<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 September 30, 2002

                                       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 24,875,500 shares of Common Stock outstanding as of November 8, 2002.

Transitional Small Business Disclosure Format:

Yes___ No X

<PAGE>

                       ION NETWORKS, INC. AND SUBSIDIARIES

                                   FORM 10-QSB

                    FOR THE QUARTER ENDED SEPTEMBER 30, 2002

                          PART I. FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                                                                                         Page
<S>                                                                                                                      <C>
Item 1. Condensed Consolidated Financial Information (Unaudited)                                                           2

Condensed Consolidated Balance Sheets as of September 30, 2002 and March 31, 2002                                          3

Condensed Consolidated Statements of Operations for the Three and Six Months ended September 30, 2002 and 2001             4

Condensed Consolidated Statement of Stockholders' Equity for the Six Months ended September 30, 2002                       5

Condensed Consolidated Statements of Cash Flows for the Six Months ended September 30, 2002 and 2001                       6

Notes to Condensed Consolidated Financial Statements                                                                       7

Item 2. Management's Discussion and Analysis                                                                              11

Item 3. Controls and Procedures                                                                                           17

                                                    PART II. OTHER INFORMATION

Item 2. Changes in Securities                                                                                             18

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

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

SIGNATURES                                                                                                                23
</TABLE>

<PAGE>

                          PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The condensed consolidated financial statements included herein have been
prepared by the registrant without audit pursuant to the rules and regulations
of the Securities and Exchange Commission. Although the registrant believes that
the disclosures are adequate to make the information presented not misleading,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. It is
suggested that these condensed financial statements be read in conjunction with
the audited financial statements and the notes thereto included in the
registrant's Annual Report on Form 10-KSB , as amended, for the year ended March
31, 2002.

                                        2

<PAGE>

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

<TABLE>
<CAPTION>
                                                                              September 30,      March 31,
                                                                                   2002            2002
                                                                              -------------    ------------
<S>                                                                           <C>             <C>
ASSETS
Current assets:
   Cash and cash equivalents.........................................         $   1,723,599    $  4,050,657
   Accounts receivable, net of allowance for doubtful
    accounts of $202,626 and $149,999 respectively...................               929,468       1,521,230
   Inventory, net....................................................             1,321,126       1,024,126
   Prepaid expenses and other current assets.........................               232,629         492,609
   Related party notes receivable....................................                83,657          83,657
                                                                              -------------    ------------
         Total current assets........................................             4,290,479       7,172,279
Restricted cash......................................................               125,700         125,700
Property and equipment at cost, net of accumulated
 depreciation of $2,965,949 and $2,684,152, respectively.............               597,751         796,625
Capitalized software, less accumulated amortization of $3,755,028
 and $3,412,040, respectively........................................               858,950         908,464
Other assets.........................................................                71,442           6,653
                                                                              -------------    ------------
         Total assets................................................         $   5,944,322    $  9,009,721
                                                                              =============    ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Current portion of capital leases.................................         $      74,426    $     74,426
   Current portion of long-term debt.................................                12,148          33,444
   Accounts payable..................................................             1,076,810         917,846
   Accrued expenses..................................................               345,595         373,766
   Accrued payroll and related liabilities...........................               293,874         353,590
   Deferred income...................................................               176,292         115,927
   Sales tax payable.................................................               118,829         188,435
   Other current liabilities.........................................               102,909          73,923
                                                                              -------------    ------------
         Total current liabilities...................................             2,200,883       2,131,357
Long-term portion of capital leases..................................               106,754         146,540
Long-term debt, net of current portion...............................                     -           4,597
Commitments and contingencies
Stockholders' equity:
   Preferred stock, par value $.001 per share;
    Authorized Shares-1,000,000 at September 30, 2002 and March 31, 2002
    Designated Shares- 200,000 at September 30, 2002 and none at
    March 31, 2002
    Issued and Outstanding-166,835 September 30, 2002 and none at
    March 31, 2002...................................................                   167               -
   Common stock, par value $.001 per share;
    Authorized Shares-50,000,000 at September 30, 2002 and March 31,
    2002 Issued
    and outstanding - 24,875,500 shares at September 30, 2002
    and 25,138,000 at March 31, 2002.................................                24,876          25,138
   Additional paid-in capital........................................            44,585,740      44,381,454
   Notes receivable from officers....................................              (479,268)       (549,914)
   Deferred compensation.............................................                     -         (62,893)
   Accumulated deficit...............................................           (40,503,210)    (37,094,424)
   Accumulated other comprehensive income............................                 8,380          27,866
                                                                              -------------    ------------
Total stockholders' equity...........................................             3,636,685       6,727,227
                                                                              -------------    ------------
Total liabilities and stockholders' equity...........................         $   5,944,322    $  9,009,721
                                                                              =============    ============
</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>
                                              For the Three Months Ended      For the Six Months Ended
                                                    September 30,                   September 30,
                                                 2002            2001            2002            2001
                                            -------------   -------------   -------------   -------------
<S>                                         <C>             <C>            <C>             <C>
Net sales...............................    $   1,522,336   $   1,088,380   $   2,482,468   $   3,021,822
Cost of sales...........................          557,564         572,576         914,068       1,430,176
                                            -------------   -------------   -------------   -------------
Gross margin............................          964,772         515,804       1,568,400       1,591,646

   Research and development expenses....          280,893         158,622         516,202         508,497
   Selling, general and administration..        1,614,473       2,250,262       3,751,441       4,535,285
   Restructuring charges................          154,370               -         154,370               -
   Depreciation and amortization........          281,596         472,688         563,567         943,964
                                            -------------   -------------   -------------   -------------
Total operating expenses................        2,331,332       2,881,572       4,985,580       5,987,746

Loss from operations....................       (1,366,560)     (2,365,768)     (3,417,180)     (4,396,100)
Interest income.........................           15,663          26,250          25,197          73,782
Interest expense........................           (6,255)         (8,508)        (11,502)        (17,624)
                                            -------------   -------------   -------------   -------------
Loss before income tax expense..........       (1,357,152)     (2,348,026)     (3,403,485)     (4,339,942)
Income tax expense......................                -               -           5,301               -
                                            -------------   -------------   -------------   -------------
Net loss................................    $  (1,357,152)  $  (2,348,026)  $  (3,408,786)  $  (4,339,942)
                                            =============   =============   =============   =============

PER SHARE DATA

Net loss per share
   Basic and diluted....................    $       (0.06)  $       (0.13)  $       (0.15)  $       (0.24)

Weighted average number of common
 shares outstanding:
   Basic and diluted....................       22,608,273      18,203,301      22,604,408      18,203,301
</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 SIX MONTHS ENDED SEPTEMBER 30, 2002
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                 Convertible Preferred
                                                         Stock                  Common Stock
                                               -------------------------   ----------------------
                                                                                                      Additional
                                                                                                        Paid-in       Accumulated
                                                 Shares       Par Value       Shares      Par Value      Capital        Deficit
                                               ----------   ------------   -----------   ----------   ------------   -------------
<S>                                            <C>          <C>            <C>            <C>         <C>            <C>
Balance April 1, 2002....................               -              -    25,138,000   $   25,138   $ 44,381,454   $ (37,094,424)

Net loss.................................               -              -             -            -              -      (3,408,786)

Issuance of preferred stock..............         166,835   $        167             -            -        285,136               -

Issuance (Cancellation)
of restricted stock......................               -              -      (262,500)        (262)       (80,850)              -

Notes receivable from officers...........               -              -             -            -              -               -

