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, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 0-21511
V-ONE CORPORATION
-----------------
(Exact name of registrant as specified in its charter)
Delaware 52-1953278
-------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
20250 Century Blvd., Suite 300, Germantown, Maryland 20874
----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(301) 515-5200
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X ] No [ ] .
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 3, 2001
----- --------------------------
Common Stock, $0.001 par value per share 22,215,000
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 31, 2001 3
(unaudited) and December 31, 2000
Condensed Statements of Operations for the Three Months 4
Ended March 31, 2001 (unaudited) and March 31, 2000
(unaudited)
Condensed Statements of Cash Flows for the Three Months 5
Ended March 31, 2001 (unaudited) and March 31, 2000
(unaudited)
Notes to the Condensed Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 10
Market Risk
PART II. OTHER INFORMATION 12
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
V-ONE CORPORATION
CONDENSED BALANCE SHEETS
March 31, 2001 December 31, 2000
ASSETS (Unaudited)
-------------- -----------------
Current assets:
Cash and cash equivalents $ 8,845,927 $ 2,949,398
Accounts receivable, net 891,616 776,845
Finished goods inventory, net 148,643 172,177
Prepaid expenses and other current assets 262,480 254,631
----------- -----------
Total current assets 10,148,666 4,153,051
Property and equipment, net 1,024,243 929,398
Other assets 115,484 368,169
----------- -----------
Total assets $ 11,288,393 $ 5,450,618
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,385,991 $ 1,375,939
Deferred revenue 1,475,028 1,113,202
Capital lease obligations - current 72,913 71,943
----------- -----------
Total current liabilities 2,933,932 2,561,084
Deferred rent 109,028 120,150
Capital lease obligations - noncurrent 28,664 47,803
----------- -----------
Total liabilities 3,071,624 2,729,037
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.001 par value, 13,333,333
shares authorized
Series B convertible
preferred stock, 1,287,554 designated,
issued and outstanding (liquidation
preference of $3,000,000) 1,288 1,288
Series C redeemable preferred stock,
500,000 designated; 42,904 and 54,714
shares issued and outstanding,
respectively (liquidation preference
of $1,126,388 and $1,436,243, respectively) 43 55
Series D convertible preferred stock
3,675,000 shares designated, issued and
outstanding (liquidation preference of
$7,019,250) 3,675 -
Common stock, $0.001 par value; 50,000,000
shares authorized; 22,261,219 and 22,109,185
shares issued and outstanding, respectively 22,261 22,109
Accrued dividends payable 262,107 180,911
Additional paid-in capital 59,749,441 51,393,818
Accumulated deficit (51,822,046) (48,876,600)
----------- -----------
Total shareholders' equity 8,216,769 2,721,581
----------- -----------
Total liabilities and shareholders'
equity $ 11,288,393 $ 5,450,618
============ ===========
The accompanying notes are an integral part of these financial statements.
3
V-ONE CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
Three months Three months
ended ended
March 31, 2001 March 31, 2000
(unaudited) (unaudited)
-------------- --------------
Revenue:
Products $ 524,255 $ 1,133,453
Consulting and services 265,926 250,468
Total revenue 790,181 1,383,921
------------ ------------
Cost of revenue:
Products 198,118 70,514
Consulting and services 61,119 12,481
------------ ------------
Total cost of revenue 259,237 82,995
------------ ------------
Gross profit 530,944 1,300,926
Operating expenses:
Research and development 1,000,656 712,690
Sales and marketing 1,184,169 1,495,900
General and administrative 696,188 653,021
------------ ------------
Total operating expenses 2,881,013 2,861,611
------------ ------------
Operating loss (2,350,069) (1,560,685)
Other (expense) income:
Interest expense (3,787) (6,499)
Interest income 52,033 84,962
Other (expense) income 1,308,608 -
------------ ------------
Total other (expense) income 1,356,854 78,463
------------ ------------
Net loss (993,215) (1,482,222)
Dividend on preferred stock 1,952,231 206,461
------------ ------------
Loss attributable to holders
of common stock $ (2,945,446) $ (1,688,683)
============ ============
Basic and diluted loss per share
attributable to holders of
common stock $ (0.13) $ (0.09)
============ ============
Weighted average number of common
shares outstanding 22,160,445 18,500,300
============ ============
The accompanying notes are an integral part of these financial statements.
