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

                                    FORM 10-K

              (Mark One)
              [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                    For Fiscal Year Ended: December 31, 2002

              [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
         For the Transition Period From ______________ To ______________

                         Commission File Number 0-21511

                                V-ONE CORPORATION
                                -----------------
             (Exact Name of Registrant as Specified in its Charter)

                     Delaware                         52-1953278
          ------------------------------------------------------------
          (State or Other Jurisdiction of          (I.R.S. Employer
           Incorporation or Organization)         Identification No.)

           20300 Century Blvd., Suite 200, Germantown, Maryland 20874
           ----------------------------------------------------------
               (Address of Principal Executive Offices) (Zip Code)

                                 (301) 515-5200
                                 --------------
              (Registrant's Telephone Number, Including Area Code)

        Securities Registered Pursuant to Section 12(b) Of the Act: None

           Securities Registered Pursuant to Section 12(g) Of the Act:

                    Common Stock, $0.001 Par Value Per Share
                    ----------------------------------------
                                (Title of Class)

                        Traded On the Otc Bulletin Board

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

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

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

                                       2
<PAGE>

                       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.

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.

                                       3
<PAGE>

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.

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

                                       4
<PAGE>

    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. The certificates are digitally certified by
    a third party, called a certificate authority,  who vouches for the identity
    of the certificate holder.  Digital certificates are being standardized as a
    means  of  authenticating  on-line  users  and  are  perceived  to  be a key
    technology for the expansion of secure transactions and electronic commerce.

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

The current  demand for VPN  products is being  driven by 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.

                                       5
<PAGE>

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,
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.

                                       6
<PAGE>

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.

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.

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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
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.

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<PAGE>

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.

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.

                                       9
<PAGE>

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 the  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
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

                                       10
<PAGE>

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,
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.

                                       11
<PAGE>

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
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

                                       12
<PAGE>

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.

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  $65,014,000.  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

                                       13
<PAGE>

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  $6,227,000,  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  $3.2 million in
fiscal  2002,  an  average  "burn  rate"  of  approximately  $264,000  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. 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
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

                                       14
<PAGE>

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
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

                                       15
<PAGE>

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
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  $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.  The Company  expects that this
space will be sufficient for its needs through expiration of the lease.

                                       16
<PAGE>

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

                                       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  following  table sets  forth the low and high sale  prices of the
Company's  Common  Stock for each  quarter  during  the  two-year  period  ended
December 31, 2002.

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

                                       17
<PAGE>

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
financial  statements of the Company included elsewhere in this Annual Report on
Form 10-K. The following  financial data as of December 31, 1998,  1999 and 2000
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."

                                       18
<PAGE>

                                V-ONE CORPORATION
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                     Year ended December 31,
                                       ----------------------------------------------------------------------------------------

Statement of Operations Data:              1998                1999              2000                2001               2002
                                           ----                ----              ----                ----               ----
<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)          (637,018)
  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           (627,743)
                                       ------------       ------------       ------------        ------------       ------------

Net loss before extraordinary item      (9,193,396)        (9,307,892)        (8,862,015)         (6,237,278)        (5,527,391)

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

Net loss                                (9,193,396)        (9,679,944)        (8,862,015)         (6,237,278)        (5,527,391)

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)      $ (6,227,292)
                                       ============      =============      =============       =============      =============

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
                                       ============      =============      =============       =============      =============
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                             December 31,
                                       ----------------------------------------------------------------------------------------
                                           1998               1999                2000              2001               2002
                                           ----               ----                ----              ----               ----
<S>                                    <C>                 <C>                <C>                 <C>               <C>
Balance Sheet Data:

Working capital (deficit)              ($1,277,368)        $6,629,846         $1,591,967          $2,164,448        ($1,958,213)
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 A Convertible Preferred Stock             -                  -                  -                   -                  -
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        ($1,671,750)
</TABLE>

                                       19
<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.

