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

                                   FORM 10-Q
(Mark One)
[X]           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
                 FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 2004

                                       OR

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

         For the transition period from ______________ to ______________

                         Commission File Number 0-21511

                                V-ONE CORPORATION
                                -----------------
             (Exact name of registrant as specified in its charter)

             Delaware                                       52-1953278
             --------                                       ----------
 (State or other jurisdiction of                        (I.R.S. Employer
 incorporation or organization)                        Identification No.)

           20300 Century Blvd., Suite 200, Germantown, Maryland 20874
           ----------------------------------------------------------
               (Address of principal executive offices) (Zip Code)

                                 (301) 515-5200
                                 --------------
              (Registrant's telephone number, including area code)


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

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

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

               Class                            Outstanding at August 1, 2004
               -----                            -----------------------------
Common Stock, $0.001 par value per share                 15,642,555



                                V-ONE Corporation
                          Quarterly Report on Form 10-Q

                                      INDEX

                                                                      Page No.
                                                                      --------

PART I.            FINANCIAL INFORMATION                                  3

Item 1.            Financial Statements                                   3

                   Condensed Balance Sheets as of June 30, 2004           3
                   (unaudited) and December 31, 2003

                   Condensed Statements of Operations for the             4
                   three and six months ended June 30, 2004
                   (unaudited) and June 30, 2003 (unaudited)

                   Condensed Statements of Cash Flows for the             5
                   six months ended June 30, 2004 (unaudited)
                   and June 30, 2003 (unaudited)

                   Notes to the Condensed Financial Statements            6
                   (unaudited)

Item 2.            Management's Discussion and Analysis of               11
                   Financial Condition and Results of Operations

Item 3.            Quantitative and Qualitative Disclosures              14
                   About Market Risk

Item 4.            Controls and Procedures                               14


PART II.           OTHER INFORMATION                                     14

Item 1.            Legal Proceedings                                     14

Item 2.            Changes in Securities, Use of Proceeds and            14
                   Issuer Purchases of Equity Securities

Item 3.            Defaults Upon Senior Securities                       15

Item 4.            Submission of Matters to a Vote of Security           15
                   Holders

Item 5.            Other Information                                     16

Item 6.            Exhibits and Reports on Form 8-K                      16

SIGNATURE                                                                17

                                       2


PART 1. FINANCIAL INFORMATION

Item 1.  Financial Statements



                           V-ONE CORPORATION
                        CONDENSED BALANCE SHEETS

                                                                            June 30, 2004    December 31, 2003
                                 ASSETS                                      (Unaudited)
                                                                           ----------------  ------------------
                                                                                              
Current assets:
   Cash and cash equivalents                                                      $ 238,842            $ 27,755
   Certificate of deposit - restricted                                                    -              26,500
   Accounts receivable, less allowances of $20,000 and $15,500 respectively         134,735             606,426
   Finished goods inventory, less allowances of $9,226 and $8,901 respectively          821               3,636
   Prepaid expenses and other assets                                                105,260              61,875
                                                                            ----------------  ------------------
    Total current assets                                                            479,658             726,192

   Property and equipment,  net                                                      72,958              64,138
   Deferred financing costs,  net                                                   342,305                   -
   Deferred costs of business combination                                           154,346                   -
   Deposits                                                                          95,141              95,141
                                                                            ----------------  ------------------
    Total assets                                                                $ 1,144,408           $ 885,471
                                                                            ================  ==================

            LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
   Accounts payable and accrued expenses                                        $ 1,369,224         $ 1,320,361
   Deferred revenue                                                                 687,241             692,914
   Convertible notes payable                                                              -             493,000
   Notes payable, other                                                             110,460             151,248
                                                                            ----------------  ------------------
    Total current liabilities                                                     2,166,925           2,657,523
   Convertible notes payable, noncurrent, net of debt
   discount of $1,118,302                                                            81,698                   -
   Notes payable, other - noncurrent                                                      -              45,287
   Deferred rent                                                                     41,601              40,535
                                                                            ----------------  ------------------
    Total liabilities                                                             2,290,224           2,743,345

Commitments and contingencies

Shareholders' deficiency:
Preferred stock, $.001 par value,13,333,333 shares authorized:
   Series C redeemable preferred stock, 500,000 designated; 42,904
    shares issued and outstanding
    (liquidation preference of $1,126,000)                                               43                  43
Series D convertible preferred stock 3,675,000 shares designated,
    3,021,000 shares issued and outstanding                                           3,021               3,021
    (liquidation preference of $5,770,110)
Common stock, $0.001 par value; 75,000,000 shares authorized;
    15,642,555 and 13,950,284 shares issued and outstanding, respectively            15,643              13,950
   Accrued dividends payable                                                      2,974,346           2,517,765
   Additional paid-in capital                                                    64,482,233          62,121,291
   Accumulated deficit                                                          (68,621,102)        (66,513,944)
                                                                            ----------------  ------------------
    Total shareholders' deficiency                                               (1,145,816)         (1,857,874)
                                                                            ----------------  ------------------
    Total liabilities and shareholders' deficiency                              $ 1,144,408           $ 885,471
                                                                            ================  ==================

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

                                                           3






                                       V-ONE CORPORATION
                              CONDENSED STATEMENTS OF OPERATIONS

                                      Three months   Three months   Six months     Six months
                                         ended         ended           ended         ended
                                      June 30, 2004 June 30, 2003   June 30, 2004 June 30, 2003
                                      (unaudited)   (unaudited)     (unaudited)   (unaudited)
                                      ------------- -------------   ------------  --------------
                                                                       
Revenues:
  Products                               $ 141,626     $ 771,117      $ 400,257    $ 1,412,219
  Consulting and services                  377,386       384,103        767,474        748,272
                                      ------------- -------------   ------------  --------------
    Total revenues                         519,012     1,155,220      1,167,731      2,160,491

Cost of revenues:
  Products                                   7,295       127,695         13,858        143,100
  Consulting and services                   21,249        14,651         48,793         40,426
                                      ------------- -------------   ------------  --------------
    Total cost of revenues                  28,544       142,346         62,651        183,526
                                      ------------- -------------   ------------  --------------

Gross profit                               490,468     1,012,874      1,105,080      1,976,965

Operating expenses:
  Research and development                 243,265       272,326        465,601        594,439
  Sales and marketing                      433,217       364,265        807,860        747,853
  General and administrative               395,470       373,611        828,329        847,930
                                      ------------- -------------   ------------  --------------
    Total operating expenses             1,071,952     1,010,202      2,101,790      2,190,222
                                      ------------- -------------   ------------  --------------

