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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 2003
OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ______________ TO ______________

COMMISSION FILE NUMBER 0-21511

V-ONE CORPORATION
-----------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 52-1953278
------------ --------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

20300 CENTURY BLVD., SUITE 200, GERMANTOWN, MARYLAND 20874
----------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(301) 515-5200
--------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)



Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [ X ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.

CLASS OUTSTANDING AT NOVEMBER 6, 2003
----- -------------------------------
COMMON STOCK, $0.001 PAR VALUE PER SHARE 27,382,181





V-ONE Corporation
Quarterly Report on Form 10-Q

INDEX



PAGE NO.
--------

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements 3

Condensed Balance Sheets as of September 30, 2003 4
(unaudited) and December 31, 2002 (unaudited)

Condensed Statements of Operations for the Three and 5
Nine Months Ended September 30, 2003 (unaudited) and
September 30, 2002 (unaudited)

Condensed Statements of Cash Flows for the Nine Months 6
Ended September 30, 2003 (unaudited) and September
30, 2002 (unaudited)

Notes to the Condensed Financial Statements 7
(unaudited)

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10

Item 3. Quantitative and Qualitative Disclosures About 13
Market Risk

Item 4. Controls and Procedures 13


PART II. OTHER INFORMATION 14

Item 1. Legal Proceedings 14

Item 2. Changes in Securities and Use of Proceeds 14

Item 3. Defaults Upon Senior Securities 14

Item 4. Submission of Matters to a Vote of Security Holders 14

Item 5. Other Information 14

Item 6. Exhibits and Reports on Form 8-K 14

SIGNATURES 15

2



The review of the Company's financial statements at September 30, 2003 by the
Company's auditors has not been completed and reviewed financial statements are
not included in this Quarterly Report on Form 10-Q. When the review is
completed, the Company intends to file an amended Quarterly Report on Form 10-Q
containing such reviewed financial statements.

3



PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements



V-ONE CORPORATION
CONDENSED BALANCE SHEETS


September 30, 2003 December 31, 2002
ASSETS (Unaudited) (Unaudited)
------------------------ ---------------------

Current assets:
Cash and cash equivalents $ 39,762 $ 128,985
Accounts receivable, net 707,653 237,695
Finished goods inventory, net 3,228 5,478
Prepaid expenses and other current assets 21,308 280,630
------------------------ ---------------------
Total current assets 771,951 652,788

Property and equipment, net 80,815 319,294
Other assets 95,141 -
------------------------ ---------------------
Total assets $ 947,907 $ 972,082
======================== =====================

LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,592,320 $ 1,235,574
Deferred revenue 738,585 784,185
Notes payable 528,000 591,242
------------------------ ---------------------
Total current liabilities 2,858,905 2,611,001
Deferred rent 38,945 32,831
------------------------ ---------------------
Total liabilities 2,897,850 2,643,832

Commitments and contingencies

Shareholders equity:
Preferred stock, $.001 par value,13,333,333 shares authorized:
Series C redeemable preferred stock, 500,000 designated; 42,904
shares issued and outstanding
(liquidation preference of $1,126,388) 43 43
Series D convertible preferred stock 3,675,000 shares designated,
3,021,000 shares issued and outstanding 3,021 3,021
(liquidation preference of $5,770,110)
Common stock, $0.001 par value; 75,000,000 shares authorized;
27,334,335 and 26,649,301 shares issued and outstanding, respectively 27,334 26,649
Accrued dividends payable 2,091,517 1,575,709
Additional paid-in capital 61,917,335 61,737,266
Accumulated deficit (65,989,193) (65,014,438)
------------------------ ---------------------
Total shareholders equity (1,949,943) (1,671,750)
------------------------ ---------------------
Total liabilities and shareholders equity $ 947,907 $ 972,082
======================== =====================

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


4





V-ONE CORPORATION
CONDENSED STATEMENTS OF OPERATIONS

Three months Three months Nine months Nine months
ended ended ended ended
September 30, 2003 September 30, 2002 September 30, 2003 September 30, 2002
(unaudited) (unaudited) (unaudited) (unaudited)
------------------ -------------------- ----------------------------------------

