UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 0-21511
V-ONE CORPORATION
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 52-1953278
------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
20250 CENTURY BLVD., SUITE 300, GERMANTOWN, MARYLAND 20874
----------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(301) 515-5200
----------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X ] No [ ] .
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MAY 13, 1999
----- ---------------------------
COMMON STOCK, $0.001 PAR VALUE PER SHARE 16,773,075
<PAGE>
V-ONE Corporation
Quarterly Report on Form 10-Q
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Balance Sheets as of March 3
31, 1999 (unaudited) and December 31,
1998
Condensed Statements of Operations 4
for the Three Months Ended March 31,
1999 (unaudited) and March 31, 1998
(unaudited)
Condensed Statements of Cash Flows 5
for the Three Months Ended March 31,
1999 (unaudited) and March 31, 1998
(unaudited)
Notes to the Condensed Financial 6
Statements (unaudited)
Item 2 Management's Discussion and Analysis 8
of Financial Condition and Results of
Operations
Item 3 Quantitative and Qualitative 11
Disclosures About
Market Risk
PART II. OTHER INFORMATION 12
Signatures 14
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
V-ONE CORPORATION
CONDENSED BALANCE SHEETS
March 31, December 31,
1999 1998
(unaudited )
----------------- -------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,241,972 $ 635,959
Accounts receivable, net 549,415 513,221
Inventory, net 393,493 385,481
Prepaid expenses and other current assets 476,060 276,456
----------------- -------------------
Total current assets 2,660,940 1,811,117
Property and equipment, net 823,415 874,553
Licensing fee, net 184,614 255,378
Other assets 981,910 981,144
----------------- -------------------
Total assets $ 4,650,879 $ 3,922,192
================= ===================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 1,958,148 $ 2,124,156
Deferred income 656,674 888,295
Notes payable - current 3,000,000 5,259
Capital lease obligations - current 72,590 70,775
----------------- -------------------
Total current liabilities 5,687,412 3,088,485
Capital lease obligations - noncurrent 180,175 197,982
----------------- -------------------
Total liabilities 5,867,587 3,286,467
----------------- -------------------
Commitments and contingencies
Shareholders' equity (deficit):
Common stock, $0.001 par value; 33,333,333 shares authorized;
16,773,075 and 16,478,046 shares issued and outstanding as
of March 31, 1999 and December 31, 1998, respectively 16,773 16,478
Additional paid-in capital 30,688,254 30,361,685
Notes receivable from sales of common stock (50,021) (50,021)
Accumulated deficit (31,871,714) (29,692,417)
----------------- -------------------
Total shareholders' equity (deficit) (1,216,708) 635,725
----------------- -------------------
Total liabilities and shareholders' equity (deficit) $ 4,650,879 $ 3,922,192
================= ===================
</TABLE>
The accompanying notes are an integral part of these financial
statements.
3
<PAGE>
V-ONE CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
Three months Three months
ended ended
March 31, 1999 March 31, 1998
(unaudited) (unaudited)
-------------- ---------------
Revenues:
Products $ 1,369,249 $ 1,207,473
Consulting and services 327,223 88,237
-------------- ---------------
Total revenues 1,696,472 1,295,710
-------------- ---------------
Cost of revenues:
Products 162,456 477,757
Consulting and services 19,933 7,850
-------------- ---------------
Total cost of revenues 182,389 485,607
-------------- ---------------
Gross profit 1,514,083 810,103
-------------- ---------------
Operating expenses:
Sales and marketing 1,407,697 1,481,183
General and administrative 1,035,838 1,198,012
Research and development 1,181,055 940,281
-------------- ---------------
Total operating expenses 3,624,590 3,619,476
-------------- ---------------
Operating loss (2,110,507) (2,809,373)
-------------- ---------------
Other (expense) income:
Interest expense (75,146) (12,779)
Interest income 6,356 67,554
-------------- ---------------
Total other income (68,790) 54,775
-------------- ---------------
Net loss (2,179,297) (2,754,598)
Dividend on preferred stock - 49,329
-------------- ---------------
Loss attributable to holders
of common stock $ (2,179,297) $ (2,803,927)
============== ===============
Basic and diluted loss per share
attributable to holders of
common stock $ (0.13) $ (0.21)
============== ===============
Weighted average number of
common shares outstanding 16,709,123 13,087,211
============== ===============
The accompanying notes are an integral part of these financial
statements.
