UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: September 30, 2001
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
-----------------
(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
----------------------------------------------------------
(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 the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT NOVEMBER 8, 2001
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COMMON STOCK, $0.001 PAR VALUE PER SHARE 22,932,403
V-ONE Corporation
Quarterly Report on Form 10-Q
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Balance Sheets as of 3
September 30, 2001 (unaudited) and
December 31, 2000
Condensed Statements of Operations 4
for the Three and Nine Months Ended
September 30, 2001 (unaudited) and
September 30, 2000 (unaudited)
Condensed Statements of Cash Flows 5
for the Nine Months Ended September
30, 2001 (unaudited) and September
30, 2000 (unaudited)
Notes to the Condensed Financial 6
Statements (unaudited)
Item 2. Management's Discussion and Analysis 9
of Financial Condition and Results of
Operations
Item 3. Quantitative and Qualitative 12
Disclosures About
Market Risk
PART II. OTHER INFORMATION 12
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of 12
Proceeds
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of 12
Security Holders
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
V-ONE CORPORATION
CONDENSED BALANCE SHEET
September December 31,
30, 2001 2000
(Unaudited)
------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 4,815,418 $ 2,949,398
Accounts receivable, net 916,672 776,845
Finished goods inventory, net 117,261 172,177
Prepaid expenses and other current assets 177,423 254,631
------------- --------------
Total current assets 6,026,774 4,153,051
Property and equipment, net 890,365 929,398
Other assets 50,196 368,169
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Total assets $ 6,967,335 $ 5,450,618
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 970,886 $ 1,375,939
Deferred revenue 2,073,468 1,113,202
Capital lease obligations - current 65,600 71,943
------------- --------------
Total current liabilities 3,109,954 2,561,084
Deferred rent 91,294 120,150
Capital lease obligations - noncurrent 722 47,803
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Total liabilities 3,201,970 2,729,037
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.001 par value, 13,333,333
shares authorized; Series B convertible
preferred stock, 1,287,554 designated,
643,777 and 1,287,554 issued and outstanding,
respectively, (liquidation preference of
$1,500,000 and $3,000,000, respectively) 644 1,288
Series C redeemable preferred stock, 500,000
designated; 42,904 and 54,714 shares issued and
outstanding, respectively (liquidation preference
of $1,126,388 and $1,436,243, respectively) 43 55
Series D redeemable preferred stock, 3,675,000
shares designated, issued and outstanding
(liquidation preference of $7,019,250) 3,675 -
Common stock, $0.001 par value; 50,000,000 shares
authorized; 22,932,403 and 22,109,185 shares
issued and outstanding, respectively 22,932 22,109
Accrued dividends payable 670,497 180,911
Additional paid-in capital 59,768,242 51,393,818
Accumulated deficit (56,700,668) (48,876,600)
------------- --------------
Total shareholders' equity 3,765,365 2,721,581
------------- --------------
Total liabilities and shareholders'
equity $ 6,967,335 $ 5,450,618
============= ==============
The accompanying notes are an integral part of these financial statements.
