UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 2 TO FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: September 30, 2004
OR
[ ] 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.)
20300 CENTURY BLVD., SUITE 200, 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)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X].
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT OCTOBER 26, 2004
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Common Stock, $0.001 par value per share 15,642,555
EXPLANATORY NOTE
This Form 10-Q/A (Amendment No. 2) amends Part I, Item 2, Management's
Discussion and Analysis of Financial Condition and Results of Operations of the
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2004,
originally filed by V-ONE Corporation on November 15, 2004, and amended on
December 20, 2004 (the "Amended Form 10-Q"). The effect of the amendment is to
correct a typographical error in Management's Discussion and Analysis of
Financial Condition and Results of Operations in the Amended Form 10-Q. The
correction is located on page 4 herein, in the fourth paragraph on the page,
wherein consulting and services revenues for the nine months ended September 30,
2003 were incorrectly stated as $1,137,000,000 rather than the correct figure of
$1,137,000. The entire corrected sentence now reads:
Consulting and services revenues increased from approximately
$1,137,000 for the nine months ended September 30, 2003 to
approximately $1,153,000 for the nine months ended September 30,
2004.
This Amendment No. 2 sets forth the complete text of Part I, Item 2,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, as corrected, and updates the signature page and Exhibits 31 and 32.
The remainder of the Amended Form 10-Q, including the financial statements and
the notes thereto, remains unchanged and is not reproduced herein.
2
V-ONE Corporation
Quarterly Report on Form 10-Q
INDEX
PAGE NO.
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Part I FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial 4
Condition and Results of Operations
Item 6. Exhibits 7
SIGNATURE 8
3
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
These statements may differ in a material way from actual future events. For
instance, factors that could cause results to differ from future events include
rapid rates of technological change and intense competition, among others. The
Company's total revenues and operating results have varied substantially from
quarter to quarter and should not be relied upon as an indication of future
results. Several factors may affect the ability to forecast the Company's
quarterly operating results, including the size and timing of individual
software and hardware sales; the length of the Company's sales cycle; the level
of sales and marketing, research and development and administrative expenses;
and general economic conditions.
Operating results for a given period could be disproportionately affected by any
shortfall in expected revenues. In addition, fluctuation in revenues from
quarter to quarter will likely have an increasingly significant impact on the
Company's results of operations. The Company's performance in recent periods may
not be an accurate indication of future results of operations in light of the
evolving nature of the network security market and the uncertainty of the demand
for Internet and intranet products in general and the Company's products in
particular. Because the Company's operating expenses are based on anticipated
revenue levels, a small variation in the timing of recognition of revenues can
cause significant variations in operating results from quarter to quarter.
Readers are also referred to the documents filed by the Company with the SEC,
specifically the Company's latest Annual Report on Form 10-K that identifies
important risk factors for the Company.
RESULTS OF OPERATIONS
REVENUES
Total revenues decreased from approximately $879,000 and $3,039,000 for the
three and nine months ended September 30, 2003, respectively, to approximately
$591,000 and $1,759,000 for the three and nine months ended September 30, 2004,
respectively. This decrease of approximately $287,000 or 33% and $1,280,000 or
42% is due primarily to a decrease in product revenue of $284,000 and $1,296,000
for the three and nine months ended September 30, 2004, respectively, offset in
part by an increase in consulting and services revenues for the nine months
ended September 30, 2004. Product revenues are derived principally from software
licenses and the sale of hardware products. Product revenues decreased from
approximately $490,000 and $1,902,000 for the three and nine months ended
September 30, 2003, respectively, to approximately $206,000 and $606,000 for the
three and nine months ended September 30, 2004, respectively. Consulting and
services revenues are derived principally from fees for services complementary
to the Company's products, including consulting, maintenance, installation and
training. Consulting and services revenues decreased from approximately $389,000
for the three months ended September 30, 2003 to approximately $385,000 for the
three months ended September 30, 2004. Consulting and services revenues
increased from approximately $1,137,000 for the nine months ended September 30,
2003 to approximately $1,153,000 for the nine months ended September 30, 2004.