                                       20
<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          8.3
                                ----------   ----------   ----------

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)       (17.9)

Interest income                       7.2          5.0          0.5

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

Total other income (expense)          6.7         31.0        (17.7)
                                ----------   ----------   ----------
Loss before extraordinary
 item                              (194.6)      (125.0)      (155.6)

Extraordinary loss - early
 extinguishment of debt                 -            -            -
                                ----------   ----------   ----------

Net loss                           (194.6)      (125.0)      (155.6)

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)%      175.3)%
                                ===========  ===========  ===========

                                       21
<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.

                                       22
<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 98.0% 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  $637,000 in 2002,
substantially  all of  which  was for  recognition  of a  beneficial  conversion
feature on the Company's 8% Secured  Convertible  Notes,  discussed below. 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.  The Company expects that  information  relating to net operating
loss carry forwards will be provided upon completion of the fiscal 2002 audit.

Dividends  on  Series  C  and  D  Preferred   Stock  --  The  Company   provided
approximately  $741,000  for a dividend  on the Series C and Series D  Preferred
Stock during 2001, and approximately $700,000 for dividends on both 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  $184,980  in  accordance  with the  accounting
requirements for a beneficial  conversion feature on the Notes. During 2002, the
Company  amortized  approximately  $173,222 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

                                       23
<PAGE>

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 $101,600 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  was 22.5% and 13.2% for 2001 and 2000,  respectively.  The  dollar and
percentage increases in 2001 over 2000 were attributable in part to a higher mix
of  SmartGuard  and SmartWall  products and turnkey  hardware  sales  (increased
$273,000  or 5.5% of total  revenues),  which  have  higher  costs of  revenues,
compared to SmartGate software licenses.  An additional factor in the dollar and
percentage  increase was the impact of the  write-off  of obsolete  inventory in
2001 which amounted to an increase over 2000 of  approximately  $153,000 or 3.1%
of total revenues.

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

Operating Expenses
------------------

Research  and   Development  --  Research  and  development   expenses   consist
principally  of the  costs of  research  and  development  personnel  and  other
expenses  associated  with the  development  of new products and  enhancement of
existing products.  Research and development expenses increased to approximately

                                       24
<PAGE>

$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 16.6%,  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 19.0% 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
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.

                                       25
<PAGE>

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 deferred
revenue of  $168,000  and an  increase  in  accounts  payable of  $466,000.  The
increase  from  2000 to 2001 in cash used in  operating  activities  included  a
reduction in net loss of $2,624,737,  comprised of a reduction of  approximately
$2,131,000 in sales,  marketing and general and  administrative  expenses and an
increase  of  $570,000  in  engineering  expenses  offset by a drop in  accounts
payable of $607,000 and in deferred revenue of $161,000.

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
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.

                                       26
<PAGE>

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.  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.

                                       27
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                                V-ONE CORPORATION
                          INDEX TO FINANCIAL STATEMENTS

                                    --------



      Balance Sheets                                            30

      Statements of Operations                                  31

      Statements of Stockholders' Equity                        32

      Statements of Cash Flows                                  33

      Notes to Financial Statements                             34

      Schedule of Valuation and Qualifying Accounts for
        the years ended December 31, 2000, 2001 and 2002        52

                                       28
<PAGE>

The audit of the  Company's  financial  statements  at  December  31, 2002 is in
progress  but  will  not be  completed  in time  to  include  audited  financial
statements  and a Report of  Independent  Auditors in this Annual Report on Form
10-K.  When the audit is  completed  and a Report  of  Independent  Auditors  is
issued, the Company expects to file an amended Annual Report on Form 10-K.

                                       29
<PAGE>

                                V-ONE CORPORATION
                                 BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                        December 31,
                                                              -------------------------------
                           ASSETS                                 2002               2001
                                                                  ----               ----
<S>                                                           <C>               <C>
Current assets:
  Cash and cash equivalents                                   $   128,985        $ 2,608,690
  Accounts receivable, less allowances of $93,877 and
    $72,035 respectively                                          237,695            859,658
  Inventory, less allowances of $44,738 and
    $29,593 respectively                                            5,478             57,354
  Prepaid expenses and other current assets                       280,630            407,913
                                                              ------------       ------------
    Total current assets                                          652,788          3,933,615

