales) to a government-related
customer and sales of approximately $0.7 million (or 14% of total sales) related
to porting the Company's secure operating system to Groupe Bull S.A.'s Escala
workstation. Sales of CyberGuard Firewalls, introduced during the first quarter
of fiscal year 1995, represented $2.5 million in sales (including sales of $1.9
million to the government-related customer). During the fiscal year ended
September 30, 1995, sales to customers in commercial markets accounted for 42%
of the Division's sales.
 
     For the Company's Trusted Systems Division, overall domestic sales were
$3.3 million and $3.0 million for the fiscal years 1995 and 1994, respectively.
International sales decreased $3.9 million to $1.5 million for fiscal year 1995.
The higher international sales for fiscal year 1994 were attributable to the
contract with the British MOD for sales of the Company's secure operating
system. International sales in fiscal year 1995 related primarily to sales of
the CyberGuard Firewall. International sales represented approximately 31% of
total sales, compared to approximately 64% in fiscal year 1994; the decrease is
attributable to the British MOD contract that ended during fiscal year 1994.
 
     Gross Margin, consolidated.  Gross margin for sales and rentals decreased
to 40.5% in fiscal year 1995 from 54.4% in fiscal year 1994 as a result of
decreased sales of Night Hawk Series computers and $2.4 million of inventory
reserve taken. Service and maintenance gross margins increased to 48.2% from
42.1% as a result of decrease in expenses as the product mix of service moves
more to the open system Night Hawk computer. Open systems are generally more
reliable and therefore require less service. International maintenance revenue
increased, which also resulted in improved gross margins.
 
     Gross Margin, Trusted Systems Division.  The Company's gross profit for its
Trusted Systems Division decreased $2.9 million to $1.7 million in fiscal year
1995. The corresponding gross margin decreased to 34.8% for fiscal year 1995
from 54.6% for fiscal year 1994. This decrease is the result of lower sales and
significantly lower profit margins for commercial CyberGuard Firewalls when
compared to sales of secure operating systems and secure networking software
installed separately as an added feature on Real-time-oriented computer systems.
 
     Indirect Expenses.  Research, development, marketing, administrative and
general expenses for fiscal year 1995 increased by $4.4 million as the Company
invested to introduce its trusted product in the commercial market. The Company
also booked a reserve of $1.3 million for a shipment made to Lukon, a Russian
corporation, and the Company's joint venture partner.
 
     Net Income (Loss), consolidated.  Net loss for fiscal year 1995 was $11.1
million compared to a profit of $4.4 million for fiscal year 1994. The decrease
was principally the result of the decrease in revenue experienced during fiscal
year 1995. Additions to the reserves for inventory and doubtful accounts
accounted for $4.0 million of the loss. See "Fiscal Year Ended June 30, 1995
Compared to Fiscal Year Ended June 30, 1994 -- Net Sales." The Company received
interest income of $0.5 million on its cash and marketable securities compared
to a slight charge for fiscal year 1994. The Company paid no income taxes during
fiscal year 1995 and is currently operating with a tax loss carry forward in all
of its operations.
 
                                       26
<PAGE>   28
 
     Net Income, Trusted Systems Division.  The Company experienced a net loss
of $3.1 million for fiscal year 1995, compared to net income of $0.1 million for
fiscal year 1994. The net loss is the result of lower product sales and gross
margins and increased operating expenses incurred to establish sales and
marketing programs for the commercial introduction of the CyberGuard Firewall.
 
     Change in Fiscal Year.  The Company changed its fiscal year end from June
30 to September 30 effective the year beginning October 1, 1994. Revenue for the
three months ending September 30, 1994 was $7.7 million. Sales were lower than
expected due in part to the protracted nature of the spin-off from Harris
Corporation and its effects on product sales focus by management. The loss after
tax for the period was $7.6 million compared to a profit of $375,000 for the
quarter ending September 30, 1993. The loss for the period was impacted by a
$1.3 million charge for restructuring, $2.5 million pre-tax and $2.4 million of
after-tax charges for expenses relating to the spin-off from Harris Corporation
and a $1.7 million charge in connection with the repatriation of cash from the
Company's German subsidiary.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     The Company's historical uses of cash have been to fund net losses from
operations, establish adequate inventory stocking levels, and fund capital
expenditures for property, equipment and software. Capital expenditures for the
fiscal year ended June 30, 1997 and the 9 month period ended June 30, 1996 were
$1.0 million and $1.8 million respectively.
 
     Prior to the Real-time Sale, the Company funded its cash requirements from
its working capital and cash flows generated, primarily, by the Real-time
Business. Subsequent to the Real-time sale in June 1996, the Company canceled
its proposed secondary public stock offering, and elected instead to liquidate
the majority of its holdings in Concurrent common and preferred stock received
as consideration for the sale of the Real-time assets to Concurrent. Sales of
Concurrent securities throughout the course of fiscal year 1997 generated
approximately $12.4 in proceeds. These funds were used to pay off the Company's
outstanding line of credit balance of $3.2 million in July 1997. The remaining
funds were used to establish the necessary working capital to support the
operations of the Company. At June 30, 1997, the Company had cash, cash
equivalents and short term securities totaling $4.2 million.
 
     In May of 1997 CyberGuard announced it had secured a $7.5 million
Equity-Based line of credit to further support the Company's available working
capital and market expansion plans. Terms of this private placement instrument
allow CyberGuard at its discretion, with certain limitations and restrictions,
to issue unrestricted shares of its stock in exchange for cash proceeds. An S-3
filing documenting this instrument was filed on May 19, 1997. As of June 30,
1997 no sales of common stock were issued in relation to this instrument.
 
     The future liquidity of the Company will be affected by numerous factors,
including sales volumes, gross margins, the levels of selling, general and
administrative expenses required to fully implement product sales to commercial
customers, levels of required capital expenditures and access to external
sources of financing. The Company expects expenditures to increase commensurate
with increased development and marketing of CyberGuard Firewalls and other
network security products. The Company may elect to sell the remaining Preferred
Stock of Concurrent that the Company received in the Real-time Sale. The timing
of such sale and the price at which such stock may be sold may be affected by
other factors beyond the Company's control, such as the absence of a trading
market of such stock, the value of the underlying Concurrent common stock, and
changes in the business, operations or prospects of Concurrent. The Company is
currently negotiating with a commercial lender to provide a revolving line of
credit that will utilize certain current and intangible assets as collateral.
 
     If adequate funds are not available, the Company may be required to curtail
certain activities, including product development, marketing and sales
activities. There can be no assurance that additional financing will be
available to the Company on acceptable terms.
 
                                       27
<PAGE>   29
 
NEW ACCOUNTING PRONOUNCEMENTS
 
     In June 1997 the Financial Accounting Standards Board ("FASB") Issued SFAS
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997 and establishes
standards for reporting and display of comprehensive income and its components
in a full set of general purpose financial statements. SFAS No. 130 requires all
items to be reported in a separate financial statement. The Company does not
believe that adoption of SFAS No. 130 will have a significant impact on its
financial reporting.
 
     In June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131). SFAS No. 131 is effective
for financial statements for periods beginning after December 15, 1997. SFAS 131
establishes standards for the way the public business enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. The Company does not believe that adoption of SFAS No.
131 will have a significant impact on its financial reporting.
 
     In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share" (SFAS
No. 128). SFAS No. 128 specifies new standards designed to improve the earnings
per share ("EPS") information provided in statements by simplifying the existing
computational guidelines, revising the disclosure requirements and increasing
the comparability of EPS data on an international basis. SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods. The Company does not believe that adoption of
SFAS No. 128 will have a significant impact on its financial reporting.
 
