10KSB/A

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-KSB/A

                                 Amendment No. 2


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

                    For the fiscal year ended March 31, 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.
                 (Name of Small Business Issuer in Its Charter)


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


   1551 South Washington Avenue, Piscataway                     08854
  (Address of Principal Executive Offices)                     (Zip Code)

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

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act: Common Stock,
                                                            $.001 par value

[X]      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.

[_]      Check if there is no disclosure of delinquent filers in response to
         Item 405 of Regulation S-B is not contained in this form, and no
         disclosure will be contained, to the best of registrant's knowledge, in
         definitive proxy information statements incorporated by reference in
         Part III of this Form 10-KSB or any amendment to this Form 10-KSB.

The issuer's revenues for its most recent fiscal year totaled $7,312,235.

The aggregate market value of voting stock held by non-affiliates, based on the
closing price of the Common Stock, par value $0.001 (the "Common Stock") on June
19, 2002 of $0.40, as reported on the NASDAQ National Market was approximately
$6,701,419. Shares of Common Stock held by each officer and director and by each
person who owns 5% or more of the outstanding Common Stock have been excluded in
that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for any other
purpose.

There were 25,138,001 shares of Common Stock outstanding as of June 19, 2002.

DOCUMENTS INCORPORATED BY REFERENCE:  None.



                Information Regarding Forward-Looking Statements

A number of statements contained in this report are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 that
involve risks and uncertainties that could cause actual results to differ
materially from those expressed or implied in the applicable statements. These
risks and uncertainties include, but are not limited to, the recent introduction
and the costs associated with, a new family of products; dependence on the
acceptance of this new family of products; uncertainty as to the acceptance of
the Company's products generally; risks related to technological factors;
potential manufacturing difficulties; uncertainty of product development;
uncertainty of adequate financing; dependence on third parties; dependence on
key personnel; competition; a limited customer base; risk of system failure,
security risks and liability risks; risk of requirements to comply with
government regulations; vulnerability to rapid industry change and technological
obsolescence; and general economic conditions. In some cases, you can identify
forward-looking statements by our use of words such as "may," "will," "should,"
"could," "expects," "plans," "intends," "anticipates," "believes," "estimates,"
"predicts," "potential," or "continue" or the negative or other variations of
these words, or other comparable words or phrases. Unless otherwise required by
applicable securities laws, the Company assumes no obligation to update any such
forward-looking statements, or to update the reasons why actual results could
differ from those projected in the forward-looking statements.

                                     PART I

Item 1: Description of Business

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. As of March 31, 2002, ION has sold
more than 40,000 infrastructure security appliances worldwide.

                                       1



     ION Networks, Inc. is a Delaware corporation founded in 1999 through the
combination of two companies, MicroFrame, Inc. (originally founded in 1982), a
New Jersey corporation and SolCom Systems Limited (originally founded in 1994),
a Scottish corporation located in Livingston, Scotland. In 1999, the Company
expanded its technology base through the purchase of certain assets of LeeMAH
DataCom Securities Corporation. References in this document to "we," "our,"
"us," and "the Company" refer to ION Networks, Inc. Our principal executive
offices are located at 1551 South Washington Avenue, Piscataway, New Jersey
08854, and our telephone number is (732) 529-0100.

Industry Background

Pervasive Use of Corporate Security to Protect Employees and Business Assets

     ION believes that a key factor to the long-term success and competitive
advantage of any business is its ability to protect its people and assets from
all types of security threats. Many businesses have implemented some type of
corporate security strategy that physically protects employees and business
assets from outsiders who may seek to harm individuals, steal proprietary
information, or disrupt the operations of an organization.

Wide Acceptance of Information Security to Protect Business Applications and
Information

     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 -- threats that we believe transcend the need for physical access
in order to cause damage to a business. We believe that computer crime is
projected to grow by an estimated 230% in 2002, based on estimates from
publications by research firms that analyze IT security and related costs. To
counter these cyber-threats, organizations are seeking to secure corporate user
access, business applications and information with information security
strategies designed to protect the electronic doorways into an organization.
Increasingly, businesses are deploying information security solutions that
protect against outsiders -- people such as hackers without any legitimate
access -- through the use of security tokens for user authentication, intrusion
detection systems to identify attackers and firewalls to restrict remote access
to corporate networks and systems.

Growing Impact of Insider Security Threats

     While outsider threats present a significant challenge to organizations,
the Computer Security Institute and the FBI have reported that outsiders account
for fewer than half of the reported information security incidents in the United
States, although the number of such incidents continues to rise. These reports
estimated the average cost of successful attacks by outsiders to be $56,000. By
contrast, the average cost of malicious acts by insiders was estimated to be
$2.7 million. Interestingly, these attacks occurred despite the wide spread
deployment of information security technologies, suggesting that simply
protecting the electronic perimeter of an organization has not slowed the pace
of real losses from security threats.

Increasing Need to Protect the "Electronic Interior" of Businesses --
Infrastructure Security

     According to a survey by the American Society for Industrial Security
(ASIS) and Price Waterhouse Coopers, the majority of serious security breaches
occur at the hands of people with some degree of legitimate access, ranging from
current employees to former employees, customers, and contractors. Much of the
focus on information security solutions has revolved around policing the general
user population. We believe that the users with the greatest potential to cause
harm are IT administrators themselves, because they know where the most critical
information is kept and how to bypass safeguards. Administrators (and intruders
who gain administrator privileges) likely have the access, authorization and
knowledge necessary to cause significant damage to any organization.

     We believe that there is a growing trend of outsourcing IT professionals
for services that are not core to a business, thereby creating an ever-changing
climate where organizations know less and less about the backgrounds and
intentions of their IT administrators. Therefore, organizations are increasingly
exposed to potentially significant financial and productivity losses unless the
most empowered users and access to administrative functions are adequately
restricted and monitored. Information security strategies cannot be effective
unless administrative services are protected through the implementation of
infrastructure security strategies that safeguard infrastructure devices such as
servers, routers, LAN switches, PBXs, messaging systems and multiplexers.

     We believe that many of today's most damaging security threats are
appearing within the boundaries of organizations, forcing organizations to
extend their security protection inward from the perimeter. Infrastructure
Security, a new component in the electronic security domain, focuses on
protecting the critical infrastructure devices that support the transfer,
storage, and processing of business applications and information.

                                       2



     We estimate the number of potentially vulnerable infrastructure devices
that may require protection by an infrastructure security solution across our
addressable markets to be in excess of 100 million worldwide. This largely
untapped need to protect infrastructure devices provides ION with what we
estimate to be a significant market opportunity.

The ION Networks Solution

     The ION infrastructure security solution consists of ION Secure PRIISMS
software and ION Secure 3000 and 5000 series appliances for centralized security
policy management and distributed security policy enforcement. Together, PRIISMS
centralized management software and the security appliances form a secure
management portal to critical infrastructure devices. ION solutions also provide
a variety of management features for improving administrator productivity and
mediating alarms from these infrastructure devices. ION has refined its
infrastructure security solution by adding custom features specific to a wide
range of infrastructure devices. ION Secure 3000 and 5000 series security
appliances also support management of discrete alarms for the physical
environment surrounding infrastructure devices such as doors, lighting, air
conditioners or diesel generators and monitoring environmental conditions
including temperature, humidity, fire and water conditions.

     The ION Secure product suite is intended to provide our customers with the
following key benefits:

     A Complete Infrastructure Security Solution. We believe ION offers one of
the most complete, commercially available solutions in our industry for securely
managing infrastructure devices. We have taken a broad approach to
infrastructure security and developed a product suite that protects
administrative services with one unified solution by providing secure:

..    Access -- ION solutions are designed so that administrators can only gain
     access to infrastructure devices through the network connectivity provided
     by ION Secure PRIISMS software and ION Secure 3000 and 5000 series security
     appliances that together form a secure management portal. PRIISMS provides
     a single point of entry into the secure management portal for
     administrators utilizing Secure Shell (SSH), Point-to-Point Tunneling
     Protocol (PPTP) and Telnet. Access to PRIISMS is only granted based on
     strong multi-factor authentication of administrators. PRIISMS servers are
     typically colocated in Network Operations Centers along with enterprise
     management and operational support systems. ION Secure 3000 and/or 5000
     series security appliances are deployed throughout an organization's
     network to protect against unauthorized access to infrastructure devices.
     ION Secure PRIISMS software and ION Secure 3000 and 5000 series security
     appliances provide infrastructure access protection by forcing all
     administrative traffic through a secure management network using one or
     both of the following methods: (i) TCP/IP based Virtual Private Networks
     (IP-VPNs) with firewall services and encrypted VPN IPSec tunnels and (ii)
     Virtual Private Dial-up Networks (VPDNs) over public switched telephone
     networks.

..    Authentication -- ION infrastructure security solutions combine strong
     multi-factor authentication with "single sign-on" to the secure management
     portal. Administrative sessions require the use of ION hardware or software
     security tokens that use two-factor authentication. PRIISMS provides a
     single sign-on environment for all administrative applications. Single
     sign-on means that administrators need only log into PRIISMS once to easily
     gain secure access to the infrastructure devices they are tasked with
     managing. ION 3000 and 5000 series security appliances support the same
     strong authentication mechanisms as PRIISMS. Whether connecting through an
     IP-VPN or VPDN, multi-factor authentication is required for administrators
     to communicate with every ION security appliance. Private key management
     services are integrated into ION infrastructure security solutions in order
     to ease deployment of PRIISMS and security appliances.

..    Authorization -- ION infrastructure security solutions provide extensive
     security policy management capabilities for controlling administrator
     actions. Policies are centrally managed via ION Secure PRIISMS software at
     the user or group level with distributed policy enforcement handled by the
     3000 and 5000 series security appliances. ION Secure PRIISMS multi-level
     authorization restricts administrator access to specific infrastructure
     devices, as well as prohibits the issuing of specific commands. Multi-level
     authorization services are intended to provide tight control over the
     specific commands that can be issued by administrators via command
     filtering.

..    Audit -- ION Secure PRIISMS software and 3000 and 5000 series security
     appliances are designed to maintain detailed audit trails on administrator
     activities, infrastructure devices and security appliance health. ION
     security appliances maintain extensive logs on administrative sessions
     including administrator authentication success, failure and connection
     histories. The entire history of each administrative session can be
     captured down to the characters entered by an administrator. Command
     filters can be utilized to restrict which commands an administrator may
     enter to control an infrastructure device. ION security appliance logs are
     protected from tampering and can maintain the history of administrative
     sessions.

                                       3



..    Administration -- ION Secure PRIISMS software provides directory services
     for assigning authentication methods and privileges to users and groups and
     the logical partitioning of authorized infrastructure device views. Once
     authenticated into PRIISMS, administrators can only see and manage assigned
     infrastructure devices. In addition, centralized management of ION security
     appliances via PRIISMS simplifies the installation, configuration and
     upgrade of the ION Secure Operating System (ISOS) on remote ION security
     appliancesThe ION Secure 3000 and 5000 series appliances provide a wide
     range of management services such as alarm mediation, remote diagnostics,
     and task automation. In addition, messages from non-standard managed
     infrastructure devices can be converted to Simple Network Management
     Protocol (SNMP) traps and sent to PRIISMS for centralized viewing and
     forwarding to third party enterprise management and operational support
     systems. Network and port-level diagnostic utilities can also be used by
     administrators to remotely troubleshoot infrastructure devices. The
     automation of administrative tasks can be implemented both in PRIISMS and
     ION security appliances. Action triggers can be set for automating common
     tasks such as event notification via SNMP trap, pager or e-mail, the power
     recycling of infrastructure devices, or the uploading of logs from ION
     security appliances. ION security appliances also provide a native
     scripting (computer programming) language and task scheduler that can run
     these scripts based on an alarm, date or time for custom automation
     requirements.

Low Total Cost of Ownership. The ION solution is designed to minimize the
purchase, installation and maintenance costs of infrastructure security. The
list prices for our infrastructure security appliances currently begin at $3,125
and scale up with products and features that address a wide array of customer
requirements. Many studies have shown that the complex systems integration of
multiple security products is a significant component of the total cost of
implementing security solutions. We believe that our cost-effective, integrated
solution, consisting of easy-to-manage security appliances and management
software, enables customers to avoid the expense of costly systems integration
that may otherwise be required to implement and maintain an effective
infrastructure security solution.

Rapid Return on Investment. ION solutions help protect against the growing
threat of security breaches that can result in among other losses, significant
financial losses and legal liabilities, lost productivity, poor network
availability, brand defamation, and theft of proprietary information. ION
solutions enable customers to centrally perform administrative functions that
otherwise may require a dispatch of an administrator to a remote location. Fewer
service calls reduce the need for having costly technical personnel on staff.

Ease of Installation and Use. The ION Secure product family delivers
plug-and-play appliances designed for easy installation and use. Installation
involves simply connecting an ION security appliance to the network, and
providing nothing more than a network address. Appliances can be remotely
configured through ION PRIISMS centralized management software, including
software upgrades and configuration of new software features.

ION Networks Products and Services

     ION Networks provides a complete infrastructure security solution that
includes secure access, authentication, authorization, audit and administration
functions that form a secure management portal for managing infrastructure
devices. The ION Secure infrastructure security solution is based on centralized
security policy management and distributed security policy enforcement. It
consists of centralized ION Secure PRIISMS software and distributed ION Secure
3000 and 5000 series security appliances forming a secure management network. We
also provide training, consulting and support services to our customers and
distribution partners.

     ION Secure PRIISMS Centralized Management Software. PRIISMS provides
centralized, 24x7 surveillance and provisioning across the entire suite of ION
Secure 3000 and 5000 security appliances, resulting in the simplified management
of thousands of infrastructure devices. Through its web-based user interface,
PRIISMS enables administrators to configure, troubleshoot and manage
geographically dispersed critical infrastructure devices from central operations
centers, thereby reducing the cost and time required for remote appliance
maintenance, security administration, data collection and reporting. Key
features include:

..    Global View With Single Sign-on: Proactively monitor ION security
     appliances from central network operations centers. Administrators can
     securely log into PRIISMS once instead of logging into each individual
     appliance.

..    Multi-factor Authentication: Utilize a number of security measures to
     protect infrastructure devices, including the ability to lock out a
     specific administrator across the network in seconds. This feature requires
     the use of ION Secure tokens.

..    Centralized Alarm Notification and Logging: Simultaneously view alarms and
     events within PRIISMS for ION security appliances and infrastructure
     devices.

..    Centralized Provisioning and Job Scheduling: Centrally manage the
     scheduling of jobs for managing configuration files

                                       4



     and software updates.

..    Automatic Backups: Automatically back up configuration files for all ION
     security appliances on the network to PRIISMS servers.

..    Real-time Inventory and Status: Track system health to ensure that ION
     security appliances and infrastructure devices are running properly 24 x 7.

..    Multi-level Authorization: Use security policies to enforce strict control
     over administrators' actions when accessing infrastructure devices.

     ION Secure 3000 Series. The ION Secure 3100, 3200 and 3300 security
appliances provide advanced security measures and combine console, alarm and
sensor management functions into a single centrally manageable solution. With
support for up to 28 console ports, up to 80 contact closures, 1 LAN Ethernet
interface and 2 WAN interfaces in a single platform, the 3000 series protects
user access and control for a wide variety of infrastructure devices requiring
out-of-band or VPDN access.

     ION Secure 5000 Series. The ION Secure 5010 supports the same ISOS features
as the 3000 series, providing support for 4 console ports, 1 external IP router
interface, 3 internal LAN Ethernet interfaces, and 2 WAN interfaces. It has an
integral VPN router to securely carry administrative traffic through an intranet
or a public network via IP-VPN connectivity. It also includes advanced security
measures and combines console, alarm and sensor management functions in a single
centrally manageable solution.

     ION Secure 500 Series Tokens. ION Secure 510 hardware and 520 software
security tokens are as simple to use as entering a password, but much more
secure. Each user is assigned an ION Secure token that generates a new,
unpredictable pass code every time a user desires to request remote access to
ION PRIISMS. ION Secure authentication requires very few steps and authorized
users are positively identified within seconds. Employees, business partners and
customers can use ION Secure tokens whether local, remote or mobile.

Wide Range of Protected Infrastructure Devices

ION infrastructure security solutions protect a growing variety of
infrastructure devices provided by leading IT and telecommunications network and
system vendors, including vendors of:

                                                   
..    Access Servers                                    .    Multi-Service Switches
..    Application Servers                               .    Optical Switches
..    Bus & Tag Channel Extenders                       .    PBXs (Switched & IP)
..    Call Management Systems                           .    Power Protection Systems (UPS)
..    Carrier Grade Multi-Service Switches              .    Routers
..    Cellular Switches                                 .    SONET Switches
..    CSU/DSUs                                          .    SS7 Switches
..    DSLAMs                                            .    Storage Area Networks
..    Integrated Access Devices                         .    Terminal Servers
..    LAN Switches                                      .    Various Types of PC Class Servers
..    Mail Servers                                      .    Various Types of UNIX Class Server
..    Messaging Servers                                 .    Wireless Switches



Strategy

     Our goal is to extend our market position to remain one of the industry
leaders for infrastructure security solutions for service providers,
corporations and government agencies. Key elements of our strategy include:

     Extend Our Market Position in Infrastructure Security. We believe that we
are establishing a growing market position as a provider of infrastructure
security solutions designed for our target markets by offering an integrated,
robust, reliable, easy-to-use suite of products at attractive prices. We intend
to continue to focus our product development efforts, distribution strategies
and marketing programs to satisfy the growing needs of these markets. We believe
that many of the current infrastructure security offerings of other vendors are
expensive, incomplete, technically complex and generally unable to satisfy these
target markets.

     Develop New Products and Reduce Manufacturing Costs. We intend to use our
product design and development expertise to expand our product offerings and
reduce our manufacturing costs. We believe that new product offerings and
associated cost reductions will strengthen our market position and assist us in
penetrating new markets.

                                        5



     Establish the ION Networks Brand. We believe that strong brand recognition
in our target markets is important to our long-term success. We intend to
continue to strengthen our ION NetworksTM and ION SecureTM brand names through
industry trade shows, our web site, advertising, direct mailings to both our
resellers and our end-users, and public relations. The continued development of
our reputation as a comprehensive, reliable, easy-to-use and cost effective
infrastructure security vendor will contribute to our sales efforts.

     Expand Our Direct Channel. We intend to continue to build and expand our
base of direct relationships with customers through additional marketing
programs and increased targeted advertising.

     Expand Our Indirect Channels. Our distribution channels are currently in
place to serve ION target markets. We have begun to penetrate these markets by
partnering with value-added resellers who sell our solutions in seven countries.
We intend to continue to build and expand our base of indirect channel
relationships through additional marketing programs and increased targeted
advertising.

     Expand Strategic Original Equipment Manufacturer Relationships. By entering
into original equipment manufacturer ("OEM") arrangements to sell our products,
we intend to build upon the brand awareness and worldwide channels of major
networking and telecommunications equipment suppliers to further penetrate our
target markets.

Customers

     125 customers purchased ION Secure solutions in fiscal year ended March 31,
2002 and our products are now deployed in over 10,000 locations. As of March 31,
2002, ION has sold more than 40,000 infrastructure security appliances.
Historically, our largest customers have been service providers primarily in the
United States and in Europe. See also Risk Factors, "We rely on several key
customers for a significant portion of our business, the loss of which would
likely significantly decrease our revenues" on page 12. However, over the last
two quarters we have begun to diversify away from our traditional customer base
and continue to introduce products that lend themselves to the evolving needs of
an expanding number of markets. ION has begun to penetrate the corporate market
and, in particular, the financial services sector including institutions such as
Wells Fargo, Fortis Bank of Belgium and others. We believe our recent success in
the financial services sector is evidence of the flexibility of ION Secure
solutions.

ION customers can be categorized based on three market segments: Corporations,
Service Providers and Government Agencies:

     Corporations. The Corporate market consists of non-governmental
organizations that do not provide goods or services from a network
infrastructure, but rather use their network infrastructure as a platform to
provide their own goods or services. There are many sectors in the corporate
market, including, but not limited to, banking, financial services, insurance,
energy, manufacturing, retailers, pharmaceuticals, healthcare, technology and
transportation. Representative ION customers in the corporate market for the
fiscal year ended March 31, 2002 include: AIG, First National Bank of Omaha,
Chicago Stock Exchange, Chubb Financial Services, Coca Cola Enterprises,
Deutsche Bank, Entergy, Ericcson, Wachovia, Florida Power and Light, Fortis
Bank, Intel, Kaiser Permanente, MayoClinic, Neuberger Berman, Nortel, Oracle,
and Wells Fargo.

     Service Providers. The service provider market consists of businesses that
use their network infrastructure to provide services to their customers,
including specific sectors such as (i) transport service providers that provide
voice, data, and long-distance transport of telephone and data services,
including ILECs, CLECs, long-distance carriers, cable telephony, and optical
network providers; (ii) managed service providers that provide network
infrastructure, managed services, and managed network services, including
Internet Data Centers, ISPs and ASPs; (iii) broadband service providers that
provide wire line-based broadband services to residential and business
customers. Broadband services include DSL, CATV, cable modems, VoD (Voice over
Data) and VoIP (Voice over IP) services; and (iv) wireless service providers
that provide wireless voice and data services. This includes mobile/cellular,
wireless data, satellite, and wireless LAN services. Representative ION
customers in the service provider market for the fiscal year ended March 31,
2002 include: BT, Cablevision, GTI, KPN and Verizon.

