Back to GetFilings.com

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the Quarterly Period Ended September 30, 2004

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  x    No  ¨

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 – 35,707,316 issued and outstanding as of November 1, 2004.

Table of Contents

SECURE COMPUTING CORPORATION

INDEX

2

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

SECURE COMPUTING CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

NOTE: The balance sheet at December 31, 2003 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.

3

Table of Contents

SECURE COMPUTING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except share amounts)

4

Table of Contents

SECURE COMPUTING CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASHFLOWS

(Unaudited, in thousands)

See accompanying notes to condensed consolidated financial statements.

5

Table of Contents

SECURE COMPUTING CORPORATION

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

(Unaudited)

1. Organization

We develop network security solutions that create trusted connections between organizations and their customers, partners, and employees – thereby enabling them to exchange critical information safely, helping them confidently build their businesses. Our technologies enable our customers to secure the sharing of information resources at every connection point, while implementing a balance between security and accessibility according to their policy objectives. We work closely with our customers to provide them with reliable access control and innovative new features that are comprehensive, easy to manage and highly effective in securing the connections between people, applications and networks.

2. Condensed Consolidated Financial Statements

The accompanying condensed consolidated financial statements have been prepared by us without audit and reflect all adjustments (consisting 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. Certain previously reported amounts have been reclassified to conform to the current presentation format with no impact on net income. The December 31, 2003 Condensed Consolidated Balance Sheet is derived from our audited Consolidated Balance Sheet as of December 31, 2003. These condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements and footnotes thereto included in our Annual Report of Form 10-K for the year ended December 31, 2003, as filed with the Securities and Exchange Commission.

3. Significant Accounting Policies

Stock Options

We account for our 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 condensed 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 income and net income 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:

6

Table of Contents

SECURE COMPUTING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

(Unaudited)

3. Significant Accounting Policies (continued)

Comprehensive Income

During the three months ended September 30, 2004, total comprehensive income amounted to $3,568 compared to $2,619 for the same period of 2003. During the first nine months of 2004, total comprehensive income amounted to $8,277 compared to $4,136 for the first nine months of 2003. The components of our comprehensive income are net income, foreign currency translation adjustments and unrealized gain or loss on available for sale investments. Results of operations are translated using the average exchange rates throughout the period. Translation gains or losses, net of applicable deferred taxes, are accumulated as a separate component of stockholders’ equity and included in comprehensive income.

Recently Issued Accounting Standard

In March 2004, the FASB issued an Exposure Draft titled “Share-Based Payment, an Amendment of FASB Statements No. 123 and 95.” The Exposure Draft would require the recognition of compensation expense over the vesting period for all share-based payments, including stock options, based on the fair value of the payment at the grant date. The Exposure Draft is not final and was subject to a comment period that ended on June 30, 2004 and the FASB continues to deliberate and propose revisions to the Exposure Draft. Although the provisions of the Exposure Draft are not final, the Exposure Draft is proposed to be effective starting with the first interim period beginning after June 15, 2005. We are currently assessing the potential impact the proposed Exposure Draft could have on our financial position and results of operations. We are currently evaluating option valuation methodologies and assumptions in light of the proposed FAS 123R related to employee stock options. Current estimates of option values using the Black-Scholes method (as shown previously under the header titled “Stock Options”) may not be indicative of results from valuation methodologies ultimately adopted in the final rules.

4. Acquisition of N2H2, Inc.

On October 13, 2003, we acquired 100% of the outstanding common shares of N2H2, Inc. The results of N2H2’s operations have been included in the consolidated financial statements since that date. N2H2 provided Internet filtering and monitoring solutions that are designed to allow Internet users to monitor and filter content categories. N2H2 had two product lines: Sentian for corporate and government markets and Bess for schools, libraries, and not-for-profit organizations.