  Forward Looking Statements
 
     Statements regarding future products, future prospects, business plans and
strategies, future revenues and revenue sources, future liquidity and capital
resources, computer network security market directions, future acceptance of the
Company's products, possible growth in markets, as well as other statements
contained in this Report on Form 10-K that address activities, events or
developments that the Company expects, believes or anticipates will or may occur
in the future, and similar statements are forward looking statements. These
statements are based upon assumptions and analyses made by the Company in light
of current conditions, future developments and other factors the Company
believes are appropriate in the circumstances, or information obtained from
third parties and are subject to a number of assumptions, risks and
uncertainties. Readers are cautioned that forward looking statements are not
guarantees of future performance and that the actual results might differ
materially from those suggested or projected in the forward looking statements.
Some of the factors that might cause future actual events to differ from those
predicted or assumed include: future advances in technologies and computer
security; risks related to the early stage of the Company's existence and its
products' development; the Company's ability to execute on its business plans;
the Company's dependence on outside parties such as its key customers and
alliance partners; competition from major computer hardware, software, and
networking companies; risk and expense of Government regulation and effects on
changes in regulation; the limited experience of the company in marketing its
products; uncertainties associated with product performance liability; risks
associated with growth and expansion; risks associated with obtaining patent and
intellectual property right protection; uncertainties in availability of
expansion capital in the future and other risks associated with capital markets.
 
                                       28
<PAGE>   30
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
     The following items are attached and incorporated into this Item 8.
 
<TABLE>
<S>                                                           <C>
Independent Auditors' Report................................  F-1
Consolidated Balance Sheets as of June 30, 1997 and June 30,
  1996......................................................  F-2
Consolidated Statements of Operations for the year ended
  June 30, 1997, the Nine-months ended June 30, 1996, and
  the year ended September 30, 1995.........................  F-3
Statement of Cash Flows for the year ended June 30, 1997,
  Nine-months ended June 30, 1996, and the year ended
  September 30, 1995........................................  F-4
Consolidated Statements of Shareholders' Equity for the year
  ended June 30, 1997, the nine months ended June 30, 1996,
  and the year ended September 30, 1995.....................  F-5
Notes to Financial Statements...............................  F-6
</TABLE>
 
                                       29
<PAGE>   31
 
                                    PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     Certain information required by this item is contained in and incorporated
herein by reference to the caption "Executive Officers" in Item I hereof, and
the remainder will be contained in and incorporated herein by reference to the
Company's Proxy Statement for the Company's Annual Meeting of Stockholders
expected to be mailed to stockholders during October 1997.
 
     Officers are selected on an annual basis and serve at the discretion of the
Board of Directors.
 
ITEM 11.  EXECUTIVE COMPENSATION
 
     The information required by this item will be contained in the Company's
1997 Proxy Statement and is incorporated herein by this reference.
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     The information required by this item will be contained in the Company's
1997 Proxy Statement and is incorporated herein by this reference.
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     The information required by this item will be contained in the Company's
1997 Proxy Statement and is incorporated herein by this reference.
 
                                       30
<PAGE>   32
 
                                    PART IV
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
     (a) 1. and 2. The Financial Statements filed as part of this report are
listed separately in the index to Financial Statements beginning on page F-1 of
this report.
 
     (b) During its fourth fiscal quarter of 1997, the Company filed two reports
on Form 8-K (dated April 9, and June 23, 1997) to provide information regarding
the acquisition of the assets of TradeWave Corp. These reports contained
information under Items 2 and 7, and also contained financial statements of
TradeWave Corp. and pro forma financial information for CyberGuard to reflect
the TradeWave assets acquisition.
 
     The following exhibits are included in this Report.
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                             EXHIBIT DESCRIPTION
-------                            -------------------
<C>       <C>  <S>
 2.01      --  Restated Purchase and Sale Agreement between Concurrent
               Computer Corporation and the Company dated May 23, 1996(i)
 3.01      --  Articles of Incorporation of the Company, as amended(viii)
 3.02      --  Bylaws of the Company(ii)
 4.01      --  Form of Common Stock Certificate(iv)
 4.02      --  Form of Stockholder Rights Plan(ii)
 4.04      --  Form of Share Holding Agreement between Concurrent Computer
               Corporation and the Company(iv)
10.01      --  Employment Agreement dated March 5, 1996 between the Company
               and Robert L. Carberry(viii)
10.02      --  Employment Agreement dated July 1, 1996 between the Company
               and Patrick O. Wheeler(viii)
10.03      --  Employment Agreement dated April 21, 1997 between the
               Company and Robert Lawten
10.04      --  Employment Agreement dated July 1, 1996 between the Company
               and Katherine K. Hutchison(viii)
10.05      --  Employment Agreement dated July 1, 1996 between the Company
               and Rick A. Siebenaler(viii)
10.06      --  Employment Agreement dated October 1, 1994 between the
               Company and Bradley C. Lesher(viii)
10.07      --  Employment Agreement dated July 24, 1997 between the Company
               and Thomas Patterson
10.08      --  Joint Development and Marketing Agreement between the
               Company and Information Resource Engineering, Inc. (viii)
10.09      --  Employee Stock Incentive Plan(vi)
10.10      --  Amendment to Employee Stock Incentive Plan(vii)
10.11      --  Employee Savings Plan(v)
10.12      --  Form of Non-Statutory Stock Option Agreement dated as of
               February 4, 1996 between the Company and the following
               executive officers: Patrick O. Wheeler; Katherine K.
               Hutchison; Robert Perks; Rick Siebenaler(vi)
10.13      --  Form of Incentive Stock Option Agreement dated as of
               February 4, 1996 between the Company and the following
               executive officers: Patrick O. Wheeler; Katherine K.
               Hutchison; Robert Perks; and Rick Siebenaler(vi)
10.14      --  Non-Statutory Stock Option Agreement dated as of March 5,
               1996 between the Company and Robert L. Carberry(vi)
10.15      --  Incentive Stock Option Agreement dated as of July 23, 1996
               between the Company and Robert L. Carberry(vi)
</TABLE>
 
 
                                       31
<PAGE>   33
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                             EXHIBIT DESCRIPTION
-------                            -------------------
<C>       <C>  <S>
10.16      --  Form of Non-Statutory Stock Option Agreement between the
               Company and non-executive officers(vi)
10.17      --  Form of Incentive Stock Option Agreement between the Company
               and non-executive officers(vi)
10.18      --  Form of Stock Option Agreement between the Company and
               non-employee directors(vi)
10.19      --  TradeWave Asset Purchase Agreement(ix)
10.20      --  Agreement (regarding noncompetition, nonsolicitation and
               confidentiality)(ix)
10.21      --  Private Securities Subscription Agreement dated May 15, 1997
               between the Company and Capital Ventures International(x)
10.22      --  Registration Rights Agreement dated May 15, 1997 between the
               Company and Capital Ventures International(x)
10.23      --  Consulting agreement with David Proctor dated March 18, 1997
23.01      --  Consent of KPMG Peat Marwick LLP, Independent Certified
               Public Accountants
27.01      --  Financial Data Schedule (for SEC use only)
</TABLE>
 
---------------

(i)     Incorporated by reference to Annex A of the Registrant's Definitive 
        Proxy Statement as filed with the Commission on May 24, 1996
(ii)    Filed with Post-Effective Amendment No. 1 to the Company's Registration
        Statement on Form 10, dated September 29, 1994, File No. 0-24544 and
        incorporated herein by reference.
(iii)   Filed with the Company's Quarterly Report on Form 10-Q for the period 
        [used to refer to 10.06, revised to ix]
(iv)    Filed with the Company's Registration Statement on Form S-3 dated
        May 23, 1996 (File No. 333-04407) and incorporated herein by reference.
(v)     Incorporated by reference from Exhibit 4.1 to the Company's Registration
        Statement on Form S-8 (Commission File Number 33-88446) filed on January
        13, 1995.
(vi)    Incorporated by reference from Exhibit 4.1 to the Company's Registration
        Statement on Form S-8 (Commission File Number 33-88448) filed on January
        13, 1995.
(vii)   Incorporated by reference to Annex E of the Registrant's Definitive
        Proxy Statement as filed with the Commission on May 24, 1996.
(viii)  Incorporated by reference to Company's Annual Report on Form 10-K for
        fiscal year ended June 30, 1996.
(ix)    Incorporated by reference to the Company's Current Report on Form 8-K 
        dated April 9, 1997.
(x)     Incorporated by reference to the Company's Registration Statement on 
        Form S-3 (Commission File Number 333-28693) filed on June 12, 1997.
 
