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

                                   FORM 10-K/A

               (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, 2002

                                       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          (I.R.S. EMPLOYER
           OF 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)

        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)

                   NAME OF EXCHANGE ON WHICH REGISTERED: NONE


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

<PAGE>

incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

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

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 June 28,
2002  was  approximately  $14,077,382.  This  calculation  does  not  reflect  a
determination that persons are affiliates for any other purposes.

Registrant had 26,749,301  shares of Common Stock outstanding as of February 28,
2003.

                                       1

<PAGE>

                                EXPLANATORY NOTE

V-ONE  Corporation's  annual  report  on Form  10-K for the  fiscal  year  ended
December 31, 2002 was previously  filed with unaudited  financial  statements in
lieu of  audited  financial  statements  and  without  a Report  of  Independent
Auditors  because  the  audit  was not  completed  in time  to  include  audited
financial statements and a Report of Independent  Auditors.  V-ONE Corporation's
2002  audit  has  been  completed  by  Aronson  &  Company,  independent  public
accountants.  V-ONE  Corporation  is amending its annual  report on Form 10-K to
include  audited  financial  statements  as of and for  the  fiscal  year  ended
December  31, 2002 and a Report of  Independent  Auditors.  The  amended  annual
report on Form 10-K includes certain revised financal information for the fiscal
year ended December 31, 2002, as well as additional financial statement footnote
disclosures.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive  proxy statement to be issued in conjunction with the
registrant's  annual  stockholder's  meeting,  to be held on June 5,  2003,  are
incorporated  by reference  into Part II, Item 5 and Part III,  Items 10, 11, 12
and 13 of this Annual Report on Form 10-K.

                           FORWARD-LOOKING STATEMENTS

In addition to historical information,  this Annual Report on Form 10-K 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 and involve known and unknown risks and uncertainties  that
could cause V-ONE  Corporation's  actual  performance or  achievements to differ
from any  future  performance  or  achievements  expressed  or  implied  by such
statements.  Readers are also referred to the risk factors  discussed on page 13
of this Annual  Report on Form 10-K.  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 enables  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 20300 Century  Boulevard,
Suite 200,  Germantown,  Maryland 20874. The Company's telephone number is (301)
515-5200.

                                       2

<PAGE>

BACKGROUND

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  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.

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  that 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 pervasive use of the
Internet and intranets, many organizations are discovering that network security
is a necessary 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 capitalize on
the  inherently low cost of public  networks in a highly secure manner,  without
risk or compromise to their information assets.

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.

                                       3

<PAGE>

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  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.  A  third  party  digitally  certifies  the
   certificates,  called a certificate authority, which 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

                                       4

<PAGE>

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 the desire to transact
sensitive  communications  across  an  inherently  unsecure  Internet  to  solve
everyday  business and individual  communication  needs; i.e. (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 on the Internet by corporate and
individual  users and the  increasing  awareness to the potential  risk to their
private  information is causing such users to focus on security  concerns.  High
percentage  increases  in adoptions of VPNs are expected to continue as Internet
technologies,  such as electronic  commerce,  information sharing and electronic
collaboration  become  more  accepted.  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 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 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
and the FBI LEO (Law Enforcement  Online) Program,  both of which are 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.  The FBI LEO program,  sponsored by the FBI
Criminal Justice  Information  Services Division and in operation since 1996, is
an online service  provided to over 37,000 law enforcement and criminal  justice
officials.  Sharing  information among law enforcement  agencies using RISS, LEO
and other  networks is a security  challenge  that requires  strongly  encrypted
communications  and powerful access controls.  Securing these expanding networks
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,

                                       5

<PAGE>

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.

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  approved  the Advanced
Encryption Standard ("AES") and is developing  implementation  protocols.  V-ONE
has added  AES to its  library  of  encryption  methods  and  incorporated  this
algorithm  as an  approved  encryption  method.  V-ONE  incorporated  AES as the
default encryption method in the current release of the V-ONE SmartGate product,
SmartGate  4.4,  released  in April 2003.  Government  clients  currently  using
V-ONE's  technology  to secure  information  include the U.S.  Department of the
Treasury,  the Department of Defense,  more than 5,700 federal,  state and local
law enforcement  agencies and over 37,000 law  enforcement and criminal  justice
officials who share data through the RISS and LEO programs, 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  On-Line  Registration  ("OLR")
capability, the SmartGuard family of VPN appliances featuring the 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 on customer driven  requirements for its government and commercial users
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.

                                       6

<PAGE>

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  maintain lower sales and marketing costs,  preserving  resources
for continuing product development.  Although the Company has reduced its direct
marketing  efforts,  V-ONE  will  continue  in its role as an active  government
advisor.

SATELLITE MARKET. To address a critical enterprise need for secure VPN satellite
communication,  V-ONE  recently  introduced  SmartSAT,  a program  for users and
resellers of satellite IP data communications  services.  SmartSAT is built upon
SmartGate  application  layer  security  technology  that can overcome  standing
performance problems associated with satellite circuit propagation delays.

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
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  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

                                       7

<PAGE>

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.

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 8:30 A.M. and 5:00
P.M.  Eastern  Standard Time during V-ONE's  normal  business days. In addition,
V-ONE provides a toll-free callback 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.  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.

                                       8

<PAGE>

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
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.

Similar to many other  companies  in the  security  sector,  recent  softness in
commercial IT spending and delays in government spending have adversely affected
V-ONE's  growth  performance.  However,  the Company has gained  market share in
federal,  state and local law  enforcement  and vertical  market  segments  that
require  advanced  security  technology  products  to meet the needs of  complex
distributed  network  environments  that must share  information among disparate
information assets.

V-ONE has a growing  installed  customer  base in  federal,  state and local law
enforcement.  Successful law enforcement installations include the Department of
Justice's RISS program,  the FBI's LEO and InfraGard  programs,  the Gateway ISI
Joint Terriorist Task Force program, the congressionally funded first responders
CMI-Services  program,  as well as installations with the Department of Defense.
Through its channel  partners,  the  Company is gaining  access to new  customer
accounts in both government and commercial enterprises.

GOVERNMENT MARKETS
V-ONE's strongest  component of revenue growth is in the law enforcement  sector
based in part upon homeland security requirements.  V-ONE security products have
become the "de facto  standard"  for the  Department  of Justice "as is" network
architecture for the FBI LEO, RISS and CMI-Services programs.  V-ONE secures the
backbone of the newly combined  LEO/RISS  information  sharing networks that are
critical to meeting strategic  homeland security needs.  CMI-Services,  a Marine
Corp/FEMA  initiative,  was  added to this  growing  network  during  2002,  and
expansion is planned in 2003 under Department of Homeland Security. This network
provides secure access to proprietary databases across federal,  state and local
government on a controlled  "need to know" basis.  In addition,  order flow from
the U.S. Department of Defense has increased,  including  maintenance orders and
new product  licenses for NAVAIR San Diego,  JCS Pentagon,  Bolling AFB, Hickham
AFB,   Military   Transport   Management,    DSSA   (Defense   Security   System
Administration),   Office  of  Inspector  General,   US  Navy  Undersea  Warfare
Laboratory, Defense Threat Reduction Agency, and others.

COMMERCIAL MARKETS
V-ONE has identified financial services, healthcare and transportation as target
vertical  markets,  and is also  pursuing the wireless  and  satellite  segments
within  these  markets.  V-ONE  is  carefully  focused  on a  targeted  group of
technologically  sophisticated  channel  partners  and  is  building  additional
channels through a manufacturer representative initiative.  V-ONE's products are
generating  revenue through the Company's channel programs in North American and

                                       9

<PAGE>

European  commercial  target markets.  The expansion of the functionality of the
SmartGuard  appliance  portfolio  plays an  important  role in building  V-ONE's
channel  program,  allowing V-ONE to better  address the enterprise  market with
"drop in" solutions for remote offices,  corporate campuses,  WLAN gateways, and
high-availability requirements.

SATELLITE MARKET
To address a critical  enterprise  need for secure VPN satellite  communication,
V-ONE  recently  introduced  SmartSAT,  a program  for users  and  resellers  of
satellite  IP data  communications  services.  SmartSAT is built upon  SmartGate
application   layer  security   technology   that  can  overcome   long-standing
performance  problems  associated  with satellite  circuit  propagation  delays.
Satellite  communications  are  a  significant  potential  opportunity  for  VPN
application; however, realizing acceptable performance from a VPN over satellite
is a  long-standing  problem for IPSec VPN  implementations.  V-ONE  application
layer security technology  overcomes  performance  problems experienced by IPSec
implementations.

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 a  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 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,

                                       10

<PAGE>

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.

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.
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,  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
that 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

                                       11

<PAGE>

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
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  February  28,  2003,  the  Company  had  26  full-time  employees  and 5
consultants.  Of these individuals,  12 were in sales and marketing,  11 were in
research  and product  development,  and 8 were in  administration.  None of the
Company's  employees  is  represented  by a  labor  union  or  is  subject  to a
collective  bargaining  agreement.  The  Company  has never  experienced  a work
stoppage and believes that its employee relations are good.

                                       12

<PAGE>

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.  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.

V-ONE'S ACCUMULATED DEFICIT COULD AFFECT OVERALL OPERATIONS.  As of December 31,
2002,  V-ONE had an  accumulated  deficit of  approximately  $65,122,000.  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.

Revenues  for the years  1998,  1999,  2000,  2001 and 2002  were  approximately
$6,260,000,  $4,966,000,  $4,554,000,  $4,990,000 and $3,553,000,  respectively.
Losses  attributable to holders of Common Stock for the years 1998,  1999, 2000,
2001 and 2002 were approximately $9,407,000,  $9,952,000, $9,232,000, $9,911,000
and  $6,335,000,  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  $3.4 million in
fiscal  2002,  an  average  "burn  rate"  of  approximately  $283,000  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.  Accordingly,  V-ONE may not
have the  funds  needed to  sustain  operations  during  2003,  and its  audited
financial  statements are presented  subject to a "going concern"  opinion.  The
Company  is  seeking  to expand its  current  banking  relationships  to explore
alternatives  to  preserve  its  operations  and  maximize   stockholder  value,
including potential strategic partnering  relationships,  a business combination
with a strategically placed partner, or a sale of the Company.

In  addition,   the  Company  was  not  able  to  satisfy  the  minimum  listing
requirements  for  continued  listing on the Nasdaq  SmallCap  Market and is now
trading on the OTC  Bulletin  Board  ("OTCBB").  The  transfer  to the OTCBB was
effected without interruption in the trading market for the Company's securities
and the ticker symbol for the Company's securities has not changed.

In July 2002,  the  Company  took steps to reduce  expenses  by  implementing  a
reduced workweek designed to ensure that customers' requirements are met without
jeopardizing  the Company's  workforce.  The Company  effected  additional staff
reductions  in  January  2003,  approximating  20% of  its  employees.  For  the
immediate  future,  V-ONE will focus on existing and potential  customers in the
government  sector,  limited and targeted  marketing  operations  to  commercial
accounts,  and  minimizing  general  and  administrative  expenditures  and  all
possible capital  expenditures.  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  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

                                       13

<PAGE>

dependent  on  its  ability  to  generate  sufficient  cash  flow  to  meet  its
obligations on a timely basis or to obtain additional funding.