Revenue:
Products $ 489,907 $ 805,529 $ 1,902,127 $ 1,770,114
Consulting and services 388,859 346,414 1,137,131 1,121,047
------------------- --------------------- -----------------------------------
Total revenue 878,766 1,151,943 3,039,258 2,891,161

Cost of revenue:
Products 9,443 57,611 152,544 148,521
Consulting and services 27,284 80,073 67,710 281,842
------------------- --------------------- -----------------------------------
Total cost of revenue 36,727 137,684 220,254 430,363
------------------- --------------------- -----------------------------------

Gross profit 842,039 1,014,259 2,819,004 2,460,798

Operating expenses:
Research and development 263,096 520,072 857,535 2,276,469
Sales and marketing 321,680 742,913 1,069,533 2,507,886
General and administrative 315,116 512,221 1,163,046 1,890,457
-------------------- --------------------- -----------------------------------
Total operating expenses 899,892 1,775,206 3,090,114 6,674,812
-------------------- --------------------- -----------------------------------

Operating loss (57,853) (760,947) (271,110) (4,214,014)

Other (expense) income:
Interest expense (22,363) (314,875) (183,838) (317,220)
Interest income 103 1,633 5,154 15,876
Other (expense) income - (4,648) (9,153) (7,558)
-------------------- --------------------- -----------------------------------
Total other (expense) income (22,260) (317,890) (187,837) (308,902)
-------------------- --------------------- -----------------------------------

Net loss (80,113) (1,078,837) (458,947) (4,522,916)

Dividend on preferred stock 173,826 173,826 515,808 526,075
-------------------- --------------------- -----------------------------------

Loss attributable to holders of common stock $ (253,939) $ (1,252,663) $ (974,755) $ (5,048,991)
==================== ===================== ===================================

Basic and diluted loss per share attributable
to holders of common stock $ (0.01) $ (0.05) $ (0.04) $ (0.20)
==================== ===================== ===================================

Weighted average number of common
shares outstanding 27,236,692 25,955,863 26,973,189 24,759,695
==================== ===================== ===================================

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



5




V-ONE CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS


Nine months Nine months
ended ended
September 30, 2003 September 30, 2002
(unaudited) (unaudited)
----------------------- -----------------------

Cash flows from operating activities:
Net loss $ (458,947) $ (4,522,916)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 231,893 389,183
Stock compensation 1,757 81,807
Amortization of deferred financing costs 68,974 127,078
Beneficial conversion expense 57,648 177,564
Changes in assets and liabilities:
Accounts receivable, net (469,958) (313,110)
Inventory, net 2,250 10,299
Prepaid expenses and other assets 95,208 233,821
Accounts payable and accrued expenses 356,746 611,380
Deferred revenue (45,600) 81,933
Deferred rent 6,114 (33,889)
----------------------- -----------------------
Net cash used in operating activities (153,915) (3,156,850)

Cash flows from investing activities:
Net purchases of property and equipment 6,586 (64,823)
----------------------- -----------------------
Net cash provided by (used in) investing activities 6,586 (64,823)

Cash flows from financing activities:
Exercise of options and warrants 3,750 -
Issuance of common stock 54,356 16,467
Issuance of preferred stock - -
Issuance of notes payable (75,000) 603,000
Notes payable converted to common stock 75,000 585,000
Payment of debt financing costs - (381,231)
Redemption of preferred stock - -
Payments of stock issuance costs - -
Payment of preferred stock dividends - -
Principal payments on capitalized lease obligations - (47,082)
----------------------- -----------------------
Net cash provided by financing activities 58,106 776,154
----------------------- -----------------------

Net increase (decrease) in cash and cash equivalents (89,223) (2,445,519)

Cash and cash equivalents at beginning of period $ 128,985 $ 2,608,690
----------------------- -----------------------

Cash and cash equivalents at end of period $ 39,762 $ 163,171
======================= =======================

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


6



V-ONE CORPORATION
NOTES TO THE CONDENSED FINANCIAL STATEMENTS

(Unaudited)



1. Nature of the Business

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

2. Basis of Presentation

The condensed financial statements for the three and nine months ended September
30, 2003 and September 30, 2002 are unaudited and reflect all adjustments,
consisting of normal recurring adjustments, which are, in the opinion of
management, necessary to present fairly the results for the interim periods. The
balance sheet at December 31, 2002 is as presented in the financial statements
at that date, but does not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
These financial statements should be read in conjunction with the financial
statements as of December 31, 2002 (unaudited) and 2001 (audited) and for the
three years ended December 31, 2002, which are included in the Company's 2002
Annual Report on Form 10-K.

