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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the Quarterly Period Ended March 31, 2003

or

For the Transition Period From                      to                     .

Commission file number 0-27074

SECURE COMPUTING CORPORATION

(Exact name of registrant as specified in its charter)

(800) 379-4944

Registrant’s telephone number, including area code

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date: Common Stock, $.01 par value – 31,953,881 issued and outstanding as of May 8, 2003.

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SECURE COMPUTING CORPORATION

INDEX

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PART 1. FINANCIAL INFORMATION

SECURE COMPUTING CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands except share amounts)

Note: The balance sheet at December 31, 2002 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

See accompanying notes to condensed consolidated financial statements.

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SECURE COMPUTING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands except per share amounts)

See accompanying notes to condensed consolidated financial statements.

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SECURE COMPUTING CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited, in thousands)

See accompanying notes to condensed consolidated financial statements.

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SECURE COMPUTING CORPORATION

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

(Unaudited)

We develop and sell computer software products and services designed to provide enterprise access control solutions. We understand our customers’ need to balance security and accessibility, and help them create a trusted environment both inside and outside of their organizations with our broad range of products for protecting and managing assets across the enterprise.

The accompanying condensed consolidated financial statements have been prepared by us without audit and reflect all adjustments (consisting only of normal and recurring adjustments and accruals) which are, in our opinion, necessary to present a fair statement of the results for the interim periods presented. The consolidated financial statements include our accounts and those of our subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The statements have been prepared in accordance with the regulations of the Securities and Exchange Commission, but omit certain information and footnote disclosures necessary to present the statements in accordance with accounting principles generally accepted in the United States. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full fiscal year. The December 31, 2002 Condensed Consolidated Balance Sheets is derived from our audited Consolidated Balance Sheets as of December 31, 2002. These condensed financial statements should be read in conjunction with the Consolidated Financial Statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2002, as filed with the Securities and Exchange Commission.

Stock Options

We account for our two stock option based plans under the recognition and measurement provisions of Accounting Principles Bulletin (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. No stock-based employee compensation cost is reflected in the consolidated statements of operations, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net loss and net loss per share if we had applied the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation:

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SECURE COMPUTING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In thousands, except share and per share amounts)

(Unaudited)

Foreign Currency Translation

Results of operations are translated using the average exchange rates throughout the quarter. Translation gains or losses, net of applicable deferred taxes, are accumulated as a separate component of stockholders’ equity and included in comprehensive income. During the first quarter of 2003, total comprehensive income amounted to $529 compared to total comprehensive loss of $1,310 for first quarter of 2002.

In April 1999, purported securities class action complaints were filed in the United States District Court for the Northern District of California against us and certain of our officers and directors. Each complaint alleges that defendants made false and misleading statements about our business condition and prospects during a purported class period of November 10, 1998 through March 31, 1999, and asserts claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. In July 2002, we reached a settlement of the class action complaint. In November 2002, the Court granted final approval of the settlement for $10,100. $2,800 in cash was covered by our insurance. The $7,300 balance of the settlement was contributed by us in common stock on April 16, 2003, the date of distribution. Total shares distributed were 1,951,807.

We have two reportable segments consisting of Products and Services and Advanced Technology. Our Products and Services segment markets a range of solutions providing personalized access control over any public network. Our Advanced Technology Division is a self-funded organization whose mission is to develop new technologies and products that meet the emerging needs of the Department of Defense (DoD) and the commercial sector. Our strategy is to focus only on development contracts that add value to our products and services offerings. As a result, we continue to innovate, providing state-of-the-market products for organizations of all types and sizes. Cash, investments, deferred tax assets, and general and administrative expenses cannot be readily identified to the two business segments, therefore, they are presented separately in a corporate segment.

We evaluate segment performance based on gross profit. Resources are allocated based on contractual requirements as the Advanced Technology segment is reimbursed on a cost plus basis from the various agencies of the United States government. The accounting policies of the reportable segments are the same as those described in Note 1, “Summary of Significant Accounting Policies” included in our Annual Report on Form 10-K for the year ended December 31, 2002. Revenue is recognized at time of shipment or recognized ratably over the service period for the Products and Services segment. For Advanced Technology, contract revenue is recognized on the basis of costs incurred for the government contracts serviced by Advanced Technology and intersegment transfers are recorded at cost; there are no intercompany profits or losses recorded on intersegment transfers.

Our reportable segments are business units that offer distinct products and services to very different customer groups. The reportable segments are each managed separately because they require different managerial skill sets and are focused toward different markets.

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SECURE COMPUTING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In thousands, except share and per share amounts)

(Unaudited)

Significant components of our segments are as follows:

International sales accounted for 33 percent and 23 percent of total revenue for the three months ended March 31, 2003 and 2002, respectively. Major foreign markets for our products include Europe, Japan, China, the Pacific Rim, and Latin America. In each market, we have independent channel partners who are responsible for marketing, selling and supporting our products to resellers and end-users within their defined territories.

