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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED: DECEMBER 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO _____________
COMMISSION FILE NUMBER 0-21511
V-ONE CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 52-1953278
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
20250 CENTURY BLVD., SUITE 300, GERMANTOWN, MARYLAND 20874
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(Address of principal executive offices) (Zip Code)
(301) 515-5200
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(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $0.001 PAR VALUE PER SHARE
----------------------------------------
(Title of class)
TRADED ON THE NASDAQ SMALLCAP MARKET
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting and non-voting equity held by
non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked price of such common equity,
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as of March 1, 2001 was approximately $51,500,000. This calculation does
not reflect a determination that persons are affiliates for any other
purposes.
Registrant had 22,215,109, shares of Common Stock outstanding as of March
1, 2001.
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DOCUMENTS INCORPORATED BY REFERENCE
Part III -- Portions of the registrant's definitive proxy statement to be issued
in conjunction with registrant's 2001 annual stockholder's meeting to be held on
May 10, 2001.
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Annual Report contains
forward-looking statements that involve risks and uncertainties. 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. Readers are
cautioned not to place undue reliance on these forward-looking statements. V-ONE
Corporation undertakes no obligation to publicly revise these forward-looking
statements or to reflect events or circumstances that arise after the date
hereof.
PART I
ITEM 1. BUSINESS
V-ONE Corporation ("V-ONE" or the "Company") develops, markets and licenses a
comprehensive suite of network security products that enables organizations to
conduct secured electronic transactions and information exchange using public
switched networks, such as the Internet. The Company's suite of products
addresses network user authentication, perimeter security, access control and
data integrity through the use of smart cards, tokens, digital certificates,
firewalls and encryption technology. The Company's products interoperate
seamlessly and can be combined to form a complete, integrated network security
solution or can be used as independent components in customized security
solutions. The Company's products have been designed with an open and flexible
architecture to enhance application functionality and to support emerging
network security standards. The products are most commonly used to establish
very secure Virtual Private Networks (VPNs). In addition, the Company's products
enable organizations to deploy and scale their solutions from small single-site
networks to large multi-site environments, and can accommodate both wireline and
wireless media.
The Company was incorporated in Maryland in February 1993 and reincorporated in
Delaware in February 1996. Effective July 2, 1996, the Company changed its name
from "Virtual Open Network Environment Corporation" to "V-ONE Corporation." The
Company's principal executive offices are located at 20250 Century Boulevard,
Suite 300, Germantown, Maryland 20874. The Company's telephone number is (301)
515-5200.
BACKGROUND
OVERVIEW. Over the last decade, decentralized computing has emerged as a result
of the widespread adoption of personal computers, local area networks and wide
area networks. This emergence has enabled users to communicate with each other
and share data throughout an entire organization. With the recent popularization
of the Internet and increased performance capabilities offered by high-speed
modems, xDSL and Cable modems, ISDN services and frame relay technology, the
volume of data transferred over networks has increased dramatically. Fueling
this expansion further, carriers and Internet service providers have
dramatically reduced their tariffs for high-speed aggregation services running
over T-1 and T-3 lines, which have data transfer rates that approximate local
area network performance. In addition, leading hardware and software vendors
have adopted and support TCP/IP, the Internet's non-proprietary communications
protocol, for computer communications and information exchange.
Organizations are increasing their dependence on the Internet and private
enterprise networks using Internet protocols ("intranets") as a cost-effective
means to expand enterprise networks, engage in electronic commerce and increase
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information exchange. This pervasive use of the Internet, intranets and
extranets (architecture linking companies with specific customers, suppliers and
trading partners) has increased the need for solutions to provide secure
communications because TCP/IP networks are not secure.
The need for internal security continues to grow as businesses deploy extranets,
intranets, internal networks using TCP/IP protocols, and browser-based
applications to facilitate geographically dispersed communications and the
transmission of information throughout an enterprise in a cost-effective manner.
Information becomes more vulnerable as organizations rely heavily on computer
networks for the electronic transmission of data. With the increased use of the
Internet and intranets, many organizations are discovering that network security
is a key element in successfully implementing distributed applications and
services, including electronic mail, electronic data interchange, electronic
commerce and information exchange services. In the absence of comprehensive
network security, individuals and organizations are able to exploit system
weaknesses to gain unauthorized access to networks and individual network
computers. These individuals and organizations use such access to alter or steal
data or, in some cases, to launch destructive attacks on data and computers
within a network. Through the adoption of VPN technology products, users can
create a so-called Virtual Private Network which enables users to exploit the
inherently low cost of public networks in a highly secure manner.
Each of the following elements is critical in creating a complete network
security solution to protect an organization's data, network and computer
systems:
o DATA PRIVACY THROUGH ENCRYPTION. Preventing unauthorized users from viewing
private data through the process of "scrambling" data before it is
transmitted or placed into electronic storage.
o USER IDENTIFICATION AND AUTHENTICATION. Verifying the user's identity to
prevent unauthorized access to computer and network resources.
o AUTHORIZATION. Controlling which systems, data and applications a user can
access.
o DATA INTEGRITY. Ensuring that data, whether in storage or transmission, has
not been changed or compromised by any unauthorized manipulation.
o NON-REPUDIATION. Verifying that data transmissions have been executed
between specific parties so that neither party may legitimately claim that
the transaction did not occur.
Over the years, a number of network security products have been developed,
including passwords, token-based access devices, firewalls, encryption products,
biometrics devices, smart cards and digital certificates. Each of these products
was designed with a specific function or objective; however, none were designed
to meet all of the needs of enterprise-wide network security. Single function or
"point" products that have been developed to address one, or a limited number of
network security requirements, include the following:
o PASSWORDS AND TOKENS. Until recently, passwords were the most common method
of authentication. Static (non-changing) passwords were developed as the
first attempt to address the need for authentication. Static passwords,
however, are inadequate as they are susceptible to unauthorized viewing and
to attacks using software designed to randomly generate and enter thousands
of passwords. As a result, dynamic passwords, including single-use passwords,
were created to provide a greater level of authentication. Dynamic password
implementations include the use of time-varying and challenge-response
passwords. Generally, dynamic passwords require the use of a hand-held,
electronic device called a hardware token. Dynamic passwords were
subsequently strengthened by incorporating two-factor identification, which
provided a higher level of authentication in that two independent components
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were combined to identify a user (for example, a bank ATM card and a PIN
code). However, dynamic passwords and two-factor identification provide only
a limited level of security because the sessions they authenticate are still
vulnerable to interception.
o FIREWALLS. Firewalls are network access control devices that regulate the
passage of information based on a set of administrator-defined rules.
Generally, firewalls are based upon one of two technical architectures:
packet filters (customarily used in routers) or proxy-based application-level
gateways. Packet filters screen network traffic and allow or prevent network
access based upon source and destination Internet Protocol addresses.
Proxy-based application-level gateways provide access to applications on the
network only after the user has identified the desired application and
submitted a valid password.
o ENCRYPTION. Encryption products provide privacy for transmitted data.
Encryption algorithms scramble data so only those users with the appropriate
decoding key are able to view transmitted or stored data. Public-key
encryption has recently gained additional credibility for managing the keys
(codes) used to encrypt and subsequently decrypt user designated data.
o SMART CARDS. Smart cards are similar in size to credit cards, but contain a
small, tamper-proof microprocessor chip and are capable of storing data and
processing complex encryption algorithms. Smart cards are advanced
authentication tokens that are also capable of storing information, such as
credit card or bank account numbers, medical records, photographic images or
digital certificates.
o DIGITAL CERTIFICATES. A digital certificate serves as an individual's
electronic identification card. The certificates are digitally certified by a
third party, called a certificate authority, who vouches for the identity of
the certificate holder. Digital certificates are being standardized as a
means of authenticating on-line users and are perceived to be a key
technology for the expansion of secure transactions and electronic commerce.
As organizations increase their dependence on the Internet and deploy intranets,
the Company believes that there will be an increasing need for a comprehensive
enterprise-wide network security solution. Many network security vendors,
however, have focused on developing products that address only one or a limited
number of specific security requirements. In addition, products developed by
different vendors are often difficult to integrate with each other and pose
interoperability problems. Consequently, the Company believes that organizations
will increasingly demand comprehensive network security solutions that are easy
to implement and transparent to the user. These solutions must have the ability
to integrate with existing applications, networks and/or mainframe applications,
while being flexible and powerful enough to address the needs created by newly
developed technologies.
The current demand for VPN products is being driven by (i) the increasing need
for employees to remotely access data, (ii) corporate intranets linking multiple
geographic locations, (iii) corporate extranets linking a company's partners,
suppliers and customers and (iv) the increasing demand for security in
electronic commerce. The increasing reliance by corporate and individual users
on the Internet is causing such users to focus on security concerns. From 1996
to 2000, corporate network traffic increased over 1000%. High percentage
increases are expected to continue as Internet technologies, such as electronic
commerce, become more accepted by the general public. In addition, the costs of
operating a network utilizing the public lines or Internet are substantially
less than T1/T3 interchanges and continue to decline. With the advent of VPNs,
corporations have a practical, low-cost solution to their networking needs.
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THE V-ONE SOLUTION
The Company offers a comprehensive suite of network security products that
address the need for identification and authentication, integrity,
non-repudiation, authorization and encryption. This combination of network
security products enables organizations to identify and authenticate network
users while controlling access to specific network services. The Company's
technology is designed to prevent unauthorized access to an organization's
mission critical applications and internal data without impeding permitted uses
of the organization's resources and information. The Company's products are
compatible with many leading hardware platforms and operating systems, as well
as many third-party security products. The Company's customers are able to
integrate V-ONE's security products into their networks with minimal impact on
existing systems and applications.
The Company's current suite of products can be combined and configured to
provide network perimeter security, secure remote access and
intra/inter-enterprise security to facilitate secured electronic commerce and
information exchange. The Company's principal products are SmartGate, a
client/server product that offers identification and authentication, integrity,
non-repudiation, authorization and encryption; and SmartWall, an
application-level firewall that incorporates SmartGate's functionality. The
Company provides customers with two-factor identification, mutual
authentication, fine-grained access control and encryption by combining smart
card emulation technology with the SmartGate server. In addition, SmartGate
users can access enterprise networks from remote locations using SmartPass
technology incorporated in SmartGate.
The Company's technology provides customers with the ability to create network
security solutions designed to meet their specific network security
requirements. V-ONE's customers can securely deploy a broad range of services
and applications to engage in secured electronic transactions, information
exchange and remote access to mission critical applications and corporate
resources. The Company's technology is designed to be (i) modular, allowing
organizations to utilize the security product or products best suited to address
their immediate needs, with a seamless migration path to additional products as
required, (ii) scaleable, ranging from a single system supporting several users
to multiple systems potentially supporting hundreds of thousands of users, and
(iii) portable, securing access independent of any particular user's machine or
network entry point through the use of smart card technology.
STRATEGY
The Company's goal is to become the leading provider of comprehensive, open and
interoperable network security products that are easy to install, convenient to
use, and highly expandable. The Company's strategy to realize its goal contains
the following elements:
o PROVIDE AN INTEROPERABLE, SCALABLE AND OPEN SOLUTION. The Company intends to
continue to provide network security products that operate on leading
platforms and that are interoperable and compatible with other network
security products. The flexible and open architecture of the Company's
products enable the Company to deliver component technologies for a seamless
and interoperable system. In addition, the Company's technology is
expandable, application-independent and designed both to integrate with
existing technologies as well as to support emerging standards and
applications.
o AUGMENT AND INTEGRATE WITH EXISTING SECURITY PRODUCTS. The Company intends
to continue to offer products that interoperate with a wide variety of
third-party security products, including multiple firewalls and tokens,
allowing a customer to augment existing network security systems. The
Company believes that its technology protects a customer's existing network
security investments because the Company's products are designed to
integrate easily with point products currently employed by its customers.
The Company believes that this strategy will enable it to gain access to
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potential customers who have previously made network security investments
but whose network security needs are continuing to evolve.
o LEVERAGE KEY REFERENCE ACCOUNTS IN SELECTED VERTICAL MARKETS. The Company
has identified strategic vertical markets that require sophisticated network
security solutions and has targeted its marketing and direct sales efforts
on key participants within these selected vertical markets. By successfully
installing its products at key accounts, the Company intends to leverage
positive references from its installed customer base to expand its market
penetration within those information critical industries. The Company
intends to increase its marketing and sales efforts through the use of
value-added resellers ("VAR's"), original equipment manufacturers ("OEM's"),
and Application Service Providers ("ASP's") to expand its customer base in
additional vertical markets. Specific vertical markets focused on include
Banking and Finance, Healthcare, and Government. These efforts have proven
successful, resulting in significant new business. V-ONE recently announced
a $500,000 sale of VPN software products to the FBI's Law Enforcement Online
(LEO) Program. In addition, V-ONE recently supplied its SmartGate and
SmartGuard solution to the Court Services and Offender Supervision Agency
for the District of Columbia (CSOSA), so that CSOSA and U.S. Parole
Commission officials, as well as District of Columbia police, can access
CSOSA's sex offender database in real time. In spring 2000, Regional
Information Sharing Systems (RISS), which operates a secure intranet
communications system for regional and local law enforcement agencies,
standardized on V-ONE's SmartGate(TM) VPN to be the security foundation for
their network. RISS has over 7,000 SmartGate clients licensed to enable
authenticated, encrypted, and managed access to sensitive law enforcement
information in real time.
o DEVELOP AND LEVERAGE STRATEGIC ALLIANCES AND PARTNERING RELATIONSHIPS. The
Company has established strategic marketing and distribution alliances to
increase the distribution and market acceptance of its network security
products including alliances with a variety of major companies, including
Motorola, Sun Microsystems, Microsoft and Sharp. The Company intends to
continue to strengthen its existing strategic alliances while forging new
relationships with key industry participants.
In addition, the Company is exploring opportunities to develop new products and
expand the functionality of its existing products through alliances with key
vendors of complementary technologies.
PRODUCTS
V-ONE's family of products addresses the entire range of customer needs across
the VPN continuum. The Company believes its product offerings to be the most
comprehensive VPN product family of any vendor in the industry. With the recent
release of SmartGuard, the Company has entered the market for firewall
appliances targeted at small and medium sized enterprises.
The Company's security products cover the three key segments of the VPN
marketplace:
o REMOTE ACCESS. Driven by replacing costly dial-up access, 800 numbers, and
Remote Access Servers ("RAS"). Instead, remote salespeople, service staff, or
home workers connect to company IT resources through any standard ISP
connection secured by VPN technology.
o EXTRANET. Enabling companies to share information and business processes over
the Internet with their customers and suppliers. Extranets decrease costs and
reduce cycle times throughout the supply chain.
o SITE-TO-SITE. Allowing companies to interconnect remote offices via the
Internet and replace costly private data networks.
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The cornerstone of the Company's network security solution is its patented
SmartGate client/server security technology. SmartGate enables two-factor
authentication, mutual authentication and fine-grained access control for most
TCP/IP-based client/server applications. Using SmartGate technology,
organizations can employ two-factor authentication and mutual authentication to
identify and authenticate a network user while fine-grained access control
restricts each user's access to only those services to which the user is
entitled.