     Government Agencies. The Government market consists of governmental
agencies that do not provide services from a network infrastructure, but rather
use their network infrastructure as a platform to provide their own goods and
services. There are many sectors in the government market, including, but not
limited to, federal and national agencies, military, state agencies, local
agencies, police departments, fire departments, and emergency services.
Representative ION customers in the government market for the fiscal year ended
March 31, 2002 include various domestic and foreign government agencies.

                                        6



Sales and Marketing

     Our sales and marketing efforts focus on successfully penetrating the
corporate, service provider and government agency markets. Our marketing
programs promote ION Networks and ION Secure brand awareness and reputation as a
highly scalable, robust, reliable, easy-to-use and cost-effective infrastructure
security solution. We try to strengthen our brand through a variety of marketing
programs which include on-going public relations, our web site, advertising,
direct mail, industry and regional trade shows and seminars. We intend to
continue expanding and strengthening our direct and indirect channel
relationships through additional marketing programs, additional marketing staff
and increased promotional activities.

     Direct Sales. On March 31, 2002, the Company's sales force stood at 17. In
fiscal year ended March 31, 2002, ION had over 125 customers with products
located at more than 10,000 locations worldwide. We believe that ION solutions
are ideally suited for both direct sale to customers and indirect channels where
it is not economically efficient for us to sell directly to the end users of our
products. In the fiscal year ended March 31, 2002, approximately 67% of ION
revenue came from direct sales.

     Indirect Sales/Channel Partners. We also market and sell our solutions via
indirect channels through a distribution structure of Value Added Resellers
(VARs) or Channel Partners in the United States and in Europe. VARs accounted
for approximately 21% of our total revenue for the fiscal year ended March 31,
2002. Our VAR agreements are non-exclusive. Representative U.S. and
international indirect channel partners include: Siemens (U.S.), Bomara (U.S.),
SafeLink (Sweden), TrueCom (Netherlands), Systeam (Germany), CreaNORD (Finland),
Elexo (France).

     We support our international distributors by offering customizable
marketing materials, sales tools, leads, co-operative marketing funds, joint
advertising, discounted demonstration units and training. We also participate in
regional press tours, trade shows and seminars. International distributors
include TrueCom in the Netherlands, Elexo in France and CreaNORD in Finland.

     Original Equipment Manufacturers (OEMs). We enter into select original
equipment manufacturer relationships in order to take advantage of the channels
of well-established companies that sell into our target markets. We believe
these channels expand our overall market while having a minor impact on our own
indirect channel sales. The terms of our agreements with these customers are
variable and can generally be cancelled under certain conditions. In the fiscal
year ended March 31, 2002, our original equipment manufacturer revenue accounted
for approximately 12% of total revenue.

     Geographic Distribution. We divide our sales organization regionally into
two territories: the United States and Canada; and Europe, the Middle East and
Africa. Regional sales representatives manage our relationships with our network
of channel partners, sell to and support key customer accounts, and act as a
liaison between our indirect channels and our marketing organization. We also
have an internal sales staff that supports the indirect channel, and a dedicated
business development organization whose primary responsibilities are
identifying, promoting and managing strategic relationships to sell our
solutions with industry leaders and original equipment manufacturers.

Approximately 72% of ION's sales were in the United States and 28% elsewhere for
the fiscal year ended March 31, 2002. (Refer to Note 12 in the Company's
Consolidated Financial Statements.)

Customer Service and Technical Support

     We offer our customers a comprehensive range of support services under the
ION SecureCare brand that includes electronic support, product maintenance and
personalized technical support services on a worldwide basis. Our technical
support staff is located in Piscataway, New Jersey with field representatives
located around the world.

     Our ION SecureCare offering includes ION 24x7 support. This support
offering provides replacement for failing hardware, telephone and/or web-based
technical support and software updates. Incentive programs are offered to ION
SecureCare customers to provide added benefits for upgrading to newer products.

Competition

     The market for infrastructure security solutions is worldwide and highly
competitive, and we expect competition to intensify in the future. Competitors
can be generally categorized as either: (i) information security vendors who
provide high performance, security point products, or (ii) suppliers of network
management appliances that provide limited infrastructure security features.
Many of these solutions require additional security products in order to
implement a comprehensive infrastructure security solution. Current and
potential competitors in our markets include, but are not limited to the
following companies, all of which sell worldwide or have a presence in most of
the major markets for such products:

..    Security software vendors such as RSA Security, Check Point Software and
     Symantec;

                                        7



..    Network equipment manufacturers such as Cisco, Lucent Technologies, Nortel
     Networks;

..    Computer or network component manufacturers such as Intel;

..    Operating system software vendors such as Microsoft, Novell and Sun
     Microsystems;

..    Security appliance suppliers such as SonicWall and NetScreen Technologies;
     and

..    Low cost management-only appliance vendors, which may include limited
     infrastructure security functionality.

     Many of our competitors have generally targeted large organizations'
information security needs with VPN, firewall and 3A (Authorization,
Authentication and Audit) products that range in price from under one thousand
to hundreds of thousands of dollars. These offerings may increase competitive
pressure on some of our solutions, resulting in both lower prices and gross
margins. Many of our current or potential competitors have longer operating
histories, greater name recognition, larger customer bases and significantly
greater financial, technical, marketing and other resources than we do. Nothing
prevents or hinders these actual or potential competitors from entering our
target markets at any time. In addition, our competitors may bundle products
competitive to ours with other products that they may sell to our current or
potential customers. These customers may accept these bundled products rather
than separately purchasing our products. If these companies were to use their
greater financial, technical and marketing resources in our target markets, it
could adversely affect our business.

Sources And Availability Of Materials

     The Company designs its security appliances utilizing readily available
parts manufactured by multiple suppliers and relies on and intends to continue
to rely on these suppliers. Our principal suppliers are XeTel Corporation,
Da-Tech Corporation and Youngtron. The Company has been and expects to continue
to be able to obtain the parts required to manufacture its products without any
significant interruption or sudden price increase, although there can be no
assurance that it will be able to continue to do so.

     The Company sometimes utilizes a component available from only one
supplier. If a supplier were to cease to supply this component, the Company
would most likely have to redesign a feature of the affected device. In these
situations, the Company maintains a greater supply of the component on hand in
order to allow the time necessary to effect a redesign or alternative course of
action should the need arise.

Dependence On Particular Customers

     Historically, the Company has been dependent on several large customers
each year, but they are not necessarily the same every year. In general, the
Company cannot predict with certainty, which large customers will continue to
order. The loss of any of these large customers, or the failure to attract new
large customers, could have a material adverse effect on the Company's business.

Intellectual Property, Licenses And Labor Contracts

     The Company holds no patents on its technology. Although it licenses some
of its technology from third parties, the Company does not consider any of these
licenses to be critical to its operation.

     The Company has made a consistent effort to minimize the ability of
competitors to duplicate the software technology utilized in its solutions.
However, the possibility of duplication of its products remains, and competing
products have already been introduced.

Governmental Approvals And Effect Of Governmental Regulation

     The Company's solutions may be exported to any country in the world except
those countries restricted by the anti-terrorism controls imposed by the
Department of Commerce. These anti-terrorism controls prohibit the Company from
exporting some of its solutions to Cuba, Libya, Iran, Iraq, North Korea, Sudan
and Syria without a license. As with all U.S. origin items, the Company's
solutions are also subject to the Bureau of Export Administration's ten general
prohibitions that restrict exports to certain countries, organizations, and
persons.

     As required by law or demanded by customer contract, the Company obtains
approval of its solutions by Underwriters' Laboratories. Additionally, because
many of the products interface with telecommunications networks, the Company's
products

                                       8



are subject to several key Federal Communications Commission ("FCC") rules
requiring FCC approval.

     Part 68 of the FCC rules contains the majority of the technical
requirements with which telephone systems must comply in order to qualify for
FCC registration for interconnection to the public telephone network. Part 68
registration requires telecommunication equipment interfacing with the public
telephone network to comply with certain interference parameters and other
technical specifications. FCC Part 68 registration for ION's products has been
granted, and the Company intends to apply for FCC Part 68 registration for all
of its new and future products.

     Part 15 of the FCC rules requires equipment classified as containing a
Class A computing device to meet certain radio and television interference
requirements, especially as they relate to operation of such equipment in a
residential area. Certain of ION's products are subject to and comply with Part
15.

     The European Community has developed a similar set of requirements for its
members and the Company has begun the compliance process for its products in
Europe. Additionally, ION has certified certain of its products to the NEBS
(Network Equipment Business Specification) level of certification. This is a
certification that was developed by Bellcore (now Telcordia Technologies) and is
required by many of ION's telecommunications customers.

Research And Development Activities

     The Company believes the current R&D staff of 10 employees will be
sufficient to allow it to keep up with technology advances for the foreseeable
future.

     The current staff has successfully completed and released the new ION
Secure 5010 security appliance and related PRIISMS and ISOS software releases.
This product provides ION Networks with the ability to address a more diverse IP
based network market due to its ability to provide connectivity across secure IP
tunnels by utilizing integrated VPN router technology.

     As a result of the changes implemented in the last fiscal year, research
and development spending was reduced from $2,126,246 in FY2001 to $891,542 in
FY2002.

Employees

     As of June 19, 2002, the Company had 59 employees, all of whom are
full-time employees, and of which 13 are technical personnel, 31 are in sales,
marketing and support, 4 are in production, and 11 are in executive, financial
and administrative capacities. None of the Company's employees are represented
by labor unions. The Company considers its relations with its employees to be
satisfactory.

Risk Factors

We are vulnerable to technological changes, which may cause our products and
services to become obsolete which could materially and negatively impact our
cash flow.

     Our industry experiences rapid technological change, changing customer
requirements, frequent new product introductions and evolving industry standards
that may render existing products and services obsolete. As a result, more
advanced products produced by competitors could erode our position in existing
markets or other markets that they choose to enter. It is difficult to estimate
the life cycles of our products and services, and future success will depend, in
part, upon our ability to enhance existing products and services and to develop
new products and services on a timely basis. We might experience difficulties
that could delay or prevent the successful development, introduction and
marketing of new products and services. New products and services and
enhancements might not meet the requirements of the marketplace and achieve
market acceptance. If these things happen, they would materially and negatively
affect cash flow, financial condition and the results of operations.

Hardware and software incorporated in our products may experience bugs or
"errors" which could delay the commercial introduction of our products and
require time and money to alleviate.

     Due to the complex and sophisticated hardware and software that is
incorporated in our products, our products have in the past experienced errors
or "bugs" both during development and subsequent to commercial introduction. We
cannot be certain that all potential problems will be identified, that any bugs
that are located can be corrected on a timely basis or at all, or that
additional errors will not be located in existing or future products at a later
time or when usage increases. Any such errors could delay the commercial
introduction of new products, the use of existing or new products, or require
modifications in systems that have already been installed. Remedying such errors
could be costly and time consuming. Delays in debugging or modifying

                                       9



products could materially and adversely affect our competitive position.

There is potential for fluctuation in our quarterly and annual operating
results, which could cause the price of our Common Stock to significantly
decrease.

     In the past, we experienced fluctuations in our quarterly and annual
operating results and we anticipate that such fluctuations will continue. Our
quarterly and annual operating results may vary significantly depending on a
number of factors, including:

..    the timing of the introduction or acceptance of new products and services;

..    changes in the mix of products and services provided;

..    long sales cycles;

..    changes in regulations affecting our business;

..    increases in the amount of research and development expenditures necessary
     for new product development and innovation;

..    changes in our operating expenses;

..    uneven revenue streams; and

..    general economic conditions.

     We cannot assure you that our levels of profitability will not vary
significantly among quarterly periods or that in future quarterly periods our
results of operations will not be below prior results or the expectations of
public market analysts and investors. If this occurs, the price of our common
stock could significantly decrease. See also Risks Associated with Our
Securities, "There is potential for fluctuation in the market price of our
securities" page 13.

In the past we have experienced significant losses and negative cash flows from
operations. If these trends continue in the future, it could adversely affect
our financial condition.

     We have incurred significant losses and negative cash flows from operations
in the past. For the fiscal years ended March 31, 2001 and 2002, we experienced
net losses of $16,676,666 and $6,929,379, respectively, and negative cash flows
from operations of $7,086,246 and $5,026,038, respectively. These results have
had a negative impact on our financial condition. There can be no assurance that
our business will become profitable in the future and that additional losses and
negative cash flows from operations will not be incurred. If these trends
continue in the future, it could have a material adverse affect on our financial
condition.

If our expected revenues and assumptions are not met, we may need to raise
additional capital, which may not be available. If we fail to raise additional
capital, we may not be able to execute our business plan and growth strategy.

     Our business plan and growth strategy are dependent on our working capital.
To the extent that expected revenue assumptions are not achieved, we will have
to raise additional equity or debt financing and/or curtail certain expenditures
contained in the current operating plans. 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, our financial condition and
results of operations may be materially and adversely affected.

We face significant competition and if we do not compete successfully, our
results of operations may be adversely affected.

     We are subject to significant competition from different sources for our
different products and services. We can not assure you that the market will
continue to accept our hardware and software technology or that we will be able
to compete successfully in the future. We believe that the main factors
affecting competition in the network management business are:

..    the products' ability to meet various network management and security
     requirements;

                                       10



..    the products' ability to conform to the network and/or computer systems;

..    the products' ability to avoid becoming technologically outdated;

..    the willingness and the ability of distributors to provide support
     customization, training and installation; and

..    the price.

     Although we believe that our present products and services are competitive,
we compete with a number of large data networking, network security and
enterprise management manufacturers which have financial, research and
development, marketing and technical resources far greater than ours. Our
competitors include RSA Security, Check Point Software, Symantec, Cisco, Lucent
Technologies, Nortel Networks, Intel, Microsoft, Novell, and Sun Microsystems.
Such companies may succeed in producing and distributing competitive products
more effectively than we can produce and distribute our products, and may also
develop new products which compete effectively with our products. Many of our
current or potential competitors have longer operating histories, greater name
recognition, larger customer bases and significantly greater financial,
technical, marketing and other resources than we do. Nothing prevents or hinders
these actual or potential competitors from entering our target markets at any
time. In addition, our competitors may bundle products competitive to ours with
other products that they may sell to our current or potential customers. These
customers may accept these bundled products rather than separately purchasing
our products. If our current or potential competitors were to use their greater
financial, technical and marketing resources in our target markets and if we are
unable to compete successfully, our business, financial condition and results of
operations may be materially and adversely affected.

We have recently changed our marketing position, and introduced a new product
which we expect to account for a significant portion of our revenues. If this
product is not accepted by the market, our revenues and results of operations
could be materially adversely affected.

     We recently changed our marketing position and focus from that of network
management monitoring to that of network security. In connection with this
change, we introduced a new product, the ION Secure 5010 in early February 2002.
To date, we have only sold limited amounts of this new product and have not yet
achieved marketplace acceptance. While we still generate revenues from our
previously existing products, our continued revenue growth depends largely on
the success of our new marketing position and product offerings. Therefore, if
the ION Secure 5010 does not gain marketplace acceptance, our revenues could be
negatively impacted, which in turn is likely to materially and adversely affect
our business, financial condition and results of operations.

We may be unable to protect our proprietary rights, permitting competitors to
duplicate our products and services, which could negatively impact our business
and operations.

     We hold no patents on any of our technology. If we are unable to license
any technology or products that we may need in the future, our business and
operations may be materially and adversely impacted. However, we do not consider
any of these licenses to be critical to our operations. We have made a
consistent effort to minimize the ability of competitors to duplicate our
software technology utilized in our products. However, there remains the
possibility of duplication of our products, and competing products have already
been introduced. Any such duplication by our competitors could negatively impact
on our business and operations.

We rely on several key customers for a significant portion of our business, the
loss of which would likely significantly decrease our revenues.

     Historically, we have been dependent on several large customers each year,
but they are not necessarily the same every year. For the fiscal year ended
March 31, 2002, our most significant customers were AT&T (approximately 15% of
revenues), Avaya (approximately 12% of revenues), SBC (approximately 12% of
revenues), Nortel (approximately 10% of revenues), and Siemens (approximately 6%
of revenues). For the fiscal year ended March 31, 2001, our most significant
customers were SBC (16% of revenues), Worldcom (12% of revenues), Rhythms (8% of
revenues), Celestica (6% of revenues), and KPN (5% of revenues). In general, we
cannot predict with certainty which large customers will continue to order. The
loss of any of these large customers, or the failure to attract new large
customers would likely significantly decrease our revenues and future prospects,
which could materially and adversely affect our business, financial condition
and results of operations.

All of our key customers are telecommunications companies. If the
telecommunications industry continues to experience significant economic
downturn, our sales could be adversely impacted.

     A significant portion of our revenues is generated from sales of our
products and services to various telecommunications

                                       11



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 these 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. If the
telecommunications industry experiences further economic downturns, this could
negatively impact our sales and revenue generation, and consequently have a
material adverse effect on our business, financial condition and results of
operations.

We depend upon key members of our employees and management, the loss of which
could have a material adverse effect upon our business, financial condition and
results of operations.

     Our business is greatly dependent on the efforts of our President and CEO,
Mr. Kam Saifi, our Chief Operating Officer, Mr. Cameron Saifi, our Chief
Technology Officer, Mr. David Arbeitel and our Chief Financial Officer, Mr. Ted
Kaminer and other key employees, and on our ability to attract key personnel.
Other than with respect to Messrs. K. Saifi, C. Saifi, Arbeitel and Kaminer, we
do not have employment agreements with our other key employees. Our success
depends in large part on the continued services of our key management, sales,
engineering, research and development and operational personnel and on our
ability to continue to attract, motivate and retain highly qualified employees
and independent contractors in those areas. Competition for such personnel is
intense and we cannot assure you that we will successfully attract, motivate and
retain key personnel. While all of our employees have entered into non-compete
agreements, there can be no assurance that any employee will remain with us. Our
inability to hire and retain qualified personnel or the loss of the services of
our key personnel could have a material adverse effect upon our business,
financial condition and results of operations. Currently, we do not maintain
"key man" insurance policies with respect to any of our employees.

We rely on several contract manufacturers to supply our products. If our product
manufacturers fail to deliver our products, or if we lose these suppliers, we
may be unable to deliver our product and our sales and revenues could be
negatively impacted.

     We rely on three contract manufacturers to supply our products. If these
manufacturers fail to deliver our products or if we lose these suppliers and are
unable to replace them, then we would not be able to deliver our products to our
customers. This could negatively impact our sales and revenues and have a
material adverse affect on our business, financial condition and results of
operations.

Our corporate charter and bylaws contain limitations on the liability of our
directors and officers, which may discourage suits against directors and
executive officers for breaches of fiduciary duties.

     Our Certificate of Incorporation, as amended, and our Bylaws contain
provisions limiting the liability of our directors for monetary damages to the
fullest extent permissible under Delaware law. This is intended to eliminate the
personal liability of a director for monetary damages on an action brought by or
in our right for breach of a director's duties to us or to our stockholders
except in certain limited circumstances. In addition, our Certificate of
Incorporation, as amended, and our Bylaws contain provisions requiring us to
indemnify our directors, officers, employees and agents serving at our request,
against expenses, judgments (including derivative actions), fines and amounts
paid in settlement. This indemnification is limited to actions taken in good
faith in the reasonable belief that the conduct was lawful and in, or not
opposed to our best interests. The Certificate of Incorporation and the Bylaws
provide for the indemnification of directors and officers in connection with
civil, criminal, administrative or investigative proceedings when acting in
their capacities as agents for us. These provisions may reduce the likelihood of
derivative litigation against directors and executive officers and may
discourage or deter stockholders or management from suing directors or executive
officers for breaches of their fiduciary duties, even though such an action, if
successful, might otherwise benefit us and our stockholders.

RISKS ASSOCIATED WITH OUR SECURITIES

We do not anticipate the payment of dividends.

     We have never declared or paid cash dividends on our common stock. We
currently anticipate that we will retain all available funds for use in the
operation of our business. Thus, we do not anticipate paying any cash dividends
on our common stock in the foreseeable future.

There is potential for fluctuation in the market price of our securities.

     Because of the nature of the industry in which we operate, the market price
of our securities has been, and can be expected to continue to be, highly
volatile. Factors such as announcements by us or others of technological
innovations, new commercial products, regulatory approvals or proprietary rights
developments, and competitive developments all may have a

                                       12



significant impact on our future business prospects and market price of our
securities.

Shares that are eligible for sale in the future may affect the market price of
our common stock.

         As of June 19, 2002, an aggregate of 2,499,122 of the outstanding
shares of our common stock are "restricted securities" as that term is defined
in Rule 144 of the Securities Act of 1933 (Rule 144). These restricted shares
may be sold pursuant only to an effective registration statement under the
securities laws or in compliance with the exemption provisions of Rule 144 or
other securities law provisions. In addition, 2,682,548 shares are issuable
pursuant to currently exercisable options, and 1,624,250 shares are issuable
pursuant to currently exercisable warrants, including 1,120,000 of the shares
registered hereby, which may be exercised for shares that may be restricted or
registered, further adding to the number of outstanding shares. Future sales of
substantial amounts of shares in the public market, or the perception that such
sales could occur, could negatively affect the price of our common stock.

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 cure period, with
respect to the Nasdaq National Market, and a 180-day cure 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 $1.00 continuing listing standard for a
period of 30 consecutive trading days. While our Common Stock continues to be
traded on the Nasdaq National Market, we have applied (within 90 days of the
date of deficiency notice) for a transfer to the Nasdaq SmallCap Market in order
to take advantage of the longer 180-day cure period. If we chose to transfer to
the Nasdaq SmallCap Market and the price deficiency is cured during the 180-day
period, and we otherwise continue to comply with the Nasdaq National Market
maintenance standards, we could then transfer back to the Nasdaq National
Market. There can be no assurance that we will satisfy the requirements for
maintaining a Nasdaq National Market or SmallCap listing. If our common stock
were to be excluded from Nasdaq, the prices 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.