                                       32
<PAGE>   34
 
                                   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
behalf of the undersigned, thereunto duly authorized.
 
                                          CYBERGUARD CORPORATION
 
                                          By:    /s/ ROBERT L. CARBERRY
                                            ------------------------------------
                                                     Robert L. Carberry
                                                  Chairman, President and
                                                  Chief Executive Officer
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
                      SIGNATURE                                   TITLE                     DATE
                      ---------                                   -----                     ----
<C>                                                    <S>                           <C>
 
               /s/ ROBERT L. CARBERRY                  Chairman, President and       September 29, 1997
-----------------------------------------------------  Chief Executive Officer and
                 Robert L. Carberry                    Director (Principal
                                                       Executive Officer)
 
               /s/ PATRICK O. WHEELER                  Vice President Finance and    September 29, 1997
-----------------------------------------------------  Chief Financial Officer
                 Patrick O. Wheeler                    (Principal Financial and
                                                       Principal Accounting
                                                       Officer)
 
                /s/ C. SHELTON JAMES                   Director                      September 29, 1997
-----------------------------------------------------
                  C. Shelton James
 
               /s/ MICHAEL F. MAGUIRE                  Director                      September 29, 1997
-----------------------------------------------------
                 Michael F. Maguire
 
              /s/ RICHARD P. RIFENBURGH                Director                      September 29, 1997
-----------------------------------------------------
                Richard P. Rifenburgh
 
                  /s/ DAVID PROCTOR                    Director                      September 29, 1997
-----------------------------------------------------
                    David Proctor
</TABLE>
 
                                       33
<PAGE>   35
 
                          INDEPENDENT AUDITORS' REPORT
 
The Board of Directors
CyberGuard Corporation:
 
     We have audited the accompanying consolidated balance sheets of CyberGuard
Corporation and subsidiaries as of June 30, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the year ended June 30, 1997, the nine months ended June 30, 1996 and the year
ended September 30, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
 
     We conducted our audits in accordance with generally accepted audited
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CyberGuard
Corporation and subsidiaries as of June 30, 1997 and 1996, and the results of
their operations and their cash flows for the year ended June 30, 1997, the nine
months ended June 30, 1996 and the year ended September 30, 1995 in conformity
with generally accepted accounting principles.
 
                                          KPMG Peat Marwick LLP
 
Miami, Florida
September 23, 1997
 
                                       F-1
<PAGE>   36
 
                    CYBERGUARD CORPORATION AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                                              JUNE 30,   JUNE 30,
                                                                1997       1996
                                                              --------   --------
<S>                                                           <C>        <C>
                                     ASSETS
Cash and cash equivalents...................................  $  2,975   $  3,617
Accounts and notes receivable, less allowance for
  uncollectible accounts of $547 and $318 at June 30, 1997
  and June 30, 1996, respectively (Note 5)..................     6,642      3,668
Inventories.................................................     1,588        134
Prepaid expenses............................................       520        285
Securities available for sale (Note 7)......................     1,268     13,600
                                                              --------   --------
          Total current assets..............................    12,993     21,304
Property and equipment, net (Note 6)........................     1,706      1,152
Investment in Concurrent preferred stock (Note 7)...........        --      3,853
Non-compete agreements (Note 15)............................     1,120      1,400
Other assets................................................       155          3
                                                              --------   --------
          Total Assets......................................  $ 15,974   $ 27,712
                                                              ========   ========
                      LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable............................................  $  1,144         --
Deferred revenue............................................     1,277         44
Accrued expenses and other liabilities (Note 8).............     3,636      6,223
Loan payable (Note 9).......................................        --      3,200
                                                              --------   --------
          Total liabilities (all current)...................     6,057      9,467
                                                              --------   --------
Shareholders' equity (Note 12)
  Common stock par value $0.01 authorized 20,000,000 shares;
     issued and outstanding 7,452,314 shares and 6,709,371
     shares at June 30, 1997 and June 30, 1996,
     respectively...........................................        74         67
  Additional paid in capital................................    59,507     56,152
  Accumulated deficit.......................................   (49,700)   (37,210)
  Unrealized gain on securities available for sale..........       173         --
  Cumulative foreign currency translation adjustment........      (137)      (764)
                                                              --------   --------
          Total shareholders' equity........................     9,917     18,245
                                                              --------   --------
          Total liabilities and shareholders' equity........  $ 15,974   $ 27,712
                                                              ========   ========
</TABLE>
 
        See notes to the accompanying consolidated financial statements.
 
                                       F-2
<PAGE>   37
 
                    CYBERGUARD CORPORATION AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                          NINE MONTHS
                                                             YEAR ENDED      ENDED       YEAR ENDED
                                                              JUNE 30,     JUNE 30,     SEPTEMBER 30,
                                                                1996         1996           1995
                                                             ----------   -----------   -------------
<S>                                                          <C>          <C>           <C>
Revenues
  Products.................................................   $ 14,574     $  6,898       $  4,534
  Services.................................................      1,047          371            283
  Real Time Business.......................................         --       30,142         40,294
                                                              --------     --------       --------
                                                                15,621       37,411         45,111
Cost of Revenues
  Products.................................................      6,669        4,427          3,001
  Services.................................................        571          162            139
  Real Time Business.......................................         --       16,433         22,624
                                                              --------     --------       --------
                                                                 7,240       21,022         25,764
Gross Profit...............................................      8,381       16,389         19,347
Operating Expenses
  Research and development.................................      4,723        5,360          7,903
  Selling, general and administrative......................     11,410       18,021         22,984
  Write-off of capitalized computer software development
     costs (Note 16).......................................         --        3,244             --
  Costs relating to canceled secondary offering............         --        1,009             --
  In process research and development (Note 2).............        262           --             --
                                                              --------     --------       --------
          Total operating expenses.........................     16,395       27,634         30,887
Operating loss.............................................     (8,014)     (11,245)       (11,540)
Interest income, net.......................................        646          180            456
Other income (expense), net................................       (708)         103             (4)
Loss on sale of securities available for sale..............     (4,414)          --             --
Loss on sale of Real-time Business (Note 1)................         --      (15,160)            --
                                                              --------     --------       --------
                                                                (4,476)     (14,877)           452
                                                              --------     --------       --------
Net loss...................................................   $(12,490)    $(26,122)      $(11,088)
                                                              ========     ========       ========
Loss per common share......................................   $  (1.76)    $  (4.32)      $  (1.88)
                                                              ========     ========       ========
Weighted average number of shares outstanding..............  7,100,014    6,046,182      5,911,437
                                                              ========     ========       ========
</TABLE>
 
        See notes to the accompanying consolidated financial statements.
 
