VIRTUAL OPEN NETWORK ENVIRONMENT CORP, POS AM, 1996-10-24

VIRTUAL OPEN NETWORK ENVIRONMENT CORP
POS AM, 1996-10-24
COMPUTERS & PERIPHERAL EQUIPMENT & SOFTWARE

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 24, 1996

FILE NO. 333-06535
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1

POST-EFFECTIVE

AMENDMENT NO. 1

TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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V-ONE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)

7372
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)

52-1953278
(I.R.S. EMPLOYER
IDENTIFICATION NO.)

1803 RESEARCH BOULEVARD - SUITE 305
ROCKVILLE, MARYLAND 20850
(301) 838-8900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

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JAMES F. CHEN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
V-ONE CORPORATION
1803 RESEARCH BOULEVARD - SUITE 305
ROCKVILLE, MARYLAND 20850
(301) 838-8900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

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Copy to:

ALAN J. BERKELEY, ESQ.
CARY J. MEER, ESQ.
KATHY L. KRESCH, ESQ.
SIDNEY R. SMITH, III, ESQ.
KIRKPATRICK & LOCKHART LLP
1800 MASSACHUSETTS AVENUE, N.W.
WASHINGTON, D.C. 20036

STUART M. CABLE, ESQ.
GOODWIN, PROCTER & HOAR LLP
EXCHANGE PLACE
BOSTON, MA 02109

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

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<PAGE> 2

V-ONE CORPORATION

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CROSS-REFERENCE SHEET

<TABLE>
<CAPTION>
ITEM NUMBER OF CAPTION LOCATION IN PROSPECTUS
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus......... Outside Front Page of Registration
Statement; Outside Front Cover Page
of Prospectus;
2. Inside Front and Outside Back Cover Pages of
Prospectus..................................... Inside Front and Outside Back Cover
Pages of Prospectus
3. Summary Information, Risk Factors; and Ratio of
Earnings to Fixed Charges...................... Prospectus Summary; Risk Factors;
Selected Financial Data
4. Use of Proceeds.................................. Use of Proceeds
5. Determination of Offering Price.................. Underwriting
6. Dilution......................................... Dilution
7. Selling Security Holders......................... Selling Shareholders
8. Plan of Distribution............................. Outside Front Cover Page of
Prospectus; Underwriting
9. Description of Securities to be Registered....... Outside Front Cover Page of
Prospectus; Prospectus Summary;
Dividend Policy; Capitalization;
Description of Capital Stock
10. Interests of Named Experts and Counsel........... Not Applicable
11. Information with Respect to Registrant........... Prospectus Summary; Dividend Policy;
Selected Financial Data;
Management's Discussion of
Financial Condition and Results of
Operations; Business; Management;
Principal Shareholders; Certain
Transactions; Description of
Capital Stock; Shares Eligible for
Future Sales; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................... Not Applicable
</TABLE>
<PAGE> 3

PROSPECTUS

dated October 24, 1996

3,000,000 SHARES

V-ONE LOGO

COMMON STOCK

All of the 3,000,000 shares of Common Stock offered hereby (the "Offering") are
being issued and sold by V-ONE Corporation ("V-ONE" or the "Company").

Prior to this Offering, there has been no public market for the Common Stock of
the Company. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price. The Common Stock will be quoted
on the Nasdaq National Market under the symbol "VONE."

SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share........................ $5.00 $0.35 $4.65
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Total(3)......................... $15,000,000 $1,050,000 $13,950,000
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>

(1) The Company and certain shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."

(2) Before deducting expenses payable by the Company estimated at $700,000.

(3) The Company and certain shareholders have granted the Underwriters a 30-day
option to purchase up to 450,000 additional shares of Common Stock solely to
cover over-allotments, if any, at the per share Price to Public less
Underwriting Discount. If the Underwriters exercise this option in full, the
total Price to Public, Underwriting Discount and Proceeds to Company will be
$17,250,000, $1,207,500 and $16,042,500, respectively. See "Underwriting."

The shares of Common Stock are offered by the Underwriters subject to prior sale
when, as and if delivered to and accepted by the Underwriters and subject to
their right to reject orders in whole or in part. It is expected that
certificates for such shares will be available for delivery at the offices of
Piper Jaffray Inc. in Minneapolis, Minnesota on or about October 29, 1996.

PIPER JAFFRAY INC. VOLPE, WELTY & COMPANY
<PAGE> 4

[Description of graphics:

The first graphic depicts the elements required to create a complete
network security solution: (1) identification and authentication,
(2) encryption, (3) authorization, (4) nonrepudiation and (5) integrity, and
contains a brief description of each term.

The second graphic is a two-page fold-out. The left-hand side illustrates
the three uses of V-ONE's technology products: (1) remote access, (2) electronic
transactions and (3) information exchange. The right-hand page illustrates the
functional aspects of an enterprise network secured by V-ONE products. It also
lists V-ONE's three principal products (SmartGATE, SmartWall and SmartCAT) and
contains a brief description of each product.]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information
contained in this Prospectus (i) reflects the conversion of all outstanding
shares of the Company's Series A Convertible Preferred Stock ("Series A Stock")
into an aggregate of 949,209 shares of Common Stock at the closing of this
Offering (see "Description of Capital Stock -- Series A Convertible Preferred
Stock"), which occurs automatically in the event the Offering is consummated by
October 31, 1996 (see "Risk Factors -- Conversion of Series A Stock" and
"Description of Capital Stock -- Series A Convertible Preferred Stock"), (ii)
has been retroactively adjusted to reflect a 10-for-1 stock split of the Common
Stock as of November 11, 1995 and a 2-for-3 reverse stock split of the Common
Stock and Series A Stock effective July 2, 1996, (iii) assumes no exercise of
the Underwriters' over-allotment option and (iv) assumes the issuance of 188,705
shares of Common Stock to RSA Data Security, Inc. and Massachusetts Institute of
Technology (see "Business -- License Agreements").

THE COMPANY

V-ONE Corporation ("V-ONE" or the "Company") develops, markets and licenses
a comprehensive suite of network security products that enable organizations to
conduct secured electronic transactions and information exchange using private
enterprise networks and public networks, such as the Internet. The Company's
suite of products address network user authentication, perimeter security,
access control and data integrity through the use of smart cards, firewalls and
encryption technology. The Company's products interoperate seamlessly and can be
combined to form a complete, integrated network security solution or can be used
as independent components in customized security solutions. The Company's
products have been designed with an open and flexible architecture to allow for
enhanced application functionality and to support future network security
standards. In addition, the Company's products enable organizations to deploy
and scale their solutions from small single-site networks to large multi-site
environments. The Company's customers include key participants in the financial
services, telecommunications and information services markets, as well as
government entities, including Banc One Services Corporation, BayBank Systems,
Inc., Fuji Capital Markets Corporation, GE Information Services, Inc. ("GEIS"),
MCI Telecommunications Corporation ("MCI"), the National Security Agency ("NSA")
and Visa International.

Organizations are increasing their dependence on public networks, such as
the Internet, and private enterprise networks using Internet protocols
("intranets") as a cost-effective means to expand enterprise networks, engage in
electronic commerce and increase information exchange. The demand for computer
network security is expected to grow significantly as a result of the increased
use of the Internet and intranets. The Yankee Group, a market research firm,
indicated that it expects the market for information security products and
services to grow at a 70% compound annual rate to the end of the decade from
$399 million in 1995 to approximately $5.6 billion in the year 2000.

As organizations increase their use of the Internet and deploy intranets,
there is a growing need for comprehensive enterprise-wide network security
solutions. To protect an organization's data, network and computer systems, a
comprehensive network security solution requires five elements: identification
and authentication, integrity, non-repudiation, authorization and encryption. To
date, network security solutions have focused on single function or point
products that address one or a limited number of these security elements. These
products were designed with a specific function or objective; however, few were
designed to meet all of the needs of enterprise-wide network security.

The Company offers a suite of products that are designed to address the
elements of a comprehensive enterprise-wide network security solution. The
Company's three major network security products are SmartGATE(TM), a
client/server product that offers identification and authentication, integrity,
non-repudiation, authorization and encryption; SmartWall(R), an application
level firewall that incorporates SmartGATE's functionality; and SmartCAT(R), a
smart card-based product that offers authentication and encryption. In addition,
the Company provides integrated security applications software, including
SmartREM(TM), which will provide a secure environment for sending and receiving
e-mail over the Internet and intranets, and Wallet

3
<PAGE> 6

Technology, a secure electronic payment system. The Company's modular suite of
products can be combined and configured to provide network perimeter security,
secure remote access and intra/inter-enterprise security, allowing its customers
to securely and easily deploy a broad range of applications and services on the
Internet and intranets.

The Company's marketing strategy is to achieve broad market penetration
through multiple distribution channels, including the Company's direct sales
force, Internet service providers, systems integrators, value-added network
service providers and international distributors. In particular, the Company has
focused its direct sales efforts on certain vertical markets that require
sophisticated network security solutions, including financial services,
telecommunications and information services companies and government entities.
The Company has also established strategic relationships with marketing and
licensing partners to expand the reach of its marketing efforts. The Company
believes that these alliances provide a cost-effective means by which the
Company can efficiently penetrate new markets. For example, the Company has
entered into a reseller arrangement with MCI. The Company believes that, in the
second half of 1996, MCI is planning to utilize the Company's technology to
offer a multi-purpose, secure campus card program to the college and university
market. This smart card-based solution would use the Company's SmartGATE,
SmartWall and SmartCAT products and would permit students to obtain secure
access to their college or university records, student information and campus
services via the Internet. The smart cards would also be able to include stored
value for use at on- and off-campus vendors and pay telephones.

The Company was incorporated in Maryland in February 1993 and
reincorporated in Delaware in February 1996. Effective July 2, 1996, the Company
changed its name from "Virtual Open Network Environment Corporation" to "V-ONE
Corporation." The Company's principal executive offices are located at 1803
Research Boulevard, Suite 305, Rockville, Maryland 20850. The Company's
telephone number is (301) 838-8900, and its World Wide Web ("Web") address is
http://www.v-one.com. Information contained on the Company's Web site shall not
be deemed part of this Prospectus.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company.......... 3,000,000 shares
Common Stock outstanding after this 12,540,556 shares(1)
Offering...................................
Use of proceeds.............................. For working capital and other general
corporate purposes and repayment of loans.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol....... VONE
</TABLE>

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(1) Based upon shares outstanding as of September 9, 1996. Excludes 350,293
shares of Common Stock that were subject to outstanding options under the
Company's 1995 Non-Statutory Stock Option Plan and 966,768 shares of Common
Stock that were subject to outstanding options under the Company's 1996
Incentive Stock Plan with an aggregate weighted average exercise price of
$3.41 per share; and warrants to purchase 319,999 shares of Common Stock at
an exercise price of $3.75 per share (assuming a share of Series A Stock is
converted into 1.20 shares of Common Stock on consummation of the Offering)
(see "Certain Transactions").

4
<PAGE> 7

SUMMARY FINANCIAL DATA

<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
----------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................................... $ 1,182,543 $ 1,182,543 $ 14,432,543
Total assets........................................ 5,444,755 6,293,928 19,543,928
Long term debt, less current portion................ 106,086 106,086 106,086
Shareholders' equity (deficit)...................... (1,590,608) 2,818,119 16,068,119
</TABLE>

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(1) For a description of the computation of net loss per share and shares used
in computing net loss per share, see Note 2 of Notes to the Financial
Statements.

(2) Gives effect to conversion of each outstanding share of Series A Stock into
1.20 shares of Common Stock and the issuance of 188,705 shares of Common
Stock currently reserved for issuance in connection with the conversion of
future royalty obligations into shares of Common Stock. See
"Business -- License Agreements."

(3) Adjusted to reflect the sale of 3,000,000 shares offered hereby and the
application of the estimated net proceeds therefrom. See "Use of Proceeds"
and "Capitalization."

- ---------------

The Company has registrations for the trademarks V-ONE(R), SmartWall(R) and
SmartCAT(R), and has filed applications for trademark registration of, among
others, SmartGATE(TM) and SmartREM(TM). This Prospectus also contains
trademarks, tradenames and servicemarks of other companies.

5
<PAGE> 8

RISK FACTORS

In addition to the other information included in this Prospectus, the
following risk factors should be carefully considered in evaluating an
investment in the Common Stock offered by this Prospectus.

LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT

The Company was founded in February 1993 and introduced its first product
in December 1994. Accordingly, the Company did not generate any significant
revenues until 1995 when it commenced sales of its SmartWall firewall product
and introduced its SmartGATE client/server system. Revenues for 1995 and for the
six months ended June 30, 1996 were approximately $1,104,000 and $2,376,000,
respectively. The Company's growth in recent periods may not be an accurate
indication of future results of operations in light of the Company's short
operating history, 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. As of June 30, 1996, the Company had
accumulated a deficit of approximately $6,033,000. The Company currently expects
to incur net losses over the next several quarters as a result of greater
operating expenses incurred to fund research and development and to increase its
sales and marketing efforts.

Because of the Company's limited operating history, there can be no
assurance that the Company will achieve or sustain profitability or significant
revenues. To address these risks, the Company must, among other things, continue
its emphasis on research and development, successfully execute and implement its
marketing strategy, respond to competitive developments and seek to attract and
retain talented personnel. There can be no assurance that the Company will
successfully address these risks and the failure to do so could have a material
adverse effect on the Company's business, financial condition and results of
operations.

CONVERSION OF SERIES A STOCK

In the event that the initial offering price per share of Common Stock
offered hereby is at least $7.00 per share and the Offering is consummated by
October 31, 1996, each share of Series A Stock will automatically be converted
into 1.15 shares of Common Stock. In the event the initial offering price per
share of Common Stock is less than $7.00 per share and the Offering is
consummated by October 31, 1996, each share of Series A Stock will automatically
be converted into 1.20 shares of Common Stock. (In either event, the value of
any fractional shares of Common Stock otherwise issuable will be paid in cash at
a rate of $7.00 per share of Common Stock.) In the event a share of Series A
Stock converts into Common Stock at a rate of 1.20 shares of Common Stock as a
result of the foregoing, James F. Chen, the Company's founder, President and
Chief Executive Officer, has agreed to contribute to the Company 39,552 shares
of Common Stock, representing the additional number of shares of Common Stock
the Company must issue as a result of the increase in the Series A Stock's
conversion ratio. Either such event would increase the dilution suffered by
purchasers of the shares of Common Stock offered hereby. If, however, the
Offering is consummated after October 31, 1996 at an initial offering price of
at least $7.875 per share of Common Stock and over $15 million is raised in the
Offering, each share of Series A Stock will be automatically converted into 1
share of Common Stock. Further, if the Offering is not consummated by October
31, 1996, and the initial offering price per share is less than $7.875 or over
$15 million is not raised, the Series A Stock will remain outstanding following
the consummation of the Offering. This will limit the ability of the Company to
pay dividends on the Common Stock and will further limit the rights of the
holders of Common Stock. At the initial offering price of $5.00 per share, each
share of Series A Stock automatically converts into 1.20 shares of Common Stock
upon consummation of the Offering by October 31, 1996. See "Dividend Policy,"
"Dilution" and "Description of Capital Stock -- Series A Convertible Preferred
Stock."

COMPETITION

The Company competes in several different network security markets:
Internet and intranet perimeter security and access control (firewalls), token
authentication, smart card-based security applications and electronic commerce
applications. The Company's principal competitors for Internet and intranet
perimeter security and access control include Advanced Network and Services (a
subsidiary of America Online, Inc.),

6
<PAGE> 9

AXENT Technologies, Inc., Bay Networks, Inc., Border Network Technologies, Inc.,
Check Point Software Technology Ltd., Cisco Systems, Inc., Digital Equipment
Corporation, Harris Computer Systems Corporation, International Business
Machines Corporation, Milkyway Networks Corporation, Morningstar Technologies,
Inc., Network Systems Corporation, Raptor Systems, Inc., Secure Computing
Corporation, Sun Microsystems, Inc. and Trusted Information Systems, Inc.
("TIS"), which owns the Gauntlet(TM) kernel and licenses it to the Company.

The Company competes to a lesser degree with token vendors because the
Company's SmartGATE product supports many vendor tokens. Token vendors include
CRYPTOCard Inc., Digital Pathways, Inc., Leemah DataCom Security Corporation,
National Semiconductor Inc., Racal-Guardata, Inc. and Security Dynamics
Technologies, Inc. ("Security Dynamics"). Security Dynamics has recently
acquired RSA Data Security, Inc. ("RSA"). RSA's data encryption and
authentication technology is licensed to and incorporated within certain
products of the Company. As a result, Security Dynamics may become a more
substantial competitor of the Company.

For smart card-based security applications, the Company principally
competes with those token vendors listed above who offer smart card technology.

The Company's principal competitors in electronic commerce applications are
Netscape Communication's Secure Socket Layer, Open Market Inc.'s Secure HTTP and
Cylink Corporation's transaction software. See "Business -- Competition."

Because of the rapid expansion of the network security market, the Company
will face competition from existing and new entrants, possibly including the
Company's customers, suppliers or resellers. There can be no assurance that the
Company's competitors will not develop network security products that may be
more effective than the Company's current or future products or that the
Company's technologies and products would not be rendered obsolete by such
developments.

Many of the Company's current and potential competitors have longer
operating histories, greater name recognition, larger installed customer bases
and significantly greater financial, technical and marketing resources than the
Company. As a result, they may be able to adapt more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the promotion and sale of their products than the Company. There
can be no assurance that the Company's customers will not perceive the products
of such other companies as substitutes for its products.

The Company believes that the principal competitive factors affecting the
market for network security products include effectiveness, scope of product
offerings, technical features, ease of use, reliability, customer service and
support, name recognition, distribution resources and price. Current and
potential competitors have established, or may establish in the future,
strategic alliances to increase their ability to compete for the Company's
prospective customers. Accordingly, it is possible that new competitors or
alliances may emerge and rapidly acquire significant market share. Such
competition could have a materially adverse effect on the Company's business,
financial condition and results of operations.

DEPENDENCE ON KEY PERSONNEL

The Company's success will depend, to a large extent, upon the performance
of its senior management and its technical, sales and marketing personnel, many
of whom have only recently joined the Company. There is keen competition in the
software security industry to hire and retain qualified personnel and the
Company is actively searching for additional qualified personnel. The Company's
success will depend upon its ability to retain and hire additional key
personnel. The loss of the services of key personnel or the inability to attract
additional qualified personnel could have a material adverse effect upon the
Company's results of operations and product development efforts. The Company
currently has $1.0 million "key man" life insurance policies on the lives of
each of James F. Chen, its founder, President and Chief Executive Officer,

7
<PAGE> 10

Jieh-Shan Wang, its Senior Vice President of Engineering, and Marcus J. Ranum,
its Chief Scientist. This coverage, however, may not be sufficient to mitigate
the impact that the loss of the services of Mr. Chen, Mr. Wang or Mr. Ranum
would have on the Company. Although the Company has entered into employment
agreements with Mr. Chen and Mr. Wang that provide for fixed terms of
employment, the Company has not historically provided such types of employment
agreements to its other employees, including its executive officers. This may
adversely impact the Company's ability to attract and retain the necessary
technical, management and other key personnel, which could have a material
adverse effect upon the Company's results of operations and product development
efforts. See "Management -- Employment Agreements."

MANAGEMENT OF GROWTH

The Company has recently experienced and may continue to experience
substantial growth in the number of its employees and the scope of its
operations, resulting in increased responsibilities for management and added
pressure on the Company's operating and financial systems. As of June 30, 1996,
the Company had grown to 57 employees, from 34 employees on January 1, 1996 and
7 employees on January 1, 1995. To manage growth effectively, the Company will
need to continue to improve its operational, financial and management
information systems and will need to hire, train, motivate and manage a growing
number of employees. Competition is intense for qualified technical, marketing
and management personnel. There can be no assurance that the Company will be
able to achieve or manage any future growth, and its failure to do so could
delay product development cycles and marketing efforts or otherwise have a
material adverse effect on the Company's business, financial condition and
results of operations. Although the Company is not currently involved in
negotiations for any acquisitions, the Company may undertake acquisitions in the
future. Any such transaction would place additional strains upon the Company's
management resources. See "Management" and "Business -- Employees."

ANTICIPATED FLUCTUATIONS IN QUARTERLY RESULTS

As a result of the Company's limited operating history, the Company does
not have historical financial data for a significant number of periods on which
to base planned operating expenses. Accordingly, the Company's expense levels
are based in part on its expectations as to future revenues. The Company's
quarterly sales and operating results generally depend on the volume and timing
of, and ability to fill, orders received within the quarter, which are difficult
to forecast. The Company may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. Accordingly, any significant
shortfall of demand for the Company's products in relation to the Company's
expectations could have an immediate adverse impact on the Company's business,
financial condition and results of operations. In addition, the Company plans to
increase its operating expenses to fund the rapid growth of its sales and
marketing operations, distribution channels, customer support capabilities and
research and development activities. To the extent that such expenses precede or
are not subsequently followed by increased revenues, the Company's business,
financial condition and results of operations may be materially adversely
affected.

The Company expects to experience significant fluctuations in future
quarterly operating results, which may be caused by a number of factors, such as
the pricing and mix of products and services sold, the introduction of new
products by the Company and its competitors, the timing of orders and the
shipment of products, market acceptance of the Company's products, the ability
of the Company's direct sales force and resellers to market its products
successfully, the mix of distribution channels used and other factors that may
be beyond the Company's control. Thus, the Company believes that comparisons of
quarterly operating results are not meaningful and should not be relied upon,
nor will they necessarily reflect the Company's future performance. Because of
the foregoing factors, it is likely that in some future quarters the Company's
operating results will be below the expectations of public market analysts and
investors. In such event, the price of the Company's Common Stock would likely
be materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

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<PAGE> 11

DEPENDENCE ON THE INTERNET AND INTRANETS

The Company's success depends substantially upon the market acceptance of
the Internet and intranets as mediums for commerce and communication. Although
the Company believes that its software security products will facilitate and
fortify commerce and communication over the Internet and intranets, there can be
no assurance that commerce and communication over the Internet and intranets
will expand or that the Company's products will be adopted for security
purposes. In addition, the Internet may not prove to be a viable commercial
marketplace because of inadequate development of the necessary infrastructure,
such as a reliable network backbone or timely development of complementary
products and services. If the Internet and intranets do not develop as mediums
of commerce and communication or the Internet does not develop as a viable
commercial marketplace due to inadequate development of infrastructure or
complementary products and services, or for other reasons beyond the Company's
control, the Company's business, financial condition and results of operations
may be materially adversely affected. See "Business -- Industry Background."

RISKS ASSOCIATED WITH THE EMERGING NETWORK SECURITY MARKET

The market for the Company's products is in an early stage of development.
The rapid development of Internet and intranet computing has increased the
ability of users to access proprietary information and resources and has
recently increased demand for network security products. Because the market for
network security products is only beginning to develop, it is difficult to
assess the size of the market, the product features desired by the market, the
optimal price structure for the Company's products, the optimal distribution
strategy and the competitive environment that will develop in this market.
Declines in demand for the Company's products, whether as a result of
competition, technological change, the public's perception of the need for
security products, developments in the hardware and software environments in
which these products operate, general economic conditions or other factors
beyond the Company's control, could have a material adverse effect on the
Company's business, financial condition or results of operations. See
"Business -- Industry Background."

DEPENDENCE ON PRINCIPAL PRODUCTS; UNCERTAINTY OF PRODUCT ACCEPTANCE

The Company currently generates most of its revenues from its SmartWall and
SmartGATE products. Accordingly, any factor that adversely affects sales of
these products could have a material adverse effect on the Company. While
SmartWall has met with a favorable degree of market acceptance since sales
commenced in the first quarter of 1995, there can be no assurance that SmartWall
will continue to be accepted in the future. In addition, there can be no
assurance that there will be market acceptance of the Company's SmartGATE
product, which was introduced in the fourth quarter of 1995, or any of the
Company's products that may be introduced in the future. The Company's success
will, in part, depend upon the Company's ability to design, develop and
introduce new products, services and enhancements on a timely basis to meet
changing customer needs, technological developments and evolving industry
standards. See "Business -- Products and Services" and "-- Product Development."

DEPENDENCE ON KEY LICENSING AGREEMENTS, EXTERNAL RESOURCES AND SUPPLIERS

The Company relies and intends to continue to rely on external resources
for the development of certain of its products and the components thereof. The
Company's SmartWall product incorporates TIS's Gauntlet(TM) kernel. The Company
licenses the TIS Gauntlet(TM) kernel under a license agreement with TIS that
requires the Company to pay a fee (which varies based on the number of units
licensed) for each unit of the Gauntlet(TM) kernel licensed for use in
SmartWall. The license expires on December 31, 1996; however, the agreement
provides for the automatic renewal of the Company's license rights for
successive three year terms. Either party may terminate the agreement upon the
default of the other party if the defaulting party has failed to cure the
default within 30 days of the receipt of written notice of default; however, the
agreement also provides TIS with certain accelerated termination rights in the
event of a subsequent breach. See "Business -- License Agreements."

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The Company's SmartCAT and Wallet Technology software incorporate data
encryption and authentication technology owned by RSA. The Company has a
perpetual license agreement with RSA, which became effective as of December 30,
1994. Either party may terminate the agreement upon the default of the other
party if the defaulting party has failed to cure the default within 30 days of
the receipt of written notice of default. RSA has recently been acquired by
Security Dynamics, whose products compete with the Company's products in the
token authentication market. There can be no assurance that the change in
control of RSA will not adversely affect the Company's business relationship
with RSA, which could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- License
Agreements."

There can be no assurance that the Company will be able to maintain its
license rights for the TIS Gauntlet(TM) kernel or the RSA data encryption and
authentication technology, and the loss of such rights could have a material
adverse effect on the Company's business, financial condition and results of
operations. If either TIS or RSA terminate or fail to renew the respective
license agreement or take any other action that results in the loss of, or
inability to maintain, such licensed technology, the Company may incur lost
sales, delays in delivery of the Company's current products and services or
delays in the introduction of new products and services, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- License Agreements."

INTELLECTUAL PROPERTY RIGHTS; INFRINGEMENT CLAIMS

The Company relies on trademark, copyright, patent and trade secret laws,
employee and third-party non-disclosure agreements and other methods to protect
the proprietary rights of the Company and the companies from which the Company
licenses technology. The Company has pending three patent applications with the
United States Patent and Trademark Office ("PTO") that cover certain aspects of
its technology. Prosecution of these patent applications and any other patent
applications that the Company may subsequently determine to file, may require
the expenditure of substantial resources. The issuance of a patent from a patent
application may require 24 months or longer. There can be no assurance that the
Company's technology will not become obsolete while the Company's applications
for patents are pending. There also can be no assurance that any pending or
future patent application will be granted, that any future patents will not be
challenged, invalidated or circumvented or that the rights granted thereunder
will provide competitive advantages to the Company. Further, the Company has not
pursued patent protection outside of the United States for the technology
covered by two of the pending patent applications. The Company currently intends
to pursue patent protection outside of the United States for the technology
covered by the most recently filed patent application although there can be no
assurance that any such protection will be granted or, if granted, that it will
adequately protect the technology covered thereby. The Company currently holds
no issued patents; however, the Company has received a Notice of Allowance from
the PTO for its Wallet Technology product.

The Company's success is also dependent in part upon its proprietary
software technology and technology licensed from others. There can be no
assurance that the Company's trade secrets or license or non-disclosure
agreements will provide meaningful or contractually required protection for the
proprietary technology and other proprietary information of the Company and the
companies from which the Company licenses technology. Further, the Company
relies on "shrink wrap" license agreements that are not signed by the end user
to license the Company's products and, therefore, may be unenforceable under the
laws of certain jurisdictions. In addition, there can be no assurance that
others will not independently develop similar technologies or duplicate any
technology developed by the Company or that its technology will not infringe
upon patents, copyrights or other intellectual property rights owned by others.

Further, the Company may be subject to additional risk as the Company
enters into transactions in countries where intellectual property laws are not
well developed or are poorly enforced. Legal protections of the Company's rights
may be ineffective in foreign markets and technology developed by the Company
may not be protectable in such foreign jurisdictions in circumstances where
protection is ordinarily available in the United States.

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The Company believes that, due to the rapid pace of technological
innovation for network security products, the Company's ability to establish
and, if established, maintain a position of technology leadership in the
industry is dependent more upon the skills of its development personnel than
upon legal protections afforded its existing or future technology.

As the number of security products in the industry increases and the
functionality of these products further overlap, software developers may become
subject to infringement claims. There can be no assurance that third parties
will not assert infringement claims against the Company in the future with
respect to current or future products. The Company also may desire or be
required to obtain licenses from others in order to develop, produce and market
commercially viable products effectively. Failure to obtain those licenses could
have a material adverse effect on the Company's ability to market its software
security products. There can be no assurance that such licenses will be
obtainable on commercially reasonable terms, if at all, that the patents
underlying such licenses will be valid and enforceable or that the proprietary
nature of the unpatented technology underlying such licenses will remain
proprietary.

The Company is aware of two pending law suits involving RSA and Cylink
Corporation ("Cylink") and Cylink's wholly owned subsidiary, Caro-Kann
Corporation ("Caro-Kann"). In the first law suit (N.D. Cal. No. C94 02332 CW)
filed in 1994, Cylink sued RSA in a declaratory judgment action seeking a
declaration from the court that U.S. Patent No. 4,405,829 ("MIT Patent"), under
which RSA is licensed, is invalid and unenforceable. RSA counterclaimed that
Cylink and Caro-Kann were infringing the MIT Patent. In a related proceeding,
Cylink and Caro-Kann initiated arbitration against RSA pursuant to the terms of
a partnership agreement among those parties. In the arbitrator's decision,
issued in September 1995, the partnership was dissolved. The arbitrators
determined that RSA does not have the right to sublicense third parties under
U.S. Patents Nos. 4,200,790, 4,218,582, and 4,424,414 ("Stanford Patents"),
under which Caro-Kann was licensed. The arbitrators stated further that, if RSA
provides code to third parties that causes an infringement of the Stanford
Patents, nothing in the arbitrator's decision would prevent Cylink and Caro-Kann
from pursuing their rights under the Stanford Patents against such third
parties. According to documents filed in the second law suit, discussed below,
Cylink sent letters to certain RSA licensees advising them that they need a
license from Cylink under the Stanford Patents to use the RSA software. RSA has
informed its customers that a sublicense to the Stanford Patents is not
necessary to practice the RSA cryptography method. In the second law suit (N.D.
Cal. C95-03256 WHO and subsequently changed to 96-20094 SW) filed September 15,
1995, RSA sued Cylink, Caro-Kann and the Board of Trustees of Leland Stanford
Junior University in a declaratory judgment action seeking a declaration that
the Stanford Patents are invalid and unenforceable. Cylink and Caro-Kann have
counterclaimed that RSA is liable for direct infringement of the Stanford
Patents and also is liable for contributory infringement and inducing
infringement of the Stanford Patents by virtue of RSA's license of certain RSA
software to third parties. To the best of the Company's knowledge, both law
suits are still pending. There can be no assurances that Cylink will not
initiate law suits against RSA licensees, including the Company. In the
Company's license agreement with RSA, RSA agreed that it would, at its own
expense: (i) defend, or at its option settle, any claim, suit or proceeding
against the Company, including any claim, suit or proceeding instituted by
Cylink, Caro-Kann or an entity related to either of them, on the basis of
infringement of any United States patent, copyright or trade secret in the field
of cryptography regarding the unmodified software licensed by RSA or any claim
that RSA has no right to license the software; and (ii) pay any settlement or
final judgment entered against the Company on such issue in any suit or
proceeding defended by RSA. RSA's obligation to indemnify the Company survives
the termination of the license agreement. There can be no assurance that the
outcome of the law suits between RSA and Cylink will support RSA's position. If
the outcome of the lawsuit is adverse to RSA, there can be no assurance that
Cylink will license its technology to the Company on commercially reasonable
terms, or at all. Any royalty obligations to Cylink by the Company would not be
covered by RSA's indemnification obligation to the Company. There also can be no
assurance that the Company will be able to obtain or develop alternative
technology on commercially reasonable terms, if at all. See "Business -- License
Agreements" and "Business -- Patents, Proprietary Technology, Trademarks and
Licenses."

Any claims or litigation, with or without merit, could be costly and could
result in a diversion of management's attention, which could have a material
adverse effect on the Company's business, financial

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<PAGE> 14

condition and results of operations. Adverse determinations in such claims or
litigation could also have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Patents,
Proprietary Technology, Trademarks and Licenses."

RISK OF ERRORS OR FAILURES; PRODUCT LIABILITY RISKS

The complex nature of the Company's products can make the detection of
errors or failures in certain of its software products difficult when such
products are introduced, which may result in delays and lost revenues during the
correction process. In addition, there can be no assurance that any technology
licensed by the Company for use in its products does not contain errors that
would adversely affect such products. Despite testing by the Company and current
and prospective customers, there can be no assurance that errors will not be
discovered in new products or releases after commencement of commercial
shipments, possibly resulting in delay, adverse publicity, loss of market
acceptance and claims against the Company.

A malfunction or the inadequate design of the Company's products could
result in tort or warranty claims. The Company generally attempts to reduce the
risk of such losses to itself and to the companies from which the Company
licenses technology through warranty disclaimers and liability limitation
clauses in its license agreements. There can be no assurance that the Company
has obtained adequate contractual protection in all instances or where otherwise
required under agreements V-ONE has entered into with others or that such
measures will be effective in limiting the Company's liability to end users and
to the companies from which the Company licenses technology. The Company also
relies on "shrink wrap" license agreements that are not signed by the end user
and, therefore, may be unenforceable under the laws of certain jurisdictions.
The Company currently intends to purchase product liability insurance and it may
seek additional insurance coverage as it commences commercialization of its
products. There can be no assurance that adequate additional insurance coverage
will be available at an acceptable cost, if at all. Any product liability claim
against the Company for damages resulting from security breaches could be
substantial and could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, a well-publicized
actual or perceived security breach could adversely affect the market's
perception of security products in general, or the Company's products in
particular, regardless of whether such breach is attributable to the Company's
products. This could result in a decline in demand for the Company's products,
which could have a material adverse effect on the Company's business, financial
condition and results of operations.

