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 September 30, 2000

                                       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)

            1551 South Washington Avenue Piscataway, New Jersey 08854
                    (Address of Principal Executive Offices)
                                 (732) 529-0100

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

                   21 Meridian Road, Edison, New Jersey 08820
                 (Former Address of Principal Executive Offices)

Check whether the issuer:  (1) filed all reports required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days.

Yes  X                       No ___
    ---

There were 18,133,435 shares of Common Stock outstanding as of November 8, 2000.

Transitional Small Business Disclosure Format:

Yes ___                      No   X
                                -----



<PAGE>




                       ION NETWORKS, INC. AND SUBSIDIARIES

                                   FORM 10-QSB

                    FOR THE QUARTER ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>


PART I.  FINANCIAL INFORMATION                                                  Page
                                                                                ----

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

           Condensed Consolidated Balance Sheets as of September 30, 2000
               and March 31, 2000 (Unaudited)                                    3

           Condensed Consolidated  Statements of Operations for the Three
               and Six Months ended  September 30, 2000 and September 30,
               1999
               (Unaudited)                                                       4
           Condensed  Consolidated  Statements  of Cash Flows for the Six
               Months ended September 30, 2000 and September 30, 1999
               (Unaudited)                                                       5
           Condensed Consolidated Statement of Stockholders' Equity for the
               Six Months ended September 30, 2000 (Unaudited)                   6

Notes to Condensed Consolidated Financial Statements (Unaudited)                 7

Item 2.           Management's Discussion and Analysis                           9

PART II. OTHER INFORMATION

Item 2.           Changes in Securities                                         15

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

SIGNATURES                                                                      17
</TABLE>


<PAGE>

                          PART I. Financial Information

Item 1.  Condensed Consolidated Financial Information
         --------------------------------------------

         The condensed  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 condensed financial  statements be read
in  conjunction  with the audited  financial  statements  and the notes  thereto
included  in the  registrant's  Annual  Report on Form 10-KSB for the year ended
March 31, 2000.


<PAGE>

<TABLE>
<CAPTION>


                       ION Networks, Inc. and Subsidiaries
                      Condensed Consolidated Balance Sheets
                                   (Unaudited)

                                                                                        September 30,             March 31,
                                                                                            2000                     2000
                                                                                --------------------     ------------------
Assets
Current assets:

<S>                                                                            <C>                       <C>
    Cash and cash equivalents...............................................   $           7,372,359     $       10,381,612
    Accounts receivable, net of allowance for doubtful
      accounts of $163,133 and $251,000, respectively.......................               2,216,117              4,569,546
    Other receivables ......................................................                  51,964              1,560,697
    Inventory, net..........................................................               2,988,253              1,924,671
    Prepaid expenses and other current assets...............................                 494,593                602,874
                                                                                --------------------     ------------------

             Total current assets...........................................              13,123,286             19,039,400
Restricted cash.............................................................                 375,000                      -
Property and equipment at cost, net of accumulated
    depreciation of $1,496,990 and $1,566,366, respectively.................               1,997,723              2,146,956
Capitalized software, less accumulated amortization of $6,060,011
    and $4,259,851, respectively............................................               3,261,610              4,185,911
Goodwill and other acquisition - related intangibles, less accumulated
    amortization of $1,519,949 and $1,030,334, respectively.................               1,449,101              1,938,716
Related party notes receivable..............................................                 750,000                      -
Other assets................................................................                  87,782                 79,258
                                                                                --------------------     ------------------
         Total assets ......................................................   $          21,044,502     $       27,390,241
                                                                                ====================     ==================
Liabilities and stockholders' equity Current liabilities:

    Current portion of capital leases.......................................   $              67,900     $           67,900
    Current portion of long-term debt.......................................                  96,000                 96,000
    Accounts payable and accrued expenses...................................               2,097,778              2,632,135
    Accrued payroll and related liabilities.................................                 512,244              2,139,524
    Deferred income.........................................................                 128,993                275,657
    Other current liabilities...............................................                 366,589                352,093
                                                                                --------------------     ------------------

         Total current liabilities..........................................               3,269,504              5,563,309
Long-term portion of capital leases.........................................                 275,099                302,866
Long-term debt, net of current portion......................................                  72,605                128,129
Commitments and contingencies
Stockholders' equity:

