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 December 31, 1999

                                                                 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)


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 14,220,321 shares of Common Stock outstanding as of January 31, 2000.

Transitional Small Business Disclosure Format:

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



<PAGE>


                       ION NETWORKS, INC. AND SUBSIDIARIES

                                   FORM 10-QSB

                     FOR THE QUARTER ENDED DECEMBER 31, 1999



PART I.  FINANCIAL INFORMATION                                             PAGE
                                                                           ----

Item 1.  Condensed Consolidated Financial Information                        2

         Condensed Consolidated Balance Sheets as of December 31, 1999
             and March 31, 1999 (Unaudited)                                  3

         Condensed Consolidated  Statements of Operations for the Three
             and Nine Months  ended  December 31, 1999 and December 31,
             1998
             (Unaudited)                                                     4

         Condensed  Consolidated  Statements of Cash Flows for the Nine
             Months ended December 31, 1999 and December 31, 1998
             (Unaudited)                                                     5

         Condensed Consolidated Statement of Stockholders' Equity for the
             Nine Months ended December 31, 1999 (Unaudited)                 6

Notes to Condensed Consolidated Financial Statements (Unaudited)             7

Item 2.           Management's Discussion and Analysis                       9

PART II. OTHER INFORMATION

Item 5.           Other Information                                         15

Item 6.           Exhibits and Reports on Form 8-K                          15

SIGNATURES                                                                  16



<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/A for the year ended
March 31, 1999.






                                       2
<PAGE>

<TABLE>
<CAPTION>


                                             ION NETWORKS, INC. AND SUBSIDIARIES
                                            CONDENSED CONSOLIDATED BALANCE SHEETS
                                                         (Unaudited)
                                                                                           December 31,          March 31,
                                                                                               1999                1999
                                                                                         -----------------    ----------------
ASSETS
Current assets:
<S>                                                                                          <C>                   <C>
       Cash and cash equivalents................................................             $ 11,854,318          $  165,994
Accounts receivable, net of allowance for doubtful accounts
       of $283,607 and $150,000, respectively...................................                4,057,034           3,092,867

       Other receivables........................................................                        -                   -
       Inventory, net ..........................................................                1,512,693           2,554,643
       Deferred tax assets......................................................                  539,539             422,310
       Prepaid expenses and other current assets................................                  153,404             433,031
                                                                                         ----------------     ---------------
          Total current assets..................................................               18,116,988           6,668,845
Property and equipment at cost, net of accumulated depreciation of $ 1,381,601
       and  $991,347,  respectively ............................................                1,561,553           1,010,369
Capitalized software, less accumulated amortization of
       $3,140,933 and $1,951,715, respectively..................................                4,448,354           5,350,388
Goodwill and other acquisition - related intangibles, less
       accumulated amortization of $795,226 and $63,810, respectively...........                2,173,824           2,905,240
Security deposits...............................................................                   31,993              38,633
                                                                                         -----------------    ---------------
       Total assets.............................................................             $ 26,332,712        $ 15,973,475
                                                                                         =================    ===============


LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
      Current portion of long-term debt.........................................               $  178,243          $  488,948
      Accounts payable and accrued expenses ....................................                2,115,743           3,890,152
      Accrued payroll and related liabilities ..................................                  550,434             813,266
      Deferred income ..........................................................                  177,321             269,457
      Other current liabilities ................................................                  417,433           1,909,072
                                                                                         -----------------    ----------------
         Total current liabilities .............................................                3,439,174           7,370,895
Deferred tax liabilities, net ..................................................                  305,505             188,276
Long-term debt .................................................................                  486,131           2,013,266
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
         13,947,862  shares and  outstanding  13,885,831  shares at December 31,
         1999; issued 8,286,670 shares and outstanding
         8,224,639 shares at March 31 1999......................................                   13,948               8,287
Additional paid-in capital......................................................               33,128,496          14,858,560
Accumulated deficit ............................................................             (10,806,176)          (8,228,641)
Accumulated other comprehensive income..........................................                 (27,167)             (29,969)
                                                                                         -----------------     ---------------
                                                                                               22,309,101           6,608,237
Less-Treasury stock 62,031 shares, at cost at December 31, 1999 and
         March 31, 1999.........................................................                 (207,199)           (207,199)
                                                                                         -----------------     ---------------
Total stockholders' equity......................................................               22,101,902           6,401,038
                                                                                         -----------------     ---------------
Total liabilities and stockholders' equity......................................             $ 26,332,712        $ 15,973,475
                                                                                         =================    ================