4
<PAGE>
<TABLE>
<CAPTION>
V-ONE CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
Three months Three months
ended ended
March 31, 1999 March 31, 1998
(unaudited) (unaudited)
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,179,297) $ (2,754,598)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 152,360 146,510
Amortization of deferred financing costs 30,834 -
Noncash charge related to issuance of warrants - 388,000
Changes in assets and liabilities:
Accounts receivable (36,194) (167,896)
Inventory (8,012) 83,043
Prepaid expenses and other 84,797 86,653
Deferred income (231,621) (108,032)
Accounts payable and accrued expenses (166,008) 734,635
-------------- --------------
Net cash used in operating activities (2,353,141) (1,591,685)
-------------- --------------
Cash flows from investing activities:
Purchase of property and equipment (30,458) (47,464)
-------------- --------------
Net cash used in investing activities (30,458) (47,464)
-------------- --------------
Cash flows from financing activities:
Exercise of options and warrants 195,863 41,742
Payment of debt financing costs (185,000) -
Payments of stock issuance costs - (39,413)
Payment of preferred stock dividends - (49,329)
Principal payments on capitalized lease
obligations (15,992) (28,615)
Repayment of note payable (5,259) (2,778)
Issuance of notes payable 3,000,000 -
-------------- --------------
Net cash provided by (used in) financing
activities 2,989,612 (78,393)
-------------- --------------
Net increase in cash and cash equivalents 606,013 (1,717,542)
Cash and cash equivalents at beginning of period 635,959 6,203,525
-------------- --------------
Cash and cash equivalents at end of period $ 1,241,972 $ 4,485,983
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial
statements.
5
<PAGE>
V-ONE CORPORATION
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The condensed financial statements for the three-months ended March 31, 1999 and
March 31, 1998 are unaudited and reflect all adjustments, consisting of normal
recurring adjustments, which are, in the opinion of management, necessary to
present fairly the results for the interim periods. These financial statements
should be read in conjunction with the audited financial statements as of
December 31, 1997 and 1998 and for the three years in the period ended December
31, 1998, which are included in the Company's 1998 Annual Report on Form 10-K
("Form 10-K").
The preparation of financial statements to be in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates and would
impact future results of operations and cash flows.
The results of operations for the three-month period ended March 31, 1999 are
not necessarily indicative of the results expected for the full year ending
December 31, 1999.
2. Risks and Uncertainties
The Company invests its cash primarily in money market funds with an
international commercial bank. The Company has not experienced any losses to
date on its invested cash. The Company's cash balances exceed federally insured
amounts. 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.
3. Computation of Net Loss Per Common Share
Basic earnings (or loss) per share is computed by dividing net income (or loss)
by the weighted average number of shares of common stock outstanding. Diluted
earnings per share is computed by dividing net income (or loss) by the weighted
average common and potentially dilutive common equivalent shares outstanding.
However, the computation of diluted loss per share was antidilutive in each of
the quarters presented; therefore, basic and diluted loss per share are the
same.
4. Note Payable
On February 24, 1999, the Company entered into a Loan and Security Agreement
("Loan Agreement") with a lender. Under the terms of the Loan Agreement, the
Company received $3.0 million under a term loan that bears interest at 12.53%
per annum. Interest is payable monthly in arrears. The term loan matures on
August 31, 1999. On the term loan maturity date, the term loan converts into a
revolving loan in an amount not to exceed the lesser of $3.0 million or 80 per
cent of the Company's eligible receivables, as defined in the Loan Agreement.
The revolving loan bears interest at a rate equal to the lender's base rate plus
2.5% and matures August 31, 2000. The Company incurred loan and placement agent
fees of $270,000 related to the Loan Agreement and is required to pay an
additional $300,000 fee if the Company is acquired during the term of the
initial term loan or the revolving loan, or the loans are terminated. The Loan
Agreement contains certain covenants that restrict certain activities of the
Company including sales of assets, loans to other persons, liens, dividends,
stock redemption; investments in other persons, and creation of partnerships,
subsidiaries, joint ventures or management contracts. In connection with this
loan, the Company granted a security interest in all of its assets, including
its intellectual property, to the lender. If the Company is unable to repay the
loan or there is an event of default under the loan, the lender could foreclose
on its security interest.
