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, 2001

                                       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
            Incorporation or Organization)      Number)


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

                                 (732) 529-0100
                                 --------------
                (Issuer's telephone number, including area code)

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 18,203,301 shares of Common Stock outstanding as of August 9, 2001.

Transitional Small Business Disclosure Format:

Yes           No   X
    -----        -----




<PAGE>

                       ION NETWORKS, INC. AND SUBSIDIARIES

                                   FORM 10-QSB

                       FOR THE QUARTER ENDED JUNE 30, 2001



PART I.    FINANCIAL INFORMATION                                            Page
                                                                            ----

Item 1.    Condensed Consolidated Financial Information                       2

           Condensed  Consolidated  Balance Sheets as of June 30,
             2001 and March 31, 2001 (Unaudited)                              3

           Condensed  Consolidated  Statements of Operations  for
             the  Three  Months  ended  June  30,  2001  and 2000
             (Unaudited)                                                      4

           Condensed  Consolidated   Statement  of  Stockholders'
             Equity  for the Three  Months  ended  June 30,  2001
             (Unaudited)                                                      5

           Condensed  Consolidated  Statements  of Cash Flows for
             the  Three  Months  ended  June  30,  2001  and 2000
             (Unaudited)                                                      6

Notes to Condensed Consolidated Financial Statements (Unaudited)              7

Item 2.    Management's Discussion and Analysis                              11

PART II.   OTHER INFORMATION

Item 6.    Exhibits and Reports on Form 8-K                                  14

SIGNATURES                                                                   14




<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, 2001.



<PAGE>

                       ION NETWORKS, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)


                                                  June 30,      March 31,
                                                    2001          2001
                                               ------------   ------------

ASSETS
Current assets:
   Cash and cash equivalents.................  $  4,315,178   $  5,230,833
   Accounts receivable, net of allowance for
    doubtful accounts of $158,145 and
    $161,000 respectively....................     1,045,144      2,796,531
   Other receivables ........................             -         13,497
   Inventory, net............................     1,645,667      1,139,448
   Prepaid expenses and other current assets.       458,902        205,829
   Related party notes receivable............       882,250        897,250
                                               ------------   ------------
            Total current assets.............     8,347,141     10,283,388
Restricted cash..............................       375,000        375,000
Property and equipment at cost, net of
   accumulated depreciation of $2,228,888 and
   $2,095,564, respectively..................     1,304,764      1,467,766
Capitalized software, less accumulated
   amortization of $2,586,238
   and $2,390,041, respectively..............     1,107,788      1,241,495
Goodwill and other acquisition - related
   intangibles, less accumulated amortization
   of $793,145 and $694,444 respectively.....       232,470        305,556
Other assets.................................        22,570         22,683
                                               ------------   ------------
      Total assets ..........................  $ 11,389,733   $ 13,695,888
                                               ============   ============

Liabilities and stockholders' equity Current liabilities:

   Current portion of capital leases.........  $     74,426   $     74,426
   Current portion of long-term debt.........       114,297        107,026
   Accounts payable..........................     1,670,950      1,716,212
   Accrued expenses..........................       426,530        562,860
   Accrued payroll and related liabilities...       369,996        416,093
   Deferred income...........................        92,262        178,737
   Other current liabilities.................       307,560        309,977
                                               ------------   ------------
      Total current liabilities..............     3,056,021      3,365,331
Long-term portion of capital leases..........       202,979        220,966
Long-term debt, net of current portion.......        16,003         18,732

Commitments and contingencies (Note 11)
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 and outstanding
     18,203,301  at June 30, 2001; issued
     and outstanding 18,203,301 shares at
     March 31, 2001..........................        18,203         18,203
   Additional paid-in capital................    40,209,946     40,191,346
   Accumulated deficit.......................   (32,156,961)   (30,165,045)
   Accumulated other comprehensive  income...        43,542         46,355
                                               ------------   ------------
Total stockholders' equity...................     8,114,730     10,090,859
                                               ------------   ------------
Total liabilities and stockholders' equity...  $ 11,389,733   $ 13,695,888
                                               ============   ============



