U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB



  [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                                     OF 1934

                  For the quarterly period ended June 30, 2003

                                       OR

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

           For the transition period from ____________ to ____________

                          Commission File No.: 0-13117

                               ION NETWORKS, INC.
                               ------------------
              (Exact Name of Small Business Issuer in Its Charter)



           Delaware                                22-2413505
           --------                                ----------
(State or Other Jurisdiction of        (IRS Employer Identification Number)
Incorporation or Organization)


               120 Corporate Boulevard, South Plainfield, NJ 07080
               ---------------------------------------------------
                    (Address of Principal Executive Offices)

                                 (908) 546-3900
                                 --------------
                (Issuer's telephone number, including area code)

                1551 South Washington Ave., Piscataway, NJ 08854
                ------------------------------------------------
                 (Former address of Principal Executive Offices)

There were  24,875,500  shares of Common Stock  outstanding  as of September 12,
2003.

Transitional Small Business Disclosure Format:

Yes___ No X



<PAGE>



                       ION NETWORKS, INC. AND SUBSIDIARIES

                                   FORM 10-QSB

                       FOR THE QUARTER ENDED JUNE 30, 2003

                          PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>

                                                                                                                           Page
<S>                                                                                                                         <C>
Item 1. Consolidated Financial Information                                                                                   2

Consolidated Balance Sheets as of June 30, 2003 (Unaudited) and December 31, 2002                                            3

Consolidated Statements of Operations for the Three and Six Months ended June 30, 2003 and 2002 (Unaudited)                  4

Consolidated Statement of Stockholders' Equity for the Six Months ended June 30, 2003 (Unaudited)
     and for the Nine Months ended December 31, 2002                                                                         5

Consolidated Statements of Cash Flows for the Six Months ended June 30, 2003 (Unaudited) and 2002 (Unaudited)                7

Notes to Consolidated Financial Statements                                                                                   8

Item 2. Management's Discussion and Analysis                                                                                15

Item 3. Controls and Procedures                                                                                             19

                           PART II. OTHER INFORMATION

Item 1.  Legal Proceedings                                                                                                  20

Item 2.  Changes in Securities                                                                                              20

Item 3.  Defaults Upon Senior Securities                                                                                    20

Item 4.  Submission of Matters to a Vote of Security Holders                                                                20

Item 5.  Other Information                                                                                                  20

Item 6. Exhibits and Reports on Form 8-K                                                                                    21

SIGNATURES                                                                                                                  25

</TABLE>


                                       1
<PAGE>



                          PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL INFORMATION

The consolidated  financial statements included herein have been prepared by the
registrant without audit pursuant to the rules and regulations of the Securities
and Exchange  Commission.  Although the registrant believes that the disclosures
are  adequate  to  make  the  information  presented  not  misleading,   certain
information and footnote  disclosures  normally included in financial statements
prepared in accordance with generally accepted  accounting  principles have been
condensed  or omitted  pursuant to such rules and  regulations.  It is suggested
that  these  financial  statements  be  read in  conjunction  with  the  audited
financial  statements  and  the  notes  thereto  included  in  the  registrant's
Transition Report on Form 10-KSB for the nine months ended December 31, 2002.






                                       2
<PAGE>



                       ION NETWORKS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                                       June 30,      December 31,
                                                                                         2003            2002
                                          Assets                                      (Unaudited)
                                                                                     --------------    -------------

       Current assets
<S>                                                                                   <C>                <C>
          Cash and cash equivalents                                                  $      93,546     $    865,684
          Accounts receivable, less allowance for doubtful accounts of
            $90,774, and $90,521, respectively                                             572,582          561,762
          Inventory, net                                                                 1,021,697        1,259,268
          Prepaid expenses and other current assets                                         46,566          203,934
                                                                                     --------------    -------------
            Total current assets                                                         1,734,391        2,890,648

        Restricted cash                                                                          -          125,700
       Property and equipment, net                                                         164,996          485,735
       Capitalized software, less accumulated amortization of $4,012,306 and
       $3,920,223, respectively                                                            590,926          764,429
       Other assets                                                                          9,168           14,878
                                                                                     --------------    -------------
            Total assets                                                             $   2,499,481     $  4,281,390
                                                                                     ==============    =============

                           Liabilities and Stockholders' Equity
       Current liabilities
          Current portion of capital leases                                          $      91,055     $     87,057
          Current portion of long-term debt                                                      -            4,004
          Accounts payable                                                                 930,978        1,195,023
          Accrued expenses                                                                 524,649          906,154
          Accrued payroll and related liabilities                                           89,715          185,358
          Deferred income                                                                  139,684          155,021
          Sales tax payable                                                                 70,814           84,025
          Other current liabilities                                                         59,746           89,317
                                                                                     --------------    -------------
            Total current liabilities
                                                                                         1,906,641        2,705,959
                                                                                     --------------    -------------

       Long term portion of capital leases                                                  27,002           73,551
       Long term debt, net of current portion                                                    -            5,717

       Commitments and contingencies (Note 10)

       Stockholders' Equity
          Preferred stock - par value $.001 per share; authorized 1,000,000 shares
          at
            June 30, 2003,  and December 31,  2002;  200,000  shares  designated
            Series A at June 30, 2003 and  December  31,  2002;  166,835  shares
            issued
            and outstanding at June 30, 2003 and December 31, 2002                             167              167
          Common stock - par value $.001 per share; authorized 50,000,000 shares at
            June 30, 2003 and December 31, 2002; 24,875,500 shares issued and
            outstanding at June 30, 2003 and December 31, 2002                              24,876           24,876
          Additional paid-in capital                                                    44,585,740       44,680,740
          Notes receivable from officers                                                 (482,342)        (473,405)
          Accumulated deficit                                                         (43,549,225)     (42,722,946)
          Accumulated other comprehensive loss                                            (13,378)         (13,269)
                                                                                     --------------    -------------
          Total stockholders' equity                                                       565,838        1,496,163
                                                                                     --------------    -------------

            Total liabilities and stockholders' equity                               $   2,499,481     $  4,281,390
                                                                                     ==============    =============

</TABLE>



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


                                       3
<PAGE>


                       ION NETWORKS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                Three Months      Three Months        Six Months          Six Months,
                                                    Ended             Ended              Ended               Ended
                                                June 30, 2003     June 30, 2002      June 30, 2003       June 30, 2002
                                                --------------    --------------    ----------------    -----------------
<S>                                               <C>               <C>              <C>                <C>
Net sales                                         $   874,200       $   960,132      $    1,639,319     $     3,036,329

Cost of sales                                         230,851           356,505             474,839           1,317,590
                                                --------------    --------------    ----------------    -----------------
   Gross Margin                                       643,349           603,627           1,164,480           1,718,739
                                                --------------    --------------    ----------------    -----------------

Research and development expenses                     124,356           235,309             261,755              406,425
Selling, general and administrative expenses          579,668         2,136,968           1,482,205            3,852,003
Restructuring, asset impairment and
other charges                                       (315,841)                 -           (192,331)                    -
Depreciation and amortization expenses                205,657           281,971             440,428              720,391
                                                --------------    --------------    ----------------    -----------------

   Total operating expense                            593,840         2,654,248           1,992,057            4,978,819
                                                --------------    --------------    ----------------    -----------------

   Income(Loss) from operations                        49,509       (2,050,621)           (827,577)          (3,260,080)

   Interest income                                      1,782             9,534              11,326               32,458
   Interest expense                                   (2,659)           (5,246)            (10,028)             (11,893)
                                                --------------    --------------    ----------------    -----------------
   Income(Loss) before income taxes                    48,632       (2,046,333)           (826,279)          (3,239,515)


Income tax expense                                          -             5,301                   -               29,665
                                                --------------    --------------    ----------------    -----------------

   Net Income(loss)                               $    48,632     $ (2,051,634)      $    (826,279)     $    (3,269,180)
                                                ==============    ==============    ================    =================


Per share data
 Net income(loss) per share
   Basic                                          $      0.00      $     (0.09)      $       (0.03)     $         (0.14)
   Diluted                                        $      0.00      $     (0.09)      $       (0.03)     $         (0.14)

Weighted average number of common shares
outstanding
   Basic                                           23,902,643        22,600,501          23,902,643           22,600,501
    Diluted                                        25,570,993        22,600,501          23,902,643           22,600,501

</TABLE>


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


                                       4
<PAGE>






                       ION NETWORKS, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
               FOR THE SIX MONTHS ENDED JUNE 30, 2003 (Unaudited)
                     AND NINE MONTHS ENDED DECEMBER 31, 2002


<TABLE>
<CAPTION>
                                                                                                                    Accumulated
                                                                                    Additional                         Other
                                                                                      Paid-In       Accumulated     Comprehensive
                                  Preferred                     Common                Capital         Deficit           Loss
                             ---------------------    ---------------------------   ------------    ------------    -------------
                             Shares       Stock         Shares          Stock
                             --------    ---------    ------------    -----------   ------------    ------------    -------------
<S>                          <C>          <C>          <C>             <C>          <C>             <C>              <C>
Balance, March 31, 2002            -            -      25,138,000      $  25,138    $44,381,454     $(37,094,424)      $  27,866
                             --------    ---------    ------------    -----------   ------------    ------------    -------------

Comprehensive loss
   Net loss                                                                                           (5,628,522)

   Translation adjustments                                                                                              (41,135)

   Total comprehensive loss

Issuances of preferred
stock                        166,835          167                                       285,136

Cancellation of restricted
shares                                                  (262,500)          (262)       (80,850)

Notes receivable from
officers

Deferred compensation

Non-cash stock-based
compensation                                                                             95,000
                             --------    ---------    ------------    -----------   ------------    ------------    -------------

Balance, December 31, 2002   166,835      $   167      24,875,500      $  24,876    $44,680,740     $(42,722,946)    $  (13,269)
                             --------    ---------    ------------    -----------   ------------    ------------    -------------

Comprehensive loss
   Net loss                                                                                           (826,279)

   Translation adjustments                                                                                                 (109)

   Total comprehensive loss

Notes Receivable from
officers

Non-cash stock-based
compensation                                                                           (95,000)

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

Balance, June 30, 2003       166,835      $   167      24,875,500       $ 24,876    $44,585,740     $(43,549,225)    $  (13,378)
                             ========    =========    ============    ===========   ============    ============    =============

</TABLE>


                                       5
<PAGE>




                       ION NETWORKS, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
               FOR THE SIX MONTHS ENDED JUNE 30, 2003 (Unaudited)
                     AND NINE MONTHS ENDED DECEMBER 31, 2002

<TABLE>
<CAPTION>

                                            Notes                                     Total
                                          Receivable          Deferred             Stockholders'
                                          from Officers     Compensation              Equity
                                         --------------    ------------------    ------------------

<S>                                      <C>                <C>                   <C>
        Balance, March 31, 2002          $   (549,914)      $       (62,893)      $      6,727,227
                                         --------------    ------------------    ------------------