6
<PAGE>
Pursuant to the terms of the Loan Agreement, receipt by the Company of an
opinion from its independent auditors that expresses doubt with regard to the
ability of the Company to continue as a going concern constitutes an event of
default under the Loan Agreement and allows the lender to foreclose on its
security interest. The Company received such an opinion from its independent
auditors in connection with their audit of the Company's financial statements as
of and for the year ended December 31, 1998. Therefore, as of the date of such
opinion, there was an event of default under the Loan Agreement; however, the
lender subsequently waived this event of default. In consideration for such
waiver, the Company (a) granted an affiliate of the lender warrants to purchase
100,000 shares of Common Stock at an exercise price of $3.25 per share and (b)
accepted an additional financial covenant that the Company's net worth will be
$5,000,000 as of June 30, 1999 and September 30, 1999. The warrants were valued
at $131,000 using an option-pricing model and the following assumptions:
dividend yield of 0%; expected volatility of 68%; risk-free interest rate of
5.35% and expected term of 2.0 years. There can be no assurance that the Company
will be able to comply with the loan covenants.
5. Subsequent Events
At December 31, 1998, the Company's net tangible asset balance of $635,724 and
the receipt of a "going concern" opinion from its independent auditors did not
meet the $4 million net tangible assets and other requirements for continued
listing on the Nasdaq National Market. The Company is in review with Nasdaq to
evaluate the Company's eligibility for continued listing on the Nasdaq National
Market. On May 14, 1999, the Company requested a hearing to present relevant
information about the Company's on-going financing initiatives and its ability
to generate cash flow from operations. On May 13, 1999, the Company received a
term sheet from Scientek Corporation (a Taiwan-based high technology company and
a previous investor in the Company) to purchase $5 million of Series B
Convertible Preferred Stock. The term sheet is non-binding on the parties, and
is subject to execution of definitive documentation. The Company is also in
discussions with strategic partners and others to raise an additional $3 to $5
million in equity capital. Although the Company believes it will be successful
in maintaining compliance with the Nasdaq National Market requirements, there
can be no assurance that it will do so on a timely basis or it will be able to
comply with the additional financial covenant in its secured financing described
in Note 4 above.
The Company's Senior Vice President and Chief Financial Officer resigned as of
April 30, 1999 to assume a position with another firm. The Company appointed an
interim Chief Financial Officer on May 12, 1999.
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. The Company's total revenues and
operating results have varied substantially from quarter to quarter and should
not be relied upon as an indication of future results. Several factors may
affect the ability to forecast the Company's quarterly operating results,
including the size and timing of individual software and hardware sales; the
length of the Company's sales cycle; the level of sales and marketing, research
and development and administrative expenses; and general economic conditions.
Operating results for a given period could be disproportionately affected by any
shortfall in expected revenues. In addition, fluctuation in revenues from
quarter to quarter will likely have an increasingly significant impact on the
Company's results of operations. The Company's growth in recent periods may not
be an accurate indication of future results of operations in light of the
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.
Readers are also referred to the documents filed by the Company with the SEC,
specifically the Company's latest Annual Report on Form 10-K that identifies
important risk factors for the Company.
RESULTS OF OPERATIONS
REVENUE
Total revenues increased from approximately $1,296,000 for the three months
ended March 31, 1998 to approximately $1,696,000 for the three months ended
March 31, 1999. This increase was principally attributable to increased sales of
the Company's network security products and higher maintenance and consulting
revenues. Product revenues are derived principally from software licenses and
the sale of hardware products. Product revenues increased from approximately
$1,207,000 for the three months ended March 31, 1998 to approximately $1,369,000
for the three months ended March 31, 1999. 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 $88,000 for the three months
ended March 31, 1998 to approximately $327,000 for the three months ended March
31, 1999 due principally to an increased number of maintenance contracts
provided to customers.
COST OF REVENUES
Total cost of revenues as a percentage of total revenues were approximately 37%
and 11% for the three months ended March 31, 1998 and 1999, respectively. Total
cost of revenues is comprised of cost of product revenues and cost of consulting
and services revenues.
