UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13(d) OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 0-21511
V-ONE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 52-1953278
---------- --------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
20250 CENTURY BLVD., SUITE 300, GERMANTOWN, MARYLAND 20874
----------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(301) 515-5200
--------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT AUGUST 6, 2002
----- -----------------------------
COMMON STOCK, $0.001 PAR VALUE PER SHARE 24,271,348
V-ONE Corporation
Quarterly Report on Form 10-Q
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Balance Sheets as of June 30, 2002 3
(unaudited) and December 31, 2001
Condensed Statements of Operations for the Three and 4
Six Months Ended June 30, 2002 (unaudited) and June 30,
2001 (unaudited)
Condensed Statements of Cash Flows for the Six Months 5
Ended June 30, 2002 (unaudited) and June 30, 2001
(unaudited)
Notes to the Condensed Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 11
Market Risk
PART II. OTHER INFORMATION 11
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of Proceeds 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES AND CERTIFICATION 13
2
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
V-ONE CORPORATION
CONDENSED BALANCE SHEETS
June 30, 2002 December 31, 2001
ASSETS (Unaudited)
------------------- ---------------------
Current assets:
Cash and cash equivalents $ 129,798 $ 2,608,690
Accounts receivable, net 677,765 859,658
Finished goods inventory, net 60,365 57,354
Prepaid expenses and other current assets 313,967 407,913
------------------- ---------------------
Total current assets 1,181,895 3,933,615
Property and equipment, net 476,296 748,513
Other assets 50,196 50,196
------------------- ---------------------
Total assets $ 1,708,387 $ 4,732,324
=================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,240,687 $ 769,319
Deferred revenue 863,658 952,044
Capital lease obligations - current 8,882 47,804
------------------- ---------------------
Total current liabilities 2,113,227 1,769,167
Deferred rent 59,783 80,790
Capital lease obligations - noncurrent - -
------------------- ---------------------
Total liabilities 2,173,010 1,849,957
Commitments and contingencies
Shareholder' equity:
Preferred stock, $.001 par value,13,333,333 shares authorized:
Series C redeemable preferred stock, 500,000 designated; 42,904
shares issued and outstanding
(liquidation preference of $1,126,388 ) 43 43
Series D convertible preferred stock 3,675,000 shares designated,
3,021,000 and 3,675,000 issued and outstanding, respectively 3,021 3,675
(liquidation preference of $5,770,110 and $7,019,500 respectively)
Common stock, $0.001 par value; 50,000,000 shares authorized;
24,271,348 and 23,594,904 shares issued and outstanding, respectively 24,271 23,595
Accrued dividends payable 1,228,058 875,808
Additional paid-in capital 60,863,458 60,766,392
Accumulated deficit (62,583,474) (58,787,146)
------------------- ----------------------
Total shareholders' equity (464,623) 2,882,367
------------------- ----------------------
Total liabilities and shareholders' equity $ 1,708,387 $ 4,732,324
=================== ======================
The accompanying notes are an integral part of these financial statements.
