SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
--- TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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.)
20250 Century Boulevard - Suite 300, Germantown, Maryland 20874
- - --------------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (301) 515-5200
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Class Outstanding at November 12, 1997
- - ------------------------------ --------------------------------
Common Stock, $0.001 par value 13,070,235 shares
<PAGE>
V-ONE Corporation
Quarterly Report on Form 10-Q
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Balance Sheets as of September 30, 1997
(unaudited) and December 31, 1996 3
Statements of Operations for the three
months ended September 30, 1997 (unaudited)
and 1996 (unaudited) and nine months ended 4
September 30, 1997 (unaudited) and 1996
(unaudited)
Statements of Cash Flows for the nine months 5
ended September 30, 1997 (unaudited) and
1996 (unaudited)
Notes to the Financial Statements (unaudited) 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3 Quantitative and Qualitative Disclosures 12
about Market Risk
PART II. OTHER INFORMATION 13
Signatures 14
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
V-ONE CORPORATION
BALANCE SHEETS
September 30, December 31,
1997 1996
(unaudited)
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,972,323 $ 10,894,375
Accounts receivable, net 5,287,256 2,647,195
Inventory, net 341,542 418,870
Prepaid expenses and other current assets 141,601 173,411
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Total current assets 9,742,722 14,133,851
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Property and equipment:
Office and computer equipment 1,473,012 790,373
Furniture and fixtures 108,459 98,579
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1,581,471 888,952
Less accumulated depreciation (325,440) (132,365)
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1,256,031 756,587
Licensing fee, net 609,198 778,409
Deposits and other assets 640,690 28,568
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Total assets $ 12,248,641 $ 15,697,415
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 901,853 $ 1,311,044
Deferred income 245,751 97,748
Notes payable - current 16,667 16,667
Capital lease obligations - current 51,086 65,232
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Total current liabilities 1,215,357 1,490,691
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Notes payable - noncurrent 13,889 22,222
Deferred rent 36,879 78,275
Capital lease obligations - noncurrent 296,956 112,482
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Total liabilities 1,563,081 1,703,670
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Commitments and contingencies
Shareholders' equity:
Common stock, $0.001 par value; 33,333,333 shares
authorized;
13,005,275 and 12,658,347 shares issued and
outstanding, as of September 30, 1997
and December 31, 1996, respectively 13,005 12,658
Additional paid-in capital 23,633,298 22,608,866
Notes receivable from sales of Common Stock (166,011) (287,400)
Accumulated deficit (12,794,732) (8,340,379)
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Total shareholders' equity 10,685,560 13,993,745
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Total liabilities and shareholders'
equity $ 12,248,641 $ 15,697,415
=============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
V-ONE CORPORATION
STATEMENTS OF OPERATIONS
For the Three For the Three For the Nine For the Nine
Months Ended Months Ended Months Ended Months Ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
(unaudited) (unaudited) (unaudited) (unaudited)
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<S> <C> <C> <C> <C>
Revenues:
Products $ 2,639,337 $ 1,578,620 $ 6,929,365 $ 3,862,664
Consulting and services 125,015 141,923 383,583 234,266
------------ ------------ ------------ ------------
Total revenues 2,764,352 1,720,543 7,312,948 4,096,930
------------ ------------ ------------ ------------
Cost of revenues:
Products 666,231 503,484 1,514,088 1,276,813
Consulting and services 27,745 11,954 60,033 39,176
------------ ------------ ------------ ------------
Total cost of revenues 693,976 515,438 1,574,121 1,315,989
------------ ------------ ------------ ------------
Gross profit 2,070,376 1,205,105 5,738,827 2,780,941
------------ ------------ ------------ ------------
Operating expenses:
Sales and marketing 1,334,930 898,543 5,135,365 2,570,981
General and administrative 583,446 507,079 2,431,358 3,856,594
Research and development 658,563 607,305 2,112,512 1,311,613
Restructuring charge -- -- 800,000 --
------------ ------------ ------------ ------------
Total operating expenses 2,576,939 2,012,927 10,479,235 7,739,188
------------ ------------ ------------ ------------
Operating loss (506,563) (807,822) (4,740,408) (4,958,247)
------------ ------------ ------------ ------------
Other (expense) income:
Interest expense (742) (191,723) (5,248) (472,749)
Interest income 73,662 22,031 291,303 65,418
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Total other (expense) income 72,920 (169,692) 286,055 (407,331)
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Net loss $ (433,643) $ (977,514) $ (4,454,353) $ (5,365,578)
============ ============ ============ ============
Net loss per common share $ (0.03) $ (0.11) $ (0.35) $ (0.63)
============ ============ ============ ============
Weighted average shares outstanding 12,956,924 8,644,232 12,806,831 8,547,223
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
V-ONE CORPORATION
STATEMENTS OF CASH FLOWS
For the Nine For the Nine
Months Ended Months Ended
September 30, September 30,
1997 1996
(Unaudited) (Unaudited)
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (4,454,353) $ (5,365,578)