SALES TO  GOVERNMENT  AGENCIES  CONSTITUTE A  SIGNIFICANT  PERCENTAGE OF V-ONE'S
REVENUE  AND ARE  SUBJECT TO  VARIOUS  POLICIES  AND  LENGTHY  TESTING  PERIODS.
Government  contracts may be terminated by the  government  without cause and no
government  agency or department  has an  obligation  to purchase  products from
V-ONE in the future.  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, 2002, sales to the U.S. government constituted approximately 60% of
its revenue.

CONTINUED  MARKET  ACCEPTANCE  OF  SMARTGATE,  SMARTGUARD  AND  SMARTWALL IS NOT
GUARANTEED.  V-ONE  currently  generates  most of its product  revenues from its
software,   SmartGate,  and  hardware,   SmartGuard  and  SmartWall,   products.
SmartGate,  SmartGuard and SmartWall have met with a favorable  degree of market
acceptance.   The  percentage  of  total  revenue  for  software  and  hardware,
respectively,  was 56.3% to 17.4% for 2000, 50.0% to 23.6% for 2001 and 47.4% to
9.9% for 2002. However,  SmartGate,  SmartGuard 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

                                       14

<PAGE>

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  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.

ADVERSE  ECONOMIC  IMPACT OF A  SLOWING  GLOBAL  ECONOMY  COULD  IMPAIR  V-ONE'S
REVENUES.  The  slowing  global  economy,  as further  hampered by the events of
September 11, 2001, has created an uncertain international economic environment,
and  management  cannot predict the impact of the slowing  global  economy,  any
future  terrorist acts or any related  military  action on V-ONE's  customers or
their  businesses.   In  particular,   V-ONE's  commercial  customers  could  be
negatively affected by the sluggish international  economy.  Although management
believes that  spending on security  products will increase as a result of these
events,  if  businesses  curtail or eliminate  capital  spending on  information
technology,  or if downturns in the Internet  infrastructure and related markets
continue,  businesses  may delay or cancel  orders for security  products  which
could result in reduced or cancelled orders for V-ONE's  products.  In addition,
these uncertain  economic times could cause longer sales cycles,  payment delays
and price pressure.

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.

V-ONE  DEPENDS ON KEY  PERSONNEL  WHO WOULD BE  DIFFICULT  TO  REPLACE.  V-ONE's
success  depends,  to a  large  extent,  upon  the  performance  of  its  senior
management and its  technical,  sales and marketing  personnel.  The loss of key
personnel  or the  inability to attract  additional  qualified  personnel  could
materially  and  adversely  affect  V-ONE's  results of  operations  and product
development  efforts.  V-ONE  has  entered  into an  employment  agreement  with
Margaret E. Grayson,  its President and Chief Executive  Officer,  that provides
for fixed terms of employment. However, V-ONE has not historically provided such

                                       15

<PAGE>

types of  employment  agreements  to its  other  employees.  This  practice  may
adversely affect V-ONE's ability to attract and retain the necessary  technical,
management and other key personnel.

ITEM 2.  PROPERTIES

In 2002, the Company leased  approximately 28,312 square feet of office space at
20250 Century Boulevard,  Suite 300,  Germantown,  Maryland.  The termination of
this  lease in  February  2003  included  a full  release  of  future  occupancy
obligations  of the  Company  for  these  premises  from the  date of the  lease
termination.  Amounts due for unpaid  rents  during the term of occupancy in the
amount of  $325,000,  recorded as accrued  rent,  will be paid in equal  monthly
installments over two years beginning on March 1, 2003. The Company entered into
a new lease  agreement  effective  March 1, 2003 for 9,635 square feet of office
space at 20300 Century Boulevard, Suite 200, Germantown,  Maryland under a lease
agreement that  terminates on February 28, 2008.  The Company  expects that this
space will be sufficient for its needs through expiration of the 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, 2002.

                                     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.  In 2002, Nasdaq notified the Company
that it had questions  concerning,  among other things, the Company's ability to
maintain the minimum listing  requirements  for continued  Nasdaq  listing.  The
Company was not able to satisfy the minimum listing  requirements.  As a result,
the Company's Common Stock was removed from the Nasdaq SmallCap Market and since
October 18, 2002 has been  trading on the OTCBB.  The  transfer to the OTCBB was
effected without interruption in the trading market for the Company's securities
and the ticker symbol for the Company's  securities  remains VONE. The following
table sets forth the high and low prices of the Company's  Common Stock for each
quarter during the two-year period ended December 31, 2002. OTCBB prices reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.

                                    2002
                                    ----
                         High                     Low
                         ----                     ---
      First Quarter     $ 1.47                 $ 0.78
      Second Quarter    $ 0.93                 $ 0.50
      Third Quarter     $ 0.33                 $ 0.20
      Fourth Quarter    $ 0.40                 $ 0.13

                                       16

<PAGE>

                                    2001
                                    ----
                         High                     Low
                         ----                     ---
      First Quarter     $ 3.19                 $ 0.53
      Second Quarter    $ 2.80                 $ 0.94
      Third Quarter     $ 1.49                 $ 0.85
      Fourth Quarter    $ 1.98                 $ 0.89

According  to  records  of  the  Company's   transfer  agent,  the  Company  had
approximately 214 record holders on February 28, 2003. 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 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  as  required  by the terms of the  Company's  8% Secured
Convertible  Notes and Series C and Series D Preferred  Stock,  as  discussed in
Note 6 to the financial statements beginning on page 30 of this Annual Report on
Form 10-K.

The  information  regarding  securities  authorized  for  issuance  under equity
compensation  plans is incorporated  by reference from the "Equity  Compensation
Plans"  section  of the proxy  statement  for the  Company's  annual  meeting of
stockholders to be held on June 5, 2003.

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, 2000,  2001 and 2002
and balance sheets as of December 31, 2001 and 2002 are derived from the audited
financial  statements of the Company included elsewhere in this Annual Report on
Form 10-K. The following financial data as of December 31, 1998 and 1999 and for
each of the years ended  December  31, 1998 and 1999 are  derived  from  audited
financial  statements  of the Company not included in this Annual Report on Form
10-K. 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."

                                       17

<PAGE>

<TABLE>
<CAPTION>
                                                             Year ended December 31,
                                 ----------------------------------------------------------------------------------------
Statement of                             1998               1999               2000               2001               2002
 Operations  Data:                       ----               ----               ----               ----               ----
<S>                              <C>                <C>                <C>                <C>               <C>
Revenues:
   Products                      $  5,798,542       $  3,427,422       $  3,356,086       $  3,669,817       $  2,033,413
   Consulting and
    services                          461,263          1,538,258          1,197,544          1,320,345          1,519,613
                                 ------------       ------------       ------------       ------------       ------------
     Total revenues                 6,259,805          4,965,680          4,553,630          4,990,162          3,553,026
                                 ------------       ------------       ------------       ------------       ------------
Cost of revenues:
   Products                         1,623,396            973,866            441,752            824,305            190,262
   Consulting and
    services                          241,683            328,333            278,327            509,570            293,363
                                 ------------       ------------       ------------       ------------       ------------
Total cost of
 revenues                           1,865,079          1,302,199            720,079          1,333,875            483,625
                                 ------------       ------------       ------------       ------------       ------------

Gross profit                        4,394,726          3,663,481          3,833,551          3,656,287          3,069,401

Operating expenses:
   Research and
    development                     2,618,914          2,848,955          3,440,397          4,009,889          2,720,321
   Sales and
    marketing                       7,132,656          6,491,987          6,041,926          4,891,170          3,028,590
   General and
    administrative                  3,896,210          3,118,829          3,517,068          2,537,103          2,220,138
                                 ------------       ------------       ------------       ------------       ------------
Total operating
 expenses                          13,647,780         12,459,771         12,999,391         11,438,162          7,969,049
                                 ------------       ------------       ------------       ------------       ------------

Operating loss                     (9,253,054)        (8,796,290)        (9,165,840)        (7,781,875)        (4,899,648)

Interest (expense)
 income:
  Interest expense                    (65,372)          (676,443)           (25,945)           (11,560)          (744,818)
  Interest income                     125,030            164,841            329,770            249,575             16,833
  Other (expense) income                 -                  -                  -             1,306,582             (7,558)
                                 ------------       ------------       ------------       ------------       ------------
     Total interest
      (expense)income                  59,658           (511,602)           303,825          1,544,597           (735,543)
                                 ------------       ------------       ------------       ------------       ------------
Net loss before
 extraordinary
  item                             (9,193,396)        (9,307,892)        (8,862,015)        (6,237,278)        (5,635,191)

Extraordinary item
 - early
  extinguishment of
   debt                               110,879           (372,052)               -                  -                  -
                                 ------------       ------------       ------------       ------------       ------------

Net loss                           (9,193,396)        (9,679,944)        (8,862,015)        (6,237,278)        (5,635,191)

Dividend on preferred
 stock                                110,879            272,245            369,979            741,245            699,901
Deemed dividend on
 preferred stock                      102,755                -                  -            2,932,023                -
                                 ------------       ------------       ------------       ------------       ------------

Loss attributable to
 holders of common
 stock                           $ (9,407,030)      $ (9,952,189)      $ (9,231,994)      $ (9,910,546)      $ (6,335,092)
                                 ============       ============       ============       ============       ============
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
<S>                              <C>                <C>                <C>                <C>               <C>
Basic and diluted
 loss per share
  Loss before
   extraordinary item            $      (0.68)      $      (0.57)      $      (0.44)      $      (0.44)      $      (0.25)
                                 ============       ============       ============       ============       ============
  Net loss attributable
   to holders of
   common stock                  $      (0.68)      $      (0.59)      $      (0.44)      $      (0.44)      $      (0.25)
                                 ============       ============       ============       ============       ============
Weighted average number
 of common shares
 outstanding                       13,898,450         16,938,205         20,871,076         22,576,188         25,230,360
                                 ============       ============       ============       ============       ============

                                                             Year ended December 31,
                                 ----------------------------------------------------------------------------------------
                                         1998               1999               2000               2001               2002
                                         ----               ----               ----               ----               ----
Balance Sheet Data:

Working capital
 (deficit)                       ($ 1,277,368)      $  6,629,846       $  1,591,967       $  2,164,448       ($ 2,068,409)
Total assets                        3,922,192          9,775,436          5,450,618          4,732,324            972,082
Long-term debt, less
 current portion                      197,982            119,746             47,803                -                    -
Series B Convertible
 Preferred Stock                          -                1,288              1,288                -                    -
Series C Redeemable
 Preferred Stock                          -                  335                 55                 43                 43
Series D Convertible
 Preferred Stock                          -                  -                  -                3,675              3,021
Total shareholder's
 equity                               635,725          7,841,603          2,721,581          2,882,367       ($ 1,691,750)
</TABLE>

                                                               18

<PAGE>

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 13 through 16 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 the sale of
hardware products and, to a lesser extent,  consulting and related services. The
Company  anticipates  that  revenues  from  software and hardware  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.

