U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-QSB

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

         For the quarterly period ended June 30, 2000

                                       OR

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

         For the transition period from ____________ to ____________

                          Commission File No.: 0-13117
                                               -------

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

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

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

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

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

Yes  X                       No ___
    ---

There were 15,198,416 shares of Common Stock outstanding as of August 11, 2000.

Transitional Small Business Disclosure Format:

Yes ___                      No   X
                                ---

                                      -1-
<PAGE>

                       ION NETWORKS, INC. AND SUBSIDIARIES
                                   FORM 10-QSB
                       FOR THE QUARTER ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
PART I.  FINANCIAL INFORMATION                                                                PAGE
                                                                                              ----

<S>             <C>                                                                           <C>
Item 1.           Condensed Consolidated Financial Information                                   3

                  Condensed Consolidated Balance Sheets as of June 30, 2000
                      and March 31, 2000 (Unaudited)                                             4

                  Condensed Consolidated Statements of Operations for the Three
                      Months ended June 30, 2000 and 1999 (Unaudited)                            5

                  Condensed Consolidated Statements of Cash Flows for the Three
                      Months ended June 30, 2000 and 1999 (Unaudited)                            6

                  Condensed Consolidated Statement of Stockholders' Equity for
                      Three Months ended June 30, 2000 (Unaudited)                               7

Notes to Condensed Consolidated Financial Statements (Unaudited)                                 8

Item 2.           Management's Discussion and Analysis                                           10

PART II. OTHER INFORMATION

Item 5.           Other Information                                                              14

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

SIGNATURES                                                                                       15
</TABLE>

                                      -2-
<PAGE>


                          PART I. FINANCIAL INFORMATION

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

         The condensed  consolidated  financial  statements included herein have
been  prepared  by the  registrant  without  audit  pursuant  to the  rules  and
regulations of the Securities and Exchange  Commission.  Although the registrant
believes that the disclosures are adequate to make the information presented not
misleading,  certain information and footnote  disclosures  normally included in
financial  statements  prepared in accordance with generally accepted accounting
principles   have  been  condensed  or  omitted   pursuant  to  such  rules  and
regulations.  It is suggested that these condensed financial  statements be read
in  conjunction  with the audited  financial  statements  and the notes  thereto
included  in the  registrant's  Annual  Report on Form 10-KSB for the year ended
March 31, 2000

                                      -3-
<PAGE>
                       ION NETWORKS, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                  June 30,         March 31,
                                                                                    2000              2000
                                                                                -------------    --------------
ASSETS
Current assets:
<S>                                                                               <C>               <C>
    Cash and cash equivalents..............................................       $ 5,443,963       $10,381,612
    Accounts receivable, net of allowance for doubtful accounts
        of $185,000 and $251,000, respectively.............................         1,926,258         4,569,546
    Other receivables .....................................................           141,687         1,560,697
    Inventory, net.........................................................         3,463,557         1,924,671
    Prepaid expenses and other current assets..............................           633,462           602,874
                                                                                    ---------         ---------
              Total current assets ........................................        11,608,927        19,039,400

Property and equipment at cost, net of accumulated depreciation of
$1,785,658 and $1,566,366, respectively...................................          2,170,921         2,146,956
Capitalized software, less accumulated amortization of $4,886,077 and
    $4,259,851, respectively .............................................          3,919,520         4,185,911
Goodwill and other acquisition - related intangibles, less accumulated
     amortization of $1,275,141 and $1,030,334, respectively .............          1,693,909         1,938,716
Related party notes receivable............................................            885,000                --
Other assets .............................................................             86,759            79,258
                                                                                   ----------        ----------
              Total assets ................................................       $20,365,036       $27,390,241
                                                                                  ===========       ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Current portion of capital leases......................................        $   67,900        $   67,900
    Current portion of long-term debt .....................................            96,000            96,000
    Accounts payable and accrued expenses .................................         1,765,017         2,632,135
    Accrued payroll and related liabilities ...............................           657,421         2,139,524
    Deferred income .......................................................            77,185           275,657
    Other current liabilities .............................................           350,184           352,093
                                                                                   ----------        ----------
              Total current liabilities ...................................         3,013,707         5,563,309
Long-term portion of capital leases......................................             289,738           302,866
Long-term debt, net of current portion ..................................             122,933           128,129