CHANGES IN TECHNOLOGY AND INDUSTRY STANDARDS; RISK OF NEW PRODUCT INTRODUCTION

The network security industry is characterized by rapid changes, including
evolving industry standards, frequent new product introductions, continuing
advances in technology and changes in customer requirements and preferences.
Advances in techniques by individuals and entities seeking to gain unauthorized
access to networks could expose the Company's existing products to new and
unexpected attacks and require accelerated development of new products or
enhancements to existing products. There can be no assurance that the Company
will be able to counter challenges to its current products, that the Company's
future product offerings will keep pace with technological changes implemented
by competitors or persons seeking to breach network security, that its products
will satisfy evolving consumer preferences or that the Company will be
successful in developing and marketing products for any future technology.
Failure to develop and introduce new products and product enhancements in a
timely fashion could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Product
Development."

RISK OF DEFECTS AND DEVELOPMENT DELAYS

The Company may experience schedule overruns in software development
triggered by factors such as insufficient staffing or the unavailability of
development-related software, hardware or technologies. Further, when developing
new software products, the Company's development schedules may be altered as a
result of the discovery of software bugs, performance problems or changes to the
product specification in response to

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<PAGE> 15

customer requirements, market developments or Company initiated changes. Changes
in product specifications may delay completion of documentation, packaging or
testing, which may, in turn, affect the release schedule of the product. When
developing complex software products, the technology market may shift during the
development cycle, requiring the Company either to enhance or change a product's
specifications to meet a customer's changing needs. These factors may cause a
product to enter the market behind schedule, which may adversely affect market
acceptance of the product or place it at a disadvantage to a competitor's
product that has already gained market share or market acceptance during the
delay.

EVOLVING DISTRIBUTION CHANNELS

Currently, the Company relies primarily on its direct sales force for the
sale and marketing of its products. The Company plans to add to its internal
sales and marketing staff in order to increase its direct sales effort. There
can be no assurance that such internal expansion will be successfully completed,
that the cost of such expansion will not exceed the revenues generated or that
the Company's sales and marketing organization will successfully compete against
the more extensive and well-funded sales and marketing operations of certain of
its current and future competitors.

The Company has developed a distribution strategy that involves the
development of strategic alliances with resellers and international distributors
to enable the Company to achieve broad market penetration. The Company is
beginning to establish its reseller distribution channel. There can be no
assurance that the Company will be able to attract integrators and resellers
that will be able to market the Company's products effectively and will be
qualified to provide timely and cost-effective customer support and service. The
Company anticipates that it will ship products to distributors, integrators and
resellers on a purchase-order basis, and its distributors, integrators and
resellers will likely carry competing product lines. Therefore, there can be no
assurance that any distributor, integrator or reseller will continue to
represent the Company's products. The inability to recruit, or the loss of,
important sales personnel, distributors, integrators or resellers could
materially adversely affect the Company's business, financial condition and
results of operations in the future. See "Business -- Sales and Marketing."

LONG SALES CYCLE; SEASONALITY

Sales of the Company's products generally involve a significant commitment
of capital by customers, with the attendant delays frequently associated with
large capital expenditures. Prior to such sales, the Company often permits
customers to evaluate products being considered for license, generally for a
period of up to 30 days. For these and other reasons, the sales cycle associated
with the Company's products is likely to be lengthy and subject to a number of
significant risks over which the Company has little or no control and, as a
result, the Company believes that its quarterly results are likely to vary
significantly in the future. The Company may be required to ship products
shortly after it receives orders and, consequently, order backlog, if any, at
the beginning of any period may represent only a small portion of that period's
expected revenues. As a result, product revenues in any period will be
substantially dependent on orders booked and shipped in that period. The Company
plans its production and inventory levels based on internal forecasts of
customer demand, which is highly unpredictable and can fluctuate substantially.
If revenues fall significantly below anticipated levels, the Company's financial
condition and results of operations could be materially and adversely affected.
In addition, the Company may experience significant seasonality in its business,
and the Company's financial condition and results of operations may be affected
by such trends in the future. Such trends may include higher revenues in the
third and fourth quarters of the year and lower revenues in the first and second
quarters. The Company believes that revenues may tend to be higher in the third
quarter due to the fiscal year end of the U.S. government and higher in the
fourth quarter due to year-end budgetary pressures on the Company's commercial
customers and the tendency of certain of its existing and prospective customers
to implement changes in computer or network security prior to the end of the
calendar year.

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LIQUIDITY AND CAPITAL REQUIREMENTS; DEPENDENCE ON THE PUBLIC OFFERING

The Company anticipates that its existing capital resources, including the
net proceeds of the sale of the shares of Common Stock offered hereby, will be
adequate to satisfy its capital requirements at least through 1997. The
Company's future capital requirements, however, will depend on many factors,
including its ability to successfully market and sell its products. To the
extent that the funds generated by this Offering and from the Company's on-going
operations are insufficient to fund the Company's future operating requirements,
it may be necessary to raise additional funds through public or private
financings. Any equity or debt financings, if available at all, may be on terms
that are not favorable to the Company and, in the case of equity financings,
could result in dilution to the Company's shareholders. If adequate capital is
not available, the Company may be required to curtail its operations
significantly. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."

RISK OF SALES TO U.S. GOVERNMENT

In 1995, the Company derived a substantial portion of its revenue from the
sale of SmartWall to departments and agencies of the U.S. government and
government contractors. In 1996, the Company's revenues will be attributable, in
part, to a contract with NSA. Because no government agency has an obligation to
award contracts to, or to purchase products from, the Company in the future, the
Company believes that future government contracts and orders for its network
security products will in part be dependent upon the continued favorable
reaction of government agencies to the development capabilities of the Company
and the reliability and perception of its products. There can be no assurance
that the Company will be able to sell its products to departments and agencies
of the U.S. government and government contractors or that such sales, if any,
will result in commercial acceptance of the Company's products. There also is no
assurance that the Company will be able to procure an extension of its current
NSA contract when it expires in September 1996 or additional contracts of
similar magnitude in the future. In addition, reductions or delays in federal
funds available for projects the Company is performing or to purchase its
products could have an adverse impact on the Company's government contracts
business.

Contracts involving the U.S. government are also subject to the risks of
disallowance of costs upon audit, changes in government procurement policies,
the necessity to participate in competitive bidding and, with respect to
contracts involving prime contractors or government-designated subcontractors,
the inability of such parties to perform under their contracts. The Company is
also exposed to the risk of increased or unexpected costs, causing losses or
reduced profits, under government and certain third-party contracts. Any of the
foregoing events could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Regulation and
Government Contracts."

INTERNATIONAL SALES

The Company plans to increase its presence in overseas markets by expanding
international distribution relationships for its suite of network security
products, including SmartWall and SmartGATE. There can be no assurance, however,
that the Company will be successful in expanding its relationships with
international distributors or in gaining commercial acceptance of its products
abroad. To the extent that the Company expands international sales, currency
fluctuations could make its products less competitive in foreign markets and
contribute to fluctuations in the Company's operating results. Political
instability, difficulties in staffing and managing international operations,
potential insolvency of international resellers, longer receivable collection
periods and difficulty in collecting accounts receivable also pose risks to the
development of international marketing efforts. Moreover, the laws of certain
countries, or the enforcement thereof, may not protect the Company's products
and intellectual property rights to the same extent as the laws of the United
States. There can be no assurance that these factors will not have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Sales and Marketing."

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EFFECT OF GOVERNMENT REGULATION OF TECHNOLOGY EXPORTS

The Company currently sells its products abroad and intends to continue to
expand its relationships with international distributors for the sale of its
products overseas. The Company's international sales and operations could be
subject to risks such as the imposition of governmental controls, export license
requirements, restrictions on the export of critical technology, trade
restrictions and changes in tariffs. In particular, the Company's information
security products are subject to the export restrictions administered by the
U.S. Department of State and the U.S. Department of Commerce, which, in the case
of some products, permit the export of encryption products only with a specific
export license. These export laws also prohibit the export of encryption
products to a number of countries, individuals and entities and may restrict
exports of some products to a narrow range of end-users. In certain foreign
countries, the Company's distributors are required to secure licenses or formal
permission before encryption products can be imported. There is no assurance
that the Company or its distributors will be able to secure required licenses in
a timely manner, if at all. As a result, foreign competitors that face less
stringent controls on their products may be able to compete more effectively
than the Company in the global network security market. There can be no
assurance that these factors will not have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Technology" and "-- Products and Services."

CERTAIN ANTI-TAKEOVER PROVISIONS OF CERTIFICATE OF INCORPORATION, BYLAWS AND
DELAWARE LAW

The Company's Amended and Restated Certificate of Incorporation ("Restated
Certificate of Incorporation") and Amended and Restated Bylaws ("Restated
Bylaws") provide that any action required or permitted to be taken by
shareholders of the Company may be effected at a duly called annual or special
meeting. If a shareholder wishes a proposal to be considered at an annual or
special meeting under the Restated Bylaws, he or she must give reasonable
advance notice to the Company. The Company's Restated Bylaws permit only the
Company's Chief Executive Officer or a majority of the members of the Company's
Board of Directors to call a special meeting of shareholders. In addition, the
Company's Restated Certificate of Incorporation provides that the Company's
Board of Directors is classified into three classes of directors. Under the
Restated Certificate of Incorporation and Restated Bylaws, a director may be
removed only for cause and by the affirmative vote of 67% of the outstanding
shares entitled to vote an election of directors at a special meeting called for
that purpose.

In addition, the Board of Directors has the authority to issue up to
13,333,333 shares of Preferred Stock and to determine the price, rights,
preferences, privileges and restrictions, including voting rights of those
shares, without any further vote or action by the Company's shareholders. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be issued
in the future. The issuance of Preferred Stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire a majority of the voting stock of the Company. The Company has issued
791,011 shares of Series A Stock, which will convert into 949,209 shares of
Common Stock upon consummation of the Offering by October 31, 1996. The Company
has no present plans to issue any additional series of Preferred Stock upon the
consummation of the Offering. Further, certain provisions of the Company's
Restated Certificate of Incorporation, Restated Bylaws and Delaware law could
delay or make difficult a merger, tender offer or proxy contest involving the
Company. In addition, the Company is subject to Section 203 of the Delaware
General Corporation Law ("Section 203"), which places certain restrictions on
the ability of Delaware corporations to engage in business combinations with
interested shareholders. See "Description of Capital Stock -- Preferred Stock,"
"-- Series A Convertible Preferred Stock" and "-- Anti-takeover Effects of
Provisions of the Certificate of Incorporation, Bylaws and Delaware Law."

NO PRIOR PUBLIC MARKET; MARKET VOLATILITY

Prior to this Offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market for the
Company's Common Stock will develop or be sustained

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following the Offering. The initial public offering price of the Common Stock
will be determined in negotiations among the Company and the representatives of
the Underwriters based upon several factors and may be greater than the market
price for the Common Stock following the Offering. See "Underwriting." The
market price of the Company's Common Stock could be subject to significant
fluctuations in response to variations in quarterly operating results and other
factors, such as announcements of new products by the Company or its competitors
and changes in financial estimates by securities analysts or other events.
Moreover, the stock market has experienced extreme volatility that has
particularly affected the market prices of equity securities of many technology
companies and that has often been unrelated and disproportionate to the
operating performance of such companies. Broad market fluctuations, as well as
economic conditions generally and in the software industry specifically, may
adversely affect the market price of the Company's Common Stock. There can be no
assurance that the market price of the Common Stock offered hereby will not
decline below the initial public offering price.

CONCENTRATION OF SHARE OWNERSHIP

Upon completion of this Offering, the current directors, executive officers
and their respective affiliates will beneficially own approximately 56.3% of the
Company's outstanding Common Stock in the aggregate (55.3% in the event the
Underwriters exercise the over-allotment option in full). This does not give
effect to the exercise of options and warrants to purchase 1,203,111 shares of
Common Stock held by these individuals, which, if exercised in whole or in part,
will further concentrate ownership of the Company's Common Stock. As a result,
these shareholders will retain the voting power required to elect all directors
and to approve all other matters requiring approval by a majority of the
shareholders of the Company. Such concentration of ownership may also have the
effect of delaying or preventing a change in control of the Company. See
"Management -- Directors and Executive Officers" and "Principal Shareholders."

POTENTIAL EFFECT OF SHARES FOR FUTURE SALE

Sales of substantial amounts of Common Stock in the public market following
the Offering could adversely affect the market price of the Common Stock. Upon
completion of the Offering, the Company will have outstanding an aggregate of
9,540,556 shares that are "restricted" shares under the Securities Act of 1933,
as amended ("Securities Act"). Only the 3,000,000 shares of Common Stock offered
hereby will be eligible for sale in the public market immediately following the
effective date of the registration statement on Form S-1 relating to the Common
Stock offered hereby ("Registration Statement") filed with the Securities and
Exchange Commission ("SEC"), excluding the Common Stock to be offered in the
over-allotment option. Certain of the Company's current shareholders, employees,
directors, officers and holders of options and warrants to purchase Common Stock
have agreed with the representatives of the Underwriters not to sell or
otherwise dispose of any shares of Common Stock not included in the
over-allotment option for a period of 180 days after the date of this Prospectus
without the consent of the representatives of the Underwriters. After the
expiration of the 180-day period, 1,144,324 shares of Common Stock may be sold
in compliance with Rule 144 or Rule 701 under the Securities Act during the
succeeding three month period. The number of shares eligible for resale assumes
the conversion of 791,011 shares of Series A Stock into 949,209 shares of Common
Stock and the issuance of 188,705 shares to RSA and Massachusetts Institute of
Technology ("MIT"). See "Description of Capital Stock -- Series A Convertible
Preferred Stock." The holders of Common Stock issuable upon the conversion of
Series A Stock and the holders of Common Stock issued or issuable on exercise of
warrants issued to JMI Equity Fund II, L.P. ("JMI") will have contractual rights
to have those shares registered under the Securities Act for resale to the
public. See "Shares Eligible for Future Sale."

ABSENCE OF DIVIDENDS

No dividends have been paid on the Common Stock to date and the Company
does not anticipate paying dividends in the foreseeable future. The Company may
not pay any dividends on its Common Stock as long as

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any shares of Series A Stock are outstanding. See "Dividend Policy" and
"Description of Capital Stock -- Series A Convertible Preferred Stock."

DILUTION

Purchasers of the Common Stock offered hereby will experience immediate and
substantial dilution in net tangible book value per share of the Common Stock.
To the extent outstanding options and warrants to purchase the Company's Common
Stock are exercised, there will be further dilution. See "Dilution."

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USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of the Common
Stock offered hereby are estimated at $13.3 million ($14.5 million if the
Underwriters' over-allotment option is exercised in full) after deducting the
underwriting discount and estimated Offering expenses payable by the Company.
The Company will not receive any proceeds from the sale of shares of Common
Stock by the Selling Shareholders upon exercise of the Underwriters'
over-allotment option in full or in part. The principal purposes of this
Offering are to obtain additional capital, create a public market for the
Company's Common Stock and facilitate future access by the Company to public
equity markets.

The Company expects to use the net proceeds from this Offering for working
capital and for other general corporate purposes, including the expansion of
sales, marketing and customer support activities, research and development and
capital expenditures. A portion of the proceeds of this Offering will be used to
repay an 8% per annum, $1.5 million loan from JMI, which is due at the earlier
of consummation of the Offering or June 18, 2000, and an 8% per annum loan of
approximately $138,000 from James F. Chen, the Company's founder, President and
Chief Executive Officer, which is due on demand. See "Certain Transactions." In
addition, a portion of the net proceeds may be used to acquire or invest in
related businesses or products or to obtain the right to use technologies that
would broaden or enhance the Company's products. The Company has no present
plans, agreements or commitments and is not currently engaged in any
negotiations with respect to any such transactions. Pending such use of the
proceeds, the Company intends to invest the funds in short-term,
interest-bearing, investment grade securities.

DIVIDEND POLICY

The Company has never declared or paid cash dividends on its Common Stock
or other securities. The Company anticipates that all of its net earnings, if
any, will be retained for use in its operations and does not anticipate paying
cash dividends on its Common Stock in the foreseeable future. Payments of future
cash dividends, if any, will be at the discretion of the Company's Board of
Directors after taking into account various factors, including the Company's
financial condition, operating results and current and anticipated cash needs.
The holders of Common Stock are not entitled to receive dividends as long as any
shares of the Company's Series A Stock are issued and outstanding. See "Risk
Factors -- Conversion of Series A Stock," "Description of Capital
Stock -- Common Stock" and "-- Series A Convertible Preferred Stock."

18
<PAGE> 21

CAPITALIZATION

The following table sets forth the Company's (i) actual capitalization,
(ii) pro forma capitalization after giving effect to the conversion of each
outstanding share of Series A Stock into 1.20 shares of Common Stock and 188,705
shares of Common Stock reserved for issuance (see "Business -- License
Agreements") and (iii) pro forma capitalization as adjusted to give effect to
the sale of the shares of Common Stock offered hereby (at the initial public
offering price of $5.00 per share and after deducting the estimated underwriting
discount and offering expenses), assuming the application of the net proceeds
from this Offering as described under "Use of Proceeds." See "Risk
Factors -- Conversion of Series A Stock" and "Description of Capital
Stock -- Series A Convertible Preferred Stock" for a description of the
conversion of each outstanding share of Series A Stock into 1.20 shares of
Common Stock, which will occur automatically if the Offering is consummated by
October 31, 1996.

<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
Long-term debt, less current portion.................. $ 106,086 $ 106,086 $ 106,086
----------- ----------- -----------
Preferred Stock, $0.001 par value; 13,333,333 shares
authorized; 791,011 shares issued and outstanding,
actual; none issued and outstanding, pro forma and
pro forma as adjusted(1)(2)......................... 3,559,554 -- --
Shareholders' equity (deficit):
Common Stock, $0.001 par value; 33,333,333 shares
authorized; 8,455,527 shares issued and
outstanding, actual; 9,540,556 shares issued and
outstanding, pro forma; 12,540,556 shares issued
and outstanding, pro forma as adjusted........... 8,456 9,541 12,541
Additional paid-in capital.......................... 4,721,220 9,393,287 22,640,287
Notes receivable from sales of Common Stock......... (287,400) (287,400) (287,400)
Accumulated deficit................................. (6,032,884) (6,297,309) (6,297,309)
----------- ----------- -----------
Total shareholders' equity (deficit)........ (1,590,608) 2,818,119 16,068,119
----------- ----------- -----------
Total capitalization........................ $ 2,075,032 $ 2,924,205 $16,174,205
========== ========== ==========
</TABLE>

- ---------------
(1) The Company's Restated Certificate of Incorporation authorizes the Company
to issue up to 13,333,333 shares of Preferred Stock. On April 4, 1996, the
Board of Directors authorized the issuance of 788,934 shares of Series A
Stock and on May 12, 1996, the Board of Directors authorized the issuance of
an additional 4,047 shares of Series A Stock. As of June 30, 1996, 791,011
shares of Series A Stock have been issued. See "Description of Capital
Stock -- Series A Convertible Preferred Stock."

(2) In December 1995 and January 1996, the Company borrowed $2.5 million through
the sale of 7% interest bearing, unsecured promissory notes ("Notes"). In
April and May 1996, the Company exchanged all of the Notes (principal and
accrued interest) for shares of the Company's Series A Stock, at a price of
$4.50 per share. In addition, the Company permitted certain investors to
purchase an additional 222,222 shares of Series A Stock at a price of $4.50
per share. See "Risk Factors -- Conversion of Series A Stock" and
"Description of Capital Stock -- Series A Convertible Preferred Stock."

19
<PAGE> 22

DILUTION

The pro forma net tangible book value of the Company as of June 30, 1996
was approximately $2,818,000 or $0.30 per share of Common Stock. Pro forma net
tangible book value per share represents the amount of the Company's total
tangible assets less total liabilities divided by the number of shares of Common
Stock outstanding. Without taking into account any other changes in the net
tangible book value after June 30, 1996, other than to give effect to the
receipt by the Company of the net proceeds from the sale of the 3,000,000 shares
of Common Stock offered by the Company at the initial public offering price of
$5.00 per share and after deducting the estimated underwriting discount and
Offering expenses, the pro forma adjusted net tangible book value of the Company
as of June 30, 1996 would have been approximately $16,068,000 or $1.28 per
share. This represents an immediate increase in pro forma net tangible book
value of $0.98 per share to existing shareholders and an immediate dilution of
$3.72 per share to new investors. The following table illustrates this per share
dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share(1)............ $5.00
Pro forma net tangible book value per share before
Offering................................................. $0.30
Increase in pro forma net tangible book value per share
attributable to payments by new investors(2)............. 0.98
Pro forma net tangible book value per share after Offering.... 1.28
-----
Dilution of pro forma net tangible book value per share to new
investors................................................... $3.72
=====
</TABLE>

- ---------------
(1) Before deducting the estimated underwriting discount and Offering expenses.

(2) After deducting the estimated underwriting discount and Offering expenses
payable by the Company.

The following table summarizes as of June 30, 1996, the difference between
existing shareholders and new investors with respect to the number of shares
purchased from the Company, the total consideration paid and the average price
paid per share:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)................. 9,540,556 76.1% $ 9,115,428 37.8% $0.96
New investors(1)......................... 3,000,000 23.9 15,000,000 62.2 5.00
---------- ------- ----------- -------
Total.................................... 12,540,556 100.0% $24,115,428 100.0%
========= ===== ========== =====
</TABLE>

- ---------------

(1) In the event the Underwriters exercise the over-allotment option granted by
the Company and the Selling Shareholders, the number of shares held by
existing shareholders will be increased to 9,655,586 or approximately 75.4%
of the outstanding shares of the Common Stock and will increase the number
of shares held by new investors to 3,150,000 or approximately 24.6% of the
total number of shares of Common Stock outstanding after the Offering. In
addition, orders to purchase an aggregate of 300,000 shares of Common Stock
at the initial offering price placed by two of the Company's existing
shareholders will be satisfied in the event that the Underwriters elect to
exercise the over-allotment option. See "Certain Transactions."

The foregoing table assumes no exercise of any outstanding stock options,
warrants or the Underwriters' over-allotment option. As of June 30, 1996,
options to purchase 350,959 shares of Common Stock were outstanding under the
Company's 1995 Non-Statutory Stock Option Plan at a weighted average per share
exercise price of $1.245 and options to purchase 949,877 shares of Common Stock
were outstanding under the Company's 1996 Incentive Stock Plan at a weighted
average per share exercise price of $4.10. Additional dilution may result if any
of these stock options are exercised. See "Management."

20
<PAGE> 23

SELECTED FINANCIAL DATA

The following selected financial data set forth below with respect to the
Company's statements of operations from February 16, 1993 (date of inception) to
December 31, 1993 and for the years ended December 31, 1994 and 1995 and the six
months ended June 30, 1996 and balance sheets as of December 31, 1994 and 1995
and June 30, 1996 are derived from the financial statements of the Company
included elsewhere in this Prospectus that have been audited by Coopers &
Lybrand L.L.P., independent certified public accountants. The statement of
operations data for the six months ended June 30, 1995 and the balance sheet
data at June 30, 1995 have been derived from the Company's unaudited financial
statements, which, in management's opinion, reflect all adjustments necessary to
fairly present this information when read in conjunction with the financial
statements and notes thereto included elsewhere in this Prospectus. The data set
forth below should be read in conjunction with the Company's financial
statements and the notes thereto included elsewhere in this Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------------------------------- --------------------------------
1993 1994 1995 1995 1996
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............ $ (19,436) $ 245,598 $ (168,311) $ 47,554 $ 1,182,543
Total assets......................... 28,182 394,906 2,050,602 470,729 5,444,755
Long term debt, less current
portion............................ -- -- 126,908 -- 106,086
Shareholders' equity (deficit)....... (11,523) 318,028 (139,938) 104,601 (1,590,608)
</TABLE>

- ---------------
(1) For a description of the computation of net loss per share and shares used
in computing net loss per share, see Note 2 of Notes to the Financial
Statements.

21
<PAGE> 24

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Prospectus contains, in addition to historical information,
forward-looking statements that involve risks and uncertainty. The Company's
actual results could differ significantly from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed in "Risk Factors" as well as those discussed
elsewhere in this Prospectus.

OVERVIEW

The Company develops, markets and licenses a comprehensive suite of network
security products that enable organizations to conduct secured electronic
transactions and information exchange using private enterprise networks and
public networks, such as the Internet. The Company was incorporated in Maryland
in February 1993 and reincorporated in Delaware in February 1996. From inception
in February 1993 until December 1994, the Company's operating activities related
primarily to recruiting personnel and conducting research and development.
Revenues were minimal during 1993 and 1994. The Company introduced its first
product, the SmartCAT smart card reader and application software, in June 1994
and its second product, the SmartWall application-level firewall, in December
1994. In December 1995, the Company introduced SmartGATE, a client/server
security enabling product.

From inception until December 1994, the Company's revenues were generated
primarily from consulting and services. Currently, the Company generates
revenues primarily from software licenses and sale of hardware products and, to
a lesser extent, consulting and related services. The Company anticipates that
revenues from products will continue to be the principal source of the Company's
total revenues.

Under the Company's revenue recognition policy, revenues are generally
recognized from the license of software upon shipment, net of allowances,
provided that no significant vendor obligations remain. In addition, the Company
often permits customers to evaluate products being considered for purchase,
generally for a period of up to 30 days, in which event the Company does not
recognize revenues until the customer has accepted the product. Accordingly, the
Company's revenue recognition policy does not necessarily correlate with the
signing of a contract or the shipment of a product. See "Risk Factors -- Long
Sales Cycle; Seasonality."

As of June 30, 1996, the Company had an accumulated deficit of
approximately $6,033,000. The Company currently expects to incur net losses over
the next several quarters as a result of greater operating expenses incurred to
fund research and development and to increase its senior management and sales
and marketing efforts. To date, the Company has expensed all development costs
as incurred in compliance with Statement of Financial Accounting Standards No.
86, "Accounting for the Costs of Computer Software to Be Sold, Leased or
Otherwise Marketed." The Company believes that it will be able to continue to
expense all development costs as incurred.

The Company recently has hired and intends to continue to hire additional
senior level personnel. See "Management -- Employment Agreement." In addition,
general and administrative costs have increased significantly since the
Company's date of inception and the Company expects such costs to continue to
increase in the future.

In 1993, consulting and services revenues from MacTec
Magazine(TM)("MacTec") and IN-SNEC Groupe Technique, an air traffic control
equipment manufacturer located in France, accounted for approximately 56% and
13%, respectively, of total revenues. In 1994, consulting and services revenues
from the U.S. Department of Energy and MacTec accounted for approximately 37%
and 29%, respectively, of total revenues. In 1995, product revenues from GEIS,
NCTS Washington, a division of the Department of the Navy, and the U.S. Defense
Information Systems Agency accounted for approximately 19%, 10%, and 10%,
respectively, of total revenues. For the six months ended June 30, 1996, product
revenues from MCI and NSA accounted for approximately 21% and 13%, respectively,
of total revenues.

22
<PAGE> 25

RESULTS OF OPERATIONS

The following table sets forth certain statement of operations data as a
percentage of revenues for the periods indicated:

<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 16,
1993 (DATE OF YEAR ENDED SIX MONTHS
INCEPTION) TO DECEMBER 31, ENDED JUNE 30,
DECEMBER 31, --------------------------------- ---------------------------------
1993 1994 1995 1995 1996
-------------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Products........................... -- % -- % 99.8% 100.0% 96.1%
Consulting and services............ 100.0 100.0 0.2 -- 3.9
------- ------- ------- ------- -------
Total revenues............. 100.0 100.0 100.0 100.0 100.0
------- ------- ------- ------- -------
Cost of revenues:
Products........................... -- -- 34.1 35.5 32.5
Consulting and services............ 50.0 58.8 0.1 -- 1.2
------- ------- ------- ------- -------
Total cost of revenues..... 50.0 58.8 34.2 35.5 33.7
------- ------- ------- ------- -------
Gross profit......................... 50.0 41.2 65.8 64.5 66.3
------- ------- ------- ------- -------
Operating expenses:
Sales and marketing................ 8.7 60.6 11.9 17.9 70.4
General and administrative......... 97.4 527.8 122.4 124.9 141.0
Research and development........... 27.6 214.2 27.6 30.0 29.6
------- ------- ------- ------- -------
Total operating expenses... 133.7 802.6 161.9 172.8 241.0
------- ------- ------- ------- -------
Operating loss....................... (83.7) (761.4) (96.1) (108.3) (174.7)
------- ------- ------- ------- -------
Other (expense) income:
Interest expense................... (2.5) (4.0) (6.0) -- (11.8)
Interest income.................... -- -- 0.4 -- 1.8
------- ------- ------- ------- -------
Total other expenses....... (2.5) (4.0) (5.6) -- (10.0)
------- ------- ------- ------- -------
Net loss............................. (86.2)% (765.4)% (101.7)% (108.3)% (184.7)%
========== ====== ====== ====== ======
</TABLE>

SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1995

REVENUES

Total revenues increased significantly from approximately $369,000 for the
six months ended June 30, 1995 to approximately $2,376,000 for the six months
ended June 30, 1996. This increase was principally attributable to increased
sales of the Company's network security products.

Products. Product revenues are derived principally from software licenses
and the sale of hardware products. Product revenues increased significantly from
approximately $369,000 for the six months ended June 30, 1995 to approximately
$2,284,000 for the six months ended June 30, 1996. The increase was due
principally to increased sales of the Company's SmartWall product and the
introduction of its SmartGATE product in December 1995.

Consulting and Services. 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
were approximately $92,000, or 3.9% of total revenues, for the six months ended
June 30, 1996. Consulting and services revenues increased for the six months
ended June 30, 1996 as the Company increased staffing to support consulting and
services and product sales. The Company anticipates that consulting and services
revenues will increase as a percentage of total revenues as compared to the six
months ended June 30, 1996.

23
<PAGE> 26

COST OF REVENUES

Cost of Products. 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 $131,000 for the six months ended June 30,
1995 to approximately $773,000 for the six months ended June 30, 1996. Cost of
product revenues as a percentage of product revenues was 35.5% and 33.9% for the
six months ended June 30, 1995 and 1996, respectively. The increase in absolute
dollars was principally related to the higher level of product sales compared
with the prior year's period. The decrease in cost of product revenues as a
percentage of product revenues was primarily due to an increase in sales of the
Company's software products as a component of product revenues in the later
period.

Cost of Consulting and Services. Cost of consulting and services revenues
consists principally of personnel and related costs incurred in providing
consulting, support and training services to customers. There was no cost of
consulting and services revenues for the six months ended June 30, 1995 as
compared to approximately $27,000, or 29.5% of consulting and services revenues,
for the six months ended June 30, 1996.

OPERATING EXPENSES

Sales and Marketing. Sales and marketing expenses consist principally of
the costs of sales and marketing personnel, advertising, promotions and trade
shows. Sales and marketing expenses increased significantly from approximately
$66,000 for the six months ended June 30, 1995 to approximately $1,672,000 for
the six months ended June 30, 1996. Sales and marketing expenses as a percentage
of total revenues were 17.9% and 70.4% for the six months ended June 30, 1995
and 1996, respectively. The dollar and percentage increase were principally
related to expenses associated with increases in the number of sales and
marketing personnel, as well as expenses related to advertising and promotional
efforts. Sales and marketing expenses can be expected to increase both in the
aggregate and as a percentage of total revenues in the near term as a result of
the Company's increased sales and marketing efforts.

General and Administrative. General and administrative expenses consist
principally of the costs of finance, management and administrative personnel and
facilities expenses. General and administrative expenses increased substantially
from approximately $461,000 for the six months ended June 30, 1995 to
approximately $3,350,000 for the six months ended June 30, 1996. General and
administrative expenses as a percentage of total revenues were 124.9% and 141.0%
for the six months ended June 30, 1995 and 1996, respectively. During the six
months ended June 30, 1996, the Company added approximately $149,000 to its
allowance for potentially uncollectible accounts receivable, the increase in
which is attributable to the Company's increasing revenues. During the six
months ended June 30, 1996, the Company also recorded non-cash compensation
expense of approximately $2,515,000 in conjunction with the grant of options to
purchase 590,394 shares of Common Stock at an exercise price of $3.75 per share
and options to purchase 10,000 shares of Common Stock at an exercise price of
$4.50 per share, each granted pursuant to the 1996 Incentive Stock Plan, and the
grant of options to purchase 383,965 shares of Common Stock at an exercise price
of $0.75 per share pursuant to the 1996 Non-Statutory Stock Option Plan, the
underlying shares of which were funded by a contribution of 383,965 shares of
Common Stock by James F. Chen, the Company's founder, President and Chief
Executive Officer, and warrants to purchase 66,666 shares of Common Stock issued
to JMI at an exercise price of $0.015 per share. The non-cash compensation
expense was recognized in the second quarter of 1996. The remainder of the
dollar increase was principally attributable to additional hiring of management
and administrative personnel and professional and legal fees. The percentage
decrease was primarily due to allocation over a larger revenue base. The Company
anticipates that general and administrative expenses will increase in future
periods.

Research and Development. Research and development expenses consist
principally of the costs of research and development personnel and other
expenses associated with the development of new products and enhancement of
existing products. Research and development expenses increased significantly
from approximately $111,000 for the six months ended June 30, 1995 to
approximately $704,000 for the six months ended June 30, 1996. Research and
development expenses as a percentages of total revenues were 30.0% and 29.6% for
the six months ended June 30, 1995 and 1996, respectively. The dollar increase
was principally attributable to an increase in the number of personnel
associated with the Company's technical development efforts. The

24
<PAGE> 27

percentage decrease was principally due to allocation over a larger revenue
base. The Company believes that a continuing commitment to research and
development is required to remain competitive. Accordingly, the Company intends
to allocate substantial resources to research and development, but research and
development expenses may vary as a percentage of total revenues.

Interest Income and Expense. Interest income represents interest earned on
cash, cash equivalents and marketable securities. Interest income was
approximately $43,000 for the six months ended June 30, 1996. Interest expense
was approximately $281,000 for the six months ended June 30, 1996. Interest
expense represents interest payable or accreted on promissory notes and
capitalized lease obligations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

Income Taxes. The Company did not incur income tax expenses for the six
months ended June 30, 1995 and 1996 as a result of the net loss incurred during
each period. As of June 30, 1996, the Company had net operating loss
carryforwards of approximately $4,593,000 as a result of net losses incurred
since inception.

