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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K

(Mark One)
[ X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Fiscal Year Ended: December 31, 2001

[ ] 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)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

COMMON STOCK, $0.001 PAR VALUE PER SHARE
----------------------------------------
(Title of Class)

Traded On the Nasdaq Smallcap Market

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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]

The aggregate market value of the voting and non-voting equity held by
non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked price of such common
equity, as of March 1, 2002 was approximately $26,189,000. This
calculation does not reflect a determination that persons are
affiliates for any other purposes.

Registrant had 24,248,904, shares of Common Stock outstanding as of
March 1, 2002.





DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive proxy statement to be issued in
conjunction with registrant's 2002 annual stockholder's meeting to be held on
May 16, 2002 are incorporated by reference in Part III of this Annual Report on
Form 10-K.

FORWARD-LOOKING STATEMENTS

In addition to historical information, this Annual Report contains
forward-looking statements that involve risks and uncertainties that are
generally noted by terms such as "believe", "expectations", "foresee", "goals",
"potential" and "prospects". 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 cautioned not to place undue reliance on
these forward-looking statements. V-ONE Corporation undertakes no obligation to
publicly revise these forward-looking statements or to reflect events or
circumstances that arise at a later date.

PART I

ITEM 1. BUSINESS

V-ONE Corporation ("V-ONE" or the "Company") develops, markets and licenses a
comprehensive suite of network security products that enable organizations to
conduct secured electronic transactions and information exchange using public
switched networks, such as the Internet. The Company's suite of products
addresses network user authentication, perimeter security, access control and
data integrity through the use of smart cards, tokens, digital certificates,
firewalls and encryption technology. The Company's products interoperate
seamlessly and can be combined to form a complete, integrated network security
solution or can be used as independent components in customized security
solutions. The Company's products have been designed with an open and flexible
architecture to enhance application functionality and to support emerging
network security standards. The products are most commonly used to establish
very secure Virtual Private Networks (VPNs). In addition, the Company's products
enable organizations to deploy and scale their solutions from small single-site
networks to large multi-site environments, and can accommodate both wireline and
wireless media.

The Company was incorporated in Maryland in February 1993 and reincorporated in
Delaware in February 1996. Effective July 2, 1996, the Company changed its name
from "Virtual Open Network Environment Corporation" to "V-ONE Corporation." The
Company's principal executive offices are located at 20250 Century Boulevard,
Suite 300, Germantown, Maryland 20874. The Company's telephone number is (301)
515-5200.

BACKGROUND

OVERVIEW. Over the last decade, decentralized computing has emerged as a result
of the widespread adoption of personal computers, local area networks and wide
area networks. This emergence has enabled users to communicate with each other
and share data throughout an entire organization. With the recent popularization
of the Internet and increased performance capabilities offered by high-speed
modems, xDSL and cable modems, ISDN services and frame relay technology, the
volume of data transferred over networks has increased dramatically. Fueling
this expansion further, carriers and Internet service providers have
dramatically reduced their tariffs for high-speed aggregation services running
over T-1 and T-3 lines, which have data transfer rates that approximate local
area network performance. In addition, leading hardware and software vendors
have adopted and support TCP/IP, the Internet's non-proprietary communications
protocol, for computer communications and information exchange.


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Organizations are increasing their dependence on the Internet and private
enterprise networks using Internet protocols ("intranets") as a cost-effective
means to expand enterprise networks, engage in electronic commerce and increase
information exchange. This pervasive use of the Internet, intranets and
extranets (architecture linking companies with specific customers, suppliers and
trading partners) has increased the need for solutions to provide secure
communications because TCP/IP networks are not secure.

The need for internal security continues to grow as businesses deploy extranets,
intranets, internal networks using TCP/IP protocols, and browser-based
applications to facilitate geographically dispersed communications and the
transmission of information throughout an enterprise in a cost-effective manner.
Information becomes more vulnerable as organizations rely heavily on computer
networks for the electronic transmission of data. With the increased use of the
Internet and intranets, many organizations are discovering that network security
is a key element in successfully implementing distributed applications and
services, including electronic mail, electronic data interchange, electronic
commerce and information exchange services. In the absence of comprehensive
network security, individuals and organizations are able to exploit system
weaknesses to gain unauthorized access to networks and individual network
computers. These individuals and organizations use such access to alter or steal
data or, in some cases, to launch destructive attacks on data and computers
within a network. Through the adoption of VPN technology products, users can
create a so-called Virtual Private Network which enables users to exploit the
inherently low cost of public networks in a highly secure manner.

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

o DATA PRIVACY THROUGH ENCRYPTION. Preventing unauthorized users from viewing
private data through the process of "scrambling" data before it is
transmitted or placed into electronic storage.

o USER IDENTIFICATION AND AUTHENTICATION. Verifying the user's identity to
prevent unauthorized access to computer and network resources.

o AUTHORIZATION. Controlling which systems, data and applications a user can
access.

o DATA INTEGRITY. Ensuring that data, whether in storage or transmission, has
not been changed or compromised by any unauthorized manipulation.

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

Over the years, a number of network security products have been developed,
including passwords, token-based access devices, firewalls, encryption products,
biometrics devices, smart cards and digital certificates. Each of these products
was designed with a specific function or objective; however, none were designed
to meet all of the needs of enterprise-wide network security. Single function or
"point" products that have been developed to address one, or a limited number of
network security requirements, include the following:

o PASSWORDS AND TOKENS. Until recently, passwords were the most common method
of authentication. Static (non-changing) passwords were developed as the
first attempt to address the need for authentication. Static passwords,
however, are inadequate as they are susceptible to unauthorized viewing and
to attacks using software designed to randomly generate and enter thousands
of passwords. As a result, dynamic passwords, including single-use
passwords, were created to provide a greater level of authentication.
Dynamic password implementations include the use of time-varying and
challenge-response passwords. Generally, dynamic passwords require the use
of a hand-held, electronic device called a hardware token. Dynamic
passwords were subsequently strengthened by incorporating two-factor


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identification which provided a higher level of authentication in that two
independent components were combined to identify a user (for example, a
bank ATM card and a PIN code). However, dynamic passwords and two-factor
identification provide only a limited level of security because the
sessions they authenticate are still vulnerable to interception.

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

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

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

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

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

The current demand for VPN products is being driven by (i) the increasing need
for employees to remotely access data, (ii) corporate intranets linking multiple
geographic locations, (iii) corporate extranets linking a company's partners,
suppliers and customers and (iv) the increasing demand for security in
electronic commerce. The increasing reliance by corporate and individual users
on the Internet is causing such users to focus on security concerns. High
percentage increases are expected to continue as Internet technologies, such as
electronic commerce, become more accepted by the general public. In addition,
the costs of operating a network utilizing the public lines or Internet are
substantially less than T1/T3 interchanges and continue to decline. With the
advent of VPNs, corporations have a practical, low-cost solution to their
networking needs.

The events of September 11, 2001 have accelerated the rate at which the
Department of Defense, civilian agencies, and federal, state and local law
enforcement are adopting security solutions. As a result of the terrorist
attacks, many of the U.S. law enforcement and intelligence agencies are


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collaborating to investigate and prosecute terrorist activities and
conspiracies. This joint effort requires sharing information on an unprecedented
scale using, among other services, the Department of Justice's Regional
Information Sharing Systems (RISS) Program, which is secured by V-ONE's
technology. The RISS Secure Intranet is a nationwide law enforcement network
that allows secure communications among more than 5,700 federal, state and local
law enforcement agencies.

Recognizing the need for collaboration and information sharing in a secure
environment, the USA Patriot Act (USAPA), enacted on October 26, 2001, provides
additional funding and support to expand the RISS Program. Sharing information
among law enforcement agencies using RISS and other networks is a security
challenge that requires strongly encrypted communications and powerful access
controls. Securing these expanding network creates additional opportunities for
VPN providers.

THE V-ONE SOLUTION

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

The Company's current suite of products can be combined and configured to
provide network perimeter security, secure remote access and
intra/inter-enterprise security to facilitate secured electronic commerce and
information exchange. The Company's principal products are SmartGate, a
client/server product that offers identification and authentication, data
integrity, non-repudiation, authorization and encryption; and SmartGuard
appliances. V-ONE's SmartGuard VPN appliances are built on high-speed Intel
processors. SmartGuard incorporates SmartGate security technology into a
"drop-in" suite of devices that are easy to install, deploy and manage. The
SmartGuard appliances use V-ONE's award-winning SmartGate VPN software solution
with a powerful user authentication system, access control database and strong
encryption capabilities. A robust stateful inspection firewall is integrated
with all SmartGuard appliances. SmartGuard's advanced VPN capabilities include
IPSec tunneling and application layer security that allows firewall traversal
without requiring end users to make network configuration changes. The Company
provides customers with two-factor identification, mutual authentication,
fine-grained access control and encryption by combining smart card emulation
technology with the SmartGate server. In addition, SmartGate users can access
enterprise networks from remote locations using SmartPass technology
incorporated in SmartGate.

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


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STRATEGY

V-ONE's objective is to capitalize on its application level technology to become
the security solution of choice for large enterprises, including government
agencies and public sector organizations, financial institutions, service
providers, and commercial enterprises worldwide. V-ONE's products now include
both application level technology and IPSec, enabling organizations to employ
the most cost-effective and efficient security solution without compromising
data integrity and ensuring that communications will be completed successfully
and securely.

Key elements of V-ONE's strategy are:

INCREASING MARKET SHARE IN THE GOVERNMENT SECTOR. V-ONE will serve its
established base of government customers through existing and new channel
partners. V-ONE has successfully secured confidential information for the
government since shipping its first products in 1995. V-ONE technologies use all
approved government encryption methods, including the government's "triple DES"
Data Encryption Standard, and meet the standards of the U.S. Government for
broad scale deployments. The triple DES standard is the strongest encryption
method employed by the U.S. government, and is applied to verify the user's
identity and to protect the flow of data itself. In addition, in December 2001,
the National Institute of Standards and Technology (NIST) approved the Advanced
Encryption Standard (AES) and is developing implementation protocols. V-ONE has
added AES to its library of encryption methods and will incorporate this
algorithm as the approved encryption method upon release of the final protocols
from NIST. Government clients currently using V-ONE's technology to secure
information include the U.S. Department of the Treasury, the Department of
Defense, a significant number of federal, state and local law enforcement
agencies who share data through the Regional Information Sharing Systems (RISS)
and Law Enforcement Online (LEO), two out of the three National Drug
Intelligence Centers, more than 30 regional Drug Traffic Centers, 12 state
governments and several other regional and local law enforcement initiatives.
V-ONE's product capabilities are well suited for the government's secure
information sharing demands.

ENHANCING PRODUCT TECHNOLOGY TO ADDRESS CUSTOMER NEEDS. V-ONE intends to enhance
its technology through continued internal development and strategic
partnerships. V-ONE believes its current technology, consisting of the SmartGate
client/server software featuring its patented OLR capability, the SmartGuard
family of VPN appliances featuring the new Command Center management system, and
an IPSec client released in January 2002, delivers superior security,
performance and cost savings when compared to any other security products
available in the market. V-ONE will focus its development efforts to deliver
specific functionality including a wider and more feature-rich set of management
tools, additional high availability performance capabilities, and enhancements
for the emerging mobile enterprise/wireless access segment.

CAPITALIZING ON CHANNEL PARTNERS' MARKET PRESENCE TO INCREASE MARKET AWARENESS
OF V-ONE. V-ONE intends to use its OEM, Service Provider and Systems Integrator
partners' strong brand recognition and marketing resources to increase the
market's awareness of V-ONE's security products. This approach will allow V-ONE
to effectively lower its sales and marketing costs, preserving resources for
continuing product development. Although the Company will reduce its direct
marketing efforts, V-ONE will continue in its role as an active government
advisor.

PRODUCTS

V-ONE's hardware and software security products deliver to users all the
essential features of a secure network: authentication, integrity, privacy and
non-repudiation. V-ONE's technology has met the tough standards of the U.S.
Government for broad scale deployments and is FIPS (Federal Information
Processing Standards) validated, making it viable for the most demanding of


6


government or commercial environments. The Company's product portfolio offers
solutions for remote access, site-to-site, and extranet applications.

The cornerstone of V-ONE's network and application security solution is its
patented SmartGate client/server technology.

SMARTGATE ENTERPRISE SOLUTION
V-ONE's powerful SmartGate server software, available on Windows NT, Solaris,
BSD, and Red Hat Linux, allows a company to rapidly deploy a VPN solution
scalable to hundreds of thousands of concurrent users. It enables secure access
to TCP/IP based applications and other resources through the Internet by
providing a framework for mutual authentication, strong data encryption, access
control, audit logging and on-line registration. SmartGate works with all major
firewalls and supports a wide range of third party authentication systems
including x.509 (PKI), LDAP, RSA SecurID, RADIUS, Entrust, and digital
certificates from multiple providers. Since SmartGate operates at the
application layer, it can be deployed into complex environments and overcome
Network Address Translation issues and other obstacles commonly encountered in
VPN implementations.

A patented On-Line Registration (OLR) system enables VPN deployment to end users
in a matter of minutes. User IDs can be automatically generated without
administrative interaction.

SMARTPASS
V-ONE's SmartPass client product runs as a non-intrusive application on the
desktop or mobile device, or as a Java applet on a browser, to provide VPN
connection services to the SmartGate server. The client is extremely well suited
for user devices with minimal consumption of system resources such as memory and
storage space. Installation is fast, simple and designed to take the complexity
of VPN implementation out of the hands of end users. To securely connect, an end
user simply enters an access code that verifies ownership of his or her
authentication token that can reside on a hard drive, floppy disk or smart card.
Advanced security related functions are performed automatically and hidden from
the end user. SmartPass is available on a very broad range of computing
platforms including Windows 95/98/NT/2000/XP/CE/Pocket PC, Solaris, HP-UX, BSD
UNIX, Red Hat Linux, Mac and Palm OS.

SMARTADMIN
Management of a V-ONE VPN is handled by means of SmartAdmin, a powerful,
flexible tool that enables administration of one or more SmartGate servers and
allows full control of user access to specific resources. The controls are both
easy to implement and precise. Access permissions can be as broad or as granular
as required, ranging from company-wide visibility down to an individual who can
access only a single file, application, service or URL. Access control
permissions can be created for groups and support a powerful hierarchy
capability (nested group) where groups inherit access permissions.
Administration can be centralized or distributed, and performed locally or
through a secure remote connection.

SMARTGUARD APPLIANCES
V-ONE's SmartGuard VPN appliances are built on high-speed Intel processors.
SmartGuard incorporates proven SmartGate security technology into a "drop-in"
suite of devices that are easy to install, deploy, and manage:

o SmartGuard 1000: a tabletop unit designed for branches and remote offices.
o SmartGuard 4000: a 1U rack mountable enterprise class device.
o SmartGuard 5000: a 2U high reliability enterprise system with redundant
components and a high availability option for the most demanding security
environments.