Item 2: Description of Property

         The Company leases 26,247 square feet of space at 1551 South Washington
Avenue, Piscataway, New Jersey, for its principal executive offices. This lease,
which commenced on February 18, 1999, is for a term of ten (10) years with
monthly rent payable by us to the landlord as follows: $555,911 for the first
two years of the term; $595,291 for the next year of the term; $601,843 for the
next year of the term; $654,337 for the next year of the term; $610,242 for the
next two years of the term; and $662,736 for the remaining three years of the
term. In accordance with the lease, the Company is also obligated to make
additional payments to the landlord relating to certain taxes and operating
expenses.

         The Company also leases 245 square meters of office space in Antwerp,
Belgium for its European operating headquarters. This lease provides for a
monthly rental of (euro)2,832 per month as of March 31, 2002 and expires on July
31, 2005.

         In addition, the Company leases 0.298 hectare of space at SolCom House,
Meikle Road, Kirkton Campus, Livingston EH547DE, Scotland. This lease provides
for monthly rentals of (pound)3,583 and expires on August 31, 2011.

         The Company also leases approximately 5,600 square feet of space at
48834 Kato Road, Fremont, California in the Bedford Fremont Business Center.
This lease commenced on June 1, 1999 and is for a term of 60 months with monthly
rent payable by the Company to the landlord as follows: $7,360 per month for the
first 12 months of the term; $7,590 per month for months 13-24; $7,820 per month
for months 25-36; $8,050 per month for months 37-48; and $8,280 per month for
months 49-60.

Item 3: Legal Proceedings

There are no material pending legal proceedings to which the Company is a party
or to which any of its properties are subject.

Item 4: Submission of Matters to a Vote of Security Holders

The Company did not submit any matters to a vote of the security holders during
the fourth quarter of fiscal year ended March 31, 2002.

                                       13



                                     PART II

Item 5: Market For Common Equity and Related Stockholder Matters

Market Information

         The Company's common stock, par value $.001 per share (the "Common
Stock"), is listed on the NASDAQ National Market under the symbol "IONN". The
following table sets forth the high ask and low bid prices of the Common Stock
for the periods indicated as reported on the NASDAQ National Market.

    Fiscal Year 2002, Quarter Ending                        HIGH           LOW
    --------------------------------                        ----           ---

    June 30, 2001                                         $ 1.15        $0.57
    September 30, 2001                                      0.79         0.16
    December 31, 2001                                       0.85         0.08
    March 31, 2002                                          1.84         0.65

    Fiscal Year 2001, Quarter Ending
    --------------------------------

    June 30, 2000                                         $31.00        $2.00
    September 30, 2000                                      5.94         2.00
    December 31, 2000                                       3.06         0.28
    March 31, 2001                                          3.00         0.38

Recent Sales of Unregistered Securities

         On February 14, 2002, the Company issued an aggregate of 4,000,000
shares of Common Stock at a price of $0.87 per share, for an aggregate total
consideration of $3,480,000. The shares were issued to a group of accredited
investors pursuant to Rule 506 promulgated under the Securities Act of 1933.

Security Holders

         As of June 19, 2002 there were 391 holders of record of the Common
Stock (not including beneficial owners of Common Stock held by brokers in street
name).

Dividends

         The Company has not paid any cash dividends on its Common Stock during
the two fiscal years ended March 31, 2002 and March 31, 2001. The Company
presently intends to retain all earnings to finance its operations and therefore
does not presently anticipate paying any cash dividends in the foreseeable
future.

Item 6: Management's Discussion and Analysis or Plan of Operation

Overview

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

         The Company is a Delaware corporation founded in 1999 through the
combination of two companies - MicroFrame ("MicroFrame"), a New Jersey
Corporation (the predecessor entity to the Company, originally founded in 1982),
and SolCom Systems Limited ("SolCom"), a Scottish corporation located in
Livingston, Scotland (originally founded in 1994). From the time of the merger
in 1999 through the 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.

                                       14



The decline in product orders negatively impacted our revenues, resulting in
significant operating losses and negative cash flows. As a result, it is
imperative for us to be successful in increasing our revenue, reducing costs,
and/or securing additional funding in fiscal 2003 in order to continue operating
as a going concern.

         During the third quarter of fiscal 2002, the Company reduced headcount
by seventeen employees thereby reducing costs while retaining enough staff to
sufficiently maintain the Company's existing technology and capitalize on new
technological developments. Also in the third fiscal quarter of 2002, a new
management team joined the Company and evaluated ION's revenue and expenditures,
existing product suite, present customer base, and evolving addressable market.
As a result of this evaluation, the Company refocused its product line from that
of network management monitoring to that of infrastructure security, which was
the original focus of MicroFrame prior to the merger with Solcom. We also added
significant network features to the product to broaden the scope of the
potential customer base, emphasizing enterprise infrastructure security. We
identified additional enterprise markets that extend beyond the
telecommunications industry and believe that successfully penetrating these
additional markets could positively impact revenue, although there can be no
assurance that these efforts will be successful. Additionally, in the fourth
fiscal quarter of 2002, we received $3,480,000 in a private placement.

Results Of Operations

Fiscal Year 2002 (FY2002) Compared to Fiscal Year 2001(FY2001)

         Revenues for the year ended March 31, 2002 were $7,312,235 as compared
with revenues of $11,676,547 for the year ended March 31, 2001, a decrease of
approximately 37%. This decrease is attributable mainly to the reduction in the
number of units sold in fiscal 2002. The Company sold mostly the ION Secure 3000
series security appliances (formerly called the Sentinel 2000) in both periods
so there was no impact on revenue from a change in product mix. The overall
downturn impacting the information technology and the telecommunications
industry caused companies to severely cut capital expenditures during fiscal
2002. The Company's business historically has been dependent upon the expansion
of these company's networks and therefore the decrease in revenues is a direct
reflection of the environment in the industries. The Company's unit sales
volumes decreased by approximately 1,100 units which contributed to
approximately $2.5 million of the revenue decrease year over year. The Company's
prices remained relatively consistent throughout most of fiscal 2002 as compared
to fiscal 2001. The Company's cost of goods sold decreased to $3,484,132 for the
year ended March 31, 2002 compared to $7,184,666 for the year ended March 31,
2001. Cost of goods sold as a percentage of sales decreased from 61.5% for the
previous comparable fiscal period to 47.6% for this fiscal period. The decrease
is due to the impact of additional provisions of approximately $1,549,099 that
were established at various points during fiscal 2001, to recognize slow moving
inventory. Without these reserves, cost of goods sold would have been 48.3% of
sales in fiscal 2001.

         Research and development expenses, net of capitalized software
development, decreased from $2,126,246 in the year ended March 31, 2001 to
$891,542 in the current fiscal year, a decrease of 58%. The decrease of research
and development expenditures in FY2002 as compared to FY2001 was a result of a
significant headcount reduction during FY2001, from a high of 35 people to 8 at
the end of FY 2001. FY2002 reflects the impact of this reduction for a full
year. A substantial amount of the reduction was a result of stopping the
research and development efforts on the discontinued products as well as the
reduction in research and development activities that resulted from the
completion of the development cycle on certain products. The Company believes
that the annual research and development expenditures were reduced to an amount
sufficient to support new releases and product updates for our existing product
lines.

         Selling, general and administrative expenses decreased 31.6% from
$11,870,263 for the year ended March 31, 2001 to $8,119,601 for the year ended
March 31, 2002. Overall selling, general and administrative expenses have been
reduced on a quarter-to-quarter basis throughout the fiscal year, as a result of
the Company's cost reduction efforts.

         Depreciation and amortization was $1,852,090 for FY2002 compared to
$3,742,450 for FY2001, a decrease of approximately 50.5%. Amortization expense
for capitalized software decreased from $2,138,707 in fiscal 2001 to $828,032 in
fiscal 2002, primarily as a result of management's decision during fiscal 2001
to abandon the products and the technology associated with the SolCom
acquisition. The decision resulted in write-offs of $2,332,120 relating to this
technology thereby decreasing the amortization expense for future periods.


         As a result of the Company's operating performance during the first six
months of FY2002, the Company, during the third quarter of FY2002, announced the
layoff of 17 employees to reduce its overhead expenses. As a result, the Company
reduced its overhead expenses by approximately $1,600,000 in annual salaries and
employee benefits (approximately $135,000 per month). The Company recorded
approximately $217,467 of severance and termination related costs. Termination
benefits of approximately $214,000 were paid during the third and fourth
quarters of FY2002. All of the affected employees have left the Company as of
March 31, 2002. As of April 30, 2002 the remaining termination benefits of
$3,467 were paid.


                                       15



         The Company had a loss before taxes of $6,905,015 for the year ended
March 31, 2002 compared to a loss before taxes of $16,669,098 for the year ended
March 31, 2001. The loss before taxes improved primarily as a result of the
Company's cost reduction efforts and management's decision during year ended
March 31, 2001 to abandon certain products and technology associated with the
SolCom acquisition. At March 31, 2002 and March 31, 2001 the Company had federal
and state net operating loss carryforwards of approximately $35.5 million and
$27.4 million respectively. The expiration dates for its net operating losses
range from the years 2011 through 2022. The net loss for the year ended March
31, 2002 was $6,929,379 compared to a net loss of $16,676,666 for the prior
fiscal year.

Financial Condition And Capital Resources


         The Company's working capital balance as of March 31, 2002 was
$5,040,922 as compared to $6,918,057 at March 31, 2001. This decline in working
capital was due to continued operating losses generated throughout fiscal 2002,
which was partially offset by $3,480,000 raised through the issuance of new
shares in a private placement of 4,000,000 shares of Common Stock at a price of
$0.87 per share. We believe that our working capital as of March 31, 2002 will
fund the Company's operations, as currently planned, until January 2003. We
believe that a minimum of $2,000,000 in additional capital will be needed in
order to fund the Company's planned operations through June 2003. We plan to
seek equity financing to provide funding for operations but the current market
for equity financing is very 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 FY2002 was $5,026,038
compared to net cash used during FY2001 of $7,086,246. The decrease in net cash
used resulted primarily as a result of the decrease in operating losses in
FY2002 as compared to FY2001; the reduction in operating losses was partially
offset by the reduction in certain non-cash expenses.

         Net cash provided by investing activities during FY2002 was $527,236
compared to net cash used during FY2001 of $3,213,835. Cash provided by
investing activities during the year ending March 31, 2002 included the partial
repayment of $813,593 by a former CEO for certain notes receivable and the
release of $249,300 from the restriction of $375,000 in cash relating to the
Piscataway, New Jersey operating lease.

         Net cash provided by financing activities during FY2002 was $3,337,115
compared to net cash provided during the same period in FY2001 of $5,149,302.
Financing activities during the year ended March 31, 2002 include the sale of
4,000,000 shares of Common Stock at a price of $0.87 per share, for total
consideration of $3,480,000 in a private equity transaction. Financing
activities during the year ended March 31, 2001 included the sale of 2,857,142
shares of Common Stock at a price of $1.75 per share, for total consideration of
$5,000,000 in a private equity transaction.

         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
March 31, 2002, we had an accumulated deficit of $37,094,424 and working capital
of $5,040,922. We also realized net losses of $6,929,379 for the year ended
March 31, 2002 and $16,676,666 for the year ended March 31, 2001. 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. On February 14, 2002, we received $3,480,000 from the issuance
of new shares in a private placement of 4,000,000 shares of Common Stock. We
have restructured and reorganized to reduce our operating expenses by the layoff
of 8 employees in July 2002 which reduced the Company's overhead expenses by
approximately $575,000 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
headcount. 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

                                       16



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.

         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.

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 does not
anticipate any material impact on its results of operations or financial
position related to implementation of SFAS No.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

                                       17



impact on its results of operations or financial position related to
implementation of SFAS No.143.

Item 7: Financial Statements


The financial statements required hereby are located on pages F-1 through F-21.


Item 8: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures

         On June 27, 2001, PricewaterhouseCoopers LLP ("PwC") indicated that
upon completion of their audit of the financial statements for the year ended
March 31, 2001, it would decline to stand for re-election as Ion Networks, Inc's
independent accountant for the fiscal year ending March 31, 2002. PwC completed
their audit on June 28, 2001. PwC's reports on the consolidated financial
statements of the Company for fiscal years 2001 and 2000 did not contain any
adverse opinion or a disclaimer of opinion, and were not qualified or modified
as to uncertainty, audit scope or accounting principles. During fiscal years
2001 and 2000 and the subsequent interim period through June 28, 2001, there
were no disagreements with PwC regarding any matters of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of PwC, would have caused PwC
to make reference to the subject matter of the disagreement in their report on
the financial statements for such years. The Company requested that PwC furnish
it with a letter addressed to the Securities and Exchange Commission stating
whether it agrees with the above statements. The letter, dated June 28, 2001 has
been filed as Exhibit 16.1 to the Company's Form 10KSB for the year ending March
31, 2001.

         The Company with the Approval of the Audit Committee of the Company's
Board of Directors appointed Deloitte & Touche LLP as the Company's independent
public accountants for the fiscal year ended March 31, 2002, effective as of
August 13, 2001.

                                       18



                                    Part III

Item 9: Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act.

As of June 19, 2002 the directors and executive officers of the Company were as
follows:



           Name                                      Age           Position Held with the Company
           ----                                      ---           ------------------------------
                                                             
Kam Saifi*                                           42            Chief Executive Officer,
                                                                   President and Director

Cameron Saifi*                                       40            Chief Operating Officer,
                                                                   Executive Vice President and
                                                                   Secretary

David Arbeitel                                       40            Chief Technology Officer and
                                                                   Vice President

Ted Kaminer                                          43            Chief Financial Officer and
                                                                   Vice President

Ronald Forster                                       39            Vice President Finance/Controller

Douglas Reilly                                       41            Vice President, Sales and
                                                                   Managing Director of Market
                                                                   Operations for EMEA

Stephen M. Deixler/(1)(2)(3)(4)/                     66            Chairman of the Board of
                                                                   Directors


Alexander C. Stark, Jr./(1)(2)(3)(4)/                69            Director

Alan Hardie/(3)/                                     61            Director

William Martin Ritchie/(4)/                          53            Director

Baruch Halpern                                       51            Director

Frank S. Russo/(4)/                                  59            Director

Vincent Curatolo                                     43            Director



_________________________________
(1) Member of Compensation/Stock Option Committee
(2) Member of Nominating Committee
(3) Member of Audit Committee
(4) Member of Strategic Steering Committee
* Mr. Kam Saifi and Mr. Cameron Saifi are brothers.


         KAM SAIFI has served as Chief Executive Officer, President and Director
of the Company since October 2001. Prior to joining ION, from November 2000 to
August 2001, Mr. Saifi served as the Chairman of the Board of Directors and
Chief Executive Officer of Internet Refinery, a provider of collaborative
commerce and business intelligence solutions. From June 2000 to August 2000, Mr.
Saifi served as Vice Chairman and Executive Vice President of Visual Networks,
Inc. which merged with Avesta Technologies, Inc., a New York-based software
company focusing on managing Internet infrastructure. Mr. Saifi was the Founder,
Chairman of the Board of Directors, Chief Executive Officer and President of
Avesta Technologies, Inc. from October 1996 to May 2000. He has also served as a
member of the Board of Directors for MetaMatrix from 1998 to 2000.

         CAMERON SAIFI has served as Chief Operating Officer and Executive Vice
President of the Company since October 2001 and Secretary of the Company since
December 2001. Prior to joining ION, from October 2000 to October 2001, Mr.
Saifi served as the President, Chief Operating Officer and Co-Founder of
Internet Refinery, a provider of collaborative commerce and

                                       19



business intelligence technology for Business-to-Business applications.
Previously, from January 1997 to June 2000, Mr. Saifi served as Senior Vice
President and Chief Operating Officer for Avesta Technologies, Inc.


         DAVID ARBEITEL has served as Chief Technology Officer and Vice
President of the Company since October 2001. Prior to joining ION, Mr. Arbeitel
was the sole proprietor of his consulting firm, Arbeitel Associates 2 from
September 2000 to October 2001. From June 2000 to September 2000, Mr. Arbeitiel
served as Vice President and Chief Technology Officer of Visual Networks, Inc.
and was one of the founders of Avesta Technologies, Inc. where he was Senior
Vice President and Chief Technology Officer from October 1996 to May 2000.




         TED KAMINER has served as Chief Financial Officer and Vice President of
the Company since May 2002. Prior to joining ION, from October 2000 to April
2002, Mr. Kaminer was an independent consultant. From March 1998 to September
2000, Mr. Kaminer served as Senior Vice President of Finance and Chief Financial
Officer of CMPExpress, a provider of computer hardware and software to
corporate, government and education accounts. Previously, he served as Senior
Vice President, Investment Banking at Berwind Financial Group, L.P., from
October 1994 to January 1998.


         RONALD FORSTER has served as Vice President Finance/Controller since
October 2001, and was the Controller from February 2000 to October 2001. Prior
to joining ION, from March 1991 to February 2000, Mr. Forster served as
Controller of Meto, a company engaged in electronic bar code and human readable
marking and identification systems.

         DOUGLAS REILLY served as Vice President, Sales and Managing Director of
Market Operations for EMEA since October 2001 and was the Managing Director of
European Operations from July 2000 to October 2001. Prior to joining ION, from
February 1995 to June 2000, Mr. Reilly served as the Worldwide Head of Sales for
the Wireless Division of KSCL, a telecommunications and billing software
company.


         STEPHEN M. DEIXLER has been Chairman of the Board of Directors since
1985 and served as Chief Executive Officer of the Company from April 1996 to May
1997. He was President of the Company from May 1982 to June 1985 and served as
Treasurer of the Company from its formation in 1982 until September 1993. Mr.
Deixler currently also serves as Chairman of the Board of Trilogy Leasing Co,
LLC and became Chief Financial Officer of Multipoint Communications, LLC in
March 2002. Mr. Deixler was the Chairman of Princeton Credit Corporation until
April 1995.


         ALEXANDER C. STARK, JR. has been a director of the Company since 1997.
From 1995 to 2000, Mr. Stark served as the President of AdCon, Inc., a
consulting firm organized to advise and counsel senior officers of global
telecom companies. Mr. Stark previously worked for 40 years at AT&T, where he
most recently served as a Senior Vice President.


         ALAN HARDIE has served as a director of the Company since 1999. From
1995 until 2001, when he retired, Mr. Hardie served as Chief of Operations for
AT&T and BT Global Venture-Concert.


         WILLIAM MARTIN RITCHIE has served as a director of the Company since
1999. Since 1995, Mr. Ritchie has been a consultant in his own consulting
entity, Mr. Ventures, where he provides various start-up companies with
management assistance and early stage investment. Mr. Ritchie was a founder of
Spider Systems, a Scottish electronics company, where he served in several
capacities, including as Managing Director, from 1984 to 1995. Mr. Ritchie
currently serves on the board of directors of various companies in Scotland.

         BARUCH HALPERN has served as a director of the Company since 1999. From
1995 to 1999, Mr. Halpern was an institutional research analyst with Goldsmith &
Harris Incorporated, where he advised institutions about investment
opportunities. He was also an advisor in connection with a leveraged buy-out of
a public company and several private placements. In 1999, Mr. Halpern formed
Halpern Capital as a DBA entity under Goldsmith & Harris Incorporated.
Currently, Halpern Capital is a DBA entity under UVEST Investment Services, a
member of NASD/SIPC. Over the last two years Baruch Halpern's entities was
involved in numerous financings, having raised over $225 million in capital for
several public entities.

         FRANK RUSSO has served as a director of the Company since 2000. Mr.
Russo was with AT&T Corporation from September 1980 to September 2000 and most
recently served as its Corporate Strategy and Business Development Vice
President. While at AT&T Solutions, Mr. Russo held a number of other positions
including that of General Manager, Network Management Services from which he
helped architect and launch AT&T's entry into the global network outsourcing and

                                       20



professional services business. Mr. Russo retired from AT&T in 2000. Prior to
joining AT&T, Mr. Russo was employed by IBM Corporation in a variety of system
engineering, sales and sales management positions. Mr. Russo served on the Board
of Director of Oak Industries, Inc., a manufacturer of highly engineered
components, in 1999 and 2000, and currently serves on the Board of Directors of
Advance-com, a private e-commerce company headquartered in Boston,
Massachusetts.


     VINCENT CURATOLO has served as director of the Company since 2002. Mr.
Curatolo has held several executive positions at Cisco Systems since May 1998.
He is currently the Senior Director of Business Development for the Global
Service Provider Business Unit of Cisco Systems. Prior to that position, he
served as the Senior Director and Director of Cisco Systems in the areas of
field operations and technical field operations. From December 1994 to May 1998,
Mr. Curatolo served as Vice President of Global Data Networks at JP Morgan.


Section 16(a) Beneficial Ownership Reporting Compliance

     Section 16(a) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
persons who own more than 10% of the Company's Common Stock (collectively,
"Reporting Persons") to file reports of ownership and changes in ownership of
the Company's Common Stock with the Securities and Exchange Commission and The
Nasdaq Stock Market, Inc. Copies of these reports are also required to be
delivered to the Company.