        Comprehensive loss
          Net loss                                                                     (5,628,522)

          Translation adjustments                                                         (41,135)
                                                                                 ------------------

          Total comprehensive loss                                                     (5,669,657)

        Issuances of preferred
        stock                                                                              285,303

        Cancellation of restricted
        shares                                                                            (81,112)

        Notes receivable from
        officers                                76,509                                      76,509

        Deferred compensation                                         62,893                62,893

        Non-cash stock-based
        compensation                                                                        95,000
                                         --------------    ------------------    ------------------

        Balance, December 31, 2002       $   (473,405)                     -      $      1,496,163
                                         --------------    ------------------    ------------------

        Comprehensive loss
          Net loss                                                                       (826,279)

          Translation adjustments                                                            (109)
                                                                                 ------------------

          Total comprehensive loss                                                       (826,388)

        Notes Receivable from
        officers                               (8,937)                                     (8,937)

        Non-cash stock-based
        compensation                                                                      (95,000)

                                         --------------    ------------------    ------------------
        Balance, June 30, 2003           $   (482,342)                     -        $      565,838
                                         ==============    ==================    ==================

</TABLE>



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


                                       6
<PAGE>



                       ION NETWORKS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                    For the Six           For the Six
                                                                   Months Ended        Months Ended June
                                                                     June 30,                 30,
                                                                       2003                   2002
                                                                 ------------------    -----------------

<S>                                                                   <C>                  <C>
 Cash flows from operating activities
      Net loss                                                        $  (826,279)         $(3,269,180)

 Adjustments  to  reconcile  net  loss  to  net  cash  used  in
 operating activities:
    Restructuring, asset impairments and other charges,
    non-cash                                                             (192,331)                    -
    Depreciation and amortization                                          440,428              720,391
    Other charges                                                                -                6,122
    Non-cash stock-based compensation                                     (95,000)               62,893
    Issuances of restricted stock                                                -              539,000
    Notes receivable from officers                                         (8,937)            (549,914)
    Deferred compensation                                                        -               62,893
    Changes in operating assets and liabilities:
      Accounts receivable                                                 (10,820)              651,759
      Other receivables                                                          -             (12,900)
      Inventory                                                            237,571             (98,881)
      Prepaid expenses and other current assets                            157,368               24,268
      Other assets                                                           5,710                    -
      Accounts payable and other accrued expenses                        (260,602)            (323,622)
      Accrued payroll and related liabilities                             (95,643)            (306,182)
      Deferred income                                                     (15,337)             (41,756)
      Sales tax payable                                                   (13,211)              (4,321)
      Other current liabilities                                           (29,571)             (70,646)
                                                                 ------------------    -----------------
        Net cash used in operating activities                            (706,654)          (2,610,076)
                                                                 ------------------    -----------------

 Cash flows from investing activities
    Acquisition of property and equipment                                        -              (4,493)
    Capitalized software expenditures                                    (138,803)            (303,998)
    Related party notes receivable, net of repayments                            -               14,880
    Restricted cash                                                        125,700              249,300
                                                                 ------------------    -----------------
        Net cash used in investing activities                             (13,103)             (44,311)
                                                                 ------------------    -----------------

 Cash flows from financing activities
    Principal payments on debt and capital leases                         (52,272)             (91,449)
    Proceeds from sales of common stock/exercise of stock
    options and warrants                                                         -            3,475,592
    Exercises of options and warrants                                            -               19,258
                                                                 ------------------    -----------------
        Net cash (used in) provided by financing activities               (52,272)            3,403,401
                                                                 ------------------    -----------------

 Effect of exchange rates on cash                                            (109)             (23,622)
                                                                 ------------------    -----------------

 Net (decrease) increase in cash and cash equivalents                    (772,138)              725,392

 Cash and cash equivalents - beginning of period                           865,684            1,746,632
                                                                 ------------------    -----------------

 Cash and cash equivalents - end of period                             $    93,546        $   2,472,024
                                                                 ==================    =================
</TABLE>




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


                                       7
<PAGE>





                       ION NETWORKS, INC. AND SUBSIDIARIES
                              NOTES TO CONSOLIDATED
                              FINANCIAL STATEMENTS
                                  June 30, 2003
                                   (Unaudited)

NOTE 1 -CONSOLIDATED FINANCIAL STATEMENTS:

ION Networks, Inc ("ION" or the "Company") designs,  develops,  manufactures and
sells infrastructure  security and management products to corporations,  service
providers and government agencies.  The Company's hardware and software products
are  designed  to form a secure  auditable  portal  to  protect  IT and  network
infrastructure from internal and external security threats. ION's infrastructure
security  solution  operates  in the IP,  data  center,  telecommunications  and
transport,  and telephony  environments  and is sold by a direct sales force and
indirect channel partners mainly throughout North America and Europe.

The consolidated balance sheet as of June 30, 2003, the consolidated  statements
of operations  for the three month and six month periods ended June 30, 2003 and
2002, the consolidated  statements of cash flows for the six month periods ended
June 30, 2003 and 2002 and the consolidated  statement of  stockholders'  equity
for the six month period ended June 30, 2003,  have been prepared by the Company
without audit. In the opinion of management, all adjustments (which include only
normal  recurring  adjustments)  necessary  for  the  fair  presentation  of the
Company's financial  position,  results of operations and cash flows at June 30,
2003 and 2002 have been made.

Certain  information  and footnote  disclosures  normally  included in financial
statements prepared in accordance with generally accepted accounting  principles
have  been  or  omitted.  It is  suggested  that  these  consolidated  financial
statements  be read in  conjunction  with  the  audited  consolidated  financial
statements and notes thereto  included in the  transition  report on Form 10-KSB
for the nine months ended December 31, 2002.

Our  consolidated  financial  statements have been prepared on the basis that we
will  continue  as a going  concern.  At June 30,  2003,  we had an  accumulated
deficit  of  $43,549,225  and  negative  working  capital of  $172,250.  We also
realized a net loss of  $826,279  for the six months  ended  June 30,  2003.  We
believe that our working  capital as of June 30, 2003 is not  sufficient to fund
the Company's  operations  beyond  December 2003; and management has implemented
cost saving measures and improved margins on sales, which it expects will extend
the companies ability to meet its cash  requirements  through December 31, 2003.
We have been  aggressively  seeking to raise additional  capital through selling
our equity since August 2002 and have been unable to secure such financing other
than the $300,303 raised from the sale of our preferred stock in September 2002.
Our efforts to raise  approximately  $1.5 million of additional  capital through
selling  securities  and/or debt have not been  successful.  Because of the weak
financial condition of the Company, we expect that it will be necessary to issue
securities having a valuation and terms that are far more favorable to investors
than  securities  ION has  previously  issued.  In order to induce  investors to
provide  capital to ION at this time,  it may be  necessary to pledge all of the
assets of the Company as collateral  for such  securities,  provide  liquidation
preferences  at a multiple  of the  purchase  price of the  securities,  provide
favorable  conversion  premiums to investors and other similar terms which could
have a negative effect on the value of our common stock and rights of our equity
shareholders upon liquidation or other  circumstances.  There is no assurance we
can raise  the  needed  $1.5  million  or any  additional  capital  on any terms
reasonably acceptable to the Company.  Nonetheless, the management will continue
to have  discussions  with the creditors to defer payments and/or extend payment
terms in order to improve  the  ability  for its cash flows to fund its  ongoing
operations.   The  board  of  directors  has  also  been  considering  strategic
alternatives  for the Company,  which have not  materialized as of this date. If
the  Company is unable to secure  additional  financing,  enter into a strategic
transaction  or generate  revenues  sufficient  to sustain its  operations,  the
Company may need to consider other alternatives including ceasing its operations
as early as January 2004.

Subsequent to June 30, 2003, Kam Saifi,  President and Chief Executive  Officer,
and Cameron Saifi,  Executive Vice President and Chief Operating  Officer,  have
agreed to separate from the Company. We are continuing to negotiate the specific
terms of their separation and the termination of their employment agreements. In
view of the  Company's  financial  condition,  we have no  plans to hire a Chief
Operating  Officer at this time, and Mr. Cameron  Saifi's duties will be assumed
by the  Director of  Financial  Reporting,  the Vice  President of Sales and the
Chief  Technology  Officer.  Until the  appointment of Norman E. Corn as our new
Chief Executive Officer on August 16, 2003, Mr. Stephen M. Deixler served as the
interim Chief Executive Officer in addition to his current  responsibilities  as
Chairman of the Board of Directors and interim  Chief  Financial  Officer.  Also
subsequent  to June 30, 2003,  Christopher  Corrado  resigned  from the Board of
Directors citing other professional commitments.


NOTE 2. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

The accompanying  consolidated  financial statements include the accounts of ION
Networks, Inc. and its subsidiaries (collectively,  the "Company") and have been
prepared on the accrual  basis of  accounting.  All  inter-company  balances and
transactions have been eliminated in consolidation.

                                       8
<PAGE>

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America 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 year. Actual results could differ from those estimates.

The significant estimates include the allowance for doubtful accounts, allowance
for inventory  obsolescence,  capitalized software including estimates of future
gross  revenues,  and the  related  amortization  periods,  deferred  tax  asset
valuation allowance and estimated lives of property and equipment.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of
three months or less at the time of purchase to be cash equivalents.

Allowance for Doubtful Accounts Receivable

The  Company  sells its  products on credit to its  customers  and is subject to
credit  risk.  Accounts  receivable  are reduced by an allowance to estimate the
amount that will actually be collected from our customers. Many of our customers
have been  adversely  affected  by economic  downturn in the  telecommunications
industry.  If the  financial  condition  of our  customers  were  to  materially
deteriorate,  resulting  in an  impairment  of their  ability to make  payments,
additional allowances could be required.

Inventory

Inventories  are stated at the lower of cost (average cost) or market.  Reserves
for slow  moving and  obsolete  inventories  are  provided  based on  historical
experience and current product  demand.  If our estimate of future demand is not
correct or if our customers place  significant  order  cancellations,  inventory
reserves  could  increase  from our  estimate.  We may also  receive  orders for
inventory that has been fully or partially reserved. To the extent that the sale
of reserved  inventory has a material impact on our financial  results,  we will
appropriately  disclose  such  effects.  Our  inventory  carrying  costs are not
material; thus we may not physically dispose of reserved inventory immediately.

Property and Equipment

Property and equipment are stated at cost.  Depreciation is calculated using the
straight-line  method over the estimated  useful lives of the assets,  which are
generally two to five years.  Expenditures for maintenance and repairs, which do
not extend the  economic  useful  life of the  related  assets,  are  charged to
operations  as incurred.  Gains or losses on disposal of property and  equipment
are reflected in the statements of operations in the period of disposal.