4
V-ONE CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
Three months Three months
ended ended
March 31, 2001 March 31, 2000
(unaudited) (unaudited)
-------------- --------------
Cash flows from operating activities:
Net loss $ (993,215) $ (1,482,222)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 136,194 84,936
Stock compensation 144,943 -
Gain on sale of investment (1,375,000) -
Changes in assets and liabilities:
Accounts receivable, net (114,770) (126,167)
Inventory, net 23,534 (140,043)
Prepaid expenses and other assets (5,164) (116,001)
Accounts payable and accrued expenses 10,052 166,660
Deferred revenue 361,827 76,235
Deferred rent (11,122) (7,724)
---------- ------------
Net cash used in operating activities (1,822,721) (1,544,326)
Cash flows from investing activities:
Net purchases of property and equipment (231,039) (98,201)
Collection of subscription - 3,785
Proceeds from sale of investment 1,625,000 -
---------- ------------
Net cash provided by (used in)
investing activities 1,393,961 (94,416)
Cash flows from financing activities:
Exercise of options and warrants 29,892 89,037
Issuance of common stock - 2,375,000
Issuance of preferred stock 7,019,250 -
Redemption of preferred stock (84,442)
Payments of stock issuance costs (620,977) (149,046)
Payment of preferred stock dividends (264) -
Principal payments on capitalized lease
obligations (18,170) (18,804)
---------- ------------
Net cash provided by financing activities 6,325,289 2,296,187
---------- ------------
Net increase in cash and cash equivalents 5,896,529 657,445
Cash and cash equivalents at beginning of
period 2,949,398 7,136,943
---------- ------------
Cash and cash equivalents at end of period $ 8,845,927 $ 7,794,388
=========== ===========
The accompanying notes are an integral part of these financial statements.
5
V-ONE CORPORATION
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of the Business
V-ONE Corporation ("Company") develops, markets and licenses a comprehensive
suite of network security products that enable organizations to conduct secured
electronic transactions and information exchange using private enterprise
networks and public networks, such as the Internet. The Company's principal
market is the United States, with headquarters in Maryland, with secondary
markets in Europe and Asia.
2. Basis of Presentation
The condensed financial statements for the three months ended March 31, 2001 and
March 31, 2000 are unaudited and reflect all adjustments, consisting of normal
recurring adjustments, which are, in the opinion of management, necessary to
present fairly the results for the interim periods. These financial statements
should be read in conjunction with the audited financial statements as of
December 31, 1999 and 2000 and for the three years in the period ended December
31, 2000, which are included in the Company's 2000 Annual Report on Form 10-K
("Form 10-K").
The preparation of financial statements to be in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates and would
impact future results of operations and cash flows.
The results of operations for the three-month period ended March 31, 2001 are
not necessarily indicative of the results expected for the full year ending
December 31, 2001.
Certain prior year amounts have been reclassified to conform to the 2001
presentation. These changes had no impact on previously reported results of
operations.
3. Common and Preferred Stock
On February 14, 2001, the Company issued 3,675,000 shares of Series D
Convertible Preferred Stock ("Series D Stock") and non-detachable warrants to
purchase 735,000 shares of the Company's common stock ("Warrants") to certain
accredited investors for an aggregate offering price of $7,019,250. The
securities were sold in units, each unit containing five shares of Series D
Stock and a Warrant to purchase one share of Common Stock ("Unit") for a price
of $9.55 per Unit pursuant to Rule 506 of Regulation D promulgated under the
Securities Act of 1933, as amended. The Series D Stock is immediately
convertible at an initial conversation price of $1.91 per share. The Warrants
are immediately exercisable at an initial exercise price of $2.29 per share and
expire on February 14, 2004. The Company received $6,469,250 in net proceeds
after payment of all fees and offering expenses. The net proceeds of the
offering will be used for general working capital purposes. The Company recorded
deemed dividends of approximately $1,825,000 due to the Series D Stock being
issued at a discount to fair value on the date of issuance. For the terms and
conditions of the Series D Stock, refer to the Company's Form 8-K filed with the
SEC on March 1, 2001.