Deferred compensation....................               -              -             -            -              -               -

Translation adjustments..................               -              -             -            -              -               -

                                               ----------   ------------   -----------   ----------   ------------   -------------
Balance September 30, 2002...............         166,835   $        167    24,875,500   $   24,876   $ 44,585,740   $ (40,503,210)
                                               ==========   ============   ===========   ==========   ============   =============
</TABLE>


<TABLE>
<CAPTION>
                                              Accumulated
                                                 Other             Notes                              Total
                                             Comprehensive      Receivable        Deferred        Stockholders'
                                                Income        from officers     Compensation         Equity
                                             -------------    -------------     ------------     ---------------
<S>                                         <C>              <C>                <C>              <C>
Balance April 1, 2002....................    $      27,866    $    (549,914)    $    (62,893)    $     6,727,227

Net loss.................................                -                -                -          (3,408,786)

Issuance of preferred stock..............                -                -                -             285,303

Issuance (Cancellation)
of restricted stock......................                -           85,322                -               4,210

Notes receivable from officers...........                -          (14,676)               -             (14,676)

Deferred compensation....................                -                -           62,893              62,893

Translation adjustments..................          (19,486)               -                -             (19,486)

                                             -------------    -------------     ------------     ---------------
Balance September 30, 2002...............    $       8,380    $    (479,268)               -     $     3,636,685
                                             =============    =============     ============     ===============
</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 SIX MONTHS ENDED
                                                                                          SEPTEMBER 30,
                                                                                      2002            2001
                                                                                  -----------      -----------
<S>                                                                               <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ................................................................         $(3,408,786)     $(4,339,942)
Adjustments to reconcile net loss to net cash used
 in operating activities:
   Depreciation and amortization ........................................             563,567          943,964
   Asset impairments and other charges ..................................             (28,877)         (12,187)
   Noncash stock-based compensation charges .............................              62,893           32,999
   Interest on Notes Receivable from Officers ...........................             (10,466)               -
Changes in operating assets and liabilities:
   Accounts receivable ..................................................             591,762        1,773,111
   Inventory ............................................................            (297,000)      (1,025,308)
   Prepaid expenses and other current assets ............................             195,191         (171,269)
   Accounts payable and accrued expenses ................................             130,793         (526,017)
   Accrued payroll and related liabilities ..............................             (59,716)         (35,729)
   Deferred income ......................................................              60,365           29,173
   Sales tax payable ....................................................             (69,606)          14,825
   Other current liabilities ............................................              28,986          (12,842)
                                                                                  -----------      -----------
Net cash used in operating activities ...................................          (2,240,894)      (3,329,222)
                                                                                  -----------      -----------
CASH FLOWS FROM INVESTING ACTIVITIES
   Capital expenditures .................................................             (11,386)         (31,208)
   Capitalized software expenditures ....................................            (274,916)        (193,904)
   Related party notes receivable, net of repayments ....................                   -          793,561
                                                                                  -----------      -----------
Net cash generated (used) in investing activities .......................            (286,302)         568,449
                                                                                  -----------      -----------
CASH FLOWS FROM FINANCING ACTIVITIES
   Principal payments on debt and capital leases ........................             (65,679)         (60,392)
   Issuance of preferred stock ..........................................             285,303                -
                                                                                  -----------      -----------
Net cash generated (used) in financing activities .......................             219,624          (60,392)
                                                                                  -----------      -----------
Effects of exchange rates on cash .......................................             (19,486)         (12,877)
                                                                                  -----------      -----------
Net decrease in cash ....................................................          (2,327,058)      (2,834,042)
Cash and cash equivalents, beginning of period ..........................           4,050,657        5,230,833
                                                                                  -----------      -----------
Cash and cash equivalents, end of period ................................         $ 1,723,599      $ 2,396,791
                                                                                  ===========      ===========
</TABLE>

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

                                        6

<PAGE>

                       ION NETWORKS, INC. AND SUBSIDIARIES
                         NOTES TO CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS
                               September 30, 2002
                                   (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 September 30, 2002, the condensed
consolidated statements of operations for the three and six month periods ended
September 30, 2002 and 2001, the condensed consolidated statements of cash flows
for the six month periods ended September 30, 2002 and 2001 and the condensed
consolidated statement of stockholders' equity for the six month period ended
September 30, 2002, 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 September 30, 2002
and 2001 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 annual
report on Form 10-KSB as amended, for the year ended March 31, 2002.

Our consolidated financial statements have been prepared on the basis that we
will continue as a going concern, which contemplates the realization and
satisfaction of liabilities and commitments in the normal course of business. At
September 30, 2002, we had an accumulated deficit of $40,503,210 and working
capital of $2,089,596. We also realized a net loss of $3,408,786 for the six
months ended September 30, 2002. Our existing working capital might not be
sufficient to sustain our operations.

Our plans to overcome this condition include refocusing our sales efforts to
include penetrating additional markets with our enterprise infrastructure
security products, reducing expenses and raising additional equity capital. We
have restructured and reorganized to reduce our operating expenses by the
elimination of 13 employees during the quarter ended September 30, 2002, which
is expected to reduce the Company's overhead expenses by approximately $960,000
($80,000 per month) in annual salaries and employee benefits. The Company has
refocused its sales effort to emphasize the selling of its software products and
reengineered its hardware products in an effort to increase gross margins. The
Company has begun to establish alternate channels that will open opportunities
in the future to sell our products without the overhead expenses associated with
direct sales. We can not assure that our sales efforts or expense reduction
programs will be successful, or that additional financing will be available to
us, or, if available, that the terms will be satisfactory to us. We believe that
our working capital as of September 30, 2002 will fund the Company's operations,
as currently planned, through the quarter ended March 31, 2003. We believe that
approximately $2,000,000 in additional capital will be needed in order to fund
the Company's planned operations through December 2003. We plan to seek equity
financing to provide funding for operations but the current market for equity
financing may be weak. If we are not successful in increasing our revenue,
reducing our expenses and raising additional equity capital to generate
sufficient cash flows to meet our obligations as they come due, we may not be
able to continue as a going concern. Our financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or to amounts and classification of liabilities that may be necessary
should we be unable to continue as a going concern.

Certain amounts in the financial statements for the three and six month periods
ended September 30, 2002 have been reclassified to conform to the presentation
of the financial statements for the quarter ended September 30, 2002.

NOTE 2 - RESTRICTED CASH:

Due to the expiration of the Company's $1,500,000 line of credit on September
30, 2000, the Company pledged $375,000 on September 7, 2000 as collateral on an
outstanding letter of credit related to the required security deposit for the
Company's Piscataway, New Jersey corporate headquarters facility. On November 9,
2001, the Company entered into an agreement with the landlord for its
Piscataway, NJ facility to amend the Lease Agreement dated February 18, 1999.
The amendment allowed the Company to use $250,000 of its restricted cash from
the letter of credit towards the rent payments for 10 months starting January
2002. On January 10, 2002, the Landlord received the $250,000 from the letter of
credit per the above mentioned lease amendment. The Company agreed to replenish
the letter of credit by November 2003. Accordingly, $125,700 has been reflected
as restricted cash as a non-current asset at September 30, 2002.