The preparation of financial statements to be in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates and would
affect future results of operations and cash flows.

The results of operations for the three and nine months ended September 30, 2003
are not necessarily indicative of the results expected for the full year ending
December 31, 2003.

Certain prior year amounts have been reclassified to conform to the 2003
presentation. These changes had no impact on previously reported results of
operations.

3. Common and Preferred Stock

On September 28, 2003, the Company sold 12,500 shares of common stock at a price
of $.119 per share as part of its Employee Stock Purchase Plan. On June 30,
2003, the Company sold 12,500 shares of common stock at a price of $.111 per
share as part of its Employee Stock Purchase Plan. On March 31, 2003, the
Company sold 12,500 shares of common stock at a price of $.119 per share as part
of its Employee Stock Purchase Plan.

During the three months ended September 30, 2003, the Company issued 193,710
shares of common stock in exchange for governmental consulting services. On June
13, 2003, the Company issued 128,824 shares of common stock in exchange for
governmental consulting services.

In July and August 2002, the Company closed on approximately $1,188,000 in a
private placement of 8% Secured Convertible Notes with detachable warrants, due
180 days after issuance with an additional 180-day extension available at the
option of the Company or the holders. As of September 30, 2003, holders had
converted $660,000, or 56%, of the notes into shares of common stock at $.25 per
share. In July 2003 holders exercised warrants for 25,000 shares of common stock
at $.15 per share.

4. 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 $5,527,391,
$6,237,278, and $8,862,015 for the years ended December 31, 2002, 2001 and 2000,
respectively, and a further net loss of $458,947 for the nine months ended
September 30, 2003. In addition, the Company may continue to incur losses during
2003. There can be no assurance that the consummation of sales of the Company's
products to existing customers or proposed agreements with potential customers
will generate timely or sufficient revenue for the Company to cover its costs of


7


operations and meet its cash flow requirements. Accordingly, the Company may not
have the funds needed to sustain operations during 2003.

For the immediate future, the Company will focus on existing and potential
customers in the government sector, targeted marketing operations to commercial
accounts through its distribution and reseller channel partners, and minimizing
general and administrative expenditures and all possible capital expenditures.
The Company has taken steps to reduce expenses by implementing a reduced
workweek designed to ensure that customers' requirements are met without
jeopardizing the Company's workforce. Additional staff reductions of
approximately 20% of the Company's employees were effected on January 10, 2003.
The Company reduced operating expenses for the third quarter by approximately
$875,000 and by approximately $3,585,000 for the nine months ended September 30,
2003, compared with the same periods last year. The Company may not be
successful in further reducing operating levels and, even at reduced operating
levels, the Company may not be able to maintain operations for any extended
period of time without generating revenue from existing and new customers,
additional capital or a significant strategic transformative event. 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 is seeking to expand its current banking relationships to explore
alternatives to preserve its operations and maximize shareholder value,
including potential strategic partnering relationships, a business combination
with a strategically placed partner, or a sale of the Company.

5. 8% Secured Convertible Notes with Detachable Warrants

In July and August 2002, the Company closed on approximately $1,188,000 in a
private placement of 8% Secured Convertible Notes with detachable warrants, due
180 days after issuance with an additional 180-day extension available at the
option of the Company or the holders. Detachable five year warrants, exercisable
at $0.50 per share, are included to provide one warrant share for every dollar
invested as warrant coverage to the note holders. In connection with its efforts
to raise capital, the Company agreed in January 2003 to adjust the exercise
price of the warrants from $0.50 per share to $0.15 per share. As of September
30, 2003, holders had converted $660,000, or 56%, of the notes into shares of
common stock at $.25 per share. In July 2003, holders exercised warrants for
25,000 shares of common stock at $.15 per share.