Operating profit (loss)                   (581,484)        2,672       (996,710)      (213,257)

Other (expense) income:
  Interest expense                        (137,616)      (28,744)      (656,077)      (161,475)
  Interest income                            1,416            20          2,003          5,052
  Other (expense) income                       (52)         (183)           207         (9,153)
                                      ------------- -------------   ------------  --------------
    Total other (expense) income          (136,252)      (28,907)      (653,867)      (165,576)
                                      ------------- -------------   ------------  --------------

Net loss                                  (717,736)      (26,235)    (1,650,577)      (378,833)

Dividends on preferred stock               232,595       171,936        456,581        341,983
                                      ------------- -------------   ------------  --------------

Loss attributable to holders
  of common stock                       $ (950,331)   $ (198,171)   $(2,107,158)    $ (720,816)
                                      ============= =============   ============  ==============

Basic and diluted loss per
  share attributable to
  holders of common stock               $    (0.06)   $    (0.01)   $     (0.14)    $    (0.05)
                                      ============= =============   ============  ==============

Weighted average number of
  common shares outstanding             15,567,350    13,479,425     15,264,324     13,419,627
                                      ============= =============   ============  ==============

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

                                             4




                               V-ONE CORPORATION
                        CONDENSED STATEMENTS OF CASH FLOWS

                                                           Six months      Six months
                                                              ended          ended
                                                          June 30, 2004   June 30, 2003
                                                           (unaudited)     (unaudited)
                                                          --------------  -------------
                                                                      
Cash flows from operating activities:
Net loss                                                   $ (1,650,577)    $ (378,833)
Adjustments to reconcile net loss to
  net cash used in operating activities:
Depreciation and amortization                                    26,303        189,032
Amortization of debt discount                                    81,698         11,758
Interest expense-beneficial conversion feature                  434,888         22,000
Interest expense on repricing of warrants                             -         23,890
Amortization of deferred financing costs                         85,692         68,974
Noncash charge related to issuance of warrants,
  options and stock as compensation                               2,088         21,193
Changes in operating assets and liabilities:
  Accounts receivable                                           471,691       (329,524)
  Inventory                                                       2,815          2,952
  Prepaid expenses and other assets                             (43,385)        43,910
  Payments of business combination costs                       (154,346)             -
  Accounts payable and accrued  expenses                         17,474        392,391
  Accrued interest on note payable related to
    financing costs
  Deferred revenue                                               (5,673)      (145,502)
  Deferred rent                                                   1,066          4,524
                                                          --------------  -------------
    Net cash used in operating activities                      (730,266)       (73,235)

Cash flows from investing activities:
  Net purchase of property and equipment                        (35,124)         6,586
  Certificate of deposit redemption                              26,500          8,500
                                                          --------------  -------------
    Net cash provided by (used in)
      investing activities                                       (8,624)        15,086

Cash flows from financing activities:
  Exercise of options and warrants                                  900              -
  Payment of fractional shares                                       (9)             -
  Issuance of common stock under employee
    stock plans                                                   4,072          2,869
  Proceeds of notes payable                                   1,200,000              -
  Payments of deferred financing costs                         (200,301)             -
  Payments on notes payable-other                               (24,068)             -
  Payments of notes payable                                     (30,617)             -
                                                          --------------  -------------
    Net cash provided by financing activities                   949,977          2,869
                                                          --------------  -------------

Net increase (decrease) in cash and cash equivalents            211,087        (55,280)

Cash and cash equivalents at beginning of period                 27,755         93,985
                                                          --------------  -------------

Cash and cash equivalents at end of period                    $ 238,842       $ 38,705
                                                          ==============  =============

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


                                       5


                                V-ONE CORPORATION
                   NOTES TO THE CONDENSED FINANCIAL STATEMENTS

                                   (Unaudited)

1.    Nature of the Business

V-ONE  Corporation  ("Company"  or "V-ONE")  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 in Europe and Asia.

2.    Basis of Presentation

The condensed  financial  statements for the three and six months ended June 30,
2004 and June 30, 2003 are unaudited and reflect all adjustments,  consisting of
normal recurring adjustments, which are, in the opinion of management, necessary
to present  fairly the  results for the interim  periods.  The balance  sheet at
December 31, 2003 is as presented in the financial  statements at that date, but
does not include all of the  information  and  footnotes  required by  generally
accepted  accounting  principles  for  complete  financial   statements.   These
financial  statements  should be read in conjunction with the audited  financial
statements  as of  December  31,  2003 and 2002 and for the  three  years  ended
December 31, 2003,  which are included in the  Company's  2003 Annual  Report on
Form 10-K ("Form 10-K").

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

The results of operations  for the  three-month  and six month period ended June
30, 2004 are not  necessarily  indicative  of the results  expected for the full
year ending December 31, 2004.

Certain  prior  year  amounts  have been  reclassified  to  conform  to the 2004
presentation.  These  changes had no impact on  previously  reported  results of
operations.

3.    Common and Preferred Stock

On June 30,  2004,  the Company  sold 8,426 shares of common stock at a price of
$.22015 per share as part of its Employee Stock Purchase Plan.

As of March 31, 2004 holders had  converted  $1,038,000 or 87% of the 8% Secured
Convertible  Notes ("8%  Notes)  into  shares of common  stock.  In April  2004,
holders  converted the remaining  $150,000 or 13% of the 8% Notes into shares of
Common Stock.

4.    Management's Plans

The accompanying  financial  statements have been prepared  assuming the Company
will continue as a going concern.  The Company  reported a net loss of $449,650,
$5,635,191 and $6,237,278 for the years ended December 31, 2003,  2002 and 2001,
respectively,  and further net losses of $717,736 and  $1,650,577  for the three
and six months ended June 30, 2004, respectively.  Notwithstanding acceptance of
the Company's security concepts and critical acclaim for its products, there can
be no assurance  that the  consummation  of sales of the  Company's  products to
existing customers or proposed agreements with potential customers will generate
timely or  sufficient  revenue for the Company to cover its costs of  operations
and meet its cash flow requirements.  Accordingly,  the Company may not have the
funds needed to sustain operations during 2004.