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)

                                                                 Three months ended                  Nine months ended
                                                                    December 31,                       December 31,
                                                                1999             1998             1999              1998
                                                           ---------------  ---------------  ----------------  ----------------
Revenue                                                        $6,338,988       $3,273,701      $ 17,020,334        $9,451,604

Cost of sales.........................................          2,376,852        1,372,154         6,032,612         3,436,590
                                                          ---------------  ---------------  ----------------  ----------------

Gross margin..........................................          3,962,136        1,901,547        10,987,722         6,015,014

           Research and development expenses............        1,251,498          637,852         2,991,365         1,556,402

           Selling, general and administration .........        2,549,829        1,469,189         7,569,472         3,926,276

           Depreciation and amortization ...............        1,016,833           96,037         2,956,653           410,616
                                                          ---------------  ---------------  ----------------  ----------------

(Loss) income from operations.........................           (856,024)        (301,531)       (2,529,768)          121,720

Interest income.......................................             75,020                -           123,679             5,139

Interest expense......................................            (17,938)         (25,445)         (171,446)          (55,725)
                                                           ---------------  ---------------  ----------------  ----------------

(Loss) income before income tax (benefit) expense.....        $  (798,942)        (326,976)       (2,577,535)           71,134
                                                           ---------------  ---------------  ----------------  ----------------

           Income tax (benefit) expense.................                -         (108,868)                -            39,723

                                                           ===============  ===============  ================  ================
Net (loss) income.....................................        $  (798,942)      $ (218,108)     $ (2,577,535)        $  31,411
                                                           ===============  ===============  ================  ================


PER SHARE DATA
Net (loss) income per share
           Basic........................................       $   (0.06)       $    (0.04)        $   (0.22)         $   0.01
           Diluted......................................       $   (0.06)       $    (0.04)        $   (0.22)                -

Weighted average number of common shares outstanding:
           Basic........................................       13,378,574        5,465,331        11,499,791         5,490,922
           Diluted......................................       13,378,574        5,465,331        11,499,791         6,455,398

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



                                       4

<PAGE>



                                             ION NETWORKS, INC. AND SUBSIDIARIES
                                       CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                            FOR THE NINE MONTHS ENDED DECEMBER 31,
                                                         (UNAUDITED)
                                                                                             1999                   1998
                                                                                       -----------------      -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
    Net (loss) income...........................................................          $ (2,577,535)              $  31,411
    Adjustments to reconcile net (loss) income to net cash used in
    operating activities:
      Depreciation and amortization.............................................             2,956,653                 410,616
      Provision for doubtful accounts...........................................               133,607                 (30,751)
      Provision for product warranty                                                            30,000
      Noncash stock-based compensation charges..................................               144,000

      Deferred tax provision ...................................................                     -                  39,723
Changes in operating assets and liabilities:
    (Increase) decrease in
      Accounts receivable ......................................................            (1,097,774)               (125,495)
      Inventory ................................................................               965,299                (611,216)
      Prepaid expenses and other current assets ................................               279,627                (307,989)
      Security deposits ........................................................                 6,640                  (4,082)