     The Company believes, based solely on its review of the copies of such
reports received or written representations from certain Reporting Persons, that
during the fiscal year ended March 31, 2002, Mr. Vincent Curatolo was
inadvertently late in filing his Form 3 to report his appointment to the Board
of Directors of the Company in March 2002 and a grant of options to purchase
10,000 shares of Common Stock. Mr. Ronald Forster was inadvertently late in
filing his Form 3 to report his appointment to the office of Vice President
Finance/Controller in October 2001 and a grant of options to purchase 80,000
shares of Common Stock and his holding of 180 shares of Common Stock and options
to purchase 81,273 shares of Common Stock at the time of the filing of his Form
3. Mr. Douglas Reilly was in advertently late in filing his Form 3 to report his
appointment to the office of Vice President and Managing Director of Market
Operations for EMEA and the Pacific Rim in October 2001 and a grant of options
to purchase 100,000 shares of Common Stock and his holding of options to
purchase 124,652 shares of Common Stock at the time of the filing of his Form 3.
All such inadvertently late filings have been filed and reported by the
Reporting Persons on a Form 5 for the fiscal year ended March 31, 2002.


                                       21



Item 10: Executive Compensation

         The following table sets forth the compensation earned, whether paid or
deferred, by the Company's Chief Executive Officer, its other four most highly
compensated executive officers during the year ended March 31, 2002 and up to
two additional individuals for whom disclosure would have been provided but for
the fact that the individual was not serving as an executive officer at the end
of fiscal year ended March 31, 2002 (the "Named Executive Officers") for
services rendered in all capacities to the Company.

                           Summary Compensation Table




             Annual Compensation                                                    Long-term Compensation
             -------------------                                                    ----------------------

                                                                      Awards                                 Payouts
                                                                      ------                                 -------

                                                               Other
                                                               Annual
                                                               Compen-   Restricted     Securities                All Other
Principal                                                      sation      Stock        Underying      LTIP       Compen-
Position                  Year    Salary($)      Bonus($)      ($)       Award(s)($)    Options (#)   Payouts($)  sation($)/(1)/
- --------                  ----    ---------      --------      ---       -----------    -----------   ----------  --------------
                                                                                          
Current CEO and Executive Officers:

Kam Saifi/(2)(7)/        2002     132,681/(8)/    50,000            --  240,000/(11)/          --         --           1,398
President & Chief
Executive Officer

Cameron Saifi/(3)(7)/    2002      90,519         25,000            --  186,000/(12)/          --         --           1,641
Executive Vice
President & Chief
Operating Officer

David Arbeitel/(4)(7)/   2002      72,231         12,500            --   93,000/(13)/          --         --              --
Vice President &
Chief Technology
Officer

Ronald Forster           2002     107,019          9,000            --       --            80,000         --           2,034
Vice President of        2001      94,000          3,540                                   64,809         --           1,756
Finance & Controller     2000      13,962             --                                   16,476         --              --

Douglas Reilly           2002     129,246/(9)/     2,250            --       --           100,000         --              --
Vice President, Sales    2001      78,936/(10)/       --            --       --           124,652         --              --
& Managing Director,
EMEA

Former CEO and Executive Officers:

Ronald C. Sacks          2002          --             --            --       --            21,500         --              --
/(5)(7)/                 2001          --             --            --       --           119,400         --              --
Former
Chief-Executive
Officer and Interim
Principal Financial
Officer

Jane Kaufman/(6)/        2002      93,402         10,000        22,383       --            50,000         --           1,984
Former President         2001     159,000             --            --       --           172,430         --           3,187
and Chief Operating      2000      36,115             --        10,000       --           153,376         --             232
Officer


(1) Represents contribution of the Company under the Company's 401(k) Plan.

(2) Mr. K. Saifi joined the Company on 10/1/01. Pursuant to his employment
agreement, he will receive an annualized base salary of $250,000.

(3) Mr. C. Saifi joined the Company on 10/17/01. Pursuant to his employment
agreement, he will receive an annualized base salary of $186,000.

(4) Mr. Arbeitel joined the Company on 10/17/01. Pursuant to his employment
agreement, he will receive an annualized base salary $148,000.

                                       22



(5) The services of Mr. Sacks were being provided through a consulting agreement
between the Company and Venture Consulting Group, Inc. ("VCGI"). During the
fiscal year ended March 31, 2002, $248,000 was paid to VCGI for consulting fees
related to services performed by Mr. Sacks. Mr. Sacks terminated his consulting
services with the Company as of September 18, 2001.

(6) Ms. Kaufman separated from the Company on 10/3/01 as the result of a
reduction in force. As per the terms of her Severance Agreement and General
Release, Ms. Kaufman received a one-time severance payment of $15,542. Ms.
Kaufman also received payment of $6,841 for accrued unused vacation time.

(7) Refer to the Employment Contracts, Termination of Employment and Change of
Control Arrangements section below for a more detailed description of all
consulting and employment agreements.

(8)   Includes $7,200 in auto allowance.

(9)   Includes $9,000 in auto allowance and $21,496 in commissions.

(10)  Includes $6,750 in auto allowance and $4,686 in commissions.


(11) These shares vest as follows: 250,000 on October 4, 2001, 550,000 on
September 30, 2002 and 150,000 at the end of each quarter, commencing with the
quarter ended December 31, 2002, and ending with the quarter ending September
30, 2004, for a total of 1,200,000. The value of these shares as of March 31,
2002 is $1,520,000 and dividends, if declared, will be paid.

(12) These shares vest as follows: 75,000 on October 17, 2001, 165,000 on
September 30, 2002 and 45,000 at the end of each quarter, commencing with the
quarter ended December 31, 2002, and ending with the quarter ending September
30, 2004, for a total of 360,000. The value of these shares as of March 31, 2002
is $456,000 and dividends, if declared, will be paid.

(13) These shares vest as follows: 37,500 on October 17, 2001, 82,500 on
September 30, 2002 and 22,500 at the end of each quarter, commencing with the
quarter ended December 31, 2002, and ending with the quarter ending September
30, 2004, for a total of 180,000. The value of these shares as of March 31, 2002
is $228,000 and dividends, if declared will be paid.


                Option Grants in Fiscal Year Ended March 31, 2002

The following table sets forth certain information concerning stock option
grants during the fiscal year ended March 31, 2002 to the Named Executive
Officers:



                                                                         Individual Grants


                                                                  Percent
                                               Number of         of Total
                                              Securities         Options                 Exercise
                                              Underlying        Granted to               or Base
                                               Options         Employees in               Price            Expiration
  Name                                        Granted(#)       Fiscal Year               ($/Sh)                Date
  ----                                        ----------       -----------               ------                ----
                                                                                                
Current CEO and Executive Officers:

Kam Saifi                                       --

Cameron Saifi                                   --

David Arbeitel                                  --

Ronald Forster                                80,000/(1)(4)/       3.5%                    .175               10/11/06

Douglas Reilly                               100,000/(1)(5)/       4.3%                    .175               10/11/06

Former CEO and Executive Officers:

Ronald C. Sacks                               21,500/(2)/          1.0%                    .205                9/23/06

Jane Kaufman                                  50,000/(3)/          2.2%                    1.01                 5/1/06


(1) Represents options granted for retention purposes following the October 3,
2001 reduction in force.


                                       23




(2) 20,000 options were granted upon election to the Board of Directors on
9/24/01 and 1.500 options were granted for attendance at Annual Meeting of the
Board of Directors held on September 24, 2001. These options vested immediately
and have been exercised

(3) Represents options granted upon promotion to President and Chief Operating
Officer. These options vested immediately upon Ms. Kaufman's resignation from
the Company on October 3, 2001. Ms. Kaufman has until October 3, 2003 to
exercise these options.

(4) 27,200 options will vest on October 12, 2002 and 6,600 options will vest
every 3 months thereafter.


(5) 34,000 options will vest on October 12, 2002 and 8,250 options will vest
every 3 months thereafter.


         Aggregated Option Exercises in Fiscal Year Ended March 31, 2002
                        And Fiscal Year End Option Values

         The following table sets forth certain information concerning each
exercise of stock options during the fiscal year ended March 31, 2002 by each of
the Named Executive Officers and the number and value of unexercised options
held by each of the Named Executive Officers on March 31, 2002.



                                                                                                                Value of
                                                                                 Number of                    Unexercised
                                                                            Securities Underlying            In-the-Money
                                          Shares                             Unexercised Options               Options at
                                        Acquired on         Value               at FY-End(#)                  FY-End($)/(1)/
Name                                   Exercise (#)      Realized($)     Exercisable/Unexercisable      Exercisable/Unexercisable
- ----                                   ------------      -----------     -------------------------      -------------------------
                                                                                                
Current CEO and Executive Officers:

Kam Saifi                                    --              --                           --                            --

Cameron Saifi                                --              --                           --                            --

David Arbeitel                               --              --                           --                            --

Ronald Forster                               --              --               37,225/124,060                      0/47,200

Douglas Reilly                               --              --               49,600/175,052                      0/59,000

Former CEO and Executive Officers:

Ronald C. Sacks                          21,500           5,160                    119,400/0                           0/0

Jane Kaufman                                 --              --                    200,000/0                           0/0


(1) The average price for the Common Stock as reported by the Nasdaq Stock
Market on March 28, 2002, was $.76 per share. Value is calculated on the basis
of the difference between the option exercise price and $.76 multiplied by the
number of shares of Common Stock underlying the options.


Compensation of Directors

        For the fiscal year ended March 31, 2002, each of the members of the
Board of Directors who is not also an employee of the Company ("Non-Employee
Directors") received options to purchase 10,000 shares of Common Stock at
exercise prices per share equal to the fair market value of the Common Stock on
the date of grant on an annual basis. Non-Employee Directors were also granted
options to purchase an additional 1,500 shares of Common Stock for each meeting
of the Board of Directors attended by such Non-Employee Director. Non-Employee
Directors serving on committees of the Board of Directors were granted, on an
annual basis, options to purchase 1,500 shares of Common Stock for each
committee served thereby.

        In October 2001, the Board of directors approved a grant of 25,000
options to each of Messrs. Deixler, Halpern, Stark, Hardie, Ritchie and Russo in
recognition of their services to the Company with the retention of the new
executive management team.

         In July 2001, the Board of Directors approved a modification to the
director compensation plan for the fiscal year ending March 31, 2002. The
modification provides that any director who was not previously serving as such
at the time of the last


                                       24




annual stockholder's meeting would receive an additional grant of options to
purchase 20,000 shares upon election by the stockholders. In addition, the
Company reimburses all Non-Employee Directors traveling more than fifty miles to
a meeting of the Board of Directors for all reasonable travel expenses.



          The Company paid the Chairman of the Board of Directors of the
Company, $132,000 in the year ended March 31, 2002 for executive search and
mergers and acquisitions services provided to the Company from June through
October 2001.


Employment Contracts, Termination of Employment and Change of Control
Arrangements

          The Company entered into an employment agreement with Kam Saifi dated
October 4, 2001. Pursuant to the agreement, Mr. Saifi shall serve as Chief
Executive Officer and President commencing October 1, 2001 and continuing until
September 30, 2004 unless earlier terminated as provided in the agreement. Mr.
Saifi will receive a base salary at an annual rate of $250,000 during the period
of October 1, 2001 and ending March 31, 2002, or total compensation for the
six-month period of $125,000. He will receive a base salary at an annual rate of
$350,000 during the period of April 1, 2002 and ending September 30, 2002, or
total compensation for the six-month period of $175,000. In addition he will
receive a monthly car allowance of $1,200. Mr. Saifi will also receive a
quarterly bonus payment of $50,000 each time the Company achieves its gross
sales target in such fiscal quarter. Pursuant to the agreement, Mr. Saifi was
granted restricted stock consisting of 2,000,000 shares of the Company's Common
Stock at a price of $0.13 per share. These shares vest as follows: 250,000 on
execution of the agreement, 550,000 on September 30, 2002 and 150,000 at the end
of each quarter, commencing with the quarter ended December 31, 2002, and ending
with the quarter ending September 30, 2004, for a total of 1,200,000. In the
event of a change in control event (as described in the employment agreement)
all shares will become immediately vested. If Mr. Saifi's employment is
terminated by the Company for other than "Cause", Mr. Saifi shall be entitled to
a severance payment equal to the lesser of the remaining salary due for the
balance of the contract or payment of salary for the next six months as if the
Agreement had not been terminated.

          The Company entered into an employment agreement with Cameron Saifi
dated October 17, 2001. Pursuant to the agreement, Mr. C. Saifi shall serve as
Chief Operating Officer and Executive Vice President commencing October 17, 2001
and continuing until September 30, 2004 unless earlier terminated as provided in
the agreement. Mr. C. Saifi will receive a base salary at an annual rate of
$186,000. Mr. C. Saifi will also receive a quarterly bonus payment of $25,000
each time the Company achieves its gross sales target in such fiscal quarter.
Pursuant to the agreement, Mr. C. Saifi was granted restricted stock consisting
of 600,000 shares of the Company's Common Stock at a price of $0.31 per share.

          These shares vest as follows: 75,000 on execution of the agreement,
165,000 on September 30, 2002 and 45,000 at the end of each quarter, commencing
with the quarter ended December 31, 2002, and ending with the quarter ending
September 30, 2004, for a total of 360,000. In the event of a change in control
event (as described in the employment agreement) all shares will become
immediately vested. If Mr. Saifi's employment is terminated by the Company for
other than "Cause", Mr. Saifi shall be entitled to a severance payment equal to
the lesser of the remaining salary due for the balance of the contract or
payment of salary for the next three months as if the Agreement had not been
terminated.

          The Company entered into an employment agreement with David Arbeitel
dated October 17, 2001. Pursuant to the agreement, Mr. Arbeitel shall serve as
Chief Technology Officer and Vice President commencing October 17, 2001 and
continuing until September 30, 2004 unless earlier terminated as provided in the
agreement. Mr. Arbeitel will receive a base salary at an annual rate of
$148,000. Mr. Arbeitel will also receive a quarterly bonus payment of $12,500
each time the Company achieves its gross sales target in such fiscal quarter.
Mr. Arbeitel was granted restricted stock consisting of 300,000 shares of the
Company's Common Stock at a price of $0.31 per share. These shares vest as
follows: 37,500 on execution of the agreement, 82,500 on September 30, 2002 and
22,500 at the end of each quarter, commencing with the quarter ended December
31, 2002, and ending with the quarter ending September 30, 2004, for a total of
180,000. In the event of a change in control event (as described in the
employment agreement) all shares will become immediately vested. If Mr.
Arbeitel's employment is terminated by the Company for other than "Cause", Mr.
Arbeitel shall be entitled to a severance payment equal to the lesser of the
remaining salary due for the balance of the contract or payment of salary for
the next three months as if the Agreement had not been terminated.

          The Company entered into a consulting agreement with Venture
Consulting Group, Inc. ("VCGI") on October 5, 2000 (the "Consulting Agreement").
VCGI performed certain management services for the Company and provided the
services of Ronald C. Sacks, William Gilbert, George Jarrold and Daniel Hunt.
Pursuant to the terms of the Consulting Agreement, Mr. Sacks was appointed as
the Chief Executive Officer of the Company and provided his services on a full
time, exclusive basis until September 18, 2002. The other persons specified
above provided consulting services 10 days per quarter each, with respect to
such services. The Consulting Agreement was terminable at will on thirty days
written notice by either party, and provided for a fee of $500,000, payable over
twelve (12) months to VCGI. The Company did not pay salaries to any of the VCGI
management team members. In addition, the Company granted options to the persons
performing services on behalf of VCGI to purchase an aggregate of 240,000 shares
of Common Stock, at an exercise price of $2.00 per share which are fully vested.
The consulting

                                       25



relationship established by this contract terminated effective September 18,
2001.



Item 11: Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters



                                           Equity Compensation Plan Information

                                                                                                           (c)
                                                                                                 Number of securities
                                                      (a)                       (b)             remaining available for
                                          Number of securities to        Weighted-average        future issuance under
                                          be issued upon exercise       exercise price of      equity compensation plans
                                          of outstanding options,       outstanding options,     (excluding securities
                                           warrants, and rights        warrants, and rights     reflecting in column (a))
                                           --------------------        --------------------     -------------------------
                                                                                       
Plan Category

Equity compensation plans approved by          4,438,260                     1.82                     1,079,080
security holders/(1)/

Equity compensation plans not approved           688,000                     1.30                             -
by security holders/(2)/
Total                                          5,126,260                     1.75                     1,079,080


(1) Shareholder Approved Plans

          In November 2000, the Company adopted its 2000 Stock Option Plan (the
"2000 Plan"). The aggregate number of shares of common stock for which options
may be granted under the 2000 Plan is 3,000,000. The maximum number of options
which may be granted to an employee during any calendar year under the 2000 Plan
shall be 400,000. The term of these non-transferable stock options may not
exceed ten years. The exercise price of these stock options may not be less than
100% (110% if the person granted such options owns more than ten percent of the
outstanding common stock) of the fair value of one share of common stock on the
date of grant. During the years ended March 31, 2002 and 2001, the Company
granted options to purchase 1,854,000 and 1,724,500 shares, respectively. At
March 31, 2002, 2,560,200 options were outstanding under the 2000 Plan, of which
759,915 options were exercisable.

          The aggregate number of shares of common stock for which options may
be granted under the 1998 Stock Option Plan (the "1998 Plan") is 3,000,000. The
maximum number of options which may be granted to an employee during any
calendar year under the 1998 Plan shall be 400,000. The term of these
non-transferable stock options may not exceed ten years. The exercise price of
these stock options may not be less than 100% (110% if the person granted such
options owns more than ten percent of the outstanding common stock) of the fair
value of one share of common stock on the date of grant. During the years ended
March 31, 2002 and 2001, the Company granted options to purchase 463,800 and
1,596,078 shares, respectively. At March 31, 2002 1,783,459 options were
outstanding under the 1998 Plan, of which 1,367,642 options were exercisable.

          In August 1994, the Company adopted its 1994 Stock Option Plan (the
"1994 Plan"). The 1994 Plan, as amended, increased the number of shares of
common stock for which options may be granted to a maximum of 1,250,000 shares.
The term of these non-transferable stock options may not exceed ten years. The
exercise price of these stock options may not be less than 100% (110% if the
person granted such options owns more than ten percent of the outstanding common
stock) of the fair market value of one common stock on the date of grant. During
the years ended March 31, 2002 and 2001, there were no option grants provided
under the 1994 Plan. At March 31, 2002, 94,601 options were outstanding under
the 1994 Plan, of which 64,991 options were exercisable.

          Of the options granted in fiscal 2002 and 2001, 0 and 578,528,
respectively, were granted under the Company's Time Accelerated Restricted Stock
Award Plan ("TARSAP"). The options vest after seven years, however, under the
TARSAP, the vesting is accelerated to the last day of the fiscal year in which
the options are granted if the Company meets certain predetermined sales
targets. The Company did not meet the targets for 2001 and, as such, all options
granted under the TARSAP in 2001 will vest seven years from the original date of
grant.

(2) Non-Shareholder Approved Awards

          The Company has granted options and warrants to purchase 688,000
shares of Common Stock outside of the shareholder approved plans. The awards
have been made to employees, directors and consultants, and except as noted
below, have been granted with an exercise price equal to the fair market value
of the Common Stock on the date of grant. The Company has not reserved a
specific number of shares for such awards. The non-shareholder approved awards
are more specifically described below.

                                       26



          During July 2001 in connection with services being performed by a
consultant, the Company issued warrants to purchase 48,000 shares of the
Company's Common Stock at $0.62 per share. The warrants vested immediately and
expire five years from the date of the grant.

          During January 2002 in connection with services being performed by a
consultant, the Company issued warrants to purchase 100,000 shares of the
Company's Common Stock at $1.35 per share and 50,000 shares of Common Stock at
$1.80 per share. The warrants vested immediately and expire three years from the
date of the grant.

          On March 19, 1999, the Company issued options to certain consultants
and employees to purchase an aggregate of 20,000 shares of the Company's Common
Stock, all of which vested on the first year anniversary of the date of grant.
The options expire six years from the date of grant. However, in the event of
(a) the liquidation or dissolution of the Company or (b) a merger in which the
Company is not the surviving corporation or a consolidation involving the
Company, the options shall terminate, unless other provision is made therefore
in the transaction. The exercise price of the options is $2.41 and equals to the
market value of the Company's Common Stock on the date of grant.

          During September 1997 and March 1998, the Company issued options to
certain officers and directors to purchase an aggregate of 80,000 shares of the
Company's Common Stock, 25,000 of which vested on the date of grant, 7,500 of
which vested three months from the date of grant, 7,500 of which vested six
months from the date of grant, 7,500 of which vested nine months from the date
of grant and 32,500 of which vested on the first year anniversary of the date of
grant. The 55,000 options expire five years from the date of grant and 25,000
options expire six years from the date of grant. However, in the event of (a)
the liquidation or dissolution of the Company or (b) a merger in which the
Company is not the surviving corporation or a consolidation involving the
Company, the options shall terminate, unless other provision is made therefore
in the transaction. The exercise price of the options is equal to the market
value of the Company's Common Stock on the date of grant and ranges from $1.47
to $2.06.

          On September 25, 1996, the Company issued options to certain officers
and directors to purchase 400,000 shares of the Company's Common Stock, of which
200,000 vested immediately and 100,000 vested on April 1, 1998 and 1999. The
options expire ten years from the date of grant. However, in the event of (a)
the liquidation or dissolution of the Company or (b) a merger in which the
Company is not the surviving corporation or a consolidation involving the
Company, the options shall terminate, unless other provision is made therefore
in the transaction. The exercise price of the options is $1.156 and equals to
the market value of the Company's Stock on the date of grant.