                                        7

<PAGE>

NOTE 3 - INVENTORY:

Inventory, net of allowance for obsolescence of $1,080,529 and $1,005,907 at
September 30, 2002 and March 31, 2002, respectively, consists of the following:

                                   September 30, 2002   March 31, 2002
                                   ------------------   --------------

          Raw materials                    $  196,321       $  265,725
          Work in process                         908            2,161
          Finished goods                    1,123,897          756,240
                                           ----------       ----------
          Total                            $1,321,126       $1,024,126
                                           ==========       ==========

NOTE 4 - EARNINGS PER SHARE:

The computation of basic earnings per share is based on the weighted average
number of common shares outstanding for the period. Diluted earnings per share
is based on the weighted average number of common shares outstanding for the
period plus common stock equivalents, comprised of the dilutive effect of
convertible preferred stock outstanding on an as if converted basis and
outstanding stock options and warrants.

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

<TABLE>
<CAPTION>
                                  Three Months     Three Months    Six Months       Six Months
                                     Ended            Ended          Ended            Ended
                                    9/30/02          9/30/01        9/30/02          9/30/01
                                  ------------    ------------    ------------    ------------
<S>                               <C>             <C>             <C>             <C>
Weighted Average No. of Shares
Outstanding                         22,608,273      18,203,301      22,604,408      18,203,301
Incremental Shares for Common
Stock Equivalents                      467,240          12,308         578,323          18,624
                                  ------------    ------------    ------------    ------------

Total                               23,075,513      18,215,609      23,182,731      18,221,925
                                  ============    ============    ============    ============
</TABLE>

The potential incremental common shares above were excluded from the computation
of diluted earnings per share for all periods presented, because their inclusion
would have had an antidilutive effect on earnings per share due to the Company's
net loss for each respective period.

NOTE 5 - COMPREHENSIVE INCOME:

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

<TABLE>
<CAPTION>
                                           Three Months  Three Months    Six Months    Six Months
                                               Ended         Ended         Ended         Ended
                                              9/30/02      9/30/01        9/30/02       9/30/01
                                           ------------  ------------  ------------  ------------
<S>                                        <C>           <C>           <C>           <C>
Net loss                                   $(1,357,152)  $(2,348,026)  $(3,408,786)  $(4,339,942)
Effect of foreign currency translation            (209)      (10,064)      (19,486)      (12,877)
                                           ------------  ------------  ------------  ------------
Comprehensive loss                         $(1,357,361)  $(2,358,090)  $(3,428,272)  $(4,352,819)
                                           ============  ============  ============  ============
</TABLE>

                                        8

<PAGE>

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 Financial Accounting Standards Board ("FASB") issued SFAS No.
141 "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible
Assets." SFAS No. 141 requires use of the purchase method of accounting for
business combinations initiated after June 30, 2001. SFAS No. 142, which is
effective for the Company beginning April 1, 2002, requires that the
amortization of goodwill and certain other intangible assets cease and that the
related asset values be reviewed annually for impairment. The Company has
adopted SFAS No.141 and SFAS No.142 and as a result there has been no material
impact on its results of operations or financial position related to
implementation of SFAS Nos. 141 and 142.

In July 2001, the FASB also issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". SFAS No. 143 requires entities to record the fair value
of a liability for an asset retirement obligation in the period in which it is
incurred. When the liability is initially recorded, the entity capitalizes the
cost by increasing the carrying amount of the related long-lived asset. Over
time, the liability is accreted to its present value each period and the
capitalized cost is depreciated over the useful life of the related asset. Upon
settlement of the liability, the entity either settles the obligation for the
amount recorded or incurs a gain or loss. SFAS No. 143 is effective for fiscal
years beginning after June 15, 2002. The Company does not anticipate any
material impact on its results of operations or financial position related to
implementation of SFAS No. 143.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 superceded Statement of Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets to be
Disposed Of," and the accounting and reporting provisions relating to the
disposal of a segment of a business in Accounting Principles Board Opinion No.
30. On April 1, 2002, The Company adopted SFAS No. 144 and as a result there has
been no material impact on the Company's operating results or financial
condition related to the implementation of SFAS No. 144.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" and nullified EITF Issue No. 94-3. SFAS No.
146 requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred, whereas EITF No. 94-3 had
recognized the liability at the commitment date to an exit plan. The Company is
required to adopt the provisions of SFAS No. 146 effective for exit or disposal
activities initiated after December 31, 2002. The Company is currently
evaluating the impact of adoption of this statement.

NOTE 8 - RELATED PARTY TRANSACTIONS:

During April 2000, the Company made a loan (the "Loan") to the former Chief
Executive Officer (the "Former CEO") of the Company in the amount of $750,000.
At the time that the Loan was issued to the Former CEO in April 2000, the
Company was contemplating a secondary public offering and potential mergers and
acquisitions opportunities. As a result, the Company did not want the Former CEO
to exercise his stock options. In consideration for not exercising his stock
options at that time, the Company issued the Loan to him. At that time, the
Company had sufficient cash and it was contemplated that the Loan would be
repaid within one year. The Loan accrues interest at a rate of LIBOR plus 1%.
The LIBOR plus one percent interest rate in April 2000 was 7.197% as compared to
the first mortgage interest rate in April 2000 of 6.90% for a 1-year ARM, 7.97%
for a 15-year FRM and 8.30% for a 30-year FRM. This Loan had an original
maturity date of the earlier of April 2005 or thirty days after the Company for
any reason no longer employed the Former CEO.

The Former CEO resigned his position at the Company effective September 29,
2000. On October 5, 2000, the Company entered into an agreement with the Former
CEO pursuant to which the $750,000 promissory note 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 (the "Separation and Forbearance
Agreement"). The Loan is collateralized by a first mortgage interest on the
personal residence of the Former CEO. The Company agreed to extend the repayment
date of the Loan so that the Former CEO would be able to repay the Loan to the
Company by selling his personal residence. In addition to the Loan, 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. These certain expenses were incurred by the Former CEO as part of his
personal expense account arrangement with the Company. 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 which included proceeds in the amount of $777,713
received by the Company on August 3, 2001 for the sale of the Former CEO's
personal residence.

                                        9

<PAGE>

At September 30, 2002, the total amount owed to the Company by the Former CEO
was approximately $152,474, which includes interest accrued through September
30, 2002. Of this amount approximately $68,817 has been recorded as a reserve
against the note receivable. The net balance of $83,657 is classified as a
related party notes receivable on the Company's consolidated balance sheet.
Because the amounts were not paid by their respective maturity dates, interest
is accruing at the default interest rate of 12% per annum.

The Company entered into a definitive Sublease Agreement with Multipoint
Communications, LLC (the "Tenant") on April 17, 2002 to sublease approximately
5,400 square feet of its facility for a period of 24 months. The rental rate and
the other material terms of the lease with Multipoint Communications, LLC
("Multipoint") were negotiated through a real estate broker and separate
attorneys representing each party. The rental rate was established by prorating
the amount of space leased by Multipoint by the current rent paid by the Company
to its landlord. Given the current real estate market condition in the area, the
Company believes that the terms of the lease with Multipoint are comparable to
terms of leases that might have been obtained from a non-affiliate. The rent
will be $5,200 per month for the first nine months and $10,400 per month for the
last fifteen months, but with a 100% abatement for the first three months. As
part of the rental payment the Company was to be issued shares totaling the
value of $77,400, which shall be based on the per share price of the Tenant's
common stock as priced in the first round of institutional financing (the
"Financing") which was intended to close on or before June 30, 2002. These
shares shall have the registration rights as other shares issued in the
Financing. The Financing did not close by June 30, 2002, consequently, the
Tenant shall pay the Company additional rent in the amount of $4,300 per month
commencing on July 1, 2002. At September 30, 2002, future minimum lease payments
due from the Tenant are approximately $220,500. The Chairman of the Board of
Directors of the Company currently serves as the Chief Financial Officer of the
Tenant.