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



                                       3
<PAGE>

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

                                                  For the Three Months
                                                        Ended
                                                       June 30,
                                                 2001            2000
                                              -----------     -----------

Revenue..................................      $1,933,442      $2,083,504
Cost of sales............................         857,600       1,157,102

                                              -----------     -----------
Gross margin.............................       1,075,842         926,402

  Research and development expenses......         349,875         866,557
  Selling, general and administration....       2,285,023       3,690,429
  Depreciation and amortization..........         471,276       1,090,325
                                              -----------     -----------

Loss from operations.....................      (2,030,332)     (4,720,909)
Interest income..........................          47,532         130,115
Interest expense.........................          (9,116)        (20,873)
                                              -----------     -----------
Loss before income tax expense...........      (1,991,916)     (4,611,667)
                                              -----------     -----------
Income tax expense.......................               -          23,572
                                              -----------     -----------
Net loss.................................     $(1,991,916)    $(4,635,239)
                                              ===========     ===========


PER SHARE DATA

Net loss per share
  Basic.................................      $     (0.11)    $    (0.31)
  Diluted...............................      $     (0.11)    $    (0.31)

Weighted average number of
common shares outstanding:
  Basic.................................       18,203,301     15,123,152
  Diluted...............................       18,203,301     15,123,152


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 THREE MONTHS ENDED JUNE 30, 2001
                                   (Unaudited)

                                                                                Accumulated
                                                 Additional                        Other         Total
                                                   Paid-in       Accumulated   Comprehensive  Stockholders'
                            Shares     Par Value   Capital         Deficit         Income        Equity
                          ----------   ---------  -----------    ------------     --------   --------------

<S>                        <C>          <C>       <C>            <C>              <C>        <C>
Balance March 31, 2001     18,203,301   $18,203   $40,191,346    $(30,165,045)    $446,355   $10,090,859

Net loss                                                           (1,991,916)                (1,991,916)

Noncash stock-based
  compensation                                         18,600                                     18,600

Translation adjustments                                                             (2,813)       (2,813)
                          ----------    -------   -----------    ------------     --------   -----------

Balance June 30, 2001     18,203,301    $18,203   $40,209,946    $(32,156,961)    $643,542   $ 8,114,730
                          ==========    =======   ===========    ============     ========   ===========

</TABLE>


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



                                       5
<PAGE>


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

                                                        FOR THE THREE MONTHS
                                                               ENDED
                                                              JUNE 30,
                                                       2001             2000
                                                    ----------       ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss........................................  $ (1,991,916)     $(4,635,239)
Adjustments to reconcile net (loss) to
net cash used in operating activities:
   Depreciation and amortization................       426,956        1,090,325
   Provision for inventory obsolescence.........        12,498                -
   Asset impairments and other charges..........        32,699                -
   Noncash stock-based compensation charges.....        18,600           82,602
Changes in operating assets and liabilities:
  (Increase) decrease in
   Accounts receivable..........................     1,751,387        2,643,288
   Other receivables............................        13,497        1,419,010
   Inventory....................................      (518,717)      (1,538,886)
   Prepaid expenses and other current
   assets.......................................      (253,073)         (30,588)
   Other assets.................................           113           (7,501)
  Increase (decrease) in
   Accounts payable and accrued expenses........      (181,592)        (867,118)
   Accrued payroll and related liabilities......       (46,097)      (1,482,103)
   Deferred income..............................       (86,475)        (198,472)
   Other current liabilities....................        (2,417)          (1,909)
                                                    ----------       ----------
Net cash used in operating activities...........      (824,537)      (3,526,591)
CASH FLOWS FROM INVESTING ACTIVITIES
   Acquisition of property and equipment               (27,370)        (243,257)
   Capitalized software.........................       (62,490)        (359,835)
   Related party notes receivable, net of
   repayments...................................        15,000         (885,000)
                                                    ----------       ----------
Net cash used in investing activities...........       (74,860)      (1,488,092)
CASH FLOWS FROM FINANCING ACTIVITIES
   Principal payments on debt and capital
   leases.......................................       (13,445)         (18,324)
   Proceeds from sales of common stock /
   exercise of stock options and warrants                               110,917
                                                    ----------       ----------
Net cash (used in) provided by financing
activities......................................       (13,445)          92,593
Effects of exchange rates on cash...............        (2,813)         (15,559)
                                                    ----------       ----------
Net (decrease) increase in cash.................      (915,655)      (4,937,649)
Cash and cash equivalents, beginning of year....     5,230,833       10,381,612
                                                    ----------       ----------
Cash and cash equivalents, end of period........    $4,315,178       $5,443,963
                                                    ==========       ==========