The aggregate purchase price was $20,500 consisting primarily of 1,868,514 shares of common stock valued at $17,200, 422,000 options with a value of $2,900 and direct costs of the acquisition of $505. The value of the common shares issued was determined based on the average market price of our common shares over the period including two days before and after the date that the terms of the acquisition were agreed to and announced.

The following unaudited pro forma financial information was prepared in accordance with SFAS No. 141 and assumes the acquisition had occurred at the beginning of the periods presented. The unaudited pro forma financial information is provided for informational purposes only. These pro forma results are based upon the respective historical financial statements of the respective companies, and do not incorporate, nor do they assume, any benefits from cost savings or synergies of operations of the combined company. The unaudited combined results of continuing operations are as follows:

7

Table of Contents

SECURE COMPUTING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

(Unaudited)

4. Acquisition of N2H2, Inc. (continued)

The pro forma results include the estimated amortization of acquired intangibles, which consist of a customer list, control list and capitalized developed technology. We do not record amortization expense related to goodwill. The pro forma results are not necessarily indicative of what would have occurred if the acquisition had actually been completed as of the beginning of the periods presented, nor are they necessarily indicative of future consolidated results.

The N2H2 acquisition reserve activity since December 31, 2003 pertains primarily to payments for severance of approximately $608, excess capacity fees of $535, adjustments of $87 for directors and officers insurance policy premium and true-up of professional fee estimates of $177. The remaining acquisition accrual balance is $1,741 as of September 30, 2004.

5. Discontinued Operations

During fourth quarter of 2003, we discontinued our Advanced Technology (AT) contracting business. All prior period statements have been reclassified to reflect the AT division as discontinued operations, including the reallocation of selling and marketing charges to the AT division. Summary of the impact of the discontinued AT division on the statement of operations is as follows:

6. Net Income Per Share

In accordance with SFAS No. 128, “Earnings Per Share,” basic net income per share is computed using the weighted average number of common shares outstanding during the period. Diluted net income per share is computed using the combination of dilutive common share equivalents and the weighted average number of common shares outstanding. Potential common shares related to our outstanding stock options of approximately 6.0 million and 3.4 million in the three months ended September 30, 2004 and 2003, respectively and approximately 2.5 million and 5.0 million in the nine months ending September 30, 2004 and 2003, respectively were excluded from the computation of diluted earnings per share as inclusion of these shares would have been anti-dilutive. The following table represents the calculation of basic and diluted net income per share applicable to common stockholders:

8

Table of Contents

SECURE COMPUTING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

(Unaudited)

7. Segment Information

We view our operations and manage our business as one segment, enterprise security solutions. Major foreign markets for our products and services 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 and services to resellers and end-users within their defined territories. International sales accounted for 27% and 25% of total revenue for the three months ended September 30, 2004, respectively and 31% of total revenue for both of the nine months ended September 30, 2004 and 2003, respectively. The following table summarizes information about our international and domestic sales and operations:

9

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

With the exception of historical facts, the statements contained in this discussion are forward-looking statements, which are subject to the Safe Harbor provisions created by the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include, but are not limited to, statements that relate to the realization of net deferred tax assets and the sufficiency of financial resources to support future operations and capital expenditures. Such statements are based on current expectations and are subject to risks, uncertainties, and changes in condition, significance, value and effect, including those discussed below under the heading “Forward-Looking Statements” within the section of this report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other documents we file from time to time with the Securities and Exchange Commission, such as our last filed Annual Report on Form 10-K for the fiscal year ended December 31, 2003 and our amended Registration Statement on Form S-3 filed with the SEC on or about November 4, 2004. Such risks, uncertainties and changes in condition, significance, value and effect could cause our actual results to differ materially from those expressed herein and in ways not readily foreseeable. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof and are based on information currently and reasonably known to us. We undertake no obligation to release the results of any revisions to these forward-looking statements, which may be made to reflect events or circumstances, which occur after the date hereof or to reflect the occurrence or effect of anticipated or unanticipated events.