For the immediate future,  V-ONE will focus on existing and potential  customers
in the government sector,  targeted marketing  operations to commercial accounts
and continued minimization of general and administrative expenditures. V-ONE may
not be successful in further reducing operating levels without  jeopardizing the
ability to serve existing customers or grow its business base. In February 2004,
the Company completed a private  placement of 7% Subordinated  Convertible Notes
with detachable  warrants for an aggregate of $1,200,000,  which resulted in net
proceeds to the Company of  $1,065,690.  The Company  believes  that to maintain

                                       6


operations  for any  extended  period  of time it  must  generate  revenue  from
existing and new customers,  raise  additional  capital or undergo a significant
strategic  transformative  event.  The  Company's  ability to reach  sustainable
profitability  is dependent on its ability to generate  sufficient  cash flow to
meet  its  obligations  and  needs on a timely  basis  or to  obtain  additional
funding.

The  Company  expanded  its banking  relationships  to explore  alternatives  to
preserve its  operations and maximize  shareholder  value,  including  potential
strategic partnering relationships,  a business combination with a strategically
placed partner,  or a sale of the Company. On May 19, 2004, the Company signed a
letter of intent with SteelCloud Inc. ("SteelCloud"),  for SteelCloud to acquire
V-ONE in an all stock  transaction.  On August 11,  2004,  the parties  signed a
definitive agreement for the transaction. For further information, refer to Part
II, Item 5 of this Quarterly  Report on Form 10-Q and V-ONE's  Current Report on
Form 8-K filed with the SEC on August 11, 2004.

5.    8% Secured Convertible Notes with Detachable Warrants

In July and August 2002,  the Company  closed on  approximately  $1,188,000 in a
private placement of 8% Secured Convertible Notes with detachable warrants,  due
180 days after issuance with an additional  180-day  extension  available at the
option of the Company or the holders. Detachable five year warrants, exercisable
at $0.50 per share,  are included to provide one warrant  share for every dollar
invested as warrant  coverage to the note holders.  In January 2003, the Company
elected to extend the 8% Notes for an  additional  180 days,  paid the  interest
accrued under the initial term of the 8% Notes and agreed to adjust the exercise
price of the warrants from $0.50 per share to $0.15 per share. In July 2003, the
Company  requested  and received an extension of the 8% Notes for an  additional
180 days and agreed to an increase in the  interest  rate from 10% to 12% during
the extension  period.  In connection with a restructuring  of the 8% Notes, the
Company  agreed in  January  2004 to adjust the  conversion  price of certain 8%
Notes  constituting  $150,000 in  principal to $.18 per share in exchange for an
extension  of the term of such 8% Notes to July 15, 2004 at an interest  rate of
10%.  Also in  connection  with the  January  2004  restructuring,  the  Company
adjusted  the  conversion  price of the  remaining 8% Notes  outstanding,  which
constituted  $343,000 in  principal,  to $.15 per share and granted  warrants to
purchase a total of 250,000 shares of Common Stock at an exercise price of $0.18
per  share  to  Joseph  Gunnar  & Co.,  LLC,  placement  agent  for the 8% Notes
offering.  In the three months ended June 30,  2004,  8% Note holders  exercised
warrants to purchase 130,106 shares of Common Stock.

As of June 30, 2004,  holders had  converted  $1,188,000 or 100% of the 8% notes
into shares of Common Stock.

The Company  recorded $2,600 in accrued  interest expense for the second quarter
of 2004.  The accrued  interest was paid upon  conversion of the  outstanding 8%
Notes.

6.    7% Subordinated Convertible Notes

In a closing on February 27,  2004,  V-ONE  issued 7%  Subordinated  Convertible
Notes  ("7%  Notes")  with  warrants  for  an  aggregate   principal  amount  of
$1,200,000,  resulting  in net  proceeds  to V-ONE of  $1,065,690.  The 7% Notes
mature on  February  27,  2009.  Interest at the rate of 7% per annum is payable
semi-annually  at the option of V-ONE in cash or in shares of Common Stock.  The
7% Notes rank  senior to the Common  Stock and junior to the Series C Shares and
Series D Shares as to the payment of dividends and as to  distribution of assets
upon  liquidation,  dissolution  or  winding  up of  V-ONE.  So long as at least
$500,000 of the principal amount of the 7% Notes is outstanding, the affirmative
vote of the  holders  of at least  75% of the  principal  amount of the 7% Notes
outstanding is required to issue any securities that rank senior to or on parity
with the 7% Notes.

Under  the  original  terms of the 7%  Notes,  the  holders  could  convert  the
principal amount of their 7% Notes, in whole or in part, at any time into shares
of Common Stock at a conversion price of $0.20 per share. On May 14, 2004, V-ONE
effected a 1:2 reverse stock split  modifying the original  conversion  price of
the 7% Notes to $0.40 per share.  In  addition,  subject to certain  terms,  the
principal  amount of the 7% Notes plus all  accrued  and unpaid  interest  shall
automatically convert into shares of Common Stock at the then current conversion
price on the earlier of (i)  February  27, 2009 and (ii) the first date which is
at least 180 days  following the effective  date of the  Registration  Statement
providing for the resale of the shares of Common Stock issuable upon  conversion
of the 7% Notes that the closing bid price of V-ONE Common Stock  exceeds  $1.00
for a period of 20 consecutive  trading days. On May 14, 2004,  V-ONE effected a
1:2 reverse stock split modifying the closing bid to $2.00 per share.

An event of default  will  occur if V-ONE  fails to make any  principal  payment
under the 7% Notes,  V-ONE  fails to make any  interest  payment for a period of
five days after such payment is due, V-ONE fails to timely file the Registration
Statement  providing for the resale of the shares of Common Stock  issuable upon
conversion  of the  7%  Notes  or the  Registration  Statement  is not  declared
effective by the SEC within 180 days of February 27, 2004, the  effectiveness of

                                       7


the Registration  Statement lapses for a period of 20 consecutive  trading days,
or upon the occurrence of other default events,  including,  but not limited to,
an assignment for the benefit of creditors,  an application  for the appointment
of a trustee or receiver or the commencement of a bankruptcy  proceeding.  If an
event of default  occurs,  the Notes will bear interest at the lesser of 12% and
the  maximum  applicable  legal  rate per  annum  from the date of the  event of
default until such default is cured.