Property and equipment, net                                       319,294            748,513
Other assets                                                            -             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
  Notes payable                                                   591,242                  -
  Capital lease obligations - current                                   -             47,804
                                                              ------------       ------------
    Total current liabilities                                   2,611,001          1,769,167
  Deferred rent                                                    32,831             80,790
  Capital lease obligations - noncurrent                                -                  -
                                                              ------------       ------------
    Total liabilities                                           2,643,832          1,849,957

  Commitments and contingencies                                         -                  -

Stockholders' equity:
Preferred Stock, $.001 par value,13,333,333 shares
  authorized
  Series C redeemable preferred stock,
    500,000 designated, 42,904 shares issued and
    outstanding (liquidation preference of $1,126,000)                 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                                     61,737,266         60,766,392
Accumulated deficit                                           (65,014,438)       (58,787,146)
                                                              ------------       ------------
    Total stockholders' equity                                 (1,671,750)         2,882,367
                                                              ------------       ------------
    Total liabilities and stockholders' equity                  $ 972,082         $4,732,324
                                                              ============       ============
</TABLE>


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

                                       30
<PAGE>

                               V-ONE CORPORATION
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                   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)

Interest (expense) income:
Interest expense                           (637,018)         (11,560)         (25,945)
Interest income                              16,833          249,575          329,770
Other (expense) income                       (7,558)       1,306,582                -
                                       -----------------------------------------------
    Total interest (expense) income        (627,743)       1,544,597          303,825
                                       -----------------------------------------------

Net loss before extraordinary item       (5,527,391)      (6,237,278)      (8,862,015)

Extraordinary item - early
extinguishment of debt                            -                -                -
                                       -----------------------------------------------

Net loss                                 (5,527,391)      (6,237,278)      (8,862,015)

Dividend on preferred stock                 699,901          741,245          369,979
Deemed dividend on preferred stock                -        2,932,023                -
                                       -----------------------------------------------

Loss attributable to holders
  of common stock                      $ (6,227,292)    $ (9,910,546)    $ (9,231,994)
                                       ===============================================

Basic and diluted loss per share
Loss before extraordinary item              $ (0.25)         $ (0.44)         $ (0.44)
                                       ===============================================

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
                                       ===============================================
</TABLE>


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

                                       31
<PAGE>

                                V-ONE CORPORATION
                       STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                      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>      <C>           <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, 2001    23,594,904  $ 23,595  3,717,904  $ 3,718  $ 875,808   $ 60,766,392 $     -  $(58,787,146) $ 2,882,367
                              ------------------------------------------------------------------------------------------------------
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)         -             -        -             -            -
Deemed Dividend on Series D            -         -          -        -          -             -        -             -            -
Dividend on preferred stock            -         -          -        -    699,901             -        -      (699,901)           -
Issuance of common stock
  options to consultants               -         -          -        -          -        82,545        -             -       82,545
Beneficial Conversion Note
  payable warrants                     -         -          -        -          -       286,580        -             -      286,580
Net loss                               -         -          -        -          -             -        -    (5,527,391)  (5,527,391)
                              ------------------------------------------------------------------------------------------------------
Balance, December 31, 2002    26,649,301  $ 26,649  3,063,904  $ 3,064 $1,575,709  $ 61,737,266  $     -  $(65,014,438) $(1,671,750)
                              ------------------------------------------------------------------------------------------------------

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

                                       32
<PAGE>

                                V-ONE CORPORATION
                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                    Year ended December 31,
                                                       ----------------------------------------------
                                                            2002              2001            2000
                                                            ----              ----            ----
<S>                                                    <C>              <C>             <C>
Cash flows from operating activities:
Net loss                                               $ (5,527,391)    $ (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 deferred financing costs                  608,837                 -              -
  Noncash charge related to issuance of warrants
    and options and stock compensation                       82,545           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 and other assets                         246,453           (85,310)       529,045
  Accounts payable and accrued expenses                     466,255          (606,621)       218,279
  Deferred revenue                                         (167,859)         (161,157)       692,280
  Deferred rent                                             (47,959)          (39,359)       (36,561)
                                                       ----------------------------------------------
    Net cash used in operating activities                (3,167,489)       (7,771,318)    (6,699,693)