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


                                       6
<PAGE>

                       ION NETWORKS, INC. AND SUBSIDIARIES
                         NOTES TO CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS
                                  JUNE 30, 2001
                                   (Unaudited)


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

The  condensed  consolidated  balance  sheets as of June 30,  2001 and March 31,
2001, the condensed consolidated statements of operations and cash flows for the
three month periods ended June 30, 2001 and 2000 and the consolidated  statement
of stockholders' equity for the three month period ended June 30, 2001 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 31, 2001 and 2000 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, 2001.

During the third  quarter of fiscal 2001,  the Company  initiated a  significant
restructuring  plan to reduce operating  expenses and take the actions necessary
to ultimately  reach  profitability.  As a result of the  implementation  of the
plan,  the  Company has reduced  operating  expenses  and expects to improve and
stabilize operating  performance as it moves forward.  The Company believes that
it will have  sufficient cash to fund its operations for the next twelve months.
The Company's  current  operating plan includes  certain  assumptions,  the most
important of which is the  attainment  of future  revenues  equivalent  to those
attained in FY 2001.  To the extent that  revenues in FY2002 fall below those of
FY2001, the Company may have to (i) modify its operating plan and scale back its
expenditures  for personnel and other operating costs in order to preserve cash;
and/or (ii) raise  additional  funds through  equity and/or debt  financing.  In
addition, the Company is presently evaluating the need to raise additional funds
through debt or equity financing to grow its business  through  expansion and/or
through acquisitions. There can be no assurance that the Company will be able to
obtain any such financing,  or that such additional financing can be obtained on
terms acceptable to the Company.



                                       7
<PAGE>


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

Due to the  expiration of the Company's $1.5 million line of credit on September
30, 2000, the Company pledged  $375,000 on September 7, 2000 as collateral on an
outstanding  letter of credit related to the required  security  deposit for the
Company's  Piscataway,  New  Jersey  facility.  Accordingly,  $375,000  has been
reflected as restricted  cash and is  classified as a non-current  asset at June
30, 2001 and March 31, 2001.

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

Inventory,  net of allowance for  obsolescence  of $1,504,820  and $1,571,388 at
June 30, 2001 and March 31, 2001, respectively, consists of the following:

                           June 30, 2001       March 31, 2001
                           -------------       --------------

Raw materials                $ 546,944           $ 690,566
Work in process                 20,723              18,440
Finished goods               1,078,000             430,442
                             ---------             -------
Total                      $ 1,645,667         $ 1,139,448
                           ===========         ===========


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:

                                   Three        Three
                                  Months        Months
                                  Ended         Ended
                                  6/30/01      6/30/00
                                  -------      -------

Weighted Average # of Shares    18,203,301    15,123,152
Outstanding
Incremental Shares for Common       3,193     1,706,074
                                  -------     ---------
Equivalents
Diluted Shares Outstanding      18,206,494   16,829,226
                                ==========   ==========

The potential  incremental  common shares were excluded from the  computation of
diluted  earnings per share for all periods  presented,  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.

                                      Three           Three
                                      Months          Months
                                      Ended           Ended
                                     6/30/01         6/30/00
                                     -------         -------

Net loss                           $(1,991,916)    $(4,635,239)
Effect  of  foreign   currency
translation                             (2,813)        (15,559)
                                       -------        --------
Comprehensive loss                 $(1,994,729)    $(4,650,798)
                                   ===========     ===========


Note 6 - Restructuring, asset impairments and other charges
-----------------------------------------------------------

During the year  ended  March 31,  2001,  the  Company  recorded  $3,763,612  of
restructuring, asset impairments and other charges.