                                       19

<PAGE>

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,
                                           -----------------------------------
                                              2000          2001          2002
                                            ------        ------        ------
Revenues:

Products                                      73.7%         73.5%         57.2%

Consulting and services                       26.3          26.5          42.8
                                            ------        ------        ------

Total revenues                               100.0         100.0         100.0
                                            ------        ------        ------
Cost of revenues:

Products                                       9.7          16.5           5.4

Consulting and services                        6.1          10.2           8.2
                                            ------        ------        ------

Total cost of revenues                        15.8          26.7          13.6
                                            ------        ------        ------

Gross profit                                  84.2          73.3          86.4

Operating expenses:

Research and development                      75.6          80.4          76.6

Sales and marketing                          132.7          98.1          85.2

General and administrative                    77.2          50.8          62.5
                                            ------        ------        ------

Total operating expenses                     285.5         229.3         224.3
                                            ------        ------        ------

Operating loss                              (201.3)       (156.0)       (137.9)

Other income (expense):

Interest expense                              (0.5)         (0.2)        (21.0)

Interest income                                7.2           5.0           0.5

Other income                                   -            26.2          (0.2)
                                            ------        ------        ------

Total other income (expense)                   6.7          31.0         (20.7)
                                            ------        ------        ------
Loss before extraordinary item              (194.6)       (125.0)       (158.6)

Extraordinary loss - early
extinguishment of debt                         -             -             -

Net loss                                    (194.6)       (125.0)       (158.6)

Dividends on preferred stock                   8.1          14.9          19.7

Deemed  dividends  on
 preferred stock                               -            58.7           -
                                            ------        ------        ------
Loss  attributable  to
 holders of Common Stock                    (202.7)%      (198.6)%      (178.3)%
                                            ======        ======        ======

                                       20

<PAGE>

COMPARISON OF FISCAL 2002 AND 2001

Revenues
--------

Total revenues decreased to approximately  $3,553,000 in 2002 from approximately
$4,990,000  in 2001.  Product  revenues are derived  principally  from  software
licenses  and the sale of  hardware  products.  Product  revenues  decreased  to
approximately  $2,033,000 in 2002 from  approximately  $3,670,000  in 2001.  The
decrease  in  product  revenues  from  2001  to  2002  was  due  principally  to
recognition of revenue in 2001 of  approximately  $1,236,000 under the Company's
Licensing and  Distribution  Agreement with Citrix  Systems,  Inc.,  recorded as
sales of the Company's SmartGate product.

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 $1,520,000
in 2002 from approximately $1,320,000 in 2001.

Costs of Revenues
-----------------

Total costs of revenues as a percentage  of total  revenues were 13.6% and 26.7%
in 2002 and 2001, respectively. The percentage decrease of 13.1% is comprised of
lower costs of product  revenue,  which  decreased to 5.4% in 2002 from 16.5% in
2001 and lower costs of consulting and services revenue, which decreased to 8.2%
of total revenues in 2002 from 10.2% in 2001.

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 $190,000 in 2002 from approximately $824,000 in 2001,
a decrease of  $634,000.  Costs of product  revenue as a  percentage  of product
revenues  were 9.4% and 22.5% for 2002 and 2001,  respectively.  The  dollar and
percentage  decreases in 2002 over 2001 were attributable  primarily to a higher
mix of SmartGate software licenses and a lower proportion of turnkey systems and
third-party  firewall  sales  (decreased  $498,000 or 14.0% of total  revenues),
which  have  higher  costs of  revenues  when  compared  to  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 by $217,000 to
approximately $293,000 in 2002 from $510,000 in 2001, due primarily to a smaller
portion of  third-party  products  with  proportionately  higher  support  costs
(decreased  $171,000  or 4.8% of total  revenues)  and lower  costs of  training
(decreased $53,000 or 1.5% of total revenues).  Costs of consulting and services
revenue as a percentage of consulting and services revenues were 19.3% and 38.6%
for 2002 and 2001, 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 decreased to approximately
$2,720,000  in  2002  from  approximately   $4,010,000  in  2001.  Research  and
development  expenses as a percentage of total  revenues were 76.6% and 80.4% in
2002 and 2001,  respectively.  The dollar and percentage  decreases in 2002 over
2001 of approximately $1,290,000 and 32.2%, respectively,  were primarily due to
decreases in the costs of personnel of approximately  $484,000 and in consulting
services of  approximately  $465,000.  The Company  believes  that a  continuing
commitment  to research  and  development  is  required  to remain  competitive.
Accordingly,   if  cash  resources   allow,  the  Company  intends  to  allocate
substantial resources to research and development,  but research and development
expenses may vary as a percentage of total revenues.

                                       21

<PAGE>

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  $3,029,000 in 2002 from
approximately  $4,891,000 in 2001. Sales and marketing  expenses as a percentage
of total  revenues  were  85.2% and 98.1% in 2002 and  2001,  respectively.  The
dollar decrease of $1,862,000 and percentage decrease of 38.1% in 2002 from 2001
were principally due to lower costs of personnel (decreased $417,000 or 11.7% of
total revenues),  lower levels of advertising and promotion expenses  (decreased
$348,000 or 9.8% of total revenues),  lower costs of travel (decreased  $160,000
or 4.5% of total revenues), and lower costs of consulting (decreased $380,000 or
10.7% of total revenues) in 2002 over 2001.

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  $2,220,000 in 2002 from approximately $2,537,000 in 2001. General
and  administrative  expenses as a percentage  of total  revenues were 62.5% and
50.8% in 2002 and 2001,  respectively.  The decrease in expense in 2002 resulted
from lower costs of personnel  (decreased  $253,000 or 7.1% of total  revenues),
lower  costs of  consulting  (decreased  $120,000  or 3.4% of  total  revenues),
partially  offset by higher  legal  costs  (increased  $69,000  or 1.9% of total
revenues)  and higher  costs of  directors  and  officers  insurance  (increased
$142,000 or 4.0% of total  revenues) in 2002 compared with 2001. The increase in
percentage  of revenues of 11.7%  consists of lower  expenses of 12.5% and lower
revenues of 28.8% for 2002.

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
$17,000 in 2002  compared  to  $250,000  in 2001.  Interest  income was  derived
primarily  from  interest  earned on the  proceeds  from the  Company's  private
placements  of  securities.  Interest  expense  represents  interest  payable or
accreted on promissory notes and capitalized lease obligations. Interest expense
increased from approximately $12,000 in 2001 to approximately  $745,000 in 2002,
of which approximately  $102,000 was for recognition of a beneficial  conversion
feature on the Company's 8% Secured Convertible Notes, discussed below, $354,000
for  amortization of deferred  financing costs and $261,000 for  amortization of
the fair market  value of warrants  associated  with the 8% Secured  Convertible
Notes. 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 fiscal years
ending  December 31, 2002 and 2001 as a result of the net loss  incurred  during
those periods. As of December 31, 2002, the Company had net operating loss carry
forwards of  approximately  $58,600,000 as a result of net losses incurred since
inception. These net losses result in a future tax benefit of $22,913,000, which
can be used to offset future taxable income.

Dividends on Series C and D Preferred Stock -- The Company accrued approximately
$741,000 for dividends on the Series C and Series D Preferred Stock during 2001,
and approximately  $700,000 for dividends on the Series C and Series D Preferred
Stock during 2002.

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 the 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 Series D 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.

Recorded Debt Discount Relating to 8% Secured Convertible Notes -- In 2002, upon
the issuance of 8% Secured  Convertible Notes ("Notes"),  the Company recorded a
debt  discount of  approximately  $185,000  in  accordance  with the  accounting
requirements for a beneficial  conversion feature on the Notes. During 2002, the

                                       22

<PAGE>

Company  amortized  approximately  $173,000 of the discount to interest expense.
Additionally,  the Company will record  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.  As of  December  31,  2002,  holders had
converted $585,000,  or 49% of the principal of the Notes, into shares of Common
Stock. Upon such conversion, the Company recorded $102,000 in interest expense.

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 revenues 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  were 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.

                                       23

<PAGE>

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 in
consulting  services,  higher by  approximately  $167,000,  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 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 percentage of revenues of 26.4% consists of
lower expenses of 21.5% and higher revenues of 4.9% for 2001.

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  of  securities.  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 fiscal years
ending  December 31, 2001 and 2000 as a result of the net loss  incurred  during
those 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 the 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 Series D detachable warrant

                                       24

<PAGE>

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.

LIQUIDITY AND SOURCES OF CAPITAL

The  Company's  operating  activities  used  cash of  approximately  $3,167,000,
$7,771,000,  and $6,700,000 in 2002, 2001 and 2000, respectively.  In 2002, cash
used in  operating  activities  was  principally  a result  of net  losses.  The
decrease in cash used in  operating  activities  in 2002  includes a decrease of
$1,290,000 in engineering  expenses, a reduction of approximately  $2,180,000 in
sales, marketing and general and administrative expenses, a decrease in accounts
receivable  of  $622,000,  a decrease  in deferred  revenue of  $168,000  and an
increase in accounts  payable of $243,000.  The increase of $1,071,000 from 2000
to 2001 in cash used in operating activities is comprised of a use of $1,375,000
gain  from the sale of stock of NFR  Security,  Inc.  (formerly  Network  Flight
Recorder) and a decrease in accounts payable of $607,000 and in deferred revenue
of $161,000 and an increase of $614,000 in cost of sales offset by a decrease of
$1,586,000 in operating expenses.

Net capital expenditures for property and equipment were approximately  $69,000,
$370,000 and $774,000 in 2002, 2001 and 2000  respectively.  These  expenditures
have generally been for computer  workstations  and personal  computers,  office
furniture and equipment,  and leasehold additions and improvements.  The capital
expenditures  decrease  of  approximately  $301,000  in 2002  was due in part to
conservation of funds. The Company's largest capital expenditures in 2002 were a
telephone system at a cost of approximately $52,000 and replacement of a capital
lease having an estimated annual cost of $77,000.

As of December  31,  2002,  the  Company's  principal  commitments  consisted of
obligations  outstanding under two operating leases for copier equipment and the
facility lease for its office space.  In February  2003, the Company  terminated
its lease for office space at 20250 Century  Boulevard,  Suite 300,  Germantown,
Maryland.  The termination included a full release of all occupancy  obligations
of the  Company  for  these  premises  from the date of the  lease  termination.
Amounts  due for  unpaid  rents  during the term of  occupancy  in the amount of
$375,000,  recorded as accrued rent, will be paid in equal monthly  installments
over two years  beginning on March 1, 2003. The Company entered into a new lease
agreement effective March 1, 2003 for 9,635 square feet of office space at 20300
Century Boulevard, Suite 200, Germantown,  Maryland under a lease agreement that
terminates  on  February  28,  2008.   V-ONE's  current  aggregate  annual  rent
obligation is approximately  $253,000 for 2003,  $231,000 for 2004, $235,000 for
2005, $230,000 for 2006, $237,000 for 2007 and $40,000 for 2008.

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.