In the three months ended March 31, 2001, several investors exercised the
non-detachable warrants of the Series C Preferred Stock. As a result of the
Series D Stock offering, this exercise was made at the adjusted price of $1.91
per share, with the balance of $84,442 of the "stub" amount paid in cash. A
total of 118,100 shares of common stock were issued as a result of warrant
exercises in the three months ended March 31, 2001. A total of 19,436 shares of
common stock were issued as dividends accrued on the Series C Preferred Stock
through the date of the Series D Stock offering. These shares were registered as
part of a Form S-3 filed on July 5, 2000. The outstanding Series C Preferred
Stock was reduced by 11,810 shares as a result of the warrant exercises pursuant
to the terms of the Series C Preferred Stock offering. There were no proceeds
generated from this exercise.
6
Restricted common stock amounting to 21,895 shares were vested in this quarter
which represent the final shares that were issued to certain selected employees
as compensation in the second quarter of 2000.
4. Other Events
Effective March 13, 2001, the Company completed a sale to NFR of a 6.8% minority
interest in its common stock, totaling 500,000 shares. The sale price per share
was $3.25 and the proceeds of the sale totaled $1,625,000. The gain on the sale
was included in other income.
On January 27, 2000, Plaintiff George McMeen filed a Class Action Complaint in
the U.S. District Court for the District of Maryland, Civil Action No.
MJG-CV-263, against David D. Dawson, Steve Mogul and Margaret Grayson
(collectively, "Individual Defendants") and the Company (collectively,
"Defendants"), alleging claims for violation of Section 10(b) of the Securities
Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 thereunder by the
Defendants, and violation of Section 20(a) of the Exchange Act by the Individual
Defendants. On February 16, 2000, plaintiff Raj Patel filed a nearly identical
Class Action Complaint in the U.S. District Court for the District Court of
Maryland, Civil Action No. PJM-CV-469. Neither complaint specifies the amount of
alleged damages.
On February 18, 2000, the Court entered an Order extending the time for
Defendants to file a responsive pleading in the McMeen matter until 45 days
after the later of appointment of Lead Plaintiff(s) and Lead Counsel pursuant to
15 U.S.C. 78u-4(a)(3) or the filing of a consolidated amended complaint in the
matter. The Court entered an identical Order in the Patel matter on March 3,
2000. The suits were consolidated on July 14, 2000.
On February 20, 2001, the suit was dismissed in its entirety, with prejudice. In
granting the Defendants' motion to dismiss, United States District Court Judge
Marvin J. Garbis ruled that plaintiffs had failed to state a cause of action for
violations of the securities laws and awarded costs to the defendants.
5. Supplemental Cash Flow Disclosure
Selected noncash activities were as follows:
Three Months
ended March 31,
----------------------------
2001 2000
---------- -----------
Noncash investing and financing activities:
Redemption of preferred stock $ 225,571 $ 4,143,615
Payment of preferred stock dividends $ 46,088 $ 222,263
7
6. Net Loss Per Share
The following table sets forth the computation of basic and diluted net loss per
share:
Three Months ended March 31,
----------------------------
2001 2000
------------ -------------
Numerator:
Net loss $ (993,215) $ (1,482,222)
Less: Dividend on preferred stock (1,952,231) (206,461)
------------ -------------
Net loss attributable to holders of common stock $(2,945,446) $ (1,688,683)
=========== ============
Denominator:
Denominator for basic and diluted net loss per
share - weighted average shares 22,160,445 18,500,300
=========== ============
Basic and diluted loss per share -
Net loss attributable to holders of common stock $ (0.13) $ (0.09)
=========== ============
Due to their anti-dilutive effect, outstanding shares of preferred stock, stock
options and warrants to purchase shares of common stock were excluded from the
computation of diluted earnings per share for all periods presented.
8
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements within the meaning of Section 21E
of the Exchange Act. These statements may differ in a material way from actual
future events. For instance, factors that could cause results to differ from
future events include rapid rates of technological change and intense
competition, among others. The Company's total revenues and operating results
have varied substantially from quarter to quarter and should not be relied upon
as an indication of future results. Several factors may affect the ability to
forecast the Company's quarterly operating results, including the size and
timing of individual software and hardware sales; the length of the Company's
sales cycle; the level of sales and marketing, research and development and
administrative expenses; and general economic conditions.
