<PAGE>


                     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 March 31, 2003

                                       OR

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

           For the transition period from ____________ to ____________

                          Commission File No.: 0-13117

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



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


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

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


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

Transitional Small Business Disclosure Format:

Yes___ No X


<PAGE>

                       ION NETWORKS, INC. AND SUBSIDIARIES

                                   FORM 10-QSB

                      FOR THE QUARTER ENDED MARCH 31, 2003

                          PART I. FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                                                                                             Page
                                                                                                                             ----
<S>                                                                                                                            <C>
Item 1. Condensed Consolidated Financial Information                                                                           2

Condensed Consolidated Balance Sheets as of March 31, 2003 (Unaudited) and December 31, 2002                                   3

Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2003 (Unaudited) and 2002 (Unaudited)     4

Condensed Consolidated Statement of Stockholders' Equity for the Three Months ended March 31, 2003 (Unaudited)
     and for the Nine Months ended December 31, 2002                                                                           5

Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2003 (Unaudited) and 2002 (Unaudited)     7

Notes to Condensed Consolidated Financial Statements                                                                           8

Item 2. Management's Discussion and Analysis                                                                                  14

Item 3. Controls and Procedures                                                                                               17

                                                 PART II. OTHER INFORMATION

Item 1.  Legal Proceedings                                                                                                    18

Item 2.  Changes in Securities                                                                                                18

Item 3.  Defaults Upon Senior Securities                                                                                      18

Item 4.  Submission of Matters to a Vote of Security Holders                                                                  18

Item 5.  Other Information                                                                                                    18

Item 6.  Exhibits and Reports on Form 8-K                                                                                     19

SIGNATURES                                                                                                                    22
</TABLE>


                                       1
<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 Transition Report on Form 10-KSB for the nine months ended December
31, 2002.




                                       2
<PAGE>

                       ION NETWORKS, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                      March 31,         December 31,
                                                                                        2003               2002
                                          Assets                                     (Unaudited)
                                                                                    ------------       ------------

Current assets
<S>                                                                                 <C>                <C>
   Cash and cash equivalents                                                        $    397,185       $    865,684
   Accounts receivable, less allowance for doubtful accounts of
     $90,799, and $90,521, respectively                                                  453,985            561,762
   Inventory, net                                                                      1,174,182          1,259,268
   Prepaid expenses and other current assets                                             121,549            203,934
                                                                                    ------------       ------------
     Total current assets                                                              2,146,901          2,890,648

 Restricted cash                                                                              --            125,700
Property and equipment, net                                                              418,694            485,735
Capitalized software, less accumulated amortization of $4,083,247 and
  $3,920,223, respectively                                                               672,202            764,429
Other assets                                                                               4,115             14,878
                                                                                    ------------       ------------
     Total assets                                                                   $  3,241,912       $  4,281,390
                                                                                    ============       ============

                    Liabilities and Stockholders' Equity
Current liabilities
   Current portion of capital leases                                                $     89,033       $     87,057
   Current portion of long-term debt                                                       5,890              4,004
   Accounts payable                                                                    1,099,265          1,195,023
   Accrued expenses                                                                    1,044,974            906,154
   Accrued payroll and related liabilities                                               128,461            185,358
   Deferred income                                                                       129,384            155,021
   Sales tax payable                                                                      73,381             84,025
   Other current liabilities                                                              91,031             89,317
                                                                                    ------------       ------------
     Total current liabilities                                                      $  2,661,419       $  2,705,959
                                                                                    ------------       ------------

Long term portion of capital leases                                                       50,538             73,551
Long term debt, net of current portion                                                        --              5,717

Commitments and contingencies (Note 10)

Stockholders' Equity
   Preferred stock - par value $.001 per share; authorized 1,000,000 shares at
     March 31, 2003,  and December 31, 2002; 200,000 shares designated
     Series A at March 31, 2003 and  December 31, 2002; 166,835 shares
     issued and outstanding at March 31, 2003 and December 31, 2002                          167                167
   Common stock - par value $.001 per share; authorized 50,000,000 shares at
     March 31, 2003 and December 31, 2002; 24,875,500 shares issued and
     outstanding at March 31, 2003 and December 31, 2002                                  24,876             24,876
   Additional paid-in capital                                                         44,585,740         44,680,740
   Notes receivable from officers                                                       (480,658)          (473,405)
   Accumulated deficit                                                               (43,597,858)       (42,722,946)
   Accumulated other comprehensive loss                                                   (2,312)           (13,269)
                                                                                    ------------       ------------
   Total stockholder's equity                                                            529,955          1,496,163
                                                                                    ------------       ------------

     Total liabilities and stockholders' equity                                     $  3,241,912       $  4,281,390
                                                                                    ============       ============
</TABLE>



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)

<TABLE>
<CAPTION>
                                                          Three Months      Three Months,
                                                              Ended              Ended
                                                         March 31, 2003     March 31, 2002
                                                          ------------       ------------
<S>                                                       <C>                <C>
Net sales                                                 $    765,119       $  2,076,197

Cost of sales                                                  243,988            961,085
                                                          ------------       ------------
   Gross Margin                                                521,131          1,115,112
                                                          ------------       ------------