    Preferred stock-par value $.001 per share; authorized 1,000,000
        shares, none issued.................................................                       -                      -
    Common stock, par value $.001 per share; authorized 50,000,000
        shares, issued 18,077,210 shares and outstanding 18,015,179
        shares at September 30, 2000; issued 15,111,617 shares and
        outstanding 15,049,586 shares at March 31, 2000.....................                  18,077                 15,112
    Additional paid-in capital..............................................              40,535,024             35,063,207
    Accumulated deficit.....................................................             (22,903,680)           (13,488,379)
    Accumulated other comprehensive (loss) income...........................                 (14,927)                13,196
                                                                                --------------------     ------------------
                                                                                          17,634,494             21,603,136
Less-Treasury stock 62,031 shares, at cost at
    September 30, 2000 and March 31, 2000...................................                (207,199)              (207,199)
                                                                                --------------------     ------------------
Total stockholders' equity..................................................              17,427,295             21,395,937
                                                                                --------------------     ------------------
Total liabilities and stockholders' equity..................................   $          21,044,502     $       27,390,241
                                                                                ====================     ==================

</TABLE>



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


                                       3
<PAGE>




<TABLE>
<CAPTION>
                                                                                 ION Networks, Inc. and Subsidiaries
                                                                          Condensed Consolidated Statements of Operations
                                                                                            (Unaudited)

                                                          For the Three Months Ended               For the Six Months Ended
                                                                  September 30,                           September 30,
                                                             2000                1999                2000                1999
                                                           ---------           --------            -------              -------
<S>                                                 <C>                 <C>                 <C>                 <C>
Revenue...........................................  $       2,788,497   $       5,792,325   $       4,872,001   $      10,681,346
Cost of sales.....................................          1,972,478           2,048,130           3,126,077           3,656,004
                                                    -----------------   -----------------   -----------------   -----------------
Gross margin......................................            816,019           3,744,195           1,745,924           7,025,342

     Research and development expenses............          1,044,421             636,740           2,256,539           1,739,866
     Selling, general and administration..........          2,990,461           2,674,686           6,342,074           5,020,551
     Depreciation and amortization................          1,624,508           1,016,169           2,712,545           1,939,820
                                                    -----------------   -----------------   -----------------   -----------------

Loss from operations..............................         (4,843,371)           (583,400)         (9,565,234)         (1,674,895)
Interest income...................................             89,322              48,318             219,314              48,318
Interest (expense)................................             (6,982)            (86,481)            (27,653)           (152,017)
                                                    -----------------   -----------------   -----------------   -----------------
Loss before income tax expense....................         (4,761,031)           (621,563)         (9,373,573)         (1,778,594)
                                                    -----------------   -----------------   -----------------   -----------------
Income tax expense................................             19,034                 ---              41,728                 ---
                                                    -----------------   -----------------   -----------------   -----------------
Net loss..........................................  $      (4,780,065)   $       (621,563)   $     (9,415,301)   $     (1,778,594)
                                                    =================   =================   =================   =================

Per share data
Net loss per share

     Basic........................................  $          (0.29)  $           (0.05)  $            (0.53)  $           (0.16)
     Diluted......................................  $          (0.29)  $           (0.05)  $            (0.53)  $           (0.16)
Weighted average number of common shares outstanding:

     Basic..........................................       16,649,608          11,391,360          17,927,379          11,218,396
     Diluted........................................       16,649,608          11,391,360          17,927,379          11,218,396

</TABLE>

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

                                       4
<PAGE>

<TABLE>
<CAPTION>

                       ION Networks, Inc. and Subsidiaries
                 Consolidated Statement of Stockholders' Equity
                   For the six months ended September 30, 2000

                                   (Unaudited)

                                                                                       Accumulated
                                                         Additional                        Other                          Total
                                                          Paid-in      Accumulated     Comprehensive     Treasury     Stockholder's
                                 Shares     Par Value     Capital        Deficit       (Loss) Income       Stock         Equity
                                 ------     ---------    ---------     ----------      --------------    --------      ------------
<S>                           <C>          <C>         <C>           <C>             <C>              <C>            <C>
Balance March 31, 2000         15,111,617   $  15,112   $ 35,063,207  $ (13,488,379)  $      13,196    $  (207,199)   $ 21,395,937

Net loss                                                                 (9,415,301)                                    (9,415,301)

Exercise of stock options
  and warrants                    108,451         108        392,072                                                      392,180