Cash flows from investing activities:
  Net purchase of property and equipment                    (68,572)         (370,279)      (773,629)
  Collection of note receivable                                   -                 -          3,785
  Proceeds from sale of investment                                -         1,625,000              -
                                                       ----------------------------------------------
    Net cash used in investing activities                   (68,572)        1,254,721       (769,844)

Cash flows from financing activities:
  Issuance of common stock under employee stock plans        19,149            23,951              -
  Issuance of preferred stock, net of
    subscriptions receivable                                      -         7,019,250      3,375,000
  Issuance of notes payable                                 603,000                 -              -
  Notes payable converted to common stock                   585,000                 -              -
  Payment of debt financing costs                          (402,989)                -              -
  Payment of preferred stock dividends                            -              (259)           (16)
  Payment of stock issuance costs                                 -          (761,468)      (183,895)
  Redemption of preferred stock                                   -           (84,447)             -
  Exercise of stock options and warrants                          -            50,805        169,697
  Principal payments on capital lease obligations           (47,804)          (71,943)       (78,794)
                                                       ----------------------------------------------
    Net cash provided by financing activities               756,356         6,175,889      3,281,992
                                                       ----------------------------------------------

Net (decrease) increase in cash and cash equivalents     (2,479,705)         (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                 $    128,985      $  2,608,690    $ 2,949,398
                                                       ==============================================
</TABLE>


   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")  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 $5,527,000,  $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.

      V-ONE's cash used in operating  activities was approximately  $3.2 million
      in fiscal 2002, an average "burn rate" of approximately  $264,000 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.

      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  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 and pays sales  commissions upon receipt
      of payment from the customer.

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

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

      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
      assumptions that affect the amounts  reported in the financial  statements

                                       35
<PAGE>

      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  expense was $497,790,  $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).

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

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

      Deferred  tax assets and  liabilities  are  recognized  for the future tax
      consequences  attributable to differences  between the financial statement
      carrying  amounts of existing assets and liabilities and their  respective

                                       36
<PAGE>

      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 net income in the period that the tax rate is enacted.

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

      Net Loss Per Common Share
      -------------------------

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

      Risks, Uncertainties and Concentrations
      ---------------------------------------

      Financial  instruments that potentially subject the Company to significant
      concentration  of credit risk consist  primarily of cash  equivalents  and
      accounts receivable.  The Company's cash balances exceed federally insured
      amounts. The Company invests its cash primarily in money market funds with
      an international commercial bank. The Company sells its products to a wide
      variety of  customers  in a variety of  industries.  The Company  performs
      ongoing  credit  evaluations  of  its  customers,  but  does  not  require
      collateral or other security to support customer accounts  receivable.  In
      management's  opinion, the Company has sufficiently provided for estimated
      credit losses.

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

      During the years ended December 31, 2002,  2001 and 2000, 15%, 11% and 21%
      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 60%, 43% and 40% of sales, 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,

                                       37
<PAGE>

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

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

 4.   SELECTED BALANCE SHEET INFORMATION

      Property and equipment consisted of the following at December 31:

                                                  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
                                             ============= ==============

        Other assets consisted of the following at December 31:

                                                 2002           2001
                                              -----------    -----------
        Deposits                            $          -  $      50,196
        Investment in Network Flight                   -              -
          Recorder
                                              -----------    -----------
                                            $          -  $      50,196
                                              ===========    ===========

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

                                       38
<PAGE>

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

       Inventory                           $                $   11,574
       Accounts receivable                                      28,173
       Property and equipment                                  (25,910)
       Deferred rent                                            31,598
       Non-deductible accruals                                  83,235
       Net operating loss carry forward                     19,019,278
                                                         -------------
       Total deferred tax asset                             19,147,948
       Valuation allowance                                 (19,147,948)
                                                         -------------
       Net deferred tax asset              $                $        -
                                                         =============

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

                                              2002*           2001
                                                         -------------

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

      * The Company expects that information  relating to 2002 income taxes will
      be provided upon completion of the fiscal 2002 audit.

