<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-K/A

[X]    AMENDMENT NO. 1 TO ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
       SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED 
       DECEMBER 31, 1997

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

                         COMMISSION FILE NUMBER 0-22466

                               FTP SOFTWARE, INC.
             (Exact name of registrant as specified in its charter)
 
MASSACHUSETTS                                                         04-2906463
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)  

2 HIGH STREET, NORTH ANDOVER, MASSACHUSETTS                               01845
(Address of principal executive offices)                              (Zip Code)

(978) 685-4000
(Registrant's telephone number, including area code)

          Securities registered pursuant to Section 12(b) of the Act:

                                                     Name of Each Exchange
     Title of Each Class                              on Which Registered
            NONE                                             NONE
                                                   
          Securities registered pursuant to Section 12(g) of the Act:

                  Title of Class: COMMON STOCK ($.01 PAR VALUE)

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

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

The aggregate market value of the registrant's voting stock held by
non-affiliates was approximately $102,773,850 on March 20, 1998, based on the
closing sales price of the registrant's Common Stock as reported on the Nasdaq
National Market as of such date.

The number of shares outstanding of each of the registrant's classes of common
stock as of March 20, 1998 was as follows:

<TABLE>
<S>                                                        <C>       
       Common Stock, $.01 par value                         33,973,140
</TABLE>

                       DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated herein by reference:

Part III: Portions of the registrant's definitive Proxy Statement to be filed
          with the Securities and Exchange Commission in connection with the
          registrant's 1998 Annual Meeting of Stockholders.
<PAGE>   2


         Item 6 of the Annual Report on Form 10-K of FTP Software, Inc. for 
the year ended December 31, 1997 (the "Form 10-K") is hereby amended to correct
an error in the selected financial data for 1993 appearing in the table 
included under that item. Item 8 of the Form 10-K is hereby amended primarily 
to correct certain errors in the tables appearing under the caption "Earnings 
per Share" in Note I to the financial statements included under that item.

ITEM 6.  SELECTED FINANCIAL DATA.

         Set forth below is certain selected financial data of the Company for
each of the five years in the period ended December 31, 1997 and as of December
31, 1997, 1996, 1995, 1994 and 1993 (in thousands, except per share data). The
following statement of operations data for the years ended December 31, 1997,
1996 and 1995 and balance sheet data as of December 31, 1997 and 1996 were
derived from the financial statements of the Company for and as of such dates
included under Item 8 of this Report. The following statement of operations
data for the years ended December 31, 1994 and 1993 and balance sheet data as
of December 31, 1995, 1994 and 1993 were derived from the consolidated
financial statements of the Company for and as of such dates that are not
included in this Report. The following data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" below and the Company's consolidated financial statements and the
notes related thereto included under Item 8 of this Report.

<TABLE>
<CAPTION>
                                                         YEARS ENDED DECEMBER 31,
                                    -----------------------------------------------------------
                                       1997         1996          1995       1994        1993   
                                    --------      --------      --------    -------     -------
<S>                                 <C>           <C>           <C>         <C>         <C>
STATEMENT OF OPERATIONS DATA(1):
Total revenue                       $ 67,734      $101,091      $128,815    $92,180     $57,616

Income (loss) from continuing
    operations(2)                    (57,816)      (43,778)       29,942     24,898      15,653

Net income (loss)                    (56,599)      (77,577)       24,634     22,975      16,324

Income (loss) per share from 
    continuing operations:         
    Basic                           $  (1.71)     $  (1.46)     $   1.19    $  1.11     $   .85
    Diluted                            (1.71)        (1.46)         1.06        .87         .59

Net income (loss) per share:
    Basic                           $  (1.67)     $  (2.59)     $    .98    $  1.03     $   .89
    Diluted                            (1.67)        (2.59)          .87        .80         .62

Weighted average common and common
   equivalent shares outstanding:
   Basic                              33,842        29,896        25,158     22,417      18,432
   Diluted                            33,842        29,896        28,245     28,665      26,314
</TABLE>

<TABLE>
<CAPTION>
                                                        YEARS ENDED DECEMBER 31,
                                     ----------------------------------------------------------
                                       1997         1996          1995        1994       1993
                                     -------      --------      --------    --------    -------
<S>                                  <C>          <C>           <C>         <C>         <C>
BALANCE SHEET DATA:
Working capital                      $43,874      $ 54,780      $ 88,785    $ 53,053    $69,242
Total assets(1)                       97,475       158,908       189,629     127,368     83,711
Total liabilities                     21,956        27,631        24,821      14,684      7,633
Stockholders' equity                  75,519       131,277       164,808     112,684     76,078
</TABLE>

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

                                       2

<PAGE>   3

(1)  During September 1996, the Company announced a formal plan to spin off,
     through the sale to third parties, certain lines of business and to
     discontinue selected product lines. Accordingly, the Company's consolidated
     financial statements, and all prior periods presented, have been restated
     to report separately the net assets and operating results of the
     discontinued operations. See Note D of the Notes to Consolidated Financial
     Statements included under Item 8 of this Report.
(2)  Product development expenses for 1996 included a charge of approximately
     $37.9 million for certain acquired in-process technology related to the
     acquisition of Firefox. See Note D of the Notes to Consolidated Financial
     Statements included under Item 8 of this Report.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.







                                       3
<PAGE>   4
                        REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and Stockholders of FTP Software, Inc.:

         We have audited the accompanying consolidated balance sheets of FTP
Software, Inc. as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of FTP
Software, Inc. as of December 31, 1997 and 1996, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.



                                                    /s/ COOPERS & LYBRAND L.L.P.

Boston, Massachusetts
January 27, 1998


                                       4
<PAGE>   5
                               FTP SOFTWARE, INC.
                           CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
                                                                            DECEMBER 31,
                                                                     -------------------------
                                                                        1997            1996
                                                                     ---------       ---------
<S>                                                                  <C>             <C>      
ASSETS
Current assets:
    Cash and cash equivalents                                        $  37,569       $  22,036
    Short-term investments                                              14,234          29,026
    Accounts receivable, net of allowance for doubtful accounts
        of $1,100 and $1,300 for 1997 and 1996, respectively             8,282          16,586
    Prepaid expenses and other current assets                            2,580           4,430
    Refundable income taxes                                              3,165           3,826
    Deferred income taxes                                                 --             1,244
    Net assets of discontinued operations                                 --             5,263
                                                                     ---------       ---------
        Total current assets                                            65,830          82,411
Property and equipment, net                                              8,301          20,734
Purchased software, net                                                  2,621           6,962
Investments                                                             19,767          47,971
Other assets                                                               956             830
                                                                     ---------       ---------
            Total assets                                             $  97,475       $ 158,908
                                                                     =========       =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable and accrued expenses                            $  10,976       $  12,700
    Income taxes payable                                                 1,613             873
    Accrued employee compensation and benefits                           3,652           4,000
    Deferred revenue                                                     5,715          10,058
                                                                     ---------       ---------
        Total current liabilities                                       21,956          27,631
                                                                     ---------       ---------
Commitments and contingencies (Note J)
Stockholders' equity:
    Preferred stock, $.01 par value; authorized
        5,000,000 shares; none issued and outstanding                     --              --
    Common stock, $.01 par value; authorized
        100,000,000 shares; issued and outstanding
        33,973,140 and 33,646,203 shares in 1997
        and 1996, respectively                                             339             336
    Additional paid-in capital                                         136,792         136,151
    Accumulated deficit                                                (62,046)         (5,447)
    Equity adjustments                                                     434             237
                                                                     ---------       ---------
            Total stockholders' equity                                  75,519         131,277
                                                                     ---------       ---------
                Total liabilities and stockholders' equity           $  97,475       $ 158,908
                                                                     =========       =========
</TABLE>


   The accompanying notes are an integral part of these financial statements.


                                       5
<PAGE>   6
                               FTP SOFTWARE, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                   YEARS ENDED DECEMBER 31,
                                                          -----------------------------------------
                                                             1997            1996            1995
                                                          ---------       ---------       ---------
<S>                                                       <C>             <C>             <C>      
Revenue:
    Product revenue                                       $  50,639       $  84,579       $ 115,715
    Service revenue                                          17,095          16,512          13,100
                                                          ---------       ---------       ---------
        Total revenue                                        67,734         101,091         128,815
                                                          ---------       ---------       ---------

Cost of revenue:
    Product cost                                             11,624           6,995           6,725
    Service cost                                              9,505           9,801           9,127
                                                          ---------       ---------       ---------
        Total cost of revenue                                21,129          16,796          15,852
                                                          ---------       ---------       ---------

Gross margin                                                 46,605          84,295         112,963
                                                          ---------       ---------       ---------

Operating expenses:
    Sales and marketing                                      45,196          46,896          36,593
    Product development                                      27,044          64,652          22,298
    General and administrative                               16,289          19,782          12,699
    Restructuring charges                                    18,330            --              --
                                                          ---------       ---------       ---------
        Total operating expenses                            106,859         131,330          71,590
                                                          ---------       ---------       ---------

Operating income (loss)                                     (60,254)        (47,035)         41,373

Investment income                                             3,646           4,284           6,156
                                                          ---------       ---------       ---------

Income (loss) from continuing operations before
    income taxes                                            (56,608)        (42,751)         47,529