As a result of the Company's  operating  performance during the first six months
of fiscal  2001 as  compared to the prior year,  the  Company's  new  management
evaluated  the  Company's  business and product  strategy  and, in the Company's
third fiscal quarter of fiscal 2001,  implemented a business  restructuring plan
which is  intended  to  enable  the  Company  to reach a  position  of  positive
operating  cash flows and focus its product  offerings on those believed to have
the greatest  potential to generate  further,  near-term market  penetration and
positive operating contribution.

Included in the exit costs were  approximately  $353,000 of cash  severance  and
termination   benefits  associated  with  the  separation  of  approximately  38
employees. All of these affected employees have left the company as of March 31,
2001.  Termination benefits of approximately $342,000 were paid through June 30,
2001.

In addition,  the Company made strategic  decisions to abandon certain  products
and  technologies  including  those which were  acquired in the  acquisition  of
SolCom  Systems,  Ltd.  on March 31,  1999.  The  Company  also  closed down the
research and  development  efforts at SolCom  Systems,  Ltd. and centralized the
research and development  functions at the New Jersey headquarters.  As a result
of  the  above  decisions,   the  Company  recorded  an  impairment   charge  of
approximately   $2,332,000   primarily   relating  to  the  abandonment  of  the
capitalized core technology from this acquisition and other existing capitalized
software. An additional impairment charge of approximately $870,000 was recorded
to write-off the remaining  goodwill  from the Company's  acquisition  of SolCom
Systems,  Ltd.  in March  1999  which was being  depreciated  over a three  year
period.  Additionally,  the  Company  recorded  an  impairment  in the amount of
approximately  $209,000 on fixed  assets  previously  used in the  manufacturing
process at SolCom Systems,  Ltd. As of March 31, 2001, all of the  restructuring
activities described above were completed.

Note 7 - Income Taxes:
----------------------

The  Company has  recorded a full  valuation  allowance  against the federal and
state net operating


                                       9
<PAGE>

loss  carryforwards  and a full  valuation  allowance  against  the  foreign net
operating loss  carryforwards  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 carryforwards and credits will expire unutilized.

Note 8 -  New Accounting Pronouncements:
----------------------------------------

In December  1999,  the SEC issued  Staff  Accounting  Bulletin  ("SAB")  No.101
Revenue Recognition in Financial  Statements.  SAB No.101 did not have an impact
on the Company's financial statements.

In June 1998,  The  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  ("SFAS") No. 133,  "Accounting  for Derivative
Instruments and Hedging  Activities."  Among other provisions,  it requires that
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  Activites - Deferral of the
Effective  Date of FASB  Statement No. 133, and Amendment of FASB  Statement No.
133",  is  effective  for the  Company as of April 1, 2001.  The  Company has no
transition adjustment as a result of adopting the standard.

In  July  2001,  the  Financial  Accounting  Standards  Board  ("FASB"),  issued
Statement  of  Financial   Accounting  Standards  ("SFAS")  No.  141,  "Business
Combinations" and No. 142, "Goodwill and Other Intangible Assets". Statement No.
141 requires that all business  combinations  initiated  after June 30, 2001, be
accounted for using the purchase method of accounting.  In addition,  it further
clarifies the criteria for  recognition  of intangible  assets  separately  from
goodwill. Statement No. 142 establishes new standards for goodwill acquired in a
business  combination  and  eliminates  the  amortization  of goodwill  over its
estimated  useful  life.  Rather,  goodwill  will now be tested  for  impairment
annually, or more frequently if circumstances indicate potential impairment,  by
applying a fair value based test.  The Company  expects to adopt this  statement
during the second quarter of fiscal 2002.  Management  does not believe that the
adoption  of these  standards  will  have a  material  impact  on the  Company's
financial position or results of operation.

