<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>
<C>         <S>
(MARK ONE)
    [X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
            THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED JUNE 30, 1996
                                      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 jurisdiction                                    (I.R.S. Employer
              incorporation or organization)                                 Identification No.)

  2101 WEST CYPRESS CREEK ROAD, FORT LAUDERDALE, FLORIDA                          33309      
         (Address of principal executive offices)                              (Zip Code)    
</TABLE>                                                                     
 
       Registrant's telephone number, including area code: (305) 974-1700
 
        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 as of the
Registrant was approximately $46,979,789 (based upon the closing sale price of
$8.375 per share on the Nasdaq National Market System on September 26, 1996).
 
     As of September 26, 1996, 6,753,280 shares of the Registrant's $0.01 par
value Common Stock were outstanding.
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2
 
                                    PART II
 
ITEM 1.  BUSINESS
 
OVERVIEW
 
     CyberGuard Corporation (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 secure network security solutions to the commercial
market through its CyberGuard Firewall suite of products.
 
     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 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. See "Recent Events, below." With the completion
of this transaction, the Company is now focused solely on the business of
developing and marketing firewalls and other network security products.
 
     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.
 
RECENT EVENTS
 
     Change of fiscal year end.  In July 1996, the Company's board of directors
approved a proposal to change the Company's fiscal year end to June 30.
 
     Sale of Real-time Business.  In May 1995, the Company separated its
business operations into two units: the "Real-time Business," consisting of the
assets and liabilities associated with the manufacture and marketing of
real-time computer systems, and the "Trusted Systems Division," consisting of
the assets and liabilities of the Company's network security business described
herein. The Real-time Business represented approximately 80% of the assets of
the Company as of June 26, 1996 (the date of the Real-time Sale), and accounted
for 81%, 89% and 87% of the Company's sales for the nine-month periods ended
June 30, 1996, September 30, 1995 and June 30, 1994, respectively.
 
     Effective June 30, 1996, the Company sold its Real-time Business and issued
683,187 shares of its Common Stock to Concurrent Computer Corporation
("Concurrent") in exchange for Concurrent common and preferred stock. (The sale
of the Real-time Business and the related issuance of shares of the Company's
Common Stock is referred to herein as the "Real-time Sale.") The Real-time Sale
consisted of the sale of the Company's Real-time Business and the issuance of
683,178 shares of its Common Stock to Concurrent in exchange for (i) 10,000,000
newly issued shares of common stock of Concurrent, par value $.01 per share;
(ii) 1,000,000 newly issued shares of convertible exchangeable preferred stock
of Concurrent with a 9% cumulative annual dividend payable quarterly in arrears
and a liquidation preference of $6.26 per share (subject to adjustment under
certain circumstances); and (iii) the assumption by Concurrent of certain (but
not all) of the liabilities of the Real-time Business. The Concurrent common
stock received by the Company represented approximately 23% of the Concurrent
common stock outstanding immediately following the Real-time Sale (29% if the
Concurrent preferred stock were to be converted into Concurrent common stock).
The Concurrent common and preferred stock received by the Company constituted in
the aggregate approximately 75% of the Company's assets on June 27, 1996 (the
date of the Real-time Sale.)
 
     The Company has sold substantially all the Concurrent common stock to fund
cash requirements that in the past had been funded with working capital and cash
flows from the Real-time Business. The Company has
 
                                        1
<PAGE>   3
 
retained, but does not intend to hold to maturity, the Concurrent preferred
stock received in the Real-time Sale. The Concurrent preferred stock, which has
a 9% cumulative annual dividend payable quarterly in arrears and a liquidation
preference of $6.26 per share (subject to adjustment under certain
circumstances), is convertible at the option of the holder into approximately
2,500,000 shares of concurrent common stock (or approximately 5.5% of the
current common stock that would be outstanding following such conversion. There
is no definitive public market for Concurrent preferred stock and it is not
anticipated that a trading market will ever develop. Due to the convertibility
of the Concurrent preferred stock into Concurrent common stock, the Concurrent
preferred stock is expected to fluctuate in value based on factors which are
substantially similar to those that influence the price of the Concurrent common
stock. Such factors include changes in the business, operations or prospects of
Concurrent, its ability to integrate the Real-time Business into its operations
and achieve related cost savings and operating efficiencies, restructuring
charges, including those related to the Real-time Sale, any continuing declines
in sales, any operating losses or shortfalls in liquidity, its success in
shifting from proprietary to open systems, regulatory considerations, general
market, economic and industry conditions and other factors.
 
     Joint Development Agreement with IRE.  In August 1996, the Company entered
into a joint Product Development and Marketing Agreement with Information
Resource Engineering, Inc. ("IRE") pursuant to which the Company and IRE have
agreed jointly to develop a series computer security products including a
Virtual Private Networking security solution for Internet use. This family of
security products will be marketed under the name "SafeNet Enterprise".
CyberGuard and IRE will also jointly market and manage a service offering for
the administration of security products including key management and certificate
processing.
 
INDUSTRY BACKGROUND
 
     The Internet.  Interest in computer networking changed dramatically in the
1990s with the rise in public access to the Internet. The Internet is a global
"network of networks," an interconnection of commercial, academic and
governmental computer networks and host computers. Computers connected to the
Internet use a variety of incompatible operating systems, and in order to
communicate with each other, data is transmitted back and forth between host
computers using a standard known as Transmission Control Protocol/Internet
Protocol or TCP/IP. As of September 1995, INPUT estimated that the number of
Internet users around the world will grow from more than 53 million in 1995 to
250 million in 2000. Much of the recent growth of the Internet has been
attributed to an increase in commercial Internet access providers and
organizations seeking to advertise or provide products or services to Internet
users as well as the commercial availability of PC-based World Wide Web ("WWW")
browser software such as Netscape's Navigator.
 
     Intranets.  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 co-workers. The increasing
ability to 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.
 
     The Growth in the Market for Firewalls and Other Network Security
Products.  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.
 
                                        2
<PAGE>   4
 
     As popularity and use of the Internet and intranets 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. As of September 1995,
INPUT estimated that by 2000 the international market for firewall and software
services will grow from 28% of the total worldwide market to about half of the
worldwide market.
 
     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.
 
     Spectrum of Network Security Technologies.  The network security market
consists of a large number of companies offering a range of network security
products using widely diverse technologies. Some of the broad categories of
network security products are depicted in the graphic presentation below. Each
of these approaches to network security provides varying degrees of protection,
with the most secure solution represented by having no external connections to
the network at all (depicted below as "no access") and the least secure being
one or more external connections with no attempt to provide network security
(depicted below as "full access").
 
                                   [GRAPH]
 
     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. A
more detailed description of these technologies follows:
 
     - Router-Based Packet Filtering.  Routers can be configured with "packet
      filters," that is, devices that determine the source and destination of
      the communication between networks and the type of "service" requested
      (e.g., file transfer, electronic mail ("e-mail")). Packet filters,
      however, are not generally considered to provide a high level of security
      because they make security decisions based on the address of the
      communication packet, which can be easily "spoofed."
 
     - Proxy Application Firewalls.  A level of protection beyond that offered
      by a packet filtering router is provided by a "firewall," which monitors
      traffic between one network and another -- such as an intranet and the
      Internet or between different segments of an intranet -- and blocks access
      to data according to predefined security parameters. Most firewalls
      operate using "proxy" applications that look beyond the source and
      destination of a communication and also monitor certain details regarding
      the communication's content. Proxy application firewalls can suffer from
      performance-related problems, such as the inability to support the types
      of network service and/or network protocol to be used, and degradation of
      network throughput and performance.
 
     - Hybrid Firewalls.  A hybrid firewall is a proxy application firewall
      offering other security options and features, such as encryption, token
      authentication and others. Encryption refers to the alteration of data
      such that during the transmission of the data an attacker is unable to see
      the "original" information and instead only observes what would appear to
      be a random sequence of information. Token authentica-
 
                                        3
<PAGE>   5
 
      tion refers to a system of dynamically changing passwords. Hybrid firewall
      systems generally provide the packet filtering, proxy application,
      encryption and token authentication features in an integrated firewall
      security product, and, as a result, represent a more complete network
      security solution.
 
     - Hybrid Firewall with Secure Operating System.  The most complete security
      solution is provided by a hybrid firewall with a secure operating system
      and secure networking software; the Company's CyberGuard Firewall is such
      a system. A secure operating system and secure networking software form
      the only network security solution that is self-protecting by requiring
      network communications to pass through the firewall application and
      preventing penetration through the operating system and networking
      software.
 
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
full range of 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.
 
                                   [GRAPH]
 
     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 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
 
                                        4
<PAGE>   6
 
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 are in evaluation in the United Kingdom against the European
Information Technology Security Evaluation Criteria ("ITSEC"). The Company's
product is currently in evaluation for the NCSC's higher B2 rating. The Company
believes that systems having a NCSC rating higher than B2 are impractical for
use in commercial firewall applications. The Company has substantially completed
a two-year evaluation process with Logica U.K. and expects to receive Logica's
E3 rating for its products which, in the Company's opinion, will increase the
marketability of the CyberGuard Firewall in international markets. Logica U.K.
is an international industry-sponsored agency.
 
     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 Company's strategy is to increase its sales and profits by broadening
its indirect marketing channels, capitalizing on its existing international
market penetration, concentrating on selected vertical markets, promoting the
CyberGuard Firewall's strengths beyond network security, and expanding its
product line to provide an enterprise-wide solution, support for other computer
platforms and networks, and software-only products. The key components of the
Company's strategy, many of which are interrelated, are as follows:
 
     - Broaden Indirect Distribution Channel Coverage.  The Company has
      established a broad range of channels through which to market its products
      in the United States and internationally, including more than 30 VARs,
      distributors and manufacturers' representatives. The Company intends to
      continue to expand its indirect channels by concentrating its marketing
      through indirect distribution channels, including extensive VAR
      relationships. The Company attracts resellers by providing them broad
      support as part of what it believes is one of the most comprehensive
      reseller programs in the network security industry. During the nine-month
      period ended June 30, 1996, indirect sales channels accounted for
      approximately 31% of the Company's sales; the Company's goal is to have
      its indirect channels account for 75% of its sales by the end of fiscal
      year 1997. The Company is actively seeking additional strategic marketing
      partners in order to expand the geographic distribution of its products.
 
     - Capitalize on Existing International Penetration.  For the nine-month
      period ended June 30, 1996, the Company's international channels accounted
      for 47% of the Company's revenues. The Company intends to expand these
      relationships with VARs in Western and Eastern Europe and Asia to address
      the international commercial firewall market. The Company believes that
      the international market represents a high-growth market.
 
     - Pursue Selected Vertical Markets.  The Company intends to continue to
      focus its marketing efforts on selected vertical markets, such as
      healthcare, financial services, insurance, telecommunications, and travel,
      that the Company perceives as having a need for network security due to
      the confidential nature of data they collect or due to the devastating
      potential impact of computer "hacking." Early experience in these vertical
      markets has given the Company insight necessary to address industry
      specific security requirements. The Company intends to expand on its
      strategic relationships, such as its alliance with Coopers & Lybrand LLP,
      which has helped to accelerate sales of the CyberGuard Firewall within the
      financial industry. The Company intends to pursue these selected vertical
      markets both with its direct
 
                                        5
<PAGE>   7
 
      sales force and through indirect channels such as VARs and systems
      integrators who already serve such markets.
 
     - Broaden Product Platforms and Compatibility.  The Company intends to
      broaden the appeal of its CyberGuard Firewall by "porting" its secure
      operating system, networking software and firewall application to the more
      widely used Intel-based platforms currently available in a wide range of
      multiprocessor systems. The Company further plans to introduce products
      that are compatible with other network operating systems and protocols,
      such as Microsoft Corporation's Windows NT and Novell Inc.'s NetWare, in
      addition to TCP/IP. In moving to address the widely used Intel platform,
      the Company believes its solutions will more closely match the
      requirements and expectations of its customers.
 
     - Introduce Software-only Product Offerings.  The Company plans to
      introduce a software-only version of the CyberGuard Firewall, consisting
      of an integrated secure operating system, networking software and base
      security software, on a variety of secure operating systems such as Unix
      and Windows NT. This software-only product will allow the Company to
      competitively position its CyberGuard Firewall product against
      lower-priced competitors while increasing its gross margins. In addition,
      the Company is actively seeking strategic alliances, particularly with
      companies offering software-based products for applications such as
      encryption, token authentication and virus detection, with which the
      Company can develop new products or to enhance the features of its
      existing products. The software-only product and any future firewall
      product upgrades will be priced and sold separately.
 