Capitalized Software

The Company capitalizes  computer software  development costs in accordance with
the  provisions  of  Statement  of  Financial   Accounting   Standards  No.  86,
"Accounting for the Costs of Computer  Software to be Sold,  Leased or Otherwise
Marketed"  ("SFAS No.  86").  SFAS No. 86 requires  that the Company  capitalize
computer software  development costs upon the establishment of the technological
feasibility  of a product,  to the extent  that such  costs are  expected  to be
recovered  through  future sales of the product.  Management  is required to use
professional judgment in determining whether development costs meet the criteria
for  immediate  expense or  capitalization.  These  costs are  amortized  by the
greater of the amount  computed  using (i) the ratio that current gross revenues
from the sales of software bear to the total of current and  anticipated  future
gross revenues from the sales of that software, or (ii) the straight-line method
over the estimated useful life of the product.  As a result, the carrying amount
of the capitalized software costs may be reduced materially in the near term.

We record impairment losses on capitalized  software and other long-lived assets
used in operations when events and circumstances  indicate that the assets might
be impaired and the  undiscounted  cash flows estimated to be generated by those
assets are less than the carrying amount of those items. Our cash flow estimates
are based on historical  results adjusted to reflect our best estimate of future
market  and  operating  conditions.   The  net  carrying  value  of  assets  not
recoverable  is reduced to fair value.  While we believe  that our  estimates of
future cash flows are  reasonable,  different  assumptions  regarding  such cash
flows could materially affect our estimates.

Research and Development Costs

The  Company   charges  all  costs  incurred  to  establish  the   technological
feasibility of a product or enhancement to research and  development  expense in
the period incurred.

Revenue Recognition Policy

The Company  recognizes  revenue  from product  sales to end users,  value-added
resellers (VARs) and original equipment manufacturers (OEMs) upon shipment if no
significant vendor  obligations exist and collectibility is probable.  We do not

                                       9
<PAGE>

offer our customers the right to return  products,  however the Company  records
warranty  costs at the time  revenue is  recognized.  Management  estimates  the
anticipated warranty costs but actual results could differ from those estimates.
Maintenance  contracts are sold separately and maintenance revenue is recognized
on a straight-line basis over the period the service is provided,  generally one
year.

Fair Value of Financial Instruments

The carrying  value of items included in working  capital and debt  approximates
fair value because of the relatively short maturity of these instruments.

Net Income (Loss) Per Share of Common Stock

Basic net loss per share excludes dilution for potentially  dilutive  securities
and is computed by dividing net income(loss) attributable to common shareholders
by the weighted average number of common shares  outstanding  during the period.
Diluted net loss per share  reflects the potential  dilution that could occur if
securities  or other  instruments  to  issue  common  stock  were  exercised  or
converted into common stock.  Potentially  dilutive securities are excluded from
the  computation  of diluted  net loss per share when their  inclusion  would be
antidilutive. A reconciliation between basic and diluted weighted average shares
outstanding is as follows:
<TABLE>
<CAPTION>

                                           Three Months         Three Months       Six Months Ended       Six Months
                                              Ended                Ended            June 30, 2003            Ended
                                          June 30, 2003        June 30, 2002         (Unaudited)         June 30, 2002
                                           (Unaudited)          (Unaudited)                               (Unaudited)
                                         -----------------    -----------------    -----------------    ----------------
<S>                                            <C>                  <C>                  <C>                 <C>
Basic Weighted Average No. of                  23,902,643           22,600,501           23,902,643          22,600,501
Shares Outstanding
Incremental Shares for Common Stock
Equivalents                                     1,668,350              553,313            1,668,350             626,535
                                         -----------------    -----------------    -----------------    ----------------
               Total*                          25,570,993           23,153,814           25,570,993          23,227,036
                                         =================    =================    =================    ================
</TABLE>

                   * Since there was a loss attributable to common  shareholders
                   in the three  months  ended June 30,  2002 and the six months
                   ended  June 30,  2003 and 2002  periods,  the basic  weighted
                   average shares  outstanding were used in calculating  diluted
                   loss per share, as inclusion of the incremental  shares shown
                   in this calculation  would be antidilutive.  Potential common
                   shares of 553,313 for the three month period  ending June 30,
                   2002 and 1,668,350 and 626,535 for the six months ending June
                   30,  2003 and 2002  were  excluded  from the  computation  of
                   diluted earnings per share.

Stock Compensation

We account for stock-based employee compensation arrangements in accordance with
provisions of Accounting  Principals  Board ("APB") Opinion No. 25,  "Accounting
for Stock Issued to Employees",  and comply with the disclosure  requirements of
Statement of Financial  Accounting  Standards ("SFAS") No. 123,  "Accounting for
Stock-Based Compensation" as amended by SFAS No. 148 "Accounting for Stock-Based
Compensation  - Transition  and  Disclosure,  an amendment of FASB Statement No.
123," issued in December 2002. Under APB Opinion No. 25, compensation expense is
based on the  difference,  if any,  generally on the date of grant,  between the
fair value of our stock and the  exercise  price of the  option.  We account for
equity  instruments  issued  to  non-employee  vendors  in  accordance  with the
provisions  of SFAS No. 123 and Emerging  Issues Task Force  ("EITF")  Issue No.
96-18,  "Accounting  for  Equity  Instruments  That are  Issued  to  Other  Than
Employees from Acquiring,  or in Conjunction with Selling,  Goods and Services".
All transactions in which goods or services are the  consideration  received for
the issuance of equity  instruments are accounted for based on the fair value of
the consideration  received or the fair value of the equity  instrument  issued,
whichever is more reliably measurable. The measurement date of the fair value of
the  equity  instrument  issued  is  the  date  on  which  the  counter  party's
performance is complete.

If the  Company had elected to  recognize  compensation  costs based on the fair
value at the date of grant for awards  for the three and six  months  ended June
30, 2003 and 2002, consistent with the provisions of SFAS No. 123, the Company's
net income  (loss) and basic and diluted net income  (loss) per share would have
increased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                         Three months         Three months       Six months         Six months
                                                            ended                ended              ended             ended
                                                        June 30, 2003        June 30, 2002      June 30, 2003     June 30, 2002
                                                         (Unaudited)          (Unaudited)        (Unaudited)       (Unaudited)
                                                        ---------------      ---------------    --------------    ---------------
<S>                                                     <C>                  <C>                <C>               <C>
    Net Income
       (loss)    As reported                            $       48,632       $  (2,051,634)     $   (826,279)     $  (3,269,180)
                 Add back (Deduct): Stock based
                 employee compensation
                 determined under fair value
                 methods for all awards granted
                 since 1994 (inception)                        156,320            (459,350)         (177,507)          (883,215)
                                                        ---------------      ---------------    --------------    ---------------
    Pro forma
    net income
   (loss)                                               $      204,952       $  (2,510,984)     $ (1,003,786)     $  (4,152,395)
                                                        ===============      ===============    ==============    ===============

  Basic and diluted net income (loss) per share of
  common stock
                 As reported                            $         0.00       $       (0.09)     $      (0.03)     $       (0.14)
                 Pro forma                              $         0.01       $       (0.11)     $      (0.04)     $       (0.18)

</TABLE>


                                       10
<PAGE>

Foreign Currency Translation

The  financial  statements  of the foreign  subsidiaries  were prepared in local
currency and translated into U.S.  dollars based on the current exchange rate at
the end of the period for the balance sheet and a weighted-average  rate for the
period on the statement of operations.  Translation adjustments are reflected as
foreign  currency   translation   adjustments  in   stockholders'   equity  and,
accordingly, have no effect on net loss. Transaction adjustments for the foreign
subsidiaries are included in income and are not material.

Income Taxes

Deferred  income tax assets  and  liabilities  are  computed  annually  based on
enacted  tax laws and rates for  temporary  differences  between  the  financial
accounting and income tax bases of assets and liabilities. A valuation allowance
is  established,  when  necessary,  to reduce  deferred income tax assets to the
amount that is more likely than not to be realized.

Warranty Costs

The Company  estimates  its warranty  costs based on historical  warranty  claim
experience.  Future costs for warranties  applicable to sales  recognized in the
current  period are charged to cost of sales.  The warranty  accrual is reviewed
quarterly to reflect the remaining obligation.  Adjustments are made when actual
warranty claim experience differs from estimates.  The warranty accrual included
in  other  current  liabilities  as of June  30,  2003  and  December  30,  2002
approximated $55,000 and $48,400, respectively.


NOTE 3 - RESTRICTED CASH:

The Company  maintains a restricted  cash balance in  accordance  with its Lease
Agreement for its former  Piscataway,  NJ facility.  On March 17, 2003 the Lease
Agreement for the  Piscataway,  NJ facility was amended to apply $105,908 of the
remaining  restricted  cash  balance  of  $125,700  towards  the  payment of the
outstanding  rent  obligations.  The balance of $19,792 was added to the working
capital  reducing  the  letter of credit to zero.  This  amendment  to the Lease
Agreement required the Company to deposit $60,000 into a new letter of credit by
December  2003.  The Company has leased new premises  subsequent  to the balance
sheet date and  accordingly  this lease was terminated and therefore the Company
no longer  has to  deposit  $60,000  into a new  letter  of  credit by  December
2003.(Note 10)

NOTE 4 - INVENTORY:

Inventory,  net of allowance for obsolescence of $326,981 and $720,772,  at June
30, 2003 and December 31, 2002, respectively, consists of the following:

                                 June 30, 2003        December 31, 2002
                                ------------------    -------------------

   Raw materials                           85,093                195,283
   Work-in-progress                        70,929                 84,230
   Finished goods                         865,675                979,755
                                ------------------    -------------------

                                     $  1,021,697           $  1,259,268
                                ==================    ===================





NOTE 5 - COMPREHENSIVE INCOME:

The Company adopted  Statement of Financial  Accounting  Standards  ("SFAS") No.
130,  "Reporting   Comprehensive  Income".  The  following  table  reflects  the
reconciliation  between net loss per the financial  statements and comprehensive
loss.

<TABLE>
<CAPTION>
                                                 Six Months Ended         Six Months Ended
                                                   June 30, 2003           June 30, 2002
                                                    (Unaudited)              (Unaudited)
                                                --------------------    ---------------------
<S>                                                    <C>                     <C>
     Net loss                                          $  (826,279)            $ (3,269,180)
     Effect of foreign currency translation                   (109)                 (19,277)
                                                --------------------    ---------------------
     Comprehensive loss                                $  (826,388)            $ (3,288,457)
                                                ====================    =====================
</TABLE>

NOTE 6 - INCOME TAXES:

The  Company has  recorded a full  valuation  allowance  against the federal and
state net operating loss  carry-forwards and a full valuation  allowance against
the foreign net operating loss  carry-forwards  and the research and development
credit  because  management  currently  believes that it is more likely than not
that substantially all of the net operating loss carry-forwards and credits will
expire unutilized.