Operating results for a given period could be disproportionately affected by any
shortfall in expected revenues. In addition, fluctuation in revenues from
quarter to quarter will likely have an increasingly significant impact on the
Company's results of operations. The Company's growth in recent periods may not
be an accurate indication of future results of operations in light of the
evolving nature of the network security market and the uncertainty of the demand
for Internet and intranet products in general and the Company's products in
particular. Because the Company's operating expenses are based on anticipated
revenue levels, a small variation in the timing of recognition of revenues can
cause significant variations in operating results from quarter to quarter.
Readers are also referred to the documents filed by the Company with the SEC,
specifically the Company's latest Annual Report on Form 10-K that identifies
important risk factors for the Company.
RESULTS OF OPERATIONS
REVENUES
Total revenues decreased from approximately $1,384,000 for the three months
ended March 31, 2000 to approximately $790,000 for the three months ended March
31, 2001. This decrease was primarily due to lower sales of the Company's
network security products and delays in installations of federal government
initiatives. Product revenues are derived principally from software licenses and
the sale of hardware products. Product revenues decreased from approximately
$1,133,000 for the three months ended March 31, 2000 to approximately $524,000
for the three months ended March 31, 2001. 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 $250,000 for the three months
ended March 31, 2000 to approximately $266,000 for the three months ended March
31, 2001 due principally to a higher number of maintenance contracts provided to
customers.
COST OF REVENUES
Total cost of revenues as a percentage of total revenues increased from
approximately 6% for the three months ended March 31, 2000 to approximately 33%
for the three months ended March 31, 2001. This increase was primarily due to
several large turnkey systems sales and a higher proportion of third-party
product maintenance contracts in the period on a lower revenue base. 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 increased from
approximately $71,000 for the three months ended March 31, 2000 to approximately
$198,000 for the three months ended March 31, 2001. Cost of product revenues as
a percentage of product revenues was approximately 6% and 38% for the three
months ended March 31, 2000 and 2001, respectively. The dollar and percentage
increases were primarily attributable to a higher proportion of turnkey systems
and third-party firewalls sales, as compared to sales of software licenses.
9
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
$12,000 for the three months ended March 31, 2000 to approximately $61,000 for
the three months ended March 31, 2001. Cost of consulting and services revenues
as a percentage of consulting and services revenues was approximately 5% and 23%
for the three months ended March 31, 2000 and 2001, respectively. The dollar and
percentage increase was principally due to an increase in sales of third-party
firewall maintenance contracts.
OPERATING EXPENSES
Research and Development -- Research and development expenses consist
principally of the costs of research and development personnel and other
expenses associated with the development of new products and enhancement of
existing products. Research and development expenses increased from
approximately $713,000 for the three months ended March 31, 2000 to
approximately $1,001,000 for the three months ended March 31, 2001. Research and
development expenses as a percentage of total revenues were approximately 52%
and 127% for the three months ended March 31, 2000 and 2001, respectively. The
dollar and percentage increases for 2001 were primarily due to higher wage
related expenses as well as higher consulting expense.
Sales and Marketing -- Sales and marketing expenses consist principally of the
costs of sales and marketing personnel, advertising, promotions and trade shows.
Sales and marketing expenses decreased from approximately $1,496,000 for the
three months ended March 31, 2000 to approximately $1,184,000 for the three
months ended March 31, 2001. Sales and marketing expenses as a percentage of
total revenues were approximately 108% and 150% for the three months ended March
31, 2000 and 2001, respectively. The dollar decrease for 2001 relates to lower
wage related expenses offset in part by higher consulting costs incurred under a
marketing and consulting agreement with Mindsquared, LLC, which were
approximately $253,000 in the first quarter of 2001. The percentage increase is
mainly due to lower revenue this year when compared to last year.
General and Administrative -- General and administrative expenses consist
principally of the costs of finance, management and administrative personnel and
facilities expenses. General and administrative expenses increased slightly from
approximately $653,000 for the three months ended March 31, 2000 to
approximately $696,000 for the three months ended March 31, 2001. The increase
for 2001 was due principally to higher accounting fees. General and
administrative expenses as a percentage of total revenues were approximately 47%
and 88% for the three months ended March 31, 2000 and 2001, respectively. The
percentage increase in 2001 was principally due to lower revenue this year as
compared to last year.