    Increase (decrease) in
      Accounts payable and accrued expenses.....................................            (1,697,758)                783,418
      Accrued payroll and related liabilities ..................................              (262,832)               (136,049)
      Deferred income ..........................................................               (92,136)                (85,900)
      Other current liabilities ................................................            (1,521,639)                (67,566)
                                                                                       ----------------      -----------------
Net cash used in operating activities ..........................................            (2,733,848)               (103,880)
CASH FLOWS FROM INVESTING ACTIVITIES
    Acquisition of property and equipment ......................................            (1,043,336)               (383,582)
    Capitalized software .......................................................            (1,113,662)               (759,623)
    Proceeds from the sales of software licenses................................               285,414
    Other assets................................................................                     -               (1,026,064)
                                                                                       -----------------      -----------------
Net cash used in  investing activities .........................................            (1,871,584)             (2,169,269)
CASH FLOWS FROM FINANCING ACTIVITIES
       Borrowings on revolving line of credit ..................................               253,720
       Proceeds from debt.......................................................               450,000               1,300,428
       Principal payments on debt ..............................................            (2,541,560)                (30,009)
       Proceeds from sales of common stock......................................            18,131,596                 840,896
                                                                                       -----------------      -----------------
   Net cash provided by financing activities ...................................            16,293,756               2,111,315
                                                                                       -----------------      -----------------
   Net increase (decrease) in cash .............................................            11,688,324                (161,834)
   Cash and cash equivalents, beginning of year ................................               165,994                 507,726
   Cash and cash equivalents, end of period.....................................           $11,854,318               $ 345,892
                                                                                      ================       =================

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


                                       5
<PAGE>



                       ION NETWORKS, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                   FOR THE NINE MONTHS ENDED DECEMBER 31, 1999
                                   (UNAUDITED)
                                                                                          Accumulated
                                                       Additional                         Other                          Total
                                                         Paid-in      Accumulated     Comprehensive      Treasury    Stockholders'
                              Shares      Par Value      Capital        Deficit           Income          Stock         Equity
                            ------------ ------------ ------------  ---------------- ----------------- -----------  --------------
Balance March 31, 1999       8,286,670   $  8,287   $ 14,858,560     $ (8,228,641)        $ (29,969)   $ (207,199)    $ 6,401,038


Net loss                                                               (2,577,535)                                     (2,577,535)

Issuance of common
stock                         3,000,000     3,000    12,497,000                                                        12,500,000

Exercise of stock options
   and warrants               2,661,192    2,661      5,628,936                                                         5,631,597

Noncash stock-based                                     144,000                                                           144,000
  compensation

Translation adjustments                                                                     2,802                           2,802

                            ============ ============ ============  ================ =================-============= ============
Balance December 31,
1999                         13,947,862     $ 13,948  $ 33,128,496   $ (10,806,176)      $(27,167)    $ (207,199)     $22,101,902

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



                                       6
<PAGE>

                       ION NETWORKS, INC. AND SUBSIDIARIES
                         NOTES TO CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS
                                DECEMBER 31, 1999
                                   (Unaudited)



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

The condensed  consolidated balance sheets as of December 31, 1999 and March 31,
1999, the condensed consolidated statements of operations for the three and nine
month periods  ended  December 31, 1999 and for the same periods in 1998 and the
condensed consolidated  statements of cash flows for the nine 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 December 31, 1999 and 1998 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  financial
statements are read in  conjunction  with the audited  financial  statements and
notes thereto  included in the annual report on Form 10-KSB/A for the year ended
March 31, 1999.

Note 2 - Inventory
------------------

Inventory,  net of reserve for  obsolescence of $52,200 and $185,000 at December
31, 1999 and March 31, 1999, respectively, consists of the following:

                                  December 31, 1999          March 31, 1999
                                  -----------------          --------------

Raw materials                          $  726,093               $ 1,570,150
Work in process                           196,650                   223,229
Finished goods                            589,950                   761,264
                                          -------                   -------
Total                                 $ 1,512,693               $ 2,554,643
                                      ===========               ===========



Note 3 - 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:


                                       7
<PAGE>

<TABLE>
<CAPTION>

                                                       Three Months      Three Months       Nine Months       Nine Months
                                                          Ended             Ended              Ended             Ended
                                                         12/31/99          12/31/98          12/31/99           12/31/98
                                                         --------          --------          --------           --------

<S>                                                      <C>               <C>               <C>                <C>
Weighted Average # of Shares Outstanding                 13,378,574        5,465,331         11,499,791         5,490,922
Incremental Shares for Common Equivalents                 3,237,113          727,023          3,422,688           964,476
                                                          ---------          -------          ---------           -------
Diluted Shares Outstanding                               16,615,687        6,192,354         14,922,479         6,455,398
                                                         ==========        =========         ==========         =========
</TABLE>


The potential common shares of 3,237,113,  727,023 and 3,422,688,  respectively,
were excluded from the  computation of diluted  earnings per share for the three
months ended  December 31, 1999 and 1998 and the nine months ended  December 31,
1999 because their inclusion  would have had an antidilutive  effect on earnings
per share due to the Company's net loss for each respective period.