                                       11
<PAGE>

NOTE 7 - NEW ACCOUNTING PRONOUNCEMENTS:

In July 2001, the FASB also issued SFAS No.143, "Accounting for Asset Retirement
Obligations,"  which  requires  that the fair value of a liability  for an asset
retirement  obligation  be  recognized in the period in which it is incurred and
the associated  asset  retirement  costs are capitalized as part of the carrying
amount of the long-lived  asset.  SFAS No. 143 is effective for years  beginning
after June 15, 2002.  The Company  adopted this statement on January 1, 2003 and
determined that there is no impact on its consolidated financial statements.

In April 2002, the FASB issued SFAS No. 144,  "Accounting  for the Impairment or
Disposal of Long-Lived  Assets," which requires all long-lived assets classified
as held for sale to be  valued  at the  lower of their  carrying  amount of fair
value less cost to sell and which  broadens  the  presentation  of  discontinued
operations  to include  more  disposal  transactions.  The Company  adopted this
standard on April 1, 2002.  There was no effect upon  adoption on the  Company's
consolidated financial statements.

In July 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal  Activities,"  which  requires  that a liability for costs
associated with an exit or disposal activity be recognized when the liability is
incurred.  This differs from prior guidance,  which required the liability to be
recognized  when a  commitment  plan  was put  into  place.  SFAS  No.  146 also
establishes  that fair value is the  objective  for initial  measurement  of the
liability.  This statement is effective for exit or disposal activities that are
initiated after December 31, 2002. There was no effect upon the adoption of this
standard  to  the  Company's   consolidated   financial  position,   results  of
operations, or cash flow.

In November 2002, the FASB issued  Interpretation No. 45 (FIN 45),  "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees of  Indebtedness  of Others," which  addresses the  disclosures to be
made by a guarantor  in its interim and annual  financial  statements  about its
obligations  under  guarantees.  FIN  45  also  requires  the  recognition  of a
liability by a guarantor at the inception of certain guarantees that are entered
into or modified  after December 31, 2002. The impact of FIN 45 on the Company's
consolidated  financial  statements  will depend upon whether the company enters
into or modifies any guarantee arrangements.  The Company did not enter into any
guarantees in 2003. The Company has no guarantees.

In January 2003, the FASB issued Interpretation No. 46 (FIN 46),  "Consolidation
of  Variable  Interest  Entities,"  which  addresses  consolidation  by business
enterprises  of  variable  interest  entities  that  either:  (1)  do  not  have
sufficient  equity  investment  at risk to  permit  the  entity to  finance  its
activities without additional  subordinated financial support, or (2) the equity
investors lack an essential  characteristic of a controlling financial interest.
FIN 46 requires  disclosure of Variable  Interest  Entities  (VIEs) in financial
statements  issued after January 31, 2003, if it is reasonably  possible that as
of the transition  date:  (1) the company will be the primary  beneficiary of an
existing  VIE that will  require  consolidation  or, (2) the company will hold a
significant  variable  interest in, or have  significant  involvement  with,  an
existing VIE. The Company does not have any entities that require  disclosure or
new consolidation as a result of adopting the provisions of FIN 46.


In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments  with  Characteristics  of Both  Liabilities  and Equity" ("SFAS No.
150").  SFAS No. 150  establishes  standards  for how an issuer  classifies  and
measures certain financial  instruments with characteristics of both liabilities
and equity. SFAS No. 150 requires that an issuer classify a financial instrument
that is within its scope as a liability (or an asset in some circumstances). The
requirements of this statement apply to issuers'  classification and measurement
of freestanding financial  instruments,  including those that comprise more than
one  option  or  forward  contract.  SFAS No.  150 is  effective  for  financial
instruments  entered  into or modified  after May 31,  2003,  and  otherwise  is
effective at the beginning of the first interim period  beginning after June 15,
2003. The Company is in the process of assessing the impact of adopting SFAS No.
150 on its consolidated results of operations,  consolidated  financial position
or consolidated cash flows.


NOTE 8 - RELATED PARTY TRANSACTIONS:

During  April 2000,  the Company  issued a loan (the "Loan") to the former Chief
Executive  Officer (the "Former  CEO") of the Company in the amount of $750,000.
The Loan accrues  interest at a rate of LIBOR plus 1%. This Loan had an original
maturity date of the earlier of April 2005 or thirty days after the Company, for
any reason, no longer employs the Former CEO.

The Former CEO  resigned  his position at the Company  effective  September  29,
2000. On October 5, 2000, the Company  entered into an agreement with the Former
CEO pursuant to which the $750,000  promissory  note for the Loan was amended to
extend the due date to April 30, 2001,  and to provide that interest on the note
shall accrue through September 29, 2000. Pursuant to the terms of the Separation
and Forbearance Agreement between the Company and the Former CEO, the Former CEO
also agreed to reimburse the Company for certain expenses totaling $200,000,  to
be paid over a period of six months ending March 31, 2001. During the year ended
March 31, 2001, $50,000 of the amounts owed to the Company by the Former CEO was
repaid and $22,000 has been recorded as a non-cash  offset as a result of earned
but unpaid  vacation  owed to the Former  CEO.  During the year ended  March 31,
2002,  $813,593  was  repaid.  At June 30,  2003,  the total  amount owed to the
Company  by  the  Former  CEO  was  approximately  $164,089  (including  accrued
interest)  has been fully  reserved.  The  Company  will  continue to attempt to
collect the note receivable.


                                       12
<PAGE>

NOTE 9 - STOCKHOLDERS' EQUITY:

On September  13, 2002 the Company  received  equity  financing in the amount of
$300,303  ($285,303,   net  of  issuance  cost)  for  the  issuance  of  166,835
unregistered  shares of the Company's  Preferred  Stock at $1.80 per share.  The
Company has designated  200,000 of the 1,000,000  authorized shares of preferred
stock as Series A Preferred Stock ("Preferred  Stock").  Each share of Preferred
Stock  is  convertible  into 10  shares  of the  Company's  common  stock at the
conversion  price of $0.18 per share of common stock,  which was the closing bid
price of the Company's  common stock on September 13, 2002. The Preferred  Stock
is  non-voting,  has a standard  liquidation  preference  equal to its  purchase
price, and does not pay dividends. Proceeds of the equity financing will be used
for  working  capital  and  general  corporate  purposes.  All of the  shares of
Preferred  Stock were purchased by directors and management of the Company.  The
purpose of the  Preferred  Stock  Financing  was to enable the Company to comply
with the Nasdaq SmallCap  Market's  initial listing  requirement of a minimum of
$5,000,000  of  stockholders'  equity so that the  Company was  eligible  for an
additional  180-day grace period to attempt to regain  compliance with the $1.00
minimum  bid  price   requirement  of  the  Nasdaq  SmallCap  Market  (based  on
stockholders  equity of  $5,004,215  at June 30,  2002,  adjusted on a pro forma
basis  for  the  equity   financing).   The  preferred   stock  is  recorded  in
Stockholders' equity, net of issuance costs.

Effective  October 2001, the Company  approved and granted  2,900,000  shares of
restricted stock to Messrs. Kam Saifi, Cameron Saifi, and David Arbeitel at fair
value. The Restricted Shares are subject to a repurchase right which will permit
the Company to repurchase  any shares which have not yet vested at the effective
date of termination of the officers' employment,  as defined in their employment
agreements,  for an amount  equal to the  purchase  price per share  paid by the
officers.  The Company  received a series of partial  recourse  interest bearing
(5.46%  on an annual  basis)  promissory  notes for the value of the  Restricted
Shares to be repaid by the officers.

The notes are to be repaid by the  officers  at the  earlier of ten years or the
date  upon  which  the  employees  dispose  of their  shares  or  under  certain
circumstances,  when the borrower's  employment with the Company  terminates for
any reason.  The issuance of the restricted  shares and the notes receivable due
from the officers is recorded in the Company's  financial  statements.  Only the
vested portion of the shares has been included in the weighted average number of
common shares outstanding at June 30, 2003 and 2002. As of June 30, 2003 Mr. Kam
Saifi owes approximately $283,035 (including  approximately $25,035 in interest)
for  2,000,000  Restricted  Shares and;  Mr.  Cameron  Saifi owes  approximately
$204,976  (including  approximately  $19,576 in interest) for 600,000 Restricted
Shares.

On September 29, 2002, Mr. David Arbeitel separated employment from the Company.
As a result, the note relating to Mr. Arbeitel's 37,500 vested Restricted Shares
became  due  and  payable  and as of  September  30,  2002,  Mr.  Arbeitel  owed
approximately $12,190 (including approximately $602 of interest) with respect to
such vested shares.  On November 11, 2002, Mr. Arbeitel paid the Company $12,264
(including  accrued interest of $676) in satisfaction of the note for the 37,500
vested shares. The Company and Mr. Arbeitel agreed to rescind the stock purchase
transaction  with respect to 262,500 of the unvested  Restricted  Shares thereby
canceling  the unpaid  portion of the notes in an amount of $ 85,322  (including
accrued interest of $4,210) relating to such unvested shares.  Messrs. Kam Saifi
and Cameron Saifi have separated  from the Company  subsequent to June 30, 2003.
The  Company has entered  into  negotiations  regarding  the  specific  terms of
Messrs.  Kam Saifi and Cameron  Saifi's  separation and the termination of their
employment agreements.

The  variable  accounting  method  used  to  account  for the  partial  recourse
restricted stock granted to management  resulted in a cashless credit of $95,000
for the six month period ended June 30, 2003.

NOTE 10 - COMMITMENTS AND CONTINGENCIES:

Operating Leases

The Company entered into a lease on February 18, 1999 for  approximately  26,247
square feet for its former principal  executive offices at 1551 South Washington
Avenue,  Piscataway,  New  Jersey.  On March 17,  2003,  the  Company  signed an
amendment with the landlord reducing the space from 26,247 to 12,722 square feet
and the rent from  $50,154 to $20,143  per month  effective  March 1, 2003.  The
Company is also obligated to make additional  payments to the landlord  relating
to certain  taxes and  operating  expenses.  Under the term of the amendment the
landlord  retained the right to cancel the lease.  During the quarter ended June
30,  2003,  the  landlord  notified  the  Company it has  exercised  their right
effective August 15, 2003.

The Company entered into a lease on July 21, 2003 for approximately 7,000 square
feet  for  its  principal  executive  offices  at  120  Corporate  Blvd.,  South
Plainfield, New Jersey 07080. The Company moved it's offices to this location on
August 6, 2003.  The terms of the lease  require  payment of $162,180 in monthly
installments  of $4,505 from  October 1, 2003 to July 31,  2006.  The Company is
also obligated to make additional  payments to the landlord  relating to certain
taxes and operating expenses.

Capital Leases

The Company leases certain  equipment under  agreements  which are classified as
capital leases.  Each of the capital lease  agreements  expire within five years
and have purchase options at the end of the lease term.


                                       13
<PAGE>

Consulting Contracts

On October 5, 2000,  the Company  entered into a consulting  agreement with VCGI
whereby  VCGI is to provide the  services of Ronald C. Sacks as Chief  Executive
Officer  of the  Company,  and the  services  of  three  additional  consultants
functioning in various capacities for the Company. The fees for the consultants'
services were $500,000 over a one-year  period.  The final payment was issued on
July 2003. In addition,  the individual  consultants from VCGI, including Ronald
C. Sacks, were issued options to purchase 240,000 shares of common stock.

