SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
--- TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------ ------------------
Commission File No. 0-21511
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V-ONE Corporation
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(Exact name of registrant as specified in its charter)
Delaware 52-1953278
------------------------------- ---------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1803 Research Boulevard - Suite 305, Rockville, Maryland 20850
---------------------------------------------------------- -------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (301) 838-8900
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Class Outstanding at May 12, 1997
----- ---------------------------
Common Stock, $0.001 par value 12,803,045 shares
<PAGE>
V-ONE Corporation
Quarterly Report on Form 10-Q
INDEX
Page No.
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PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Balance Sheets as of March 31, 1997 (unaudited) and 3
December 31, 1996
Statements of Operations for the three months ended 4
March 31, 1997 (unaudited) and March 31, 1996
Statements of Cash Flows for the three months ended 5
March 31, 1997 (unaudited) and March 31, 1996
Notes to the Financial Statements (unaudited) 6
Item 2 Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
PART II. OTHER INFORMATION 9
Signatures 10
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
V-ONE CORPORATION
BALANCE SHEETS
March 31, December 31,
1997 1996
(unaudited)
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,989,356 $ 10,894,375
Accounts receivable, net 3,450,841 2,647,195
Inventory, net 397,345 418,870
Prepaid expenses and other current assets 391,919 173,411
------------ ------------
Total current assets 12,229,461 14,133,851
------------ ------------
Property and equipment:
Office and computer equipment 928,109 790,373
Furniture and fixtures 102,114 98,579
------------ ------------
1,030,223 888,952
Less accumulated depreciation (185,092) (132,365)
------------ ------------
845,131 756,587
Licensing fee, net 707,645 778,409
Other assets 691,649 28,568
------------ ------------
Total assets $ 14,473,886 $ 15,697,415
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 845,328 $ 1,311,044
Deferred income 148,398 97,748
Notes payable - current 16,667 16,667
Capital lease obligations - current 59,394 65,232
------------ ------------
Total current liabilities 1,069,787 1,490,691
Notes payable - noncurrent 18,056 22,222
Deferred rent 73,759 78,275
Capital lease obligations - noncurrent 101,285 112,482
------------ ------------
Total liabilities 1,262,887 1,703,670
------------ ------------
Commitments and contingencies
Shareholders' equity
Common stock, $0.001 par value; 33,333,333 shares authorized;
12,664,723 and 12,658,347 shares issued and outstanding,
as of March 31, 1997 and December 31, 1996, respectively 12,665 12,658
Additional paid-in capital 22,618,942 22,608,866
Notes receivable from sales of Common Stock (209,010) (287,400)
Accumulated deficit (9,211,598) (8,340,379)
------------ ------------
Total shareholders' equity 13,210,999 13,993,745
------------ ------------
Total liabilities and shareholders' equity $ 14,473,886 $ 15,697,415
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
V-ONE CORPORATION
STATEMENTS OF OPERATIONS
Three months Three months
ended ended
March 31, 1997 March 31, 1996
(unaudited)
---------------- ----------------
Revenues:
Products $ 2,276,180 $ 981,642
Consulting and services 137,835 40,169
------------ ------------
Total revenues 2,414,015 1,021,811
------------ ------------
Cost of revenues:
Products 539,960 310,693
Consulting and services 21,344 11,306
------------ ------------
Total cost of revenues 561,304 321,999
------------ ------------
Gross profit 1,852,711 699,812
------------ ------------
Operating expenses:
Sales and marketing 1,455,391 709,110
General and administrative 770,466 592,967
Research and development 613,323 310,951
------------ ------------
Total operating expenses 2,839,180 1,613,028
------------ ------------
Operating loss (986,469) (913,216)
------------ ------------
Other (expense) income:
Interest expense (792) (104,935)
Interest income 116,042 23,491
------------ ------------
Total other expenses 115,250 (81,444)
------------ ------------
Net loss $ (871,219) $ (994,660)
============ ============
Net loss per common share $ (0.07) $ (0.10)
============ ============
Weighted average shares outstanding
12,663,731 9,856,043
============ ============
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
V-ONE CORPORATION
STATEMENTS OF CASH FLOWS
Three months Three months
ended ended
March 31, 1997 March 31, 1996
(unaudited)
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (871,219) $ (994,660)
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for doubtful accounts receivable -- 76,380
Provision for obsolete inventory 10,700 --
Depreciation and amortization 123,491 12,000
Changes in assets and liabilities:
Accounts receivable (803,646) (691,837)
Inventory 10,825 66,001
Prepaid expenses and other (631,589) (55,087)
Accounts payable and accrued expenses (419,582) 621,345
------------ ------------
Net cash used in operating activities (2,581,020) (965,858)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (141,271) (155,436)
Investment (250,000) --
Collection of notes receivable relating to