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 proforma 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 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 September 30, 2002. As
of September 30, 2002 Mr. Kam Saifi owes approximately $272,027 (including
approximately $14,027 of interest) for 2,000,000 Restricted Shares and; Mr.
Cameron Saifi owes approximately $195,051 (including approximately $9,651 of
interest)for 600,000 Restricted Shares. 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 owes 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.

NOTE 10 - RESTRUCTURING CHARGES:

During the quarter ended September 30, 2002, the company announced the
elimination of thirteen employees in order to reduce operating expenses. The
elimination of these employees resulted in a charge during the quarter ended
September 30, 2002 of $154,370 in severance and other related matters, of which
all has been paid prior to September 30, 2002. As a result, the company will
reduce its annual operating expenses by approximately $960,000 in salaries and
employee benefits (approximately $ 80,000 per month).

                                       10

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS

A number of statements contained in this report are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 that
involve risks and uncertainties that could cause actual results to differ
materially from those expressed or implied in the applicable statements. These
risks and uncertainties include, but are not limited to, those described in the
Company's filings with the Securities and Exchange Commission included in its
annual report Form 10-KSB, as amended, for the fiscal year ended March 31, 2002.
Subsequent to the filing of our Form 10-KSB, as amended, for the fiscal year
ended March 31, 2002, we hereby amended the risk factor, "Our Common Stock may
be delisted from Nasdaq" with the following:

Our Common Stock may be delisted from Nasdaq.

The National Association of Securities Dealers, Inc. has established certain
standards for the continued listing of a security on the Nasdaq National Market
and the Nasdaq SmallCap Market. The standards for continued listing on either
market require, among other things, that the minimum bid price for the listed
securities be at least $1.00 per share. A deficiency in the bid price
maintenance standard will be deemed to exist if the issuer fails the stated
requirement for thirty consecutive trading days, with a 90-day grace period,
with respect to the Nasdaq National Market, and a 180-day grace period with
respect to the Nasdaq SmallCap Market. Our Common Stock has traded below $1.00
since January 29, 2002, and on March 13, 2002, we received notice from Nasdaq
stating that our Common Stock has not met the Nasdaq National Market's $1.00
continuing listing standard for a period of 30 consecutive trading days. On June
4, 2002, prior to the expiration of our 90-day cure period, we applied for a
transfer to the Nasdaq SmallCap Market in order to take advantage of the longer
180-day grace period. On August 5, 2002, we received a letter from Nasdaq
approving the transfer of the Company's securities from the Nasdaq National
Market to the Nasdaq SmallCap Market, effective as of the opening of business on
August 7, 2002. The Nasdaq SmallCap Market requires that the Company's
securities close at $1.00 per share or more for a minimum of 10 consecutive
trading days. If the price deficiency is cured during the 180-day grace period
provided by the Nasdaq SmallCap Market by September 9, 2002, and we otherwise
continue to comply with the Nasdaq National Market maintenance standards, we
could then transfer back to the Nasdaq National Market. If we cannot demonstrate
compliance with the Nasdaq SmallCap Market minimum bid price requirement by the
end of the 180-day grace period, the Company may be eligible for an additional
180-day grace period, if we demonstrate compliance with the initial listing
criteria for the Nasdaq SmallCap Market.

On September 17, 2002 we received a letter from Nasdaq granting us the
additional 180 day grace period, or until March 10, 2003, to regain compliance
with the minimum $1.00 bid price requirement of the Nasdaq SmallCap Market. The
Company was granted this additional grace period after raising $300,303 in
equity financing on September 13, 2002 thereby satisfying the Nasdaq SmallCap
Market requirement of minimum stockholders' equity of $5 million (based on
stockholders equity of $5,004,215 at June 30, 2002, adjusted on a pro forma
basis for the equity financing).

In addition to maintaining compliance with other continuing listing
requirements, if the Company's common stock does not close at $1.00 per share or
more for a minimum of 10 consecutive trading days by March 10, 2003, it will be
subject to delisting from the Nasdaq SmallCap Market.

There can be no assurance that we will satisfy the requirements for maintaining
a Nasdaq SmallCap Market listing. If our Common Stock were to be excluded from
Nasdaq, the price of our Common Stock and the ability of holders to sell such
stock would be adversely affected, and we would be required to comply with the
initial listing requirements to be relisted on Nasdaq.

We may not be able to continue as a going concern.

The Company's working capital balance as of September 30, 2002 was $2,089,596 as
compared to $5,040,922 at March 31, 2002. This decline in working capital was
due to continued operating losses generated throughout the six months ended
September 30, 2002. We believe that our working capital as of September 30, 2002
will fund the Company's operations, as currently planned, through the quarter
ended March 31,2003. We believe that approximately $2,000,000 in additional
capital will be needed in order to fund the Company's planned operations through
December 2003. We plan to seek equity financing to provide funding for
operations but the current market for equity financing may be weak. If we are
not successful in raising additional equity capital to generate sufficient cash
flows to meet our obligations as they come due, we plan to continue to reduce
our overhead expenses by the reduction of headcount and other available
measures. We may also explore the possibility of mergers and acquisitions. If we
are not successful in increasing our revenue, reducing our expenses or raising
additional equity capital to generate sufficient cash flows to meet our
obligations as they come due, we may not be able to continue as a going concern.

                                       11

<PAGE>

OVERVIEW

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.

As organizations become more interconnected and dependent on networks such as
the Internet, they are increasingly being exposed to a widening range of
cyber-threats. These attacks occur despite the wide spread deployment of
information security technologies, suggesting that it is not sufficient to only
protect the electronic perimeter of an organization. With the most damaging
security breaches increasingly appearing within the boundaries of organizations,
Infrastructure Security has become one of the newest components of electronic
security strategies. Infrastructure Security focuses on protecting the critical
infrastructure devices that support the transfer, storage, and processing of
business applications and information. Infrastructure security also provides a
method by which the tools used to manage these devices, and the administrators
who keep these devices running smoothly, are protected against the threat of
attack from the outside.

The ION Secure (TM) product suite provides ION customers with comprehensive
infrastructure security including secure access, authentication, authorization,
audit and administrative functions that we believe form a highly scalable,
robust, reliable, easy-to-use and cost-effective secure management portal. ION
solutions include ION Secure PRIISMS centralized management software, 3000 and
5000 series security appliances, and 500 series security tokens. These solutions
are based on ION proprietary software and hardware developed and maintained by
the Company. ION infrastructure security solutions use the same single-purpose
embedded ION Secure Operating System (ISOS) software on all security appliance
models, with the goal of simplifying the management of thousands of IT and
telecommunications infrastructure devices such as servers, routers, LAN
switches, PBXs, messaging systems and multiplexers. ION solutions are designed
to enable administrators to securely configure, troubleshoot and manage
geographically dispersed infrastructure devices from central operations centers,
reducing costly on-site visits, service disruptions and skilled personnel
requirements. ION infrastructure security solutions can be used in a variety of
networks including TCP/IP-data, PBX-telephony, telecommunications and data
centers ranging in size from one to thousands of infrastructure devices. ION
solutions are designed to be fully compatible with information security
solutions offered by, among others, Cisco, Checkpoint and Nortel Networks.

ION's infrastructure security solutions are distributed via three distinct
channels: (i) a direct sales force, (ii) indirect channels, such as Value Added
Resellers (VARs) and (iii) Original Equipment Manufacturers (OEMs). Services
revenue is typically generated from integration and maintenance services in
conjunction with the sale of ION solutions.