Commitments and contingencies
Stockholders' equity:
    Preferred stock-par value $.001 per share; authorized 1,000,000
         shares, none issued ..............................................                 -                 -
    Common stock, par value $.001 per share; authorized 50,000,000
         shares, issued 15,181,470 shares and outstanding 15,119,439
         shares at June 30, 2000; issued 15,111,617 shares and outstanding
         15,049,586 shares at March 31, 2000...............................            15,181            15,112
    Additional paid-in capital ............................................        35,256,657        35,063,207
    Accumulated deficit.....................................................     (18,123,618)       (13,488,379)
    Accumulated other comprehensive (loss) income..........................           (2,363)            13,196
                                                                                   ----------        ----------
                                                                                   17,145,857        21,603,136
Less-Treasury stock 62,031 shares, at cost at June 30, 2000 and
    March 31, 2000.......................................................           (207,199)         (207,199)
                                                                                   ----------        ----------
Total stockholders' equity...............................................          16,938,658        21,395,937
                                                                                   ----------        ----------
Total liabilities and stockholders' equity ..............................         $20,365,036       $27,390,241
                                                                                  ===========       ===========
</TABLE>
The  accompanying  notes are an integral  part of these  condensed  consolidated
financial statements.
                                      -4-

<PAGE>
                       ION NETWORKS, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                            For the Three Months Ended
                                                                                     June 30,
                                                                                2000                1999
                                                                            -----------          -----------
<S>                                                                          <C>                  <C>
Revenue..........................................................            $2,083,504           $4,889,021

Cost of sales ...................................................             1,157,102            1,931,872
                                                                            -----------          -----------

Gross margin ....................................................               926,402            2,957,149

    Research and development expenses ............................            1,223,929              534,417
    Selling, general and administration ..........................            3,333,057            2,591,476
    Depreciation and amortization ................................            1,090,325              922,656
                                                                            -----------          -----------

(Loss) from operations ..........................................            (4,720,909)          (1,091,400)

Interest income .................................................               130,115                    -

Interest (expense) ..............................................               (20,873)             (65,632)
                                                                            -----------          -----------

(Loss) before income tax expense ................................            (4,611,667)          (1,157,032)
                                                                            -----------          -----------

    Income tax expense ...........................................               23,572                    -

Net (loss)......................................................            $(4,635,239)         $(1,157,032)
                                                                            ===========          ===========

PER SHARE DATA
Net (loss) per share
    Basic.........................................................           $   (0.31)           $   (0.13)
    Diluted ......................................................           $   (0.31)           $   (0.13)

Weighted average number of common shares outstanding:
    Basic ........................................................           15,123,152            9,035,590
    Diluted ......................................................           15,123,152            9,035,590
</TABLE>

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

                                      -5-
<PAGE>
                       ION NETWORKS, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                   FOR THE THREE MONTHS ENDED
                                                                                            JUNE 30,
                                                                                     2000                1999
                                                                                 -----------           ----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                            <C>                   <C>
    Net (loss) .........................................................       $ (4,635,239)         $(1,157,032)
    Adjustments to reconcile net (loss) to net cash used in
    operating activities:
      Depreciation and amortization ....................................           1,090,325              922,656
      Non-cash stock-based compensation charges ........................              82,602

Changes in operating assets and liabilities:
    (Increase) decrease in
      Accounts receivable ..............................................           2,643,288          (1,199,801)
      Other receivables.................................................           1,419,010
      Inventory ........................................................         (1,538,886)              240,473
      Prepaid expenses and other current assets ........................            (30,588)            (116,011)

      Other assets .....................................................             (7,501)                   90

    Increase (decrease) in
      Accounts payable and accrued expenses ............................           (867,118)          (1,848,292)
      Accrued payroll and related liabilities ..........................         (1,482,103)            (131,822)
      Deferred income ..................................................           (198,472)             (45,884)
      Other current liabilities ........................................             (1,909)            (730,515)
                                                                                 -----------           ----------
Net cash used in operating activities .................................          (3,526,591)          (4,066,138)