                                       F-3
<PAGE>   38
 
                    CYBERGUARD CORPORATION AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                               YEAR     NINE MONTHS
                                                              ENDED        ENDED       YEAR ENDED
                                                             JUNE 30,    JUNE 30,     SEPTEMBER 30,
                                                               1997        1996           1995
                                                             --------   -----------   -------------
<S>                                                          <C>        <C>           <C>
Cash flows from operating activities
  Net loss.................................................  $(12,490)   $(26,122)      $(11,088)
  Adjustment to reconcile net loss to net cash provided by
     operating activities:
     Depreciation..........................................       540       2,121          3,446
     Amortization..........................................       800       1,735          1,305
     In process research and development written-off.......       262          --             --
     Loss on disposal of assets............................       169          --             --
     Compensation and benefits.............................       125         500             --
     Write-off of capitalized software development costs...        --       3,244             --
     Loss on sale of securities available for sale.........     4,414          --             --
     Loss on sale of Real-time Computing Business
       (Non-cash)..........................................        --      12,490             --
  Changes in assets and liabilities net of effect of sale
     of Real-time Computing Business and acquisitions
     Receivables...........................................    (2,894)     (3,569)         1,393
     Due from Harris Corporation...........................        --          --          6,369
     Inventories...........................................    (1,438)      3,537          4,998
     Accounts payable......................................     1,144      (2,049)        (1,201)
     Accrued expenses......................................    (1,302)      2,675         (1,051)
     Deferred revenue......................................     1,073         392           (383)
     Deferred income taxes.................................        --          --           (166)
     Prepaid expenses and other assets.....................      (147)       (265)           827
     Other.................................................      (529)       (227)           391
                                                             --------    --------       --------
          Net cash provided (used) by operating
            activities.....................................   (10,273)     (5,538)         4,840
                                                             --------    --------       --------
Cash flows from investing activities
  Additions to property and equipment......................      (969)     (1,818)        (1,900)
  Purchase of business, net of cash acquired...............      (400)         --             --
  Cash included with sale of Real-time Computing
     Business..............................................        --        (420)            --
  Software development costs -- capitalized................        --      (3,688)        (2,324)
                                                             --------    --------       --------
Net cash used by investing activities......................    (1,369)     (5,926)        (4,224)
                                                             --------    --------       --------
Cash flows from financing activities
  Proceeds (repayments) from short term borrowings.........    (3,200)      3,200             --
  Proceeds from sale of Concurrent stock...................    12,363       3,400             --
  Equity contributions.....................................     1,837         216             --
                                                             --------    --------       --------
Net cash provided by financing activities..................    11,000       6,816             --
                                                             --------    --------       --------
Net increase (decrease) in cash and cash equivalents.......      (642)     (4,648)           616
                                                             --------    --------       --------
Cash and cash equivalents at beginning of the period.......     3,617       8,265          7,649
                                                             --------    --------       --------
Cash and cash equivalents at end of the period.............  $  2,975    $  3,617       $  8,265
                                                             ========    ========       ========
</TABLE>
 
        See notes to the accompanying consolidated financial statements.
 
                                       F-4
<PAGE>   39
 
                    CYBERGUARD CORPORATION AND SUBSIDIARIES
 
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
           YEAR ENDED JUNE 30, 1997, NINE MONTHS ENDED JUNE 30, 1996
                       AND YEAR ENDED SEPTEMBER 30, 1995
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                                                 CUMULATIVE
                                                                                                   FOREIGN
                               COMMON STOCK      ADDITIONAL                  UNREALIZED GAIN      CURRENCY
                            ------------------    PAID IN     ACCUMULATED     ON SECURITIES      TRANSLATION
                             SHARES     AMOUNT    CAPITAL       DEFICIT     AVAILABLE FOR SALE   ADJUSTMENT     TOTAL
                            ---------   ------   ----------   -----------   ------------------   -----------   --------
<S>                         <C>         <C>      <C>          <C>           <C>                  <C>           <C>
Balance September 30,
  1994....................  5,911,437    $59      $43,662            --            $ --             $(928)     $ 42,793
Net Loss..................         --     --           --       (11,088)             --                --       (11,088)
Translation adjustment....         --     --           --            --              --               391           391
                            ---------    ---      -------      --------           -----             -----      --------
Balance September 30,
  1995....................  5,911,437     59       43,662       (11,088)             --              (537)       32,096
Net Loss..................         --     --           --       (26,122)             --                --       (26,122)
Translation adjustment....         --     --           --            --              --              (227)         (227)
Issuance of common stock
  relating to the sale of
  the Real-time Computing
  Business................    683,178      7       11,778            --              --                --        11,785
Issuance of common stock,
  other...................    114,756      1          712            --              --                --           713
                            ---------    ---      -------      --------           -----             -----      --------
Balance June 30, 1996.....  6,709,371     67       56,152       (37,210)             --              (764)       18,245
Net Loss..................         --     --           --       (12,490)             --                --       (12,490)
Change in market value of
  Preferred Stock
  available for sale......         --     --           --            --             173                --           173
Translation adjustment....         --     --           --            --              --               627           627
Issuance of common stock,
  for the non compete
  agreement...............     91,800      1        1,399            --              --                --         1,400
Issuance of common
  stock...................    651,143      6        1,956            --              --                --         1,962
                            ---------    ---      -------      --------           -----             -----      --------
Balance June 30, 1997.....  7,452,314    $74      $59,507      $(49,700)           $173             $(137)     $  9,917
                            =========    ===      =======      ========           =====             =====      ========
</TABLE>
 
        See notes to the accompanying consolidated financial statements.
 
                                       F-5
<PAGE>   40
 
                    CYBERGUARD CORPORATION AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 JUNE 30, 1997
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
 
1. BUSINESS OVERVIEW
 
     CyberGuard Corporation and Subsidiaries (the "Company"), is a leading
developer and marketer of commercial network security products designed to
protect data on computer networks from access by unauthorized users. The Company
was among the first companies to establish a business unit devoted to developing
and marketing network security products. As early as 1989 the Company had
developed and begun to market an integrated secure operating system and secure
networking software solution. With the announcement of its firewall application
in 1994, the Company began offering multi-level network security solutions to
the commercial market through its CyberGuard Firewall suite of products.
 
     In May 1995 the Company separated its business operation into two units;
Real-time Business and the Trusted Systems Division, which developed network
security products. On March 26, 1996, the Company and Concurrent Computer
Corporation ("Concurrent") signed a Purchase and Sale Agreement effective as of
that date and amended and restated as of May 23, 1996 ("Agreement"). This
Agreement was approved by the shareholders of both companies on June 27, 1996
and the transaction was closed effective June 30, 1996. In connection with this
sale, the Company changed its fiscal year end from September 30 to June 30,
effective in the year beginning October 1, 1995. Under the Agreement, the
Company sold the net assets of its Real-time computing business with a book
value of $21,561 and issued 683,178 shares of its common stock valued at $11,785
to Concurrent (the Transaction) in exchange for (i) 10 million newly issued
shares of Concurrent common stock, par value $0.01 per share valued at $17,000,
and (ii) convertible exchangeable preferred stock of Concurrent paying a 9%
cumulative annual dividend quarterly in arrears with a liquidation preference of
approximately $6,264. The Preferred Stock is redeemable by Concurrent when the
current market price exceeds $3.75, and is mandatorily redeemable on June 27,
2006, at the liquidation preference plus accrued and accumulated unpaid
dividends. The conversion ratio is at a rate equal to the liquidation preference
divided by the conversion price, which is initially $2.50, but can be adjusted
in certain circumstances. The Preferred Stock at June 30, 1996 is reflected at
its estimated market value of $3,853 which was calculated using a discount rate
of 14% and that no dividends will be paid until the mandatory redemption date.
Since the Company has been actively selling the Preferred Stock, it has been
reclassified as securities available for sale. The Preferred Stock at June 30,
1997 is reflected at current market price, inclusive of all cumulative dividends
earned (See Note 7 for further details).
 
2. ACQUISITIONS
 
     On April 9, 1997 the Company purchased substantially all the assets of
TradeWave Corporation, a wholly owned subsidiary of SunRiver Corporation.
CyberGuard created a new wholly owned subsidiary, TradeWave Corporation, a
Florida corporation to which it contributed all the assets purchased. The
transaction was accounted for as a purchase and, accordingly, TradeWave
Corporation results are included in the consolidated financial statements since
the date of acquisition. The aggregate purchase price was approximately $400.
The fair value of net assets acquired was approximately $138. The balance of
excess of cost over net assets acquired was allocated to in-process research and
development for projects that had not reached technical feasibility and had no
probable alternative future uses, which the Company expensed at the date of
acquisition. On the basis of a pro forma consolidation of the results of
operations, as if the acquisition had taken place at October 1, 1995
consolidated net sales would have been $16,551 and $39,054 for the year ended
June 30, 1997 and for the nine months ended June 30, 1996, respectively. The net
loss and net loss per common share would have been $18,646 and $2.62 per share
for the year ended June 30, 1997 and $29,177 and $4.81 per share for the nine
months ended June 30, 1996, respectively. Such pro forma amounts are unaudited
and are not necessarily indications of what the actual consolidated results of
operations might have been if the acquisition had been effective at October 1,
1995.
 