3
V-ONE CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
Three months Three months Nine months Nine months
ended ended ended ended
September September September September
30, 2001 30, 2000 30, 2001 30, 2000
(unaudited) (unaudited) (unaudited) (unaudited)
------------- ------------ ------------ ------------
Revenue:
Products $ 762,949 $ 387,844 $ 1,857,950 $2,234,595
Consulting and services 337,049 257,641 954,595 870,658
------------- ------------ ------------ ------------
Total revenue 1,099,998 645,485 2,812,545 3,105,253
Cost of revenue:
Products 287,062 73,566 619,408 284,800
Consulting and services 136,889 115,151 380,970 213,372
------------- ------------ ------------ ------------
Total cost of revenues 423,951 188,717 1,000,378 498,172
------------- ------------ ------------ ------------
Gross profit 676,047 456,768 1,812,167 2,607,081
Operating expenses:
Research and development 1,019,257 890,820 3,071,346 2,410,036
Sales and marketing 1,220,817 1,560,887 3,757,313 4,655,604
General and administrative 642,039 810,489 1,959,724 2,484,163
------------- ------------ ------------ ------------
Total operating expenses 2,882,113 3,262,196 8,788,383 9,549,803
Operating loss (2,206,066) (2,805,428) (6,976,216) (6,942,722)
Other (expense) income:
Interest expense (2,597) (5,196) (9,563) (17,534)
Interest income 62,569 109,266 215,470 264,977
Other (expense) income (2,468) - 1,306,862 -
------------- ------------ ------------ ------------
Total other (expense)
income 57,504 104,070 1,512,769 247,443
------------- ------------ ------------ ------------
Net loss (2,148,562) (2,701,358) (5,463,447) (6,695,279)
Dividend on preferred stock 205,311 36,612 2,360,622 333,778
------------- ------------ ------------ ------------
Loss attributable to holders
of common stock $ (2,353,873) $ (2,737,970) (7,824,069) $(7,029,057)
============= ============ ============ ============
Basic and diluted loss per
share attributable to
holders of common stock $ (0.10) $ (0.12) $ (0.35) $ (0.34)
============= ============ ============ ============
Weighted average number of
common shares outstanding 22,850,427 22,036,612 22,429,965 20,478,168
============= ============ ============ ============
The accompanying notes are an integral part of these financial statements.
4
V-ONE CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
Nine months Nine months
Ended Ended
September 30, September 30,
2001 2000
(unaudited) (unaudited)
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Cash flows from operating activities:
Net loss $(5,463,447) $(6,695,279)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 413,916 287,666
Stock compensation 146,734 249,679
Gain on sale of investment (1,375,000) -
Changes in assets and liabilities:
Accounts receivable, net (139,827) (146,457)
Inventory, net 54,916 (226,476)
Prepaid expenses and other assets 145,181 482,150
Accounts payable and accrued expenses (405,053) (92,601)
Deferred revenue 960,266 560,166
Deferred rent (28,855) (25,440)
------------- ---------------
Net cash used in operating activities (5,691,169) (5,606,592)
Cash flows from investing activities:
Net purchases of property and equipment (374,882) (654,132)
Collection of subscription - 3,785
Proceeds from sale of investment 1,625,000 -
------------- ---------------
Net cash provided by (used in) investing 1,250,118 (650,347)
activities
Cash flows from financing activities:
Exercise of options and warrants 48,642 169,697
Issuance of common stock 10,228 3,375,000
Issuance of preferred stock 7,019,250 -
Redemption of preferred stock (84,449) -
Payments of stock issuance costs (632,918) (166,547)
Payment of preferred stock dividends (258) (16)
Principal payments on capitalized lease
obligations (53,424) (58,408)
------------- ---------------
Net cash provided by financing activities 6,307,071 3,319,726
------------- ---------------
Net increase (decrease) in cash and cash
equivalents 1,866,020 (2,937,213)
Cash and cash equivalents at beginning of
period 2,949,398 7,136,943
------------- ---------------
Cash and cash equivalents at end of period
$ 4,815,418 $ 4,199,730
============= ===============
The accompanying notes are an integral part of these financial statements.
5
V-ONE CORPORATION
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of the Business
V-ONE Corporation ("Company") develops, markets and licenses a comprehensive
suite of network security products that enable organizations to conduct secured
electronic transactions and information exchange using private enterprise
networks and public networks, such as the Internet. The Company's principal
market is the United States, with headquarters in Maryland, with secondary
markets in Europe and Asia.
2. Basis of Presentation
The condensed financial statements for the three and nine months ended September
30, 2001 and September 30, 2000 are unaudited and reflect all adjustments,
consisting of normal recurring adjustments, which are, in the opinion of
management, necessary to present fairly the results for the interim periods.