1996 Non-Statutory Option Plan 78,390 --
------------ ------------
Net cash used in investing activities (312,881) (155,436)
------------ ------------
Cash flows from financing activities:
Exercise of options and warrants 10,083 --
Issuance of notes payable -- 1,250,000
Issuance of notes payable to related parties -- (720)
Principal payments on capitalized lease (17,035) (10,228)
obligations
Repayment of notes payable (4,166) --
------------ ------------
Net cash provided by (used in) financing activities (11,118) 2,147,340
------------ ------------
Net increase (decrease) in cash and cash (2,905,019) 1,006,749
equivalents
Cash and cash equivalents at beginning of period 10,894,375 321,636
------------ ------------
Cash and cash equivalents at end of period $ 7,989,356 $ 1,328,385
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
V-ONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The financial statements for the three months ended March 31, 1997 are unaudited
and reflect all adjustments, consisting of normal recurring adjustments, which
are, in the opinion of management, necessary to fairly present the results for
the interim periods. The financial statements for the three months ended March
31, 1996 are audited. These financial statements should be read in conjunction
with the audited financial statements and notes as of December 31, 1995 and 1996
and the three years ended December 31, 1996 which are included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
The preparation of financial statements to be in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets, liabilities and accrued litigation at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates
and would impact future results of operations and cash flows.
The results of operations for the three month period ended March 31, 1997 are
not necessarily indicative of the results expected for the full year ending
December 31, 1997.
2. Computation of Net Loss Per Common and Common Equivalent Share
Net loss per share is computed based upon the weighted average number of shares
and common equivalent shares outstanding. Common equivalent shares are included
in the per share calculations where the effect of their inclusion would be
dilutive. In accordance with the Securities and Exchange Commission Staff
Accounting Bulletin No. 83 ("SAB No. 83"), all common and common equivalent
shares and other potentially dilutive instruments (including stock options,
warrants and redeemable convertible preferred stock) issued during the twelve
month period prior to the initial filing date on June 21, 1996 of the
Registration Statement on Form S-1 relating to the Company's initial public
offering ("IPO") have been included in the calculation as if they were
outstanding for all periods prior to the date of the IPO, even if the common
equivalent shares were anti-dilutive. The common equivalent shares for stock
options were determined using the treasury stock method at the IPO price of
$5.00 per share. The redeemable convertible preferred stock was included on an
as-if converted basis in accordance with SAB No. 83. Fully diluted net loss per
common share is the same as primary.
In February 1997, the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standard No. 128, Earnings per Share ("FAS 128"). FAS 128
will have no impact on the financial statements when adopted.
3. Subsequent Events
The Company entered into an operating lease agreement for new office space for
approximately 28,312 square feet in Germantown, Maryland that will expire on
July 1, 2003. The Company anticipates moving into this new office space in July
1997. Payments under the lease will commence on or about July 1, 1997 and will
continue through the initial lease term of six years. The Company was required
to pay a security deposit of $370,000, a portion of which will be returned to
the Company at the end of each lease year.
6
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934. These statements may differ in a
material way from actual future events. For instance, factors that could cause
results to differ from future events include rapid rates of technological change
and intense competition, among others. Readers are also referred to the
documents filed by V-ONE Corporation with the SEC, specifically the Company's
Registration Statement on Form S-1, as amended, and the Company's Form 10-K for
its most recently completed fiscal year, which identify important risk factors
for the Company.
RESULTS OF OPERATIONS
REVENUE
Total revenues increased from approximately $1,022,000 for the three months
ended March 31, 1996 to approximately $2,414,000 for the three months ended
March 31, 1997. This increase was principally attributable to increased sales of
the Company's network security products. Product revenues are derived
principally from software licenses and the sale of hardware products. Product
revenues increased from approximately $982,000 for the three months ended March
31, 1996 to approximately $2,276,000 for the three months ended March 31, 1997.
Consulting and services revenues are derived principally from fees for services
complementary to the Company's products, including consulting, maintenance and
training. Consulting and services revenues increased from approximately $40,000
for the three months ended March 31, 1996 to approximately $138,000 for the
three months ended March 31, 1997.