Contingent Liabilities

In the  normal  course of  business  the  Company  and its  subsidiaries  may be
involved in legal  proceedings,  claims and assessments  arising in the ordinary
course of business. Such matters are subject to many uncertainties, and outcomes
are not predictable with assurance. In the opinion of management, the outcome of
such current legal proceedings,  claims and assessments will not have a material
effect on the Company's financial position, results of operations or cash flows.

NOTE 11 - RESTRUCTURING, ASSET IMPAIRMENTS AND OTHER CHARGES:

As a result of the Company  being  notified by the  landlord to cancel its lease
effective  August  15,  2003,  the  remaining  value of  leasehold  improvements
amounting to $28,955 were written-off.  In addition, the Company was required to
sell  property  and  equipment  in order to move into its smaller  newly  leased
facility.  Accordingly,  an impairment of $163,662 was recorded which  reflected
the  difference  between the cash proceeds of the sale and the remaining  value.
The asset sale occurred in August 2003.

During the quarter ended June 30, 2003, the Company completed its liquidation of
its UK  subsidiary.  As a result of the  liquidation,  the Company  reversed its
prior  restructuring  accrual of  $508,458  related to the  remaining  long-term
lease, and other operating  accruals of $294,704.  These accruals were reflected
in the consolidated statement of operations in the line items that reflected the
original charge.

The components of the restructuring,  asset impairments and other charges are as
follows:

<TABLE>
<CAPTION>
<S>                                                <C>                      <C>                            <C>
                                           Asset Write-down          Lease Termination                   Total
                                                                           Costs
                First Quarter 2003
                charges                            $       -                $    123,510                   $   123,510
                Second Quarter 2003
                charges                            $ 192,617                $   (508,458)                  $  (315,841)
                                          -------------------      -----------------------      ------------------------
                                   Total           $ 192,617                $   (384,948)                  $  (192,331)
                                          ===================      =======================      ========================
</TABLE>




The movement of the reserve,  which related to lease termination  costs,  during
2003 were as follows:

<TABLE>
<CAPTION>
<S>                                                                                   <C>
        ----------------------------------------------------------- ----------------------------------
        Balance at December 31, 2002                                                      $   508,458
        ----------------------------------------------------------- ----------------------------------
        First quarter 2003 provision                                                          123,510
        ----------------------------------------------------------- ----------------------------------
        First quarter 2003 payments                                                                 -
        ----------------------------------------------------------- ----------------------------------
        Second quarter 2003 adjustment                                                      (508,458)
        ----------------------------------------------------------- ----------------------------------
        Second quarter 2003 payments                                                                -
        ----------------------------------------------------------- ----------------------------------
                                                             Total                        $   123,510
        ----------------------------------------------------------- ----------------------------------
</TABLE>

The Company is in  negotiations  with the landlord  for the  reserved  amount of
$123,510 and intends to have resolution by the end of the fourth quarter 2003.


                                       14

<PAGE>




ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS

OVERVIEW

ION Networks, Inc. (the "Company"),  designs,  develops,  manufactures and sells
infrastructure  security  and  management  products  to  corporations,   service
providers and government agencies.  The Company's hardware and software products
are  designed  to form a secure  auditable  portal  to  protect  IT and  network
infrastructure  from  internal and external  security  threats.  ION's  products
operate in the IP, data center,  telecommunications and transport, and telephony
environments  and are sold by a direct sales force and indirect channel partners
mainly throughout North America and Europe.

The Company is a Delaware corporation founded in 1999 through the combination of
two  companies  -  MicroFrame  ("MicroFrame"),  a New  Jersey  Corporation  (the
predecessor  entity to the  Company,  originally  founded  in 1982),  and SolCom
Systems  Limited  ("SolCom"),  a Scottish  corporation  located  in  Livingston,
Scotland  (originally  founded  in  1994).  From the time of the  merger in 1999
through the quarter ended December 31, 2001, the Company's  principal  objective
was to address the need for  security  and  network  management  and  monitoring
solutions, primarily for the PBX-based telecommunications market, resulting in a
significant  portion  of our  revenues  being  generated  from  sales to various
telecommunications  companies. During the quarter ended December 31, 2001, a new
management team joined the Company and evaluated ION's revenue and expenditures,
existing product suite,  present customer base and evolving  addressable market.
As a result of this evaluation, the Company refocused its product line from that
of network management monitoring to that of infrastructure  security,  which was
the original focus of MicroFrame prior to the merger with Solcom.  We also added
significant  network  features  to the  product  to  broaden  the  scope  of the
potential  customer base,  emphasizing  infrastructure  security.  We identified
additional enterprise markets that extend beyond the telecommunications industry
and  believe  that  successfully  penetrating  these  additional  markets  could
positively impact revenue, although there can be no assurance that these efforts
will be  successful.  Despite  these  efforts,  during the last two  years,  the
telecommunications   industry  has  endured  a  significant  economic  downturn.
Telecommunications  service  providers have generally  reduced  planned  capital
spending,  have reduced staff, and, in some cases, sought bankruptcy proceedings
and/or   ceased   operations.   Consequently,   the  spending   cutback  of  the
organizations  has affected the Company  through  reduced  product  orders.  The
decline in  product  orders  negatively  impacted  our  revenues,  resulting  in
significant operating losses and negative cash flows.

As a result, it is imperative for us to be successful in increasing our revenue,
reducing costs, and/or securing additional funding in the second half of 2003 in
order to continue  operating as a going  concern.  If we are not  successful  in
raising additional equity capital, to generate sufficient cash flows to meet our
obligations as they come due, our financial  condition and results of operations
will be materially and adversely affected and we will not be able to continue to
operate as a going concern beyond December 2003. If we are successful in raising
additional  capital but fail to increase  our revenue or reduce our expenses and
defer  payments  and/or extend payment terms in order to allow the cash flows to
meet ongoing  operations,  our financial condition and results of operations may
be  materially  and  adversely  affected  and we may not be able to  continue to
operate as a going concern.

RESULTS OF OPERATIONS

For the three months ended June 30, 2003 compared to the same period in 2002

Net sales for the three months ended June 30, 2003, was $874,200 compared to net
sales of $960,132  for the same  period in 2002,  a decrease of $85,932 or 8.9%.
The decrease in sales is  attributable  mainly to the reduction in the number of
units sold in the three-month  period ended June 30, 2003. The continuing impact
of the overall downturn in the information technology and the telecommunications
industry  compounded by the weak  financial  condition of the Company has caused
the Company's decrease in sales for this period.

Cost of sales for the three months ended June 30, 2003 was $230,851  compared to
$356,505 for the same period in 2002. Cost of sales as a percentage of net sales
for the six months  ended June 30,  2003  decreased  to 26.4% from 37.1% for the
same period in 2002, and therefore gross margin increased to 73.6% from 62.9% as
compared to the prior  year.  The  decrease in cost of sales or the  increase in
gross margin is mainly due to lowering the costs  associated with  manufacturing
of the appliances and lack of larger sales orders that typically  require higher
volume discounts.

Research and development expense, net of capitalized software  development,  for
the three months  ended June 30, 2003 was $124,356  compared to $235,309 for the
same period in 2002 or a decrease  of  $110,953  as  compared to the  comparable
period  of the  prior  year.  The  decrease  is  primarily  attributable  to the
reduction in salaries.

Selling, general and administrative expenses ("SG&A") for the three months ended
June 30, 2003 were $579,668  compared to $2,136,968 for the same period in 2002,
a decrease of $1,557,300. The reduction is due to management's implementation of
cost saving  strategies  primarily  in the areas of salary  reductions,  selling
expenses  and  overhead.  During the quarter  ended June 30,  2003,  the Company
completed its liquidation of its UK subsidiary.  As a result of liquidation of a
foreign  subsidiary  and its release from creditor  obligations  under a plan of
insolvency the Company released liabilities which totaled approximately $803,162
of which  $294,704 was credited to SG&A.  These  accruals were  reflected in the
consolidated  statement  of  operations  in the line  items that  reflected  the
original charge.

                                       15
<PAGE>

Restructuring  credit  for the three  months  ended June 30,  2003 was  $315,841
compared  to zero in the same  period in 2002.  The credit  arose as a result of
liquidation of a foreign  subsidiary  and its release from creditor  obligations
under a plan of  insolvency.  The total  liabilities  release was  approximately
$803,162 of which $508,458 was credited to restructuring for a lease accrual. In
addition,  due to leaving the facility at 1551 south Washington Ave. the Company
incurred an asset impairment charge for leasehold  improvements and furniture of
$192,617.

Depreciation and amortization  expenses - amortization of capitalized  software,
goodwill and other acquisition related intangibles, and depreciation of property
and  equipment was $205,657 for the three months ended June 30, 2003 compared to
$281,971 in the same period in 2002.  The decrease was  primarily  the result of
fully depreciated and amortized expenses..

Net income for the three  months  ended June 30, 2003 was  $48,632  (Net loss of
$754,530 less credit from liquidation of foreign  subsidiary above in the amount
of $803,162)  compared to a loss of $2,051,634 for the same period in 2002. This
is  primarily  due to the  reduction of  operating  expenses and improved  gross
margin.

For the six months ended June 30, 2003 compared to the same period in 2002

Net sales for the six months ended June 30, 2003, was $1,639,319 compared to net
sales of  $3,036,329  for the same period in 2002, a decrease of  $1,397,010  or
46%. The decrease in sales is attributable mainly to the reduction in the number
of units sold in the  six-month  period  ended June 30,  2003.  The Company sold
mostly the ION Secure  3000  series  security  appliances  (formerly  called the
Sentinel  2000) in both  periods so there was no impact on revenue from a change
in product mix. The continuing impact of the overall downturn in the information
technology and the telecommunications  industry compounded by the weak financial
condition  of the  Company has caused the  Company's  decrease in sales for this
period.

Cost of sales for the six months  ended June 30, 2003 was  $474,839  compared to
$1,317,590  for the same period in 2002.  Cost of sales as a  percentage  of net
sales for the six months  ended June 30, 2003  decreased to 29.0% from 43.4% for
the same period in 2002,  and  therefore  gross  margin  increased to 71.0% from
56.6% as  compared  to the  prior  year.  The  decrease  in cost of sales or the
increase in gross  margin is mainly due to lowering  the costs  associated  with
manufacturing  of the  appliances and lack of larger sales orders that typically
require higher volume discounts.

Research and development expense, net of capitalized software  development,  for
the six months  ended June 30, 2003 was  $261,755  compared to $406,425  for the
same period in 2002 or a decrease  of  $144,670  as  compared to the  comparable
period  of the  prior  year.  The  decrease  is  primarily  attributable  to the
reduction in salaries.