CASH FLOWS FROM INVESTING ACTIVITIES
    Acquisition of property and equipment ..............................           (258,816)             (22,660)
    Capitalized software ...............................................           (359,835)            (537,462)
    Related party notes receivable......................................           (885,000)
                                                                                 -----------           ----------
Net cash used in  investing activities ................................          (1,503,651)            (560,122)

CASH FLOWS FROM FINANCING ACTIVITIES
    Borrowings on revolving line of credit .............................                   -              253,720
    Proceeds from debt .................................................                   -              450,000
    Principal payments on debt..........................................            (18,324)            (193,558)

    Proceeds from sales of common stock / exercise of stock options and
          warrants .....................................................             110,917            5,001,052
                                                                                 -----------           ----------
Net cash provided by financing activities .............................               92,593            5,511,214
                                                                                 -----------           ----------
Net  (decrease) increase in cash ......................................          (4,937,649)              884,954
Cash and cash equivalents, beginning of year ..........................           10,381,612              165,994
                                                                                 -----------           ----------
Cash and cash equivalents, end of period ..............................          $ 5,443,963           $1,050,948
                                                                                 ===========           ==========
</TABLE>
The  accompanying  notes are an integral  part of these  condensed  consolidated
financial statements.

                                      -6-
<PAGE>


                       ION NETWORKS, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                    FOR THE THREE MONTHS ENDED JUNE 30, 2000
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                Accumulated
                                                     Additional                   Other                       Total
                                                      Paid-in     Accumulated  Comprehensive    Treasury   Stockholders'
                            Shares    Par Value       Capital       Deficit     (Loss)Income      Stock       Equity
                            ------    ---------       -------       -------     ------------      -----       ------
<S>                      <C>          <C>           <C>          <C>             <C>           <C>          <C>
Balance March 31, 2000   15,111,617   $    15,112   $35,063,207   $(13,488,379)   $  13,196     $(207,199)   $21,395,937

Net loss                                                            (4,635,239)                               (4,635,239)

Exercise of stock options
and warrants                   69,853          69      110,848                                                   110,917

Non-cash stock-based
 compensation                       -           -       82,602                                                    82,602

Translation adjustments                                                               (15,559)                  (15,559)
                           ----------    --------   -----------   -----------     -----------    ---------   -----------
Balance June 30, 2000      15,181,470    $ 15,181   $35,256,657  $(18,123,618)    $    (2,363)   $(207,199)  $16,938,658
                           ==========    ========   ===========   ===========     ===========    =========   ===========
</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
                                  JUNE 30, 2000
                                   (Unaudited)

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

The  condensed  consolidated  balance  sheets as of June 30,  2000 and March 31,
2000,  the condensed  consolidated  statements of operations for the three month
periods  ended June 30, 2000 and for the same  period in 1999 and the  condensed
consolidated  statements  of cash flows for the three month  periods  then ended
have been prepared by the Company  without audit.  In the opinion of management,
all adjustments (which include only normal recurring  adjustments) necessary for
the fair presentation of the Company's financial position, results of operations
and cash flows at June 30, 2000 and 1999 have been made.

The Company has significantly  increased its research and development activities
and has expanded its sales and  marketing  infrastructure  and related  costs in
order to attempt to execute  its growth  plans.  The Company  has  incurred  and
expects to continue to incur  significant  losses and have significant  negative
operating cash flows for the foreseeable future.

On August 11,  2000,  the Company  obtained a written  commitment  for a private
placement of 2,857,142 shares of Common Stock at a price of $1.75 per share, for
a total purchase price of $5,000,000.

The Company's  current  operating plan includes  certain  assumptions,  the most
significant  of which  relates to the  attainment  of  significant  increases in
future revenues in excess of 1st quarter 2001 revenues. To the extent that those
revenue assumptions are not achieved,  the Company will have to raise additional
equity or debt financing and/or curtail certain current  expenditures  contained
in the Company's  current  operating  plans.  There can be no assurance that the
Company will be able to obtain any such  financing on  acceptable  terms,  if at
all.