                                       27



                        Beneficial Ownership Information

     The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 19, 2002 by each person (or
group within the meaning of Section 13(d)(3) of the Securities Exchange Act of
1934) known by the Company to own beneficially 5% percent or more of the
Company's Common Stock, and by the Company's directors and named executive
officers, both individually and as a group.

     As used in this table, "beneficial ownership" means the sole or shared
power to vote or direct the voting or to dispose or direct the disposition of
any security. A person is deemed to be the beneficial owner of securities that
can be acquired within sixty days from June 19, 2002 through the exercise of any
option, warrant or right. Shares of Common Stock subject to options, warrants or
rights which are currently exercisable or exercisable within sixty days are
deemed outstanding for computing the ownership percentage of the person holding
such options, warrants or rights, but are not deemed outstanding for computing
the ownership percentage of any other person. The amounts and percentage are
based upon 25,138,001 shares of Common Stock outstanding as of June 19, 2002.



Name and Address/(16)/                               Shares Owned                     Percent of Class
- ----------------------                               ------------                     ----------------
                                                                                
Stephen M. Deixler                                    953,077/(1)/                            3.8%

Alexander C. Stark, Jr.                               415,875/(2)/                            1.7%

Alan Hardie                                           132,000/(3)/                           *

William Martin Ritchie                                 92,500/(4)/                           *

Frank Russo                                            57,000/(5)/                           *

Vincent Curatolo                                       11,500/(6)/                           *

Baruch Halpern                                        516,200/(7)/                            2.1%

Kam Saifi                                           2,170,000/(8)/                            8.6%

Cameron Saifi                                         600,000/(9)/                            2.4%

David Arbeitel                                        300,000/(10)/                           1.2%

Ronald Forster                                         37,405/(11)/                          *

Douglas Reilly                                         59,600/(12)/                          *

Ronald C. Sacks                                       119,400/(13)/                          *

Jane Kaufman                                          200,000/(14)/                          *

AWM Investment Company                              5,407,882/(15)/                          21.5%
153 East 53rd Street, 55th Floor
New York, NY    10022

Directors and Executive Officers as a               5,664,557                                22.5%
group (14 persons)


(1)  Does not include 135,489 shares of Common Stock owned by Mr. Deixler's
     wife, mother, children and grandchildren as to which shares Mr. Deixler
     disclaims beneficial ownership. Includes 358,375 shares of Common Stock
     subject to options that are currently exercisable or exercisable within 60
     days of June 19, 2002.

(2)  Includes 285,875 shares of Common Stock subject to options that are
     currently exercisable or exercisable within 60 days of June 19, 2002.

(3)  Includes 132,000 shares of Common Stock subject to options that are
     currently exercisable or exercisable within 60 days of June 19, 2002.

(4)  Includes 92,500 shares of Common Stock subject to options that are
     currently exercisable or exercisable within 60 days of June 19, 2002.

(5)  Includes 57,000 shares of Common Stock subject to options that are
     currently exercisable or exercisable within 60 days of June 19, 2002.

                                       28



(6)  Includes 11,500 shares of Common Stock subject to options that are
     currently exercisable or exercisable within 60 days of June 19, 2002.

(7)  Does not include 17,000 shares of Common Stock owned by Mr. Halpern's
     daughter as to which Mr. Halpern disclaims beneficial ownership. Includes
     267,000 shares of Common Stock subject to options that are currently
     exercisable or exercisable within 60 days of June 19, 2002 and 100,000
     shares of Common Stock subject to warrants that are currently exercisable
     or exercisable within 60 days of June 19, 2002.

(8)  Includes 1,750,000 restricted shares of Common Stock that have not vested.

(9)  Includes 525,000 restricted shares of Common Stock that have not vested.

(10) Includes 262,500 restricted shares of Common Stock that have not vested.

(11) Includes 37,225 shares of Common Stock subject to options that are
     currently exercisable or exercisable within 60 days of June 19, 2002.

(12) Includes 59,600 shares of Common Stock subject to options that are
     currently exercisable or exercisable within 60 days of June 19, 2002.

(13) Includes 119,400 shares of Common Stock subject to options that are
     currently exercisable or exercisable within 60 days of June 19, 2002.

(14) Includes 200,000 shares of Common Stock subject to options that are
     currently exercisable or exercisable within 60 days of June 19, 2002.

(15) Based on Schedule 13D as filed by such beneficial owner with the Securities
     and Exchange Commission on February 21, 2002.

(16) Unless otherwise noted, the address of each such person is c/o the Company,
     1551 S. Washington Avenue, Piscataway, New Jersey 08854.

*Indicates ownership of Common Stock of less than one (1%) percent of the total
issued and outstanding Common Stock on June 19, 2002.

Item 12: Certain Relationships and Related Transactions


     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 Piscataway, NJ 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 Tenant will issue 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 shall close on or before June 30, 2002. These
shares shall have the registration rights as other shares issued in the
Financing. In the event that the Financing does not close on or before June 30,
2002, the Tenant shall pay the Company additional rent in the amount of $4,300
per month commencing on July 1, 2002. Future minimum lease payments due from the
Tenant are approximately $187,200. The Chairman of the Board of Directors of the
Company currently serves as the Chief Financial Officer of the Tenant.


     The Company paid the Chairman of the Board of Directors of the Company,
$132,000 in the year ended March 31, 2002 for executive search and mergers and
acquisitions services provided to the Company from June through October 2001.


     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 made 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


                                       29




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 "Seperation and Forebearance 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
Seperation and Forebearance 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 $777,713.48
received by the Company on August 3, 2001 for the sale of the Former CEO's
personal residence. At March 31, 2002, the total amount owed to the Company by
the Former CEO was approximately $83,657, and is classified as a related party
notes receivable on the Company's consolidated balance sheet. Because these
amounts were not paid by their respective maturity dates, interest is currently
accruing at the default interest rate of 12%


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

     The Company issued advances to two officers of the Company in the amount of
$50,000 each on August 31, 1998. These advances accrued interest at the prime
rate plus 1%. These advances were due and payable in full upon the officers
cessation of employment with the Company or August 31, 2000, whichever is
earlier. The advances were repaid in full prior to August 31, 2000.


     Effective October 2001, the Company approved and granted 2,900,000 shares
of restricted stock to three executives 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 full recourse interest bearing promissory notes for the value of the
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. The issuance of the restricted shares and the notes receivable due
from the officers is recorded in the Company's financial statements. Only the
vested portion of the shares has been included in the weighted average number of
common shares outstanding at March 31, 2002.


                                       30



Item 13: 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)/

                                    31



      Exhibit
     No.            Description

     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)/

     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. **

     10.18          Form of Warrant Agreement dated January 4, 2002. **

     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. **

     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. **

     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. **

                                       32



       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. **

       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. *


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


       21.1         List of Subsidiaries. *


       23.1         Consent of Deloitte & Touche LLP.*

       23.2         Consent of PricewaterhouseCoopers LLP. *

(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.


* Filed herewith.
** Previously filed.

(b)    Reports on Form 8-K

          On January 23, 2002, the Company filed a report on Form 8-K reporting
the issuance of a press release relating to the Company's results for the first
fiscal third quarter ended December 31, 2002.

          On February 14, 2002, the Company filed a report on Form 8-K reporting
the issuance of a press release announcing the closing of a private placement of
its Common Stock and Common Stock purchase warrants.

          On March 4, 2002, the Company filed a report on Form 8-K reporting the
issuance of a press release relating to the

                                       33



appointment of Vincent Curatolo to the Board of Directors of the Company.

                                       34



                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


Dated: August 2, 2002


                                              ION NETWORKS, INC.

                                              By: /s/ Kam Saifi
                                              -----------------


                                              Kam Saifi, Chief Executive Officer
                                              and President


                                       35



ION Networks, Inc. and Subsidiaries
Consolidated Financial Statements
For the Fiscal Years Ended March 31, 2002 and 2001



ION Networks, Inc. and Subsidiaries



Index to Consolidated Financial Statements
For the Years Ended March 31, 2002 and 2001
- ------------------------------------------------------------------------------------------------------------------

                                                                                                   Page(s)
                                                                                                
Independent Auditors' Report dated June 21, 2002                                                     F-1

Reports of Independent Accountants dated June 28/th/, 2001                                           F-2

Financial Statements:

     Consolidated Balance Sheets as of March 31, 2002 and
     March 31, 2001                                                                                  F-3

     Consolidated Statements of Operations for the Years Ended
     March 31, 2002 and 2001                                                                         F-4

     Consolidated Statements of Cash Flows for the Years Ended
     March 31, 2002 and 2001                                                                         F-5

     Consolidated Statements of Stockholders' Equity for the Years
     Ended March 31, 2002 and 2001                                                                   F-6

Notes to Consolidated Financial Statements                                                    F-7 - F-21




                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of ION Networks, Inc. and
Subsidiaries Piscataway, New Jersey

We have audited the accompanying consolidated balance sheet of ION Networks,
Inc. and Subsidiaries (the "Company") as of March 31, 2002, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at March 31, 2002, and the
results of its operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's recurring losses from operations and its
difficulty in generating sufficient cash flow to meet its obligations and
sustain its operations raise substantial doubt about its ability to continue as
a going concern. Management's plans concerning these matters are also described
in Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

/s/ Deloitte & Touche LLP

June 21, 2002
Parsippany, New Jersey

                                      F-1



                        Report of Independent Accountants

To the Board of Directors and Stockholders of ION Networks, Inc. and
Subsidiaries

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of ION
Networks, Inc. and Subsidiaries (the "Company") at March 31, 2001, and the
results of their operations and their cash flows for the year ended March 31,
2001 in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP

Florham Park, New Jersey
June 28, 2001

                                      F-2



ION Networks, Inc. and Subsidiaries

Consolidated Balance Sheets
As of March 31, 2002 and 2001
- --------------------------------------------------------------------------------



                                                                                               2002                2001
                                                                                                        
Assets
     Current assets
       Cash and cash equivalents                                                           $   4,050,657      $   5,230,833
       Accounts receivable, less allowance for doubtful accounts of
         $149,999 and $161,000, respectively                                                   1,521,230          2,796,531
       Other receivables                                                                               -             13,497
       Inventory, net                                                                          1,024,126          1,139,448
       Prepaid expenses and other current assets                                                 492,609            205,829
       Related party notes receivable                                                             83,657            897,250
                                                                                                  ------            -------

         Total current assets                                                                  7,172,279         10,283,388

     Restricted cash                                                                             125,700            375,000
     Property and equipment, net                                                                 796,625          1,467,766
     Capitalized software, less accumulated amortization of $3,412,040 and
        $2,390,041 respectively                                                                  908,464          1,241,495
     Goodwill and other acquisition related intangibles, less accumulated
        amortization of $1,000,000 and $694,444 respectively                                           -            305,556
     Other assets                                                                                  6,653             22,683
                                                                                                   -----             ------

         Total assets                                                                      $   9,009,721      $  13,695,888
                                                                                           =============      -------------


Liabilities and Stockholders' Equity
     Current liabilities
       Current portion of capital leases                                                   $      74,426      $      74,426
       Current portion of long-term debt                                                          33,444            107,026
       Accounts payable                                                                          917,846          1,716,212
       Accrued expenses                                                                          373,766            562,860
       Accrued payroll and related liabilities                                                   353,590            416,093
       Deferred income                                                                           115,927            178,737
       Sales tax payable                                                                         188,435            141,891
       Other current liabilities                                                                  73,923            168,086
                                                                                                  ------            -------

         Total current liabilities                                                             2,131,357          3,365,331
                                                                                               ---------          ---------

     Long-term portion of capital leases                                                         146,540            220,966
     Long-term debt, net of current portion                                                        4,597             18,732

     Commitments and contingencies (Notes 9 and 10)

     Stockholders' equity

       Preferred stock - par value $.001 per share; authorized 1,000,000 shares,                       -                  -
          none issued
       Common stock - par value $.001 per share; authorized 50,000,000 shares;
          25,138,001 shares issued and outstanding at March 31, 2002,
          18,203,301 shares issued and outstanding at March 31, 2001                              25,138             18,203
       Additional paid-in capital                                                             44,381,454         40,191,346
       Notes receivable from officers                                                           (549,914)                 -
       Deferred compensation                                                                     (62,893)                 -
       Accumulated deficit                                                                   (37,094,424)       (30,165,045)
       Accumulated other comprehensive income                                                     27,866             46,355
                                                                                                  ------             ------

                                                                                               6,727,227         10,090,859

   Total stockholders' equity                                                                  6,727,227         10,090,859
                                                                                               ---------         ----------

       Total liabilities and stockholders' equity                                          $   9,009,721      $  13,695,888
                                                                                           =============      =============


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

                                       F-3



ION Networks, Inc. and Subsidiaries

Consolidated Statements of Operations
For the Years Ended March 31, 2002 and 2001
- --------------------------------------------------------------------------------



                                                         2002          2001

                                                             
Net sales                                            $  7,312,235  $ 11,676,547

Cost of sales                                           3,484,132     7,184,666
                                                     ------------  ------------

    Gross margin                                        3,828,103     4,491,881

Research and development expenses                         891,542     2,126,246
Selling, general and administrative expenses            8,119,601    11,870,263
Depreciation and amortization expense                   1,852,090     3,742,450
Restructuring, asset impairments and other charges        217,467     3,763,612
                                                     ------------  ------------

    Loss from operations                               (7,252,597)  (17,010,690)

    Other income                                          264,725             -
    Interest income                                       114,638       389,359
    Interest expense                                      (31,781)      (47,767)
                                                     ------------  ------------

    Loss before income taxes                           (6,905,015)  (16,669,098)

Income tax expense                                         24,364         7,568
                                                     ------------  ------------

    Net loss                                         $ (6,929,379) $(16,676,666)
                                                     ============  ------------

Per share data

    Basic and diluted                                      ($0.37)       ($0.98)

Weighted average number of common shares outstanding
    Basic and diluted                                  18,890,609    17,064,620
                                                     ------------  ------------


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

                                       F-4



ION Networks, Inc. and Subsidiaries



Consolidated Statements of Cash Flows
For the Years Ended March 31, 2002 and 2001
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                  2002                   2001
                                                                                                   
Cash flows from operating activities
   Net loss                                                                       $ (6,929,379)          $(16,676,666)
   Adjustments to reconcile net loss to net cash used in operating
         activities

     Restructuring, asset impairments and other charges, non-cash                       (2,930)             3,421,378
     Depreciation and amortization                                                   1,852,090              3,742,450
     Provision for inventory obsolescence                                             (565,481)             1,549,099
     Non-cash stock-based compensation charge                                           32,999                 15,382
     Issuances of restricted stock                                                     539,000                      -
     Notes receivable from officers                                                   (549,914)                     -
     Deferred compensation                                                              62,893                      -
     Changes in operating assets and liabilities:
       Accounts receivable                                                           1,275,301              1,773,015
       Other receivables                                                                13,497              1,547,200
       Inventory                                                                       680,803               (763,876)
       Prepaid expenses and other current assets                                      (270,750)               397,045
       Other assets                                                                          -                 56,575
       Accounts payable and accrued expenses                                          (987,460)              (353,063)
       Accrued payroll and related liabilities                                         (66,278)            (1,655,749)
       Deferred income                                                                 (62,810)               (96,920)
       Sales tax payable                                                                46,544                (59,109)
       Other current liabilities                                                       (94,163)                16,993
                                                                                  ------------           ------------

         Net cash used in operating activities                                      (5,026,038)            (7,086,246)
                                                                                  ------------           ------------

Cash flows from investing activities
    Capital expenditures                                                               (35,269)              (415,174)
    Capitalized software expenditures                                                 (500,388)            (1,526,411)
    Related party notes receivable, net of repayments                                  813,593               (897,250)
    Restricted cash                                                                    249,300               (375,000)
                                                                                  ------------           ------------

         Net cash provided by (used in) investing activities                           527,236             (3,213,835)
                                                                                  ------------           ------------

Cash flows from financing activities
    Repayments of debt                                                                (162,143)              (173,745)
    Issuances of common stock and warrants                                           3,480,000              5,000,000

    Exercises of options and warrants                                                   19,258                323,047
                                                                                  ------------           ------------

         Net cash provided by financing activities                                   3,337,115              5,149,302
                                                                                  ------------           ------------

Effect of exchange rates on cash                                                       (18,489)                     -
                                                                                  ------------           ------------

Net decrease in cash and cash equivalents                                           (1,180,176)            (5,150,779)

Cash and cash equivalents - beginning of year                                        5,230,833             10,381,612
                                                                                  ------------           ------------

Cash and cash equivalents - end of year                                           $  4,050,657           $  5,230,833
                                                                                  ============           ------------


Supplemental information

    Cash paid during period for interest                                          $     31,781           $     47,767
                                                                                  ============           ------------


    Cash paid for taxes                                                           $     37,359           $      7,058
                                                                                  ============           ------------


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

                                      F-5



ION Networks, Inc. and Subsidiaries



Consolidated Statements of Stockholders' Equity
For the Years Ended March 31, 2002 and 2001
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                      Accumulated                Notes
                                            Additional                   Other                 Receivable  Deferred          Total
                                  Common    Paid-In     Accumulated  Comprehensive  Treasury      from     Compensa-  Stockholders'
                          Shares   Stock    Capital     Deficit          Income       Stock     Officers     tion            Equity
                          ------   -----    -------     -------          ------      -----      --------     ----            ------
                                                                                            
Balance, April 1, 2000  15,224,911 $15,225 $35,063,094  $(13,488,379)    $ 13,196 $(207,199)         -          -      $ 21,395,937

Comprehensive loss
   Net loss                                              (16,676,666)                                                   (16,676,666)
   Translation
   adjustments                                                             33,159                                            33,159
                                                                                                                             ------

   Total comprehensive
   loss                                                                                                                 (16,643,507)

Issuances of common
stock                    2,857,142   2,857   4,789,944                              207,199                               5,000,000

Exercise of options
and warrants               121,248     121     322,926                                                                      323,047

Non-cash stock-based
Compensation                                    15,382                                                                       15,382
                        ------------------------------------------------------------------------------------------------------------

Balance, March 31,
2001                    18,203,301  18,203  40,191,346   (30,165,045)      46,355         -          -          -        10,090,859

Comprehensive loss
   Net loss                                               (6,929,379)                                                    (6,929,379)
   Translation
   adjustments                                                            (18,489)                                          (18,489)
                                                                                                                            -------

   Total comprehensive
   loss                                                                                                                  (6,947,868)

Issuances of common
stock and warrants       4,000,000   4,000   3,476,000                                                                    3,480,000

Issuance of restricted
shares                   2,900,000   2,900     536,100                                                                      539,000

Notes receivable from
officers                                                                                      (549,914)                    (549,914)

Deferred compensation                          125,786                                                    (62,893)           62,893

Exercise of options         34,700      35      19,223                                                                       19,258

Non-cash stock-based
Compensation                                    32,999                                                                       32,999
                        ------------------------------------------------------------------------------------------------------------

Balance, March 31,
2002                    25,138,001 $25,138 $44,381,454  $(37,094,424)    $ 27,866         -  $(549,914)  $(62,893)     $  6,727,227
                        ============================================================================================================


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

                                      F-6



ION Networks, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

1. Organization and Basis of Presentation

The Company

ION Networks, Inc. (the "Company"), a Delaware corporation founded in 1999
through the combination of two companies -- MicroFrame, a New Jersey Corporation
(the predecessor entity to the Company, originally founded in 1982), and SolCom
Systems Limited, a Scottish corporation located in Livingston, Scotland
(originally founded in 1994), designs, develops, manufactures and sells
infrastructure security and management products to corporations, service
providers and government agencies. The Company's hardware and software suite of
products are designed to form a secure auditable portal to protect IT and
network infrastructure from internal and external security threats. ION's
products operate in the IP, data center, telecommunications and transport, and
telephony environments and are sold by a direct sales force and indirect channel
partners mainly throughout North America and Europe.

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
March 31, 2002, we had an accumulated deficit of $37,094,424 and working capital
of $5,040,922. We also realized net losses of $6,929,379 for the year ended
March 31, 2002 and $16,676,666 for the year ended March 31, 2001. 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. On
February 14, 2002, we received $3,480,000 from the issuance of new shares in a
private placement of 4,000,000 shares of Common Stock. 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 out 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.

2. Summary of Significant Accounting Policies

Principles of Consolidation

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

Use of Estimates

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

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

Cash and Cash Equivalents

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

                                      F-7



ION Networks, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

Allowance for Doubtful Accounts Receivable

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

Inventory

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

Property and Equipment

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

Capitalized Software and Other Long Lived Assets

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

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

The Company capitalized $500,388 and $1,526,411 of software development costs
for fiscal 2002 and 2001, respectively. The Company wrote-off $5,387 and
$2,332,120 of software development costs for fiscal 2002 and 2001 (see Note 3).
Amortization expense totaled $828,032 and $2,138,707 for fiscal 2002 and 2001,
respectively.

Goodwill and Other Acquisition Related Intangibles

Goodwill is the excess of purchase price over the fair value of net assets
acquired in business combinations accounted for as purchases. The Company
amortizes goodwill on a straight-line basis over the periods benefited, ranging
from three to ten years. Other acquisition-related intangibles include customer
lists. The Company amortizes other acquisition-related intangibles over periods
not to exceed three years.