                                       F-6
<PAGE>   41
 
                    CYBERGUARD CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
3. LIQUIDITY
 
     The Company's historical uses of cash have been to fund net losses from
operations, property, and equipment acquisitions and software development costs.
Capital expenditures for the fiscal year ended June 30, 1997 and nine months
ended June 30, 1996 were $969 and $1,818 respectively. Software development
costs were $4,723 and $5,360 respectively for the same periods.
 
     Prior to the Transaction, the Company funded its cash requirements from its
working capital and cash flow provided from the Real time business. The Company
sold all its investment in the common stock of Concurrent and substantially all
its investment in the preferred stock of Concurrent to pay off its line of
credit and to fund operations for the fiscal year 1997.
 
     On May 19, 1997 the Company entered into an equity financing arrangement as
filed with the Securities and Exchange Commission under the S-3 to sell
privately up to a maximum 1,470,085 shares of the Company's common stock. Under
this private placement equity offering, the Company has the right, subject to
certain conditions, to sell common stock for up to $7.5 million. Pursuant to the
Subscription Agreement, the Company either (i) must make a call for proceeds of
at least $3,750 by May 14, 1998 and for all of the proceeds by November 15, 1998
or (ii) issue to the purchaser warrants with respect to a maximum of 170,000
shares of the Company's common stock at an exercise price equal to the market
price of common stock on November 15, 1998.
 
     If the Company determines additional equity and/or debt financing is
necessary to support its on-going or strategic requirements, it may need to
pledge certain working capital assets. Although there can be no assurance that
external sources of financing will be available or that, if available, such
financing will be on acceptable terms, the Company believes that such funding
should be available if required.
 
4. SIGNIFICANT ACCOUNTING POLICIES
 
     Consolidation -- The consolidated financial statements include those of
CyberGuard Corporation and its wholly-owned subsidiaries. All significant
intercompany balances and transactions between entities have been eliminated.
 
     Inventories -- are carried at the lower of cost, determined by the
First-In-First-Out (FIFO) method, or market.
 
     Long-Lived Assets -- property and equipment is carried on the basis of
cost. Depreciation is computed by the straight-line method using the estimated
useful lives of the assets.
 
     The Company implemented the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", effective July 1, 1996. The Company
reviews its long-lived assets (property and equipment) for impairment whenever
events or circumstances indicate that the carrying amount of an asset may not be
recoverable. If the sum of the expected cash flows, undiscounted and without
interest, is less than the carrying amount of the asset, an impairment loss is
recognized as the amount by which the carrying amount of the asset exceeds its
fair value. The adoption of Statement No. 121 had no impact on the Company's
financial position or results of operations.
 
     Software Development Costs -- The Company capitalized costs related to the
development of certain software products. Capitalization began when
technological feasibility had been established and ended when the product was
available for general release to customers. Software development costs incurred
prior to technological feasibility were considered research and development
costs and are expensed as incurred. Capitalized costs were amortized as the
greater of the amount computed using the ratio that current gross revenues for a
product bear to the total current and anticipated future gross revenues for that
product or the straight-line method over five years. There were no software
development costs capitalized for the year ended
 
                                       F-7
<PAGE>   42
 
                    CYBERGUARD CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
June 30, 1997, $3,688 for the nine months ended June 30, 1996 and $2,324 for the
year ended September 30, 1995. Software amortization expense was $0 for the year
ended June 30, 1997, $1,414 for the nine months ended June 30, 1996 and $1,305
for the year ended September 30, 1995. Effective June 30, 1996, the Company sold
its Real-time computing business to Concurrent. As a result of this transaction,
management made the decision to move from the Night Hawk based platform to an
Intel PC-based platform and accordingly, wrote-off the related software
development costs. See Note 16 for further details.
 
     Revenue Recognition -- The Company accounts for software revenues in
accordance with the American Institute of Certified Public Accountants Statement
of Position 91-1, Software Revenue Recognition. Revenues earned under software
license agreements with end users are generally recognized when the software has
been shipped, payment is due within one year, collectibility is probable, and
there are no significant obligations remaining. Unearned income on service
contracts is amortized by the straight-line method over the term of the
contracts. Revenue from long-term software contracts is accounted for by the
percentage of completion method whereby income is recognized based on the
estimated stage of completion of individual contracts using costs incurred as a
percentage of total estimated costs at completion. Losses on long-term contracts
are recognized in the period in which such losses are determined.
 
     Foreign Currency Translation -- The assets and liabilities of the foreign
operations are translated using the local currency as the functional currency.
 
     Income Taxes -- The Company files a consolidated Federal income tax return.
 
     The Company follows the asset and liability method of accounting for income
taxes. Under the asset and liability method, a deferred tax asset or liability
is recognized for temporary differences between financial reporting and income
tax bases of assets and liabilities, tax credit carryforwards and operating loss
carryforwards. A valuation allowance is established to reduce deferred tax
assets if it is more likely than not that such deferred tax assets will not be
realized.
 
     Cash Equivalents -- The Company considers all investments purchased with an
original maturity of three months or less at the time of purchase to be cash
equivalents.
 
     Marketable Securities -- The Company accounts for marketable securities in
accordance with the Statement of Financial Accounting Standards No. 115 ("SFAS
No. 115"), Accounting for Certain Investments in Debt and Equity Securities. In
accordance with the provisions of SFAS No. 115, marketable securities, which
have been classified by the Company as available for sale, are carried at market
value, with the unrealized gains or losses, net of tax, reported as a separate
component of shareholders' equity. The Company sold all its investment in common
stock of Concurrent Computer Corporation at June 30, 1997 and the majority of
its investment in Preferred Stock in Concurrent Computer Corporation during the
fiscal year ended June 30, 1997. (See Note 7).
 
     Loss per Common Share -- Loss per common share is calculated by dividing
the net loss by the weighted-average number of common shares outstanding during
the period. Common stock equivalents are excluded due to their anti-dilutive
effect.
 
     Stock Option Plan -- Prior to January 1, 1996, the Company accounted for
its stock option plan in accordance with the provisions of Accounting Principles
Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock exceeded
the exercise price. On July 1, 1996, the Company adopted SFAS No. 123,
Accounting for Stock-Based Compensation, which permits entities to recognize as
expense over the vesting period the fair value of all stock-based awards on the
date of grant. Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma net income and
pro forma earnings per share disclosures for employee stock option grants made
in 1995 and future years as if the fair-value-based method defined in SFAS No.
123 had
 
                                       F-8
<PAGE>   43
 
                    CYBERGUARD CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
been applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
 
     Use of Estimates -- Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
 
     Cancellation of the Secondary Public Offering -- On August 5, 1996, The
Company decided to withdraw a secondary offering of common stock due to
unfavorable market conditions. Expenditures associated with the cancellation of
this stock offering amounting to approximately $1 million were written off and
appear on the Company's consolidated statement of operations in the year ended
June 30, 1997.
 
     Reclassifications -- Certain items previously reported in specific
financial statement captions have been reclassified to conform with the 1996
presentation.
 
5. ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
 
     Changes in the allowance for uncollectible accounts follows:
 
<TABLE>
<CAPTION>
                                                     YEAR ENDED   NINE MONTHS    YEAR ENDED
                                                      JUNE 30,     JUNE 30,     SEPTEMBER 30,
                                                        1997         1996           1995
                                                     ----------   -----------   -------------
<S>                                                  <C>          <C>           <C>
Balance at beginning of year.......................     $318        $ 1,513        $  213
Additions charged to expense.......................      327            421         1,660
Less net write off of uncollectible accounts.......      (98)          (355)         (360)
Less allowance transferred in the sale of the real
  time business....................................       --         (1,261)           --
                                                        ----        -------        ------
Balance at end of year.............................     $547        $   318        $1,513
                                                        ====        =======        ======
</TABLE>
 
Bad debt expense is included in "Selling, general, and administrative expenses"
on the consolidated statement of operations.
 