The following table summarizes information about our international and domestic sales and operations:

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SECURE COMPUTING CORPORATION

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

The following discussion contains forward-looking statements, including statements regarding our expectations, beliefs, intentions or strategies regarding the future. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. Forward-looking statements reflect our view only as of the date of this report. We cannot guarantee future results, levels of activity, performance, or achievements.

In addition, the following information should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of this Quarterly Report, the risk factors detailed in our Annual Report on Form 10-K for the year ended December 31, 2002, as well as the factors identified in Forward Looking Statements below.

RESULTS OF OPERATIONS

Comparison of Three Months Ended March 31, 2003 and 2002.

Revenue. Our revenue increased 26 percent to $17.0 million for the first quarter of 2003 up from $13.5 million in the same period of 2002. Products and Services revenue was $16.2 million for the quarter, an increase of 30 percent over the same period in 2002. The year over year Products and Services revenue growth was driven primarily by sustained demand for high assurance solutions and increased traction with our OEM relationships. For the remainder of 2003, Products and Services revenues are expected to grow year over year by 11 percent, 14 percent, and 21 percent for the second through fourth quarters, respectively. Advanced Technology contract revenue was $0.8 million for the quarter down from $1.0 million in the same period in 2002, in keeping with our strategy of focusing only on funded development contracts that add value to our commercial product offerings. Advanced Technology revenue is projected to be between $0.5 and $0.8 million in each of the remaining quarters of 2003. Contract awards have recently been reduced due to a tight funding environment. This trend is not expected to have a material adverse impact on our financial results.

Gross Profit. Gross profit as a percentage of revenue increased from 86 percent in the first quarter of 2002 to 88 percent in 2003. This improvement was driven primarily by our success in growing our higher margin software revenue. Aggregate gross margins throughout the remainder of 2003 are expected to be approximately 89 percent.

Operating Expenses. Operating expenses consist of selling and marketing, research and development, and general and administrative expenses. Total operating expenses increased 11 percent to $14.4 million in the first quarter of 2003, an increase from $13.0 million in the same period of 2002. The increase resulted primarily from an increase in payroll and related costs and an increase in commission expense due to expanding revenues. As a percentage of revenue, total operating expense was 85 percent for the quarter compared to 97 percent in the same period of 2002. As a percentage of total revenues, including Advanced Technology revenue, operating expenses are expected to be 86 percent, 79 percent, and 73 percent for the second through fourth quarters of 2003, respectively.

Selling and Marketing. Selling and marketing expenses consist primarily of salaries, commissions, and benefits related to personnel engaged in selling, marketing and customer support functions, along with costs related to advertising, promotions, public relations, travel and allocations of information technology, facilities and human resources expenses. Selling and marketing expense increased 10 percent to $9.3 million in the first quarter of 2003, an increase from $8.5 million in the same period of 2002. The increase resulted primarily from an increase in payroll and related costs and an increase in commission expense due to expanding revenues. As a percentage of revenue, selling and marketing expense was 55 percent for the quarter compared to 63 percent in the same period of 2002.

Research and Development. Research and development expenses consist primarily of salaries and benefits for our product development personnel and allocations of information technology, facilities and human resources expenses. Research and development expense increased by 13 percent to $3.9 million in the first quarter of 2003 from

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$3.5 million in the same period of 2002. The increase resulted primarily from an increase in payroll and related costs. As a percentage of revenue, research and development expense was 23 percent for the quarter compared to 26 percent in the same period of 2002.

General and Administrative. General and administrative expenses consist primarily of salaries, benefits, and related expenses for our executive, finance, and legal personnel along with allocated information technology, facilities and human resources expenses. General and administrative expense increased 12 percent to $1.2 million in the first quarter of 2003 from $1.1 million in the same period of 2002. The increase results primarily from an increase in payroll and related costs. As a percentage of revenue, general and administrative expense was 7 percent for the first quarter of 2003 compared to 8 percent in the same period of 2002.

Interest and Other Income. Net interest and other income was $53,000 in the first quarter of 2003, a decrease from $216,000 in the same period of 2002. The decrease reflects lower average interest rates in 2003 as compared to 2002.

Income Taxes. We recognized no income tax expense for either of the periods in 2003 or 2002. Tax expense of $151,000 for various foreign income and domestic minimum income taxes was offset by a corresponding increase in our net deferred tax asset. We believe it is more likely than not that deferred tax assets, which total $2.9 million at March 31, 2003, will be realized. The computations of our deferred tax assets and valuation allowance are based on taxable income we expect to earn on existing government contracts, commercial products, and projected interest income. The amount of the deferred tax assets considered realizable could be reduced in the near term if estimates of future taxable income are reduced.