                                      F-8



ION Networks, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

Research and Development Costs

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

Revenue Recognition Policy

The Company recognizes revenue from product sales to end users, value-added
resellers (VARs) and original equipment manufacturers (OEMs) upon shipment if no
significant vendor obligations exist and collectibility is probable. We do not
offer our customers the right to return products, however the Company records
warranty costs at the time revenue is recognized. Management estimates the
anticipated warranty costs but actual results could differ from those estimates.
Maintenance contracts are sold separately and maintenance revenue is recognized
on a straight-line basis over the period the service is provided, generally one
year. The warranty accrual included in other current liabilities as of March 31,
2002 and 2001 approximated $55,000 and $91,200, respectively

Fair Value of Financial Instruments

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

Per Share Data

Earnings per share has been calculated in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings Per Share." The weighted average number
of common shares outstanding during fiscal 2002 and 2001 were used to compute
basic earnings per share. Diluted earnings per share is initially computed using
the weighted average number of common shares outstanding plus the dilutive
potential common shares outstanding. Dilutive potential common shares are
additional common shares assumed to be exercised. Potential common shares of
452,906 and 1,429,301 were excluded from the computation of diluted earnings per
share for fiscal 2002 and 2001, respectively, because their inclusion would have
had an antidilutive effect on earnings per share.

Foreign Currency Translation

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

Income Taxes

The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS No. 109"). SFAS No. 109 requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax return. Under this method,
deferred tax liabilities and assets are determined based on the difference
between the financial statement and tax basis of assets and liabilities
("temporary differences") using enacted tax rates in effect for the year in
which the differences are expected to reverse. A net deferred tax asset is
recognized if it is more likely than not that the asset will be realized in the
future.

Reclassifications

Certain amounts in the financial statements for the year ended March 31, 2001
have been reclassified to conform to the presentation of the financial
statements for the year ended March 31, 2002.

                                      F-9



ION Networks, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

3.  Restructuring, Asset Impairments and Other Charges

As a result of the Company's operating performance during the first six months
of fiscal 2001 as compared to the prior year, the Company's management evaluated
the Company's business and product strategy and, in the Company's fiscal third
quarter, implemented a business restructuring plan which is intended to increase
the Company's operating cash flows and focus its product offerings on those
believed to have the greatest potential to generate further, near-term market
penetration and positive operating contribution. Included in the exit costs were
approximately $353,000 of cash severance and termination benefits associated
with the separation of approximately 38 employees. All of these affected
employees have left the Company as of March 31, 2001. Termination benefits of
approximately $342,000 were paid during the third and fourth quarters of fiscal
2001.

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

As a result of the Company's continued disappointing operating performance
during the first six months of fiscal 2002, in early October 2001, the Company
announced the layoff of 17 employees in order to bring its expenses in line with
its anticipated revenues. The Company recorded approximately $217,467 of
severance and termination related costs. Termination benefits of approximately
$214,000 were paid during the third and fourth quarters of fiscal 2002. As of
April 30, 2002 the remaining termination benefits of $3,467 were paid.

4. Inventory

Inventory, net of reserve for obsolescence of $1,005,907 and $1,571,388 at March
31, 2002 and 2001, respectively, consists of the following:

                                                2002                  2001

       Raw materials                          $  265,725            $  690,566
       Work-in-process                             2,161                18,440
       Finished goods                            756,240               430,442
                                              ----------            ----------

                                              $1,024,126            $1,139,448
                                              ==========            ==========

                                      F-10



ION Networks, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

5.  Property and Equipment

At March 31, 2002 and 2001, property and equipment consists of the following:

                                                       2002             2001

          Computer and other equipment               $2,573,597       $2,655,786
          Furniture and fixtures                        746,753          747,203
          Leasehold improvements                        160,427          160,341
                                                     ----------       ----------

                                                      3,480,777        3,563,330

          Less:     Accumulated depreciation          2,684,152        2,095,564
                                                     ----------       ----------

             Property and equipment, net             $  796,625       $1,467,766
                                                     ==========       ==========

Depreciation expense for property and equipment for the years ended March 31,
2002 and 2001 amounted to $700,335 and $897,263, respectively. During the years
ended March 31, 2002 and 2001, the Company retired fully depreciated assets
amounting to $113,768 and $490,488, respectively.

6.  Debt

In 1998, the Company entered into two equipment loan agreements for its Belgium
subsidiary. The first loan is for approximately $50,000, the loan is due July
2003 and bears an interest rate of 5.2%. The second loan is for approximately
$30,000, the loan is due February 2003 and bears an interest rate of 2.5%. At
March 31, 2002 a total of $19,309 is still outstanding under both term loans.

On July 15, 2000, the Company entered into a line of credit agreement for
$1,500,000. The line of credit was available through September 30, 2000. The
line of credit expired on September 30, 2000 with no amounts having been drawn
down on such line.

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, which includes
interest, has been reflected as restricted cash as a noncurrent asset at March
31, 2002.

On May 5, 1999, the Company entered into a $300,000 term loan agreement. The
term loan is due May 2002 and bears interest at a fixed rate of 8.50%. The term
loan was repaid in full in May 2002. The term loan was collateralized by certain
property and equipment of the Company. At March 31, 2002 and 2001, $18,732 and
$125,758, respectively, is outstanding under the term loan.

At March 31, 2002, contractual maturities of the outstanding term loans are as
follows:

2003                                                             $33,444
2004                                                               4,597
                                                                 -------

                                                                 $38,041
                                                                 =======

                                      F-11



ION Networks, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

7. Income Taxes

As of March 31, 2002, the Company has available federal and state net operating
loss carryforwards of approximately $35,517,000 and $27,440,000, respectively,
to offset future taxable income. The federal net operating loss carryforwards
expire during the years 2011 through 2022. In addition, the Company has
investment credit and research and development credit carryforwards aggregating
approximately $254,523, which may provide future tax benefits, expiring from
2008 through 2020.

The components of the income tax provision for the years ended March 31, 2002
and 2001 are as follows:


                                                          2002             2001
      Current

         Federal                                       $     -           $    -
         State                                               -                -
         Foreign                                        24,364            7,568
                                                       -------           ------

                                                        24,364            7,568
                                                       -------           ------

      Deferred

         Federal                                             -                -
         State                                               -                -

                                                       $24,364           $7,568
                                                       =======           ======


The reasons for the difference between the Company's effective tax rate and the
United States federal statutory rate are as follows:


                                                              March 31,
                                                       2002                2001
      Effective tax rate reconciliation
        Statutory federal tax rate                     (34)%             (34)%
        State taxes, net of federal benefit             (6)               (6)
        Foreign rate differential                        -                 -
        Permanent difference (goodwill)                  2                 7
        Effect of recording valuation allowance
          on net operating loss
        carryforwards                                   37                32
        Other                                            1                 1

                                                         -%                -%
                                                       ====              ====


                                      F-12



The tax effect of temporary differences which make up the significant components
of the net deferred tax asset and liability at March 31, 2002 and 2001 are as
follows:



                                                                          2002           2001
                                                                               
Current deferred tax assets
  Inventory                                                        $    402,363      $    879,367
         Accrued expenses                                                75,717           265,609
         Allowance for doubtful accounts                                 60,000            64,580
                                                                   ------------      ------------

           Total current deferred tax assets                            538,080         1,209,556

      Valuation allowance                                              (538,080)       (1,209,556)
                                                                   ------------      ------------

           Net current deferred tax assets                                    -                 -
                                                                   ------------      ------------

      Noncurrent deferred tax assets
         Depreciation and amortization                                  275,000           251,839
         Net operating loss carryforwards                            14,206,787         8,257,819
         Research and development credit                                254,523           254,523
         Alternative minimum tax credit                                  20,125            20,125
                                                                   ------------      ------------

           Total noncurrent deferred tax assets                      14,756,435         8,784,306

      Valuation allowance                                           (14,393,049)       (8,253,458)
                                                                   ------------      ------------

           Net noncurrent deferred tax assets                           363,386           530,848
                                                                   ------------      ------------

      Noncurrent deferred tax liabilities
         Capitalized software                                          (363,386)         (530,848)
                                                                   ------------      ------------

           Total noncurrent deferred tax liabilities               $   (363,386)     $   (530,848)
                                                                   ============      ============

           Net noncurrent deferred tax (liabilities) assets        $          -      $          -
                                                                   ============      ------------


The Company has recorded a full valuation allowance against the deferred tax
assets, including the federal, state and foreign net operating loss
carryforwards as management believes that it is more likely than not that
substantially all of the deferred tax assets will not be realized.

                                      F-13



ION Networks, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

8. Stockholders' Equity

On February 14, 2002 the Company sold 4,000,000 shares of common stock at a
price of $0.87 per share, for total consideration of $3,480,000. In connection
with this sale, warrants to purchase 1,120,000 shares of common stock with an
exercise price of $1.25 were issued. The warrants expire on February 14, 2007.

Effective October 2001, the Company approved and granted 2,900,000 shares of
restricted stock to three executives 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 full recourse interest bearing promissory notes for the value of the
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. The issuance of the restricted shares and the notes receivable due
from the officers is recorded in the Company's financial statements. Only the
vested portion of the shares has been included in the weighted average number of
common shares outstanding at March 31, 2002.

On August 18, 2000, the Company sold 2,857,142 shares of common stock at a price
of $1.75 per share, for total consideration of $5,000,000.

In August 1999, the Company sold 2,000,000 shares of common stock in a private
financing and received net proceeds of $9,500,000. In connection with this sale,
warrants to purchase 250,000, 37,500, 9,375 and 9,375 shares of common stock
with an exercise price of $4.75, $3.00, $4.50 and $6.00, respectively, were
issued. An aggregate of 18,750 warrants expire in August 2002 with the remaining
287,500 warrants expiring in August 2004.

                                      F-14



Stock Option Plans

During the years ended March 31, 2002 and 2001, respectively, options to
purchase 34,700 and 45,948 shares of common stock under the Company's stock
option plans were exercised, for an aggregate consideration of $19,258 and
$99,843, respectively.

In November 2000, the Company adopted its 2000 Stock Option Plan (the "2000
Plan"). The aggregate number of shares of common stock for which options may be
granted under the 2000 Plan is 3,000,000. The maximum number of options which
may be granted to an employee during any calendar year under the 2000 Plan shall
be 400,000. The term of these non-transferable stock options may not exceed ten
years. The exercise price of these stock options may not be less than 100% (110%
if the person granted such options owns more than ten percent of the outstanding
common stock) of the fair value of one share of common stock on the date of
grant. During the years ended March 31, 2002 and 2001, the Company granted
options to purchase 1,854,000 and 1,724,500 shares, respectively. At March 31,
2002, 2,560,200 options were outstanding under the 2000 Plan, of which 759,915
options were exercisable.

The aggregate number of shares of common stock for which options may be granted
under the 1998 Stock Option Plan (the "1998 Plan") is 3,000,000. The maximum
number of options which may be granted to an employee during any calendar year
under the 1998 Plan shall be 400,000. The term of these non-transferable stock
options may not exceed ten years. The exercise price of these stock options may
not be less than 100% (110% if the person granted such options owns more than
ten percent of the outstanding common stock) of the fair value of one share of
common stock on the date of grant. During the years ended March 31, 2002 and
2001, the Company granted options to purchase 463,800 and 1,596,078 shares,
respectively. At March 31, 2002 1,783,459 options were outstanding under the
1998 Plan, of which 1,367,642 options were exercisable.

In August 1994, the Company adopted its 1994 Stock Option Plan (the "1994
Plan"). The 1994 Plan, as amended, increased the number of shares of common
stock for which options may be granted to a maximum of 1,250,000 shares. The
term of these non-transferable stock options may not exceed ten years. The
exercise price of these stock options may not be less than 100% (110% if the
person granted such options owns more than ten percent of the outstanding common
stock) of the fair market value of one common stock on the date of grant. During
the years ended March 31, 2002 and 2001, there were no option grants provided
under the 1994 Plan. At March 31, 2002, 94,601 options were outstanding under
the 1994 Plan, of which 64,991 options were exercisable.

Of the options granted in fiscal 2002 and 2001, 0 and 578,528, respectively,
were granted under the Company's Time Accelerated Restricted Stock Award Plan
("TARSAP"). The options vest after seven years, however, under the TARSAP, the
vesting is accelerated to the last day of the fiscal year in which the options
are granted if the Company meets certain predetermined sales targets. The
Company did not meet the targets for 2001 and, as such, all options granted
under the TARSAP in 2001 will vest seven years from the original date of grant.

Warrants

During July 2001 in connection with services being performed by a consultant,
the Company issued warrants to purchase 48,000 shares of the Company's common
stock at $0.62 per share. The warrants vested immediately and expire five years
from the date of the grant. The Company recorded compensation expense of $13,199
based upon the fair value of the vested warrants as determined using the Black
Scholes pricing model.

During January 2002 in connection with services being performed by a consultant
through June 30, 2002, the Company issued warrants to purchase 100,000 shares of
the Company's common stock at $1.35 per share. Warrants to purchase an
additional 50,000 shares of common stock are exercisable at $1.80, and the
warrants vested immediately and expire three years from the date of the grant.
The Company recorded compensation expense of $62,893 based upon the fair value
of the vested warrants as determined using the Black Scholes pricing model.

                                      F-15



ION Networks, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

Other Options

In connection with a consulting agreement with Venture Consulting Group, Inc.
("VCGI") (see Note 9), consultants were issued options on October 5, 2000 to
purchase 240,000 shares of common stock. Such options vested 25% during December
2000 with the remaining vesting ratably monthly from January through September
2001. The Company recorded compensation expense based upon the fair value of the
options during each reporting period beginning in October 2000 in connection
with the one-year vesting period. The Company has recorded compensation expense
of $19,800 and $22,326 for the years ended March 31, 2002 and March 31, 2001,
respectively.

During September 1996, the Company issued options to certain officers and
directors to purchase 620,000 shares of the Company's common stock, of which
420,000 vested immediately and 100,000 vested on April 1, 1998 and 1999. Options
expire ten years from the date of grant. The exercise price of the options is
equal to the market value of the Company's stock on the date of grant. There
were no stock option exercises during fiscal 2001 and 2002. At March 31, 2002,
400,000 options were outstanding and exercisable.

During September 1997 and March 1998, the Company issued options to certain
officers and directors to purchase 80,000 shares of the Company's common stock,
25,000 of which vested on the date of grant, 7,500 of which vested three months
from the date of the grant, 7,500 of which vested six months from the date of
the grant, 7,500 of which vested nine months from the date of the grant and
32,500 of which vested on the first year anniversary of the date of the grant.
The 55,000 options expire five years from the date of grant and 25,000 options
expire six years from date of grant. The exercise price of the options is equal
to the market value of the Company's common stock on the date of grant. There
were no stock option exercises during fiscal 2001 and 2002. At March 31, 2002,
80,000 options were outstanding and exercisable.

During March 1999, the Company issued options to certain employees and
consultants to purchase 20,000 shares of the Company's common stock, all of
which vested on the first year anniversary of the date of the grant. The options
expire six years from the date of the grant. The exercise price of the options
is equal to the market value of the Company's common stock on the date of the
grant. There were 10,000 and 0 stock options exercised during fiscal 2001 and
2002 respectively. At March 31, 2002, 10,000 options were outstanding and
exercisable.

Accounting for Stock-Based Compensation

The Company continues to apply Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related Interpretations in
accounting for its options. During the year ended March 31, 2002 the Company had
recorded no compensation expense as no options were granted to employees below
market value. During the year ended March 31, 2001, the Company recorded
compensation benefit of $6,944, respectively, related to options given to
employees. The Company recorded a compensation benefit in fiscal 2001 due to
employee forfeitures of unvested stock options as certain employees left the
Company during the current fiscal year.

The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"). If the Company had elected to recognize compensation costs based on
the fair value at the date of grant for awards in fiscal 2002 and 2001,
consistent with the provisions of SFAS No. 123, the Company's net loss and loss
per share would have increased by $460,532 and $.02 and $2,129,042 and $.12,
respectively, for the years ended March 31, 2002 and 2001.

The pro forma effect on net loss for fiscal 2002 and 2001 may not be
representative of the pro forma effect on net loss of future years because the
SFAS No. 123 method of accounting for pro forma compensation expense has not
been applied to options granted prior to April 1, 1995.

                                      F-16



ION Networks, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

The weighted-average fair values at date of grant for options granted during
fiscal 2002 and 2001 were $0.26 and $3.02, respectively. The fair value of each
option grant for the Company's common stock is estimated on the date of the
grant using the Black Scholes option pricing model, with the following weighted
average assumptions used for grants in fiscal 2002 and 2001:

                                                           2002           2001

Expected volatility                                        110%           110%
Risk-free interest rate                                   3.43%          5.88%
Expected option lives                                2.91 years     3.53 years

Details of options granted are as
follows:
                                                      Weighted
                                                      Average         Option
                                                      Exercise        Price Per
                                          Shares      Price ($)       Share ($)

Options outstanding at                   2,775,274         5.08    0.48 to 37.66
    April 1, 2000
                    Granted              3,320,578         3.84    1.03 to 29.25
                    Canceled            (1,734,137)        5.80    0.48 to 37.66
                    Exercised              (45,948)        2.17    1.38 to 2.97
                                        ----------        ----- ---------- ----

Options outstanding at                   4,315,767         3.88    1.03 to 36.44
    March 31, 2001                      ----------        ----- ----------------

                    Granted              2,317,800         0.41    0.12 to 1.20
                    Canceled            (1,670,607)        4.98  0.175 to 28.56
                    Exercised              (34,700)        0.55  0.205 to 1.125
                                        ----------        ----- ---------------

Options outstanding at                   4,928,260        $1.92 $0.12 to $36.44
    March 31, 2002                      ----------        ----- ---------------

Options exercisable at                   2,682,548        $2.09 $0.12 to $36.44
    March 31, 2002                      ----------        ----- ---------------


Range of        Number       Weighted Average    Weighted    Number     Weighted
Exercise        Outstanding  Remaining Years of  Average   Exercisable  Average
                             Contractual Life    Exercise               Exercise
                                                 Price                  Price

$0.12 - 0.18       954,000          4.5           $ 0.17        9,000     $ 0.12
$0.21 - 0.30       114,000          4.5           $ 0.23       84,000     $ 0.21
$0.33 - 0.47       297,500          4.5           $ 0.35      217,500     $ 0.34
$0.63 - 0.86       436,800          4.9           $ 0.77       38,250     $ 0.76
$1.01 - 1.47     1,605,913          5.7           $ 1.14    1,153,954     $ 1.14
$1.52 - 2.14       966,166          3.1           $ 1.86      883,134     $ 1.87
$2.28 - 3.16       168,924          4.6           $ 2.58       85,483     $ 2.51
$3.69 - 4.05        20,025          3.6           $ 3.80       16,666     $ 3.82
$5.84 - 8.44       162,313          2.0           $ 6.92      146,364     $ 6.96
$9.13 - 13.69      148,387          7.4           $13.29       11,032     $10.65
$13.81 - 13.81       3,000          3.1           $13.81        1,000     $13.81
$22.00 - 30.81      33,810          3.3           $28.12       22,666     $27.38
$33.44 - 36.44      17,422          3.2           $34.70       13,499     $34.42
                 ---------          ---           ------    ---------     ------

$0.12 - 36.44    4,928,260          4.6           $ 1.92    2,682,548     $ 2.09
                 ---------          ---           ------    ---------     ------

                                      F-17



ION Networks, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

9.   Commitments

Operating Leases

     During March 1999, the Company entered into an operating lease to
consolidate their office and manufacturing facilities, which had a commencement
date of July 31, 1999. This lease expires in June 2009. The Company also leases
office space for its European operations in Antwerp, Belgium and Livingston,
Scotland. In addition, the Company's California division currently leases office
facilities.

Capital Leases

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

Future minimum payments, by year and in the aggregate, under non-cancelable
operating and capital leases as of March 31, 2002 are as follows:

                                                          Capital      Operating
                                                           Leases        Leases
     Year ending March 31
        2003                                              $ 97,961    $  787,196
        2004                                                97,961       827,136
        2005                                                51,930       732,900
        2006                                                             681,707
        2007                                                     -       706,730
        Thereafter                                               -     1,868,954
                                                          --------    ----------

           Total minimum lease payments                   $247,852    $5,604,623
                                                          ========    ----------


        Less amount representing interest                   26,886
                                                          --------

           Present value of net minimum lease payments    $220,966
                                                          ========


Computer and other equipment at March 31, 2002 and 2001 includes $390,638 under
capital leases.

                                      F-18



ION Networks, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

Rent expense under operating leases for the years ended March 31, 2002 and 2001
approximated $801,581 and $759,989, respectively.

Consulting Contracts

On October 5, 2000, the Company entered into a consulting agreement with VCGI
whereby VCGI is to provide the services of Ronald C. Sacks as Chief Executive
Officer of the Company, and the services of three additional consultants
functioning in various capacities for the Company. The fees for the consultants'
services were $500,000 over a one-year period. In addition, the individual
consultants from VCGI, including Ronald C. Sacks, were issued options to
purchase 240,000 shares of common stock (see Note 8).

10.  Contingent Liabilities

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

11.  Employee Benefit Plans

Effective April 1, 1993, the Company adopted a defined contribution savings
plan. The terms of the plan provide for eligible employees who have met certain
age and service requirements to participate by electing to contribute up to 15%
of their gross salary to the plan, as defined, with the Company matching 30% of
an employee's contribution in cash up to a maximum of 6% of gross salary, as
defined. Company contributions vest at the rate of 25% of the balance at each
employee's second, third, fourth, and fifth anniversary of employment. The
employees' contributions are immediately vested. The Company's contribution to
the savings plan for the years ended March 31, 2002 and 2001 was $42,630 and
$60,671, respectively.