COST OF REVENUES
Total cost of revenues as a percentage of total revenues were approximately 32%
and 23% for the three months ended March 31, 1996 and 1997, respectively.
Cost of product revenues consists principally of the costs of computer hardware,
licensed technology, manuals and labor associated with the distribution and
support of the Company's products. Cost of product revenues increased from
approximately $311,000 for the three months ended March 31, 1996 to
approximately $540,000 for the three months ended March 31, 1997. Cost of
product revenues as a percentage of product revenues was approximately 32% and
24% for the three months ended March 31, 1996 and 1997, respectively. The dollar
increase and percentage decrease were primarily attributable to an increase in
revenues from increased sales and marketing efforts combined with an increase in
the proportion of sales from software licenses as compared to turnkey hardware
sales.
Cost of consulting and services revenues consists principally of personnel and
related costs incurred in providing consulting, support and training services to
customers. Cost of consulting and services revenues increased from approximately
$11,000 for the three months ended March 31, 1996 to approximately $21,000 for
the three months ended March 31, 1997. Cost of consulting and services revenues
as a percentage of consulting and services revenues was 28% and 15% for the
three months ended March 31, 1996 and 1997, respectively. The dollar increase in
1997 was attributable to increased staffing to support consulting and services.
The percentage decrease was principally due to allocation over a larger revenue
base.
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 from approximately $709,000 for the three
months ended March 31, 1996 to approximately $1,455,000 for the three months
ended March 31, 1997. Sales and marketing expenses as a percentage of total
revenues were approximately 69% and 60% for the three months ended March 31,
1996 and 1997, respectively. The dollar increase in 1997 was principally due to
increased personnel and higher levels of sales and marketing efforts. The
percentage decrease was due to allocation over a larger revenue base. Sales and
marketing expenses can be expected to increase in the future in the aggregate 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 from
approximately $593,000 for the three months ended March 31, 1996 to
approximately $770,000 for the three months ended March 31, 1997. General and
administrative expenses as a percentage of total revenues were approximately 58%
and 32% for the three months ended March 31, 1996 and 1997, respectively. The
dollar increase in 1997 was principally due to increased staffing levels,
additional travel expense, amortization of goodwill and increased professional
7
<PAGE>
fees. The percentage decrease was 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 from
approximately $311,000 for the three months ended March 31, 1996 to
approximately $613,000 for the three months ended March 31, 1997. Research and
development expenses as a percentage of total revenues were approximately 30%
and 25% for the three months ended March 31, 1996 and 1997, respectively. The
dollar increase for the three months ending March 31, 1997 was primarily due to
increases in the number of personnel associated with the Company's product
development efforts. The percentage decrease was primarily 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 increased from
approximately $23,000 for the three months ended March 31, 1996 to approximately
$116,000 for the three months ended March 31, 1997. The increase was
attributable to interest earned on cash and cash equivalents related to the
investment of the net proceeds of the IPO. Interest expense represents interest
payable or accreted on promissory notes and capitalized lease obligations.
Interest expense decreased from approximately $105,000 for the three months
ended March 31, 1996 to approximately $1,000 for the three months ended March
31, 1997. The decrease was due to the repayment of debt with a portion of the
net proceeds from the IPO.
Income Taxes -- The Company did not incur income tax expenses for the three
months ended March 31, 1996 and 1997, respectively and for the years ended
December 31, 1996, 1995 and 1994 as a result of the net losses incurred during
these periods.
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
quarterly budgets; 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 accounts receivable during the
second quarter of 1996 increased to an amount greater than its revenues for that
period. This pattern was followed in subsequent quarters of 1996 and the first
quarter of 1997 and may continue in subsequent quarters of 1997.
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. Because the Company's
operating expenses are based on anticipated revenue levels, a small variation in
the timing of recognition of revenues can cause significant variations in
operating results from quarter to quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used cash of approximately $966,000 and
$2,581,000 for the three months ended March 31, 1996 and 1997, respectively.
Cash used in operating activities for the three months ended March 31, 1997 was
principally a result of net losses and increases in accounts receivable, prepaid
expenses and other assets and a decrease in accounts payable, which were
partially offset by depreciation. In March 1997, the Company made a security
deposit of $370,000 in connection with a lease for new premises, as described in
the Company's Form 10-K for the year ended December 31, 1996.