Issuance of common stock        2,857,142       2,857      4,997,143                                                    5,000,000

Noncash stock-based

  compensation                          -           -         82,602                                                       82,602

Translation adjustments                                                                     (28,123)                       (28,123)
                               ----------   ---------   ------------- --------------  ----------------- -----------   --------------
Balance September 30, 2000     18,077,210   $  18,077   $ 40,535,024 $  (22,903,680)  $     (14,927)   $  (207,199)   $ 17,427,295
                               ==========   =========   ============= ==============  ================ ============   =============
</TABLE>

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

                                       5
<PAGE>


<TABLE>
<CAPTION>


                       ION Networks, Inc. and Subsidiaries

                 Condensed Consolidated Statements of Cash Flows

                                   (Unaudited)

                                                                                 For the Six Months Ended
                                                                                       September 30,
                                                                                2000                  1999
                                                                                ----                  -----
Cash flows from operating activities

<S>                                                                     <C>                   <C>
Net loss.............................................................   $       (9,415,301)   $       (1,778,594)
Adjustments to reconcile net (loss) to net cash used
in operating activities:
    Depreciation and amortization....................................            2,712,545             1,939,820
    Provision for doubtful accounts..................................                    -                95,434
    Provision for inventory obsolescence.............................              526,095                     -
    Noncash stock-based compensation charges.........................               82,602                     -
Changes in operating assets and liabilities:

  (Increase) decrease in

    Accounts receivable..............................................            2,353,429            (2,843,520)
    Other receivables................................................            1,508,733                     -
    Inventory........................................................           (1,589,677)              203,098
    Prepaid expenses and other current assets........................              108,281               212,440
    Other assets.....................................................               (8,524)                   23
  Increase (decrease) in
    Accounts payable and accrued expenses............................             (534,356)             (680,740)
    Accrued payroll and related liabilities..........................           (1,627,280)             (304,011)
    Deferred income..................................................             (146,664)              (66,016)
    Other current liabilities........................................               14,496            (1,311,798)
                                                                        ------------------    ------------------
Net cash used in operating activities................................           (6,015,621)           (4,533,864)

Cash flows from investing activities

    Acquisition of property and equipment............................             (301,662)             (736,725)
    Capitalized software.............................................             (875,859)             (927,664)
    Related party notes receivable, net of repayments................             (750,000)
    Increase in restricted cash......................................             (375,000)                    -
                                                                        ------------------    ------------------
Net cash used in investing activities................................           (2,302,521)           (1,664,389)

Cash flows from financing activities

    Borrowings on revolving line of credit...........................                    -               253,720
    Proceeds from debt...............................................                    -               450,000
    Principal payments on debt and capital leases....................              (83,291)           (2,477,362)
    Proceeds from sales of common stock / exercise of stock options
    and warrants.....................................................            5,392,180            14,666,571
                                                                        ------------------    ------------------
Net cash provided by financing activities............................            5,308,889            12,892,929
                                                                        ------------------    ------------------
Net (decrease) increase in cash......................................           (3,009,253)            6,694,676
Cash and cash equivalents, beginning of year.........................           10,381,612               165,994
                                                                        ------------------    ------------------
Cash and cash equivalents, end of period.............................   $        7,372,359    $        6,860,670
                                                                        ==================    ==================

</TABLE>


                                       6

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


<PAGE>



                       ION NETWORKS, INC. AND SUBSIDIARIES
                         NOTES TO CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2000
                                   (Unaudited)

Note 1 - Condensed Consolidated Financial Statements:
-----------------------------------------------------

The condensed consolidated balance sheets as of September 30, 2000 and March 31,
2000, the condensed consolidated  statements of operations for the three and six
month periods ended  September 30, 2000 and for the same periods in 1999 and the
condensed  consolidated  statements of cash flows for the six month periods then
ended  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 September 30, 2000 and 1999 have been made.

Certain  information  and footnote  disclosures  normally  included in financial
statements prepared in accordance with generally accepted accounting  principles
have  been  condensed  or  omitted.   It  is  suggested  that  these   condensed
consolidated  financial  statements  be read in  conjunction  with  the  audited
financial  statements  and notes  thereto  included in the annual report on Form
10-KSB for the year ended March 31, 2000.