Upon the occurrence of certain events of default and other triggering  events, a
7% Note holder shall have the right to require  V-ONE to prepay in cash all or a
portion of the holder's 7% Note at 120% of the aggregate principal amount of the
7% Note, plus all accrued and unpaid interest. Similar provisions apply if V-ONE
cannot fully convert a 7% Note into shares of  registered  Common Stock upon the
receipt of a proper conversion notice from the holder. In addition, in the event
of a major  corporate  transaction  such as the  consolidation,  merger or other
business  combination of V-ONE into another entity or a sale or transfer of more
than 50% of V-ONE's  assets,  the 7% Note holder shall have the right to require
V-ONE to prepay in cash all or a portion of the  holder's 7% Note at 100% of the
aggregate principal amount of the 7% Note, plus all accrued and unpaid interest.
If the major  corporate  transaction  is  consummated  within  six months of the
issuance of the 7% Note,  then the prepayment  shall be at 110% of the aggregate
principal  amount of the 7% Note,  plus all accrued and unpaid  interest.  Also,
beginning  one year  after the  issuance  of the 7% Notes,  V-ONE may prepay any
portion or all of the  outstanding  principal  balance of the 7% Notes  together
with all accrued and unpaid interest at 110% of the aggregate  principal  amount
of the 7% Notes plus any accrued and unpaid interest.

For twelve  months after the issuance of the 7% Notes,  each holder shall have a
right of first  refusal to purchase  its pro rata  portion of V-ONE Common Stock
(or any securities  convertible,  exercisable or exchangeable into Common Stock)
offered  to a third  party in a private  transaction  on the same terms as those
offered to the third party,  other than in certain  permitted  financings.  If a
holder elects not to exercise its right of first refusal,  the other holders may
participate on a pro rata basis.  If the holders do not  participate,  V-ONE may
proceed with the transaction with the third party.

In connection with the 7% Notes offering,  V-ONE issued  detachable  warrants to
purchase  6,000,000  shares of Common Stock to the holders of the 7% Notes.  The
warrants are  exercisable  beginning on August 27, 2004 at an exercise  price of
$0.25 per share and expire on August 27, 2008. On May 14, 2004, V-ONE effected a
1:2 reverse  stock split  reducing  the number of shares  purchasable  under the
warrants to 3,000,000 and increasing the exercise price to $0.50.  Beginning 180
days after the  effective  date of a  Registration  Statement  providing for the
resale of the shares of Common Stock  issuable  upon  conversion of the 7% Notes
and exercise of the  warrants,  V-ONE may call up to 100% of the warrants if the
per share  market  value of its Common  Stock has been  greater than $0.75 for a
period of 20  consecutive  trading  days by issuing a call notice to the warrant
holders. On May 14, 2004, V-ONE effected a 1:2 reverse stock split modifying the
per share market value required for a call of the warrants to $1.50.  The rights
and privileges granted to a warrant holder with respect to the shares subject to
the call notice shall expire on the twentieth day after the holder  receives the
call notice if the holder does not exercise the warrant.  If the holder does not
exercise  the  warrant,  V-ONE shall  remit to the warrant  holder (i) $0.01 per
share subject to the call notice and (ii) a new warrant  representing the number
of shares of Common Stock, if any, which were not subject to the call notice.

The  exercise  price and  number of  shares  of Common  Stock to be issued  upon
conversion of the 7% Notes and 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  conversion
price for the 7% Notes or  warrant  exercise  price,  the  conversion  price and
warrant exercise price will be equitably reduced, and number of shares of Common
Stock to be issued upon  conversion of the 7% Notes and exercise of the warrants
adjusted  accordingly.  However,  in no event  shall the  conversion  price,  or
exercise price in the event of the issuance of V-ONE securities at less than the
current  warrant  exercise price, be less than $0.15 per share. On May 14, 2004,
V-ONE effected a 1:2 reverse stock split modifying the minimum warrant  exercise
price to $0.30 per share.

In connection with the 7% Notes offering,  V-ONE granted warrants to purchase up
to a total of 1,260,000  shares of Common Stock to H.C.  Wainwright & Co., Inc.,
placement  agent  for the 7% Notes  offering.  As a result  of the  stock  split
effected in May 2004, the shares that may be purchased  under warrants issued to
H.C.  Wainwright & Co., Inc. have been reduced to 630,000.  The placement  agent
warrants  include a cashless  exercise  provision.  The  remaining  terms of the
placement agent warrants mirror those of the warrants granted in connection with
the 7% Notes offering.

Upon  issuance  of the 7%  Notes,  the  Company  recorded  a  debt  discount  of
approximately  $1,200,000 in accordance with the accounting  requirements  for a
beneficial  conversion  feature  on the 7%  Notes.  The  debt  discount  will be
amortized  over the 5 year term of the  notes.  During  the three and six months
ended June 30, 2004, the Company  amortized  $21,698 and $60,000 of the discount
to interest expense, respectively. Additionally, the Company recorded $21,233 in
accrued interest expense for the second quarter of 2004.

                                       8


7.    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. The following  table  illustrates the
effect on net income  (loss) and  earnings  per share if the Company had applied
the fair value recognition provisions of SFAS 123:



                                       Three months ended June 30,               Six months ended June 30,
                                  --------------------------------------    ------------------------------------
                                        2004                2003                  2004               2003
                                                                                     
Net Loss, as reported              $  (717,736)         $  (26,235)          $  (1,650,577)      $  (378,833)
Add: Stock-based employee
compensation expense included
in reported net income, net
of related tax effects
Deduct: Total stock-based
employee compensation income (expense)
determined under fair value
based method for all awards,
net of related tax effects         $    49,557          $  (66,407)          $     (19,081)      $  (132,814)
                                  -----------------    -----------------    ----------------    ----------------

Pro forma net loss                 $  (668,179)         $  (92,642)          $  (1,669,658)      $  (511,647)
                                  =================    =================    ================    ================
Earnings per share:
Basic - as reported                $     (0.05)         $    (0.00)          $       (0.11)      $     (0.03)
Basic - pro forma                  $     (0.04)         $    (0.01)          $       (0.11)      $     (0.04)

Diluted - as reported              $     (0.06)         $    (0.00)          $       (0.11)      $     (0.03)
Diluted - pro forma                $     (0.05)         $    (0.01)          $       (0.11)      $     (0.04)

Denominator for basic and
diluted net loss per share-
adjusted weighted average
shares                              15,567,350          13,479,425(1)           15,264,324        13,419,627(1)
                                  =================    =================    ================     ===============