3
V-ONE CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
Three months Three months Six months Six months
ended ended ended ended
June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001
(unaudited) (unaudited) (unaudited) (unaudited)
---------------- ---------------- ---------------- --------------
Revenue:
Products $ 520,633 $ 570,745 $ 964,585 $ 1,095,000
Consulting and services 366,366 351,621 774,633 617,547
---------------- ---------------- ----------------- --------------
Total revenue 886,999 922,366 1,739,218 1,712,547
Cost of revenue:
Products 41,597 134,228 90,910 332,346
Consulting and services 85,349 137,300 201,769 244,081
---------------- ---------------- ----------------- --------------
Total cost of revenue 126,946 271,528 292,679 576,427
---------------- ---------------- ----------------- --------------
Gross profit 760,053 650,838 1,446,539 1,136,120
Operating expenses:
Research and development 788,142 1,051,433 1,756,397 2,052,089
Sales and marketing 760,998 1,397,989 1,764,973 2,536,496
General and administrative 640,751 621,497 1,378,236 1,317,685
---------------- ---------------- ----------------- --------------
Total operating expenses 2,162,391 3,070,919 4,872,106 5,906,270
---------------- ---------------- ----------------- --------------
Operating loss (1,429,838) (2,420,081) (3,453,067) (4,770,150)
Other (expense) income:
Interest expense (949) (3,179) (2,344) (6,966)
Interest income 3,238 100,867 14,243 152,900
Other (expense) income (2,910) 723 (2,910) 1,309,331
---------------- ---------------- ----------------- --------------
Total other (expense) income (621) 98,411 8,989 1,455,265
---------------- ---------------- ----------------- --------------
Net loss (1,430,459) (2,321,670) (3,444,078) (3,314,885)
Dividend on preferred stock 171,936 203,080 352,250 330,623
Deemed dividend -- -- -- 2,932,023
---------------- ---------------- ----------------- --------------
Loss attributable to holders of common stock $ (1,602,395) $ (2,524,750) $ (3,796,328) $ (6,577,531)
================ ================ ================= ==============
Basic and diluted loss per share attributable
to holders of common stock $ (0.07) $ (0.11) $ (0.16) $ (0.30)
================ ================ ================= ==============
Weighted average number of common
shares outstanding 24,271,348 22,271,441 24,151,698 22,214,170
================ ================ ================= ==============
The accompanying notes are an integral part of these financial statements.
4
V-ONE CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
Six months Six months
ended ended
June 30, 2002 June 30, 2001
(unaudited) (unaudited)
------------------ ----------------
Cash flows from operating activities:
Net loss $ (3,444,078) $ (3,314,885)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 275,862 283,356
Stock compensation 83,372 146,734
Gain on sale of investment - (1,375,000)
Changes in assets and liabilities:
Accounts receivable, net 181,893 (127,029)
Inventory, net (3,011) 55,605
Prepaid expenses and other assets 199,406 55,096
Accounts payable and accrued expenses 471,368 (408,753)
Deferred revenue (88,386) 806,936
Deferred rent (21,007) (19,511)
---------------- ----------------
Net cash used in operating activities (2,344,581) (3,897,451)
Cash flows from investing activities:
Net purchases of property and equipment (3,645) (315,323)
Proceeds from sale of investment - 1,625,000
---------------- ----------------
Net cash provided by (used in) investing activities (3,645) 1,309,677
Cash flows from financing activities:
Exercise of options and warrants 13,716 48,642
Issuance of preferred stock - 7,019,250
Payment of debt financing costs (105,460) -
Redemption of preferred stock - (84,449)
Payments of stock issuance costs - (632,918)
Payment of preferred stock dividends - (258)
Principal payments on capitalized lease obligations (38,922) (35,506)
---------------- ----------------
Net cash provided by financing activities (130,666) 6,314,761
---------------- ----------------
Net increase in cash and cash equivalents (2,478,892) 3,726,987
Cash and cash equivalents at beginning of period 2,608,690 2,949,398
---------------- ----------------
Cash and cash equivalents at end of period $ 129,798 $ 6,676,385
================ ================
The accompanying notes are an integral part of these financial statements.
5
V-ONE CORPORATION
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of the Business
V-ONE Corporation ("Company") develops, markets and licenses a comprehensive
suite of network security products that enable organizations to conduct secured
electronic transactions and information exchange using private enterprise
networks and public networks, such as the Internet. The Company's principal
market is the United States, with headquarters in Maryland, with secondary
markets in Europe and Asia.
2. Basis of Presentation
The condensed financial statements for the three and six months ended June 30,
2002 and June 30, 2001 are unaudited and reflect all adjustments, consisting of
normal recurring adjustments, which are, in the opinion of management, necessary
to present fairly the results for the interim periods. These financial
statements should be read in conjunction with the audited financial statements
as of December 31, 2000 and 2001 and for the three years in the period ended
December 31, 2001, which are included in the Company's 2001 Annual Report on
Form 10-K ("Form 10-K").
The preparation of financial statements to be 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 date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates and would
impact future results of operations and cash flows.
The results of operations for the three and six month periods ended June 30,
2002 are not necessarily indicative of the results expected for the full year
ending December 31, 2002.