     - Provide an Enterprise-Wide Network Security Solution.  The Company
      intends to emphasize all of the CyberGuard Firewall's network security
      capabilities for, among others, secure communication, access control,
      encryption, mobile computing (both through remote network connections and
      dial-up systems), and secure databases (through alliances such as with
      Informix, Inc.) to provide an enterprise-wide solution, particularly for
      enterprises in selected vertical markets. The Company believes that each
      element of an enterprise-wide solution will broaden the appeal of its
      products in these markets.
 
     - Promote CyberGuard Beyond Network Security.  The Company intends to
      promote CyberGuard's MLS capabilities for additional applications such as
      tracking network usage and other network management control functions. In
      this regard, the Company intends to capitalize on its expertise in network
      security by providing such tools to specific customers and targeted
      markets, such as Internet service providers and Internet-based retailers
      of subscription products and services.
 
PRODUCTS AND SERVICES
 
  Products
 
     The Company's products provide a comprehensive, secure and high-performance
network security solution. These products include the CyberGuard Firewall and
related products, products offered by the Company with its strategic partners,
and secure operating systems and secure networking software sold separately from
the CyberGuard Firewall. The table below contains a summary of the Company's
products, their respective dates of first shipment, and a brief description of
each. Additional information regarding each product follows the table.
 
<TABLE>
<CAPTION>
                                                                                                     
                                         DATE OF FIRST                                               
               PRODUCT                     SHIPMENT                        DESCRIPTION               
------------------------------------- -------------------    --------------------------------------- 
                                      (CALENDAR QUARTERS)
<S>                                   <C>                    <C>
CyberGuard Firewall..................       Q4 1994          Commercial firewall built on an
                                                             evaluated secure operating system and
                                                               secure networking software
Packet Filtering.....................       Q4 1994          Guarantees a basic level of security
                                                             for all network traffic
Security Auditing and Alarms.........       Q4 1994          Real-time alarm capability
</TABLE>
 
                                        6
<PAGE>   8
 
<TABLE>
<CAPTION>
                                                          
                                         DATE OF FIRST    
               PRODUCT                     SHIPMENT                        DESCRIPTION
------------------------------------- -------------------    ---------------------------------------
                                      (CALENDAR QUARTERS)        
<S>                                   <C>                    <C> 
Application Proxies..................       Q3 1995          Enhanced security customized to network
                                                               applications
Remote Administration................       Q3 1995          Firewall administration from remote
                                                             site
Network Address Translation..........       Q4 1995          Hides internal network addresses to
                                                               complicate hacker attempts
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
Token Authentication Devices
  Enigma Logic.......................       Q3 1995          Authenticates network users through use
                                                             of token authentication cards in place
                                                               of static password
Security Dynamics....................       Q2 1996
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
PowerSX Secure Operating System......       Q2 1994          Latest generation secure operating
                                                             system currently in evaluation by NCSC
                                                               for B2 rating
PowerProtocols Secure Networking
  Software...........................       Q2 1996          Latest generation secure networking
                                                             software currently in evaluation by
                                                               NCSC for B2 rating
</TABLE>
 
     CyberGuard Firewall.  The CyberGuard Firewall and related products build
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
 
                                        7
<PAGE>   9
 
      capability, a 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 IRE. See "Recent Events."
      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.
 
     In addition, 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
     (which has entered into an agreement to be acquired by 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 and the CyberGuard
     Firewall is the only commercial firewall that supports WebTrack.
 
          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 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 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 Power PC and Motorola RISC technology. Additionally, the Company
     will introduce a version of its secure operating system for Intel-based
     machines based upon the UnixWare 2.0 release from SCO. The Company's
     PowerSX product is a high assurance, secure multi-threaded operating system
     based on UNIX System V Extended Security/Multi-Processing operating system
     with additional security features developed by the
 
                                        8
<PAGE>   10
 
     Company. 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 NCSC is currently
     evaluating the Company's PowerSX operating system against the higher B2
     security rating criteria. For information regarding NCSC security ratings,
     see "The CyberGuard Solution" above. 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 Company's
     PowerProtocols product is a secure network software product that provides a
     multi-level secure interface between PowerSX 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. The NCSC is
     currently evaluating the Company's PowerProtocols networking software at
     the higher B2 security rating criteria. For information regarding NCSC
     security ratings, see "The CyberGuard Solution" above.
 
  Services
 
     System Integrations 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
encryption. The Company will manage network security products such as encryption
tokens and firewalls as a turn-key option through the partnership with IRE.
 
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
1996 and during calendar year 1997.
 
<TABLE>                                                     
<CAPTION>                                EXPECTED DATE OF   
               PRODUCT                     INTRODUCTION                  DESCRIPTION
-------------------------------------- -------------------- --------------------------------------
                                       (CALENDAR QUARTERS)  
<S>                                    <C>                  <C>
SafeNet/Remote........................       Q4 1996        Encrypted protection for PC and laptop
                                                              connections to host networks
Intel Pentium/Pentium Pro-compatible
  CyberGuard Firewall.................       Q4 1996        Low-cost, software-only CyberGuard
                                                              Firewall product
Virus Scanning........................       Q4 1996        Helps prevent viruses from infecting
                                                            host computers
RSA Encryption........................       Q1 1997        Largest commercially available
                                                            encryption product
CyberGuard Intranet Firewall..........       Q4 1996        Novell NetWare and Windows NT support
                                                              and other intranet-specific features
</TABLE>
 
                                        9
<PAGE>   11
 
<TABLE>
<CAPTION>
                                         EXPECTED DATE OF   
               PRODUCT                     INTRODUCTION                  DESCRIPTION
-------------------------------------- -------------------- --------------------------------------
                                       (CALENDAR QUARTERS)  
<S>                                    <C>                  <C>
Multiple Virtual Secure Environments
  ("MVSE")............................       Q4 1996        Multi-level security applied
                                                              separately to the network and the
                                                              data, enabling data access to be
                                                              matched with user privileges;
                                                              ensures that data at a given level
                                                              of security only travels over
                                                              "virtual networks" created by the
                                                              CyberGuard Firewall at the same
                                                              level of security; prevents theft or
                                                              unauthorized access to highly
                                                              sensitive data via networks at lower
                                                              levels of security
SafeNet/Enterprise....................       Q4 1996        A product suite integrating IRE's
                                                              expertise in encryption technology and
                                                              central management with the
                                                              Company's CyberGuard Firewall
TerraMax ISP Solution.................       Q4 1997        Multiple virtual firewalls
Fortezza Encryption...................       Q2 1997        Government-sponsored encryption
                                                              process
X.400, X.500 and X.509 Secure Message
  Handling............................       Q4 1997        Secure X.400, X.500 message support;
                                                              X.509 certificates
</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 30
employees devoted to product development and expects to increase this number
modestly during fiscal year 1997. The Company supplements the development staff
from time to time with contract engineers as needed to meet product demands in
the market. For the nine-month period ended June 30, 1996 and the fiscal years
ended September 30, 1995 and June 30, 1994, the Company spent $2.9 million, $1.5
million and $1.6 million, respectively, on research and development, an
equivalent of 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
 
     The Company is jointly developing and marketing with IRE a family of
security products for Virtual Private Network applications on the Internet. This
suite of products, offered under the SafeNet/Enterprise name, offers advantages
in the cost and implementation of processing secure, encrypted information and
allows the Company to integrate more functionality in its turn-key secure
solution.
 
     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.
 
                                       10
<PAGE>   12
 
     The Company has alliances for the purpose of reselling the Company's
products with several strategic partners, including Lucent Technologies, Inc.
(formerly AT&T Corporation, now "Lucent") and Electronic Data Systems Corp.
("EDS"). The Company has additional strategic resellers outside the United
States, which include Nissin Electric Co., Ltd. (Japan) ("Nissin"), Lukon
Financial Industrial Company (Russia) and QPSX Communications Limited, a
subsidiary of Australia's Telstra Corporation.
 
     The Company has also entered into product-related strategic alliances with
Enigma Logic, Inc., Security Dynamics, Inc., VASCO Corporation and CryptoCard to
offer a variety of identification and token authentication capabilities. 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 April 1996, the Company announced strategic
alliances with Trend Micro, Inc and PC Security Limited to support virus
scanning and encrypted data tunneling, respectively. The Company also has
strategic alliances with Informix, Inc. and Oracle Corporation to provide
database or database proxy support on the Company's secure operating system.
 
     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
 
     The Company's current and prospective commercial customers include medium
to large domestic and multinational companies and other commercial enterprises
that routinely create and store proprietary or highly sensitive information and
have high throughput requirements. These customers are likely to consider
network security and performance to be high priorities when purchasing a
firewall. During the nine-month period ended June 30, 1996 and the fiscal year
ended September 30, 1995, sales related to porting the Company's secure
operating system to Groupe Bull S.A.'s Escala line of computer systems accounted
for 5% and 14%, respectively, of the Company's sales.
 
     The specific uses and applications of the CyberGuard Firewall and related
products vary significantly among market sectors and business organizations.
Examples of the uses of the Company's products by customers include:
 
     - Southwest Airlines uses the CyberGuard to secure their "Home Gate" web
      site, which allows customers to schedule flights and purchase tickets
      on-line through the Internet. Ticket purchases include the required
      transmission of credit card numbers, a process in which security is a
      critical concern.
 
     - A leading enterprise-wide software application developer distributes
      enhancements and fixes to its maintenance customers using a CyberGuard
      Firewall.
 
     - A multi-national bank processes loan applications using the CyberGuard
      Firewall's Virtual Private Network to communicate sensitive financial
      information between branch offices and the bank's central approval
      department.
 
     - A Fortune 150 high technology conglomerate uses the CyberGuard Firewall
      to allow controlled Internet access to nearly 12,000 employees. Data
      traffic that could cause harm to the customer's internal management
      information systems is blocked while allowing legitimate requests for
      product descriptions.
 
     - A major aircraft designer and manufacturer uses the CyberGuard Firewall
      to strictly control access to human resource information on the customer's
      intranet.
 
     The Company's CyberGuard Firewall and related security products accounted
for 95% and 86%, respectively, of the Company's sales for the nine-month period
ended June 30, 1996 and the fiscal year ended
 
                                       11
<PAGE>   13
 
September 30, 1995. The remaining portion of the Company's sales in each such
period are related to porting the Company's secure operating system to Groupe
Bull S.A.'s Escala line of computer systems.
 
     The Company's customers represent a broad geographic distribution of the
Company's products with a relatively even concentration throughout the United
States and abroad. Of these, international sales accounted for 46% and 31%,
respectively, of the Company's sales in the nine-month period ended June 30,
1996 and the fiscal year ended September 30, 1995.
 
     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 nine-month period
ended June 30, 1996 and the fiscal year ended September 30, 1995, sales of
CyberGuard Firewalls and related products to agencies of the United States
government and its contractors accounted for 29% and 58%, 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.
 
SALES AND MARKETING
 
     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 year, the Company has entered into contracts
with 30 VARs, distributors, and manufacturing representatives for its products,
including EDS, 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 nine-month period ended June 30, 1996, the
indirect marketing channels for the Company's products accounted for 31% of the
Company's sales. See "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 75% of its sales by the end of
fiscal year 1997.
 
     In May 1995, the Company established a sales force separate from that of
its former Real-time Business to focus on sales of its network security
products. The Company employs 15 sales representatives and maintains sales
offices in Atlanta, Georgia; Chicago, Illinois; Dayton, Ohio; Fort Lauderdale,
Florida; Houston, Texas; Los Angeles and San Francisco, California; New York,
New York; St. Louis, Missouri; 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 travel. 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, among
other things, selected vertical markets, such as healthcare, financial services,
insurance, telecommunication, and travel, 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
 
                                       12
<PAGE>   14
 
such markets. The Company also believes its products are particularly well
suited to Internet service providers 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 increases.
 
     In the market segments requiring the highest levels of security, the
Company competes with Secure Computing, which also offers 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, ANS 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 whose products consist mainly of
packet filtering systems or routers but whose 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. Several other companies offering other network and
other computer-related products, including Microsoft Corporation, are expected
to enter the commercial network security market in the near future. 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.
 