Research and development expenses                              137,399            171,116
Selling, general and administrative expenses                 1,026,703          1,714,159
Depreciation and amortization expenses                         234,115            439,296
                                                          ------------       ------------
   Loss from operations                                       (877,086)        (1,209,459)

   Interest income                                               9,543             22,924
   Interest expense                                             (7,369)            (6,647)
                                                          ------------       ------------
                                                              (874,912)        (1,193,182)
   Loss before income taxes

Income tax expense                                                  --             24,364
                                                          ------------       ------------

   Net loss                                               $   (874,912)      $ (1,217,546)
                                                          ============       ============


Per share data

   Basic and diluted                                      $      (0.04)      $      (0.06)

Weighted average number of common shares outstanding
   Basic and diluted                                        23,512,668         18,890,609
</TABLE>



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




                                       4
<PAGE>

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


<TABLE>
<CAPTION>
                                                                                                                    Accumulated
                                                                                    Additional                         Other
                                                                                      Paid-In       Accumulated     Comprehensive
                                  Preferred                     Common                Capital         Deficit           Loss
                             ---------------------    ---------------------------   ------------    ------------    -------------
                             Shares       Stock         Shares          Stock
                             --------    ---------    ------------    -----------   ------------    ------------    -------------

<S>                                                    <C>             <C>          <C>             <C>                <C>
Balance, March 31, 2002           --           --      25,138,000      $  25,138    $44,381,454     $(37,094,424)      $  27,866
                             --------    ---------    ------------    -----------   ------------    ------------    -------------

Comprehensive loss
   Net loss                                                                                         (5,628,522)

   Translation adjustments                                                                                              (41,135)

   Total comprehensive loss

Issuances of preferred
stock                        166,835      $   167                                       285,136

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

Notes receivable from
officers

Deferred compensation

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

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

Comprehensive loss
   Net loss                                                                                           (874,912)

   Translation adjustments                                                                                                10,957

   Total comprehensive loss

Notes Receivable from
officers

Non-cash stock-based
compensation                                                                           (95,000)
                             --------    ---------    ------------    -----------   ------------    ------------    -------------
Balance, March 31, 2003      166,835      $   167      24,875,500       $ 24,876    $44,585,740     $(43,597,858)     $  (2,312)
                             ========    =========    ============    ===========   ============    ============    =============
</TABLE>



                                       5
<PAGE>

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


<TABLE>
<CAPTION>
                                     Notes                                     Total
                                  Receivable           Deferred            Stockholders'
                                 from Officers       Compensation             Equity
                                 --------------    ------------------    ------------------
<S>                              <C>                <C>                   <C>
Balance, March 31, 2002          $   (549,914)      $       (62,893)      $      6,727,227
                                 --------------    ------------------    ------------------

Comprehensive loss
  Net loss                                                                     (5,628,522)

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

  Total comprehensive loss                                                     (5,669,657)

Issuances of preferred
stock                                                                              285,303

Cancellation of restricted
shares                                                                            (81,112)

Notes receivable from
officers                                76,509                                      76,509

Deferred compensation                                         62,893                62,893

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

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

Comprehensive loss
  Net loss                                                                       (874,912)

  Translation adjustments                                                           10,957
                                                                         ------------------

  Total comprehensive loss                                                       (863,955)

Notes Receivable from
officers                               (7,253)                                     (7,253)

Non-cash stock-based
compensation                                                                      (95,000)
                                 --------------    ------------------    ------------------
Balance, March 31, 2003          $   (480,658)                     -        $      529,955
                                 ==============    ==================    ==================
</TABLE>


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


                                       6
<PAGE>

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



<TABLE>
<CAPTION>
                                                                    Three Months     Three Months
                                                                   Ended March 31,  Ended March 31,
                                                                       2003              2002
                                                                    (Unaudited)       (Unaudited)
                                                                    -----------       -----------

Cash flows from operating activities
<S>                                                                 <C>               <C>
     Net loss                                                       $  (874,912)      $(1,217,546)

Adjustments  to  reconcile  net  loss  to  net  cash  used  in
operating activities:
   Restructuring, asset impairments and other charges,
   non-cash                                                                  --            (2,930)
   Depreciation and amortization                                        234,115           439,296
   Provision for inventory obsolescence                                 (13,544)         (641,434)
   Other charges                                                             --             9,052
   Non-cash stock-based compensation charge                             (95,000)               --
   Issuances of restricted stock                                             --           539,000
   Notes receivable from officers                                        (7,254)         (549,914)
   Deferred compensation                                                     --            62,893
   Changes in operating assets and liabilities:
     Accounts receivable                                                107,777           (46,209)
     Inventory                                                           98,630         1,053,410
     Prepaid expenses and other current assets                           82,385          (224,065)
     Other assets                                                        10,763                --
     Accounts payable and other accrued expenses                         43,062          (233,568)
     Accrued payroll and related liabilities                            (56,897)         (318,810)
     Deferred income                                                    (25,637)          (63,454)
     Sales tax payable                                                  (10,644)           46,544
     Other current liabilities                                            1,714           (80,968)
                                                                    -----------       -----------
       Net cash used in operating activities                           (505,442)       (1,228,703)
                                                                    -----------       -----------