The key benefits of V-ONE's SmartGate VPN solution are:
o SECURE COMMUNICATIONS: Strong 3DES encryption ensures that private
information is not intercepted or altered during transmission.
o STRONG AUTHENTICATION: Absolutely ensuring the authorized identity of the
user through multiple authentication methods, including digital
certificates, smart cards, RSA SecurID, and Radius, among others. These
authentication methods provide a much higher degree of trust than the less
secure usernames and passwords.
o ACCESS CONTROL: V-ONE SmartGate ensures highly configurable management of
access control privileges, ensuring that users have access to approved
applications, and are completely insulated from restricted applications.
System administrators have fine-grained control of access to specified
services on specific servers.
o SECURITY LOGGING: A comprehensive corporate security policy can be
administered with the help of extensive logging capabilities that ensure
"hacking" attempts are monitored.
These capabilities are supported across the three market segments by a unified
security administration application. An Infonetics VPN market study concludes
that 80% of VPN deployments will cover two or more of these market segments. An
end-user faces the choice of deploying multiple solutions from two or more
vendors with duplicate administrative work, or deploying one V-ONE solution for
all three segments with unified administration.
The Company's network security products are designed to protect an
organization's information and networks from unauthorized access while allowing
users of the network to conduct business securely over the Internet and
intranets. These products have been designed to interoperate seamlessly and
enhance application functionality. The Company designs its products so that they
can be combined in different configurations to provide customized solutions for
its customers.
A discussion of the Company's products follows.
SMARTGATE(TM) is designed to interoperate easily with most TCP/IP-based
applications and to allow the end user to use securely existing and future
software applications over the Internet and Intranets. SmartGate employs
two-factor authentication (two independent components are combined to
authenticate a user) and mutual authentication (both the server and client
determine that the other party to the transaction is authorized to participate
in the transaction) through the use of virtual or physical smart cards or other
authentication devices. SmartGate establishes a secured, encrypted link over an
unsecured network once both parties to a communication have been identified and
authenticated. The authorized user is then granted access only to those services
and data for which the user has been approved. SmartGate supports secure remote
administration, which can be accessed using a Web browser or telnet.
SMARTGATE(TM) WITH IPSec extends the client deployment and management advantages
of V-ONE's patented online registration process to intranet environments. This
enables V-ONE to compete for remote access VPN business (which offers secure
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connectivity for remote employees and satellite offices) with a solution that is
standards-based yet offers unique ease of deployment features.
SMARTGUARD(TM) is a security appliance that provides a fully functional,
completely integrated VPN solution consisting of a powerful user authentication
system, a user access control database, state-of-the-art encryption
capabilities, user-friendly client software and a full-featured optional
firewall.
SMARTWALL(TM), a firewall product, provides a high level of protection against
unauthorized access to a secured network from an unsecured network. SmartWall
also allows transparent access from the secured network to services and
applications on the unsecured network. SmartWall includes a secured graphical
user interface for firewall administration, strong mutual authentication to
identify users and complete transparency for authorized traffic. In addition,
SmartWall allows multiple sites to be administered from any location using a Web
browser or Telnet. SmartWall supports multiple types of existing encryption
products, authentication tokens, proxy services and secure transmission
channels. SmartGate is bundled into every SmartWall.
AIR SMARTGATE, working in a manner similar to SmartGate, allows for secure,
encrypted, authenticated communication between two-way pagers and e-mail through
a SmartGate server. Air SmartGate delivers communication privacy to
pager-to-pager, email-to-pager and pager-to-email traffic and text messaging by
providing two-factor authentication and strong data encryption capabilities. Air
SmartGate is a `drop-in' security solution that interoperates seamlessly with
advanced two-way messaging networks using Motorola's ReFlex communications
technology and is scheduled for deployment by a number of leading providers.
Skytel has recently begun to offer this service initially to government
customers.
With the release of SmartGate 4.0 in early 2000, V-ONE now supports IPSec
protocol, which is especially effective for the Remote Access and Site-to-Site
markets. It also has an extranet mode that offers key advantages to the extranet
market, in particular the ability to effectively navigate across external
corporate firewalls from varying vendors.
With the introduction of the SmartGuard appliance in May 2000, V-ONE entered the
market for VPN appliances targeted at small and medium sized enterprises. The
SmartGuard appliance provides a fully integrated VPN solution and can be
configured with a fully integrated third party firewall, at a price targeted at
the small to medium sized enterprise.
SmartGate for Windows 2000 and ME is scheduled for release in June 2001.
CUSTOMER SERVICE AND SUPPORT
The Company provides one hour of installation and configuration support for each
VPN purchase. The Company also offers, for a fee, on-site installation support
and basic administrator training with each software product and bundled hardware
product sale. Customers are encouraged to purchase software maintenance, which
includes product updates/upgrades and telephone support. A one-year hardware
warranty comes with each bundled hardware purchase.
The Company offers additional user or administrator training, on-site support,
systems integration and system security architecture support as an optional
service through its Customer Care staff. Additionally, the Company provides
support services for those customers who have entered into an evaluation
agreement with the Company.
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PRODUCT DEVELOPMENT
The market for the Company's products is dynamic and rapidly changing. The
Company believes that its future success will depend upon its ability to: (i)
enhance its existing products, (ii) identify new opportunities to leverage
existing technologies, and (iii) develop new technologies resulting in new
products, markets and services. Accordingly, the Company expects to continue to
make a significant investment in research and development, product market
analysis and systems integration. The Company believes that its customer-driven
development strategy will enable it to continue to broaden its product
offerings.
MARKETING AND BUSINESS DEVELOPMENT
The Company believes that the future success of the V-ONE product offerings will
depend on the Company's ability to execute a much more sharply focused sales and
marketing strategy. To date, the Company has had success in the government
sector and plans to implement a sales and marketing strategy designed to
replicate that success with large non-governmental enterprises. As such, the
Company's direct sales efforts will continue to be focused on the Federal, state
and local governments and certain targeted large enterprise opportunities in the
commercial sector. Other sectors will be marketed through the Company's channel
partners.
In order to assist the Company in focusing its sales efforts on these large
enterprises, in particular a selected group of large network integrators and
Internet service providers, the Company retained MindSquared, LLC. Clint Heiden,
a Senior Consultant at MindSquared, LLC, is primarily responsible for assisting
the Company in its marketing efforts. Mr. Heiden spent most of his career at
UUNET, which he joined in 1994 as director of sales. From 1996 to 2000 he served
as UUNET's vice president for U.S. sales, during a period of significant growth
for UUNET. Most recently Mr. Heiden served as President of Online Office
Supplies Company, a privately held concern providing e-commerce office solutions
to businesses worldwide. Mr. Heiden is the son of Heidi Heiden, a Director of
V-ONE and a partner in MindSquared, LLC. James McManus, a director of V-ONE, is
also a partner in MindSquared, LLC.
The Company's consulting agreement with MindSquared, LLC commenced on November
27, 2000, terminates on March 31, 2001, and may be extended by agreement of the
parties. It provides for a maximum payment of $200,000 over the term of the
agreement. The agreement also provides for the issuance of 100,000 warrants to
MindSquared, LLC to purchase the Company's Common Stock upon the execution of
the agreement and for the issuance of additional warrants to purchase the
Company's Common Stock upon the achievement of various marketing goals. The
exercise price for all such warrants is the fair market value of the Company's
Common Stock on the date the warrants are issued.
COMPETITION
V-ONE competes in the market for network security products and services. This
market is very competitive and the Company expects competition to intensify in
the future. Currently, V-ONE offers products that compete in several segments of
the network security market, including hardware assisted encryption devices,
token authentication, smart card-based security applications and electronic
commerce applications. The Company's SmartGate products compete in the VPN
segment of the network security market, and also can be used in conjunction with
many other security solutions in the broader network security market, including
intrusion detection products, virus scanning products, token authentication
products, biometric authentication products, digital certificate products and
firewalls.
The Company's competitors for Internet and intranet security and access control
include Aventail Corporation, AXENT Technologies, Check Point Software
Technology, Cisco Systems, Intel/Shiva, International Business Machines
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Corporation, Microsoft, Network Associates, Northern Telecom (NortelNetworks),
Radguard, RedCreek, Secure Computing Corporation, Sun Microsystems, TimeStep,
and VPNet. With the introduction of the Company's appliance SmartGuard(TM), the
Company now competes with security appliance providers such as Watchguard and
SonicWall. The Company competes to a lesser degree with token vendors because
the Company's SmartGate product supports many vendor tokens. Token vendors
include AXENT Technologies, Leemah DataCom Security Corporation, National
Semiconductor, Racal-Guardata and Security Dynamics Technologies. For smart
card-based security applications, the Company principally competes with those
token vendors listed above who offer smart card technology.
In the VPN market place, which is the Company's primary market, there are three
classes of products:
1. Products that provide secure remote access to a company's intranet and
internal LAN-based information by a company's own employees, telecommuters,
or mobile workers. In this market, V-ONE competes with companies such as
Check Point and Aventail.
2. Products that provide secure communication among business partners and
customers that are not on the same intranet or LAN-based system, commonly
referred to as extranet products. In the extranet market, V-ONE competes with
companies such as Aventail and TimeStep.
3. Products that provide secure communication for office-to-office and
LAN-to-LAN applications. These are referred to as intranet or site-to-site
VPN products. In the site-to-site market, V-ONE competes with companies such
as VPNet, TimeStep and Radguard.
The Company faces intense competition in all of its market segments.
BACKLOG AND CUSTOMERS
The Company's customers order on an as-needed basis. The Company has typically
been able to ship products within 30 days after the customer submits a firm
purchase order. The Company does not generally maintain long-term contracts with
its customers that require customers to purchase its products. Accordingly, the
Company has not maintained and does not anticipate maintaining a backlog with
the exception of long-term service contracts.
SUPPLY SOURCES
Components used in the Company's network security products consist primarily of
computer diskettes and computer magnetic tapes and CD's purchased from
commercial vendors. Components used in the Company's turnkey SmartWall and
SmartGate server products consist primarily of off-the-shelf computers, memory,
displays, power supplies and third-party peripherals (such as hard drives and
network interface cards).
The Company has agreements with at least two vendors for each of its parts and
components. However, the Company orders most of its parts and components from a
single vendor to maintain quality control and enhance working relationships. The
Company uses smart card readers manufactured by two contract manufacturers based
on the Company's design specifications. The Company has outsourced to hardware
fulfillment companies its hardware and hardware integration requirements.
While the Company believes that alternative sources of supply could be obtained,
the Company's inability to develop alternative sources if and as required in the
future could result in delays or reductions in product shipments that could have
a material adverse effect on the Company's business, financial condition and
results of operations.
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REGULATION AND GOVERNMENT CONTRACTS
The Company's information security products are subject to the export
restrictions administered by the U.S. Department of Commerce, which permit the
export of encryption products only with the required level of export license or
through a license exception KMI (Key Management Infrastructure). U.S. export
laws prohibit the export of encryption products to a number of hostile
countries. Although to date the Company has been able to secure all required
U.S. export licenses, including the license exception KMI, there can be no
assurance that the Company will continue to be able to secure such licenses in a
timely manner in the future, or at all.
In certain foreign countries, the Company's distributors are required to secure
licenses or formal permission before encryption products can be imported. To
date, except for certain limited cases, the Company's distributors have not been
denied permission to import the Company's products.
LICENSE AGREEMENTS
The Company's SmartGate and Wallet Technology software incorporate data
encryption and authentication technology owned by RSA Security, Inc. ("RSA").
The Company has a perpetual license agreement with RSA, which became effective
as of December 30, 1994. On May 23, 1996, RSA exercised an option granted under
the agreement to convert its right to receive future royalties into 2% of the
Company's outstanding voting securities, after giving effect to the issuance to
RSA, until the date of the Company's initial public offering ("IPO"). Pursuant
to a separate agreement between RSA and Massachusetts Institute of Technology
("MIT"), MIT is entitled to receive a portion of any royalties that RSA
receives. As a result, the Company issued directly to MIT a portion of the
shares of Common Stock to which RSA was entitled under the RSA Agreement. The
Company issued 188,705 shares of Common Stock to RSA and MIT immediately prior
to consummation of the IPO. RSA was acquired by Security Dynamics in 1996. On
July 14, 1999 Security Dynamics changed its name to RSA Security, Inc.
There can be no assurance that the Company will be able to maintain its license
rights for the RSA data encryption and authentication technology, and the loss
of such rights could have a material adverse effect on the Company's business,
financial condition and results of operations. If either RSA terminates the
license agreement or takes any other action that results in the loss of, or
inability to maintain, such licensed technology, the Company may incur lost
sales, delays in delivery of the Company's current products and services or
delays in the introduction of new products and services, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
PATENTS, PROPRIETARY TECHNOLOGY, TRADEMARKS AND LICENSES
The Company has received seven patents, which expire over a period between 2014
and 2017, and has two pending patent applications with the United States Patent
and Trademark Office. The patents cover certain aspects of its technology
including ease of use advantages gained by quick client deployment,
expandability and management features. The Company's stylized "V-ONE," the
phrase "Security for a Connected World," and the Company's "SmartGate,"
"SmartWall," and "SmartGuard" products and certain other products are the
subject of U.S. and foreign tradename and trademark filings. Prosecution of
these patent applications and any other patent applications that the Company may
subsequently determine to file may require the expenditure of substantial
resources. The issuance of a patent from a patent application may require 24
months or longer. There can be no assurance that the Company's technology will
not become obsolete while the Company's applications for patents are pending.
There also can be no assurance that any pending or future patent application
will be granted, that any future patents will not be challenged, invalidated or
circumvented or that the rights granted thereunder will provide competitive
advantages to the Company. The Company has pursued patent protection outside of
the United States for the technology covered by the most recently filed patent
12
applications although there can be no assurance that any such protection will be
granted or, if granted, that it will adequately protect the technology covered
thereby.
The Company's success is also dependent in part upon its proprietary software
technology. There can be no assurance that the Company's trade secrets or
non-disclosure agreements will provide meaningful protection for its proprietary
technology and other proprietary information. In addition, the Company relies on
"shrink wrap" license agreements that are not signed by the end user to license
the Company's products and, therefore, may be unenforceable under the laws of
certain jurisdictions. Further, there can be no assurance that others will not
independently develop similar technologies or duplicate any technology developed
by the Company or that its technology will not infringe upon patents, copyrights
or other intellectual property rights owned by others.
Further, the Company may be subject to additional risk as it enters into
transactions in countries where intellectual property laws are not well
developed or are poorly enforced. Legal protections of the Company's rights may
be ineffective in foreign markets, and technology manufactured or sold abroad
may not be protectable in jurisdictions in circumstances where protection is
ordinarily available in the United States.
The Company believes that, due to the rapid pace of technological innovation for
network security products, the Company's ability to establish and, if
established, maintain a position of technology leadership in the industry is
dependent more upon the skills of its development personnel than upon legal
protections afforded its existing or future technology.
As the number of security products in the industry increases and the
functionality of these products further overlaps, software developers may become
subject to infringement claims. There can be no assurance that third parties
will not assert infringement claims against the Company in the future with
respect to current or future products. The Company also may desire or be
required to obtain licenses from others to effectively develop, produce and
market commercially viable products. Failure to obtain those licenses could have
a material adverse effect on the Company's ability to market its software
security products. There can be no assurance that such licenses will be
obtainable on commercially reasonable terms, if at all, that the patents
underlying such licenses will be valid and enforceable or that the proprietary
nature of the unpatented technology underlying such licenses will remain
proprietary.