 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'

                                       39
<PAGE>

      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.

      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 to provide 100% warrant coverage
      to the holders of the Notes.  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.

      Also in connection  with the Notes  offering,  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.

      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

                                       40

<PAGE>

      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.

      Throughout  2000,  certain holders of the Series C Stock chose to exercise
      their  warrants  through  a  cashless  exercise  provision.  The  cashless
      exercise  provision  allowed  the  holders to remit each share of Series C
      Stock in exchange for 10 shares of Common Stock. A total of 280,286 shares
      of Series C Stock were remitted for 2,802,860  shares of Common Stock.  An
      additional  97,449  shares were issued as a result of dividends  earned on
      the Series C Stock. For the year ended December 31, 2001 a total of 11,810
      shares of Series C Stock were remitted for 118,100 shares of Common Stock,
      and an  additional  19,436  shares  were  issued as a result of  dividends
      earned on the Series C Stock.  At  December  31,  2001  there were  42,904
      shares of Series C Stock outstanding. The dividend payable on these shares
      equaled $260,422,  payable in cash or equivalent shares of Common Stock at
      fair market value at the  conversion  date.  At December 31, 2002,  42,904
      shares of Series C Stock remain outstanding. The dividend payable on these

                                       41

<PAGE>

      shares equals  $373,044,  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.

      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.

                                       42

<PAGE>

      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,  certain  holders  of the Series D Stock  chose to convert  their
      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.

      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.

      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

                                       43

<PAGE>

      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 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, in connection with the Notes offering,  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.

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


                      2001          2002      Exercise Price
                      ----          ----      --------------
                         -       1,502,250        $0.50
                    30,000               -        $0.63
                   100,000               -        $1.19
                   697,365               -        $1.91
                   735,000               -        $2.29
                         -               -        $2.33
                         -               -        $2.63
                         -               -        $2.65
                    10,000               -        $2.69
                   150,000               -        $3.13
                    54,000               -        $4.73
          ---------------------------------
                 1,776,365     1,502,250
          =================================

                                       44

<PAGE>

      At December  31,  2002,  warrants to purchase  3,278,615  shares of Common
      Stock were exercisable. The Company expects that the weighted average fair
      value of warrants granted during 2002,  determined using the Black-Scholes
      option-pricing  model, will be provided upon completion of the fiscal 2002
      audit.

      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  accumulated  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 accumulated payroll deductions. 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.

      Stock Options Plans
      -------------------

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

      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 vest over a two-year  period and 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.

                                       45

<PAGE>

      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. 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.

      Option  activity  under the 1996 Plan for the two years ended December 31,
      2002 was as follows:

                                                           Weighted Average
                                                Shares      Exercise Price
                                              ----------   -----------------
        Balance as of December 31, 2000         226,555         $3.833

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

        Grants                                  668,500         $0.284
        Exercised                                     -              -
        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.

                                       46

<PAGE>

      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  2,208,380 are vested,  and a total of
      1,134,115 options are available for grant under the 1998 Plan.

      Option  activity  under the 1998 Plan for the two years ended December 31,
      2002 was as follows:

                                                                Weighted Average
                                                 Shares          Exercise Price
                                               -----------       --------------
         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
         Exercised                                      -                 -
         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.

                                              Year ended December 31,
                                  ----------------------------------------------
                                      2002*             2001            2000
                                  --------------    ------------    ------------
      Loss attributable to
      holders of Common Stock:
            As reported            $ 6,227,292       $9,910,546       $9,231,994
            Pro forma                               $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
           Pro forma                                      $0.52            $0.49


      * The Company expects that pro forma information for 2002 will be provided
      upon completion of the fiscal 2002 audit.