Note 4 - 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)  income  per the  financial  statements  and
comprehensive income.


<TABLE>
<CAPTION>

                                                       Three Months      Three Months       Nine Months       Nine Months
                                                          Ended             Ended              Ended             Ended
                                                         12/31/99          12/31/98          12/31/99           12/31/98
                                                         --------          --------          --------           --------

<S>                                                     <C>               <C>             <C>                    <C>
Net (loss) income                                       $ (798,942)       $ (218,108)     $ (2,577,535)          $ 31,411
Effect of foreign currency translation                     (18,156)          (11,755)            2,802             (1,514)
                                                           -------           -------            ------             -------
Comprehensive (loss) income                             $ (817,098)       $ (229,863)     $  2,574,733           $ 29,897
                                                        ===========       ===========     =============          ========


</TABLE>

Note 5 - Contingent Liabilities:
--------------------------------

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

Note 6 - Borrowings:
--------------------

On May 5, 1999,  the Company  entered into a borrowing  agreement  for $300,000.
This  borrowing  is  collateralized  by certain  property  and  equipment of the
Company.  The loan with a term of 3 years is payable monthly at an interest rate
of 8.5%. Principal repayments under this loan are $75,871, $98,371, $107,026 and
$18,732 for the years ended March 31, 2000, 2001, 2002, and 2003.

In November  1999,  the Company  entered  into a line of credit  agreement  with
United  National Bank for  $2,500,000  which is available to July 31, 2000.  The
Company has $0 outstanding against this line of credit at December 31, 1999.


Note 7 - Related Party Transaction:
-----------------------------------

The  Company  borrowed  funds  from a director  of the  Company in the amount of
$150,000 on April 14,  1999.  This amount was fully  repaid  along with a market
rate of interest  during the quarter ended June 30, 1999. The amount of interest
expense was not material to the Company.




                                       8
<PAGE>

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

The Company has recorded a valuation  allowance against a portion of the federal
and state net  operating  loss carry  forwards  and a full  valuation  allowance
against  the foreign net  operating  loss  carryforwards  and the  research  and
development credit as management believes, at December 31, 1999, that it is more
likely than not that  substantially all of the net operating loss  carryforwards
and credits will expire without being utilized.

The increase in the  valuation  allowance  is due  primarily to the current nine
months net operating loss carryforwards for federal and state purposes, $148,453
- tax effected, and foreign purposes,  $274,519 - tax effected, and research and
development  credits,  $15,000,  offset by the utilization of a small portion of
foreign net operating loss carryforwards,  ($12,777) - tax effected,  during the
nine months ended December 31, 1999.

The Company's non  NOL-related  deferred tax assets  recorded are expected to be
utilized as the Company has sufficient  taxable temporary  differences that will
reverse in the loss carryforward period.

Note 9-Financing:
-----------------


In June 1999,  the Company  raised net  $3,000,000 in connection  with a private
financing of Common Stock.  In August 1999, the Company raised an additional net
$9,500,000 in connection with a private  financing of Common Stock.  The Company
used a portion of the funds  received to pay fees related to the  placement,  as
well as to pay down the outstanding line of credit in the amount of $2,250,000.

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 OPERATIONS

For the three months ended December 31, 1999 compared to the same period in 1998
--------------------------------------------------------------------------------

          Revenue for the three months ended  December 31, 1999,  was $6,338,988
compared to revenue of  $3,273,701  for the same period in 1998,  an increase of
$3,065,287 or 93.6%.  The increase was primarily  from  increased  product sales
from the Company's  PRIISM's  Architecture  current range of products  (with the
Sentinel 2000 products in particular),  higher professional  services income and
the  inclusions of revenue  obtained as the result of the  acquisition of SolCom
Systems Limited ("SolCom") in March 1999 and the purchase of certain assets from
LeeMAH DataCom Securities Corporation ("LeeMAH") in February of 1999, the latter
resulting in a new division called Secur@ccess.  During the quarter, the Company
developed and licensed the rights to certain  customized modules of its software
via a perpetual license agreement to an existing customer for approximately $1.5
million.  This  development and licensing had a positive effect on the Company's
rate of revenue growth and its gross margins in the third  quarter.  The Company
has no future  obligations to the customer with respect to this  development and
the  licensed  software.  The Company is in  negotiations  with the customer for
additional modules of software product which may be perpetually  licensed in the
last quarter of fiscal 2000, which ends March 31, 2000. The Company may elect to
continue to pursue these kinds and/or  similar kinds of  activities  and revenue
opportunities in the future.