The SmartGuard appliances use V-ONE's award-winning SmartGate VPN software
solution with a powerful user authentication system, access control database and
strong encryption capabilities. A robust stateful inspection firewall is
integrated with all SmartGuard appliances.

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SmartGuard's advanced VPN capabilities include IPSec tunneling and application
layer security that allow firewall traversal without requiring end users to make
network configuration changes. This innovative combination of network and
application level security allows site-to-site protection as well as the ability
to extend security to mobile users and business partners who require extranet
access. SmartGuard solutions are manageable from a single PC, directly or via
remote access.

The optional web accessible SmartGuard Command Center allows remote management
of a fully meshed network for large-scale enterprise class solutions. The
ability to easily monitor, manage and control thousands of tunnels in a large
VPN network from a simple graphical interface is targeted for complex enterprise
and service provider implementations.

CUSTOMER SERVICE AND SUPPORT

V-ONE provides Tier 1 customer support service to direct customers and Tier 2
support service to its channel partners. V-ONE's Customer Care group provides
standard response services and optional enhanced services for large
implementations, including Extended Support and Rapid Response Support. Standard
service provides live telephone and on-line support between 8:00 A.M. and 8:00
P.M. Eastern Standard Time during V-ONE's normal business days. In addition,
V-ONE provides a toll-free call-back system for customers who need service
during non-standard hours. On-call support engineers provide telephone support
during non-standard hours. Extended Support provides 24x7 coverage with standard
response times. Rapid Response is 24x7 with shorter response windows.

V-ONE's expert sales engineering group also provides critical customer support
throughout the pre-sales and implementation process, and is available for
assistance in support situations and enhancement engagements.

PRODUCT DEVELOPMENT

V-ONE has assembled a team of engineers with experience in the fields of
software development, network systems design, security standards, Internet
protocols and network management software. V-ONE's experience in developing,
implementing and supporting software solutions for complex enterprise and
extranet environments is a significant factor differentiating V-ONE from its
competition. In addition to having the ability to build complex software,
V-ONE's engineering team has the skills and experience to deliver turnkey
appliance solutions.

V-ONE believes that strong product development capabilities are essential to its
strategy of enhancing its core technology, developing and incorporating
additional functions and maintaining the competitiveness of its product
offerings. V-ONE's research and development process is driven by market demand,
availability of new technology, evolution of Internet and security standards and
customer feedback. V-ONE's technology is its primary strength and it is critical
that V-ONE's products continue to evolve to meet the needs of the market. V-ONE
continues to develop new releases of SmartGate, its enterprise class
client/server software, and the SmartGuard appliance product line, including the
Command Center management tool.

V-ONE also provides secure wireless communication solutions with its current
technology. The Company intends to continue to develop this capability to meet
the anticipated demand for wireless LAN security and the increasing
implementation of mobile devices in the enterprise and government sectors.

MARKETING AND BUSINESS DEVELOPMENT
The Company believes that the future success of the V-ONE product offerings will
depend on the Company's ability to execute a much more sharply focused sales and


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marketing strategy. To date, the Company has had success in the government
sector and plans to focus sales and marketing efforts on existing and potential
customers in the federal, state and local government sectors.

COMPETITION

The market for network security products is highly competitive, and V-ONE
expects competition to intensify in the future. V-ONE competes principally on
the basis of product security, breadth of remote client support, speed of
implementation, scalability and cost-effectiveness. The Company believes that it
competes favorably on the basis of these factors.

V-ONE participates in the VPN appliance and software market segments.
Competitors in these markets include:

o site-to-site IPSec security appliance and network security systems
suppliers such as SonicWall, Inc., WatchGuard Technologies Inc. and
NetScreen Technologies, Inc.;
o firewall and VPN software vendors such as Check Point Software Technologies
Ltd.;
o network equipment manufacturers such as Cisco Systems, Inc., Nokia
Corporation and Nortel Networks Corporation;
o remote client vendors such as SafeNet, Inc. and Certicom Corporation;
o suppliers that provide secure extranet solutions such as KyberPass
Corporation, Aventail Corporation and Symantec Corporation; and
o VPN management vendors such as SmartPipes, Inc.

The Company believes it maintains a distinct competitive advantage over other
providers by securing networks at the application level with powerful yet
precise user access controls. This functionality enables V-ONE to serve the
complex requirements of the large enterprise market where secure information
sharing across organizational boundaries and partner extranet communications are
required.

BACKLOG AND CUSTOMERS

The Company's customers order on an as-needed basis. The Company has typically
been able to ship products within 30 days after the customer submits a firm
purchase order. The Company does not generally maintain long-term contracts with
its customers that require customers to purchase its products. Accordingly, the
Company has not maintained and does not anticipate maintaining a backlog with
the exception of long-term service contracts.

SUPPLY SOURCES

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

The Company has agreements with at least two vendors for each of its parts and
components. However, the Company orders most of its parts and components from a
single vendor to maintain quality control and enhance working relationships. The
Company uses smart card readers manufactured by two contract manufacturers based
on the Company's design specifications. The Company has outsourced to hardware
fulfillment companies its hardware and hardware integration requirements.

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

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REGULATION AND GOVERNMENT CONTRACTS

The Company's information security products are subject to the export
restrictions administered by the U.S. Department of Commerce, which permit the
export of encryption products only with the required level of export license or
through a license exception KMI (Key Management Infrastructure). U.S. export
laws prohibit the export of encryption products to a number of hostile
countries. Although to date the Company has been able to secure all required
U.S. export licenses, including the license exception KMI, there can be no
assurance that the Company will continue to be able to secure such licenses in a
timely manner in the future, or at all.

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

LICENSE AGREEMENTS

The Company's SmartGate and Wallet Technology software incorporate data
encryption and authentication technology owned by RSA Security, Inc. ("RSA").
The Company has a perpetual license agreement with RSA, which became effective
as of December 30, 1994.

There can be no assurance that the Company will be able to maintain its license
rights for the RSA data encryption and authentication technology, and the loss
of such rights could have a material adverse effect on the Company's ability to
develop and deliver its products. If RSA terminates the license agreement or
takes any other action that results in the loss of, or inability to maintain,
such licensed technology, the Company may incur lost sales, delays in delivery
of the Company's current products and services or delays in the introduction of
new products and services, which could have a material adverse effect on the
Company's business, financial condition and results of operations.

PATENTS, PROPRIETARY TECHNOLOGY, TRADEMARKS AND LICENSES

The Company's success and ability to compete are substantially dependent upon
internally developed technology and expertise. V-ONE has received eight patents
which expire over a period between 2014 and 2017. The patents cover critical
aspects of V-ONE technology, including ease of use advantages gained by quick
client deployment, expandability and management features. The Company's stylized
"V-ONE," the phrase "Security for a Connected World," and the Company's
"SmartGate" and "SmartGuard" products and certain other products are the subject
of U.S. and foreign tradename and trademark filings. Prosecution of these patent
applications and any other patent applications that the Company may subsequently
determine to file may require the expenditure of substantial resources. The
issuance of a patent from a patent application may take 24 months or longer.
There can be no assurance that the Company's technology will not become obsolete
while the Company's applications for patents are pending. There also can be no
assurance that any pending or future patent application will be granted, that
any future patents will not be challenged, invalidated or circumvented or that
the rights granted thereunder will provide competitive advantages to the
Company. The Company has pursued patent protection outside of the United States
for the technology covered by the most recently filed patent applications. There
can be no assurance that any such protection will be granted or, if granted,
that it will adequately protect the covered technology.

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


10


by the Company or that its technology will not infringe upon patents, copyrights
or other intellectual property rights owned by others.

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

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

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

There has been, and the Company believes that there may be in the future,
significant litigation in the industry regarding patent and other intellectual
property rights. Although the Company is not currently the subject of any
material intellectual property litigation, litigation involving other software
developers, including companies from which the Company licenses certain
technology, could have a material adverse affect on the Company's ability to
develop new technologies and deliver products in its current suite of network
security products.

EMPLOYEES

As of March 1, 2002, the Company had 69 full-time employees and 7 consultants.
Of these individuals, 29 were in sales and marketing, 32 were in research and
product development, and 15 in administration. None of the Company's employees
is represented by a labor union or are subject to a collective bargaining
agreement. The Company has never experienced a work stoppage and believes that
its employee relations are good.

RISK FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF COMMON STOCK

V-ONE operates in a rapidly changing environment that involves numerous risks,
some of which are beyond V-ONE's control. The following discussion addresses
risks V-ONE believes to be material to its business and operations. This Annual
Report on Form 10-K contains "forward-looking" statements that are generally
noted by terms such as "believes", "expectations", "foresee", "goals",
"potential", and "prospects." Such statements involve known and unknown risks
and uncertainties that could cause V-ONE's actual performance or achievements to
differ from any future performance or achievements expressed or implied by such
statements. Readers should carefully consider the following risk factors before
purchasing Common Stock of V-ONE. Readers are also referred to other documents
filed by V-ONE with the Securities and Exchange Commission ("SEC"), which may
identify important risk factors for V-ONE.



11


V-ONE'S ACCUMULATED DEFICIT COULD AFFECT OVERALL OPERATIONS. As of December 31,
2001, V-ONE had an accumulated deficit of approximately $58,787,000. V-ONE
currently expects to incur additional net losses over the next several quarters.
V-ONE may not achieve or sustain profitability or significant revenues in the
short run. To address these risks, V-ONE must, among other things, continue its
emphasis on research and development, successfully execute and implement its
marketing strategy, respond to competitive developments and seek to attract and
retain talented personnel. V-ONE may be unable to successfully address these
risks and the failure to do so could have a material adverse effect on V-ONE's
business, financial condition, results of operations and cash flows.

V-ONE was founded in February 1993 and introduced its first product in December
1994. Accordingly, V-ONE did not generate any significant revenues until 1995
when it commenced sales of its SmartWall firewall product and introduced its
SmartGate client/server system. Revenues for the years 1997, 1998, 1999, 2000
and 2001 were approximately $5,973,000, $6,260,000, $4,966,000, $4,554,000 and
$4,990,000, respectively.

Losses attributable to holders of Common Stock for the years 1997, 1998, 1999,
2000 and 2001 were approximately $10,828,000, $9,407,000, $9,952,000, $9,232,000
and $9,911,000, respectively.

V-ONE's results of operations 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 V-ONE's products in particular.

OPERATING LEVELS WILL BE AFFECTED BY V-ONE'S NEED FOR ADDITIONAL CAPITAL.
V-ONE's cash used in operating activities was approximately $7.8 million in
fiscal 2001, an average "burn rate" of approximately $648,000 a month.
Notwithstanding acceptance of V-ONE's security concepts and critical acclaim for
its products, there can be no assurance that the consummation of sales of
V-ONE's products to existing customers or proposed agreements with potential
customers will generate timely or sufficient revenue for V-ONE to cover its cost
of operations and meet its cash flow requirements. The Company has sought
additional capital investments, thus far without success. Accordingly, V-ONE may
not have the funds needed to sustain operations during 2002, and its audited
financial statements are presented subject to a "going concern" opinion. Nor may
the Company be able to continue to satisfy the Nasdaq Small Cap Market listing
requirements. In addition to continuing to pursue capital investment, the
Company engaged Updata Capital to explore other alternatives to preserve V-ONE's
operations and maximize shareholder value, including potential strategic
partnering relationships, a business combination with a strategically placed
partner, or a sale of V-ONE.

To preserve cash resources, the Company will reduce operating levels effective
on April 1, 2002. For the immediate future, V-ONE will focus exclusively on
existing and potential customers in the government sector, curtailing sales and
marketing operations to commercial accounts, reduce general and administrative
expenditures and all possible capital expenditures, and effect staff reductions
approximating 25% of its employees. V-ONE may not be successful in further
reducing operating levels or, even at reduced operating levels, V-ONE may not be
able to maintain operations for any extended period of time without additional
capital or a significant strategic transformative event.

RISKS ASSOCIATED WITH THE EMERGING NETWORK SECURITY MARKET MAKE IT DIFFICULT TO
PREDICT DEMAND. The market for V-ONE's products, particularly its client/server
VPN products, remains in the development stage and market acceptance of these
products has been slower than expected. Because the market for network security
products is still in the development stage and many potential customers are only
now being introduced to VPN technology, it is difficult to assess the extent of
market acceptance of V-ONE's products, the product features desired by the
market, the best price structure for V-ONE's products, the best distribution
strategy and the competitive environment that will develop in this market. The
demand for V-ONE's products could decline as a result of competition,
technological change, the public's perception of the need for security products,


12


developments in the hardware and software environments in which these products
operate, general economic conditions or other factors beyond V-ONE's control.

SALES TO GOVERNMENT AGENCIES CONSTITUTE A SIGNIFICANT PERCENTAGE OF V-ONE'S
REVENUE AND ARE SUBJECT TO VARIOUS POLICIES AND LENGTHY TESTING PERIODS. No
government agency or department has an obligation to purchase products from
V-ONE in the future. Government contracts may be terminated by the government
without cause. Moreover, sales to and contracts with government agencies are
subject to reductions or delays in funding, risks of disallowance of costs upon
audit, changes in government procurement policies, the necessity to participate
in competitive bidding and, with respect to contracts involving prime
contractors or government-designated subcontractors, the inability of such
parties to perform under their contracts. In addition, product implementation in
government sales may be subject to extended periods of rigorous validation
testing and a lengthy approval process by government agencies and bureaus within
an agency. Such testing and approval may delay contract awards and payments to
V-ONE under such contracts. V-ONE estimates that for the fiscal year ended
December 31, 2001, sales to the U.S. government constituted approximately 43% of
its revenue.

CONTINUED MARKET ACCEPTANCE OF SMARTGATE AND SMARTWALL IS NOT GUARANTEED. V-ONE
currently generates most of its revenues from its SmartGate and SmartWall
products. SmartGate and SmartWall have met with a favorable degree of market
acceptance since sales of SmartWall commenced in 1995. The percentage of total
revenue for SmartGate and SmartWall, respectively, was 45.7% to 23.4% for 1999,
56.3% to 17.4% for 2000 and 50.0% to 23.6% for 2001. However, SmartGate or
SmartWall may not continue to be accepted in the future. In addition, any or all
of V-ONE's other current or future products could fail to win market acceptance.

RISKS OF COMPETITION COULD AFFECT V-ONE'S MARKET SHARE. V-ONE faces intense
competition in all of its market segments. The market for network security
products is very competitive and V-ONE expects competition to intensify in the
future. There can be no assurance that V-ONE's products will command a
significant share of the network security market. Many of V-ONE's competitors
have significantly greater resources, generate higher revenue and have greater
name recognition than V-ONE. There can be no assurance that V-ONE's competitors
will not develop products that are superior to those developed by V-ONE or adapt
more quickly than V-ONE to new technologies or evolving industry trends.
Increased competition may result in price reductions, reduced gross margins or
loss of market share, any of which could have a material adverse effect on
V-ONE's revenue stream. There is no assurance that V-ONE will be able to compete
effectively against current or future competitors.