In  closings  on July 23 and 26 and  August 2,  2002,  V-ONE  issued 8%  Secured
Convertible Notes with detachable  warrants for an aggregate principal amount of
$1,188,000.  The Notes mature 180 days after issuance with an additional 180-day
extension  available  at the option of the Company or the  holders.  The rate of
interest  payable  during  such  extension  of the Notes is 10% per  annum.  The
holders may convert their Notes at any time into the Company's Common Stock at a
conversion  price  equal to the greater of $0.25 per share or 60% of the average
closing sales price of Common Stock for the five trading day period  immediately
preceding  the Company's  receipt of the holders'  notification  of  conversion.
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.  As of December 31, 2002, a total of $585,000 in principal on the
Notes had been  converted  into Common  Stock,  with a total debt  obligation of
$603,000  remaining.  In January 2003, an additional  $25,000 was converted into
shares of Common Stock,  reducing the Company's debt obligation on the principal
of the Notes to  $578,000.  The Notes  mature on July 23,  July 26 and August 6,
2003,  and unless the Notes are converted  before those dates,  the Company must

                                       25

<PAGE>

pay the  outstanding  Note  obligations  in cash. In January 2003, in connection
with its efforts to raise capital,  V-ONE agreed to adjust the exercise price of
the warrants from $0.50 per share to $0.15 per share.

All of the proceeds received from the Note offering were used during fiscal 2002
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 2003,  and its audited  financial  statements  are  presented
subject to a "going  concern"  opinion.  V-ONE is seeking to expand its  current
banking  relationships to explore other  alternatives to preserve its operations
and  maximize  stockholder  value,   including  potential  strategic  partnering
relationships,  a business combination with a strategically placed partner, or a
sale of V-ONE.

In July 2002,  the  Company  took steps to reduce  expenses  by  implementing  a
reduced workweek designed to ensure that customers' requirements are met without
jeopardizing  the Company's  workforce.  The Company  effected  additional staff
reductions  in  January  2003,  approximating  20% of  its  employees.  For  the
immediate  future,  V-ONE will focus on existing and potential  customers in the
government  sector,  limited and targeted  marketing  operations  to  commercial
accounts,  and  minimizing  general  and  administrative  expenditures  and  all
possible capital  expenditures.  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  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.

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.

                                       26

<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                V-ONE CORPORATION
                          INDEX TO FINANCIAL STATEMENTS
                                    --------

      Report of Aronson & Company, Independent Auditors         28

      Report of Ernst & Young, LLP, Independent Auditors        29

      Balance Sheets                                            30

      Statements of Operations                                  31

      Statements of Stockholders' Equity (Deficiency)           32

      Statements of Cash Flows                                  33

      Notes to Financial Statements                             34

      Schedule of Valuation and Qualifying Accounts for
        the years ended December 31, 2002, 2001 and 2000        56

                                       27

<PAGE>

Independent Auditor's Report

Board of Directors
V-ONE Corporation
Germantown, Maryland

We have  audited  the  accompanying  Balance  Sheet of V-ONE  Corporation  as of
December 31, 2002 and the related Statements of Operations, Stockholders' Equity
(Deficiency) and Cash Flows for the year then ended. Our audit also included the
Schedule II - Valuation and Qualifying  Accounts for the year ended December 31,
2002.  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 audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements  and schedule are free of material  misstatement.  An audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements  and schedule.  An audit also includes  assessing the
accounting principles used and significant estimates made by management, as well
as evaluating  the overall  financial  statement and schedule  presentation.  We
believe that our audit provides 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  as of
December 31, 2002,  and the results of its operations and its cash flows for the
year then ended in conformity with accounting  principles  generally accepted in
the United  States of America.  Also,  in our  opinion,  the  related  financial
statement  schedule for the year ended  December 31, 2002,  when  considered  in
relation to the basic financial statements taken as a whole,  presents fairly in
all material respects the information ser 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/ Aronson & Company

Rockville, Maryland

November 19, 2003

                                       28

<PAGE>

Report of Independent Auditors

Board of Directors and Stockholders
V-ONE Corporation

We have  audited  the  accompanying  balance  sheet of V-ONE  Corporation  as of
December 31, 2001, and the related statements of stockholders'  equity, and cash
flows for each of the two years in the  period  ended  December  31,  2001.  Our
audits  also  included  the  financial  statement  schedule  for the years ended
December  31, 2001 and 2000 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 the results of its  operations and its cash flows for each of the
two 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 and
2000 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 no 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

                                       29

<PAGE>

<TABLE>
<CAPTION>

                                           V-ONE CORPORATION
                                             BALANCE SHEETS

                                                                                      December 31,
                                                                           ----------------------------
                                        ASSETS                                     2002            2001
                                                                                   ----            ----
<S>                                                                        <C>             <C>
Current assets:
   Cash and cash equivalents                                               $     93,985    $  2,608,690
   Certificate of deposit - restricted                                           35,000             -
   Accounts receivable, less allowances of $97,135 and
     $72,035 respectively                                                       237,695         859,658
   Inventory, less allowances of $44,738 and
     $29,593 respectively                                                         5,478          57,354
   Deferred financing costs, net                                                 68,974             -
   Prepaid expenses and other assets                                            121,460         407,913
                                                                           ------------    ------------
     Total current assets                                                       562,592       3,933,615

Property and equipment, net                                                     319,294         748,513
Deposits                                                                         90,196          50,196
                                                                           ------------    ------------
     Total assets                                                          $    972,082    $  4,732,324
                                                                           ============    ============

           LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable and accrued expenses                                   $  1,235,574    $    769,319
   Deferred revenue                                                             784,185         952,044
   Convertible notes payable, net                                               591,242             -
   Note payable, other                                                           20,000             -
   Capital lease obligations - current                                              -            47,804
                                                                           ------------    ------------
     Total current liabilities                                                2,631,001       1,769,167
Deferred rent                                                                    32,831          80,790
                                                                           ------------    ------------
     Total liabilities                                                        2,663,832       1,849,957

Commitments and contingencies

Stockholders' equity (deficiency):
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 $1,126,000)                                          43              43
   Series D redeemable preferred stock, 3,675,000 designated,
     3,021,000 and 3,675,000 issued and outstanding, respectively
     (liquidation preference of $5,770,110 and $7,019,250 respectively)           3,021           3,675
Common Stock, $0.001 par value; 50,000,000 shares authorized;
     26,649,301 and 23,594,904 shares issued and outstanding,
     respectively                                                                26,649          23,595
Accrued dividends payable                                                     1,575,709         875,808
Additional paid-in capital                                                   61,825,066      60,766,392
Accumulated deficit                                                         (65,122,238)    (58,787,146)
                                                                           ------------    ------------
     Total stockholders' equity (deficiency)                                 (1,691,750)      2,882,367
                                                                           ------------    ------------
     Total liabilities and stockholders' equity (deficiency)               $    972,082    $  4,732,324
                                                                           ============    ============

             The accompanying notes are an integral part of these financial statements.
</TABLE>

                                       30

<PAGE>

<TABLE>
<CAPTION>

                                V-ONE CORPORATION
                            STATEMENTS OF OPERATIONS

                                                               Year ended December 31,
                                                  --------------------------------------------
                                                       2002             2001              2000
                                                       ----             ----              ----
<S>                                               <C>             <C>             <C>
Revenues:
   Products                                       $  2,033,413    $  3,669,817    $  3,356,086
   Consulting and services                           1,519,613       1,320,345       1,197,544
                                                  ------------    ------------    ------------
     Total revenues                                  3,553,026       4,990,162       4,553,630
                                                  ------------    ------------    ------------
Cost of revenues:
   Products                                            190,262         824,305         441,752
   Consulting and services                             293,363         509,570         278,327
                                                  ------------    ------------    ------------
Total cost of revenues                                 483,625       1,333,875         720,079
                                                  ------------    ------------    ------------

Gross profit                                         3,069,401       3,656,287       3,833,551
                                                  ------------    ------------    ------------
Operating expenses:
   Research and development                          2,720,321       4,009,889       3,440,397
   Sales and marketing                               3,028,590       4,891,170       6,041,926
   General and administrative                        2,220,138       2,537,103       3,517,068
                                                  ------------    ------------    ------------
Total operating expenses                             7,969,049      11,438,162      12,999,391
                                                  ------------    ------------    ------------
Operating loss                                      (4,899,648)     (7,781,875)     (9,165,840)
                                                  ------------    ------------    ------------
Other (expense) income:
  Interest expense                                    (744,818)        (11,560)        (25,945)
  Interest income                                       16,833         249,575         329,770
  Other (expense) income                                (7,558)      1,306,582             -
                                                  ------------    ------------    ------------
               Total                                  (735,543)      1,544,597         303,825
                                                  ------------    ------------    ------------

Net loss                                            (5,635,191)     (6,237,278)     (8,862,015)

Dividends on preferred stock                           699,901         741,245         369,979
Deemed dividend on preferred stock                         -         2,932,023             -
                                                  ------------    ------------    ------------
Loss attributable to holders
   of common stock                                $ (6,335,092)   $ (9,910,546)   $ (9,231,994)
                                                  ============    ============    ============
Basic and diluted loss per share
  Net loss attributable to holders of
   common stock                                   $      (0.25)   $      (0.44)   $      (0.44)
                                                  ============    ============    ============
Weighted average number of
   common shares outstanding                        25,230,360      22,576,188      20,871,076
                                                  ============    ============    ============

           The accompanying notes are an integral part of these financial statements
</TABLE>

                                       31
<PAGE>
<TABLE>
<CAPTION>
                                                           V-ONE CORPORATION
                                            STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)

                                              Series B, C & D     Accrued    Additional
                              Common Stock    Preferred Stock     Dividend     Paid-in    Subscriptions  Accumulated
                           Shares    Amount   Shares     Amount   Payable      Capital      Receivable     Deficit      Total
                           ------    ------   ------     ------   -------      -------      ----------     -------      -----
<S>                    <C>           <C>       <C>        <C>      <C>        <C>           <C>        <S>             <C>
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
  costs                      59,500        60        -        -          -        169,637        -               -         169,697
Conversion of Series
  C preferred stock
  to common stock         2,900,309     2,901   (280,286)    (280)  (461,313)     458,676        -               -             (16)
Adjustment and
  collection of
  notes receivable
  for stock                     -         -          -        -          -            -        3,785             -           3,785
Dividend 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 costs          29,399        29        -        -          -         11,980        -               -          12,009
Exercise of common
  stock options,
  net of issuance
  costs                      31,230        31        -        -          -         50,774        -               -          50,805
Conversion of Series
  B preferred stock
  to common stock         1,287,554     1,288 (1,287,554)  (1,288)       -            -          -               -             -
Conversion of Series
  C preferred stock
  to common stock           137,536       138    (11,810)     (12)   (46,348)     (38,482)       -               -         (84,704)
Issuance of Series
  D preferred stock,
  net of issuance
  costs                         -         -    3,675,000    3,675        -      6,266,047        -               -       6,269,722
Deemed Dividend on
  Series D                      -         -          -        -          -      2,932,023        -        (2,932,023)          -
Dividend 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,           23,594,904  $423,595  3,717,904  $ 3,718  $ 875,808  $60,766,392   $    -      $(58,787,146)  $ 2,882,367
  2001                 -----------------------------------------------------------------------------------------------------------
Employee stock
  purchase plan
  net of issuance
  costs                      60,397        60        -        -          -         19,089        -               -          19,149
Conversion of Note
  payable to common
  stock                   2,340,000     2,340        -        -          -        582,660        -               -         585,000
Conversion of Series
  D preferred stock
  to common stock           654,000       654   (654,000)    (654)       -            -          -               -             -
Dividend on
  preferred stock               -         -          -        -      699,901          -          -          (699,901)          -
Issuance of common
  stock options
  to consultants                -         -          -        -          -         82,545        -               -          82,545
Beneficial conversion
  feature on the
  convertible notes
  payable                       -         -          -        -          -        101,600        -               -         101,600
Issuance of warrants            -         -          -        -          -        272,780        -               -         272,780
Net loss                        -         -          -        -          -            -          -        (5,635,191)   (5,635,191)
                       ------------------------------------------------------------------------------------------------------------
Balance,
  December 31,         $ 26,649,301  $ 26,649  3,063,904  $ 3,064 $1,575,709  $61,825,066   $    -      $(65,122,238)  $(1,691,750)
  2002                 ------------------------------------------------------------------------------------------------------------