There has been, and the Company believes that there may be in the future,
significant litigation in the industry regarding patent and other intellectual
property rights. Although the Company is not currently the subject of any
material intellectual property litigation, litigation involving other software
developers, including companies from which the Company licenses certain
technology, could have a material adverse affect on the Company's business,
financial condition and results of operations.
EMPLOYEES
As of March 1, 2001, the Company had 59 full-time employees and 12 consultants.
Of these individuals, 25 were in sales and marketing, 22 were in research and
product development, and 14 in administration. None of the Company's employees
are represented by a labor union or are subject to a collective bargaining
agreement. The Company has never experienced a work stoppage and believes that
its employee relations are good.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF COMMON STOCK
V-ONE operates in a rapidly changing environment that involves numerous risks,
some of which are beyond V-ONE's control. The following discussion highlights
some of the risks V-ONE faces. This Annual Report on Form 10-K contains
13
"forward-looking statements." Such statements involve known and unknown risks
and uncertainties that could cause V-ONE's actual performance or achievements to
differ from any future performance or achievements expressed or implied by such
statements. Readers should carefully consider the following risk factors before
purchasing Common Stock of V-ONE. Readers are also referred to other documents
to be filed by V-ONE with the SEC, which may identify important risk factors for
V-ONE.
V-ONE'S ACCUMULATED DEFICIT. As of December 31, 2000, V-ONE had an accumulated
deficit of approximately $48.9 million. V-ONE currently expects to incur
additional net losses over the next several quarters. Moreover, V-ONE may not
achieve or sustain profitability or significant revenues in the foreseeable
future, if ever. To address these risks, V-ONE must, among other things,
continue its emphasis on research and development, successfully execute and
implement its marketing strategy, respond to competitive developments and seek
to attract and retain talented personnel. V-ONE may be unable successfully to
address these risks and the failure to do so could have a material adverse
effect on V-ONE's business, financial condition, results of operations and cash
flows.
RISKS RELATING TO AVAILABILITY OF CAPITAL. It is anticipated that V-ONE will
continue to expend significant amounts to fund its operations and research and
development. V-ONE's cash and cash equivalents may not be sufficient to meet its
requirements until it reaches profitability. In order to maintain V-ONE's
operations and research and development at necessary levels, V-ONE may need to
secure additional financing through the sale of equity or other securities.
V-ONE may be unable to place equity securities on favorable terms or in an
amount required to meet its future cash requirements. If such additional
financing is not available, V-ONE may be required to reduce its cash
requirements through significant reductions in operating levels. If V-ONE is not
successful in reducing operating levels and even if operating levels are
reduced, V-ONE may not be able to maintain operations for any extended period of
time.
RISKS ASSOCIATED WITH EMERGING NETWORK SECURITY MARKET. The market for V-ONE's
products, particularly its client/server VPN products, remains in the
development stage and market acceptance of these products has been slower than
expected. Because the market for network security products is still in the
development stage and many potential customers are only now being introduced to
VPN technology, it is difficult to assess the extent of market acceptance of
V-ONE's products, the product features desired by the market, the best price
structure for V-ONE's products, the best distribution strategy and the
competitive environment that will develop in this market. The demand for V-ONE's
products could decline as a result of competition, technological change, the
public's perception of the need for security products, developments in the
hardware and software environments in which these products operate, general
economic conditions or other factors beyond V-ONE's control.
V-ONE'S DEPENDENCE ON THIRD PARTY MARKETING ARRANGEMENT. V-ONE's current
marketing strategy of focusing direct sales efforts exclusively on the federal
government and large enterprises is heavily dependent on its consulting
agreement with MindSquared, LLC. This agreement currently expires on March 31,
2001, and although there are no expectations to the contrary, there is no
assurance that the parties will extend the agreement.
RISKS OF COMPETITION. V-ONE faces intense competition in all of its market
segments. The market for network security products is very competitive and V-ONE
expects competition to intensify in the future. There can be no assurance that
V-ONE's products will command a significant share of the network security
market. Many of V-ONE's competitors have significantly greater resources,
generate higher revenue and have greater name recognition than V-ONE. There can
be no assurance that V-ONE's competitors will not develop products that are
superior to those developed by V-ONE or adapt more quickly than V-ONE to new
technologies or evolving industry trends. Increased competition may result in
price reductions, reduced gross margins or loss of market share, any of which
could have a material adverse affect on V-ONE's business. There is no assurance
14
that V-ONE will be able to compete effectively against current or future
competitors.
RISK OF INADEQUATE PROTECTION FOR V-ONE'S TECHNOLOGIES. V-ONE relies on
trademarks, copyrights, patents and trade secrets, employee and third-party
non-disclosure agreements and other methods to protect the rights of V-ONE and
the companies from which V-ONE licenses technology. Enforcement of V-ONE's
rights may be expensive, time-consuming and ultimately unsuccessful and may not
provide adequate protection for V-ONE's technology or the technology it licenses
from others. Moreover, others may independently develop similar technologies or
duplicate any technology developed by V-ONE. As the number of security products
in the industry increases and the functionality of these products overlap,
software developers, such as V-ONE, may become subject to infringement claims.
V-ONE also may desire or be required to obtain licenses from others in order to
achieve desirable functionality. Failure to obtain such licenses could adversely
affect V-ONE's ability to market its software security products.
RISK OF ERRORS, FAILURES AND PRODUCT LIABILITY. The complex nature of V-ONE's
software products can make the detection of errors or failures difficult when
products are introduced. If errors or failures are subsequently discovered, this
may result in delays, lost revenues, lost customers during the correction
process, damage to V-ONE's reputation, and claims against it. A malfunction or
the inadequate design of V-ONE's products could result in tort or warranty
claims. V-ONE generally attempts to reduce the risk of such losses to itself and
to the companies from which it licenses technology through warranty disclaimers
and liability limitation clauses in its license agreements. V-ONE may not have
obtained adequate contractual protection in all instances or where otherwise
required under agreements V-ONE has entered into with others. In addition, these
measures may not be effective in limiting V-ONE's liability to end users and to
the companies from which V-ONE licenses technology. V-ONE currently has
liability insurance. However, V-ONE's insurance coverage may not be adequate and
any product liability claim against V-ONE for damages resulting from security
breaches could be substantial. In addition, a well-publicized actual or
perceived security breach could adversely affect the market's perception of
security products in general or V-ONE's products in particular.
RISKS OF CHANGES IN TECHNOLOGY AND INDUSTRY. The network security industry is
characterized by rapid changes, including evolving industry standards, frequent
new product introductions, continuing advances in technology and changes in
customer requirements and preferences. Advances in techniques by individuals and
entities seeking to gain unauthorized access to networks could expose V-ONE's
existing products to new and unexpected attacks and require accelerated
development of new products or enhancements to existing products. V-ONE may be
unable to counter challenges to its current products. V-ONE's competitors may
develop superior products and V-ONE's future products may not keep pace with
technological changes implemented by competitors or persons seeking to breach
network security. Its products may not satisfy evolving consumer preferences and
V-ONE may not be successful in developing and marketing products for any future
technology. Failure to develop and introduce new products and improve current
products in a timely fashion could adversely affect V-ONE.
RISK OF DEVELOPMENT DELAYS. V-ONE may experience delays in software development
triggered by factors such as insufficient staffing or the unavailability of
development-related software, hardware or technologies. Further, when developing
new software products, V-ONE's schedules may be altered as a result of changes
to the product specifications in response to customer requirements, market
developments, performance problems or V-ONE-initiated changes. When developing
complex software products, the technology market may shift during the
development cycle, requiring V-ONE either to enhance or change a product's
specifications. All of these factors may cause a product to enter the market
behind schedule, which may adversely affect market acceptance of the product or
place it at a disadvantage to a competitor's product that has already gained
market share or market acceptance during the delay.
15
RISKS ASSOCIATED WITH LONG SALES CYCLE. The sales cycle associated with V-ONE's
products is likely to be lengthy due to a number of significant risks over which
V-ONE has little or no control. As a result, V-ONE finds it difficult to predict
quarterly results and order backlog, if any, at the beginning of any period may
represent only a small portion of that period's expected revenues. As a result,
product revenues in any period will be substantially dependent on orders booked
and registered in that period.
RISK OF SALES TO GOVERNMENT AGENCIES. No government agency or department has an
obligation to purchase products from V-ONE in the future. Government contacts
may often be terminated by the government without cause. Moreover, sales to and
contracts with government agencies are subject to reductions or delays in
funding, risks of disallowance of costs upon audit, changes in government
procurement policies, the necessity to participate in competitive bidding and,
with respect to contracts involving prime contractors or government-designated
subcontractors, the inability of such parties to perform under their contracts.
Any of the foregoing events could adversely affect V-ONE. V-ONE estimates for
the fiscal year ended December 31, 2000, sales to the U.S. government
constituted approximately 45% of its revenue.
RISK OF EFFECT OF GOVERNMENT REGULATION ON TECHNOLOGY EXPORTS. V-ONE currently
sells its products abroad and intends to continue to expand its relationships
with international distributors. V-ONE's international sales and operations
could be subject to risks such as the imposition of governmental controls,
export license requirements, restrictions on the export of critical technology,
trade restrictions and changes in tariffs. In particular, V-ONE's information
security products are subject to the export restrictions administered by the
U.S. Department of Commerce. These restrictions, in the case of some products,
permit the export of encryption products only with a specific export license.
These export laws also prohibit the export of encryption products to a number of
countries, individuals and entities and may restrict exports of some products to
a narrow range of end-users. In certain foreign countries, V-ONE's distributors
are required to secure licenses or formal permission before encryption products
can be imported. V-ONE has obtained a license exception to export strong
encryption from the U. S. Department of Commerce on a worldwide basis (except to
the seven terrorist countries) as long as the end user agrees to use the
KRAKit(TM) session key recreation capability. Foreign competitors that face less
stringent controls on their products may be able to compete more effectively
than V-ONE in the global network security market.
EFFECTS OF CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS AND
DELAWARE LAW. Certain provisions of V-ONE's Amended Certificate of Incorporation
and of Delaware law could delay or make difficult a merger, tender offer or
proxy contest involving V-ONE. Among other things, these provisions include a
classified board, prohibitions on removing directors except for cause, and other
requirements.
MARKET VOLATILITY. The market price of the Company's Common Stock is subject to
significant fluctuations in response to variations in quarterly operating
results and other factors, such as announcements of new products by the Company
or its competitors and changes in financial estimates by securities analysts or
other events. Moreover, the stock market has experienced extreme volatility that
has particularly affected the market prices of equity securities of many
technology companies and that has often been unrelated and disproportionate to
the operating performance of such companies. Broad market fluctuations as well
as economic conditions generally and in the software industry specifically, may
adversely affect the market price of the Company's Common Stock.
ITEM 2. PROPERTIES
The Company leases approximately 28,312 square feet of office space in
Germantown, Maryland under a lease agreement that will expire on July 1, 2003.
The Company expects that this space will be sufficient for its needs through
March 31, 2002. The Company also leases approximately 8,085 square feet, which
is sublet in Rockville, Maryland under leases that will expire on April 17,
2001.
16
ITEM 3. LEGAL PROCEEDINGS
On January 27, 2000, Plaintiff George McMeen filed a Class Action Complaint in
the U.S. District Court for the District of Maryland, Civil Action No.
MJG-CV-263, against David D. Dawson, Steve Mogul and Margaret Grayson
(collectively, "Individual Defendants") and the Company (collectively,
"Defendants"), alleging claims for violation of Section 10(b) of the Securities
Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 thereunder by the
Defendants, and violation of Section 20(a) of the Exchange Act by the Individual
Defendants. On February 16, 20000, plaintiff Raj Patel filed a nearly identical
Class Action Complaint in the U.S. District Court for the District Court of
Maryland, Civil Action No. PJM-CV-469. Neither complaint specifies the amount of
alleged damages.
On February 18, 2000, the Court entered an Order extending the time for
Defendants to file a responsive pleading in the McMeen matter until 45 days
after the later of appointment of Lead Plaintiff(s) and Lead Counsel pursuant to
15 U.S.C. 78u-4(a)(3) or the filing of a consolidated amended complaint in the
matter. The Court entered an identical Order in the Patel matter on March 3,
2000.
On February 20, 2001, the suit was dismissed in its entirety, with prejudice. In
granting the Company's motion to dismiss, United States District Court Judge
Marvin J. Garbis ruled that plaintiffs had failed to state a cause of action for
violations of the securities laws and awarded costs to the defendants.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during the
quarter ended December 31, 2000.
17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock was traded in the Nasdaq National Market from the
Company's IPO on October 24, 1996 through September 3, 1999 when it was
transferred to the Nasdaq SmallCap Market. According to records of the Company's
transfer agent, the Company had approximately 166 record holders on March 1,
2001. Because brokers and other institutions hold many of such shares on behalf
of stockholders, the Company is unable to estimate the total number of
stockholders represented by these record holders. The following table sets forth
the low and high sale prices of the Company's Common Stock for each quarter
during the two year period ended December 31, 2000.
2000
----
High Sale Price Low Sale Price
--------------- --------------
First Quarter $9.500 $4.875
Second Quarter $5.844 $2.063
Third Quarter $5.184 $2.188
Fourth Quarter $2.684 $0.531
1999
----
High Sale Price Low Sale Price
--------------- --------------
First Quarter $4.688 $2.750
Second Quarter $3.313 $1.688
Third Quarter $5.625 $2.000
Fourth Quarter $15.500 $1.875
The Company has never declared or paid cash dividends on its Common Stock. The
Company anticipates that all of its net earnings, if any, will be retained for
use in its operations and does not anticipate paying cash dividends on its
Common Stock in the foreseeable future. Payments of future cash dividends, if
any, will be at the discretion of the Company's Board of Directors after taking
into account various factors, including the Company's financial condition,
operating results and current and anticipated cash needs.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to the Company's
Statements of Operations for the years ended December 31, 1998, 1999 and 2000
and balance sheets as of December 31, 1999 and 2000 are derived from the audited
financial statements of the Company included elsewhere in this Annual Report.