Other (Expense) Income - Other (expense) income represents the net income or
expense resulting from non-operational activities that are of an infrequently
occurring nature. Other (expense) income for the three months ended March 31,
2001 was approximately $1,309,000, which includes the gain of $1,334,000 on the
sale of the NFR common stock. The proceeds from the sale totaled $1,625,000, the
cost basis for the investment was $250,000 and the fees associated with the sale
were approximately $41,000.
Interest Income and Expenses -- Interest income represents interest earned on
cash and cash equivalents. Interest income declined from approximately $85,000
for the three months ended March 31, 2000 to approximately $52,000 for the three
months ended March 31, 2001. The decrease was attributable to lower levels of
cash and cash equivalents. Interest expense represents interest paid or payable
on loans and capitalized lease obligations. Interest expense decreased from
approximately $6,000 for the three months ended March 31, 2000 to approximately
$4,000 for the three months ended March 31, 2001 due to a decrease in the
capital equipment lease balance.
Income Taxes -- The Company did not incur income tax expenses as a result of the
net loss incurred during the three months ended March 31, 2000 and 2001.
Dividend on Preferred Stock -- The Company provided approximately $206,000 for
dividends on the Series C Preferred Stock during the first quarter of 2000 and
$128,000 during the three months ended March 31, 2001 for the Series C Preferred
Stock and the Series D Stock. Under the terms of the purchase agreements for the
Series C Preferred Stock and the Series D Stock, the Company may elect to pay
these dividends in cash and stock. The Company recorded deemed dividends of
approximately $1,825,000 due to the Series D Stock being issued at a discount to
fair value on the date of issuance.
10
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used cash of approximately $1,544,000 and
$1,823,000 for the three months ended March 31, 2000 and 2001, respectively.
Cash used in operating activities resulted principally from net losses in both
periods, offset in part during the current quarter by the increase in deferred
revenue. Progress continues under our agreement with Citrix Systems, Inc.;
payments were made to the Company totaling $500,000 in the quarter, bringing the
total payments to $1,000,000, which are reflected in deferred revenue. Until all
contractual obligations are completed, revenue for products sold by Citrix
Systems, Inc. cannot be recognized. The Company believes that its current cash
and cash equivalents and funds that may be generated from on-going operations
will be sufficient to meet its normal operating requirements over the near term.
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.
The Company's investing activities used approximately $94,000 in the quarter
ending March 31, 2000 and provided cash of approximately $1,394,000 in the three
months ended March 31, 2001. Net capital expenditures for property and equipment
were approximately $98,000 and $231,000 during the three months ended March 31,
2000 and 2001, respectively. These expenditures have generally been for computer
workstations and personal computers, office furniture and equipment, and
leasehold additions and improvements. The capital expenditures increased in 2001
as the Company capitalized two in process software development projects in
addition to incurring some leasehold improvements in a consolidation of floors
at the Company's headquarters. Proceeds from the sale of the Company's minority
interest in the common stock of NFR Security, Inc. were approximately $1,625,000
in the quarter ended March 31, 2001.
The Company's financing activities provided cash of approximately $2,296,000 and
$6,325,000 during the three months ended March 31, 2000 and 2001, respectively.
In the first quarter of 2001, the cash was provided primarily by the issuance of
a private placement of Series D Convertible Preferred Stock to certain
accredited investors pursuant to Rule 506 of Regulation D under the Securities
Act of 1933, as amended, for an aggregate offering price of $7,019,250. The
Company received $6,469,250 in net proceeds after payment of all fees and
offering expenses. The net proceeds of the offering will be used for general
working capital purposes. In a March 2000 private placement of securities, the
Company issued, pursuant to Rule 506 of Regulation D under the Securities Act of
1933, as amended, 500,000 shares of common stock at a purchase price of $4.75
per share to Cranshire Capital, L.P. in exchange for $2,375,000.
The Company's net tangible asset balance of $2,722,000 and $8,217,000 at
December 31, 2000 and March 31, 2001, respectively, reflects favorably on the
resources of the organization.