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 third quarter of fiscal 2002, the Company's principal objective was
to address the need for security based network management 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 last twelve to eighteen months, the telecommunications
industry has endured a significant economic downturn. Telecommunications service
providers have typically reduced planned capital spending, have reduced staff,
and 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 securing additional funding in 2003 in order to continue operating as
a going concern.

                                       12

<PAGE>

RESULTS OF OPERATIONS

For the three months ended September 30, 2002 compared to the same period in
2001

Net sales for the three months ended September 30, 2002, was $1,522,336 compared
to Net sales of $1,088,380 for the same period in 2001, an increase of $ 433,956
or 40.0%. The increase in net sales was attributable to the sale of products
with a higher per unit selling price during the quarter ending September 30,
2002 as compared to the comparable period of the prior year and continued
management focus on sales execution. These factors, combined with the adverse
impact of the September 11, 2001 tragedy on the quarter ended September 30,
2001, resulted in the growth in sales.

Cost of sales for the three months ended September 30, 2002 was $557,564
compared to $572,576 for the same period in 2001. Cost of sales as a percentage
of net sales for the three months ended September 30, 2002 decreased to 36.6%
from 52.6% for the same period in 2001, and therefore gross margin increased to
63.4% from 47.4% as compared to the prior year. This increase in gross margin
was due to an improved revenue mix of higher margin products and services as
well as the reduction of the Company's manufacturing overhead expenses.

Research and development expense, net of capitalized software development, for
the three months ended September 30, 2002 was $280,893 compared to $158,622 for
the same period in 2001 or an increase of $122,271 as compared to the comparable
period of the prior year. The increase is primarily attributable to additional
costs associated with the continued development effort to reengineer our
hardware products to better serve the enterprise market and to lower the cost of
goods sold.

Selling, general and administrative expenses ("SG&A") for the three months ended
September 30, 2002 were $1,614,473 compared to $2,250,262 for the same period in
2001, a decrease of $635,789. This is the result of a corporate-wide effort to
reduce operating expenses, which included the elimination of the seventeen
employees during the quarter ended December 31, 2001 and an additional
elimination of the thirteen employees in the quarter ended September 30, 2002
for a total labor cost reduction of $2,560,000 in annual salaries and employee
benefits. The elimination of the thirteen employees during the quarter ended
September 30, 2002 resulted in a restructuring charge during the quarter of
$154,370 in severance and other related matters, all of which has been paid
prior to September 30, 2002.

Depreciation and amortization expenses - amortization of capitalized software,
goodwill and other acquisition related intangibles, and depreciation on
equipment, furniture and fixtures - was $281,596 for the three months ended
September 30, 2002 compared to $472,688 in the same period in 2001. 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.

Net loss for the three months ended September 30, 2002 was $1,357,152 compared
to a loss of $2,348,026 for the same period in 2001. This is a result of
increase in sales, improved gross margins and the decrease in operating expenses
resulting from the Company's corporate-wide effort to reduce operating expenses.

                                       13

<PAGE>

For the six months ended September 30, 2002 compared to the same period in 2001

Net sales for the six months ended September 30, 2002, was $2,482,468 compared
to Net sales of $3,021,822 for the same period in 2001, a decrease of $539,354
or 17.8%. Despite the increase in sales for the three months ended September 30,
2002 versus the comparable period in 2001, Net Sales for the six month period
ended September 30, 2002 declined as compared to the comparable period. This was
due to lower unit sales, which was partially offset by a higher per unit selling
price, because of the severe impact of the weakness of capital and IT spending
particularly in the telecommunications service provider sector which adversely
impacted the quarter ended June 30, 2002 and resulted in the decrease in net
sales for the six month period ended September 30, 2002 as compared to the same
period of the prior year.

Cost of sales for the six months ended September 30, 2002 was $914,068 compared
to $1,430,176 for the same period in 2001. Cost of sales as a percentage of net
sales for the six months ended September 30, 2002 decreased to 36.8% from 47.3%
for the same period in 2001 and therefore gross margins improved from 52.7% to
63.2% as compared to the prior year. This increase in gross margin percentage
was due to an improved revenue mix of higher margin products and services as
well as reduction the Company's manufacturing overhead expenses.

Research and development expense, net of capitalized software development, for
the six months ended September 30, 2002 was $516,202 compared to $508,497 for
the same period in 2001. The slight increase in expenditures as compared to the
same period for the prior year was due to the increase in costs associated with
the continued development effort to reengineer our hardware products to better
serve the enterprise market and to lower cost of goods sold, that was offset by
the decrease in spending on third party consultants.

Selling, general and administrative expenses ("SG&A") for the six months ended
September 30, 2002 were $3,751,441 compared to $4,535,285 for the same period in
2001 or a decrease of $783,844 as compared to the same period in 2001. This is
the result of a corporate-wide effort to reduce operating expenses, which
included the elimination of seventeen employees during the quarter ended
December 31, 2001 and an additional elimination of thirteen employees in the
quarter ended September 30, 2002 for a total labor cost reduction of $2,560,000
in annual salaries and employee benefits. The elimination of the thirteen
employees during the quarter ended September 30, 2002 resulted in a
restructuring charge during the quarter of $154,370 in severance and other
related matters, all of which has been paid prior to September 30, 2002.

Depreciation and amortization expenses - amortization of capitalized software,
goodwill and other acquisition related intangibles, and depreciation on
equipment, furniture and fixtures - was $563,567 for the six months ended
September 30, 2002 compared to $943,964 in the same period in 2001. 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.

Net loss for the six months ended September 30, 2002 was $ 3,408,786 compared to
a loss of $4,339,942 for the same period in 2001. Despite the reduction in sales
as compared to the comparable period of the prior year, net loss for the year
improved by $931,156 as a result of improved gross margins and the decrease in
operating expenses resulting from the Company's corporate-wide effort to reduce
operating expenses.

                                       14

<PAGE>

                    FINANCIAL CONDITION AND CAPITAL RESOURCES

The Company's working capital balance as of September 30, 2002 was $2,089,596 as
compared to $5,040,922 at March 31, 2002. This decline in working capital was
due to continued operating losses generated throughout the six months ended
September 30, 2002. We believe that our working capital as of September 30, 2002
will fund the Company's operations, as currently planned, through the quarter
ended March 31,2003. We believe that approximately $2,000,000 in additional
capital will be needed in order to fund the Company's planned operations through
December 2003. We plan to seek equity financing to provide funding for
operations but the current market for equity financing may be weak. If we are
not successful in raising additional equity capital to generate sufficient cash
flows to meet our obligations as they come due, we plan to continue to reduce
our overhead expenses by the reduction of headcount and other available
measures. We may also explore the possibility of mergers and acquisitions. If we
are not successful in increasing our revenue, reducing our expenses or raising
additional equity capital to generate sufficient cash flows to meet our
obligations as they come due, we may not be able to continue as a going concern.

Net cash used in operating activities during the six months ended September 30,
2002 was $2,240,894 compared to net cash used during the same period in 2001 of
$3,329,222. The decrease in net cash used during the six months ended September
30, 2002 compared to the same period in 2001, was primarily due to improved
gross margins and the reduction in operating expenses as a result of the
corporate-wide effort to reduce expenses. The $2,240,894 net cash used in
operating activities during the six-month period ended September 30, 2002 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 used in investing activities during the six months ended September 30,
2002 was $286,302 compared to net cash generated during the same period in 2001
of $568,449. This increase in cash used in investing activities during the six
months ended September 30, 2002 as compared to the comparable period of 2001 was
primarily the result of the collection of a related party note receivable in
2001, which did not occur in 2002. This was partially offset by an increase in
capitalized software expenditures.