                             The accompanying notes are an integral part of these financial statements.
</TABLE>
                                                      32
<PAGE>
                                V-ONE CORPORATION
                            STATEMENTS OF CASH FLOWS

                                               Year ended December 31,
                                        ----------------------------------------
                                            2002         2001        2000
Cash flows from operating
  activities:
Net loss                               $  (5,635,191) $(6,237,278) $ (8,862,015)
Adjustments to reconcile net
  loss to net cash used in
  operating activities:
  Depreciation                               431,225      514,354       429,939
  Amortization                                66,566       36,811             -
  Gain on sale of investment                       -   (1,375,000)            -
  Amortization of debt discount              173,222            -             -
  Interest expense - beneficial
    conversion feature                       101,600            -             -
  Amortization of deferred financing
    costs                                    334,015            -             -
  Note payable related to financing
    costs                                     20,000            -             -
  Noncash charge related to issuance
   of warrants and options and stock
   compensation                              170,345      150,232       377,422
Changes in operating assets and
  liabilities:
  Accounts receivable, net                   621,963      (82,813)       78,008
  Inventory, net                              51,876      114,823      (126,090)
  Prepaid expenses, deposits and
    other assets                             246,453      (85,309)      529,045
  Accounts payable and accrued
    expenses                                 242,826     (606,620)      218,279
  Deferred revenue                          (167,859)    (161,158)      692,280
  Deferred rent                              (47,959)     (39,360)      (36,561)
                                        ----------------------------------------
Net cash used in operating activities     (3,390,918)  (7,771,318)   (6,699,693)
                                        ----------------------------------------

Cash flows from investing activities:
  Net purchase of property and
    equipment                                (68,572)    (370,280)     (773,629)
  Purchase of certificate of deposit         (35,000)           -             -
  Collection of note receivable                    -            -         3,785
  Proceeds from sale of investment                 -    1,625,000             -
                                        ----------------------------------------
    Net cash (used in) provided by
      investing activities                  (103,572)   1,254,720      (769,844)
                                        ----------------------------------------

Cash flows from financing activities:
  Issuance of common stock under
    employee stock plans                      19,149       23,949             -
  Issuance of preferred stock, net
    of subscriptions receivable                    -    7,019,250     3,375,000
  Proceeds from notes payable              1,188,000            -             -
  Payment of preferred stock dividends             -         (259)          (16)
  Payment of notes payable and stock
    issuance costs                          (179,560)    (761,468)     (183,895)
  Redemption of preferred stock                    -      (84,445)            -
  Exercise of stock options and
    warrants                                       -       50,805       169,697
  Principal payments on capital
    lease obligations                        (47,804)     (71,942)      (78,794)
                                        ----------------------------------------
Net cash provided by financing
  activities                                 979,785    6,175,890     3,281,992
                                        ----------------------------------------

Net decrease in cash and cash
  equivalents                             (2,514,705)    (340,708)   (4,187,545)

Cash and cash equivalents,
  beginning of year                        2,608,690    2,949,398     7,136,943
                                        ----------------------------------------

Cash and cash equivalents, end of year      $ 93,985  $ 2,608,690   $ 2,949,398
                                        ========================================

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

                                       33

<PAGE>

1.   NATURE OF BUSINESS

     V-ONE  Corporation  ("V-ONE" or the "Company") was  incorporated  under the
     laws of the state of Delaware on October 24,  1994.  The Company  develops,
     markets and licenses a  comprehensive  suite of network  security  products
     that enables  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  $5,635,191,  $6,237,278 and $8,862,015 for the years ended December 31,
     2002,  2001 and 2000,  respectively.  In addition,  the Company  expects to
     continue to incur losses during 2003. As of December 31, 2002,  the Company
     has a deficiency in stockholders' equity of approximately  $1,692,000 and a
     working capital deficiency of approximately  $2,068,000. In addition, while
     the Company's 8% Secured  Convertible Notes (see Note 6) have been extended
     to January 2004, there are no assurances that continued  extensions will be
     granted.

     The Company's  cash used in operating  activities  was  approximately  $3.4
     million in fiscal 2002, an average "burn rate" of approximately  $283,000 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.

     In July 2002, the Company took steps to reduce  expenses by  implementing a
     reduced  workweek  designed to ensure that customers'  requirements are met
     without  jeopardizing  the  Company's   workforce.   The  Company  effected
     additional  staff  reductions  in January  2003,  approximating  20% of its
     employees.  For the  immediate  future,  V-ONE will focus on  existing  and
     potential  customers  in  the  government  sector,   limited  and  targeted
     marketing  operations to commercial  accounts,  and minimizing  general and
     administrative  expenditures  and all possible  capital  expenditures.  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 may not be successful in further reducing  operating levels or,
     even at reduced operating levels, it 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  has  sought   additional   capital
     investments, thus far without success. Accordingly,  V-ONE may not have the
     funds needed to sustain  operations  during 2003. In addition to continuing
     to pursue  capital  investment,  the  Company  continues  to explore  other
     alternatives to preserve V-ONE's operations and maximize stockholder value,
     including  potential  strategic   partnering   relationships,   a  business
     combination with a strategically placed partner, or a sale of V-ONE.

                                       34

<PAGE>

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.

     In addition to its direct sales efforts,  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  contained  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  were
     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 of 2001. During
     2002, the Company recognized  revenue of approximately  $136,000 related to
     this agreement.

     The Company's revenue recognition policies for the years ended December 31,
     2002,  2001 and 2000 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

                                       35

<PAGE>

     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.

     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  and  amortization  expense  related to  property  and
     equipment was $497,791,  $551,165 and $429,939 for the years ended December
     31, 2002, 2001 and 2000, respectively.

     Advertising Costs
     -----------------

     The  Company  expenses  all  advertising  costs as  incurred.  The  Company
     incurred approximately $30,000,  $149,000 and $177,000 in advertising costs
     for the years ended December 31, 2002, 2001 and 2000, respectively.

     Stock-Based Compensation
     ------------------------

     Statement  of  Financial  Accounting  Standards  No.  123,  Accounting  for
     Stock-Based  Compensation  ("SFAS  123"),  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). The following  table  illustrates  the effect on net income (loss)
     and earning per share if the Company had applied the fair value recognition
     provisions of SFAS 123:

                                       Year ended December 31,
                            ----------------------------------------------
                               2002          2001             2000
                            -------------  ------------   ----------------
      Loss attributable
      to holders of
      Common Stock:
              As reported    ($6,335,092)    ($ 9,910,546)    ($ 9,231,994)
              Pro forma      ($6,512,213)    ($11,812,003)    ($10,277,777)

      Basic and diluted
      loss per share
      attributable to
      holders of Common
      Stock:
             As reported          ($0.25)          ($0.44)          ($0.44)

                                       36

<PAGE>

             Pro forma            ($0.26)          ($0.52)          ($0.49)

     This  disclosure is in accordance  with  Statement of Financial  Accounting
     Standards No. 148, Accounting for Stock-Based Compensation - Transition and
     Disclosure, that the Company has adopted in these financial statements.

     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 and warrants is determined using the Black-Scholes model.

     Income Taxes
     ------------

     Deferred  tax  assets and  liabilities  are  recognized  for the future tax
     consequences  attributable to differences  between the financial  statement
     carrying  amounts of 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  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 operations 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 than not 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 11.

     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.  In addition,  at times 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.

     In 2002, two suppliers exceeded 10% of purchases. The Company purchased SUN
     equipment worth  approximately  $75,000 from Arrow MOCA,  Incorporated  and

                                       37

<PAGE>

     computer hardware for the Company's  SmartGuard product worth approximately
     $17,000,  representing  66% and 15% of total  purchases,  respectively.  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  approximately  $88,000  of  computer  hardware  from  SteelCloud
     Corporation  for  the  Company's  SmartGuard  product,   which  constituted
     approximately  18%  of  total  purchases.  No  suppliers  exceeded  10%  of
     purchases in 2000.

     During the years ended  December  31,  2002,  2001 and 2000,  approximately
     $542,000, $550,000 and $956,000 of sales, respectively, related to sales to
     international customers. During the years ended December 31, 2002, 2001 and
     2000, sales related to government  agencies were approximately  $2,136,000,
     $2,142,000 and $1,798,200, respectively.

     Fair Value of Financial Instruments
     -----------------------------------

     At December  31, 2002 and 2001,  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 2002
     presentation.

     New Accounting Standards
     ------------------------

     Statement  of Financial  Accounting  Standards  No. 145,  Recession of FASB
     Statements  No.  4, 44,  and 64,  Amendment  of FASB  Statement  No. 13 and
     Technical  Corrections:  The portion of this  Statement  applicable to FASB
     Statement No. 4, applies to fiscal years  beginning after May 15, 2002. The
     other elements of the Statement became  applicable during 2002. The portion
     of the Statement  applicable to Statement No. 4, Reporting Gains and Losses
     from  Extinguishment of Debt, has the effect of changing the accounting for
     gains and losses from debt extinguishments from extraordinary to operating.
     The Company  does not believe that this  Statement  will have any impact on
     the financial statements when adopted.

     Statement of Financial  Accounting  Standards No. 146, Accounting for Costs
     Associated  with Exit or  Disposal  Activities:  This  Statement  nullifies
     Emerging  Issues Task Force Issue No. 94-3,  which required the recognition
     of a liability  for an exit cost at the date an entity made a commitment to
     an exit plan.  SFAS No. 146  concludes  that mere  commitment to a plan, by
     itself,  does not create an obligation to others that meets the  definition
     of a liability.  This Statement describes the costs to exit an activity and
     when a liability for those costs should be  recognized.  This  Statement is
     applicable  to exit or disposal  activities  initiated  after  December 31,
     2002. The Company does not believe that this Statement will have any impact
     on the financial statements when adopted.

     Statement  of  Financial  Accounting  Standards  No. 147,  Acquisitions  of
     Certain Financial Institutions: This Statement clarifies the accounting for
     financial institutions as a result of the new standards issued for business
     combinations.  This  Statement  is not  expected  to  have  any  effect  on
     accounting  practices or financial reporting since the Company's activities
     do not involve those of financial institutions.