                                       47

<PAGE>

      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,
      2000  and  2001,  respectively:  dividend  yield  of 0% for  all  periods;
      expected volatility of 100% and 100%;  risk-free interest rate of 5.5% and
      4.7%;  and  expected  term of 4.0 years for 2000 and  2001.  The  weighted
      average fair value of the options granted under all of the Company's plans
      during  the years  ended  December  31,  2000 and 2001 was $1.54 and $.74,
      respectively.  The Company expects that the weighted  average  assumptions
      used for grants during 2002 will be provided upon completion of the fiscal
      2002 audit. The weighted average exercise price of the options outstanding
      under all of the Company's  plans at December 31, 2000,  2001 and 2002 was
      $2.31,  $1.70 and  $1.32,  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.

      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 underlying 8% Convertible Notes          2,412,000
                                                    ------------------
      Common Stock warrants                                 2,586,204
                                                    ------------------
      Total shares of authorized Common Stock
        reserved                                           13,237,602
                                                    ==================

7.    COMMITMENTS AND CONTINGENCIES

      Leases
      ------

      The  Company  is  obligated  under  various  operating  lease  agreements,
      primarily for office space and  equipment  through  2008.  Future  minimum
      lease payments under these non-cancelable  operating leases as of December
      31, 2002 are as follows:

                                                      Operating
                                                      ---------

              2003                                   $  341,064
              2004                                      397,194
              2005                                      235,177
              2006                                      229,892
              2007                                      236,789
              2008                                       39,657
                                                    -----------

           Total minimum payments                    $1,225,389
           Interest                                           0

           Present value of capital lease
             obligations                             $        0
           Less:  current portion                             0
                                                    -----------
           Capital lease obligations
             non-current                             $        0
                                                    ===========

                                       48

<PAGE>

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

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

8.    EMPLOYEE 401(K) DEFERRED COMPENSATION PLAN

      The  Company  has a  401(k)  plan  for all  employees  over the age of 21.
      Contributions are made through voluntary employee salary reductions, up to
      15% of  their  annual  compensation,  and  discretionary  matching  by the
      Company.  Employer contributions vest based on the participant's number of
      years of continuous service. A participant is fully vested after six years
      of continuous service.  There were no employer contributions for the years
      ended December 31, 2002, 2001 or 2000.

9.    SUPPLEMENTAL CASH FLOW DISCLOSURE

      Selected cash payments and noncash activities were as follows:

                                                Year ended December 31,
                                          --------------------------------------
                                              2002          2001          2000
                                          -----------   -----------  -----------
      Cash paid for interest               $  28,181     $   11,560    $  21,982
      Cash paid for dividends                      -     $      259    $      16
      Noncash investing and financing
         activities:
      Dividends paid with stock                    -     $   46,064    $ 461,299
      Deemed dividend on preferred stock           -     $2,932,023            -
      Deemed dividend on 8% Convertible    $ 286,580              -            -
      Notes
      Issuance of stock options to
      consultants                          $  82,545     $   98,232    $  95,422
      Issuance of restricted stock                 -     $   52,000    $ 282,000

                                       49

<PAGE>

10.   NET LOSS PER SHARE

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

<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                    -------------------------------------------
                                                        2002            2001          2000
                                                    -------------------------------------------
<S>                                                 <C>            <C>           <C>
        Numerator:
        Loss before extraordinary item              $ (5,527,391)  $ (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 before extraordinary item            (6,227,292)    (9,910,546)   (9,231,994)
        Extraordinary item-early extinguishment
          of debt                                              -              -             -
                                                    -------------  -------------  -------------
        Net loss attributable to holders of
          Common Stock                              $ (6,227,292)  $ (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      25,230,260     22,576,188    20,871,076
                                                    =============  =============  =============

        Basis and diluted loss per share:
        Loss before extraordinary item              $      (0.25)  $      (0.44) $      (0.44)
        Extraordinary item-early extinguishments
          of debt                                             -              -             -
                                                    -------------  -------------  -------------
        Net loss attributable to holders of
          Common Stock                              $      (0.25)  $      (0.44) $      (0.44)
                                                    =============  =============  =============
</TABLE>

      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

                                       50

<PAGE>

11.   SELECTED QUARTERLY FINANCIAL DATA - UNAUDITED

      The following table presents the quarterly  results for V-ONE  Corporation
      and its subsidiaries for the years ending December 31, 2001 and 2002:

<TABLE>
<CAPTION>
                             1st Quarter    2nd Quarter    3rd Quarter    4th Quarter
                             -----------    -----------    -----------    -----------
       2002
<S>                         <C>            <C>            <C>            <C>
       Revenue              $   852,219    $   886,999    $ 1,151,943    $   661,865
       Gross profit             686,486        760,053      1,014,259        608,063
       Net loss             $ 2,013,619    $ 1,430,459    $ 1,078,837    $ 1,004,475

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

       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             $  (993,215)   $(2,321,670)   $(2,148,562)   $  (773,831)
                             ===========    ===========    ===========    ===========

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

      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.