     Certain of the Company's competitors offer software-only products that will
compete with the Company's products. The Company believes that its customer base
will broaden as a result of the commercial introduction of an integrated
software-only version of the Company's operating system, networking software and
firewall application on platforms other than that of the Night Hawk. However,
there can be no assurance 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 recently
acquired a financial interest in Raptor and agreed to bundle Raptor's network
security software with certain of its product offerings and Secure Computing
recently finalized its acquisition of Borderware.
 
     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, 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. The CyberGuard is the only commercially
available firewall built on an integrated secure operating system and secure
networking software components that are rated B1 by the NCSC. The Company's
secure operating
 
                                       13
<PAGE>   15
 
system has also successfully completed evaluation by CELAR and is currently in
evaluation in the United Kingdom against ITSEC requirements. The Company's Power
PC-based operating system and networking products are designed for, and being
evaluated against, the B2 rating security requirements. Certain of the Company's
competitors have also submitted their commercial network firewall products for
evaluation by the NCSC, and certain of these products could receive B1 or higher
ratings upon completion of the evaluation process.
 
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 does not hold any patents and
has no pending patent applications to cover any aspects of it 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. 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 applied for registration in the United States, Canada and
certain other countries for its "CyberGuard Firewall" marks and its CyberGuard
logo.
 
REGULATION
 
     The Company is not currently subject to direct regulation by any government
agency other than regulations applicable to businesses generally. Export
controls on cryptographic products may place limits on the export of the
Company's products to certain countries identified from time to time by the U.S.
Department of State. In addition, certain of the Company's government products
are subject to U.S. government contracting regulations and to the International
Trade in Arms Regulation ("ITAR"), which restricts the 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, creating delays in
the introduction of the Company's products in international markets.
 
     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, has recently become
effective, 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 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
 
     At September 20, 1996, the Company employed 74 full-time employees.
Additionally, from time to time the Company employs contract engineers on a
temporary basis for software development or documentation. No employee of the
Company is represented by a labor union or is subject to a collective bargaining
 
                                       14
<PAGE>   16
 
agreement. All employees are bound by agreements containing confidentiality and
conflict of interest provisions. The Company believes it maintains good
relations with its employees.
 
EXECUTIVE OFFICERS
 
     The Company's executive officers are as follows:
 
<TABLE>
<CAPTION>
             NAME               AGE                       POSITION
------------------------------  ---   ------------------------------------------------
<S>                             <C>   <C>
Robert L. Carberry............  53    President, Chief Executive Officer and Chairman
                                      of the Board of Directors
Patrick O. Wheeler............  37    Vice President Finance and Chief Financial
                                      Officer
Frank Gelbart.................  34    Vice President Marketing and Sales, North
                                      America
Katherine K. Hutchison........  38    Vice President Corporate Development
Bradley C. Lesher.............  60    Vice President International Operations
Robert F. Perks...............  52    Vice President North American Operations
Rick A. Siebenaler............  33    Vice President Software Development
Brian Foremny.................  47    General Counsel and Secretary
</TABLE>
 
     Robert L. Carberry.  Mr. Carberry was appointed President of the Company's
Trusted Systems Division in April 1996 in anticipation of the Real-time Sale and
President and Chief Executive Officer of the Company upon the consummation of
the Real-time Sale. Before joining the Company, Mr. Carberry was Vice President,
New Technology of Blockbuster/Viacom Group and Vice President, Managing
Executive for Blockbuster Technology Holding Corporation from 1994 and, before
that, was President of Multimedia Investment Organization, a division of IBM. At
IBM, Mr. Carberry also held the positions of 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 of the Company's Trusted Systems Division in April 1996
in anticipation of the Real-time Sale and continues in such position for the
Company. Prior thereto, Mr. Wheeler held various positions with the Company
including Director of Accounting, Senior Account Manager and most recently,
Midwest Regional Sales Manager. Mr. Wheeler joined the Company following its
spin-off from Harris Corporation, which Mr. Wheeler joined in 1984 from Price
Waterhouse L.L.P.
 
     Frank Gelbart.  Mr. Gelbart joined the Company in June 1996. From November
1993 until he joined the Company, Mr. Gelbart was Director of Sales, Rest of
World at Cheyenne Software, Inc. From April 1992, Mr. Gelbart was Director of
Worldwide Sales and Director of International Sales for Equinox Systems, Inc., a
$21 million data communications hardware manufacturer in Plantation, Florida,
and from April 1989 to April 1992, was Vice President, Latin America and Vice
President Commercial Sales for Uniplex, Inc. a $30 million UNIX office
automation software company headquartered in Irving, Texas.
 
     Katherine K. Hutchison.  Ms. Hutchison was appointed Vice President
Marketing, of the Company's Trusted Systems Division in April 1996 in
anticipation of the Real-time Sale and continues in such position for the
Company. Prior thereto, Ms. Hutchison served in positions of increasing
responsibility, most recently as Director of Marketing for the Company's Trusted
Systems Division. Ms. Hutchison joined Harris Corporation in 1993 from a
position as Program Manager and Technical Marketing Manager in the Information
Technology Group of Texas Instruments.
 
     Bradley C. Lesher.  Mr. Lesher joined Harris Corporation in July 1994 from
IBM where he had been General Manager of 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 where he was
responsible for developing and supporting a distribution channel network of over
200 dealer and agent organizations selling IBM PC's and mid-range proprietary
and UNIX-based open systems. He joined IBM in 1957 and has over 30 years of
diverse international management experience including 19 years of living abroad.
 
                                       15
<PAGE>   17
 
     Robert F. Perks.  Mr. Perks was appointed Vice President North American
Operations of the Company in July 1996. Mr. Perks joined the Computer Systems
Division of Harris Corporation in 1977. He was employed by Real Time Products
Corporation from 1992 to 1995 as Director, Customer Support and rejoined the
Company in May 1995 as Director of Trusted Sales for the Company.
 
     Rick A. Siebenaler.  Mr. Siebenaler was appointed Vice President Software
Development of the Company's Trusted Systems Division in April 1996 in
anticipation of the Real-time Sale and continues in such position for the
Company. Prior thereto, Mr. Siebenaler served as Director of Software
Development of the Company's Trusted Systems Division from 1994 and, before
that, as Chief Engineer from 1991. Mr. Siebenaler joined Harris Corporation in
1991 from the NCSC where he was a Commercial Products Evaluator in the Trusted
Products Evaluation Division.
 
     Brian Foremny.  Mr. Foremny is an attorney and, since 1995, a partner with
the law firm of Holland & Knight where he maintains a law practice in addition
to his service as the Company's General Counsel. Prior thereto, Mr. Foremny was
a partner of the law firm of Kirkpatrick & Lockhart LLP beginning in 1983.
 
ITEM 2.  PROPERTIES
 
     The Company's principal administrative, sales and marketing, development,
engineering, production and support facilities are located in Fort Lauderdale,
Florida. The Company is currently subleasing administrative and production
facilities from Concurrent and will be relocating to separate facilities within
12 months. The Company also leases its sales office locations in the United
States and abroad.
 
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
 
     On June 26, 1996, a Special Meeting in lieu of an Annual Meeting of the
Company's Shareholders (the "Special Meeting") was held in Fort Lauderdale,
Florida. In connection therewith, the Company solicited proxies of its
shareholders by a Joint Proxy Statement dated May 23, 1993 and mailed to
shareholders of record as of May 14, 1996 (the "Proxy Statement"). At the
Special Meeting, the Company's shareholders considered and voted upon the
following proposals (with the votes (in person or by proxy) for, against and
abstaining following each description):
 
          A. The approval of the Real-time Sale on substantially the terms and
     conditions set forth in the Proxy Statement (see "Item 1.
     Business -- Recent Events," above).
 
        B.
 
<TABLE>
<CAPTION>
              VOTES AGAINST                      BROKER
VOTES FOR      OR WITHHELD      ABSTENTIONS     NON-VOTES
---------     -------------     -----------     ---------
<S>           <C>               <C>             <C>
3,293,784         33,745           30,870       1,394,878
</TABLE>
 
                                       16
<PAGE>   18
 
     2. On February 4, 1996, the Company's Board of Directors approved the an
amendment to the Company's Stock Incentive Plan to increase to 2,025,000 the
maximum number of shares of common stock that may be issued in the form of
restricted stock or pursuant to the exercise of options granted pursuant to the
Stock Incentive Plan, and amended the director's options provision of the Stock
Incentive Plan. At the Special Meeting, the Company's shareholders considered a
proposal to approve such amendments to the Stock Incentive Plan.
 
<TABLE>
<CAPTION>
              VOTES AGAINST                      BROKER
VOTES FOR      OR WITHHELD      ABSTENTIONS     NON-VOTES
---------     -------------     -----------     ---------
<S>           <C>               <C>             <C>
2,942,089        375,547           40,763       1,394,878
</TABLE>
 
     3. An amendment to the Company's Articles of Incorporation to change the
Company's corporate name to CyberGuard Corporation.
 
<TABLE>
<CAPTION>
              VOTES AGAINST                      BROKER
VOTES FOR      OR WITHHELD      ABSTENTIONS     NON-VOTES
---------     -------------     -----------     ---------
<S>           <C>               <C>             <C>
4,662,368         76,818           13,224          867
</TABLE>
 
     4. The election of the class of directors whose term ended at the Special
Meeting and, following their election, whose term will end at the 1998 Annual
Meeting of the Company's shareholders.
 
<TABLE>
<CAPTION>
                                                          VOTES AGAINST                  BROKER
                      NOMINEE                 VOTES FOR    OR WITHHELD    ABSTENTIONS   NON-VOTES
        ------------------------------------  ---------   -------------   -----------   ---------
        <S>                                   <C>         <C>             <C>           <C>
        Robert L. Carberry..................  4,738,934         0            14,343         0
        Brian Foremny.......................  4,739,869         0            13,408         0
</TABLE>
 
     5. To adjourn the Special Meeting if adjournment should be proposed by the
Chairman of the Special Meeting (the Chairman made no such motion to adjourn).
 
<TABLE>
<CAPTION>
              VOTES AGAINST                      BROKER
VOTES FOR      OR WITHHELD      ABSTENTIONS     NON-VOTES
----------    -------------     -----------     ---------
<S>           <C>               <C>             <C>
4,527,505        195,490           29,415          867
</TABLE>
 
     6. The appointment of KPMG Peat Marwick LLP as the Company's independent
accountants for nine-month period 1996.
 
<TABLE>
<CAPTION>
              VOTES AGAINST                      BROKER
VOTES FOR      OR WITHHELD      ABSTENTIONS     NON-VOTES
----------    -------------     -----------     ---------
<S>           <C>               <C>             <C>
4,737,628         5,867            9,728            0
</TABLE>
 
                                       17
<PAGE>   19
 
                                    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 7,464 holders of record of Common Stock
as of September 26, 1996. 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(2)
                                                                            ------------------
                                                                            HIGH           LOW
                                                                            ----           ---
<S>                                                                         <C>         <C>
FISCAL YEAR 1995
Quarter Ended December 30, 1994(1)........................................  $ 5 11/64  $    2 21/64
Quarter Ended March 31, 1995..............................................    6             3 37/64
Quarter Ended June 30, 1995...............................................    5 53/64       4 5/64
Quarter Ended September 30, 1995..........................................    5 3/4         3 53/64
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
</TABLE>
 
---------------
 
(1) Prior to October 1994, there was no established public trading market for
     the Common Stock.
(2) 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 nine months ended June 30, 1996 and
1995; and for the fiscal years ended September 30, 1995, and June 30, 1994, 1993
and 1992, 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 nine-month period
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
two fiscal years ended June 30, 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
 
                                       18
<PAGE>   20
 
historical financial statements do not necessarily reflect 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 ENDED
                                       NINE MONTHS ENDED    ------------------------------------------
                                          JUNE 30,(B)        SEPTEMBER              JUNE 30,
                                       ------------------       30,        ---------------------------
                                         1996      1995       1995(A)       1994      1993      1992
                                       --------   -------   ------------   -------   -------   -------
                                                    (IN THOUSANDS EXCEPT PER SHARE DATA)
<S>                                    <C>        <C>       <C>            <C>       <C>       <C>
Revenues.............................  $ 37,411   $36,404     $ 45,111     $64,640   $55,540   $60,368
Cost of Sales........................    21,022    20,609       25,764      31,236    29,863    30,295
                                       --------   -------     --------     -------   -------   -------
Gross Profit.........................    16,389    15,795       19,347      33,404    25,677    30,073
Selling, General and administrative
  expenses...........................    19,030    15,739       22,984      19,791    19,770    20,458
Research and development.............     5,360     5,970        7,903       6,725     6,850     6,720
Write-off Capitalized Software.......     3,244        --           --          --        --        --
                                       --------   -------     --------     -------   -------   -------
Operating Income (loss)..............   (11,245)   (5,914)     (11,540)      6,888      (943)    2,895
Interest Income (expense), net.......       180       361          456          (4)       --      (207)
Other Income (expense), net..........       103      (232)          (4)     (1,271)   (1,074)   (1,215)
Loss on Sale of Real-time Business...   (15,160)       --           --          --        --        --
                                       --------   -------     --------     -------   -------   -------
Net income (loss) before income
  tax................................   (26,122)   (5,785)     (11,088)      5,613    (2,017)    1,473
Income tax expense (benefit).........        --        --           --       1,086    (1,560)      175
                                       --------   -------     --------     -------   -------   -------
Net income (loss) before cumulative
  effect of change in accounting
  principal..........................   (26,122)   (5,785)     (11,088)      4,527      (457)    1,298
Accumulative effect of change in
  accounting principal...............        --        --           --        (135)       --        --
                                       --------   -------     --------     -------   -------   -------
Net income (loss)....................  $(26,122)  $(5,785)    $(11,088)    $ 4,392   $  (457)  $ 1,298
Loss per share.......................     (4.32)     (.98)       (1.88)         --        --        --
</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)  Calculations for fiscal years 1992 through 1994 are not presented because
     such periods predate the Company's becoming an independent entity.
 