LIQUIDITY AND CAPITAL RESOURCES

Our cash, cash equivalents and short term investments increased by $207,000 from $21.4 million at December 31, 2002 to $21.6 million at March 31, 2003. This increase is primarily due to cash provided by operating activities, the exercise of stock options and sales of common stock through our employee stock purchase plan. We expect that our cash flow from operations on a quarterly basis in 2003 will approximate our quarterly operating results.

Net cash provided by operating activities for the three months ended March 31, 2003 was approximately $254,000 resulting from net income for the quarter and a decrease in accounts receivable, offset by an increase in other current assets and decreases in accrued payroll and deferred revenue. Accounts receivable decreased from $11.4 million at December 31, 2002 to $10.3 million at March 31, 2003. Days sales outstanding decreased to 55 days at March 31, 2003 compared to 57 days at December 31, 2002 primarily due to improved linearity of sales for the quarter. Prepaid expenses and other current assets increased from $3.8 million at December 31, 2002 to $4.4 million primarily due to prepayments for insurance, software maintenance support, marketing events, and an increase in the current portion of deferred tax assets. Accrued payroll decreased from $3.3 million at December 31, 2002 to $2.6 million at March 31, 2003 primarily due to the payout of the annual portion of management incentive bonuses. Deferred revenue decreased from $14.8 million at December 31, 2002 to $14.0 million at March 31, 2003, which is consistent with the 6 percent decline in Products and Services revenues from the prior quarter.

Net cash used for capital additions of $530,000 during the three months ended March 31, 2003, was made up of computer equipment, technology upgrades, and leasehold improvements. We expect to use another $1.5 million throughout the remainder of 2003 mainly for computer equipment and technology upgrades.

Net cash provided by financing activities of $535,000 for the three months ended March 31, 2003 consisted primarily of proceeds received from the exercise of stock options and sales of common stock through our employee stock purchase plan.

As of March 31, 2003, we had working capital of $8.3 million. We anticipate using available cash to fund growth in operations, invest in capital equipment, acquire businesses, and to license technology or products related to our line of business.

We believe that we have sufficient financial resources available to fund our current working capital and capital expenditure requirements for at least the next twelve months. We intend to continue to invest our cash in excess of current operating requirements in interest bearing, short term investments.

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FORWARD LOOKING STATEMENTS

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

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not have any material exposure to quantitative and qualitative market risks because we do not own any risk-sensitive financial instruments. We invest our cash in a variety of financial instruments, including bank time deposits and commercial paper. Investments in fixed rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if forced to sell securities which have seen a decline in market value due to changes in interest rates. Our investment securities are held for purposes other than trading.

CONTROLS AND PROCEDURES

Our Chief Executive Officer, Chief Operating Officer and Chief Financial Officer have concluded, based on their evaluation within 90 days of the filing date of this report, that our disclosure controls and procedures are effective for gathering, analyzing and disclosing the information we are required to disclose in our reports filed under the Securities Exchange Act of 1934. There have been no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

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SECURE COMPUTING CORPORATION

PART II

OTHER INFORMATION

ITEM 1. Legal Proceedings

In April 1999, purported securities class action complaints were filed in the United States District Court for the Northern District of California against us and certain of our officers and directors. Each complaint alleged that defendants made false and misleading statements about our business condition and prospects during a purported class period of November 10, 1998 through March 31, 1999, and asserts claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. In July 2002, we reached a settlement of the class action complaint. In November 2002, the Court granted final approval of the settlement for $10.1 million. $2.8 million in cash was covered by our insurance. The $7.3 million balance of the settlement was contributed by us in common stock on April 16, 2003, the date of distribution.

On February 11, 2002, Herbert Silverberg filed a shareholder derivative action captioned Silverberg v. McGurran, et al., Case No. CV 805193 in California Superior Court in Santa Clara County against certain of our current and former officers and directors. We were named as nominal defendant. Plaintiff alleged that defendants breached their fiduciary duties by making false and misleading statements about our business condition and prospects during the period of November 10, 1998 through March 31, 1999. On April 29, 2002, the Court dismissed the complaint with leave to amend. The parties subsequently negotiated a settlement of $300,000 by which plaintiff will dismiss the action with prejudice. On March 11, 2003 the Court approved the settlement.

ITEM 2. Changes in Securities

None

ITEM 3. Defaults upon Senior Securities

Not applicable

ITEM 4. Submission of Matters to a Vote of Security Holders

None

ITEM 5. Other Information

None

ITEM 6. Exhibits and Reports on Form 8-K

Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 99.3 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

A form 8-K was not filed during the quarter ended March 31, 2003.

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SECURE COMPUTING CORPORATION

SIGNATURES

Pursuant to the requirements 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.

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CERTIFICATION

Pursuant to Sarbanes-Oxley Act Section 302

I, John E. McNulty, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Secure Computing Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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CERTIFICATION

Pursuant to Sarbanes-Oxley Act Section 302

I, Timothy P. McGurran, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Secure Computing Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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CERTIFICATION

Pursuant to Sarbanes-Oxley Act Section 302

I, Timothy J. Steinkopf, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Secure Computing Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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