This was due principally to an increase in the number of renewing maintenance
contracts provided to customers in the first quarter of fiscal 2004.
The Company cannot be certain that revenue will, in fact, become more
predictable or certain of the relative levels of software, hardware, consulting
and services revenues to be generated in future periods.
COST OF REVENUES
Total cost of revenues as a percentage of total revenues increased from
approximately 4% and 7% for the three and nine months ended September 30, 2003,
respectively, to approximately 12% and 8% for the three and nine months ended
September 30, 2004, respectively. The percentage increase was primarily due to
the purchase of SmartGuard hardware for immediate fulfillment of an order for
the U.S. Army in the third quarter of 2004 and lower sales of software licenses
in the current year. Total cost of revenues is comprised of cost of product
revenues and cost of consulting and services revenues.
4
Cost of product revenues consists principally of the costs of computer hardware,
licensed technology, manuals and labor associated with the distribution and
support of the Company's products. Cost of product revenues increased from
approximately $9,000 for the three months ended September 30, 2003 to
approximately $56,000 for the three months ended September 30, 2004 and
decreased from approximately $153,000 for the nine months ended September 30,
2003 to approximately to $70,000 for the nine months ended September 30, 2004.
The increase in cost of product revenues for the three months ended September
30, 2004 was primarily attributable to greater purchases of SmartGuard appliance
hardware in the current quarter. The decrease in cost of product revenues for
the nine months ended September 30, 2004 was attributable to lower sales of
turnkey hardware solutions in the current year. Cost of product revenues as a
percentage of product revenues was approximately 2% and 8% for the three and
nine months ended September 30, 2003, respectively, and approximately 27% and
11% for the three and nine month periods ended September 30, 2004, respectively.
Cost of consulting and services revenue consists principally of personnel and
related costs incurred in providing consulting, support and training services to
customers and costs of third-party product support. Cost of consulting and
services revenues decreased from approximately $27,000 and $68,000 for the three
and nine months ended September 30, 2003, respectively, to approximately $17,000
and $66,000 for the three and nine months ended September 30, 2004,
respectively. Cost of consulting and services revenues as a percentage of
consulting and services revenue was approximately 7% and 6% for the three and
nine months ended September 30, 2003, respectively, and 4% and 6% for the three
and nine months ended September 30, 2004, respectively.
OPERATING EXPENSES
Research and Development -- Research and development expense consists
principally of the costs of research and development personnel and other
expenses associated with the development of new products and enhancement of
existing products. Research and development expenses decreased from
approximately $263,000 and $858,000 for the three and nine months ended
September 30, 2003, respectively, to approximately $245,000 and $710,000 for the
three and nine months ended September 30, 2004, respectively. The dollar
decrease of approximately $18,000 and $147,000 was primarily due to lower
consulting expense of $22,000 and $431,000, lower depreciation expense of
$27,000 and $107,000 and lower rent expense of $8,000 and $34,000, partially
offset by higher salary expense of $45,000 and $50,000, respectively. Research
and development expense as a percentage of total revenue was approximately 30%
and 28% for the three and nine months ended September 30, 2003, respectively,
and approximately 41% and 40% for the three and nine months ended September 30,
2004, respectively. The percentage increase was primarily due to lower revenues
for the three and nine months ended September 30, 2004.
Sales and Marketing -- Sales and marketing expense consists principally of the
costs of sales and marketing personnel, advertising, promotions and trade shows.
Sales and marketing expense increased from approximately $322,000 and $1,070,000
for the three and nine months ended September 30, 2003, respectively, to
approximately $418,000 and $1,226,000 for the three and nine months ended
September 30, 2004, respectively. The dollar increase of $96,000 for the three
months ended September 30, 2004 relates primarily to higher salary expense of
$42,000, higher marketing expense of $7,000, higher consulting expense of
$15,000, higher travel expense of $2,000, higher public relations expense of
$20,000, higher commission expense of $8,000 and higher relocation expense of
$3,000, partially offset by lower telephone expense of $8,000 and lower
depreciation expense of $3,000. The dollar increase of $156,000 for the nine
months ended September 30, 2004 is primarily attributable to higher salary
expense of $116,000, higher marketing expense of $54,000, higher consulting
expense of $37,000, higher travel expense of $18,000 and higher public relations
expense of $41,000, partially offset by lower commission expense of $58,000 and
lower depreciation expense of $60,000. Sales and marketing expense as a
percentage of total revenues were approximately 32% and 35% for the three and
nine months ended September 30, 2003, respectively, and approximately 84% and
69% for the three and nine months ended September 30, 2004, respectively. The
percentage increase is due primarily to lower revenue for fiscal 2004 when
compared to the same period for fiscal 2003.
