UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 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
-------------- ------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
20250 CENTURY BLVD., SUITE 300, GERMANTOWN, MARYLAND 20874
----------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(301) 515-5200
--------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X ] No [ ] .
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT AUGUST 6, 2001
----- -----------------------------
COMMON STOCK, $0.001 PAR VALUE PER SHARE 22,919,998
V-ONE Corporation
Quarterly Report on Form 10-Q
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Condensed Balance Sheets as of June 30, 2001 3
(unaudited) and December 31, 2000
Condensed Statements of Operations for the Three and 4
Six Months Ended June 30, 2001 (unaudited) and June 30,
2000 (unaudited)
Condensed Statements of Cash Flows for the Six Months 5
Ended June 30, 2001 (unaudited) and June 30, 2000
(unaudited)
Notes to the Condensed Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 11
Market Risk
PART II. OTHER INFORMATION 12
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
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
June 30, 2001 December 31, 2000
(Unaudited)
------------------ ---------------------
ASSETS
Current assets:
Cash and cash equivalents $ 6,676,385 $ 2,949,398
Accounts receivable, net 903,874 776,845
Finished goods inventory, net 116,572 172,177
Prepaid expenses and other current assets 213,595 254,631
------------------ ---------------------
Total current assets 7,910,426 4,153,051
Property and equipment, net 961,366 929,398
Other assets 104,109 368,169
------------------ ---------------------
Total assets $ 8,975,901 $ 5,450,618
================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 967,186 $ 1,375,939
Deferred revenue 1,920,138 1,113,202
Capital lease obligations - current 75,358 71,943
Total current liabilities ------------------ --------------------
Deferred rent 2,962,682 2,561,084
Capital lease obligations - noncurrent 100,638 120,150
8,883 47,803
------------------ ---------------------
Total liabilities 3,072,203 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,
issued and outstanding (liquidation preference of $3,000,000) 1,288 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;
22,276,219 and 22,109,185 shares issued and outstanding,
respectively 22,276 22,109
Accrued dividends payable 465,186 180,911
Additional paid-in capital 59,758,026 51,393,818
Accumulated deficit (54,346,796) (48,876,600)
-------------------- ---------------------
Total shareholders' equity 5,903,698 2,721,581
-------------------- ---------------------
Total liabilities and shareholders' equity 8,975,901 $ 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 Six months Six months
ended ended ended ended
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
(unaudited) (unaudited) (unaudited) (unaudited)
--------------- --------------- --------------- ---------------
Revenue:
Products $ 570,745 $ 713,298 $ 1,095,000 $1,846,751
Consulting and services 351,621 362,548 617,547 613,016
--------------- --------------- --------------- ---------------
Total revenue 922,366 1,075,846 1,712,547 2,459,767
Cost of revenue:
Products 134,228 141,207 332,346 211,234
Consulting and services 80,993 10,251 142,112 23,220
--------------- --------------- --------------- ---------------
Total cost of revenues 215,221 151,458 474,458 234,454
Gross profit 707,145 924,388 1,238,089 2,225,313
Operating expenses:
Research and development 1,051,433 806,526 2,052,089 1,519,216
Sales and marketing 1,454,296 1,673,818 2,638,465 3,169,718
General and administrative 621,497 1,020,654 1,317,685 1,673,674
--------------- --------------- --------------- ---------------
Total operating expenses 3,127,226 3,500,998 6,008,239 6,362,608
Operating loss (2,420,081) (2,576,610) (4,770,150) (4,137,295)
Other (expense) income:
Interest expense (3,179) (5,839) (6,966) (12,338)
Interest income 100,867 70,748 152,900 155,710
Other (expense) income 723 - 1,309,331 -
--------------- --------------- --------------- ---------------
Total other (expense) income 98,411 64,909 1,455,265 143,372
--------------- --------------- --------------- ---------------
Net loss (2,321,670) (2,511,701) (3,314,885) (3,993,923)
Dividend on preferred stock 203,080 90,704 2,155,311 297,165
--------------- --------------- --------------- ---------------
Loss attributable to holders of
common stock $ (2,524,750) $ (2,602,405) $ (5,470,196) $ (4,291,088)
=============== ================ =============== ===============
Basic and diluted loss per share
attributable to holders of
common stock $ (0.11) $ (0.12) $ (0.25) $ (0.22)
=============== =============== =============== ===============
Weighted average number of
common shares outstanding 22,271,441 20,945,663 22,214,170 19,722,981
=============== =============== =============== ===============
The accompanying notes are an integral part of these financial statements.