Net cash generated from financing activities during the six months ended
September 30, 2002 was $219,624 compared to net cash used during the same period
in 2001 of $60,392. This increase in cash generated from financing activities
during the six months ended September 30, 2002 as compared to the comparable
period of 2001 was primarily due to the proceeds generated from the preferred
stock financing completed in September 2002.

Our consolidated financial statements have been prepared on the basis that we
will continue as a going concern, which contemplates the realization and
satisfaction of liabilities and commitments in the normal course of business. At
September 30, 2002, we had an accumulated deficit of $40,503,210 and working
capital of $2,089,596. We also realized net losses of $3,408,786 for the six
months ended September 30, 2002. Our existing working capital might not be
sufficient to sustain our operations.

Our plans to overcome this condition includes refocusing our sales efforts to
include penetrating additional markets with our enterprise infrastructure
security products, reducing expenses and raising additional equity capital. We
have restructured and reorganized to reduce our operating expenses by the
elimination of thirteen employees during the quarter ended September 30, 2002,
which is expected to reduce the Company's overhead expenses by approximately
$960,000 ($80,000 per month) in annual salaries and employee benefits. The
Company has refocused its sales effort to emphasize the selling of its software
products and reengineered its hardware products in an effort to increase gross
margins. The Company has begun to establish alternate channels that will open
opportunities in the future to sell our products without the overhead expenses
associated with direct sales. We can not assure that our sales efforts or
expense reduction programs will be successful, or that additional financing will
be available to us, or, if available, that the terms will be satisfactory to us.
If we are not successful in increasing our revenue, reducing our expenses or
raising additional equity capital, to generate sufficient cash flows to meet our
obligations as they come due, we may not be able to continue as a going concern.
Our financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or to amounts and
classification of liabilities that may be necessary should we be unable to
continue as a going concern.

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.

Critical 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.

                                       15

<PAGE>

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.

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 Financial Accounting Standards Board ("FASB") issued SFAS No.
141 "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible
Assets." SFAS No. 141 requires use of the purchase method of accounting for
business combinations initiated after June 30, 2001. SFAS No. 142, which is
effective for the Company beginning April 1, 2002, requires that the
amortization of goodwill and certain other intangible assets cease and that the
related asset values be reviewed annually for impairment. The Company has
adopted SFAS No. 141 and SFAS No. 142 and as a result there has been no material
impact on its results of operations or financial position related to
implementation of SFAS Nos. 141 and 142.

In July 2001, the FASB also issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". SFAS No. 143 requires entities to record the fair value
of a liability for an asset retirement obligation in the period in which it is
incurred. When the liability is initially recorded, the entity capitalizes the
cost by increasing the carrying amount of the related long-lived asset. Over
time, the liability is accreted to its present value each period and the
capitalized cost is depreciated over the useful life of the related asset. Upon
settlement of the liability, the entity either settles the obligation for the
amount recorded or incurs a gain or loss. SFAS No. 143 is effective for fiscal
years beginning after June 15, 2002. The Company does not anticipate any
material impact on its results of operations or financial position related to
implementation of SFAS No. 143.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 superceded Statement of Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets to be
Disposed Of," and the accounting and reporting provisions relating to the
disposal of a segment of a business in Accounting Principles Board Opinion No.
30. On April 1, 2002, the Company adopted SFAS No. 144 and as a result there has
been no material impact on the Company's operating results or financial
condition related to the implementation of SFAS No. 144.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" and nullified EITF Issue No. 94-3. SFAS No.
146 requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred, whereas EITF No. 94-3 had
recognized the liability at the commitment date to an exit plan. The Company is
required to adopt the provisions of SFAS No. 146 effective for exit or disposal
activities initiated after December 31, 2002. The Company is currently
evaluating the impact of adoption of this statement.

                                       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 2. CHANGES IN SECURITIES.

On September 13, 2002 the Company received equity financing in the amount of
$300,303 for the issuance of 166,835 unregistered shares of the Company's Series
A Preferred Stock ("Preferred Stock") at $1.80 per share. 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 would receive 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 proforma basis
for the equity financing).

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

On October 17, 2002, the Company held its 2002 Annual Meeting of Stockholders
(the "2002 Meeting").

At the 2002 Meeting, the Company's Stockholders elected six directors to serve
until the 2003 Annual Meeting of Stockholders and until their successors shall
be elected and qualified. The vote with respect to the election of such
directors was as follows:

       NAME                           FOR                 AUTHORITY WITHHELD
       ---------------------------------------------------------------------

(a)    Stephen M. Deixler             17,985,231          369,723
(b)    Baruch Halpern                 17,985,431          369,523
(c)    Alexander S. Stark, Jr         17,985,431          369,523
(d)    Frank S. Russo                 17,985,431          369,523
(e)    Kam Saifi                      17,985,431          369,523
(f)    Vincent Curatolo               17,985,431          369,523

In addition to electing the directors, the Company's Stockholders voted to
approve an amendment to the Company's Certificate of Incorporation, as amended,
to effect a reverse stock split of all of the outstanding shares of common stock
at a ratio between one-to-two and one-to-ten, to be determined at the discretion
of the Board of Directors. 17,986,291 votes were cast in favor of the approval
of such amendment, 351,956 votes were cast in opposition to such approval,
16,707 votes abstained and no broker non-votes.

The Company's Stockholders also voted to approve the adoption of the 2002 Stock
Incentive Plan. 17,570,813 votes were cast in favor of the approval of the 2002
Stock Incentive Plan, 752,282 votes were cast in opposition to such approval,
31,859 votes abstained and no broker non-votes.

The Company's Stockholders also voted to approve the ratification of the
selection of Deloitte and Touche LLP as the Company's independent auditors.
18,265,262 votes were cast in favor of the ratification and selection of
Deloitte and Touche LLP as the Company's independent auditors, 60,700 votes were
cast in opposition to such approval, 28,992 votes abstained and no broker
non-votes.

The Company's Stockholders also voted to approve the amendment to the Company's
Certificate of Incorporation, as amended, to increase the number of shares of
common stock that the Company is authorized to issue from 50,000,000 to
100,000,000, which would become effective upon the filing of a Certificate of
Amendment of Amended and Restated Certificate of Incorporation with the Delaware
Secretary of State. 17,718,156 votes were cast in favor of the approval of such
amendment, 612,134 votes were cast in opposition to such approval, 24,664 votes
abstained and no broker non-votes.

The Company's Stockholders also voted to approve the issuance of up to
35,000,000 shares of common stock or securities convertible into or exercisable
for up to 35,000,000 shares of common stock (such as convertible preferred stock
or warrants) or any of the foregoing in combination, at such prices and on such
terms as may be approved by the Board of Directors; provided that such
issuance(s) would (i) generate gross proceeds to the Company in an aggregate
amount not to exceed $7,000,000, (ii) occur within three months of the date this
proposal is approved by our stockholders, and (iii) be sold at market value or,
if market conditions warrant, at prices no lower than (or having an exercise
price no lower than) a 20% discount to the last bid price of the common stock on
the day prior to the date that a binding agreement is entered into for the sale
of such securities. 17,718,156 votes were cast in favor of the approval of such
issuance, 628,152 votes were cast in opposition to such approval, 23,754 votes
abstained and 12,495,713 of broker non-votes.