General and Administrative -- General and administrative expense consists
principally of the costs of accounting and finance, legal and human resources
management, administrative personnel and facilities expenses. General and
administrative expense decreased from approximately $315,000 and $1,163,000 for
the three and nine months ended September 30, 2003, respectively, to
approximately $314,000 and $1,142,000 for the three and nine months ended
September 30, 2004. The decrease in expense of approximately $21,000 for the
nine months ended September 30, 2004 was due principally to higher salary
expense of $42,000, higher consulting expense of $61,000, higher annual report
expense of $13,000, higher travel expense of $2,000, higher membership expense
of $4,000 and higher legal expense of $30,000, partially offset by lower
accounting and audit fees of $86,000, lower D&O insurance expense of $7,000,
lower depreciation expense of $28,000, lower miscellaneous expense of $16,000
and lower commission expense of $26,000. General and administrative expenses as
a percentage of total revenues were approximately 36% and 38% for the three and
5
nine months ended September 30, 2003, respectively, and 53% and 65% for the
three and nine months ended September 30, 2004, respectively.
Business Combination Costs - Business combination costs associated with the
contemplated merger with SteelCloud, Inc. were approximately $244,000
attributable primarily to legal fees. On September 28, 2004, the Company and
SteelCloud mutually agreed to terminate the definitive agreement and recorded
the related expenses as business combination costs.
Interest Income and Expense -- Interest income represents interest earned on
cash and cash equivalents. Interest income decreased from approximately zero and
$5,000 for the three and nine months ended September 30, 2003, respectively, to
approximately zero and $2,000 for the three and nine months ended September 30,
2004, respectively. The decrease was attributable to lower levels of cash and
cash equivalents in the current period. Interest expense represents interest
paid or payable on loans and capitalized lease obligations. Interest expense
increased from approximately $22,000 and $183,000 for the three and nine months
ended September 30, 2003, respectively, to approximately $1,170,000 and
$1,826,00 for the three and nine months ended September 30, 2004, respectively,
substantially all of which was for interest payable on the 7% Subordinated
Convertible Notes and recognition of a beneficial conversion feature on the 7%
Subordinated Convertible Notes.
Income Taxes -- The Company did not incur income tax expenses as a result of the
net loss incurred during the three and nine months ended September 30, 2003 and
2004.
Dividend on Preferred Stock -- The Company provided for dividends on preferred
stock of approximately $239,000 and $695,000 during the three and nine months
ended September 30, 2004, respectively, and approximately $174,000 and $516,000
for the three and nine months ended September 30, 2003, respectively. Under the
terms of the purchase agreements for the Series C and Series D Preferred Stock,
the Company may elect to pay these dividends in cash or stock.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used cash of approximately $104,000 for the
nine months ended September 30, 2003 and approximately $684,000 for the nine
months ended September 30, 2004. Cash used in operating activities resulted
principally from net operating losses in the periods offset in part by an
increase in accounts payable in 2003 and interest expense, accounts receivable,
accounts payable and deferred rent in 2004. The increase in cash used in
operating activities of approximately $580,000 in the first nine months of 2004
was attributable primarily to an increase in net operating loss of $3,063,000.
The Company's investing activities provided cash of approximately $15,000 in the
nine months ended September 30, 2003 and used approximately $21,000 in the nine
months ended September 30, 2004. Net capital expenditures for property and
equipment were approximately $7,000 and ($48,000) during the nine months ended
September 30, 2003 and 2004, respectively. These expenditures have generally
been for computer workstations and personal computers, office furniture and
equipment, and leasehold additions and improvements.