Cash flows from investing activities
   Acquisition of property and equipment                                     --            (4,493)
   Capitalized software expenditures                                    (74,846)         (166,248)
   Related party notes receivable                                            --            14,880
   Restricted cash                                                      125,700           249,300
                                                                    -----------       -----------
       Net cash provided by (used in) investing activities               50,854          (433,797)
                                                                    -----------       -----------

Cash flows from financing activities
   Repayment of restricted stock note                                        --          (162,143)
   Repayment of debt                                                    (24,868)          110,927
   Issuances of common stock and warrants                                    --         3,475,592
   Exercises of options and warrants                                         --            19,258
                                                                    -----------       -----------
       Net cash (used in) provided by financing activities              (24,868)        3,443,634
                                                                    -----------       -----------

Effect of exchange rates on cash                                         10,957            (4,345)
                                                                    -----------       -----------

Net (decrease) increase in cash and cash equivalents                   (468,499)        2,304,025

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

Cash and cash equivalents - end of period                           $   397,185       $ 4,050,657
                                                                    ===========       ===========
</TABLE>



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


                                       7
<PAGE>





                       ION NETWORKS, INC. AND SUBSIDIARIES
                         NOTES TO CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS
                                 March 31, 2003
                                   (Unaudited)

NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:

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

The condensed  consolidated  balance  sheet as of March 31, 2003,  the condensed
consolidated  statements of  operations  for the three month periods ended March
31, 2003 and 2002, the condensed  consolidated  statements of cash flows for the
three month periods ended March 31, 2003 and 2002 and the condensed consolidated
statement  of  stockholders'  equity for the three month  period ended March 31,
2003,  have been  prepared  by the  Company  without  audit.  In the  opinion of
management,  all adjustments (which include only normal  non-material  recurring
adjustments)  necessary for the fair  presentation  of the  Company's  financial
position,  results of operations  and cash flows at March 31, 2003 and 2002 have
been made.

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

Our  consolidated  financial  statements have been prepared on the basis that we
will  continue as a going  concern.  At March 31,  2003,  we had an  accumulated
deficit  of  $43,597,858  and  negative  working  capital of  $514,518.  We also
realized a net loss of $874,912 for the three  months  ended March 31, 2003.  We
have been aggressively  seeking to raise additional  capital through selling our
equity  since  August 2002 and have been unable to secure such  financing  other
than the $300,303 raised from the sale of our preferred stock in September 2002.
Additionally,  our efforts to raise  approximately  $1.5  million of  additional
capital through selling securities and/or debt have not been successful. Because
of the weak  financial  condition  of the  Company,  we  expect  that it will be
necessary  to issue  securities  having a valuation  and terms that are far more
favorable to investors than  securities ION has previously  issued.  In order to
induce  investors to provide capital to ION at this time, it may be necessary to
pledge  all of the  assets of the  Company as  collateral  for such  securities,
provide  liquidation  preferences  at a multiple  of the  purchase  price of the
securities, provide favorable conversion premiums to investors and other similar
terms  which could have a negative  effect on the value of our common  stock and
rights of our equity shareholders upon liquidation or other circumstances. There
is no assurance we can raise the needed $1.5 million or any  additional  capital
on any terms reasonably acceptable to the Company.  Nonetheless,  the management
will continue to have  discussions  with the creditors to defer payments  and/or
extend  payment terms in order to improve the ability for its cash flows to fund
its  ongoing  operations.  The  board of  directors  has also  been  considering
strategic  alternatives  for the Company which have not  materialized as of this
date.  If the  Company is unable to secure  additional  financing,  enter into a
strategic transaction or generate revenues sufficient to sustain its operations,
the  Company  may need to  consider  other  alternatives  including  ceasing its
operations as early as June 2003.

NOTE 2. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

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

Use of Estimates

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

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



                                       8
<PAGE>

Cash and Cash Equivalents

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

Allowance for Doubtful Accounts Receivable

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

Inventory

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

Property and Equipment

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

Capitalized Software

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

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

Research and Development Costs

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

Revenue Recognition Policy

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

Fair Value of Financial Instruments

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

Net Loss Per Share of Common Stock

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


                                       9
<PAGE>

                                                   Three Months    Three Months
                                                      Ended            Ended
                                                      3/31/03         3/31/02
                                                    (Unaudited)     (Unaudited)

Basic Weighted Average No. of Shares Outstanding    23,512,668      18,890,609
Incremental Shares for Common Stock Equivalents      1,669,868       1,101,786
                                                    ----------      ----------
                           Total*                   25,182,535      21,745,265
                                                    ==========      ==========

         * Since there was a loss attributable to common shareholders in these
         periods, the basic weighted average shares outstanding were used in
         calculating diluted loss per share, as inclusion of the incremental
         shares shown in this calculation would be antidilutive. Potential
         common shares of 1,669,868 at March 31, 2003 and 1,101,786 at March 31,
         2002 were excluded from the computation of diluted earnings per share.