EXECUTIVE OVERVIEW

Our products provide complete solutions separately and they also work well together for a more comprehensive and unified, solution to meet the goals and needs of our customers. Our solutions are easy to use, administer, and manage across different systems as they grow. Our products’ ability to scale as the infrastructure or number of users grows has always been, and continues to be, one of our hallmarks. Our architecture allows security functions to be easily embedded into other platforms. Our solutions run on a variety of platforms and integrate well with other enterprise solutions, making our products a safe and economical choice for organizations worldwide. The three product lines that represent the majority of our revenue are the Sidewinder^® G₂ Security Appliance^™ products, our SafeWord^® products and our Web filtering products. However, we view our operations and manage our business as one segment, enterprise security solutions.

Our customers operate some of the largest and most sensitive networks and applications in the world. Our partners and customers include the majority of the Dow Jones Global Titans 50 and numerous organizations in the Fortune 1000. Our most prominent vertical markets consist of banking, financial services, healthcare, telecommunications, manufacturing, public utilities, schools and federal and local governments. We also have close relationships with many of the largest agencies in the United States government.

International sales accounted for 27% and 31% of total revenue for the three and nine months ended September 30, 2004, respectively. Major foreign markets for our products include Europe, Japan, China, the Pacific Rim and Latin America. In each country, we have independent channel partners that are responsible for marketing, selling and supporting our products to resellers and end users.

Each of our individual products competes with a different group of competitors and products. In this highly competitive market, characterized by rapid technological change, our customers’ purchase decisions are based heavily upon the quality of the security our products provide, the ease of installation and management, and the scalability and flexibility of our solutions.

Specific challenges and risks that our product lines face include, but are not limited to: responding to competitor pricing policies and competitive features; rapid technological change in the network security market; and risk of bugs and other errors in our software.

Our significant year over year improvement in net income from continuing operations was driven by strong revenue growth and our ability to control our operating expenses on an overall basis.

10

Table of Contents

RESULTS OF OPERATIONS

Comparison of Three Months Ended September 30, 2004 and 2003.

During fourth quarter of 2003, we made the decision to discontinue our Advanced Technology (AT) contracting business. The comparison of the three months ended September 30, 2004 and 2003 reflects the classification of the AT division as discontinued operations.

Revenue. Our revenue increased 26% to $24.5 million for the third quarter of 2004 up from $19.5 million in the same period of 2003. Our revenue growth was driven by an increase in our security appliance revenue driven by growth in Sidewinder G₂ Security Appliance sales and growth in our Web filtering subscription revenue mainly driven by our N2H2 acquisition.

Gross Profit. Gross profit as a percentage of revenue was 85% in the third quarter of 2004 compared to 90% in 2003. The decrease in gross margins was primarily driven by increased sales volume of Sidewinder G₂ Security Appliance sales, which contains a hardware component and has a lower gross profit margin than our software only products.

Operating Expenses. Operating expenses consist of selling and marketing, research and development, and general and administrative expenses. As a percentage of revenue, total operating expenses were 71% for the quarter compared to 76% in the same period of 2003. Total operating expenses for the third quarter of 2004 were $17.3 million, which is a 17% increase over $14.8 million in the same period of 2003. The increase resulted primarily from normal inflationary increase in payroll and related costs, an increase in payroll and facility costs as a result of our N2H2 acquisition, an increase in commission expense due to expanding revenues and increased professional fees.

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. As a percentage of revenue, selling and marketing expenses were 47% for the third quarter of 2004 compared to 50% in the same period of 2003. Selling and marketing expenses for the third quarter of 2004 were $11.6 million, which is a 20% increase over $9.6 million in the same period of 2003. The increase resulted primarily from normal inflationary increases in payroll and related costs, an increase in payroll costs as a result of our N2H2 acquisition and an increase in commission expense due to expanding revenues.