The Company's financing activities provided cash of approximately $8,000 during
the nine months ended September 30, 2003 and provided cash of approximately
$950,000 during the nine months ended September 30, 2004. In fiscal 2004, the
cash was provided primarily by the 7% Notes.
The Company had a working capital deficiency of ($1,931,000) and ($3,461,313) at
December 31, 2003 and September 30, 2004, respectively. As of September 30,
2004, the Company had an accumulated deficit of approximately $69,673,000.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company reported a net loss of $449,650,
$5,635,191 and $6,237,278 for the years ended December 31, 2003, 2002 and 2001,
respectively, and a further net losses of $1,871,768 and $3,522,344 for the
three and nine months ended September 30, 2004, respectively. Notwithstanding
acceptance of the Company's security concepts and critical acclaim for its
products, there can be no assurance that the consummation of sales of the
Company's products to existing customers or proposed agreements with potential
customers will generate timely or sufficient revenue for the Company to cover
its costs of operations and meet its cash flow requirements. Accordingly, the
Company may not have the funds needed to sustain operations during 2004.
6
For the immediate future, V-ONE will focus on existing and potential customers
in the government sector, targeted marketing operations to commercial accounts
and continued minimization of general and administrative expenditures. V-ONE may
not be successful in further reducing operating levels without jeopardizing the
ability to serve existing customers or grow its business base. In February 2004,
the Company completed a private placement of 7% Subordinated Convertible Notes
with detachable warrants for an aggregate of $1,200,000, which resulted in net
proceeds to the Company of $1,065,690. The Company believes that to maintain
operations for any extended period of time it must generate revenue from
existing and new customers, raise additional capital or undergo a significant
strategic transformative event. The Company's ability to reach sustainable
profitability is dependent on its ability to generate sufficient cash flow to
meet its obligations and needs on a timely basis or to obtain additional
funding.
On May 19, 2004, the Company signed a letter of intent with SteelCloud Inc.
("SteelCloud"), for SteelCloud to acquire V-ONE in an all stock transaction. On
August 11, 2004, the parties signed a definitive agreement for the transaction.
On September 28, 2004, the Company and SteelCloud mutually agreed to terminate
the definitive agreement. For further information, refer to Part II, Item 5 of
this Quarterly Report on Form 10-Q, V-ONE's Current Report on Form 8-K filed
with the SEC on August 11, 2004 and V-ONE's Current Report on Form 8-K filed
with the SEC on September 29, 2004.
CONTRACTUAL OBLIGATIONS
The following table discloses aggregate information about the Company's
contractual obligations as of September 30, 2004 and the periods in which
payments are due:
Payments Due By Period
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Remainder 2005 2007 Thereafter Total
of 2004 and 2006 and 2008
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Long-term debt obligations $34,676 $46,234 $0 $0 $80,910
Convertible debt 0 0 0 1,200,000 1,200,000
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Operating leases 116,064 465,069 296,275 0 877,408
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$185,415 $511,303 $296,275 $1,200,000 $2,158,318
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OFF-BALANCE SHEET ARRANGEMENTS
The Company had no material off-balance sheet arrangements during the first
three and nine months of fiscal 2004 or 2003.
Item 6. Exhibits
The following exhibits are filed as part of this quarterly report on Form
10-Q for the period ended September 30, 2004:
EXHIBIT DESCRIPTION
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2.1 Agreement and Plan of Merger dated August 11, 2004 (the information
required by this exhibit is incorporated herein by reference to
V-ONE's Form 8-K dated August 11, 2004).
10.1 Termination Agreement dated September 28, 2004 (the information
required by this exhibit is incorporated herein by reference to
V-ONE's Form 8-K dated September 29, 2004).
31 Certification of Chief Executive Officer and Principal Financial
Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification of Chief Executive Officer and Principal Financial
Officer Pursuant to Title 18, United States Code, Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
7
SIGNATURE
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
V-ONE CORPORATION
Registrant
Date: December 22, 2004 By: /s/ Margaret E. Grayson
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Name: Margaret E. Grayson
Title: President, Chief Executive Officer
and Principal Financial Officer