During  the first  two  quarters  of  fiscal  2001,  the  Company  significantly
increased  its research and  development  activities  and expanded its sales and
marketing infrastructure and related costs in order to execute its growth plans.
As a result of these actions,  and a sharp downturn in the Company's  sales, the
Company has continued to incur significant losses from operations. The Company's
management  is in the  process of  performing  an  evaluation  of the  Company's
strategic  direction.  This  evaluation  includes an assessment of the Company's
business  plan and other  alternatives  in an effort to stabilize  the Company's
operating performance. Management's plans, when completed and if approved by the
Board of  Directors,  may result in the  impairment  of certain of the Company's
assets  including   inventory,   capitalized   software,   and  other  purchased
intangibles,  as well as a  reduction  in  costs.  The  amount  of assets on the
balance sheet as of September 30, 2000 that may be impaired upon  completion and
approval  of the  plans  approximate  $925,000.  As the  plans  mature  and  are
approved, additional assets may be determined to be impaired.

To the extent that the Company's revenue  assumptions  included in its operating
plan are not met, the Company will have to raise  additional  equity and/or debt
financing, and will have to curtail expenditures. There can be no assurance that
the Company will be able to obtain any such financing on acceptable terms, if at
all.




                                       7
<PAGE>

Note 2 - Restricted Cash:
------------------------

On September 7, 2000,  due to the  expiration of the Company's $1.5 million line
of credit on  September  30,  2000,  $375,000  was pledged as  collateral  on an
outstanding  letter of credit related to the required  security  deposit for the
Company's Piscataway, New Jersey facility.

Note 3 - Inventory:
------------------

Inventory, net of reserve for obsolescence of $809,000 and $283,000 at September
30, 2000 and March 31, 2000, respectively, consists of the following:

                               September 30, 2000               March 31, 2000
                               ------------------               --------------

Raw materials                         $ 818,078                      $ 782,813
Work in process                         193,996                        259,180
Finished goods                        1,976,179                        882,678
                                    -----------                    -----------
Total                               $ 2,988,253                    $ 1,924,671
                                    ===========                    ===========

The  Company  increased  its reserve for  obsolete  inventory  in the quarter to
reflect a build up of certain raw materials  that the Company  believes are slow
moving based on current sales projections of the ultimate finished product.

Note 4 - Earnings Per Share:
---------------------------

The  computation  of Basic  Earnings Per Share is based on the weighted  average
number of common shares  outstanding for the period.  Diluted Earnings Per Share
is based on the weighted  average  number of common shares  outstanding  for the
period  plus the  dilutive  effect of common  stock  equivalents,  comprised  of
outstanding stock options and warrants.

The following is a reconciliation  of the denominator used in the calculation of
basic and diluted earnings per share:
<TABLE>
<CAPTION>

                                                       Three Months      Three Months       Six Months         Six Months
                                                          Ended             Ended              Ended             Ended
                                                         9/30/00           9/30/99            9/30/00           9/30/99
                                                         -------           -------            -------           -------
<S>                                                      <C>              <C>                <C>               <C>
Weighted Average # of Shares Outstanding                 16,649,608       11,391,360         17,927,379        11,218,396
Incremental Shares for Common Equivalents                   653,559          715,210          2,054,866           562,312
                                                         ----------          -------         ----------           -------
Diluted Shares Outstanding                               17,303,167       12,106,570         19,982,245        11,780,708
                                                        ===========       ==========        ===========        ==========
</TABLE>


The  potential  common  shares of  653,559  and  2,054,866,  respectively,  were
excluded from the  computation  of diluted  earnings per share for the three and
six months ended  September 30, 2000 because their  inclusion  would have had an
antidilutive effect on earnings per share due to the Company's net loss for each
respective period.


                                       8
<PAGE>


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>

                                                       Three Months      Three Months       Six Months         Six Months
                                                          Ended             Ended              Ended             Ended
                                                         9/30/00           9/30/99            9/30/00           9/30/99
                                                       -----------         ----------       ----------        ------------
<S>                                                    <C>                 <C>             <C>                <C>
Net loss                                               $(4,780,065)        $(621,563)      $(9,415,301)       $(1,778,594)
Effect of foreign currency translation                      30,395               206           (28,123)           (15,353)
                                                       ------------        ----------      ------------       ------------
Comprehensive loss                                     $(4,749,670)        $(621,357)      $(9,443,424)       $(1,793,947)
                                                       ============        ==========      ============       ============
</TABLE>

Note 6 - Stockholders' Equity
-----------------------------

On August 18, 2000, the Company sold 2,857,142 shares of Common Stock at a price
of $1.75 per share,  for total  consideration  of  $5,000,000.  Pursuant  to the
transaction, the Company has undertaken to register these shares of Common Stock
for resale.