Certain prior year amounts have been reclassified to conform to the 2002
presentation. These changes had no impact on previously reported results of
operations.
3. Common and Preferred Stock
On March 31, 2002, the Company sold 14,178 shares of common stock at a price of
$0.68 per share as part of its Employee Stock Purchase Plan. On June 28, 2002,
the company sold 8,266 shares of common stock at a price of $.493 per share as
part of its Employee Stock Purchase Plan.
In the six months ending June 30, 2002, one investor converted 654,000 shares of
Series D Convertible Preferred Stock to an equal number of shares of common
stock.
4. Management's Plans
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company reported a net loss of $6,237,278,
$8,862,015 and $9,679,944 for the years ended December 31, 2001, 2000 and 1999,
respectively, and a further net loss of $3,444,078 for the six months ended June
30, 2002. In addition, the Company expects to continue to incur losses during
2002. Notwithstanding acceptance of V-ONE's security concepts and critical
acclaim for its products, there can be no assurance that the consummation of
sales of V-ONE's products to existing customers or proposed agreements with
potential customers will generate timely or sufficient revenue for V-ONE to
cover its costs of operations and meet its cash flow requirements. Accordingly,
V-ONE may not have the funds needed to sustain operations during 2002.
In addition, although the Company's common stock is currently listed on the
Nasdaq Small Cap Market, Nasdaq has notified the Company that it has questions
concerning, among other things, the Company's ability to maintain the minimum
listing requirements. The Company may not be able to continue to satisfy the
minimum listing requirements. If the Company's common stock is delisted from
Nasdaq, the trading market for such securities could be disrupted which could
make it difficult for investors to trade in the Company's common stock.
6
The Company has engaged Adams, Harkness & Hill, Inc. to explore alternatives to
preserve V-ONE's operations and maximize shareholder value, including potential
strategic partnering relationships, a business combination with a strategically
placed partner, or a sale of V-ONE.
In July and August 2002, the Company closed on approximately $1,188,000 in a
private placement of 8% Secured Convertible Notes with detachable warrants, due
180 days after issuance with an additional 180-day extension available at the
option of the Company or the holders. The holders may convert their notes at any
time into the Company's common stock at a conversion price equal to the greater
of $0.25 per share or 60% of the average closing sales price of the Company's
common stock for the five trading day period immediately preceding the Company's
receipt of the holders notification of conversion. Detachable five year
warrants, exercisable at $0.50 per share, are included to provide 100% warrant
coverage to the note holders.
The Company reduced operating expenses on April 1, 2002 by approximately 25%.
Total operating expenses decreased for the second quarter by approximately
$881,000 and by approximately $1,007,000 for the six months ended June 30, 2002
compared with the same periods last year. Further steps were taken to reduce
expenses in mid-July by implementing a reduced workweek designed to ensure that
customers' requirements are met without jeopardizing the Company's workforce.
With these cost saving measures in place, V-ONE will focus its engineering
design efforts on completing features committed to meet the needs of existing
and potential customers in the government sector and supporting the
relationships with our channel partners for sales and marketing to commercial
accounts. Even at reduced operating levels, however, V-ONE may not be able to
maintain operations for any extended period of time without additional capital
or a significant strategic transformative event. The Company's ability to
continue as a going concern is dependent on its ability to generate sufficient
cash flow to meet its obligations on a timely basis or to obtain additional
funding.
5. Supplemental Cash Flow Disclosure
Selected noncash activities were as follows:
Six Months ended June 30,
2002 2001
----------------- ----------------
Noncash investing and financing activities:
Redemption of preferred stock $ - 225,571
Payment of preferred stock dividends $ - $ 46,088
6. Net Loss Per Share
The following table sets forth the computation of basic and diluted net loss per share:
Three Months ended June 30, Six Months ended June 30,
2002 2001 2002 2001
--------------------------------------------------------------
Numerator:
Net loss $(1,430,459) $(2,321,670) $(3,444,078) $(3,341,885)
Less: Dividend on preferred stock (171,936) (203,080) (352,250) (3,262,646)
----------- ----------- ----------- -----------
Net loss attributable to holders of common stock $(1,602,395) $(2,524,750) $(3,796,328) $(6,577,531)
=========== =========== =========== ===========
Denominator:
Denominator for basic and diluted net loss per
share - weighted average shares 24,271,348 22,271,441 24,151,698 22,214,170
=========== =========== =========== ===========
Basic and diluted loss per share -
Net loss attributable to holders of common stock $ (0.07) $ (0.11) $ (0.16) $ (0.30)
Due to their anti-dilutive effect, outstanding shares of preferred stock, stock options and warrants to purchase
shares of common stock were excluded from the computation of diluted earnings per share for all periods presented.