These financial statements should be read in conjunction with the audited
financial statements as of December 31, 1999 and 2000 and for the three years in
the period ended December 31, 2000, which are included in the Company's 2000
Annual Report on Form 10-K ("Form 10-K").
The preparation of financial statements to be in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates and would
impact future results of operations and cash flows.
The results of operations for the three and nine month period ended September
30, 2001 are not necessarily indicative of the results expected for the full
year ending December 31, 2001.
Certain prior year amounts have been reclassified to conform to the 2001
presentation. These changes had no impact on previously reported results of
operations.
3. Common and Preferred Stock
On February 14, 2001, the Company 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 are being used for general working capital purposes. The Company
recorded deemed dividends of approximately $1,825,000 due to the Series D Stock
being issued at a discount to fair market value on the date of issuance. For the
terms and conditions of the Series D Stock, refer to the Company's Form 8-K
filed with the SEC on March 1, 2001.
In the nine months ended September 30, 2001, several investors exercised the
non-detachable warrants of the Series C Preferred Stock. As a result of the
Series D Stock offering, this exercise was made at the adjusted price of $1.91
per share, with the balance of $84,442 of the "stub" amount paid in cash. A
total of 118,100 shares of common stock were issued as a result of warrant
exercises in the nine months ended September 30, 2001. A total of 19,436 shares
of common stock were issued as dividends accrued on the Series C Preferred Stock
through the date of the Series D Stock offering. These shares were registered as
part of a Form S-3 filed on July 5, 2000. The outstanding Series C Preferred
Stock was reduced by 11,810 shares as a result of the warrant exercises pursuant
to the terms of the Series C Preferred Stock offering. There were no proceeds
generated from this exercise.
On May 21, 2001 the Company filed a Registration Statement on Form S-8 to
register 2,500,000 shares of the Company's common stock as part of the creation
6
of an Employee Stock Purchase Plan ("Plan"). The Plan was approved by a majority
of the shareholders and was adopted at the Annual Meeting of Shareholders held
on May 10, 2001. The shares registered under the Form S-8 Registration Statement
are reserved for future issuance by the Company as part of the Plan.
On July 11, 2001 an investor converted 643,777 shares of Series B Preferred into
an equal number of shares of Common Stock.
On September 28, 2001, the Company sold 12,405 shares of Common Stock at a price
of $.825 per share as part of its Employee Stock Purchase Plan.
4. Management's Plans
Management's plans include the development of additional revenue from several
sources including but not limited to V-ONE's new Channel Partners program
associated with its 4.2 product release, its OEM agreement with Citrix Systems,
Inc., and its sales agreement with a supplier to the Department of the Treasury
of a managed VPN service. There can be no assurance that the timing of
acceptance and implementation of the Company's products with existing customers
or proposed agreements will generate revenue for the Company to cover its cost
of operations and meet its cash flow requirements. Management intends to pursue
additional capital investment opportunities through the development of potential
strategic partnering relationships. Management has identified several candidates
that it believes have synergistic and/or compatible technologies that may have
the potential to provide a strategic investment that could accelerate V-ONE's
growth and position in the marketplace and fund additional development and
distribution of V-ONE's technology products for specific applications. There can
be no assurance that such strategic partnering relationships will be completed,
and V-ONE may be unable to place equity securities on favorable terms or in an
amount required to meet its future cash requirements. V-ONE anticipates that it
will continue to expend significant amounts to fund its operations and research
and development and currently has no plans to significantly alter its number of
employees. Management, however, is actively monitoring revenue and expense
levels and can implement contingency plans for changes as may be necessary to
maintain sufficient resources until the anticipated additional revenue and
associated cash flow has been achieved. V-ONE may not be successful in reducing
operating levels or, if operating levels are reduced, V-ONE may not be able to
maintain operations for any extended period of time. In the event that all of
these efforts are not successful, V-ONE believes it may not have the funds
needed to sustain operations or to maintain capital needed to satisfy listing
requirements on the Nasdaq Small Cap Market beyond March 31, 2002.