4
V-ONE CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
Six months Six months
ended ended
June 30, 2001 June 30, 2000
(unaudited) (unaudited)
----------------- ----------------------
Cash flows from operating activities:
Net loss $(3,314,885) $(3,993,923)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 283,356 177,642
Stock compensation 146,734 94,000
Gain on sale of investment (1,375,000) -
Changes in assets and liabilities:
Accounts receivable, net (127,029) (253,296)
Inventory, net 55,605 (210,488)
Prepaid expenses and other assets 55,096 109,447
Accounts payable and accrued expenses (408,753) 10,232
Deferred revenue 806,936 297,906
Deferred rent (19,511) (15,450)
------------------ ----------------------
Net cash used in operating activities (3,897,451) (3,783,930)
Cash flows from investing activities:
Net purchases of property and equipment (315,323) (291,027)
Collection of subscription - 3,785
Proceeds from sale of investment 1,625,000 -
------------------ ----------------------
Net cash provided by (used in) investing activities 1,309,677 (287,242)
Cash flows from financing activities:
Exercise of options and warrants 48,642 157,973
Issuance of common stock - 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) (14)
Principal payments on capitalized lease obligations (35,506) (38,265)
------------------ ----------------------
Net cash provided by financing activities 6,314,761 3,328,147
------------------ ----------------------
Net increase (decrease) in cash and cash equivalents 3,726,987 (743,025)
Cash and cash equivalents at beginning of period 2,949,398 7,136,943
------------------ ----------------------
Cash and cash equivalents at end of period $ 6,676,385 $ 6,393,918
================== ======================
The accompanying notes are an integral part of these financial statements.
5
V-ONE CORPORATION
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of the Business
V-ONE Corporation ("Company") develops, markets and licenses a comprehensive
suite of network security products that enable organizations to conduct secured
electronic transactions and information exchange using private enterprise
networks and public networks, such as the Internet. The Company's principal
market is the United States, with headquarters in Maryland, with secondary
markets in Europe and Asia.
2. Basis of Presentation
The condensed financial statements for the three and six months ended June 30,
2001 and June 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 six month period ended June 30, 2001
are not necessarily indicative of the results expected for the full year ending
December 31, 2001.
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 six months ended June 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 six months ended June 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
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.
6
4. Management's Plans
Management's plans include the development of additional revenue from several
sources including but not limited to the Company's new Channel Partners program
associated with its 4.2 product release, its OEM agreement with Citrix, 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 also intends to pursue the
development of strategic partnering relationships. The Company 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 the Company's growth and position in the marketplace and fund
additional development and distribution of the Company's technology products for
specific applications. There can be no assurance that such strategic partnering
relationships will be completed. Management is actively monitoring the revenue
and expense levels of the Company 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.
5. Other Events
Effective March 13, 2001, the Company completed a sale to NFR of a 6.8% minority
interest in its common stock, totaling 500,000 shares. The sale price per share
was $3.25 and the proceeds of the sale totaled $1,625,000. The gain on the sale
was included in other income.
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 ("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, 2000, 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. The suits were consolidated on July 14, 2000.
On February 20, 2001, the suit was dismissed in its entirety, with prejudice. In
granting Defendants' 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 Defendants.
6. Supplemental Cash Flow Disclosure
Selected noncash activities were as follows:
-----------------------------------
Six Months ended June 30,
-----------------------------------
2001 2000
--------------- -------------
Noncash investing and financing activities:
Redemption of preferred stock $ 225,571 $ 7,107,529
Payment of preferred stock dividends $ 46,088 $ 222,263
7
7. Net Loss Per Share
The following table sets forth the computation of basic and diluted net loss per
share:
Three Months ended June 30, Six Months ended June 30,
-----------------------------------------------------------------
2001 2000 2001 2000
---------------------------------------------------------------
Numerator:
Net loss $(2,321,670) $(2,511,701) $(3,314,885) $(3,993,923)
Less: Dividend on preferred stock (203,080) (90,704) (2,155,311) (297,165)
------------ ------------- ------------ -------------
Net loss attributable to holders of common stock $(2,524,750) $(2,602,405) $(5,470,196) $(4,291,088)
============ ============= ============ =============
Denominator:
Denominator for basic and diluted net loss per
share
- weighted average shares 22,271,441 20,945,663 22,214,170 19,722,981
============ ============= ============ =============
Basic and diluted loss per share -
Net loss attributable to holders of common stock $ (0.11) $ (0.12) $ (0.25) $ (0.22)
============ ============= ============ =============
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 decreased from approximately $1,076,000 and $2,460,000 for the
three and six months ended June 30, 2000, respectively, to approximately
$922,000 and $1,713,000, for the three and six months ended June 30, 2001,
respectively. This decrease was primarily due to lower sales of the Company's
network security products and delays in installations of federal government
initiatives. Product revenues are derived principally from software licenses and
the sale of hardware products. Product revenues decreased from approximately
$713,000 and $1,847,000 for the three and six months ended June 30, 2000,
respectively, to approximately $571,000 and $1,095,000 for the three and six
months ended June 30, 2001, respectively. Consulting and services revenues are
derived principally from fees for services complementary to the Company's
products, including consulting, maintenance and training. Consulting and
services revenues decreased slightly from approximately $362,000 for the three
months ended June 30, 2000 to approximately $352,000 for the three months ended
June 30, 2001, and increased slightly from approximately $613,000 for the six
months ended June 30, 2000 to approximately to $618,000 for the six months ended
June 30, 2001, due principally to a higher number of maintenance contracts
provided to customers.