7
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements within the meaning of Section 21E
of the Exchange Act. These statements may differ in a material way from actual
future events. For instance, factors that could cause results to differ from
future events include rapid rates of technological change and intense
competition, among others. The Company's total revenues and operating results
have varied substantially from quarter to quarter and should not be relied upon
as an indication of future results. Several factors may affect the ability to
forecast the Company's quarterly operating results, including the size and
timing of individual software and hardware sales; the length of the Company's
sales cycle; the level of sales and marketing, research and development and
administrative expenses; and general economic conditions.
Operating results for a given period could be disproportionately affected by any
shortfall in expected revenues. In addition, fluctuation in revenues from
quarter to quarter will likely have an increasingly significant impact on the
Company's results of operations. The Company's growth in recent periods may not
be an accurate indication of future results of operations in light of the
evolving nature of the network security market and the uncertainty of the demand
for Internet and intranet products in general and the Company's products in
particular. Because the Company's operating expenses are based on anticipated
revenue levels, a small variation in the timing of recognition of revenues can
cause significant variations in operating results from quarter to quarter.
Readers are also referred to the documents filed by the Company with the SEC,
specifically the Company's latest Annual Report on Form 10-K that identifies
important risk factors for the Company.
RESULTS OF OPERATIONS
REVENUES
Total revenues decreased from approximately $922,000 for the three months ended
June 30, 2001 to approximately $887,000 for the three months ended June 30,
2002. This decrease was primarily due to lower sales of the Company's network
security products and delays in installations of federal government initiatives.
Total revenues increased from approximately $1,712,000 for the six months ended
June 30, 2001 to approximately $1,739,000 for the six months ended June 30,
2002. This increase was due to increased consulting and services sales. Product
revenues are derived principally from software licenses and the sale of hardware
products. Product revenues decreased from approximately $571,000 and $1,095,000
for the three and six months ended June 30, 2001, respectively, to approximately
$521,000 and $965,000 for the three and six months ended June 30, 2002,
respectively. Consulting and services revenues are derived principally from fees
for services complementary to the Company's products, including consulting,
maintenance and training. Consulting and services revenues increased from
approximately $352,000 and $618,000 for the three months and six months ended
June 30, 2001, respectively, to approximately $366,000 and $775,000 for the
three months and six months ended June 30, 2002, respectively, due principally
to a higher number of maintenance contracts provided to customers.
COST OF REVENUES
Total cost of revenues as a percentage of total revenues decreased from
approximately 30% and 34% for the three and six months ended June 30, 2001,
respectively, to approximately 14% and 17% for the three and six months ended
June 30, 2002, respectively. The decreases were primarily due to higher sales of
software licenses and lower sales of large turnkey systems. Total cost of
revenues is comprised of cost of product revenues and cost of consulting and
services revenues.
Cost of product revenues consists principally of the costs of computer hardware,
licensed technology, manuals and labor associated with the distribution and
support of the Company's products. Cost of product revenues decreased from
approximately $134,000 and $332,000 for the three and six months ended June 30,
2001, respectively, to approximately $42,000 and $91,000 for the three and six
months ended June 30, 2002. The decreases in cost of product revenue in the
three and six months ended June 30, 2002 was primarily attributable to higher
sales of software licenses and lower sales of SmartWall and turnkey hardware
systems. Cost of product revenues as a percentage of product revenues was
approximately 24% and 30% for the three and six months ended June 30, 2001,
respectively, and approximately 8% and 9% for the three and six months ended
June 30, 2002, respectively. The percentage decreases were primarily
attributable to higher sales of software licenses and lower sales of SmartWall
and turnkey hardware systems.