5. Supplemental Cash Flow Disclosure
Selected noncash activities were as follows:
-----------------------------
Nine Months ended September
30,
-----------------------------
2001 2000
------------- ------------
Noncash investing and financing activities:
Redemption of preferred stock $ 225,571 $ 7,357,508
Payment of preferred stock dividends $ 46,088 $ 461,353
7
6. Net Loss Per Share
The following table sets forth the computation of basic and diluted net loss per
share:
Three Months ended Nine Months ended
September 30, September 30,
--------------------------------------------------
2001 2000 2001 2000
--------------------------------------------------
Numerator:
Net loss $(2,148,562) $(2,701,358) $(5,463,447) $(6,695,279)
Less: Dividend on preferred stock (205,311) (36,612) (2,360,622) (333,778)
----------- ----------- ----------- -----------
Net loss attributable to holders of
common stock $(2,353,873) $(2,737,970) $(7,824,069) $(7,029,057)
=========== =========== =========== ===========
Denominator:
Denominator for basic and diluted
net loss per share
- weighted average shares 22,850,427 22,036,612 22,429,965 20,478,168
=========== =========== =========== ===========
Basic and diluted loss per share -
Net loss attributable to holders of
common stock $ (0.10) $ (0.12) $ (0.35) $ (0.34)
=========== =========== ========= ============
Due to their anti-dilutive effect, outstanding shares of preferred stock, stock
options and warrants to purchase shares of common stock were excluded from the
computation of diluted earnings per share for all periods presented.
8
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements within the meaning of Section 21E
of the Exchange Act. These statements may differ in a material way from actual
future events. For instance, factors that could cause results to differ from
future events include rapid rates of technological change and intense
competition, among others. The Company's total revenues and operating results
have varied substantially from quarter to quarter and should not be relied upon
as an indication of future results. Several factors may affect the ability to
forecast the Company's quarterly operating results, including the size and
timing of individual software and hardware sales; the length of the Company's
sales cycle; the level of sales and marketing, research and development and
administrative expenses; and general economic conditions.
Operating results for a given period could be disproportionately affected by any
shortfall in expected revenues. In addition, fluctuation in revenues from
quarter to quarter will likely have an increasingly significant impact on the
Company's results of operations. The Company's growth in recent periods may not
be an accurate indication of future results of operations in light of the
evolving nature of the network security market and the uncertainty of the demand
for Internet and intranet products in general and the Company's products in
particular. Because the Company's operating expenses are based on anticipated
revenue levels, a small variation in the timing of recognition of revenues can
cause significant variations in operating results from quarter to quarter.
Readers are also referred to the documents filed by the Company with the SEC,
specifically the Company's latest Annual Report on Form 10-K that identifies
important risk factors for the Company.
RESULTS OF OPERATIONS
REVENUES
Total revenues increased from approximately $645,000 for the three months ended
September 30, 2000 to approximately $1,100,000 for the three months ended
September 30, 2001. This increase of approximately $455,000 or 70% is due
primarily to a $375,000 increase in product sales of turnkey systems to new
customers and of hardware systems to existing customers to upgrade them to the
current version of SmartGate, as well as an $80,000 increase in consulting and
services revenue. Total revenues decreased from approximately $3,105,000 for the
nine months ended September 30, 2000 to approximately $2,813,000, for the nine
months ended September 30, 2001. Product revenue was down approximately
$377,000, or 17%, while consulting and services revenue was up approximately
$84,000, or 10%. Product revenues are derived principally from software licenses
and the sale of hardware products. Product revenues increased from approximately
$388,000 for the three months ended September 30, 2000, to approximately
$763,000 for the three months ended September 30, 2001. The increase resulted
from strong orders for turnkey systems to new customers and hardware systems to
existing customers to upgrade them to SmartGate version 4.2. Product revenues
decreased from approximately $2,235,000 for the nine months ended September 30,
2000, to approximately $1,858,000 for the nine months ended September 30, 2001.