RISK OF ERRORS, FAILURES AND PRODUCT LIABILITY COULD AFFECT MARKET ACCEPTANCE OF
V-ONE'S PRODUCTS. The complex nature of V-ONE's software products can make the
detection of errors or failures difficult when products are introduced. If
errors or failures are subsequently discovered, this may result in delays, lost
revenues, lost customers during the correction process, damage to V-ONE's
reputation and claims against it. A malfunction or the inadequate design of
V-ONE's products could result in tort or warranty claims. V-ONE generally
attempts to reduce the risk of such losses to itself and to the companies from
which it licenses technology through warranty disclaimers and liability
limitation clauses in its license agreements. V-ONE may not have obtained
adequate contractual protection in all instances or where otherwise required
under agreements it has entered into with others. In addition, these measures
may not be effective in limiting V-ONE's liability to end users and to the
companies from which V-ONE licenses technology. V-ONE currently has liability
insurance. However, V-ONE's insurance coverage may not be adequate and any
product liability claim against V-ONE for damages resulting from security
breaches could be substantial. In addition, a well-publicized actual or
perceived security breach could adversely affect the market's perception of
security products in general or V-ONE's products in particular.

RISKS OF CHANGES IN TECHNOLOGY AND INDUSTRY COULD AFFECT DEMAND FOR V-ONE'S
PRODUCTS. The network security industry is characterized by rapid changes,
including evolving industry standards, frequent new product introductions,
continuing advances in technology and changes in customer requirements and


13


preferences. Advances in techniques by individuals and entities seeking to gain
unauthorized access to networks could expose V-ONE's existing products to new
and unexpected attacks and require accelerated development of new products or
enhancements to existing products. V-ONE may be unable to counter challenges to
its current products. V-ONE's competitors may develop superior products and
V-ONE's future products may not keep pace with technological changes implemented
by competitors or persons seeking to breach network security. Its products may
not satisfy evolving consumer preferences and V-ONE may not be successful in
developing and marketing products for any future technology. Failure to develop
and introduce new products and improve current products in a timely fashion
could result in a decrease in the demand for V-ONE's products and of V-ONE's
market share.

RISK OF DEFECTS AND DEVELOPMENT DELAYS COULD AFFECT V-ONE'S ABILITY TO MEET
DELIVERY SCHEDULES. V-ONE may experience delays in software development
triggered by factors such as insufficient staffing or the unavailability of
development-related software, hardware or technologies. Further, when developing
new software products, V-ONE's schedules may be altered as a result of changes
to the product specifications in response to customer requirements, market
developments, performance problems or V-ONE-initiated changes. When developing
complex software products, the technology market may shift during the
development cycle, requiring V-ONE either to enhance or change a product's
specifications. All of these factors may cause a product to enter the market
behind schedule, which may adversely affect market acceptance of the product or
place it at a disadvantage to a competitor's product that has already gained
market share or market acceptance during the delay.

RISKS ASSOCIATED WITH LONG SALES CYCLE MAKE IT DIFFICULT TO PREDICT RESULTS. The
sales cycle associated with V-ONE's products is likely to be lengthy due to a
number of significant risks over which V-ONE has little or no control. As a
result, V-ONE finds it difficult to predict quarterly results and order backlog,
if any, at the beginning of any period. As a result, product revenues in any
period will be substantially dependent on orders booked and registered in that
period.

MARKET VOLATILITY COULD AFFECT V-ONE'S STOCK PRICE. The market price of V-ONE's
Common Stock could be subject to significant fluctuations in response to
variations in quarterly operating results and other factors, such as
announcements of new products by V-ONE or its competitors and changes in
financial estimates by securities analysts or other events. Moreover, the stock
market has experienced extreme volatility that has particularly affected the
market prices of equity securities of many technology companies and that has
often been unrelated and disproportionate to the operating performance of such
companies. Broad market fluctuations as well as economic conditions generally
and in the software industry specifically, may adversely affect the market price
of V-ONE's Common Stock.

ITEM 2. PROPERTIES

The Company leases approximately 28,312 square feet of office space in
Germantown, Maryland under a lease agreement that will expire on July 1, 2003.
The Company expects that this space will be sufficient for its needs through
expiration of the lease. The Company subleases 6,782 square feet of this space
on an adjacent floor, concurrent with the expiration date of the master lease.

ITEM 3. LEGAL PROCEEDINGS

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the Company's security holders during the
quarter ended December 31, 2001.


14


PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock was traded in the Nasdaq National Market from the
Company's IPO on October 24, 1996 through September 3, 1999 when it was
transferred to the Nasdaq SmallCap Market. According to records of the Company's
transfer agent, the Company had approximately 166 record holders on March 1,
2002. Because brokers and other institutions hold many of such shares on behalf
of stockholders, the Company is unable to estimate the total number of
stockholders represented by these record holders. The following table sets forth
the low and high sale prices of the Company's Common Stock for each quarter
during the two-year period ended December 31, 2001.



2001
HIGH SALE PRICE LOW SALE PRICE
--------------- --------------
First Quarter $ 3.19 $ 0.53
Second Quarter $ 2.80 $ 0.94
Third Quarter $ 1.49 $ 0.85
Fourth Quarter $ 1.98 $ 0.89

2000
HIGH SALE PRICE LOW SALE PRICE
--------------- --------------

First Quarter $ 9.50 $ 4.88
Second Quarter $ 5.84 $ 2.06
Third Quarter $ 5.18 $ 2.19
Fourth Quarter $ 2.68 $ 0.53

The Company has never declared or paid cash dividends on its Common Stock. The
Company anticipates that all of its net earnings, if any, will be retained for
use in its operations and does not anticipate paying cash dividends on its
Common Stock in the foreseeable future. Payments of future cash dividends, if
any, will be at the discretion of the Company's Board of Directors after taking
into account various factors, including the Company's financial condition,
operating results, current and anticipated cash needs and restrictions on the
payment of dividends on Series C and Series D Preferred Stock, as discussed in
Note 6 to the financial statements beginning on page 28 of this Annual Report on
Form 10-K.

ITEM 6. SELECTED FINANCIAL DATA

The selected financial data set forth below with respect to the Company's
Statements of Operations for the years ended December 31, 1999, 2000 and 2001
and balance sheets as of December 31, 2000 and 2001 are derived from the audited
financial statements of the Company included elsewhere in this Annual Report.
The following financial data as of December 31, 1997, 1998, and 1999 and for
each of the years ended December 31, 1997 and 1998 are derived from audited
financial statements of the Company not included in this Annual Report. The
financial data set forth below should be read in conjunction with the Company's
financial statements and the notes thereto included elsewhere in this Annual
Report and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."


15




Year ended December 31,
----------------------------------------------------------------------------
Statement of Operations Data: 1997 1998 1999 2000 2001
----- ----- ----- ----- ----

Revenues:
Products $5,470,230 $ 5,798,542 $ 3,427,422 $3,356,086 $3,669,817
Consulting and services 502,771 461,263 1,538,258 1,197,544 1,320,345
---------- ----------- ----------- ---------- ----------
Total revenues 5,973,001 6,259,805 4,965,680 4,553,630 4,990,162


Cost of revenues:
Products 1,848,871 1,623,396 973,866 441,752 824,305
Consulting and services 386,314 241,683 328,333 278,327 509,570
---------- ----------- ----------- --------- ----------
Total cost of revenues 2,235,185 1,865,079 1,302,199 720,079 1,333,875
---------- ----------- ----------- --------- ----------
Gross profit 3,737,816 4,394,726 3,663,481 3,833,551 3,656,287

Operating expenses:
Research and development 3,153,941 2,618,914 2,848,955 3,440,397 4,009,889
Sales and marketing 7,428,275 7,132,656 6,491,987 6,041,926 4,891,170
General and administrative 3,699,278 3,896,210 3,118,829 3,517,068 2,537,103
---------- ----------- ----------- ---------- ----------
Total operating expenses 14,281,494 13,647,780 12,459,771 12,999,391 11,438,162
---------- ----------- ----------- ---------- ----------
Operating loss (10,543,678) (9,253,054) (8,796,290) (9,165,840) (7,781,875)


Other income (expense):
Interest expense (13,130) (65,372) (676,443) (25,945) (11,560)
Interest income 341,469 125,030 164,841 329,770 249,575
Other income - - - - 1,306,582
---------- ----------- ---------- ---------- ----------
Total other income (expense) 328,339 59,658 (511,602) 303,825 1,544,597
---------- ----------- ----------- ---------- ----------

Loss before extraordinary item (10,215,339) (9,193,396) (9,307,892) (8,862,015) (6,237,278)
---------- ----------- ---------- ---------- ----------
Extraordinary item - early
extinguishment of debt - - (372,052) - -
---------- ----------- ---------- ---------- ----------
Net loss (10,215,339) (9,193,396) (9,679,944) (8,862,015) (6,237,278)

Dividends on preferred stock 12,600 110,879 272,245 369,979 741,245
Deemed dividends on preferred
stock 600,000 102,755 - - 2,932,023
---------- ----------- ---------- ---------- ----------
Net loss attributable to
holders of common stock $(10,827,939) $ (9,407,030) $ (9,952,189) $ (9,231,994) $(9,910,546)
============ ============= ============= ============= ============

Basic and diluted loss per share:

Loss before extraordinary item $ (0.84) $ (0.68) $ (0.57) $ (0.44) $ (0.44)
========== ========== ========== ========== ==========
Net loss attributable to
holders of common stock $ (0.84) $ (0.68) $ (0.59) $ (0.44) $ (0.44)
========= ========== ========== ========== ==========

Weighted average number of
common shares outstanding 12,868,859 13,898,450 16,938,205 20,871,076 22,576,188
============ =========== ========== ========== ==========


December 31,
---------------------------------------------------------------------
1997 1998 1999 2000 2001
----- ----- ----- ----- ----
Balance Sheet Data:

Working capital (deficit) $ 5,912,046 $(1,277,368) $ 6,629,846 $ 1,591,967 $2,164,448
Total assets 10,313,276 3,922,192 9,775,436 5,450,618 4,732,324
Long-term debt, less current portion 300,861 197,982 119,746 47,803 -
Series A Convertible Preferred Stock 3,766,297 - - - -
Series B Convertible Preferred Stock - - 1,288 1,288 -
Series C Redeemable Preferred Stock - - 335 55 43
Series D Convertible Preferred Stock - - - - 3,675
Total shareholder's equity 4,211,210 635,725 7,841,603 2,721,581 2,882,367



16



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

FORWARD-LOOKING INFORMATION

All forward-looking information contained in this Management's Discussion and
Analysis of Financial Condition and Results of Operations is based on
management's current knowledge of factors affecting the Company's business. The
Company's actual results may differ materially if these assumptions prove
invalid. Significant factors, while not all inclusive, are:

o The possibility of increasing competition in the Company's market place.
o The potential for changes in technology and industry.
o The risks associated with long sales cycles and inability to predict
quarterly results.

See pages 12 through 15 for a more detailed discussion of the factors that may
affect the Company's business.

OVERVIEW

The Company generates revenues primarily from software licenses and sale of
hardware products and, to a lesser extent, consulting and related services. The
Company anticipates that revenues from products will continue to be the
principal source of the Company's total revenues. The Company does not have any
off balance sheet arrangements or significant transactions with related parties.

CRITICAL ACCOUNTING POLICIES
V-ONE considers certain accounting policies related to revenue recognition,
capitalized software development costs and valuation of accounts receivable to
be critical policies due to the estimation processes involved in each.

REVENUE RECOGNITION
V-ONE's revenue recognition policy is critical because revenue is a key
component of the Company's results of operations. The Company follows very
specific and detailed guidelines in measuring revenue; however certain judgments
affect the application of the Company's revenue policy. Revenue results are
difficult to predict, and any shortfall in revenue or delay in recognizing
revenue could cause operating results to vary significantly from quarter to
quarter and could result in future operating losses.

CAPITALIZED SOFTWARE DEVELOPMENT COSTS
V-ONE's policy on capitalized software costs determines the timing of the
Company's recognition of certain development costs. In addition, this policy
determines whether the cost is classified as development expense or cost of
license fees. Management is required to use professional judgment in determining
whether development costs meet the criteria for immediate expense or
capitalization.

VALUATION OF ACCOUNTS RECEIVABLE
V-ONE maintains allowances for doubtful accounts for estimated losses resulting
from the inability of its customers to make required payments. If the financial
condition of V-ONE's customers were to deteriorate, resulting in an impairment
of their ability to make payments, additional allowances may be required.



17




RESULTS OF OPERATIONS

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


Year ended December 31,
--------------------------------------
1999 2000 2001
---------- --------- ---------


Revenues:

Products 69.0 % 73.7 % 73.5 %

Consulting and services 31.0 26.3 26.5
------- ------- -------

Total revenues 100.0 100.0 100.0
------- ------- -------

Cost of revenues:

Products 19.6 9.7 16.5

Consulting and services 6.6 6.1 10.2
------- ------- -------

Total cost of revenues 26.2 15.8 26.7
------- ------- -------

Gross profit 73.8 84.2 73.3

Operating expenses:

Research and development 57.4 75.6 80.4

Sales and marketing 130.7 132.7 98.1

General and administrative 62.8 77.2 50.8
------- ------- -------

Total operating expenses 250.9 285.5 229.3
------- ------- -------
Operating loss (177.1) (201.3) (156.0)

Other income (expense):

Interest expense (13.6) (0.5) (0.2)

Interest income 3.3 7.2 5.0

Other income - - 26.2

Total other income (expense) (10.3) 6.7 31.0
------- ------- -------

Loss before extraordinary item (187.4) (194.6) (125.0)

Extraordinary loss - early extinguishment of debt (7.5) - -

------- ------- -------
Net loss (194.9) (194.6) (125.0)

Dividends on preferred stock 5.5 8.1 14.9

Deemed dividends on preferred stock - - 58.7
------- ------- -------

Loss attributable to holders of Common Stock (200.4) % (202.7) % (198.6) %
======= ======= =======




18



COMPARISON OF FISCAL 2001 AND 2000

REVENUES

Total revenues increased to approximately $4,990,000 in 2001 from approximately
$4,554,000 in 2000. Product revenues are derived principally from software
licenses and the sale of hardware products. Product revenues increased to
approximately $3,670,000 in 2001 from approximately $3,356,000 in 2000. The
increase in product revenues from 2000 to 2001 was due principally to revenue
derived from initial recognition of revenue under the Company's Licensing and
Distribution Agreement with Citrix Systems, Inc. that was initially executed in
2000, which amounted to approximately $1,236,000 in sales of the Company's
SmartGate product, offset by a decrease in revenues from other customers.

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 to approximately $1,320,000
in 2001 from approximately $1,198,000 in 2000.

COSTS OF REVENUES

Total costs of revenue as a percentage of total revenues were 26.7% and 15.8% in
2001 and 2000, respectively. The percentage increase of 10.9% is comprised of
higher costs of product revenue which increased to 16.5% in 2001 from 9.7% in
2000 and higher costs of consulting and services revenue which increased to
10.2% of total revenues in 2001 from 6.1% in 2000.