Provision for income taxes                                    1,208           1,027          17,587
                                                          ---------       ---------       ---------

Income (loss) from continuing operations                    (57,816)        (43,778)         29,942

Discontinued operations, net of income tax benefits:
    Operating loss                                             --           (29,039)         (5,308)
    Gain on (provision for) disposition                       1,217          (4,760)           --
                                                          ---------       ---------       ---------

Net income (loss)                                         $ (56,599)      $ (77,577)      $  24,634
                                                          =========       =========       =========

Basic income (loss) per share:
    Continuing operations                                 $   (1.71)      $   (1.46)      $    1.19
    Discontinued operations                                     .04           (1.13)           (.21)
                                                          =========       =========       =========
                                                          $   (1.67)      $   (2.59)      $     .98

                                                          =========       =========       =========
Weighted average number of basic common and common
     equivalent shares outstanding                           33,842          29,896          25,158
                                                          =========       =========       =========

Diluted income (loss) per share:
    Continuing operations                                 $   (1.71)      $   (1.46)      $    1.06
    Discontinued operations                                     .04           (1.13)           (.19)
                                                          =========       =========       =========
                                                          $   (1.67)      $   (2.59)      $     .87
                                                          =========       =========       =========
Weighted average number of diluted common and
    common equivalent shares outstanding                     33,842          29,896          28,245
                                                          =========       =========       =========
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                       6
<PAGE>   7
                               FTP SOFTWARE, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
                        (IN THOUSANDS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
                                                                              RETAINED     FOREIGN         NET
                                                                ADDITIONAL    EARNINGS     EXCHANGE      UNREALIZED       TOTAL
                                             COMMON STOCK        PAID-IN    (ACCUMULATED  TRANSLATION    INVESTMENT    STOCKHOLDERS'
                                          SHARES      AMOUNT     CAPITAL       DEFICIT)   ADJUSTMENTS  GAINS (LOSSES)     EQUITY
                                          ------      ------     -------       --------   -----------  --------------     ------
                               
<S>                                    <C>            <C>       <C>           <C>         <C>           <C>              <C>   
Balance at January 1, 1995              23,344,122      $233      $ 64,955      $ 47,496       $--         $--           $ 112,684
                                                                                                                       
Issuance of common stock                 3,162,607        32         8,852          --          --          --               8,884
                                                                                                                       
Tax benefit of stock option                                                                                            
   activity                                   --         --         18,800          --          --          --              18,800
                                                                                                                       
Net income                                    --         --           --          24,634        --          --              24,634
                                                                                                                       
Foreign exchange translation                                                                                           
  adjustments                                 --         --           --            --            14        --                  14
                                                                                                                       
Net unrealized investment                                                                                              
  losses                                      --         --           --            --          --          (208)             (208)
                                        ----------      ----      --------      --------       -----       -----         ---------
                                                                                                                       
Balance at December 31, 1995            26,506,729      $265      $ 92,607      $ 72,130       $  14       $(208)          164,808
                                                                                                                       
Issuance of common stock                 7,139,474        71        43,544          --          --          --              43,615
                                                                                                                       
Net loss                                      --         --           --         (77,577)       --          --             (77,577)
                                                                                                                       
Foreign exchange translation                                                                                           
  adjustments                                 --         --           --            --          (425)       --                (425)
                                                                                                                       
Net unrealized investment                                                                                              
  gains                                       --         --           --            --          --           856               856
                                        ----------      ----      --------      --------       -----       -----         ---------
                                                                                                                       
Balance at December 31, 1996            33,646,203      $336      $136,151      $ (5,447)      $(411)      $ 648           131,277
                                                                                                                       
Issuance of common stock                   326,937         3           641          --          --          --                 644
                                                                                                                       
Net loss                                      --         --           --         (56,599)       --          --             (56,599)
                                                                                                                       
Foreign exchange translation                                                                                           
  adjustments                                 --         --           --            --           814        --                 814
                                                                                                                       
Net unrealized investment                                                                                              
  losses                                      --         --           --            --          --          (617)             (617)
                                                                                                                       
                                        ----------      ----      --------      --------       -----       -----         ---------
Balance at December 31, 1997            33,973,140      $339      $136,792      $(62,046)      $ 403       $  31         $  75,519
                                        ==========      ====      ========      ========       =====       =====         =========
</TABLE>


   The accompanying notes are an integral part of these financial statements.


                                       7
<PAGE>   8
                               FTP SOFTWARE, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                                  YEARS ENDED DECEMBER 31,
                                                                                       --------------------------------------------
                                                                                         1997              1996              1995
                                                                                       --------          --------          --------
<S>                                                                                    <C>               <C>               <C>     
Cash flows from operating activities:
    Income (loss) from continuing operations                                           $(57,816)         $(43,778)         $ 29,942
    Adjustments to reconcile income (loss) from continuing operations
       to net cash provided by (used for) operating activities:
       Depreciation and amortization                                                     12,064             9,260             6,137
       Loss on disposition of property and equipment                                        693               422               255
       Noncash  write-offs in restructuring charges                                       7,772                --                --
       Provision for doubtful accounts                                                      200              (300)              600
       Purchase of in-process technology                                                     --            37,852                --
       Amortization of discounts and premiums on investments                                 66                29            (1,407)
       Deferred income taxes                                                              1,244             1,221            (1,324)
       Tax benefit of stock option activity                                                  --                --            18,800
       Changes in operating assets and liabilities, net of effects
          from acquisition of business:
          Accounts receivable                                                             8,105            17,184           (14,741)
          Prepaid expenses and other current assets                                       1,850               895            (2,405)
          Refundable income taxes                                                           661             1,521            (7,775)
          Other assets                                                                     (126)             (376)               --
          Accounts payable and accrued expenses                                          (1,728)              (84)            4,688
          Income taxes payable                                                              740               873            (2,044)
          Accrued employee compensation and benefits                                       (348)           (1,989)              568
          Deferred revenue                                                               (4,343)              740             3,837
                                                                                       --------          --------          --------
              Net cash provided by (used for) continuing operations                     (30,966)           23,470            35,131
              Net cash provided by (used for) discontinued operations                     6,382            (4,920)           (1,834)
                                                                                       --------          --------          --------
                 Net cash provided by (used for) operating activities                   (24,584)           18,550            33,297
                                                                                       --------          --------          --------
Cash flows from investing activities:
    Capital expenditures                                                                 (3,530)           (9,072)          (11,905)
    Maturities (purchase) of investments                                                 42,930            18,900            (7,454)
    Acquisition of business, net of cash acquired                                            --            (3,776)               --
    Other investing activities, net                                                          --               (97)               15
                                                                                       --------          --------          --------
              Net cash provided by (used for) continuing operations                      39,400             5,955           (19,344)
              Net cash used for discontinued operations                                      --           (32,809)           (2,365)
                                                                                       --------          --------          --------
                 Net cash provided by (used for) investing activities                    39,400           (26,854)          (21,709)
                                                                                       --------          --------          --------
Cash flows from financing activities:
    Proceeds from issuance of common stock                                                  644             1,536             8,884
    Principal payments on long-term obligations                                              --            (1,589)           (1,142)
                                                                                       --------          --------          --------
                 Net cash provided by (used for) financing activities                       644               (53)            7,742
                                                                                       --------          --------          --------
Effect of exchange rate changes on cash                                                      73               156                11
                                                                                       --------          --------          --------
Net increase (decrease) in cash and cash equivalents                                     15,533            (8,201)           19,341
Cash and cash equivalents, beginning of year                                             22,036            30,237            10,896
                                                                                       --------          --------          --------
Cash and cash equivalents, end of year                                                 $ 37,569          $ 22,036          $ 30,237
                                                                                       ========          ========          ========
Supplemental disclosure of cash flow information:
    Income taxes paid                                                                  $    527          $     --          $  1,952
                                                                                       ========          ========          ========
    Noncash financing activities:
       Acquisition of business for stock                                               $     --          $ 42,079          $     --
       Financed purchased software                                                     $     --          $     --          $  1,000
                                                                                       ========          ========          ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.



                                       8
<PAGE>   9
                               FTP SOFTWARE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


A.       DESCRIPTION OF BUSINESS:

         FTP Software, Inc. (the "Company") is engaged in the design,
development, marketing and support of connectivity software applications that
enable users to connect to information across TCP/IP networks, including data
residing on mainframes, minicomputers and servers. These applications include
terminal emulation, NFS file sharing and printing, file transfer and legacy host
access.

B.       SIGNIFICANT ACCOUNTING POLICIES:

         Principles of Consolidation

         The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated.

         Revenue Recognition

         Revenue is generally recognized from the license of software upon
shipment when collection of the resulting receivable is deemed probable. At the
time the Company recognizes revenue from licensed software products, no
significant vendor or post-contract support obligations remain. Service revenue
includes revenue from support, training and consulting. Payments received in
advance for support contracts are initially recorded as deferred revenue and are
recognized ratably over the term of the contract, typically one year. Revenue
from training and consulting is recognized as the services are performed.

         Cash Equivalents

         Cash equivalents consist of money market funds, commercial paper and
government obligations with original maturities of three months or less and are
carried at amortized cost, which approximates market value. The Company places
its temporary cash investments in money market investments with high credit
quality financial institutions.