COMPARISON OF YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995

REVENUES

Total revenues decreased 21.6% from approximately $76,000 in 1993 to
approximately $60,000 in 1994 and increased substantially to approximately
$1,104,000 in 1995. The Company had no revenues from products in 1993 and 1994.
The decrease in revenues from 1993 to 1994 was primarily due to the Company's
focus on product development. In addition, revenues from consulting and services
declined from 1993 to 1995 due to the Company's focus on product development and
subsequent sales and marketing efforts. The increase in revenues from 1994 to
1995 was primarily due to the introduction of the Company's SmartWall product in
December 1994.

COST OF REVENUES

Cost of revenues decreased 7.8% from approximately $38,000 in 1993 to
approximately $35,000 in 1994 and increased substantially to approximately
$377,000 in 1995. Cost of revenues as a percentage of total revenues were 50.0%,
58.8% and 34.2% in 1993, 1994 and 1995, respectively. The dollar decrease and
percentage increase in 1994 were primarily due to a decrease in revenues and
higher service costs, respectively. The dollar increase and percentage decrease
in 1995 were primarily attributable to an increase in revenues from the
introduction of SmartWall.

OPERATING EXPENSES

Sales and Marketing. Sales and marketing expenses increased from
approximately $7,000 in 1993 to approximately $36,000 in 1994 and increased to
approximately $131,000 in 1995. Sales and marketing expenses as a percentage of
total revenues were 8.7%, 60.6% and 11.9% in 1993, 1994 and 1995, respectively.
The dollar increase in 1994 was primarily due to the costs associated with
expanding operations. The percentage increase in 1994 was primarily attributable
to allocation over a smaller revenue base. The dollar increase in 1995 was
principally due to increased personnel and marketing efforts and costs
associated with the sales of SmartWall. The percentage decrease in 1995 was
principally due to allocation over a larger revenue base.

General and Administrative. General and administrative expenses increased
from approximately $74,000 in 1993 to approximately $315,000 in 1994 and
increased to approximately $1,350,000 in 1995. General and administrative
expenses as a percentage of total revenues were 97.4%, 527.8% and 122.4% in
1993, 1994 and 1995, respectively. The dollar increase in 1994 was primarily as
a result of increased staffing levels. The dollar increase in 1995 was primarily
due to increased staffing levels, leasing of additional office space, additional
travel expense, establishing an allowance for potentially uncollectible and
non-saleable inventory and increased professional fees.

Research and Development. Research and development expenses increased from
$21,000 to approximately $128,000 in 1994 and increased to approximately
$305,000 in 1995. Research and development expenses as a percentage of total
revenues were 27.6%, 214.2% and 27.6% in 1993, 1994 and 1995,

25
<PAGE> 28

respectively. The dollar increases in 1994 and 1995 were primarily due to
increases in the number of personnel associated with the Company's product
development efforts.

Interest Income and Expense. There was no interest income in 1993 and
1994. Interest income in 1995 was approximately $5,000 from interest earned on
the net proceeds from the Company's private financings. Interest expense was
approximately $2,000 in both 1993 and 1994. Interest expense was approximately
$67,000 in 1995. The increase was primarily due to the Company's issuance of
$1,250,000 in promissory notes in 1995.

Income Taxes. The Company did not incur income tax expenses in December
31, 1993, 1994 and 1995 as a result of the net loss incurred during these
periods. As of December 31, 1995, the Company had net operating loss
carryforwards of approximately $1,645,000 as a result of net losses incurred
since inception.

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth selected financial data for the periods
indicated. This information (other than the three months ended March 31, 1996)
has been derived from the Company's unaudited financial statements, which, in
management's opinion, reflect all adjustments necessary to fairly present this
information when read in conjunction with the financial statements and notes
thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------

MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1995 1995 1995 1996 1996
----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Products................... $ 150,257 $ 218,961 $ 356,021 $ 376,179 $ 981,642 $ 1,302,402
Consulting and services.... -- -- -- 2,083 40,169 52,174
----------- ----------- ----------- ----------- ----------- -----------
Total revenues...... 150,257 218,961 356,021 378,262 1,021,811 1,354,576
----------- ----------- ----------- ----------- ----------- -----------
Cost of revenues:
Products................... 52,590 78,560 125,482 119,727 310,693 462,636
Consulting and services.... -- -- -- 800 11,305 15,917
----------- ----------- ----------- ----------- ----------- -----------
Total cost of
revenues.......... 52,590 78,560 125,482 120,527 321,998 478,553
----------- ----------- ----------- ----------- ----------- -----------
Gross profit................. 97,667 140,401 230,539 257,735 699,813 876,023
----------- ----------- ----------- ----------- ----------- -----------
Operating expenses:
Sales and marketing........ 40,730 25,312 24,030 40,845 709,111 963,326
General and
administrative........... 163,282 297,881 176,903 712,295 592,967 2,756,546
Research and development... 48,446 62,344 90,142 104,041 310,952 393,357
----------- ----------- ----------- ----------- ----------- -----------
Total operating
expenses.......... 252,458 385,537 291,075 857,181 1,613,030 4,113,229
----------- ----------- ----------- ----------- ----------- -----------
Operating loss............... (154,791) (245,136) (60,536) (599,446) (913,217) (3,237,206)
----------- ----------- ----------- ----------- ----------- -----------
Other (expense) income:
Interest expense........... -- -- -- (66,615) (104,934) (176,092)
Interest income............ -- -- -- 4,513 23,491 19,897
----------- ----------- ----------- ----------- ----------- -----------
Total other
expenses.......... -- -- -- (62,102) (81,443) (156,195)
----------- ----------- ----------- ----------- ----------- -----------
Net loss..................... $ (154,791) $ (245,136) $ (60,536) $ (661,548) $ (994,660) $(3,393,401)
=========== =========== =========== =========== =========== ===========
</TABLE>

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 transactions; the length of the Company's sales cycle; changes in the
Company's budget authorizations; the level of sales and marketing, research and
development and administrative expenses; and general economic conditions. For
example, the Company made significant sales during the latter part of the second
quarter of 1996, and a significant portion of those sales were not collected
until the third quarter of 1996. As a result, the Company's

26
<PAGE> 29

accounts receivable during the second quarter of 1996 increased to an amount
greater than its revenues for that period.

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
Company's short operating history, 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. See "Risk
Factors -- Anticipated Fluctuations in Quarterly Results."

The Company may experience significant seasonality in its business, and the
Company's financial condition and results of operations may be affected by such
trends in the future. Such trends may include higher revenues in the third and
fourth quarters of the year and lower revenues in the first and second quarters.
The Company believes that revenues may be higher in the third quarter due to the
fiscal year end of the U.S. government and higher in the fourth quarter due to
year end budgetary pressures on the Company's commercial customers and the
tendency of certain of the Company's existing or prospective customers to
implement changes in computer or network security prior to the end of the
calendar year. Because the Company's operating expenses are based on anticipated
revenue levels, a small variation in the time of recognition of revenues can
cause significant variations in operating results from quarter to quarter.

LIQUIDITY AND CAPITAL RESOURCES

Since its organization, the Company has financed its operations through the
private sale of equity securities, notes to shareholders and short-term
borrowings. In 1993, the Company raised approximately $40,000 from the issuance
of an 8% note. In 1994 and 1995, the Company raised approximately $750,000 and
$400,000, respectively, through the sale of Common Stock. In addition, in
December 1995 and January 1996, the Company raised $2,500,000 from the sale of
7% unsecured promissory notes scheduled to mature on June 30, 1996. In addition,
in April 1996, the Company raised approximately $1,000,000 by selling an
additional 222,222 shares of Series A Stock at $4.50 per share. In April and May
of 1996, the Company exchanged all of the 7% unsecured promissory notes for
Series A Stock. In June 1996, the Company raised an additional $1,500,000 by
issuing to JMI an 8% unsecured senior subordinated note with detachable warrants
to purchase 333,332 shares of Common Stock. See "Capitalization," "Description
of Capital Stock -- Series A Convertible Preferred Stock" and "Certain
Transactions."

In October 1995, the Company obtained a secured equipment loan from a bank
in the amount of $50,000 at the bank's prime rate for the first year, which is
scheduled to increase to the bank's prime rate plus 1.5% in October 1996. The
Company is required to repay the loan over 36 months commencing in October 1996
and ending in October 1999. The amount outstanding under this loan at June 30,
1996 totalled $50,000. At June 30, 1996, the bank's prime rate was 8.25%.

The Company's operating activities used cash of approximately $21,000,
$353,000 and $1,121,000 in 1993, 1994 and 1995, respectively. For the six months
ended June 30, 1996, the Company's operating activities used cash of $2,320,000.
Cash used in operating activities was principally a result of net losses and
increases in accounts receivable and inventory, which were partially offset by
increases in accounts payable and the establishment of an allowance for
potentially uncollectible accounts receivable and non-saleable inventory.

Capital expenditures for property and equipment were approximately $20,000,
$13,000 and $20,000 in 1993, 1994 and 1995, respectively. Capital expenditures
for the six months ended June 30, 1996 were $222,000. These expenditures have
generally been for computer workstations and personal computers, office
furniture and equipment, and leasehold additions and improvements. The Company
expects to purchase additional computer equipment and office furniture in 1996.
The Company may use a portion of the net proceeds of this Offering for such
expenditures.

The Company believes that the net proceeds from this Offering, together
with existing cash and cash equivalents and funds generated from on-going
operations will be sufficient to finance the Company's

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<PAGE> 30

operations at least through 1997. However, the Company may require additional
funds to support its working capital requirements or for other purposes and may
seek to raise such additional funds through public or private equity financing
or from other sources. No assurance can be given that additional financing will
be available or, if available, that such additional financing will be on terms
favorable to the Company or its shareholders.

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<PAGE> 31

BUSINESS

OVERVIEW

V-ONE Corporation 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 suite of
products address network user authentication, perimeter security, access control
and data integrity through the use of smart cards, firewalls and encryption
technology. The Company's products interoperate seamlessly and can be combined
to form a complete, integrated network security solution or can be used as
independent components in customized security solutions. The Company's products
have been designed with an open and flexible architecture to enhance application
functionality and to support future network security standards. In addition, the
Company's products enable organizations to deploy and scale their solutions from
small single-site networks to large multi-site environments.

INDUSTRY BACKGROUND

OVERVIEW. Over the last decade, decentralized computing has emerged as a
result of the widespread adoption of personal computers, local area networks and
wide area networks. This emergence has enabled users to communicate with each
other and share data throughout an entire organization. With the recent
popularization of the Internet and increased performance capabilities offered by
high-speed modems, ISDN services and frame relay technology, the volume of data
transferred over networks has increased dramatically.

In addition, leading hardware and software vendors have adopted and support
TCP/IP, the Internet's non-proprietary communications protocol, for computer
communications and information exchange. This open platform, along with the
emergence of the Internet, allows increasing numbers of businesses and consumers
to engage in electronic commerce, such as home banking, credit verification,
securities trading and home shopping.

Organizations are increasingly using public networks, such as the Internet,
as an extension of their enterprise networks. Public networks offer a
cost-effective means of connecting branch offices and remote and mobile users to
mission critical applications and corporate resources such as groupware,
customer databases and inventory control systems. Also, the Internet can be used
as a lower cost alternative to value-added networks as a means to link companies
with customers, suppliers and trading partners. In addition, businesses are
deploying intranets, internal networks using TCP/IP protocols, to facilitate
geographically dispersed communications and the transmission of information
throughout an enterprise in a cost-effective manner.

With the increased use of the Internet and intranets, many organizations
are discovering that network security is a key element in successfully
implementing distributed applications and services, including electronic mail,
electronic data interchange, electronic commerce and information exchange
services. Information becomes more vulnerable as organizations rely heavily on
computer networks for the electronic transmission of data. In the absence of
comprehensive network security, individuals and organizations are able to
exploit system weaknesses to gain unauthorized access to networks, network
transmissions and individual network computers. These individuals and
organizations use such access to alter or steal data or, in some cases, to
launch destructive attacks on data and computers within a network.

Demand for computer network security products is expected to grow
significantly as a result of the increased use of the Internet and intranets.
The Yankee Group, a market research firm, indicated that it expects the market
for information security products and services to grow at a 70% compound annual
rate to the end of the decade from $399 million in 1995 to approximately $5.6
billion in the year 2000.

NETWORK SECURITY ELEMENTS. Each of the following elements is critical in
creating a complete network security solution to protect an organization's data,
network and computer systems:

- Identification and Authentication -- Verifying the user's identity to
prevent unauthorized access to computer and network resources.

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<PAGE> 32

- Integrity -- Ensuring that network data, whether in storage or
transmission, has not been changed or compromised by any unauthorized
manipulation.

- Non-repudiation -- Verifying that data transmissions have been
executed between specific parties so that neither party may
legitimately claim that the transaction did not occur.

- Authorization -- Controlling which systems, data and applications a
user can access.

- Encryption -- Preventing unauthorized users from viewing private data
through the process of "scrambling" data before it is transmitted or
placed into electronic storage.

To date, network security solutions have focused on single function or point
products that address one or a limited number of these specific network security
elements.

NETWORK SECURITY PRODUCTS. Over the years, a number of network security
products have been developed, including passwords, token-based access devices,
firewalls, encryption products, smart cards and digital certificates. Each of
these products was designed with a specific function or objective; however, few
were designed to meet all of the needs of enterprise-wide network security.
Single function or point products that have been developed to address one or a
limited number of network security requirements include the following:

Passwords and Tokens. Until recently, passwords were the most common
method of authentication. Static (non-changing) passwords were developed as
the first attempt to address the need for authentication. Static passwords,
however, are inadequate as they are susceptible to "sniffing" (unauthorized
viewing) and to attacks using software designed to randomly generate and
enter thousands of passwords. As a result, dynamic passwords, including
single-use passwords, were created to provide a greater level of
authentication. Dynamic password implementations include the use of
time-varying and challenge-response passwords. Generally, dynamic passwords
require the use of a hand-held, electronic device called a hardware token.
Dynamic passwords were subsequently strengthened by incorporating
two-factor identification, which provides a higher level of authentication
in that two independent components are combined to identify a user (for
example, a bank ATM card and a PIN code). However, dynamic passwords and
two-factor identification provide only a limited level of security because
the sessions they authenticate are still vulnerable to interception.

Firewalls. Firewalls are network access control devices that regulate
the passage of information based on a set of user-defined rules. Generally,
firewalls are based upon one of two technical architectures: packet filters
(customarily used in routers) or proxy-based application-level gateways.
Packet filters screen network traffic and allow or prevent network access
based upon source and destination Internet protocol addresses. Proxy-based
application-level gateways provide access to applications on the network
only after the user has identified the desired application and submitted a
valid password.

Encryption. Encryption products provide privacy for transmitted data.
Encryption algorithms scramble data so that only users with the appropriate
decoding key are able to view transmitted or stored data. Public-key
encryption has recently gained additional credibility for managing the keys
(codes) used to encrypt and subsequently decrypt user designated data.

Smart Cards. Smart cards are similar in size to credit cards, but
contain a small, tamper-proof microprocessor chip and are capable of
storing data and processing complex encryption algorithms. Smart cards are
advanced authentication tokens that are also capable of storing
information, such as credit card or bank account numbers, medical records,
photographic images or digital certificates.

Digital Certificates. A digital certificate serves as an individual's
electronic identification card. The certificates are digitally certified by
a third party, called a certificate authority, who vouches for the identity
of the certificate holder. Digital certificates are being standardized as a
means of authenticating on-line users and are perceived to be a key
technology for the expansion of secure transactions and electronic
commerce.

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<PAGE> 33

As organizations increase their dependence on the Internet and deploy
intranets, the Company believes that there will be an increasing need for a
comprehensive enterprise-wide network security solution. Many network security
vendors, however, have focused on developing products that address only one or a
limited number of specific security requirements. In addition, products
developed by different vendors are often difficult to integrate with each other
and pose interoperability problems. Consequently, the Company believes that
organizations will increasingly demand comprehensive network security solutions
that are easy to implement and transparent to the user. These solutions must
have the ability to integrate with existing applications, networks and/or
mainframe applications, while being flexible and powerful enough to address the
needs created by newly developed technologies.

THE V-ONE SOLUTION

The Company offers a comprehensive suite of network security products that
address the need for identification and authentication, integrity,
non-repudiation, authorization and encryption. The Company believes that,
because of its unique combination of smart cards, firewalls and encryption
technology, it is the first network security vendor to provide two-factor
identification, mutual authentication and fine-grained access control. This
combination of network security products enables organizations to identify and
authenticate network users while controlling access to specific network
services. The Company's technology is designed to prevent unauthorized access to
an organization's mission critical applications and internal data without
impeding permitted uses of the organization's resources and information. The
Company's products are compatible with many leading hardware platforms and
operating systems, as well as many third-party security products. The Company's
customers are able to integrate V-ONE's security products into their networks
with minimal impact on existing systems and applications.

The Company's suite of products can be combined and configured to provide
network perimeter security, secure remote access and intra/inter-enterprise
security to facilitate secured electronic commerce and information exchange. The
Company's principal products are SmartGATE, a client/server product that offers
identification and authentication, integrity, non-repudiation, authorization and
encryption; and SmartWall, an application-level firewall that incorporates
SmartGATE's functionality. The Company provides customers with two-factor
identification, mutual authentication, fine-grained access control and
encryption by combining SmartCAT, V-ONE's smart card technology, with the
SmartGATE server. In addition, SmartGATE users can access enterprise networks
from remote locations using SmartCAT.

The Company's technology provides customers with the ability to create
network security solutions designed to meet their specific network security
requirements. V-ONE's customers can securely deploy a broad range of services
and applications to engage in secured electronic transactions, information
exchange and remote access to mission critical applications and corporate
resources. The Company's technology is designed to be (i) modular, allowing
organizations to utilize the security product or products best suited to address
their immediate needs, with a seamless migration path to additional products as
required, (ii) scaleable, ranging from a single system supporting several users
to multiple systems potentially supporting hundreds of thousands of users, and
(iii) portable, securing access independent of any particular user's machine or
network entry point through the use of smart card technology.

Examples of network security solutions created using V-ONE's products
include:

Multi-purpose Smart Cards. The Company has entered into a reseller
arrangement with MCI. V-ONE believes that, in the second half of 1996, MCI is
planning to utilize V-ONE technology to offer multi-purpose, secure campus card
programs to colleges and universities. See "-- Strategic Alliances -- MCI." This
smart card-based solution would use the Company's SmartGATE, SmartWall and
SmartCAT products and would permit students to obtain secure access to their
college or university records, student information and campus services via the
Internet. The smart cards would also be able to include stored value for use at
on- and off-campus vendors and pay telephones. It is presently contemplated that
students will be able to transfer cash value to their smart cards directly from
their bank accounts by using advanced card readers located on campus.

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Home Banking. Several commercial banks are deploying or plan to deploy
applications to their customers that utilize the Company's SmartGATE and
SmartWall technology to enable secure, cost-effective and convenient
Internet-based, home banking services. V-ONE's products have been combined to
enable a bank's customers to securely transfer funds, review accounts and
communicate with other bank departments using the Internet. In some cases, the
Company's products augment an existing private dial-up network system for home
banking. Historically, dial-up solutions have afforded banks quick entry into
the home banking market, but such solutions have typically had certain
administrative and financial limitations. By using V-ONE's technology, a bank is
able to cost-effectively provide secured data transmissions while deploying
applications to its customers that are intended to result in higher levels of
customer service and convenience.

Electronic Data Interchange ("EDI"). GE InterBusiness, the secure Internet
offering of GEIS, a worldwide provider of computer communications services, is
designed to provide electronic commerce, such as EDI and secured messaging.
Using SmartGATE technology, GEIS has established an environment that permits
GEIS' business clients to conduct electronic commerce, to share business
information via bulletin boards and to take advantage of the Internet's open
standards while maintaining transparent authentication, authorization and
encryption. Each time a GE InterBusiness member engages in a transaction using
the GE InterBusiness service, SmartGATE authenticates the member, checks the
member's right to perform the transaction and encrypts the session. GEIS has
made GE InterBusiness available to its installed client base of approximately
40,000 corporations.

Internet Services. It is expected that Virtual Networks, Inc. ("VNI") will
be the first Internet service provider ("ISP") to deploy the Company's secured
messaging module, SmartREM (Smart Registered Electronic Messaging), which is
expected to be introduced in the fourth quarter of 1996. SmartREM will couple
SmartGATE with a TCP/IP mail server to enable secure registered e-mail over the
Internet. SmartREM will provide a mail system that authenticates the identity of
the sender of each message, guarantees delivery of the message to only the
addressee and encrypts the message during transit between the sender and the
receiver to ensure privacy of the data stream.

STRATEGY

The Company's goal is to become the leading provider of comprehensive, open
and interoperable network security products that are convenient to the end user.
The Company's strategy to realize its goal contains the following elements:

- Provide an Interoperable, Scaleable and Open Solution. The Company
intends to continue to provide network security products that operate on
leading platforms and that are interoperable and compatible with other
network security products. The flexible and open architecture of the
Company's products enable the Company to deliver component technologies
for a seamless and interoperable system. In addition, the Company's
technology is scaleable, application-independent and designed both to
integrate with existing technologies as well as to support emerging
standards and applications.

- Augment and Integrate with Existing Security Products. The Company will
continue to offer products that interoperate with a wide variety of
third-party security products, including firewalls and tokens, allowing a
customer to augment existing network security systems. The Company
believes that its technology protects a customer's existing network
security investments because the Company's products are designed to
integrate easily with point products currently employed by its customers.
The Company believes that this strategy will enable it to gain access to
potential customers who have previously made network security investments
but whose network security needs are continuing to evolve.

- Leverage Key Reference Accounts in Selected Vertical Markets. The
Company has identified strategic vertical markets that require
sophisticated network security solutions. The Company has targeted its
marketing and direct sales efforts on key participants within these
selected vertical markets. By successfully installing its products at key
accounts, the Company intends to leverage positive references from its
installed customer base to expand its market penetration within those
information critical

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industries. In the future, the Company intends to increase its marketing
and sales efforts to expand its customer base in additional vertical
markets, such as healthcare.

- Develop and Leverage Strategic Alliances. The Company has established
strategic alliances to increase the distribution and market acceptance of
its network security products including alliances with MCI and
Software.com, Inc. ("Software.com"). The Company intends to continue to
strengthen its existing strategic alliances while forging new
relationships with key industry participants. In addition, the Company is
exploring opportunities to develop new products and expand the
functionality of its existing products through alliances with key vendors
of complementary technologies.

PRODUCTS AND SERVICES

The Company's network security products are designed to protect an
organization's information and networks from unauthorized access while allowing
users of the network to conduct business securely over the Internet and
intranets. These products have been designed to interoperate seamlessly and
enhance application functionality. The Company designs its products so that they
can be combined in different configurations to provide customized solutions for
its customers. The following table lists the Company's current products and
products under development:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
DATE OF
PRODUCT CATEGORY DESCRIPTION INTRODUCTION
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SmartGATE(TM) Client/server security End-to-end, application level network Q4 1995
data security system providing
two-factor identification, mutual
authentication, encryption and access
control
- -------------------------------------------------------------------------------------------------------
SmartWall(R) Network perimeter An application level, dual-homed Q4 1994
security (firewall) firewall that protects internal networks
while enabling remote access to internal
resources
- -------------------------------------------------------------------------------------------------------
SmartCAT(R) Smart card technology Smart card client software that is Q2 1994
interoperable with third-party smart
cards and smart card readers
- -------------------------------------------------------------------------------------------------------
Online Client/server token A system that allows remote creation and Q2 1996
Registration distribution management of secure tokens and
Service(TM) workstation configuration files
- -------------------------------------------------------------------------------------------------------
SmartREM(TM) Secured e-mail A system that allows authenticated and Q4 1996
encrypted message transfer between users (proposed)
of a secured messaging community
- -------------------------------------------------------------------------------------------------------
Wallet Electronic commerce Electronic technology that enables Q3 1995
Technology(TM) secure payment transactions containing
credit card information
- -------------------------------------------------------------------------------------------------------
NetChart(TM) On-line financial Stock performance analysis application Q2 1996
analysis
- -------------------------------------------------------------------------------------------------------
</TABLE>

The statements made herein regarding scheduled release dates for the
Company's products under development and proposed enhancements are
forward-looking statements, and the actual release dates for such products or
enhancements could differ materially from those projected as a result of a
variety of factors, including the ability of the Company's engineers to solve
technical problems and test products, Company priorities, the availability of
development and other resources and other factors, including factors outside the
Company's control. There can be no assurance that the Company will not
experience difficulties that could

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<PAGE> 36

delay or prevent the successful development, introduction and marketing of new
products, or that new products and product enhancements will meet the
requirements of the marketplace or achieve market acceptance. See "Risk
Factors -- Changes in Technology and Industry Standards; Risk of New Product
Introduction."

SmartGATE. SmartGATE is designed to interoperate easily with most
TCP/IP-based applications and to allow the end user to securely use existing and
future software applications over the Internet and intranets. SmartGATE employs
two-factor identification (two independent components are combined to
authenticate a user) and mutual authentication (both the server and client
determine that the other party to the transaction is authorized to participate
in the transaction) through the use of virtual or physical smart cards.

SmartGATE establishes a secured, encrypted link over an unsecured network
once both parties to a communication over the unsecured network have been
identified and authenticated. The authorized user is then granted access to only
those services and data for which the user has been approved. SmartGATE supports
secure remote administration, which can be accessed using a Web browser or
telnet. SmartGATE also supports the data encryption standard ("DES") (which, in
most forms, cannot be exported from the United States without the approval of
the State Department) and RSA's RC4 encryption algorithm (which is exportable).

SmartGATE server software versions are available on a variety of leading
operating systems, including Berkeley Software Development, Inc.'s BSD/OS, Sun
Microsystems, Inc.'s SunOS, and Hewlett-Packard Company's HP-UX. SmartGATE
client supports Microsoft Corporation's Windows versions 3.0 and 3.1, Windows 95
and Windows NT. The Company believes that SmartGATE server software versions
will also be commercially available for Windows NT and Sun Microsystem, Inc.'s
Sun Solaris by the fourth quarter of 1996. In addition, the Company believes
that SmartGATE client software versions will also be commercially available for
Apple Computer's Macintosh by the end of the fourth quarter of 1996. A turnkey
version of SmartGATE server is available for BSD/OS on an Intel Pentium hardware
platform. The Company intends to support additional leading hardware and
software platforms based on specific market opportunities.

SmartWall. SmartWall, the Company's firewall product, provides a high
level of protection against unauthorized access to a secured network from an
unsecured network. SmartWall also allows transparent access from the secured
network to services and applications on the unsecured network. SmartWall
includes a secured graphical user interface for firewall administration, strong
mutual authentication to identify users and complete transparency for authorized
traffic. In addition, SmartWall allows multiple sites to be administered from
any location using a Web browser or telnet. SmartWall supports multiple types of
existing encryption products, authentication tokens, proxy services and secure
transmission channels. SmartGATE is fully integrated into every SmartWall. The
SmartWall firewall incorporates TIS's Gauntlet(TM) kernel.

SmartWall software-only versions are currently available on a variety of
leading operating systems, including BSD/OS, SunOS and HP-UX. A SmartWall
turnkey system is currently available for BSD/OS. The Company intends to support
additional leading hardware and software platforms based on specific market
opportunities.

SmartCAT. The SmartCAT product, when used with the SmartGATE server,
provides two-factor identification and mutual authentication using physical
smart card technology. There are three key parts to the SmartCAT product: (i) a
standard smart card (ISO/IEC 7816-3, T=0 compliant), (ii) a smart card reader
designed by the Company, and (iii) the Company's proprietary SmartGATE client
software. Together these elements provide smart card-based encryption and
authentication services.

Online Registration Service. A user must be registered to access an
authentication-based system. The Online Registration Service product is a system
for efficient on-line enrollment of large user communities. The Online
Registration Service completely automates the creation and exchange of the
user's keys and initializes the user's default access privileges. The Online
Registration Service either creates a virtual smart card or formats a physical
smart card that contains a shared secret key that is PIN code protected.

SmartREM. It is currently anticipated that the Company will introduce
SmartREM in the fourth quarter of 1996. When introduced, SmartREM will provide a
private mail box environment for secured e-mail

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<PAGE> 37

over the Internet or intranets. SmartREM will combine SmartGATE and a TCP/IP
mail server, enabling individuals to initiate non-repudiable sessions for
sending and receiving authenticated messages within the same secured community.
SmartREM is designed to address the concern of interception or wrongful delivery
of private or sensitive e-mail by allowing users to send "registered" e-mail.
For example, businesses will be able to use SmartREM to securely send price
quotes, volume discounts and other sensitive information over the Internet from
remote locations while ensuring delivery of the data to only the intended
addressee.

Wallet Technology. Wallet Technology enables secured electronic credit
card payment transactions over unsecured networks. Wallet Technology encrypts
the credit card information supplied by the purchaser and forwards that
information to the vendor. The vendor adds the purchase value to the encrypted
credit card information and sends all of this information to the credit card
issuer/processor. The issuer/processor decodes this information and either
authorizes or rejects the purchaser's request. The Company's design does not
allow the vendor to view the unencrypted credit card information supplied by the
purchaser.

NetChart. NetChart is a stock performance analysis application. This
application was originally developed to demonstrate the Company's technology.
Recently, prospective and existing customers have expressed interest in using
this application.

Network Security Consulting. The Company's consulting staff provides pre-
and post-sales support, vulnerability analysis, performance analysis, systems
integration and system security architecture support. The Company's consulting
staff also provides fee-based engineering services. The Company believes that
maintaining a staff of nationally recognized consultants greatly enhances its
position as an innovative supplier of network security products.

TECHNOLOGY

The Company believes that its technology and product architecture provide
it with an important competitive advantage. The cornerstone of the Company's
network security solution is its proprietary SmartGATE client/server security
product. SmartGATE enables two-factor identification, mutual authentication and
fine-grained access control for most TCP/IP-based client/server applications.
Using SmartGATE technology, organizations can employ two-factor identification
and mutual authentication to identify and authenticate a network user while
fine-grained access control restricts each user's access to only those services
to which the user is entitled.

Two-Factor Identification. Two-factor identification employs two
independent components to identify a user using an identity token contained in a
physical or virtual smart card. The information in the physical or virtual smart
card is secured by a PIN code that is set by the user and is not known by anyone
else. SmartCAT provides the means for accessing and using smart cards via smart
card readers. SmartGATE client provides the means for using virtual smart cards.
Both physical and virtual smart cards store information about the user including
the user's keys, which are used for authentication. The keys also contain
information that allow the SmartGATE client to authenticate the SmartGATE server
with which it communicates.

Mutual Authentication. Mutual authentication employs a dual set of
challenges and encrypted responses that interact to enable both the client and
the server to determine that the other party to the transaction is authorized to
participate in the transaction. SmartGATE's mutual authentication employs dual
challenges coupled with encrypted responses to ensure non-repudiation between
the two parties to an electronic transaction. When a client application attempts
to make a connection with an application service protected by a SmartGATE
server, the SmartGATE client performs a mutual authentication process with the
SmartGATE server protecting the application service. During the authentication
process, the SmartGATE server sends a challenge to the SmartGATE client, and the
SmartGATE client uses the secret keys on the physical or virtual smart card to
correctly respond to the challenge. In addition, the SmartGATE client sends a
challenge to the SmartGATE server, and the SmartGATE server must prove to the
SmartGATE client that the server is the issuer of the client's secret key.

Fine-Grained Access Control. Fine-grained access control employs access
control lists to compare an identified user's request for services against a
list of entitlements to determine whether to grant the user access

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to the requested service. SmartGATE employs an access control list to define the
specific Web content page, file or host application that identified users are
permitted to use. If SmartGATE determines that the user is permitted to access
the requested service, the connection is passed through the SmartGATE server to
the requested service; otherwise the connection is dropped.

In addition to providing identification, authentication and access control,
the SmartGATE client and server independently compute a session key for
encrypting the current TCP/IP data stream. The encryption key is computed based
on information exchanged during the authentication process and is never
transmitted over the network.

STRATEGIC ALLIANCES

MCI. The Company and MCI have entered into a reseller agreement providing
for MCI to purchase a minimum of $2,000,000 in V-ONE products. Under this
agreement, MCI has agreed to act as the exclusive reseller of the Company's
SmartGATE, SmartWall and SmartCAT products for resale and distribution to
colleges and universities in the United States. The Company believes that MCI is
planning to use the Company's technology to offer multi-purpose, secure campus
card programs to colleges and universities. See "-- The V-ONE
Solution -- Multi-purpose Smart Cards." The Company also believes that MCI
intends to promote this technology in other markets presently under
consideration. However, there can be no assurance that such V-ONE technology
will be adopted in whole or in part.

Software.com. The Company has entered into a strategic relationship with
Software.com for the joint deployment and implementation of SmartREM, a secured
electronic messaging system that will employ the Company's SmartGATE product and
Software.com's Post.Office product. The Company believes that the integration of
SmartGATE and Software.com's Post.Office product will provide Internet users
with the ability to communicate efficiently, effectively and securely.
Presently, e-mail communications over the Internet are not secure. The sender
cannot ascertain whether the intended receiver, in fact, received the message
and the receiver cannot authenticate the actual identity of the sender. The
strategic alliance with Software.com combines the Company's SmartGATE product
with Software.com's Post.Office product so that the Post.Office server, using
the Company's technology, authenticates each sender by means of two-factor
identification and mutual authentication (similar to the technology used by bank
ATM machines to dispense cash) and guarantees delivery only to the specified
addressee. In addition, the Post.Office product will notify the sender when the
addressee has retrieved the message (return receipt requested).

The Software.com agreement expires on October 19, 1996; however, the
agreement provides for the automatic renewal for successive three month terms.
The agreement may be terminated for cause by either party upon thirty days'
prior written notice.