Stock Compensation

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

If the  Company had elected to  recognize  compensation  costs based on the fair
value at the date of grant for awards for the three  months ended March 31, 2003
and 2002, consistent with the provisions of SFAS No. 123, the Company's net loss
and basic and diluted net loss per share would have  increased  to the pro forma
amounts  indicated  below:  by  $333,803  and  $0.01  and  $423,865  and  $0.03,
respectively, for the three-months ended March 31, 2003 and 2002.

<TABLE>
<CAPTION>
                                                    Three months               Three months
                                                        ended                     ended
                                                   March 31, 2003              March 31, 2002
                                                     (Unaudited)                (Unaudited)
                                                   --------------               -----------
Net loss
<S>                                                  <C>                         <C>
              As reported                            $  874,912                  $1,217,546
              Deduct: Stock based employee
              compensation determined under
              fair value methods for all awards
              granted since 1994 (inception)            333,803                     423,865
                                                     ----------                  ----------
              Pro forma                              $1,208,715                  $1,641,411
                                                     ==========                  ==========
Basic and diluted net loss per share of common
stock
              As reported                            $     0.04                  $     0.06
              Pro forma                              $     0.05                  $     0.09
</TABLE>


Foreign Currency Translation

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

Income Taxes

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

Warranty Costs

The Company  estimates  its warranty  costs based on historical  warranty  claim
experience.  Future costs for warranties  applicable to sales  recognized in the
current  period are charged to cost of sales.  The warranty  accrual is reviewed
quarterly to reflect the remaining obligation.  Adjustments are made when actual
warranty claim experience differs from estimates.  The warranty accrual included
in  other  current  liabilities  as  of  March  31,  2003  and  March  31,  2002
approximated $48,400 and $55,000, respectively.




                                       10
<PAGE>

NOTE 3 - RESTRICTED CASH:

The Company  maintains a restricted  cash balance in  accordance  with its Lease
Agreement for its Piscataway, NJ facility. On March 17, 2003 the Lease Agreement
for the  Piscataway,  NJ facility was amended to apply $105,908 of the remaining
restricted cash balance of $125,700  towards the payment of the outstanding rent
obligations.  The balance of $19,792 was added to the working  capital  reducing
the letter of credit to zero. This amendment to the Lease Agreement required the
Company to deposit $60,000 into a new letter of credit by December 2003.

NOTE 4 - INVENTORY:

Inventory,  net of allowance for obsolescence of $315,725 and $720,772, at March
31, 2003 and December 31, 2002, respectively, consists of the following:

                      March 31,
                        2003         December 31,
                     (Unaudited)         2002
                      ----------      ----------

Raw materials         $  163,141      $  195,283
Work-in-progress          65,440          84,231
Finished goods           945,601         979,755
                      ----------      ----------
                      $1,174,182      $1,259,268
                      ==========      ==========

NOTE 5 - COMPREHENSIVE INCOME:

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

                                           Three Months      Three Months
                                              Ended             Ended
                                             3/31/03           3/31/02
                                            (Unaudited)       (Unaudited)
                                            -----------       -----------
Net loss                                    $  (874,912)      $(1,217,546)
Effect of foreign currency translation           10,957               997
                                            -----------       -----------
Comprehensive loss                          $  (863,955)      $(1,216,549)
                                            ===========       ===========

NOTE 6 - INCOME TAXES:

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

NOTE 7 - NEW ACCOUNTING PRONOUNCEMENTS:

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

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

In July 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal  Activities,"  which  requires  that a liability for costs
associated with an exit or disposal activity be recognized when the liability is
incurred.  This differs from prior guidance,  which required the liability to be
recognized  when a  commitment  plan  was put  into  place.  SFAS  No.  146 also
establishes  that fair value is the  objective  for initial  measurement  of the
liability.  This statement is effective for exit or disposal activities that are
initiated after December 31, 2002. The Company does not expect that the adoption
of this standard will have a material impact on its financial position,  results
of operations, or cash flow.

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



                                       11
<PAGE>

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

In April 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No.
149,   Amendment  of  Statement  133  on  Derivative   Instruments  and  Hedging
Activities. SFAS No. 149 amends and clarifies financial accounting and reporting
for derivative instruments, including certain derivative instruments embedded in
other  contracts  (collectively  referred  to as  derivatives)  and for  hedging
activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. The changes in SFAS No. 149 improve financial reporting by requiring
that contracts with comparable characteristics be accounted for similarly. Those
changes  will  result  in more  consistent  reporting  of  contracts  as  either
derivatives or hybrid instruments.  SFAS No. 149 is to be applied  prospectively
to  contracts  entered  into or  modified  after  June 30,  2003,  with  certain
exceptions,  and for  hedging  relationships  designated  after  June 30,  2003.
Management believes that adopting this statement will not have a material impact
on the financial statements of the Company.