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

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

Inventory,  net of reserve for obsolescence of $281,000 and $283,000 at June 30,
2000 and March 31, 2000, respectively, consists of the following:

                                  June 30, 2000                 March 31, 2000
                                  -------------                 --------------

Raw materials             $               799,807         $            782,813
Work in process                           270,097                      259,180
Finished goods                          2,393,653                      882,678
         Total            -----------------------         ---------------------
                          $             3,463,557         $          1,924,671
                          =======================         =====================

                                      -8-
<PAGE>

Note 3 - Earnings Per Share:
----------------------------

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

The following is a reconciliation  of the denominator used in the calculation of
basic and diluted earnings per share:
<TABLE>
<CAPTION>
                                                              Three Months               Three Months
                                                             Ended 6/30/00              Ended 6/30/99
                                                          -------------------        ------------------
<S>                                                           <C>                        <C>
Weighted Average # of Shares Outstanding                      $    15,123,152            $   9,035,590
Incremental Shares for Common Equivalents                           1,706,074                2,220,288
                                                          -------------------        -----------------
Diluted Shares Outstanding                                    $    16,829,226            $  11,255,878
                                                          ===================        =================
</TABLE>
The  potential  common  shares of 1,706,074  and  2,220,288 for the three months
ended June 30, 2000 and 1999,  respectively,  were excluded from the computation
of earnings per share because their inclusion would have an antidilutive effect.

Note 4 - Comprehensive Income:
------------------------------

The Company adopted Statement of Financial Accounting Standards ("SFAS) No. 130,
"Reporting   Comprehensive   Income".   The   following   table   reflects   the
reconciliation  between net loss per the financial  statements and comprehensive
income.
<TABLE>
<CAPTION>
                                                                Three Months               Three Months
                                                                Ended 6/30/00              Ended 6/30/99
                                                          --------------------       ---------------------
<S>                                                           <C>                         <C>
Net (loss)                                                    $    (4,635,239)            $     (1,157,032)
Effect of foreign currency translation                                (15,559)                      47,858
                                                          --------------------       ---------------------
Comprehensive income                                          $    (4,650,798)            $     (1,109,174)
                                                          ====================       ======================
</TABLE>
Note 5 - Income Taxes
---------------------
The Company's  valuation  allowance  against its federal,  state and foreign net
operating loss carryforwards and its research and development  credits increased
by $1,632,835 during the quarter ended June 30, 2000. The Company has recorded a
full  valuation  allowance  against  the federal  and state net  operating  loss
carryforwards  and a full valuation  allowance against the foreign net operating
loss  carryforwards  and the  research  and  development  credit  as  management
believes  that it is more  likely  than  not that  substantially  all of the net
operating loss carryforwards and credits will expire unutilized.

Note 6 -  New Accounting Pronouncements:
---------------------------------------

In June  1998,  the  Financial  Accounting  Standards  Board  issued  SFAS  133,
"Accounting  for Derivative  Instruments  and Hedging  Activities".  Among other
provisions, it requires that entities recognize all

                                      -9-
<PAGE>

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

In December  1999,  the SEC issued Staff  Accounting  Bulletin  ("SAB") No. 101,
"Revenue  Recognition  in Financial  Statements".  The SEC delayed the effective
date of this SAB from June 30, 2000 to the fourth quarter of fiscal 2001 for the
Company.  The  Company  has  assessed  the  impact of SAB 101 on its  results of
operations  and believes  that its results of  operations  for the quarter ended
June 30, 2000 have been presented in accordance with the provisions of the SAB.

Note 7 - Related Party Transactions:
------------------------------------

During April 2000, the Company issued a loan to its Chief  Executive  Officer of
the Company in the amount of $750,000.  The loan  accrues  interest at a rate of
LIBOR  plus 1%.  This loan is due and  payable  on June 27,  2005.  If the Chief
Executive  Officer  leaves the employ of the Company or is  terminated  from his
employment,  with or without cause,  the principal and accrued  interest will be
due and payable in full within thirty (30) days of such termination.