         Investments

         The Company has established guidelines for credit ratings,
diversification and maturities for its investment portfolio that are intended to
maintain safety and liquidity. The Company's investments are widely diversified,
consisting primarily of investment grade debt securities classified as
available-for-sale. Accordingly, investments are reported at market value with
unrealized holding gains and losses reflected net as a separate component of
stockholders' equity until realized. The cost of short-term investments and
long-term investments is determined on the specific identification method and
the market value is based on quoted market prices.


                                       9
<PAGE>   10
                               FTP SOFTWARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


         Property and Equipment

         Property and equipment are stated at cost and depreciated using the
straight-line method over their estimated useful lives, ranging from three to
seven years. Leasehold improvements are amortized over the shorter of their
estimated useful lives or the remaining term of the lease. Expenditures for
maintenance and repairs are expensed as incurred. Upon retirement or other
disposition of assets, the cost and related accumulated depreciation are
eliminated from the accounts and the resulting gain or loss is included in net
income (loss).

         Purchased Software

         Purchased software includes acquired technology being amortized, using
the straight-line method, over the assets' estimated remaining useful lives. The
Company evaluates the possible impairment of such long-lived assets whenever
events or circumstances indicate that the carrying value of the assets may not
be recoverable.

         Foreign Currency Translation

         The functional currency of the Company's foreign subsidiaries is the
local currency. Accordingly, assets and liabilities of these operations are
translated at exchange rates in effect at year-end. Income and expense items are
translated at average rates of exchange for the period. Resulting translation
adjustments are accumulated in a separate component of stockholders' equity.
Gains and losses from foreign currency transactions, which are not material, are
included in net income (loss).

         Product Development Costs

         Costs related to research, design and development of computer software
are charged to product development expense as incurred. The Company capitalizes
eligible software costs incurred after technological feasibility of the product
has been established, which is generally demonstrated by the initial beta
release. The capitalizable costs of internally developed software to date have
not been material. Purchased software of approximately $.8 million, $5.6 million
and $2.0 million was acquired in 1997, 1996 and 1995, respectively. These assets
are being amortized over a one- to four-year period based on the expected useful
lives of the products. Related amortization charges, reflected in cost of
revenue, were approximately $5.2 million, $2.7 million and $2.2 million in 1997,
1996 and 1995, respectively. Accumulated amortization related to these assets
amounted to $9,996 and $4,890 in 1997 and 1996, respectively.

         Income Taxes

         Deferred income tax assets and liabilities arise from temporary
differences between the tax basis of assets and liabilities and their reported
amounts in the financial statements that are expected to result in taxable or
deductible amounts in future years. The Company periodically evaluates the
realizability of its deferred tax assets. A valuation allowance against net
deferred tax assets is established if, based on the available evidence, it is
more likely than not that some or all of the deferred tax assets will not be
realized.


                                       10

<PAGE>   11
                               FTP SOFTWARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


         Net Income (Loss) Per Share

         The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share," for the year ended December 31, 1997.
This statement requires the presentation of basic and diluted net income per
share. Basic net income per common share is computed using the weighted average
number of common shares outstanding during the period. The Company has restated
all prior period per share presented as required by SFAS No. 128. Diluted net
income per share is computed using the weighted average number of common and
dilutive common equivalent shares outstanding during the period. Dilutive common
equivalent shares consist of stock options. During periods that the Company has
recorded a net loss, dilutive common shares are not included in the computation
as the effect would be anti-dilutive.

         Risks and Uncertainties

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.

         The Company's future results of operations involve a number of risks
and uncertainties. Factors that could affect the Company's future operating
results and cause actual results to vary materially from expectations include,
but are not limited to, competition, competitive pricing pressures,
technological and other market changes, the effects of the Company's 1997
restructurings, dependence on new products, distribution risks and changes in
personnel.

         The Company sells its products outside the United States primarily
through a network of resellers in North and South America, Europe, the Middle
East, Canada, Russia and Asia Pacific. In the United States, the Company
distributes its products through multiple channels, including direct sales,
value-added resellers, systems integrators, OEMs and distributors. The Company
performs ongoing credit evaluations of its customers and maintains reserves for
potential credit risk as determined by management. The Company generally
requires no collateral. Accounts receivable are from customers that are
geographically and industry dispersed. No one customer accounted for more than
10% of consolidated revenue for any period presented.

         Accounting for Stock-Based Compensation

         The Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," during 1996. This Statement defines a fair value based method of
accounting for stock-based employee compensation and requires that companies
either recognize compensation expense for grants of stock, stock options and
other equity instruments or provide pro forma disclosure of net income (loss)
and net income (loss) per share in the notes to the financial statements as if
such expense had been recognized. The Company has elected to continue measuring
compensation costs for those plans using the intrinsic value based method of
accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related Interpretations and has disclosed
pro forma net loss and net loss per share for 1997 and 1996 as if the fair value
based method of accounting had been


                                       11
<PAGE>   12
                               FTP SOFTWARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


applied. As such, adoption of this Statement had no effect on the Company's
results of operations for 1997 and 1996.

         New Accounting Standards

         In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosure about
Segments of an Enterprise." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components (revenue, expenses, gains and
losses) in a full set of general-purpose financial statements. The Company will
adopt the provisions of SFAS No. 130 for its fiscal year ending December 31,
1998; however, management has not yet evaluated the effects of this change on
its reporting of comprehensive income. SFAS No. 131 changes the way public
companies report information about operating segments. SFAS No. 131, which is
based on the management approach to segment reporting, establishes requirements
to report selected segment information quarterly and to report entity-wide
disclosures about products and services, major customers and the material
countries in which the entity holds assets and reports revenue. The Company
intends to adopt SFAS No. 131 for its fiscal year ending December 31, 1998.
Management does not expect such adoption to have any material impact on the way
it reports information.

         In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition," which
provides guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions and supersedes SOP 91-1, "Software
Revenue Recognition." The Company will adopt SOP 97-2 for its fiscal year ending
December 31, 1998 and does not expect such adoption to have any material impact
on its revenue recognition policies.

         Reclassifications

         Certain prior year amounts have been reclassified to conform with the
current year's presentation.

C.        RESTRUCTURE CHARGES:

         In July 1997, the Company reorganized its operations into business
units and effected a worldwide workforce reduction in order to lower the
Company's overall cost structure and create greater focus on specific strategic
business opportunities. This restructuring resulted in a charge of approximately
$17.1 million ($.50 per share) in the third quarter of 1997. This charge
included severance related payments, excess facilities costs, the write-off of
fixed assets and other restructuring-related items such as losses related to
cancelled contracts; such costs were all substantially completed in 1997.

         In late December 1997, following a review of the financial results of
its business units for the second half of 1997, the Company decided to further
streamline its operations and to recombine its business units into one worldwide
organization. This restructuring resulted in a charge of approximately $1.3
million ($.04 per share) in the fourth quarter of 1997. This charge included
costs similar to those


                                       12
<PAGE>   13
                               FTP SOFTWARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


incurred in connection with the third quarter restructuring; management expects
these costs to be substantially completed in the first quarter of 1998.

         The following summarizes the 1997 restructuring charges, the related
write-offs and cash paid in connection with the restructurings (dollars in
thousands):

<TABLE>
<CAPTION>
                                 Severance       Excess        Excess
                                 Payments      Facilities    Fixed Assets    Other        Total
                                 --------      ----------    ------------    -----        -----
<S>                              <C>           <C>           <C>           <C>         <C>     
1997 restructuring charges        $ 7,391       $ 3,087       $ 6,871       $ 981       $ 18,330
Noncash write-offs                     --            --        (7,779)         --         (7,779)
Cash paid                          (6,168)       (1,553)           --         (86)        (7,807)
Reclassifications                    (457)          176           908        (627)             0
                                  -------       -------       -------       -----       --------
Accrued restructuring charges
   at December 31, 1997           $   766       $ 1,710       $     0       $ 268       $  2,744
                                  =======       =======       =======       =====       ========
</TABLE>


         Amounts related to severance with respect to the July 1997 workforce
reduction involved approximately 300 employees, primarily in sales and
marketing, product development and general and administrative functions at the
Company's domestic and European locations. Amounts related to facilities reflect
the cost of the lease of the excess space arising primarily from the
consolidation of the Company's Massachusetts headquarters and manufacturing
facilities into the Company's North Andover, Massachusetts development offices.

         Amounts related to severance with respect to the December 1997
workforce reduction involved approximately 21 employees, primarily in
development, at the Company's European locations. Amounts related to facilities
reflect the cost of the lease of excess space at the Company's U.K. facility.

D.        ACQUISITIONS AND DISCONTINUED OPERATIONS

         During 1997, the Company completed the disposition of its collaborative
lines of business and selected product lines which were identified in 1996 as
not specifically related to the Company's continuing network connectivity
business. The accompanying consolidated financial statements have been restated
to report separately in all periods presented the net assets and operating
results of the discontinued operations. Prior year operating results and all
footnote disclosures have been restated to reflect continuing operations. Net
assets of discontinued operations consisted primarily of purchased software and
fixed assets less accounts payable and accrued expenses. In 1996, the Company
recorded a charge of approximately $4.8 million to write down the related assets
to estimated net realizable values.

         In the third quarter of 1997, the Company recorded an additional $2.0
million charge in connection with the termination of a long-term agreement
associated with one of the discontinued lines of business. In the fourth quarter
of 1997, the Company recorded a gain of approximately $3.2 million upon the
completion of the disposition of all related assets.