12.  Geographic Information

The Company's headquarters, physical production and shipping facilities are
located in the United States. The Company's domestic and foreign export sales
for the years ended March 31, 2002 and 2001 are as follows:

                                           2002                  2001

             United States              $5,293,473           $ 9,937,107
             Europe                      1,794,569             1,686,932
             Pacific Rim                   140,249                 7,196
             Other                          83,944                45,312
                                        ----------           -----------

                                        $7,312,235           $11,676,547
                                        ==========           ===========

The Company sold a substantial portion of its products to four customers. Sales
to these customers amounted to $3,571,788 (49% of net sales) and $4,871,198 (42%
of net sales) in 2002 and 2001, respectively. For the fiscal year ended March
31, 2002 our most significant customers were AT&T (approximately 15% of
revenues), Avaya (12% of revenues), SBC (12% of revenues), and Nortel (10% of
revenues). For the fiscal year ended March 31, 2001, our most significant
customers were SBC (16% of revenues), WorldCom (12% of revenues), Rhythms (8% of
revenues), Celestica (6% of revenues). At March 31, 2002 and 2001, amounts due
from these customers included in accounts receivable, were $1,095,673 and
$1,799,041, respectively.

                                      F-19



ION Networks, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

The loss of any of these four customers or a significant decline in sales
volumes from any of these four customers could have a material adverse effect on
the Company's financial position, results of operations and cash flows.

13.  Concentration of Credit Risk

The Company maintains deposits in a financial institution which is insured by
the Federal Deposit Insurance Corporation ("FDIC") up to $100,000. At March 31,
2002 and periodically throughout fiscal 2002, the Company had deposits in this
financial institution in excess of the amount insured by the FDIC.

The Company designs its products utilizing readily available parts manufactured
by multiple suppliers and the Company currently relies on and intends to
continue to rely on these suppliers. The Company has been and expects to
continue to be able to obtain the parts generally required to manufacture its
products without any significant interruption or sudden price increase, although
there can be no assurance that the Company will be able to continue to do so.

The Company sometimes utilizes a component available from only one supplier. If
a supplier were to cease to supply this component, the Company would most likely
have to redesign a feature of the affected device. In these situations, the
Company maintains a greater supply of the component on hand in order to allow
the time necessary to effectuate a redesign or alternative course of action
should the need arise.

14.  Supplemental Cash Flow Information



                                                                                               2002           2001
                                                                                                       
      Other Non-Cash Investing and Financing Activities
         Options and warrants issued to consultants as non-cash compensation                $  95,892        $22,326
         Compensation (benefit) charge from employee options                                        -         (6,944)
         Issuance of restricted stock                                                         539,000              -
         Notes receivable from officers                                                      (549,914)             -


15.  Related Party Transactions

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

The Former CEO resigned his position at the Company effective September 29,
2000. On October 5, 2000, the Company entered into an agreement with the Former
CEO pursuant to which the $750,000 promissory note was amended to extend the due
date to April 30, 2001, and to provide that interest on the note shall accrue
through September 29, 2000. The loan is collateralized by a first mortgage
interest on the personal residence of the Former CEO. Pursuant to this
agreement, the Former CEO also agreed to reimburse the Company for certain
expenses totaling $200,000, to be paid over a period of six months ended March
31, 2001. During the year ended March 31, 2001, $50,000 was repaid and $22,000
has been recorded as a non-cash offset as a result of earned but unpaid vacation
owed to the Former CEO. During the year ended March 31, 2002, $813,593 was
repaid. At March 31, 2002, the amount owed to the Company from the Former CEO
approximated $83,657, and is classified as a related party notes receivable on
the Company's consolidated balance sheet.

The Company paid the Chairman of the Board of Directors of the Company, $132,000
in the year ended March 31, 2002 for executive search and mergers and
acquisitions services provided to the Company from June through October 2001.

                                      F-20



ION Networks, Inc. and Subsidiaries

Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

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 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 Tenant will issue 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
shall close on or before June 30, 2002. These shares shall have the registration
rights as other shares issued in the Financing. In the event that the Financing
does not close on or before June 30, 2002, the Tenant shall pay the Company
additional rent in the amount of $4,300 per month commencing on July 1, 2002.
Future minimum lease payments due from the Tenant are approximately $187,200.
The Chairman of the Board of Directors of the Company currently serves as the
Chief Financial Officer of the Tenant.

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

The Company issued advances to two officers of the Company in the amount of
$50,000 each on August 31, 1998. These advances accrued interest at the prime
rate plus 1%. These advances were due and payable in full upon the officers
cessation of employment with the Company or August 31, 2000, whichever is
earlier. The advances were repaid in full prior to August 31, 2000.

16.  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 does not
anticipate any material impact on its results of operations or financial
position related to implementation of SFAS No.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.

                                      F-21



                                  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)/



     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.**

      10.18          Form of Warrant Agreement dated January 4, 2002.**

      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.**

      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.**

      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.**

      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.**



      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. *

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

      21.1           List of Subsidiaries. *

      23.1           Consent of Deloitte & Touche LLP.*


      23.2           Consent of PricewaterhouseCoopers LLP.*


(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.

* Filed herewith.
** Previously filed.

EX-10.27

                                  Exhibit 10.27

                                    SUBLEASE

          THIS SUBLEASE (the "Sublease") is made and entered into this 17th day
of April 2002, by and between ION Networks, Inc. ("Sublandlord") and Multipoint
Communications ("Subtenant").

          1.   BASIC LEASE PROVISIONS.

               A.  Property Address: 1551 South Washington Avenue, Piscataway,
New Jersey 08854

               B.  Subtenant's Address (for notices): until the Commencement
Date: One Woodbridge Center Drive, Suite 811, Woodbridge, New Jersey 07095;
thereafter, at the Premises subleased hereunder

               C.  Sublandlord's Address (for notices): ION Networks, Inc., 1551
South Washington Avenue, Piscataway, New Jersey 08854, Attention: Corporate
Counsel

               D.  Landlord: Washington Plaza L.L.C.

               E.  Landlord's Address (for notices): c/o Linque Management
Company, Inc., 301 Route 17, 19/th/ Floor, Rutherford, New Jersey 07070,
Attention: Joel J. Bergenstein, Vice President, with a copy to Earp Cohn PC, 222
Haddon Avenue, Westmont, New Jersey 08108, Attention: Richard B. Cohn, Esq.

               F.  Identification of Original Lease and all amendments thereto:
Lease between Washington Plaza Associates, L.P., as Landlord, and Microframe,
Inc., as Tenant, dated February 18, 1999 (the "Original Lease"), as amended by
First Amendment to Lease between Washington Plaza Associate, L.P., as Landlord,
and ION Networks, Inc. (successor by merger to Mircroframe, Inc.), as Tenant
dated August 20, 1999 (the "First Amendment") and Second Amendment to Lease
between Washington Plaza Associate, L.P., as Landlord, and ION Networks, Inc.,
as Tenant dated November 9, 2001 (the "Second Amendment")

               G.  Sublease Term: Two years from Commencement Date

               H.  Commencement Date: January 1, 2002

               I.  Expiration Date: December 31, 2003

               J.  Base Rent (including utility and service charges) as follows:

                          Rent            Utility Charges       Service Charges
                          Per Month       Per Month             Per Month
                          ---------       ---------             ---------
1/1/02 - 3/31/02          $     0         $    0                $    0

4/1/02 - 9/30/02          $ 5,200         $  750                $  500

10/1/02 - 12/31/03        $10,400         $1,500                $1,000


The Base Rent for each month shall be paid on the first day of the month.

               K.  Payee of Rent: ION Networks, Inc.

               L.  Address for Payment of Rent: 1551 South Washington Avenue,
Piscataway, New Jersey 08854

               M.  Sublease Share: Approximately 5,400 square feet of rentable
space



          N.   Description of Premises: Portion of 1st Floor at 1551 South
Washington Avenue, Piscataway, New Jersey 08854, as shown on Exhibit A annexed
hereto

          O.   Subtenant's Use: General and executive offices

          P.   Brokers: Aaron Benjamin Commercial Realty

     2.   Original LEASE. Sublandlord is the Tenant under a lease (the "Original
Lease") with the Landlord identified in Section 1(D), as specified in Section
1(F). Sublandlord represents to Subtenant that (a) Sublandlord has delivered to
Subtenant a full and complete copy of the Original Lease (with certain
provisions thereof not relevant to this Sublease omitted), (b) the Original
Lease is, as of the date hereof, in full force and effect, and (c) to
Sublandlord's knowledge, no event of default has occurred under the Original
Lease.

     3.   SUBLEASE. Sublandlord, for and in consideration of the rents herein
reserved and of the covenants and agreements herein contained on the part of
Subtenant to be performed, hereby subleases to Subtenant, and Subtenant accepts
from Sublandlord, certain space described in Section 1(N) (the "Premises")
located in the building known as 1551 South Washington Avenue, Piscataway, New
Jersey 08854 (the "Building").

     4.   TERM. The term of this Sublease (the "Term") shall commence on the
date specified in Section 1(H) (the "Commencement Date")). The Term shall expire
on the date (the "Expiration Date") specified in Section 1(I), unless sooner
terminated as provided elsewhere in this Sublease or by law.

     5.   POSSESSION. The Premises are to be delivered by Sublandlord to
Subtenant AS IS. Taking of possession by Subtenant shall be deemed conclusively
to establish that Subtenant has accepted the condition of the Premises.

     6.   SUBTENANT'S USE. The Premises shall be used and occupied only for the
Subtenant's Use set forth in Section 1(O).

     7.   RENT. Beginning on the Base Rent Commencement Date set forth in
Section I(J), Subtenant agrees to pay the Base Rent set forth in Section 1(J) to
the Payee specified in Section 1(K), at the address specified in Section 1(L),
or to such other payee or at such other address as may be designated by notice
in writing from Sublandlord to Subtenant, without prior demand therefor and
without any deduction whatsoever. All charges, costs and sums required to be
paid by Subtenant to Sublandlord under this Sublease in addition to Base Rent
shall be deemed "Additional Rent", and Base Rent and Additional Rent shall
hereinafter collectively be referred to as "Rent". Subtenant's covenant to pay
Rent shall be independent of every other covenant in this Lease. If Rent is not
paid when due, Subtenant shall pay, relative to the delinquent payment, an
amount equal to the sum which would be payable by Sublandlord to Landlord for an
equivalent late payment under Section 11.3 of the Original Lease.

     8.   SECURITY DEPOSIT. Prior to the Commencement Date, Subtenant shall pay
to Sublandlord the amount of $12,900.00 as security for the full and punctual
performance by Subtenant of all of the terms and conditions of this Sublease
(such amount, together with any interest earned thereon, if any, and/or any
funds drawn by Sublandlord thereunder being called the "Security Deposit").

          A.   If Subtenant defaults hereunder beyond the expiration of any
applicable grace, notice or cure period, Sublandlord may use, apply to retain
the whole or any part of the Security Deposit to the extent required for the
payment of any Base Rent or any other sum(s) as to which Subtenant is in default
or for any sum(s) which Sublandlord may expend or may be required to expend by
reason of Subtenant's default pursuant hereto, including any damages or
deficiency with respect to the reletting of the Premises, whether accruing
before or after summary proceedings or other re-entry by Sublandlord. In the
case of every such use, application or retention, Subtenant shall, on demand,
pay to Sublandlord the sum so used, applied or retained such that the Security
Deposit shall be replenished to its former amount.

          B.   If Subtenant shall fully and punctually comply with all of the
terms and conditions of this Sublease, then the Security Deposit (or portion
thereof to which Subtenant is entitled) shall be returned or paid over to
Subtenant (i) once half (1/2) within fifteen days after the expiration or
termination of this Sublease and the surrender of the Premises to Sublandlord in
accordance herewith and (ii) one half (1/2) within ninety (90) days after the
expiration or termination of this Sublease and the surrender of the Premises to
the Sublandlord in accordance herewith.

     9.   Additional Consideration. Subtenant shall issue shares to Sublandlord
totaling the value of $77,400.00. These shares shall be based on the per share
price of Subtenant's common stock as priced in the first round of institutional
financing which is scheduled to close (the "Closing") on or before June 30,
2002. These shares shall have the registration rights as



other shares issued at the Closing. In the event the Closing does not occur by
June 30, 2002, the Subtenant shall pay to Sublandlord, with the Base Rent on a
monthly basis, an amount equal to $4,300 ($77,400 divided by 18) starting from
July1, 2002 through December 31, 2003.

     10.  SUBTENANT'S OBLIGATIONS. Subtenant shall be responsible for, and shall
pay the following:

          A.   All utility consumption costs, including without limitation,
electric and other charges incurred in connection with Lighting and providing
electric power to Premises. Subtenant shall hold Sublandlord harmless and
indemnify, including reasonable attorney's fees and costs, if necessary, to
enforce said obligations, from all costs or expenses Sublandlord may incur from
Subtenant's failure to pay utility bills or to perform any of its obligations
with respect to the purchase of utilities. With respect to electricity, the Base
Rent hereunder includes a charge for consumption on a "rent inclusion" basis
(the "Rent Inclusion Factor"). The Base Rent shall be subject to adjustment
based on changes in Sublandlord's cost of electricity as billed by Landlord or
surveys of Subtenant's usage of electricity in the Premises that Sublandlord may
perform from time to time. Without limiting the generality of the foregoing, the
parties agree that the Rent Inclusion Factor under this Sublease is based on
Subtenant's projected reasonable use in the Premises of electricity for
lighting, light office equipment and the usual small business machines,
including personal computer, fax machines and small copying machines. If
Subtenant's use of electricity exceeds the projection, Sublandlord may cause the
Rent Inclusion Factor to be increased (and the Base Rent increased by the same
amount) pursuant to this Section 10A to reflect Subtenant's actual consumption
of electricity. Notwithstanding the foregoing Subtenant shall have no obligation
for any payments required to be made by Sublandlord pursuant to Article 27 of
the Original Lease.

          B.   All maintenance, repairs and replacements to the Premises and its
equipment, to the extent Sublandlord is obligated to perform the same under the
Original Lease.

          C.   The cleaning of the Premises in excess of building standard
cleaning, and all costs and expenses relating thereto.

          D.   Any costs of additional or supplemental building services that
Subtenant may desire, including, without limitation, additional or supplemental
heating, ventilation and air conditioning (whether in the form of additional
capacity, after-hours service or otherwise).

          E.   Subtenant shall indemnify and hold harmless Sublandlord and any
Sublandlord Party (defined below) from and against any and all claims arising
from or in connection with (i) the conduct or management of the Premises or of
any business therein, or any work or thing whatsoever done, or any condition
created (other than by Sublandlord or any Sublandlord Party) in or about the
Premises during the Term; (ii) any negligence or willful act or omission of
Subtenant or any Subtenant Party (as defined below); (iii) any accident, injury
or damage whatsoever (except to the extent caused by the negligence or willful
misconduct of Sublandlord or SublandlordParty) occurring in, at or upon the
Premises; and (iv) any breach or default by Subtenant under this Sublease;
together with all costs, expenses and liabilities incurred in or in connection
with each such claim, or any action or proceeding brought thereon, including all
reasonable attorneys' fees and expenses.

"Sublandlord Party" is defined as (1) any principal, partner, member, officer
stockholder, director, employee or agent of the Sublandlord or of any partner or
member of any partnership constituting Sublandlord, disclosed or undisclosed,
(2) any underlying lessor, or any principal, partner, member, officer,
stockholder, director, employee or agent thereof, and (3) any mortgagee or any
principal, partner, member, officer, stockholder, director, employee or agent
thereof.

"Subtenant Party" is defined as (x) any principal, partner, member, officer,
stockholder, director, employee or agent of Subtenant or of any partner or
member of any partnership constituting Subtenant, disclosed or undisclosed, or
(y) any subtenant of Subtenant or any party claiming by, through or under
Subtenant, or any principal, partner, member, officer, stockholder, director,
employee or agent of such subtenant or such other party.

     11.  QUIET ENJOYMENT. Sublandlord represents that it has full power and
authority to enter into this Sublease, subject to the consent of Landlord. So
long as Subtenant is not in default in the performance of its covenants and
agreements in this Sublease, Subtenant's quiet and peaceable enjoyment of the
Premises shall not be disturbed or interfered with by Sublandlord, or by any
person claiming by, through, or under Sublandlord.

     12.  SUBTENANT'S INSURANCE. Subtenant shall procure and maintain, at its
own cost and expense, such liability insurance as is required to be carried by
Sublandlord under the Original Lease, naming Sublandlord, as well as Landlord,
as additional insureds, in the manner required therein and such property
insurance as is required to be carried by Sublandlord under the Original Lease
to the extend such property insurance pertains to the Premises. Subtenant shall
furnish



to Sublandlord a certificate of Subtenant's insurance required hereunder not
later than five (5) days prior to Subtenant's taking possession of the Premises.
Each party hereby waives claims against the other for property damage provided
such waiver shall not invalidate the waiving party's property insurance; each
party shall attempt to obtain from its insurance carrier a waiver of its right
of subrogation. Subtenant hereby waives claims against Landlord and Sublandlord
for property damage to the Premises or its contents if and to the extent that
Sublandlord waives such claims against Landlord under the Original Lease.
Subtenant agrees to obtain, for the benefit of Landlord and Sublandlord, such
waivers of subrogation rights from its insurer as are required of Sublandlord
under the Original Lease. Sublandlord agrees to use reasonable efforts in good
faith to obtain from Landlord a waiver of claims for insurable property damage
losses and an agreement from Landlord to obtain a waiver of subrogation rights
in Landlord's property insurance, if and to the extent that Landlord waives such
claims against Sublandlord under the Original Lease or is required under the
Original Lease to obtain such waiver of subrogation rights.

     13.  ASSIGNMENT OR SUBLETTING

          A.   Subtenant shall not (i) assign, convey, mortgage or otherwise
transfer this Sublease or any interest under it; (ii) allow any transfer thereof
or any lien upon Subtenant's interest by operation of law; (iii) further sublet
the Premises or any part thereof; or (iv) permit the occupancy of the Premises
or any part thereof by anyone other than Subtenant. Without limiting the
generality of the foregoing, Subtenant shall not violate or permit a breach of
the provisions of Article 9 of the Original Lease.

          B.   Should Subtenant's interest in this Sublease be assigned, or if
the Premises or any part hereof be sublet or occupied by anyone other than
Subtenant, SubLandlord may collect rent from the assignee, or occupant and apply
the net amount collected to Base Rent and all Additional Rent herein reserved,
but no such assignment, subletting, occupancy or collection shall be deemed a
waiver of the provisions of this Section 13 or of any default hereunder or the
acceptance of the assignee, or occupant as Subtenant, or a release of any of the
covenants, conditions, terms and provisions on the part of Subtenant to be
performed or observed.

     14.  RULES. Subtenant agrees to comply with all rules and regulations that
Landlord has made or may hereafter from time to time make for the Building (the
"Building Rules"). Nothing in this Sublease or the Original Lease shall be
construed to impose upon Sublandlord any duty or obligation to enforce the
Building Rules against any other tenant, subtenant, or any other person, and
Sublandlord shall not be liable to Subtenant for violation of the Building Rules
by any other tenant, subtenant or any other person.

     15.  REPAIRS AND COMPLIANCE. Subtenant shall promptly pay for the repairs
set forth in Section 10(B) hereof and Subtenant shall, at Subtenant's own
expense, comply with all laws and ordinances, and all orders, rules and
regulations of all governmental authorities and of all insurance bodies and
their fire prevention engineers at any time in force, applicable to the Premises
or to Subtenant's particular use or manner of use thereof, except that Subtenant
shall not hereby be under any obligation to comply with any law, ordinance, rule
or regulation requiring any structural alteration of, or in connection with, the
Premises, unless such alteration is required by reason of Subtenant's particular
use or manner of use of the Premises, or a condition which has been created by
or at the sufferance of Subtenant, or is required by reason of a breach of any
Subtenant's covenants and agreements hereunder. As used herein "structure" or
"structural" shall have the definition ascribed to it in the Original Lease or
if no specific definition is given therein, "structure" or "structural" shall
mean that portion of the Building which is integral to the integrity of the
Building as an existing enclosed unit and shall, in any event, include footings,
foundation, outside walls, skeleton, bearing columns and interior bearing walls,
floor slabs, roof and roofing system.

     16.  FIRE OR CASUALTY OR EMINENT DOMAIN. In the event of a fire or other
casualty affecting the Building or the Premises, or of a taking of all or a part
of the Building or Premises under the power of eminent domain, Sublandlord may
exercise any right which may have the effect of terminating the Original Lease
without obtaining the consent of Subtenant, and such exercise shall not be
deemed to be a breach of any of the provisions of this Sublease. In the event
Sublandlord is entitled under the Original Lease to a rent abatement with
respect to the Premises, as a result of a fire or other casualty or as a result
of a taking under the power of eminent domain, then Subtenant shall be entitled
to the Sublease share of such rent abatement (and Sublandlord shall pay such
amount to Subtenant if Subtenant has prepaid the applicable rent) unless the
effect on the Premises of such fire or other casualty or such taking shall be
substantially disproportionate to the amount of the abatement, in which event
the parties shall equitably adjust the abatement as between themselves, based on
the relative impact of the fire or other casualty, or the taking, as the case
may be.