6. PROPERTY AND EQUIPMENT, NET
 
     Property and equipment, net is summarized as follows:
 
<TABLE>
<CAPTION>
                                                           JUNE 30,   JUNE 30,    ESTIMATED
                                                             1997       1996     USEFUL LIFE
                                                           --------   --------   -----------
                                                                                 (IN YEARS)
<S>                                                        <C>        <C>        <C>
Property and equipment...................................  $ 2,645    $ 1,553       5-10
Loan equipment and service parts.........................      418        634        1-5
Software.................................................      198         --          3
Leasehold improvements...................................       27         --        3-5
                                                           -------    -------
Gross property and equipment.............................    3,288      2,187
Less: accumulated depreciation...........................   (1,582)    (1,035)
                                                           -------    -------
Net property and equipment...............................  $ 1,706    $ 1,152
                                                           =======    =======
</TABLE>
 
7. SECURITIES AVAILABLE FOR SALE
 
     As part of the sale of the Real-time Computing Business, the Company
received 10,000,000 shares of Common Stock of Concurrent valued at $17,000 and
1,000,000 shares of 9% cumulative dividend, convertible Preferred Stock at a
liquidation preference of $6,264. At June 30, 1996 the Preferred Stock was
recorded at its
 
                                       F-9
<PAGE>   44
 
                    CYBERGUARD CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
estimated market value which was calculated using a discount rate of 14%, and
the assumption that no dividends would be paid until the mandatory redemption
date. The Preferred Stock was considered a non current asset, as the Company's
intention was to hold the investment until maturity at June 26, 2006. However,
during the course of the year, the Company decided to sell the majority of the
Preferred Stock and use its proceeds to fund operations. As such, these
securities, which are convertible into Common Stock have been reclassified as
securities available-for-sale and valued at their market value as of June 30,
1997 which is calculated by taking the number of common share equivalents times
the price per common share at June 30, 1997.
 
     Securities available for sale is summarized below:
 
<TABLE>
<CAPTION>
                                                             GROSS          GROSS       ESTIMATED
                                              AMORTIZED    UNREALIZED     UNREALIZED      FAIR
                                                COST      APPRECIATION   DEPRECIATION     VALUE
                                              ---------   ------------   ------------   ---------
<S>                                           <C>         <C>            <C>            <C>
June 30, 1997:
Concurrent Computer Corp.
  Preferred Stock...........................   $ 1,095        $173            $--        $ 1,268
  Common Stock..............................        --          --            --              --
                                               -------        ----           ---         -------
          Total.............................   $ 1,095        $173            $--        $ 1,268
                                               =======        ====           ===         =======
June 30, 1996:
Concurrent Computer Corp.
  Preferred Stock...........................   $ 3,853        $ --            --         $ 3,853
  Common Stock..............................    13,600          --            --          13,600
                                               -------        ----           ---         -------
          Total.............................   $17,453        $ --            $--        $17,453
                                               =======        ====           ===         =======
</TABLE>
 
8. ACCRUED EXPENSES AND OTHER LIABILITIES
 
     Accrued expenses and other liabilities consists of the following:
 
<TABLE>
<CAPTION>
                                                              JUNE 30,   JUNE 30,
                                                                1997       1996
                                                              --------   --------
<S>                                                           <C>        <C>
Salaries, wages and other compensation......................   $1,167     $  656
Accrued interest and sundry taxes...........................      168        180
Other.......................................................    1,557      1,462
Royalties payable(a)........................................      674        285
Secondary offering expenses.................................       --        398
Non-compete agreement (Note 15).............................       --      1,400
Expenses for the sale of Real-time computing business.......       --      1,842
                                                               ------     ------
                                                               $3,636     $6,223
                                                               ======     ======
</TABLE>
 
---------------
 
(a) Represents various software license royalty payments due to third-parties
    for products sold by the company.
 
    9. LOAN PAYABLE
 
     On April 1, 1996, the Company entered into a loan and security agreement
with Foothill Capital Corporation ("Foothill") pursuant to which Foothill agreed
to make revolving advances to the Company on an amount of up to $5,000,000
subject to certain borrowing base requirements and at an interest rate equal to
the prime or reference rate announced by Norwest Bank Minnesota, National
Association, plus two percent. On June 27, 1996, this agreement was amended to,
among other things, extend the maturity date to the earlier
 
                                      F-10
<PAGE>   45
 
                    CYBERGUARD CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
of (a) September 30, 1996 or (b) the date on which the Company consummates a
secondary common stock offering. As collateral for the loan, the Company granted
Foothill a security interest in its assets (including 7,000,000 shares of the
Concurrent common and all of the preferred stock received by the Company in
connection with the Transaction).
 
     In addition, the Company granted Foothill warrants to purchase 100,000
shares of common stock at a price equal to the lower of the price of a share of
common stock issued to the public pursuant to a registration statement or $17.00
per share. The warrant is exercisable in whole or in part from the date that is
the earlier of August 1, 1996 and five days after the closing of a public
offering through June 27, 2001.
 
     In August 1996, the Foothill loan was repaid. As of June 30, 1997, there
are no outstanding amounts due on the loan.
 
10. STOCK SPLIT
 
     On March 5, 1996, the Board of Directors declared a three-for-one common
stock split distributable on March 29, 1996 to shareholders of record at the
close of business on March 18, 1996. All applicable share and per share data
have been retroactively restated for the stock split.
 
11.  INCOME TAXES
 
     There is no provision for income taxes due to the loss carryforward.
 
     The components of deferred income tax assets (liabilities) are as follows:
 
<TABLE>
<CAPTION>
                                                              JUNE 30,    JUNE 30,
                                                                1997        1996
                                                              --------    --------
<S>                                                           <C>         <C>
Charitable contributions....................................  $    279    $    275
Inventory valuations........................................        21           2
Depreciation................................................      (149)        (16)
Capitalized software........................................        --          --
Restructuring costs.........................................        --          19
Accrued vacation............................................        76          62
Net operating losses available carryforwards................    12,727      11,043
Capital loss carryforwards..................................     2,291          --
All other -- net............................................       727         154
Valuation allowance.........................................   (15,972)    (11,539)
                                                              --------    --------
Net deferred income tax liability...........................  $     --    $     --
                                                              ========    ========
</TABLE>
 
                                      F-11
<PAGE>   46
 
                    CYBERGUARD CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     A reconciliation of the effective income tax rate and the statutory United
States income tax rate follows:
 
<TABLE>
<CAPTION>
                                                                    NINE
                                                        YEAR       MONTHS
                                                       ENDED       ENDED       YEAR ENDED
                                                      JUNE 30,    JUNE 30,    SEPTEMBER 30,
                                                        1997        1996          1995
                                                      --------    --------    -------------
<S>                                                   <C>         <C>         <C>
Statutory U.S. income tax rate......................   (34.0)%     (34.0)%        (34.0)%
State taxes.........................................      --          --           (1.9)
Capitalized restructuring costs.....................      --          --             --
Operating loss carryforwards........................    33.5        28.9           32.2
Payment of tax to Former Parent on German
  dividend..........................................      --          --           21.8
Contributions.......................................      --          --
Other items.........................................      .5         5.1            1.8
                                                       -----       -----          -----
Effective income tax rate...........................      --          --             --
                                                       =====       =====          =====
</TABLE>
 
     United States income taxes have not been provided on the undistributed
earnings of international subsidiaries because the Company has intended to
reinvest these earnings. If the Company distributes international earnings, a
U.S. tax would be provided in future periods. As of June 30, 1997, the Company
does not intend to distribute international earnings, therefore no US tax has
been projected. The determination of the amount of these undistributed earnings
and any related unrecognized deferred US tax liability is not practicable.
 
     As of June 30, 1997, the Company has U.S. net operating loss carryforwards
of approximately $37 million. The Company's net operating loss carryforwards
begin to expire in 2010. As of June 30, 1997, the Company has a U.S. net capital
loss carryforward of approximately $6,740. The Company may utilize these capital
loss carryforwards only to offset future capital gains.
 