CUSTOMERS

The Company has identified strategic vertical markets that require
sophisticated network security solutions, including financial services,
telecommunications and information services companies and government entities.
The Company targets key participants within these industries that the Company
believes can benefit from the functionality, scaleability and interoperability
provided by its products. A representative list of the Company's customers
includes:

<TABLE>
<CAPTION>
TELECOMMUNICATIONS,
INFORMATION
FINANCIAL SERVICES AND OTHER GOVERNMENT
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
Banc One Services Corporation Computer Sciences Corporation Bureau of Land Management
BayBank Systems, Inc. GE Information Services, Inc. National Security Agency
Bear, Stearns & Co. Inc. MCI Telecommunications NCTS Washington, a division
of
Fuji Capital Markets Corporation the Department of the Navy
Corporation
Svenska Handelsbank Virtual Networks, Inc. State of Utah
Visa International U.S. Air Force
</TABLE>

36
<PAGE> 39

SALES AND MARKETING

The Company markets its network security products through its direct sales
force and, to a lesser extent, through systems integrators, value-added
resellers ("VARs") and international distributors. The Company is currently
seeking to expand its sales and marketing staff and intends to devote additional
resources to marketing and business development activities in order to expand
its third-party distribution channels.

Direct Marketing Effort. The Company has concentrated its initial
marketing and direct sales efforts on key industry participants within certain
industry and market segments, including financial services, telecommunications
and information services companies and government agencies. The Company employs
a direct sales force to market its products to these key industry participants.
The Company's direct sales force solicits prospective customers and provides
technical advice and support with respect to the Company's products. As of
September 9, 1996, the Company employed 14 direct sales representatives. In
1996, the Company anticipates hiring additional direct sales representatives and
opening regional sales offices in select cities. In July 1996, the Company
opened regional sales offices in New York, New York and San Francisco,
California.

Indirect Marketing Effort. An important component of the Company's sales
strategy is the development of indirect sales channels such as ISPs, systems
integrators and value-added network service providers. The Company utilizes
indirect sales channels to leverage the efforts of its direct sales force. For
example, in the secured messaging market, the Company has targeted ISPs like
VNI. The Company has initiated sales and marketing programs to sign up
integrators, VARs and original equipment manufacturers within the United States.
As of September 9, 1996, the Company had established relationships with six
integrators within the United States and has signed VAR agreements with MCI and
GEIS. As of September 9, 1996, the Company has established relationships with
international distributors in the United Kingdom, Sweden, Germany, Belgium,
South Africa and Australia, including relationships with Internet Solutions,
Ltd. in the United Kingdom and PromaCom A.B. in Sweden.

Strategic Alliance Development. The Company plans to increase market
penetration by developing and capitalizing upon strategic alliances. These
alliances are intended to increase the distribution and market acceptance of
V-ONE's network security products in markets where direct sales and traditional
indirect sales efforts are not cost-effective. For example, the Company has
developed a strategic alliance with MCI to offer to colleges and universities a
multi-purpose, secure campus card program that integrates V-ONE technology with
MCI products and services. The Company has also entered into a strategic
alliance with Software.com that is designed to allow secure messaging over the
Internet. The Company intends to continue efforts to strengthen its existing
relationships while also forging new relationships with key industry
participants.

CUSTOMER SERVICE AND SUPPORT

The Company believes that customer support and product maintenance is
critical to retaining existing customers and attracting prospective customers.
The Company provides on-site installation support and basic administrator
training with each turnkey hardware product sale. Each turnkey product comes
with 24 hours a day, seven days per week hardware and software support for 90
days. Upon expiration of the 90-day period, customers may purchase an annual
maintenance plan. Purchasers of the Company's software products may also
purchase annual maintenance plans. The annual maintenance plan provides
customers access to the Company's customer service line, technical support
personnel and software upgrades.

The Company provides additional user or administrator training, on-site
support, vulnerability analysis, performance analysis, systems integration and
system security architecture support as an optional service through its
consulting staff. Additionally, the Company provides customer support services
for those customers who have entered into an evaluation agreement with the
Company.

The Company intends to enhance its customer service system by adding a
toll-free line and developing a three-tier support system. The first tier of the
Company's enhanced customer support system will consist of help desk support
personnel accessing customer information and a problem database. Second tier
support for elevated problems will be provided by the Company's existing systems
engineering staff. Lastly, critical third tier problems will be addressed by the
Company's in-house consulting staff. The Company believes that

37
<PAGE> 40

moving to a three-tier customer support system will increase its effectiveness
and responsiveness to meeting customer's expanding needs.

PRODUCT DEVELOPMENT

The Company is expanding and intends to continue to expand its product
offerings to meet existing and evolving network security needs of organizations.
The Company's products and product enhancements are developed in response to
customer needs. Compatibility and interoperability with other applications are
strategic focuses of V-ONE's product development efforts. The Company intends to
continue to monitor emerging standards for networking and security, and adapt
its suite of products to encompass these standards. In keeping with the
Company's customer-driven product strategy, the Company will also focus on
developing business partnerships with other companies that provide security
related services and exploiting new market opportunities.

The market for the Company's products is dynamic and rapidly changing. The
Company believes that its future success will depend upon its ability to: (i)
enhance its existing products, (ii) identify new opportunities to leverage
existing technologies, and (iii) develop new technologies resulting in new
products, markets and services. Accordingly, the Company expects to continue to
make a significant investment in research and development, product market
analysis and systems integration. The Company believes that its customer-driven
development strategy will enable it to continue to broaden its product
offerings.

COMPETITION

The market for network security products and services is intensely
competitive. The Company expects competition to intensify in the future.

Currently, the Company competes in several different markets: Internet and
intranet perimeter security and access control (firewalls), token
authentication, smart card-based security applications and electronic commerce
applications. The Company's principal competitors for Internet and intranet
perimeter security and access control include Advanced Network and Services (a
subsidiary of America Online, Inc.), AXENT Technologies, Inc., Bay Networks,
Inc., Border Network Technologies, Inc., Check Point Software Technology Ltd.,
Cisco Systems, Inc., Digital Equipment Corporation, Harris Computer Systems
Corporation, International Business Machines Corporation, Milkyway Networks
Corporation, Morningstar Technologies, Inc., Network Systems Corporation, Raptor
Systems, Inc., Secure Computing Corporation, Sun Microsystems, Inc. and TIS,
which owns the Gauntlet(TM) kernel and licenses it to the Company.

The Company competes to a lesser degree with token vendors because the
Company's SmartGATE product supports many vendor tokens. Token vendors include
CRYPTOCard Inc., Digital Pathways, Inc., Leemah DataCom Security Corporation,
National Semiconductor Inc., Racal-Guardata, Inc. and Security Dynamics.
Security Dynamics has recently acquired RSA. RSA's data encryption and
authentication technology is licensed to and incorporated within certain
products of the Company. As a result, Security Dynamics may become a more
substantial competitor of the Company.

For smart card-based security applications, the Company principally
competes with those token vendors listed above who offer smart card technology.

The Company's principal competitors in electronic commerce applications are
Netscape Communication's Secure Socket Layer, Open Market Inc.'s Secure HTTP and
Cylink Corporation's transaction software.

Because of the rapid expansion of the network security market, the Company
will face competition from existing and new entrants, possibly including the
Company's customers, suppliers and/or resellers. There can be no assurance that
the Company's competitors will not develop network security products that may be
more effective than the Company's current or future products or that the
Company's technologies and products would not be rendered obsolete by such
developments.

38
<PAGE> 41

resources than the Company. As a result, they may be able to adapt more quickly
to new or emerging technologies and changes in customer requirements, or to
devote greater resources to the promotion and sale of their products, than the
Company. There can be no assurance that the Company's customers will not
perceive the products of such other companies as substitutes for the Company's
products.

The Company believes that the principal competitive factors affecting the
market for network security products include effectiveness, scope of product
offerings, technical features, ease of use, reliability, customer service and
support, name recognition, distribution resources and price. Current and
potential competitors have established, or may establish in the future,
strategic alliances to increase their ability to compete for the Company's
prospective customers. Accordingly, it is possible that new competitors or
alliances may emerge and rapidly acquire significant market share. Increased
competition may result in price reductions, reduced gross margins and loss of
market share, which would materially adversely affect the Company's business,
financial condition and results of operations. See "Risk
Factors -- Competition."

BACKLOG

Orders for the Company's products are usually placed by customers on an
as-needed basis and the Company has typically been able to ship products within
30 days after the customer submits a firm purchase order. The Company does not
generally maintain long-term contracts with its customers that require customers
to purchase its products. Accordingly, the Company has not maintained and does
not anticipate maintaining a backlog. See "Risk Factors -- Anticipated
Fluctuations in Quarterly Results," "-- Long Sales Cycle; Seasonality" and
"-- Risk of Defects and Development Delays."

SUPPLY SOURCES

Components used in the Company's network security products consist
primarily of computer diskettes and computer magnetic tapes purchased from
commercial vendors. Components used in the Company's turnkey SmartWall and
SmartGATE server products consist primarily of off-the-shelf computers, memory,
displays, power supplies and third-party peripherals (such as hard drives and
network interface cards).

The Company has agreements with at least two vendors for each of its parts
and components. However, the Company orders most of each of its parts and
components from a single vendor to maintain quality control and enhance working
relationships. The Company obtains most of the hardware for its turnkey systems
from Beltron Computers, a subsidiary of DBA MAX Technology Corp. The Company
uses smart card readers manufactured by two contract manufacturers based on the
Company's design specifications.

While the Company believes that alternative sources of supply could be
obtained, the Company's inability to develop alternative sources if and as
required in the future could result in delays or reductions in product shipments
that could have a material adverse effect on the Company's business, financial
condition and results of operations.

REGULATION AND GOVERNMENT CONTRACTS

The Company's information security products are subject to the export
restrictions administered by the U.S. Department of State, which permit the
export of encryption products only with the required level of export license.
For example, there are two versions of the SmartGATE client. One supports DES
for bulk encryption and can only be exported from the United States for
financial transactions. The other supports RC4 (an encryption algorithm) for
bulk encryption and is exportable. In addition, these U.S. export laws prohibit
the export of encryption products to a number of hostile countries. Although to
date the Company has been able to secure all required U.S. export licenses,
there can be no assurance that the Company will continue to be able to secure
such licenses in a timely manner in the future, or at all. See "Risk
Factors -- Risk of Sales to U.S. Government," "-- International Sales" and
"-- Effect of Government Regulation of Technology Exports."

39
<PAGE> 42

In certain foreign countries, the Company's distributors are required to
secure licenses or formal permission before encryption products can be imported.
To date, except for certain limited cases, the Company's distributors have not
been denied permission to import the Company's products.

LICENSE AGREEMENTS

Trusted Information Systems, Inc. Agreement. The Company's license
agreement with TIS requires the Company to pay a fee (which varies based on the
number of units licensed) for each unit of the Gauntlet(TM) product licensed for
use in SmartWall. The license expires on December 31, 1996; however, the
agreement provides for the automatic renewal of the Company's license rights for
successive three year terms. Either party may terminate the agreement upon the
default of the other party if the defaulting party has failed to cure the
default within 30 days of the receipt of written notice of default; however, the
agreement also provides TIS with certain accelerated termination rights in the
event of a subsequent breach. See "Risk Factors -- Dependence on Key Licensing
Agreements, External Resources and Suppliers."

RSA Data Security, Inc. Agreement. The Company's SmartCAT and Wallet
Technology software incorporate data encryption and authentication technology
owned by RSA. The Company has a perpetual license agreement with RSA, which
became effective as of December 30, 1994. On May 23, 1996, RSA exercised an
option granted under the agreement to convert its right to receive future
royalties into 2% of the Company's outstanding voting securities, after giving
effect to the issuance to RSA, until the date of the Company's initial public
offering. Pursuant to a separate agreement between RSA and MIT, MIT is entitled
to receive a portion of any royalties that RSA receives. As a result, the
Company will issue directly to MIT a portion of the shares of Common Stock to
which RSA is entitled under the RSA Agreement. The Company has reserved a total
of 188,705 shares of Common Stock to be issued to RSA and MIT immediately prior
to consummation of the Offering. Either party may terminate the license
agreement upon the default of the other party if the defaulting party has failed
to cure the default within 30 days of the receipt of written notice of default.
RSA has recently been acquired by Security Dynamics. There is no assurance that
the change in control of RSA will not adversely affect the Company's business
relationship with RSA. See "Risk Factors -- Dependence on Key Licensing
Agreements, External Resources and Suppliers" and "-- Intellectual Property
Rights; Infringement Claims."

PATENTS, PROPRIETARY TECHNOLOGY, TRADEMARKS AND LICENSES

The Company relies on trademark, copyright, patent and trade secret laws,
employee and third-party non-disclosure agreements and other methods to protect
its proprietary rights. The Company has pending three patent applications with
the United States Patent and Trademark Office that cover certain aspects of its
technology. Prosecution of these patent applications and any other patent
applications that the Company may subsequently determine to file may require the
expenditure of substantial resources. The issuance of a patent from a patent
application may require 24 months or longer. There can be no assurance that the
Company's technology will not become obsolete while the Company's applications
for patents are pending. There also can be no assurance that any pending or
future patent application will be granted, that any future patents will not be
challenged, invalidated or circumvented or that the rights granted thereunder
will provide competitive advantages to the Company. Further, the Company has not
pursued patent protection outside of the United States for the technology
covered by two of the pending patent applications. The Company currently intends
to pursue patent protection outside of the United States for the technology
covered by the most recently filed patent application although there can be no
assurance that any such protection will be granted or, if granted, that it will
adequately protect the technology covered thereby.

The Company's success is also dependent in part upon its proprietary
software technology. There can be no assurance that the Company's trade secrets
or non-disclosure agreements will provide meaningful protection for its
proprietary technology and other proprietary information. In addition, the
Company relies on "shrink wrap" license agreements that are not signed by the
end user to license the Company's products and, therefore, may be unenforceable
under the laws of certain jurisdictions. Further, there can be no assurance that
others will not independently develop similar technologies or duplicate any
technology developed by the Company or that its technology will not infringe
upon patents, copyrights or other intellectual property rights owned by others.

40
<PAGE> 43

Further, the Company may be subject to additional risk as it enters into
transactions in countries where intellectual property laws are not well
developed or are poorly enforced. Legal protections of the Company's rights may
be ineffective in foreign markets, and technology manufactured or sold abroad
may not be protectable in jurisdictions in circumstances where protection is
ordinarily available in the United States.

As the number of security products in the industry increases and the
functionality of these products further overlaps, software developers may become
subject to infringement claims. There can be no assurance that third parties
will not assert infringement claims against the Company in the future with
respect to current or future products. The Company also may desire or be
required to obtain licenses from others in order to effectively develop, produce
and market commercially viable products. Failure to obtain those licenses could
have a material adverse effect on the Company's ability to market its software
security products. There can be no assurance that such licenses will be
obtainable on commercially reasonable terms, if at all, that the patents
underlying such licenses will be valid and enforceable or that the proprietary
nature of the unpatented technology underlying such licenses will remain
proprietary.

There has been, and the Company believes that there may be in the future,
significant litigation in the industry regarding patent and other intellectual
property rights. Although the Company is not currently the subject of any
material intellectual property litigation, litigation involving other software
developers, including companies from which the Company licenses certain
technology, could have a material adverse affect on the Company's business,
financial condition and results of operations. See "Risk Factors -- Intellectual
Property Rights; Infringement Claims."

EMPLOYEES

As of September 9, 1996, the Company had 68 full-time employees. Of these
employees, 21 were in development, 29 were in sales and marketing, 7 were in
customer support and 11 were in finance and administration. None of the
Company's employees is represented by a labor union or is subject to a
collective bargaining agreement. The Company has never experienced a work
stoppage and believes that its employee relations are good.

FACILITIES

The Company leases approximately 16,261 square feet of office space in
Rockville, Maryland under lease agreements that will expire on April 26, 1997
and April 17, 2001. The Company expects that this space will be sufficient for
its needs through April 26, 1997. The Company is currently evaluating and
intends to lease additional office space as necessary.

The Company also leases office space in New York, New York and in San
Francisco, California under leases that expire on January 14, 1997.

LEGAL PROCEEDINGS

The Company is not a party to any material legal proceedings.

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<PAGE> 44

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company, and their respective
ages at June 30, 1996, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- ------------------------------------------------
<S> <C> <C>
James F. Chen(1)..................... 45 President, Chief Executive Officer and Director
Jieh-Shan Wang....................... 41 Senior Vice President of Engineering
Robert W. Rybicki.................... 51 Vice President of Indirect Channels
Frederick J. Hitt.................... 52 Vice President of Technology
William C. Wilson.................... 41 Vice President of Business Development
Barnaby M. Page...................... 32 Vice President of Direct Sales
Charles B. Griffis................... 51 Chief Financial Officer
Chansothi Um......................... 27 Treasurer
Marcus J. Ranum...................... 33 Chief Scientist
Charles C. Chen(1)(2)................ 41 Secretary and Director
Hai Hua Cheng(3)..................... 47 Director
Harry S. Gruner(2)(3)................ 37 Director
William E. Odom(2)................... 64 Director
</TABLE>

- ---------------
(1) Member of the Executive Committee.

(2) Member of the Audit Committee.

(3) Member of the Compensation Committee.

JAMES F. CHEN founded the Company in February 1993 and has since served as
its President, Chief Executive Officer and a director. From 1980 to 1990, Mr.
Chen managed INTELSAT's world-wide ground network engineering projects. From
1990 to January 1993, he managed the INTELSAT Ground Network Engineering
Department and, from March 1992 to January 1993, he also directed its Management
Information Systems Division. Mr. Chen holds an M.S. in Computer Science from
George Washington University and a B.S. in Electrical Engineering from Georgia
Institute of Technology. He is Charles C. Chen's brother.

JIEH-SHAN WANG, PH.D. has been with the Company since its inception and has
served as the Company's Senior Vice President of Engineering since April 1996.
From August 1995 to April 1996, Dr. Wang served as the Company's Vice President
of Engineering and, from April 1994 to August 1995, he served as Chief Engineer.
Dr. Wang was with INTELSAT from June 1991 to April 1994, as Senior Systems
Engineer, where he led a team of engineers in the development of network
applications. Dr. Wang holds a Ph.D. in Physics from the University of Maryland
and a B.S. in Physics from National Taiwan University.

ROBERT W. RYBICKI has served as the Company's Vice President of Indirect
Channels since May 1996. From October 1995 to May 1996, Mr. Rybicki served as
the Company's Vice President of Business Development. Prior to joining the
Company, Mr. Rybicki was Vice President of Marketing and Customer Support for
Spyglass Inc. from July 1994 to September 1995 and Vice President of North
American Sales for Kubota Pacific from October 1990 to June 1994. Mr. Rybicki
holds an M.B.A. in Finance and a B.S. in Accounting from the University of
Detroit.

FREDERICK J. HITT has served as Vice President of Technology since he
joined the Company in January 1996. From August 1981 to January 1996, Mr. Hitt
was with GEIS holding a number of technology-related positions including Manager
of Software Engineering, Manager of Quality Design-Business Talk Products,
Manager of Software Development and, most recently, Principal Consultant.

WILLIAM C. WILSON has served as the Company's Vice President of Business
Development since May 1996. From April 1995 to May 1996, Mr. Wilson served as
the Company's Vice President of Operations and, from December 1994 to April
1995, he served as Director of Business Development. Prior to joining the

42
<PAGE> 45

Company, Mr. Wilson provided consulting services to the Company from August 1994
to December 1994 and served as an independent consultant from August 1985 to
November 1994. Mr. Wilson holds a B.S. in Journalism and Economics from Ohio
State University, School of Agriculture.

BARNABY M. PAGE has served as the Company's Vice President of Direct Sales
since June 1996. From October 1995 to June 1996, Mr. Page served as the
Company's Director of Sales and, from August 1995 to October 1995, as Manager of
Commercial Sales. Prior to joining the Company, Mr. Page served as Regional
Sales Manager for DiBiasio & Edgington, Inc. from January 1993 to August 1995
and as Regional Sales Representative for Thompson Financial Services from July
1992 to December 1992. From July 1990 to July 1992, Mr. Page was a Sales
Representative with Bloomberg Financial Markets. Mr. Page earned a Certificate
in International Relations and Economics from the University of Copenhagen,
Denmark, and holds a B.A. in Political Science and Journalism from the
University of Massachusetts at Amherst.

CHARLES B. GRIFFIS has served as the Company's Chief Financial Officer
since September 1996. Prior to joining the Company, Mr. Griffis served as Senior
Vice President and Chief Financial Officer of Masstor Systems Corporation, a
company that filed a petition for reorganization under Chapter 11 of the United
States Bankruptcy Code on September 8, 1994, from April 1990 to September 1996.
From November 1983 to April 1990, Mr. Griffis served as a General Partner of
Griffis, Sandler & Co., a private venture capital firm, and as President of
Charles Griffis & Co., Inc., a business consulting firm. Mr. Griffis holds an
M.B.A. in Finance from Columbia University and a B.A. in History from Yale
University.

CHANSOTHI UM has served as the Company's Treasurer since January 1996 and
as its acting Chief Financial Officer from January 1996 until September 1996.
Prior to joining the Company, Mr. Um was a consultant with the Strategic
Services Practice of Andersen Consulting from August 1995 to January 1996. From
May 1994 to August 1994, Mr. Um served as a Financial Analyst at Philip Morris
Companies and, from June 1991 to August 1993, he served as a Project Engineer at
Kraft General Foods. Mr. Um holds an M.B.A. in Finance from The Wharton School
of the University of Pennsylvania and a B.S. in Electrical Engineering from the
University of Illinois at Urbana-Champaign.

MARCUS J. RANUM has served as the Company's Chief Scientist since October
1995. Prior to joining the Company, Mr. Ranum was an independent consultant from
June 1995 to October 1995. From January 1993 to June 1995, Mr. Ranum served as
Senior Scientist at TIS and, from August 1990 to November 1992, he served as a
consultant for Digital Equipment Corporation. In both positions, Mr. Ranum
designed, developed and deployed network security products. Mr. Ranum holds a
B.A. in Psychology from Johns Hopkins University.

CHARLES C. CHEN, D.D.S., has served as a director of the Company since
February 1993 and as the Company's Secretary since December 12, 1995. Since July
1982, Dr. Chen has practiced periodontics with Zupnik, Winson & Chen, D.D.S.P.A.
Dr. Chen holds a D.D.S. from the Baltimore College of Dental Surgery, University
of Maryland, and a B.S. in Chemistry from the University of Maryland. He is
James F. Chen's brother.

HAI HUA CHENG has served as a director of the Company since September 1995.
Mr. Cheng is the majority owner of Scientek Corporation in Taiwan and since
August 1979 has served as Vice President and a director of that company. Mr.
Cheng is also the principal owner of Scientek Private Venture Capital and has
served as a director of that company since March 1990. In addition, Mr. Cheng
has served as a director of United Test Center Inc. (Taiwan) since March 1995.
Mr. Cheng holds a B.S. in Computer and Control Engineering from National Chiao
Tung University.

HARRY S. GRUNER has served as a director of the Company since June 1996.
Since November 1992, he has been a general partner of JMI Equity Fund, a private
equity investment partnership. From August 1986 to October 1992, Mr. Gruner was
a principal with Alex. Brown & Sons Incorporated. Mr. Gruner is also a director
of Brock International, Inc., a developer, marketer and supporter of software
systems, Jackson Hewitt, Inc., an income tax processing company, the META Group,
Inc., a syndicated information technology research company, and Hyperion
Software, Inc., a financial software company, and numerous other privately held
companies. Mr. Gruner holds an M.B.A. from Harvard Business School and a B.A. in
History from Yale University.

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<PAGE> 46

(RETIRED) LT. GEN. WILLIAM E. ODOM has served as a director of the Company
since June 1996. Since October 1988, General Odom has served as Director of
National Security Studies at the Hudson Institute. He has also served as an
adjunct professor at Yale University since January 1989. Prior to his retirement
from the military in 1988, General Odom held several military posts including,
Director of the National Security Agency, Assistant Chief of Staff for
Intelligence and Military Assistant to the National Security Advisor during the
Carter Administration. He is also a director of Nichols Research Corporation.
General Odom holds an M.A. and Ph.D. from Columbia University and a B.S. from
West Point.

Each executive officer serves at the discretion of the Board of Directors.

THE BOARD OF DIRECTORS AND BOARD COMMITTEES

The business of the Company will be managed under the direction of the
Company's Board of Directors. The Company's Restated Bylaws authorize a
seven-member Board of Directors. Currently the Board of Directors consists of 5
directors. The Company's Restated Certificate of Incorporation provides for a
classified Board of Directors. The terms of the Board of Directors are: Class I
(Harry S. Gruner) will expire at the annual meeting of shareholders to be held
in 1997, Class II (Charles C. Chen and Hai Hua Cheng) will expire at the annual
meeting of shareholders to be held in 1998, and Class III (James F. Chen and
William E. Odom) will expire at the annual meeting of shareholders to be held in
1999. At each annual meeting of shareholders beginning with the 1997 annual
meeting, the successors to directors whose terms will then expire will be
elected to serve until the third annual meeting following election and until
their successors have been duly elected and qualified. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that as nearly as possible, each class
will consist of an equal number of directors. The Restated Certificate of
Incorporation and Restated Bylaws provide that a director may be removed at any
time, but only for cause and only by the affirmative vote of 67% or more of the
outstanding shares of the Company entitled to vote at an election of directors
at a special meeting of shareholders called for that purpose.

The Company's Board of Directors has established an Audit Committee ("Audit
Committee") to recommend the firm to be appointed as independent accountants to
audit the Company's financial statements and to perform services related to the
audit, review the scope and results of the audit with the independent
accountants, review with management and the independent accountants the
Company's year-end operating results and consider the adequacy of the internal
accounting procedures. The Audit Committee consists of 3 directors, none of whom
are employees of the Company.

The Company's Board of Directors has also established a Compensation
Committee ("Compensation Committee") and an Executive Committee ("Executive
Committee"). The Compensation Committee, which consists of 2 directors, reviews
and recommends the compensation arrangements for all directors and officers,
approves such arrangements for other senior level employees and administers and
takes such other action as may be required in connection with certain
compensation and incentive plans of the Company. The Executive Committee, which
consists of 2 directors, addresses significant corporate, operating and
management matters between meetings of the full Board of Directors.

EXECUTIVE COMPENSATION

Summary Compensation

The following table sets forth compensation paid to the Chief Executive
Officer during the year ended December 31, 1995. The Company had no executive
officers whose salary plus bonus exceeded $100,000 during the year ended
December 31, 1995.

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<PAGE> 47

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER COMPENSATION
- ---------------------------------------------- ---- ------ ------- ---------- ------------
<S> <C> <C> <C> <C> <C>
James F. Chen................................. 1995 -- $18,000 $ 2,213(1) $ 3,060(2)
(President, Chief Executive Officer and
Director)
</TABLE>

- ---------------
(1) Represents payments made by the Company to finance Mr. Chen's automobile.

(2) Represents health insurance premiums paid by the Company.

Option Grants

James F. Chen, the Company's President, Chief Executive Officer and
Director does not currently hold, nor has he ever been granted, options to
purchase the Company's Common Stock.

STOCK OPTION PLANS

1995 Non-Statutory Stock Option Plan

In May 1995, the Company adopted the 1995 Non-Statutory Stock Option Plan
("1995 Plan") under which stock options may be awarded to key employees of the
Company. The 1995 Plan was ratified by the Company's shareholders at the 1996
annual meeting held on June 28, 1996. As of September 9, 1996, 8 employees have
received awards under the 1995 Plan.

Stock Option Awards. Stock options ("Non-Qualified Options") that do not
meet the requirements of Section 422 of the Internal Revenue Code of 1986, as
amended ("Code"), are available for grant under the 1995 Plan. The term of each
Non-Qualified Option is determined by the committee of the Board of Directors
that administers the 1995 Plan, but no option is exercisable more than ten years
after the date of grant. Unless otherwise provided in an employee's option
agreement, Non-Qualified Options granted under the 1995 Plan expire ten years
from the date of grant and are exercisable in three equal installments over a
twenty-four month period. Non-Qualified Options also may be subject to
restrictions on exercise, as determined by the Committee.

The exercise price for Non-Qualified Options may be no less than par value
per share. The exercise price is payable by either a check in the amount of the
purchase price or by previously owned shares of Common Stock with a market value
equal to the purchase price.

Non-Qualified Options granted under the 1995 Plan are not transferable by
the optionee during an employee's lifetime. Unless otherwise provided in the
employee's option agreement, Non-Qualified Options will be exercisable within
three months of any termination of employment.

Duration of the Plan; Share Authorization. The 1995 Plan will remain in
effect until May 15, 2005, unless terminated earlier by the Company's Board of
Directors. As of September 9, 1996, awards were outstanding with respect to
350,293 shares of Common Stock. Such shares of Common Stock have an aggregate
market value of approximately $1.8 million based on the initial offering price
of $5.00.

On June 12, 1996, the Board determined that no further options would be
granted under the 1995 Plan.

1995 Plan Administration. The 1995 Plan is administered by the
Compensation Committee. The 1995 Plan authorizes the Compensation Committee to
grant Non-Qualified Options to key employees to purchase up to 352,293 shares of
Common Stock and to determine the employees to whom Non-Qualified Options will
be granted, the number of shares subject to each Non-Qualified Option and
applicable vesting schedules.

The members of the Compensation Committee are appointed by the Board. The
Compensation Committee must be comprised of at least two members. Members of the
Compensation Committee are eligible to receive options under the 1995 Plan,
provided that such members do not participate in the decision to grant
themselves options.

45
<PAGE> 48

Transferability; Repurchase Right. Each employee who receives an award
under the 1995 Plan is prohibited from transferring or otherwise disposing of
the underlying shares of Common Stock until 180 days have elapsed following such
time the Company has consummated the Offering. However, shares of Common Stock
may be used to pay the exercise price of Non-Qualified Options.

Upon an employee's termination of employment with the Company, the Company
has the right to repurchase any or all of the shares of Common Stock issued to
the employee with respect to Non-Statutory Options granted under the 1995 Plan,
whether then held by the employee or a transferee. The Company's right to
repurchase shares of Common Stock terminates once the Offering is consummated.

Termination and Amendment. The 1995 Plan may be terminated, modified or
amended by the Company's shareholders. Although the Board of Directors may
terminate, modify or amend the 1995 Plan to conform to any change in law or
regulation, the Board of Directors may not, without shareholder approval, (i)
increase the maximum number of shares as to which Non-Statutory Options may be
granted under the Plan; (ii) change the class of employees eligible to be
granted Non-Qualified Options, (iii) increase the periods during which
Non-Qualified Options may be granted or exercised or (iv) provide for the
administration of the Plan by other than the Committee. No termination,
modification or amendment may be made to the 1995 Plan without the consent of
any employee whose rights would be adversely affected thereby.

Awards Made. As of September 9, 1996, Non-Qualified Options to purchase
350,293 shares of Common Stock were outstanding under the 1995 Plan.

Further information regarding the awards made to date (excluding awards
that have expired unexercised) is set forth in the table below:

<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK EXERCISE PRICE
NAME UNDERLYING OPTION (OR RANGE)
- ------------------------------------------------------------ ----------------- ----------------
<S> <C> <C>
James F. Chen
(President, Chief Executive Officer and Director)......... -- --
William C. Wilson
(Vice President of Business Development).................. 133,333 $0.4245
Barnaby M. Page
(Vice President of Direct Sales).......................... 104,002 $2.505
Ban L. Eap
(Controller).............................................. 32,960 $2.505
Robert A. Dorsey
(Manager of Business Development)......................... 26,666 $0.4245
James V. Reed
(Manager of Communications)............................... 20,000 $0.4245
John T. Tralka
(Senior Programmer)....................................... 20,000 $0.4245
All executive officers as a group........................... 237,335 $0.4245 - $2.505
All employees who are not executive officers as a group..... 112,958 $0.4245 - $4.50
All directors who are not executive officers as a group..... -- --
</TABLE>

For a description of the principal federal income tax consequences of the
1995 Plan, see "-- 1996 Incentive Stock Plan -- Certain Federal Income Tax
Consequences."

1996 Non-Statutory Stock Option Plan

The Company's 1996 Non-Statutory Stock Option Plan ("Non-Statutory Plan")
was adopted by the Board of Directors on April 4, 1996. The Non-Statutory Plan
provides for the grant of options to purchase Common Stock subject to certain
restrictions on transfer ("Restricted Stock"). The Non-Statutory Plan expires on
December 31, 1996 and is administered by the Non-Statutory Stock Option Plan
Committee of the Board of Directors. The purchase price per share under each
option granted is an amount equal to the fair

46
<PAGE> 49

market value of the underlying share on the date the option is granted. Each
option granted under the Non-Statutory Plan is exercisable during the period
beginning on the date the option is granted and ending on December 31, 1996. As
of May 15, 1996, all options granted under the Non-Statutory Plan had been
exercised and a total of 383,965 shares of Restricted Stock had been issued.

In connection with their exercise of options granted under the
Non-Statutory Plan, the optionees, including certain executive officers, paid
the par value of the Restricted Stock in cash and executed promissory notes in
favor of the Company as consideration for the remaining purchase price of the
Restricted Stock. See "Certain Transactions." Five of the six optionees have
executed promissory notes with terms of 10 years that are secured by the
Restricted Stock purchased therewith, bearing a 6% per annum interest rate, with
installments of principal and interest due annually. One of the optionees has
executed a one-year promissory note, bearing a 6% per annum interest rate, with
payment of principal and interest due at the expiration of the promissory note's
one-year term.

Each optionee may make payments to the Company to reduce the principal
amount of his or her promissory note with the Restricted Stock serving as
collateral therefor; however, if the fair market value of such consideration is
less than the then outstanding portion of the indebtedness being satisfied
therewith, each promissory note provides that the optionee bears personal
liability for the disparity. Each promissory note may be prepaid without
penalty.

The Restricted Stock may not be sold, assigned, transferred, pledged or
otherwise disposed of for six years from the date the option to purchase the
shares was granted. As long as this restriction remains in effect, no holder of
Restricted Stock has the right to vote the restricted shares for any purpose.
All voting rights with respect to the Restricted Stock are to be exercised by a
majority vote of the Board of Directors. The restrictions lapse 180 days after
the consummation of the Offering or the acquisition of the Company in exchange
for publicly traded shares.