Costs of product revenue consist principally of the costs of computer hardware,
licensed technology, manuals and labor associated with the distribution and
support of the Company's products and shipping costs. Costs of product revenue
increased to approximately $824,000 in 2001 from approximately $442,000 in 2000,
an increase of $382,000. Costs of product revenue as a percentage of product
revenues was 22.5% and 13.2% for 2001 and 2000, respectively. The dollar and
percentage increases in 2001 over 2000 were attributable in part to a higher mix
of SmartGuard and SmartWall products and turnkey hardware sales (increased
$273,000 or 5.5% of total revenues), which have higher costs of revenues,
compared to SmartGate software licenses. An additional factor in the dollar and
percentage increase was the impact of the write-off of obsolete inventory in
2001 which amounted to an increase over 2000 of approximately $153,000, or 3.1%
of total revenues.

Costs of consulting and services revenue consist principally of personnel and
related costs incurred in providing consulting, support and training services to
customers. Costs of consulting and services revenue increased by $232,000 to
approximately $510,000 in 2001 from $278,000 in 2000, due partially to a larger
portion of third party products with proportionately higher support costs
(increased $104,000 or 2.1% of total revenues), and higher costs of training
(increased $80,000, or 1.6% of total revenue). Costs of consulting and services
revenue as a percentage of consulting and services revenues were 38.6% and 23.2%
for 2001 and 2000, respectively.

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 to approximately
$4,010,000 in 2001 from approximately $3,440,000 in 2000. Research and
development expenses as a percentage of total revenues were 75.6% and 80.4% in
2000 and 2001, respectively. The dollar and percentage increases in 2001 over
2000 of approximately $570,000 and 4.8%, respectively, were primarily due to
increases in the costs of personnel, higher by approximately $262,000, and
consulting services, higher by approximately $167,000, associated with the
Company's product development efforts. The Company believes that a continuing
commitment to research and development is required to remain competitive.


19


Accordingly, if cash resources allow, the Company intends to continue to
allocate substantial resources to research and development, but research and
development expenses may vary as a percentage of total revenues.

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 to approximately $4,891,000 in 2001 from
approximately $6,042,000 in 2000. Sales and marketing expenses as a percentage
of total revenues were 98.0% and 132.7% in 2001 and 2000, respectively. The
dollar decrease of $1,151,000 and percentage decrease of 34.7% in 2001 from 2000
were principally due to lower costs of personnel (decreased $774,000 or 15.5% of
total revenues), lower levels of advertising and promotion expenses (decreased
$294,000 or 5.9% of total revenues), and lower costs of travel (decreased
$287,000 or 5.8% of total revenues), offset in part by additional costs of
consulting (increased $448,000 or 9.0% of total revenues) in 2001 over 2000.

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 to
approximately $2,537,000 in 2001 from approximately $3,517,000 in 2000. General
and administrative expenses as a percentage of total revenues were 50.8% and
77.2% in 2001 and 2000, respectively. The decrease in expense in 2001 resulted
from lower costs of personnel (decreased $610,000 or 12.2% of total revenues)
and lower legal costs (decreased $289,000 or 5.8% of total revenues) in 2001
compared with 2000. The decrease in percent of revenues of 26.4% consists of
lower expenses of 21.5% and higher revenues of 4.9% for 2001. The Company
anticipates that general and administrative expenses, as a percent of revenue,
will decrease in future periods.

Other Income (Expense) -- Other income (expense) represents interest income and
expense and other income. Interest income represents interest earned on cash,
cash equivalents and marketable securities. Interest income was approximately
$250,000 in 2001 compared to $330,000 in 2000. Interest income was derived
primarily from interest earned on the proceeds from the Company's private
placements. Interest expense represents interest payable or accreted on
promissory notes and capitalized lease obligations. Interest expense was
approximately $12,000 and $26,000 in 2001 and 2000, respectively. Other income
in 2001 of approximately $1,307,000 represents the gain on the sale of its 6.8%
holding in the stock of NFR Security, Inc. (formerly Network Flight Recorder).

Income Taxes -- The Company did not incur income tax expenses in December 31,
2001 and 2000 as a result of the net loss incurred during these periods. As of
December 31, 2001, the Company had net operating loss carry forwards of
approximately $48,600,000 as a result of net losses incurred since inception.
These net losses result in a future tax benefit of $19,019,000 which can be used
to offset future taxable income.

Dividends on Series C and D Preferred Stock -- The Company provided
approximately $370,000 for a dividend on the Series C Stock during 2000, and
approximately $741,000 for dividends on both the Series C and Series D Preferred
Stock during 2001.

Deemed Dividends on Series D Preferred Stock -- In 2001, the Company recorded
deemed dividends of $2,932,000 on the Series D Preferred Stock, in accordance
with accounting treatment for convertible preferred stock with a beneficial
conversion feature. The proceeds received in the transaction were first
allocated between the convertible instrument and the detachable warrant on a
relative fair value basis. The difference between the fair market value of the
Common Stock on the commitment date and the effective conversion price was
recorded as a deemed dividend.



20



COMPARISON OF FISCAL 2000 AND 1999

REVENUES

Total revenues decreased to approximately $4,554,000 in 2000 from approximately
$4,966,000 in 1999. Product revenues are derived principally from software
licenses and the sale of hardware products. Product revenues decreased to
approximately $3,356,000 in 2000 from approximately $3,427,000 in 1999. The
principal reason for the decrease in fiscal 2000 was declining sales of the
Company's SmartWall products and hardware turnkey systems.

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 decreased to approximately $1,198,000
in 2000 from approximately $1,538,000 in 1999.

COSTS OF REVENUES

Total costs of revenue as a percentage of total revenues were 15.8% and 26.2% in
2000 and 1999, respectively.

Costs of product revenue consist principally of the costs of computer hardware,
licensed technology, manuals and labor associated with the distribution and
support of the Company's products and shipping costs. Costs of product revenue
decreased to approximately $442,000 in 2000 from approximately $974,000 in 1999.
Costs of product revenue as a percentage of product revenues was 13.2% and 28.4%
for 2000 and 1999, respectively. The dollar and percentage decreases in 2000
were attributable to a lower mix of SmartWall products and turnkey hardware when
compared to sales of SmartGate software licenses.

Costs of consulting and services revenue consist principally of personnel and
related costs incurred in providing consulting, support and training services to
customers. Costs of consulting and services revenue decreased slightly to
$278,000 in 2000 from approximately $328,000 in 1999. Costs of consulting and
services revenue as a percentage of consulting and services revenues were 23.2%
and 21.3% for 2000 and 1999, respectively. The percentage decrease from 1999 to
2000 was principally due to a smaller amount of third party products with
proportionately lower support costs.

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 $2,849,000 in 1999 to approximately $3,440,000 in 2000. Research
and development expenses as a percentage of total revenues were 57.4% and 75.6%
in 1999 and 2000, respectively. The dollar and percentage increases in 2000 were
primarily due to increases in the number of personnel and consulting services
associated with the Company's product development efforts.

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 $6,492,000 in 1999 to approximately
$6,042,000 in 2000. Sales and marketing expenses as a percentage of total
revenues were 130.7% and 132.7% in 1999 and 2000, respectively. The dollar
decreases in 2000 were principally due to personnel turnover and lower levels of
advertising and promotion expenses.

General and Administrative -- General and administrative expenses consist
principally of the costs of finance, management and administrative personnel and
facilities expenses. General and administrative expenses increased from
approximately $3,119,000 in 1999 to approximately $3,517,000 in 2000. General
and administrative expenses as a percentage of total revenues were 62.8% and


21


77.2% in 1999 and 2000, respectively. The increase in expense in 2000 resulted
from higher professional fees and certain non-recurring severance costs.

Other (Expense) Income -- Interest income represents interest earned on cash,
cash equivalents and marketable securities. Interest income was approximately
$165,000 in 1999 and approximately $330,000 in 2000. Interest income was derived
primarily from interest earned on the proceeds from the Company's private
placements and stock option exercises. Interest expense represents interest
payable or accreted on promissory notes and capitalized lease obligations.
Interest expense was approximately $676,000 and $26,000 in 1999 and 2000,
respectively. The interest expense in 1999 relates to financing costs
attributable to the Company's secured loan to Transamerica Business Credit
Corporation. The total costs including interest on the loan proceeds,
transactions costs, costs to prepay the loan prior to the maturity date and the
cost of warrants issued in conjunction with the Transamerica note amounted to
approximately $1,000,000 in 1999.

Income Taxes -- The Company did not incur income tax expenses in December 31,
1999 and 2000 as a result of the net loss incurred during these periods. As of
December 31, 2000, the Company had net operating loss carry forwards of
approximately $42,160,000 as a result of net losses incurred since inception.

Dividend on Series C Preferred Stock -- The Company provided approximately
$272,000 for a dividend on the Series C Preferred Stock during 1999, and
approximately $370,000 for 2000.

LIQUIDITY AND SOURCES OF CAPITAL

The Company's operating activities used cash of approximately $7,771,000,
$6,700,000 and $9,263,000 in 2001, 2000 and 1999, respectively. Cash used in
operating activities was used primarily to increase engineering staff necessary
to complete the private labeled product for Citrix Systems, Inc., required as a
specific deliverable under the Company's contract with Citrix, complete delivery
of the Company's enhanced 4.2 product and complete and launch the V-ONE
SmartGuard Appliance product suite. The increase in cash used in operating
activities in 2001 includes an increase of $570,000 in engineering expenses, a
reduction of approximately $2,131,000 in sales, marketing and general and
administrative expenses, and a drop in accounts payable of $607,000 and in
deferred revenue of ($161,000). The decrease in net cash used in operating
activities from 1999 to 2000 was due in part to large increases in deferred
revenue and decreases in prepaid expenses and other assets.

Net capital expenditures for property and equipment were approximately $370,000,
$774,000 and $176,000 in 2001, 2000 and 1999 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 2000 as the Company purchased computers and equipment
off an expiring three-year lease, and acquired an integrated sales opportunity
management software system for increased efficiency and visibility within the
organization. The capital expenditures decreased in 2001 due in part to
conservation of funds.

As of December 31, 2001, the Company's principal commitments consisted of
obligations outstanding under a series of capital leases of computer equipment
and the facility lease for its office space. V-ONE's current aggregate annual
rent obligation is approximately $577,000 for 2002 and $341,000 for 2003. The
current aggregate capital lease obligation is $50,059, all of which is due in
2002.

In February 2001 the Company completed a private placement of equity securities
resulting in net proceeds of approximately $6.3 million and completed the sale
of its 6.8% holding in the stock of NFR Security, Inc. (formerly Network Flight
Recorder) in March 2001 for approximately $1.6 million in net proceeds.



22


A significant portion of the proceeds received from the February 2001 private
placement and the sale of V-ONE's holding in NFR Security, Inc. was used during
fiscal 2001 for general working capital purposes, including funding of
operations and cash flow requirements. Notwithstanding acceptance of V-ONE's
security concepts and critical acclaim for its products, there can be no
assurance that the consummation of sales of V-ONE's products to existing
customers or proposed agreements with potential customers will generate timely
or sufficient revenue for V-ONE to cover future costs of operations and meet
future cash flow requirements. The Company has sought additional capital
investments, thus far without success. Accordingly, V-ONE may not have the funds
needed to sustain operations during 2002, and its audited financial statements
are presented subject to a "going concern" opinion. Nor may the Company be able
to continue to satisfy the Nasdaq Small Cap Market listing requirements. In
addition to continuing to pursue capital investment, the Company engaged Updata
Capital to explore other alternatives to preserve V-ONE's operations and
maximize shareholder value, including potential strategic partnering
relationships, a business combination with a strategically placed partner, or a
sale of V-ONE.

To preserve cash resources, the Company will reduce operating levels effective
on April 1, 2002. For the immediate future, V-ONE will focus exclusively on
existing and potential customers in the government sector, curtailing sales and
marketing operations to commercial accounts, reduce general and administrative
expenditures and all possible capital expenditures, and effect staff reductions
approximating 25% of its employees. V-ONE may not be successful in further
reducing operating levels or, even at reduced operating levels, V-ONE may not be
able to maintain operations for any extended period of time without additional
capital or a significant strategic transformative event.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company is not exposed to a variety of market risks such as fluctuations in
currency exchange rates or interest rates. All of the Company's products are
invoiced in U.S. dollars. The Company does not hold any derivatives or
marketable securities.

23



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


V-ONE CORPORATION
INDEX TO FINANCIAL STATEMENTS

--------



Report of Independent Auditors 27

Balance Sheets 28

Statements of Operations 29

Statements of Stockholders' Equity 30

Statements of Cash Flows 31

Notes to Financial Statements 32

Schedule of Valuation and Qualifying Accounts for the years ended
December 31, 1999, 2000 and 2001 49



24



Report of Independent Auditors


Board of Directors and Stockholders
V-ONE Corporation

We have audited the accompanying balance sheets of V-ONE Corporation as
of December 31, 2001 and 2000, and the related statements of
operations, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 2001. Our audits also included
the financial statement schedule for the years ended December 31, 2001,
2000 and 1999 listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

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

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of V-ONE
Corporation at December 31, 2001 and 2000, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the
related financial statement schedule for the years ended December 31,
2001, 2000 and 1999 when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects
the information set forth therein.

The accompanying financial statements have been prepared assuming that
V-ONE Corporation will continue as a going concern. As more fully
described in Note 2, the Company has incurred significant operating
losses since inception. This condition raises substantial doubt about
the Company's ability to continue as a going concern. Management's
plans in regard to this matter are also described in Note 2. The
financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result
from the outcome of this uncertainty.