NOTE 8 - RELATED PARTY TRANSACTIONS:

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

The Former CEO  resigned  his position at the Company  effective  September  29,
2000. On October 5, 2000, the Company  entered into an agreement with the Former
CEO pursuant to which the $750,000  promissory  note for the Loan was amended to
extend the due date to April 30, 2001,  and to provide that interest on the note
shall accrue through September 29, 2000. Pursuant to the terms of the Separation
and Forbearance Agreement between the Company and the Former CEO, the Former CEO
also agreed to reimburse the Company for certain expenses totaling $200,000,  to
be paid over a period of six months ending March 31, 2001. During the year ended
March 31, 2001, $50,000 of the amounts owed to the Company by the Former CEO was
repaid and $22,000 has been recorded as a non-cash  offset as a result of earned
but unpaid  vacation  owed to the Former  CEO.  During the year ended  March 31,
2002,  $813,593  was repaid.  At March 31,  2003,  the total  amount owed to the
Company  by  the  Former  CEO  was  approximately  $156,388  (including  accrued
interest)  has been fully  reserved.  The  Company  will  continue to attempt to
collect the note receivable.

NOTE 9 - STOCKHOLDERS' EQUITY:

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

Effective  October 2001, the Company  approved and granted  2,900,000  shares of
restricted stock to Messrs. Kam Saifi, Cameron Saifi, and David Arbeitel at fair
value. The Restricted Shares are subject to a repurchase right which will permit
the Company to repurchase  any shares which have not yet vested at the effective
date of termination of the officers' employment,  as defined in their employment
agreements,  for an amount  equal to the  purchase  price per share  paid by the
officers.  The Company  received a series of partial  recourse  interest bearing
(5.46%  on an annual  basis)  promissory  notes for the value of the  Restricted
Shares to be repaid by the officers.  The notes are to be repaid by the officers
at the  earlier  of ten years or the date upon  which the  employees  dispose of
their shares or under certain circumstances, when the borrower's employment with
the company terminates for any reason. The issuance of the restricted shares and
the  notes  receivable  due from  the  officers  is  recorded  in the  Company's
financial statements. Only the vested portion of the shares has been included in
the weighted  average number of common shares  outstanding at March 31, 2003. On
September 29, 2002 , Mr. David Arbeitel  separated  employment from the Company.
As a result, the note relating to Mr. Arbeitel's 37,500 vested Restricted Shares
became  due  and  payable  and  as of  September  30,  2002,  Mr  Arbeitel  owed
approximately $12,190 (including approximately $602 of interest) with respect to
such vested shares.  On November 11, 2002, Mr. Arbeitel paid the Company $12,264
(including  accrued interest of $676) in satisfaction of the note for the 37,500
vested shares. The Company and Mr. Arbeitel agreed to rescind the stock purchase
transaction  with respect to 262,500 of the unvested  Restricted  Shares thereby
canceling  the unpaid  portion of the notes in an amount of $ 85,322  (including
accrued interest of $4,210) relating to such unvested shares.



                                       12
<PAGE>

The  variable  accounting  method  used  to  account  for the  partial  recourse
restricted stock granted to management  resulted in a cashless credit of $95,000
for the three month period ended March 31,2003.

NOTE 10 - COMMITMENTS AND CONTINGENCIES:

Operating Leases

The Company entered into a lease on February 18, 1999 for  approximately  26,247
square feet for its principal executive offices at 1551 South Washington Avenue,
Piscataway,  New Jersey. On March 17, 2003, the Company signed an amendment with
the landlord  reducing the space from 26,247 to 12,722  square feet and the rent
from  $50,153.64 to $20,143.17 per month effective March 1, 2003. The Company is
also obligated to make additional  payments to the landlord  relating to certain
taxes and operating expenses.

Capital Leases

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

Contingent Liabilities

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





                                       13
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS

OVERVIEW

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

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

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

RESULTS OF OPERATIONS

For the three months ended March 31, 2003 compared to the same period in 2002

Net sales for the three months ended March 31,  2003,  was $765,119  compared to
net sales of  $2,076,197  for the same period in 2002, a decrease of $ 1,311,078
or 63.1%.  The decrease in sales is attributable  mainly to the reduction in the
number of units sold in the three-month period ended March 31, 2003. The Company
sold mostly the ION Secure 3000 series security appliances  (formerly called the
Sentinel  2000) in both  periods so there was no impact on revenue from a change
in product mix. The continuing impact of the overall downturn in the information
technology and the telecommunications  industry compounded by the weak financial
condition  of the  Company has caused the  Company's  decrease in sales for this
period.

Cost of sales for the three months ended March 31, 2003 was $243,988 compared to
$961,085 for the same period in 2002. Cost of sales as a percentage of net sales
for the three months ended March 31, 2003  decreased to 31.9% from 46.3% for the
same period in 2002, and therefore gross margin increased to 68.1% from 53.7% as
compared to the prior  year.  The  decrease in cost of sales or the  increase in
gross margin is mainly due to lowering the costs  associated with  manufacturing
of the appliances and lack of larger sales orders that typically  require higher
volume discounts.

Research and development expense, net of capitalized software  development,  for
the three months ended March 31, 2003 was $137,399  compared to $171,116 for the
same period in 2002 or an  decrease  of $33,717 as  compared  to the  comparable
period  of the  prior  year.  The  decrease  is  primarily  attributable  to the
reduction in salaries.