Capital expenditures for property and equipment were approximately $155,000 and
$141,000 for the three months ended March 31, 1996 and 1997, respectively. 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,
office furniture and leasehold improvements in 1997. In the three months ended
March 31, 1997, the Company made an investment of $250,000 in Network Flight
Recorder, Inc. Network Flight Recorder, Inc. develops software to provide
network administrators with network audit capabilities and is headed by Marcus
J. Ranum, the Company's Chief Scientist.
8
<PAGE>
During the first quarter of 1996, the Company raised $1.25 million from the sale
of 7% unsecured promissory notes. In April and May 1996, the Company exchanged
all of the 7% unsecured promissory notes for Series A Convertible Preferred
Stock ("Series A Stock"). Upon consumation of the IPO, each share of Series A
Stock automatically converted into 1.20 shares of Common Stock.
As of March 31, 1997, the Company had an accumulated deficit of approximately
$9,212,000. 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 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. 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. The Company intends, however, to
adjust its level of expenditure for general and administrative expenses and for
research and development so that the levels are consistent with the Company's
revenue stream.
The Company believes that its current cash and cash equivalents and funds that
may be generated from on-going operations will be sufficient to finance the
Company's operations at least through March 31, 1998.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security-Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this Quarterly Report on Form
10-Q for the quarter period ended March 31, 1997
Exhibit 11 - Computation of Net Loss per Share
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
9
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
V-ONE CORPORATION
Registrant
Date: May 12, 1997 By: /s/ Charles B. Griffis
-------------------------------
Name: Charles B. Griffis
Title: Senior Vice President, Chief
Financial Officer and
Treasurer
(Duly authorized officer and Principal
Financial and Accounting Officer)
10
EXHIBIT 11
V-ONE CORPORATION
COMPUTATION OF NET LOSS PER SHARE
For the three For the
months ended three months
March 31, ended March 31,
1997 1996
(unaudited)
------------- ---------------
Net loss ................................... $ (871,219) $ (944,660)
============= ==============
Weighted average common shares
outstanding ................................ 12,663,731 8,493,131
Series A Convertible
Preferred Stock ............................ -- 949,209
Stock options issued within one year
of initial filing of Registration
Statement on Form S-1 relating to
the initial public offering (using
the treasury stock method and the
initial public offering price of
$5.00 per share) ........................... -- 413,703
------------- --------------
Weighted average number of common shares
outstanding ................................ 12,663,731 9,856,043
============= ==============
Net loss per common share and common
share equivalent ........................... $ (0.07) $ (0.10)
============= ==============
1. All common share amounts have been restated to reflect a 2 for 3 reverse
stock split effected on July 3, 1996.
2. In accordance with the Securities and Exchange Commission Staff Accounting
Bulletin No. 83 ("SAB No. 83"), all common and common equivalent shares
and other potentially dilutive instruments (including stock options and
the redeemable convertible preferred stock) issued during the twelve month
period prior to the initial filing date in June 1996 of the Registration
Statement on Form S-1 relating to the Company's initial public offering
("IPO") have been included in the calculation as if they were outstanding
for all periods presented prior to the IPO, even if the common equivalent
shares were anti-dilutive. The common equivalent shares for stock options
were determined using the treasury stock method at the offering price of
$5.00 per share. The redeemable convertible preferred stock was included
on an as-if converted basis in accordance with SAB No. 83.
3. Fully diluted net loss per share is the same as primary net loss per
share.
4. Common stock equivalents have only been included when the effect of their
inclusion would be dilutive in all other periods not applicable to SAB No.
83.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1997
<PERIOD-END> MAR-31-1997
<CASH> 7,989
<SECURITIES> 0
<RECEIVABLES> 3,703
<ALLOWANCES> (252)
<INVENTORY> 397
<CURRENT-ASSETS> 12,229
<PP&E> 1,030
<DEPRECIATION> (185)
<TOTAL-ASSETS> 14,474
<CURRENT-LIABILITIES> 1,070
<BONDS> 0
0
0
<COMMON> 13
<OTHER-SE> 13,198
<TOTAL-LIABILITY-AND-EQUITY> 14,474
<SALES> 2,414
<TOTAL-REVENUES> 2,414
<CGS> 561
<TOTAL-COSTS> 2,839
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1)
<INCOME-PRETAX> (871)
<INCOME-TAX> 0
<INCOME-CONTINUING> (871)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (871)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