Upon issuance of the notes, the Company recorded a debt discount of
approximately $233,900 in accordance with the accounting requirements for a
beneficial conversion feature on the notes. During the nine months ended
September 30, 2003, the Company amortized approximately $11,758 of the discount
to interest expense. In connection with the Company's agreement to adjust the
exercise price of the warrants, the Company recorded a debt discount of
approximately $23,890 in accordance with the accounting requirements for a
beneficial conversion feature on the notes. During the nine months ended
September 30, 2003, the Company amortized all of the debt discount of $23,890 to
interest expense. Additionally, the Company records interest expense upon
conversion of the notes as a result of the embedded conversion feature. The
additional interest expense is not recorded until conversion because the notes
contain a contingency that does not permit the number of shares to be received
upon conversion to be calculated until conversion occurs. Upon conversion of
$25,000 and $50,000 of notes during the three and nine months ended September
30, 2003, respectively, the Company recorded $8,000 and $11,000 in interest
expense, respectively. Additionally, the Company recorded $15,714 in accrued
interest expense for the third quarter of 2003. Accrued interest expense is
payable upon the earlier of maturity or conversion of the notes.

In January 2003, the Company elected to extend the notes for an additional 180
days and paid the interest accrued under the initial term of the notes. In July
2003, the Company requested and received an extension of the notes for an
additional 180 days and agreed to an increase in the interest rate from 10% to
12% during the extension period.


8



6. Supplemental Cash Flow Disclosure

Selected noncash activities were as follows:

----------------------------------
Nine Months ended September 30,
----------------------------------
2003 2002
------------- --------------
Noncash investing and financing activities:
Redemption of preferred stock $ - $ -
Payment of preferred stock dividends $ - $ -

7. Net Loss Per Share

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




Three Months ended Nine Months ended
September 30, September 30,
-------------------------------------- ------------------------------------
2003 2002 2003 2002

---------------- ------------------- ------------------ ----------------
Numerator:
Net loss $ (80,113) $ (1,078,837) $ (458,947) $ (4,522,916)
Less: Dividend on preferred stock (173,826) (173,826) (515,808) $ (526,073)
---------------- ------------------- ------------------ ----------------
Net loss attributable to holders of common stock $ (253,939) $ (1,252,663) $ (974,755) $ (5,048,991)
================ =================== ================== ================

Denominator:
Denominator for basic and diluted net loss per share
- - weighted average shares 27,236,692 25,955,863 26,973,189 24,759,695
================ =================== ================== ================

Basic and diluted loss per share -
Net loss attributable to holders of common stock $ (0.01) $ (0.05) $ (0.04) $ (0.20)
================ =================== ================== ================


Due to their anti-dilutive effect, outstanding shares of preferred stock, stock
options and warrants to purchase shares of common stock were excluded from the
computation of diluted earnings per share for all periods presented.

9


Item 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements within the meaning of Section 21E
of the Exchange Act. These statements may differ in a material way from actual
future events. For instance, factors that could cause results to differ from
future events include rapid rates of technological change and intense
competition, among others. The Company's total revenues and operating results
have varied substantially from quarter to quarter and should not be relied upon
as an indication of future results. Several factors may affect the ability to
forecast the Company's quarterly operating results, including the size and
timing of individual software and hardware sales; the length of the Company's
sales cycle; the level of sales and marketing, research and development and
administrative expenses; and general economic conditions.

Operating results for a given period could be disproportionately affected by any
shortfall in expected revenues. In addition, fluctuation in revenues from
quarter to quarter will likely have an increasingly significant impact on the
Company's results of operations. The Company's performance in recent periods may
not be an accurate indication of future results of operations in light of the
evolving nature of the network security market and the uncertainty of the demand
for Internet and intranet products in general and the Company's products in
particular. Because the Company's operating expenses are based on anticipated
revenue levels, a small variation in the timing of recognition of revenues can
cause significant variations in operating results from quarter to quarter.