Selling, general and administrative expenses ("SG&A") for the three months ended
March 31, 2003 were  $1,026,703  compared to  $1,714,159  for the same period in
2002,  a decrease of $687,456.  This is  primarily  due to a decrease in payroll
costs associated with reduction in the workforce.  Also during the quarter ended
March 31, 2003,  the Company  abandoned the space at California  location.  As a
result,  the Company incurred a one-time charge of $123,510 in the quarter ended
March 31, 2003.

Depreciation and amortization  expenses - amortization of capitalized  software,
goodwill  and  other  acquisition  related  intangibles,   and  depreciation  on
equipment,  furniture  and  fixtures - was  $234,115  for the three months ended
March 31, 2003 compared to $439,296 in the same period in 2002. The decrease was
primarily the result of the three-year  amortization period for the acquisitions
of LeeMAH and Solcom Systems, Ltd coming to an end on March 31, 2002.



                                       14
<PAGE>

Net loss for the three months  ended March 31, 2003 was  $874,912  compared to a
loss of  $1,217,546  for the same period in 2002.  This is primarily  due to the
reduction of the operating expenses and improved gross margin.

FINANCIAL CONDITION AND CAPITAL RESOURCES

Our  consolidated  financial  statements have been prepared on the basis that we
will  continue as a going  concern.  At March 31,  2003,  we had an  accumulated
deficit of $43,597,858  and a working capital deficit of $514,518 as compared to
$164,689 at March 31, 2002. This decline in working capital was due to continued
operating losses generated  throughout the three months ended March 31, 2003. We
also realized net losses of $874,912 and  $1,217,546  for the three months ended
March 31, 2003 and 2002 respectively.  We believe that our working capital as of
March 31, 2003 is not  sufficient to fund the Company's  operations  beyond June
2003. We have been  aggressively  seeking to raise  additional  capital  through
selling  our  equity  since  August  2002 and have been  unable  to secure  such
financing other than the $300,303 raised from the sale of our preferred stock in
September 2002. Additionally, our efforts to raise approximately $1.5 million of
additional  capital  through  selling  securities  and/or  debt  have  not  been
successful.  Because of the weak financial  condition of the Company,  we expect
that it will be necessary to issue securities  having a valuation and terms that
are far more favorable to investors than  securities ION has previously  issued.
In order to induce  investors to provide  capital to ION at this time, it may be
necessary  to pledge all of the assets of the  Company  as  collateral  for such
securities,  provide liquidation preferences at a multiple of the purchase price
of the securities,  provide favorable conversion premiums to investors and other
similar  terms  which  could have a  negative  effect on the value of our common
stock  and  rights  of  our  equity   shareholders  upon  liquidation  or  other
circumstances. There is no assurance we can raise the needed $1.5 million or any
additional   capital  on  any  terms  reasonably   acceptable  to  the  Company.
Nonetheless, the management will continue to have discussions with the creditors
to defer  payments  and/or extend  payment terms in order to improve the ability
for its cash flows to fund its ongoing  operations.  The board of directors  has
also been  considering  strategic  alternatives  for the Company  which have not
materialized  as of this date.  If the  Company  is unable to secure  additional
financing, enter into a strategic transaction or generate revenues sufficient to
sustain its  operations,  the Company  may need to consider  other  alternatives
including ceasing its operations as early as June 2003.

Net cash used in  operating  activities  during the three months ended March 31,
2003 was  $505,442  compared  to net cash used during the same period in 2002 of
$1,228,703.  The  decrease in net cash used during the three  months ended March
31, 2003 compared to the same period in 2002, was primarily due to the reduction
in operating expenses and improved gross margins.  The $505,442 net cash used in
operating  activities  during the three  month  period  ended March 31, 2003 was
primarily the result of operating  losses  incurred during this period which was
partially  offset  by the cash  generated  from  the net  decrease  in  accounts
receivable.

Net cash  provided by investing  activities  during the three months ended March
31, 2003 was $50,854 compared to net cash used in during the same period in 2002
of $433,797.  This is the net of the $125,700  restricted  cash in the letter of
credit for the  Piscataway,  NJ facility that was primarily used for the payment
of rent offset by the  capitalization of software costs of $74,846 for the three
month period ended March 31, 2003.

Net cash used from financing  activities during the three months ended March 31,
2003 was $24,868  compared to net cash generated  during the same period in 2002
of  $3,443,634.  The $24,868 used in this period  reflects  reduction in current
capital lease  obligations  which was  attributable to the net proceeds from the
sale of 4,000,000 shares of Common Stock.

SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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



                                       15
<PAGE>

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

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

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

NEW ACCOUNTING PRONOUNCEMENTS

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

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

In July 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal  Activities,"  which  requires  that a liability for costs
associated with an exit or disposal activity be recognized when the liability is
incurred.  This differs from prior guidance,  which required the liability to be
recognized  when a  commitment  plan  was put  into  place.  SFAS  No.  146 also
establishes  that fair value is the  objective  for initial  measurement  of the
liability.  This statement is effective for exit or disposal activities that are
initiated after December 31, 2002. The Company does not expect that the adoption
of this standard will have a material impact on its financial position,  results
of operations, or cash flow.