COST OF REVENUES
Total cost of revenues as a percentage of total revenues increased from
approximately 14% and 10% for the three and six months ended June 30, 2000,
respectively, to approximately 23% and 28% for the three and six months ended
June 30, 2001, respectively. The increases were primarily due to several large
turnkey systems sales, added staff in training and a higher proportion of total
revenue as third-party product maintenance contracts in the periods, on lower
overall revenue. Total cost of revenues is comprised of cost of product revenues
and cost of consulting and services revenues.
Cost of product revenues consists principally of the costs of computer hardware,
licensed technology, manuals and labor associated with the distribution and
support of the Company's products. Cost of product revenues decreased from
approximately $141,000 for the three months ended June 30, 2000 to approximately
$134,000 for the three months ended June 30, 2001, and increased from
approximately $211,000 for the six months ended June 30, 2000 to approximately
to $332,000 for the six months ended June 30, 2001. The increase in costs of
product revenue in the six months ended June 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 20%
and 11% for the three and six months ended June 30, 2000, respectively, and
approximately 24% and 30% for the three and six months ended June 30, 2001,
9
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
$10,000 and $23,000 for the three and six months ended June 30, 2000,
respectively, to approximately $81,000 and $142,000 for the three and six months
ended June 30, 2001, respectively. Cost of consulting and services revenues as a
percentage of consulting and services revenues was approximately 5% and 23% for
the three and six months ended June 30, 2000, respectively, and approximately
23% for both the three and six months ended June 30, 2001. The dollar and
percentage increases were due in part 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 $807,000 and $1,519,000 for the three and six months ended June
30, 2000, respectively, to approximately $1,051,000 and $2,052,000 for the three
and six months ended June 30, 2001, respectively. Research and development
expenses as a percentage of total revenues were approximately 75% and 62% for
the three and six months ended June 30, 2000, respectively and approximately
114% and 120% for the three and six months ended June 30, 2001, respectively.
The dollar and percentage increases for 2001 were primarily due to higher wage
related expenses as well as higher consulting expense.
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 $1,674,000 and
$3,170,000 for the three and six months ended June 30, 2000, respectively, to
approximately $1,454,000 and $2,369,000 for the three and six months ended June
30, 2001, respectively. Sales and marketing expenses as a percentage of total
revenues were approximately 156% and 129% for the three and six months ended
June 30, 2000, respectively, and approximately 158% and 154% for the three and
six months ended June 30, 2001, respectively. The dollar decrease for 2001
relates to lower wage related expenses offset in part by higher consulting
costs. The percentage increase is mainly due to lower revenue this year when
compared to last year.
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 $1,021,000 and $1,674,000 for the three and six months ended June
30, 2000, respectively, to approximately $621,000 and $1,318,000 for the three
and six months ended June 30, 2001, respectively. The decrease for 2001 was due
principally to lower wage related expenses and legal fees. General and
administrative expenses as a percentage of total revenues were approximately 95%
and 68% for the three and six months ended June 30, 2000, respectively, and 67%
and 77% for the three and six months ended June 30, 2001, respectively. The
percentage increase in the quarter just ended was principally due to lower
revenue this year as compared to last year.
Other (Expense) Income - Other (expense) income represents the net income or
expense resulting from non-operational activities that are of an infrequently
occurring nature. Other (expense) income for the three and six months ended June
30, 2001 was approximately $1,000 and $1,309,000, respectively. The year-to-date
figure 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 six month
periods last year were immaterial.