Readers are also referred to the documents filed by the Company with the SEC,
specifically the Company's latest Annual Report on Form 10-K that identifies
important risk factors for the Company.

RESULTS OF OPERATIONS

REVENUES

Total revenues decreased from approximately $1,152,000 for the three months
ended September 30, 2002, to approximately $879,000 for the three months ended
September 30, 2003, a decrease of approximately $273,000 or 24%; however, total
revenues increased from approximately $2,891,000 for the nine months ended
September 30, 2002 to approximately $3,039,000 for the nine months ended
September 30, 2003, an increase of approximately 5%. These changes in total
revenues are due primarily to changes in product revenues for the stated
periods. Product revenues increased significantly during the earlier part of the
nine month period ended September 30, 2003 contributing to the increase in total
revenues for the nine months ended September 30, 2003 as compared to the
comparable period in 2002. Product revenues, however, decreased during the three
month period ended September 30, 2003 contributing to the decrease in total
revenues for the nine months ended September 30, 2003 as compared to the
comparable period in 2002. Product revenues are derived principally from
software licenses and the sale of hardware products. Product revenues decreased
from approximately $806,000 for the three months ended September 30, 2002, to
approximately $490,000 for the three months ended September 30, 2003. The
decrease resulted from delayed orders from existing customers for expansion of
current product deployments. Product revenues increased from approximately
$1,770,000 for the nine months ended September 30, 2002, to approximately
$1,902,000 for the nine months ended September 30, 2003. The increase this year
was primarily due to an increase in software sales. Consulting and services
revenues are derived principally from fees for services complementary to the
Company's products, including consulting, maintenance, installation and
training. Consulting and services revenues increased slightly from approximately
$346,000 for the three months ended September 30, 2002, to approximately
$389,000 for the three months ended September 30, 2003. Consulting and services
revenues increased slightly from approximately $1,121,00 for the nine months
ended September 30, 2002, to approximately $1,137,000 for the nine months ended
September 30, 2003. This was due principally to a higher number of new and
renewing maintenance contracts provided to customers in the third quarter and
year to date.

COST OF REVENUES

Total cost of revenues as a percentage of total revenues decreased from
approximately 12% and 15%, or approximately $138,000 and $430,400 for the three
and nine months ended September 30, 2002, respectively, to approximately 4% and
7%, or approximately $36,700 and $220,300 for the three and nine months ended
September 30, 2003, respectively. The decreases were primarily due to an
increase in software product sales and reductions in large turnkey and hardware
system sales. Software product sales involve lower variable costs compared to
the higher variable costs, primarily salary expense and hardware costs,


10


associated with large turnkey and hardware system sales. Total cost of revenues
is comprised of cost of product revenues and cost of consulting and services
revenues.

Cost of product revenues consists principally of the costs of computer hardware,
licensed technology, manuals and labor associated with the distribution and
support of the Company's products. Cost of product revenues decreased from
approximately $58,000 for the three months ended September 30, 2002, to
approximately $9,000 for the three months ended September 30, 2003. The decrease
in costs of product revenue for the three months ended September 30, 2003 was
primarily attributable to an increase in software product sales and a lower
proportion of turnkey systems sales. Cost of product revenues increase slightly
from approximately $149,000 for the nine months ended September 30, 2002 to
approximately $152,000 for the nine months ended September 30, 2003. The
increase in costs of product revenue for the nine months ended September 30,
2003 was attributable to a slight increase in the Company's SmartGuard turnkey
product sales. Cost of product revenues as a percentage of product revenues was
approximately 7% and 8% for the three and nine months ended September 30, 2002,
respectively, and approximately 2% and 8% for the three and nine months ended
September 30, 2003, respectively. The percentage decreases were primarily
attributable to a lower proportion of turnkey systems and third-party firewalls
sales, as compared to sales of software licenses.