The decrease this year was due to weaker orders for software products.
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 increased from
approximately $258,000 and $871,00 for the three and nine months ended September
30, 2000, respectively, to approximately $337,000 and $955,000 for the three and
nine months ended September 30, 2001, respectively. This was due principally to
a higher number of new and renewing maintenance contracts provided to customers
in the third quarter and year. For the three and nine months ended September 30,
2001, the maintenance and support of customers revenue was 96% and 94% of total
consulting and services revenue, respectively. For the three and nine months
ended September 30, 2001, the installation and training revenue was 4% and 6% of
total consulting and services revenue, respectively.
While the Company anticipates that the unpredictability of the revenue streams
will stabilize during the fourth quarter of 2001 and believes that it is on
track to achieve the previously announced revenue projection of approximately
9
$2.3 million for the fourth quarter of 2001, it 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 29% and 16% for the three and nine months ended September 30,
2000, respectively, to approximately 38% and 36% for the three and nine months
ended September 30, 2001, respectively. The increases were primarily due to
several large turnkey and hardware system sales, added staff in training and a
higher proportion of total revenue of third-party product maintenance contracts
in the periods. Total cost of revenues is comprised of cost of product revenues
and cost of consulting and services revenues.
Cost of product revenues consists principally of the costs of computer hardware,
licensed technology, manuals and labor associated with the distribution and
support of the Company's products. Cost of product revenues increased from
approximately $74,000 and $285,000 for the three and nine months ended September
30, 2000, respectively, to approximately $287,000 and $619,000 for the three and
nine months ended September 30, 2001, respectively. The increase in costs of
product revenue for the three and nine months ended September 30, 2001 was
primarily attributable to a higher proportion of turnkey systems and third-party
firewalls sales. Cost of product revenues as a percentage of product revenues
was approximately 19% and 13% for the three and nine months ended September 30,
2000, respectively, and approximately 38% and 33% for the three and nine months
ended September 30, 2001, respectively. The percentage increases were primarily
attributable to a higher proportion of turnkey systems and third-party firewalls
sales, as compared to sales of software licenses.
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
$115,000 and $213,000 for the three and nine months ended September 30, 2000,
respectively, to approximately $137,000 and $381,000 for the three and nine
months ended September 30, 2001, respectively. Cost of consulting and services
revenues as a percentage of consulting and services revenues was approximately
45% and 24% for the three and nine months ended September 30, 2000,
respectively, and approximately 41% and 40% for the three and nine months ended
September 30, 2001. The dollar increases were due mainly to the hiring of
additional training staff and a higher proportion of sales of third-party
firewall maintenance contracts.
OPERATING EXPENSES
Research and Development -- Research and development expenses consist
principally of the costs of research and development personnel and other
expenses associated with the development of new products and enhancement of
existing products. Research and development expenses increased from
approximately $891,000 and $2,410,000 for the three and nine months ended
September 30, 2000, respectively, to approximately $1,019,000 and $3,071,000 for
the three and nine months ended September 30, 2001, respectively. The dollar
increases for the three and nine months ended September 30, 2001 of
approximately $128,000 and $661,000, respectively, over the same periods in the
prior fiscal year were primarily due to higher wage related expenses of $30,000
and $220,000, respectively, as well as higher consulting expense of $88,000 and
$351,000, respectively. Research and development expenses as a percentage of
total revenues were approximately 138% and 78% for the three and nine months
ended September 30, 2000, respectively and approximately 93% and 109% for the
three and nine months ended September 30, 2001, respectively.
Sales and Marketing -- Sales and marketing expenses consist principally of the
costs of sales and marketing personnel, advertising, promotions and trade shows.