(1) reflects 1:2 reverse stock split effected May 14, 2004


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

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

8.    Net Loss Per Share

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

                                       9




                                                 Three Months ended June 30,                 Six Months ended June 30
                                           ----------------------------------------   ----------------------------------------
                                                  2004                  2003                2004                   2003
Numerator:
                                                                                                       
Net Loss                                         $ (717,736)            $  (26,235)      $ (1,650,577)             $ (378,833)
Less:  Dividend on preferred stock                 (232,595)              (171,936)          (456,581)               (341,983)
                                           -----------------     ------------------   ----------------     -------------------
Net loss attributable to holders of
 common stock                                    $ (950,331)            $ (198,171)      $ (2,107,158)             $ (720,816)
                                           =================     ==================   ================     ===================

Denominator:
Denominator for basic and diluted net
 loss per share-weighted average
 shares                                          15,567,350             13,479,425         15,264,324              13,419,627

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

Denominator for diluted net loss per
 share-adjusted weighted average shares          15,567,350             13,479,425(1)      15,264,324              13,419,627 (1)
                                           =================     ==================   ================     ===================

Net loss attributable to holders of
 common stock                                       $ (0.06)               $ (0.01)           $ (0.14)                $ (0.05)
                                           =================     ==================   ================     ===================


(1)   reflects 1:2 reverse stock split effected May 14, 2004


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


                                  Six Months ended June 30
                                   2004            2003
                                ------------    -----------

         Preferred stock:
           Series  D             1,510,500      1,510,500 (1)
         Stock options           2,458,699      2,569,479 (1)
         Warrants                4,693,662      1,153,352 (1)

(1)   reflects 1:2 reverse stock split effected May 14, 2004


9.    Supplemental Cash Flow Disclosure



                                                 Three Months Ended              Six Months Ended
                                            June 30, 2004  June 30, 2003   June 30, 2004   June 30, 2003
                                            -------------  -------------   -------------   -------------
                                                                                      
      Cash paid for interest                       14,818          1,194          52,299          27,702
      Non-cash investing and financing
      activities:
        Debt discount on 7%
        Convertible Notes                               0              0       1,200,000               0
        Issuance of warrants for
        financing costs                                 0              0         227,696               0
      Debt converted to common stock              150,000         50,000         343,000          25,000


                                                     10


Item 2.

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

Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations contains forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended.  These statements may differ
in a material way from actual future  events.  For instance,  factors that could
cause results to differ from future events include rapid rates of  technological
change and intense  competition,  among others. The Company's total revenues and
operating results have varied  substantially  from quarter to quarter and should
not be relied  upon as an  indication  of future  results.  Several  factors may
affect the  ability to  forecast  the  Company's  quarterly  operating  results,
including the size and timing of  individual  software and hardware  sales;  the
length of the Company's sales cycle; the level of sales and marketing,  research
and development and administrative expenses; and general economic conditions.

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

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

RESULTS OF OPERATIONS

REVENUES

Total revenues  decreased from  approximately  $1,155,000 and $2,160,000 for the
three  and six  months  ended  June 30,  2003,  respectively,  to  approximately
$519,000  and  $1,168,000  for the three and six  months  ended  June 30,  2004,
respectively. This decrease of approximately $636,000 or 55% and $993,000 or 46%
is due primarily to a decrease in product revenue of $629,000 and $1,012,000 for
the three and six months ended June 30, 2004, respectively. Product revenues are
derived  principally from software  licenses and the sale of hardware  products.
Product revenues  decreased from  approximately  $771,000 and $1,412,000 for the
three  and six  months  ended  June 30,  2003,  respectively,  to  approximately
$142,000  and  $400,000  for the  three  and six  months  ended  June 30,  2004,
respectively. Consulting and services revenues are derived principally from fees
for services  complementary  to the Company's  products,  including  consulting,
maintenance,   installation  and  training.  Consulting  and  services  revenues
decreased from  approximately  $384,000 for the three months ended June 30, 2003
to approximately  $377,000 for the three months ended June 30, 2004.  Consulting
and services revenues increased from  approximately  $748,000 for the six months
ended June 30, 2003 to approximately  $767,000 for the six months ended June 30,
2004.  This  was due  principally  to an  increase  in the  number  of  renewing
maintenance contracts provided to customers in the first quarter of fiscal 2004.

The  Company  cannot  be  certain  that  revenue  will,  in  fact,  become  more
predictable or certain of the relative levels of software, hardware,  consulting
and services revenues to be generated in future periods.

COST OF REVENUES

Total  cost of  revenues  as a  percentage  of  total  revenues  decreased  from
approximately  12% and 9% for the  three and six  months  ended  June 30,  2003,
respectively, to approximately 6% and 5% for the three and six months ended June
30, 2004, respectively. The percentage decrease was primarily due to lower sales
of software licenses and SmartGuard  appliances sales in the current year. Total
cost of revenues is comprised of cost of product revenues and cost of consulting
and services revenues.

Cost of product revenues consists principally of the costs of computer hardware,
licensed  technology,  manuals and labor  associated with the  distribution  and
support of the  Company's  products.  Cost of product  revenues  decreased  from
approximately  $128,000  and $143,000 or the three and six months ended June 30,
2003,  respectively  to  approximately  $7,000 and $14,000 for the three and six

                                       11


months  ended  June 30,  2004,  respectively.  The  decrease  in cost of product
revenues  for the  three  and six  months  ended  June 30,  2004  was  primarily
attributable  to lower  sales of  SmartGuard  appliances  and  turnkey  hardware
solutions  in the current  year.  Cost of product  revenues as a  percentage  of
product revenues was approximately 11% and 7% for the three and six months ended
June 30, 2003,  respectively  and  approximately  1% for the three and six month
periods ended June 30, 2004.

Cost of consulting and services  revenue  consists  principally of personnel and
related costs incurred in providing consulting, support and training services to
customers and costs of  third-party  product  support.  Cost of  consulting  and
services revenues increased from approximately $15,000 and $40,000 for the three
and six months ended June 30, 2003,  respectively,  to approximately $21,000 and
$49,000 for the three and six months ended June 30, 2004, respectively.  Cost of
consulting  and services  revenues as a percentage  of  consulting  and services
revenue was  approximately 1% and 2% for the three and six months ended June 30,
2003,  respectively,  and 4% for the three and six month  periods ended June 30,
2004.