On June 12, 1996, the Company's Board of Directors determined that no
further options will be granted under the Non-Statutory Plan.

1996 Incentive Stock Plan

On June 12, 1996, the Board of Directors of the Company adopted the 1996
Incentive Stock Plan ("1996 Plan"), under which both options and restricted
share awards may be made to the Company's key employees and consultants. Under
the 1996 Plan, automatic stock option awards are made to non-employee directors.
The 1996 Plan was ratified by the Company's shareholders at the 1996 annual
meeting held on June 28, 1996.

Awards Available Under the 1996 Plan. Awards to key employees and
consultants under the 1996 Plan may take the form of both stock options and
restricted share awards; however, no employee may receive awards with respect to
more than 500,000 shares of Common Stock under the 1996 Plan. As of September 9,
1996, approximately 68 employees were eligible to receive awards under the 1996
Plan. Awards under the 1996 Plan may be granted alone or in combination with
other awards. Non-employee directors may only receive non-discretionary stock
option awards (described in more detail below) under the 1996 Plan. As of
September 9, 1996, two of the Company's non-employee directors received options
under the 1996 Plan.

Stock Options. Stock options ("Incentive Stock Options") meeting the
requirements of Section 422 of the Code and stock options that do not meet such
requirements ("Non-Qualified Options") are both available for grant under the
1996 Plan. The term of each option will be determined by the Compensation
Committee, but no option will be exercisable more than ten years after the date
of grant. Options will also be subject to restrictions on exercise, such as
exercise in periodic installments, as determined by the Committee. The exercise
price for an Incentive Stock Option must be at least 100% of the fair market
value of a share of Common Stock on the date of grant of such option (110% in
the case of Incentive Stock Options granted to a shareholder who owns in excess
of 10% of the Company's voting stock). There is no minimum exercise price for
Non-Qualified Options. The exercise price is payable in cash, in shares of
Common Stock owned by a participant, with respect to Non-Qualified Options, a
promissory note payable to the Company or by cashless exercise with a
participant's broker, as determined by the Committee.

47
<PAGE> 50

Stock options granted under the 1996 Plan are not transferable except by
will or the laws of descent and distribution. Unless otherwise provided in the
relevant option agreement, options will only be exercisable within three months
of any termination of employment other than termination for "cause" or
termination due to death or disability. Unless otherwise provided in the
relevant option agreement, options will be exercisable by a participant or
beneficiary, as the case may be, within one year of a termination of employment
by reason of death or disability. If a participant's employment is terminated
for "cause," his or her options will no longer be exercisable after the date of
such termination of employment unless the option agreement provides otherwise.

The Compensation Committee may provide, at the time of grant of Incentive
Stock Options and at or after the time of grant of Non-Qualified Options, that,
if a participant surrenders already owned shares of Common Stock in full or
partial payment of an option, then, concurrent with such surrender, the
participant, subject to the availability of shares of Common Stock under the
1996 Plan, will be granted a new Non-Qualified Option (a "Reload Option")
covering a number of shares of Common Stock equal to the number so surrendered.
A Reload Option may be granted in connection with the exercise of an option that
is itself a Reload Option. Each Reload Option will have the same expiration date
as the original option and an exercise price equal to the fair market value of
the Company's shares of Common Stock on the date of grant of the Reload Option.
A Reload Option is exercisable immediately or at such time or times as the
Compensation Committee determines and will be subject to such other terms and
conditions as the Compensation Committee may prescribe.

Restricted Shares. The Compensation Committee may award restricted shares
to a participant. Such a grant gives a participant the right to receive shares
of Common Stock subject to a risk of forfeiture based upon certain conditions.
The forfeiture restrictions on the shares of Common Stock may be based upon
performance standards, length of service, or other criteria as the Compensation
Committee may determine. Until all restrictions are satisfied, lapsed, or
waived, the Company will maintain control over the restricted shares but the
participant will be able to vote the shares of Common Stock and generally will
be entitled to dividends on the shares of Common Stock. Upon termination of
employment, the participant generally forfeits the right to the shares of Common
Stock to the extent the applicable performance standards, length of service
requirements or other measurement criteria have not been met.

Non-Employee Director Options. The 1996 Plan provides for the automatic
grant of a Non-Qualified Option to purchase 6,666 shares of Common Stock to each
non-employee director on the first date he or she is elected as such by the
Company's shareholders. However, non-employee directors who are first elected as
such by the Company's shareholders prior to the 1996 annual meeting are not
entitled to receive such an option. The option price is the fair market value of
a share of Common Stock on the date of grant of such option. All such options
have a five year term and are exercisable in full on the date of grant. On June
28, 1996, Harry S. Gruner and William E. Odom were elected to the Board of
Directors. In connection with such election, each director received an option to
purchase 6,666 shares of Common Stock at an exercise price of $9.00 per share
under the 1996 Plan.

If a non-employee director's service with the Company terminates by reason
of death, his or her option may be exercised for a period of one year from the
date of death or until the expiration of the option, whichever is shorter. If a
non-employee director's service with the Company terminates other than by reason
of death, his or her option may be exercised for a period of three months from
the date of such termination, or until the expiration of the stated term of the
option, whichever is shorter.

Duration of the 1996 Plan; Share Authorization. The 1996 Plan will remain
in effect until June 11, 2006, unless terminated earlier by the Company's Board
of Directors. Awards may be issued with respect to up to 2,333,333 shares of
Common Stock. Such shares of Common Stock have an aggregate market value of
approximately $11.7 million based on the initial public offering price of $5.00.

In the event the purchase price of an option is paid or tax or withholding
payments relating to an award are satisfied, in whole or in part through the
delivery of already owned shares of Common Stock, a participant will be deemed
to have received an award with respect to those shares of Common Stock. The
Common Stock covered by any unexercised portions of terminated options, shares
of Common Stock forfeited and shares of

48
<PAGE> 51

Common Stock subject to awards that are otherwise surrendered by a participant
without receiving any payment or other benefit with respect thereto may again be
subject to new awards under the 1996 Plan.

1996 Plan Administration. The 1996 Plan is administered by the
Compensation Committee. The Compensation Committee is currently comprised solely
of non-employee directors who are not eligible to participate in the 1996 Plan
except with respect to certain automatic, non-discretionary stock option awards,
as described above. The Compensation Committee determines the key employees and
consultants who are eligible for and granted awards, determines the amount and
type of awards, determines the duration of the option (which may not exceed ten
years), establishes rules and guidelines relating to the 1996 Plan, establishes,
modifies and terminates terms and conditions of awards and takes such other
action as may be necessary for the proper administration of the 1996 Plan.

The members of the Compensation Committee are appointed by the Board. As
directors, members of the Compensation Committee may be removed at any time but
only for cause and only by the affirmative vote of the holders of 67% or more of
the outstanding shares of the Company's capital stock entitled to vote generally
in the election of directors (considered for this purpose as one class) cast at
a meeting of the shareholders called for that purpose.

Transferability; Repurchase Right. Each participant who receives an award
under the 1996 Plan is prohibited from transferring or otherwise disposing of
the underlying shares of Common Stock until 180 days have elapsed following such
time as the Company has consummated the Offering. However, shares of Common
Stock may be used to pay the exercise price of options and to pay withholding
and other taxes as otherwise provided in the 1996 Plan.

Upon a participant's termination of employment, the Company has the right
to repurchase any or all of the shares of Common Stock issued to the participant
with respect to awards made under the 1996 Plan, whether then held by the
participant or a transferee, at fair market value as determined by the
Compensation Committee. The Company's right to repurchase shares of Common Stock
terminates once the Offering is consummated.

Change in Control. Upon the occurrence of a change in control of the
Company, all options become immediately exercisable and all restrictions on
restricted shares lapse. A change in control includes:

(1) approval of the Company's shareholders of a consolidation or
merger of the Company with any third party, unless the Company is the
entity surviving such merger or consolidation;

(2) approval of the Company's shareholders of a transfer of all or
substantially all of the assets of the Company to a third party or a
complete liquidation or dissolution of the Company;

(3) a third party (other than James F. Chen and his affiliates),
directly or indirectly, through one or more subsidiaries or transactions or
acting in concert with one or more persons or entities: (a) acquiring any
combination of beneficial ownership of the Company's voting stock and
irrevocable proxies representing more than 20% of the Company's voting
stock, (b) acquiring the ability to control in any manner the election of a
majority of the directors of the Company or (c) acquiring the ability to
directly or indirectly exercise a controlling influence over the management
or policies of the Company;

(4) any election has occurred of persons to the Company's Board of
Directors that causes a majority of such Board to consist of persons other
than (a) persons who were members of the Board on June 12, 1996 ("Effective
Date") and/or (b) persons who were nominated for election as members of the
Board by the Board (or a committee of the Board) at a time when the
majority of the Board (or of such committee) consisted of persons who were
members of the Board on the Effective Date; or

(5) a determination made by the SEC or any similar agency having
regulatory control over the Company that a change in control, as defined in
the securities laws or regulations then applicable to the Company, has
occurred.

Termination and Amendment. The Board may amend or terminate the 1996 Plan
and the Compensation Committee may amend or alter the terms of awards under the
1996 Plan but no such action shall affect or

49
<PAGE> 52

in any way impair the rights of a participant under any award previously granted
without such participant's consent. No amendment may be made, without
shareholder approval, that would require shareholder approval under any
applicable law or rule unless the Board determines that compliance with such law
or rule is no longer desired.

Antidilution Provisions. The number of shares of Common Stock authorized
to be issued under the 1996 Plan and subject to outstanding awards (and the
purchase or exercise price thereof) will be adjusted to prevent dilution or
enlargement of rights in the event of any stock dividend, stock split,
combination or exchange of shares, merger, consolidation or other change in
capitalization with a similar substantive effect upon the 1996 Plan or the
awards.

Awards Made. As of September 9, 1996, Incentive and Non-Qualified Options
to purchase 966,768 shares of Common Stock are outstanding under the 1996 Plan,
including options to purchase 13,332 shares of Common Stock granted to two
non-employee directors. As of such date, no restricted share awards have been
granted under the 1996 Plan.

Further information regarding the awards made to date (excluding awards
that have expired unexercised) is set forth in the table below:

<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK EXERCISE PRICE
NAME UNDERLYING OPTION (OR RANGE)
- --------------------------------------------------------------- ----------------- --------------
<S> <C> <C>
James F. Chen
(President, Chief Executive Officer and Director)............ -- --
Robert W. Rybicki
(Vice President of Indirect Channels)........................ 95,377 $3.75 - $4.50
Marcus J. Ranum
(Chief Scientist)............................................ 324,389 $3.75 - $4.50
Frederick J. Hitt
(Vice President of Technology)............................... 95,377 $3.75 - $4.50
Barnaby M. Page
(Vice President of Direct Sales)............................. 8,472 $4.50
Chansothi Um
(Treasurer).................................................. 106,990 $3.75 - $4.50
Matthew B. Mancuso
(Director of Engineering).................................... 57,234 $3.75 - $4.50
All executive officers as a group.............................. 632,445 $3.75 - $4.50
All employees who are not executive officers as a group(1)..... 320,991 $3.75 - $9.00
All directors who are not executive officers as a group........ 13,332 $9.00
</TABLE>

- ---------------
(1) Includes awards made to former employees of the Company if the option is
exercisable.

Certain Federal Income Tax Consequences. The following is a brief summary
of the principal federal income tax consequences of awards under the 1996 Plan
based upon current federal income tax laws.

A participant is not generally subject to federal income tax either at the
time of grant or at the time of exercise of an Incentive Stock Option. However,
upon exercise, the difference between the fair market value of the shares of
Common Stock and the exercise price may be includable in the participant's
alternative minimum taxable income. If a participant does not dispose of shares
of Common Stock acquired through the exercise of an Incentive Stock Option
within one year after their receipt and within two years after the date of the
option's grant, any gain or loss upon the disposition will be taxed as long-term
capital gain or loss.

The Company will not receive any tax deduction on the exercise of an
Incentive Stock Option or, if the holding requirements are met, on the sale of
the underlying shares of Common Stock. If a disqualifying disposition occurs
(i.e., one of the holding requirements is not met), the participant will be
treated as receiving compensation subject to ordinary income tax in the year of
the disqualifying disposition, and the Company will be entitled to a deduction
for compensation expense in an amount equal to the amount the participant
includes

50
<PAGE> 53

in income. The tax will generally be imposed on the difference between the fair
market value of the shares of Common Stock at the time of exercise and the
exercise price or, if less, the gain the participant realized on the sale of the
shares. Any appreciation in value after the time of exercise will be taxed as
long-term or short-term capital gain (depending on how long the shares are held
after exercise) and will not result in any deduction by the Company.

There are no federal income tax consequences to participant at the time of
grant of a Non-Qualified Option. Upon exercise of the option, the participant
must pay tax on ordinary income equal to the difference between the exercise
price and the fair market value of the underlying shares on the date of
exercise. The Company will receive a commensurate tax deduction at the time of
exercise. Any appreciation in value after the time of exercise will be taxed
upon the disposition of the shares as long-term or short-term capital gain
(depending on how long the shares are held after exercise), and will not result
in any deduction by the Company. Non-employee director options will receive the
same federal income tax treatment as other Non-Qualified Options.

Except as described below, a grant of restricted shares does not constitute
a taxable event for either a participant or the Company. However, the
participant will be subject to tax, at ordinary income rates, when any
restrictions on ownership of the shares of Common Stock lapse. The Company will
be entitled to take a commensurate deduction at that time.

A participant may elect to recognize taxable ordinary income at the time
restricted shares are awarded in an amount equal to the fair market value of the
shares of Common Stock at the time of grant, determined without regard to any
forfeiture restrictions. If such an election is made, the Company will be
entitled to a deduction at that time in the same amount. Future appreciation on
the shares of Common Stock will be taxed when the shares are sold as short-term
or long-term capital gain (depending on how long the shares are held after
exercise) and will not result in any deduction by the Company. If, after making
such an election, the shares of Common Stock are forfeited, the participant will
be unable to claim a deduction.

EMPLOYMENT AGREEMENTS

On June 12 and July 8, 1996, respectively, the Company entered into
employment agreements with James F. Chen, the Company's founder, President and
Chief Executive Officer and Jieh-Shan Wang, the Company's Senior Vice President
of Engineering (each an "Executive") at annual base salaries of $125,000 and
$100,000, respectively. Each employment agreement has a two year term and is
automatically renewed for additional two year terms on each successive
anniversary date, commencing June 12 and July 8, 1997, respectively. However,
either the Company or the Executive may serve written notice of termination
prior to June 12 or July 8, 1997, respectively, or prior to June 12 or July 8 of
each succeeding year, as the case may be, in which case the respective
employment agreement will terminate at the end of the two year period that
begins with June 12 or July 8 following the date of such written notice.

Under each employment agreement, the Board (or a Board committee) is
obligated to review the Executive's base salary promptly following the
completion of the Offering and thereafter at least annually. As a result of such
review, the Board or committee may, in its discretion, increase, but generally
may not decrease, the Executive's base salary. After any adjustment following
the Offering, the Board or committee may not increase the Executive's base
salary for any one year by an amount greater than 50% of his then base salary.
It is intended that the Board or committee will consider in any such review
factors relating to the Executive's performance, duties and responsibilities and
endeavor to maintain his compensation at a level comparable to that of similarly
situated executives in the Company's industry. Each employment agreement also
provides that the Executive may be paid such bonuses, if any, as may be awarded
from time to time by the Board or such committee, in its discretion. Such
bonuses shall be based on results of operations, special contributions made by
the Executive, seniority, competitive conditions in the Company's industry and
such other factors as the Board or such committee considers relevant.

In the case of Mr. Chen's employment agreement, in the event that (i) Mr.
Chen terminates his employment with the Company (other than because of his
death) within two years following a change in control (as defined in the
employment agreement), (ii) the Company terminates Mr. Chen's employment for

51
<PAGE> 54

any reason (other than because of death, disability or just cause) within two
years following a change in control, (iii) Mr. Chen terminates his employment
with the Company because of the Company's material breach of the employment
agreement, (iv) Mr. Chen's base salary is reduced unless such reduction is
permitted by the employment agreement or (v) the Company's principal executive
offices are relocated to a location outside Montgomery County, Maryland, or the
Company requires Mr. Chen to be based anywhere other than the Company's
principal executive offices, then the Company must make a lump sum severance
payment to Mr. Chen. The payment is equal to the sum of (a) the aggregate amount
of the future base salary payments Mr. Chen would have received if he continued
in the employ of the Company until 24 months (36 months if an event described in
clauses (i) or (ii) above occurs) following the termination date and (b) Mr.
Chen's projected bonus for the year in which the termination date occurs. The
payment required by clause (a) is calculated at the highest rate of base salary
paid to Mr. Chen at any time under the employment agreement, with such payments
discounted to present value at a discount rate equal to 1% above the per annum
one-year Treasury Bill rate. The bonus amount is computed assuming that Mr. Chen
had remained in the Company's employ until the end of that year and that all
performance goals or other performance measures have been met at the then
current level for the remainder of that year.

Under Mr. Wang's employment agreement, Mr. Wang receives a lump sum
severance payment under the circumstances described in clauses (ii), (iii), (iv)
and (v) in the preceding paragraph. Mr. Wang's severance payment is calculated
in the same manner as Mr. Chen's except that, for purposes of the calculation of
benefits payable under clause (a) of the preceding paragraph, Mr. Wang is
limited to 24 months of base salary in all circumstances, including the
circumstances described in clause (ii).

The Company may terminate the Executive's employment for "just cause" at
any time by giving him written notice, in which case the Company is only
obligated to pay him his base salary as then in effect through the termination
date. If the Executive fails to perform his duties under the employment
agreement on account of a disability, the Company may terminate the agreement on
a date not less than 30 days thereafter unless he resumes full performance of
his duties within such period. Each Executive is entitled to terminate his
employment with the Company on, or at any date after, a date on which he is at
least 65 years old. Each employment agreement also terminates in the event of
the Executive's death. In either such event, the Company must pay the Executive
or his legal representative the Executive's base salary as then in effect that
has accrued to the last day of the month in which the retirement date or the
date of death occurs.

DIRECTOR COMPENSATION

To date, directors have received no compensation for their services as
directors. As of April 26, 1996, the Company began to reimburse directors for
travel expenses incurred in connection with their attendance at meetings of the
Board of Directors and its committees. The two new non-employee directors
elected at the June 1996 annual meeting of shareholders each received an option
to purchase 6,666 shares of Common Stock under the 1996 Plan upon such election.
See "-- Stock Option Plans -- 1996 Incentive Stock Plan." Since March 1, 1996,
Mr. Odom has been providing consulting services to the Company for a fee of
$2,500 per quarter. Either party may terminate the consulting agreement at any
time. The Company has also agreed to pay Mr. Odom an annual fee of $10,000 for
services rendered as a director. The $10,000 fee will accrue, but will not be
paid, until consummation of the Offering, and thereafter the fee will be paid in
equal monthly installments.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During the year ended December 31, 1995, the Company's Compensation
Committee was composed of directors James F. Chen, President and Chief Executive
Officer of the Company, and his brother, Charles C. Chen, Secretary of the
Company. As of June 28, 1996, the Compensation Committee is composed of
directors Harry S. Gruner and Hai Hua Cheng.

52
<PAGE> 55

CERTAIN TRANSACTIONS

The Company was initially capitalized by a $10,000 investment by its
founder, President and Chief Executive Officer, James F. Chen. Mr. Chen has, on
three separate occasions, made loans to the Company. Mr. Chen advanced the
Company operating funds under three separate promissory notes, which are updated
on an annual basis, bear interest at 8% per annum and are due on demand. Total
amounts outstanding under the notes were $39,705, $19,293 and $143,644 on
December 31, 1993, 1994 and 1995, respectively. As of June 30, 1996, the total
amount owed by the Company to Mr. Chen was $138,305.

On May 15, 1995, Scientek Corporation, through Hai Hua Cheng, a director of
the Company, and C.C. Tsai, invested $500,000 in V-ONE in consideration for
ownership of 15% of the Company's outstanding Common Stock after giving effect
to this issuance. As further consideration for this investment, the Company
issued 56,000 shares of Common Stock to a voting trust ("Voting Trust") for the
benefit of Mr. Cheng, the majority owner of Scientek Corporation. Mr. Chen
serves as voting trustee for this trust under a Voting Trust Agreement dated
January 1, 1996. The proceeds of this financing were used to meet general
operating expenses.

On June 1, 1995, the Company borrowed $330,000 from Scientek Corporation
and issued a promissory note, bearing no interest, due June 1, 1996. The note
was assigned to Hai Hua Cheng by Scientek Corporation. The terms of the note
provide that, as further consideration for the loan, the Company would issue
153,333 shares of Common Stock to Scientek Corporation immediately after
repayment of the loan. As further consideration for the loan, the Company issued
76,666 shares of Common Stock to the Voting Trust for the benefit of Mr. Cheng
described above. On May 17, 1996, Mr. Cheng executed an agreement extending the
term of the note to May 31, 1997. On June 12, 1996, in consideration for Mr.
Cheng's agreement not to demand payment of the note until May 31, 1997, the
Board of Directors authorized the Company to offer Mr. Cheng the option to
receive Common Stock based on a $4.50 per share conversion price in lieu of cash
in payment of the note. The Board reserved and authorized the issuance of 73,333
shares of Common Stock for this purpose. On June 28, 1996, the Company repaid
the loan made by Mr. Cheng by issuing 226,666 shares of Common Stock to Mr.
Cheng in full payment of the note, including the 153,333 shares of Common Stock
described above. In connection with this loan, the Company recognized interest
expenses of $56,954 and $40,681 during the year ended December 31, 1995 and the
six months ended June 30, 1996, respectively.

On May 15, 1995, Mr. Chen contributed 132,666 shares of Common Stock to the
capital of the Company for the Company's use in transferring the above-described
132,666 shares to the Voting Trust. On June 28, 1996, Mr. Chen contributed
153,333 shares of Common Stock to the capital of the Company.

On May 15, 1995, Mr. Chen also contributed 333,333 shares of Common Stock
owned by him to the capital of the Company for the Company to transfer to
Jieh-Shan Wang, Senior Vice President of Engineering, for services rendered. In
addition, on April 4, 1996 Mr. Chen contributed 383,967 shares of Common Stock
owned by him to the capital of the Company for the Company to transfer to
participants in the Non-Statutory Plan.

Two of the Company's executive officers, Jieh-Shan Wang and William C.
Wilson, have paid for options granted under the Non-Statutory Plan with
promissory notes. The only one of the two executive officers who borrowed more
than $60,000 from the Company is Mr. Wang. Mr. Wang borrowed $124,750 from the
Company and executed a 6% interest-bearing promissory note, due April 22, 2006,
that is secured by the shares of Common Stock issued on exercise of the option
by Mr. Wang ("Pledged Shares"). The terms of the note provide for payments of
principal and interest to be made annually, beginning on April 22, 1997. If, at
any time, the fair market value of the Pledged Shares securing the note is less
than the amount due under the note, Mr. Wang will remain liable for the balance
due. If Mr. Wang sells the Pledged Shares at any time prior to April 22, 2006,
then the proceeds of the sale will be applied to the balance of the note before
payment will be made to Mr. Wang. See "Management -- Stock Option Plans -- 1996
Non-Statutory Stock Option Plan."

In June 1996, the Company borrowed $1,500,000 from JMI pursuant to the
issuance of an unsecured 8% senior subordinated note in the principal amount of
$1,500,000 due at the earlier of consummation of the Offering or June 18, 2000,
with detachable warrants to purchase 333,332 shares of Common Stock. Of the

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<PAGE> 56

333,332 detachable warrants, 266,666 are exercisable at $4.50 per share (306,666
are exercisable at $3.913 per share, assuming a share of Series A Stock is
converted into 1.15 shares of Common Stock on consummation of the Offering, and
319,999 are exercisable at $3.75 per share, assuming a share of Series A Stock
is converted into 1.20 shares of Common Stock on consummation of the Offering)
and 66,666 were exercisable at $0.015 per share. In the event the Series A Stock
is converted on a 1-for-1.20 basis, James F. Chen, the Company's founder,
President and Chief Executive Officer, has agreed to contribute to the Company
the additional 13,333 shares of Common Stock. The note must be redeemed upon
consummation of the Offering and the warrants with an exercise price of $0.015
per share were exercised on June 28, 1996. At the initial offering price of
$5.00 per share, on consummation of the Offering the remaining detachable
warrants entitle JMI to purchase 319,999 shares of Common Stock at $3.75 per
share. Mr. Gruner, a director of the Company, is a general partner of JMI
Partners II, L.P., the general partner of JMI.

The Company has adopted a policy providing that all material transactions
(other than compensation arrangements that must be approved by the Compensation
Committee) between the Company and its officers, directors and other affiliates
(i) must be approved by a majority of the disinterested members of the Company's
Board of Directors or a committee thereof (following disclosure to the Board of
Directors of the material facts of the relationship and the transaction), and
(ii) must be on terms no less favorable to the Company than can be obtained from
unaffiliated third parties.

Orders to purchase 150,000 shares of Common Stock at the initial offering
price placed by each of JMI and Lewis M. Schott (a holder of Series A Stock)
will be satisfied in the event the Underwriters exercise the over-allotment
option.

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<PAGE> 57

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock and Series A Stock (which is currently
convertible on a one-for-one basis) as of September 9, 1996, and as adjusted to
reflect the conversion of each share of Series A Stock into 1.20 shares of
Common Stock on completion of the Offering (assuming the Offering is consummated
by October 31, 1996) and the sale by the Company of the shares offered hereby,
by (i) each person who is known by the Company to own beneficially more than 5%
of the outstanding Common Stock or Series A Stock, (ii) each of the Company's
directors, and (iii) all current directors and executive officers of the Company
as a group.

<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(3)
----------------------
NUMBER OF SHARES PRIOR TO AFTER
NAME AND ADDRESS(1) BENEFICIALLY OWNED(2) OFFERING OFFERING
- ----------------------------------------------------- --------------------- -------- --------
<S> <C> <C> <C>
James F. Chen........................................ 4,760,474(4) 56.3% 36.2%
Hai Hua Cheng........................................ 1,536,473(5) 18.2% 13.3%
Jieh-Shan Wang....................................... 499,999(6) 5.9% 4.0%
Harry S. Gruner
1119 St. Paul Street
Baltimore, MD 21202................................ 339,998(7) 3.9% 3.1%
Charles C. Chen...................................... 200,000(8) 2.4% 1.6%
William E. Odom
1015 18th Street, N.W.
Suite 200
Washington, D.C. 20036............................. 6,666(9) * *
Lewis M. Schott
220 Sunrise Avenue
Palm Beach, FL 33480............................... 211,600(10) 2.4% 2.0%
Steven A. Cohen
520 Madison Avenue
New York, NY 10022................................. 151,917(11) 1.8% 1.5%
Lee DeVisser and Linda DeVisser,
Trustees of the Lee DeVisser Trust
2480 N.W. 53rd Street
Boca Raton, FL 33496............................... 91,547(12) 1.1% *
Charlyn M. Page,
Trustee for Shapiro Family Trust
2401 Pennsylvania Avenue, N.W.
Washington, D.C. 20037............................. 73,228(13) * *
Bryan T. Vanas
1600 Smith
Suite 3100
Houston, TX 77002.................................. 71,190(14) * *
Kenneth Lissak
520 Madison Avenue
New York, NY 10022................................. 45,552(15) * *
Joseph and Rosa Lupo
758 Oneida
Franklin Lakes, NJ 07417........................... 40,712(16) * *
All directors and executive officers as a group
(13 persons)....................................... 7,941,277(17) 85.8% 59.0%
</TABLE>

- ---------------
* Less than 1%.

(1) Unless otherwise indicated, the mailing address of each shareholder is c/o
V-ONE Corporation, 1803 Research Boulevard, Suite 305, Rockville, MD 20850.

(2) Each shareholder possesses sole voting and investment power with respect to
the shares listed, except as otherwise indicated. The number of shares
beneficially owned by each shareholder is determined under rules
promulgated by the SEC, and the information is not necessarily indicative
of beneficial ownership

55
<PAGE> 58

for any other purpose. Under such rules, beneficial ownership includes any
shares as to which the individual has sole or shared voting power or investment
power, and also any shares which the individual has the right to acquire within
60 days after September 9, 1996.

(3) Number of shares deemed outstanding includes any shares subject to stock
options and warrants beneficially owned by the person in question that are
currently exercisable or exercisable within 60 days following September 9,
1996. Number of shares deemed outstanding after this Offering includes the
additional 3,000,000 newly issued shares of Common Stock that are being
offered by the Company hereby, less the 52,885 shares of Common Stock to be
contributed to the Company by James F. Chen. See "Certain Transactions."

(4) Includes 88,715 shares of Common Stock subject to the over-allotment option
granted to the Underwriters by the Company and the Selling Shareholders and
an aggregate of 52,885 shares of Common Stock Mr. Chen has agreed to
contribute to the Company in the event a share of Series A Stock is
converted into 1.2 shares of Common Stock. See "Selling Shareholders,"
"Underwriting," "Certain Transactions" and "Description of Capital
Stock -- Series A Convertible Preferred Stock." Includes 165,998 shares of
Common Stock registered in the name of James F. Chen as Trustee under
voting trusts for Hai Hua Cheng, Dennis Winson and Robert Zupnik with
respect to which Mr. Chen possesses sole voting power. The voting trust for
Mr. Cheng (132,666 shares) terminates on consummation of the Offering. The
voting trusts for Messrs. Winson (16,666 shares) and Zupnik (16,666 shares)
terminated on October 15, 1996. Also includes: (i) 600,000 shares of Common
Stock held in a family limited partnership, the general partner of which is
a corporation controlled by James F. Chen and his wife Mary S. Chen and
(ii) 71,110 shares of Common Stock registered in the names of Mary S. Chen
and Mark R. Feinberg as Co-Trustees under trusts for the benefit of Mr.
Chen's children with respect to which Mary S. Chen and Mark R. Feinberg
possesses voting and investment power.

(5) Does not include 132,666 shares of Common Stock registered in the name of
James F. Chen as trustee under a voting trust for Hai Hua Cheng. This
voting trust expires on consummation of the Offering.

(6) Includes 33,333 shares of Common Stock subject to the over-allotment option
granted to the Underwriters by the Company and the Selling Shareholders.
See "Selling Shareholders" and "Underwriting." Includes 166,666 shares of
Common Stock subject to restrictions on transferability under the terms of
the Company's 1996 Non-Statutory Stock Option Plan and 150,000 shares of
Common Stock held in a family limited partnership, the general partner of
which is a corporation controlled by Jieh-Shan Wang and his wife Shwu-Ru
Wang.

(7) Includes an option to purchase 6,666 shares of Common Stock granted under
the 1996 Plan and warrants to purchase 266,666 shares of Common Stock held
by JMI (319,999 shares of Common Stock assuming a share of Series A Stock
is converted into 1.20 shares of Common Stock on consummation of the
Offering). Mr. Gruner is a general partner of JMI Partners II, L.P., the
general partner of JMI. See "Certain Transactions." Does not include
150,000 shares of Common Stock for which JMI has placed an order to
purchase at the initial offering price, which will be satisfied in the
event the over-allotment option is exercised. See "Certain Transactions."

(8) Owned jointly with Kathleen H. Chen, his wife.

(9) Includes an option to purchase 6,666 shares of Common Stock granted under
the 1996 Plan.

(10) Represents 26.8% of the outstanding Series A Stock and 253,920 shares of
Common Stock to be issued on the conversion of Series A Stock, assuming the
conversion of shares of Series A Stock into shares of Common Stock on a
1-for-1.20 basis as a result of the Offering. See "Description of Capital
Stock -- Series A Convertible Preferred Stock" and "Risk
Factors -- Conversion of Series A Stock." Does not include 150,000 shares
of Common Stock for which Mr. Schott has placed an order to purchase at the
initial offering price, which will be satisfied in the event the
over-allotment option is exercised. See "Certain Transactions."

(11) Represents 19.2% of the outstanding Series A Stock and 182,300 shares of
Common Stock to be issued on the conversion of Series A Stock, assuming the
conversion of shares of Series A Stock into shares of Common Stock on a
1-for-1.20 basis as a result of the Offering. See "Description of Capital
Stock -- Series A Convertible Preferred Stock" and "Risk
Factors -- Conversion of Series A Stock."

(12) Represents 11.6% of the outstanding Series A Stock and 109,856 shares of
Common Stock to be issued on the conversion of Series A Stock, assuming the
conversion of shares of Series A Stock into shares of Common Stock on a
1-for-1.20 basis as a result of the Offering. See "Description of Capital
Stock -- Series A Convertible Preferred Stock" and "Risk
Factors -- Conversion of Series A Stock."

56
<PAGE> 59

(13) Includes 45,450 shares of Series A Stock, which represents 5.7% of the
outstanding Series A Stock. Includes 54,540 shares of Common Stock to be
issued on the conversion of Series A Stock, assuming the conversion of
shares of Series A Stock into shares of Common Stock on a 1-for-1.20 basis
as a result of the Offering. See "Description of Capital Stock -- Series A
Convertible Preferred Stock" and "Risk Factors -- Conversion of Series A
Stock." Does not include presently exercisable options to purchase 72,159
shares of Common Stock held by Charlyn M. Page's husband, Barnaby M. Page,
the Company's Vice President of Direct Sales, as to which shares Ms. Page
disclaims beneficial ownership.

(14) Represents 9.0% of the outstanding Series A Stock and 85,428 shares of
Common Stock to be issued on the conversion of Series A Stock, assuming the
conversion of shares of Series A Stock into shares of Common Stock on a
1-for-1.20 basis as a result of the Offering. See "Description of Capital
Stock -- Series A Convertible Preferred Stock" and "Risk
Factors -- Conversion of Series A Stock."

(15) Includes 25,000 shares of Common Stock issuable on conversion of shares of
Series A Stock subject to the over-allotment option granted to the
Underwriters by the Company and the Selling Shareholders. See "Selling
Shareholders" and "Underwriting." Represents 5.8% of the outstanding Series
A Stock and 54,662 shares of Common Stock to be issued on the conversion of
Series A Stock, assuming the conversion of shares of Series A Stock into
shares of Common Stock on a 1-for-1.20 basis as a result of the Offering.
See "Description of Capital Stock -- Series A Convertible Preferred Stock"
and "Risk Factors -- Conversion of Series A Stock."