                                       9
<PAGE>



         Cost of goods sold for the three  months  ended  December  31, 1999 was
$2,376,852  compared to  $1,372,154  for the same period in 1998, an increase of
73.2%,  as the result of increased  business  activity.  Cost of goods sold as a
percentage  of revenue  decreased to 37.5% of revenue for the three months ended
December 31, 1999 compared to 41.9% for the same period in 1998  principally due
to the software license sales described above.

          Research  and  development   expense,   net  of  capitalized  software
development,  for the  three  months  ended  December  31,  1999 was  $1,251,498
compared to $637,852 for the same period in 1998.  As a  percentage  of revenue,
research and development  expenses  increased to 19.7% compared to 19.5% for the
same period in 1998.  The  increase of $613,646 was due to the  assimilation  of
SolCom's  and  LeeMAH's  research and  development  efforts  into the  Company's
existing  research and  development  efforts in order to provide further support
and  enhancements  in developing the next  generation of the Company's  PRIISM'S
Architecture  range of products  (Networx  and  PRIISM's  Manager) as well as to
support  enhancements  to the current  products  within the PRIISM's  family (in
particular  the continued  growth of the Sentinel  2000),  and the impact of the
cost of materials necessary to construct  prototypes of the new product prior to
their sales launch.

          Selling,  general and  administrative  expenses  for the three  months
ended  December 31, 1999 were  $2,549,829  compared to  $1,469,189  for the same
period in 1998. As a percentage of revenue,  selling general and  administrative
expenses  decreased to 40.2% compared to 44.9% for the same period in 1998. This
increase  of  $1,080,640  (which  includes  non-cash  stock-based   compensation
charges) was primarily from the Company's  aggressive growth plans and the sales
and marketing support thereto,  as well as the increased existing product growth
and projected new product introductions,  coupled with the acquisition of SolCom
and of Secur@ccess.

         Depreciation and amortization expenses,  which includes amortization of
capitalized software, goodwill and other acquisition related intangibles,  along
with depreciation on equipment,  furniture and fixtures,  was $1,016,833 for the
three months ended  December 31, 1999  compared to $96,037 in the same period in
1998.  The  increased  expense  was  primarily  the result of the  goodwill  and
capitalized  software  associated with the SolCom  acquisition in March 1999 and
the acquisition of certain assets associated with LeeMAH in February 1999, along
with the  amortization of increased  levels of capitalized  software  related to
research  and  development  activities  deemed  to  have  reached  technological
feasibility.

         Income tax provision  for the three months ended  December 31, 1999 was
$0 compared to a benefit of $108,868, for the same period in 1998. The provision
of $0 at December 31, 1999 was the result of the additional  valuation allowance
recorded on the current  quarter net operating loss  carryforwards  for federal,
state, and foreign purposes that the company believes, at December 31, 1999, are
more likely than not to expire unutilized.

          Net loss after taxes for the three months ended  December 31, 1999 was
$798,942  compared to $218,108  for the same period in 1998 based on the factors
discussed above.

For the nine months ended December 31, 1999 compared to the same period in 1998
--------------------------------------------------------------------------------

          Revenue for the nine months ended December 31, 1999,  was  $17,020,334
compared to revenue of  $9,451,604  for the same period in 1998,  an increase of
$7,568,730 or 80.1%.  The increase was primarily  from  increased  product sales
from the Company's  current range of PRIISM's  Architecture  products  (with the
Sentinel 2000 products in particular),  higher professional  services income and
the inclusion of revenue obtained as the result of the acquisitions of SolCom in
March 1999 and certain assets from LeeMAH in February 1999, the latter resulting
in a new  division  called  Secur@ccess.  During the nine  months,  the  Company
developed and licensed the rights to certain  customized modules of its software
via a perpetual license agreement to an existing customer for approximately $2.7
million.  This  development and licensing had a positive effect on the Company's
rate of  revenue  growth and its gross  margins in the first nine  months of the
fiscal year. The Company has no future  obligations to the customer with respect
to this