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

ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS

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

 Results of Operations
 ---------------------

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

         Revenue  for the three  months  ended June 30,  2000,  were  $2,083,504
compared to revenue of  $4,889,021  for the same  period in 1999,  a decrease of
approximately  57.4%.  As previously  disclosed,  the first quarter  revenue was
substantially below previous expectations and planned revenues.  The decrease in
revenue  was  primarily  due to delays in  ordering  from some of the  Company's
largest and long standing  customers.  Also,  contributing was the impact of the
delayed  introduction of the version of the PRIISMS Manager NPI offering,  which
was  anticipated  to be released in the first  quarter,  and now  scheduled  for
release  in the second  quarter,  as well as the longer  than  expected  ramp-up
period of new sales  personnel  who did not  generate the  anticipated  level of
revenue.  The Company is beginning to  experience  increased  activity and order
levels for both new and existing customers.

                                      -10-
<PAGE>

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

         Cost of goods  sold  for the  three  months  ended  June  30,  2000 was
$1,157,102  compared to $1,931,872 for the same period ended June 30, 1999. Cost
of goods sold as a percentage  of revenue  increased to 55.5% of net revenue for
the three  months  ended June 30, 2000  compared to 39.5% for the same period in
1999.  The quarter ended June 30, 2000 was adversely  affected by an increase in
the reserve for excess and obsolete inventory ($50,000).  Additionally,  certain
overhead costs had a greater impact on the margins in the quarter because of the
low sales volumes.

         Research  and  development   expenses,   net  of  capitalized  software
development, for the three months ended June 30, 2000 was $1,223,929 compared to
$534,417 for the same period in 1999.  As a percentage  of net revenue  research
and  development  expenses  were 58.7%  compared to 10.9% for the same period in
1999. The increased  expenditures in the quarter ended June 30, 2000 compared to
the quarter  ended June 30, 1999 was the result of increased  manpower and other
expenditures  required to support and enhance the Company's  product  portfolio.
The  significant  increase in the percentage of research and  development to net
revenue was primarily  caused by lower sales  revenues  combined with  increased
spending levels as discussed above.

          Selling,  general and  administrative  expenses  for the three  months
ended June 30, 2000 were  $3,333,057  compared to $2,591,476 for the same period
in 1999.  As a  percentage  of net revenue  selling  general and  administrative
expenses  increased to 160.0% compared to 53.0% for the same period in 1999. For
the quarter ended June 30, 2000, the significant increase as a percentage of net
revenue was due to lower revenue.  The increase in SG&A expenses for the quarter
ended  June 30,  2000  compared  to June 30,  1999  was a result  of  additional
spending related to increased sales and marketing  personnel and  administrative
infrastructure necessary to execute the Company's growth plans.

         Depreciation and amortization  expenses,  which include depreciation on
equipment,  furniture  and  fixtures  along  with  amortization  of  capitalized
software and goodwill,  was  $1,090,325 for the three months ended June 30, 2000
compared  to $922,656 in same period in 1999.  This  expense was  primarily  the
result  of  goodwill  and  capitalized   software  associated  with  the  SolCom
acquisition in March 1999 and the acquisition of certain assets  associated with
LeeMah in February 1999,  along with the impact of higher  capitalized  software
expenses  associated  with new research and  development  projects and increased
equipment purchases to support the sales and infrastructure necessary to support
the sales growth.

         Income tax  provision  for the three  months  ended  June 30,  2000 was
$23,572 as compared to $0 at June 30, 1999 due to the required provision for the
reported taxable earnings of the Company's UK subsidiary.

         Net loss for the  three  months  ended  June  30,  2000 was  $4,635,239
compared to a loss of $1,157,032  for the same period in 1999 due to the factors
discussed above.

                                      -11-

<PAGE>

Financial Condition and Capital Resources
-----------------------------------------

         Net cash used in operating activities during the quarter ended June 30,
2000 was $3,526,591  compared to net cash used during the same period in 1999 of
$4,066,138.  The use of cash was attributed to the net loss from operations. The
net cash used was due to an increase in  inventory  of  $1,538,886  due to lower
sales,  and a decrease in accounts  payable  and accrued  expenses of  $867,118,
offset  partially by the decrease in accounts  receivable of  $2,643,288  due to
collection  efforts and lower sales  volumes in the quarter.  Other  receivables
declined by  $1,419,010  which was offset by a decrease  in accrued  payroll and
related  liabilities  of  $1,482,103  related  to the  collection  of taxes from
foreign  employees and subsequent  remittance to the appropriate  United Kingdom
taxing authorities.