Note 9 - 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 was  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


                                       10
<PAGE>

certain  expenses  totaling  $200,000,  to be paid over a period  of six  months
ending March 31, 2001. During the fiscal year ended March 31, 2001,  $50,000 was
repaid and $22,000 was  recorded as a non-cash  offset as a result of earned but
unpaid  vacation owed to the Former CEO. During the quarter ended June 30, 2001,
an additional $15,000 was repaid.  The remaining  receivable of $882,250 at June
30, 2001 is  classified  as related  party  notes  receivable  on the  Company's
condensed  consolidated  balance sheet.  The Former CEO has not paid the amounts
due as specified in the notes.  On August 3, 2001,  the Company  received a cash
payment of $777,713  from the Former CEO, in  connection  with  repayment of the
promissory  notes.  With this  repayment,  the balances on the promissory  notes
aggregate $155,077, which includes outstanding interest as of August 14, 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 10 - Commitments:
----------------------

On October 5, 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,  the individual  consultants were
issued  options to purchase  240,000  shares of common  stock at the fair market
value on the date of grant.  Such options  vested 25% during  December 2000 with
the remaining  vesting ratably monthly from January 2001 through September 2001.
The Company has recorded  compensation  expense based upon the fair value of the
options  during each  reporting  period  beginning in October 2001 in connection
with the one-year vesting period. The Company has recorded  compensation expense
of $18,600 for the quarter  ended June 30, 2001 based upon the fair value of the
vested options as of June 30, 2001 as determined  using the Black Scholes option
pricing model.


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, those described in the
Company's filings with the Securities and Exchange  Commission  including in its
annual report Form 10-KSB, for the fiscal year ending March 31, 2001.

RESULTS OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THE SAME PERIOD IN 2000

Revenue for the three  months ended June 30, 2001,  was  $1,933,442  compared to
revenue of  $2,083,504  for the same  period in 2001,  a decrease of $150,062 or
7.2%.  The  decrease  in revenue  was due to reduced  order  activity  primarily
attributable to the general economic downturn  impacting the  telecommunications
industry.  However, despite this minor decline in revenue, the Company has taken
steps to strengthen and improve its sales force and related processes during the
past twelve  months,  resulting  in an improved  sales  pipeline.  Although  the
Company cannot guarantee that the opportunities  identified in the pipeline will
translate  to  increased  revenue in the future,  it believes  that the level of
activity is a positive sign.


                                       11
<PAGE>

Cost of sales for the three months ended June 30, 2001 was $857,600  compared to
$1,157,102 for the same period in 2000. Cost of sales as a percentage of revenue
for the three months  ended June 30, 2000  decreased to 44.4% from 55.5% for the
same period in 2000 due to improvements in inventory management and general cost
containment strategies implemented during the past 12 months.

Research and development expense, net of capitalized software  development,  for
the three months  ended June 30, 2001 was $349,875  compared to $866,557 for the
same period in 2000.  As a  percentage  of  revenue,  research  and  development
expenses were 18.1%  compared to 41.6% for the same period in 2000. The decrease
in the percentage of research and development to revenue primarily  reflects the
completed   development  of  the  Company's  next  generation  product  release,
NetwoRx-PRIISMS  Integration  1.2 and a resizing of the R&D staff as a result of
the Company's restructuring activities.

Selling, general and administrative expenses ("SG&A") for the three months ended
June 30,  2001 were  $2,285,023  compared to  $3,690,429  for the same period in
2000.  As a  percentage  of revenue,  SG&A is high at 118.2%,  primarily  due to
reduced sales volumes,  but  represents a significant  reduction from the 177.1%
experienced  in the same period in 2000.  This reduction is primarily the result
of the Company's restructuring efforts implemented during fiscal 2001.

Depreciation and amortization  expenses - amortization of capitalized  software,
goodwill  and  other  acquisition  related  intangibles,   and  depreciation  on
equipment, furniture and fixtures - was $471,276 for the three months ended June
30,  2001  compared to  $1,090,325  in the same  period in 2000.  The  decreased
expense was primarily the result of  management's  decision during the past year
to abandon  certain of the products and  technology  associated  with the SolCom
acquisition.