                                       19
<PAGE>   21
 
     The following table sets forth certain selected historical financial data
for the Company's Trusted Systems Division, which excludes the Company's
corporate assets and liabilities not specifically identifiable to the division.
The financial date for the fiscal year ended September 30, 1996 have been
derived from audited financial statements of the Company for such period audited
by KPMG Peat Marwick LLP. Financial data for the nine months ended June 30, 1996
and 1995 and for the fiscal years ended June 30, 1994 and 1993, has been derived
from unaudited 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. The
financial data included herein may not necessarily reflect the results of
operations of the Company in the future or what the results of operations of the
Trusted Systems Division would have been had it been a separate, stand-alone
entity during the periods covered.
 
<TABLE>
<CAPTION>
                                                                           FISCAL YEAR ENDED
                                           NINE MONTHS ENDED      -----------------------------------
                                               JUNE 30,                                 JUNE 30,
                                          -------------------     SEPTEMBER 30,     -----------------
                                           1996        1995           1995           1994       1993
                                          -------     -------     -------------     ------     ------
                                                                (IN THOUSANDS)
<S>                                       <C>         <C>         <C>               <C>        <C>
Revenues................................  $ 7,269     $ 3,920        $ 4,817        $8,464     $5,974
Cost of sales...........................    4,589       2,473          3,140         3,842      2,992
                                          -------     -------        -------        ------     ------
Gross profit............................    2,680       1,447          1,677         4,622      2,982
Selling, general and administrative
  expenses..............................    6,670       2,713          3,999         3,677      2,467
Research and development................      930         586            835           816        698
Write-off Capitalized software..........    3,244          --             --            --         --
                                          -------     -------        -------        ------     ------
Operating income (loss).................   (8,164)     (1,582)        (3,157)          129       (183)
Interest income (expense), net..........      (21)         26             49            (1)        --
Other income, net.......................       --          --             --             7          5
Net income (loss) before income tax.....   (8,153)     (1,826)        (3,108)          135       (178)
Income tax expense (benefit)............       --          --             --            26       (137)
                                          -------     -------        -------        ------     ------
Net income (loss).......................  $(8,153)    $(1,826)       $(3,108)       $  109     $  (41)
                                          =======     =======        =======        ======     ======
</TABLE>
 
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. 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
 
                                       20
<PAGE>   22
 
formed relationships with more than 30 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. See "Quarterly Comparisons" below. 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 software-only
products that support other 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.
 
     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 expects to incur
significant costs typically associated with new operating companies. The Company
has entered into a Shared Services Agreement effective June 30, 1996 with
Concurrent, which expires June 30, 1997, pursuant to which Concurrent will
provide certain administrative and personnel-related services for the Company.
The Company believes that it receives these services at costs equal to or below
that which the Company would incur if the Company were to provide these services
itself. Upon expiration of the Shared Services Agreement, the Company will be
required to provide these services for itself, which may increase the Company's
operating expenses. Also, the Company currently leases its office and
development facilities from Concurrent at below-market rates. The lease
terminates at the earlier of June 1997 or upon 90 days' written notice from
Concurrent. Upon such termination the Company anticipates its lease costs to
increase. The Company expects such additional costs to be offset in part by
increased sales; however, there can be no assurance that such additional sales
will be generated. The failure of the Company to increase sales sufficiently to
offset these additional expenses would have a material adverse effect on the
Company's business, financial condition and results of operations.
 
     The Company reported certain non-recurring charges in 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 has been audited
by the Company's independent auditors and the financial statements related
thereto are attached to this Annual Report.
 
RESULTS OF OPERATIONS
 
  Quarterly Comparisons
 
     In May, 1995, the Company separated the operations of its trusted systems
business into a separate Trusted Systems Division. The following table presents
selected financial information for the Division for the three-month periods
indicated. The information presented is derived from unaudited financial
information of the Company that, in the opinion of management, reflects all
adjustments necessary for a fair presentation of
 
                                       21
<PAGE>   23
 
such data. Data for each quarter is not necessarily indicative of the results
that may be expected for any other quarterly period or for the entire fiscal
year.
 
<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED
                                    --------------------------------------------------------------------------
                                    MARCH 31,   JUNE 30,   SEPTEMBER 30,   DECEMBER 29,   MARCH 30,   JUNE 30,
                                      1995        1995         1995            1995         1996        1996
                                    ---------   --------   -------------   ------------   ---------   --------
                                                                  (IN THOUSANDS)
<S>                                 <C>         <C>        <C>             <C>            <C>         <C>
Product revenues
  Domestic........................   $ 2,001     $  210       $   404        $    663      $ 1,494    $  1,433
  International...................       777        137           426           1,082          938       1,288
                                      ------      -----       -------         -------      -------     -------
Total product revenues............     2,778        347           830           1,745        2,432       2,721
Other/Services....................        66         84            67              80          138         153
                                      ------      -----       -------         -------      -------     -------
Total sales.......................     2,844        431           897           1,825        2,570       2,874
Cost of sales
  Product sales...................     1,636        328           635           1,084        1,739       1,604
  Other...........................        33         42            32              36           56          70
                                      ------      -----       -------         -------      -------     -------
Total cost of sales...............     1,669        370           667           1,120        1,795       1,674
                                      ------      -----       -------         -------      -------     -------
Gross profit......................     1,175         61           230             705          775       1,200
Operating expenses
  Research and development........       211        156           250             307          271         352
  Selling, general and
     administrative...............     1,382        834         1,285           1,602        1,728       3,340
Write off of capitalized
  software........................        --         --            --              --           --       3,244
                                      ------      -----       -------         -------      -------     -------
Total operating expenses..........     1,593        990         1,535           1,909        1,999       6,936
                                      ------      -----       -------         -------      -------     -------
Operating loss....................      (418)      (929)       (1,305)         (1,204)      (1,224)     (5,736)
Other income (expense)............         5         (4)           (1)             --          (21)         --
Interest income...................        11          8            23              13           13           6
                                      ------      -----       -------         -------      -------     -------
Net loss before income tax........      (402)      (925)       (1,283)         (1,191)      (1,232)     (5,730)
Income tax expense (benefit)......        --        173            --              --           --          --
                                      ------      -----       -------         -------      -------     -------
Net loss..........................   $  (402)    $ (325)      $(1,283)       $ (1,191)     $(1,232)   $ (5,730)
                                      ======      =====       =======         =======      =======     =======
</TABLE>
 
  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
 
                                       22
<PAGE>   24
 
$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 ninth 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 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 18 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 23 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 PowerPC 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.
 
                                       23
<PAGE>   25
 
     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.
 
     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 Company retains the operations of
its Trusted Systems Division following the June 1996 sale of the Real-time
Business. The 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. The Company is currently
working on a payment plan with Lukon.
 
                                       24
<PAGE>   26
 
     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.
 
     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.
 
  Fiscal Year Ended June 30, 1994 Compared to Fiscal Year Ended June 30, 1993
 
     During fiscal year 1993 and 1994, the Company's trusted business did not
operate as a separate Trusted Systems Division; rather, the Company's trusted
operations were carried out as part of the Company's overall Real-time Business.
The Trusted Systems Division was created in April 1995. However, because the
Company continues the operation of the Trusted Systems Business, certain
information relating to such business is described in the following paragraphs.
 
     Net Sales, consolidated  Net sales increased to $64.6 million for fiscal
year 1994 from $55.5 million for fiscal year 1993. During fiscal year 1994, net
product sales were $50.1 million as compared to $39.4 million for fiscal year
1993. Fiscal year 1994 net sales attributable to real-time open systems were
$37.0 million as compared to $29.0 million for fiscal year 1993. The increase in
revenue from real-time open systems was the result of the delayed completion and
delivery of 5800 Series computers ordered by customers in fiscal year 1993 but
shipped in fiscal year 1994 as described above. Fiscal year 1994 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
$4.3 million as compared to $4.2 million for fiscal year 1993.
 
     Maintenance revenue decreased to $14.5 million for fiscal year 1994 from
$16.1 million for fiscal year 1993. This decrease was principally a result of
the continuing shift in market demand to open systems, which require less
maintenance and support as compared to proprietary systems. Maintenance revenues
are also declining as the Company's installed base of proprietary systems
reaches the end of its useful life.
 
     During fiscal year 1994, the Company's net product sales to agencies of the
United States government and their prime contractors were $25.7 million and
maintenance revenue was $7.4 million. During fiscal year 1993, the comparable
net product sales were $15.4 million and the comparable maintenance revenue was
$8.6 million. During fiscal year 1994, the Company's net product sales to the
United States Department of Defense or to other contractors for integration into
systems for the Department of Defense were $13.9 million and maintenance revenue
was $2.5 million. During fiscal year 1993, the comparable Department of Defense
net product sales were $1.0 million and maintenance revenue was $3.2 million.
The increase stems in part from the completion and delivery of the 5800 Series
computers ordered in fiscal year 1993 but shipped in fiscal year 1994. Also, the
Company increased its sales of trusted products as a result of the NCSC B1-level
certification of these products.
 
                                       25
<PAGE>   27
 
     Net Sales, trusted systems.   Net sales for the Company's trusted business
increased to $8.5 million for fiscal year 1994 from $6.0 million for fiscal year
1993. Sales in fiscal years 1994 and 1993 precede the introduction of the
CyberGuard Firewall and are primarily attributable to the contract with the
British MOD ($5.4 million and $4.3 million in fiscal years 1994 and 1993,
respectively) and the contract with IBM ($1.6 million and $1.0 million in fiscal
years 1994 and 1993, respectively). Sales to domestic customers increased to
$3.0 million from approximately $1.6 million in fiscal year 1993. During fiscal
year 1994, the NCSC rated the Company's secure operating system and networking
software at a B1 level, which contributed in large part to the increase in
sales. The Company's contract with IBM accounted for approximately $0.6 million
of the increase in domestic sales. International sales increased to $5.4 million
from $4.3 million as product shipments increased to complete the British MOD
contract.
 
     Gross Margin, consolidated.  Gross margin for sales and rentals increased
to 54.4% in fiscal year 1994 from 48.7% in fiscal year 1993 as a result of
increased sales of Night Hawk 5800 Series computers having higher gross margins.
The Company believes this increase in gross margin is an aberration that arose
from the delays until 1994 of recognizing revenues from sales of 5800 Series
computers ordered in fiscal year 1993 but shipped in fiscal year 1994. See
"-- Fiscal Year Ended June 30, 1994 Compared to Fiscal Year Ended June 30,
1993 -- Net Sales, above." Historically, the Company's gross margins had been
relatively stable, primarily because the Company and its competitors priced
their products based on product characteristics and service and not through
discounting or other pricing policies. Service and maintenance gross margins
increased to 42.1% from 40.1% as a result of decreased start up expenses for the
Night Hawk 5800 Series computers.
 