(16) Represents 5.1% of the outstanding Series A Stock and 48,854 shares of
Common Stock to be issued on the conversion of Series A Stock, assuming the
conversion of shares of Series A Stock into shares of Common Stock on a
1-for-1.20 basis as a result of the Offering. See "Description of Capital
Stock -- Series A Convertible Preferred Stock" and "Risk
Factors -- Conversion of Series A Stock."

(17) Includes 233,332 shares of Common Stock shares subject to restrictions on
transferability under the terms of the Company's Non-Statutory Plan and
533,222 shares of Common Stock subject to stock options granted under the
Company's 1995 Plan and 1996 Plan and warrants to purchase 266,666 shares
of Common Stock held by JMI (319,999 shares of Common Stock assuming a
share of Series A Stock is converted into 1.20 shares of Common Stock on
consummation of the Offering), currently exercisable or exercisable within
60 days after September 9, 1996. None of the Company's directors or
executive officers own shares of the Series A Stock.

57
<PAGE> 60

SELLING SHAREHOLDERS

Set forth below are the names of the Selling Shareholders and the number of
shares of Common Stock that are subject to the over-allotment option granted to
the Underwriters by the Company and the Selling Shareholders, which may be
exercised in whole or in part by the Underwriters within 30 days of consummation
of the Offering solely to cover over-allotments, if any.

<TABLE>
<CAPTION>
NUMBER OF SHARES SUBJECT TO
NAME OF SELLING SHAREHOLDER THE OVER-ALLOTMENT OPTION
- --------------------------------------------------------------------- ---------------------------
<S> <C>
James F. Chen........................................................ 88,715
(President, Chief Executive Officer and Director)
Jieh-Shan Wang....................................................... 33,333
(Senior Vice President of Engineering)
Edgehill Capital Management, LP...................................... 37,922
Kenneth Lissak....................................................... 25,000
</TABLE>

58
<PAGE> 61

DESCRIPTION OF CAPITAL STOCK

The Company is authorized to issue up to 33,333,333 shares of Common Stock,
$0.001 par value, and 13,333,333 shares of Preferred Stock, $0.001 par value.

The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and qualified
in its entirety by, the provisions of the Company's Restated Certificate of
Incorporation and Restated Bylaws, which are included as exhibits to the
Registration Statement of which this Prospectus is a part, and by the provisions
of applicable law.

COMMON STOCK

As of June 30, 1996, there were 8,455,527 shares of Common Stock
outstanding that were held of record by approximately 42 shareholders. There
will be 12,540,556 shares of Common Stock outstanding (assuming no exercise of
the Underwriters' over-allotment option and no exercise of outstanding options)
after giving effect to the sale of newly-issued Common Stock offered to the
public hereby, assuming each share of Series A Stock is automatically converted
into 1.20 shares of Common Stock upon consummation of the Offering. See
"-- Series A Convertible Preferred Stock."

The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders. The holders of Common
Stock are not entitled to receive dividends as long as any shares of the
Company's Series A Stock are issued and outstanding. Dividends, if any, may be
declared by the Board of Directors out of funds legally available for the
payment of dividends. Dividends may be paid in cash, in property or in shares of
capital stock. See "Dividend Policy." In the event of any voluntary or
involuntary liquidation, sale or winding up of the Company, the holders of
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities and liquidation preferences of any outstanding shares of
Preferred Stock. Holders of Common Stock have no preemptive rights to subscribe
for any of the Company's securities or rights to convert their Common Stock into
any other securities. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and non-assessable and the shares of Common Stock to be issued upon
completion of this Offering will be fully paid and non-assessable.

PREFERRED STOCK

The Board of Directors has the authority to issue up to 13,333,333 shares
of Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences and the
number of shares constituting any series or the designation of such series,
without any further vote or action by shareholders. The issuance of preferred
stock may have the effect of delaying or preventing a change in control of the
Company.

SERIES A CONVERTIBLE PREFERRED STOCK

The Company's Board of Directors created a series of Preferred Stock
designated as "Series A Convertible Preferred Stock" ("Series A Stock") pursuant
to Board Resolution and a Certificate of Designation, both dated April 4, 1994.
As of the date of this Prospectus, 791,011 shares of Series A Stock are
outstanding and are held of record by 13 shareholders.

The holders of Series A Stock ("Series A Shareholders") do not have any
preemptive rights to subscribe for any securities of the Company. Series A
Shareholders are entitled to vote on all matters submitted to a vote of the
shareholders of the Company. Series A Shareholders also are entitled to vote as
a class on matters affecting the value of the Series A Stock. All actions
requiring the approval of Series A Shareholders voting as a class must be
authorized by a majority vote of the holders thereof. The Board of Directors may
declare dividends on the Series A Stock payable at any time in cash, in property
or in shares of Series A Stock. Series A Shareholders are entitled to share
ratably in dividends with the holders of any other series of the Company's
Preferred Stock now existing or hereafter created, but receive no preference in
dividends declared.

59
<PAGE> 62

The Company will not pay dividends on Common Stock as long as any shares of
Series A Stock are issued and outstanding. In the event of any voluntary or
involuntary liquidation, sale or winding up of the Company, Series A
Shareholders are entitled to receive, in preference to holders of Common Stock,
an amount equal to the purchase price per share of the Series A Stock plus any
accrued but unpaid dividends. Any remaining proceeds shall be allocated between
Common and Series A Shareholders on a pro rata basis, treating the shares of
Series A Stock on an as converted basis.

Shares of Series A Stock may at any time be converted into shares of Common
Stock, on a one-for-one basis, provided that such shares of Series A Stock have
not previously been converted by automatic conversion. In the event the initial
offering price per share of Common Stock offered hereby is at least $7.00 per
share and the Offering is consummated by October 31, 1996, each share of Series
A Stock will automatically be converted into 1.15 shares of Common Stock. In the
event the initial offering price per share of Common Stock is less than $7.00
per share and the Offering is consummated by October 31, 1996, each share of
Series A Stock will automatically be converted into 1.20 shares of Common Stock.
(In either event, the value of any fractional shares of Common Stock otherwise
issuable will be paid in cash at a rate of $7.00 per share of Common Stock.) In
the event a share of Series A Stock converts into Common Stock at a rate of 1.20
shares of Common Stock as a result of the foregoing, James F. Chen, the
Company's founder, President and Chief Executive Officer, has agreed to
contribute to the Company 39,552 shares of Common Stock, representing the
additional number of shares of Common Stock the Company must issue as a result
of the increase in the Series A Stock's conversion ratio. If, however, the
Offering is consummated after October 31, 1996 at an initial offering price of
at least $7.875 per share of Common Stock and over $15 million is raised in the
Offering, each share of Series A Stock will be automatically converted into 1
share of Common Stock. At the initial offering price of $5.00 per share, each
share of Series A Stock automatically converts into 1.20 shares of Common Stock
upon consummation of the Offering by October 31, 1996.

In the event the automatic conversion provisions described above are not
applicable, each holder of Series A Stock is not required to convert his or her
shares into Common Stock; however, in such circumstances the conversion ratio
will be adjusted on a greater than one-for-one-basis as follows. If the Company
effects an initial public offering prior to March 31, 1997 at a price less than
$7.875 per share, the conversion ratio will be adjusted by multiplying the
Series A Stock subscription price of $4.50 per share by 1.75 ("Conversion
Factor") and dividing such product by the midpoint of the offering price range
contained in the final pre-effective amendment to the registration statement
relating to such initial public offering. If the Company's initial public
offering occurs (i) during the period from April 1, 1997 to March 31, 1998 at a
price less than $9.00 per share or (ii) after March 31, 1998 at a price less
than $13.50 per share, the conversion ratio is adjusted as set forth in the
preceding sentence except the Conversion Factor becomes 2.00 in the event clause
(i) applies or 3.00 in the event clause (ii) applies.

The failure to automatically convert (i) may result in shares of Series A
Stock remaining outstanding after the Offering and (ii) will result in further
dilution to holders of Common Stock as a result of the adjustment of the
conversion ratio. This will limit the ability of the Company to pay dividends on
the Common Stock and will further limit the rights of the holders of Common
Stock. See "Risk Factors -- Conversion of Series A Stock."

ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW

The following provisions of the Restated Certificate of Incorporation and
Restated Bylaws could discourage potential acquisition proposals and could delay
or prevent a change in control of the Company. Such provisions also may have the
effect of preventing changes in the management of the Company. See "Risk
Factors -- Effect of Certain Charter Provisions; Anti-takeover Effects of
Certificate of Incorporation, Bylaws and Delaware law."

Directors. The Company's Restated Certificate of Incorporation provides
that the Company's Board of Directors is classified into three classes of
directors.

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<PAGE> 63

Under the Restated Certificate of Incorporation and Restated Bylaws, a
director may be removed only for cause and by the affirmative vote of 67% of the
outstanding shares entitled to vote an election of directors at a special
meeting called for that purpose. See "Management -- Executive Officers and
Directors."

Preferred Stock. The Restated Certificate of Incorporation authorizes
13,333,333 shares of Preferred Stock with a par value of $0.001. The Company is
authorized to issue Preferred Stock from time to time in one or more series, and
the Board of Directors is authorized to fix the designations, powers preferences
and relative participating, optional and other special rights, qualifications,
limitations or restrictions with respect to such shares. In the event of a
proposed merger, tender offer or other attempt to gain control of the Company of
which management does not approve, it might be possible for the Board of
Directors to authorize the issuance of a series of Preferred Stock with rights
and preferences that could impede the completion of such a transaction. See
"Risk Factors -- Anti-takeover Effects of Certificate of Incorporation, Bylaws
and Delaware Law."

Certain Business Combinations. The Restated Certificate of Incorporation
also requires the affirmative vote of not less than 75% of the outstanding
shares of capital stock of the Company entitled to vote to effect a merger,
consolidation or sale of the Company with any "Interested Person" as defined in
the Restated Certificate of Incorporation. The Restated Certificate of
Incorporation also provides that the holders of the Company's voting securities
must receive consideration no less than the "Fair Price" or fair market value of
the share in connection with a merger, consolidation or sale of the Company.

Special Meetings of Shareholders. In addition, the Company's Restated
Bylaws do not permit shareholders of the Company to call a special meeting of
shareholders; only the Company's Chief Executive Officer or a majority of the
members of the Company's Board of Directors may call a special meeting of
shareholders.

Amendment of Bylaws. The Restated Certificate of Incorporation requires
the affirmative vote of not less than 75% of the outstanding shares of capital
stock of the Company entitled to vote at an election of directors to amend the
Company's bylaws.

Inspection of Books and Records. The Restated Certificate of Incorporation
authorizes the Board of Directors to determine whether, to what extent and under
what conditions, the accounts and books of the Corporation (other than the stock
ledger) shall be open to inspection by shareholders.

Delaware Anti-takeover Statute. The Company is subject to Section 203 of
the Delaware General Corporation Law, which, subject to certain exceptions,
prohibits a Delaware corporation from engaging in any business combination with
any interested shareholder for a period of three years following the date that
such shareholder became an interested shareholder, unless: (i) prior to such
date, the board of directors of the corporation approved either the business
combination or the transaction that resulted in the shareholder becoming an
interested shareholder; (ii) upon consummation of the transaction that resulted
in the shareholder becoming an interested shareholder, the interested
shareholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (A) by persons
who are directors and also officers and (B) by employee stock plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer;
or (iii) on or subsequent to such date the business combination is approved by
the board of directors and authorized at an annual or special meeting of
shareholders, and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock that is not owned by the interested
shareholder.

Section 203 defines business combination when used in reference to a
corporation and any interested shareholder to include: (i) any merger or
consolidation of the corporation with the interested shareholder or with any
other corporation if the merger or consolidation is caused by the interested
shareholder and, as a result of the transaction, Section 203(a) does not apply
to the surviving corporation; (ii) any sale, lease, exchange, mortgage,
transfer, pledge or other disposition involving the interested shareholder of
10% or more of the assets of the corporation; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested shareholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or

61
<PAGE> 64

series of the corporation owned by the interested shareholder or (v) any receipt
by the interested shareholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested shareholder as any entity or person
beneficially that owns, or within three years did own, 15% or more of the
outstanding voting stock of the corporation and any entity or person affiliated
with or controlling or controlled by such entity or person.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, the Company will have outstanding
12,540,556 shares of Common Stock (assuming the Underwriters' over-allotment
option is not exercised). The 3,000,000 shares sold in this Offering will be
freely tradeable without restriction or registration by persons other than
"affiliates" of the Company, as defined in the Securities Act, who would be
required to sell under Rule 144 under the Securities Act. The 9,540,556 shares
of Common Stock held by existing shareholders upon completion of this Offering,
without giving effect to shares of Common Stock that are subject to the
Underwriters' over-allotment option, will be "restricted securities" as that
term is defined in Rule 144, and may be sold in the public market only if
registered or if they qualify for an exemption from registration under Rules
144, 144(k) or 701, which rules are summarized below. The foregoing numbers
assume the issuance of 188,705 shares to RSA and MIT and the conversion of a
share of Series A Stock into 1.20 shares of Common Stock. See "Risk Factors --
Conversion of Series A Stock," "Business -- License Agreements" and "Description
of Capital Stock -- Series A Convertible Preferred Stock." As a result of the
contractual provisions described below and the provisions of Rules 144, 144(k)
and 701, additional shares will be available for sale in the public market as
follows: (i) except for the shares of Common Stock offered hereby and the shares
of Common Stock subject to the over-allotment option, if exercised, no
additional shares will be eligible for immediate sale on the date of this
Prospectus and (ii) 1,144,324 shares will be eligible for sale upon expiration
of the lock-up agreements 180 days after the date of this Prospectus in
compliance with Rules 144, 144(k) or 701 during the succeeding three month
period.

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned shares for at least two years (including the holding
period of any prior owner except an "affiliate" of the Company as that term is
defined under Rule 144) is entitled to sell in "brokers' transactions" or to
market makers, within any three-month period commencing 90 days after the
completion of this Offering, a number of shares that does not exceed the greater
of: (i) 1% of the number of shares of the Company's Common Stock then
outstanding (approximately 125,405 shares immediately after the Offering) or
(ii) the average weekly trading volume of the Company's Common Stock during the
four calendar weeks preceding the required filing of a Form 144 with respect to
such sale. Sales under Rule 144 are also generally subject to the availability
of current public information about the Company. Under Rule 144(k), a person who
is not deemed to have been an affiliate of the Company at any time during the 90
days preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least three years (including the holding period of any prior owner
except an affiliate), is entitled to sell such shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144. Unless otherwise restricted, "144(k) shares" may therefore be sold
immediately upon the completion of this Offering. The SEC is currently
considering a revision to Rule 144 that would reduce the two year holding period
in Rule 144(d) to one year and the three year holding period in Rule 144(k) to
two years. If enacted, such modification will have a material effect on the
timing of when certain shares of Common Stock become eligible for resale.

Any employee, officer or director of or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
may be entitled to rely on the resale provisions of Rule 701 promulgated under
the Securities Act. Rule 701 permits affiliates to sell their Rule 701 shares
under Rule 144 without complying with the holding period requirements of Rule
144. Rule 701 further provides that non-affiliates may sell such shares in
reliance on Rule 144 without having to comply with the public information,
volume limitation, or notice provisions of Rule 144. In both cases, a holder of
Rule 701 shares is required to wait until 90 days after the date of this
Prospectus before selling such shares. Upon completion of

62
<PAGE> 65

such 90 day period, 342,704 of the 383,965 shares of Common Stock issued upon
the exercise of options granted under the Non-Statutory Plan may be sold under
Rule 701 during the succeeding three month period.

The Company has agreed not to offer for sale, sell, contract to sell, grant
any option for the sale of or otherwise issue or dispose of any Common Stock or
any securities convertible into or exchangeable for, or any options or rights to
purchase or acquire, Common Stock for a period of 180 days after the date of
this Prospectus without the prior written consent of the representatives of the
Underwriters, except that the Company may issue shares upon the exercise of
options granted under the 1995 Plan and the 1996 Plan, may grant additional
awards under the 1996 Plan, may issue up to 319,999 shares of Common Stock to
JMI on exercise of certain warrants (see "Certain Transactions"), may issue
shares of Common Stock to RSA and MIT (see "Business -- License Agreements") and
may issue Common Stock on conversion of the Series A Stock. This agreement may
be released without notice to persons purchasing shares in the Offering and
without notice to any market on which the Common Stock is traded.

Certain of the Company's current shareholders, employees, officers,
directors and holders of options and warrants to purchase shares of Common Stock
have also agreed with the Underwriters not to offer, sell, contract to sell,
make subject to any purchase option, grant a security interest in or otherwise
dispose of any shares of Common Stock or rights to purchase Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of the representatives of the Underwriters, except for sales to the
Underwriters pursuant to the Purchase Agreement. This agreement may be released
without notice to persons purchasing shares in the Offering and without notice
to any market on which the Common Stock is traded.

Individuals who purchased the Notes and subsequently exchanged their Notes
for shares of Series A Stock ("Investors") were granted two demand registration
rights for underwritten and shelf offerings of Common Stock by the Company. If
Form S-3 is available for use by the Company in connection with the exercise of
such demand registration rights, then, upon proper notice from Investors, V-ONE
will file a registration statement or registration statements, as the case may
be, on Form S-3 for such offering(s). Investors, as a group, may exercise the
demand registration rights at any time for a period of two years from the
closing date of this Offering, unless the holding period under Rule 144 is
shortened to a period of less than two years. Investors also were granted
unlimited piggyback registration rights with respect to any offering of Common
Stock or Series A Stock by the Company. Except for one Selling Shareholder, all
holders of Series A Stock have waived their piggyback registration rights with
respect to the Offering.

In connection with the Company's issuances of senior subordinated notes to
JMI, with detachable warrants to purchase an aggregate of 333,332 shares of
Common Stock (an aggregate of 386,665 shares of Common Stock, assuming a share
of Series A Stock is converted into 1.20 shares of Common Stock upon
consummation of the Offering), the Company has granted certain registration
rights to the holders of such warrants. See "Certain Transactions." At any time
after six months following the consummation of the Offering, holders of such
warrants may exercise one demand registration right to require the Company to
register shares of the Company's Common Stock issuable upon exercise of the
warrants in whole or in part. In addition, the Company has granted such warrant
holders unlimited piggyback registration rights with respect to any offering of
securities of the Company and unlimited registrations on Form S-3 with respect
to at least 20% of the warrant shares then outstanding. The exercise of
registration rights and the sale of the shares so registered could have an
adverse effect on the trading price of the Common Stock.

The Company intends to file a registration statement or registration
statements on Form S-8 under the Securities Act to register all shares of Common
Stock issuable under the 1995 Plan and the 1996 Plan. The registration statement
or statements are expected to be filed shortly after the effective date of the
Registration Statement of which this Prospectus is a part and will be effective
upon filing. Shares issued upon the exercise of stock options after the
effective date of the Form S-8 registration statement or statements will be
eligible for resale in the public market without restriction, subject to Rule
144 limitations applicable to affiliates and the lock-up agreements described
above.

63
<PAGE> 66

Prior to this Offering, there has been no trading market for shares of
Common Stock, and no prediction can be made as to the effect, if any, that
market sales of shares or the availability of shares for sale will have on the
market price of the Common Stock prevailing from time to time. Nevertheless,
sales of a substantial number of shares of Common Stock in the public market
could adversely affect the market price of the Common Stock and could impair the
Company's future ability to raise capital through an offering of its equity
securities.

64
<PAGE> 67

UNDERWRITING

The Company has entered into a Purchase Agreement (the "Purchase
Agreement") with the underwriters listed in the table below (the
"Underwriters"), for whom Piper Jaffray Inc. and Volpe, Welty & Company are
acting as representatives (the "Representatives"). Subject to the terms and
conditions set forth in the Purchase Agreement, the Company has agreed to sell
to the Underwriters, and each of the Underwriters has severally agreed to
purchase, the following number of shares of Common Stock set forth opposite each
Underwriter's name in the table below:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
------------------------------------------------------------------------- ---------
<S> <C>
Piper Jaffray Inc. ...................................................... 900,000
Volpe, Welty & Company................................................... 900,000
Bear, Stearns & Co. Inc. ................................................ 100,000
Alex. Brown & Sons Incorporated.......................................... 100,000
Hambrecht & Quist LLC.................................................... 100,000
Montgomery Securities.................................................... 100,000
Oppenheimer & Co., Inc. ................................................. 100,000
Robertson, Stephens & Company, LLC....................................... 100,000
Smith Barney Inc. ....................................................... 100,000
UBS Securities LLC....................................................... 100,000
Cowen & Company.......................................................... 50,000
Gerard Klauer Mattison & Co., LLC........................................ 50,000
Janney Montgomery Scott Inc. ............................................ 50,000
Needham & Company, Inc. ................................................. 50,000
Nesbitt Burns Inc. ...................................................... 50,000
Punk, Ziegel & Knoell, L.P. ............................................. 50,000
Raymond James & Associates, Inc. ........................................ 50,000
Wessels, Arnold & Henderson, LLC......................................... 50,000
---------
Total.......................................................... 3,000,000
========
</TABLE>

Subject to the terms and conditions of the Purchase Agreement, the
Underwriters have agreed to purchase all of the Common Stock being sold pursuant
to the Purchase Agreement, if any is purchased (excluding shares covered by the
over-allotment option granted therein). In the event of a default by any
Underwriter, the Purchase Agreement provides that in certain circumstances
purchase commitments of the non-defaulting Underwriters may be increased or the
Purchase Agreement may be terminated.

The Representatives have advised the Company that the Underwriters propose
to offer Common Stock directly to the public initially at the public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession of not more than $0.18 per share. Additionally, the
Underwriters may allow, and such dealers may reallow a concession not in excess
of $0.10 per share to certain other dealers. After the public offering, the
public offering price and other selling terms may be changed by the
Underwriters.

The Company and the Selling Shareholders have granted to the Underwriters
an option, exercisable by the Representatives within 30 days after the date of
the Purchase Agreement, to purchase up to an additional 450,000 shares of Common
Stock at the same price per share to be paid by the Underwriters for the other
shares offered hereby. If the Underwriters purchase any of such additional
shares pursuant to this option, each Underwriter will be committed to purchase
such additional shares in approximately the same proportion as set forth in the
table above. The Underwriters may exercise the option only for the purpose of
covering over-allotments, if any, made in connection with the distribution of
the Common Stock offered hereby.

The Representatives have informed the Company that neither they, nor any
other member of the National Association of Securities Dealers, Inc. (the
"NASD") participating in the distribution of this

65
<PAGE> 68

Offering, will make sales of the Common Stock offered hereby to accounts over
which they exercise discretionary authority without the prior specific written
approval of the customer.

The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.

Certain of the Company's current shareholders, employees, officers,
directors and holders of options and warrants, who will beneficially own in the
aggregate 9,526,969 shares of Common Stock after the Offering (excluding from
such number, shares that may be acquired on exercise of outstanding options and
warrants), have agreed with the Underwriters that they will not offer, sell,
contract to sell, make subject to any purchase option, grant a security interest
in or otherwise dispose of any shares of Common Stock or rights to purchase
Common Stock for a period of 180 days after the date of this Prospectus, without
the prior written consent of the Representatives. See "Shares Eligible For
Future Sale." The Company has agreed that it will not, without the
Representatives' prior written consent, offer for sale, sell, contract to sell,
grant any option for the sale of or otherwise issue or dispose of any Common
Stock or any securities convertible into or exchangeable for, or any options or
rights to purchase or acquire, Common Stock for a period of 180 days after the
date of this Prospectus, except that the Company may issue shares upon the
exercise of options granted under the 1995 Plan and the 1996 Plan, may grant
additional awards under the 1996 Plan, may issue up to 319,999 shares of Common
Stock to JMI upon exercise of certain warrants (see "Certain Transactions"), may
issue shares of Common Stock to RSA and MIT (see "Business -- License
Agreements") and may issue Common Stock on conversion of the Series A Stock.

In addition, the Company entered into a Consulting Agreement with John J.
Egan, IV, who is a limited partner of O.T.A. Limited Partnership ("O.T.A.").
O.T.A. is a member of the NASD. The Consulting Agreement provides that Mr. Egan
will provide consulting services and advice to the Company from February 1, 1996
until February 1, 1997 with respect to certain financing and management matters.
Pursuant to the terms of the Consulting Agreement, the Company issued 11,111
shares of Common Stock to Mr. Egan as consideration for such services. The
Company has recorded and will record an aggregate of $50,000 of non-cash
compensation expense in connection with the issuance of such shares of Common
Stock to Mr. Egan. Although Mr. Egan's firm is not an Underwriter (as defined
above), the value of the shares of Common Stock issued to Mr. Egan may be deemed
"underwriting compensation" under the applicable rules of the NASD.

Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiation among the Company and the Representatives. Among the factors to
be considered in determining the initial public offering price will be
prevailing market and economic conditions, the Company's revenue and earnings,
estimates of the business potential and prospects of the Company, the present
state of the Company's business operations, an assessment of the Company's
management and the consideration of the above factors in relation to the market
valuations of companies in related businesses. The estimated initial public
offering price range set forth on the cover of this preliminary prospectus is
subject to change as a result of market conditions and other factors. See "Risk
Factors -- No Prior Public Market; Market Volatility."

The Company and the Selling Shareholders have agreed to indemnify the
Underwriters and their controlling persons against certain liabilities,
including liabilities under the Securities Act, and to contribute to payments
the Underwriters may be required to make in respect thereof.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Kirkpatrick & Lockhart LLP. Certain legal matters in connection with
the Offering will be passed upon for the Underwriters by Goodwin, Procter & Hoar
LLP.

66
<PAGE> 69

EXPERTS

The balance sheets as of December 31, 1994 and 1995 and June 30, 1996 and
the statements of operations, shareholders' equity (deficit) and cash flows for
the period from February 16, 1993 (date of inception) to December 31, 1993 and
for each of the two years in the period ended December 31, 1995 and the six
months ended June 30, 1996 included in this Prospectus have been included herein
in reliance upon the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.

ADDITIONAL INFORMATION

This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract or any other
document referred to are not necessarily complete and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference. Further information with respect to the Company and the
Common Stock offered hereby is included or incorporated by reference in the
Registration Statement and exhibits.

A copy of the Registration Statement may be inspected without charge and
may be obtained at rates prescribed by the SEC at the Public Reference Section
of the SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549, the New
York Regional Office located at 7 World Trade Center, New York, New York 10048,
and the Chicago Regional Office located at 500 West Madison Street, Chicago,
Illinois 60661-2511.

Upon completion of the Offering, the Company will be subject to the
information reporting requirements of the Exchange Act and, in accordance
therewith, will file reports, proxy statements and other information with the
SEC. The SEC maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC.

REPORTS TO SHAREHOLDERS

The Company intends to furnish its shareholders with annual reports
containing financial statements audited by its independent accountants and
quarterly reports for the first three fiscal quarters of each fiscal year
containing unaudited interim financial information.

67
<PAGE> 70

V-ONE CORPORATION

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Accountants..................................................... F-2
Balance Sheets as of December 31, 1994, December 31, 1995 and June 30, 1996........... F-3
Statements of Operations for the period from February 16, 1993 (date of inception) to
December 31, 1993, the years ended December 31, 1994 and 1995 and the six months
ended June 30, 1996................................................................. F-4
Statements of Shareholders' Equity (Deficit) for the period from February 16, 1993
(date of inception) to December 31, 1993, the years ended December 31, 1994 and 1995
and the six months ended June 30, 1996.............................................. F-5
Statements of Cash Flows for the period from February 16, 1993 (date of inception) to
December 31, 1993, the years ended December 31, 1994 and 1995 and the six months
ended June 30, 1996................................................................. F-6
Notes to Financial Statements......................................................... F-8
</TABLE>

F-1
<PAGE> 71

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
V-ONE Corporation

We have audited the accompanying balance sheets of V-ONE Corporation (the
"Company") as of December 31, 1994 and 1995, and June 30, 1996, and the related
statements of operations, shareholders' equity (deficit) and cash flows for the
period from February 16, 1993 (date of inception) to December 31, 1993, and for
each of the two years in the period ended December 31, 1995, and the six month
period ended June 30, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1994 and 1995, and June 30, 1996, and the results of its operations and its
cash flows for the period from February 16, 1993 (date of inception) to December
31, 1993, and for each of the two years in the period ended December 31, 1995,
and the six month period ended June 30, 1996, in conformity with generally
accepted accounting principles.

Coopers & Lybrand L.L.P.

Washington, D.C.
July 12, 1996

F-2
<PAGE> 72

V-ONE CORPORATION

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
-------------------------- JUNE 30, JUNE 30,
1994 1995 1996 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................. $ 321,636 $ 1,328,385 $ 2,501,319 $ 2,501,319
Accounts receivable, less allowances of
$0, $23,620 and $172,805 as of December
31, 1994 and 1995 and June 30, 1996,
respectively........................... 840 242,392 1,555,447 1,555,447
Inventory................................. -- 257,630 303,455 303,455
Prepaid expenses and other current
assets................................. -- 13,955 95,707 95,707
---------- ------------ ------------ ------------
Total current assets................. 322,476 1,842,362 4,455,928 4,455,928
---------- ------------ ------------ ------------
Property and equipment:
Office and computer equipment............. 83,760 219,044 388,750 388,750
Furniture and fixtures.................... -- 14,958 91,304 91,304
---------- ------------ ------------ ------------
83,760 234,002 480,054 480,054
Less accumulated depreciation............. (11,330) (35,952) (68,626) (68,626)
---------- ------------ ------------ ------------
72,430 198,050 411,428 411,428
Deferred financing costs...................... -- -- 563,169 563,169
Other assets.................................. -- 10,190 14,230 863,403
---------- ------------ ------------ ------------
Total assets......................... $ 394,906 $ 2,050,602 $ 5,444,755 $ 6,293,928
========== ============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses..... $ 52,812 $ 189,384 $ 1,729,188 $ 1,729,188
Accrued interest.......................... 4,273 38,161 18,783 18,783
Deferred income........................... -- 12,500 10,417 10,417
Notes payable -- current.................. -- 1,255,556 16,668 16,668
Notes payable to related parties.......... 19,793 474,144 1,449,142 1,449,142
Capital lease obligations -- current...... -- 40,928 49,187 49,187
---------- ------------ ------------ ------------
Total current liabilities............ 76,878 2,010,673 3,273,385 3,273,385
Notes payable -- noncurrent................... -- 44,444 31,644 31,644
Deferred rent................................. -- 52,959 96,338 96,338
Capital lease obligations -- noncurrent....... -- 82,464 74,442 74,442
---------- ------------ ------------ ------------
Total liabilities.................... 76,878 2,190,540 3,475,809 3,475,809
---------- ------------ ------------ ------------
Commitments and contingencies
Preferred Stock, $0.001 par value; 13,333,333
shares authorized; 0, 0 and 791,011 shares
issued and outstanding, as of December 31,
1994 and 1995 and June 30, 1996,
respectively................................ -- -- 3,559,554 --
Shareholders' equity (deficit):
Common Stock, $0.001 par value; 33,333,333
shares authorized; 7,863,139, 8,304,426
and 8,455,527 shares issued and
outstanding, as of December 31, 1994
and 1995 and June 30, 1996,
respectively........................... 7,863 8,304 8,456 9,541
Additional paid-in capital................ 832,937 1,496,541 4,721,220 9,393,287
Notes receivable from sales of Common
Stock.................................. -- -- (287,400) (287,400)
Accumulated deficit....................... (522,772) (1,644,783) (6,032,884) (6,297,309)
---------- ------------ ------------ ------------
Total shareholders' equity
(deficit).......................... 318,028 (139,938) (1,590,608) 2,818,119
---------- ------------ ------------ ------------
Total liabilities and shareholders'
equity (deficit)................... $ 394,906 $ 2,050,602 $ 5,444,755 $ 6,293,928
========== ============ ============ ============
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-3
<PAGE> 73

V-ONE CORPORATION

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 16,
1993 (DATE OF YEAR ENDED SIX MONTHS
INCEPTION) TO DECEMBER 31, ENDED JUNE 30,
DECEMBER 31, -------------------------------- --------------------------------
1993 1994 1995 1995 1996
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues:
Products..................... $ -- $ -- $ 1,101,418 $ 369,218 $ 2,284,044
Consulting and services...... 76,183 59,716 2,083 -- 92,343
--------- --------- ---------- --------- ----------
Total revenues.......... 76,183 59,716 1,103,501 369,218 2,376,387
--------- --------- ---------- --------- ----------
Cost of revenues:
Products..................... -- -- 376,359 131,150 773,329
Consulting and services...... 38,090 35,114 800 -- 27,222
--------- --------- ---------- --------- ----------
Total cost of
revenues.............. 38,090 35,114 377,159 131,150 800,551
--------- --------- ---------- --------- ----------
Gross profit...................... 38,093 24,602 726,342 238,068 1,575,836
--------- --------- ---------- --------- ----------
Operating expenses:
Sales and marketing.......... 6,652 36,212 130,917 66,042 1,672,437
General and administrative... 74,212 315,192 1,350,361 461,163 3,349,513
Research and development..... 21,000 127,926 304,973 110,790 704,309
--------- --------- ---------- --------- ----------
Total operating
expenses.............. 101,864 479,330 1,786,251 637,995 5,726,259
--------- --------- ---------- --------- ----------
Operating loss.................... (63,771) (454,728) (1,059,909) (399,927) (4,150,423)
--------- --------- ---------- --------- ----------
Other (expense) income:
Interest expense............. (1,913) (2,360) (66,615) -- (281,026)
Interest income.............. -- -- 4,513 -- 43,388
--------- --------- ---------- --------- ----------
Total other expenses.... (1,913) (2,360) (62,102) -- (237,638)
--------- --------- ---------- --------- ----------
Net loss.......................... $ (65,684) $ (457,088) $ (1,122,011) $ (399,927) $ (4,388,061)
========= ========= ========== ========= ==========
Net loss per common share......... $ (.01) $ (.06) $ (.12) $ (.04) $ (.44)
========= ========= ========== ========= ==========
Weighted average shares
outstanding..................... 6,186,978 8,046,766 9,567,509 9,307,442 9,874,849
========= ========= ========== ========= ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-4
<PAGE> 74