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for doubtful accounts receivable 767,280 214,185
Provision for obsolete inventory 62,700 --
Depreciation and amortization 362,286 55,701
Interest expense on accretion of note payable -- 299,000
Consulting expensed satisfied by
issuance of Common Stock -- 34,738
Compensation expense satisfied by
issuance of Common Stock -- 487,796
Compensation expense recognized 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 -- 65,090
Accrued interest satisfied with Preferred Stock -- 59,554
Changes in assets and liabilities:
Accounts receivable (3,407,341) (1,659,299)
Inventory 14,628 (35,660)
Prepaid expenses, deposit and other assets (330,312) (128,976)
Accounts payable and accrued expenses (302,584) 1,871,679
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Net cash used in operating activities (7,287,696) (2,373,927)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (459,430) (425,545)
Investment in unconsolidated affiliate (250,000) --
Collection of notes receivable relating
to 1996 Non-Statutory Option Plan 88,480 --
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Net cash used in investing activities (620,950) (425,545)
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Cash flows from financing activities:
Issuance of Common Stock -- --
Issuance of Preferred Stock -- 1,000,000
Issuance of debt with detachable warrants -- 1,500,000
Exercise of options and warrants 1,057,688 1,576
Issuance of notes payable -- 1,250,000
Issuance in Deferred Financing Cost -- (1,239,164)
Principal payments on capitalized lease obligations (62,761) (27,273)
Repayment of notes payable (8,333) (6,947)
Repayment of notes payable to related parties -- (42,344)
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5
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Net cash provided by financing activities 986,594 2,435,848
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Net increase (decrease) in cash and cash equivalents (6,922,052) (363,624)
Cash and cash equivalents at beginning of period 10,894,375 1,328,385
------------ ------------
Cash and cash equivalents at end of period $ 3,972,323 $ 964,761
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
V-ONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The financial statements for the three and nine months ended September 30, 1997
and 1996 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. 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 and nine month periods ended September
30, 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.
For reporting periods ending after December 15, 1997, the Company will be
required to report earnings per share in accordance with Statement of Financial
Accounting Standard No. 128, "Earnings per Share". The Company's basic and
diluted net loss per share for the three and nine months ended September 30,
1997 would have been the same as primary net loss per share for the three and
nine months ended September 30, 1997.
7
<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.
OVERVIEW
V-ONE Corporation ("V-ONE" or the "Company") was organized as a Maryland
corporation in February 1993 and reincorporated in Delaware in February 1996.
V-ONE 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. Beginning in the third quarter of 1997, the Company has
been focusing its sales efforts toward a channel distribution strategy and its
technological efforts toward Multi-Access Virtual Private Network ("MA-VPN")
technology. MA-VPN communicates across multiple communications layers of the
Network OSI Model to create a secured, virtual link enabling the use of business
applications over an open network environment. MA-VPN distinguishes itself from
basic VPN technologies in its ability to analyze data at multiple levels of the
protocol stack and apply pre-defined rules so as to provide optimal performance.
The Company is currently focusing its marketing efforts toward differentiating
the Company as a MA-VPN solution provider.
RESULTS OF OPERATIONS
REVENUE
Total revenues increased by 60.7 percent to approximately $2,764,000 for the
third quarter of 1997 up from approximately $1,721,000 in the same period of
1996. For the nine months ended September 30, 1997, total revenues increased
78.5 percent to $7,313,000 from $4,097,000 in the same period of 1996. The
increase resulted mainly from higher product revenues. Product revenues were
approximately $2,639,000 and $6,929,000 for the quarter and nine months ended
September 30, 1997, respectively, an increase of 67.2 and 79.4 percent over the
same periods in 1996. The increases were principally attributable to increased
sales of the Company's SmartWall and SmartGate network security products. During
the nine months ended September 30, 1997, the Company has increased the number
of resellers for its products. During the third quarter of 1997, the Company saw
an increase in orders for its turnkey SmartWall product, primarily from the
government sector, as the U.S. Government completed its fiscal year. Please
refer to Item 1. "Business - Risk Factors that may Affect Future Results and
Market Price of Common Stock" in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
Consulting and services revenues were approximately $125,000 and $384,000 for
the quarter and nine months ended September 30, 1997, respectively, a decrease
of 11.9 percent as compared to the quarter ended September 30, 1996 and an
increase of 63.7 percent as compared to the nine months ended September 30,
1996. The percent decrease in the third quarter reflects the Company's
allocation of technical personnel to pre-sales product support. The percent
increase for the nine months reflects the increase in sales of services related
to the Company's products, including consulting, maintenance, and training.