OPERATING EXPENSES

Research  and   Development  --  Research  and  development   expense   consists
principally  of the  costs of  research  and  development  personnel  and  other
expenses  associated  with the  development  of new products and  enhancement of
existing   products.   Research  and   development   expenses   decreased   from
approximately  $272,000 and $594,000 for the three and six months ended June 30,
2003, respectively, to approximately $243,000 and $466,000 for the three and six
months ended June 30, 2004,  respectively.  The dollar decrease of approximately
$29,000 and $128,000,  was primarily due to lower consulting  expense of $13,000
and $21,000,  lower  depreciation  expense of $30,000 and $80,000 and lower rent
expense of $13,000  and $25,000  partially  offset by higher  salary  expense of
$32,000  and  $1,000,  respectively.  Research  and  development  expense  as  a
percentage of total revenue was  approximately 24% and 28% for the three and six
months ended June 30, 2003, respectively,  and approximately 47% and 40% for the
three and six months ended June 30, 2004, respectively.  The percentage increase
was primarily due to lower  revenues for the three and six months ended June 30,
2004.

Sales and Marketing -- Sales and marketing  expense consists  principally of the
costs of sales and marketing personnel, advertising, promotions and trade shows.
Sales and marketing expenses increased from approximately  $364,000 and $748,000
for the three and six months ended June 30, 2003, respectively, to approximately
$433,000  and  $808,000  for the  three  and six  months  ended  June 30,  2004,
respectively.  The dollar  increase of $69,000 and $60,000 for the three and six
months ended June 30, 2004,  respectively,  relates  primarily to higher  salary
expense of $55,000 and $79,000, higher marketing expense of $35,000 and $43,000,
higher  consulting  expense of $22,000 and  $22,000,  higher  travel  expense of
$20,000 and $16,000 and higher public  relations  expense of $30,000 and $21,000
partially  offset by lower  commission  expense of $77,000  and  $66,000,  lower
telephone  expense  of $5,000  and  $10,000  and lower  depreciation  expense of
$16,000 and $57,000, respectively.  Sales and marketing expenses as a percentage
of total  revenues were  approximately  32% and 35% for the three and six months
ended June 30, 2003,  respectively,  and approximately 84% and 69% for the three
and six months ended June 30, 2004, respectively. The percentage increase is due
primarily to lower  revenue for fiscal 2004 when compared to the same period for
fiscal 2003.

General  and  Administrative  -- General  and  administrative  expense  consists
principally  of the costs of accounting and finance,  legal and human  resources
management,  administrative  personnel  and  facilities  expenses.  General  and
administrative  expenses  increased  from  approximately  $374,000 for the three
months ended June 30, 2003 to approximately  $395,000 for the three months ended
June 30, 2004 and decreased from approximately $848,000 for the six months ended
June 30, 2003 to approximately  $828,000 for the six months ended June 30, 2004.
The increase in expense of approximately $22,000 for the three months ended June
30,  2004 was due  principally  to higher  salary  expense  of  $26,000,  higher
consulting expense of $20,000,  higher annual report expense of $12,000,  higher
travel  expense of $3,000,  higher  membership  expenses  of $18,000  and higher
accounting  and audit  fees of  $2,000  partially  offset by lower  depreciation
expense of $6,000,  lower commission  expense of $16,000 and a decrease in legal
expense of $33,000. The decrease in expense of approximately $19,000 for the six
months ended June 30, 2004 is primarily due to a decrease in commission  expense
of $20,000,  a decrease in accounting  and audit fees of $79,000,  a decrease in
miscellaneous  expense of  $16,000  and a decrease  in  depreciation  expense of
$25,000,  partially  offset by an  increase  in salary  expense of  $26,000,  an
increase in legal  expense of $30,000,  an  increase  in  consulting  expense of
$63,000  and an  increase  an annual  report  expense of  $13,000.  General  and
administrative expenses as a percentage of total revenues were approximately 32%
and 39% for the three and six months ended June 30, 2003 and 76% and 71% for the
three and six months ended June 30, 2004.

Other  (Expense)  Income -- Other  (expense)  income  represents  the  income or
expense  resulting from  non-operational  activities that are of an infrequently
occurring nature.  Other (expense) income increased from  approximately zero and
$(9,000)  for the three and six months  ended June 30,  2003,  respectively,  to
approximately zero for the three and six months ended June 30, 2004. The expense

                                       12


in 2003 was due primarily to early retirement of certain fixed assets.

Interest  Income and Expense -- Interest  income  represents  interest earned on
cash and cash equivalents. Interest income decreased from approximately zero and
$5,000  for the three and six  months  ended  June 30,  2003,  respectively,  to
approximately  $1,000 and  $2,000  for the three and six  months  ended June 30,
2004,  respectively.  The increase was attributable to higher levels of cash and
cash  equivalents in the current period.  Interest expense  represents  interest
paid or payable on loans and capitalized  lease  obligations.  Interest  expense
increased from  approximately  $29,000 and $161,000 for the three and six months
ended June 30, 2003,  respectively,  to approximately  $138,000 and $656,000 for
the three and six months ended June 30, 2004, respectively, substantially all of
which  was  for  recognition  of a  beneficial  conversion  feature  on  the  7%
Subordinated Convertible Notes.

Income Taxes -- The Company did not incur income tax expenses as a result of the
net loss incurred during the three and six months ended June 30, 2003 and 2004.

Dividend on Preferred  Stock -- The Company  provided for dividends on preferred
stock of  approximately  $233,000 and  $457,000  during the three and six months
ended June 30, 2004,  respectively,  and approximately $172,000 and $342,000 for
the three and six months ended June 30, 2003,  respectively.  Under the terms of
the  purchase  agreements  for the Series C and Series D  Preferred  Stock,  the
Company may elect to pay these dividends in cash or stock.

LIQUIDITY AND CAPITAL RESOURCES

The Company's  operating  activities used cash of approximately  $73,000 for the
six months ended June 30, 2003 and used cash of  approximately  $730,000 for the
six months  ended June 30,  2004.  Cash used in  operating  activities  resulted
principally  from net  operating  losses  in the  periods  offset  in part by an
increase  in  accounts  payable  in  2003  and  interest  expense  and  accounts
receivable  in 2004.  The  increase  in cash  used in  operating  activities  of
approximately  $657,000  in the  first  six  months  of  2004  was  attributable
primarily to an increase in net operating loss of $1,426,000.