                                       18

<PAGE>

ITEM 6. 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./(1)/

         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./(1)/

         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./(2)/

         3.4          By-Laws of the Company./(1)/

         3.5          Form of Specimen Common Stock Certificate of the
                      Company./(3)/

         4.1          1998 Stock Option Plan of the Company./(1)/

         4.2          1998 U.K. Sub-Plan of the Company, as amended./(1)/

         10.1         Lease Agreement dated February 18, 1999 by and between the
                      Company and Washington Plaza Associates, L.P., as
                      landlord. /(3)/

         10.2         Business Park Gross Lease dated May 17, 1999 by and
                      between the Company and Bedford Property Investors,
                      Inc./(3)/

         10.3         Supply Agreement dated October 20, 1998 by and between the
                      Company and Lucent Technologies. (Incorporated by
                      reference to the Company's Annual Report on form 10-KSB
                      for the fiscal year ended March 31, 1999)./(3)/

         10.4         OEM Purchase Agreement dated April 13, 1999 by and between
                      the Company and the Hewlett-Packard Company./(3)/

         10.5         Agreement dated as of December 19, 1994 by and between
                      LeeMAH DataCom Security Corporation and Siemens Rolm
                      Communications Inc./(3)/

         10.6         Equipment Lease Agreements dated June 10, 1999 and May 5,
                      1999 by and between the Company and Siemens Credit
                      Corporation. (Incorporated by reference to the Company's
                      Annual Report on form 10-KSB for the fiscal year ended
                      March 31, 1999)./(3)/

         10.7         Equipment Lease Agreement dated June 17, 1999 by and
                      between the Company and Lucent Technologies./(3)/

                                       19

<PAGE>

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

         10.8         (i)   Non-negotiable Promissory Note in the principal
                      amount of $750,000 issued by Stephen B. Gray to the
                      Company./(4)/

                      (ii)  First Amendment to Promissory Note dated as of
                      August 5, 2000 by and between the Company and Stephen B.
                      Gray./(4)/

         10.9         Line of Credit Agreement with United Nations Bank dated
                      September 30, 1999./(4)/

         10.10        Asset Purchase Agreement dated as of February 25, 1999 by
                      and among the Registrant, LeeMAH and the Parent./(5)/

         10.11        Assignment of Patents of LeeMAH dated February 25,
                      1999./(5)/

         10.12        Assignment of Trademarks of LeeMAH dated February 25,
                      1999./(5)/

         10.13        (i)   Separation and Forebearance Agreement made as of
                      October 5, 2000 between the Company and Stephen B.
                      Gray./(6)/

                      (ii)  Promissory Note in the amount of $163,000 dated
                      October 5, 2000 made by Stephen B. Gray to the
                      Company./(6)/

         10.14        Consulting Agreement entered into September 18, 2000
                      between the Company and Venture Consulting Group,
                      Inc./(6)/

         10.15        Materials and Services Contract dated January 16, 2001,
                      between the Company and SBC Services, Inc./(7)/

         10.16        Stock Purchase Agreement dated August 11, 2000 by and
                      between the Company and the parties identified
                      therein./(7)/

         10.17        Form of Warrant Agreement dated July 17, 2001./(12)/

         10.18        Form of Warrant Agreement dated January 4, 2002./(12)/

         10.19        Form of Non-Qualified Stock Option Agreement dated March
                      19, 1999 by and between the Company's predecessor,
                      Microframe, Inc. and its consultants./(12)/

         10.20        Form of Non-Employee Director Stock Option Contract dated
                      March 10, 1998 between the Company's predecessor,
                      Microframe, Inc. and its non-employee directors./(12)/

         10.21        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./(12/)

         10.22        Form of Non-Qualified Stock Option Agreement dated
                      September 25, 1996 by and between the Company's
                      predecessor, Microframe, Inc. and its employees./(12)/

                                       20

<PAGE>

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

         10.23        Amended and Restated Non-Qualified Stock Option Agreement
                      dated May 19, 1997 by and between the Company's
                      Predecessor, Microframe, Inc. and its employees./(8)/

         10.24        Employment Agreement dated October 4, 2001 between the
                      Company and Kam Saifi./(10)/

         10.25        Employment Agreement dated October 17, 2001 between the
                      Company and Cameron Saifi./(11)/

         10.26        Employment Agreement dated October 17, 2001 between the
                      Company and David Arbeitel./(11)/

         10.27        Sublease Agreement dated April 17, 2002 between the
                      Company and Multipoint Communications, LLC./(13)/

         10.28        Employment Agreement dated May 20, 2002 between the
                      Company and Ted Kaminer./(14)/

         10.29        Agreement and General Release dated August 15, 2002
                      between the Company and Ron Forster.*

         10.30        Rescission Agreement dated September 29, 2002 between the
                      Company and David Arbeitel.*

         10.31        Separation Agreement and General Release dated October 31,
                      2002 between the Company and David Arbeitel.*

         16.1         Letter dated June 28, 2001, from PricewaterhouseCoopers
                      LLP to the Securities and Exchange Commission./(9)/

         21.1         List of Subsidiaries./(13)/

         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 April 22, 1999.
(2)  Incorporated by reference to the Company's Registration Statement on Form
S-8 filed on March 17, 2000.
(3)  Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended March 31, 1999.
(4)  Incorporated by reference to the Company's Annual Report on Form 10-KSB
filed on June 28, 2000.
(5)  Incorporated by Reference to the Company's Current Report on Form 8-K filed
on March 12, 1999.
(6)  Incorporated by reference to the Company's quarterly report on Form 10-QSB
filed on November 14, 2000.
(7)  Incorporated by reference to the Company's annual report on Form 10-KSB
filed on June 29, 2001.
(8)  Incorporated by reference to the Company's Registration Statement on Form
S-8 filed on November 17, 2000.
(9)  Incorporated by reference to the Company's annual report on Form 10-KSB
filed on June 29, 2001.
(10) Incorporated by Reference to the Company's Current Report on Form 8-K filed
on October 23, 2001.
(11) Incorporated by Reference to the Company's Current Report on Form 8-K filed
on October 24, 2001.
(12) 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.
(13) 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.
(14) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
filed on August 14, 2002.
* Filed herewith

                                       21

<PAGE>

     (b) Reports on Form 8-K:

On August 6, 2002, the Company filed a report on Form 8-K reporting the issuance
of a press release announcing the results of the fiscal first quarter ended June
30, 2002.

On August 6, 2002, the Company filed a report on Form 8-K reporting the issuance
of a press release announcing its transfer from the Nasdaq National Market to
the Nasdaq SmallCap Market, effective August 7, 2002.

On August 14, 2002, the Company filed a report on Form 8-K reporting the filing
of its quarterly report on Form 10-QSB accompanied by certifications by Kam
Saifi, its Chief Executive Officer and Ted Kaminer, its Chief Financial Officer,
in accordance with Section 906 of the Sarbanes-Oxley Act of 2002.

On August 21, 2002, the Company filed a report on Form 8-K reporting the filing
of Amendment No. 3 of its annual report on Form 10-KSB for the year ended March
31, 2002 and Amendment No. 1 to its quarterly report on Form 10-QSB for the
quarter ended June 30, 2002 accompanied by certifications by Kam Saifi, its
Chief Executive Officer and Ted Kaminer, its Chief Financial Officer, in
accordance with Section 906 of the Sarbanes-Oxley Act of 2002.

On September 16, 2002, the Company filed a report on Form 8-K reporting its
receipt of $300,303.00 in an equity financing for the issuance of 166,835
unregistered shares of the Company's Series A Preferred Stock at $1.80 per
share.