Note 7 - Asset Impairment Charge
--------------------------------

As a result of the Company's  significant decreases in revenues during the first
six  months  of  fiscal  2001 as  compared  to the  prior  year and  significant
increases in operating losses due to its growth strategy,  management  concluded
that  circumstances  indicated  that the carrying  amount of certain  long-lived
assets may not be recoverable and a review for recoverability was performed. The
Company  has made  the  strategic  decision  to  abandon  certain  products  and
technologies  which were acquired in the acquisition of SolCom Systems,  Ltd. on
March 31,  1999.  As a result of the above  decisions,  the Company  recorded an
impairment  charge of  $488,295 on the  capitalized  core  technology  from this
acquisition.  This charge has been recorded within Depreciation and Amortization
on the  Company's  Statement  of  Operations  for the three and six months ended
September 30, 2000.

Note 8 - Income Taxes:
----------------------

The Company's  valuation  allowance  against its federal,  state and foreign net
operating loss carryforwards and its research and development  credits increased
by $3,114,367  during the six months ended  September 30, 2000.  The Company has
recorded a full valuation  allowance against the federal and state net operating
loss  carryforwards  and a full  valuation  allowance  against  the  foreign net
operating loss  carryforwards  and the research and  development  credit because
management  believes that it is more likely than not that  substantially  all of
the net operating loss carryforwards and credits will expire unutilized.

Note 9 -  New Accounting Pronouncements:
----------------------------------------

In June 1998,  the  Financial  Accounting  Standards  Board issued SFAS No. 133,
"Accounting  for Derivative  Instruments  and Hedging  Activities."  Among other
provisions, it requires that




                                       9
<PAGE>


entities  recognize  all  derivatives  as either assets or  liabilities  in the
statement of financial  position and measure  those  instruments  at fair value.
Gains and losses resulting from changes in the fair values of those  derivatives
would be accounted  for  depending on the use of the  derivative  and whether it
qualifies  for hedge  accounting.  This  standard,  as amended by SFAS No.  137,
"Accounting for Derivative  Instruments and Hedging Activities - Deferral of the
Effective  Date of FASB  Statement No. 133, and Amendment of FASB  Statement No.
133",  is effective  for fiscal  years  beginning  after June 15,  2000,  though
earlier  adoption is encouraged and retroactive  application is prohibited.  For
the  Company,  this  means the  standard  must be adopted no later than April 1,
2001. Management,  based on its current operations, does not expect the adoption
of  this  standard  to  have a  material  impact  on the  Company's  results  of
operations, financial position or cash flows.

In December  1999,  the SEC issued Staff  Accounting  Bulletin  ("SAB") No. 101,
"Revenue  Recognition  in Financial  Statements."  The SEC delayed the effective
date of this SAB from June 30, 2000 to the fourth quarter of fiscal 2001 for the
Company.  The  Company  has  assessed  the  impact of SAB 101 on its  results of
operations  and believes  that its results of  operations  for the quarter ended
September 30, 2000 have been presented in accordance  with the provisions of the
SAB. The adoption of the SAB is not expected to have an effect on the  Company's
financial statements.

Note 10 - Related Party Transactions:
-------------------------------------

During  April 2000,  the  Company  issued a 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 employed 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 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. The loan is collateralized by the receipt of a first
mortgage interest on the personal  residence of the Former CEO. Pursuant to this
agreement,  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.  Subsequent  to the  signing of this  agreement,  $15,000  was repaid
immediately  and $22,000  will be  recorded as a non-cash  offset as a result of
earned but unpaid  vacation  owed to the Former CEO. The $200,000  reimbursement
will be recorded during the third quarter of fiscal 2001.

On June 29, 2000, the Company made an advance of $135,000 to the Former CEO. The
advance was subsequently repaid in full on July 26, 2000.