The following financial data as of December 31, 1996, 1997 and 1998 and for each
of the years ended December 31, 1996 and 1997 are derived from audited financial
statements of the Company not included in this Annual Report. The financial data
set forth below should be read in conjunction with the Company's financial
statements and the notes thereto included elsewhere in this Annual Report and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
18
Year ended December 31,
---------------------------------------------------------------------------
Statement of Operations Data: 1996 1997 1998 1999 2000
---- ----- ----- ----- -----
Revenues:
Products $ 5,008,523 $ 5,470,230 $ 5,798,542 $ 3,427,422 $ 3,356,086
Consulting and services 310,557 502,771 461,263 1,538,258 1,197,544
------------ ------------ ------------ ------------ ------------
Total revenues 5,319,080 5,973,001 6,259,805 4,965,680 4,553,630
------------ ------------ ------------ ------------ ------------
Cost of revenues:
Products 1,969,117 1,848,871 1,623,396 973,866 441,752
Consulting and services 56,502 96,949 68,060 137,281 122,107
------------ ------------ ------------ ------------ ------------
Total cost of revenues 2,025,619 1,945,820 1,691,456 1,111,147 563,859
------------ ------------ ------------ ------------ ------------
Gross profit 3,293,461 4,027,181 4,568,349 3,854,533 3,989,771
------------ ------------ ------------ ------------ ------------
Operating expenses:
Sales and marketing 3,914,630 7,717,640 7,306,279 6,683,039 6,198,146
General and administrative 4,879,940 3,699,278 3,896,210 3,118,829 3,517,068
Research and development 1,960,727 3,153,941 2,618,914 2,848,955 3,440,397
- --------------------------------- ------------ ------------ ------------ ------------ ------------
Total operating expenses 10,755,297 14,570,859 13,821,403 12,650,823 13,155,611
------------ ------------ ------------ ------------ ------------
Operating loss (7,461,836) (10,543,678) (9,253,054) (8,796,290) (9,165,840)
------------ ------------ ------------ ------------ ------------
Interest (expense) income:
Interest expense (518,965) (13,130) (65,372) (676,443) (25,945)
Interest income 168,176 341,469 125,030 164,841 329,770
------------ ------------ ------------ ------------ ------------
Loss before extraordinary item $ (7,812,625) $(10,215,339) $ (9,193,396) $ (9,307,892) $ (8,862,015)
============ ============ ============ ============ ============
Total interest (expense)
income (350,789) 328,339 59,658 (511,602) 303,825
------------ ------------ ------------ ------------ ------------
Extraordinary item -
early extinguishment of
debt -- -- -- (372,052) --
------------ ------------ ------------ ------------ ------------
Net loss (7,812,625) (10,215,339) (9,193,396) (9,679,944) (8,862,015)
Dividend on preferred stock -- 12,600 110,879 272,245 369,979
Deemed dividend on preferred
stock -- 600,000 102,755 -- --
------------ ------------ ------------ ------------ ------------
Loss attributable to holders
of common stock $(7,812,625) $(10,827,939) $(9,407,030) $(9,952,189) $(9,231,994)
============ ============ ============ ============ ============
Basic and diluted loss per share:
Loss before extraordinary item $ (0.85) $ (0.84) $ (0.68) $ (0.57) $ (0.44)
============ ============ ============ ============ ============
Net loss attributable to
holders of common stock $ (0.85) $ (0.84) $ (0.68) $ (0.59) $ (0.44)
============ ============ ============ ============ ============
Weighted average number of
common shares outstanding 9,245,305 12,868,859 13,898,450 16,938,205 20,871,076
============ ============ ============ ============ ============
19
December 31,
---------------------------------------------------------------------
1996 1997 1998 1999 2000
---- ----- ----- ----- -----
Balance Sheet Data:
Working capital (deficit) $ 11,526,091 $ 5,912,046 $(1,277,368) $ 6,629,846 $ 1,591,967
Total assets 14,580,346 10,313,276 3,922,192 9,775,436 5,450,618
Long-term debt, less current 134,704 300,861 197,982 119,746 47,803
portion
Series A Convertible Preferred -- 3,766,297 -- -- --
Stock
Series B Convertible Preferred -- -- -- 1,288 1,288
Stock
Series C Redeemable Preferred -- -- -- 335 55
Stock
Total shareholder's equity 12,876,676 4,211,210 635,725 7,841,603 2,721,581
20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
FORWARD-LOOKING INFORMATION
All forward-looking information contained in this Management's Discussion and
Analysis of Financial Conditions and Results of Operations is based on
management's current knowledge of factors affecting the Company's business. The
Company's actual results may differ materially if these assumptions prove
invalid. Significant factors, while not all inclusive, are:
o The possibility of increasing competition in the Company's market place.
o The potential for changes in technology and industry.
o The risks associated with long sales cycles and inability to predict
quarterly results.
OVERVIEW
The Company generates revenues primarily from software licenses and sale of
hardware products and, to a lesser extent, consulting and related services. The
Company anticipates that revenues from products will continue to be the
principal source of the Company's total revenues.
21
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of revenues for the periods indicated:
Year ended December 31,
------------------------------------------
1998 1999 2000
---------- --------- -------------
Revenues:
Products 92.6% 69.0% 73.7%
Consulting and services 7.4 31.0 26.3
----- ----- -----
Total revenues 100.0 100.0 100.0
----- ----- -----
Cost of revenues:
Products 25.9 19.6 9.7
Consulting and services 1.1 2.8 2.7
----- ----- -----
Total cost of revenues 27.0 22.4 12.4
----- ----- -----
Gross profit 73.0 77.6 87.6
Operating expenses:
Sales and marketing 116.7 134.5 136.1
General and administrative 62.2 62.8 77.2
Research and development 41.9 57.4 75.6
----- ----- -----
Total operating expenses 220.8 257.4 288.9
----- ----- -----
Operating loss (147.8) (177.1) (201.3)
Other (expense) income:
Interest expense (1.1) (13.6) (0.5)
Interest income 2.0 3.3 7.2
----- ----- -----
Total other expenses 0.9 (10.3) 6.7
----- ----- -----
Loss before extraordinary item (146.9) (187.4) (194.6)
Extraordinary loss - early extinguishment of debt -- (7.5) --
----- ----- -----
Net loss (146.9) (194.9) (194.6)
Dividend on preferred stock 1.8 5.5 8.1
Deemed dividend on preferred stock 1.6 -- --
----- ----- -----
Loss attributable to holder of Common Stock (150.3)% (200.4)% (202.7)%
======= ======= =======
22
COMPARISON OF YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
REVENUES
Total revenues decreased from approximately $6,260,000 in 1998 to approximately
$4,966,000 in 1999 and to approximately $4,554,000 in 2000. Product revenues are
derived principally from software licenses and the sale of hardware products.
Product revenues decreased from approximately $5,799,000 in 1998 to
approximately $3,427,000 in 1999, and to approximately $3,356,000 in 2000. The
principal reason for the decrease from 1998 to 1999 and to 2000 was declining
sales of the Company's SmartWall products and hardware turnkey systems. The
decrease in product revenues from 1999 to 2000 was partially offset by increased
sales of the Company's SmartGate product.
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 $461,000
in 1998 to approximately $1,538,000 in 1999, but declined to approximately
$1,198,000 in 2000. In 1999, the Company implemented a major drive to focus on
renewing maintenance contracts to allow customers to upgrade to current versions
of software. This resulted in incremental revenue from the point of the lapse in
service to the current period. In addition, resolution was reached on an
agreement with a partner, which included recognition of maintenance revenue of
approximately $386,000 for services performed by the Company.
COST OF REVENUES
Total cost of revenues as a percentage of total revenues were 27.0%, 22.4% and
12.4% in 1998, 1999 and 2000, respectively.
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 and shipping costs. Cost of product revenues
decreased from approximately $1,623,000 in 1998 to approximately $974,000 in
1999 and to approximately $442,000 in 2000. Cost of product revenues as a
percentage of product revenues was 28.0%, 28.4% and 13.2% for 1998, 1999 and
2000, respectively. The dollar and percentage decreases in 2000 were
attributable to a higher mix of SmartGate software licenses to SmartWall
products and turnkey hardware sales.
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 increased from approximately
$68,000 in 1998 to $137,000 in 1999, but declined to approximately $122,000 in
2000. Cost of consulting and services revenues as a percentage of consulting and
services revenues was 14.8%, 8.9% and 10.2% for 1998, 1999 and 2000,
respectively. The percentage decrease from 1998 to 1999 was principally due to a
higher revenue from maintenance contracts and a reduced emphasis on consulting
and a greater concentration on training and support. The percentage increase
from 1999 to 2000 relates to a larger portion of third party products with
proportionately higher support costs.
OPERATING EXPENSES
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 $7,306,000 in 1998 to
approximately $6,683,000 in 1999 and decreased further to approximately
$6,198,000 in 2000. Sales and marketing expenses as a percentage of total
revenues were 116.7%, 134.5% and 136.1% in 1998, 1999 and 2000, respectively.
The dollar decreases in 1999 and 2000 were principally due to personnel turnover
and lower levels of advertising and promotion expenses. The percentage increase
in 1999 was due to lower revenue as compared to 1998. Sales and marketing
23
expenses are expected to increase in the near term as a result of the Company's
efforts to increase awareness of new point product introductions and strategic
alliances.
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 decreased from
approximately $3,896,000 in 1998 to approximately $3,119,000 in 1999, and
increased to approximately $3,517,000 in 2000. General and administrative
expenses as a percentage of total revenues were 62.2%, 62.8% and 77.2% in 1998,
1999 and 2000, respectively. The decrease in expense in 1999 is due in part to
the 1998 non-cash compensation charge on the warrants, lower fees for recruiting
and relocation and a decrease in the allowance for bad debts expense. The
increase in expense in 2000 resulted from higher professional fees and certain
non-recurring severance costs. The Company anticipates that general and
administrative expenses, as a percent of revenue, will decrease in future
periods.
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 increased from
approximately $2,619,000 in 1998 to approximately $2,849,000 in 1999 and to
approximately $3,440,000 in 2000. Research and development expenses as a
percentage of total revenues were 41.9%, 57.4% and 75.6% in 1998, 1999 and 2000,
respectively. The dollar and percentage increases in 1999 and 2000 were
primarily due to increases in the number of personnel and consulting services
associated with the Company's product development efforts. The Company believes
that a continuing commitment to research and development is required to remain
competitive. Accordingly, the Company intends to continue to allocate
substantial resources to research and development, but research and development
expenses may vary as a percentage of total revenues.
Interest Income and Expense -- Interest income represents interest earned on
cash, cash equivalents and marketable securities. Interest income was
approximately $125,000 in 1998, $165,000 in 1999 and approximately $330,000 in
2000. Interest income was derived primarily from interest earned on the proceeds
from the Company's private placements and stock option exercises. Interest
expense represents interest payable or accreted on promissory notes and
capitalized lease obligations. Interest expense was approximately $65,000,
$676,000 and $26,000 in 1998, 1999 and 2000, respectively. The large increase in
interest expense in 1999 relates to financing costs attributable to the
Company's secured loan (see Note 3 to the Financial Statements) to Transamerica
Business Credit Corporation ("TBCC"). The total costs including interest on the
loan proceeds, transactions costs, costs to prepay the loan prior to the
maturity date and the cost of warrants issued in conjunction with the
Transamerica note amounted to approximately $1,000,000 in 1999.
Income Taxes -- The Company did not incur income tax expenses in December 31,
1998, 1999 and 2000 as a result of the net loss incurred during these periods.
As of December 31, 2000, the Company had net operating loss carry forwards of
approximately $42,160,000 as a result of net losses incurred since inception.
Dividend on Series C Stock -- The Company provided approximately $272,000 for a
dividend on the Series C Stock during 1999, and approximately $370,000 for 2000.
This compares to approximately $111,000 provided for in 1998 for the Series A
Stock. All of the Series A Stock was retired in November 1998. The Series B
Stock bears no dividend.
Deemed Dividend on Series A Stock -- In 1998, the Company recorded a deemed
dividend of $103,000 on the Series A Stock, in accordance with the Securities
and Exchange Commission's position on accounting for preferred stock that is
convertible at a discount to the market price for Common Stock. The Series A
Stock was redeemed in 1998.
24
LIQUIDITY AND SOURCES OF CAPITAL
The Company's operating activities used cash of approximately $6,642,000,
$9,263,000 and $6,677,000 in 1998, 1999 and 2000, respectively. Cash used in
operating activities was principally a result of net losses and changes in
assets and liabilities, non-cash expenses related to depreciation, amortization
and issuance of warrants and options and deferred financing costs. The decrease
in net cash used in operating activities from 1999 to 2000 was due in part to
large increases in deferred revenue and decreases in prepaid expenses and other
assets. The large increase in 1999 was due in part to a significant drop in
accounts payable and deferred revenue.
During the year ended December 31, 2000, the Company issued, pursuant to Rule
506 of Regulation D, 500,000 shares of Common Stock at a purchase price of $4.75
per share to Cranshire Capital, L.P. in exchange for $2,375,000 and issued
274,967 shares Common Stock at a purchase price of $3.64 per share to Citrix
Systems, Inc. in exchange for $1,000,000.
In October 2000, the Company implemented a cost reduction program and has taken
immediate steps to reduce spending by approximately $2.5 million dollars a year
by reducing sales and marketing staff and more narrowly focusing sales and
marketing efforts. Additionally, in February 2001 the Company completed a
private placement of equity in the amount of approximately $7.0 million and
completed the sale of its 6.8% holding in the stock of NFR Security, Inc.
(formerly Network Flight Recorder) in March 2001 for approximately $1.6 million
in net proceeds. The Company believes it has the necessary capital funds to
sustain operations through March 31, 2002 and to maintain capital needed to
satisfy listing requirements on the NASDAQ Small Cap Market.
The Company had net tangible asset balance of $7,842,000 and $2,722,000 at
December 31, 1999 and 2000, respectively.
Net capital expenditures for property and equipment were approximately $322,000,
$176,000 and $774,000 in 1998, 1999 and 2000 respectively. These expenditures
have generally been for computer workstations and personal computers, office
furniture and equipment, and leasehold additions and improvements. The capital
expenditures decreased in 1999 but increased in 2000 as the Company purchased
computers and equipment off an expiring three-year lease, and acquired an
integrated sales opportunity management software system for increased efficiency
and visibility within the organization.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is not exposed to a variety of market risks such as fluctuations in
currency exchange rates or Interest rates. All of the Company's products are
invoiced in U.S. dollars. The Company does not hold any derivatives or
marketable securities.
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
V-ONE CORPORATION
INDEX TO FINANCIAL STATEMENTS
--------
Report of Independent Auditors 27
Report of PricewaterhouseCoopers LLP, Independent Auditors 28
Balance Sheets 29
Statements of Operations 30
Statements of Stockholders' Equity 31
Statements of Cash Flows 32
Notes to Financial Statements 33
Schedule of Valuation and Qualifying Accounts for the years ended
December 31, 1998, 1999 and 2000 51
26
Report of Independent Auditors
Board of Directors and Stockholders
V-ONE Corporation
We have audited the accompanying balance sheets of V-ONE Corporation as of
December 31, 2000 and 1999, and the related statements of operations,
stockholders' equity, and cash flows for the years then ended. Our audits
also included the financial statement schedule for the years ended
December 31, 2000 and 1999 listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of V-ONE Corporation at
December 31, 2000 and 1999, and the results of its operations and its cash
flows for the years then ended, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule for the years ended December 31, 2000 and
1999, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set
forth therein.
/s/ Ernst & Young LLP
McLean, Virginia
February 9, 2001
27
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of V-ONE Corporation
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of V-ONE
Corporation (the Company) at December 31, 1998, and the results of its
operations, changes in stockholders' equity, and its cash flows for the year
then ended in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above. We have not
audited the financial statements of V-ONE Corporation for any period subsequent
to December 31, 1998.
The financial statements referred to above have been prepared assuming the
Company will continue as a going concern. As shown in these financial statements
during 1998 the Company incurred significant losses of $9,193,396, and had a net
working capital deficit position of $1,277,368 at December 31, 1998. These facts
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ PricewaterhouseCoopers LLP
McLean, VA
March 11, 1999 except as in the third
and fourth sentences of the first paragraph
of Note 3, to which the date is March 31, 1999.