                                       38

<PAGE>

     Statement  of  Financial  Accounting  Standards  No.  148,  Accounting  for
     Stock-Based  Compensation-Transition  and Disclosure - an amendment of FASB
     Statement  123 (SFAS 123):  For entities that change their  accounting  for
     stock-based compensation from the intrinsic method to the fair value method
     under SFAS 123,  the fair value  method is to be applied  prospectively  to
     those awards  granted  after the  beginning of the period of adoption  (the
     prospective  method).  The  amendment  permits  two  additional  transition
     methods  for  adoption  of  the  fair  value  method.  In  addition  to the
     prospective method, the entity can choose to either (i) restate all periods
     presented  (retroactive  restatement method) or (ii) recognize compensation
     cost from the beginning of the fiscal year of adoption as if the fair value
     method had been used to account for awards (modified  prospective  method).
     For fiscal years beginning after December 15, 2003, the prospective  method
     will  no  longer  be  allowed.  The  Company  currently  accounts  for  its
     stock-based  compensation using the intrinsic value method as proscribed by
     Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
     Employees,"  and plans to  continue  using this method to account for stock
     options. Therefore, it does not intend to adopt the transition requirements
     as  specified  in SFAS  148.  The  Company  has  adopted  the new  SFAS 148
     disclosure requirements of SFAS 148 in these financial statements.

     In April 2003, the Financial  Accounting  Standards Board issued  Statement
     No. 149,  Amendment of Statement 133 on Derivative  Instruments and Hedging
     Activities.  This Statement amends and clarifies  financial  accounting and
     reporting  for  derivative   instruments,   including  certain   derivative
     instruments  embedded  in  other  contracts  (collectively  referred  to as
     derivatives)  and for  hedging  activities  under FASB  Statement  No. 133,
     Accounting  for  Derivative   Instruments  and  Hedging  Activities.   This
     Statement is effective  for contracts  entered into or modified  after June
     30, 2003,  and for hedging  relationships  designated  after June 30, 2003.
     This  pronouncement  is not  expected  to  have a  material  impact  on the
     Company's financial position or results of operations.

     In May 2003, the Financial  Accounting Standards Board issued Statement No.
     150, Accounting for Certain Financial  Instruments with  Characteristics of
     both  Liabilities and Equity.  This Statement  affects the  classification,
     measurement and disclosure  requirements of certain freestanding  financial
     instruments,  including  mandatorily  redeemable  shares.  SFAS No.  150 is
     effective for all financial  instruments entered into or modified after May
     31, 2003,  and otherwise is effective for the Company for the third quarter
     of fiscal  2003.  This  pronouncement  is not  expected  to have a material
     impact on the Company's  financial  position or results of operations  upon
     adoption.

     FASB   Interpretation  No.  45,   Guarantor's   Accounting  and  Disclosure
     Requirements for Guarantees,  Including Indirect Guarantees of Indebtedness
     of Others:  This  Interpretation  supersedes FASB Interpretation No. 34 and
     requires  a  guarantor  to  recognize  a  liability  for  a  non-contingent
     guarantee  based upon the fair value of the guarantee.  The  Interpretation
     requires specific disclosures for guarantees, including product warranties,
     and indirect  guarantees.  This  Interpretation is applicable to guarantees
     issued or modified  after  December 31, 2002.  The Company does not believe
     that  this  Interpretation  will  have  material  impact  on the  financial
     statements when adopted.

     FASB  Interpretation  No. 46,  Consolidation of Variable Interest Entities:
     This  Interpretation  is not  expected to have any effect on the  Company's
     accounting  practices or financial  reporting  since its  activities do not
     include investments in or transactions with such entities.

                                       39

<PAGE>

4.   SELECTED BALANCE SHEET INFORMATION

     Property and equipment consisted of the following at December 31:

                                        2002         2001
                                     --------------------------
     Office and computer equipment   $ 1,329,617    $ 1,423,083
     Office and computer
       equipment under capital
       leases                                -          299,497
     Capitalized software                139,076        139,076
     Leasehold improvements              186,467        177,664
     Furniture and fixtures              308,008        257,978
                                     -----------    -----------
                                       1,963,168      2,297,298
     Less:  accumulated
     depreciation                    $(1,643,874)   $(1,548,785)
                                     -----------    -----------
                                     $   319,294    $   748,513
                                     ===========    ===========

      Deferred financing costs consisted of the following at December 31:

                                         2002         2001
                                      ------------   -----------
     Deferred financing costs       $ 1,113,044    $   710,055
     Accumulated amortization        (1,044,070)      (710,055)
                                    -----------    -----------
                                    $   68,974     $         -
                                    ===========    ===========

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

                                      2002         2001
                                    ----------    -----------
     Accounts payable               $ 1,025,810    $   375,883
     Accrued compensation               140,941        260,036
     Other accrued expenses              68,823        133,400
                                    -----------    -----------
                                    $ 1,235,574    $   769,319
                                    ===========    ===========

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:

                                           2002        2001        2000
                                         ----------- ----------- -----------

     Inventory                          $    11,429   $   11,574  $    38,948
     Accounts receivable                     37,514       28,173       40,807
     Property and equipment                 106,440      (25,910)      18,203
     Financing costs                         41,632            -            -
     Deferred rent                           31,201       31,598       46,402
     Non-deductible accruals                 69,159       83,235       52,631
     Net operating loss carry forward    22,615,715   19,019,278   16,282,345
                                        -----------  -----------  -----------
     Total deferred tax asset            22,913,090   19,147,948   16,479,336
     Valuation allowance                (22,913,090) (19,147,948) (16,479,336)
                                        -----------  -----------  -----------
     Net deferred tax asset             $         -  $         -  $         -
                                         ===========  ===========  ===========

                                       40

<PAGE>

     The net changes in the valuation  allowance from 2001 to 2002 and from 2000
     to 2001 are due  principally  to the  increases  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,
     2002,  2001 and 2000, the Company had net operating loss  carryforwards  of
     approximately  $58,600,000,  $48,600,000  and  $42,200,000  for federal and
     state income tax purposes available to offset future taxable income. If not
     previously  utilized,  the net operating loss  carryforwards will expire on
     various dates starting in 2013 through 2022.

     A reconciliation  between income taxes computed using the statutory federal
     income tax rate and the  effective  rate for the years ended  December  31,
     2002, 2001 and 2000 is as follows:

                                            2002      2001       2000
                                          --------- ---------  ---------

     Federal income tax (benefit) at
      statutory rate                        (34.0%)   (34.0%)     (34.0%)
     State income taxes, net                 (4.6%)    (4.6%)      (4.6%)
     Permanent items                          0.1%      0.2%       (0.1%)
     Net change in valuation allowance       38.5%     38.4%       38.7%
                                          --------- ---------  ---------
     Provision for Income Taxes               0.0%      0.0%        0.0%
                                          ========= =========  =========

 6.  COMPANY DEBT AND SHAREHOLDERS' EQUITY

     8% Secured Convertible Notes
     ----------------------------

     In closings on July 23 and 26 and August 2, 2002,  V-ONE  issued 8% Secured
     Convertible  Notes with  detachable  warrants  for an  aggregate  principal
     amount of  $1,188,000.  The Notes  mature 180 days after  issuance  with an
     additional 180-day extension  available at the option of the Company or the
     holders. The rate of interest payable during such extension of the Notes is
     10% per annum.

     The holders may convert the  principal  amount of their Notes plus  accrued
     interest  at any  time  prior  to  maturity  into  (i)  Common  Stock  at a
     conversion  price  equal to the  greater  of $0.25  per share or 60% of the
     average  closing  sales price of the Common  Stock for the five trading day
     period  immediately   preceding  the  Company's  receipt  of  the  holders'
     notification of conversion or (ii) new V-ONE securities issued in any round
     of financing,  the gross proceeds of which are greater than $3,000,000 at a
     conversion  price  based  upon the  price at which the new  securities  are
     convertible into Common Stock.

     Notwithstanding  the  previous  paragraph,  if,  prior to  maturity,  V-ONE
     receives  gross  proceeds  of  $3,000,000  or  more  from  the  sale of new
     securities,  then the holders  must convert the  principal  amount of their
     Notes plus accrued  interest  into (i) shares of Common Stock at the Common
     Stock  conversion  price  or  (ii)  shares  of new  securities  at the  new
     securities  conversion price. The holders,  however, will have no mandatory
     conversion  obligation if V-ONE  receives  gross  proceeds of $6,000,000 or
     more from the sale of new securities.

     An event of default  will  occur if V-ONE  defaults  in the  payment of the
     Notes and the default  continues for five days,  or upon the  occurrence of
     other typical default events,  including, but not limited to, an assignment
     for the benefit of creditors, an adjudication of bankruptcy, an application
     for the  appointment of a trustee or receiver or the  dissolution of V-ONE.
     If an event of default  occurs,  the Notes will bear  interest at the fixed
     rate of 15% from the date of acceleration  resulting from the default.  The
     Notes  are  secured  by all  of  V-ONE's  assets,  except  for  proprietary
     technology, intellectual property and source code information.

                                       41

<PAGE>

     For so  long as any of the  Notes  remain  outstanding,  V-ONE  shall  not,
     without the consent of the  placement  agent for the Note  offering or of a
     majority of the principal amount of the Notes  outstanding,  declare or pay
     any cash dividend or purchase, retire or otherwise acquire for value any of
     its capital stock.

     In connection with the Notes offering,  V-ONE issued detachable warrants to
     purchase  1,188,000  shares  of Common  Stock.  The  exercise  price of the
     warrants is $0.50 per share and they are exercisable for a period beginning
     six months after issuance and ending five years after issuance.  In January
     2003,  in  connection  with its efforts to raise  capital,  V-ONE agreed to
     adjust the exercise price of the warrants from $0.50 per share to $0.15 per
     share. V-ONE will have the right to require the exercise of the warrants if
     the closing  sales price of Common  Stock is equal to or greater than $3.00
     per share for any  consecutive  20  trading  days and the  shares of Common
     Stock underlying the warrants have been registered under the Securities Act
     of 1933, as amended.

     The  exercise  price and number of shares of Common Stock to be issued upon
     exercise of the warrants are subject to equitable  adjustment  in the event
     of stock  dividends,  stock splits and similar events  affecting the Common
     Stock.  In  addition,  if  V-ONE  issues  any  shares  of  Common  Stock or
     equivalents  at a purchase price less than the then current market price of
     the Common Stock or the warrant  exercise price, the exercise price will be
     equitably  reduced,  and number of shares of Common Stock to be issued upon
     exercise of the warrants adjusted accordingly.

     In connection with the notes offering, the Company recorded a debt discount
     of $184,980 and recognized  additional  interest expense in accordance with
     the  accounting  requirements  for a beneficial  conversion  feature on the
     convertible  instruments.  The proceeds received from the convertible notes
     offering were first allocated  between the  convertible  instrument and the
     detachable  warrants  issued on the fair value basis.  The Company used the
     Black-Scholes  model to determine  the fair value of the warrants  that was
     recorded as a debt discount using the following assumptions:  volatility of
     100%,  risk free interest  rate of 4.7% and expected  term of 5 years.  The
     debt discount resulting from this transaction is amortized over the initial
     term of the underlying  convertible  instruments or through the date of the
     conversion,  whichever  occurs  sooner.  During the year ended December 31,
     2002,  the Company  recorded  amortization  expense of the debt discount of
     $173,222.