     Gross Margin, trusted system.  Gross profit for trusted systems increased
$1.6 million from approximately $3.0 million in fiscal year 1993 to $4.6 million
in fiscal year 1994. Gross margin increased to 54.6% from 49.9% as a result of
increased sales. The increase in gross margin is also attributable to the
initial contract start-up expenses for the IBM and British MOD contracts that
were incurred during fiscal year 1993.
 
     Net Income (Loss).  Net income for fiscal year 1994 increased to $4.4
million from a loss of $0.5 million for fiscal year 1993. Fiscal year 1994
operating profit attributable to domestic operations increased to $3.8 million
from a loss of $2.3 million in fiscal year 1993. The increase was principally
the result of recognizing revenue during fiscal year 1994 from upgrades of the
Company's real-time computers that were ordered in fiscal year 1993. Management
believes that operating profit attributable to domestic operations would have
increased to break even in fiscal year 1993 but for such recognition of revenue.
The increase in net income is also due to an increase in operating profit
attributable to European operations of $1.0 million for fiscal year 1994 from
$0.3 million for fiscal year 1993. That increase is the result of increasing
product revenues and decreasing costs relating to European operations. The
increase in profitability also offset a decrease in tax benefit of $2.6 million
from fiscal year 1993 to fiscal year 1994.
 
     The fiscal year 1994 results include a $135,000 after-tax adjustment
reflecting Harris Corporation's adoption of Statement of Financial Standards No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions".
 
     The Company has not incurred any substantial expense for interest during
any of the periods under consideration. Interest expense results from direct
borrowings of the business. See "Liquidity and Capital Resources".
 
     Net Income, trusted systems.  Total indirect expenses attributed to trusted
systems increased $1.3 million to $4.5 million for fiscal year 1994 from $3.2
million for fiscal year 1993. Selling, general and administrative expenses
increased $1.2 million to $3.7 million for fiscal year 1994 as the Company
marketed its certified product to government agencies and prime contractors
around the world. The increase in sales offset by an increase in selling,
general and administrative expenses increased net income to $0.1 million from a
net loss of $41,000 in fiscal year 1993.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     The Company's historical uses of cash have been to fund net losses from
operations, machinery and equipment acquisitions and software development costs.
Capital expenditures for the nine-month period ended
 
                                       26
<PAGE>   28
 
June 30, 1996 and the fiscal year ended September 30, 1995 were $1.8 million and
$1.9 million respectively. Software development costs were $3.7 million and $2.3
million, respectively, during the respective periods. Cash expenditures relating
to the Real-time Sale were $2.8 million, and expenditures related to the
Company's proposed public offering, which was canceled in August 1996, were
approximately $1 million.
 
     Prior to the Real-time Sale, the Company funded its cash requirements from
its working capital and cash flow provided from its Real-time Business.
Subsequent to the Real-time Sale, the company sold substantially all its
investment in the common stock of Concurrent. The funds provided from this stock
sale were used to pay off the Company's existing balance of approximately $3.3
million on its line of credit, and to provide the necessary working capital to
support the operations of the Company.
 
     The Company anticipates certain one-time expenditures approximating $0.3
million for leasehold improvements and related expenses as the Company relocates
to a new facility prior to June 1997. Leasehold expense and general and
administrative expenses also may increase upon the termination of a shared
services agreement with Concurrent.
 
     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 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 may also elect
to renew its line of credit by pledging certain current assets as collateral for
the line. Additionally, the Company may seek additional equity financing in the
future to support expansion plans or acquisition of key technologies.
 
     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.
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
     The following items are attached and incorporated into this Item 8.
 
<TABLE>
<S>                                                                                     <C>
Report of Independent Certified Public Accountants....................................   F-1
Independent Auditors' Report..........................................................   F-2
Consolidated Balance Sheets as of June 30, 1996 and September 30, 1995................   F-3
Consolidated Statements of Operations for the Nine-month period ended June 30, 1996,
  the year ended September 30, 1995, the Three-month period ended September 30, 1994
  and the year ended June 30, 1994....................................................   F-4
Statement of Cash Flows for the Nine-month period ended June 30, 1996, the year ended
  September 30, 1995, the Three-month period ended September 30, 1994 and the year
  ended June 30, 1994.................................................................   F-5
Consolidated Statements of Shareholders' Equity.......................................   F-6
Notes to Financial Statements.........................................................   F-7
</TABLE>
 
                                    PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     Certain information required by this item is contained in part under the
caption "Executive Officers" in PART I hereof, and the remainder will be
contained in the Company's Proxy Statement for the Company's Annual Meeting of
Stockholders expected to be mailed to stockholders on or before October 28,
1996.
 
                                       27
<PAGE>   29
 
     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
1996 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
1996 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
1996 Proxy Statement and is incorporated herein by this reference.
 
                                    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) The Company filed an 8-K on April 10, 1996 reporting in Item 5 therein
a description of the Company's then proposed transaction with Concurrent
Computer Corporation.
 
     The Company filed an 8-K/A on June 23, 1996, amending the Company's 8-K
dated April 10, 1996, reporting in Item 5 therein the following:
 
          Harris Computer Systems Corporation and Subsidiaries Pro Forma
     Condensed Consolidated Statement of Operations Six Months Ended March 30,
     1996
 
          Harris Computer Systems Corporation and Subsidiaries Pro Forma
     Condensed Consolidated Statement of Operations Year Ended September 30,
     1995
 
          Harris Computer Systems Corporation and Subsidiaries Notes to Pro
     Forma Condensed Consolidated Statements of Operations
 
          Harris Computer Systems Corporation and Subsidiaries Pro Forma
     Condensed Consolidated Balance Sheet March 30, 1996
 
          Harris Computer Systems Corporation and Subsidiaries Notes to Pro
     Forma Condensed Consolidated Balance Sheet
 
          Audited Consolidated Financial Statements of Concurrent Computer
     Corporation, and Notes, thereto, for the years ended June 30, 1995, 1994
     and 1993.
 
          Concurrent Computer Corporation's Management's Discussion and Analysis
     of Financial Condition and Results of Operations for the fiscal years ended
     June 30, 1995, 1994 and 1993.
 
          Unaudited Consolidated Financial Statements of Concurrent Computer
     Corporation, and Notes thereto, at March 31, 1996 and for the three-month
     and the nine month periods then ended.
 
          Concurrent Computer Corporation's Management's Discussion and Analysis
     of Financial Condition and Results of Operations for the three-month and
     the nine-month periods ended March 31, 1996 and 1995.
 
          Pro Forma Condensed Consolidated Financial Statements of Concurrent
     Computer Corporation for the year ended June 30, 1995 and nine-month period
     ended March 31, 1996.
 
                                       28
<PAGE>   30
 
     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*
  3.01   --  Articles of Incorporation of the Company, as amended
  3.02   --  Bylaws of the Company**
  4.01   --  Form of Common Stock Certificate*****
  4.02   --  Form of Stockholder Rights Plan**
  4.04   --  Form of Share Holding Agreement between Concurrent Computer Corporation and the
             Company*****
 10.01   --  Employment Agreement dated March 5, 1996 between the Company and Robert L. Carberry
 10.02   --  Employment Agreement dated July 1, 1996 between the Company and Patrick O. Wheeler
 10.03   --  Employment Agreement dated May 28, 1996 between the Company and Frank Gelbart
 10.04   --  Employment Agreement dated July 1, 1996 between the Company and Katherine K.
             Hutchison
 10.05   --  Employment Agreement dated July 1, 1996 between the Company and Rick A. Siebenaler
 10.06   --  Employment Agreement dated October 1, 1994 between the Company and Bradley C.
             Lesher****
 10.07   --  Employment Agreement dated March 1, 1996 between the Company and Brian Foremny
 10.08   --  Joint Development and Marketing Agreement between the Company and Information
             Resource Engineering, Inc.
 10.09   --  Employee Stock Incentive Plan*******
 10.10   --  Amendment to Employee Stock Incentive Plan********
 10.11   --  Employee Savings Plan******
 16.01   --  Letter addressed to the Securities and Exchange Commission from Ernst & Young LLP
             regarding the change in certifying accountant***
 23.01   --  Consent of KPMG Peat Marwick LLP, Independent Certified Public Accountants
 23.02   --  Consent of Ernst & Young LLP, Independent Certified Public Accountants
 27.01   --  Financial Data Schedule (for SEC use only)
</TABLE>
 
---------------
 
        * Incorporated by reference to Annex A of the Registrant's Definitive
          Proxy Statement as filed with the Commission on May 24, 1996
       ** 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.
      *** Filed with the Company's Current Report on Form 8-K dated November 11,
          1994 and incorporated herein by reference.
     **** Filed with the Company's Quarterly Report on Form 10-Q for the period
          ending December 30, 1994 and incorporated herein by reference.
    ***** Filed with the Company's Registration Statement on Form S-3 dated May 
          23, 1996 (File No. 333-04407) and incorporated herein by reference.   
   ****** 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.                                            
  ******* 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.                                            
                                                                                
 ******** Incorporated by reference to Annex E of the Registrant's Definitive   
          Proxy Statement as filed with the Commission on May 24, 1996.         
 
                                       29
<PAGE>   31
 
                                   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           October 1, 1996
---------------------------------------------     Chief Executive Officer
             Robert L. Carberry                   and Director (Principal
                                                  Executive Officer)

              /s/  PATRICK O. WHEELER           Vice President Finance and        October 1, 1996
---------------------------------------------     Chief Financial Officer
             Patrick O. Wheeler                   (Principal Financial and
                                                  Principal Accounting
                                                  Officer)

                  /s/  BRIAN FOREMNY            Secretary, General Counsel        October 1, 1996
---------------------------------------------     and Director
                Brian Foremny

                /s/  C. SHELTON JAMES           Director                          October 1, 1996
---------------------------------------------
              C. Shelton James

              /s/  MICHAEL F. MAGUIRE           Director                          October 1, 1996
---------------------------------------------
             Michael F. Maguire

           /s/  RICHARD P. RIFENBURGH           Director                          October 1, 1996
---------------------------------------------
            Richard P. Rifenburgh
</TABLE>
 
                                       30
<PAGE>   32
 
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
 
To the Board of Directors of Harris Corporation:
 
     We have audited the accompanying consolidated statements of operations and
cash flows of Harris Computer Systems Business for the period ended June 30,
1994. These financial statements are the responsibility of the Business'
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
 
     We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
 
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of Harris Computer Systems Business for the year ended June 30, 1994 in
conformity with generally accepted accounting principles.
 
     As discussed in Note 14 to the financial statements, effective July 1, 1993
the Business changed its method of accounting for postretirement benefits other
than pensions.
 
                                          ERNST & YOUNG LLP
 
Orlando, Florida
July 13, 1994
 
                                       F-1
<PAGE>   33
 
                          INDEPENDENT AUDITORS' REPORT
 
The Board of Directors
CyberGuard Corporation and subsidiaries:
 
     We have audited the accompanying consolidated balance sheets of CyberGuard
Corporation and subsidiaries, formerly Harris Computer Systems Corporation and
subsidiaries, as of June 30, 1996 and September 30, 1995, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the nine months ended June 30, 1996, the year ended September 30, 1995 and the
three months ended September 30, 1994. These consolidated financial statements
are the responsibility of 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 auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CyberGuard
Corporation and subsidiaries as of June 30, 1996 and September 30, 1995, and the
results of their operations and their cash flows for the nine months ended June
30, 1996, the year ended September 30, 1995 and the three months ended September
30, 1994 in conformity with generally accepted accounting principles.
 