8
Cost of consulting and services revenues consists principally of personnel and
related costs incurred in providing consulting, support and training services to
customers. Cost of consulting and services revenues decreased from approximately
$137,000 and $244,000 for the three and six months ended June 30, 2001,
respectively, to approximately $85,000 and $202,000 for the three and six months
ended June 30, 2002, respectively. Cost of consulting and services revenues as a
percentage of consulting and services revenues was approximately 39% for both
the three and six months ended June 30, 2001 and 23% and 26% for the three and
six months ended June 30, 2002, respectively. The dollar and percentage
decreases were due in part to reductions in staff.
OPERATING EXPENSES
Research and Development -- Research and development expenses consist
principally of the costs of research and development personnel and other
expenses associated with the development of new products and enhancement of
existing products. Research and development expenses decreased from
approximately $1,051,000 and $2,052,000 for the three and six months ended June
30, 2001, respectively, to approximately $788,000 and $1,756,000 for the three
and six months ended June 30, 2002, respectively. Research and development
expenses as a percentage of total revenues were approximately 114% and 120% for
the three and six months ended June 30, 2001, respectively, and approximately
89% and 101% for the three and six months ended June 30, 2002, respectively. The
dollar and percentage decreases for 2002 were primarily due to a decrease in
consulting expense of $170,000 and in recruiting fees of $75,000.
Sales and Marketing -- Sales and marketing expenses consist principally of the
costs of sales and marketing personnel, advertising, promotions and trade shows.
Sales and marketing expenses decreased from approximately $1,398,000 and
$2,536,000 for the three and six months ended June 30, 2001, respectively, to
approximately $761,000 and $1,765,000 for the three and six months ended June
30, 2002, respectively. Sales and marketing expenses as a percentage of total
revenues were approximately 152% and 148% for the three and six months ended
June 30, 2001, respectively, and approximately 86% and 102% for the three and
six months ended June 30, 2002, respectively. The dollar decrease for 2002
relates primarily to lower consulting costs of $253,000 and lower marketing
costs of $153,000. The percentage decrease is mainly due to lower expense for
fiscal 2002 when compared to similar periods for fiscal 2001.
General and Administrative -- General and administrative expenses consist
principally of the costs of finance, management and administrative personnel and
facilities expenses. General and administrative expenses increased slightly from
approximately $621,000 for the three months ended June 30, 2001 to approximately
$641,000 for the three months ended June 30, 2002. General and administrative
expenses increased from $1,318,000 for the six months ended June 30, 2001 to
$1,378,000 for the six months ended June 30, 2002. General and administrative
expenses as a percentage of total revenues were approximately 67% and 77% for
the three and six months ended June 30, 2001, respectively, and 72% and 79% for
the three and six months ended June 30, 2002, respectively. The percentage
increase in the quarter just ended was principally due to lower revenue this
year as compared to last year.
Other (Expense) Income - Other (expense) income represents the net income or
expense resulting from non-operational activities that are of an infrequently
occurring nature. Other (expense) income for the three and six months ended June
30, 2001 was approximately $1,000 and $1,309,000, respectively. The 2001 figures
include the gain of $1,334,000 on the sale to NFR of a 6.8% minority interest in
its common stock. The proceeds from the sale totaled $1,625,000, the cost basis
for the investment was $250,000, and the fees associated with the sale were
approximately $41,000. Other (expense) income for the three and six month
periods ended June 30, 2002 was both ($3,000).
Interest Income and Expenses -- Interest income represents interest earned on
cash and cash equivalents. Interest income decreased from approximately $101,000
and $153,000 for the three and six months ended June 30, 2001, respectively, to
approximately $3,000 and $14,000 for the three months ended June 30, 2002,
respectively. The decrease in the second quarter of 2002 was attributable to
lower levels of cash and cash equivalents. Interest expense represents interest
paid or payable on loans and capitalized lease obligations. Interest expense
decreased from approximately $3,000 and $7,000 for the three and six months
ended June 30, 2001, respectively, to approximately $1,000 and $2,000 for the
three and six months ended June 30, 2002, respectively, due to a decrease in the
capital equipment lease balance.