     A calculation  was then performed to determine the  difference  between the
     effective  conversion  price and the fair value of the Common  Stock at the
     commitment  date. The Company will record 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
     $585,000 of Notes into  2,340,000  shares of Common  Stock  during the year
     ended December 31, 2002, the Company recorded $101,600 of interest expense.

     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.

     Series B Preferred Stock
     ------------------------

     On June  11,  1999,  the  Company  issued  1,287,554  shares  of  Series  B
     Convertible  Preferred  Stock (the  "Series B Stock") at $2.33 per share to
     two  investors  for $1.0 million in cash and a  subscription  agreement for

                                       42

<PAGE>

     $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.

     Series C Preferred Stock
     ------------------------

     On  September  9,  1999,  the  Company  issued  335,000  shares of Series C
     Preferred Stock ("Series C Stock") and non-detachable  warrants to purchase
     3,350,000  shares of the  Company's  Common Stock  ("Series C Warrants") to
     certain  accredited  investors.  The Series C Stock was sold in units, with
     each unit  consisting of one share of Series C Stock and a Series C Warrant
     to  purchase  ten  shares of Common  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 Series C 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 Series C 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
     Series C 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 Series C 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.

                                       43

<PAGE>

         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 Common Stock 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
         Common Stock shares were issued as a result of dividends  earned on the
         Series C Stock. At December 31, 2002 and 2001,  42,904 shares of Series
         C Stock remained  outstanding.  The dividend payable on these shares at
         December  31, 2002 and 2001 was $373,044  and  $260,422,  respectively,
         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
         ("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.

                                       44

<PAGE>

         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 20 trading
         days during any 30 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.

         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.

         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.

         In 2002, a holder of Series D Stock chose to convert its Series D Stock
         to Common Stock at the conversion  ratio of one share of Series D Stock
         for one share of Common  Stock.  A total of 654,000  shares of Series D
         Stock were remitted for 654,000 shares of Common Stock. At December 31,
         2002  and  2001,  3,021,000  and  3,675,000  shares  of  Series D Stock
         remained outstanding.  The dividend payable on these shares at December
         31,  2002 and  2001  equaled  $1,202,665  and  $615,386,  respectively,
         payable in cash or  equivalent  shares of Common  Stock at fair  market
         value at the conversion date.

         V-ONE has granted  registration  rights to the  purchasers of the Notes
         and the  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 Notes and Series D Stock and exercise of the warrants
         attached to the Notes and the Series C and Series D Stock.

         Common Stock
         ------------

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

         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 authorized Common Stock to 50,000,000.

                                       45

<PAGE>

         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.

         Warrants
         --------

         In addition to the warrants  attached to the Notes and 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,
         2000, 2001, and 2002:

         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 Company's  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 per share 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 per share 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.

         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.

         In 2002,  V-ONE granted  warrants to purchase a total of 336,750 shares
         of Common Stock to Joseph Gunnar & Co., LLC and LaSalle St. Securities,
         LLC,  placement  agent  and  subagent,   respectively,  for  the  Notes
         offering. The terms of the placement agent warrants mirror those of the
         detachable warrants granted in connection with the Notes offering.  The
         Company used the  Black-Scholes  model to  determine  the fair value of
         these warrants with the following assumptions: volatility of 100%, risk
         free interest  rate of 4.7% and expected term of 5 years.  The value of
         the warrants of $87,800 was  recognized  during the year ended December
         31, 2002.

                                       46

<PAGE>

         Warrants to purchase shares of the Company's  Common Stock  outstanding
         at December 31, 2001 and 2002 were as follows:

          2002                2001           Exercise Price
          ----                ----           --------------
          1,524,750                  -        $0.50
             30,000             30,000        $0.63
            100,000            100,000        $1.19
            697,365            697,365        $1.91
            735,000            735,000        $2.29
             10,000             10,000        $2.69
            150,000            150,000        $3.13
             54,000             54,000        $4.73
        ----------------------------------
          3,301,115          1,776,365
        ==================================

         At December 31, 2002,  warrants to purchase  1,776,365 shares of Common
         Stock were exercisable.

         Employee Stock Purchase Plan
         ----------------------------

         The  Company's  Board of  Directors  adopted  the 2001  Employee  Stock
         Purchase Plan ("Purchase  Plan") on February 26, 2001 and the Company's
         stockholders  approved of the  Purchase  Plan at the Annual  Meeting of
         Stockholders  on May 10, 2001. The Purchase Plan became  effective upon
         adoption by the Board,  however,  the first  Offering  Period  (defined
         below)  under the  Purchase  Plan began on the first  trading day on or
         after July 1, 2001. Pursuant to the Purchase 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 Purchase Plan may be authorized and unissued
         shares or treasury shares.

         The purpose of the Purchase Plan is to provide employees of the Company
         with  an   opportunity  to  purchase   Common  Stock  through   payroll
         deductions.  Under the  Purchase  Plan,  a  participating  employee  is
         granted  an  option  to  purchase   Common   Stock  that  is  exercised
         automatically  at a specified  date set forth in the Purchase Plan. The
         purchase price for shares of Common Stock received upon exercise of the
         option is paid through the employee's payroll deductions and may not be
         less than 85% of fair market value at the date of the grant.  It is the
         Company's  intention to have the Purchase  Plan qualify as an "Employee
         Stock Purchase Plan" under Section 423 of the Internal  Revenue Code of
         1986, as amended  ("Code").  The Purchase Plan shall be construed so as
         to extend and limit  participation in a manner  consistent with Section
         423 of the Code.  The Purchase 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 years ended December 31, 2002 and December 31, 2001,  60,397
         and 29,399 shares, respectively, were purchased by employees at various
         prices in accordance  with the provisions of the Purchase Plan. For the
         years  ended   December   31,  2002  and   December   31,   2001,   the
         weighted-average  prices of the shares  purchased were $0.32 and $0.41,
         respectively.

                                       47

<PAGE>

         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 plans 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.

         1995 NON-STATUTORY STOCK OPTION PLAN

         The Compensation  Committee determined the number of options granted to
         key employees and the vesting  period and exercise price of the options
         provided it was not below market value on the date of the grant for the
         1995 Non-Statutory  Stock Option Plan ("1995 Plan"). In most cases, the
         options vested over a two-year period and will terminate ten years from
         the date of  grant.  The 1995 Plan will  terminate  in 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, 2002,  2001 and 2000 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, 2002.

         1996 INCENTIVE STOCK PLAN

         In June 1996, the Company  adopted the 1996 Incentive Stock Plan ("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  and the
         vesting  period and exercise  price of the options  provided that it is
         not below fair market value of the  Company's  Common  Stock.  The 1996
         Plan will terminate in 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,  2002,  988,415
         options are  outstanding  of which  200,590 are vested,  and a total of
         320,684 options are available for grant under the 1996 Plan.

                                       48

<PAGE>

Option  activity under the 1996 Plan for the three years ended December 31, 2002
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

         Granted                                    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

         Granted                                    678,500          $0.284
         Cancelled                                 (208,625)         $0.881
         Expired                                    (14,625)         $2.451
                                                ------------     ---------------
         Balance as of December 31, 2002            988,415          $0.980
                                                ============     ===============

         1998 INCENTIVE STOCK PLAN

         On February 2, 1998, the Board of Directors  authorized the adoption of
         the 1998 Incentive  Stock Plan ("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 the Board of Directors or a committee of the Board
         of Directors. 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, 2002,  3,527,840
         options are outstanding,  of which 2,209,380 are vested, and a total of
         1,134,115 options are available for grant under the 1998 Plan.

                                       49

<PAGE>

Option  activity under the 1998 Plan for the three years ended December 31, 2002
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

          Granted                                 1,027,000         $0.658
          Cancelled                                (596,663)        $1.518
          Expired                                  (213,187)        $1.592
                                               ------------      ---------------
          Balance as of December 31, 2002         3,527,840         $1.418
                                               ============      ===============

         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.

         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,
         2002,  2001 and 2000,  respectively:  dividend yield of 0% and expected
         volatility  of 100% for all periods;  risk-free  interest rate of 4.7%,
         4.7% and 5.5%;  and  expected  term of 4.0 years for all  periods.  The
         weighted  average  fair value of the options  granted  under all of the
         Company's plans during the years ended December 31, 2002, 2001 and 2000
         was $.51, $.74 and $1.54,  respectively.  The weighted average exercise
         price of the options  outstanding  under all of the Company's  plans at
         December  31,  2002,  2001  and  2000  was  $1.33,   $1.70  and  $2.31,
         respectively.  As of December 31, 2002, the weighted average  remaining
         contractual life of the options  outstanding under all of the Company's
         plans is 7.4 years and the number of options exercisable is 2,420,572.

         During the year ended  December 31, 2002, the Company issued options to
         purchase  200,000  shares of common  stock to various  consultants  for
         financial advisory, lobbying, investigative and marketing sales related
         services  provided.   The  Company  used  the  Black-Scholes  model  to
         determine   the  fair  value  of  these   options  with  the  following
         assumptions:  volatility  of 100%,  risk free interest rate of 5.0% and

                                       50

<PAGE>

         expected term of 10 years.  Compensation  expense of $82,545 related to
         the options was recognized during the year ended December 31, 2002.

         Reserve for Issuance
         --------------------

         At December 31, 2002, the Company has  authorized the following  shares
         of  Common  Stock  for  issuance  upon  conversion  of the  8%  Secured
         Convertible Notes,  Series C Preferred Stock, Series D Preferred Stock,
         and upon exercise of options and warrants:

          Series D Preferred Stock                                    3,021,000
          Common Stock options outstanding                            4,526,857
          Common Stock options available for grant                    3,103,541
          Common Stock reserved for Employee Stock Purchase
            Plan                                                      2,500,000
          Common Stock underlying 8% Convertible Notes                2,412,000
          Common Stock warrants                                       2,586,204
                                                                   -------------
          Total shares of authorized Common Stock reserved           18,149,602
                                                                   =============
7. NOTE PAYABLE - OTHER

         In  addition  to the  aforementioned  warrants,  the  Company  issued a
         $20,000  note  payable to Joseph  Gunnar & Co.,  LLC for the payment of
         finance costs incurred with the 8% Convertible Notes offering. The note
         is  non-interest  bearing  if paid by the  maturity  date of August 23,
         2003.  If the Company  defaults on the note,  it becomes  payable  with
         interest at 15% per annum from the date of the note.

8. COMMITMENTS AND CONTINGENCIES

         OPERATING LEASES

         The Company is obligated  under  various  operating  lease  agreements,
         primarily for office space and equipment through 2005. The office lease
         provides for fixed rent escalations which under the generally  accepted
         accounting principles are expensed on a pro rata basis over the term of
         the lease. The difference  between expense  recognized and the required
         lease  payments at the balance  sheet date is recorded as deferred rent
         in the accompanying Balance Sheets.