V-ONE CORPORATION

STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE
------------------ PAID-IN FROM ACCUMULATED
SHARES AMOUNT CAPITAL STOCK SALES DEFICIT TOTAL
--------- ------ ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Initial issuance of Common
Stock.......................... 5,666,666 $5,667 $ 4,333 $ -- $ -- $ 10,000
Contributed capital in lieu of
cash compensation........... -- -- 30,000 -- -- 30,000
Net loss....................... -- -- -- -- (65,684) (65,684)
--------- ----- --------- --------- ----------- -----------
Balance, December 31, 1993....... 5,666,666 5,667 34,333 -- (65,684) (25,684)
Sale of Common Stock........... 2,176,473 2,176 747,824 -- -- 750,000
Contribution of Common Stock
from related party.......... (333,333) (333) 333 -- -- --
Issuance of Common Stock as
payment for services........ 353,333 353 447 -- -- 800
Contributed capital in lieu of
cash compensation........... -- -- 50,000 -- -- 50,000
Net loss....................... -- -- -- -- (457,088) (457,088)
--------- ----- --------- --------- ----------- -----------
Balance, December 31, 1994....... 7,863,139 7,863 832,937 -- (522,772) 318,028
Sale of Common Stock........... 107,954 108 399,892 -- -- 400,000
Contribution of Common Stock
from related party.......... (132,666) (133) 133 -- -- --
Issuance of Common Stock in
accordance with
anti-dilution agreement..... 56,000 56 (56) -- -- --
Issuance of Common Stock as
payment on accrued
interest.................... 76,666 77 32,468 -- -- 32,545
Issuance of Common Stock as
payment for services........ 333,333 333 141,167 -- -- 141,500
Contributed capital in lieu of
cash compensation........... -- -- 90,000 -- -- 90,000
Net loss....................... -- -- -- -- (1,122,011) (1,122,011)
--------- ----- --------- --------- ----------- -----------
Balance, December 31, 1995....... 8,304,426 8,304 1,496,541 -- (1,644,783) (139,938)
Contribution of Common Stock
from related party.......... (383,965) (384) 288,360 -- -- 287,976
Issuance of Common Stock
related to 1996
Non-Statutory Stock Option
Plan........................ 383,965 384 1,727,459 (287,400) -- 1,440,443
Issuance of Common Stock as
payment for services........ 11,111 11 26,156 -- -- 26,167
Issuance of non-qualified stock
options below fair market
value....................... -- -- 487,796 -- -- 487,796
Issuance of warrants to
purchase Common Stock....... -- -- 299,000 -- -- 299,000
Exercise of warrants to
purchase Common Stock....... 66,666 67 933 -- -- 1,000
Issuance of Common Stock as
payment of a note........... 73,333 74 329,926 -- -- 330,000
Contribution of Common Stock
from related party.......... (153,333) (153) 153 -- -- --
Issuance of Common Stock as
payment on accrued
interest.................... 153,333 153 64,937 -- -- 65,090
Repurchase of fractional shares
of Common Stock related to
the reverse stock split..... (9) -- (41) -- (40) (81)
Net loss....................... -- -- -- -- (4,388,061) (4,388,061)
--------- ----- --------- --------- ----------- -----------
Balance, June 30, 1996........... 8,455,527 $8,456 $4,721,220 $ (287,400) $(6,032,884) $(1,590,608)
========= ===== ========= ========= =========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-5
<PAGE> 75

V-ONE CORPORATION

STATEMENTS OF CASH FLOWS

FOR THE PERIOD
FEBRUARY 16,
1993 (DATE OF YEAR ENDED SIX MONTHS
INCEPTION) TO DECEMBER 31, ENDED JUNE 30,
DECEMBER 31, -------------------------- --------------------------
1993 1994 1995 1995 1996
-------------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................. $ (65,684) $ (457,088) $(1,122,011) $ (399,927) $(4,388,061)
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for doubtful accounts........... -- -- 23,620 -- 149,185
Provision for obsolete inventory.......... -- -- 50,000 -- --
Depreciation and amortization............. 1,023 10,307 24,623 18,341 37,931
Interest expense on accretion of note
payable................................. -- -- -- -- 109,837
Consulting expense satisfied by issuance
of Common Stock......................... -- -- -- -- 10,903
Compensation expense satisfied by issuance
of Common Stock......................... -- 800 141,500 141,500 487,796
Compensation expense recognized for
receipt of contributed capital.......... 30,000 50,000 90,000 45,000 --
Compensation expense for Common Stock
contributed to stock option plan........ -- -- -- -- 287,976
Compensation expense for issuance of
Common Stock related to 1996
Non-Statutory Stock Option Plan......... -- -- -- -- 1,439,867
Accrued interest satisfied with Common
Stock................................... -- -- 32,545 -- 65,090
Accrued interest satisfied with Preferred
Stock................................... -- -- -- -- 59,554
Changes in assets and liabilities:
Accounts receivable....................... -- (840) (265,172) (137,104) (1,462,240)
Loan receivable........................... -- -- -- (8,200) --
Inventory................................. -- -- (307,630) (13,198) (45,825)
Prepaid expenses and other................ -- -- (24,145) (2,958) (633,697)
Accounts payable and accrued expenses and
deferrals............................... 14,161 43,424 235,919 (18,436) 1,561,641
-------- --------- ----------- --------- -----------
Net cash used in operating
activities.......................... (20,500) (353,397) (1,120,751) (374,982) (2,320,043)
-------- --------- ----------- --------- -----------
Cash flows from investing activities:
Purchase of property and equipment........ (20,460) (13,300) (19,840) -- (221,890)
-------- --------- ----------- --------- -----------
Net cash used in investing
activities.......................... (20,460) (13,300) (19,840) -- (221,890)
-------- --------- ----------- --------- -----------
Cash flows from financing activities:
Issuance of Common Stock.................. 10,000 700,000 400,000 -- --
Issuance of Preferred Stock............... -- -- -- -- 1,000,000
Issuance of debt with detachable
warrants................................ -- -- -- -- 1,500,000
Exercise of options and warrants.......... -- -- -- -- 1,576
Issuance of notes payable................. 39,705 -- 1,300,000 -- 1,250,000
Issuance of notes payable to related
parties................................. -- -- 454,351 307,686 --
Principal payments on capitalized lease
obligations............................. -- -- (7,011) -- (29,181)
Repayment of notes payable................ -- -- -- -- (1,689)
Repayment of notes payable to related
parties................................. -- (20,412) -- -- (5,839)
-------- --------- ----------- --------- -----------
Net cash provided by financing
activities.......................... 49,705 679,588 2,147,340 307,686 3,714,867
-------- --------- ----------- --------- -----------
Net increase (decrease) in cash and cash
equivalents................................. 8,745 312,891 1,006,749 (67,296) 1,172,934
Cash and cash equivalents at beginning of
period...................................... -- 8,745 321,636 321,636 1,328,385
-------- --------- ----------- --------- -----------
Cash and cash equivalents at end of the
period...................................... $ 8,745 $ 321,636 $ 1,328,385 $ 254,340 $ 2,501,319
======== ========= =========== ========= ===========
</TABLE>

F-6
<PAGE> 76

V-ONE CORPORATION

STATEMENTS OF CASH FLOWS -- (CONTINUED)

FOR THE PERIOD
FEBRUARY 16,
1993 (DATE OF YEAR ENDED SIX MONTHS
INCEPTION) TO DECEMBER 31, ENDED JUNE 30,
DECEMBER 31, ----------------------- ------------------------
1993 1994 1995 1995 1996
-------------- ---------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Noncash investing and financing activities:
Property and equipment acquired through
capital leases........................ $ -- $ -- $ 123,392 $ -- $ 29,419
======== ========= =========== ========= ===========
Property and equipment acquired through
the issuance of Common Stock.......... $ -- $ 50,000 $ -- $ -- $ --
======== ========= =========== ========= ===========
Issuance of Common Stock as
compensation.......................... $ -- $ 800 $ 141,500 $ 141,500 $ --
======== ========= =========== ========= ===========
Accrued interest satisfied with Common
Stock................................. $ -- $ -- $ 32,545 $ -- $ 65,090
======== ========= =========== ========= ===========
Accrued interest satisfied with
Preferred Stock....................... $ -- $ -- $ -- $ -- $ 59,554
======== ========= =========== ========= ===========
Notes received for stock options
exercised............................. $ -- $ -- $ -- $ -- $ 287,400
======== ========= =========== ========= ===========
Consulting expense recognized by
issuance of Common Stock.............. $ -- $ -- $ -- $ -- $ 10,903
======== ========= =========== ========= ===========
Notes payable satisfied with Preferred
Stock................................. $ -- $ -- $ -- $ -- $2,500,000
======== ========= =========== ========= ===========
Issuance of Common Stock to satisfy note
payable to related party.............. $ -- $ -- $ -- $ -- $ 330,000
======== ========= =========== ========= ===========
Repurchase of fractional shares of
Common Stock related to the reverse
stock split........................... $ -- $ -- $ -- $ -- $ 81
======== ========= =========== ========= ===========
Supplemental cash flow disclosure:
Cash paid for interest.................. $ -- $ -- $ 182 $ -- $ 2,299
======== ========= =========== ========= ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-7
<PAGE> 77

V-ONE CORPORATION

NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 IS UNAUDITED)

1. NATURE OF BUSINESS:

The Company was originally incorporated in the State of Maryland on
February 16, 1993 with the authorization to issue 5,666,666 shares of Common
Stock. The Board of Directors authorized and the shareholders approved a
ten-for-one stock split of the Company's Common Stock as of November 11, 1995
increasing authorized Common Stock to 13,333,333 shares. Effective February 7,
1996, the Company merged with a pre-existing corporation formed in Delaware. The
Delaware corporation became the surviving corporation.

In connection with its reincorporation, the Company increased the number of
authorized shares of Common Stock from 13.3 million to 33.3 million and
authorized 13.3 million shares of Preferred Stock. On June 12 and June 28, 1996,
respectively, the Board of Directors authorized and the shareholders approved a
two-for-three reverse stock split of the outstanding shares of the Company's
Preferred and Common Stock, which was effective July 2, 1996. All references to
Common Stock, Preferred Stock, options and per share data have been restated to
give effect to both stock splits.

2. SIGNIFICANT ACCOUNTING POLICIES:

Interim Financial Statements and Reporting Period:

The financial statements for the six months ended June 30, 1995 and related
footnote information are unaudited and have been prepared on a basis
substantially consistent with the audited financial statements. In the opinion
of management, the June 30, 1995 unaudited financial statements include all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of the results of that interim period. The results for the six
months ended June 30, 1996, are not necessarily indicative of the results for
the entire year.

Revenue Recognition:

The Company's revenue recognition policy is in conformity with the American
Institute of Certified Public Accountants' Statement of Position, 91-1 "Software
Revenue Recognition." Revenues are generally recognized from the license of
software upon shipment, net of allowances, provided that no significant vendor
obligations remain. In addition, the Company often permits customers to evaluate
products being considered for purchase, generally for a period of up to 30 days,
in which event the Company does not recognize revenues until the customer has
accepted the product. Accordingly, the Company's revenue recognition policy does
not necessarily correlate with the signing of a contract or the shipment of a
product. Allowances for estimated future returns, credits and doubtful accounts
are netted against accounts receivable. Service and training revenues are
recognized as the services are performed.

Maintenance and support revenues are recognized ratably over the contract
term, typically one year. Payments received in advance of revenue recognition
are included in deferred income.

In some instances, the Company recognizes revenues from the sale of systems
using the percentage of completion method as the work is performed, measured
primarily by the ratio of labor hours incurred to total estimated labor hours
for each specific contract. When the total estimated cost of a contract is
expected to exceed the contract price, the total estimated loss is charged to
expense in the period when the information becomes known.

Research and Development and Software Development Costs:

Software development costs are included in research and development and are
expensed as incurred. Statement of Financial Accounting Standards ("SFAS") No.
86, "Accounting for the Cost of Computer Software to be Sold, Leased or
Otherwise Marketed" requires the capitalization of certain software development
costs once technological feasibility is established, which the Company generally
defines as

F-8
<PAGE> 78

V-ONE CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

completion of a working model. Capitalization ceases when the products are
available for general release to customers, at which time amortization of the
capitalized costs begins on a straight-line basis over the estimated product
life, or on the ratio of current revenues to total projected product revenues,
whichever is greater. To date, the period between achieving technological
feasibility and the general availability of such software has been short, and
software development costs qualifying for capitalization have been
insignificant. Accordingly, the Company has not capitalized any software
development costs.

Use of Estimates:

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the 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 reported
period. Actual results could differ from these estimates.

Cash and Cash Equivalents:

The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Cash and cash
equivalents include time deposits with commercial banks used for temporary cash
management purposes.

Inventories:

Inventories are valued at the lower of cost or market and consist primarily
of computer equipment for sale on orders received from customers, items held for
stock and training kits. Cost is determined based on specific identification.

Property and Equipment:

Office and computer equipment and furniture and fixtures are recorded at
cost. Depreciation and amortization of property and equipment is calculated
using the straight-line method over a useful life of three to seven years.

Repairs and maintenance costs are charged to expense as incurred. Upon sale
or retirement of property and equipment, the costs and related accumulated
depreciation are eliminated from the accounts and any resulting gain or loss on
such disposition is included in the determination of net income.

Income Taxes:

Deferred income tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred income tax assets and liabilities are measured by applying
presently enacted statutory tax rates, that are applicable to the future years
in which deferred income tax assets or liabilities are expected to be settled or
realized, to the differences between the financial statement carrying amounts
and the tax bases of existing assets and liabilities. The effect of a change in
tax rates on deferred income tax assets and liabilities is recognized in net
income in the period which the tax rate is enacted.

The Company provides a valuation allowance against net deferred income tax
assets if, based upon available evidence, it is more likely than not that some
or all of the deferred income tax assets may not be realized.

Computation of Net Loss Per Common Share:

Common equivalent shares are included in the per share calculations where
the effect of their inclusion would be dilutive. Common equivalent shares
consist of Series A Convertible Preferred Stock ("Series A Stock") and the
assumed exercise of outstanding stock options and warrants. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin (SAB) No. 83, the
common equivalent shares issued by the

F-9
<PAGE> 79

V-ONE CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

Company during the twelve months preceding the effective date of the
registration statement relating to the Company's initial public offering, using
the treasury stock method and the public offering price ($5.00 per share), have
been included in the calculation of net loss per common share for all periods
presented.

Unaudited Pro Forma Balance Sheet:

In April 1996, the Board of Directors authorized management of the Company
to file a Registration Statement with the Securities and Exchange Commission
permitting the Company to sell shares of its Common Stock in an initial public
offering (the "IPO"). If the IPO is consummated as presently anticipated,
791,011 shares of the Company's Series A Stock will convert into 949,209 shares
of Common Stock and 188,705 shares of Common Stock, which is currently reserved
for issuance, will be issued. (See Note 8.) The unaudited pro forma presentation
of the June 30, 1996 balance sheet has been prepared assuming this conversion.

Risks, Uncertainties and Concentrations:

The Company invests its cash primarily in money market funds with an
international commercial bank. The Company had a balance in these funds of $0,
$1,175,279 and $2,425,622 as of December 31, 1994 and 1995 and June 30, 1996,
respectively. The Company has not experienced any losses to date on its invested
cash. The Company's cash balances exceed Federal insured amounts.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures 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 could
impact future results of operations and cash flows.

The Company sells its product to a wide variety of customers in a variety
of industries. The Company performs ongoing credit evaluations of its customers
but does not require collateral or other security to support customer accounts
receivable. In management's opinion, the Company has provided sufficient
provisions to prevent a significant impact of credit losses to the financial
statements.

In 1993 and 1994, two customers accounted for over 70% and 65% of total
revenues, respectively. In 1995, three customers accounted for over 39% of total
revenues. For the six month period ended June 30, 1996, two customers accounted
for 34% of total revenues.

One customer accounted for 36% of total accounts receivable as of December
31, 1995. Three customers accounted for 58% of total accounts receivable as of
June 30, 1996.

Fair Value of Financial Instruments:

The carrying amounts of the Company's assets and liabilities approximate
fair value due to either the short-term maturity of those financial instruments
or their negotiated market terms.

Stock-based Compensation:

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("SFAS 123") Accounting for
Stock-Based Compensation, which is effective for the Company's financial
statements for fiscal years beginning after December 15, 1995. SFAS 123 allows
companies to either account for stock-based compensation under the new
provisions of SFAS 123 or under the provisions of Accounting Principles Board
Opinion No. 25 ("APB 25"), Accounting for Stock Issued to Employees, but
requires pro forma disclosure in the footnotes to the financial statements as if
the measurement provisions of SFAS 123 had been adopted. The Company has
continued to account for its stock-based compensation in accordance with the
provisions of APB 25.

F-10
<PAGE> 80

V-ONE CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

Reclassifications:

Certain reclassifications have been made to the prior years' financial
statements to conform to the classifications used in the current period.

3. INVENTORY:

The Company has provided an allowance for potentially non-salable inventory
in the amounts of $0, $50,000 and $50,000 as of December 31, 1994 and 1995 and
June 30, 1996, respectively.

4. NOTES PAYABLE:

In October 1995, the Company entered into a $50,000 loan agreement with an
international financial institution. The loan requires monthly payments of
interest at a rate equal to the institution's prime lending rate for the first
twelve months (8.25% as of June 30, 1996). In October 1996, the interest rate
increases to 1.5% over prime (9.75% as of June 30, 1996). The Company is
required to repay the loan through 36 monthly payments commencing October 1996.
The loan is collateralized by the assets of the Company and is subordinate to
notes payable to a shareholder. (See Note 5.)

In both December 1995 and January 1996, the Company issued $1,250,000 in 7%
uncollateralized promissory notes to fourteen individual investors. During April
1996, the principal and accrued interest was converted into shares of the
Company's Series A Stock. (See Note 7.)

Maturities of notes payable as of June 30 are as follows:

5. NOTES PAYABLE TO RELATED PARTIES:

On May 15, 1995, Scientek Corporation, through Hai Hua Cheng, a director of
the Company, and C.C. Tsai, invested $500,000 in the Company in consideration
for ownership of 15% of the Company's outstanding Common Stock after giving
effect to this issuance.

On June 1, 1995, the Company borrowed $330,000 from Scientek Corporation
and issued a promissory note, bearing no interest, due June 1, 1996. The note
was assigned to Hai Hua Cheng by Scientek Corporation. The terms of the note
provided that, as further consideration for the loan, the Company would issue
153,333 shares of Common Stock to Scientek Corporation immediately after
repayment of the loan. On June 12, 1996, in consideration for Mr. Cheng's
agreement not to demand payment of the note until May 31, 1997, the Board of
Directors authorized the Company to offer Mr. Cheng the option to receive Common
Stock based on a $4.50 per share conversion price in lieu of cash in payment of
the note. The Board reserved and authorized the issuance of 73,333 shares of
Common Stock for this purpose. On June 28, 1996, the Company repaid the loan
made by Mr. Cheng by issuing 226,666 shares of Common Stock to Mr. Cheng in full
repayment of the note, including the 153,333 shares of Common Stock described
above. In connection with this loan, the Company recognized interest expense of
$56,954 and $40,681 during the year ended December 31, 1995 and the six months
ended June 30, 1996, respectively.

During December 1995, the Company's founder, President and Chief Executive
Officer contributed 132,666 shares of the Company's Common Stock, 56,000 of
which shares related to an anti-dilution agreement with Mr. Cheng. The remaining
76,666 shares were issued to Mr. Cheng in lieu of a portion of the accrued
interest on the $330,000 note for the period from June 1, 1995 through December
31, 1995.

F-11
<PAGE> 81

V-ONE CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 IS UNAUDITED)

5. NOTES PAYABLE TO RELATED PARTIES: -- (CONTINUED)

The Company's President and Chief Executive Officer, who is the majority
shareholder, has advanced the Company operating funds under three separate
promissory notes which are updated on an annual basis. The notes bear interest
at 8% and are due on demand. Total amounts outstanding under the notes were
$19,293, $143,644 and $138,305 as of December 31, 1994 and 1995 and June 30,
1996, respectively.

During June 1996, the Company borrowed $1,500,000 and issued an 8%
uncollateralized senior subordinated note due June 18, 2000, with 333,332
detachable warrants to purchase Common Stock. Of the 333,332 detachable
warrants, 266,666 are exercisable at $4.50 per share, 319,999 are exercisable at
$3.75 per share, assuming a share of Series A Stock is converted into 1.20
shares of Common Stock on consummation of the IPO) and 66,666 are exercisable at
$0.015 per share. In the event the Series A Stock is converted on a 1-for-1.20
basis, James F. Chen, the Company's founder, President and Chief Executive
Officer, has agreed to contribute to the Company the additional 13,333 shares of
Common Stock to the Company. The note must be redeemed upon consummation of an
initial public offering and the warrants with an exercise price of $0.015 per
share must be exercised by June 30, 1996. The Company has allocated $1,201,000
and $299,000 to notes payable and additional paid-in capital, respectively,
based upon the pro-rata fair market value of the instruments. As of June 30,
1996, the Company has amortized $109,837 of the discount, which assumed that the
Company will consummate an initial public offering during the third quarter of
1996. As of June 30, 1996, the notes payable balance was $1,310,837. The 66,666
detachable warrants with an exercise price of $0.015 were exercised on June 28,
1996.

6. INCOME TAXES:

The tax effect of temporary differences that give rise to significant
portions of deferred income taxes are as follows as of:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Deferred income tax assets:
Deferred income.......................... $ -- $ 4,828 $ 3,919
Inventory allowance...................... -- 19,310 19,310
Allowance for bad debts.................. -- 9,122 66,737
Non-deductible accruals.................. -- -- 69,895
Deferred rent............................ -- 20,453 37,206
Stock-based employee compensation........ -- -- 188,381
Accretion of note payable discount....... -- -- 40,408
Net operating loss carryforwards......... 201,894 635,215 1,773,816
--------- --------- -----------
Total deferred income tax asset..... 201,894 688,928 2,199,672
Less valuation allowance............ (201,894) (688,928) (2,199,672)
--------- --------- -----------
Deferred income taxes, net.......... $ -- $ -- $ --
========= ========= ===========
</TABLE>

The net change in the valuation allowance from 1994 to 1995 and from 1995
to 1996 is due principally to increases in net operating losses. Valuation
allowances have been recognized due to the uncertainty of realizing the benefit
of net operating loss carryforwards. As of June 30, 1996, the Company had net
operating loss carryforwards of approximately $4,593,000, for Federal and state
income tax purposes available to offset future taxable income. The net operating
loss carryforwards begin expiring from 2008 to 2011.

F-12
<PAGE> 82

V-ONE CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 IS UNAUDITED)

7. SHAREHOLDERS' EQUITY:

Common Stock:

On February 16, 1993, the Company was authorized to issue 5,666,666 shares
of Common Stock, all one class, with no par value. On January 1, 1994, the
Company amended the Articles of Incorporation to increase the authorized shares
of Common Stock from 5,666,666 to 13,333,333 and establish a par value of $0.001
per share. Each holder of Common Stock has one vote for each share of Common
Stock held and shall participate proportionately in the assets upon dissolution
in accordance with their respective ownership.

During February 1994, the Company's founder, President and Chief Executive
Officer agreed to contribute 333,333 shares of the Company's Common Stock to the
Company and the Company agreed to issue those shares of Common Stock to an
employee at the then current fair market value of the shares, which equaled par
value at that time, in consideration for services rendered to the Company by the
employee. In connection with the Company's commitment to issue the 333,333
shares of Common Stock, the Company recorded compensation expense of $500 for
the year ended December 31, 1994. The Company's founder, President and Chief
Executive Officer contributed these shares to the Company in May 1995 and the
Company issued such shares to the employee at that time.

Stock Splits:

On November 11, 1995, the Board of Directors authorized and the
shareholders approved a ten-for-one stock split of the outstanding shares of the
Company's Common Stock. On June 12 and June 28, 1996, respectively, the Board of
Directors authorized and the shareholders approved a two-for-three reverse stock
split of the outstanding shares of the Company's Preferred and Common Stock,
which was effective July 2, 1996. All references to Common Stock, Preferred
Stock, options and per share data have been restated to give effect to both
stock splits.

Stock Options Plans:

The Company has the following three stock options plans: 1995 Non-Statutory
Stock Option Plan, the 1996 Non-Statutory Stock Option Plan and the 1996
Incentive Stock Plan ("Plans"). The Plans were adopted to attract and retain key
employees, directors, officers and consultants. The Plans are administered by a
committee appointed by the Board of Directors ("Compensation Committee").

1995 Non-Statutory Stock Option Plan:

The Compensation Committee determines the number of options granted to a
key employee, the vesting period and the exercise price provided it is not below
market value on the date of the grant for the 1995 Non-Statutory Stock Option
Plan ("1995 Plan"). In most cases, the options vest over a two year period and
terminate in ten years from the date of grant. The 1995 Plan will terminate
during May 2005 unless terminated earlier with the provisions of the 1995 Plan.

Option activity for the period from the 1995 Plan's inception to June 30,
1996 was as follows:

<TABLE>
<CAPTION>
SHARES PRICE
------- ----------------
<S> <C> <C>
Balance as of December 31, 1994.......................... -- --
Granted............................................. 350,293 $0.4245 - $2.505
Exercised........................................... -- --
Canceled............................................ -- --
-------
Balance as of December 31, 1995.......................... 350,293 $0.4245 - $2.505
Granted............................................. 2,000 $4.50
Exercised........................................... -- --
Canceled............................................ (1,334) $4.50
-------
Balance as of June 30, 1996.............................. 350,959 $0.4245 - $4.50
=======
</TABLE>

F-13
<PAGE> 83

V-ONE CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 IS UNAUDITED)

7. SHAREHOLDERS' EQUITY: -- (CONTINUED)

As of June 30, 1996, the Compensation Committee, which administers the 1995
Plan, was authorized by the Board of Directors to grant options for a total of
352,293 shares of Common Stock under the 1995 Plan. As of December 31, 1995 and
June 30, 1996, 44,445 and 139,655, respectively, of the options were vested and
exercisable. As of June 30, 1996, the Company had no shares of Common Stock
available for grant under the 1995 Plan.

1996 Non-Statutory Stock Option Plan:

The Compensation Committee, which administers the 1996 Non-Statutory Stock
Option Plan ("Non-Statutory Plan"), established the options price to be the fair
market value of the stock on the date of grant. The options are not
transferable, are subject to various restrictions outlined in the Non-Statutory
Plan and must be exercised by December 31, 1996. During April 1996, the
Company's founder, President and Chief Executive Officer contributed 383,965
shares of Common Stock to the Company and the Company issued those shares to
employees in connection with the exercise of stock options granted under the
Non-Statutory Plan. The Company recognized compensation expense of $287,976 with
a corresponding increase to additional paid-in capital to record this
transaction.

Option activity for the period from the Non-Statutory Plan's inception to
June 30, 1996 was as follows:

<TABLE>
<CAPTION>
SHARES PRICE
-------- -----
<S> <C> <C>
Balance as of December 31, 1995................................... -- --
Granted...................................................... 383,965 $0.75
Exercised.................................................... (383,965) $0.75
Canceled..................................................... -- --
--------
Balance as of June 30, 1996....................................... -- --
========
</TABLE>

As of June 30, 1996, 383,965 options were granted under the Non-Statutory
Plan. No additional options are available for grant under the plan. The options
were exercised on April 22, 1996 at $0.75 a share in exchange for notes and par
value in cash. The Company recognized $1,439,867 in compensation expense based
upon the difference between the fair market value of $4.50 at the date of
issuance and the exercise price of $0.75 per share. The notes are full recourse
promissory notes bearing interest at 6% per annum and are collateralized by the
stock issued upon exercise of the stock options. Principal and interest is
payable in installments. Maturities range from April 1997 to April 2006. The
Company has accounted for these notes as a reduction to shareholders' equity as
of June 30, 1996.

1996 Incentive Stock Plan:

During June 1996, the Company adopted the 1996 Incentive Stock Plan ("1996
Plan"), under which incentive stock options, non-qualified stock options and
restricted share awards may be made to the Company's key employees, directors,
officers and consultants. Both incentive stock options and options that are not
qualified under Section 422 of the Internal Revenue Code of 1986, as amended,
("non-qualified options") are available under the 1996 Plan. The options are not
transferable and are subject to various restrictions outlined in the 1996 Plan.
The Compensation Committee, which administers the 1996 Plan, determines the
number of options granted to a key employee, officer or consultant, the vesting
period and the exercise price provided that it is not below market value. The
1996 Plan will terminate during June 2006 unless terminated earlier by the Board
of Directors.

The 1996 Plan also provides for the automatic grant of a non-qualified
option to purchase 6,666 shares of Common Stock to each new non-employee
director. All options have a five year term and are exercisable on the date of
grant. As of June 30, 1996, two of the Company's directors were eligible to
participate in the 1996 Plan and each director was granted a non-qualified
option to purchase 6,666 shares of Common Stock.

The Compensation Committee authorized the Board of Directors to grant
options for a total of 2,333,333 shares of Common Stock under the 1996 Plan. As
of June 30, 1996, the Compensation Committee granted a

F-14
<PAGE> 84

V-ONE CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 IS UNAUDITED)

7. SHAREHOLDERS' EQUITY: -- (CONTINUED)

total of 759,235 non-qualified options, of which 590,394 were issued at $3.75
per share, 155,509 were issued at $4.50 per share and 13,332 were issued at
$9.00 per share. Of the total 759,235 non-qualified options, 327,781 are vested
and exercisable as of June 30, 1996. The Compensation Committee has also granted
190,642 incentive stock options, of which 57,201 were vested and exercisable as
of June 30, 1996. As of June 30, 1996, the Company had 1,383,456 shares of
Common Stock available for grant under the 1996 Plan.

Option activity for the period from the 1996 Plan's inception to June 30,
1996 was as follows:

<TABLE>
<CAPTION>
INCENTIVE NON-QUALIFIED
STOCK OPTIONS STOCK OPTIONS
----------------- -----------------------
SHARES PRICE SHARE PRICE
------- ----- ------- -----------
<S> <C> <C> <C> <C>
Balance as of December 31, 1995...........
Granted.............................. 190,642 $4.50 759,235 $3.75-$9.00
Exercised............................ -- -- -- --
Canceled............................. -- -- -- --
------- -------
Balance as of June 30, 1996............... 190,642 $4.50 759,235 $3.75-$9.00
======= =======
</TABLE>

On July 8, 1996, the Compensation Committee granted incentive stock options
to purchase 20,668 shares of Common Stock to employees at $9.00 per share.

The Company accounts for the fair value of its grants under the Plans in
accordance with APB 25. Accordingly, no compensation expense has been recognized
for the Plans. Had compensation expense been determined based on the fair value
at the grant dates for awards under the Plans consistent with the method of SFAS
123, the Company's net income and loss per share would have been reduced to the
pro forma amounts indicated below:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ ------------
<S> <C> <C>
Net loss
As reported..................................... $1,122,011 $ 4,388,061
Pro forma....................................... $1,154,939 $ 6,556,133
Loss per common share
As reported..................................... $0.12 $0.44
Pro forma....................................... $0.12 $0.67
</TABLE>

The fair value of each option is estimated on the date of grant using a
type of Black-Scholes option pricing model with the following weighted-average
assumptions used for grants during the year ended December 31, 1995 and the six
month period ended June 30, 1996, respectively: dividend yield of 0%, expected
volatility of 43%, risk-free interest rate of 6.3% and 6.6% and expected terms
of 3.0 and 3.6 years.

A summary of the status of the Company's stock option plans is presented
below:

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, 1995 ENDED JUNE 30, 1996
--------------------- -----------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------- --------- --------- ---------
<S> <C> <C> <C> <C>
Options outstanding beginning of
period................................ -- -- 350,293 $ 1.238
Options exercised....................... -- -- (383,965) $ 0.75
Options canceled........................ -- -- (1,334) $ 4.50
Options granted......................... 350,293 $ 1.238 1,335,842 $ 3.136
Options outstanding end of period....... 350,293 $ 1.238 1,300,836 $ 3.332
Options exercisable at end of period.... 44,445 $ 0.425 524,637 $ 3.352
Weighted-average fair value of options
granted during the period............. -- $ 0.094 -- $ 1.623
</TABLE>

F-15
<PAGE> 85

V-ONE CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 IS UNAUDITED)

7. SHAREHOLDERS' EQUITY: -- (CONTINUED)

As of June 30, 1996, the weighted average remaining contractual life of the
options that range from $3.75 to $9.00 is 7.6 years.

As of June 30, 1996 and December 31, 1995, the pro forma tax effects under
SFAS 109 would include an increase to both the deferred tax asset and the
valuation allowance of $837,300 and $12,700, respectively, and no impact to the
statement of operations.

Reserved for Issuance:

The Board of Directors has authorized 188,705 shares of the Company's
Common Stock to be reserved for issuance in accordance with a license agreement
whereby the licensor may waive its future rights to any license fees in exchange
for 2% of the Company's outstanding voting stock, after giving effect to the
issuance to the licensor, until the date of an initial public offering. (See
Note 8.)

Series A Convertible Preferred Stock:

During April and May, 1996, the Board of Directors authorized the issuance
of 791,011 shares of Series A Stock with a par value of $0.001.

The holders of Series A Stock do not have any preemptive rights to
subscribe for any securities of the Company. The holders of Series A Stock are
entitled to vote on all matters submitted to a vote of the shareholders of the
Company. The holders of Series A Stock also are entitled to vote, as a class, on
matters affecting the value of the Series A Stock. All action requiring the
approval of holders of shares of Series A Stock voting as a class must be
authorized by a majority vote of the holders thereof. The Board of Directors may
declare dividends on the Series A Stock payable at any time in cash, in property
or in shares of Series A Stock. Series A Stock holders are entitled to share
ratably in dividends with the holders of any other series of the Company's
Preferred Stock now existing or hereafter created, but receive no preference in
dividends declared. The Company will not pay dividends on Common Stock as long
as any shares of Series A Stock are issued and outstanding. In the event of any
voluntary or involuntary liquidation, sale or winding up of the Company, the
holders of Series A Stock are entitled to receive, in preference to holders of
Common Stock, an amount equal to the purchase price per share of the Series A
Stock plus any accrued but unpaid dividends. Any remaining proceeds shall be
allocated between Common and the holders of Series A Stock on a pro rata basis,
treating the shares of Series A Stock on an as converted basis.