28
V-ONE CORPORATION
BALANCE SHEETS
December 31,
--------------------------------
ASSETS 2000 1999
---- ----
Current assets:
Cash and cash equivalents $ 2,949,398 $ 7,136,943
Accounts receivable, less allowances of $105,664
and $134,244, respectively 776,845 854,853
Inventory, less allowances of $78,656 and
$87,694, respectively 172,177 46,087
Prepaid expenses and other current assets 254,631 249,339
-------------- ----------------
Total current assets 4,153,051 8,287,222
Property and equipment, net
Other assets 929,398 585,708
368,169 902,506
-------------- ----------------
Total assets $ 5,450,618 $ 9,775,436
============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,375,939 $ 1,157,660
Deferred revenue 1,113,202 420,922
Capital lease obligations - current 71,943 78,794
-------------- ----------------
Total current liabilities 2,561,084 1,657,376
Deferred rent 120,150 156,711
Capital lease obligations - noncurrent 47,803 119,746
-------------- ----------------
Total liabilities 2,729,037 1,933,833
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value; 13,333,333 shares
authorized
Series B convertible preferred stock, 1,287,554
designated, issued and outstanding (liquidation
preference of $3,000,000) 1,288 1,288
Series C redeemable preferred stock, 500,000
designated, 54,714 and 335,000 shares issued
and outstanding, respectively (liquidation
preference of $1,436,243 and $8,793,750) 55 335
Common Stock, $0.001 par value; 50,000,000 shares
authorized; 22,109,185 and 18,233,780 shares
issued and outstanding, respectively 22,109 18,233
Accrued dividends payable 180,911 272,245
Additional paid-in capital 51,393,818 47,197,893
Subscriptions receivable - (3,785)
Accumulated deficit (48,876,600) (39,644,606)
-------------- ----------------
Total stockholders' equity 2,721,581 7,841,603
-------------- ----------------
Total liabilities and stockholders' $ 5,450,618 $ 9,775,436
equity ============== ================
The accompanying notes are an integral part of these financial statements.
29
V-ONE CORPORATION
STATEMENTS OF OPERATIONS
Year ended December 31,
-------------------------------------------------------
2000 1999 1998
---- ---- ----
Revenues:
Products $ 3,356,086 $ 3,427,422 $ 5,798,542
Consulting and services 1,197,544 1,538,258 461,263
-------------------------------------------------------
Total revenues 4,553,630 4,965,680 6,259,805
Cost of revenues:
Products 441,752 973,866 1,623,396
Consulting and services 122,107 137,281 68,060
-------------------------------------------------------
Total cost of revenues 563,859 1,111,147 1,691,456
-------------------------------------------------------
Gross profit 3,989,771 3,854,533 4,568,349
Operating expenses:
Sales and marketing 6,198,146 6,683,039 7,306,279
General and administrative 3,517,068 3,118,829 3,896,210
Research and development 3,440,397 2,848,955 2,618,914
-------------------------------------------------------
Total operating expenses 13,155,611 12,650,823 13,821,403
-------------------------------------------------------
Operating loss (9,165,840) (8,796,290) (9,253,054)
Interest (expense) income:
Interest expense (25,945) (676,443) (65,372)
Interest income 329,770 164,841 125,030
-------------------------------------------------------
Total interest (expense) 303,825 (511,602) 59,658
income -------------------------------------------------------
Loss before extraordinary item (8,862,015) (9,307,892) (9,193,396)
Extraordinary item - early
extinquishment of debt - (372,052) -
-------------------------------------------------------
Net loss (8,862,015) (9,679,944) (9,193,396)
Dividend on preferred stock 369,979 272,245 110,879
Deemed dividend on preferred stock - - 102,755
-------------------------------------------------------
Net loss attributable to holders
of common stock $ (9,231,994) $ (9,952,189) $ (9,407,030)
=======================================================
Basic and diluted loss per share
Loss before extraordinary $ (0.44) $ (0.57) $ (0.68)
item
=======================================================
Net loss attributable to
holders of common stock $ (0.44) $ (0.59) $ (0.68)
=======================================================
Weighted average number of
common shares outstanding 20,871,076 16,938,205 13,898,450
=======================================================
The accompanying notes are an integral part of these financial statements.
30
V-ONE CORPORATION
STATEMENTS OF STOCKHOLDERS EQUITY
Series B & C Accrued Additional
Common Stock Preferred Stock Dividend Paid-in Subscriptions Accumulated
Shares Amount Shares Amount Payable Capital Receivable Deficit Total
------ ------ ------ ------ ------- ------- ---------- ------- -----
Balance, December 31, 1997 13,070,235 $13,070 - - - $24,649,538 $(166,011) $(20,285,387) $4,211,210
Issuance of common stock,
net of issuance costs 2,535,000 2,535 - - - 4,532,554 - - 4,535,089
Exercise of common stock
options 189,333 189 - - - 273,228 - - 273,417
Conversion of mandatorily
redeemable preferred
stock to common stock 720,670 721 - - - 1,537,279 - - 1,538,000
Redemption of mandatorily
redeemable preferred - - - - - (1,011,716) - - (1,011,716)
stock
Retirement of common stock (37,192) (37) - - - (115,953) 115,990 - -
Deemed dividend on
preferred stock - - - - - 102,755 - (102,755) -
Dividend on preferred stock - - - - - - - (110,879) (110,879)
Issuance of common stock
warrants - - - - - 394,000 - - 394,000
Net loss - - - - (9,193,396) (9,193,396)
-------------------------------------------------------------------------------------------------
Balance, December 31, 1998 16,478,046 16,478 - - - 30,361,685 (50,021) (29,692,417) 635,725
Exercise of common stock
options, net of issuance
costs 848,629 848 - - - 2,669,882 - - 2,670,730
Exercise of warrants 907,105 907 - - - 2,863,001 - - 2,863,908
Issuance of Series B
preferred stock, net
issuance costs - - 1,287,554 $1,288 - 2,981,212 - - 2,982,500
Issuance of Series C
preferred stock, net of
issuance costs - - 335,000 335 - 7,918,349 - - 7,918,684
Collection and forgiveness
of subscriptions
receivable - - - - - - 46,236 - 46,236
Issuance of common stock
warrants - - - - - 310,000 - - 310,000
Dividend on preferred stock - - - - $272,245 - - (272,245) -
Issuance of common stock
options to consultants - - - - - 93,764 - - 93,764
Net loss - - - - - - - (9,679,944) (9,679,944)
-------------------------------------------------------------------------------------------------
Balance, December 31,1999 18,233,780 18,233 1,622,554 1,623 272,245 47,197,893 (3,785) (39,644,606) 7,841,603
Issuance of common stock,
net of issuance costs 915,596 915 - - - 3,472,190 - 3,473,105
Exercise of common stock
options, net of issuance
costs 59,500 60 - - - 169,637 - - 169,697
Conversion of Series C
preferred stock to
common stock 2,900,309 2,901 (280,286) (280)(461,313) 458,676 - - (16)
Collection of notes
receivable for stock - - - - - - 3,785 - 3,785
Dividends on preferred stock 369,979 (369,979) -
Issuance of common stock
options to consultants - - - - - 95,422 - - 95,422
Net loss (8,862,015) (8,862,015)
-------------------------------------------------------------------------------------------------
Balance, December 31, 2000 22,109,185 $22,109 1,342,268 $1,343 $180,911 $51,393,818 - $(48,876,600) $2,721,581
=================================================================================================
The accompanying notes are an integral part of these financial statements.
31
V-ONE CORPORATION
STATEMENTS OF CASH FLOWS
Year ended December 31,
------------------------------------------------------
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net loss $ (8,862,015) $ (9,679,944) $ (9,193,396)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 429,939 464,879 354,187
Amortization - 255,378 283,056
Loss on disposal of assets - - 95,228
Amortization of deferred financing costs - 730,000 -
Forgiven subscription receivable - 46,114 -
Noncash charge related to issuance of
warrants and options 377,422 93,764 394,000
Changes in operating assets and liabilities:
Accounts receivable, net 78,008 (341,632) 281,174
Inventory, net (126,090) 339,394 198,413
Prepaid expenses and other assets 529,045 105,755 (66,153)
Accounts payable and accrued expenses 218,279 (966,496) 972,567
Deferred revenue 692,280 (467,373) 75,648
Deferred rent (36,561) 156,711 (36,879)
--------------------------------------------------
Net cash used in operating activities (6,699,693) (9,263,450) (6,642,155)
Cash flows from investing activities:
Net purchases of property and equipment (773,629) (176,033) (322,387)
Collection of subscription receivable 3,785 122 -
--------------------------------------------------
Net cash used in investing activities (769,844) (175,911) (322,387)
Cash flows from financing activities:
Issuance of common stock - - 5,070,000
Issuance of preferred stock, net of
subscriptions receivable 3,375,000 11,793,750 -
Payment of debt financing costs - (420,000) -
Payment of preferred stock dividends (16) - (110,879)
Payment of stock issuance costs (183,895) (941,875) (574,324)
Redemption of preferred stock - - (3,200,600)
Exercise of stock options and warrants 169,697 5,583,946 273,417
Principal payments on capital lease
obligations (78,794) (70,217) (43,675)
Repayment of notes payable - (5,259) (16,963)
--------------------------------------------------
Net cash provided by financing 3,281,992 15,940,345 1,396,976
activities --------------------------------------------------
Net (decrease) increase in cash and cash
equivalents (4,187,545) 6,500,984 (5,567,566)
Cash and cash equivalents, beginning of year 7,136,943 635,959 6,203,525
--------------------------------------------------
Cash and cash equivalents, end of year $ 2,949,398 $ 7,136,943 $ 635,959
==================================================
The accompanying notes are an integral part of these financial statements.
32
V-ONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
V-ONE Corporation (the "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 located in Europe and Asia.
2. SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company develops, markets, licenses and supports computer software
products and provides related services. The Company conveys the right to
use the software products to customers under perpetual license agreements,
and conveys the rights to product support and enhancements in annual
maintenance agreements. The Company recognizes revenue upon deployment of
the software directly to an end-user or a value-added reseller. The
Company defers and recognizes maintenance and support services revenue
over the term of the contract period, which is generally one year. The
Company recognizes training and consulting services revenue as the
services are provided. The Company generally expenses sales commissions as
the related revenue is recognized and pays sales commissions upon receipt
of payment from the customer.
In addition to its direct sales effort, the Company licenses its products
through a network of distributors. The Company does not record revenue
until the distributor has delivered the licenses to end-user customers and
the end-user customers have registered the software with the Company. The
Company also records revenue when the software is deployed directly to the
end-user customer on behalf of the distributor.
In certain instances, as appropriate, the Company recognizes revenues from
the sale of systems using the percentage of completion method as the work
is performed, measured primarily by the ratio of labor hours incurred to
total estimated labor hours for each specific contract. When the total
estimated cost of a contract is expected to exceed the contract price, the
total estimated loss is charged to expense in the period when the
information becomes known.
In 2000, the Company entered into a contract which contains multiple
elements, including specified upgrades. Because the Company has not
established vendor specific objective evidence for the specified upgrades,
all revenues under the contract will be deferred until the upgrades are
delivered. At December 31, 2000, the Company had $500,000 in deferred
revenue related to this contract.
The Company's revenue recognition policies for the years ended December
31, 1998, 1999 and 2000 are in conformity with the Statement of Position
97-2, "Software Revenue Recognition" (SOP 97-2), promulgated by the
American Institute of Certified Public Accountants.
SHIPPING AND HANDLING FEES AND COSTS
In September 2000, the Emerging Issues Task Force (EITF) reached a final
consensus on EITF Issue 00-10, "Accounting for Shipping and Handling Fees
and Costs." This consensus requires that all amounts billed to a customer
in a sale transaction related to shipping and handling, if any, represent
revenue and should be classified as revenue. The Company historically has
33
V-ONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
classified shipping charges to customers as revenue. With respect to the
classification of costs related to shipping and handling incurred by the
seller, the EITF determined that the classification of such costs is an
accounting policy decision that should be disclosed. The Company has
classified both inbound and outbound shipping charges as cost of sales.
RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS
Software development costs are included in research and development and
are expensed as incurred. Statement of Financial Accounting Standards No.
86, "Accounting for the Cost of Computer Software to be Sold, Leased or
Otherwise Marketed" requires the capitalization of certain software
development costs once technological feasibility is established, which the
Company generally defines as completion of a working model. Capitalization
ceases when the products are available for general release to customers,
at which time amortization of the capitalized costs begins on a
straight-line basis over the estimated product life, or on the ratio of
current revenues to total projected product revenues, whichever is
greater. To date, the period between achieving technological feasibility
and the general availability of such software has been short, and software
development costs qualifying for capitalization have been insignificant.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents.
Cash and cash equivalents include time deposits with commercial banks used
for temporary cash management purposes.
INVENTORIES
Inventories are valued at the lower of cost or market and consist
primarily of computer equipment for sale on orders received from customers
and other vendor's software licenses held for resale. Cost is determined
based on specific identification.
PROPERTY AND EQUIPMENT
Property and equipment are stated at historical cost and are depreciated
using the straight-line method over the shorter of the assets' estimated
useful life or the lease term, ranging from three to seven years. Capital
leases are recorded at their net present value on the inception of the
lease. Depreciation expense was $429,939, $464,879 and $354,187 for the
years ended December 31, 2000, 1999 and 1998, respectively.
ADVERTISING COSTS
The Company expenses all advertising costs as incurred. The Company
incurred approximately $177,000 $98,400 and $196,000, in advertising costs
for the years ended December 31, 2000, 1999 and 1998 respectively.
34
V-ONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS"), allows companies to account for
stock-based compensation either under the provisions of SFAS 123 or under
the provisions of Accounting Principles Bulletin No. 25, "Accounting for
Stock Issued to Employees" ("APB 25"), as amended by FASB Interpretation
No. 44, "Accounting for Certain Transactions Involving Stock Compensation
(an Interpretation of APB Opinion No. 25)," but requires pro forma
disclosure in the footnotes to the financial statements as if the
measurement provisions of SFAS 123 had been adopted. The Company has
elected to account for its stock-based compensation in accordance with the
provisions of APB 25 (see Note 6).
Stock options and warrants granted to non-employees are accounted for in
accordance with SFAS 123 and the Emerging Issues Task Force Consensus No.
96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or
Services," which requires the value of the options to be periodically
re-measured as they vest over a performance period. The fair value of the
options is determined using the Black-Scholes model.
EXTRAORDINARY ITEM
On September 30, 1999, the Company paid in full the Transamerica term loan
prior to its maturity (see Note 3). In connection with the payment, the
Company recognized a $372,052 loss related to the early extinguishment of
debt.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured by applying
presently enacted statutory tax rates, which are applicable to the future
years in which deferred tax assets or liabilities are expected to be
settled or realized, to the differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. The
effect of a change in tax rates on deferred tax assets and liabilities is
recognized in net income in the period that the tax rate is enacted.
The Company provides a valuation allowance against net deferred tax assets
if, based upon available evidence, it is more likely that some or all of
the deferred tax assets may not be realized.
NET LOSS PER COMMON SHARE
The Company follows Financial Accounting Standards Board Statement No.
128, "Earnings Per Share," ("SFAS 128") for computing and presenting net
income per share information. Basic net loss per share was determined by
dividing net loss by the weighted average number of common shares
outstanding during each year. Diluted net loss per share excludes common
equivalent shares, unexercised stock options and warrants as the
computation would be anti-dilutive. A reconciliation of the net loss
available for common stockholders and the number of shares used in
computing basic and diluted net loss per share is in Note 10.