/s/ Ernst & Young LLP

McLean, Virginia
January 29, 2002


25







V-ONE CORPORATION
BALANCE SHEETS


December 31,
--------------------------------
ASSETS 2001 2000
---- ----

Current assets:
Cash and cash equivalents $ 2,608,690 $ 2,949,398
Accounts receivable, less allowances of $72,035 and
$105,664, respectively 859,658 776,845
Inventory, less allowances of $29,593 and $78,656,
respectively 57,354 172,177
Prepaid expenses and other current assets 407,913 254,631
-------------- ----------------
Total current assets 3,933,615 4,153,051

Property and equipment, net 748,513 929,398
Other assets 50,196
368,169
-------------- ----------------
Total assets $ 4,732,324 $ 5,450,618
============== ================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 769,319 $ 1,375,939
Deferred revenue 952,044 1,113,202
Capital lease obligations - current 47,804 71,943
-------------- ----------------
Total current liabilities 1,769,167 2,561,084
Deferred rent 80,790 120,150
Capital lease obligations - noncurrent - 47,803
-------------- ----------------
Total liabilities 1,849,957 2,729,037

Stockholders' equity:
Preferred stock, $0.001 par value; 13,333,333 shares authorized:
Series B convertible preferred stock, zero and - 1,288
1,287,554 designated, issued and outstanding,
respectively

Series C redeemable preferred stock, 500,000 designated,
42,904 and 54,714 shares issued and outstanding, respectively
(liquidation preference of $1,126,230 and $1,436,243) 43 55


Series D convertible preferred stock, 3,675,000 designated,
issued and outstanding in 2001 (liquidation preference of
$7,019,500 and zero, respectively) 3,675 -

Common Stock, $0.001 par value; 50,000,000 shares authorized;
23,594,904 and 22,109,185 shares issued and outstanding,
respectively 23,595 21,109
Accrued dividends payable 875,808 180,911
Additional paid-in capital 60,766,392 51,393,818
Accumulated deficit (58,787,146 ) (48,876,600 )
-------------- ----------------
Total stockholders' equity 2,882,367 2,721,581
-------------- ----------------
Total liabilities and stockholders' equity $ 4,732,324 $ 5,450,618
============== ================

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



26





V-ONE CORPORATION
STATEMENTS OF OPERATIONS


Year ended December 31,
-------------------------------------------------------
2001 2000 1999
---- ---- ----

Revenues:
Products $ 3,669,817 $ 3,356,086 $ 3,427,422
Consulting and services 1,320,345 1,197,544 1,538,258
-------------------------------------------------------
Total revenues 4,990,162 4,553,630 4,965,680

Cost of revenues:
Products 824,305 441,752 973,866
Consulting and services 509,570 278,327 328,333
-------------------------------------------------------
Total cost of revenues 1,333,875 720,079 1,302,199
-------------------------------------------------------

Gross profit 3,656,287 3,833,551 3,663,481

Operating expenses:
Research and development 4,009,889 3,440,397 2,848,955
Sales and marketing 4,891,170 6,041,926 6,491,987
General and administrative 2,537,103 3,517,068 3,118,829
-------------------------------------------------------
Total operating expenses 11,438,162 12,999,391 12,459,771
-------------------------------------------------------

Operating loss (7,781,875 ) (9,165,840 ) (8,796,290 )

Other income (expense):
Interest expense (11,560 ) (25,945 ) (676,443 )
Interest income 249,575 329,770 164,841
Other income 1,306,582 - -
-------------------------------------------------------
Total other income 1,544,597 303,825 (511,602 )
(expense)

Loss before extraordinary item (6,237,278 ) (8,862,015 ) (9,307,892 )

Extraordinary item - early
extinquishment of debt - - (372,052 )
-------------------------------------------------------

Net loss (6,237,278 ) (8,862,015 ) (9,679,944 )

Dividends on preferred stock 741,245 369,979 272,245
Deemed dividends on preferred stock 2,932,023 - -
-------------------------------------------------------

Net loss attributable to holders
of common stock $ (9,910,546 ) $ (9,231,994 ) $ (9,952,189 )
=======================================================

Basic and diluted loss per share:
Loss before extraordinary item $ (0.44 ) $ (0.44 ) $ (0.57 )
=======================================================
Net loss attributable to
holders of common stock $ (0.44 ) $ (0.44 ) $ (0.59 )
=======================================================
Weighted average number of
common shares outstanding 22,576,188 20,871,076 16,938,205
=======================================================

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




27






V-ONE CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY




Series B, C & D Accrued Additional
Common Stock Preferred Stock Dividends Paid-in Subscriptions Accumulated
Shares Amount Shares Amount Payable Capital Receivable Deficit Total
------- ------ ------ ------ ------- -------- ---------- -------- -----

Balance, December 31, 1998 16,478,046 $16,478 - $ - $ - $30,361,685 $ (50,021) $(29,692,417) $ 635,725
Exercise of common stock
options, net of issuance 848,629 848 - - - 2,669,882 - - 2,670,730
costs
Exercise of warrants 907,105 907 - - - 2,863,001 - - 2,863,908
Issuance of Series B
preferred stock, net - - 1,287,554 1,288 - 2,981,212 - - 2,982,500
issuance costs
Issuance of Series C
preferred stock, net of - - 335,000 335 - 7,918,349 - - 7,918,684
issuance costs
Adjustment and collection
of notes receivable for - - - - - - - 46,236
stock 46,236
Issuance of common stock
warrants - - - - - 310,000 - - 310,000
Dividends on preferred stock - - - - 272,245 - - (272,245) -
Issuance of common stock
options to consultants - - - - - 93,764 - - 93,764
Net loss - - - - - - - (9,679,944) (9,679,944)
---------------------------------------------------------------------------------------------------
Balance, December 31,1999 18,233,780 18,233 1,622,554 1,623 272,245 47,197,893 (3,785) (39,644,606) 7,841,603
Issuance of common stock,
net of issuance costs 915,596 915 - - - 3,472,190 - 3,473,105
Exercise of common stock
options, net of issuance 59,500 60 - - - 169,637 - - 169,697
costs
Conversion of Series C
preferred stock to 2,900,309 2,901 (280,286) (280)(461,313) 458,676 - - (16)
common stock
Adjustment and collection
of notes receivable for - - - - - - 3,785 - 3,785
stock
Dividends on preferred stock 369,979 (369,979) -
Issuance of common stock
options to consultants - - - - - 95,422 - - 95,422
Net loss (8,862,015) (8,862,015)
---------------------------------------------------------------------------------------------------
Balance, December 31, 2000 22,109,185 22,109 1,342,268 1,343 180,911 51,393,818 - (48,876,600) 2,721,581

Employee stock purchase
plan, net of issuance 29,399 29 11,980 12,009
costs
Exercise of common stock
options, net of issuance 31,230 31 50,774 - - 50,805
costs
Conversion of Series B
preferred stock to 1,287,554 1,288 (1,287,554) (1,288) - - - - -
common stock
Conversion of Series C
preferred stock to 137,536 138 (11,810) (12) (46,348) (38,482) - - (84,704)
common stock
Issuance of Series D
preferred stock, net of 3,675,000 3,675 6,266,047 6,269,722
issuance costs
Deemed dividends on
preferred stock 2,932,023 (2,932,023) -
Dividends on preferred stock - - 741,245 (741,245) -
Issuance of common stock
options to consultants - - - - - 150,232 - - 150,232
Net loss - - - - - - (6,237,278) (6,237,278)
---------------------------------------------------------------------------------------------------
Balance, December 31, 2001 23,594,904 $23,595 3,717,904 $3,718 $875,808$60,766,392 $ - $(58,787,146) $ 2,882,367
===================================================================================================

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



28




V-ONE CORPORATION
STATEMENTS OF CASH FLOWS



Year ended December 31,
-------------------------------------------------------
2001 2000 1999
---- ---- ----

Cash flows from operating activities:
Net loss $ (6,237,278 ) $ (8,862,015 ) $ (9,679,944 )

Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 551,165 429,939 464,879
Amortization - - 255,378
Gain on sale of investment (1,375,000 ) - -
Amortization of deferred financing costs - - 730,000
Forgiven subscription receivable - - 46,114
Noncash charge related to issuance of
warrants and options 150,232 377,422 93,764
Changes in operating assets and liabilities:
Accounts receivable, net (82,813 ) 78,008 (341,632 )
Inventory, net 114,823 (126,090 )
339,394
Prepaid expenses and other assets (85,309 ) 529,045 105,755
Accounts payable and accrued expenses (606,620 ) 218,279 (966,496 )
Deferred revenue (161,158 ) 692,280 (467,373 )
Deferred rent (39,360 ) (36,561 ) 156,711
---------------------------------------------------
Net cash used in operating (7,771,318 ) (6,699,693 ) (9,263,450 )
activities

Cash flows from investing activities:
Net purchases of property and equipment (370,280 ) (773,629 ) (176,033 )
Collection of subscription receivable - 3,785 122
Proceeds from sale of investment 1,625,000 -
---------------------------------------------------
Net cash provided by (used in) investing 1,254,720 (769,844 ) (175,911 )
activities

Cash flows from financing activities:
Issuance of common stock 23,949 - -
Issuance of preferred stock, net of
subscriptions receivable 7,019,250 3,375,000 11,793,750
Payment of debt financing costs - - (420,000 )
Payment of preferred stock dividends (259 ) (16 ) -
Payment of stock issuance costs (761,468 ) (183,895 ) (941,875 )
Redemption of preferred stock (84,445 ) - -
Exercise of stock options and warrants 50,805 169,697 5,583,946
Principal payments on capital lease (71,942 ) (78,794 ) (70,217 )
obligations
Repayment of notes payable - - (5,259 )
---------------------------------------------------
Net cash provided by financing 6,175,890 3,281,992 15,940,345
activities ---------------------------------------------------


Net (decrease) increase in cash and cash
equivalents (340,708 ) (4,187,545 ) 6,500,984
---------------------------------------------------
Cash and cash equivalents, beginning of year 2,949,398 7,136,943 635,959
---------------------------------------------------

Cash and cash equivalents, end of year $ 2,608,690 $ 2,949,398 $ 7,136,943
===================================================

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



29


1. NATURE OF BUSINESS

V-ONE Corporation (the "Company") develops, markets and licenses a
comprehensive suite of network security products that enable
organizations to conduct secured electronic transactions and
information exchange using private enterprise networks and public
networks, such as the Internet. The Company's principal market is the
United States, with headquarters in Maryland, with secondary markets
located in Europe and Asia.

2. MANAGEMENT'S PLANS

The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company reported a net
loss of $6,237,278, $8,862,015 and $9,679,944 for the years ended
December 31, 2001, 2000 and 1999, respectively. In addition the Company
expects to continue to incur losses during 2002.

V-ONE's cash used in operating activities was approximately $7.8
million in fiscal 2001, an average "burn rate" of approximately
$648,000 a month. Notwithstanding acceptance of V-ONE's security
concepts, there can be no assurance that the consummation of sales of
V-ONE's products to existing customers or proposed agreements with
potential customers will generate timely or sufficient revenue for
V-ONE to cover its cost of operations and meet its cash flow
requirements. To preserve cash resources, the Company will reduce
operating levels effective on April 1, 2002. For the immediate future,
V-ONE will focus exclusively on existing and potential customers in the
government sector, curtailing sales and marketing operations to
commercial accounts, reduce general and administrative expenditures and
all possible capital expenditures, and effect staff reductions
approximating 25% of its employees. The Company's ability to continue
as a going concern is dependent on its ability to generate sufficient
cash flow to meet its obligations on a timely basis or to obtain
additional funding.

The Company has sought additional capital investments, thus far without
success. Accordingly, V-ONE may not have the funds needed to sustain
operations during 2002. In addition to continuing to pursue capital
investment, the Company engaged Updata Capital to explore other
alternatives to preserve V-ONE's operations and maximize shareholder
value, including potential strategic partnering relationships, a
business combination with a strategically placed partner, or a sale of
V-ONE.

V-ONE may not be successful in further reducing operating levels or,
even at reduced operating levels, V-ONE may not be able to maintain
operations for any extended period of time without additional capital
or a significant strategic transformative event.

3. SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

The Company develops, markets, licenses and supports computer software
products and provides related services. The Company conveys the right
to use the software products to customers under perpetual license
agreements, and conveys the rights to product support and enhancements
in annual maintenance agreements. The Company recognizes revenue upon
deployment of the software directly to an end-user or a value-added
reseller. The Company defers and recognizes maintenance and support
services revenue over the term of the contract period, which is
generally one year. The Company recognizes training and consulting
services revenue as the services are provided. The Company generally
expenses sales commissions as the related revenue is recognized and
pays sales commissions upon receipt of payment from the customer.



30


In addition to its direct sales effort, the Company licenses its
products through a network of distributors. The Company does not record
revenue until the distributor has delivered the licenses to end-user
customers and the end-user customers have registered the software with
the Company. The Company also records revenue when the software is
delivered directly to the end-user customer on behalf of the
distributor.

In 2000, the Company entered into a contract which contains multiple
elements, including specified upgrades. Because the Company had not
established vendor specific objective evidence for the specified
upgrades, all revenues under the contract were deferred until the
upgrades are delivered. At December 31, 2000, the Company had $500,000
in deferred revenue related to this contract. On October 26, 2001, the
Company executed a new agreement which removed the specified upgrades.
This completed the Company's obligations for delivery of all specific
product requirements under the initial contract and allowed the Company
to recognize approximately $1.2 million of revenue in the fourth
quarter.

The Company's revenue recognition policies for the years ended December
31, 2001, 2000 and 1999 are in conformity with the Statement of
Position 97-2, "Software Revenue Recognition" (SOP 97-2), promulgated
by the American Institute of Certified Public Accountants.

RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS

Software development costs are included in research and development and
are expensed as incurred. Statement of Financial Accounting Standards
No. 86, "Accounting for the Cost of Computer Software to be Sold,
Leased or Otherwise Marketed" requires the capitalization of certain
software development costs once technological feasibility is
established, which the Company generally defines as completion of a
working model. Capitalization ceases when the products are available
for general release to customers, at which time amortization of the
capitalized costs begins on a straight-line basis over the estimated
product life, or on the ratio of current revenues to total projected
product revenues, whichever is greater. To date, the period between
achieving technological feasibility and the general availability of
such software has been short, and software development costs qualifying
for capitalization have been insignificant. All other research and
development costs are expensed as incurred.

USE OF ESTIMATES

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

CASH AND CASH EQUIVALENTS

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



31



INVENTORIES

Inventories are valued at the lower of cost or market and consist
primarily of computer equipment for sale on orders received from
customers and other vendor software licenses held for resale. Cost is
determined based on specific identification.

PROPERTY AND EQUIPMENT

Property and equipment are stated at historical cost and are
depreciated using the straight-line method over the shorter of the
assets' estimated useful life or the lease term, ranging from three to
seven years. Capital leases are recorded at their net present value on
the inception of the lease. Depreciation expense was $551,165, $429,939
and $464,879 for the years ended December 31, 2001, 2000 and 1999,
respectively.

ADVERTISING COSTS

The Company expenses all advertising costs as incurred. The Company
incurred approximately $149,000, $177,000 and $98,400, in advertising
costs for the years ended December 31, 2001, 2000 and 1999,
respectively.

STOCK-BASED COMPENSATION

Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS"), allows companies to account for
stock-based compensation either under the provisions of SFAS 123 or
under the provisions of Accounting Principles Bulletin No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), as amended by
FASB Interpretation No. 44, "Accounting for Certain Transactions
Involving Stock Compensation (an Interpretation of APB Opinion No.
25)," but requires pro forma disclosure in the footnotes to the
financial statements as if the measurement provisions of SFAS 123 had
been adopted. The Company has elected to account for its stock-based
compensation in accordance with the provisions of APB 25 (see Note 6).

Stock options and warrants granted to non-employees are accounted for
in accordance with SFAS 123 and the Emerging Issues Task Force
Consensus No. 96-18, "Accounting for Equity Instruments That Are Issued
to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services," which requires the value of the options to be
periodically re-measured as they vest over a performance period. The
fair value of the options is determined using the Black-Scholes model.

EXTRAORDINARY ITEM

On September 30, 1999, the Company paid in full its term loan from
Transamerica Business Credit Corporation. In connection with the
payment, the Company recognized a $372,052 loss related to the early
extinguishment of debt.