                                            KPMG Peat Marwick LLP
 
September 11, 1996
 
                                       F-2
<PAGE>   34
 
                    CYBERGUARD CORPORATION AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                        JUNE 30,   SEPTEMBER 30,
                                                                          1996         1995
                                                                        --------   -------------
                                                                         (DOLLARS IN THOUSANDS,
                                                                           EXCEPT SHARE DATA
<S>                                                                     <C>        <C>
                                             ASSETS
Cash and cash equivalents.............................................     3,617     $   8,265
Accounts and notes receivable, less allowance for uncollectible
  accounts of $318 and $1,513 at June 30, 1996 and September 30, 1995,
  respectively
  (Note 11)...........................................................     3,668         9,994
Inventories (Note 9)..................................................       134         9,080
Prepaid expenses......................................................       565           530
Securities available for sale (Note 1)................................    13,600            --
                                                                        --------      --------
          Total current assets........................................    21,584        27,869
Machinery and equipment, net (Note 11)................................     1,152         5,947
Capitalized computer software development costs, less accumulated
  amortization of $6,870 at September 30, 1995 (Note 3 and 18)........        --         6,734
Investment in Concurrent preferred stock (Note 1).....................     3,853            --
Non-compete Agreement (Note 17).......................................     1,120            --
Other assets..........................................................         3           881
                                                                        --------      --------
          Total assets................................................  $ 27,712     $  41,431
                                                                        ========      ========
                              LIABILITIES AND SHAREHOLDERS EQUITY
Accounts payable......................................................        --         3,493
Deferred revenue......................................................        44           401
Accrued expenses (Note 10)............................................     6,223         5,441
Loan payable (Note 5).................................................     3,200            --
                                                                        --------      --------
          Total current liabilities...................................     9,467         9,335
          Total liabilities...........................................     9,467         9,335
Shareholders' equity (Note 13)
  Common stock par value $0.01 authorized 20,000,000 shares; issued
     and outstanding 6,709,371 shares and 5,911,437 shares at June 30,
     1996 and September 30, 1995, respectively........................        67            59
  Additional paid in capital..........................................    56,152        43,662
  Accumulated deficit.................................................   (37,210)      (11,088)
  Cumulative translation adjustment...................................      (764)         (537)
                                                                        --------      --------
          Total shareholders' equity..................................    18,245        32,096
                                                                        --------      --------
          Total liabilities and shareholders' equity..................  $ 27,712     $  41,431
                                                                        ========      ========
</TABLE>
 
        See notes to the accompanying consolidated financial statements
 
                                       F-3
<PAGE>   35
 
                    CYBERGUARD CORPORATION AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                 NINE MONTHS                   THREE MONTHS
                                                    ENDED       YEAR ENDED         ENDED       YEAR ENDED
                                                  JUNE 30,     SEPTEMBER 30,   SEPTEMBER 30,    JUNE 30,
                                                    1996           1995            1994           1994
                                                 -----------   -------------   -------------   ----------
                                                        (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                              <C>           <C>             <C>             <C>
Sales
  Equipment....................................  $   24,958     $    31,184     $     4,242     $ 50,146
  Services.....................................      12,453          13,927           3,506       14,494
                                                 ----------      ----------      ----------      -------
                                                     37,411          45,111           7,748       64,640
Cost of sales
  Equipment....................................      13,360          18,550           3,443       22,842
  Services.....................................       7,662           7,214           2,023        8,394
                                                 ----------      ----------      ----------      -------
                                                     21,022          25,764           5,466       31,236
Gross income...................................      16,389          19,347           2,282       33,404
Operating expenses
  Research and development.....................       5,360           7,903           1,517        6,725
  Selling, general and administrative..........      18,021          22,984           4,836       19,791
  Write-off of capitalized computer software
     development costs (Note 18)...............       3,244              --              --           --
  Costs relating to canceled secondary offering
     (Note 23).................................       1,009              --              --           --
  Restructuring (Note 6).......................          --              --           1,256           --
                                                 ----------      ----------      ----------      -------
          Total other operating expenses.......      27,634          30,887           7,609       26,516
                                                 ----------      ----------      ----------      -------
Operating income (loss)........................     (11,245 )       (11,540)         (5,327)       6,888
Harris Corporate expense allocation............          --              --              --       (1,324)
Transaction costs relating to spin off (Note
  6)...........................................          --              --          (2,500)          --
Interest income (expense), net.................         180             456             (69)          (4)
Other income (expense), net....................         103              (4)            (72)          53
Loss on sale of Real-Time Business (Note 1)....     (15,160 )            --              --           --
                                                 ----------      ----------      ----------      -------
                                                    (14,877 )           452          (2,641)      (1,275)
Net income (loss) before income tax provision
  (benefit) and cumulative effect of change in
  accounting principle.........................     (26,122 )       (11,088)         (7,968)       5,613
Income tax provision (benefit).................          --              --            (378)       1,086
                                                 ----------      ----------      ----------      -------
Net income (loss) before cumulative effect of
  change in accounting principle...............     (26,122 )       (11,088)         (7,590)       4,527
Cumulative effect of change in accounting
  principle (Note 15)..........................          --              --              --         (135)
                                                 ----------      ----------      ----------      -------
Net income (loss)..............................  $  (26,122 )   $   (11,088)    $    (7,590)    $  4,392
                                                 ==========      ==========      ==========      =======
Loss per common share..........................  $    (4.32 )   $     (1.88)    $     (1.28)
                                                 ==========      ==========      ==========
Weighted average number of shares
  outstanding..................................   6,046,182       5,911,437       5,911,437
                                                 ==========      ==========      ==========
</TABLE>
 
        See notes to the accompanying consolidated financial statements.
 
                                       F-4
<PAGE>   36
 
                    CYBERGUARD CORPORATION AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                                THREE MONTHS
                                                 NINE MONTHS    YEAR ENDED         ENDED        YEAR ENDED
                                                 ENDED JUNE    SEPTEMBER 30,   SEPTEMBER 30,     JUNE 30,
                                                  30, 1996         1995             1994           1994
                                                 -----------   -------------   --------------   ----------
                                                                  (DOLLARS IN THOUSANDS)
<S>                                              <C>           <C>             <C>              <C>
Cash flows from operating activities
  Net income (loss)............................   $ (26,122)     $ (11,088)       $ (7,590)      $  4,392
  Adjustment to reconcile net income (loss) to
     net cash provided by operating activities:
     Depreciation..............................       2,121          3,446           1,134          3,223
     Amortization..............................       1,735          1,305             326          1,396
     Compensation and benefits.................         500             --              --           (309)
     Write-off of capitalized software
       development costs.......................       3,244             --              --             --
     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 Receivables....................      (3,569)         1,393          12,333         (4,122)
       Due from Harris Corporation.............          --          6,369          (6,369)            --
       Inventories.............................       3,537          4,998            (863)        (1,370)
       Accounts payable........................      (2,049)        (1,201)          2,142         (1,654)
       Accrued expenses........................       2,675         (1,051)          1,502            334
       Deferred revenue........................         392           (383)           (344)        (4,044)
       Deferred income taxes...................          --           (166)         (1,075)            28
       Prepaid expenses and other assets.......        (265)           827            (510)            --
       Other...................................        (227)           391             257         (1,819)
                                                   --------       --------         -------        -------
Net cash provided (used) by operating
  activities...................................      (5,538)         4,840             943         (3,945)
                                                   --------       --------         -------        -------
Cash flows from investing activities
  Additions to machinery and equipment.........      (1,818)        (1,900)         (1,151)        (3,336)
  Cash included with sale of Real-Time
     Computing Business........................        (420)            --              --             --
  Software development costs -- capitalized....      (3,688)        (2,324)           (569)        (2,780)
                                                   --------       --------         -------        -------
Net cash used by investing activities..........      (5,926)        (4,224)         (1,720)        (6,116)
                                                   --------       --------         -------        -------
Cash flows from financing activities
  Proceeds from short term borrowings..........       3,200             --              --             --
  Proceeds from sale of Concurrent stock.......       3,400             --              --             --
  Equity contributions.........................         216             --              --         18,484
                                                   --------       --------         -------        -------
Net cash provided by financing activities......       6,816             --              --       $ 18,484
                                                   --------       --------         -------        -------
Net increase (decrease) in cash and cash
  equivalents..................................      (4,648)           616            (777)         8,423
                                                   --------       --------         -------        -------
Cash and cash equivalents at beginning of the
  period.......................................       8,265          7,649           8,426              3
                                                   --------       --------         -------        -------
Cash and cash equivalents at end of the
  period.......................................   $   3,617      $   8,265        $  7,649       $  8,426
                                                   ========       ========         =======        =======
Supplemental cash flow disclosure:
  Interest paid................................   $       5      $      --        $     --       $  1,613
                                                   ========       ========         =======        =======
</TABLE>
 
        See notes to the accompanying consolidated financial statements.
 
                                       F-5
<PAGE>   37
 
                    CYBERGUARD CORPORATION AND SUBSIDIARIES
 
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                                   COMMON STOCK $.01                                                NET
                                          PAR           ADDITIONAL                 CUMULATIVE    INVESTMENT
                                   ------------------    PAID IN     ACCUMULATED   TRANSLATION   BY FORMER
                                    SHARES     AMOUNT    CAPITAL       DEFICIT     ADJUSTMENT      PARENT      TOTAL
                                   ---------   ------   ----------   -----------   -----------   ----------   -------
                                                       (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                <C>         <C>      <C>          <C>           <C>           <C>          <C>
Balance June 30, 1994............         --      --          --            --        (1,185)       51,311     50,126
Net loss to distribution date
  (Note 1).......................         --      --          --            --            --        (7,590)    (7,590)
Issuance of common stock to
  Harris stockholders............  5,911,437    $ 59      43,662            --            --       (43,721)        --
Translation adjustments..........         --      --          --            --           257            --        257
                                   ---------     ---     -------      --------       -------      --------    --------
Balance September 30, 1994.......  5,911,437    $ 59      43,662            --          (928)           --     42,793
Net loss.........................         --      --          --       (11,088)           --            --    (11,088)
Translation adjustments..........         --      --          --            --           391            --        391
                                   ---------     ---     -------      --------       -------      --------    --------
Balance September 30, 1995.......  5,911,437    $ 59      43,662       (11,088)         (537)           --     32,096
Net loss.........................                                      (26,122)                               (26,122)
Translation adjustments..........         --      --          --            --          (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
                                   =========     ===     =======      ========       =======      ========    ========
</TABLE>
 
        See notes to the accompanying consolidated financial statements.
 
                                       F-6
<PAGE>   38
 
                    CYBERGUARD CORPORATION AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 JUNE 30, 1996
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
 
(1)  BACKGROUND
 
     CyberGuard Corporation and Subsidiaries (the "Company"), formerly Harris
Computer Systems Corporation and Subsidiaries, became an independent company
effective September 29, 1994 (the "Distribution Date") when Harris Corporation
("Former Parent") spun off its Computer Systems Division. In connection with the
spin-off, one share of the Company's common stock, together with the associated
preferred stock purchase rights (Note 13), was issued for every twenty shares of
Harris Corporation common stock, outstanding to shareholders of record on
October 7, 1994. The terms of the spin-off resulted in net assets of $43,721
being transferred from Harris Corporation to the Company. The Company has two
divisions, one which develops real-time computer systems, and another that
develops multi-level secure computer systems, solutions and software for
commercial and government markets.
 
     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 . 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 of Concurrent common stock exceeds $3.75, and is
mandatorily redeemable on June 27, 2006, at the liquidation preference plus
accrued and accumulated unpaid dividends. The Preferred Stock is reflected at
its estimated market value of $3,853 which was calculated using a discount rate
of 14% and assuming that no dividends will be paid until the mandatory
redemption date.
 
     The Company has recorded a loss of $15,160 as a result of the sale of the
Real-time computing business, including transaction costs of approximately
$2,667. Immediately following the Real-time sale, the Company sold 2,000,000
shares of the Concurrent common stock for $3,400.
 
(2)  LIQUIDITY
 
     The Company's historical uses of cash have been to fund net losses from
operations, machinery and equipment acquisitions and software development costs.
Capital expenditures for the nine months ended June 30, 1996 and for the fiscal
year ended September 30, 1995 were $1.8 million and $1.9 million respectively.
Software development costs were $3.7 million and $2.3 million 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 substantially all its investment in the common stock of Concurrent and has
used the funds provided from this stock sale to pay off its existing line of
credit, and to establish the necessary support working capital to support the
operations. (See Note 23 for further details).
 
     The future liquidity of the Company will be affected by numerous factors,
including sales volumes, gross margins, the levels of selling, general and
administrate expenses required to fully implement product sales to commercial
customers, and access to external sources of financing. The Company may elect to
sell the preferred stock of Concurrent that the Company received in the
Transaction. 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 underlying Concurrent
common stock, and changes in the business, operations or prospects of
Concurrent. If the Company determines that additional funding is
 
                                       F-7
<PAGE>   39
 
                    CYBERGUARD CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
required to support its on-going or strategic requirements, it may elect to
renew its line of credit by pledging certain assets as collateral.
 
     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.
 