8
<PAGE>
COST OF REVENUES
Total cost of revenues as a percentage of total revenues decreased from 30.0
percent for the third quarter of 1996 to 25.1 percent in the same period of
1997. Total cost of revenues as a percentage of total revenues also decreased in
the nine months ended September 30, 1997 to 21.5 percent from 32.1 percent in
the same period of 1996. Total cost of revenues was approximately $515,000 for
the third quarter of 1996 compared with $694,000 in the same period of 1997.
Total cost of revenues was approximately $1,316,000 for the nine months ended
September 30, 1996 compared with $1,574,000 for the same period in 1997. The
dollar increases and percentage decreases for the three and nine month periods
were primarily attributable to increased sales combined with an increase in the
proportion of sales from software licenses as compared to turnkey hardware sales
for the comparable period.
Cost of product revenues as a percentage of product revenues decreased from 31.9
percent for the third quarter of 1996 to 25.2 percent in the same period of
1997. Cost of product revenues as a percentage of product revenues also
decreased in the nine months ended September 30, 1997 to 21.9 percent from 33.1
percent in the same period of 1996. Cost of product revenues was approximately
$503,000 for the third quarter of 1996 compared with approximately $666,000 in
same period of 1997. Cost of product revenues was approximately $1,277,000 for
the nine months ended September 30, 1996 compared with approximately $1,514,000
for the same period in the same period of 1997. The dollar increase and
percentage decrease for the three and nine month periods ended September 30,
1997 were primarily attributable to increased sales combined with an increase in
the proportion of sales from software licenses as compared to turnkey hardware
sales for the comparable period. Cost of product revenues was adversely affected
in the third quarter of 1997 due to the increased sale of turnkey systems in the
quarter as compared to other quarters in 1997.
Cost of consulting and services revenues as a percentage of consulting and
services revenues increased from 8.4 percent for the third quarter of 1996 to
22.2 percent in the same period of 1997. Cost of consulting and services
revenues as a percentage of consulting and services revenues decreased in the
nine months ended September 30, 1997 to 15.7 percent from 16.7 percent in the
same period of 1996. Cost of consulting and services revenues were approximately
$12,000 for the third quarter of 1996 compared with $28,000 in the same period
of 1997. Total cost of consulting and services revenues was approximately
$39,000 for the nine months ended September 30, 1996 compared with approximately
$60,000 for the same period of 1997. The dollar and percentage increases in the
third quarter of 1997 were primarily attributable to higher costs related to
software maintenance. The dollar increase and percentage decrease for the nine
months ended September 30, 1997 were primarily attributable to increased
consulting and service revenues.
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 by 48.6 percent to approximately
$1,335,000 in the third quarter of 1997 up from approximately $899,000 in the
same period of 1996. Sales and marketing expenses also increased in the nine
month period ending September 30, 1997 to approximately $5,135,000 up from
approximately $2,571,000 in the same period of 1996. As a percentage of total
revenue, expenses were 48.3 and 70.2 percent, respectively, for the three month
and nine month periods ended September 30, 1997 compared to 52.2 and 62.8
percent, respectively, in the comparable periods of 1996. The dollar increase
and percentage decrease in the third quarter of 1997 was principally due to
higher levels of sales and marketing efforts as the Company focuses its efforts
toward a channel distribution strategy distributed over a larger sales revenues
base. The dollar increase and percentage increase in the nine months ended
September 30, 1997 was principally due to increased sales and marketing efforts
and the recognition of approximately $565,000 for bad debt expense. Sales and
marketing expenses are expected to decrease modestly over the next quarter as a
result of reductions in the Company's workforce and the Company's shift in its
sales and marketing effort toward a channel distribution strategy. This
statement is based on current expectations. It is forward-looking, and the
actual results could differ materially. For information about factors that could
cause the actual results to differ materially, please refer to Item 1. "Business
- - - Risk Factors that may Affect Future Results and Market Price of Common Stock"
in the Company's Annual Report on Form 10-K for the year ended December 31,
1996.