Selling,  general and administrative  expenses ("SG&A") for the six months ended
June 30,  2003 were  $1,482,205  compared to  $3,852,003  for the same period in
2002,  a  decrease  of  $2,369,798.   The  reduction  is  due  to   management's
implementation  of cost  saving  strategies  primarily  in the  areas of  salary
reductions,  selling  expenses and  overhead.  During the quarter ended June 30,
2003, the Company completed its liquidation of its UK subsidiary. As a result of
the  liquidation,  the  Company  reversed  its prior  restructuring  accrual  of
$508,458 related to the remaining  long-term lease, and other operating accruals
of $294,704.  These  accruals were  reflected in the  consolidated  statement of
operations in the line items that reflected the original charge.

Restructuring  credit  for the six  months  ended  June 30,  2003  was  $192,331
compared  to zero in the same  period in 2002.  The credit  arose as a result of
liquidation of a foreign  subsidiary  and its release from creditor  obligations
under a plan of insolvency. The total debt release was approximately $803,162 of
which $508,458 was credited to restructuring. During the quarter ended March 31,
2003, the Company abandoned the space at California  location.  As a result, the
Company  incurred a one-time charge of $123,510 in the six months ended June 30,
2003. In addition,  due to leaving the facility at 1551 South  Washington  Ave.,
the Company incurred an asset impairment  charge for leasehold  improvements and
furniture of $192,617.

Depreciation and amortization  expenses - amortization of capitalized  software,
goodwill and other acquisition related intangibles, and depreciation of property
and  equipment - was $440,428 for the six months ended June 30, 2003 compared to
$720,391 in the same period in 2002.  The decrease was  primarily  the result of
the three-year  amortization  period for the  acquisitions  of LeeMAH and Solcom
Systems, Ltd coming to an end on March 31, 2002.

Net loss for the six months  ended June 30, 2003 was $826,279  ($1,629,441  less
credit from  liquidation of foreign  subsidiary above in the amount of $803,162)
compared to a loss of $3,269,180 for the same period in 2002.  This is primarily
due to the reduction of operating expenses and improved gross margin.

FINANCIAL CONDITION AND CAPITAL RESOURCES

Our  consolidated  financial  statements have been prepared on the basis that we
will  continue  as a going  concern.  At June 30,  2003,  we had an  accumulated
deficit of $43,549,225  and a working capital deficit of $172,250 as compared to
$184,689  at  December  31,  2002.  This  decline in working  capital was due to
continued  operating losses  generated  throughout the six months ended June 30,
2003. We also realized net losses of $826,279 and  $3,269,180 for the six months
ended June 30, 2003 and 2002  respectively.  We believe that our working capital

                                       16
<PAGE>

as of June 30, 2003 is not  sufficient to fund the Company's  operations  beyond
December 2003; and management has implemented  cost saving measures and improved
margins on sales, which it expects will extend the companies ability to meet its
cash requirements  through December 31, 2003. We have been aggressively  seeking
to raise  additional  capital  through  selling our equity since August 2002 and
have been unable to secure such  financing  other than the $300,303  raised from
the sale of our preferred stock in September 2002. Additionally,  our efforts to
raise   approximately   $1.5  million  of  additional  capital  through  selling
securities  and/or debt have not been successful.  Because of the weak financial
condition  of the  Company,  we  expect  that  it  will be  necessary  to  issue
securities having a valuation and terms that are far more favorable to investors
than  securities  ION has  previously  issued.  In order to induce  investors to
provide  capital to ION at this time,  it may be  necessary to pledge all of the
assets of the Company as collateral  for such  securities,  provide  liquidation
preferences  at a multiple  of the  purchase  price of the  securities,  provide
favorable  conversion  premiums to investors and other similar terms which could
have a negative effect on the value of our common stock and rights of our equity
shareholders upon liquidation or other  circumstances.  There is no assurance we
can raise  the  needed  $1.5  million  or any  additional  capital  on any terms
reasonably acceptable to the Company.  Nonetheless, the management will continue
to have  discussions  with the creditors to defer payments and/or extend payment
terms in order to improve  the  ability  for its cash flows to fund its  ongoing
operations.   The  board  of  directors  has  also  been  considering  strategic
alternatives for the Company which have not materialized as of this date. If the
Company  is  unable to  secure  additional  financing,  enter  into a  strategic
transaction  or generate  revenues  sufficient  to sustain its  operations,  the
Company may need to consider other alternatives including ceasing its operations
as early as January 2004.

Net cash used in operating  activities during the six months ended June 30, 2003
was  $706,654  compared  to net cash  used  during  the same  period  in 2002 of
$2,610,076.  The  decrease in net cash used during the six months ended June 30,
2003 compared to the same period in 2002,  was primarily due to the reduction in
operating expenses and improved gross margins.

Net cash used in investing  activities during the six months ended June 30, 2003
was  $13,103  compared  to net cash  used in during  the same  period in 2002 of
$44,311.  This decrease was primarily due to a reduction in Capitalized Software
expenditures and restricted cash.

Net cash used from  financing  activities  during the six months  ended June 30,
2003 was $52,272  compared to net cash generated  during the same period in 2002
of  $3,403,401(which  included  $3,475,592 for the proceeds from sales of common
stock).

Operating Lease commitments

The Company entered into a lease on July 21, 2003 for approximately 7,000 square
feet  for  its  principal  executive  offices  at  120  Corporate  Blvd.,  South
Plainfield, New Jersey 07080. The Company moved it's offices to this location on
August 6, 2003.  The terms of the lease  require  payment of $162,180 in monthly
installments  of $4,505 from  October 1, 2003 to July 31,  2006.  The Company is
also obligated to make additional  payments to the landlord  relating to certain
taxes and operating expenses.

Capital Leases

The Company leases certain  equipment under  agreements  which are classified as
capital leases.  Each of the capital lease  agreements  expire within five years
and have  purchase  options at the end of the lease term.  Future  capital lease
payments as of June 30, 2003 are approximately $118,056

SIGNIFICANT ACCOUNTING POLICIES

The discussion and analysis of our financial condition and results of operations
are based upon our consolidated  financial statements,  which have been prepared
in  accordance  with  accounting  principles  generally  accepted  in the United
States.  The  preparation  of these  financial  statements  requires  us to make
estimates  and  judgments  that  affect  the  reported   amount  of  assets  and
liabilities,  revenues and expenses, and related disclosure of contingent assets
and  liabilities  at the date of our financial  statements.  Actual  results may
differ from these estimates under different assumptions or conditions.

Significant  accounting  policies  are defined as those that are  reflective  of
significant  judgments and  uncertainties,  and potentially result in materially
different  results under different  assumptions and conditions.  We believe that
our critical accounting policies are limited to those described below.

Revenue  Recognition - The Company  recognizes revenue from product sales to end
users,  value-added resellers (VARs) and original equipment manufacturers (OEMs)
upon shipment if no significant  vendor  obligations exist and collectibility is
probable.  We do not offer our customers the right to return  products,  however
the Company records warranty costs at the time revenue is recognized. Management
estimates the  anticipated  warranty  costs but actual results could differ from
those  estimates.  Maintenance  contracts are sold  separately  and  maintenance
revenue is  recognized on a  straight-line  basis over the period the service is
provided, generally one year.

Allowance for Doubtful Accounts  Receivable - Accounts receivable are reduced by
an  allowance to estimate  the amount that will  actually be collected  from our
customers.  Many of our  customers  have been  adversely  affected  by  economic
downturn in the  telecommunications  industry. If the financial condition of our
customers  were to materially  deteriorate,  resulting in an impairment of their
ability to make payments, additional allowances could be required.

Inventory  Obsolescence  Reserves - Inventories  are stated at the lower of cost
(average cost) or market.  Reserves for slow moving and obsolete inventories are

                                       17
<PAGE>

provided  based on historical  experience  and current  product  demand.  If our
estimate of future demand is not correct or if our customers  place  significant
order cancellations, inventory reserves could increase from our estimate. We may
also receive orders for inventory that has been fully or partially reserved.  To
the extent  that the sale of  reserved  inventory  has a material  impact on our
financial results,  we will appropriately  disclose such effects.  Our inventory
carrying costs are not material;  thus we may not physically dispose of reserved
inventory immediately.

Impairment of Software  Development  and Purchased  Software Costs - The Company
capitalizes   computer  software   development  costs  in  accordance  with  the
provisions of Statement of Financial  Accounting  Standards No. 86,  "Accounting
for the Costs of Computer  Software to be Sold,  Leased or  Otherwise  Marketed"
("SFAS 86").  SFAS 86 requires  that the Company  capitalize  computer  software
development costs upon the  establishment of the technological  feasibility of a
product,  to the extent  that such costs are  expected to be  recovered  through
future sales of the product. Management is required to use professional judgment
in determining whether development costs meet the criteria for immediate expense
or  capitalization.  These  costs are  amortized  by the  greater  of the amount
computed  using (i) the ratio  that  current  gross  revenues  from the sales of
software bear to the total of current and anticipated future gross revenues from
the sales of that software,  or (ii) the straight-line method over the estimated
useful life of the product.  As a result, the carrying amount of the capitalized
software costs may be reduced materially in the near term.

We record impairment losses on capitalized  software and other long-lived assets
used in operations when events and circumstances  indicate that the assets might
be impaired and the  undiscounted  cash flows estimated to be generated by those
assets are less than the carrying amount of those items. Our cash flow estimates
are based on historical  results adjusted to reflect our best estimate of future
market  and  operating  conditions.   The  net  carrying  value  of  assets  not
recoverable  is reduced to fair value.  While we believe  that our  estimates of
future cash flows are  reasonable,  different  assumptions  regarding  such cash
flows could materially affect our estimates.

NEW ACCOUNTING PRONOUNCEMENTS

In July 2001, the FASB also issued SFAS No.143, "Accounting for Asset Retirement
Obligations,"  which  requires  that the fair value of a liability  for an asset
retirement  obligation  be  recognized in the period in which it is incurred and
the associated  asset  retirement  costs are capitalized as part of the carrying
amount of the long-lived  asset.  SFAS No. 143 is effective for years  beginning
after June 15, 2002.  The Company  adopted this statement on January 1, 2003 and
determined that there is no impact on its consolidated financial statements.

In April 2002, the FASB issued SFAS No. 144,  "Accounting  for the Impairment or
Disposal of Long-Lived  Assets," which requires all long-lived assets classified
as held for sale to be  valued  at the  lower of their  carrying  amount of fair
value less cost to sell and which  broadens  the  presentation  of  discontinued
operations  to include  more  disposal  transactions.  The Company  adopted this
standard on April 1, 2002.  There was no effect upon  adoption on the  Company's
consolidated financial statements.