                                       13
<PAGE>   14
                               FTP SOFTWARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


         Summary operating results for the discontinued operations (which
include charges of approximately $21.8 million and $1.1 million in 1996 and
1995, respectively, for certain acquired in-process technology) are as follows
(in thousands):

<TABLE>
<CAPTION>
                                                       YEARS ENDED DECEMBER 31,
                                                      -------------------------
                                                        1996             1995
                                                      --------          -------
<S>                                                   <C>               <C>    
Revenue                                               $  9,907          $ 7,561
Gross margin                                             5,255            5,569
Operating loss before income taxes                     (31,441)          (8,427)
Net loss                                               (33,799)          (5,308)
</TABLE>

         During 1995 and 1996, the Company made the following acquisitions: in
1995, the Company acquired substantially all of the assets of Keyword Office
Technologies Ltd., a developer of document viewer and conversion software
products, for approximately $2.4 million; and in 1996, the Company acquired the
following for a net cash purchase price of approximately $28.7 million: the
Mariner Internet software product line of Networking Computing Devices, Inc.;
substantially all of the assets of HyperDesk Corporation, including its
collaborative GroupWorks product; and all of the outstanding stock of Campbell
Services, Inc., the developer of OnTime, a scheduling software product. All of
these acquisitions were accounted for as purchases, with the majority of the
purchase price recorded as in-process technology, and are reflected in
discontinued operations.

         In July 1996, the Company acquired Firefox Communications Inc.
("Firefox"), a supplier of server-centric departmental and LAN-based IP
solutions and services, for a net purchase price of approximately $61.0 million,
through the merger of a wholly-owned subsidiary of the Company into Firefox (the
"Firefox Merger"). Pursuant to the Firefox Merger, all of the outstanding shares
of the common stock of Firefox were converted into a total of approximately 6.4
million shares of the Company's common stock, $.01 par value per share ("Common
Stock"), valued at approximately $40.6 million and approximately $9.1 million in
cash. In addition, outstanding employee stock options to purchase Firefox common
stock were converted into options to purchase approximately 336,000 shares of
Common Stock, valued at approximately $1.5 million. The Company also incurred
acquisition-related costs of approximately $3.7 million and liabilities treated
as assumed totaling approximately $6.1 million which are included in the net
purchase price. The transaction was accounted for as a purchase. Based upon a
valuation of the assets acquired, approximately $2.6 million was allocated to
completed technology, which was included in purchased software and was fully
amortized as of December 31, 1997; approximately $37.9 million was allocated to
in-process technology and charged to product development expense in 1996; and
approximately $20.5 million was allocated to the remaining assets of Firefox,
primarily short-term investments and accounts receivable. Results of operations
include activity from Firefox since the date of the acquisition.

         The unaudited pro forma consolidated results of continuing operations
would have been as follows if the Firefox Merger had occurred on January 1, 1995
(in thousands, except per share amounts):


                                       14
<PAGE>   15
                               FTP SOFTWARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


<TABLE>
<CAPTION>
                                                    YEARS ENDED DECEMBER 31,
                                                 -------------------------------
                                                     1996                1995
                                                 -----------         -----------
<S>                                              <C>                 <C>        
Revenue                                          $   109,396         $   148,583
Net income (loss)                                     (9,243)             29,787
Basic net income (loss) per share                $      (.31)        $      1.18
Diluted net income (loss) per share                     (.31)               1.05
</TABLE>

         These unaudited pro forma results are presented for informational
purposes only and include certain adjustments such as additional amortization
expense as a result of purchased software. They do not include the approximately
$37.9 million charge to product development expense for acquired in-process
technology and do not purport to be indicative of the Company's actual results
of operations had the Firefox Merger occurred on January 1, 1995, nor are they
indicative of the Company's results of operations for any future period.

         The Company allocates the purchase price of acquired technologies to
completed technology and in-process technology based upon their respective fair
values. Completed technology that has reached technological feasibility is
valued using a risk adjusted cash flow model under which future cash flows are
discounted, taking into account risks related to existing and future markets and
assessments of the life expectancy of completed technology. In-process
technology that has not reached technological feasibility and that has no
alternative future use is valued using the same method. Expected future cash
flows associated with in-process technology are discounted considering risks and
uncertainties related to the viability of and to potential changes in the future
target markets and to the completion of the products expected to be ultimately
marketed by the Company. Amounts charged to product development expense for
in-process technology are either not fully deductible in the same period or are
non-deductible for tax purposes.

E.        INVESTMENTS:

         Investments consist of the following (in thousands):

<TABLE>
<CAPTION>
                                     DECEMBER 31, 1997          DECEMBER 31, 1996
                                  ------------------------  ------------------------
                                   MARKET      AMORTIZED      MARKET      AMORTIZED
                                   VALUE         COST          VALUE         COST
                                  ---------   ------------  -----------  -----------
<S>                               <C>         <C>           <C>          <C>    
U.S. government obligations        $19,502      $19,453       $42,127      $42,707
Corporate obligations               14,499       14,517        18,727       18,822
Municipal obligations                 --           --           9,171        9,153
Equity securities                     --           --           6,972        5,224
                                   -------      -------       -------      -------
                                   $34,001      $33,970       $76,997      $75,906
                                   =======      =======       =======      =======
</TABLE>

         At December 31, 1997 and 1996, gross unrealized investment gains
amounted to approximately $.1 million and $1.9 million, respectively, and gross
unrealized investment losses amounted to approximately $.1 million and $.8
million, respectively. Proceeds from dispositions of available for sale
securities were approximately $28.1 million and approximately $3.0 million in
1997 and 1996, respectively. These dispositions resulted in gross gains of
approximately $.1 million and gross losses of approximately $.3 million in 1997.
Gross gains and gross losses from such dispositions were not significant in
1996.


                                       15

<PAGE>   16
                               FTP SOFTWARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


         The Company's investments, at market value based on quoted market
prices, mature as follows (in thousands):

<TABLE>
<CAPTION>
                                            DECEMBER 31,
                                       ----------------------
            YEARS TO MATURITY            1997        1996
                                       ----------  ----------
<S>                                   <C>          <C>    
                   0-1                  $14,234      $29,026
                   1-5                   19,767       41,258
                  5-10                       --          258
                 Over 10                     --        6,455
                                       ----------  ----------
                                        $34,001      $76,997
                                       ==========  ==========
</TABLE>

         Included in the above table as having 0-1 years to maturity are equity
securities of approximately $7.0 million at December 31, 1996.

F.        PROPERTY AND EQUIPMENT:

         Property and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                             DECEMBER 31,
                                                                    --------------------------
                                                                         1997         1996
                                                                    ------------   -----------
<S>                                                                 <C>           <C>      
          Development equipment                                       $   4,453     $   7,266
          Equipment                                                       9,259        21,164
          Furniture and leasehold improvements                            4,756         8,784
                                                                      ---------      --------
                                                                         18,468        37,214
          Less accumulated depreciation and amortization                (10,167)      (16,480)
                                                                      ---------      --------
                                                                      $   8,301      $ 20,734
                                                                      =========      ========
</TABLE>

G.        PROFIT SHARING RETIREMENT PLAN:

         The Company sponsors a profit sharing retirement plan for eligible
employees established under the provisions of Section 401(k) of the Internal
Revenue Code (the "401(k) Plan"), under which participants may defer a portion
of their annual compensation on a pre-tax basis. Contributions by the Company to
the 401(k) Plan are at the discretion of the Company's Board of Directors (the
"Board of Directors") and amounted to approximately $1.0 million, $1.2 million
and $1.0 million for the years ended December 31, 1997, 1996 and 1995,
respectively.

         While the Company expects to continue the 401(k) Plan indefinitely, it
has reserved the right to modify, amend or terminate the plan. In the event of
termination, the entire amount contributed under the 401(k) Plan, at the time of
termination, must be applied to the payment of benefits to the participants or
their beneficiaries.

         The Company does not currently offer post-retirement or post-employment
benefits.


                                       16

<PAGE>   17
                               FTP SOFTWARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


H.       INCOME TAXES:

         The loss from continuing operations before income taxes for the years
ended December 31, 1997 and 1996 for domestic operations was approximately $55.9
million and $40.2 million, respectively, and for foreign operations was
approximately $.7 million and $2.6 million, respectively. The income from
continuing operations before income taxes for the year ended December 31, 1995
for domestic operations was approximately $46.6 million and for foreign
operations was approximately $1.0 million.

         The provision for income taxes consists of the following (in
thousands):

<TABLE>
<CAPTION>
                                                 YEARS ENDED DECEMBER 31,
                                        ---------------------------------------
                                          1997            1996            1995
                                        -------        --------        --------
<S>                                     <C>            <C>             <C>     
Current (benefit) provision:
     Federal                            $(1,210)       $ (3,252)       $ 15,657
     State                                  650             210           2,859
     Foreign                                523           2,848             395
                                        -------        --------        --------
                                            (37)           (194)         18,911
                                        -------        --------        --------
Deferred (benefit) provision:
     Federal                              1,210             982          (1,024)
     State                                   35             239            (300)
                                        -------        --------        --------
                                          1,245           1,221          (1,324)
                                        -------        --------        --------
                                        $ 1,208        $  1,027        $ 17,587
                                        =======        ========        ========
</TABLE>

         The losses from discontinued operations resulted in tax benefits of
approximately $2.5 million and $3.1 million in 1996 and 1995, respectively.
There was no tax benefit from discontinued operations in 1997.