On September 18, 2002, the Company filed a report on Form 8-K reporting the
issuance of a press release announcing that it had been granted an additional
180-day grace period, or until March 10, 2003, to regain compliance with the
$1.00 minimum bid price requirement of the Nasdaq SmallCap Market.

                                       22

<PAGE>

                                   SIGNATURES

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

Date: November 14, 2002

                               ION NETWORKS, INC.


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

                   /s/ Ted Kaminer
               ------------------------------------------

               Ted Kaminer, Chief Financial Officer and
               Vice President
               (Principal Financial Officer and Principal
               Accounting Officer)

                                       23

<PAGE>

                                 CERTIFICATIONS

I, Kam Saifi, certify that:

     1.   I have reviewed this quarterly report on Form 10-QSB 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:          November 14, 2002
          ---------------------------------------------------------


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

<PAGE>

                          I, Ted Kaminer, certify that:

1.   I have reviewed this quarterly report on Form 10-QSB 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: :             November 14, 2002
       --------------------------------------------------------------------


By:      /s/ Ted Kaminer
   ------------------------------------------------------------------------
         Ted Kaminer, Chief Financial Officer and Vice President (Principal
         Financial Officer and Principal Accounting Officer)

<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./(1)/

      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./(1)/

      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./(2)/

      3.4           By-Laws of the Company./(1)/

      3.5           Form of Specimen Common Stock Certificate of the
                    Company./(3)/

      4.1           1998 Stock Option Plan of the Company./(1)/

      4.2           1998 U.K. Sub-Plan of the Company, as amended./(1)/

      10.1          Lease Agreement dated February 18, 1999 by and between the
                    Company and Washington Plaza Associates, L.P., as landlord.
                    /(3)/

      10.2          Business Park Gross Lease dated May 17, 1999 by and between
                    the Company and Bedford Property Investors, Inc./(3)/

      10.3          Supply Agreement dated October 20, 1998 by and between the
                    Company and Lucent Technologies. (Incorporated by reference
                    to the Company's Annual Report on form 10-KSB for the fiscal
                    year ended March 31, 1999)./(3)/

      10.4          OEM Purchase Agreement dated April 13, 1999 by and between
                    the Company and the Hewlett-Packard Company./(3)/

      10.5          Agreement dated as of December 19, 1994 by and between
                    LeeMAH DataCom Security Corporation and Siemens Rolm
                    Communications Inc./(3)/

      10.6          Equipment Lease Agreements dated June 10, 1999 and May 5,
                    1999 by and between the Company and Siemens Credit
                    Corporation. (Incorporated by reference to the Company's
                    Annual Report on form 10-KSB for the fiscal year ended March
                    31, 1999)./(3)/

      10.7          Equipment Lease Agreement dated June 17, 1999 by and between
                    the Company and Lucent Technologies./(3)/

      10.8          (i)  Non-negotiable Promissory Note in the principal
                    amount of $750,000 issued by Stephen B. Gray to the
                    Company./(4)/

                    (ii) First Amendment to Promissory Note dated as of August
                    5, 2000 by and between the Company and Stephen B.
                    Gray./(4)/

<PAGE>

      Exhibit
      No.           Description
      -------       -----------
      10.9          Line of Credit Agreement with United Nations Bank dated
                    September 30, 1999./(4)/

      10.10         Asset Purchase Agreement dated as of February 25, 1999 by
                    and among the Registrant, LeeMAH and the Parent./(5)/

      10.11         Assignment of Patents of LeeMAH dated February 25,
                    1999./(5)/

      10.12         Assignment of Trademarks of LeeMAH dated February 25, 1999.
                    /(5)/

      10.13         (i) Separation and Forebearance Agreement made as of October
                    5, 2000 between the Company and Stephen B. Gray./(6)/

                    (ii)Promissory Note in the amount of $163,000 dated October
                    5, 2000 made by Stephen B. Gray to the Company./(6)/

      10.14         Consulting Agreement entered into September 18, 2000 between
                    the Company and Venture Consulting Group, Inc./(6)/

      10.15         Materials and Services Contract dated January 16, 2001,
                    between the Company and SBC Services, Inc./(7)/

      10.16         Stock Purchase Agreement dated August 11, 2000 by and
                    between the Company and the parties identified therein./(7)/

      10.17         Form of Warrant Agreement dated July 17, 2001./(12)/

      10.18         Form of Warrant Agreement dated January 4, 2002./(12)/

      10.19         Form of Non-Qualified Stock Option Agreement dated March 19,
                    1999 by and between the Company's predecessor, Microframe,
                    Inc. and its consultants./(12)/

      10.20         Form of Non-Employee Director Stock Option Contract dated
                    March 10, 1998 between the Company's predecessor,
                    Microframe, Inc. and its non-employee directors./(12)/

      10.21         Form of Non-Employee Director Stock Option Contract dated
                    September 17, 1997 by and between the Company's predecessor,
                    Microphone, Inc, and its non-employee directors./12/

      10.22         Form of Non-Qualified Stock Option Agreement dated September
                    25, 1996 by and between the Company's predecessor,
                    Microframe, Inc. and its employees./(12)/

      10.23         Amended and Restated Non-Qualified Stock Option Agreement
                    dated May 19, 1997 by and between the Company's predecessor,
                    Microframe, Inc. and its employees./(8)/

      10.24         Employment Agreement dated October 4, 2001 between the
                    Company and Kam Saifi./(10)/

      10.25         Employment Agreement dated October 17, 2001 between the
                    Company and Cameron Saifi./(11)/

      10.26         Employment Agreement dated October 17, 2001 between the
                    Company and David Arbeitel./(11)/

<PAGE>

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

      10.27         Sublease Agreement dated April 17, 2002 between the Company
                    and Multipoint Communications, LLC./(13)/

      10.28         Employment Agreement dated May 20, 2002 between the Company
                    and Ted Kaminer./(14)/

      10.29         Agreement and General Release dated August 15, 2002 between
                    the Company and Ron Forster.*

      10.30         Rescission Agreement dated September 29, 2002 between the
                    Company and David Arbeitel.*

      10.31         Separation Agreement and General Release dated
                    October 31,2002 between the Company and David Arbeitel.*

      16.1          Letter dated June 28, 2001, from PricewaterhouseCoopers LLP
                    to the Securities and Exchange Commission./(9)/

      21.2          List of Subsidiaries./(13)/

      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 April 22, 1999.
(2)  Incorporated by reference to the Company's Registration Statement on Form
S-8 filed on March 17, 2000.
(3)  Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended March 31, 1999.
(4)  Incorporated by reference to the Company's Annual Report on Form 10-KSB
filed on June 28, 2000.
(5)  Incorporated by Reference to the Company's Current Report on Form 8-K filed
on March 12, 1999.
(6)  Incorporated by reference to the Company's quarterly report on Form 10-QSB
filed on November 14, 2000.
(7)  Incorporated by reference to the Company's annual report on Form 10-KSB
filed on June 29, 2001.
(8)  Incorporated by reference to the Company's Registration Statement on Form
S-8 filed on November 17, 2000.
(9)  Incorporated by reference to the Company's annual report on Form 10-KSB
filed on June 29, 2001.
(10) Incorporated by Reference to the Company's Current Report on Form 8-K filed
on October 23, 2001.
(11) Incorporated by Reference to the Company's Current Report on Form 8-K filed
on October 24, 2001.
(12) 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.
(13) 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.
(14) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
filed August 14, 2002.
* Filed herewith