     Pretax loss from European operations was ($55) for the twelve months ended
June 30, 1997; ($998) for the nine months ended June 30, 1996; and ($3,136) for
the year ended September 30, 1995.
 
12.  SHAREHOLDERS' EQUITY
 
     Each share of the Company's common stock has attached to it one right. Each
right entitles its registered holder to purchase from the Company after the
"Separation Time", as hereinafter defined, one-hundredth of a share of
Participating Preferred Stock, par value $.01 per share, for an amount
calculated in accordance with the Agreement. The rights will not trade
separately from the common stock unless and until the Separation Time. The
Separation Time is defined as the earlier of the tenth business day after the
date on which any person commences a tender or exchange offer which, if
consummated, would result in an acquisition, and the first date of public
announcement by the Company of such offering. In the event of any voluntary, or
involuntary liquidation of the Company, the holders of the Preferred Stock shall
be paid an amount as calculated in accordance with the Preferred Stock
Agreement.
 
     Effective October 8, 1994, the Company adopted a Stock Incentive Plan which
permits the issuance of stock options, stock appreciation rights, performance
awards, restricted stock and/or other stock based awards to directors and
salaried employees. On February 4, 1996, the Board of Directors approved an
amendment to the plan to reserve 2,025,000 shares of common stock for grant. The
option price shall be determined by the Board Committee effective on the Grant
Date. The option price shall not be less than one hundred percent of the Fair
Market Value of a share of common stock on the Grant Date. If Incentive Stock
Options are granted to a participant who on the Grant Date is a ten percent
holder, such price shall be not less than one hundred and ten percent of the
Fair Market Value of a share of common stock on the Grant Date. All options
become immediately exercisable upon the occurrence of a Change in Control of the
Company. Vesting of these options
 
                                      F-12
<PAGE>   47
 
                    CYBERGUARD CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
occurs based on years of service. It begins at 33% after one year, 66% after two
years, and 100% after the third year of service.
 
     The Company also elected to have non-qualified stock options for key
executives as part of their compensation plan. The Board of Directors has the
authority to determine to whom options may be granted, period of exercise, the
option price at the date of grant, and what other restrictions, if any, should
apply.
 
     Pro forma information regarding net loss and loss per common share is
required by FAS 123, which also requires that the information be determined as
if the Company has accounted for its employee stock options granted subsequent
to September 30, 1995 under the fair value method of FAS 123. The fair value
method for these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions for 1997 and 1996, respectively: risk-free interest rates ranged
from 5.8% to 6.3% and 4.9% to 5.8%, expected dividend yield of 0% and 0%,
volatility factors of the expected market price of the Company's common stock
ranged from .87 to .90 and .76 to .93, and a weighted average expected life of
the option of 3 years and 1.9 years, respectively.
 
     The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
 
     The adoption of FAS 123 under the fair value based method would have
increased compensation expense by $1,728 for the year ended June 30, 1997 and
$681 for the nine months ended June 30, 1996. The effect of FAS 123 under the
fair value based method would have effected net loss and loss per share as
follows:
 
<TABLE>
<CAPTION>
                                                                            NINE MONTHS
                                                              YEAR ENDED       ENDED
                                                               JUNE 30,      JUNE 30,
                                                                 1996          1997
                                                              ----------    -----------
<S>                                                           <C>           <C>
Net loss....................................................   $(12,490)     $(26,122)
                                                               ========      ========
Pro forma...................................................   $(14,218)     $(26,803)
                                                               ========      ========
Loss per common share as reported...........................   $ ( 1.76)     $ ( 4.32)
                                                               ========      ========
Pro forma...................................................   $ ( 2.00)     $  (4.43)
                                                               ========      ========
</TABLE>
 
                                      F-13
<PAGE>   48
 
                    CYBERGUARD CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Information relating to the Company's stock option plan is as follows:
 
<TABLE>
<CAPTION>
                                                           NUMBER OF    WEIGHTED AVERAGE
                                                            SHARES       EXERCISE PRICE
                                                           ---------    ----------------
<S>                                                        <C>          <C>
Shares under option at September 30, 1994................         --            --
  Granted................................................    715,200         $2.60
  Exercised..............................................         --            --
  Forfeited..............................................         --            --
                                                           ---------        ------
Shares under option at September 30, 1995................    715,200         $2.60
                                                           =========        ======
Shares exercisable at September 30, 1995.................         --            --
                                                           =========        ======
Shares under option at September 30, 1995................    715,200         $2.60
  Granted................................................    984,300          7.17
  Exercised..............................................    (84,630)         2.87
  Forfeited..............................................    (25,206)         2.60
                                                           ---------        ------
Shares under option at June 30, 1996.....................  1,589,664         $5.46
                                                           =========        ======
Shares exercisable at June 30, 1996......................    803,163         $3.50
                                                           =========        ======
Shares under option at June 30, 1996.....................  1,589,664         $3.50
  Granted................................................    947,850          9.37
  Exercised..............................................   (636,559)         3.00
  Forfeited..............................................    (75,033)         8.75
                                                           ---------        ------
Shares under option at June 30, 1997.....................  1,825,922         $7.77
                                                           =========        ======
Shares exercisable at June 30, 1997......................    594,442         $6.43
                                                           =========        ======
</TABLE>
 
     At June 30, 1997, 739,605 stock options outstanding have exercise prices
ranging from $2.58 to $5.50. The weighted average exercise price of these
options is $4.88 and weighted remaining contractual life of these options is
3.38 years. Of these options, 397,905 are exercisable at a weighted average
price of $4.35.
 
     At June 30, 1997, 747,317 stock options outstanding have exercise prices
ranging from $8.87 to $10.75. The weighted average exercise price of these
options is $9.31 and weighted remaining contractual life of these options is
4.45 years. Of these options, 84,667 are exercisable at a weighted average price
of $10.62.
 
     At June 30, 1997, 339,000 stock options outstanding has an exercise price
of $10.67. The remaining contractual life of these options is 8.7 years. Of
these options, 111,870 are currently exercisable.
 
     As of June 30, 1997 there were 100,000 warrants outstanding to Nissin
Electric Company, granted as a part of a joint sales and marketing agreement to
address the Japanese Firewall market. These warrants are exercisable based upon
Nissin fulfilling certain minimum purchase obligations at predetermined dates
through December 31, 1998. The price of the options are exercisable at $15.00
per common share.
 
13. EMPLOYEE BENEFIT PLANS
 
     The Company has a 401(k) Savings Plan ("the Plan") which covers the
eligible employees of CyberGuard Corporation, and any related company. An
employee is eligible to participate in the Plan on the date of hire The amount
of profit-sharing contributions made by the Company into the Plan is
discretionary and shall be determined based on a percentage of the Company's
adjusted net income before taxes. Each participant may contribute up to 12% of
compensation into the Plan. The Company makes a matching contribution on behalf
of each participant for the first 6% of their individual contribution.
Participant's profit-sharing and matching contribution vests over a seven year
period. The Company contributions to the Plan
 
                                      F-14
<PAGE>   49
 
                    CYBERGUARD CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
were $221 for the year ended June 30, 1997; $738 for the nine months ended June
30, 1996 and $966 for the year ended September 30, 1995.
 
14. CONTINGENCIES
 
     Certain claims have been filed or are pending against the Company. It is
management's opinion that all matters are without merit or are of such kind, or
involve such amounts, as would not have a material effect on the consolidated
financial position of the Company if disposed of unfavorably.
 
15. NON-COMPETE AGREEMENTS
 
     In connection with the sale of the Real-time computing business, the
Company entered into non-compete agreements for a period of five years with two
former officers of the Company. In consideration for the these non-compete
agreements, these officers received 91,800 shares of the Company's Common Stock.
These shares were valued at market price as of the date of the agreement, June
28, 1996, and were accrued for as of June 30, 1996. These amounts will be
amortized over the life of the agreement. The amortization expense for the year
ended June 30, 1997 is $280.
 