Income Taxes -- The Company did not incur income tax expenses as a result of the
net loss incurred during the six months ended June 30, 2001 and 2002.
Dividend on Preferred Stock -- The Company provided for dividends on preferred
stock of approximately $203,000 $3,300,000 during the three months and six
months ended June 30, 2001, respectively, and approximately $172,000 and
$352,000 for the three and six months ended June 30, 2002. Under the terms of
the purchase agreements for the Series C and Series D Preferred Stock, the
Company may elect to pay these dividends in cash or stock. In 2001, the Company
recorded a deemed dividend of approximately $2,932,000 in accordance with the
accounting requirements for a beneficial conversion feature on the Series D
9
Preferred Stock. The proceeds received in the Series D offering were first
allocated between the convertible instrument and the Series D warrant on a
relative fair value basis. A calculation was then performed to determine the
difference between the effective conversion price and the fair market value of
the common stock at the commitment date. The difference between the fair market
value of the common stock on the commitment date and the effective conversion
price was recorded as a deemed dividend.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used cash of approximately $3,897,000 for the
six months ended June 30, 2001 and approximately $2,345,000 for the six months
ended June 30, 2002. Cash used in operating activities resulted principally from
net operating losses in both periods.
The Company's investing activities provided cash of approximately $1,310,000 in
the six months ended June 30, 2001 and used cash of approximately $4,000 in the
six months ended June 30, 2002. Net capital expenditures for property and
equipment were approximately $315,000 and $4,000 during the six months ended
June 30, 2001 and 2002, respectively. These expenditures have generally been for
computer workstations and personal computers, office furniture and equipment,
and leasehold additions and improvements.
The Company's financing activities provided cash of approximately $6,315,000
during the six months ended June 30, 2001 and used cash of approximately
$131,000 for the six months ended June 30, 2002. In fiscal 2001, the cash was
provided primarily by the issuance of a private placement of Series D
Convertible Preferred Stock to certain accredited investors pursuant to Rule 506
of Regulation D under the Securities Act of 1933, as amended, for an aggregate
offering price of $7,019,250. The Company received $6,469,250 in net proceeds
after payment of all fees and offering expenses. The net proceeds of the
offering are being used for general working capital purposes. In July and August
2002, the Company closed on approximately $1,188,000 in a private placement of
8% Secured Convertible Notes with detachable warrants, due 180 days after
issuance with an additional 180-day extension available at the option of the
Company or the holders. The holders may convert their notes at any time into the
Company's common stock at a conversion price equal to the greater of $0.25 per
share or 60% of the average closing sales price of the Company's common stock
for the five-trading-day period immediately preceding the Company's receipt of
the holders notification of conversion. Detachable five year warrants,
exercisable at $0.50 per share, are included to provide 100% warrant coverage to
the note holders.
The Company had net tangible assets of $2,882,000 and ($465,000) at December 31,
2001 and June 30, 2002, respectively. As of June 30, 2002, the Company had an
accumulated deficit of approximately $62,583,000.
The Company reported a net loss of $6,237,278, $8,862,015 and $9,679,944 for the
years ended December 31, 2001, 2000 and 1999, respectively and a further net
loss of approximately $3,444,078 for the six months ended June 30, 2002. In
addition, the Company expects to continue to incur losses during 2002 and its
financial statements have been prepared assuming the Company will continue as a
going concern. Notwithstanding acceptance of V-ONE's security concepts and
critical acclaim for its products, there can be no assurance that the
consummation of sales of V-ONE's products to existing customers or proposed
agreements with potential customers will generate timely or sufficient revenue
for V-ONE to cover its costs of operations and meet its cash flow requirements.
Accordingly, V-ONE may not have the funds needed to sustain operations during
2002.