9
<PAGE>
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 by 15.1
percent to approximately $583,000 in the third quarter of 1997 up from
approximately $507,000 in the same period of 1996. General and administrative
expenses decreased in the nine month period ending September 30, 1997 to
approximately $2,431,000 down from approximately $3,857,000 in the same period
of 1996. As a percentage of revenue, expenses were 21.1 and 33.2 percent for the
three and nine month periods ended September 30, 1997 compared to 29.5 and 94.1
percent in the comparable periods of 1996. The dollar increase and percentage
decrease for the third quarter of 1997 was principally due to higher personnel
and facilities expenses allocated over a larger revenue base. The dollar and
percentage decreases for the nine months ended September 30, 1997 were
principally due to the recording of approximately $2,515,000 of non-cash
compensation expense in the nine month period ended September 30, 1996 relating
to 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 Option 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 Equity Fund II, L.P.
("JMI") at an exercise price of $0.015 per share. General and administrative
expenses are expected to decrease modestly over the next quarter as a result of
reductions in the Company's workforce and the Company's shift in its sales and
marketing effort toward a channel distribution strategy. This statement is based
on current expectations. It is forward-looking, and the actual results could
differ materially. For information about factors that could cause the actual
results to differ materially, please refer to Item 1. "Business - Risk Factors
that may Affect Future Results and Market Price of Common Stock" in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
Research and Development -- Research and development consists principally of the
costs of research and development personnel and other expenses associated with
the development of new products and enhancement of existing products. Research
and development increased by 8.4 percent to approximately $659,000 in the third
quarter of 1997 up from approximately $607,000 in the same period of 1996.
Research and development also increased in the nine month period ending
September 30, 1997 to approximately $2,113,000 up from approximately $1,312,000
in the same period of 1996. As a percentage of total revenue, research and
development expenses were 23.8 and 28.9 percent for the three month and nine
month periods ended September 30, 1997 compared to 35.3 and 32.0 percent in
1996. The dollar increase was primarily due to increases in the number of
personnel associated with the Company's product development efforts. The
percentage decrease was primarily attributable 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.
Restructuring Charge -- Restructuring charge expense consist of the costs
associated with the Company's shift in its sales and marketing efforts toward a
channel distribution strategy. Accordingly, the Company recognized in the second
quarter of 1997 a restructuring charge of $800,000, comprised of $400,000
relating to certain marketing expenses and $400,000 relating to reductions in
the Company's workforce. The Company anticipates the restructuring and its
associated expenses to be completed by the end of 1997. No restructuring charge
was incurred for the third quarter of 1997 and 1996 or for the nine months ended
September 30, 1996.
Interest Income and Expense -- Interest income represents interest earned on
cash, cash equivalents, and marketable securities. Interest income increased to
approximately $74,000 for the third quarter of 1997 from approximately $22,000
for the same period of 1996. 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 to
approximately $1,000 for the third quarter of 1997 from approximately $192,000
for the same period of 1996. 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 and
nine month periods ended September 30, 1997 and 1996, respectively, and for the
years ended December 31, 1996, 1995 and 1994 as a result of the net losses
incurred during these periods.
10
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LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used cash of approximately $7,288,000 and
$2,374,000 for the nine months ended September 30, 1997 and 1996, respectively.
The increase in cash used in operating activities for the nine months ended
September 30, 1997 as compared to the nine months ended September 30, 1996 was
principally a result of net losses, increases in accounts receivable, increases
in prepaid expenses and decreases in accounts payable, and accrued expenses,
which were partially offset by depreciation and amortization, and provisions for
doubtful accounts and obsolete inventory.
The Company's net accounts receivable balance increased to approximately
$5,287,000 at September 30, 1997 from $2,647,000 at December 31, 1996. This
increase was primarily due to increased sales in the latter part of the third
quarter and accumulated accounts receivable from prior quarters, offset by the
write off of approximately $767,000 of accounts receivable balances. The Company
is increasing its efforts to collect outstanding accounts receivable balances.
However, there can be no assurance that the Company will be able to collect all
outstanding accounts receivables. In such event, the Company may have to write
off any accounts receivables it deems as being uncollectable.
Capital expenditures for property and equipment were approximately $459,000 and
$426,000 for the nine months ended September 30, 1997 and 1996, 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 and
office furniture and to make additional leasehold improvements in 1997. In the
nine months ended September 30, 1997, the Company paid a security deposit of
$370,000 as part of the six year operating lease agreement for its principle
office in Germantown, Maryland and 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.