(3)  SIGNIFICANT ACCOUNTING POLICIES
 
     Consolidation -- For periods prior to the spin-off, the financial
statements include the historical accounts and operations of the former Parent
divisions (Harris Computer Systems Business) that now comprise CyberGuard.
Corporate expense allocations charged by Former Parent were based on a
percentage of the CyberGuard net sales. Interest expense was provided on direct
borrowings of CyberGuard. Interest expense of the Former Parent was not
allocated to CyberGuard. It is not practicable to estimate what the net
investment by Former Parent would have been if CyberGuard had operated as an
unaffiliated entity. In the opinion of management, the allocation methods used
were reasonable.
 
     The consolidated financial statements subsequent to the Distribution Date
include those of CyberGuard Corporation and its wholly-owned subsidiaries. All
intercompany transactions between entities have been eliminated.
 
     Inventories -- Inventories are carried at the lower of cost, determined by
the First-In-First-Out (FIFO) method, or market.
 
     Machinery and Equipment -- Machinery 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.
 
     Software Development Costs -- The Company capitalizes costs related to the
development of certain software products. Capitalization begins when
technological feasibility has been established and ends when the product is
available for general release to customers. Software development costs incurred
prior to technological feasibility are considered research and development costs
and are expensed as incurred. Capitalized costs are 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. Software development costs
capitalized were $3,688 in 1996, $2,324 in 1995, $569 for the three months ended
September 30, 1994 and $2,780 for the year ended June 30, 1994, respectively.
Software amortization expenses were $1,735 in 1996, $1,305 in 1995; $326 for the
three months ended September 30, 1994 and $1,396 for the year ended June 30,
1994. 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 for its secure operating systems and
related trusted products to an Intel PC-based platform resulting in a loss in
value of the related software development costs. Such costs were written-off in
the nine month period ended June 30, 1996. See Note 18 for further details.
 
     Revenue Recognition -- Revenue is recognized from sales when a product is
shipped, from rentals as they accrue, and from services and maintenance when
performed. 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.
 
                                       F-8
<PAGE>   40
 
                    CYBERGUARD CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Income Taxes -- Prior to the Distribution Date, the Company followed the
liability method of accounting for income taxes and was included with its Former
Parent, in a consolidated federal income tax return. The Former Parent required
each of its companies to provide taxes on financial statement pre-tax income or
loss at applicable statutory tax rates. Amounts receivable or payable for
current and prior years' income taxes were treated as intercompany transactions
in accordance with the Former Parent policy and, accordingly, flowed through the
net investment by the Former Parent. Deferred income taxes resulting from
temporary differences between the financial statements and the tax basis of
assets and liabilities were separately classified on the balance sheets.
 
     Certain items of revenue and expense are reported for Federal income tax
purposes in different periods than for financial reporting purposes and are
accounted for under the asset and liability method as required by the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("FAS No. 109").
 
     FAS No. 109 requires 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.
 
     The Former Parent and the Company have entered into a tax disaffiliation
agreement based on the principle that Former Parent will be responsible for all
current tax liabilities generated through the Distribution Date with the Company
being responsible for all tax liabilities generated after the Distribution Date.
 
     Cash Equivalents -- The Company considers all investments purchased with an
original maturity of three months or less, and approximately $3.4 million of
cash in transit at June 30, 1996, to be cash equivalents.
 
     Marketable Securities -- In the current year, the Company adhered to 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 and losses, net of tax, reported as a separate
component of shareholders' equity. The Company sold substantially all marketable
securities subsequent to June 30, 1996. (See Note 23).
 
     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.
 
     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.
 
                                       F-9
<PAGE>   41
 
                    CYBERGUARD CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(4) CHANGE IN FISCAL YEAR
 
     The Company changed its fiscal year end from June 30 to September 30,
effective in the year beginning October 1, 1994. The three-month transition
period ended September 30, 1994, is presented within the body of the Company's
basic financial statements. Comparative condensed income statement data is shown
as follows:
 
<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED   THREE MONTHS ENDED
                                                          SEPTEMBER 30,        SEPTEMBER 30,   
                                                               1994                 1993       
                                                        ------------------   ------------------
                                                                                (UNAUDITED)
    <S>                                                 <C>                  <C>
    Sales.............................................       $  7,748             $ 14,160
                                                              -------              -------
    Gross margin......................................          2,282                7,131
                                                              -------              -------
    Income (loss) before income taxes.................         (7,968)                 378
    Income tax provision (benefit)....................           (378)                   3
                                                              -------              -------
    Net earnings (loss)...............................       $ (7,590)            $    375
                                                              =======              =======
</TABLE>
 
     In addition, in connection with the sale of the Real-Time Computing
Business (Note 1), the Company changed its fiscal year end from September 30, to
June 30, effective in the year beginning October 1, 1995. Comparative condensed
income statement data for the nine months ended June 30, 1996 and 1995 is shown
as follows:
 
<TABLE>
<CAPTION>
                                                          NINE MONTHS ENDED   NINE MONTHS ENDED
                                                              JUNE 30,            JUNE 30,     
                                                                1996                1995       
                                                          -----------------   -----------------
                                                                                 (UNAUDITED)   
    <S>                                                   <C>                 <C>
    Sales...............................................       $37,411              36,404
                                                               -------             -------
    Gross margin........................................        16,389              15,795
                                                               =======             =======
    Loss before income taxes............................        26,122               5,785
    Income tax benefit..................................            --                  --
                                                               -------             -------
    Net loss............................................       $26,122               5,785
                                                               =======             =======
</TABLE>
 
(5) 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 million
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 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
stock 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 exerciseable in whole or in part from the date that is
the earlier of August 1, 1996 or five days after the closing of a public
offering through June 27, 2001.
 
     Subsequent to June 30, 1996, the Company fulfilled its entire obligation
with Foothill by paying-off the amount withdrawn up to that date. See Note 23
for further details.
 
(6) RESTRUCTURING CHARGES AND SPIN-OFF COSTS
 
     Restructuring charges of $1,256 were accrued for during the period ended
September 30, 1994, due to significant workforce reduction actions which were
taken to streamline and centralize the Company's
 
                                      F-10
<PAGE>   42
 
                    CYBERGUARD CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
operations. The number of employees terminated under this plan was 44. All
amounts were paid as of September 30, 1995.
 
     Costs associated with the spin-off totaled $2.5 million. These costs relate
to investment banking, legal and public accounting fees, and employee retention
and incentive costs incurred directly related to the spin-off.
 
(7) 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.
 
(8) INCOME TAXES
 
     The provision (benefit) for income taxes is as follows:
 
<TABLE>
<CAPTION>
                                                                           THREE MONTHS
                                             NINE MONTHS                      ENDED
                                                ENDED       YEAR ENDED      SEPTEMBER     YEAR ENDED
                                              JUNE 30,     SEPTEMBER 30,       30,         JUNE 30
                                                1996           1995            1994          1994
                                             -----------   -------------   ------------   ----------
    <S>                                      <C>           <C>             <C>            <C>
    Current:
      United States........................         --             --         (1,833)          367
      International........................         --             --             --           721
         State and local...................         --             --           (157)           74
         Tax on dividend from German
           subsidiary......................         --             --          1,739            --
                                                ------         ------         ------        ------
              Current Total................         --             --           (251)        1,162
    Deferred:
      United States........................         --             --           (127)          (78)
      International........................         --             --             --            --
      State and local......................         --             --             --             2
                                                ------         ------         ------        ------
              Total........................         --             --           (378)        1,086
                                                ======         ======         ======        ======
</TABLE>
 
     The components of deferred income tax assets (liabilities) are as follows:
 
<TABLE>
<CAPTION>
                                                                   JUNE 30,     SEPTEMBER 30,
                                                                     1996           1995
                                                                   --------     -------------
    <S>                                                            <C>          <C>
    Charitable contributions.....................................       275             --
    Inventory valuations.........................................         2          1,705
    Depreciation.................................................       (16)          (247)
    Capitalized software.........................................        --         (2,357)
    Restructuring costs..........................................        19             24
    Accrued vacation.............................................        62            259
    Net operating losses available for carryforwards.............    11,043          4,288
    All other -- net.............................................       154            198
    Valuation allowance..........................................   (11,539)        (3,870)
                                                                    -------         ------
    Net deferred income tax liability............................        --             --
                                                                    =======         ======
</TABLE>
 
                                      F-11
<PAGE>   43
 
                    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>
                                                                           THREE MONTHS
                                              YEAR ENDED    YEAR ENDED         ENDED       YEAR ENDED
                                               JUNE 30,    SEPTEMBER 30,   SEPTEMBER 30,    JUNE 30,
                                                 1996          1995            1994           1994
                                              ----------   -------------   -------------   ----------
    <S>                                       <C>          <C>             <C>             <C>
    Statutory U.S. income tax rate..........     (34.0%)       (34.0%)         (34.0%)        35.0%
    State taxes.............................        --            --            (1.9%)          .9%
    Capitalized restructuring costs.........        --            --             9.3%           --
    Operating loss carryforwards............      28.9%         32.2%             --          (8.8%)
    Payment of tax to Former Parent on
      German dividend.......................        --            --            21.8            --
    Contributions...........................        --            --              --          (7.5%)
    Other items.............................       5.1%          1.8%             .1%          (.3%)
                                                 -----         -----           -----          ----
    Effective income tax rate...............         0             0           (4.7)%         19.3%
                                                 =====         =====           =====          ====
</TABLE>
 
     Prior to the Distribution Date, United States income taxes has 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, 1996, the Company does not intend to distribute international earnings,
therefore, no U.S. tax has been projected. The determination of the amount of
these undistributed earnings and any related unrecognized deferred U.S. tax
liability is not practicable.
 
     As of June 30, 1996, the Company has U.S. net operating loss carryforwards
of approximately $33 million. The Company's net operating loss carryforwards
begin to expire in 2010.
 
     Pretax income (loss) from European operations was ($1,464) for the
nine-months ended June 30, 1996; ($3,136) for the year ended September 30, 1995;
($664) for the three months ended September 30, 1994; and $1,860 for the year
ended June 30, 1994.
 
(9) INVENTORIES
 
     Inventories consists of the following:
 
<TABLE>
<CAPTION>
                                                                      JUNE 30,   SEPTEMBER 30,
                                                                        1996         1995
                                                                      --------   -------------
    <S>                                                               <C>        <C>
    Finished goods..................................................     134            356
    Work In Process.................................................      --          7,416
    Raw materials...................................................      --          5,702
                                                                        ----        -------
                                                                         134         13,474
    Reserves for obsolete and slow-moving inventory.................      --         (4,394)
                                                                        ----        -------
    Net inventory...................................................    $134        $ 9,080
                                                                        ====        =======
</TABLE>
 
                                      F-12
<PAGE>   44
 
                    CYBERGUARD CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(10) ACCRUED EXPENSES
 
     Accrued expenses consists of the following:
 
<TABLE>
<CAPTION>
                                                                    JUNE 30,     SEPTEMBER 30,
                                                                      1996           1995
                                                                    --------     -------------
    <S>                                                             <C>          <C>
    Salaries, wages and other compensation........................   $  656         $ 4,009
    Accrued interest and sundry taxes.............................      180             706
    Other.........................................................    1,747             726
    Secondary offering expenses...................................      398              --
    Non-compete agreement (Note 16)...............................    1,400              --
    Expenses for the sale of Real-Time Computing Business.........    1,842              --
                                                                     ------          ------
                                                                     $6,223         $ 5,441
                                                                     ======          ======
</TABLE>
 
(11) MACHINERY AND EQUIPMENT, NET
 
     Machinery and equipment, net is summarized as follows:
 
<TABLE>
<CAPTION>
                                                                                        ESTIMATED
                                                                                          USEFUL
                                                           JUNE 30,     SEPTEMBER 30,    LIFE (IN
                                                             1996           1995          YEARS)
                                                           --------     -------------   ----------
    <S>                                                    <C>          <C>             <C>
    Buildings and leasehold improvements.................        --              96        3-5
    Machinery and equipment..............................     1,553          25,504        5-10
    Loan equipment and service parts.....................       634           4,976        1-5
                                                            -------        --------
    Gross machinery and equipment........................     2,187          30,576
    Less: Accumulated depreciation.......................    (1,035)        (24,629)
                                                            -------        --------
    Net machinery and equipment..........................     1,152           5,947
                                                            =======        ========
</TABLE>
 
(12) ALLOWANCES FOR UNCOLLECTIBLE ACCOUNTS
 
     Changes in the allowance for uncollectible accounts follows:
 
<TABLE>
<CAPTION>
                                             NINE MONTHS                    THREE MONTHS
                                                ENDED       YEAR ENDED         ENDED        YEAR ENDED
                                              JUNE 30,     SEPTEMBER 30,   SEPTEMBER 30,     JUNE 30,
                                                1996           1995             1994           1994
                                             -----------   -------------   --------------   ----------
    <S>                                      <C>           <C>             <C>              <C>
    Balance at beginning of year...........      1,513            213            213             631
    Additions charged to expense...........        421          1,660             --             100
    Effects of foreign currency
      translation..........................         --             --             --              17
    Less net write offs of uncollectible
      accounts.............................       (355)          (360)            --            (535)
    Less allowance transferred in the sale
      of the real-time business............     (1,261)            --             --              --
                                                ------          -----            ---            ----
    Balance at end of year.................        318          1,513            213             213
                                                ======          =====            ===            ====
</TABLE>
 
     Bad debt expense is included in "Selling, general, and administrative
expenses" in the consolidated statement of operations.
 