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

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

In April 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No.
149,   Amendment  of  Statement  133  on  Derivative   Instruments  and  Hedging
Activities. SFAS No. 149 amends and clarifies financial accounting and reporting
for derivative instruments, including certain derivative instruments embedded in
other  contracts  (collectively  referred  to as  derivatives)  and for  hedging
activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. The changes in SFAS No. 149 improve financial reporting by requiring
that contracts with comparable characteristics be accounted for similarly. Those
changes  will  result  in more  consistent  reporting  of  contracts  as  either
derivatives or hybrid instruments.  SFAS No. 149 is to be applied  prospectively
to  contracts  entered  into or  modified  after  June 30,  2003,  with  certain
exceptions,  and for  hedging  relationships  designated  after  June 30,  2003.
Management believes that adopting this statement will not have a material impact
on the financial statements of the Company.



                                       16
<PAGE>

ITEM 3. CONTROLS AND PROCEDURES.

The Company's  management,  under the supervision and with the  participation of
the Company's Chief Executive Officer and Chief Financial Officer,  performed an
evaluation  of the  effectiveness  of the design and  operation of the Company's
disclosure controls and procedures within 90 days before the filing date of this
quarterly  report.  Based on that  evaluation,  the  Company's  Chief  Executive
Officer and Chief  Financial  Officer  concluded  that the Company's  disclosure
controls and procedures were effective.  There have been no significant  changes
in the Company's internal controls or in other factors that could  significantly
affect internal controls subsequent to their evaluation.



                                       17
<PAGE>

                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None.


ITEM 2. CHANGES IN SECURITIES.

None.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.


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

None.


ITEM 5. OTHER INFORMATION.

None.





                                       18
<PAGE>

ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K.


(a) Exhibits:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       19
<PAGE>


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


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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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



                                       20
<PAGE>

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


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

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

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

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

21.1         List of Subsidiaries./(14)/

99.1         Section 906 Certification of the Chief Executive Officer.*

99.2         Section 906 Certification of the Chief Financial Officer.*

(1)  Incorporated by Reference to the Company's Registration Statement on Form
     S-8 filed on August 15, 1995.
(2)  Incorporated by Reference to the Company's Registration Statement on Form
     S-8 filed on April 22, 1999.
(3)  Incorporated by reference to the Company's Registration Statement on Form
     S-8 filed on March 17, 2000.
(4)  Incorporated by reference to the Company's Annual Report on Form 10-KSB for
     the fiscal year ended March 31, 1999.
(5)  Incorporated by reference to the Company's Annual Report on Form 10-KSB
     filed on June 28, 2000.
(6)  Incorporated by Reference to the Company's Current Report on Form 8-K filed
     on March 12, 1999.
(7)  Incorporated by reference to the Company's Quarterly report on Form 10-QSB
     filed on November 14, 2000
(8)  Incorporated by reference to the Company's Annual report on Form 10-KSB
     filed on June 29, 2001.
(9)  Incorporated by reference to the Company's Registration Statement on Form
     S-8 filed on November 17, 2000.
(10) Incorporated by reference to the Company's Annual report on Form 10-KSB
     filed on June 29, 2001.
(11) Incorporated by Reference to the Company's Current Report on Form 8-K filed
     on October 23, 2001.
(12) Incorporated by Reference to the Company's Current Report on Form 8-K filed
     on October 24, 2001.
(13) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
     the fiscal year ended March 31, 2002, as filed on July 1, 2002.
(14) Incorporated by reference to the Company's Annual Report on Form 10-KSB/A,
     Amendment No.2, for the fiscal year ended March 31, 2002, as filed on
     August 2, 2002.
(15) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
     filed on August 14, 2002.
(16) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
     filed on November 14, 2002.
(17) Incorporated by Reference to the Company's Registration Statement on Form
     S-8 filed on January 11, 2002.
(18) Incorporated by Reference to the Company's Registration Statement on Form
     S-3 filed on March 4, 2002.
(19) Incorporated by Reference to the Company's Definitive Proxy Statement filed
     on September 16, 2002.

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


(b) Reports on Form 8-K:

On March 26, 2003, the Company filed a report on Form 8-K reporting the issuance
of two press releases  announcing the Company's  financial results for the three
months  and  nine  months  ended  December  31,  2002 and the  delisting  of the
Company's  common  stock  from the  Nasdaq  SmallCap  Market at the  opening  of
business on March 28, 2003.




                                       21
<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: May 15, 2003

                                ION NETWORKS, INC.