Cost of product revenues consists principally of the costs of computer hardware,
licensed technology, manuals and labor associated with the distribution and
support of the Company's products. Cost of product revenues decreased from
approximately $478,000 for the three months ended March 31, 1998 to
approximately $162,000 for the three months ended March 31, 1999. Cost of
product revenues as a percentage of product revenues was approximately 40% and
12% for the three months ended March 31, 1998 and 1999, respectively. The dollar
and percentage decreases were primarily attributable to a higher proportion of
software licenses of the Company's principal product, SmartGate, as compared to
turnkey hardware sales, primarily of sales of SmartWall.
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
$8,000 for the three months ended March 31, 1998 to approximately $20,000 for
the three months ended March 31, 1999. Cost of consulting and services revenues
as a percentage of consulting and services revenues was approximately 9% and 6%
for the three months ended March 31, 1998 and 1999, respectively. The dollar
increase was principally due to the increased number of maintenance contracts
provided to customers and the percentage decrease reflects the fact that this
amount was spread over a larger revenue base.
8
<PAGE>
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 decreased from approximately $1,481,000 for the
three months ended March 31, 1998 to approximately $1,408,000 for the three
months ended March 31, 1999. Sales and marketing expenses as a percentage of
total revenues were approximately 114% and 83% for the three months ended March
31, 1998 and 1999, respectively. The percentage decrease in 1999 was principally
due to higher revenues. Sales and marketing expenses are expected to remain at
current levels but fall as a percentage of total revenues in the near term as a
result of the Company's increased sales and marketing efforts. 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 Form 10-K.
General and Administrative -- General and administrative expenses consist
principally of the costs of finance, management and administrative personnel and
facilities expenses. General and administrative expenses decreased from
approximately $1,198,000 for the three months ended March 31, 1998 to
approximately $1,036,000 for the three months ended March 31, 1999. The quarter
ended March 31, 1998 included a noncash charge of $388,000 attributable to an
anti-dilution adjustment to the terms of the warrants issued to JMI Equity Fund
II, L.P., which was triggered by the conversion of the Company's Series A
Convertible Preferred Stock ("Series A Stock").
General and administrative expenses as a percentage of total revenues were
approximately 92% and 61% for the three months ended March 31, 1998 and 1999,
respectively. The dollar and percentage decreases in 1999 were principally due
to the noncash charge in 1998 partially offset by increased professional fees.
The Company anticipates that general and administrative expenses, exclusive of
costs associated with financings, will increase modestly in future periods. 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 Form 10-K.
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 $940,000 for the three months ended March 31, 1998 to
approximately $1,181,000 for the three months ended March 31, 1999. Research and
development expenses as a percentage of total revenues were approximately 73%
and 70% for the three months ended March 31, 1998 and 1999, respectively. The
dollar increase and percentage decrease were primarily due to increases in the
number of personnel associated with the Company's product development efforts
and the purchase of software licenses, primarily firewalls, spread over higher
levels of revenues. 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. 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 Form 10-K.
Interest Income and Expenses -- Interest income represents interest earned on
cash and cash equivalents. Interest income decreased from approximately $68,000
for the three months ended March 31, 1998 to approximately $6,000 for the three
months ended March 31, 1999. The decrease was attributable to reduced levels of
cash and cash equivalents. Interest expense represents interest paid or payable
on the Company's secured loan (see Note 4 to the Condensed Financial Statements)
and capitalized lease obligations. Interest expense increased from approximately
9
<PAGE>
$13,000 for the three months ended March 31, 1998 to approximately $75,000 for
the three months ended March 31, 1999. The increase was due to the Company's
secured loan and the amortization of deferred financing costs.
Income Taxes -- The Company did not incur income tax expenses as a result of the
net loss incurred during the three months ended March 31, 1998 and 1999,
respectively.
Dividend on Preferred Stock -- The Company provided approximately $49,000 for a
dividend on the Series A Stock during the first quarter of 1998. All of the
Series A Stock was retired in November 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used cash of approximately $1,592,000 and
$2,353,000 for the three months ended March 31, 1998 and 1999, respectively.
Cash used in operating activities for the three months ended March 31, 1999
resulted principally from net losses and a reduction in deferred revenue and
accounts payable, partially offset by depreciation and amortization expense. The
Company believes that its current cash and cash equivalents and funds that may
be generated from on-going operations will not be sufficient to finance the
Company's continuing operations.