INCOME TAXES

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
by applying presently enacted statutory tax rates, which are applicable
to the future years in which deferred tax assets or liabilities are


32


expected to be settled or realized, to the differences between the
financial statement carrying amounts and the tax bases of existing
assets and liabilities. The effect of a change in tax rates on deferred
tax assets and liabilities is recognized in net income in the period
that the tax rate is enacted.

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

NET LOSS PER COMMON SHARE

The Company follows Financial Accounting Standards Board Statement No.
128, "Earnings Per Share," ("SFAS 128") for computing and presenting
net income per share information. Basic net loss per share was
determined by dividing net loss by the weighted average number of
common shares outstanding during each year. Diluted net loss per share
excludes common equivalent shares, unexercised stock options and
warrants as the computation would be anti-dilutive. A reconciliation of
the net loss available for common stockholders and the number of shares
used in computing basic and diluted net loss per share is in Note 10.

RISKS, UNCERTAINTIES AND CONCENTRATIONS

Financial instruments that potentially subject the Company to
significant concentration of credit risk consist primarily of cash
equivalents and accounts receivable. The Company's cash balances exceed
federally insured amounts. The Company invests its cash primarily in
money market funds with an international commercial bank. The Company
sells its products 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
sufficiently provided for estimated credit losses.

No suppliers exceeded 10% of purchases in 1999 and 2000. In 2001, three
suppliers exceeded 10% of purchases. The Company purchased SUN
equipment worth approximately $162,000 from Ingram Micro and
approximately $180,000 from Arrow MOCA, Incorporated. The two resellers
of SUN equipment represented 33% and 37% of total purchases. In
addition, the Company purchased from SteelCloud Corporation
approximately $88,000 worth of the Company's SmartGuard product, which
constituted approximately 18% of total purchases.

During the years ended December 31, 2001, 2000, and 1999, 11%, 21%, and
26%, respectively, related to sales to international customers. During
the years ended December 31, 2001, 2000, and 1999, sales related to
government agencies were 43%, 40%, and 35%, respectively.

FAIR VALUE OF FINANCIAL INSTRUMENTS

At December 31, 2001 and 2000, the carrying value of current financial
instruments such as cash, accounts receivable, inventory, accounts
payable, accrued liabilities and capital lease obligation approximated
their market values, based on the short-term maturities of these
instruments. Fair value is determined based on expected cash flows,
discounted at market rates, and other appropriate valuation
methodologies.

RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform to the
2001 presentation.


33


NEW ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 is effective
for fiscal years beginning after June 15, 2000 and cannot be applied
retroactively. SFAS 133 establishes accounting and reporting standards
requiring that every derivative instrument be recorded in the balance
sheet as either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are
met. The Company adopted SFAS 133 effective January 1, 2001. The
adoption had no impact on the Company's financial statements.

4. SELECTED BALANCE SHEET INFORMATION

Property and equipment consisted of the following at December 31:


2001 2000
--------------- --------------

Office and computer equipment $ 1,423,083 $ 1,391,217
Office and computer equipment under
capital leases 299,497 341,302
Capitalized software 139,076 35,000
Leasehold improvements 177,664 89,504
Furniture and fixtures 257,978 310,268
--------------- --------------
2,297,298 2,167,291
Less: accumulated depreciation (1,548,785 ) (1,237,893 )
--------------- --------------
$ 748,513 $ 929,398
=============== ==============


The Company had two licensing agreements whereby the Company obtained
the right to modify and sell certain technology used in its product
line. All amounts are fully amortized as of December 31, 1999. The
Company incurred amortization expense of $0, $0 and $255,378, relating
to these agreements in 2001, 2000 and 1999, respectively.

Other assets consisted of the following at December 31:


2001 2000
-------------- -------------

Deposits $ 50,196 $ 118,169
Investment in Network Flight Recorder - 250,000
-------------- -------------
$ 50,196 $ 368,169
============== =============


The Company sold its stock in NFR in February 2001 for $1,625,000
resulting in a net gain of $1,375,000.

Accounts payable and accrued expenses consisted of the following at
December 31:


2001 2000
-------------- -------------

Accounts payable $ 375,883 $ 580,605
Accrued compensation 260,036 589,242
Other accrued expenses 133,400 206,092
-------------- --------------
$ 769,319 $ 1,375,939
============== ==============


34


5. INCOME TAXES

The tax effect of temporary differences that give rise to significant
portions of the deferred income taxes are as follows at December 31:


2001 2000
-------------- -------------

Inventory $ 11,574 $ 38,948
Accounts receivable 28,173 40,807
Property and equipment (25,910) 18,203
Deferred rent 31,598 46,402
Non-deductible accruals 83,235 52,631
Net operating loss carry forward 19,019,278 16,282,345
---------------- --------------
Total deferred tax asset 19,147,948 16,479,336
Valuation allowance (19,147,948 ) (16,479,336 )
---------------- ---------------
Net deferred tax asset $ - $ -
================ ===============



The net change in the valuation allowance from 2000 to 2001 is due
principally to the increase in net operating losses. Valuation
allowances have been recognized due to the uncertainty of realizing the
benefit of net operating loss carryforwards. At December 31, 2001 and
2000, the Company had net operating loss carryforwards of approximately
$48,600,000 and $42,200,000 for federal and state income tax purposes
available to offset future taxable income. The net operating loss
carryforwards begin to expire in 2008.

A reconciliation between income taxes computed using the statutory
federal income tax rate and the effective rate for the years ended
December 31, 2000 and 2001 is as follows:


2001 2000
-------------- -------------

Federal income tax (benefit) at statutory rate (34.0%) (34.0%)
State income taxes, net (4.6%) (4.6%)
Permanent items 0.2% (0.1%)
Net change in valuation allowance 38.4% 38.7%
----------- -------------
Provision for Income Taxes 0.0% 0.0%
=========== =============




6. SHAREHOLDERS' EQUITY

SERIES B PREFERRED STOCK

On June 11, 1999, the Company issued 1,287,554 shares at $2.33 per
share of Series B Convertible Preferred Stock (the "Series B Stock") to
two investors for $1.0 million in cash and a subscription agreement for
$2.0 million. Net proceeds to the Company after issuance costs of
$17,500 were $2,982,500. The subscription receivable was received in
two installments of $1.0 million plus accrued interest in July and
August 1999. The holders of the Series B Stock are entitled to a
liquidation preference of $2.33 per share. During 2001, all shares of
the Series B Stock were converted into Common Stock.


35



SERIES C PREFERRED STOCK

On September 9, 1999, the Company issued 335,000 shares of Series C
Preferred Stock (the "Series C Stock") and non-detachable warrants to
purchase 3,350,000 shares of the Company's Common Stock (the
"Warrants") to certain accredited investors. Each share of Series C
Stock was issued a Warrant to purchase ten shares of Common Stock
(collectively a "Unit") for a price of $26.25 per Unit. The Company
received $7,918,684 in proceeds net of issuance costs of approximately
$875,000. The Warrants are immediately exercisable at a price of $2.625
per share and will remain exercisable until 90 days after all of the
Series C Stock has been redeemed and the shares of the Common Stock
underlying the Warrants have been registered for resale.

The Series C Stock bears cumulative compounding dividends at an annual
rate of 10% for the first five years, 12.5% for the sixth year and 15%
in and after the seventh year. The dividends may be paid in cash, or at
the option of the Company, in shares of registered Common Stock. The
Series C Stock is not convertible and ranks senior to the Common Stock
as to payment of dividends and priority on distribution of assets upon
liquidation, dissolution or winding up of the Company. Holders of the
Series C Stock are entitled to a liquidation preference of $26.25 per
share.

At least 51% of the outstanding shares of Series C Stock must vote
affirmatively as a separate class for (i) the voluntary liquidation,
dissolution or winding up of the Company, (ii) the issuance of any
securities senior to the Series C Stock and (iii) the declaration or
payment of a cash dividend on all junior stocks and certain amendments
to the Company's certificate of incorporation. Prior to the exercise of
the Warrants, the holders shall also be entitled to ten common votes
for each share of Series C Stock on all matters on which Common
Stockholders are entitled to vote, except in connection with the
election of the Board of Directors. As long as at least 51% of the
Series C Stock is outstanding, the holders shall have the right to
elect one director to the Company's Board of Directors.

The Company has the right to redeem the outstanding shares of Series C
Stock in whole (i) at any time after the third anniversary of the
issuance date, (ii) upon the closing of an underwritten public offering
in excess of $20 million and at a price in excess of $6.50 per share or
(iii) prior to the third anniversary of the issuance date if the
average closing bid price of the Common Stock for any 20 trading days
during any 30 trading days ending within 5 trading days prior to the
date of notice of redemption is at least $3.9375 per share. The
redemption price would be paid at the Company's option in cash or in
shares of common stock and would be equal to the greater of the $26.25
per share purchase price or the fair market value of each Series C
share plus all unpaid dividends.

At any time after all of the Warrants have been exercised by a holder,
that holder shall have the right to require the Company to redeem all
of its then outstanding shares of Series C Stock. The redemption price
for each share of Series C Stock shall be the $26.25 per share purchase
price plus all unpaid dividends and is payable at the option of the
Company in either cash or shares of Common Stock.

Throughout 2000, certain holders of the Series C Stock chose to
exercise their warrants through a cashless exercise provision. The
cashless exercise provision allowed the holders to remit each share of
Series C Stock in exchange for 10 shares of Common Stock. A total of
280,286 shares of Series C Stock were remitted for 2,802,860 shares of
Common Stock. An additional 97,449 shares were issued as a result of
dividends earned on the Series C Stock. For the year ended December 31,
2001 a total of 11,810 shares of Series C Stock were remitted for
118,100 shares of Common Stock, and an additional 19,436 shares were
issued as a result of dividends earned on the Series C Stock. At
December 31, 2001 there were 42,904 shares of Series C Stock


36


outstanding. The dividend payable on these shares equals $260,422,
payable in cash or equivalent shares of Common Stock at fair market
value at the conversion date.

SERIES D CONVERTIBLE PREFERRED STOCK

On February 14, 2001, V-ONE issued 3,675,000 shares of Series D stock
(the "Series D Stock") with warrants to purchase 735,000 shares of
Common Stock ("Series D Warrants"). The Series D Stock was sold in
units, with each unit consisting of five shares of Series D Stock and a
Series D Warrant to purchase one share of Common Stock. The Series D
Warrants are immediately exercisable at a price of $2.29 per share and
will remain exercisable until February 14, 2004.

The Series D Stock bears cumulative compounding dividends at an annual
rate of 10.0% for the first five years, 12.5% for the sixth year and
15.0% in and after the seventh year. The dividends may be paid in cash,
or at the option of V-ONE, in shares of registered Common Stock. The
Series D Stock is convertible at any time into shares of Common Stock
at the initial conversion price of $1.91 and the initial conversion
ratio of one share of Series D Stock for one share of Common Stock.
Both the conversion price and conversion ratio are subject to equitable
adjustment for stock spits, stock dividends, combinations, and similar
transactions, and in the event V-ONE issues shares of Common Stock at a
purchase price less than the then current conversion price. The Series
D Stock will be automatically converted into Common Stock upon the
closing of an underwritten public offering in excess of $20.0 million
and at a price in excess of $3.00 per share.

The Series D Stock ranks senior to the Common Stock and junior to the
Series C Stock as to payment of dividends and priority on distribution
of assets upon liquidation, dissolution, or winding up of V-ONE.
Holders of the Series D Stock are entitled to a liquidation preference
equal to the greater of (i) $1.91 plus any unpaid accrued preferred
dividends, and (ii) the dollar value per share for the Series D Stock
that a holder of such shares would have been entitled to receive had
such shares been converted into Common Stock immediately prior to the
liquidation, dissolution or winding up of V-ONE. There are no sinking
fund provisions applicable to the Series D Stock.

Except as to matters addressed in the next sentence, the holders of the
Series D Stock have the right to vote that number of shares equal to
the number of shares of Common Stock issuable upon the conversion of
their Series D Stock and vote together with the holders of Common Stock
as a single class. For so long as at least 51.0% of the number of
shares of Series D Stock outstanding on February 14, 2001 remains
outstanding, the affirmative vote or consent of the holders of at least
51.0% of the then outstanding number of shares of Series D Stock,
voting separately as a class, is required for (i) the voluntary
liquidation, dissolution or winding up of V-ONE, (ii) the issuance of
any securities senior to or on parity with the Series D Stock, (iii)
the declaration or payment of a cash dividend on all junior stocks, and
(iv) certain amendments to V-ONE's certificate of incorporation and
bylaws.

V-ONE has the right to redeem the outstanding Series D Stock in whole
at any time after February 14, 2004, and on or prior to February 14,
2004 (i) upon the closing of an underwritten public offering in excess
of $20.0 million and at a price in excess of $3.00 per share, or (ii)
if the average closing bid price of the Common Stock for any twenty
trading days during any thirty trading days ending within five trading
days prior to the date of notice of redemption is at least $5.75 per
share, subject in either case to the right of any holder of Series D
Stock to convert his, hers, or its Series D Stock into Common Stock.
The redemption price will be paid in cash in full and be the greater of
$1.91 per share or the fair market value of each share of Series D
Stock plus all unpaid dividends.



37


Beginning on February 14, 2007, and for each of the next three years
thereafter, the holders of Series D Stock will have the cumulative
right to require V-ONE to redeem annually up to one-fourth of the
Series D Stock issued by V-ONE to each such holder. The redemption
right can be settled through the issuance of Common Stock, at the
option of V-ONE. The redemption price for each share of Series D Stock
is $1.91 per share plus all unpaid dividends.

V-ONE has granted registration rights to the purchasers of Series C and
Series D Stock whereby V-ONE is obligated, in certain instances, to
register the shares of Common Stock issuable upon conversion of the
Series D Stock and exercise of the warrants attached to the Series C
and Series D Stock.

In 2001, the Company recorded a deemed dividend of approximately
$2,932,000 in accordance with the accounting requirements for a
beneficial conversion feature on the Series D Stock. The proceeds
received in the Series D offering were first allocated between the
convertible instrument and the Series D Warrant on a relative fair
value basis. A calculation was then performed to determine the
difference between the effective conversion price and the fair market
value of the Common Stock at the commitment date.

COMMON STOCK

On January 14, 1999, a warrant to purchase 600,000 shares of Common
Stock was exercised in full pursuant to its cashless exercise provision
and the Company issued 223,529 shares of its Common Stock to the
holder. In addition to the separate exercise of warrants for 633,576
shares of Common Stock for $2,757,658, a warrant to purchase a total of
50,000 shares of Common Stock was exercised at $2.125 per share.
Proceeds from this exercise totaled $106,250. Additionally during 1999,
various employees exercised options to purchase 848,629 shares of
Common Stock. The Company received net proceeds from these exercises of
$2,670,730.

In March 2000, the Company issued 500,000 shares of Common Stock at a
purchase price of $4.75 per share in exchange for $2,375,000.

Restricted Common Stock amounting to 158,316 shares was issued to
certain selected employees as compensation in the second quarter of
2000, 25% of which vested immediately, with the remaining shares
vesting over the next three quarters. Upon termination of certain
employees, 17,687 of these shares were cancelled. The shares were
recorded at the fair market value on the date of grant, $2.375, with
the compensation expense of $376,000 being recognized over the vesting
period.