Shares of Series A Stock may at any time be converted into shares of Common
Stock, on a one-for-one basis, provided that such shares of Series A Stock have
not previously been converted by automatic conversion. In the event the IPO is
consummated by October 31, 1996, each share of Series A Stock automatically
converts into 1.20 shares of Common Stock. The value of any fractional shares of
Common Stock otherwise issuable will be paid in cash at a rate of $5.00 per
share of Common Stock. In the event a share of Series A Stock converts into
Common Stock at a rate of 1.20 shares of Common Stock as a result of the
foregoing, James F. Chen, the Company's founder, President and Chief Executive
Officer, has agreed to contribute to the Company 39,552 shares of Common Stock,
representing the additional number of shares of Common Stock the Company must
issue to the holders of Series A Stock as a result of the increase in the Series
A Stock's conversion ratio.

On April 15, 1996, the Company repaid the full amount of the 7%
uncollateralized promissory notes outstanding, including accrued interest, to
seven of the investors who participated in the December 1995 and January 1996
note offering, by issuing shares of the Company's Series A Stock, at a price of
$4.50 per share. The Company paid cash to each of these investors in an amount
equal to the value of any fractional shares of Series A Stock that would
otherwise have been transferred to such investors. In addition, the Company
permitted the seven investors to purchase an additional 222,222 shares of Series
A Stock at a price of $4.50 per share. Of the remaining seven investors, two
transferred their notes to one of the other remaining investors. The remaining
five investors exchanged their notes, including the transferred notes, for
shares of the

F-16
<PAGE> 86

V-ONE CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 IS UNAUDITED)

7. SHAREHOLDERS' EQUITY: -- (CONTINUED)

Company's Series A Stock on May 24, 1996, also at a price of $4.50 per share. A
total of 791,011 shares of Series A Stock were issued on of May 24, 1996 and are
outstanding as of June 30, 1996.

8. COMMITMENTS:

Leases:

The Company is obligated under various operating and capital lease
agreements, primarily for office space and equipment through 2001. Future
minimum lease payments under these non-cancelable operating and capital leases
as of June 30, are as follows:

<TABLE>
<CAPTION>
OPERATING CAPITAL
--------- --------
<S> <C> <C>
1996................................................... $ 180,092 $ 56,444
1997................................................... 187,224 40,062
1998................................................... 197,036 24,017
1999................................................... 197,928 20,502
2000................................................... 148,446 9,398
-------- --------
Total minimum payments................................. $ 910,726 150,423
========
Less: portion representing interest.................... (26,794)
--------
Present value of capital lease obligations............. 123,629
Less: current portion.................................. (49,187)
--------
Capital lease obligations, non-current................. $ 74,442
========
</TABLE>

Rental expense was $0, $12,366, $92,785 and $85,728, for the period
February 16, 1993 (date of inception) to December 31, 1993 and for the years
ended December 31, 1994 and 1995 and for the six month period ended June 30,
1996, respectively.

The cost and accumulated amortization of assets under capital leases were
as follows as of:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
------------ ------------ --------
<S> <C> <C> <C>
Furniture and fixtures.................. $ -- $ 8,752 $ 8,752
Office and computer equipment........... -- 114,640 144,059
-------- -------- --------
-- 123,392 152,811
Less: Accumulated amortization.......... -- (3,192) (31,451)
-------- -------- --------
$ -- $120,200 $121,360
======== ======== ========
</TABLE>

License Agreements:

In 1994, the Company entered into two licensing agreements whereby the
Company obtained the right to modify and sell certain technology used in its
product line. One of the agreements requires the Company to pay fees based on
product and subscription sales for any product using the licensed technology.
The other agreement provides for payment of fees based upon gross revenues of
the Company. This latter agreement also gives the other party ("Licensor") the
right to forfeit future licensing fees in exchange for 2% of the Company's
outstanding voting stock, after giving effect to the issuance. (See Note 7.) The
Licensor elected to receive voting stock in May 1996. The Company incurred
expenses totaling $0, $110,860 and $135,779 relating to these agreements in
1994, 1995 and 1996, respectively.

Licensing Rights:

The Company has incorporated in its products, data encryption and
authentication technology developed by the Licensor. The Company has become
aware of a third-party dispute over the rights to the Licensor's technology. The
Company has received no notification with respect to this matter and management
believes

F-17
<PAGE> 87

V-ONE CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1995 IS UNAUDITED)

8. COMMITMENTS: -- (CONTINUED)

that the Company will not experience detrimental effects from the outcome of
this dispute. The financial statements do not contain any adjustments that may
result from the resolution of this matter.

9. FINANCING:

The Company has incurred net losses of $65,684, $457,088, $1,122,011 and
$4,388,061, for the period February 16, 1993 (date of inception) to December 31,
1993, for the years ended December 31, 1994 and 1995 and for the six month
period ended June 30, 1996. Management has historically been successful in
obtaining outside financing to meet obligations and funding working capital
requirements as they come due. Most recently, the Company closed on several
transactions that provided additional cash flow. These are summarized below.

The Company also raised an additional $999,999 by issuing 222,222 shares of
Series A Stock at $4.50 per share.

During June 1996, the Company signed a software license contract with a
customer for $2,000,000, with payment terms of $500,000 to be received during
July 1996 and the remaining $1,500,000 to be paid over the remaining two year
contract period.

During April 1996, the Board of Directors authorized the President and
Chief Executive Officer to proceed with plans for the initial public offering of
the Company's Common Stock. In the event the Company does not successfully
complete its initial public offering, the Company intends to pursue other
financing alternatives that may be available to the Company and, if required,
reduce its operating expenses.

F-18
<PAGE> 88

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING SHAREHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF ANY OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
OFFER OR SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 6
Use of Proceeds......................... 17
Dividend Policy......................... 17
Capitalization.......................... 18
Dilution................................ 19
Selected Financial Data................. 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 21
Business................................ 28
Management.............................. 41
Certain Transactions.................... 52
Principal Shareholders.................. 54
Selling Shareholders.................... 57
Description of Capital Stock............ 58
Shares Eligible for Future Sale......... 61
Underwriting............................ 63
Legal Matters........................... 64
Experts................................. 64
Additional Information.................. 65
Reports to Shareholders................. 65
Index to Financial Statements........... F-1
</TABLE>

------------------------

UNTIL NOVEMBER 18, 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF THE DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

3,000,000 SHARES

[V-ONE LOGO]

COMMON STOCK

-------------------------------
PROSPECTUS
-------------------------------

PIPER JAFFRAY INC.

VOLPE, WELTY & COMPANY

October 24, 1996

<PAGE> 89

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth estimated expenses expected to be incurred
by the Company in connection with the issuance and distribution of the
securities being registered.

<TABLE>
<S> <C>
Securities and Exchange
Commission Registration Fee............................... $ 10,469.00
NASD Filing Fee................................................ 4,065.00
NASDAQ Listing Fee............................................. 50,000.00
Blue Sky Fees and Expenses..................................... 20,000.00
Printing and Engraving Expenses................................ 65,000.00
Accounting Fees and Expenses................................... 175,000.00
Legal Fees and Expenses........................................ 350,000.00
Transfer Agent Fees and Expenses............................... 10,000.00
Miscellaneous.................................................. 35,466.00
-----------
Total................................................ $700,000.00
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Article Ninth of the Company's Amended and Restated Certificate of
Incorporation provides that the Company shall indemnify, to the fullest extent
now or hereafter permitted by law, each director, officer employee or agent
(including each former director, officer, employee agent) of the Company who was
or is made party to or a witness in or is threatened to be made a party to or a
witness in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was an authorized representative of the Company, against all
expenses (including attorneys' fees and disbursements), judgments, fines
(including excise taxes and penalties) and amounts paid in settlement actually
and reasonably incurred by him in connection with such action, suit or
proceeding.

Article VI, Section 6.1 of the Company's Amended and Restated Bylaws
provides that each person who was or is made a party to or is otherwise involved
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative by reason of the fact that such person is or was a Director,
officer, agent or employee of the Company, shall be indemnified and held
harmless by the Company to the fullest extent authorized by the General
Corporation Law of the State of Delaware, as the same exists or may hereafter be
amended, against any expenses (including attorneys fees), judgments, fines and
amounts paid in settlement, actually and reasonably incurred by such person in
connection therewith. Notwithstanding the foregoing, no Director shall be
indemnified nor held harmless in violation of the provisions of the Company's
Amended and Restated Certificate of Incorporation; and no Director, officer,
agent or employee shall be indemnified nor held harmless by the Company unless:

(i) In the case of conduct in his/her official capacity with the
Company, he/she acted in good faith and in a manner he/she reasonably
believed to be in the best interests of the Company;

(ii) In all other cases, his/her conduct was at least not opposed to
the best interests of the Company nor in violation of the Amended and
Restated Certificate of Incorporation, Bylaws or any agreement entered into
by the Company; and

(iii) In the case of any criminal proceeding, he/she had no reasonable
cause to believe that his/her conduct was unlawful.

Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with

II-1
<PAGE> 90

an action or proceeding to which he is or is threatened to be made a party by
reason of such position, if such person shall have acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation and, in any criminal proceeding, if such person had no
reasonable cause to believe his conduct was unlawful; provided that, in the case
of actions brought by or in the right of the corporation, no indemnification
shall be made with respect to any matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
adjudicating court determines that such indemnification is proper under the
circumstances.

Pursuant to the provisions of the Common Stock Purchase Agreement (the
"Underwriting Agreement"), the underwriters are obligated, under certain
circumstances to indemnify directors and officers for the Company against
certain liability, including liabilities under the Securities Act. Reference is
made to the form of Underwriting Agreement filed as Exhibit 1 hereto.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

During the past three years, the Company has issued unregistered securities
to persons as described below. No underwriters or underwriting discounts or
commissions were paid in connection with such issuances. There were no public
offerings in such transactions, and the Company believes that each transaction,
unless otherwise noted, was exempt from registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"), by reason of Section
4(2) thereof, based on the private nature of the transactions and the financial
sophistication of the purchasers, all of whom had access to complete information
concerning the Company and acquired the securities for investment and not with a
view to the distribution thereof. All share numbers indicated below have been
retroactively adjusted to reflect the 10-for-1 stock split effective November
13, 1995.

On February 21, 1994, the Company issued 5,666,666 shares to James F. Chen
in consideration for a payment of $10,000. On February 21, 1994, the Company
also issued: (i) 100,000 shares of Common Stock to Maxine Loh in consideration
for a payment of $25,000; (ii) 300,000 shares of Common Stock to Ed Lee, Teresa
Lee, David Luk and Lousia Lee in consideration for a payment of $75,000; (iii)
200,000 shares of Common Stock to Charles C. Chen in consideration for a payment
of $49,500; (iv) 200,000 shares of Common Stock to How Lin in consideration for
equipment valued at $50,000; (v) 100,000 shares of Common Stock to Mark and
Sheryl Rosenthal in consideration for a payment of $25,000; and (vi) 100,000
shares of Common Stock to Ngan Ying Chen in consideration for a payment of
$25,000.

On May 15, 1995, James F. Chen contributed 333,333 shares of Common Stock,
valued in the Company's financial statements at $500, to the capital of the
Company and the Company issued 333,333 shares of Common Stock, valued in the
Company's financial statements at $500.00, to Jieh-Shan Wang in satisfaction of
its commitment to issue Common Stock made in February 1994 in connection with
Mr. Wang's services to the Company through such date.

On June 1, 1995, James F. Chen contributed 132,666 shares of Common Stock
to the capital of the Company. On that date, the Company issued 1,176,473 shares
of Common Stock to Hai Hua Cheng in consideration for a payment of $500,000
which was made to the Company in December 1994. To provide protection against
dilution to Mr. Cheng's $500,000 investment, the Company issued 56,000 shares of
Common Stock to Mr. Chen as trustee of a voting trust for Mr. Cheng on June 1,
1995. Also on June 1, 1996, the Company issued an additional 76,666 shares of
Common Stock to the voting trust established for Mr. Chen in consideration for
providing a loan of $330,000. On June 28, 1996, the Company issued an additional
73,333 shares of Common Stock to Mr. Cheng in order to repay this loan. On such
date, the Company also issued 153,333 shares of Common Stock, valued in the
Company's financial statements at $65,090, to Mr. Cheng as further consideration
for the provision of the loan and Mr. Chen contributed 153,333 shares of Common
Stock, valued in the Company's financial statements at $65,000, to the capital
of the Company.

On December 12, 1995, the Company issued: (i) 41,286 shares of Common Stock
to Ban Leong Eap and Pisei Phlong Eap in consideration for a payment of
$100,000; (ii) 5,555 shares of Common Stock to Joseph D. Gallagher in
consideration for a payment of $25,000; (iii) 5,556 shares of Common Stock to
Gill & Sippel

II-2
<PAGE> 91

Profit Sharing Plan, FBO Joseph D. Gallagher in consideration for a payment of
$25,000; (iv) 11,111 shares of Common Stock to Chansothi Um and Viseth Um in
consideration for a payment of $50,000; (v) 27,778 shares of Common Stock to
Stanley Shapiro in consideration for a payment of $125,000; (vi) 11,111 shares
of Common Stock to Burnett Moody in consideration for a payment of $50,000; and
(vi) 5,555 shares of Common Stock to Norman Fine in consideration for a payment
of $25,000.

On December 12, 1995, the Company also issued 333,333 shares of Common
Stock, valued in the Company's financial statements at $141,500, to Raymond E.
Hanner for services rendered through such date and 20,000 shares of Common
Stock, valued in the Company's financial statements at $300.00, to Scott Hu
consisting of 11,111 shares in accordance with the terms of Mr. Hu's Employment
Agreement and 8,889 shares issued as a severance payment. The issuances of
333,333 and 20,000 shares of Common Stock were in satisfaction of the Company's
commitment to issue such shares made in May 1995 and November 1994,
respectively.

Between May 1995 and June 12, 1996, the Company granted options to purchase
213,331 shares of Common Stock at $0.4245, 136,962 shares of Common Stock at
$2.505 per share and 2,000 shares at $4.50 per share under the Company's 1995
Non-Statutory Stock Option Plan. On June 12, 1996, the Company granted options
to purchase 590,394 shares of Common Stock at $3.75 per share and options to
purchase 336,151 shares of Common Stock at $4.50 per share under the Company's
1996 Incentive Stock Plan. On June 28, 1996, the Company granted options to
purchase 10,000 shares of Common Stock at $4.50 per share and options to
purchase 13,332 shares of Common Stock at $9.00 per share under the Company's
1996 Incentive Stock Plan. On July 8, 1996, the Company granted options to
purchase 20,668 shares of Common Stock under the 1996 Incentive Stock Plan at
$9.00 per share. The Company believes that the option grants described in this
paragraph are exempt from the registration requirements of the Securities Act by
reason of Rule 701 promulgated thereunder because the options were granted
either (i) pursuant to written compensatory benefit plans of the Company, copies
of which were provided to each participant, and the aggregate offering price did
not exceed the limit prescribed by Rule 701 in connection with any such grant or
(ii) pursuant to a private offering under Rule 506 of the Securities Act.

In April 1996, the Company issued options to purchase 383,965 shares of
Common Stock subject to restrictions on transferability ("Restricted Stock"), at
$0.75 per share, under the Company's 1996 Non-Statutory Stock Option Plan. As of
June 12, 1996, all options granted under the Plan had been exercised and a total
of 383,965 shares of Restricted Stock had been issued. The Company also believes
that the transactions described in this paragraph are exempt from registration
under the Securities Act by reason of Rule 701 as the options were granted
pursuant to a written compensatory benefit plan of the Company, a copy of the
plan was provided to each participant, and the aggregate offering price did not
exceed the limit prescribed by Rule 701.

In December 1995 and January 1996, the Company borrowed $2.5 million
through the sale of 7% interest bearing, unsecured promissory notes due June 30,
1996 to fourteen investors ("Note Offering"). The Company issued: (i) a note
dated December 19, 1995 in the amount of $200,000 to the Trustee under the
Shapiro Family Trust; (ii) a note dated December 18, 1995 in the amount of
$25,000 to Burnett H. Moody; (iii) a note dated December 15, 1995 in the amount
of $25,000 to Norman D. Fine; (iv) a note dated December 15, 1995 in the amount
of $500,000 to Lewis M. Schott; (v) a note dated December 22, 1995 in the amount
of $175,000 to Bryan T. Vanas; (vi) a note dated December 22, 1995 in the amount
of $100,000 to Joseph Lupo and Rosa Lupo; (vii) a note dated December 22, 1995
in the amount of $225,000 to Lee DeVisser and Linda DeVisser, Trustees of the
DeVisser Trust dated January 4, 1993; (viii) a note dated January 15, 1996 in
the amount of $166,500 to Edgehill Capital Management LP; (ix) a note dated
January 15, 1996 in the amount of $60,000 to J. Francis Lavelle; (x) a note
dated January 15, 1996 in the amount of $547,000 to Steven A. Cohen; (xi) a note
dated January 15, 1996 in the amount of $60,000 to John P. Holmes III; (xii) a
note dated January 15, 1996 in the amount of $166,500 to Golden Eagle Partners;
(xiii) a note dated January 15, 1996 in the amount of $50,000 to John J. Egan
IV; and (xiv) a note dated January 15, 1996, in the amount of $200,000 to
Kenneth Lissak.

On April 15, 1996, the Company exchanged the full amount of notes
(including accrued interest) issued to seven investors for shares of the
Company's Series A Convertible Preferred Stock ("Series A Stock") at

II-3
<PAGE> 92

$4.50 per share and paid cash to each of the seven investors in an amount equal
to any fractional shares of Series A Stock. The Company issued: (i) 45,450
shares of Series A Stock to the Trustee of the Shapiro Family Trust; (ii) 5,682
shares of Series A Stock to Burnett H. Moody; (iii) 5,685 shares of Series A
Stock to Norman D. Fine; (iv) 113,711 shares of Series A Stock to Lewis M.
Schott; (v) 39,746 shares of Series A Stock to Bryan T. Vanas, (vi) 22,712
shares of Series A Stock to Joseph Lupo and Rosa Lupo and (vii) 51,102 shares of
Series A Stock to Lee DeVisser and Linda DeVisser Trustees of the Lee DeVisser
Trust dated January 4, 1993.

On April 15, 1996, the Company offered certain of the investors who agreed
to exchange their notes for Series A Stock, the opportunity to subscribe for an
additional 222,222 shares of Series A Stock at a price of $4.50 per share in
proportion to each investor's pro-rata interest in the Note Offering. The
Company issued (i) 27,778 shares of Series A Stock to Stanley Shapiro in
consideration for a payment of $125,001; (ii) 4,444 shares of Series A Stock to
Burnett H. Moody in consideration for a payment of $19,998; (iii) 2,222 shares
of Series A Stock to Norman D. Fine in consideration for a payment of $9,999;
(iv) 97,889 shares of Series A Stock to Lewis M. Schott in consideration for a
payment of $440,502; (v) 31,444 shares of Series A Stock to Bryan T. Vanas in
consideration for a payment of $141,498; (vi) 18,000 shares of Series A Stock to
Joseph Lupo and Rosa Lupo in consideration for a payment of $81,000; and (vii)
40,445 shares of Series A Stock to Lee DeVisser and Linda DeVisser Trustees of
the Lee DeVisser Trust dated January 4, 1993 in consideration for a payment of
$182,001.

Two of the remaining seven noteholders transferred their notes to another
noteholder. On May 24, 1996, the Company exchanged the full amount of the
remaining notes (including accrued interest) for Shares of Series A Stock at
$4.50 per share and paid cash in an amount equal to any fractional shares. The
Company issued: (i) 11,388 shares of Series A Stock to John J. Egan, IV; (ii)
37,922 shares of Series A Stock to Golden Eagle Partners; (iii) 37,922 shares of
Series A Stock to Edgehill Capital Management; (iv) 151,917 shares of Series A
Stock to Steven A. Cohen; and (v) 45,552 shares of Series A Stock to Kenneth
Lissak.

On May 23, 1996 RSA Data Security, Inc. ("RSA") exercised an option granted
under the Company's license agreement with RSA, to convert its right to receive
future royalties into 2% of the Company's issued and outstanding voting
securities, after giving effect to the issuance to RSA, through the date of the
public offering. Pursuant to a separate agreement between RSA and Massachusetts
Institute of Technology ("MIT"), MIT is entitled to receive 7.2% of any
royalties that RSA receives. As a result, the Company will issue to MIT, 7.2% of
the 2% of shares to which RSA was entitled under the license agreement. At the
time of the Offering, RSA and MIT will be entitled to receive 175,118 and 13,587
shares of Common Stock at a fair market value of $788,031 and $61,141,
respectively.

In June 1996 the Company issued 11,111 shares of Common Stock, valued in
the Company's financial statements at $50,000, $26,167 of which has been
recognized as compensation expense through June 30, 1996, to John J. Egan IV in
consideration for consulting services rendered to the Company.

In June 1996, the Company borrowed $1.5 million from JMI Equity Fund II,
L.P. by issuing unsecured, 8% interest-bearing, senior subordinated notes in the
principal amount of $1.5 million with detachable warrants to purchase 333,332
shares of Common Stock. Of the 333,332 detachable warrants, 266,666 are
exercisable at $4.50 per share (306,666 at $3.913 per share, assuming a share of
Series A Stock is converted into 1.15 shares of Common Stock on consummation of
the Offering, and 319,999 at $3.75 per share, assuming a share of Series A Stock
is converted into 1.20 shares of Common Stock on consummation of the Offering)
and 66,666 were exercisable at $0.015 per share. In the event the Series A Stock
is converted on a 1-for-1.20 basis, James F. Chen, the Company's founder,
President and Chief Executive Officer, has agreed to contribute 13,333 shares of
Common Stock to the Company. The warrant to purchase 66,666 shares of Common
Stock was exercised on June 28, 1996.

II-4
<PAGE> 93

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) The following Financial Statement Schedule is filed as part of this
registration statement:

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------------ ---------------------------------------------------------------------------
<S> <C>
Schedule II Valuation and Qualifying Accounts
</TABLE>

(b) The following exhibits are filed as part of this registration
statement:

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
----------- ---------------------------------------------------------------------------
<S> <C>
1 Form of Underwriting Agreement*
3.1 Amended and Restated Certificate of Incorporation as of July 2, 1996*
3.2 Amended and Restated Bylaws dated as of June 28, 1996*
3.3 Certificate of Designation, Preferences, and Rights of Series A Convertible
Preferred Stock dated April 4, 1996*
3.4 Certificate of Increase in the Number of Shares of Series A Convertible
Preferred Stock dated May 21, 1996*
3.5 Certificate of Decrease in the Number of Shares of Series A Convertible
Preferred Stock dated August 1, 1996*
3.6 Certificate of Amendment to Certificate of Designation, Preferences, and
Rights of Series A Convertible Preferred Stock dated September 9, 1996*
5 Opinion on Legality*
9.1 Voting Trust Agreement between Hai Hua Cheng and James F. Chen, Trustee*
9.2 Voting Trust Agreement between Robert Zupnik and James F. Chen, Trustee*
9.3 Voting Trust Agreement between Dennis Winson and James F. Chen, Trustee*
10.1 Employment Agreement between V-ONE and James F. Chen dated as of June 12,
1996*
10.2 V-ONE 1995 Non-Statutory Stock Option Plan*
10.3 V-ONE 1996 Non-Statutory Stock Option Plan*
10.4 V-ONE 1996 Incentive Stock Plan*
10.5 Software License Agreement between Trusted Information Systems, Inc.
("TIS") and V-ONE executed October 6, 1994*
10.6 First Amendment to the Software License Agreement between TIS and V-ONE*
10.7 Second Amendment to the Software License Agreement between TIS and V-ONE*
10.8 Third Amendment to the Software License Agreement between TIS and V-ONE*
10.9 Fourth Amendment to the Software License Agreement between TIS and V-ONE*
10.10 OEM Master License Agreement between RSA Data Security, Inc. ("RSA") and
V-ONE dated December 30, 1994 and Amendment Number One to the OEM Master
License Agreement between RSA and V-ONE*
10.11 Amendment Number Two to the OEM Master License Agreement between RSA and
V-ONE and Conversion Agreement dated May 23, 1996*
10.12 Promissory Note for Hai Hua Cheng with Allonge and Amendment dated June 12,
1996*
10.13 Form of Exchange and Purchase Agreement dated April 1996*
10.14 Registration Rights Agreement between V-ONE and JMI Equity Fund II, L.P.
("JMI")*
10.15 8% Senior Subordinated Note due June 18, 2000 issued by V-ONE to JMI*
10.16 Warrant to Purchase 100,000 shares of Common Stock (now 66,666 shares of
Common Stock) Issued by V-ONE to JMI*
10.17 Warrant to Purchase 400,000 shares of Common Stock (now 266,666 shares of
Common Stock) Issued by V-ONE to JMI*
10.18 Employment Agreement between V-ONE and Jieh-Shan Wang dated as of July 8,
1996*
11 Computation of Primary and Fully Diluted Loss Per Share*
23.1 Consent of Coopers & Lybrand L.L.P.
</TABLE>

II-5
<PAGE> 94

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
----------- ---------------------------------------------------------------------------
<C> <S>
23.2 Consent of Kirkpatrick & Lockhart LLP (filed as part of Exhibit 5)*
24 Power of Attorney*
27 Financial Data Schedule for the year ended December 31, 1995 and the six
months ended June 30, 1996 (as amended)
</TABLE>

- ---------------
* Filed previously.

ITEM 17. UNDERTAKINGS.

(a) The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b), if, in the aggregate the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
the form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or

II-6
<PAGE> 95

(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-7
<PAGE> 96

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this post-effective amendment to its registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Rockville, State of Maryland, on October 24, 1996.

V-ONE CORPORATION
(Registrant)

By: /s/ JAMES F. CHEN
------------------------------------------
Name: James F. Chen
Title: President and
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed by the
following persons or by their designated attorney-in-fact in the capacities and
on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
------------------------------------- -------------------------------- -------------------
<C> <S> <C>
/s/ JAMES F. CHEN President, Chief Executive October 24, 1996
------------------------------------- Officer and Director
James F. Chen

/s/ JAMES F. CHEN* Treasurer October 24, 1996
-------------------------------------
Chansothi Um

/s/ CHARLES B. GRIFFIS Chief Financial Officer October 24, 1996
-------------------------------------
Charles B. Griffis

/s/ JAMES F. CHEN* Controller October 24, 1996
-------------------------------------
Ban L. Eap

/s/ JAMES F. CHEN* Director October 24, 1996
-------------------------------------
Hai Hua Cheng

/s/ JAMES F. CHEN* Director October 24, 1996
-------------------------------------
Charles C. Chen

/s/ JAMES F. CHEN* Director October 24, 1996
-------------------------------------
Harry S. Gruner

/s/ JAMES F. CHEN* Director October 24, 1996
-------------------------------------
William E. Odom

*by: /s/ JAMES F. CHEN
-------------------------------------
JAMES F. CHEN
ATTORNEY-IN-FACT
</TABLE>

II-8
<PAGE> 97

REPORT OF INDEPENDENT ACCOUNTANTS

Our report on the financial statements of V-ONE Corporation is included on page
F-2 of this Form S-1. In connection with our audits of such financial
statements, we have also audited the related financial statement schedule listed
in the index on page II-5 of this Form S-1.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.

/s/ Coopers & Lybrand L.L.P.

Coopers & Lybrand L.L.P.

Washington, D.C.
July 12, 1996

<PAGE> 98

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

V-ONE CORPORATION
(FOR THE PERIOD FROM FEBRUARY 16, 1993 (DATE OF INCEPTION)
TO DECEMBER 31, 1993 AND FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THE SIX MONTHS ENDED JUNE 30, 1996)

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
BALANCE ADDITIONS
AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
February 16, 1993 to December 31, 1993......... $ -- $ -- $ -- $ --
December 31, 1994.............................. -- -- -- --
December 31, 1995.............................. -- 23,620 -- 23,620
January 1, 1996 to June 30, 1996............... 23,620 149,185 -- 172,805
DEFERRED TAX ASSET VALUATION ALLOWANCE
February 16, 1993 to December 31, 1993......... -- -- -- --
December 31, 1994.............................. -- 201,894 -- 201,894
December 31, 1995.............................. 201,894 487,034 -- 688,928
January 1, 1996 to June 30, 1996............... 688,928 1,510,744 -- 2,199,672
ALLOWANCE FOR NON-SALABLE INVENTORY
February 16, 1993 to December 31, 1993......... -- -- -- --
December 31, 1994.............................. -- -- -- --
December 31, 1995.............................. -- 50,000 -- 50,000
January 1, 1996 to June 30, 1996............... 50,000 -- -- 50,000
</TABLE>
<PAGE> 99

EXHIBIT INDEX

V-ONE CORPORATION

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<C> <S>
</TABLE>

<TABLE>
<C> <S>
1* Form of Underwriting Agreement
3.1* Amended and Restated Certificate of Incorporation as of July 2, 1996
3.2* Amended and Restated Bylaws dated as of June 28, 1996
3.3* Certificate of Designation, Preferences, and Rights of Series A Convertible
Preferred Stock dated April 4, 1996
3.4* Certificate of Increase in the Number of Shares of Series A Convertible Preferred
Stock dated May 21, 1996
3.5* Certificate of Decrease in the Number of Shares of Series A Convertible Preferred
Stock dated August 1, 1996
3.6* Certificate of Amendment to Certificate of Designation, Preferences, and Rights
of Series A Convertible Preferred Stock dated September 9, 1996
5* Opinion on Legality
9.1* Voting Trust Agreement between Hai Hua Cheng and James F. Chen, Trustee
9.2* Voting Trust Agreement between Robert Zupnik and James F. Chen, Trustee
9.3* Voting Trust Agreement between Dennis Winson and James F. Chen, Trustee
10.1* Employment Agreement between V-ONE and James F. Chen dated as of June 12, 1996
10.2* V-ONE 1995 Non-Statutory Stock Option Plan
10.3* V-ONE 1996 Non-Statutory Stock Option Plan
10.4* V-ONE 1996 Incentive Stock Plan
10.5* Software License Agreement between Trusted Information Systems, Inc. ("TIS") and
V-ONE executed October 6, 1994
10.6* First Amendment to the Software License Agreement between TIS
and V-ONE
10.7* Second Amendment to the Software License Agreement between TIS and V-ONE
10.8* Third Amendment to the Software License Agreement between TIS
and V-ONE
10.9* Fourth Amendment to the Software License Agreement between TIS and V-ONE
10.10* OEM Master License Agreement between RSA Data Security, Inc. ("RSA") and V-ONE
dated December 30, 1994 and Amendment Number One to the OEM Master License
Agreement between RSA and V-ONE
10.11* Amendment Number Two to the OEM Master License Agreement between RSA and V-ONE
and Conversion Agreement dated May 23, 1996
10.12* Promissory Note for Hai Hua Cheng with Allonge and Amendment dated June 12, 1996
10.13* Form of Exchange and Purchase Agreement dated April 1996
10.14* Registration Rights Agreement between V-ONE and JMI Equity Fund II, L.P. ("JMI")
10.15* 8% Senior Subordinated Note due June 18, 2000 issued by V-ONE to JMI
10.16* Warrant to Purchase 100,000 shares of Common Stock (now 66,666 shares of Common
Stock) Issued by V-ONE to JMI
10.17* Warrant to Purchase 400,000 shares of Common Stock (now 266,666 shares of Common
Stock) Issued by V-ONE to JMI
10.18* Employment Agreement between V-ONE and Jieh-Shan Wang dated as of July 8, 1996
11* Computation of Primary and Fully Diluted Loss Per Share
23.1 Consent of Coopers & Lybrand L.L.P.
23.2* Consent of Kirkpatrick & Lockhart LLP (filed as part of Exhibit 5)
24* Power of Attorney
27 Financial Data Schedule for the year ended December 31, 1995 and the six months
ended June 30, 1996 (as amended)
</TABLE>

- ---------------
* Filed previously.

<PAGE> 1
EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this Registration Statement on Form S-1 of
our report dated July 12, 1996, on our audits of the balance sheets of V-ONE
Corporation ("the Company"), as of December 31, 1994 and 1995, and June 30,
1996, and the related statements of operations, shareholders' equity (deficit)
and cash flows for the period from February 16, 1993 (date of inception) to
December 31, 1993 and for each of the two years in the period ended December
31, 1995, and the six month period ended June 30, 1996 and the related
financial statement schedule. We also consent to the references to our firm
under the caption "Experts" in the Prospectus.

/s/ COOPERS & LYBRAND L.L.P.
Coopers & Lybrand L.L.P.

Washington, D.C.
October 24, 1996

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS CONTAINED IN THE ACCOMPANYING REGISTRATION
STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 JUN-30-1996
<PERIOD-START> JAN-1-1995 JAN-1-1996
<PERIOD-END> DEC-31-1995 JUN-30-1996
<CASH> 1,328 2,501
<SECURITIES> 0 0
<RECEIVABLES> 266 1,728
<ALLOWANCES> (23) (173)
<INVENTORY> 258 303
<CURRENT-ASSETS> 1,842 4,456
<PP&E> 234 480
<DEPRECIATION> (35) (68)
<TOTAL-ASSETS> 2,051 5,445
<CURRENT-LIABILITIES> 2,011 3,273
<BONDS> 0 0
0 3,560
0 0
<COMMON> 8 8
<OTHER-SE> (148) (1,599)
<TOTAL-LIABILITY-AND-EQUITY> 2,051 5,445
<SALES> 1,104 2,376
<TOTAL-REVENUES> 1,104 2,376
<CGS> 377 801
<TOTAL-COSTS> 1,786 5,726
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (62) (238)
<INCOME-PRETAX> (1,122) (4,388)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,122) (4,388)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,122) (4,388)
<EPS-PRIMARY> (.12) (.44)
<EPS-DILUTED> (.12) (.44)

</TABLE>