Sales and marketing expenses decreased from approximately $1,561,000 and
$4,656,000 for the three and nine months ended September 30, 2000, respectively,
to approximately $1,221,000 and $3,757,000 for the three and nine months ended
September 30, 2001, respectively. The dollar decreases for the three and nine
months ended September 30, 2001 of $340,000 and $898,000, respectively, relate
10
to lower wage related expenses of $202,000 and $579,000, respectively, lower
travel expense of $88,000 and $233,000, respectively, lower rent of $37,000 and
$116,000, respectively, and lower advertising and trade show expenses of $85,000
and $315,000, respectively, offset in part by higher consulting costs of
$131,000 and $447,000, respectively. Sales and marketing expenses as a
percentage of total revenues were approximately 242% and 150% for the three and
nine months ended September 30, 2000, respectively, and approximately 111% and
134% for the three and nine months ended September 30, 2001, respectively. The
percentage decreases for the quarter and year are due to lower expense for
fiscal 2001 when compared to similar periods for fiscal 2000.
General and Administrative -- General and administrative expenses consist
principally of the costs of accounting and finance, legal and human resources
management, administrative personnel and facilities expenses. General and
administrative expenses decreased from approximately $810,000 and $2,484,000 for
the three and nine months ended September 30, 2000, respectively, to
approximately $642,000 and $1,960,000 for the three and nine months ended
September 30, 2001, respectively. The decrease for the third quarter of 2001 of
approximately $168,000 was due principally to lower wage related expenses of
$94,000 and accounting fees of $31,000. The decrease in expenses for the nine
months ended September 30, 2001 of approximately $524,000 was due to lower wages
related expenses of approximately $261,000, lower legal fees of approximately
$170,000 and lower bad debt expense of approximately $51,000. General and
administrative expenses as a percentage of total revenues were approximately
126% and 80% for the three and nine months ended September 30, 2000,
respectively, and 58% and 70% for the three and nine months ended September 30,
2001, respectively. The percentage decreases were due to lower expense in both
periods and higher revenue in the third quarter of this year as compared to the
third quarter of last year.
Other (Expense) Income - Other (expense) income represents the net income or
expense resulting from non-operational activities that are of an infrequently
occurring nature. Other (expense) income for the three and nine months ended
September 30, 2001 was approximately ($2,000) and $1,307,000, respectively. The
year-to-date income includes the gain of $1,334,000 on the sale to NFR of a 6.8%
minority interest in its common stock. The proceeds from the sale totaled
$1,625,000, the cost basis for the investment was $250,000 and the fees
associated with the sale were approximately $41,000. Other (expense) income for
the three and nine month periods last year was immaterial.
Interest Income and Expenses -- Interest income represents interest earned on
cash and cash equivalents. Interest income decreased from approximately $109,000
and $265,000 for the three and nine months ended September 30, 2000,
respectively, to approximately $63,000 and $215,000 for the three and nine
months ended September 30, 2001, respectively. The decreases were attributable
to lower levels of cash and cash equivalents. Interest expense represents
interest paid or payable on loans and capitalized lease obligations. Interest
expense decreased from approximately $5,000 and $17,000 for the three and nine
months ended September 30, 2000, respectively, to approximately $3,000 and
$10,000 for the three and nine months ended September 30, 2001, respectively,
due to a decrease in the capital equipment lease balance.
Income Taxes -- The Company did not incur income tax expenses as a result of the
net loss incurred during the nine months ended September 30, 2000 and 2001.
Dividend on Preferred Stock -- The Company provided approximately $37,000 and
$334,000 for the three and nine months ended September 30, 2000, respectively,
for dividends on the Series C Preferred Stock and approximately $205,000 and
$2,360,000 during the three and nine months ended September 30, 2001,
respectively, for the Series C Preferred Stock and the Series D Stock. Under the
terms of the purchase agreements for the Series C Preferred Stock and the Series
D Stock, the Company may elect to pay these dividends in cash or stock. The
11
Company recorded deemed dividends of approximately $1,825,000 in the nine months
ended September 30, 2001 due to the Series D Stock being issued at a discount to
fair market value on the date of issuance.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used cash of approximately $5,607,000 for the
nine months ended September 30, 2000 and approximately $5,691,000 for the nine
months ended September 30, 2001. Cash used in operating activities resulted
principally from net operating losses in both periods, offset in part by
increases in deferred revenue in 2000 and 2001 of approximately $560,000 and
approximately $960,000, respectively. Deferred revenue increases are a direct
result of the scheduled payments received under the Company's OEM agreement with
Citrix Systems, Inc. Until all contractual obligations are completed, revenue
for products sold by Citrix Systems, Inc. cannot be recognized and therefore
will remain in deferred revenue.