Note 11 - Commitments:
----------------------

On September 18, 2000,  the Company  entered into a consulting  agreement  with
Venture  Consulting Group, Inc. ("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.  The fees for the  consultants'  services are
$500,000 over a one-year period. In addition, October 5, 2000 the individual



                                       10
<PAGE>

consultants  were issued options to purchase  240,000 shares of common stock at
the fair market  value on the date of grant.  Such  options  vest ratably over a
one-year  period.  The Company will record  compensation  expense based upon the
fair value of the options during each reporting period beginning in October 2000
in connection with the one-year vesting period.

Item 2.   Management's Discussion and Analysis
          ------------------------------------

A number of statements  contained in this report are forward-looking  statements
within the meaning of the Private Securities  Litigation Reform Act of 1995 that
involve  risks and  uncertainties  that  could  cause  actual  results to differ
materially from those expressed or implied in the applicable  statements.  These
risks and uncertainties include, but are not limited to, the recent introduction
of,  and the costs  associated  with,  a new  product  line;  dependence  on the
acceptance  of this new  family of  products;  risks  related  to  technological
factors;  potential manufacturing  difficulties;  dependence on third parties; a
limited customer base; and liability risks.

RESULTS OF OPERATION

For the three months ended September 30, 2000 compared to the same period in
1999

Revenue for the three months ended September 30, 2000, was $2,788,497  compared
to revenue of  $5,792,325  for the same period in 1999, a decrease of $3,003,828
or 51.9%.  The decrease in revenue was primarily due to reduced order  activity,
the  delay  from  first  quarter  to  the  end  of  the  second  quarter  of the
introduction of an updated version of PRIISMS Manager, a slower than anticipated
ramp-up of new sales personnel, and a non-recurring realization from a sale of a
perpetual  technology  license to an existing  customer in 1999.  The Company is
beginning to experience  increased  activity and order levels for both newer and
older customers.

During the quarter ended September 30, 2000, the Company recognized  $391,830 in
revenues  related to the $1.1 million  sales  backlog  reported in the Company's
Form 10-KSB for the fiscal year ended March 31, 2000. It recognized  $378,500 in
such revenues during the quarter ended June 30, 2000.  While the Company expects
to  recognize  additional  revenue from this sales  backlog in future  quarters,
there can be no assurance  that all revenue  associated  with this sales backlog
will ultimately be realized by the Company.

Cost of goods sold for the three months ended September 30, 2000 was $1,972,478
compared to $2,048,130  for the same period in 1999.  Included in the $1,972,478
is a $526,000 reserve that the Company believes are slow moving based on current
sales  projections  of the ultimate  finished  product.  Cost of goods sold as a
percentage of revenue for the three months ended September 30, 2000 increased to
70.7% from 35.4% for the same period in 1999. Without the inventory reserve, the
percentage  is  52.8%.  The  increase  is due to the  impact  of  certain  fixed
manufacturing costs that are spread over a decreased revenue base resulting in a
deterioration of product margins.

Research and development expense, net of capitalized software  development,  for
the three months ended  September 30, 2000 was  $1,044,421  compared to $636,740
for the same  period in 1999.  As a  percentage  of net  revenue,  research  and
development  expenses were 37.5%



                                       11
<PAGE>

compared to 11.0% for the same period in 1999.  The  increase was the result of
additional  engineering manpower and other expenditures  required to support and
to enhance the Company's  product  portfolio.  The  significant  increase in the
percentage of research and  development  to net revenue was primarily  caused by
lower sales volume combined with increased spending levels, as discussed above.

Selling, general and administrative expenses ("SG&A") for the three months ended
September 30, 2000 were $2,990,461 compared to $2,674,686 for the same period in
1999. As a percentage of revenue, SG&A increased to 107.2% compared to 46.2% for
the same period in 1999,  due primarily to lower sales  volume.  The increase in
SG&A  expenses for the quarter  ended  September  30, 2000  compared to the same
quarter in 1999 was a result of additional  spending  related to increased sales
and marketing  personnel as well as administrative  infrastructure  necessary to
execute the Company's growth plans.

Depreciation and amortization  expenses - amortization of capitalized  software,
goodwill  and  other  acquisition  related  intangibles,   and  depreciation  on
equipment,  furniture and fixtures - was  $1,624,508  for the three months ended
September  30, 2000  compared  to  $1,016,169  in the same  period in 1999.  The
increased expense was primarily the result of management's strategic decision to
abandon  certain  of the  products  and  technology  associated  with the SolCom
acquisition  in March 1999.  This resulted in a $488,295  impairment  charge for
certain of the Company's capitalized software.