                                       51

<PAGE>

                                V-ONE CORPORATION

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

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

<TABLE>
<CAPTION>
                                               Additions
                                  Balance at   Charged to
                                  Beginning    Costs and                        Balance at
         Description              of Period    Expenses         Deductions    End 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   2,397,885           ---        $18,877,221
    December 31, 2002*           $ 18,877,221                                  $

 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>

      * The Company expects that the 2002 deferred tax asset valuation allowance
      will be provided upon completion of the fiscal 2002 audit.

                                       52

<PAGE>

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.

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.

                                       53

<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 28. All required financial statements
and financial  statement  schedules of the Company are set forth under Item 8 of
this Annual Report on Form 10-K.

(a)(3) Exhibits

<TABLE>
<CAPTION>
NUMBER         DESCRIPTION
------         -----------
<S>            <C>
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)
</TABLE>

                                       54

<PAGE>

<TABLE>
<CAPTION>
NUMBER         DESCRIPTION
------         -----------
<S>            <C>
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)
</TABLE>

                                       55

<PAGE>

<TABLE>
<CAPTION>
NUMBER         DESCRIPTION
------         -----------
<S>            <C>
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)
</TABLE>

                                       56

<PAGE>

<TABLE>
<CAPTION>
NUMBER         DESCRIPTION
------         -----------
<S>            <C>
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)
99.1           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.
</TABLE>


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

(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.

(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.

                                       57

<PAGE>

(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.

                                       58

<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: April 11, 2003
                                       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           April 11, 2003
----------------------------            Executive
Margaret E. Grayson                Officer, Principal
                                        Financial
                                  Officer and Director



/s/ Molly G. Bayley                     Director               April 11, 2003
----------------------------
Molly G. Bayley


/s/ Heidi B. Heiden                     Director               April 11, 2003
----------------------------
Heidi B. Heiden


/s/ Michael D. O'Dell                   Director               April 11, 2003
----------------------------
Michael D. O'Dell


/s/ William E. Odom                     Director               April 11, 2003
----------------------------
William E. Odom

                                       59

<PAGE>

                                  CERTIFICATION

        I, Margaret E. Grayson, certify that:


1.  I have reviewed this annual report on Form 10-K of V-ONE Corporation;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

      a)  designed  such  disclosure  controls  and  procedures  to ensure  that
      material   information   relating  to  the   registrant,   including   its
      consolidated  subsidiaries,  is made  known to us by others  within  those
      entities,  particularly  during the period in which this annual  report is
      being prepared;

      b) evaluated the effectiveness of the registrant's disclosure controls and
      procedures  as of a date  within 90 days prior to the filing  date of this
      annual report (the "Evaluation Date"); and

      c) presented in this annual report our conclusions about the effectiveness
      of the disclosure  controls and  procedures  based on our evaluation as of
      the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

      a) all  significant  deficiencies  in the design or  operation of internal
      controls which could adversely affect the registrant's  ability to record,
      process,  summarize and report  financial data and have identified for the
      registrant's auditors any material weaknesses in internal controls; and

      b) any fraud,  whether or not material,  that involves management or other
      employees  who  have  a  significant  role  in the  registrant's  internal
      controls; and

                                       60

<PAGE>

6. The  registrant's  other  certifying  officers  and I have  indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date:  April 11, 2003                            /s/ Margaret E. Grayson
                                                 ------------------------
                                                 Margaret E. Grayson
                                                 Chief Executive Officer and
                                                  Principal Financial Officer

                                       61