In May 2000, the stockholders approved an increase in the number of
shares of Common Stock authorized to 50,000,000.

In June 2000, the Company issued 274,967 shares of Common Stock at a
purchase price of $3.64 per share to Citrix Systems, Inc. in exchange
for $1,000,000.



38




EMPLOYEE STOCK PURCHASE PLAN

The Company's Board of Directors adopted the 2001 Employee Stock
Purchase Plan ("Plan") on February 26, 2001 and the Company's
stockholders approved of the Plan at the Annual Meeting of Stockholders
on May 10, 2001. The Plan became effective upon adoption by the Board,
however, the first Offering Period (defined below) under the Plan began
on the first trading day on or after July 1, 2001. Pursuant to the
Plan, 2,500,000 shares of Common Stock were reserved for future
issuance by the Company to employees through the grant of stock options
to purchase Common Stock. Shares acquired under the Plan may be
authorized and unissued shares or treasury shares.

The purpose of the Plan is to provide employees of the Company with an
opportunity to purchase Common Stock through accumulated payroll
deductions. Under the Plan, a participating employee is granted an
option to purchase Common Stock that is exercised automatically at a
specified date set forth in the Plan. The purchase price for shares of
Common Stock received upon exercise of the option is paid through the
employee's accumulated payroll deductions. It is the Company's
intention to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended
("Code"). The Plan shall be construed so as to extend and limit
participation in a manner consistent with Section 423 of the Code. The
Plan is not subject to the provisions of the Employee Retirement Income
Security Act of 1974 or Section 401(a) of the Code.

During the year ended December 31, 2001, 29,399 shares were purchased
by employees at various prices in accordance with the provisions of the
Plan.

WARRANTS

In addition to the warrants for 210,914 shares of Common Stock issued
in 1999 in connection with a debt transaction and the warrants attached
to the Series C and Series D Stock discussed above, the Company issued
the following warrants to purchase Common Stock during the years ended
December 31, 1999, 2000, and 2001:

On November 21, 1997, the Company issued a warrant to purchase 300,000
shares of Common Stock with an exercise price of $3.125 per share to
the President and Chief Executive Officer. On November 27, 2000, upon
the resignation of the former officer an agreement was reached whereby
one half of these warrants were cancelled and the other half were
extended to a new expiration date of November 27, 2005. Because the
stock price on the new measurement date was less than the exercise
price of the warrant, no compensation expense was recorded.

On November 27, 2000 the Company granted fully vested warrants to
purchase 100,000 shares of Common Stock to MindSquared, LLC, a related
party, as part of a consulting agreement. The warrants have an exercise
price of $1.188 and expire five years from the date of grant. The
Company valued these warrants using the Black-Scholes model with the
following assumptions: volatility of 123%, risk free interest rate of
6% and expected term of 5 years. The value of the warrants, $101,000,
was recognized ratably over the four-month term of the consulting
agreement.

On January 9, 2001 the Company granted fully vested warrants to
purchase an additional 30,000 shares of Common Stock to MindSquared,
LLC, as part of the consulting agreement. The warrants have an exercise
price of $0.625 and expire five years from the date of grant. The
Company valued these warrants using the Black-Scholes model with the
following assumptions: volatility of 123%, risk free interest rate of
6% and expected term of 5 years. The value of the warrants, $15,307,
was recognized ratably over the four-month term of the consulting
agreement.

39


During the years ended December 31, 2001 and 2000, warrants to purchase
shares of Common Stock that were attached to the Series C Stock were
exercised for an equal number of shares of Common Stock. Of the
original warrants issued in the Series C offering 429,040 remain at an
exercise price of $1.91 per share.

During 2001, in connection with the issuance of the Series D
Convertible Preferred Stock, the Company granted fully vested warrants
to purchase 735,000 shares of Common Stock. The Series D warrants are
exercisable at a price of $2.29 and will remain exercisable until
February 14, 2004. Pursuant to the terms of the warrants issued in
connection with a debt transaction in 1999, a price adjustment was
created by the issuance of the Series D Stock. The warrants to purchase
210,914 shares of Common Stock were reduced in price to $1.91, and
additional warrants to purchase 57,411 shares of Common Stock were
issued to increase the number of warrants for Transamerica to 268,325
at February 14, 2001.

Warrants to purchase shares of the Company's Common Stock outstanding
at December 31, 2000 and 2001 were as follows:

2000 2001 Exercise Price
---- ---- --------------

- 30,000 $0.63
100,000 100,000 $1.19
- 697,365 $1.91
- 735,000 $2.29
139,485 - $2.33
547,140 - $2.63
71,429 - $2.65
10,000 10,000 $2.69
150,000 150,000 $3.13
54,000 54,000 $4.73
------------ ---------------
1,072,054 1,776,365
============ ===============


At December 31, 2001, warrants to purchase 1,776,365 shares of Common
Stock were exercisable. The weighted average fair value of warrants
granted during 2001 was estimated at $1.75. The fair value was
determined using the Black-Scholes option-pricing model with the
following assumptions: dividend yield 0%, volatility of 123%, risk free
interest rate of 6%, and expected life of 3 or 5 years.

STOCK OPTIONS PLANS

The Company has the following active stock options plans: the 1995
Non-Statutory Stock Option Plan, the 1996 Incentive Stock Plan and the
1998 Incentive Stock Option Plan. These plan were adopted to attract
and retain key employees, directors, officers and consultants and are
administered by the Compensation Committee appointed by the Board of
Directors.



40




1995 NON-STATUTORY STOCK OPTION PLAN

The Compensation Committee determined the number of options granted to
key employees, the vesting period and the exercise price provided they
were not below market value on the date of the grant for the 1995
Non-Statutory Stock Option Plan ("the 1995 Plan"). In most cases, the
options vest over a two-year period and terminate ten years from the
date of grant. The 1995 Plan will terminate during May 2005 unless
terminated earlier within the provisions of the 1995 Plan. On June 12,
1996, the Board of Directors determined that no further options would
be granted under the 1995 Plan.

At December 31, 2001, 2000 and 1999 there were 10,602 stock options
outstanding under the 1995 Plan with a weighted average exercise price
of $2.50. There was no activity under the 1995 Plan during the three
year period ended December 31, 2001.

1996 INCENTIVE STOCK PLAN

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

Awards may be granted under the 1996 Plan with respect to a total of
2,333,333 shares of Common Stock. As of December 31, 2001, 533,165
options are outstanding of which 114,898 are vested, and a total of
775,934 options are available for grant under the 1996 Plan.

Option activity under the 1996 Plan for the two years ended December
31, 2001 was as follows:


Weighted Average
Shares Exercise Price
------------ --------------------

Balance as of December 31, 1999 814,981 $3.268

Exercised (21,000) $2.714
Cancelled (560,750) $3.077
Expired (6,676) $2.657
------------
Balance as of December 31, 2000 226,555 $3.833

Grants 455,400 $1.389
Exercised (1,750) $2.625
Cancelled (47,300) $1.383
Expired (99,740) $4.479
------------
Balance as of December 31, 2001 533,165 $1.845
============




41


1998 INCENTIVE STOCK OPTION PLAN

On February 2, 1998, the Board of Directors authorized the adoption of
the 1998 Incentive Stock Option Plan (the "1998 Plan"). The purpose of
the 1998 Plan is to provide for the acquisition of an equity interest
in the Company by non-employee directors, officers, key employees and
consultants. The 1998 Plan will terminate February 2, 2008.

Incentive stock options may be granted to purchase shares of Common
Stock at a price not less than fair market value on the date of grant.
Only employees may receive incentive stock options; all other qualified
participants may receive non-qualified stock options with an exercise
price determined by a Committee or the Board. Options are generally
exercisable after one or more years and expire no later than ten years
from the date of grant. The 1998 Plan also provides for reload options
and restricted share awards to employee and consultant participants
subject to various terms.

Awards may be granted under the 1998 Plan with respect to a total of
5,000,000 shares of Common Stock. As of December 31, 2001, 3,310,690
options are outstanding, of which 1,437,372 are vested, and a total of
1,351,265 options are available for grant under the 1998 Plan.

Option activity under the 1998 Plan for the two years ended December
31, 2001 was as follows:


Weighted Average
Shares Exercise Price
-------------- ----------------

Balance as of December 31, 1999 1,690,250 $2.400

Granted 1,783,780 $2.224
Exercised (32,500) $2.595
Cancelled (818,975) $2.723
Expired (8,500) $2.283
--------------
Balance as of December 31, 2000 2,614,055 $2.178

Granted 1,287,000 $0.917
Exercised (29,480) $1.568
Cancelled (313,685) $2.131
Expired (247,200) $2.377
--------------
Balance as of December 31, 2001 3,310,690 $1.683
==============



For all of its plans, the Company measures compensation expense for its
employee stock-based compensation using the intrinsic value method and
provides pro forma disclosures of net loss as if the fair value method
had been applied in measuring compensation expense. Under the intrinsic
value method of accounting for stock-based compensation, when the
exercise price of options granted to employees is less than the fair
value of the underlying stock on the date of grant, compensation
expense is to be recognized over the applicable vesting period. The
effect of applying SFAS 123's fair value method to the Company's stock
based awards is not necessarily representative of the effects on
reported net income for future years, due to, among other things, the
vesting period of the stock options and the fair value of additional
stock options in future years.


42




Year ended December 31,
----------------------------------------------------
2001 2000 1999
--------------- -------------- ---------------

Loss attributable to holders of
common stock:
As reported $9,910,546 $9,231,994 $9,952,189
Pro forma $11,812,003 $10,277,777 $10,895,072
Basic and diluted loss per share
attributable to holders of
common stock
As reported $0.44 $0.44 $0.59
Pro forma $0.52 $0.49 $0.64



The fair value of each option is estimated on the date of grant using a
type of Black-Scholes option pricing model with the following
weighted-average assumptions used for grants during the years ended
December 31, 1999, 2000 and 2001, respectively: dividend yield of 0%
for all periods; expected volatility of 92%, 100% and 100%; risk-free
interest rate of 5.3%, 5.5% and 4.7%; and expected term of 4.0 years
for 1999 and 2000, and 2001. The weighted-average fair value of the
options granted under all of the Company's plans during the years ended
December 31, 1999, 2000 and 2001 was $1.60, $1.54 and $0.74,
respectively. The weighted average exercise price of the options
outstanding under all of the Company's plans at December 31, 1999, 2000
and 2001 was $2.68, $2.31 and $1.70, respectively. As of December 31,
2001, the weighted average remaining contractual life of the options
outstanding under all of the Company's plans is 7.9 years and the
number of options exercisable is 1,562,872.

RESERVE FOR ISSUANCE

At December 31, 2001, the Company has authorized the following shares
of Common Stock for issuance upon conversion of the Series C Preferred
Stock, Series D Preferred Stock, and upon exercise of options and
warrants:


Series D Preferred Stock 3,675,000
Common Stock options outstanding 3,854,457
Common Stock options available for grant 2,138,087
Common Stock warrants 1,776,365
-----------------
Total shares of authorized Common Stock reserved 11,443,909
=================




43



7. COMMITMENTS AND CONTINGENCIES

LEASES

The Company is obligated under various operating and capital lease
agreements, primarily for office space and equipment through 2003.
Future minimum lease payments under these non-cancelable operating and
capital leases as of December 31, 2001 are as follows:

Operating Capital
--------- -------

2002 $576,590 $50,059
2003 341,199 -
--------- ---------

Total minimum payments $917,789 50,059
========
Interest (2,255)
--------

Present value of capital lease obligations 47,804
Less: current portion (47,804)
----------

Capital lease obligations non-current $ 0
============

Rent expense was $464,483, $583,582, and $919,550 for the years ended
December 31, 2001, 2000 and 1999, respectively.

At December 31, 2001, the Company expects to receive $142,716 in future
minimum sublease rental income payments in 2002.


8. EMPLOYEE 401(K) DEFERRED COMPENSATION PLAN

The Company has a 401(k) plan for all employees over the age of 21.
Contributions are made through voluntary employee salary reductions, up
to 15% of their annual compensation, and discretionary matching by the
Company. Employer contributions vest based on the participant's number
of years of continuous service. A participant is fully vested after six
years of continuous service. There were no employer contributions for
the years ended December 31, 2001, 2000 or 1999.



44



9. SUPPLEMENTAL CASH FLOW DISCLOSURE

Selected cash payments and noncash activities were as follows:


Year ended December 31,
-------------------------------------------------------------
2001 2000 1999
----------------- ------------------ -----------------

Cash paid for interest $ 11,560 $ 21,982 $728,221
Cash paid for dividends $ 259 $ 16 -
Noncash investing and financing
activities:
Dividends paid with stock $ 46,064 $461,299 -
Deemed dividend on preferred stock $2,932,023 - -
Issuance of stock options to consultants $ 98,232 $ 95,422 $ 93,764
Issuance of restricted stock $ 52,000 $282,000 -
Collection and forgiveness of
subscriptions receivable - - $ 46,236



10. NET LOSS PER SHARE



The following table sets forth the computation of basic and diluted net loss per share:


Year Ended December 31,
--------------------------------------------------
2001 2000 1999
--------------------------------------------------

Numerator:
Loss before extraordinary item $ (6,237,278 ) $ (8,862,015 ) $ (9,307,892 )
Less: Dividend on preferred stock (741,245 ) (369,979 ) (272,245 )
Deemed dividend on preferred stock (2,932,023 ) - -
------------- ------------- -------------
Net loss before extraordinary item (9,910,546 ) (9,231,994 ) (9,580,137 )
Extraordinary item-early extinguishment of debt - - (372,052 )
------------- ------------- -------------
Net loss attributable to holders of Common Stock $ (9,910,546 ) $ (9,231,994 ) $ (9,952,189 )
============= ============= =============
Denominator:
Denominator for basic net loss per share-weighted
average shares 22,576,188 20,871,076 16,938,205

Effect of dilutive securities:
Preferred Stock - - -
Stock Options - - -
Warrants - - -
------------- ------------- -------------
Dilutive potential common shares - - -
------------- ------------- -------------

Denominator for diluted net loss per share-adjusted
weighted average shares 22,576,188 20,871,076 16,938,205
============= ============= =============

Basis and diluted loss per share:
Loss before extraordinary item $ (0.44 ) $ (0.44 ) $ (0.57 )
Extraordinary item-early extinguishments of debt - - (0.02 )
------------- ------------- -------------
Net loss attributable to holders of Common Stock $ (0.44 ) $ (0.44 ) $ (0.59 )
============= ============= =============


45


The following equity instruments were not included in the diluted net
loss per share calculation because their effect would be anti-dilutive:

Year ended December 31,
-----------------------------------------------------
2001 2000 1999
----------------------------------------------------

Preferred stock:
Series B - 1,287,554 1,287,554
Series D 3,675,000 - -
Stock options 3,854,457 2,851,212 2,515,833
Warrants 1,776,365 1,072,054 3,974,957


11. SELECTED QUARTERLY FINANCIAL DATA - UNAUDITED

The following table presents the quarterly results for V-ONE
Corporation and its subsidiaries for the years ending December 31, 2000
and 2001:

1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
(restated)

2001
Revenue $ 790,181 $ 922,366 $ 1,099,998 $ 2,177,617
Gross profit 485,282 650,838 676,047 1,844,120
Net loss $ (993,215) $ (2,321,670) $ (2,148,562) $ (773,831)
========= =========== =========== ========

Net loss per share, $ (0.18) $ (0.11) $ (0.10) $ (0.04)
basic and diluted ====== ====== ====== =====


2000
Revenue $ 1,383,921 $ 1,075,846 $ 645,485 $ 1,448,378
Gross profit 1,300,926 924,388 500,866 1,263,591
Net loss (1,482,222) (2,511,701) (2,701,358) (2,166,734)
========== ========== ========== ==========

Net loss per share, basic
and diluted $ (0.09) $ (0.12) $ (0.12) $ (0.10)
====== ====== ====== =====


The Company restated the results of the first quarter of 2001 to
account for the allocation of the fair market value to the detachable
warrants issued in connection with the Series D Preferred Stock. The
result of the restatement was to record an additional deemed dividend
of $1,107,335 for the beneficial conversion feature related to the
issuance of the warrants.