Income tax provision  for the three months ended  September 30, 2000 was $19,034
compared to $0 at  September  30,  1999 due to the  required  provision  for the
reported taxable earnings of the Company's UK subsidiary.

Net loss for the three months ended  September 30, 2000 was $4,780,065  compared
to a loss of $621,563 for the same period in 1999 based on the factors discussed
above.

For the six months ended September 30, 2000 compared to the same period in 1999

Revenue for the six months ended September 30, 2000, was $4,872,001 compared to
revenue of $10,681,346  for the same period in 1999, a decrease of $5,809,345 or
54.4%.  The decrease in revenue was primarily due reduced  order  activity,  the
delay from first quarter to the end of the second quarter of the introduction of
an updated version of PRIISMS Manager, a slower than anticipated  ramp-up of new
sales personnel,  and the non-recurring  realization of revenue from a sale of a
perpetual technology license to an existing customer in 1999.

During the quarter ended September 30, 2000, the Company recognized  $391,830 in
revenues  related to the $1.1 million  sales  backlog  reported in the Company's
Form 10-KSB for the fiscal year ended March 31, 2000. It recognized  $378,500 in
such revenues during the quarter ended June 30, 2000.  While the Company expects
to  recognize  additional  revenue from this sales  backlog in future  quarters,
there can be no assurance  that all revenue  associated  with this sales backlog
will ultimately be realized by the Company.

Cost of goods sold for the six months ended  September  30, 2000 was  $3,126,077
compared to  $3,656,004  for the same period in 1999,  a decrease of $529,927 or
14.5%,  due to lower  sales  volume.  Included in the  $3,126,077  is a $526,000
reserve for raw materials  inventory  that the



                                       12
<PAGE>

Company  believes are slow moving  based on current  sales  projections  of the
ultimate  finished product.  Without this reserve,  the decrease would be 28.2%.
Cost of goods sold as a  percentage  of revenue  increased  to 64.2% for the six
months  ended  September  30,  2000 as  compared to 34.2% for the same period in
1999.  Without the reserve,  the  percentage is 53.9% because lower sales volume
increased  the negative  impact that certain  fixed  manufacturing  costs had on
margins.

Research and development expenses, net of capitalized software development,  for
the six months ended  September 30, 2000 was  $2,256,539  compared to $1,739,866
for  the  same  period  in  1999.  As a  percentage  of  revenue,  research  and
development expenses increased to 46.3% compared to 16.3% for the same period in
1999, due primarily to lower sales volume.

SG&A  expenses  for the six months  ended  September  30,  2000 were  $6,342,074
compared to $5,020,551  for the same period in 1999. As a percentage of revenue,
SG&A expenses  increased to 130.2% compared to 47.0% for the same period in 1999
due  primarily  to lower  sales  volume.  The  increased  expenditures  resulted
primarily from the Company's  aggressive  growth plans and associated  sales and
marketing support.

Depreciation  and amortization  expenses - amortization of capitalized  software
goodwill  and  other  acquisition  related  intangibles,   and  depreciation  on
equipment,  furniture  and  fixtures - was  $2,712,545  for the six months ended
September  30, 2000  compared  to  $1,939,820  for the same period in 1999.  The
increased expense was primarily the result of management's strategic decision to
abandon  certain  of the  products  and  technology  associated  with the SolCom
acquisition  in March 1999.  This resulted in a $488,295  impairment  charge for
certain of the Company's capitalized software.

Income tax  provision  for the six months ended  September  30, 2000 was $41,728
compared to $0 at  September  30,  1999 due to the  required  provision  for the
reported taxable earnings of the Company's United Kingdom subsidiary.

Net loss for the six months ended September 30, 2000 was $9,415,301  compared to
a loss of $1,778,594 for the same period in 1999, based on the factors discussed
above.

FINANCIAL CONDITION AND CAPITAL RESOURCES

During the first six months ended  September  30, 2000,  the  Company's  working
capital position  deteriorated as the Company's  reduced revenues  combined with
continuing  expenditure  levels utilized  significant  operating cash. This cash
utilization was offset  partially by the $5,000,000  raised through the issuance
of new shares in a private  placement.  Working  capital at  September  30, 2000
decreased $3,247,309 to $10,228,782 from $13,476,091 at March 31, 2000.