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. As a percentage of revenue, research and development expenses were 17% for the quarter compared to 19% in the same period of 2003. Research and development expenses for the third quarter of 2004 were $4.1 million, which is a 12% increase over $3.6 million in the same period of 2003. The increase resulted primarily from normal inflationary increases in payroll and related costs and an increase in payroll costs as a result of our N2H2 acquisition.

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. As a percentage of revenue, general and administrative expenses were 7% for the quarter compared to 8% in the same period of 2003. General and administrative expenses in the third quarter of 2004 were $1.7 million, which is a 5% increase over $1.6 million in the same period of 2003. The increase resulted primarily from normal inflationary increases in payroll and related costs and increased professional fees.

Interest and Other Income. Net interest and other income was $85,000 in the third quarter of 2004, an increase from $16,000 in the same period of 2003. The increase reflects higher interest income earned from our higher average cash and short-term investment balances.

11

Table of Contents

Income Taxes. We recognized tax benefits of $127,000 and $176,000 for the three months ended September 30 of 2004 and 2003, respectively, to offset tax expenses incurred for various foreign income and domestic minimum income taxes in the third quarters of 2004 and 2003. As a result, we show no income tax expense on consolidated statement of operations. The computations of our deferred tax assets and valuation allowance are based on taxable income we expect to earn on sales of existing products, and projected interest and other income over the next three years. We believe it is more likely than not that our net deferred tax assets, which total $3.5 million at September 30, 2004, will be realized based on expected levels of future taxable income in the U.S. and certain foreign jurisdictions, and the implementation of tax planning strategies. Realization of the $3.5 million of net deferred tax assets is dependent upon our ability to generate sufficient future taxable income and the implementation of tax planning strategies.

Comparison of Nine Months Ended September 30, 2004 and 2003.

During fourth quarter of 2003, we made the decision to discontinue our Advanced Technology (AT) contracting business. The comparison of the nine months ended September 30, 2004 and 2003 reflects the classification of the AT division as discontinued operations.

Revenue. Our revenue increased 27% to $67.9 million for the first nine months of 2004 up from $53.3 million in the same period of 2003. Our revenue growth was driven by an increase in the direct Sidewinder G₂ Security Appliance sales, an increase in SafeWord hardware token sales and growth in our Web filtering subscription revenue mainly driven by our N2H2 acquisition.

Gross Profit. Gross profit as a percentage of revenue for the first nine months of 2004 was 87% compared to 90% in the same period of 2003. The decrease in gross margins was primarily driven by increased sales volume of products containing a hardware component, primarily Sidewinder G₂ Security Appliance and SafeWord token sales, which have a lower gross profit margin than our software only products.

Operating Expenses. Operating expenses consist of selling and marketing, research and development, and general and administrative expenses. As a percentage of revenue, total operating expense was 75% for the first nine months of 2004 compared to 81% in the same period of 2003. Total operating expenses in the first nine months of 2004 were $51.0 million, which is a 18% increase over $43.3 million in the same period of 2003. The increase resulted primarily from normal inflationary increase in payroll and related costs, an increase in payroll and facility costs as a result of our N2H2 acquisition and an increase in commission expense due to expanding revenues.

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. As a percentage of revenue, selling and marketing expenses were 50% for the first nine months of 2004 compared to 53% in the same period of 2003. Selling and marketing expenses in the first nine months of 2004 were $33.8 million, which is a 21% increase over $28.1 million in the same period of 2003. The increase resulted primarily from normal inflationary increases in payroll and related costs, an increase in payroll costs as a result of our N2H2 acquisition and an increase in commission expense due to expanding revenues.

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. As a percentage of revenue, research and development expenses were 18% for the first nine months of 2004 compared to 21% in the same period of 2003. Research and development expenses in the first nine months of 2004 were $12.3 million, which is an 9% increase over $11.2 million in the same period of 2003. The increase resulted primarily from normal inflationary increases in payroll and related costs and an increase in payroll and facility costs as a result of our N2H2 acquisition.