As of March 31, 2001, the Company had an accumulated deficit of approximately
$51,822,000. The Company believes it has the necessary capital funds to sustain
operations through March 31, 2002 and to maintain capital needed to satisfy
listing requirements on the NASDAQ Small Cap Market. This statement is based on
current expectations. It is forward-looking, and the actual results could differ
materially. For information about factors that could cause the actual results to
differ materially, please refer to Item 1, "Business - Risk Factors That May
Affect Future Results and Market Price of Common Stock" in the Company's Form
10-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is not materially exposed to fluctuations in currency exchange rates
as all of its products are invoiced in U.S. dollars. The Company does not hold
any derivatives or marketable securities. However, the Company is exposed to
interest rate risk. The Company believes that the market risk arising from
holdings of its financial instruments is not material.
11
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
On January 27, 2000, Plaintiff George McMeen filed a Class Action Complaint in
the U.S. District Court for the District of Maryland, Civil Action No.
MJG-CV-263, against David D. Dawson, Steve Mogul and Margaret Grayson
(collectively, "Individual Defendants") and the Company (collectively,
"Defendants"), alleging claims for violation of Section 10(b) of the Securities
Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 thereunder by the
Defendants, and violation of Section 20(a) of the Exchange Act by the Individual
Defendants. On February 16, 2000, plaintiff Raj Patel filed a nearly identical
Class Action Complaint in the U.S. District Court for the District Court of
Maryland, Civil Action No. PJM-CV-469. Neither complaint specifies the amount of
alleged damages.
On February 18, 2000, the Court entered an Order extending the time for
Defendants to file a responsive pleading in the McMeen matter until 45 days
after the later of appointment of Lead Plaintiff(s) and Lead Counsel pursuant to
15 U.S.C. 78u-4(a)(3) or the filing of a consolidated amended complaint in the
matter. The Court entered an identical Order in the Patel matter on March 3,
2000. The suits were consolidated on July 14, 2000.
On February 20, 2001, the suit was dismissed in its entirety, with prejudice. In
granting the Defendants' motion to dismiss, United States District Court Judge
Marvin J. Garbis ruled that plaintiffs had failed to state a cause of action for
violations of the securities laws and awarded costs to the defendants.
Item 2. Changes in Securities and Use of Proceeds
On February 14, 2001, the Company issued 3,675,000 shares of Series D
Convertible Preferred Stock ("Series D Stock") and non-detachable warrants to
purchase 735,000 shares of the Company's common stock ("Warrants") to certain
accredited investors for an aggregate offering price of $7,019,250. The
securities were sold in units, each unit containing five shares of Series D
Stock and a Warrant to purchase one share of Common Stock ("Unit") for a price
of $9.55 per Unit pursuant to Rule 506 of Regulation D promulgated under the
Securities Act of 1933, as amended. The Series D Stock is immediately
convertible at an initial conversation price of $1.91 per share. The Warrants
are immediately exercisable at an initial exercise price of $2.29 per share and
expire on February 14, 2004. The Company received $6,469,250 in net proceeds
after payment of all fees and offering expenses. The net proceeds of the
offering will be used for general working capital purposes. The Company recorded
deemed dividends of approximately $1,825,000 due to the Series D Stock being
issued at a discount to fair value on the date of issuance. For the terms and
conditions of the Series D Stock, refer to the Company's Form 8-K filed with the
SEC on March 1, 2001.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
12
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, 2001:
Exhibit Description
10.1 Series D Convertible Preferred Stock and Non-Detachable Warrant
Purchase Agreement dated February 14, 2001 (1)
10.2 Form of Warrant Granted to Holders of Series D Convertible Preferred
Stock, dated February 14, 2001
10.3 2001 Employee Stock Purchase Plan (1)
10.4 Form of Subscription Agreement between the Company and Employees under
the 2001 Employee Stock Purchase Plan (1)
10.5 Agreement for Purchase and Sale of Stock between the Company and NFR
Security, Inc., dated March 13, 2001 (1)
----------------------
(1) The information required by these exhibits is incorporated herein by
reference to the Company's Form 10-K for the twelve months ended December 31,
2000.
(b) Reports on Form 8-K
Current Report of Form 8-K dated March 1, 2001 reporting under Item 5.
13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
V-ONE CORPORATION
Registrant
Date: May 4, 2001 By: /s/ John F. Nesline
-------------------------
Name: John F. Nesline
Title: Chief Financial Officer
(Duly authorized officer)
14