The Company's investing activities used approximately $650,000 in the nine
months ended September 30, 2000 and provided cash of approximately $1,250,000 in
the nine months ended September 30, 2001. Net capital expenditures for property
and equipment were approximately $654,000 and $375,000 during the nine months
ended September 30, 2000 and 2001, respectively. These expenditures have
generally been for computer workstations and personal computers, office
furniture and equipment, and leasehold additions and improvements. The capital
expenditures were higher in 2000 as the Company acquired approximately $300,000
of equipment and furniture, which had been under a three-year operating lease.
Proceeds from the sale of the Company's minority interest in the common stock of
NFR Security, Inc. were approximately $1,625,000 in the nine months ended
September 30, 2001.
The Company's financing activities provided cash of approximately $3,320,000 and
$6,307,000 during the nine months ended September 30, 2000 and 2001,
respectively. In fiscal 2001, the cash was provided primarily by the issuance of
a private placement of Series D Convertible Preferred Stock to certain
accredited investors pursuant to Rule 506 of Regulation D under the Securities
Act of 1933, as amended, for an aggregate offering price of $7,019,250. The
Company received $6,469,250 in net proceeds after payment of all fees and
offering expenses. The net proceeds of the offering are being used for general
working capital purposes. In a March 2000 private placement of securities, the
Company issued, pursuant to Rule 506 of Regulation D under the Securities Act of
1933, as amended, 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.
The Company had net tangible assets of $2,722,000 and $3,765,000 at December 31,
2000 and September 30, 2001, respectively.
As of September 30, 2001, the Company had an accumulated deficit of
approximately $56,701,000.
Management intends to pursue additional capital investment opportunities through
the development of potential strategic partnering relationships. Management has
identified several candidates that it believes have synergistic and/or
compatible technologies that may have the potential to provide a strategic
investment that could accelerate V-ONE's growth and position in the marketplace
and fund additional development and distribution of V-ONE's technology products
for specific applications. There can be no assurance that such strategic
partnering relationships will be completed, and V-ONE may be unable to place
equity securities on favorable terms or in an amount required to meet its future
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cash requirements. V-ONE anticipates that it will continue to expend significant
amounts to fund its operations and research and development and currently has no
plans to significantly alter its number of employees. Management, however, is
actively monitoring revenue and expense levels and can implement contingency
plans for changes as may be necessary to maintain sufficient resources until the
anticipated additional revenue and associated cash flow has been achieved. V-ONE
may not be successful in reducing operating levels or, if operating levels are
reduced, V-ONE may not be able to maintain operations for any extended period of
time. In the event that all of these efforts are not successful, V-ONE believes
it may not have the funds needed to sustain operations or to maintain capital
needed to satisfy listing requirements on the Nasdaq Small Cap Market beyond
March 31, 2002.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is not materially exposed to fluctuations in currency exchange rates
as all of its products are invoiced in U.S. dollars. The Company does not hold
any derivatives or marketable securities. However, the Company is exposed to
interest rate risk. The Company believes that the market risk arising from
holdings of its financial instruments is not material.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this quarterly report on
Form 10-Q for the period ended September 30, 2001:
Exhibit Description
------- -----------
None.
(b) Reports on Form 8-K
None.
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SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
V-ONE CORPORATION
Registrant
Date: November 8, 2001 By: /s/ John F. Nesline
-------------------------
Name: John F. Nesline
Title: Chief Financial Officer
(Duly authorized officer)
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