         Net cash used by investing activities during the quarter ended June 30,
2000 was $1,503,651  compared to $560,122 for the same period last year. Capital
expenditures  increased  during  the  current  fiscal  quarter  as  the  Company
purchased computers and made other expenditures to support the activities of the
business.  Additionally,  a loan and  advance  was made to the  Chief  Executive
Officer in the amount of $885,000.

         Net cash  provided by  financing  activities  was  $92,593  compared to
$5,511,214  for the same period last year.  The prior year amount  reflected the
result of a private  financing of 2,000,000 shares of Common Stock, the exercise
of warrants and stock options.

         On September 30, 1999,  the Company  entered into a $2,500,000  line of
credit  agreement.  The line of credit was  available  through July 15, 2000. At
June 30, 2000, there were no borrowings under the facility.  This line of credit
has been terminated and  effectively  replaced with the $1,500,000 line as noted
below.

         On July 15, 2000, the Company  entered into a line of credit  agreement
for  $1,500,000.  The line of credit is available  through  September  30, 2000.
Advances are due at maturity.  The line bears  interest at the prime rate and is
collateralized  by all business assets of the Company.  The terms of the line of
credit require the Company to establish a lock-box at the bank upon draw down of
the line which  requires  all  accounts  receivable  to be sent  directly to the
lock-box.

         As noted above,  the Company has  significantly  increased its research
and   development   activities   and  has  expanded  its  sales  and   marketing
infrastructure  and  related  costs in order to attempt  to  execute  its growth
plans.  The Company has  incurred  and expects to continue to incur  significant
losses and have  significant  negative  operating cash flows for the foreseeable
future.

         On August 11, 2000,  the Company  obtained a written  commitment  for a
private  placement of 2,857,142  shares of Common Stock at a price of $1.75 per
share, for a total purchase price of $5,000,000.

         The Company's current operating plan includes certain assumptions,  the
most significant of which relates to the attainment of significant  increases in
future revenues in excess of 1st quarter 2001 revenues. To the extent that those
revenue assumptions are not achieved,  the Company will have to raise additional
equity or debt financing and/or curtail certain current  expenditures  contained
in the Company's  current  operating  plans.  There can be no assurance that the
Company will be able to obtain any such  financing on  acceptable  terms,  if at
all.

ACCOUNTING PRONOUNCEMENTS
-------------------------

         In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting  for Derivative  Instruments  and Hedging  Activities".  Among other
provisions, it requires that entities recognize

                                      -12-
<PAGE>

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

         In December 1999, the SEC issued Staff Accounting  Bulletin ("SAB") No.
101,  "Revenue  Recognition  in  Financial  Statements".  The  SEC  delayed  the
effective  date of this SAB from June 30,  2000 to the fourth  quarter of fiscal
2001 for the  Company.  The  Company has  assessed  the impact of SAB 101 on its
results of  operations  and  believes  that its  results of  operations  for the
quarter  ended  June  30,  2000  have  been  presented  in  accordance  with the
provisions of the SAB.

                                      -13-
<PAGE>

                           PART II. OTHER INFORMATION

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

                  None

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

                  (a)      Exhibits:

                           27. Financial Data Schedule

                  (b)      Reports on Form 8-K:

                  On June 29, 2000 the Company filed a report on form 8-K,
reporting the issuance of a press release relating to the Company's anticipated
first quarter revenue results.

                                      -14-

<PAGE>


                                   SIGNATURES
                                   ----------

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

DATE:  August 14, 2000

                                     ION NETWORKS, INC.

                                     /s/ Stephen B. Gray
                                     -----------------------------------------
                                     Stephen B. Gray, President and
                                     Chief Executive Officer

                                     /s/ Alfred M. Leonardi
                                     -----------------------------------------
                                     Alfred M. Leonardi, Chief Financial Officer

                                      -15-