In addition, although the Company's common stock is currently listed on the
Nasdaq Small Cap Market, Nasdaq has notified the Company that it has questions
concerning, among other things, the Company's ability to maintain the minimum
listing requirements. The Company may not be able to continue to satisfy the
minimum listing requirements. If the Company's common stock is delisted from
Nasdaq, the trading market for such securities could be disrupted which could
make it difficult for investors to trade in the Company's common stock.
The Company has engaged Adams, Harkness & Hill, Inc. to explore alternatives to
preserve V-ONE's operations and maximize shareholder value, including potential
strategic partnering relationships, a business combination with a strategically
placed partner, or a sale of V-ONE.
The Company reduced operating expenses on April 1, 2002 by approximately 25%.
Total operating expenses decreased for the second quarter by approximately
$881,000 and by approximately $1,007,000 for the six months ended June 30, 2002
compared with the same periods last year. Further steps were taken to reduce
expenses in mid-July by implementing a reduced workweek designed to ensure that
customers' requirements are met without jeopardizing the Company's workforce.
With these cost saving measures in place, V-ONE will focus its engineering
design efforts on completing features committed to meet the needs of existing
and potential customers in the government sector and supporting the
relationships with our channel partners for sales and marketing to commercial
accounts. Even at reduced operating levels, however, V-ONE may not be able to
maintain operations for any extended period of time without additional capital
or a significant strategic transformative event. The Company's ability to
continue as a going concern is dependent on its ability to generate sufficient
cash flow to meet its obligations on a timely basis or to obtain additional
funding.
10
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is not materially exposed to fluctuations in currency exchange rates
as all of its products are invoiced in U.S. dollars. The Company does not hold
any derivatives or marketable securities. However, the Company is exposed to
interest rate risk. The Company believes that the market risk arising from
holdings of its financial instruments is not material.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
In closings on July 23 and 26 and August 2, 2002, the Company issued in a
private placement to accredited investors 8% Secured Convertible Notes with
detachable warrants for an aggregate price of $1,188,000. The notes are due 180
days after issuance with an additional 180-day extension available at the option
of the Company or the holders. The holders may convert their notes at any time
into the Company's common stock at a conversion price equal to the greater of
$0.25 per share or 60% of the average closing sales price of the Company's
common stock for the five-trading-day period immediately preceding the Company's
receipt of the holders notification of conversion. Detachable five year warrants
to purchase 1,188,000 shares of the Company's common stock, exercisable six
months after issuance at $0.50 per share, are included to provide 100% warrant
coverage to the note holders. The net proceeds of the offering will be used for
general working capital purposes. The offering was made pursuant to Rule 506 of
Regulation D promulgated under the Securities Act of 1933, as amended. The
Company intends to file a registration statement within thirty days to register
for resale, the common shares underlying the notes and the detachable warrants.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
On May 16, 2002, the following items were voted on at the Annual Meeting of
Stockholders:
Broker
Proposal For Withheld Abstain Non-Votes
--- -------- ------- ---------
1. Reelection of Directors:
Heidi B. Heiden 22,573,679 491,393 N/A N/A
William E. Odom 22,723,879 341,193 N/A N/A
The terms of office for Molly G. Bayley, Margaret E. Grayson, James T. McManus and Michael O'Dell continued after the
meeting.
Broker
For Against Abstain Non-Votes
--- ------- ------- ---------
2. Ratification of auditors 22,937,853 26,169 37,773 N/A
Item 5. Other Information
None.
11
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this quarterly report on Form
10-Q for the period ended June 30, 2002:
Exhibit Description
None.
(b) Reports on Form 8-K
None.
12
SIGNATURE
---------
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.
V-ONE CORPORATION
Registrant
Date: August 14, 2002 By: /s/ Margaret E. Grayson
------------------------------------------------------------------
Name: Margaret E. Grayson
Title: President, Chief Executive Officer and Principal Financial Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of V-ONE Corporation
("Company") on Form 10-Q for the period ended June 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof ("Report"), the
undersigned, in the capacity and on the date indicated below, hereby certifies
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that to her knowledge:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operation of the
Company.
Date: August 14, 2002 By: /s/ Margaret E. Grayson
-------------------------------------------------------
Name: Margaret E. Grayson
Title: Chief Executive Officer and Principal Financial Officer