The Company's financing activities provided cash of approximately $2,990,000
during the three months ended March 31, 1999. The cash was provided primarily by
the issuance of a $3.0 million note to a lender. The terms of the term loan are
described in Note 4 to the Condensed Financial Statements.
At December 31, 1998, the Company's net tangible asset balance of $635,724 and
the receipt of a "going concern" opinion from its independent auditors did not
meet the $4 million net tangible assets and other requirements for continued
listing on the Nasdaq National Market. The Company is in review with Nasdaq to
evaluate the Company's eligibility for continued listing on the Nasdaq National
Market. On May 14, 1999, the Company requested a hearing to present relevant
information about the Company's on-going financing initiatives and its ability
to generate cash flow from operations. On May 13, 1999, the Company received a
term sheet from Scientek Corporation (a Taiwan-based high technology company and
a previous investor in the Company) to purchase $5 million of Series B
Convertible Preferred Stock. The term sheet is non-binding on the parties, and
is subject to execution of definitive documentation. The Company is also in
discussions with strategic partners and others to raise an additional $3 to $5
million in equity capital. Although the Company believes it will be successful
in maintaining compliance with the Nasdaq National Market requirements, there
can be no assurance that it will do so on a timely basis or it will be able to
comply with the additional financial covenant in its secured financing described
in Note 4 to the Condensed Financial Statements above.
As of March 31, 1999, the Company had an accumulated deficit of approximately
$32,000,000. The Company currently expects to incur net losses through the
second quarter of fiscal year 1999. 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 Form
10-K.
YEAR 2000 ISSUE
The Year 2000 issue concerns the potential exposures related to the automated
generation of business and financial misinformation resulting from the
application of computer programs that have been written using six digits (e.g.
12/31/99), rather than eight (e.g., 12/31/1999), to define the applicable year
of business transactions.
The Company has completed the identification and assessment of most of its
information technology ("IT") systems, and those systems have been modified by
the suppliers of those systems to the Company to address Year 2000 problems. In
addition to its internal systems, the Company has assessed the level of Year
2000 problems associated with most of its suppliers of software incorporated or
bundled with its products, other suppliers, customers and creditors. The Company
has also identified and assessed most of its non-IT systems, which include its
telephone systems, heating and air-conditioning, elevators, and other business
equipment. Almost all of these suppliers have indicated that their software and
other products are Year 2000 compliant. In addition, most of the Company's
non-IT systems appear to be Year 2000 compliant.
10
<PAGE>
The Company's own software products are Year 2000 compliant.
The Company's costs to date for its Year 2000 compliance program, excluding the
salaries of its employees, has not been material. In fact, most of the Company's
IT systems have been modified by the suppliers of those systems and such
modifications were included as part of normal upgrades of those systems.
Although the Company has not completed its assessment, it does not currently
believe that the future costs associated with its remaining IT systems or its
non-IT systems will be material.
The Company cannot determine currently its most likely worst case Year 2000
scenario, as it has not identified and assessed all of its systems, particularly
its non-IT systems. As the Company completes its identification and assessment
of internal and third party systems, it expects to develop contingency plans for
various worst-case scenarios. The Company expects to complete such contingency
planning by September 1999. A failure to address Year 2000 issues successfully
could have a material adverse effect on the Company's business, financial
condition, results of operations and cash flows.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is not materially exposed to fluctuations in currency exchange rates
as all of its products are invoiced in U.S. dollars. The Company does not hold
any derivatives or marketable securities. However, the Company is exposed to
interest rate risk. The Company's term loan has a fixed interest rate and the
fair value of this instrument is affected by changes in market interest rates.
The Company believes that the market risk arising from holdings of its financial
instruments is not material.
11
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
(c) Warrants Issued to Transamerica
On February 24, 1999, the Company obtained a $3,000,000 term loan from
Transamerica Business Credit Corporation ("Transamerica") pursuant to that
certain Loan and Security Agreement dated as of February 24, 1999 ("Loan
Agreement"). The term loan is due on August 31, 1999. Thereafter, the term loan
will convert into a revolving credit facility if the Company is not in default
under the Loan Agreement. The maximum amount that can be borrowed by the Company
under the revolving credit facility is the lesser of $3,000,000 and 80% of
eligible receivables. The revolving credit facility expires on August 31, 2000.