                                       10



<PAGE>

development and the licensed  software.  The Company is in negotiations with the
customer for  additional  modules of software  product which may be  perpetually
licensed in the last quarter of fiscal  2000.  The Company may elect to continue
to   pursue   these  kinds  and/or similar  kinds  of  activities   and  revenue
opportunities in the future.

         Cost of goods sold for the nine  months  ended  December  31,  1999 was
$6,032,612  compared to  $3,436,590  for the same period in 1998, an increase of
75.5%,  as a result of  increased  business  activity.  Cost of goods  sold as a
percentage of revenue  decreased to 35.4% for the nine months ended December 31,
1999 compared to 36.4% for the same period in 1998,  due to the impact of higher
professional services income in the current nine month period.

          Research  and  development  expenses,   net  of  capitalized  software
development, for the nine months ended December 31, 1999 was $2,991,365 compared
to $1,556,402 for the same period in 1998. As a percentage of revenue,  research
and  development  expenses  increased  to 17.6%  compared  to 16.5% for the same
period in 1998.  The increase in both dollars and  percentage of revenue was due
to the  assimilation of SolCom's and LeeMAH's  research and development  efforts
into the Company's existing research and development efforts in order to provide
further support and  enhancements in developing the Company's next generation of
the  Company's  PRIISM's  Architecture  range of products  (Network and PRIISM's
Manager),  as well as to support the enhancements to the current products within
PRIISM's  family (in particular  the continued  growth of Sentinel 2000) and the
impact of the cost of materials  necessary to  construct  prototypes  of the new
products prior to their sales launch.

         Selling,  general and administrative expenses for the nine months ended
December 31, 1999 were $7,569,472  compared to $3,926,276 for the same period in
1998. As a percentage of revenue,  selling general and  administrative  expenses
increased to 44.5% compared to 41.5% for the same period in 1998.  This increase
results  primarily from the Company's  aggressive growth plans and the sales and
marketing support thereof,  as well as costs associated with increased  existing
product  growth  and  projected  new  product  introductions,  coupled  with the
acquisition of SolCom and establishment of the Secur@ccess division.

         Depreciation and amortization expenses,  which includes amortization of
capitalized  software  and  goodwill,  along  with  depreciation  on  equipment,
furniture and fixtures,  was  $2,956,653  for the nine months ended December 31,
1999 compared to $410,616 in the same period in 1998. The increased  expense was
primarily the result of the goodwill and  capitalized  software  associated with
the SolCom  acquisition in March 1999 and the acquisition of certain assets from
LeeMAH,  along  with  the  impact  of a  higher  capitalized  software  expenses
associated with new research and development  activities and increased equipment
purchases  to support  the sales and  infrastructure  necessary  to support  the
project sales growth.

         Income tax provision for the nine months ended December 31, 1999 was $0
compared to a provision of $39,723 for the same period in 1998. The provision of
$0 at December  31,  1999 is the result of the  additional  valuation  allowance
recorded on the current  period net operating  loss  carryforwards  for federal,
state, and foreign purposes that the Company believes, at December 31, 1999, are
more than likely to expire unutilized.

          Net (loss)  income after taxes for the nine months ended  December 31,
1999 was a loss of $2,577,535  compared to income of $31,411 for the same period
in 1998 based on the factors discussed above.

IN-PROCESS RESEARCH AND DEVELOPMENT ("IPR&D")  - DESCRIPTION AND ANALYSIS

         In connection  with the Company's  acquisition  of SolCom in the fourth
quarter of fiscal 1999, the Company  allocated  $3,490,177 of the purchase price
thereof to purchased  IPR&D.  The following  provides an update on the status of
the projects included in the IPR&D analysis.