35
V-ONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
BUSINESS SEGMENTS
In 1998, the Company adopted FASB Statement No. 131, "Disclosure About
Segments of an Enterprise and Related Information," which establishes
standards for disclosures about products, geographics and major customers.
The Company's implementation of this standard does not have any effect on
its financial statements, as the Company only operates in one segment.
RISKS, UNCERTAINTIES AND CONCENTRATIONS
Financial instruments that potentially subject the Company to significant
concentration of credit risk consist primarily of cash equivalents and
accounts receivable. The Company's cash balances exceed federally insured
amounts. The Company invests its cash primarily in money market funds with
an international commercial bank. The Company sells its products to a wide
variety of customers in a variety of industries. The Company performs
ongoing credit evaluations of its customers, but does not require
collateral or other security to support customer accounts receivable. In
management's opinion, the Company has sufficiently provided for estimated
credit losses.
During 1998 approximately $524,000 of goods and services were purchased
from two major suppliers, representing 32% of total 1998 product cost of
revenues. No suppliers exceeded 10% of purchases in 1999 or 2000.
During the years ended December 31, 2000, 1999, and 1998, 21%, 26% and 19%
percent, respectively, related to sales to international customers. During
the years ended December 31, 2000, 1999, and 1998, 40%, 35%, and 62%,
respectively, related to sales to government agencies.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 2000
presentation.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). SFAS 133 is effective for
fiscal years beginning after June 15, 2000 and cannot be applied
retroactively. SFAS 133 establishes accounting and reporting standards
requiring that every derivative instrument be recorded in the balance
sheet as either an asset or liability measured at its fair value. SFAS 133
requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
The Company will adopt SFAS 133 effective January 1, 2001. The adoption is
not expected to materially impact the Company's financial statements.
3. NOTES PAYABLE
On February 24, 1999, the Company entered into a Loan and Security
Agreement ("Loan Agreement") with Transamerica Business Credit Corporation
("Transamerica"). Under the terms of the Loan Agreement, the Company
received a $3.0 million term loan that bears interest at 12.53% per annum.
Interest is payable monthly in arrears. On March 31, 1999, the Company and
Transamerica amended the Loan Agreement, whereby Transamerica waived the
event of default created when the Company received a "going-concern"
opinion from its independent auditors. The Company agreed to (i) grant
TBCC Funding Trust II, an affiliate of Transamerica, a warrant to purchase
100,000 shares of Common Stock at an exercise price of $3.25 per share and
(ii) accept the additional financial covenant that the Company's net worth
would be $5.0 million at June 30, 1999 and September 30, 1999. The warrant
36
V-ONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
was valued at $224,000 using the Black-Scholes option-pricing model and
the following assumptions: dividend yield of 0%; expected volatility of
68%; risk-free interest rate of 5.35% and expected term of seven years.
On June 30, 1999, the Company and Transamerica entered into a second
amendment, whereby Transamerica (i) waived the requirement that the
Company's net worth be $5.0 million on June 30, 1999, (ii) extended the
maturity date of the $3.0 million term note to February 28, 2000 and
removed the requirement that Transamerica convert the term loan to a
revolving loan on February 28, 2000, and (iii) deleted the $360,000
acquisition fee. In consideration for the second amendment, the Company
(i) issued a seven-year warrant to purchase 50,000 shares of the Company's
Common Stock at an exercise price of $3.75 per share, (ii) paid a $150,000
fee to Transamerica, (iii) agreed to use 30% of any future equity raised
by the Company after completion of its current round of financing to
prepay the term loan, (iv) agreed to pay $100,000 per month in principal
on the term loan beginning on September 1, 1999, and (v) agreed to pay the
balance of the principal and accrued and unpaid interest due on the term
loan on February 28, 2000. The warrant to purchase 50,000 shares was
valued at $86,000 using the Black-Scholes option-pricing model and the
following assumptions: dividend yield of 0%; expected volatility of 68%;
risk-free interest rate of 5.35% and expected term of seven years.
As a result of an anti-dilution clause triggered upon the issuance of
Series B Convertible Preferred Stock, the warrants to purchase 100,000
shares of Common Stock with an exercise price of $3.25 per share were
increased to 139,485 shares at an exercise price of $2.33 per share.
Additionally, upon issuance of the Series C Preferred Stock on September
9, 1999, the warrants to purchase 50,000 shares of Common Stock with an
exercise price of $3.75 per share were increased to 71,429 shares with an
exercise price of $2.65 per share. The Transamerica term loan was repaid
on September 30, 1999 and all indebtedness and obligations owed by the
Company were terminated. The warrants are still outstanding as of December
31, 2000.
On September 30, 1999, the Company entered into a Revolving Credit
Promissory Note (the "Note") with Citibank, F.S.B., ("Citibank"). Under
the terms of the Note, the Company may be advanced up to $3.0 million
under a revolving loan agreement with a maturity date of October 1, 2000
with the ability to renew for additional terms. The Note bears interest at
a rate equal to the sum of the interest rate paid on the automatically
renewable one-year certificate of deposit plus a margin of two percentage
points. Interest is payable monthly in arrears. The initial rate of
interest is 6.78%. Advances of $2,900,000 were made at September 30, 1999,
which were used to pay off the remaining principal on the Transamerica
note payable. On December 14, 1999, the Note was repaid with the proceeds
from a certificate of deposit, which had been the collateral for the Note.
37
V-ONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
4. SELECTED BALANCE SHEET INFORMATION
Property and equipment consisted of the following at December 31:
2000 1999
--------------- --------------
Office and computer equipment $ 1,426,217 $ 988,041
Office and computer equipment under
capital leases 341,302 359,859
Leasehold improvements 89,504 62,332
Furniture and fixtures 310,268 120,811
--------------- --------------
2,167,291 1,531,043
Less: accumulated depreciation (1,237,893) (945,335)
--------------- --------------
$ 929,398 $ 585,708
=============== ==============
The Company had two licensing agreements whereby the Company obtained the
right to modify and sell certain technology used in its product line. All
amounts are fully amortized as of December 31, 1999. The Company incurred
amortization expense of $0, $255,378 and $283,056, relating to these
agreements in 2000, 1999 and 1998, respectively.
Other assets consisted of the following at December 31:
2000 1999
------------- --------------
Deposits $ 118,169 $ 652,506
Investment in Network Flight Recorder 250,000 250,000
------------- --------------
$ 368,169 $ 902,506
============= ==============
In January 1997, the Company made an investment of $250,000 in NFR
Security, Inc., formerly Network Flight Recorder, Inc. ("NFR") in exchange
for ten percent of NFR's common stock. NFR develops software to provide
network administrators with network audit capabilities. NFR is headed by
the Company's former chief scientist, who continues to work as a
consultant for the Company. The Company's investment in these equity
securities was recorded at the fair market value on the date of the
transaction and is accounted for using the cost method. Subsequent to year
end, the Company sold its stock in NFR for $1,625,000.
Accounts payable and accrued expenses consisted of the following at
December 31:
2000 1999
--------------- --------------
Accounts payable $ 580,605 $ 847,267
Accrued compensation 589,242 270,072
Sales tax payable 247 1,936
Other accrued expenses 205,845 38,385
--------------- ---------------
$ 1,375,939 $ 1,157,660
=============== ===============
38
V-ONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
5. INCOME TAXES
The tax effect of temporary differences that give rise to significant
portions of the deferred income taxes are as follows at December 31:
2000 1999
--------------- ---------------
Inventory $ 38,948 $ 33,867
Accounts receivable 40,807 51,845
Property and equipment 18,203 (60,343)
Deferred rent 46,402 60,522
Non-deductible accruals 52,631 61,320
Options and warrants - 155,991
Net operating loss carry forward 16,282,345 14,556,026
--------------- ---------------
Total deferred tax asset 16,479,336 14,859,228
Valuation allowance (16,479,336) (14,859,228)
--------------- ---------------
Net deferred tax asset $ - $ -
=============== ===============
The net change in the valuation allowance from 1999 to 2000 is due
principally to the increase in net operating losses. Valuation allowances
have been recognized due to the uncertainty of realizing the benefit of
net operating loss carryforwards. At December 31, 2000 and 1999, the
Company had net operating loss carryforwards of approximately $42,200,000
and $37,700,000 for Federal and state income tax purposes available to
offset future taxable income. The net operating loss carryforwards begin
to expire in 2008.
A reconciliation between income taxes computed using the statutory
federal income tax rate and the effective rate for the years ended
December 31, 1999 and 2000 is as follows:
2000 1999
---------- ------------
Federal income tax (benefit) at statutory rate (34.0%) (34.0%)
State income taxes, net (4.6%) (6.6%)
Permanent items (0.1%) (14.6%)
Net change in valuation allowance 38.7% 55.2%
---------- ------------
Provision for Income Taxes 0.0% 0.0%
========== ============
6. SHAREHOLDERS' EQUITY
SERIES B PREFERRED STOCK
On June 11, 1999, the Company issued 1,287,554 shares at $2.33 per share
of Series B Convertible Preferred Stock (the "Series B Stock") to two
investors for $1.0 million in cash and a subscription agreement for $2.0
million. Net proceeds to the Company after issuance costs of $17,500 were
$2,982,500. The subscription receivable was repaid in two installments of
$1.0 million plus accrued interest in July and August 1999. The Series B
Stock ranks senior to the Common Stock as to distributions of assets upon
liquidation, dissolution or winding up of the Company. The Series B Stock
is not redeemable, does not bear dividends and generally has no voting
rights. Each share of Series B Stock is convertible at the option of the
holder at any time into one share of Common Stock based upon an initial
39
V-ONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
conversion price of $2.33 per share. The conversion price is subject to
adjustment in the event the Company pays dividends or makes distributions
on, splits or reverse splits its Common Stock. The holders of the Series B
Stock are entitled to a liquidation preference of $2.33 per share.
SERIES C PREFERRED STOCK
On September 9, 1999, the Company issued 335,000 shares of Series C
Preferred Stock (the "Series C Stock") and 3,350,000 non-detachable
warrants to purchase shares of the Company's Common Stock (the "Warrants")
to certain accredited investors. Each share of Series C Stock was issued
with ten Warrants (collectively a "Unit") for a price of $26.25 per Unit.
The Company received $7,918,684 in proceeds net of issuance costs of
approximately $875,000. The Warrants are immediately exercisable at a
price of $2.625 per share and will remain exercisable until 90 days after
all of the Series C Stock has been redeemed and the shares of the Common
Stock underlying the Warrants have been registered for resale.
The Series C Stock bears cumulative compounding dividends at an annual
rate of 10% for the first five years, 12.5% for the sixth year and 15% in
and after the seventh year. The dividends may be paid in cash, or at the
option of the Company, in shares of registered Common Stock. The Series C
Stock is not convertible and ranks senior to the Common Stock and to the
Series B Stock as to payment of dividends, and ranks senior to the Common
Stock and in parity with the Series B Stock as to distributions of assets
upon liquidation, dissolution or winding up of the Company. Holders of the
Series C Stock are entitled to a liquidation preference of $26.25 per
share.
At least 51% of the outstanding shares of Series C Stock must vote
affirmatively as a separate class for (i) the voluntary liquidation,
dissolution or winding up of the Company, (ii) the issuance of any
securities senior to the Series C Stock and (iii) the declaration or
payment of a cash dividend on all junior stocks and certain amendments to
the Company's certificate of incorporation. Prior to the exercise of the
Warrants, the holders shall also be entitled to ten common votes for each
share of Series C Stock on all matters on which Common Stockholders are
entitled to vote, except in connection with the election of the Board of
Directors. As long as at least 51% of the Series C Stock is outstanding,
the holders shall have the right to elect one director to the Company's
Board of Directors.
The Company has the right to redeem the outstanding shares of Series C
Stock in whole (i) at any time after the third anniversary of the issuance
date, (ii) upon the closing of an underwritten public offering in excess
of $20 million and at a price in excess of $6.50 per share or (iii) prior
to the third anniversary of the issuance date if the average closing bid
price of the Common Stock for any 20 trading days during any 30 trading
days ending within 5 trading days prior to the date of notice of
redemption is at least $3.9375 per share. The redemption price would be
paid in cash in full and would be equal to the greater of the $26.25 per
share purchase price or the fair market value of each Series C share plus
all unpaid dividends.
At any time after all of the Warrants have been exercised by a holder,
that holder shall have the right to require the Company to redeem all of
its then outstanding share of Series C Stock. The redemption price for
each share of Series C Stock shall be the $26.25 per share purchase price
plus all unpaid dividends and is payable at the option of the Company in
either cash or shares of Common Stock.
40
V-ONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
The Company has granted registration rights to the investors whereby the
Company is obligated, in certain instances, to register the shares of
Common Stock issuable upon conversion of the Series B Stock and exercise
of the Warrants attached to the Series C Stock.
Throughout 2000, certain holders of the Series C Stock chose to exercise
their warrants through the cashless exercise provision. The cashless
exercise provision allowed the holders to remit each share of Series C
Stock in exchange for 10 shares of Common Stock. A total of 280,286 shares
of Series C Stock were remitted for 2,802,860 shares of Common Stock. An
additional 97,449 shares were issued as a result of dividends earned on
the Series C Stock. At December 31, 2000 there were 54,714 shares of
Series C Stock outstanding. The dividend payable on these shares equals
$180,911, payable in cash or equivalent shares of Common Stock at fair
market value at the exercise date.
COMMON STOCK
In the fourth quarter of 1998, the Company completed a private placement
of 2,535,000 shares of its Common Stock at a price of $2.00 per share. The
Company incurred issuance costs of approximately $546,000 and on November
20, 1998, granted a warrant to purchase 50,000 shares of Common Stock to
the underwriter of the private placement. The warrant has an exercise
price of $2.125 and expires five years from the date of grant.
On January 14, 1999, a warrant to purchase 600,000 shares of Common Stock
was exercised in full pursuant to its cashless exercise provision and the
Company issued 223,529 shares of its Common Stock to the holder. In
addition to the exercise of warrants for 633,576 shares of Common Stock
for $2,757,658, a warrant to purchase a total of 50,000 shares of Common
Stock was exercised at $2.125 per share. Proceeds from this exercise
totaled $106,250. Additionally during 1999, various employees exercised
848,629 options to purchase Common Stock. The Company received net
proceeds from these exercises of $2,670,730.
In March 2000, the Company issued 500,000 shares of Common Stock at a
purchase price of $4.75 per share to in exchange for $2,375,000.
Restricted Common Stock amounting to 158,316 shares was issued to certain
selected employees as compensation in the second quarter of 2000, 25% of
which vested immediately, with the remaining shares vesting over the next
three quarters. Upon termination of certain employees, 17,687 of these
shares were cancelled. The shares were recorded at the fair market value
on the date of grant, $2.375, with the compensation expense of $376,000
being recognized over the vesting period.
In May 2000, the stockholders approved an increase in the number of shares
of Common Stock authorized to 50,000,000.
In June 2000, the Company issued 274,967 shares of Common Stock at a
purchase price of $3.64 per share to Citrix Systems, Inc. in exchange for
$1,000,000.
The aggregate stock issuance costs for Common Stock issued in 2000 were
$183,895.