In July 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal  Activities,"  which  requires  that a liability for costs
associated with an exit or disposal activity be recognized when the liability is
incurred.  This differs from prior guidance,  which required the liability to be
recognized  when a  commitment  plan  was put  into  place.  SFAS  No.  146 also
establishes  that fair value is the  objective  for initial  measurement  of the
liability.  This statement is effective for exit or disposal activities that are
initiated after December 31, 2002. There was no effect upon the adoption of this
standard  to  the  Company's   consolidated   financial  position,   results  of
operations, or cash flow.

In November 2002, the FASB issued  Interpretation No. 45 (FIN 45),  "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees of  Indebtedness  of Others," which  addresses the  disclosures to be
made by a guarantor  in its interim and annual  financial  statements  about its
obligations  under  guarantees.  FIN  45  also  requires  the  recognition  of a
liability by a guarantor at the inception of certain guarantees that are entered
into or modified  after December 31, 2002. The impact of FIN 45 on the company's
consolidated  financial  statements  will depend upon whether the company enters
into or modifies any guarantee arrangements.  The Company did not enter into any
guarantees in 2003.

In January 2003, the FASB issued Interpretation No. 46 (FIN 46),  "Consolidation
of  Variable  Interest  Entities,"  which  addresses  consolidation  by business
enterprises  of  variable  interest  entities  that  either:  (1)  do  not  have
sufficient  equity  investment  at risk to  permit  the  entity to  finance  its
activities without additional  subordinated financial support, or (2) the equity
investors lack an essential  characteristic of a controlling financial interest.
FIN 46 requires  disclosure of Variable  Interest  Entities  (VIEs) in financial
statements  issued after January 31, 2003, if it is reasonably  possible that as
of the transition  date:  (1) the company will be the primary  beneficiary of an
existing  VIE that will  require  consolidation  or, (2) the company will hold a
significant  variable  interest in, or have  significant  involvement  with,  an
existing VIE. The Company does not have any entities that require  disclosure or
new consolidation as a result of adopting the provisions of FIN 46.


In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments  with  Characteristics  of Both  Liabilities  and Equity" ("SFAS No.
150").  SFAS No. 150  establishes  standards  for how an issuer  classifies  and
measures certain financial  instruments with characteristics of both liabilities
and equity. SFAS No. 150 requires that an issuer classify a financial instrument
that is within its scope as a liability (or an asset in some circumstances). The
requirements of this statement apply to issuers'  classification and measurement
of freestanding financial  instruments,  including those that comprise more than
one  option  or  forward  contract.  SFAS No.  150 is  effective  for  financial
instruments  entered  into or modified  after May 31,  2003,  and  otherwise  is
effective at the beginning of the first interim period  beginning after June 15,
2003. The Company is in the process of assessing the impact of adopting SFAS No.
150 on its consolidated results of operations,  consolidated  financial position
or consolidated cash flows.


                                       18
<PAGE>




ITEM 3. CONTROLS AND PROCEDURES.

As of  the  end of  the  period  covered  by  this  report,  we  carried  out an
evaluation,  under  the  supervision  and with the  participation  of our  Chief
Executive Officer and our Interim Chief Financial Officer,  of the effectiveness
of the design and operation of our disclosure controls and procedures.  Based on
this  evaluation,  our Chief  Executive  Officer and our Interim Chief Financial
Officer  concluded that our disclosure  controls and procedures are effective in
timely  alerting  them to material  information  required to be included in this
report.

There has been no change in our internal  control over financial  reporting that
occurred  during our most recent fiscal quarter that has materially  affected or
is reasonably  likely to materially  affect our internal  control over financial
reporting.


                                       19
<PAGE>



                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None.


ITEM 2. CHANGES IN SECURITIES.

None.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.


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

None.


ITEM 5. OTHER INFORMATION.

Subsequent to June 30, 2003, Kam Saifi,  President and Chief Executive  Officer,
and Cameron Saifi,  Executive Vice President and Chief Operating  Officer,  have
agreed to separate from the Company. We are continuing to negotiate the specific
terms of their separation and the termination of their employment agreements. In
view of the  Company's  financial  condition,  we have no  plans to hire a Chief
Operating  Officer at this time, and Mr. Cameron  Saifi's duties will be assumed
by the  Director of  Financial  Reporting,  the Vice  President of Sales and the
Chief  Technology  Officer.  Until the  appointment of Norman E. Corn as our new
Chief Executive Officer on August 16, 2003, Mr. Stephen M. Deixler served as the
interim Chief Executive Officer in addition to his current  responsibilities  as
Chairman of the Board of Directors and interim  Chief  Financial  Officer.  Also
subsequent  to June 30, 2003,  Christopher  Corrado  resigned  from the Board of
Directors citing other professional commitments.



                                       20
<PAGE>



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.


(a) Exhibits:

      Exhibit
      No.           Description
      -------       -----------

      3.1           Certificate of Incorporation of the Company, as filed with
                    the Secretary of State of the State of Delaware on August 5,
                    1998./(2)/

      3.2           Certificate of Amendment of the Certificate of
                    Incorporation, as filed with the Secretary of State of the
                    State of Delaware on December 11, 1998./(2)/

      3.3           Certificate of Amendment of the Certificate of
                    Incorporation, as filed with the Secretary of state of the
                    State of Delaware an October 12, 1999./(3)/

      3.4           By-Laws of the Company./(2)/

      3.5           Form of Specimen Common Stock Certificate of the
                    Company./(4)/

      4.1           1994 Stock Option Plan of the Company. /(1)/

      4.2           1998 Stock Option Plan of the Company./(2)/

      4.3           1998 U.K. Sub-Plan of the Company, as amended./(2)/

      4.4           Amended and Restated Certificate of Designation of Rights
                    Preferences, Privileges and Restrictions of Series A
                    Preferred   Stock of ION Networks, Inc. /(20)/

      4.5           2000 Stock Option Plan of the Company./(17)/

      4.6           2002 Stock Option Plan of the Company./(19)/

      4.7           Form of Warrant Agreement dated July 17, 2001./(13)/

      4.8           Form of Warrant Agreement dated January 4, 2002./(13)/

      4.9           Form of Non-Qualified Stock Option Agreement dated March 19,
                    1999 by and between the Company's predecessor, Microframe,
                    Inc. and its consultants./(13)/

      4.10          Form of Non-Employee Director Stock Option Contract dated
                    March 10, 1998 between the Company's predecessor,
                    Microframe, Inc. and its non-employee directors./(13)/

      4.11          Form of Non-Employee Director Stock Option Contract dated
                    September 17, 1997 by and between the Company's predecessor,
                    Microframe, Inc. and its non-employee directors./(13/)

      4.12          Form of Non-Qualified Stock Option Agreement dated
                    September 25, 1996 by and between the Company's
                    predecessor, Microframe, Inc. and its employees./(13)/

      4.13          Amended and Restated Non-Qualified Stock Option
                    Agreement dated May 19, 1997 by and between the Company's
                    Predecessor, Microframe, Inc. and its employees./(9)/


                                       22
<PAGE>

      Exhibit
      No.           Description
      -------       -----------


      10.1          Lease Agreement dated February 18, 1999 by and between the
                    Company and Washington Plaza Associates, L.P., as landlord.
                    /(4)/

      10.2          Business Park Gross Lease dated May 17, 1999 by and between
                    the Company and Bedford Property Investors, Inc./(4)/

      10.3          Agreement dated as of December 19, 1994 by and between
                    LeeMAH DataCom Security Corporation and Siemens Rolm
                    Communications Inc./(4)/

      10.4          Equipment Lease Agreements dated June 10, 1999 and May 5,
                    1999 by and between the Company and Siemens Credit
                    Corporation./(4)/

      10.5          Equipment Lease Agreement dated June 17, 1999 by and between
                    the Company and Lucent Technologies./(4)/

      10.6          (i)     Non-negotiable Promissory Note in the principal
                    amount of $750,000 issued by Stephen B. Gray to the
                    Company./(5)/

                    (ii) First  Amendment to Promissory  Note dated as of August
                    5, 2000 by and between the Company and Stephen B.
                    Gray./(5)/

      10.7          Line of Credit Agreement with United Nations Bank dated
                    September 30, 1999./(5)/

      10.8          (i) Separation and Forbearance Agreement made as of October
                    5, 2000 between the Company and Stephen B. Gray./(7)/

                    (ii)Promissory Note in the amount of $163,000 dated October
                    5, 2000 made by Stephen B. Gray to the Company./(7)/

      10.9          Materials and Services Contract dated January 16, 2001,
                    between the Company and SBC Services, Inc./(8)/

      10.10         Stock Purchase Agreement dated August 11, 2000 by and
                    between the Company and the parties identified therein./(8)/

      10.11         Purchase Agreement by and between the Company and the
                    Selling Shareholders set forth therein dated February 7,
                    2002./(18)/


      10.12         Employment Agreement dated October 4, 2001 between the
                    Company and Kam Saifi./(11)/

      10.13         Employment Agreement dated October 17, 2001 between the
                    Company and Cameron Saifi./(12)/

      10.14         Sublease Agreement dated April 17, 2002 between the Company
                    and Multipoint Communications, LLC./(14)/

      10.15         Agreement and General Release dated August 15, 2002 between
                    the Company and Ron Forster./(16)/

      10.16         Rescission Agreement dated September 29, 2002 between the
                    Company and David Arbeitel./(16)/


                                       23
<PAGE>

      Exhibit
      No.           Description
      -------       -----------


      10.17         Separation Agreement and General Release dated October 31,
                    2002 between the Company and David Arbeitel./(16)/

      10.18         Employment Agreement dated May 20, 2002 between the Company
                    and Ted Kaminer./(15)/

      10.19         Employment Agreement dated February 25, 2002, between the
                    Company and William Whitney. /20)/

      10.20         Employment Agreement Amendment 1 dated September 30, 2002
                    by and between the Company and Kam Saifi.*


      10.21         Amendment  dated January 8, 2003 to Employment  Agreement
                    by and between the Company and Kam Saifi.*

      10.22         Employment Agreement Amendment 1 dated September 30, 2002
                    by and between the Company and Cameron Saifi.*

      10.23         Amendment  dated January 8, 2003 to Employment  Agreement
                    by and between the Company and Cameron Saifi.*

      10.24         Amended and Restated Employment Agreement dated September
                    8, 2003 by and between the Company and Norman E. Corn.*

      16.1          Letter dated June 28, 2001, from PricewaterhouseCoopers LLP
                    to the Securities and Exchange Commission./(10)/

      21.1          List of Subsidiaries./(14)/

      31.1          Section 302 Certification of the Chief Executive Officer.*

      31.2          Section 302 Certification of the Interim Chief Financial
                    Officer.*

      32.1          Section 906 Certification of the Chief Executive Officer.*

      32.2          Section 906 Certification of the Interim Chief Financial
                    Officer.*

(1)  Incorporated by Reference to the Company's  Registration  Statement on Form
S-8 filed on August 15, 1995.

(2)  Incorporated by Reference to the Company's  Registration  Statement on Form
S-8 filed on April 22, 1999.

(3)  Incorporated by reference to the Company's  Registration  Statement on Form
S-8 filed on March 17, 2000.