Cost of consulting and services revenues consists principally of personnel and
related costs incurred in providing consulting, support and training services to
customers. Cost of consulting and services revenues decreased from approximately
$80,000 and $282,000 for the three and nine months ended September 30, 2002,
respectively, to approximately $27,000 and $68,000 for the three and nine months
ended September 30, 2003, respectively. Cost of consulting and services revenues
as a percentage of consulting and services revenues was approximately 23% and
25% for the three and nine months ended September 30, 2002, respectively, and
approximately 7% and 6% for the three and nine months ended September 30, 2003,
respectively. The percentage decreases were due mainly to product enhancements
enabling a reduction in staff hours needed to provide help desk and onsite
customer support, an increase in sales of the Company's SmartGuard appliance
with the Company's firewall and a lower proportion of support required for
third-party firewall maintenance contracts.

OPERATING EXPENSES

Research and Development -- Research and development expense consists
principally of the costs of research and development personnel and other
expenses associated with the development of new products and enhancement of
existing products. Research and development expense decreased from approximately
$520,000 and $2,276,000 for the three and nine months ended September 30, 2002,
respectively, to approximately $263,000 and $858,000 for the three and nine
months ended September 30, 2003, respectively. Research and development expense
as a percentage of total revenue was approximately 45% and 79% for the three and
nine months ended September 30, 2002, respectively, and approximately 30% and
28% for the three and nine months ended September 30, 2003, respectively. The
dollar and percentage decreases for the first nine months of 2003 were primarily
due to lower salary expenses of $966,000, lower consulting expenses of $130,000,
lower depreciation expenses of $78,000 and lower rent expenses of $52,000.

Sales and Marketing -- Sales and marketing expense consists principally of the
costs of sales and marketing personnel, advertising, promotions and trade shows.
Sales and marketing expense decreased approximately $421,000 and $1,438,000,
respectively for the three and nine months ended September 30, 2003 from
approximately $743,000 and $2,508,000 for the three and nine months ended
September 30, 2002, respectively, to approximately $322,000 and $1,070,000 for
the three and nine months ended September 30, 2003, respectively. Sales and
marketing expense as a percentage of total revenues decreased 28% and 52%,
respectively from approximately 65% and 87% for the three and nine months ended
September 30, 2002, respectively, to approximately 37% and 35% for the three and
nine months ended September 30, 2003, respectively. The dollar and percentage
decreases for the nine months ended September 30, 2003 relate predominately to
lower salary and consulting expense of $820,000 and reductions in tradeshow,
advertising and general operating expenses.

General and Administrative -- General and administrative expense consists
principally of the costs of accounting and finance, legal and human resources
management, administrative personnel and facilities expenses. General and
administrative expense decreased from approximately $512,000 and $1,890,000 for
the three and nine months ended September 30, 2002, respectively, to
approximately $315,000 and $1,163,000 for the three and nine months ended
September 30, 2003, respectively. The decrease in general and administrative
expense for the nine months ended September 30, 2003 of approximately $727,000
was due to lower salary, legal, D & O insurance, bad debt, depreciation and rent
expense. General and administrative expense as a percentage of total revenues
were approximately 44% and 65% for the three and nine months ended September 30,
2002, respectively, and 36% and 38% for the three and nine months ended
September 30, 2003, respectively.

11


Other (Expense) Income - Other (expense) income represents the net income or
expense resulting from non-operational activities that are of an infrequently
occurring nature. Other (expense) income for the three and nine months ended
September 30, 2003 was approximately $0 and ($9,000), respectively. Other
(expense) income for the three and nine months ended September 30, 2002 was
approximately ($5,000) and ($8,000), respectively.

Interest Income and Expenses -- Interest income represents interest earned on
cash and cash equivalents. Interest income decreased from approximately $2,000
and $16,000 for the three and nine months ended September 30, 2002,
respectively, to approximately $0 and $5,000 for the three and nine months ended
September 30, 2003, respectively. The decreases were attributable to lower
levels of cash and cash equivalents. Interest expense represents interest paid
or payable on loans and capitalized lease obligations. Interest expense
decreased from approximately $315,000 and $317,000 for the three and nine months
ended September 30, 2002, respectively, to approximately $22,000 and $184,000
for the three and nine months ended September 30, 2003, respectively,
substantially all of which was for recognition of a beneficial conversion
feature on the 8% Secured Convertible Notes.