16. WRITE OFF OF CAPITALIZED COMPUTER SOFTWARE DEVELOPMENT COSTS
 
     After the sale of the Real-time Computing Division to Concurrent Computer
Corporation, a decision was made by new management of the Company to move from
the Night Hawk based platform to an Intel-PC based platform running on the
UnixWare operating system which the Company licenses from Santa Cruz Operations
The Company had capitalized computer software development costs, which relate to
the Night Hawk based systems. As a result of new management's decision to move
to a different platform, such capitalized computer software development costs of
approximately $3,244 became worthless and accordingly have been charged to
operations during the year ended June 30, 1996.
 
17. LEASE COMMITMENTS
 
     Rent expense was $231 for the year ended June 30, 1997; $1,382 for the nine
months ended June 30, 1996, $1,814 for the year ended September 30, 1995.
 
     On June 10, 1997, the Company entered into a ten year term office lease for
its corporate office located in a commercial building in Fort Lauderdale,
Florida. The lease provides for a 5 year renewal option.
 
     Total future minimum rental commitments under non-cancelable operating
leases, primarily for buildings and equipment, for the years following June 30,
1997 are: 1998 -- $648; 1999 -- $710; 2000 -- $711; 2001 -- $477; and 2002 and
thereafter -- $450.
 
18. CONCENTRATIONS OF CREDIT RISK AND RELATED PARTY TRANSACTIONS
 
     Financial instruments which potentially subject the Company to a
concentration of credit risk principally consist of cash, cash equivalents and
trade receivables. The Company holds any excess cash in short-term investments
consisting of commercial paper. Concentrations of credit risk with respect to
receivables are limited due to the Company's large number of customers. Credit
risk with respect to securities consist of Concurrent stock received in
connection with the sale of the Real-time Computing Business and is limited due
to the fact that the Company sold all its ownership in the common stock and the
majority of its ownership in the preferred stock at June 30, 1997.
 
                                      F-15
<PAGE>   50
 
                    CYBERGUARD CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
19. GEOGRAPHIC INFORMATION
 
     The Company operates exclusively in the computer systems industry.
Substantially all revenues result from the sale of computer systems and related
software and services. Major customers during 1997, 1996, and 1995 include the
United States Government, Hucom, Inc., and Boeing Company. In many cases,
agencies of the United States Government are the ultimate purchasers of the
Company's products. Sales to the United States Government combined with sales
for which the Company acted as subcontractor on government projects have
represented approximately 9%, 51%, and 43% of total sales for the year ended
June 30, 1997, the nine months ended June 30, 1996 and the year ended September
30, 1995, respectively. Sales made to Hucom represented 11% in 1997. Sales made
to Boeing Company as a percentage of total sales were 0%, 7% and 4%, for the
year ended June 30, 1997, the nine months ended June 30, 1996 and the year ended
September 30, 1995, respectively. During the year ended September 30, 1995, the
Company's largest customer was Lockheed Martin Corporation. Sales made to
Lockheed Martin Corporation as a percentage of total sales were 11% for the year
ended September 30, 1995.
 
     All intercompany revenues and expenses are eliminated in computing revenues
and operating income.
 
     A summary of the Company's operations by geographic area is summarized
below:
 
<TABLE>
<CAPTION>
                                                                  NINE MONTHS
                                                     YEAR ENDED      ENDED       YEAR ENDED
                                                      JUNE 30,     JUNE 30,     SEPTEMBER 30,
                                                        1997         1996           1995
                                                     ----------   -----------   -------------
<S>                                                  <C>          <C>           <C>
United States Operations
  Net sales........................................   $ 11,257     $ 31,402        $36,138
  Net loss.........................................    (12,435)     (25,124)        (7,952)
  Identifiable assets..............................     15,606       22,756         33,658
European Operations
  Net sales........................................      4,364        6,009          8,973
  Net loss.........................................        (55)        (998)        (3,136)
  Identifiable assets..............................        368        4,956          8,186
</TABLE>
 
     US Export Sales were $5,209 for the year ended June 30, 1997; $3,812 for
the nine months ended June 30, 1996; $2,945 for the year ended September 30,
1995.
 
20. SHARED SERVICE AGREEMENT
 
     On June 30, 1996, the Company entered into an agreement with Concurrent to
provide certain administrative and personnel-related services for the Company.
The Company was billed monthly for these services which totaled $461 for the
year ended June 30, 1997. Effective June 30, 1997 the only service provided was
for rental of facilities.
 
CYBERGUARD RESELLER AGREEMENT:
 
     A reseller agreement exists, effective June 27, 1996, between The Company
and Concurrent to act as a reseller of CyberGuard products. For each CyberGuard
Product sold by Concurrent, Concurrent shall pay to CyberGuard a predetermined
fee. The initial term of this agreement shall be for a period of twelve months
beginning with the effective date of this agreement and may be renewed for two
additional terms of twelve months each with the written consent of both the
Company and Concurrent. During the current fiscal year, the Company elected to
extend the reseller agreement to Concurrent for an additional twelve month
period.
 
     Sales to Concurrent Computer Corporation and its subsidiaries were $60 for
the year ended June 30, 1997.
 
                                      F-16
<PAGE>   51
 
                    CYBERGUARD CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NIGHTHAWK SUPPLIER AGREEMENT:
 
     A supplier agreement exists, effective June 27, 1996 between the Company
and Concurrent. During the term of this agreement, the Company shall pay
Concurrent a fee of $5 per month. The initial term of this agreement shall be
for a period of twelve months beginning with the effective date of this
agreement and may be renewed for two additional terms of twelve months each with
the written consent of both the Company and Concurrent . During the current
fiscal year the NightHawk Supplier Agreement with Concurrent was renegotiated
with new pricing established and an extension of the agreement until December
31, 1997.
 
21. RESELLER AGREEMENTS
 
     On August 6, 1996, the Company entered into a Joint Development and
Marketing Agreement with Information Resources Engineering, Inc. (IRE) whereas
the Company and IRE will jointly develop and market a product offering
consisting of a combination of the CyberGuard Firewall and IRE SafeNet products
in an interoperable centrally managed system configured for use with a virtual
private network (VPN). In connection with this Agreement IRE paid CyberGuard $1
million in prepaid licenses of which approximately $.85 million remains as
deferred revenue as of June 30, 1997.
 
     Subject to the terms and conditions of this Joint Agreement, the Company
and IRE agree to cooperate with and assist each other in the joint design and
development of any product.
 
     The Company entered into a Master Software Licensing Agreement with Data
General on June 23, 1997. The agreement calls for mutual software development,
sales, and support toward a strategic alliance that fully integrates the
CyberGuard Firewall with Data General's Secureline hardware servers. In
connection with this agreement, the Company has agreed to pay Data General $.5
million of prepaid royalties. Prepaid royalties of $166,000 have been accrued as
of June 30, 1997.
 
22. NEW ACCOUNTING PRONOUNCEMENTS
 
     In June 1997 the Financial Accounting Standards Board ("FASB") Issued SFAS
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997 and establishes
standards for reporting and display of comprehensive income and its components
in a full set of general purpose financial statements. SFAS No. 130 requires all
items to be reported in a separate financial statement. The Company does not
believe that adoption of SFAS No. 130 will have a significant impact on its
financial reporting.
 
     In June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131). SFAS No. 131 is effective
for financial statements for periods beginning after December 15, 1997. SFAS 131
establishes standards for the way the public business enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. The Company does not believe that adoption of SFAS No.
131 will have a significant impact on its financial reporting.
 
     In February 1997, the FASB issued SFAS No. 128," Earnings Per Share" (SFAS
No. 128"). SFAS No. 128 specifies new standards designed to improve the earnings
per share ("EPS") information provided in statements by simplifying the existing
computational guidelines, revising the disclosure requirements and increasing
the comparability of EPS data on an international basis. SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods. The Company does not believe that adoption of
SFAS No. 128 will have a significant impact on its financial reporting.
 
                                      F-17