WARRANTS
In addition to the warrants issued in connection with the Transamerica
debt for 210,914 shares of Common Stock at $2.33 per share and the
warrants attached to the Series C Stock for 3,350,000 shares of Common
41
V-ONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Stock at $2.625 per share discussed above, the Company issued the
following warrants to purchase Common Stock during the years ended
December 31, 1998, 1999, and 2000:
On November 21, 1997, the Company issued a warrant to purchase 300,000
shares of Common Stock with an exercise price of $3.125 to the President
and Chief Executive Officer. On November 27, 2000, upon the resignation of
the former officer an agreement was reached whereby one half of these
warrants were cancelled and the other half were extended to a new
expiration date of November 27, 2005. Because the stock price on the new
measurement date was less than the exercise price of the warrant, no
compensation expense was recorded.
On July 8, 1998, the Company granted warrants to purchase 10,000 shares of
Common Stock each to two directors of the Company. The warrants have an
exercise price of $2.688 and expire five years from the date of grant.
Upon resignation of one of the directors, 10,000 warrants were cancelled.
On November 27, 2000 the Company granted fully vested warrants to purchase
100,000 shares of Common Stock to MindSquared, LLC, a related party, as
part of a consulting agreement. The warrants have an exercise price of
$1.188 and expire five years from the date of grant. The Company valued
these warrants using the Black-Scholes model with the following
assumptions: volatility of 123%, risk free interest rate of 6% and
expected term of 5 years. The value of the warrants, $101,000, is being
recognized ratably over the four-month term of the consulting agreement.
During the year ended December 31, 2000, warrants to purchase 2,802,860
shares of Common Stock that were attached to the Series C Stock were
redeemed for an equal amount of shares of Common Stock. Of the original
warrants issued, 547,140 remain at an exercise price of $2.625 per share.
Warrants to purchase shares of the Company's Common Stock outstanding at
December 31, 1999 and 2000 were as follows:
1999 2000 Exercise Price
---- ---- --------------
- 100,000 $1.19
139,485 139,485 $2.33
3,350,000 547,140 $2.63
71,429 71,429 $2.65
20,000 10,000 $2.69
300,000 150,000 $3.13
25,000 - $3.88
60,000 54,000 $4.73
---------------- --------------
3,965,914 1,072,054
================ ==============
At December 31, 2000, warrants to purchase 1,072,054 shares of
Common Stock were exercisable. The weighted average fair value of warrants
granted during 2000 was estimated at $1.01. The fair market value was
determined using the Black-Scholes option-pricing model with the following
assumptions: dividend yield 0%, volatility of 123%, risk free interest
rate of 6%, and expected life of 5 years.
42
V-ONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
STOCK OPTIONS PLANS
The Company has the following active stock options plans: the 1995
Non-Statutory Stock Option Plan, the 1996 Incentive Stock Plan and the
1998 Incentive Stock Option Plan. These plan were adopted to attract and
retain key employees, directors, officers and consultants and are
administered by the Compensation Committee appointed by the Board of
Directors.
1995 NON-STATUTORY STOCK OPTION PLAN
The Compensation Committee determined the number of options granted to key
employees, the vesting period and the exercise price provided they were
not below market value on the date of the grant for the 1995 Non-Statutory
Stock Option Plan ("the 1995 Plan"). In most cases, the options vest over
a two-year period and terminate ten years from the date of grant. The 1995
Plan will terminate during May 2005 unless terminated earlier within the
provisions of the 1995 Plan. On June 12, 1996, the Board of Directors
determined that no further options would be granted under the 1995 Plan.
Option activity under the 1995 Plan for the three years ended December 31,
2000 was as follows:
Weighted Average
Shares Exercise Price
------ --------------
Balance as of December 31, 1997 231,223 $1.398
Exercised (158,333) $1.213
Cancelled (8,888) $0.425
------
Balance as of December 31, 1998 64,002 $1.855
Exercised (53,400) $1.726
-------
Balance as of December 31, 1999 10,602 $2.505
======
Balance as of December 31, 2000 10,602 $2.505
======
1996 INCENTIVE STOCK PLAN
During June 1996, the Company adopted the 1996 Incentive Stock Plan ("the
1996 Plan"), under which incentive stock options, non-qualified stock
options and restricted share awards may be made to the Company's key
employees, directors, officers and consultants. Both incentive stock
options and options that are not qualified under Section 422 of the
Internal Revenue Code of 1986, as amended ("non-qualified options"), are
available under the 1996 Plan. The options are not transferable and are
subject to various restrictions outlined in the 1996 Plan. The
Compensation Committee or the Board of Directors determines the number of
options granted to key employees, officers or consultants, the vesting
period and the exercise price provided that they are not below fair market
value. The 1996 Plan will terminate during June 2006 unless terminated
earlier by the Board of Directors.
On February 17, 1998, the Company's Board of Directors authorized an offer
to reset the exercise price of all full-time employees' (other than the
President and any vice presidents) incentive stock options and
non-qualified stock options granted under the 1996 Plan. If accepted by
the option holder, such options were replaced with non-qualified options
at the new exercise price of $2.625 per share. To have been eligible for
43
V-ONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
repricing, a participant must: 1) have been a full-time employee on
February 17, 1998; 2) have agreed to remain an employee of the Company
until August 17, 1998, and 3) have accepted the offer by February 24,
1998.
On May 1, 1998, the Company's Board of Directors authorized an offer to
reset the exercise price of all options issued to the President and any
vice presidents granted under the 1996 Plan. If accepted by the option
holder, such options were replaced with non-qualified options at the new
exercise price of $2.875 per share. To have been eligible for repricing, a
participant must: 1) have been a full-time employee on May 1, 1998; 2)
have agreed to remain an employee of the Company until November 1, 1998,
and 3) have accepted the offer by May 8, 1998.
Option activity under the 1996 Plan for the three years ended December 31,
2000 was as follows:
Weighted Average
Shares Exercise Price
------------- ---------------------
Balance as of December 31, 1997 1,972,035 $4.243
Granted 558,667 $2.780
Exercised (35,000) $2.625
Expired (613,326) $4.280
-------------
Balance as of December 31, 1998 1,882,376 $3.221
Exercised (677,479) $3.438
Cancelled (290,666) $2.787
Expired (99,250) $2.785
-------------
Balance as of December 31, 1999 814,981 $3.268
Exercised (21,000) $2.714
Cancelled (560,750) $3.077
Expired (6,676) $2.657
-------------
Balance as of December 31, 2000 226,555 $3.833
=============
1998 INCENTIVE STOCK OPTION PLAN
On February 2, 1998, the Board of Directors authorized the adoption of the
1998 Incentive Stock Option Plan (the "1998 Plan"). The purpose of the
1998 Plan is to provide for the acquisition of an equity interest in the
Company by non-employee directors, officers, key employees and
consultants. The 1998 Plan will terminate February 2, 2008.
Incentive stock options may be granted to purchase shares of Common Stock
at a price not less than fair market value on the date of grant. Only
employees may receive incentive stock options; all other qualified
participants may receive non-qualified stock options with an exercise
price determined by a Committee or the Board. Options are generally
exercisable after one or more years and expire no later than ten years
from the date of grant. The 1998 Plan also provides for reload options and
restricted share awards to employee and consultant participants subject to
various terms.
44
V-ONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Option activity under the 1998 Plan for the three years ended December 31,
2000 was as follows:
Weighted Average
Shares Exercise Price
------ --------------
Balance as of December 31, 1997 - -
Granted 712,000 $2.694
Exercised - -
Cancelled (101,000) $2.688
--------------
Balance as of December 31, 1998 611,000 $2.695
Granted 1,641,500 $2.328
Exercised (117,750) $2.530
Cancelled (437,000) $2.507
Expired (7,500) $2.688
--------------
Balance as of December 31, 1999 1,690,250 $2.400
Granted 1,783,780 $2.224
Exercised (32,500) $2.595
Cancelled (818,975) $2.723
Expired (8,500) $2.283
--------------
Balance as of December 31, 2000 2,614,055 $2.178
==============
Awards may be granted under the 1998 Plan with respect to a total of
5,000,000 shares of Common Stock.
For all of its plans, the Company measures compensation expense for its
employee stock-based compensation using the intrinsic value method and
provides pro forma disclosures of net loss as if the fair value method had
been applied in measuring compensation expense. Under the intrinsic value
method of accounting for stock-based compensation, when the exercise price
of options granted to employees is less than the fair value of the
underlying stock on the date of grant, compensation expense is to be
recognized over the applicable vesting period. The effect of applying SFAS
123's fair value method to the Company's stock based awards is not
necessarily representative of the effects on reported net income for
future years, due to, among other things, the vesting period of the stock
options and the fair value of additional stock options in future years.
Year ended December 31,
----------------------------------------------------
2000 1999 1998
--------------- -------------- ---------------
Loss attributable to holders of
common stock:
As reported $9,231,994 $9,952,189 $ 9,407,030
Pro forma $10,277,777 $10,895,072 $10,464,134
Basic and diluted loss per share
attributable to holders of
common stock
As reported $0.44 $0.59 $0.68
Pro forma $0.53 $0.64 $0.75
45
V-ONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
The fair value of each option is estimated on the date of grant using a
type of Black-Scholes option pricing model with the following
weighted-average assumptions used for grants during the years ended
December 31, 1998, 1999 and 2000, respectively: dividend yield of 0% for
all periods; expected volatility of 68%, 92%, and 100%; risk-free interest
rate of 5.3%, 5.5% and 6.0%; and expected term of 4.0 years for 1998 and
1999, and 3.8 years for 2000. The weighted-average fair value of the
options granted under all of the Company's plans during the years ended
December 31, 1998, 1999 and 2000 was $1.10, $1.60 and $1.54, respectively.
The weighted average exercise price of the options outstanding under all
of the Company's plans at December 31, 1998, 1999 and 2000 was $3.06,
$2.68 and $2.31, respectively. As of December 31, 2000, the weighted
average remaining contractual life of the options outstanding under all of
the Company's plans is 7.6 years and the number of options exercisable is
1,207,925.
7. COMMITMENTS AND CONTINGENCIES
LEASES
The Company is obligated under various operating and capital lease
agreements, primarily for office space and equipment through 2003. Future
minimum lease payments under these non-cancelable operating and capital
leases as of December 31, 2000 are as follows:
OPERATING CAPITAL
--------- -------
2001 $ 612,385$ 83,499
2002 576,590 50,059
2003 341,199 -
2004 - -
---------------------------------
Total minimum payments $1,530,174 133,558
==========
Interest (13,812)
--------
Present value of capital lease obligations
119,746
Less: current portion (71,943)
---------
Capital lease obligations non-current $ 47,803
===========
Rent expense was $583,582, $919,550 and $701,133 for the years ended
December 31, 2000, 1999 and 1998 respectively.
At December 31, 2000, the Company expects to receive $61,573 in future
minimum sublease rental income payments in 2001.
CONTINGENCIES
On January 27, 2000, a class action lawsuit alleging violations of the
federal securities laws was filed in the U.S. District Court of Maryland
on behalf of purchasers of the Company's Common Stock on November 30,
1999. See Note 11.
46
V-ONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
8. EMPLOYEE 401(K) DEFERRED COMPENSATION PLAN
The Company has a 401(k) plan (the "Plan") for all employees over the age
of 21. Contributions are made through voluntary employee salary
reductions, up to 15% of their annual compensation, and discretionary
matching by the Company. Employer contributions vest based on the
participant's number of years of continuous service. A participant is
fully vested after six years of continuous service. There were no employer
contributions for the years ended December 31, 2000, 1999 or 1998.
9. SUPPLEMENTAL CASH FLOW DISCLOSURE
Selected cash payments and noncash activities were as follows:
Year ended December 31,
-----------------------------------------------
2000 1999 1998
------------- -------------- -------------
Cash paid for interest $21,982 $728,221 $ -
Cash paid for dividends 16 - -
Noncash investing and financing
activities:
Notes repaid from return and
retirement of Common Stock - - 115,953
Deemed dividend on preferred
stock - - 102,755
Issuance of stock options to
consultants 95,422 93,764 -
Issuance of restricted stock 282,000 - -
Collection and forgiveness of
subscriptions receivable - 46,236 -
Conversion of Preferred Stock
to Common Stock - - 1,538,000
47
V-ONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
10. NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net
loss per share:
Year Ended December 31,
----------------------------------------------------
2000 1999 1998
----------------------------------------------------
Numerator:
Loss before extraordinary item $ (8,862,015) $(9,307,892) $ (9,193,396)
Less: Dividend on preferred stock (369,979) (272,245) (110,879)
Deemed dividend on preferred stock - - (102,755)
------------- ------------ ------------
Net loss before extraordinary item (9,231,994) (9,580,137) (9,407,030)
Extraordinary item-early extinguishments of - (372,052) -
debt ------------- ------------ ------------
Net loss attributable to holders of Common $ (9,231,994) $(9,952,189) $ (9,407,030)
Stock
============= ============ ============
Denominator:
Denominator for basic net loss per share-weighted
average shares 20,871,076 16,938,205 13,898,450
Effect of dilutive securities:
Preferred Stock - - -
Stock Options - - -
Warrants - - -
------------- ----------- ------------
Dilutive potential common shares - - -
Denominator for diluted net loss per share-adjusted
weights average shares 20,871,076 16,938,205 13,898,450
============= =========== ============
Basic and diluted loss per share:
Loss before extraordinary item $ (0.44) $ (0.57) $ (0.68)
Extraordinary item-early extinguishments of debt - (0.02) -
------------- ------------ ------------
Net Loss attributable to holders of Common Stock $ (0.44) $ (0.59) $ (0.68)
============= ============ ============
The following equity instruments were not included in the diluted net loss per
share calculation because their effect would be anti-dilutive:
Year ended December 31,
------------------------------------
2000 1999 1998
-----------------------------------
Preferred
stock:
Series A - - -
Series B 1,287,554 1,287,554 -
Series C 54,714 335,000 -
Stock 2,851,212 2,515,833 2,557,378
options
Warrants 1,072,054 3,974,957 1,688,576
48
V-ONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
11. SUBSEQUENT EVENTS (UNAUDITED)
As of February 14, 2001, V-ONE issued 3,675,000 shares of Series D
Convertible Preferred Stock ("Series D Stock") and non-detachable warrants
to purchase 735,000 shares of the Company's Common Stock ("Warrants") to
certain accredited investors for an aggregate offering price of
$7,019,250. The securities were sold in units, each unit containing five
shares of Series D Stock and a Warrant to purchase one share of Common
Stock ("Unit") for a price of $9.55 per Unit pursuant to Rule 506 of
Regulation D promulgated under the Securities Act of 1933, as amended. The
Series D Stock is immediately convertible at an initial conversation price
of $1.91 per share. The Warrants are immediately exercisable at an initial
exercise price of $2.29 per share and expire on February 14, 2004. The
Company received $6,469,250 in net proceeds after payment of all fees and
offering expenses. The net proceeds of the offering will be used for
general working capital purposes.
Effective March 13, 2001, the Company completed a sale to NFR of the 6.8%
minority interest in its common stock. The sale price per share was $3.25
and the proceeds of the sales of the 500,000 shares were $1,625,000.