         The provision for income taxes differs from the amount computed by
applying the statutory federal income tax rate to income (loss) from continuing
operations before income taxes as follows:

<TABLE>
<CAPTION>
                                                           YEARS ENDED DECEMBER 31,
                                                    ------------------------------------
                                                     1997           1996           1995
                                                    ------         ------         ------
<S>                                                 <C>            <C>             <C>  
Tax (benefit) at U.S. statutory rate                 (35.0)%        (35.0)%         35.0%
Non-deductible merger-related costs                    1.0           31.1             --
Foreign tax                                             --            4.7             --
Operating loss with no current tax benefit            34.2            1.7             --
State income taxes net of federal tax benefit           .7             .6            4.3
Other                                                  1.2            (.7)          (2.3)
                                                    ------         ------         ------
                                                       2.1%           2.4%          37.0%
                                                    ======         ======         ======
</TABLE>

         The current federal and state provisions for income taxes do not
reflect tax savings resulting from deductions associated with the Company's
various stock plans of approximately $18.8 million in 1995, which was credited
to stockholders' equity. There were no tax savings resulting from deductions
associated with these stock plans in 1997 or 1996.


                                       17
<PAGE>   18
                               FTP SOFTWARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


         The components of deferred income taxes are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                             ------------------------
                                                               1997            1996
                                                             --------        --------
<S>                                                          <C>             <C>     
Federal tax benefit of net operating loss
     carryforward and credits                                $ 19,456        $     --
State tax benefit of net operating loss
     carryforward and credits                                   5,499           1,616
Depreciation and amortization expense                           5,041           1,551
Accounts receivable reserve                                     1,092           1,259
Employee compensation and benefits accruals                     1,607           1,063
Foreign tax benefit of net operating loss carryforward
                                                                  608             513
Other                                                             634             283
                                                             --------        --------
                                                               33,937           6,285
Valuation allowance for deferred tax assets                   (33,483)         (2,676)
                                                             --------        --------
                                                                  454           3,609
                                                             --------        --------
Deferred tax liabilities:
     Depreciation and amortization expense                       (454)         (1,085)
     Purchased technology                                          --          (1,008)
     Other reserves and liabilities                                --            (272)
                                                             --------        --------
                                                                 (454)         (2,365)
                                                             --------        --------
Current deferred income tax assets                           $      0        $  1,244
                                                             ========        ========
</TABLE>

         The realization of these deferred tax assets is dependent upon future
earnings in specific tax jurisdictions. Due to the uncertainty as to when the
deferred tax assets may be realized, the Company has recorded a valuation
allowance for all tax assets in excess of amounts available to be recovered
pursuant to tax loss carrybacks for the year ended December 31, 1997. The
Company periodically reviews the need for the valuation allowance and if the
valuation allowance is reduced, the tax benefit will be recorded as a reduction
of the Company's income tax expense except for approximately $1.3 million which
is attributable to stock options and will be credited to additional paid-in
capital when realized.

         At December 31, 1997, the Company had a net operating loss carryforward
for federal income tax purposes of approximately $46.3 million expiring at
various dates beginning in 2008 through 2012 and tax credit carryforwards of
approximately $3.7 million which expire in various years beginning in 1998
through 2011. At December 31, 1997, the Company had net operating loss
carryforwards of approximately $53.0 million available to offset future taxable
income in several state jurisdictions expiring at various dates beginning in
2000 through 2012. Similarly, research and experimentation credit carryforwards
for state tax purposes of approximately $.6 million and investment tax credits
of approximately $.1 million were available at December 31, 1997, expiring in
2010. In addition, the Company had a net operating loss of approximately $1.8
million available to offset future taxable income in a foreign jurisdiction with
no expiration.


                                       18
<PAGE>   19
                               FTP SOFTWARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


I.       STOCKHOLDERS' EQUITY:

         Preferred Stock

         The Board of Directors is authorized, subject to any limitations
prescribed by law, to issue up to an aggregate of 5,000,000 shares of the
Company's preferred stock, $.01 par value per share ("Preferred Stock"), with
such powers, designations, preferences and relative, participating, optional or
other special rights and such qualifications, limitations or restrictions
thereof, as shall be determined by the Board of Directors in a resolution or
resolutions providing for the issuance of such Preferred Stock.

         On December 1, 1995, pursuant to the shareholder rights plan described
below, the Board of Directors designated 500,000 shares of Preferred Stock as
Junior Preferred Stock, $.01 par value per share ("Junior Preferred Stock").
Dividends accrue on the Junior Preferred Stock at a quarterly rate equal to the
greater of $1.00 or, subject to adjustment, 100 times the aggregate per share
amount of all dividends paid during the quarter on the Common Stock. The Junior
Preferred Stock carries a liquidation preference of $100 per share, is
redeemable, and entitles the holder to 100 votes per share on all matters
submitted to a vote of the Company's stockholders. The Company has not issued
any shares of Junior Preferred Stock.

         Shareholder Rights Plan

         On December 1, 1995, the Company adopted a shareholder rights plan (the
"Rights Plan") whereby each share of Common Stock issued after December 8, 1995
will have an attached right which, when exercisable, will entitle the holder to
purchase 1/100th of a share of Junior Preferred Stock at a price of $150 (the
"Rights"). Additionally, the Board of Directors declared a dividend of one Right
for each share of Common Stock outstanding on December 8, 1995.

         The Rights become exercisable if a person acquires or announces a
tender or exchange offer for 15% or more of the outstanding Common Stock. The
Rights Plan also provides that if a person (an "Acquiring Person") acquires or
obtains the right to acquire 15% or more of the outstanding Common Stock (other
than pursuant to certain approved offers), each of the Rights (other than the
Rights held by the Acquiring Person) will entitle the holder to purchase shares
of Common Stock having a market value of twice the exercise price of the Rights.
In addition, if the Company is involved in a merger or other business
combination with another person in which it is not the surviving corporation or
in connection with which the Common Stock is changed or converted into
securities of any other person or other property, or if the Company sells or
transfers 25% or more of its assets or earning power to another person, each
Right that has not previously been exercised will entitle its holder to purchase
shares of the common stock of such other person having a market value of twice
the exercise price of the Right.

         In November 1996, the Company amended the Rights Plan to permit Kopp
Investment Advisors, Inc. and certain of its affiliates (but not any of their
transferees) to acquire up to 6,722,400 shares of Common Stock (approximately
19.9% of the outstanding shares of Common Stock as of the date of such
amendment) without triggering the exercisability of the Rights.

         The Board of Directors may redeem the Rights at any time prior to their
expiration on December 1, 2005 at a redemption price of $.01 for each of the
Rights. The Company has reserved 500,000 shares of Junior Preferred Stock for
issuance upon exercise of the Rights.


                                       19
<PAGE>   20
                               FTP SOFTWARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


         Stock Option Plans

         In January 1987, the Company adopted the FTP Software, Inc. Stock
Option Plan (the "1987 Option Plan"). Under the 1987 Option Plan, as amended,
the Company had the right to grant to certain employees either incentive or
non-qualified stock options to purchase up to 26,400,000 shares of Common Stock
vesting over four years. The exercise price of each option could not be less
than the fair market value of Common Stock on the date of grant, as determined
by the Board of Directors, and the term of each option could not exceed 10
years. This plan terminated in January 1997; as a result, no additional grants
may be made under this plan.

         In January 1997, the Company adopted the FTP Software, Inc. 1997
Employee Equity Incentive Plan. Under this plan, the Company has the right to
grant to certain employees non-qualified stock options, stock appreciation
rights, restricted stock and unrestricted stock. The aggregate maximum number of
shares of Common Stock that may be delivered under this plan is 2,780,000 plus
the number of shares subject to options granted under the 1987 Option Plan that
terminate unexercised after January 20, 1997. As of December 31, 1997, the
maximum number of shares of Common Stock deliverable under this plan was
5,812,740. The exercise price of the options may not be less than the fair
market value of the Common Stock on the date of grant, as determined by the
Board of Directors, and the term of each option may not exceed 10 years. Options
are exercisable to the extent vested. Vesting generally occurs within three
years from the date of the grant.

         In August 1996, the Company adopted the FTP Software, Inc. 1996
Executive Equity Incentive Plan, which enables the Company to grant either
incentive or non-qualified stock options, stock appreciation rights, restricted
stock and unrestricted stock to its executive officers. The aggregate maximum
number of shares of Common Stock that may be delivered under this plan is
1,500,000. The exercise price of the options may not be less than the fair
market value of the Common Stock on the date of the grant, as determined by the
Board of Directors, and the term of each option may not exceed 10 years. The
options vest over various dates within three to four years from the date of the
grant.

         During 1996, the Company offered its employees (other than executive
officers) the opportunity to exchange each stock option granted during 1994,
1995 and 1996 for a new option covering 50% of the number of shares of Common
Stock covered by the original option, having a new exercise price fixed at the
date of exchange and otherwise having the same or similar terms as the original
option. During the option exchange offer period, options to purchase
approximately 2,130,000 shares of Common Stock at exercise prices ranging from
$9.50 to $31.75 per share were exchanged for options to purchase approximately
1,065,000 shares of Common Stock at exercise prices ranging from $7.25 to $9.063
per share.