         Future  minimum lease  payments  under these  non-cancelable  operating
         leases as of December 31, 2002 are as follows:

                                                          Operating
                                                          ---------

                 2003                                    $  355,576
                 2004                                        14,377
                 2005                                        11,981
                                                         ----------

              Total minimum payments                     $  381,934
                                                         ==========

         Rent  expense was  $428,801,  $464,483 and $583,582 for the years ended
         December 31, 2002, 2001 and 2000, respectively.

                                       51

<PAGE>

         At December 31, 2002, the Company  expects to receive $23,786 in future
         minimum sublease rental income payments in 2003.

         Effective   February  28,  2003,   the  Company   entered  into  a  new
         non-cancelable  operating  lease for its office  space that  expires on
         March  31,  2008.   The  lease   payments   under  the  new  lease  are
         approximately  $17,600 per month and are  subject to annual  escalation
         clauses.

         CAPITAL LEASE

         At December 31,  2001,  the Company had a lease for office and computer
         equipment that was classified as capital lease. The lease was repaid in
         2002.

         The net present value of the minimum lease  payments and other balances
         related to the capital lease are included in the accompanying financial
         statements as of and for the year ended December 31, 2001, as follows:

<TABLE>
              <S>                                                                    <C>
              Total minimum payments - capital lease obligation                      $    50, 059
              Interest                                                                     (2,255)
                                                                                     ------------
              Present value of capital lease obligations - current portion           $     47,804
                                                                                     ============
</TABLE>

         At December 31, 2002, the Company had no outstanding  leases classified
         as capital leases.  Total amortization expense related to the equipment
         under capital lease for the year ended December 31, 2002 was $27,131.

         LETTER OF CREDIT

         A bank has  issued  an  irrevocable  standby  letter  of  credit on the
         Company's  behalf for a maximum  amount of $35,000  expiring  April 23,
         2003, unless extended.  As of December 31, 2002, a $35,000  certificate
         of deposit has been pledged as collateral for the letter of credit.


9.       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, 2002, 2001 or 2000.

                                       52

<PAGE>

10.      SUPPLEMENTAL CASH FLOW DISCLOSURE

         Selected cash payments and noncash activities were as follows:

<TABLE>
                                                                            Year ended December 31,
                                                                  -----------------------------------------
                                                                   2002            2001          2000
                                                                  -----------  ------------ -------------
        <S>                                                        <C>          <C>            <C>
        Cash paid for interest                                     $   6,647    $   11,560     $   21,982
        Cash paid for dividends                                            -    $      259     $       16
        Noncash investing and financing activities:
        Dividends paid with stock                                          -    $   46,348     $  461,313
        Deemed dividend on preferred stock                                 -    $2,932,023              -
        Notes converted to common stock                            $ 585,000             -              -
        Debt discount on 8% Convertible Notes                      $ 184,980             -              -
        Issuance of stock options to consultants                   $  82,545    $   98,232     $   95,422
        Issuance of restricted stock                                       -    $   52,000     $  282,000

11.      NET LOSS PER SHARE

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

                                                                            Year ended December 31,
                                                                  ------------------------------------------
                                                                     2002          2001          2000
                                                                  -----------  -------------  --------------
         Numerator:
         Net loss                                              $   (5,635,191)  $ (6,237,278)  $ (8,862,015)
         Less:  Dividend on preferred stock                          (699,901)      (741,245)      (369,979)
         Deemed dividend on preferred stock                                 -     (2,932,023)             -
                                                                 ------------    -----------    -----------
         Net loss attributable to holders of Common Stock      $   (6,335,092)  $ (9,910,546)  $ (9,231,994)
                                                                 ============    ===========    ===========
         Denominator:
         Denominator for basic net loss per share-weighted
             average shares                                        25,230,360     22,576,188     20,871,076

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

         Denominator for diluted net loss per share-adjusted
             weighted average shares                               25,230,360     22,576,188     20,871,076
                                                                 ============    ===========    ===========

         Basic and diluted loss per share
                                                                 ------------    -----------    -----------
           attributable to holders of Common Stock             $        (0.25)  $      (0.44)  $      (0.44)
                                                                 ============    ===========    ===========
</TABLE>

                                       53

<PAGE>

     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,
                          ----------------------------------------------
                            2002              2001              2000
                          ----------------------------------------------
Preferred stock:
   Series B                         -               -         1,287,554
   Series D                 3,021,000       3,675,000                 -
Stock options               4,526,857       3,854,457         2,851,212
Warrants                    2,586,204       1,776,365         1,072,054

12.   GAIN ON SALE OF INVESTMENT

      The Company sold its stock in NFR Security,  Inc. (formerly Network Flight
      Recorder)  in February  2001 for  $1,625,000,  resulting  in a net gain of
      $1,375,000,  which was included in other (expense)  income during the year
      ended December 31, 2001.

13.   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, 2001 and 2002:

                         1ST           2ND            3RD            4TH
                         QUARTER       QUARTER        QUARTER        QUARTER
                         -------       -------        -------        -------
      2002                                           (restated)
      Revenue         $   852,219    $   886,999    $ 1,151,943    $  661,865
      Gross profit        686,486        760,053      1,014,259       608,603
      Net loss        $ 2,013,619    $ 1,430,459    $ 1,186,638    $1,004,475

      Net loss per
      share, basic
      and diluted     $     (0.09)        (0.07)          (0.05)        (0.04)

      2001              (restated)
      Revenue         $   790,181    $   922,366    $ 1,099,998    $2,177,617
      Gross profit        485,282        650,838        676,047     1,844,120
      Net loss        $   (993,21)   $(2,321,670)   $(2,148,562)   $ (773,831)
                       ===========    ===========    ===========    ==========

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

      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.

                                       54

<PAGE>

      The Company  restated the results of the third  quarter of 2002 to account
      for the  allocation of the fair value of a warrant and a note payable that
      were  issued in  connection  with the 8% secured  convertible  notes.  The
      result of the restatement  was to record  additional  interest  expense of
      $107,800.

                                       55
<PAGE>

                                     V-ONE CORPORATION

                      SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                    For the years ended December 31, 2002, 2001 and 2000

<TABLE>
<CAPTION>
                                                 Additions
                                Balance at       Additions
                                Beginning of     Charged to
       Description              Period           Costs and                        Balance at End
                                of Period        Expenses        Deductions         of Period

 ALLOWANCE FOR DOUBTFUL
 ACCOUNTS
<S>                            <C>                <C>              <C>           <C>
    December 31, 2000          $    134,244          68,490         97,070       $    105,664
    December 31, 2001          $    105,664             ---         33,629       $     72,035
    December 31, 2002          $     72,305         155,000        129,900       $     97,135

 DEFERRED TAX ASSET
 VALUATION ALLOWANCE

    December 31, 2000          $ 14,859,228       1,620,108            ---       $ 16,479,336
    December 31, 2001          $ 16,479,336       2,668,612            ---       $ 19,147,948
    December 31, 2002          $ 19,147,948       3,765,142            ---       $ 22,913,090

 ALLOWANCE FOR
 NON-SALABLE INVENTORY
    December 31, 2000          $     87,694          32,699         41,737             78,656
    December 31, 2001          $     78,656         120,000        169,063         $   29,593
    December 31, 2002          $     29,593          42,148         27,003         $   44,738

</TABLE>

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 June 5, 2003.

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 June 5, 2003.

                                    56

<PAGE>

ITEM 12.  SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS

The information  required by this Item concerning  security ownership of certain
beneficial owners and management and related stockholder matters is incorporated
herein by reference to the Company's  definitive  proxy statement for its annual
stockholders' meeting to be held on June 5, 2003.

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
June 5, 2003.

ITEM 14.  CONTROLS AND PROCEDURES

Within the ninety-day  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.

                                       57

<PAGE>

                                     PART IV

Item 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON
          FORM 8-K

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

See Index to Financial  Statements on page 27. 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.

(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 (3)
3.5         Certificate  of  Designations  of  Series A  Convertible  Preferred
            Stock (3)
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)

                                       58

<PAGE>

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

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. (3)
10.20       Registration Rights Agreement dated as of December 3, 1997 between
            V-ONE and Advantage Fund II Ltd. (3)
10.21       Commitment Letter dated December 8, 1997 between V-ONE and Advantage
            Fund II Ltd. (3)
10.22       Registration Rights Agreement dated as of December 8, 1997 between
            V-ONE and Wharton Capital Partners, Ltd. (3)
10.23       Warrant to Purchase 60,000 shares of Common Stock Issued on December
            8, 1997 by V-ONE to Wharton Capital Partners, Ltd. (3)
10.24       Letter Agreement between V-ONE and Wharton Capital Partners, Ltd.
            dated October 22, 1997 (3)
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 (2)
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)

                                       59

<PAGE>

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

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)
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)
10.70       Form of Note Purchase Agreement dated July 23, 2002 (15)
10.71       Form of Promissory Note dated July 23, 2002 (15)
10.72       Form of Warrant dated July 23, 2002 (15)
10.73       Company Disclosures (15)
10.74       Term Sheet for Proposed Offering (15)
10.75       Company Disclosures (15)
10.76       Company Disclosures (15)
10.77       Form of Placement Agency Agreement dated July 23, 2002 (15)
10.78       Form of Legal Opinion dated July 23, 2002 (15)
10.79       Form of Note Purchase Agreement dated July 26, 2002 (15)
10.80       Form of Promissory Note dated July 26, 2002 (15)
10.81       Form of Warrant dated July 26, 2002 (15)
10.82       Company Disclosures  (15)
10.83       Term Sheet for Proposed Offering (15)
10.84       Company Disclosures (15)
10.85       Company Disclosures (15)
10.86       Form of Placement Agency Agreement dated July 23, 2002 (15)
10.87       Form of Legal Opinion dated July 26, 2002 (15)
10.88       Form of Note Purchase Agreement dated August 2, 2002 (15)

                                       60

<PAGE>

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

10.89       Form of Promissory Note dated August 2, 2002 (15)
10.90       Form of Warrant dated August 2, 2002 (15)
10.91       Company Disclosures (15)
10.92       Term Sheet for Proposed Offering (15)
10.93       Company Disclosures (15)
10.94       Company Disclosures (15)
10.95       Form of Placement Agency Agreement dated July 23, 2002 (15)
10.96       Form of Legal Opinion dated August 2, 2002 (15)
23.1        Consent of Aronson & Company
23.2        Consent of Ernst & Young LLP
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

------------------------------

(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 10-Q for the three months ended June 30, 1997.

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

(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.

                                       61

<PAGE>

(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.

(15) The  information  required by this exhibit is  incorporated by reference to
V-ONE's Registration Statement on Form S-2 (No. 333-98521).

(b) Reports on Form 8-K

None.

                                       62
<PAGE>

                                   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: January 9, 2004
                                     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

/s/ Margaret E. Grayson        President, Chief Executive        January 9, 2004
--------------------------    Officer, Principal Financial
Margaret E. Grayson               Officer and Director


/s/ Molly G. Bayley                    Director                  January 9, 2004
--------------------------
Molly G. Bayley


/s/ Heidi B. Heiden                    Director                  January 9, 2004
--------------------------
Heidi B. Heiden


/s/ Michael D. O'Dell                  Director                  January 9, 2004
--------------------------
Michael D. O'Dell


/s/ William E. Odom                   Director                  January 9, 2004
--------------------------
William E. Odom