Income Taxes -- The Company did not incur income tax expenses as a result of the
net loss incurred during the nine months ended September 30, 2002 and 2003.

Dividend on Preferred Stock -- The Company provided for dividends on preferred
stock of approximately $174,000 and $526,000 for the three and nine months ended
September 30, 2002, respectively, and approximately $174,000 and $516,000 for
the three and nine months ended September 30, 2003, respectively. Under the
terms of the purchase agreements for the Series C and Series D Preferred Stock,
the Company may elect to pay these dividends in cash or stock.

LIQUIDITY AND CAPITAL RESOURCES

The Company's operating activities used cash of approximately $3,157,000 for the
nine months ended September 30, 2002 and approximately $154,000 for the nine
months ended September 30, 2003. The decrease was primarily due to a decrease in
net loss, partially offset by an increase in accounts payable.

The Company's investing activities used cash of approximately $65,000 for the
nine months ended September 30, 2002 and provided cash of approximately $6,000
for the nine months ended September 30, 2003. The Company's investing activities
consisted of net capital expenditures for property and equipment of
approximately $65,000 and ($6,000) during the nine months ended September 30,
2002 and 2003, respectively. These expenditures have generally been for computer
workstations and personal computers, office furniture and equipment, and
leasehold additions and improvements. The capital expenditures were higher in
2002 as the Company acquired approximately $65,000 of equipment, replacing
equipment that had been under a five-year capital lease.

The Company's financing activities provided cash of approximately $776,000 and
$58,000 during the nine months ended September 30, 2002 and 2003, respectively.
In fiscal 2002, the cash was provided primarily by the issuance of 8% Secured
Convertible Notes with detachable warrants, due 180 days after issuance with an
additional 180-day extension available at the option of the Company or the
holders. In January 2003, the Company elected to extend the notes for an
additional 180 days and paid the interest accrued under the initial term of the
notes. In July 2003, the Company requested and received an extension of the
notes for an additional 180 days and agreed to an increase in the interest rate
from 10% to 12% during the extension period. The Company received $807,000 in
net proceeds after payment of all fees and offering expenses.

The Company had net tangible assets of ($1,672,000) and ($1,950,000) at December
31, 2002 and September 30, 2003, respectively.

As of September 30, 2003, the Company had an accumulated deficit of
approximately $65,989,000.

The Company reported a net loss of $5,527,391, $6,237,278, and $8,862,015 for
the years ended December 31, 2002, 2001 and 2000, respectively, and a further
net loss of $458,947 for the nine months ended September 30, 2003. In addition,
the Company may continue to incur losses during 2003. There can be no assurance
that the consummation of sales of the Company's products to existing customers
or proposed agreements with potential customers will generate timely or
sufficient revenue for the Company to cover its costs of operations and meet its
cash flow requirements. Accordingly, the Company may not have the funds needed
to sustain operations during 2003.

12


The Company is seeking to expand its current banking relationships to explore
alternatives to preserve its operations and maximize shareholder value,
including potential strategic partnering relationships, a business combination
with a strategically placed partner, or a sale of the Company.

For the immediate future, the Company will focus on existing and potential
customers in the government sector, targeted marketing operations to commercial
accounts through its distribution and reseller channel partners, and minimizing
general and administrative expenditures and all possible capital expenditures.
The Company has taken steps to reduce expenses by implementing a reduced
workweek designed to ensure that customers' requirements are met without
jeopardizing the Company's workforce. Additional staff reductions of
approximately 20% of the Company's employees were effected on January 10, 2003.
The Company reduced operating expenses for the third quarter by approximately
$875,000 and by approximately $3,585,000 for the nine months ended September 30,
2003, compared with the same periods last year. The Company may not be
successful in further reducing operating levels and, even at reduced operating
levels, the Company may not be able to maintain operations for any extended
period of time without generating revenue from existing and new customers,
additional capital or a significant strategic transformative event. 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.