         In September 1993, the Company adopted the 1993 Non-Employee Directors'
Stock Option Plan, which provides for the automatic grant of options upon the
election or re-election of each non- employee director and for discretionary
option grants to such directors. A maximum of 500,000 shares of Common Stock may
be issued under this plan. The exercise price of each option may not be less
than the fair market value of Common Stock on the date of the grant, as
determined by the Board of Directors, and the term of each option may not exceed
10 years. The original automatic grant provisions generally provided for the
grant of an option to purchase 30,000 shares of Common Stock upon the election
or re-


                                       20
<PAGE>   21
                               FTP SOFTWARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


election of such a director, vesting over three years. As amended in December
1997, this plan now generally provides for the automatic grant of an option to
purchase 20,000 shares upon the election or re-election of a non-employee
director, vesting over three years, and the automatic grant of an additional
option to purchase 10,000 shares of Common Stock on each of the first and second
anniversaries of such election or re-election, provided such director is still
serving as such, vesting in full upon grant.

         Prior to the Company's acquisition of Firefox, Firefox granted options
to certain of its employees under the Firefox 1994 Share Option Scheme, prior to
Firefox's initial public offering. Options granted under that plan were
generally scheduled to vest over three years and were required to be exercised
no later than seven years from the date of grant. Pursuant to the Firefox
Merger, each option outstanding under this plan was converted into an option to
purchase shares of Common Stock at a new exercise price determined in accordance
with the merger agreement. In addition, each optionholder had the right to have
the Company assume the holder's converted options, in which case the converted
options would otherwise continue on the same terms and conditions that applied
prior to the conversion of the options. If a holder chose not to have the
Company assume a converted option, the converted option became exercisable in
full for a period of six months beginning on July 22, 1996 (the closing date of
the Firefox Merger) and ending on January 22, 1997.

         Prior to the Company's acquisition of Firefox, Firefox also maintained
the Firefox 1995 Stock Option Plan. This plan provided for the grant of
incentive stock options and non-qualified stock options at an exercise price not
less than 100% and 85%, respectively, of the fair market value of Firefox's
common stock at the date of grant. Options granted under this plan were
generally scheduled to vest over four years and were required to be exercised no
later than 10 years from the date of grant. Pursuant to the Firefox Merger, each
option outstanding under this plan was automatically assumed by the Company and
converted into an option to purchase shares of Common Stock at a new exercise
price determined in accordance with the merger agreement, but otherwise
continued on the same terms and conditions that applied prior to the conversion
of the options. Holders of options granted under this plan had the opportunity
to participate in the option exchange offer described above.

         Stock option activity under the Company's various stock option plans is
summarized as follows:

<TABLE>
<CAPTION>
                                                                         WEIGHTED-AVERAGE
                                                      SHARES              EXERCISE PRICE
                                                    ----------           ----------------
<S>                                                <C>                  <C>       
Outstanding, January 1, 1995                         7,445,029            $     7.21
     Granted                                         1,754,286                 30.59
     Exercised                                      (3,137,635)                 2.71
     Canceled                                       (1,795,361)                 6.25
                                                    ----------
Outstanding, December 31, 1995                       4,266,319                 20.54
     Granted                                         5,414,978                  9.60
     Converted Firefox options                         336,424                  5.44
     Exercised                                        (703,332)                 1.80
     Canceled                                       (3,759,520)                22.29
                                                    ----------
Outstanding, December 31, 1996                       5,554,869                 10.16
     Granted                                         5,328,003                  4.06
     Exercised                                        (297,270)                 1.76
     Canceled                                       (3,933,873)                10.13
                                                    ----------
Outstanding, December 31, 1997                       6,651,729            $     5.67
                                                    ==========
</TABLE>


                                       21
<PAGE>   22
                               FTP SOFTWARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


         Information about stock options outstanding at December 31, 1997 is
summarized as follows:

<TABLE>
<CAPTION>
                               OUTSTANDING                                     EXERCISABLE
----------------------------------------------------------------------    --------------------
                                      WEIGHTED-
                                       AVERAGE
                                      REMAINING                                      WEIGHTED-
                                     CONTRACTUAL       WEIGHTED-                     AVERAGE 
 RANGE OF EXERCISE                       LIFE       AVERAGE EXERCISE                 EXERCISE 
      PRICES            SHARES        (IN YEARS)         PRICE             SHARES     PRICE
-----------------     ---------     -------------   ------------------   ---------  ----------
<S>        <C>       <C>           <C>             <C>                   <C>        <C>      
$   .14    $   .14          977         3.54           $     .14              977   $     .14
   1.74       1.97      589,500         9.19                1.82           55,500        1.74
   2.81       4.13    2,939,700         9.25                3.79           20,000        3.00
   4.42       6.50    1,037,340         9.00                5.43           73,500        6.25
   6.88       9.88    1,759,436         7.99                8.20          546,451        8.33
  12.50      13.63      237,068         8.12               12.55           84,021       12.53
  25.75      31.75       87,708         6.84               28.16           83,599       28.02
                      ---------                                          --------
$   .14    $ 31.75    6,651,729         8.80           $    5.67          864,048   $    9.91
                      =========                                          ========
</TABLE>

                                                                    
         The weighted-average grant-date fair value of options granted during
1997, 1996 and 1995 was $3.55, $6.34 and $17.80 per share, respectively.

         Employee Stock Purchase Plans

         Effective January 1, 1994, the Company adopted the FTP Software, Inc.
Employee Stock Purchase Plan. This plan provides a maximum of 1,000,000 shares
of Common Stock for purchase by eligible employees at 85% of the fair market
value of Common Stock on the first or last trading day of each six-month
purchase period under the plan, whichever is lower. During 1997, 1996 and 1995,
24,897, 31,301 and 12,580 shares of Common Stock, respectively, were issued
under this plan at a weighted-average purchase price of $3.41, $6.11 and $25.07
per share, respectively, and a fair value of $4.01, $7.18 and $29.49 per share,
respectively.

         In October 1995, the Company adopted the FTP Software, Inc.
Non-Qualified Stock Purchase Plan for Employees of Certain Subsidiaries. This
plan is for the benefit of non-U.S. employees employed outside of the United
States by subsidiaries of the Company approved for participation in the plan by
the Compensation Committee of the Board of Directors. This plan provides a
maximum of 100,000 shares of Common Stock for purchase by eligible employees at
85% of the fair market value of the Common Stock on the first or last trading
day of each six-month purchase period under the plan, whichever is lower. The
first purchase period under the plan began on January 1, 1996. Accordingly, no
shares of Common Stock were issued under this plan during 1995. During 1997 and
1996, 2,423 and 3,564 shares of Common Stock were issued under this plan at a
weighted-average purchase price of $4.15 and $6.20 per share, respectively, and
a fair value of $4.88 and $7.30 per share, respectively.


                                       22
<PAGE>   23
                               FTP SOFTWARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


         Stock-Based Compensation

         The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation," issued in October
1995. In accordance with SFAS No. 123, the Company applies Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for its option
plans, and accordingly does not record compensation costs. If compensation cost
for the Company's stock-based compensation plans had been determined based on
the fair value at the grant dates as calculated in accordance with SFAS No. 123,
the cost would have amounted to $3,538, $6,655 and $5,326 for the years ended
December 31, 1997, 1996 and 1995, respectively. The Company's net income (loss) 
and net income (loss) per share for the years ended December 31, 1997, 1996 and
1995 would have been reported as the pro forma amounts indicated below (in
thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                  YEARS ENDED DECEMBER 31,
                                                      ----------------------------------------------
                                                         1997              1996              1995
                                                      ----------        ----------        ----------
<S>                                                   <C>               <C>               <C>       
Net income (loss) as reported                         $  (56,599)       $  (77,577)       $   24,634
Pro forma net income (loss)                              (60,137)          (84,232)           19,308

Basic net income (loss) per share as reported         $    (1.67)       $    (2.59)       $      .98
Pro forma basic net income (loss) per share                (1.78)            (2.81)              .77

Diluted net income (loss) per share as reported       $    (1.67)       $    (2.59)       $      .87
Pro forma diluted net income (loss) per share              (1.78)            (2.81)              .68
</TABLE>

         The pro forma amounts include the effects of all activity under the
Company's stock-based compensation plans since January 1, 1996. The Company
anticipates that it will have additional activity under these plans in the
future.

         For the purpose of providing pro forma disclosures, the fair value of
each stock option granted was estimated using the Black-Scholes option-pricing
model with the following weighted-average assumptions: an expected life of 5.0
years as of 1997 and 4.8 years as of 1996 and 1995; expected volatility of 80%,
83.4% and 64.4% in 1997, 1996 and 1995, respectively; no expected dividends; and
a risk-free interest rate of 6.13%, 6.1% and 5.5% in 1997, 1996 and 1995,
respectively.

         At December 31, 1996 and 1995, the number of shares of Common Stock for
which options were exercisable totaled 864,048 and 1,159,729, respectively, at a
weighted-average exercise price of $9.91 and $9.87 per share, respectively. At
December 31, 1997, the number of shares of Common Stock available for future
stock option grants amounted to 2,934,309.