On February 20, 2001, a class action lawsuit alleging violations of the
federal securities laws, filed in the U.S. District Court of Maryland, was
dismissed in its entirety, with prejudice. In granting the Company's
motion to dismiss, the United States District Court ruled that plaintiffs
had failed to state a cause of action for violations of the securities
laws and awarded costs to the defendants.
49
V-ONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
12. SELECTED QUARTERLY FINANCIAL DATA - UNAUDITED
The following table presents the quarterly results for V-ONE Corporation
and its subsidiaries for the years ending December 31, 1999 and 2000:
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
2000
Revenue $ 1,383,921 $ 1,075,846 $ 645,485 $ 1,448,378
Gross profit 1,300,926 924,388 500,866 1,263,591
Net loss $ (1,482,222) $ (2,511,701) $ (2,701,358) $ (2,166,734)
=========== =========== =========== ===========
Net loss per share, basic and $ (0.09) $ (0.12) $ (0.12) $ (0.10)
diluted ====== ====== ====== ======
1999
Revenue $ 1,696,472 $ 1,006,668 $ 932,894 $ 1,329,646
Gross profit 1,514,083 776,279 787,515 776,656
Net loss before extraordinary (2,179,297) (2,192,669) (2,638,051) (2,297,875)
item
Extraordinary item - early
extinguishment of debt - - - (372,052)
------------ ----------- ----------- -----------
Net loss $ (2,179,297) $ (2,192,669) $ (2,638,051) $ (2,669,927)
=========== =========== =========== ===========
Basic and diluted net loss per
share $ (0.13) $ (0.13) $ (0.16) $ (0.13)
before extraordinary item
Extraordinary item - early
extinguishment of debt - - - (0.02)
------------ ----------- ----------- -----------
Net loss per share, basic and $ (0.13) $ (0.13) $ (0.16) $ (0.15)
diluted ====== ====== ====== ======
50
V-ONE CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS-
For the years ended December 31, 1998, 1999 and 2000
Additions
Balance at Charged to
Beginning of Costs and Balance at End
Description Period Expenses Deductions of Period
ALLOWANCE FOR DOUBTFUL ACCOUNTS
December 31, 1998 $ 500,405 24,233 --- $ 524,638
December 31, 1999 $ 524,638 (220,912) 169,482 $ 134,244
December 31, 2000 $ 134,244 68,490 97,070 $ 105,664
DEFERRED TAX ASSET
VALUATION ALLOWANCE
December 31, 1998 $ 7,431,743 2,017,021 --- $ 9,448,764
December 31, 1999 $ 9,448,764 5,410,464 --- $ 14,859,228
December 31, 2000 $ 14,859,228 1,620,108 --- $ 16,479,336
ALLOWANCE FOR
NON-SALABLE INVENTORY
December 31, 1998 $ 212,700 100,656 --- $ 313,356
December 31, 1999 $ 313,356 --- 225,662 $ 87,694
December 31, 2000 $ 87,694 32,699 41,737 $ 78,656
51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item concerning directors and
executive officers is incorporated herein by reference to the Company's
definitive proxy statement for its annual stockholders' meeting to be
held on May 10, 2001.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item concerning executive compensation
is incorporated herein by reference to the Company's definitive proxy
statement for its annual stockholders' meeting to be held on May 10,
2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item concerning security ownership of
certain beneficial owners and management is incorporated herein by
reference to the Company's definitive proxy statement for its annual
stockholders' meeting to be held on May 10, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item concerning certain relationships
and related transactions is incorporated herein by reference to the
Company's definitive proxy statement for its annual stockholders'
meeting to be held on May 10, 2001.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
None.
52
(a)(1) Financial Statement Schedule.
See index to Financial Statements on page 30 All required
financial statement schedules of the Company are set forth under
Item 8 of this Annual Report on Form 10-K.
(a)(2) Exhibits
NUMBER DESCRIPTION
- ------ -----------
3.1 Amended and Restated Certificate of Incorporation as of July 2,
1996 (1)
3.2 Amended and Restated Bylaws dated as of February 2, 1998 (4)
3.3 Certificate of Amendment to Certificate of Designation,
Preferences, and Rights of Series A Convertible Preferred Stock
dated September 9, 1996 (1)
3.4 Certificate of Elimination of Certificate of Designation,
Preferences and Rights of Series A Convertible Preferred Stock (2)
3.5 Certificate of Designations of Series A Convertible Preferred
Stock (2)
3.6 Certificate of Elimination of Certificate of Designation,
Preferences and Rights of Series A Convertible Preferred Stock,
dated March 4, 1999(9)
3.7 Certificate of Designations of Series B Convertible Preferred
Stock, dated June 11, 1999 (10)
3.8 Certificate of Designations of Series C Preferred Stock, dated
September 9, 1999 (11)
3.9 Certificate of Designations of Series D Convertible Preferred
Stock, dated February 14, 2001(14)
9.1 Voting Trust Agreement between Hai Hua Cheng and James F. Chen,
Trustee (1)
9.2 Voting Trust Agreement between Robert Zupnik and James F. Chen,
Trustee (1)
9.3 Voting Trust Agreement between Dennis Winson and James F. Chen,
Trustee (1)
10.1 Employment Agreement between V-ONE Corporation ("V-ONE") and James
F. Chen dated as of June 12, 1996 (1)
10.2 V-ONE 1995 Non-Statutory Stock Option Plan (1)
10.3 V-ONE 1996 Non-Statutory Stock Option Plan (1)
10.4 V-ONE 1996 Incentive Stock Plan (1)
10.5 Software License Agreement between Trusted Information Systems,
Inc. ("TIS") and V-ONE executed October 6, 1994 (1)
10.6 First Amendment to the Software License Agreement between TIS and
V-ONE (1)
10.7 Second Amendment to the Software License Agreement between TIS and
V-ONE (1)
10.8 Third Amendment to the Software License Agreement between TIS and
V-ONE (1)
10.9 Fourth Amendment to the Software License Agreement between TIS and
V-ONE (1)
10.10 OEM Master License Agreement between RSA Data Security, Inc.
("RSA") and V-ONE dated December 30, 1994 and Amendment Number One
to the OEM Master License Agreement between RSA and V-ONE (1)
10.11 Amendment Number Two to the OEM Master License Agreement between
RSA and V-ONE and Conversion Agreement dated May 23, 1996 (1)
10.12 Promissory Note for Hai Hua Cheng with Allonge and Amendment dated
June 12, 1996 (1)
10.13 Form of Exchange and Purchase Agreement dated April 1996 (1)
10.14 Registration Rights Agreement Between V-ONE and JMI Equity Fund
II, L.P. ("JMI") (1)
10.15 8% Senior Subordinated Note due June 18, 2000 Issued by V-ONE to
JMI (1)
10.16 Warrant to Purchase 100,000 shares of Common Stock Issued by V-ONE
to JMI (1)
10.17 Warrant to Purchase 400,000 shares of Common Stock Issued by V-ONE
to JMI (1)
10.18 Employment Agreement between V-ONE and Jieh-Shan Wang dated as of
July 8, 1996 (1)
10.19 Subscription Agreement dated as of December 3, 1997 between V-ONE
and Advantage Fund II Ltd. (2)
53
NUMBER DESCRIPTION
- ------ -----------
10.20 Registration Rights Agreement dated as of December 3, 1997 between
V-ONE and Advantage Fund II Ltd. (2)
10.21 Commitment Letter dated December 8, 1997 between V-ONE and
Advantage Fund II Ltd. (2)
10.22 Registration Rights Agreement dated as of December 8, 1997 between
V-ONE and Wharton Capital Partners, Ltd. (2)
10.23 Warrant to Purchase 60,000 shares of Common Stock Issued on
December 8, 1997 by V-ONE to Wharton Capital Partners, Ltd. (2)
10.24 Letter Agreement between V-ONE and Wharton Capital Partners, Ltd.
dated October 22, 1997 (2)
10.25 V-ONE 1998 Incentive Stock Plan (4)
10.26 Warrants dated November 21, 1997 to Purchase 300,000 shares of
Common Stock granted to David D. Dawson (4)
10.27 Employment Agreement dated November 21, 1997 between V-ONE and
David D. Dawson (4)
10.28 Amendment to Employment Agreement dated November 7, 1997 between
V-ONE and Charles B. Griffis (4)
10.29 Amendment to Section 2.08 of 1996 Incentive Stock Plan (4)
10.30 Lease Agreement dated March 24, 1997 between Bellemead Development
Corporation and V-ONE (3)
10.31 Inconvertibility Notice dated September 21, 1998 (5)
10.32 Waiver Agreement, dated as of September 22, 1998, between the
Company and Advantage Fund II Ltd. (5)
10.33 Amendment No. 1 dated as of September 22, 1998 to the Registration
Rights Agreement between the Company and Advantage Fund II Ltd. (5)
10.34 Warrant to purchase 100,000 shares of Common Stock issued on
September 22, 1998 by V-ONE to Advantage Fund II Ltd. (5)
10.35 Warrant to purchase 389,441 shares of Common Stock issued on
September 22, 1998 by V-ONE to Advantage Fund II Ltd. (5)
10.36 Waiver Letter, dated November 5, 1998 between the Company and
Advantage Fund II Ltd. (6)
10.37 Placement Agent Agreement, dated October 9, 1998, between the
Company and LaSalle St. Securities, Inc. (6)
10.38 Amendment No. 1 to Placement Agent Agreement, dated November 9,
1998, between the Company and LaSalle St. Securities, Inc. (6)
10.39 Escrow Agreement, dated October 9, 1998, among the Company,
LaSalle St. Securities, Inc. and LaSalle National Bank (6)
10.40 Amendment No. 1 to Escrow Agreement, dated November 9, 1998, among
the Company, LaSalle St. Securities, Inc. and LaSalle National
Bank (6)
10.41 Form of Subscription Documents (6)
10.42 Form of Addendum #1 to Subscription Documents (6)
10.43 Form of Addendum #2 to Subscription Documents (6)
10.44 Form of Warrant granted to A.L. Giannopoulos to purchase 10,000
shares of the Company's Common Stock (6)
10.45 Form of Warrant granted to William E. Odom to purchase 10,000
shares of the Company's Common Stock (6)
10.46 Amendment No. 1 to Placement Agent Agreement, dated November 16,
1998, between the Company and LaSalle St. Securities, Inc. (7)
10.47 Waiver Letter dated November 18, 1998 between the Company and
LaSalle St. Securities, Inc. (7)
10.48 Form of Second Version of Subscription Documents (7)
10.49 Form of Addendum #1 to Second Version of Subscription Documents (7)
10.50 Form of Addendum #2 to Second Version of Subscription Documents (7)
10.51 Warrant dated November 20, 1998 to purchase 50,000 shares of
Common Stock issued to LaSalle St. Securities, Inc. (7)
54
NUMBER DESCRIPTION
- ------ -----------
10.52 Employment Agreement dated November 6, 1998 between V-ONE and
Charles B. Griffis (9)
10.53 Employment Agreement dated August 1, 1998 between V-ONE and Robert
F. Kelly (9)
10.54 Loan and Security Agreement dated February 24, 1999 between V-ONE
and Transamerica Business Credit Corporation ("Transamerica") (8)
10.55 Patent and Trademark Security Agreement dated February 24, 1999
between V-ONE and Transamerica (8)
10.56 Security Agreement in Copyrighted Works dated as of February 24,
1999 between V-ONE and Transamerica (8)
10.57 Amendment to Employment Agreement dated as of August 1, 1998 by
and between the Company and Jieh-Shan Wang (9)
10.58 Amendment to Employment Agreement dated as of January 1, 1999 by
and between the Company and James F. Chen (9)
10.59 Subscription Agreement for Series B Convertible Preferred Stock,
dated June 11, 1999 (10)
10.60 Registration Rights Agreement, dated June 11, 1999 (10)
10.61 Non-Negotiable Promissory Note, dated June 11, 1999 (10)
10.62 Form of Series C Preferred Stock Purchase Agreement (11)
10.63 Employment Agreement dated July 1, 1999 by and between the Company
and Margaret E. Grayson (12)
10.64 Employment Agreement dated July 1, 1999 by and between the Company
and David D. Dawson (13)
10.65 Series D Convertible Preferred Stock and Non-Detachable Warrant
Purchase Agreement dated February 14, 2001
10.66 Form of Warrant Granted to Holders of Series D Convertible
Preferred Stock, dated February 14, 2001
10.67 2001 Employee Stock Purchase Plan
10.68 Form of Subscription Agreement between the Company and Employees
under the 2001 Employee Stock Purchase Plan
10.69 Agreement for Purchase and Sale of Stock between the Company and
NFR Security, Inc., dated March 13, 2001
23.1 Consent of Ernst & Young LLP
23.2 Consent of PricewaterhouseCoopers LLP
- ------------------------------
(1) The information required by this exhibit is incorporated herein by reference
to V-ONE's Registration Statement on Form S-1 (No. 333-06535).
(2) The information required by this exhibit is incorporated herein by reference
to V-ONE's Form 8-K dated December 8, 1997.
(3) The information required by this exhibit is incorporated herein by reference
to V-ONE's Form 10-Q for the three months ended June 30, 1997.
(4) The information required by this exhibit is incorporated herein by reference
to V-ONE's Form 10-K for the twelve months ended December 31, 1997.
(5) The information required by this exhibit is incorporated herein by reference
to V-ONE's Form 8-K dated September 22, 1998.
(6) The information required by this exhibit is incorporated herein by reference
to V-ONE's Form 10-Q for the nine months ended September 30, 1998.
55
(7) The information required by this exhibit is incorporated herein by reference
to V-ONE's Form 8-K dated November 20, 1998.
(8) The information required by this exhibit is incorporated herein by reference
to V-ONE's Form 8-K dated March 11, 1999.
(9) The information required by this exhibit is incorporated herein by reference
to V-ONE's Form 10-K for the twelve months ended December 31, 1998.
(10) The information required by this exhibit is incorporated herein by
reference to V-ONE's Form 8-K dated June 23, 1999.
(11) The information required by this exhibit is incorporated herein by
reference to V-ONE's Form 8-K dated September 15, 1999.
(12) The information required by this exhibit is incorporated herein by
reference to V-ONE's Form 10-Q for the three months ended June 30, 1999.
(13) The information required by this exhibit is incorporated herein by
reference to V-ONE's Form 10-K for the twelve months ended December 31,1999.
(14) The information required by this exhibit is incorporated by reference to
V-ONE's Form 8-K, dated March 1, 2001.
(b) Reports on Form 8-K
None.
56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
V-ONE Corporation
Date: March 30, 2001
By: /s/ Margaret E. Grayson
--------------------------------
Margaret E. Grayson
President and Chief Executive Officer
Pursuant to the requirements of Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities indicated.
SIGNATURE TITLE DATE
/s/ Margaret E. Grayson President, March 30, 2001
- ------------------------- Chief Executive
Margaret E. Grayson Officer and Director
/s/ John F. Nesline Chief March 30, 2001
- ------------------------- Financial Officer
John F. Nesline and Treasurer
Controller
/s/ James F. McManus Director March 30, 2001
- -----------------------
James F. McManus
Director March 30, 2001
- ------------------------
Michael O'Dell
/s/ Heidi B. Heiden Director March 30, 2001
- -----------------------
Heidi B. Heiden
/s/ Michael J. Mufson Director March 30, 2001
- -------------------------
Michael Mufson
/s/ William E. Odom Director March 30, 2001
- -------------------------
William E. Odom
57