                                       11

<PAGE>

          NetworX is a New Modular  product line being  developed as part of the
Company's  PRIISM's  Architecture  range  of  products.   NetworX  will  be  the
industry's first integrated  platform for proactive,  remote,  real time, secure
management and monitoring of voice,  data and video  networks.  It uses Dial up,
Telnet  or  SNMP  connections  so  that  managers  can  monitor,   evaluate  and
proactively  control all aspects of their networks from a single,  remote point.
NetworX  Version 1 was released in September  1999,  with new daughter cards for
Frame Relay (E1, T1, and V series)  expected to be fully  released in the fourth
quarter fiscal year 2000.

         Sentinel III products offer a range of  comprehensive  site  management
tools for centralized  remote  maintenance of large  distributed  voice and data
networks. All Sentinel products will feature Alarm & Fault Management,  PBX Toll
Fraud Detection, Environmental Monitoring and Control as well as Security Access
Management.  Sentinel  III,  previously  reported  at  fiscal  year end as a New
Modular  product,  was an intelligent  port  controller that would have combined
remote monitoring and Sentinel network device management,  allowing control of a
network  as well as a  comprehensive  picture  of its  activities.  The  Company
elected to re-badge the Sentinel III as a less expensive (slower processer, less
memory, etc.) version of the NetworX product.

         The  Company is  currently  developing  an ASIC  (Application  Specific
Integrated Circuit), a based range of Modular product, that will incorporate all
the hardware and software required to carry out specific tasks on a single chip.
This should lead to a substantial  increase in processing speed and reduction in
build costs.  Designing  the ASIC  requires the Company to experience a learning
curve while the engineers become familiar with this technology.  Initially there
will be one ASIC but once the initial ASIC has been developed,  there will be an
ongoing  development to introduce more capabilities and features into ASICs. The
ASIC  development  project  was put on  hold  by  management  to  further  focus
resources other development  efforts. As a result the ASIC is only 20% completed
at December 31, 1999. Its expected release date has been pushed back and will be
re-visited as business and market conditions warrant sometime during fiscal year
2001.  Research and development  costs to complete are estimated to be in excess
of $350,000.

Financial Condition and Capital Resources

         During the first nine months ended  December 31,  1999,  the  Company's
working capital  position  improved  substantially  as the Company raised over $
12.5  million  dollars in equity  funds  through  the  issuance of new shares in
private  placements,  as well as  over  $5.6  million  of cash  relating  to the
exercise of certain  warrants and options.  Working capital (net of deferred tax
assets) at December 31, 1999 increased to a positive $14,138,275 from a negative
$1,124,360 at March 31, 1999.

         Net cash used in  operating  activities  during the nine  months  ended
December  31,  1999  was  $2,733,848  compared  to net  cash  used in  operating
activities during the same period in 1998 of $103,880.  The increase in net cash
used was primarily the result of higher accounts  receivables  for sales,  along
with cash  outflows for account  payables,  accrued  expenses and other  current
liabilities partially offset by decreases in inventory.

          Net cash used in  investing  activities  during the nine months  ended
December  31,  1999 was  $1,871,584  compared  to net cash used  during the same
period in 1998 of  $2,169,269.  The  decrease in net cash used was the result of
over $1.0 million of acquisition  related  expenditures in period ended December
31, 1998. Cash received from sales of software licenses was completely offset by
increases in software  expenditures.  In addition, in 1999, the Company expended
an  additional  $660,000  of cash  on  property  and  equipment  mostly  for the
Company's new headquarters.

         Net cash provided by financing  activities during the nine months ended
December 31, 1999 was $16,293,756  compared to net cash provided during the same
period in 1998 of  $2,111,315.  The increase


                                       12

<PAGE>


in net cash provided was primarily the result of two private sales (as described
further  below) of Common  Stock,  along with the proceeds  from the exercise of
warrants,  as well as the exercise of certain  employee stock options.  Net cash
provided was partially  offset by full payment of the  Company's  line of credit
with a portion of the funds received in the second private sale of common stock.

         From April 1999 through  December 1999,  the Company raised  $5,631,597
through the exercise of warrants issued in connection  with a private  financing
of Common Stock and warrants to purchase Common Stock  consummated in April 1996
as well as the exercise of certain  employee  stock  options.  In June 1999, the
Company raised net $3,000,000 in connection  with a private  financing of Common
Stock.