The Company's investing activities provided cash of approximately $15,000 in the
six months ended June 30, 2003 and used  approximately  $9,000 in the six months
ended June 30, 2004.  Net capital  expenditures  for property and equipment were
approximately $7,000 and ($35,000) during the six months ended June 30, 2003 and
2004,  respectively.   These  expenditures  have  generally  been  for  computer
workstations  and  personal  computers,  office  furniture  and  equipment,  and
leasehold additions and improvements.

The Company's financing  activities provided cash of approximately $3,000 during
the six months ended June 30, 2003 and provided cash of  approximately  $950,000
during the six months ended June 30, 2004. In fiscal 2004, the cash was provided
primarily by the 7% Notes.

The Company had a working capital deficiency of ($1,931,000) and ($1,638,000) at
December 31, 2003 and June 30,  2004,  respectively.  As of June 30,  2004,  the
Company had an accumulated deficit of approximately $68,621,000.

The accompanying  financial  statements have been prepared  assuming the Company
will continue as a going concern.  The Company  reported a net loss of $449,650,
$5,635,191 and $6,237,278 for the years ended December 31, 2003,  2002 and 2001,
respectively,  and a further net losses of $717,736 and $1,650,577 for the three
and six months ended June 30, 2004, respectively.  Notwithstanding acceptance of
the Company's security concepts and critical acclaim for its products, there can
be no assurance  that the  consummation  of sales of the  Company's  products to
existing customers or proposed agreements with potential customers will generate
timely or  sufficient  revenue for the Company to cover its costs of  operations
and meet its cash flow requirements.  Accordingly,  the Company may not have the
funds needed to sustain operations during 2004.

For the immediate future,  V-ONE will focus on existing and potential  customers
in the government sector,  targeted marketing  operations to commercial accounts
and continued minimization of general and administrative expenditures. V-ONE may
not be successful in further reducing operating levels without  jeopardizing the
ability to serve existing customers or grow its business base. In February 2004,
the Company completed a private  placement of 7% Subordinated  Convertible Notes
with detachable  warrants for an aggregate of $1,200,000,  which resulted in net
proceeds to the Company of  $1,065,690.  The Company  believes  that to maintain
operations  for any  extended  period  of time it  must  generate  revenue  from
existing and new customers,  raise  additional  capital or undergo a significant
strategic  transformative  event.  The  Company's  ability to reach  sustainable
profitability  is dependent on its ability to generate  sufficient  cash flow to
meet  its  obligations  and  needs on a timely  basis  or to  obtain  additional
funding.

                                       13


The  Company  expanded  its banking  relationships  to explore  alternatives  to
preserve its  operations and maximize  shareholder  value,  including  potential
strategic partnering relationships,  a business combination with a strategically
placed partner,  or a sale of the Company. On May 19, 2004, the Company signed a
letter of intent with SteelCloud Inc. ("SteelCloud"),  for SteelCloud to acquire
V-ONE in an all stock  transaction.  On August 11,  2004,  the parties  signed a
definitive agreement for the transaction. For further information, refer to Part
II, Item 5 of this Quarterly  Report on Form 10-Q and V-ONE's  Current Report on
Form 8-K filed with the SEC on August 11, 2004.

CONTRACTUAL OBLIGATIONS

The  following  table  discloses  aggregate   information  about  the  Company's
contractual  obligations  as of June 30, 2004 and the periods in which  payments
are due:



                                                     Payments Due By Period
                                 ----------------------------------------------------------------
                                   Remainder      2005        2007     Thereafter       Total
                                    of 2004     and 2006    and 2008
                                 ----------------------------------------------------------------
                                                                       
Long-term debt obligations           $69,351    $46,234           $0            $0      $115,585
Convertible debt                           0          0            0     1,200,000     1,200,000
                                 ------------  ---------   ----------  ------------  ------------
Operating leases                     116,064    465,069      296,275             0       877,408
                                 ------------  ---------   ----------  ------------  ------------
                                    $185,415   $511,303     $296,275    $1,200,000    $2,192,993
                                 ============  =========   ==========  ============  ============


OFF-BALANCE SHEET ARRANGEMENTS

The Company  had no material  off-balance  sheet  arrangements  during the first
three and six months of fiscal 2004 or 2003.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

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

Item 4.  Controls and Procedures

The  Company   carried  out  an  evaluation   under  the  supervision  and  with
participation of the Company's  management,  including the Company's  President,
Chief Executive Officer and Principal Financial Officer, of the effectiveness of
the Company's  disclosure  controls and procedures pursuant to Rule 13a-15 under
the  Securities  Exchange  Act of 1934 as of the period  covered by this report.
Based on that evaluation,  the Company's President,  Chief Executive Officer and
Principal   Financial  Officer  have  concluded  that  disclosure  controls  and
procedures  were effective as of the end of the period covered by this report to
ensure that  information  required to be disclosed by the Company in its reports
that it files or submits under the Securities  Exchange Act of 1934 is recorded,
processed,  summarized  and reported  within the time  periods  specified in the
Securities and Exchange  Commissions rules and forms. There was no change in the
Company's  internal  controls over financial  reporting that occurred during the
period  covered by this report that has  materially  affected,  or is reasonably
likely to materially  affect,  the  Company's  internal  control over  financial
reporting.

Part II. OTHER INFORMATION

Item 1.  Legal Proceedings

On March 20, 2003, BSA Sales,  Inc. d/b/a BSA ("BSA") filed a complaint  against
the  Company  in the Court of Common  Pleas in the County of  Greenville,  South
Carolina,  alleging  breach of  contract  for failure to pay  disputed  fees and
seeking  damages  of a  maximum  of  $75,000.  The  fees  relate  to  the  early
termination  of a contract by the Company  for BSA's  non-performance  under the
contract. The parties proceeded to arbitration as required by the state of North
Carolina,  but were unsuccessful in settling the matter. The Company agreed to a
$20,000  settlement  in the matter in April 2004 and the complaint was dismissed
with prejudice.