Interest Income and Expenses -- Interest income represents interest earned on
cash and cash equivalents. Interest income increased from approximately $71,000
for the three months ended June 30, 2000 to approximately $101,000 for the three
months ended June 30, 2001 and decreased slightly from $156,000 for the six
months ended June 30, 2000 to approximately $153,000 for the six months ended
June 30, 2001. The decrease in the second quarter of 2001 was attributable to
lower levels of cash and cash equivalents. Interest expense represents interest
paid or payable on loans and capitalized lease obligations. Interest expense
decreased from approximately $6,000 and $12,000 for the three and six months
ended June 30, 2000, respectively, to approximately $3,000 and $7,000 for the
three and six months ended June 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 six months ended June 30, 2000 and 2001.
10
Dividend on Preferred Stock -- The Company provided approximately $91,000 and
$297,000 for the three and six months ended June 30, 2000, respectively, for
dividends on the Series C Preferred Stock and approximately $203,000 and
$2,155,000 during the three and six months ended June 30, 2001, respectively,
for the Series C Preferred Stock and the Series D Stock, respectively. 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 and stock. The
Company recorded deemed dividends of approximately $1,825,000 in the six months
ended June 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 $3,784,000 for the
six months ended June 30, 2000 and approximately $3,897,000 for the six months
ended June 30, 2001. Cash used in operating activities resulted principally from
net losses in both periods, offset in part during the current year by the
increase in deferred revenue. Deferred revenue increased in the quarter due in
part to receipt of the scheduled quarterly payment of $250,000 under the
Company's OEM agreement with Citrix Systems, Inc., bringing the total payments
received to $1,250,000 to date. 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 $287,000 in the six months
ended June 30, 2000 and provided cash of approximately $1,310,000 in the six
months ended June 30, 2001. Net capital expenditures for property and equipment
were approximately $291,000 and $315,000 during the six months ended June 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 increased in 2001
as the Company capitalized two in process software development projects in
addition to incurring some leasehold improvements in a consolidation of floors
at the Company's headquarters. 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 six months ended June 30, 2001.
The Company's financing activities provided cash of approximately $3,328,000 and
$6,315,000 during the six months ended June 30, 2000 and 2001, respectively. In
the first half of 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 $5,904,000 at December 31,
2000 and June 30, 2001, respectively.
As of June 30, 2001, the Company had an accumulated deficit of approximately
$54,347,000.
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 the Company's growth and position in
the marketplace and fund additional development and distribution of the the
Company's technology products for specific applications. An important component
of the Company's strategy over the next six months will focus on developing
these types of strategic relationships. The Company believes that its current
cash and cash equivalents and funds that may be generated from on-going
operations will be sufficient to meet its normal operating requirements over the
near term and to maintain capital needed to satisfy listing requirements on the
NASDAQ Small Cap Market. This statement is based on current expectations. It is
forward-looking, and the actual results could differ materially. For information
about factors that could cause the actual results to differ materially, please
refer to Item 1, "Business-Risk Factors That May Affect Future Results and
Market Price of Common Stock.
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.
11
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
On May 21, 2001, the Company filed a Registration Statement on Form S-8 in
conjunction with the registration of 2,500,000 shares of common stock as part of
an Employee Stock Purchase Plan.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
On May 10, 2001 the following items were voted on at the Annual Meeting of
Stockholders:
BROKER
Proposal FOR AGAINST ABSTAIN NON-VOTES
--- ------- ------- ---------
1. Reelection of Directors:
James T. McManus 21,502,890 127,484 N/A N/A
Michael J. Mufson 21,290,928 339,446 N/A N/A
Molly G. Bayley 21,098,670 531,704 N/A N/A
The terms of office for Margaret E. Grayson, Heidi B. Heiden, Michael O'Dell, and William E. Odom continued after
the Annual Meeting of Stockholders.
2. Ratification of auditors 21,594,898 40,716 4,760 N/A
3. Approval of Employee Stock Purchase Plan 8,155,046 1,154,485 191,040 12,134,791
Item 5. Other Information
None.
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Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this quarterly report on Form
10-Q for the period ended June 30, 2001:
EXHIBIT DESCRIPTION
------- -----------
10.1 2001 Employee Stock Purchase Plan (1)
10.2 Form of Subscription Agreement between the Company and Employees
under the 2001 Employee Stock Purchase Plan (1)
----------------------
(1) The information required by these exhibits is incorporated herein by
reference to the Company's Form 10-K for the twelve months ended December 31,
2000.
(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: August 6, 2001 By: /s/ John F. Nesline
--------------------------
Name: John F. Nesline
Title: Chief Financial Officer
(Duly authorized officer)
14