Financing activities include cash received of approximately $1,058,000 from the
exercise of stock options for the nine month period ending September 30, 1997.
Also in the second quarter of 1997, the Company received 6,020 shares of Common
Stock as payment for stock options issued under the 1996 Non-Statutory Stock
Option Plan. The Company retired the 6,020 shares of Common Stock. 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"). 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. Upon consummation of the IPO, each share of Series A Stock
automatically converted into 1.20 shares of Common 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 386,665 shares of Common
Stock. Of the 386,665 detachable warrants, 319,999 are exercisable at $3.75 per
share and 66,666 were exercised at $0.015 per share on June 28, 1996.
As of September 30, 1997, the Company had an accumulated deficit of
approximately $12,795,000. The Company may incur net losses over the next
several quarters despite an anticipated reduction in operating expenses. This
statement is based on current expectations. It is forward-looking and actual
results could differ materially. For information about factors that could cause
actual results to differ materially, please refer to Item 1. "Business - Risk
Factors that may Affect Future Results and Market Price of Common Stock" in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996. 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."
OUTLOOK
General and administrative costs have increased significantly since the
Company's date of inception and the Company expects such costs may increase in
the future. The Company intends, however, to adjust its level of expenditure for
sales and marketing, general and administrative and research and development
expenses so that the levels are consistent with the Company's revenue stream.
Although the Company believes that its current cash and cash equivalents and
11
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funds that may be generated from on-going operations will be sufficient to
finance the Company's operations at least through September 30, 1998, the
Company intends to seek additional equity and/or debt capital in the near term.
There can be no assurance that the Company will be able to obtain such capital
or that it will be obtained on favorable terms. The statements in this paragraph
are forward-looking statements. Actual results could differ materially. For
information about factors that could cause the actual results to differ
materially, please refer to Item 1. "Business - Risk Factors that may Affect
Future Results and Market Price of Common Stock" in the Company's Annual Report
on Form 10-K for the year ended December 31, 1996. In particular, please note
the following risk factors, among others, in such section: "Dependence on the
Internet and Intranets," "Risks Associated with the Emerging Network Security
Market," "Dependence on Principal Products; Uncertainty of Product Acceptance,"
"Risk of Errors or Failures; Product Liability Risks," "Changes in Technology
and Industry Standards; Risk of New Product Introduction," "Evolving
Distribution Channels," "Long Sales Cycle; Seasonality" and "International
Sales."
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable
12
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security-Holders
None
Item 5. Other Information
In October 1997, the Company announced that it has begun an extensive search to
hire a new Chief Executive Officer. James F. Chen, Founder, Chief Executive
Officer, President, and Chairman of the Board will remain as Chairman of the
Board.
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 September 30, 1997
Exhibit 11 - Computation of Net Loss per Share
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
13
<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: November 14, 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)
14
EXHIBIT 11
<TABLE>
<CAPTION>
V-ONE CORPORATION
COMPUTATION OF NET LOSS PER SHARE
For the Three For the Three For the Nine For the Nine
Months Ended Months Ended Months Ended Months Ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
(unaudited) (unaudited) (unaudited) (unaudited)
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Net loss $ (433,643) $ (977,514) $ (4,454,353) $(5,365,578)
=========== =========== ============ ===========
Weighted average number of
common shares outstanding 12,956,924 8,644,232 12,806,831 8,547,223
=========== =========== ============ ===========
Net loss per common share and
common share equivalent $ (0.03) $ (0.11) $ (0.35) $ (0.63)
=========== =========== ============ ===========
</TABLE>
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 SEPTEMBER 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,972
<SECURITIES> 0
<RECEIVABLES> 5,553
<ALLOWANCES> (266)
<INVENTORY> 342
<CURRENT-ASSETS> 9,743
<PP&E> 1,581
<DEPRECIATION> (325)
<TOTAL-ASSETS> 12,249
<CURRENT-LIABILITIES> 1,215
<BONDS> 0
0
0
<COMMON> 13
<OTHER-SE> 10,673
<TOTAL-LIABILITY-AND-EQUITY> 12,249
<SALES> 7,313
<TOTAL-REVENUES> 7,313
<CGS> 1,574
<TOTAL-COSTS> 9,679
<OTHER-EXPENSES> 800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (5)
<INCOME-PRETAX> (4,454)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,454)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,454)
<EPS-PRIMARY> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