(4)  Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended March 31, 1999.

(5)  Incorporated  by reference to the  Company's  Annual  Report on Form 10-KSB
filed on June 28, 2000.

(6) Incorporated by Reference to the Company's  Current Report on Form 8-K filed
on March 12, 1999.

(7)  Incorporated by reference to the Company's  Quarterly report on Form 10-QSB
filed on November 14, 2000

(8)  Incorporated  by reference to the  Company's  Annual  report on Form 10-KSB
filed on June 29, 2001.

(9)  Incorporated by reference to the Company's  Registration  Statement on Form
S-8 filed on November 17, 2000.

(10)  Incorporated  by reference to the  Company's  Annual report on Form 10-KSB
filed on June 29, 2001.

(11) Incorporated by Reference to the Company's Current Report on Form 8-K filed
on October 23, 2001.

(12) Incorporated by Reference to the Company's Current Report on Form 8-K filed
on October 24, 2001.

(13) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended March 31, 2002, as filed on July 1, 2002.

(14)  Incorporated by reference to the Company's Annual Report on Form 10-KSB/A,
Amendment  No.2, for the fiscal year ended March 31, 2002, as filed on August 2,
2002.

(15) Incorporated by reference to the Company's  Quarterly Report on Form 10-QSB
filed on August 14, 2002.

                                       24
<PAGE>

(16) Incorporated by reference to the Company's  Quarterly Report on Form 10-QSB
filed on November 14, 2002.

(17) Incorporated by Reference to the Company's  Registration  Statement on Form
S-8 filed on January 11, 2002.

(18) Incorporated by Reference to the Company's  Registration  Statement on Form
S-3 filed on March 4, 2002.

(19) Incorporated by Reference to the Company's Definitive Proxy Statement filed
on September 16, 2002.

(20) Incorporated by reference to the Company's Transition Report on Form 10-KSB
for the nine months ended December 31, 2002, as filed on April 15, 2003.

* Filed herewith


(b) Reports on Form 8-K:

On May 16, 2003,  the Company  filed a report on Form 8-K reporting the issuance
of two press releases  announcing the Company's  financial results for the three
months ended March 31, 2003 and a transcript  of the  conference  call hosted on
May 12, 2003 discussing such financial results.






                                       25
<PAGE>



                                   SIGNATURES

In accordance with the  requirements of the Exchange Act, the registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.

Date: September 12, 2003

                                        ION NETWORKS, INC.







                                      /s/ Norman E. Corn
                                     ------------------------------------------
                                     Norman E. Corn, Chief Executive Officer




                                       26

<PAGE>



                                  Exhibit Index


      Exhibit
      No.           Description
      -------       -----------

      3.1           Certificate of Incorporation of the Company, as filed with
                    the Secretary of State of the State of Delaware on August 5,
                    1998./(2)/

      3.2           Certificate of Amendment of the Certificate of
                    Incorporation, as filed with the Secretary of State of the
                    State of Delaware on December 11, 1998./(2)/

      3.3           Certificate of Amendment of the Certificate of
                    Incorporation, as filed with the Secretary of state of the
                    State of Delaware an October 12, 1999./(3)/

      3.4           By-Laws of the Company./(2)/

      3.5           Form of Specimen Common Stock Certificate of the
                    Company./(4)/

      4.1           1994 Stock Option Plan of the Company. /(1)/

      4.2           1998 Stock Option Plan of the Company./(2)/

      4.3           1998 U.K. Sub-Plan of the Company, as amended./(2)/

      4.4           Amended and Restated Certificate of Designation of Rights
                    Preferences, Privileges and Restrictions of Series A
                    Preferred   Stock of ION Networks, Inc. /(20)/

      4.5           2000 Stock Option Plan of the Company./(17)/

      4.6           2002 Stock Option Plan of the Company./(19)/

      4.7           Form of Warrant Agreement dated July 17, 2001./(13)/

      4.8           Form of Warrant Agreement dated January 4, 2002./(13)/

      4.9           Form of Non-Qualified Stock Option Agreement dated March 19,
                    1999 by and between the Company's predecessor, Microframe,
                    Inc. and its consultants./(13)/

      4.10          Form of Non-Employee Director Stock Option Contract dated
                    March 10, 1998 between the Company's predecessor,
                    Microframe, Inc. and its non-employee directors./(13)/

      4.11          Form of Non-Employee Director Stock Option Contract dated
                    September 17, 1997 by and between the Company's predecessor,
                    Microframe, Inc. and its non-employee directors./(13/)

      4.12          Form of Non-Qualified Stock Option Agreement dated
                    September 25, 1996 by and between the Company's
                    predecessor, Microframe, Inc. and its employees./(13)/

      4.13          Amended and Restated Non-Qualified Stock Option
                    Agreement dated May 19, 1997 by and between the Company's
                    Predecessor, Microframe, Inc. and its employees./(9)/


                                       27
<PAGE>

      Exhibit
      No.           Description
      -------       -----------


      10.1          Lease Agreement dated February 18, 1999 by and between the
                    Company and Washington Plaza Associates, L.P., as landlord.
                    /(4)/

      10.2          Business Park Gross Lease dated May 17, 1999 by and between
                    the Company and Bedford Property Investors, Inc./(4)/

      10.3          Agreement dated as of December 19, 1994 by and between
                    LeeMAH DataCom Security Corporation and Siemens Rolm
                    Communications Inc./(4)/

      10.4          Equipment Lease Agreements dated June 10, 1999 and May 5,
                    1999 by and between the Company and Siemens Credit
                    Corporation./(4)/

      10.5          Equipment Lease Agreement dated June 17, 1999 by and between
                    the Company and Lucent Technologies./(4)/

      10.6          (i)     Non-negotiable Promissory Note in the principal
                    amount of $750,000 issued by Stephen B. Gray to the
                    Company./(5)/

                    (ii) First  Amendment to Promissory  Note dated as of August
                    5, 2000 by and between the Company and Stephen B.
                    Gray./(5)/

      10.7          Line of Credit Agreement with United Nations Bank dated
                    September 30, 1999./(5)/

      10.8          (i) Separation and Forbearance Agreement made as of October
                    5, 2000 between the Company and Stephen B. Gray./(7)/

                    (ii)Promissory Note in the amount of $163,000 dated October
                    5, 2000 made by Stephen B. Gray to the Company./(7)/

      10.9          Materials and Services Contract dated January 16, 2001,
                    between the Company and SBC Services, Inc./(8)/

      10.10         Stock Purchase Agreement dated August 11, 2000 by and
                    between the Company and the parties identified therein./(8)/

      10.11         Purchase Agreement by and between the Company and the
                    Selling Shareholders set forth therein dated February 7,
                    2002./(18)/


      10.12         Employment Agreement dated October 4, 2001 between the
                    Company and Kam Saifi./(11)/

      10.13         Employment Agreement dated October 17, 2001 between the
                    Company and Cameron Saifi./(12)/

      10.14         Sublease Agreement dated April 17, 2002 between the Company
                    and Multipoint Communications, LLC./(14)/

      10.15         Agreement and General Release dated August 15, 2002 between
                    the Company and Ron Forster./(16)/

      10.16         Rescission Agreement dated September 29, 2002 between the
                    Company and David Arbeitel./(16)/

      10.17         Separation Agreement and General Release dated October 31,
                    2002 between the Company and David Arbeitel./(16)/

                                       28
<PAGE>

      Exhibit
      No.           Description
      -------       -----------

      10.18         Employment Agreement dated May 20, 2002 between the Company
                    and Ted Kaminer./(15)/

      10.19         Employment Agreement dated February 25, 2002, between the
                    Company and William Whitney. /20)/

      10.20         Employment Agreement Amendment 1 dated September 30, 2002
                    by and between the Company and Kam Saifi.*


      10.21         Amendment  dated January 8, 2003 to Employment  Agreement
                    by and between the Company and Kam Saifi.*

      10.22         Employment Agreement Amendment 1 dated September 30, 2002
                    by and between the Company and Cameron Saifi.*

      10.23         Amendment  dated January 8, 2003 to Employment  Agreement
                    by and between the Company and Cameron Saifi.*

      10.24         Amended and Restated Employment Agreement dated September
                    8, 2003 by and between the Company and Norman E. Corn.*

      16.1          Letter dated June 28, 2001, from PricewaterhouseCoopers LLP
                    to the Securities and Exchange Commission./(10)/

      21.1          List of Subsidiaries./(14)/

      31.1          Section 302 Certification of the Chief Executive Officer.*

      31.2          Section 302 Certification of the Interim Chief Financial
                    Officer.*

      32.1          Section 906 Certification of the Chief Executive Officer.*

      32.2          Section 906 Certification of the Interim Chief Financial
                    Officer.*

(1)  Incorporated by Reference to the Company's  Registration  Statement on Form
S-8 filed on August 15, 1995.

(2)  Incorporated by Reference to the Company's  Registration  Statement on Form
S-8 filed on April 22, 1999.

(3)  Incorporated by reference to the Company's  Registration  Statement on Form
S-8 filed on March 17, 2000.

(4)  Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended March 31, 1999.

(5)  Incorporated  by reference to the  Company's  Annual  Report on Form 10-KSB
filed on June 28, 2000.

(6) Incorporated by Reference to the Company's  Current Report on Form 8-K filed
on March 12, 1999.

(7)  Incorporated by reference to the Company's  Quarterly report on Form 10-QSB
filed on November 14, 2000

(8)  Incorporated  by reference to the  Company's  Annual  report on Form 10-KSB
filed on June 29, 2001.

(9)  Incorporated by reference to the Company's  Registration  Statement on Form
S-8 filed on November 17, 2000.

(10)  Incorporated  by reference to the  Company's  Annual report on Form 10-KSB
filed on June 29, 2001.

(11) Incorporated by Reference to the Company's Current Report on Form 8-K filed
on October 23, 2001.

(12) Incorporated by Reference to the Company's Current Report on Form 8-K filed
on October 24, 2001.

(13) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended March 31, 2002, as filed on July 1, 2002.

(14)  Incorporated by reference to the Company's Annual Report on Form 10-KSB/A,
Amendment  No.2, for the fiscal year ended March 31, 2002, as filed on August 2,
2002.

(15) Incorporated by reference to the Company's  Quarterly Report on Form 10-QSB
filed on August 14, 2002.

(16) Incorporated by reference to the Company's  Quarterly Report on Form 10-QSB
filed on November 14, 2002.

(17) Incorporated by Reference to the Company's  Registration  Statement on Form
S-8 filed on January 11, 2002.

(18) Incorporated by Reference to the Company's  Registration  Statement on Form
S-3 filed on March 4, 2002.

(19) Incorporated by Reference to the Company's Definitive Proxy Statement filed
on September 16, 2002.

(20) Incorporated by reference to the Company's Transition Report on Form 10-KSB
for the nine months ended December 31, 2002, as filed on April 15, 2003.

* Filed herewith


                                       29