         Earnings Per Share

         The earnings per share ("EPS") amounts have been computed in accordance
with SFAS No. 128, "Earnings per Share." A reconciliation of the income (loss)
and share information used in the basic and diluted per share computation for
1997, 1996 and 1995 is as follows (in thousands, except per share amounts):


                                       23
<PAGE>   24
                               FTP SOFTWARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


                          YEAR ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
                                                INCOME         SHARES      PER SHARE
                                              (NUMERATOR)  (DENOMINATOR)    AMOUNT
                                              ----------   ------------   ----------
BASIC EPS                                                                
<S>                                           <C>          <C>            <C>     
   Loss from continuing operations            $(57,816)         33,842     $  (1.71)
                                                                           ========
   Effect of dilutive securities                  --              --
                                              --------        --------
DILUTED EPS
   Loss from continuing operations            $(57,816)         33,842     $  (1.71)
                                              ========        ========     ========
</TABLE>

                          YEAR ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
                                              INCOME         SHARES      PER SHARE
                                            (NUMERATOR)  (DENOMINATOR)    AMOUNT
                                            -----------  -------------  -----------
BASIC EPS
<S>                                         <C>          <C>            <C>     
   Loss from continuing operations            $(43,778)       29,896       $  (1.46)
                                                                           ========
   Effect of dilutive securities                  --            --
                                              --------        ------
DILUTED EPS
   Loss from continuing operations            $(43,778)       29,896       $  (1.46)
                                              ========        ======       ========
</TABLE>

                          YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
                                               INCOME         SHARES     PER SHARE
                                             (NUMERATOR)  (DENOMINATOR)    AMOUNT
                                             -----------  ------------   ---------
<S>                                          <C>          <C>            <C>    
BASIC EPS
   Income from continuing operations            $29,942        25,158      $  1.19
                                                                           =======
   Effect of dilutive securities:
      Options                                      --           3,087
                                                -------       -------
DILUTED EPS
   Income from continuing operations            $29,942        28,245      $  1.06
                                                =======       =======      =======
</TABLE>

         For 1997 and 1996, the diluted EPS computations did not include
approximately 6,652 and 5,555 additional shares at a weighted-average exercise
price of $5.67 and $10.16, respectively, because these shares are attributable
to outstanding options where the effect would have been anti-dilutive.

J.       COMMITMENTS AND CONTINGENCIES:

         Lease Commitments

         The Company leases its corporate and administrative office facilities
under long-term non-cancelable operating lease agreements expiring at various
dates through 2011. The agreements generally require the payment of utilities,
real estate taxes, insurance and repairs. Total rent expense for the years ended
December 31, 1997, 1996 and 1995 amounted to approximately $4.4 million, $4.8
million and $3.0 million, respectively.


                                       24
<PAGE>   25
                               FTP SOFTWARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


         At December 31, 1997, future minimum annual rental payments, net of
sublease rental payments of approximately $10.4 million, required under the
operating lease agreements are as follows (in thousands):

<TABLE>
<S>                                          <C>    
                            1998             $ 3,884
                            1999               3,703
                            2000               3,586
                            2001               3,004
                            2002               1,782
                            Thereafter         3,091
                                             -------
                                             $19,050
                                             =======
</TABLE>

         Litigation

         In March 1996, a class action lawsuit was filed in the United States
District Court for the District of Massachusetts, naming the Company and certain
of its current and former officers as defendants. The lawsuit, captioned
Lawrence M. Greebel v. FTP Software, Inc., et al., Civil Action No. 96-10544,
alleges that the defendants publicly issued false and misleading statements and
omitted to disclose material facts necessary to make such statements not false
and misleading, which the plaintiffs contend caused an artificial inflation in
the price of the Company's Common Stock. Specifically, the original complaint
alleged that the defendants knowingly concealed adverse facts and made false or
misleading forward and non-forward looking statements concerning the operating
results and financial condition of the Company, the effects of the Company's
July 1995 corporate restructuring and changing competitive factors in the
Company's industry. The lawsuit, which is purportedly brought on behalf of a
class of purchasers of the Company's common stock during the period from July
14, 1995 to January 3, 1996, alleges violations of Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule
10b-5 thereunder and seeks relief in the form of unspecified compensatory
damages, costs and expenses and such other relief as the court deems proper and
just. In August 1996, plaintiffs filed an amended complaint adding allegations
concerning what plaintiffs claim were wrongful sales and accounting practices by
the Company during the class period, but asserting the same causes of action as
the original complaint. In October 1996, the Company filed a motion to dismiss
the complaint on the grounds that the plaintiffs had not met the pleading
requirements of the Private Securities Litigation Reform Act of 1995. The motion
was denied by the court on February 13, 1997. On February 13, 1998, FTP filed a
motion for partial summary judgment and renewed motion to dismiss; plaintiffs
filed their response on March 20, 1998. FTP intends to request the court to
permit it to file a reply memorandum in further support of such motion. If
permitted to do so, FTP will file its reply memorandum by April 10, 1998, after
which time the motion will be before the court for resolution.

         The Company has reviewed the allegations in the lawsuit, believes them
to be without merit, and intends to defend itself and its officers vigorously.
In order to support an adequate defense, the Company has spent and expects to
continue to spend substantial sums for legal and expert fees and costs. The cost
of defending the litigation and the outcome of the litigation are uncertain and
cannot be estimated. If the lawsuit were determined adversely to the Company,
the Company could be required to


                                       25
<PAGE>   26
                               FTP SOFTWARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


pay a substantial judgment, which could have a material adverse effect on the
Company's business, financial condition and results of operations.

         In February 1996, a class action lawsuit, captioned Richard Zeid and
Siom Misrah, et al. v. John Kimberley, Frank M. Richardson, Mark A. Rowlinson
and Firefox Communications, Inc., Case No. C96 20136, was filed in the United
States District Court for the Northern District of California, San Francisco
Division (transferred to the San Jose Division), naming Firefox and certain of
its current and former officers and former directors as defendants. The original
complaint alleged that the defendants misrepresented or failed to disclose
material facts about Firefox's operations and financial results, which the
plaintiffs contended resulted in an artificial inflation in the price of
Firefox's common stock. The suit was purportedly brought on behalf of a class of
purchasers of Firefox's common stock during the period from August 3, 1995 to
January 2, 1996. The complaint alleged claims for violations of Sections 10(b)
and 20(a) of the Exchange Act and Rule 10b-5 thereunder and sought relief in the
form of unspecified compensatory damages, pre- and post-judgment interest,
attorneys' and expert witness fees and such extraordinary, equitable and/or
injunctive relief as permitted by law, equity and the federal statutory
provisions under which the suit was brought. In June 1996, the District Court
entered an order dismissing plaintiffs' complaint. In the order, the court
dismissed with prejudice certain of plaintiffs' claims that warnings and
disclosures in Firefox's Form 10-Qs were false and misleading, while granting
plaintiffs permission to amend their complaint as it concerned certain of
plaintiffs' claims that Firefox was responsible for false and misleading
analysts reports, Firefox statements and financial statements.

         In July 1996, plaintiffs filed their amended complaint. The amended
complaint alleged that defendants misrepresented or failed to disclose material
facts about Firefox's operations and financial results which the plaintiffs
contended resulted in an artificial inflation of the price of Firefox's common
stock. The amended complaint was purportedly brought on behalf of a class of
purchasers of Firefox's common stock during the period from July 20, 1995 to
January 2, 1996. The amended complaint again alleged claims for violations of
Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 thereunder and
sought relief in the form described above. Specifically, the amended complaint
alleged that defendants knew allegedly material adverse non-public information
about Firefox's financial results and business conditions which allegedly was
not disclosed, that they improperly directed that certain sales and revenues be
recognized and failed to keep adequate reserves and that they participated in
drafting, reviewing and/or approving allegedly misleading statements, releases,
analysts reports and other public representations, including disclaimers and
warnings of and about Firefox. The amended complaint also alleged that John A.
Kimberley, then an officer and director of Firefox, and Frank Richardson, a
former officer and director of Firefox, were liable as "controlling persons" of
Firefox. In September 1996, Firefox filed a motion to dismiss the amended
complaint on the grounds that the plaintiffs had not met the pleading
requirements of the Private Securities Litigation Reform Act of 1995. On May 8,
1997, the court dismissed the amended complaint on such grounds, without leave
to amend. Plaintiffs have appealed the dismissal to the Ninth Circuit Court of
Appeals. The appeal is fully briefed; the court has not yet set a date for oral
argument.

         Firefox has reviewed the allegations in the lawsuit, believes them to
be without merit, and intends to defend itself and its officers and directors
vigorously. In order to support an adequate defense, Firefox has spent and
expects to continue to spend substantial sums for legal and expert fees and
costs. The cost of defending the litigation and the outcome of the litigation
are uncertain and cannot be


                                       26
<PAGE>   27
                               FTP SOFTWARE, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


estimated. If the lawsuit were determined adversely to Firefox, Firefox could be
required to pay a substantial judgment, which could have a material adverse
effect on Firefox's business, financial condition and results of operations.

K.       SEGMENT INFORMATION:

         The Company is active in only one business segment: designing,
developing, marketing and supporting connectivity and other software products.