CONTRACTUAL OBLIGATIONS

The following table discloses aggregate information about the Company's
contractual obligations as of September 30, 2003 and the periods in which
payments are due:



Payments Due By Period
----------------------------------------------------------------------------------------------
Remainder 2004 2006 Thereafter Total
of 2003 and 2005 and 2007
----------------------------------------------------------------------------------------------

Long-term debt obligations $94,383 $661,387 $466,681 $59,486 $1,281,937
Operating leases 3,594 26,357 0 0 29,951
------------------ ---------------- -------------- ------------------ ---------------
$97,977 $687,744 $466,681 $59,486 $1,311,888
================== ================ ============== ================== ===============


OFF-BALANCE SHEET ARRANGEMENTS

The Company had no material off-balance sheet arrangements during the first
three and nine months of fiscal 2003 or 2002.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is not materially exposed to fluctuations in currency exchange rates
as all of its products are invoiced in U.S. dollars. The Company does not hold
any derivatives or marketable securities. However, the Company is exposed to
interest rate risk. The Company believes that the market risk arising from
holdings of its financial instruments is not material.

Item 4. Controls and Procedures

Within the ninety-day period prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's President, Chief Executive
Officer and Principal Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures pursuant to Rule
13a-14 promulgated under the Securities Exchange Act of 1934, as amended. Based
upon that evaluation, the Company's President, Chief Executive Officer and
Principal Financial Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting management to material information
relating to the Company required to be included in the Company's periodic
filings with the SEC. There have been no significant changes in the Company's
internal controls or in other factors that could significantly affect internal
controls subsequent to the date the Company carried out its evaluation.

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Part II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 2. Changes in Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

The cost to complete the Company's annual audit for the fiscal year ended 2002
is approximately $100,000. The Company's cash position during the fourth quarter
of 2002 and the three and nine months ended September 30, 2003 was not
sufficient to prepay these fees in addition to meeting operational expenses for
development and equipment purchases required to deliver products to the
Company's customers. The Company decided to meet its customer's requirements
first, believing that it is in the best interest of the Company's shareholders
to do so. This decision resulted in a delay in completing the 2002 year-end
audit and the auditor's review of the Company's financial position and results
of operations for the first, second and third quarters of 2003. The Company's
common stock, traded on the OTC Bulletin Board, was assigned an "E" status and
removed from active listing until such time as the Company demonstrates
compliance with the OTC Bulletin Board listing regulations. It is the Company's
intention to complete the 2002 year-end audit and 2003 quarterly reviews and
return to compliant status as soon as is reasonably possible. Aronson & Company
began audit field work on November 3, 2003.

Item 6. Exhibits and Reports on Form 8-K

(a) The following exhibits are filed as part of this quarterly report on
Form 10-Q for the period ended September 30, 2003:

Exhibit Description
- ------- -----------

31 Certification of Chief Executive Officer and Principal Financial
Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.

32 Certification of Chief Executive Officer and Principal Financial
Officer Pursuant to Title 18, United States Code, Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.

(b) Reports on Form 8-K

On October 2, 2003, the Company dismissed its independent auditors, Ernst &
Young LLP, and engaged the services of Aronson & Company as its new independent
auditors. Aronson & Company will audit the Company's financial statements for
the fiscal year ending December 31, 2003, and is expected to complete the audit
of the Company's financial statements for the fiscal year ending December 31,
2002 and to issue a report on such financial statements in conjunction with the
filing by the Company of its amended Annual Report on Form 10-K for the fiscal
year ended December 31, 2002. Aronson & Company also is expected to review the
Company's financial statements for the quarters ended March 31, 2003, June 30,
2003, and September 30, 2003 in conjunction with the filing by the Company of
its amended Quarterly Reports on Form 10-Q for such periods. Aronson & Company
began audit field work on November 3, 2003.

14

SIGNATURE
---------


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


V-ONE CORPORATION
Registrant


Date: November 13, 2003 By: /s/ Margaret E. Grayson
----------------------------
Name: Margaret E. Grayson
Title: President, Chief Executive Officer
and Principal Financial Officer


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