(13) 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
 
                                      F-13
<PAGE>   45
 
                    CYBERGUARD CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
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 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.
 
     In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 123 "Accounting for Stock-Based Compensation," the adoption of
which is required for fiscal years beginning after December 15, 1995. The new
standard encourages companies to use the fair value method of accounting for
issuance of stock options and other equity instruments. Under the fair value
method, compensation cost is measured at the grant date based on the fair value
of the award and is recognized over the service period, which is usually the
vesting period. Pursuant to FASB Statement No. 123, companies are also permitted
to continue to account for such transactions under Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees," but would be
required to disclose in a note to the financial statements pro forma net income
and per share amounts as if the Company had applied the new method of
accounting. Additionally, FASB Statement No. 123 requires increased disclosure
for stock-based compensation arrangements regardless of the method chosen to
measure and recognize compensation for employee stock-based arrangements.
 
     The Company currently accounts for such transactions under APB Opinion No.
25 and has not yet determined if it will elect to change its method of
accounting for the issuance of stock options and other equity instruments to the
fair value method, nor has it determined the effect the new standard will have
on its operating results should it elect to make such a change.
 
     Information relating to the Company's stock option plan is as follows:
 
<TABLE>
<CAPTION>
                                                               NUMBER OF
                                                                 SHARES       OPTION PRICE
                                                               ----------     ------------
    <S>                                                        <C>           <C>
    Shares under option at September 30, 1995................     715,200    $2.58 -- 4.25
      Granted................................................     645,300     3.54 -- 5.50
      Exercised..............................................     (84,630)    2.58 -- 3.71
      Forfeited..............................................     (25,206)    2.58
                                                                ---------     ------------
    Shares under option at June 30, 1996.....................   1,250,664    $2.58 -- 5.50
                                                                ---------     ------------
    Shares exercisable at June 30, 1996......................     803,163    $2.58 -- 4.71
                                                                =========     ============
</TABLE>
 
     On October 28, 1994, the Company granted restricted stock awards for 52,800
shares of common stock at an option price of $2.58 per share, pursuant to the
Stock Incentive Plan, to two employees, E. Courtney Siegel and Daniel S.
Dunleavy, President and Chief Financial Officer, respectively. None of the
restricted shares may be sold, transferred, assigned, pledged or otherwise
encumbered or disposed of for the "Restricted Period."
 
                                      F-14
<PAGE>   46
 
                    CYBERGUARD CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
The Original Restricted Period is from October 28, 1994 (date of the agreement)
until the earlier of 21 months from the date of the agreement or upon the
occurrence of a change in control. The Original Restricted Period ended upon the
sale of the Real-Time Computing Business.
 
     In connection with the sale of the Real-Time Computing Business, the
Company entered into an agreement with the Chairman of the Board, President and
Chief Executive Officer. The contract provides for annual salaries, additional
compensation in the form of bonuses, a long term incentive plan as well as a
restricted stock option grant of 339,000 shares of common stock at an exercise
price of $10.67 (market value at the date of grant) per share that become
exerciseable in three equal annual installments beginning March 5, 1997. These
shares are not part of the above summary.
 
(14) EMPLOYEE BENEFIT PLANS
 
     Prior to the Distribution Date, the Former Parent provided retirement
benefits to substantially all United States-based employees, primarily through a
retirement plan having profit-sharing and savings elements. Contributions to the
retirement plan were based on the Company's profits and employees' savings with
no other funding requirements. Related retirement plan expense was $431 for the
three months ended September 30, 1994; and $2,201 for the year ended June 30,
1994.
 
     Subsequent to the Distribution Date, the Company began 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 he completes one-year of service. Effective July 1, 1996, the Company
waived this one year requirement. 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 his 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 were $738 for the nine months ended June 30, 1996 and $966 for the
year ended September 30, 1995.
 
(15) POSTRETIREMENT HEALTH CARE BENEFITS
 
     Prior to the Distribution Date, CyberGuard adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions". Health care benefits were provided on a limited
cost-sharing basis to domestic-based retirees who had 10 or more years of
service. This adoption resulted in a one-time charge of $135, net of income tax
credits of $83. The on-going expense of this plan was not material and the
liability for these benefits had not been funded. Subsequent to the Distribution
Date, CyberGuard canceled this post retirement health care plan.
 
(16) 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.
 
(17) NON-COMPETE AGREEMENTS
 
     In connection with the Transaction, the Company entered into non-compete
agreements for a period of five years with two former officers of the Company.
In consideration for these non-compete agreements, these officers received
91,800 shares of the Company's Common Stock on June 28, 1996. The shares were
valued at the market value as of the date the agreements were entered into and
the amounts are amortized over a five-year period from the date of grant.
 
                                      F-15
<PAGE>   47
 
                    CYBERGUARD CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(18) WRITE-OFF OF CAPITALIZED COMPUTER SOFTWARE DEVELOPMENT COSTS
 
     After the Transaction, 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 of the Trusted Systems Division, of
approximately $3,244 at June 30, 1996. As a result of new management's decision
to move to a different platform, such capitalized computer software development
costs became worthless and accordingly have been charged to operations during
the nine months ended June 30, 1996.
 
(19) LEASE COMMITMENTS
 
     Rent expense was $1,382 for the nine months ended June 30, 1996, $1,814 for
the year ended September 30, 1995, $478 for the three months ended September 30,
1994, and $1,897 for the year ended June 30, 1994, including $828, $238, and
$1,085, respectively, paid to Former Parent.
 
     Total future minimum rental commitments under non-cancelable operating
leases, primarily for buildings and equipment, amounted to $24 for the year
ended June 30, 1997. Such amount excludes any amounts payable to Concurrent
under the Shared Services Agreement (See Note 23).
 
(20) 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 and cash equivalents,
trade receivables, and securities. 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 of this stock subsequent to
June 30, 1996 (See Note 21).
 
     The Company sells products to its Former Parent and its subsidiaries. Sales
to these operations were $768 for the nine months ended June 30, 1996; $439 for
the year ended September 30, 1995; $644 for the three months ended September 30,
1994; and $4,013 for the year ended June 30, 1994.
 
(21) 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 1996, 1995 and 1994 include the
United States Government, Boeing Company, Flight Safety International, and
Lockheed Martin Corporation/Loral Corporation (On May 1996, Lockheed acquired
Loral, hence sales to both companies have been combined). Combined sales to
these four customers represented 26% of total sales for the nine months ended
June 30, 1996. These customers relate primarily to the Real-time computing
business. No other customers individually represented more than 5% of total
sales.
 
     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 41%, 51%, and 43% of total sales during
1996, 1995, and 1994, respectively. Sales made to Boeing Company as a percentage
of total sales were 7%, 4% and 14% for the same referenced periods. Sales to
Flight Safety International amounted to 5% during 1996 whereas sales in 1995 and
1994 did not represent more than 5% of total sales. Sales to Lockheed Martin
Corporation/Loral Corporation as a percentage of total sales were 13% for both
1996 and 1995, and 10% for 1994. All intercompany revenues and expenses are
eliminated in computing revenues and operating income.
 
                                      F-16
<PAGE>   48
 
                    CYBERGUARD CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     A summary of the Company's operations by geographic area is summarized
below:
 
<TABLE>
<CAPTION>
                                             NINE MONTHS                   THREE MONTHS
                                                ENDED       YEAR ENDED         ENDED       YEAR ENDED
                                              JUNE 30,     SEPTEMBER 30,   SEPTEMBER 30,    JUNE 30,
                                                1996           1995            1994           1994
                                             -----------   -------------   -------------   ----------
    <S>                                      <C>           <C>             <C>             <C>
    United States Operations
      Net sales............................     31,402         36,138           6,647        51,188
      Net income (loss) before income tax
         provision (benefit) and cumulative
         effect of change in accounting
         principle.........................    (25,124)        (7,952)         (7,304)        3,753
      Identifiable assets..................     22,756         33,658          47,650        47,506
    European Operations
      Net sales............................      6,009          8,973           1,101        13,452
      Net income (loss) before income tax
         provision (benefit) and cumulative
         effect of change in accounting
         principle.........................       (998)        (3,136)           (664)        1,860
      Identifiable assets..................      4,956          8,186          10,333        14,586
</TABLE>
 
     US Export Sales were $3,812 for the nine months ended June 30, 1996; $2,945
for the year ended September 30, 1995; $605 for the three months ended September
30, 1994; and $3,316 for the year ended June 30, 1994.
 
(22) SHARED SERVICE AGREEMENT
 
     On June 30, 1996, the Company entered into a Shared Services Agreement
("Shared Agreement") with Concurrent pursuant to which Concurrent will provide
certain administrative and personnel-related services for the Company. It is
management belief that the Company will receive these services at costs equal to
or below that which the Company would incur if it were to provide these services
itself. The services to be provided by Concurrent will be invoiced monthly to
the Company for services performed. The monthly service bill will total $56
which will consist of accounting fees, human resources fees, management
information services, order processing and rental of facilities.
 
     The term of the Shared Agreement is twelve months from its effective date.
The Company has the option to terminate the Shared Agreement at any time by
giving Concurrent thirty days written notice. Any extensions, however, requires
the prior written consent of both parties.
 
  CyberGuard Reseller Agreement
 
     A reseller agreement, effective June 27, 1996, also exists between the
Company and Concurrent which allows Concurrent to act as a reseller of
CyberGuard products. For each product sold, Concurrent shall pay the Company a
predetermined fee. The initial term of this agreement is for a period of twelve
months from the effective date and may be renewed for two additional terms of
twelve months each with the written consent of both parties.
 
  NightHawk Supplier Agreement
 
     A supplier agreement, effective June 27, 1996, exists between the Company
and Concurrent which allows the latter to act as an independent contractor and
supplier of NightHawks to the Company. This agreement calls for the Company to
pay Concurrent a fee of $5 per month during the term of this agreement. The
initial term of this agreement is for a period of twelve months from the
effective date and may be renewed for two additional terms of twelve months each
with the written consent of both parties.
 
                                      F-17
<PAGE>   49
 
                    CYBERGUARD CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(23) SUBSEQUENT EVENTS
 
  Issuance of Stock Warrants
 
     On July 19, 1996, the Company established a program to enable a major
strategic foreign distributor to earn up to 100,000 shares of stock warrants at
an exercise price of fifteen dollars per share which exceeded the market value
of the common stock at the date of the agreement, and are to be vested over the
period from July 1, 1996 through December 31, 1998. The warrants are exercisable
during the vesting period based upon the distributor achieving yearly revenue
goals totaling $15 million over the period.
 
  Cancellation of the Secondary Public Offering
 
     On August 5, 1996, the Company decided to withdraw its previously announced
secondary offering of common stock due to unfavorable market conditions.
Expenses associated with the cancellation of this stock offering amounted to
approximately $1 million and appears on the Company's consolidated statements of
operations.
 
  Joint Development and Marketing Agreement
 
     On August 6, 1996, the Company entered into a Joint Development and
Marketing Agreement ("Joint 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") and in applications that combine VPN's
with public Internet and/or legacy network use.
 
     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.
 
  Sale of Stock and Payment of Line of Credit
 
     On August 12, 1996, the Company sold 7,900,000 shares of the Concurrent
common stock at a price of approximately $1 per share, which resulted in a loss
of approximately $5,530. A portion of the proceeds from this sale were used to
pay off the Foothill loan discussed in Note (4).
 
                                      F-18