In connection with this loan, the Company granted a security interest in all of
its assets, including its intellectual property, to Transamerica.
Pursuant to the terms of the Loan Agreement, receipt by the Company of an
opinion from its independent auditors that expresses doubt with regard to the
ability of the Company to continue as a going concern constitutes an event of
default under the Loan Agreement and allows Transamerica to foreclose on its
security interest. The Company received such an opinion from its independent
auditors in connection with their audit of the Company's financial statements as
of and for the year ended December 31, 1998. Therefore, as of the date of such
opinion, there was an event of default under the Loan Agreement.
On March 31, 1999, the Company and Transamerica entered into an Amendment
Agreement ("Amendment") to the Loan Agreement. Under the terms of the Amendment,
Transamerica has waived this event of default. In consideration for such waiver,
the Company (a) granted TBCC Funding Trust II, an affiliate of Transamerica,
warrants to purchase 100,000 shares of common stock of the Company at an
exercise price of $3.25 per share and (b) accepted an additional financial
covenant that the Company's net worth will be $5,000,000 as of June 30, 1999 and
September 30, 1999. The warrants were issued on March 31, 1999 pursuant to Rule
506 of Regulation D promulgated under the Securities Act of 1933 and have a term
of seven years.
The description of the above agreements are qualified in their entirety by
reference to the exhibits filed with the Company's Form 8-K dated March 12, 1999
and the Company's Form 8-K dated April 2, 1999.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
Charles B. Griffis, Senior Vice President and Chief Financial Officer of the
Company, resigned as of April 30, 1999 to assume a position with another firm.
Margaret E. Grayson was appointed interim Chief Financial Officer on May 12,
1999.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this quarterly report on Form
10-Q for the period ended March 31, 1999:
12
<PAGE>
Exhibit Index:
EXHIBIT DESCRIPTION
10.1 Stock Subscription Warrant dated March 31, 1999 issued to TBCC Funding
Trust II.(1)
10.2 Loan and Security Agreement dated February 24, 1999 between the Company
and Transamerica. (2)
10.3 Patent and Trademark Security Agreement dated February 24, 1999 between
the Company and Transamerica. (2)
10.4 Security Agreement in Copyrighted Works dated February 24, 1999 between
the Company and Transamerica. (2)
10.5 Amendment Agreement dated March 31, 1999 to Loan and Security Agreement
dated February 24, 1999 between the Company and Transamerica.(1)
27 Financial data schedule for the three months ended March 31, 1999.
- --------------------
(1) Incorporated by reference to the Company's Current Report on Form 8-K
dated April 2, 1999.
(2) Incorporated by reference to the Company's Current Report on Form 8-K
dated March 12, 1999.
(b) Reports on Form 8-K
Current Report on Form 8-K dated March 12, 1999, reporting under Item 5. Current
Report on Form 8-K dated April 2, 1999, reporting under Item 5.
13
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amended report to be signed on its behalf by the
undersigned thereunto duly authorized.
V-ONE CORPORATION
Registrant
Date: May 14, 1999 By: /s/ David D. Dawson
---------------------------------
Name: David D. Dawson
Title: Chairman of the Board, President, and Chief
Executive Officer
(Duly authorized officer)
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S FORM 10-Q FOR THE
PERIOD ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001008946
<NAME> V-ONE CORPORATION
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,241,972
<SECURITIES> 0
<RECEIVABLES> 959,243
<ALLOWANCES> 409,828
<INVENTORY> 393,493
<CURRENT-ASSETS> 2,660,940
<PP&E> 1,470,229
<DEPRECIATION> 646,814
<TOTAL-ASSETS> 4,650,879
<CURRENT-LIABILITIES> 5,687,412
<BONDS> 0
0
0
<COMMON> 16,773
<OTHER-SE> (1,233,481)
<TOTAL-LIABILITY-AND-EQUITY> 4,650,879
<SALES> 1,696,472
<TOTAL-REVENUES> 1,696,472
<CGS> 182,389
<TOTAL-COSTS> 3,624,590
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (75,146)
<INCOME-PRETAX> (2,179,297)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,179,297)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,179,297)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