                                /s/ Kam Saifi
                                ------------------------------------------
                                Kam Saifi, Chief Executive Officer and President
                                (Principal Executive Officer)


                                /s/ Stephen M. Deixler
                                ------------------------------------------
                                Stephen M. Deixler, Chairman of the Board and
                                Interim Chief Financial Officer



                                       22
<PAGE>


                                 CERTIFICATIONS


I, Kam Saifi, certify that:

1.   I have reviewed this quarterly report on Form 10-QSB of ION Networks, Inc.;

2.   Based on my knowledge, this quarterly report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this quarterly report, fairly present in all
     material respects the financial condition, results of operations and cash
     flows of the registrant as of, and for, the periods presented in this
     quarterly report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in the Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a)   Designed such disclosure controls and procedures to ensure that
          material information relating to the registrant, including its
          consolidated subsidiaries, is made known to us by others within those
          entities, particularly during the period in which this quarterly
          report is being prepared;

     b)   Evaluated the effectiveness of the registrant's disclosure controls
          and procedures as of a date within in 90 days prior to the filing date
          of this quarterly report (the "Evaluation Date"); and

     c)   Presented in this quarterly report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent functions):

     a)   All significant deficiencies in the design or operation of internal
          controls which could adversely affect the registrant's ability to
          record, process, summarize and report financial data and have
          identified for the registrant's auditors any material weaknesses in
          internal controls; and

     b)   Any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          controls; and

6.   The registrant's other certifying officers and I have indicated in this
     quarterly report whether or not there were any significant changes in
     internal controls or in other factors that could significantly affect
     internal controls subsequent to the date of our most recent evaluation,
     including any corrective actions with regard to significant deficiencies
     and material weaknesses.



Date: May 15, 2003
      ------------


By: /s/ Kam Saifi
    ------------------------------------------------
    Kam Saifi, Chief Executive Officer and President




                                       23
<PAGE>

I, Stephen M. Deixler, certify that:

1.   I have reviewed this quarterly report on Form 10-QSB of ION Networks, Inc.;

2.   Based on my knowledge, this quarterly report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this quarterly report, fairly present in all
     material respects the financial condition, results of operations and cash
     flows of the registrant as of, and for, the periods presented in this
     quarterly report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in the Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a)   Designed such disclosure controls and procedures to ensure that
          material information relating to the registrant, including its
          consolidated subsidiaries, is made known to us by others within those
          entities, particularly during the period in which this quarterly
          report is being prepared;

     b)   Evaluated the effectiveness of the registrant's disclosure controls
          and procedures as of a date within in 90 days prior to the filing date
          of this quarterly report (the "Evaluation Date"); and

     c)   Presented in this quarterly report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent functions):

     d)   All significant deficiencies in the design or operation of internal
          controls which could adversely affect the registrant's ability to
          record, process, summarize and report financial data and have
          identified for the registrant's auditors any material weaknesses in
          internal controls; and

     e)   Any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          controls; and

6.   The registrant's other certifying officers and I have indicated in this
     quarterly report whether or not there were any significant changes in
     internal controls or in other factors that could significantly affect
     internal controls subsequent to the date of our most recent evaluation,
     including any corrective actions with regard to significant deficiencies
     and material weaknesses.



Date: May 15, 2003
      ------------

By: /s/ Stephen M. Deixler
    ----------------------------------------------
    Stephen M. Deixler, Chairman of the Board and
    Interim Chief Financial Officer



                                       24
<PAGE>

                                  Exhibit Index


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       25
<PAGE>




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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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



                                       26
<PAGE>


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

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

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

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

21.1         List of Subsidiaries./(14)/

99.3         Section 906 Certification of the Chief Executive Officer.*

99.4         Section 906 Certification of the Chief Financial Officer.*

(1)  Incorporated by Reference to the Company's Registration Statement on Form
     S-8 filed on August 15, 1995.
(2)  Incorporated by Reference to the Company's Registration Statement on Form
     S-8 filed on April 22, 1999.
(3)  Incorporated by reference to the Company's Registration Statement on Form
     S-8 filed on March 17, 2000.
(4)  Incorporated by reference to the Company's Annual Report on Form 10-KSB for
     the fiscal year ended March 31, 1999.
(5)  Incorporated by reference to the Company's Annual Report on Form 10-KSB
     filed on June 28, 2000.
(6)  Incorporated by Reference to the Company's Current Report on Form 8-K filed
     on March 12, 1999.
(7)  Incorporated by reference to the Company's Quarterly report on Form 10-QSB
     filed on November 14, 2000
(8)  Incorporated by reference to the Company's Annual report on Form 10-KSB
     filed on June 29, 2001.
(9)  Incorporated by reference to the Company's Registration Statement on Form
     S-8 filed on November 17, 2000.
(10) Incorporated by reference to the Company's Annual report on Form 10-KSB
     filed on June 29, 2001.
(11) Incorporated by Reference to the Company's Current Report on Form 8-K filed
     on October 23, 2001.
(12) Incorporated by Reference to the Company's Current Report on Form 8-K filed
     on October 24, 2001.
(13) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
     the fiscal year ended March 31, 2002, as filed on July 1, 2002.
(14) Incorporated by reference to the Company's Annual Report on Form 10-KSB/A,
     Amendment No.2, for the fiscal year ended March 31, 2002, as filed on
     August 2, 2002.
(15) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
     filed on August 14, 2002.
(16) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
     filed on November 14, 2002.
(17) Incorporated by Reference to the Company's Registration Statement on Form
     S-8 filed on January 11, 2002.
(18) Incorporated by Reference to the Company's Registration Statement on Form
     S-3 filed on March 4, 2002.
(19) Incorporated by Reference to the Company's Definitive Proxy Statement filed
     on September 16, 2002.

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

                                       27