     17.  ALTERATIONS.  Subtenant shall not make any alteration in or additions
to the Premises ("Alterations") if Sublandlord is not authorized to do so under
the Original Lease. If Subtenant's proposed Alterations are non-structural in
nature, do not affect building systems and are authorized under the Original
Lease, Sublandlord's consent thereto shall nonetheless be required, but
Sublandlord's consent to such Alterations shall not be unreasonably withheld,
and if Sublandlord



consents to such Alterations, Landlord's consent thereto shall nonetheless be
required, in which case Sublandlord shall request the consent of Landlord, if
such consent is required under the Original Lease. If Alterations by Subtenant
are permitted or consented to as aforesaid, Subtenant shall comply with all of
the obligations of Sublandlord contained in the Original Lease pertaining to the
performance of such Alterations. In addition, Subtenant shall indemnify, defend
and hold harmless Sublandlord and Landlord against liability, loss, cost,
damage, liens and expense impose on Sublandlord or Landlord arising out of the
performance of Alterations by Subtenant, including reasonable attorney's fees
and cost of legal proceedings.

     18.  SURRENDER. Upon the expiration of this Sublease, or upon the
termination of this Sublease or of Subtenant's right to possession of the
Premises, Subtenant will at once surrender and deliver up the Premises, together
with all improvements thereon, to Sublandlord in good condition and repair,
reasonable wear and tear excepted. Conditions existing because of Subtenant's
failure to perform maintenance, repairs or replacements as required of Subtenant
under this Sublease shall not be deemed "reasonable wear and tear". Said
Improvements shall include all plumbing, lighting, electrical, heating, cooling
and ventilating fixtures and equipment and other articles of personal property
used in the operation of the Premises (as distinguished from operations incident
to the business of Subtenant). Subtenant shall surrender to Sublandlord all keys
to the Premises and make known to Sublandlord the explanation of all combination
locks which Subtenant is permitted to leave on the Premises. All alterations in
or upon the Premises made by Subtenant shall become a part of and shall remain
upon the Premises upon such termination without compensation, allowance or
credit to Subtenant provided, however, that Sublandlord shall have the right to
require Subtenant to remove any Alterations made by Subtenant, or any portion
thereof. Said right shall be exercisable by Sublandlord giving written notice
thereof to Subtenant on or before a date thirty (30) days prior to such
expiration or on or before a date twenty (20) days after such termination.
Subtenant shall also remove any Alterations made by Subtenant, or portion
thereof, which Landlord may require Sublandlord to remove pursuant to the terms
of the Original Lease. In any such event, Subtenant shall restore the Premises
to their condition prior to the making of any such Alteration and shall repair
any damage occasioned by such removal or restoration. If Sublandlord or Landlord
requires removal of any Alteration made by Subtenant, or a portion thereof, and
Subtenant does not make such removal in accordance with this Section,
Sublandlord may remove the same (and repair any damage occasioned thereby), and
dispose thereof, or at its election, deliver the same to any other place of
business of Subtenant, or warehouse the same. Subtenant shall pay the costs of
such removal, repair, delivery and warehousing on demand.

     19.  REMOVAL OF SUBTENANT'S PROPERTY. Upon the expiration or earlier
termination of this Sublease. Subtenant shall remove Subtenant's articles of
personal property incident to Subtenant's business ("Trade Fixtures"); provided,
however, that Subtenant shall repair any injury or damage to the Premises which
may result from such removal, and shall restore the Premises to the same
condition as prior to the installation thereof. If Subtenant does not remove
Subtenant's Trade Fixtures from the Premises prior to the expiration or earlier
termination of this Sublease, Sublandlord may, as its option, remove the same
(and repair any damage occasioned thereby and restore the Premises as aforesaid)
and dispose thereof or deliver the same to any other place of business of
Subtenant, or warehouse the same, and Subtenant shall pay the cost of such
removal, repair, restoration, delivery or warehousing to Sublandlord on demand.

     20.  HOLDING OVER. Subtenant shall have no right to occupy the Premises or
any portion thereof after the expiration of this Sublease or after termination
of this Sublease or of Subtenant's right to possession in consequence of an
Event of Default hereunder. In the event Subtenant or any party claiming by,
through or under Subtenant holds over, Sublandlord may exercise any and all
remedies available to it at law or in equity to recover possession of the
Premises, and to recover damages, including without limitation, damages payable
by Sublandlord to Landlord by reason of such holdover, reasonable attorney's
fees and cost of legal proceedings. For each and every month or partial month
that Subtenant or any party claiming by, through or under Subtenant remains in
occupancy of all or any portion of the Premises after the expiration of this
Sublease or after termination of this Sublease or Subtenant's right to
possession, Subtenant shall pay, as minimum damages and not as a penalty,
monthly rental at a rate equal to 150% of the rate of Base Rent and Additional
Rent payable by Subtenant hereunder immediately prior to the expiration or other
termination of this Sublease or of Subtenant's right to possession. The
acceptance by Sublandlord of any lesser sum shall be construed as payment on
account and not in satisfaction of damages for such holding over.

     21.  ENCUMBERING TITLE. Subtenant shall not do any act which shall in any
way encumber the title of Landlord in and to the Property, nor shall the
interest or estate of Landlord in and to the Property, nor shall the interest or
estate of Landlord or Sublandlord be in any way subject to any claim by way of
lien or encumbrance, whether by operation of law by virtue of any express or
implied contract by Subtenant, or by reason of any other act or omission of
Subtenant. Any claim to, or lien upon, the Premises or the Property on which the
Premises is situated shall be invalid.

     22.  EVENTS OF DEFAULT.  Each of the following show constitute an "Event
of Default":







          A.   If (i) Subtenant shall commence a case in bankruptcy, or under
the insolvency laws of any state, naming Subtenant as debtor, or (ii) any other
person shall commence a case in bankruptcy, or under the insolvency laws of any
state, naming Subtenant as a debtor, and such case shall not have been
discharged within sixty (60) days of the commencement thereof; or

          B.   If Subtenant shall make any assignment for the benefit of
creditors or shall apply for or consent to the appointment of a receiver for
Subtenant or any of the property of Subtenant; or

          C.   Subtenant shall admit in writing its inability to pay its debts
as they become due; or

          D.   The Premises are levied on by any revenue officer or similar
officer as a result of any act or omission of Subtenant or any person claiming
by, through or under Subtenant; or

          E.   A decree or order appointing a receiver of the property of
Subtenant shall be made and such decree or order shall not have been vacated,
stayed or set aside within sixty (60) days from the date of entry or granting
thereof; or

          F.   Subtenant shall abandon the Premises during the Termhereof; or

          G.   Subtenant shall default in any payment of Rent required to be
made by Subtenant hereunder when due as herein provided and such default shall
continue for five (5) days after notice thereof in writing to Subtenant; or

          H. Subtenant shall default in securing insurance or in providing
evidence of insurance as set forth in Section 12 of this Sublease or shall
default with respect to lien claims as set forth in Section 21 of this Sublease
and either such default shall continue for five (5) days after notice thereof in
writing to Subtenant; or

          I.   Subtenant shall, by its act or omission to act, cause a default
under the Original Lease and such default shall not be cured after prior notice
if it was practical for Sublandlord to timely give such prior notice to
Subtenant within the time, if any, permitted for such care under the Original
Lease, less three (3) days; or

          J.   A default shall occur under any guaranty of this Sublease; or

          K.   Subtenant shall default in any of the other covenants and
agreements herein contained to be kept, observed and performed by Subtenant, and
such default shall continue for thirty (30) days after notice thereof in writing
to Subtenant unless such default is not susceptible of cure within such thirty
day period and Subtenant has commenced to cure within such period and diligently
pursues the cure of such default but provided that such extended cure is
permitted by the Original Lease.

     23.  REMEDIES. Upon the occurrence of any one or more Events of Default,
SubLandlord may exercise any remedy against Subtenant (including recovery of
reasonable attorney's fees and cost of legal proceedings) which Landlord may
exercise for default by Sublandlord under the Original Lease, including, without
limitation, those set forth in Articles 17 and 18 of the Original Lease, and any
remedy available at law or in equity for a breach of this Sublease.

     24.  NOTICES AND CONSENTS. All notices, demands, requests, consents or
approvals which may or are required to be given by either party to the other
shall be in writing and shall be deemed given when received or refused if
delivered by hand or sent by United States registered or certified mail, postage
prepaid, return receipt requested or if sent by overnight courier service (a) if
to Subtenant, addressed to Subtenant at the address(es) specified in Section
1(B) or at such other place as Subtenant may from time to time designate by
notice in writing to Sublandlord or (b) if to Sublandlord, addressed to
Sublandlord at the address(es) specified in Section 1(C) or at such other place
as Sublandlord may from time to time designate by notice in writing to
Subtenant. Sublandlord and Subtenant, agree to promptly deliver to the other a
copy of each notice, demand, request, consent or approval from SubLandlord or
Subtenant to Landlord relating to this Sublease or the Premises, and promptly to
deliver to the other a copy of any notice, demand, request, consent or approval
received from Landlord relating to this Sublease or the Premises. Such copies
shall be delivered by hand or by overnight courier.

     25.  PROVISIONS REGARDING SUBLEASE. This Sublease and all the rights of
parties hereunder are subject and subordinate to the Original Lease. Each party
agrees that it will not, by its act or omission to act, cause a default under
the Original Lease. In furtherance of the foregoing, the parties hereby confirm,
each to the other, that it is not practical in this Sublease agreement to
enumerate all of the rights and obligations of the various parties under the
Original Lease and specifically to allocate those rights and obligations in this
Sublease agreement. Accordingly, in order to afford to Subtenant the benefits of
this Sublease and of those provisions of the Original Lease which by their
nature are intended to benefit the



party in possession of the Premises, and in order to protect Sublandlord against
a default by Subtenant which might cause a default or event of default by
Sublandlord under the Original Lease:

          A.   Provided Subtenant shall timely pay all Rent when and as due
under this Sublease, Sublandlord shall pay, when and as due, all base rent,
additional rent and other charges payable by Sublandlord to Landlord under the
Original Lease;

          B.   Sublandlord shall perform its covenants and obligations under the
Original Lease which do not require for their performance possession of the
Premises and which are not otherwise to be performed hereunder by Subtenant on
Behalf of Sublandlord.

          C.   Subtenant shall perform all affirmative covenants and shall
refrain from performing any act which is prohibited by the negative covenants of
the Original Lease, where the obligation to perform or refrain from performing
is by its nature imposed upon the party in possession of the Premises. If
practicable, Subtenant shall perform affirmative covenants which are also
covenants of Sublandlord under the Original Lease at least five (5) days prior
to the date when Sublandlord's performance is required under the Original Lease.
Sublandlord shall have the right to enter the Premises and have appropriate
access to cure any default by Subtenant under this Section.

          D.   Sublandlord shall not agree to an amendment to the Original Lease
which would have an adverse effect on Subtenant's occupancy of the Premises or
its use of the Premises for their intended purpose, unless Sublandlord shall
first obtain Subtenant's prior written approval thereof, which approval shall
not be unreasonably withheld.

          E.   Sublandlord hereby grants to Subtenant the right to receive all
of the services and benefits with respect to the Premises which are to be
provided by Landlord under the Original Lease. Sublandlord shall have not duty
to perform any obligations of Landlord which are, by their nature, the
obligation of an owner or manager of real property. For example, Sublandlord
shall not be required to provide the services or repairs which the Landlord is
required to provide under the Original Lease. Sublandlord shall have no
responsibility for or be liable to Subtenant for any default, failure or delay
on the part of Landlord in the performance or observance by Landlord of any of
its obligations under the Original Lease (unless solely due to the act or
omission of Sublandlord), nor shall such default by Landlord affect this
Sublease or waive or defer the performance of any of Subtenant's obligations
hereunder. Notwithstanding the foregoing, the parties contemplate that Landlord
shall, in fact, perform its obligations under the Original Lease and in the
event of any default or failure of such performance by Landlord, Sublandlord
agrees that it will, upon notice from Subtenant, make demand upon Landlord to
perform its obligations under the Original Lease and, provided that Subtenant
specifically agrees to pay all costs and expenses of SubLandlord and provides
SubLandlord with security reasonably satisfactory to SubLandlord to pay such
costs and expenses, SubLandlord will take appropriate legal action to enforce
the Original Lease.

     26.  As provided in Article 11 of the Original Lease, in the event of
termination, re-entry or dispossess of Sublandlord by Landlord under the
Original Lease, Landlord may, at its option, take over all of the right, title
and interest of Sublandlord, as sublessor under this Sublease, and Subtenant, at
Landlord's option, shall attorn to Landlord pursuant to the then executory
provisions of this Sublease, except that Landlord shall not be:

               (i)    liable for any act or omission of Sublandlord under this
Sublease, or

               (ii)   subject to any defense or offsets which Subtenant may have
against Sublandlord, or

               (iii)  bound by any previous payment which Subtenant may have
made to Sublandlord more than thirty (30) days in advance of the date upon which
such payment was due, unless previously approved by Landlord except for the
prepayment of the rent, or

               (iv)   bound by any obligation to make any payment to or on
behalf of Subtenant, or

               (v)    bound by any obligation to perform any work or to make
improvements to the Premises, or

               (vi)   bound by any amendment or modification of this Sublease
made without Landlord's consent, or

               (vii)  bound to return Subtenant's security deposit until such
deposit has come into its actual possession and Subtenant would be entitled to
such security deposit pursuant to the terms of this Sublease.



     27.  LANDLORD'S CONSENT. This Sublease and the obligations of the parties
hereunder are expressly conditioned upon Sublandlord's obtaining prior written
consent hereto from Landlord. Sublandlord shall be responsible for any fees
imposed by Landlord in connection with this request for consent to the sublease
except those specifically attributable to Subtenant. Subtenant shall promptly
deliver to Sublandlord any information set forth in Article 9 of the Original
Lease or otherwise reasonably requested by Landlord (in connection with
Landlord's approval of this Sublease) with respect to the nature and operation
of Subtenant's business and the financial condition of Subtenant and any
Guarantor. Sublandlord and Subtenant hereby agree, for the benefit of Landlord,
that this Sublease and Landlord's consent hereto shall not (a) create privity of
contract between Landlord and Subtenant; (b) be deemed to have amended the
Original Lease in any regard (unless Landlord shall have expressly agreed in
writing to such amendment); or (c) be construed as a waiver of Landlord's right
to consent to any assignment of the Original Lease by Sublandlord or any further
subletting of premises leased pursuant to the Original Lease, or as a waiver of
Landlord's right to consent to any assignment by Subtenant of this Sublease or
any sub-letting of the Premises or any part thereof. If Landlord fails to
consent to this Sublease within sixty (60) days after the execution and delivery
of this Sublease, then either party may terminate this Sublease by giving
written notice thereof to the other party at any time thereafter, before
Landlord grants such consent, and upon such notice all prepaid rent shall be
refunded to Subtenant.

     28.  BROKERAGE. Each party represents and warrants to the other that it has
had no dealings with any broker or agent in connection with this Sublease other
than the Brokers specified in Section 1(P), whose commission shall be split
50/50 between Sublandlord and Subtenant. The provisions of this Article shall
survive termination of this Lease.

     29.  BUILDING DIRECTORY. Subject to the provisions of Section 28.8 of the
Original Lease, Subtenant shall, during the Term, be entitled to five (5)
listing on the building directory for the Building.

     30.  GOVERNING LAW. This Sublease shall be governed by and construed in
accordance with the laws of the State of New Jersey.

     31.  RELATIONSHIPS BETWEEN PARTIES. Sublandlord and Subtenant shall be
independent and shall not be deemed to be partners, joint ventures or
co-employer of any Sublandlord Party or Subtenant Party, for the purpose of this
Sublease or for any other purpose.

     32.  JURY TRIAL WAIVER. Sublandlord and Subtenant hereby waive trial by
jury in any action or proceeding brought by either of the parties hereto against
the other on any matters arising out of or in any way connected with this
Sublease or Subtenant's use or occupancy of the Premises.

     33.  NUMBER AND GENDER. All terms used herein shall include any number or
gender, as the context may require.

     34.  NO WAIVER; CUMULATIVE REMEDIES, ETC.

          A.   No receipt of moneys by Sublandlord from Subtenant after the
termination or cancellation of this Sublease shall reinstate, continue or extend
the Term, or operate as a waiver of the right of Sublandlord to enforce the
payment of Base Rent or Additional Rent then due, or thereafter falling due, or
operate as a waiver of the right of SubLandlord to recover possession of the
Premises by proper suit, action, proceeding or remedy.

          B.   The failure of Sublandlord or Subtenant to enforce any agreement,
condition, covenant or term of this Sublease shall not be deemed to waive or
affect the right of Sublandlord or Subtenant to enforce the same or any other
agreement, condition, covenant or term of this Sublease in the event of a
subsequent default or breach.

          C.   The receipt by Sublandlord of Rent with knowledge of the breach
of any of the terms, covenants or conditions of this Sublease shall not be
deemed a waiver of such breach. The acceptance of any check or payment bearing
or accompanied, by any endorsement, legend or statement shall not be deemed an
accord and satisfaction. No surrender of the Premises by Subtenant (prior to the
expiration or termination of this Lease) shall be valid unless consented to in
writing by Sublandlord.

          D.   The rights and remedies given to Sublandlord in this Sublease are
distinct, separate and cumulative, and no one of them, whether or not exercised
by Sublandlord, shall be deemed to be in exclusion of any of the others, or of
any rights or remedies otherwise provided at law or in equity. In addition to
the other remedies in this Sublease, Sublandlord shall be entitled to the
restraint by injunction of the violation or attempted or threatened violation of
any of the terms, covenants or conditions of this Sublease or to a decree
compelling performance of any of such terms, covenants or conditions.



          E.   This Sublease contains the entire agreement of the parties with
respect to the subject matter hereof, and any prior agreements or
understandings, oral or written, are merged herein. This Sublease may not be
extended, renewed, terminated or modified, nor may any provision hereof be
waived, except by an instrument in writing executed by the party against whom
enforcement of the same is sought.

          F.   If Subtenant request Sublandlord's consent to any matter under
this Lease, and Sublandlord fails or refuses to give such consent, Subtenant
shall not be entitled to any damages for any withholding by Sublandlord of its
consent; Subtenant's sole remedy therefor shall be an action for specific
performance, injunction or declaratory relief, and such remedy shall be
available only in those cases where this Sublease provides that Sublandlord
shall not unreasonably withhold its consent or where as a matter of law
Sublandlord may not unreasonably withhold its consent.

          G.   Subtenant shall look solely to the interest of Sublandlord in the
Premises leased under the Original Lease for the satisfaction of any right or
remedy of Subtenant for Sublandlord's failure to perform or comply with any of
Sublandlord's obligations, covenants or conditions under this Sublease, express
or implied, or under any law (including the collection of a judgment or other
judicial process). Neither Sublandlord nor any disclosed or undisclosed
principal of Sublandlord, or officer, director, stockholder, partner, member,
manager or agent of Sublandlord or of any such principal, nor any successor of
any of them, shall have any personal liability hereunder and no property or
assets of any of the foregoing persons shall be subject to levy, execution,
attachment or other enforcement procedure, for the satisfaction of Subtenant's
remedies under or with respect to this Sublease, the relationship of Sublandlord
and Subtenant hereunder, Subtenant's use and occupancy of the Premises or any
other liability of Sublandlord to Subtenant.

          H.   The headings herein are inserted only as a matter of convenience
and for reference and in no way define, limit or describe the scope or intent of
this Lease.

          I.   Sublandlord shall not deny Subtenant the right to access the
Premises 24 hours per day, seven days per week.

          J.   Wherever Sublandlord has agreed to request consent of Landlord,
Sublandlord shall use reasonable efforts (but without the requirement to incur
expense) to obtain such consent.

     35.  SUCCESSORS AND ASSIGNS. The agreements, terms covenants and conditions
herein shall bind and inure to the benefit of Sublandlord and Subtenant and
their respective succsessors and assigns.

                                   SUBLANDLORD
                                   ------------

                                   ION Networks, Inc.



                                   ________________________________
                                   By:
                                   Title:

                                   SUBTENANT
                                   ---------

                                   Multipoint Communications



                                   ________________________________
                                   By:
                                   Title:

EX-21.1

                                  Exhibit 21.1

                              List of Subsidiaries
                              --------------------




                                                           Names under which Subsidiary does Business
Name of Subsidiary       Jurisdiction of Incorporation         (if different than corporate name)
- ------------------       -----------------------------         ----------------------------------
                                                     
ION Networks, Limited              Scotland                                  None

ION Networks Holdings              Belgium                                   None

ION Networks NV                    Belgium                                   None

EX-23.1

                                  Exhibit 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statement Nos.
333-09507, 333-85693, 333-50246, and 333-83686 of ION Networks, Inc. and
subsidiaries on Form S-3 and Registration Statement Nos. 333-61837, 333-14681,
333-76809, 333-76604, and 333-76568 of ION Networks, Inc. and subsidiaries on
Form S-8, of our report dated June 21, 2002, appearing in this Annual Report on
Form 10-KSB/A of ION Networks, Inc. and subsidiaries for the year ended March
31, 2002.

/s/Deloitte & Touche LLP

Parsippany, New Jersey
August 1, 2002

EX-23.2

                                  Exhibit 23.2

                       CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements of ION Networks, Inc. and subsidiaries (the "Company") on Forms S-3
(File Nos. 333-09507, 333-85693, 333-50246 and 333-83686) and Forms S-8 (File
Nos. 333-61837, 333-14681, 333-76809, 333-76604 and 333-76568) of our report
dated June 28, 2001 relating to the consolidated balance sheet and the related
consolidated statements of operations, stockholders' equity and cash flows at
and for the fiscal year ended March 31, 2001, which appears in the Company's
Annual Report on Form 10-KSB/A for the year ended March 31, 2002.

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP

Florham Park, New Jersey
July 31, 2002