                                       14


Item 2.  Changes in Securities, Use of Proceeds and Issuer Purchases  of  Equity
Securities

In a closing on February 27,  2004,  V-ONE  issued 7%  Subordinated  Convertible
Notes with warrants to certain accredited  investors for an aggregate  principal
amount of $1,200,000,  resulting in net proceeds to V-ONE of  $1,065,690,  which
will be used for  general  working  capital  purposes.  The 7% Notes  mature  on
February 27, 2009 and were sold pursuant to Rule 506 of Regulation D promulgated
under the  Securities  Act of 1933,  as amended.  Interest at the rate of 7% per
annum is  payable  semi-annually  at the option of V-ONE in cash or in shares of
Common Stock. The holders may convert the principal amount of their 7% Notes, in
whole or in part, at any time into shares of Common Stock at a conversion  price
of $0.20 per share.  On May 14, 2004,  V-ONE  effected a 1:2 reverse stock split
modifying the original  conversion  price of the 7% Notes to $0.40 per share. In
addition,  subject to certain terms,  the principal  amount of the 7% Notes plus
all accrued  and unpaid  interest  shall  automatically  convert  into shares of
Common Stock at the then current conversion price on the earlier of (i) February
27,  2009 and (ii) the  first  date  which is at least  180 days  following  the
effective  date of the  Registration  Statement  providing for the resale of the
shares of Common Stock issuable upon conversion of the 7% Notes that the closing
bid price of V-ONE Common  Stock  exceeds  $1.00 for a period of 20  consecutive
trading  days.  On May 14,  2004,  V-ONE  effected  a 1:2  reverse  stock  split
modifying the closing bid to $2.00 per share.

In connection with the 7% Notes offering,  V-ONE issued  detachable  warrants to
purchase  6,000,000  shares of Common Stock to the holders of the 7% Notes.  The
warrants are  exercisable  beginning on August 27, 2004 at an exercise  price of
$0.25 per share and expire on August 27, 2008. On May 14, 2004, V-ONE effected a
1:2 reverse  stock split  reducing  the number of shares  purchasable  under the
warrants to 3,000,000 and increasing  the exercise price to $.50.  Beginning 180
days after the  effective  date of a  Registration  Statement  providing for the
resale of the shares of Common Stock  issuable  upon  conversion of the 7% Notes
and exercise of the  warrants,  V-ONE may call up to 100% of the warrants if the
per share  market  value of its Common  Stock has been  greater  than $.75 for a
period of 20  consecutive  trading  days by issuing a call notice to the warrant
holders.  The rights and privileges  granted to a warrant holder with respect to
the shares  subject to the call notice shall expire on the  twentieth  day after
the holder receives the call notice if the holder does not exercise the warrant.
If the holder does not exercise  the  warrant,  V-ONE shall remit to the warrant
holder  (i) $0.01 per share  subject to the call  notice and (ii) a new  warrant
representing  the  number  of shares of Common  Stock,  if any,  which  were not
subject to the call notice. Also in connection with the 7% Notes offering, V-ONE
granted  warrants to purchase up to a total of 1,260,000  shares of Common Stock
to H.C. Wainwright & Co., Inc., placement agent for the 7% Notes offering.  As a
result of the May 2004 1:2 reverse stock split, such shares have been reduced to
630,000. The placement agent warrants contain a cashless exercise provision. The
other terms of the placement agent warrants mirror those of the warrants granted
in connection with the 7% Notes offering.

For the terms and conditions of the 7% Notes and warrants, refer to V-ONE's Form
8-K filed with the SEC on March 5, 2004 and note 6 to the  financial  statements
contained herein.

Item 3.  Defaults Upon Senior Securities

None.

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

On May 13,  2004,  the  following  items were voted on at the Annual  Meeting of
Shareholders:

               Reelection
Proposal 1*:  of Directors         For      Withheld   Abstain   Broker Non-Vote
                                   ---      --------   -------   ---------------

              Molly G. Bayley   24,796,147   198,874      0        18,791,123

Proposal 2*:  Amendment  to  the  Company's  certificate  of  incorporation,  as
              amended  and  restated,  to effect a 1:2  reverse  stock  split of
              Company common stock.

              For             Against     Abstain         Broker Non-Votes
              ---             -------     -------         ----------------
              23,459,243      1,504,146    21,632            18,791,123

                                       15


Proposal 3:  Amendment  to the  Company's  1998   Amended  Incentive  Stock Plan
             increasing  the number of shares of  common  stock  authorized  and
             reserved  for issuance under the plan  from 5,000,000 to 6,000,000.

             For              Against     Abstain         Broker Non-Votes
             ---              -------     -------         ----------------
             5,647,854         502,267    50,777                  0


Proposal 4*: Ratification of appointment of Aronson &  Company  as the  auditors
             of the Company for the year ending December 31, 2004.

             For              Against     Abstain         Broker Non-Votes
             ---              -------     -------         ----------------
             24,694,306         94,581    206,134            18,791,123

----------
* Broker non-votes are included in "For" votes on this proposal.


Item 5.  Other Information

On May 19,  2004,  the Company  signed a letter of intent with  SteelCloud  Inc.
("SteelCloud"), for SteelCloud to acquire V-ONE in an all stock transaction. The
letter of intent  contemplated that V-ONE common  shareholders would receive one
share of  SteelCloud  Common Stock in exchange for  approximately  8.5 shares of
V-ONE Common Stock.  Because of continuing  delays in the governmental  programs
underlying  V-ONE's  revenue plan and the  resulting  adverse  effect on V-ONE's
financial position, the parties renegotiated the transaction  valuation,  taking
into  consideration  the risks  associated  with possible  additional  delays in
V-ONE's government programs.  The parties have signed a definitive agreement,  a
copy of which was filed with the  Securities  and Exchange  Commission on August
11, 2004 as an exhibit to V-ONE's  Current  Report on Form 8-K.  The  definitive
agreement  contemplates that V-ONE common shareholders will receive one share of
SteelCloud  Common Stock in exchange for approximately 21 shares of V-ONE Common
Stock,  plus  warrants to purchase an aggregate of 750,000  shares of SteelCloud
Common Stock.  The management  and respective  Boards of Directors of SteelCloud
and V-ONE have approved this  transaction  subject to  shareholder  approval and
other customary closing conditions.


Item 6.  Exhibits and Reports on Form 8-K

(a)   The  following exhibits are filed as part of this quarterly report on Form
10-Q for the period ended June 30, 2004:

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

3.1        Certificate  of  Amendment  to Amended and  Restated  Certificate  of
           Incorporation dated May 13, 2004

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

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

(b)   Reports on Form 8-K

Form 8-K filed May 20, 2004, reporting under Items 5 and 7.

                                       16


                                    SIGNATURE


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


                                    V-ONE CORPORATION
                                    Registrant


Date:  August 16, 2004              By:   /s/ Margaret E. Grayson
                                          --------------------------------------
                                          Name:   Margaret E. Grayson
                                          Title:  President, Chief Executive
                                                  Officer and Principal
                                                  Financial Officer

                                       17