Net cash used in operating  activities during the six months ended September 30,
2000 was $6,015,621  compared to net cash used during the same period in 1999 of
$4,533,864.  The increase in net cash used resulted  primarily from the build-up
of  inventory  due to lower than  expected  revenues,  the  payment of  accounts
payable and accrued expenses, and the significant increase in the net loss.



                                       13
<PAGE>

Net cash used in investing  activities during the six months ended September 30,
2000 was $2,302,521  compared to net cash used during the same period in 1999 of
$1,664,389.  Investing activities during the six months ended September 30, 2000
include the  restriction  of $375,000 in cash  relating to the  Piscataway,  New
Jersey operating lease and the notes receivable  issued to the Former CEO in the
amount of  $885,000,  offset by the  repayment  of  $135,000  during the current
quarter.  This use of cash was offset  partially by the decrease in expenditures
for property and equipment.

Net cash provided by financing  activities during the six months ended September
30, 2000 was $5,308,889  compared to net cash provided during the same period in
1999 of $12,892,929.  Financing activities during the six months ended September
30, 2000  include the sales of  2,857,142  shares of Common  Stock at a price of
$1.75 per share,  for total  consideration  of  $5,000,000  in a private  equity
transaction. Pursuant to the transaction, the Company has undertaken to register
these shares of Common Stock for resale.

On September  30,  1999,  the Company  entered into a $2,500,000  line of credit
agreement.  The line of credit was available through July 15, 2000. This line of
credit has been terminated and effectively  replaced with the $1,500,000 line as
noted below.

On July 15,  2000,  the  Company  entered  into a line of credit  agreement  for
$1,500,000.  The line of credit was available  through  September 30, 2000.  The
line of credit  expired on September 30, 2000 with no amounts  having been drawn
down on such line.

During  the first  two  quarters  of  fiscal  2001,  the  Company  significantly
increased  its research and  development  activities  and expanded its sales and
marketing infrastructure and related costs in order to execute its growth plans.
As a result of these actions,  and a sharp downturn in the Company's  sales, the
Company  has  incurred   significant  losses  from  operations.   The  Company's
management  is in the  process of  performing  an  evaluation  of the  Company's
strategic  direction.  This  evaluation  includes an assessment of the Company's
business  plan in an effort to stabilize the  Company's  operating  performance.
Management's  plans, once completed and approved by the Board of Directors,  may
result in the impairment of certain of the Company's assets including inventory,
capitalized software, and other purchased intangibles, as well as a reduction in
costs.  The amount of assets on the balance  sheet as of September 30, 2000 that
may be impaired upon completion and approval of the plans approximate  $925,000.
As the plans mature and are approved,  additional assets may be determined to be
impaired.

The Company  believes,  based on current  revenue  assumptions  in its operating
plan,  that it has sufficient cash to meet its operating  requirements  over the
next  twelve  months.  To the  extent  that the  Company's  revenue  assumptions
included  in its  operating  plan are not met,  the  Company  will have to raise
additional equity and/or debt financing,  and will have to curtail expenditures.
There can be no  assurance  that the  Company  will be able to  obtain  any such
financing on acceptable terms, if at all.

                                       14
<PAGE>


                           PART II. OTHER INFORMATION

Item 2.  Changes in Securities

On August 18, 2000, the Company sold 2,857,142 shares of Common Stock at a price
of $1.75 per share to a group of  accredited  investors in  consideration  of an
amount  equal  to  $5,000,000,  pursuant  to  Rule  506  promulgated  under  the
Securities Act of 1933.

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

                  (a)      Exhibits:

                    10.1.  Consulting  Agreement entered into September 18, 2000
between the Company and Venture Consulting Group, Inc.

                    10.2.  Separation  and  Forebearance  Agreement  made  as of
October 5, 2000 between the Company and Stephen B. Gray

                    10.3.  Promissory  Note  in the  amount  of  $163,000  dated
October 5, 2000 made by Stephen B. Gray to the Company

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

                       27.      Financial Data Schedule

               (b)      Reports on Form 8-K:

                         No Reports on Form 8-K were filed during the quarter.


<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:  November 14, 2000



                                ION NETWORKS, INC.

                                  /s/ Ronald  C.Sacks
                                -----------------------------------------------
                                Ronald C. Sacks, Chief Executive Officer
                                and Interim Principal Financial Officer