Net loss for the three months ended June 30, 2001 was  $1,991,916  compared to a
loss of $4,635,239  for the same period in 2000.  This  represents a significant
year over year  improvement  despite the reduction in revenue seen this quarter.
This is  attributable  to the  Company's  focused  efforts  to reduce  expenses,
improve operating margins and stabilize the operating environment.

FINANCIAL CONDITION AND CAPITAL RESOURCES

Net cash used in  operating  activities  during the three  months ended June 30,
2001 was  $824,537  compared  to net cash used during the same period in 2000 of
$3,526,591.  The decrease 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 net loss incurred during the quarter.

Net cash used in  investing  activities  during the three  months ended June 30,
2001 was  $74,860  compared  to net cash used  during the same period in 2000 of
$1,488,092. The majority of this was capitalized software of $62,490.

Net cash used in  financing  activities  during the three  months ended June 30,
2001 was ($13,445)  compared to net cash provided during the same period in 2000
of $92,593.

The Company  believes that it will have  sufficient  cash to fund its operations
for the next 12


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<PAGE>

months. The Company's current operating plan includes certain  assumptions,  the
most important of which is the attainment of future revenues equivalent to those
attained in FY2001.  To the extent  that  revenues in FY2002 fall below those of
FY2001,  the Company may (i) have to modify its current  operating plan to scale
back its  expenditures  for  personnel  and  other  operating  costs in order to
preserve  operating  cash;  and/or (ii) raise  additional  funds through  equity
and/or debt financing. In addition, the Company is presently evaluating the need
to raise  additional funds through debt or equity financing to grow its business
through  expansion and/or through  acquisitions.  There can be no assurance that
the Company will be able to obtain any such  financing,  or that such additional
financing can be obtained on terms that are acceptable to the Company.

NEW ACCOUNTING PRONOUNCEMENTS

In December  1999,  the SEC issued  Staff  Accounting  Bulletin  ("SAB")  No.101
Revenue Recognition in Financial  Statements.  SAB No.101 did not have an impact
on the Company's financial statements.

In June 1998,  The  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  ("SFAS") No. 133,  "Accounting  for Derivative
Instruments and Hedging  Activities."  Among other provisions,  it requires that
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  Activites - Deferral of the
Effective  Date of FASB  Statement No. 133, and Amendment of FASB  Statement No.
133",  is  effective  for the  Company as of April 1, 2001.  The  Company has no
transition adjustment as a result of adopting the standard.

In  July  2001,  the  Financial  Accounting  Standards  Board  ("FASB"),  issued
Statement  of  Financial   Accounting  Standards  ("SFAS")  No.  141,  "Business
Combinations" and No. 142, "Goodwill and Other Intangible Assets". Statement No.
141 requires that all business  combinations  initiated  after June 30, 2001, be
accounted for using the purchase method of accounting.  In addition,  it further
clarifies the criteria for  recognition  of intangible  assets  separately  from
goodwill. Statement No. 142 establishes new standards for goodwill acquired in a
business  combination  and  eliminates  the  amortization  of goodwill  over its
estimated  useful  life.  Rather,  goodwill  will now be tested  for  impairment
annually, or more frequently if circumstances indicate potential impairment,  by
applying a fair value based test.  The Company  expects to adopt this  statement
during the second quarter of fiscal 2002.  Management  does not believe that the
adoption  of these  standards  will  have a  material  impact  on the  Company's
financial position or results of operation.



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<PAGE>



PART II.  OTHER INFORMATION


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


(a)    Exhibits:  None.

(b)    Reports on Form 8-K:

       (i)   On April 16, 2001 the Company filed a report on form 8-K, reporting
             the issuance of a press release relating to the Company's fourth
             quarter preliminary financial results.

       (ii)  On June 29, 2001 the Company filed a report on form 8-K, reporting
             the issuance of a press release announcing the date of the
             Company's 2001 annual meeting of stockholders.


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<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:  August 14, 2001



                               ION NETWORKS, INC.



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



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