         In August 1999 the Company raised net  $9,500,000 in connection  with a
private  financing  of Common  Stock.  The  Company  used a portion of the funds
received to pay down the outstanding line of credit in the amount of $2,250,000.

         In October 1998,  the Company  entered into a line of credit  agreement
with United National Bank with an available  balance of $2,000,000  through July
31, 1999,  which was extended in July 1999 through  September 30, 1999. In April
1999, the line of credit was increased to $2,250,000.  On September 9, 1999 this
line of credit  was paid down in full with some of the  proceeds  of the  August
1999 private financing. On September 30, 1999 the line of credit expired.

          In November  1999, the Company  entered into a new $2,500,000  line of
credit  agreement with United  National  Bank.  This line of credit is available
through  July 31,  2000.  No portion of the line of credit has been  utilized at
December 31, 1999.

         The  Company  expects  to  fund  the  expansion  of  its  business  and
operations and meet its short and long-term  liquidity needs from available cash
and working capital from funds derived from future operating  revenue as well as
through  additional  financing  from  outside  sources.  The  Company  currently
believes that it will have sufficient  cash flows to meet its operational  needs
over the next twelve months.

YEAR 2000
---------

General

          Many currently  installed  computer systems and software  products are
coded to accept only two digit entries in the date code field.  Beginning in the
year 2000,  these date code  fields  will need to accept  four digit  entries to
distinguish the twentieth  century dates.  The Company uses software and related
technologies that are affected by the "Year 2000 problem." The Company began the
process of  identifying  the changes  required to their  computer  programs  and
hardware  during 1996.  The Company  believes that all of its major programs and
hardware are Year 2000 compliant.  However, there can be no assurance that other
companies'  computer systems and applications on which the Company's  operations
rely, will be timely  converted,  or that any such failure to convert by another
company would not have a material  adverse  effect on the company's  systems and
operations.  Furthermore,  there can be no assurance  that the software that the
Company  uses which has been  designed to be Year 2000  compliant  contains  all
necessary date code changes.  To date, the Company has not  experienced any Year
2000 problems.

Third Parties


                                       13

<PAGE>

         The Company has also initiated formal  communications  with significant
suppliers  and other key third  parties  to  determine  the  extent to which the
Company is vulnerable  to those third parties  failure to resolve their own Year
2000  compliance  issues.  There can be no  assurance  that the systems or other
companies on which the Company's systems rely will be timely converted,  or that
a failure to convert by another  company,  or a conversion  that is incompatible
with the  Company's  systems,  would not have a material  adverse  effect on the
Company's results of operations.

Risk Assessment/Contingency Planning

         At this time,  the Company  believes its worst case scenario  regarding
the Year 2000  problem  would  include  (i) a key  material  vendor  or  service
provider  experiencing  problems  with  delivery  of  materials,  components  or
services;  (ii) the failure of  infrastructure  services  provided by government
agencies and other third parties  (e.g.,  electric,  telephone,  transportation,
Internet  services,  etc.).  As noted above,  the Company is evaluating the Year
2000  compliance  status of its key  third-party  vendors to identify  potential
risks for contingency planning purposes.




                                       14
<PAGE>


                           PART II. OTHER INFORMATION

ITEM 5.           OTHER INFORMATION.
------            ------------------

On October 18, 1999,  at a meeting of the Board of  Directors,  the directors of
the  Company  appointed  Mr.  Baruch  Halpern  as an  additional  director,  and
appointed Stephen M. Deixler as the Chairman of the Board of Directors.

Effective  December 29, 1999,  Mr. Alfred M. Leonardi was appointed as the Chief
Financial Officer,  Vice President of Finance and Administration,  Treasurer and
Secretary of the Company by unanimous written consent of the Board of Directors.

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

                  (a)      Exhibits:

                           27. Financial Data Schedule

                  (b)      Reports on Form 8-K:

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




                                       15
<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:  February 10, 2000



                                        ION NETWORKS, INC.



                                          /s/ Alfred M. Leonardi
                                          -----------------------------------
                                          Alfred M. Leonardi, Chief Financial
                                          Officer, Treasurer (Principal
                                          Financial Officer) and duly authorized
                                          officer of the registrant