         The Company's export sales can be grouped into the following geographic
areas (in thousands):

<TABLE>
<CAPTION>
                                                    YEARS ENDED DECEMBER 31,
                                           -------------------------------------
                                              1997           1996           1995
                                           -------        -------        -------
<S>                                        <C>            <C>            <C>    
Geographic area:
     North and South America
         (other than U.S.)                 $ 1,852        $ 6,142        $ 9,789
     Asia Pacific                            3,792          8,965          9,601
     Europe                                 21,861         27,282         38,075
     Other                                     354            170          1,693
                                           -------        -------        -------
         Total                             $27,859        $42,559        $59,158
                                           =======        =======        =======
</TABLE>


         Sales, marketing and development operations outside the United States
are conducted through subsidiaries and branches located principally in Europe.
For the year ended December 31, 1997, the Company's foreign operations reported
management fee income of approximately $22.0 million, of which approximately
$17.5 million is attributable to the United Kingdom. The management fee income
is primarily based upon revenue generated from the geographic area. In addition,
the loss from foreign operations amounted to approximately $.7 million and
identifiable assets associated with foreign operations amounted to approximately
$3.1 million. The Company's United States operations accounted for greater than
90% of the Company's revenue, income (loss) from operations and identifiable
assets for each of the years ended December 31, 1996 and 1995.


                                       27
<PAGE>   28


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

The following documents are filed as part of this Report:

FINANCIAL STATEMENTS:

Report of Independent Accountants

Consolidated Balance Sheets at December 31, 1997 and 1996

Consolidated Statements of Operations For the Years Ended December 31, 1997,
1996 and 1995

Consolidated Statements of Stockholders' Equity For the Years Ended December 31,
1995, 1996 and 1997

Consolidated Statements of Cash Flows For the Years Ended December 31, 1997,
1996 and 1995

Notes to Consolidated Financial Statements

FINANCIAL STATEMENT SCHEDULES:

Report of Independent Accountants on Financial Statement Schedule

Schedule II -- Valuation and Qualifying Accounts

EXHIBITS:

<TABLE>
<CAPTION>
EXHIBIT NO.      TITLE
-----------      -----

<S>             <C>
3.1              Restated Articles of Organization of the Company(1)

3.2              Certificate of Designation, Preferences and Rights of Junior Preferred Stock of the Company(1)

3.3              Articles of Amendment to Restated Articles of Organization of the Company(3)

3.4              Amended and Restated Bylaws of the Company(1)

4.1              Specimen common stock certificate(1)

4.2              Rights  Agreement  dated as of  December 1, 1995  between  the Company and State  Street Bank and Trust Company, as
                 Rights Agent (including form of Rights Certificate)(1)

4.3              Amendment  to Rights  Agreement  dated as of November 7, 1996 between the Company and State Street Bank and Trust
                 Company, as Rights Agent(2)

10.1             Indenture of Lease between the Company and North Andover Mills Realty dated November 19, 1991(1)

10.2             Amendment  No. 1 to Indenture of Lease  between the Company and North  Andover  Mills Realty dated as of September
                 1, 1992(1)

10.3             Amendment  No. 2 to Indenture of Lease  between the Company and North  Andover  Mills Realty dated as of January 6,
                 1993(1) 
</TABLE>


                                       28

<PAGE>   29
<TABLE>
<CAPTION>
EXHIBIT NO.      TITLE
-----------      -----

<S>             <C> 
10.4             Amendment  No. 3 to Indenture of Lease  between the Company and North  Andover  Mills Realty dated as of June 18,
                 1993(1)

10.5             Amendment  No. 4 to Indenture of Lease  between the Company and North  Andover  Mills Realty dated as of September
                 30, 1993(1)

10.6             Amendment No. 5 to Indenture of Lease  between the Company and North Andover Mills Realty  Limited Partnership
                 dated August 12, 1995(1)

10.7             Employment Agreement between the Company and Glenn C. Hazard dated as of July 29, 1996(2)

10.8             Amendment No. 1 to Employment  Agreement  between the Company and Glenn C. Hazard dated as of June 19, 1997(4)

10.9             Amendment  No. 2 to  Employment  Agreement  between the  Company  and Glenn C. Hazard  dated as of September 4,
                 1997(5)

10.10            Amended and  Restated  Employment  Agreement  between the Company and Glenn C. Hazard  dated as of December 12,
                 1997(6)

10.11            Employment Agreement between the Company and Douglas F. Flood dated as of July 23, 1996(2)

10.12            Amendment  No. 1 to  Employment  Agreement  between  the  Company and Douglas F. Flood dated as of June 19, 1997(4)

10.13            Amendment  No. 2 to  Employment  Agreement  between  the  Company and Douglas F. Flood dated as of September 4,
                 1997(5)

10.14            Amended and  Restated  Employment  Agreement  between the Company and Douglas F. Flood dated as of December 12,
                 1997(6)

10.15            Employment  Agreement  between the Company and John A. Kimberley dated as of the "Effective  Date" of the Firefox
                 merger(2)

10.16            Amendment  No. 1 to Employment  Agreement  between the Company and John A.  Kimberley  dated as of June 19, 1997(4)

10.17            Employment Agreement between the Company and Dennis Leibl dated as of December 12, 1997(6)

10.18            Employment  Agreement  between the Company and Peter R. Simkin dated as of the "Effective Date" of the Firefox
                 merger, together with Amendment No. 1 thereto dated August 24, 1996(2)

10.19            Amendment No. 2 to Employment  Agreement  between Company and Peter R. Simkin dated as of December 15, 1996(3)

10.20            Amendment No. 3 to Employment  Agreement  between Company and Peter R. Simkin dated as of June 19, 1997(4)

10.21            Employment Agreement between the Company and James A. Tholen dated as of April 6, 1997(4)

10.22            Amended and  Restated  Employment  Agreement  between the Company and James A. Tholen  dated as of December 12,
                 1997(6)

10.23            FTP Software, Inc. Stock Option Plan(1)

10.24            FTP Software, Inc. 1996 Executive Equity Incentive Plan(2)
</TABLE>


                                       29
<PAGE>   30
<TABLE>
<CAPTION>
EXHIBIT NO.      TITLE
-----------      -----

<S>             <C> 
10.25            FTP Software, Inc. 1997 Employee Equity Incentive Plan(3)

10.26            Composite  FTP  Software,  Inc.  1993  Non-Employee  Directors'  Stock  Option Plan  incorporating Amendment  No. 1
                 effective  as of June 2, 1995,  Amendment  No. 2 effective  as of August 22, 1996 (2), as amended by Amendment No.
                 3 effective as of December 18, 1997(6)

10.27            Indenture of Lease between the Company and Andover Mills Realty  Limited  Partnership  dated as of October 1,
                 1993(1)

10.28            Amendment  No. 1 to  Indenture  of Lease  between the Company and  Andover  Mills  Realty  Limited Partnership
                 dated as of February 10, 1994(1)

10.29            Amendment  No. 2 to  Indenture  of Lease  between the Company and  Andover  Mills  Realty  Limited Partnership
                 dated as of June 7, 1995(1)

10.30            Amended and Restated  Agreement and Plan of Merger by and among the Company,  Firefox  Acquisition Corp. and
                 Firefox Communications Inc. dated as of May 21, 1996(7)

21               List of Subsidiaries(6)

23               Consent of Coopers & Lybrand L.L.P.*

27               Financial Data Schedule*

99               Cautionary Factors(8)
</TABLE>

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

*Filed with this Report.

(1)      Included as an exhibit to, and incorporated in this Report by reference
         to, the Company's Registration Statement on Form S-4 (No. 333-06917)
         filed with the Securities and Exchange Commission (the "Commission") on
         June 26, 1996.

(2)      Included as an exhibit to, and incorporated in this Report by reference
         to, the Company's Quarterly Report on Form 10-Q for the quarter ended
         September 30, 1996 filed with the Commission on November 14, 1996.

(3)      Included as an exhibit to, and incorporated in this Report by reference
         to, the Company's Annual Report on Form 10-K for the year ended
         December 31, 1996 filed with the Commission on March 31, 1997.

(4)      Included as an exhibit to, and incorporated in this Report by reference
         to, the Company's Quarterly Report on Form 10-Q for the quarter ended
         June 30, 1997 filed with the Commission on August 14, 1997.

(5)      Included as an exhibit to, and incorporated in this Report by reference
         to, the Company's Quarterly Report on Form 10-Q for the quarter ended
         September 30, 1997 filed with the Commission on November 14, 1997.

(6)      Included as an exhibit to, and incorporated in this Report by
         reference to, the Company's Annual Report on Form 10-K for the year 
         ended December 31, 1997, filed with the Commission on March 30, 1998.

(7)      Included as Appendix A to, and incorporated in this Report by reference
         to, the Company's Joint Proxy Statement/Prospectus filed with the
         Commission on July 1, 1996.


                                       30
<PAGE>   31

(8)      Included as, and incorporated by reference to, Appendix A to this
         Report.


REPORTS ON FORM 8-K:

None.



                                       31
<PAGE>   32
                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on this 14th day of
May, 1998.

                              FTP SOFTWARE, INC.


                              By: /s/ James A. Tholen
                                  ----------------------------------------------
                                  James A. Tholen
                                  Senior Vice President, Chief Operating Officer
                                  and Chief Financial Officer





                                       32