General and Administrative. General and administrative expenses consists primarily of salaries, benefits, and related expenses for our executive, finance, and legal personnel along with allocated information technology, facilities and human resources expenses. As a percentage of revenue, general and administrative expenses were 7% for the first nine months of 2004 compared to 8% in the same period of 2003. General and administrative expenses in the first nine months of 2004 were $4.9 million, which is a 20% increase over $4.0 million in the same period of 2003. The increase resulted primarily from normal inflationary increases in payroll and related costs and increased professional fees.

12

Table of Contents

Interest and Other Income. Net interest and other income was $291,000 in the first nine months of 2004, an increase from $115,000 in the same period of 2003. The increase reflects higher interest income earned from our higher average cash and short-term investment balances and an increase other income related to a state capital use tax refund.

Income Taxes. We recognized tax benefits of $278,000 and $432,000 for the first nine months of 2004 and 2003, respectively to offset tax expenses incurred for various foreign income and domestic minimum income taxes in the first nine months of 2004 and 2003. As a result, we show no income tax expense on consolidated statement of operations. The computations of our deferred tax assets and valuation allowance are based on taxable income we expect to earn on sales of existing products, and projected interest and other income over the next three years. We believe it is more likely than not that our net deferred tax assets, which total $3.5 million at September 30, 2004, will be realized based on expected levels of future taxable income in the U.S. and certain foreign jurisdictions, and the implementation of tax planning strategies. Realization of the $3.5 million of net deferred tax assets is dependent upon our ability to generate sufficient future taxable income and the implementation of tax planning strategies.

LIQUIDITY AND CAPITAL RESOURCES

Our cash, cash equivalents and short term investments increased by $13.8 million from $33.7 million at December 31, 2003 to $47.5 million at September 30, 2004. This increase is due to cash provided by operating activities, the exercise of stock options and sales of common stock through our employee stock purchase plan.

Net cash provided by operating activities for the nine months ended September 30, 2004 of $9.0 million resulted from net income and an increase in deferred revenue, offset by decreases in accrued liabilities and reserves and increases in accounts receivable, inventories, other current assets. Net cash provided by operations was driven by a strong growth in revenue and our ability to control our operating expenses. Accounts receivable increased from $17.1 million at December 31, 2003 to $19.2 million at September 30, 2004. Days sales outstanding increased to 70 days at September 30, 2004 compared to 67 days at December 31, 2003, primarily due to the growth in deferred revenue year-to-date compared to the same period in prior year. Accrued liabilities and reserves decreased $1 million on a cash flow basis since December 31, 2003 primarily due to payment of N2H2 acquisition related items, offset by increases in accrued marketing related fees and professional fees.

Net cash used for capital additions of $1.4 million during the nine months ended September 30, 2004, was for computer equipment and technology upgrades. We expect to use approximately another $500,000 during the remainder of 2004 mainly for computer equipment, technology upgrades and leasehold improvements.

Net cash provided by financing activities of $6.6 million for the nine months ended September 30, 2004 consisted primarily of proceeds received from the exercise of stock options and sales of common stock through our employee stock purchase plan.

As of September 30, 2004, we had working capital of $45.4 million. We anticipate using available capital 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.

13

Table of Contents

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:

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We develop products in the United States and sell them worldwide. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. Since our sales are currently priced in U.S. dollars, a strengthening of the dollar could make our products less competitive in foreign markets and our accounts receivable more difficult to collect.

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 as available-for-sale.

Item 4. Controls and Procedures

Our Chief Executive Officer, Chief Operating Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by 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 has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

14

Table of Contents

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

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

On July 15, 2004, we filed a report on Form 8-K pursuant to Item 5, “Other Events,” filing the press release issued July 15, 2004 announcing that the Board of Directors of Secure Computing Corporation unanimously rejected the unsolicited proposal received on July 11, 2004 from CyberGuard Corporation.

15

Table of Contents

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.

16