46




V-ONE CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

For the years ended December 31, 1999, 2000 and 2001



Additions
Balance at Charged to Balance at End
Beginning of Costs and of Period
Description Period Expenses Deductions


ALLOWANCE FOR
DOUBTFUL ACCOUNTS
December 31, 1999 $ 524,638 (220,912) 169,482 $ 134,244
December 31, 2000 $ 134,244 68,490 97,070 $ 105,664
December 31, 2001 $ 105,664 --- 33,629 $ 72,035

DEFERRED TAX ASSET
VALUATION ALLOWANCE
December 31, 1999 $ 9,448,764 5,410,464 --- $ 14,859,228
December 31, 2000 $ 14,859,228 1,620,108 --- $ 16,479,336
December 31, 2001 $ 16,479,336 2,397,885 --- $ 18,877,221

ALLOWANCE FOR
NON-SALABLE INVENTORY
December 31, 1999 $ 313,356 --- 225,662 $ 87,694
December 31, 2000 $ 87,694 32,699 41,737 $ 78,656
December 31, 2001 $ 78,656 120,000 169,063 $ 29,593





47



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE


None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item concerning directors and
executive officers is incorporated herein by reference to the
Company's definitive proxy statement for its annual stockholders'
meeting to be held on May 16, 2002.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item concerning executive
compensation is incorporated herein by reference to the Company's
definitive proxy statement for its annual stockholders' meeting to
be held on May 16, 2002.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item concerning security
ownership of certain beneficial owners and management is
incorporated herein by reference to the Company's definitive proxy
statement for its annual stockholders' meeting to be held on May
16, 2002.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item concerning certain
relationships and related transactions is incorporated herein by
reference to the Company's definitive proxy statement for its
annual stockholders' meeting to be held on May 16, 2002.



PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON
FORM 8-K




48




(a)(1), (a)(2) and (d) Financial Statements and Financial Statement Schedule.

See Index to Financial Statements on page 26. All required financial statements
and financial statement schedules of the Company are set forth under Item 8 of
this Annual Report on Form 10-K.

(a)(3) Exhibits

NUMBER DESCRIPTION
- ------ -----------

3.1 Amended and Restated Certificate of Incorporation as of July 2, 1996 (1)
3.2 Amended and Restated Bylaws dated as of February 2, 1998 (4)
3.3 Certificate of Amendment to Certificate of Designation, Preferences, and Rights of Series A
Convertible Preferred Stock dated September 9, 1996 (1)
3.4 Certificate of Elimination of Certificate of Designation, Preferences and Rights of Series A
Convertible Preferred Stock (2)
3.5 Certificate of Designations of Series A Convertible Preferred Stock (2)
3.6 Certificate of Elimination of Certificate of Designation, Preferences and Rights of Series A
Convertible Preferred Stock, dated March 4, 1999(9)
3.7 Certificate of Designations of Series B Convertible Preferred Stock, dated June 11, 1999 (10)
3.8 Certificate of Designations of Series C Preferred Stock, dated September 9, 1999 (11)
3.9 Certificate of Designations of Series D Convertible Preferred Stock, dated February 14, 2001(14)
9.1 Voting Trust Agreement between Hai Hua Cheng and James F. Chen, Trustee (1)
9.2 Voting Trust Agreement between Robert Zupnik and James F. Chen, Trustee (1)
9.3 Voting Trust Agreement between Dennis Winson and James F. Chen, Trustee (1)
10.1 Employment Agreement between V-ONE Corporation and James F. Chen dated as of June 12, 1996 (1)
10.2 V-ONE 1995 Non-Statutory Stock Option Plan (1)
10.3 V-ONE 1996 Non-Statutory Stock Option Plan (1)
10.4 V-ONE 1996 Incentive Stock Plan (1)
10.5 Software License Agreement between Trusted Information Systems, Inc. ("TIS") and V-ONE executed
October 6, 1994 (1)
10.6 First Amendment to the Software License Agreement between TIS and V-ONE (1)
10.7 Second Amendment to the Software License Agreement between TIS and V-ONE (1)
10.8 Third Amendment to the Software License Agreement between TIS and V-ONE (1)
10.9 Fourth Amendment to the Software License Agreement between TIS and V-ONE (1)
10.10 OEM Master License Agreement between RSA Data Security, Inc. ("RSA") and V-ONE dated December
30, 1994 and Amendment Number One to the OEM Master License Agreement between RSA and V-ONE (1)
10.11 Amendment Number Two to the OEM Master License Agreement between RSA and V-ONE and Conversion
Agreement dated May 23, 1996 (1)
10.12 Promissory Note for Hai Hua Cheng with Allonge and Amendment dated June 12, 1996 (1)
10.13 Form of Exchange and Purchase Agreement dated April 1996 (1)
10.14 Registration Rights Agreement Between V-ONE and JMI Equity Fund II, L.P. ("JMI") (1)
10.15 8% Senior Subordinated Note due June 18, 2000 Issued by V-ONE to JMI (1)
10.16 Warrant to Purchase 100,000 shares of Common Stock Issued by V-ONE to JMI (1)
10.17 Warrant to Purchase 400,000 shares of Common Stock Issued by V-ONE to JMI (1)
10.18 Employment Agreement between V-ONE and Jieh-Shan Wang dated as of July 8, 1996 (1)
10.19 Subscription Agreement dated as of December 3, 1997 between V-ONE and Advantage Fund II Ltd. (2)
10.20 Registration Rights Agreement dated as of December 3, 1997 between V-ONE and Advantage Fund II Ltd. (2)


49


10.21 Commitment Letter dated December 8, 1997 between V-ONE and Advantage Fund II Ltd. (2)
10.22 Registration Rights Agreement dated as of December 8, 1997 between V-ONE and Wharton Capital
Partners, Ltd. (2)
10.23 Warrant to Purchase 60,000 shares of Common Stock Issued on December 8, 1997 by V-ONE to Wharton
Capital Partners, Ltd. (2)
10.24 Letter Agreement between V-ONE and Wharton Capital Partners, Ltd. dated October 22, 1997 (2)
10.25 V-ONE 1998 Incentive Stock Plan (4)
10.26 Warrants dated November 21, 1997 to Purchase 300,000 shares of Common Stock granted to David D.
Dawson (4)
10.27 Employment Agreement dated November 21, 1997 between V-ONE and David D. Dawson (4)
10.28 Amendment to Employment Agreement dated November 7, 1997 between V-ONE and Charles B. Griffis (4)
10.29 Amendment to Section 2.08 of 1996 Incentive Stock Plan (4)
10.30 Lease Agreement dated March 24, 1997 between Bellemead Development Corporation and V-ONE (3)
10.31 Inconvertibility Notice dated September 21, 1998 (5)
10.32 Waiver Agreement, dated as of September 22, 1998, between the Company and Advantage Fund II Ltd. (5)
10.33 Amendment No. 1 dated as of September 22, 1998 to the Registration Rights Agreement between the
Company and Advantage Fund II Ltd. (5)
10.34 Warrant to purchase 100,000 shares of Common Stock issued on September 22, 1998 by V-ONE to
Advantage Fund II Ltd. (5)
10.35 Warrant to purchase 389,441 shares of Common Stock issued on September 22, 1998 by V-ONE to
Advantage Fund II Ltd. (5)
10.36 Waiver Letter, dated November 5, 1998 between the Company and Advantage Fund II Ltd. (6)
10.37 Placement Agent Agreement, dated October 9, 1998, between the Company and LaSalle St.
Securities, Inc. (6)
10.38 Amendment No. 1 to Placement Agent Agreement, dated November 9, 1998, between the Company and
LaSalle St. Securities, Inc. (6)
10.39 Escrow Agreement, dated October 9, 1998, among the Company, LaSalle St. Securities, Inc. and
LaSalle National Bank (6)
10.40 Amendment No. 1 to Escrow Agreement, dated November 9, 1998, among the Company, LaSalle St.
Securities, Inc. and LaSalle National Bank (6)
10.41 Form of Subscription Documents (6)
10.42 Form of Addendum #1 to Subscription Documents (6)
10.43 Form of Addendum #2 to Subscription Documents (6)
10.44 Form of Warrant granted to A.L. Giannopoulos to purchase 10,000 shares of the Company's Common
Stock (6)
10.45 Form of Warrant granted to William E. Odom to purchase 10,000 shares of the Company's Common
Stock (6)
10.46 Amendment No. 1 to Placement Agent Agreement, dated November 16, 1998, between the Company and
LaSalle St. Securities, Inc. (7)
10.47 Waiver Letter dated November 18, 1998 between the Company and LaSalle St. Securities, Inc. (7)
10.48 Form of Second Version of Subscription Documents (7)
10.49 Form of Addendum #1 to Second Version of Subscription Documents (7)
10.50 Form of Addendum #2 to Second Version of Subscription Documents (7)
10.51 Warrant dated November 20, 1998 to purchase 50,000 shares of Common Stock issued to LaSalle St.
Securities, Inc. (7)
10.52 Employment Agreement dated November 6, 1998 between V-ONE and Charles B. Griffis (9)
10.53 Employment Agreement dated August 1, 1998 between V-ONE and Robert F. Kelly (9)
10.54 Loan and Security Agreement dated February 24, 1999 between V-ONE and Transamerica Business
Credit Corporation ("Transamerica") (8)


50


10.55 Patent and Trademark Security Agreement dated February 24, 1999 between V-ONE and Transamerica
(8)
10.56 Security Agreement in Copyrighted Works dated as of February 24, 1999 between V-ONE and
Transamerica (8)
10.57 Amendment to Employment Agreement dated as of August 1, 1998 by and between the Company and
Jieh-Shan Wang (9)
10.58 Amendment to Employment Agreement dated as of January 1, 1999 by and between the Company and
James F. Chen (9)
10.59 Subscription Agreement for Series B Convertible Preferred Stock, dated June 11, 1999 (10)
10.60 Registration Rights Agreement, dated June 11, 1999 (10)
10.61 Non-Negotiable Promissory Note, dated June 11, 1999 (10)
10.62 Form of Series C Preferred Stock Purchase Agreement (11)
10.63 Employment Agreement dated July 1, 1999 by and between the Company and Margaret E. Grayson (12)
10.64 Employment Agreement dated July 1, 1999 by and between the Company and David D. Dawson (13)
10.65 Series D Convertible Preferred Stock and Non-Detachable Warrant Purchase Agreement dated
February 14, 2001 (14)
10.66 Form of Warrant Granted to Holders of Series D Convertible Preferred Stock, dated February 14,
2001 (14)
10.67 2001 Employee Stock Purchase Plan (14)
10.68 Form of Subscription Agreement between the Company and Employees under the 2001 Employee Stock
Purchase Plan (14)
10.69 Agreement for Purchase and Sale of Stock between the Company and NFR Security, Inc., dated March
13, 2001 (14)
23.1 Consent of Ernst & Young LLP


- ------------------------------
(1) The information required by this exhibit is incorporated herein by
reference to V-ONE's Registration Statement on Form S-1 (No. 333-06535).

(2) The information required by this exhibit is incorporated herein by reference
to V-ONE's Form 8-K dated December 8, 1997.

(3) The information required by this exhibit is incorporated herein by reference
to V-ONE's Form 10-Q for the three months ended June 30, 1997.

(4) The information required by this exhibit is incorporated herein by reference
to V-ONE's Form 10-K for the twelve months ended December 31, 1997.

(5) The information required by this exhibit is incorporated herein by reference
to V-ONE's Form 8-K dated September 22, 1998.

(6) The information required by this exhibit is incorporated herein by reference
to V-ONE's Form 10-Q for the nine months ended September 30, 1998.

(7) The information required by this exhibit is incorporated herein by reference
to V-ONE's Form 8-K dated November 20, 1998.

51


(8) The information required by this exhibit is incorporated herein by reference
to V-ONE's Form 8-K dated March 11, 1999.

(9) The information required by this exhibit is incorporated herein by reference
to V-ONE's Form 10-K for the twelve months ended December 31, 1998.

(10) The information required by this exhibit is incorporated herein by
reference to V-ONE's Form 8-K dated June 23, 1999.

(11) The information required by this exhibit is incorporated herein by
reference to V-ONE's Form 8-K dated September 15, 1999.

(12) The information required by this exhibit is incorporated herein by
reference to V-ONE's Form 10-Q for the three months ended June 30, 1999.

(13) The information required by this exhibit is incorporated herein by
reference to V-ONE's Form 10-K for the twelve months ended December 31, 1999.

(14) The information required by this exhibit is incorporated by reference to
V-ONE's Form 10-K for the twelve months ended December 31, 2000.

(b) Reports on Form 8-K

None.

52



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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

Date: March 28, 2002
By: /s/ Margaret E. Grayson
------------------------------
Margaret E. Grayson
President and Chief Executive Officer

Pursuant to the requirements of Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities indicated.


SIGNATURE TITLE DATE



President, Chief Executive March 28, 2002
/s/ Margaret E. Grayson Officer and Director
- -------------------------------------
Margaret E. Grayson


Chief Financial Officer, March 28, 2002
/s/ John F. Nesline Treasurer and Controller
- -------------------------------------
John F. Nesline


/s/ Molly G. Bayley Director March 28, 2002
- -------------------------------------
Molly G. Bayley


/s/ Heidi B. Heiden Director March 28, 2002
- -------------------------------------
Heidi B. Heiden


/s/ James T. McManus Director March 28, 2002
- -------------------------------------
James T. McManus


/s/ Michael J. Mufson Director March 28, 2002
- -------------------------------------
Michael J. Mufson


/s/ Michael D. O'Dell Director March 28, 2002
- -------------------------------------
Michael D. O'Dell


/s/ William E. Odom Director March 28, 2002
- -------------------------------------
William E. Odom




53