-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ASsMYDFL08q4+cjZjIjaaysshFzcbPslF7ec5vm6fUJ41v5irHL67YDv8M/tz7GL 6VALHalvyYnxcJ5T0kYBYw== 0001157523-04-007721.txt : 20040813 0001157523-04-007721.hdr.sgml : 20040813 20040813110411 ACCESSION NUMBER: 0001157523-04-007721 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ION NETWORKS INC CENTRAL INDEX KEY: 0000754813 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 222413505 STATE OF INCORPORATION: DE FISCAL YEAR END: 1202 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-13117 FILM NUMBER: 04972340 BUSINESS ADDRESS: STREET 1: 1551 S WASHINGTON AVE CITY: PISCATAWAY STATE: NJ ZIP: 08854 BUSINESS PHONE: 2014944440 MAIL ADDRESS: STREET 1: 1551 S WASHINGTON AVE CITY: PISCATAWAY STATE: NJ ZIP: 08854 FORMER COMPANY: FORMER CONFORMED NAME: MICROFRAME INC DATE OF NAME CHANGE: 19920703 10QSB 1 a4700773.txt ION NETWORKS 10QSB U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2004 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission File No.: 0-13117 ION NETWORKS, INC. ------------------ (Exact Name of Small Business Issuer in Its Charter) Delaware 22-2413505 -------- ---------- (State or Other Jurisdiction of (IRS Employer Identification Number) Incorporation or Organization) 120 Corporate Boulevard, South Plainfield, NJ 07080 --------------------------------------------------- (Address of Principal Executive Offices) (908) 546-3900 -------------- (Issuer's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the proceeding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes X No . --- -- There were 22,875,500 shares of Common Stock outstanding as of August 12, 2004. Transitional Small Business Disclosure Format: Yes___ No X 1
ION NETWORKS, INC. FORM 10-QSB FOR THE QUARTER ENDED June 30, 2004 PART I. FINANCIAL INFORMATION Page Item 1. Condensed Financial Statements (Unaudited) 3 Condensed Balance Sheet as of June 30, 2004 4 Condensed Statements of Operations for the Three and Six Months ended June 30, 2004 and 2003 (Consolidated) 5 Condensed Statements of Cash Flows for the Six Months ended June 30, 2004 and 2003 (Consolidated) 6 Notes to Condensed Financial Statements 7 Item 2. Management's Discussion and Analysis or Plan of Operation 11 Item 3. Controls and Procedures 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings 14 Item 2. Changes in Securities 14 Item 3. Defaults Upon Senior Securities 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Item 5. Other Information 14 Item 6. Exhibits and Reports on Form 8-K 15 SIGNATURES 16
2 PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED FINANCIAL STATEMENTS The condensed financial statements included herein have been prepared by the registrant without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Although the registrant believes that the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. It is suggested that these financial statements be read in conjunction with the audited financial statements and the notes thereto included in the registrant's Report on Form 10-KSB for the year ended December 31, 2003. 3
ION NETWORKS, INC. CONDENSED BALANCE SHEET As of June 30, 2004 (Unaudited) Assets Current assets Cash and cash equivalents $ 185,229 Accounts receivable, less allowance for doubtful accounts of $68,974 290,224 Inventory, net 498,816 Prepaid expenses and other current assets 61,721 -------------- Total current assets 1,035,990 Property and equipment, net 23,770 Capitalized software, less accumulated amortization of $3,977,762 370,114 Other assets 12,836 -------------- Total assets $ 1,442,710 ============== Liabilities and Stockholders' Equity Current liabilities Current portion of capital leases $ 27,002 Current portion of long-term debt 2,069 Accounts payable 378,537 Accrued expenses 385,415 Accrued payroll and related liabilities 137,396 Deferred income 225,568 Sales tax payable 19,946 Other current liabilities 53,337 -------------- Total current liabilities 1,229,270 -------------- Long term debt, net of current portion 8,302 -------------- Commitments and contingencies Stockholders' Equity Preferred stock - par value $.001 per share; authorized 1,000,000 shares; 200,000 shares designated Series A; 166,835 shares issued and outstanding (aggregate liquidation preference $300,303) 167 Common stock - par value $.001 per share; authorized 50,000,000 shares; 22,875,500 shares issued and outstanding 22,876 Additional paid-in capital 44,351,997 Notes receivable from officers (211,295) Accumulated deficit (43,958,607) -------------- Total stockholders' equity 205,138 -------------- Total liabilities and stockholders' equity $ 1,442,710 ============== The accompanying notes are an integral part of these condensed financial statements.
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ION NETWORKS, INC. CONDENSED STATEMENTS OF OPERATIONS (Unaudited) Three Months Three Months Six Months Six Months Ended Ended Ended Ended June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003 -------------- -------------- ---------------- ----------------- Net sales $ 606,300 $ 874,200 $ 1,511,261 $ 1,639,319 Cost of sales 190,602 230,851 487,754 474,839 -------------- -------------- ---------------- ----------------- Gross Margin 415,698 643,349 1,023,507 1,164,480 -------------- -------------- ---------------- ----------------- Research and development expenses 140,007 124,356 260,276 261,755 Selling, general and administrative expenses 478,094 579,668 1,190,632 1,482,205 Restructuring, asset impairment and other charges - (315,841) - (192,331) Depreciation and amortization expenses 105,717 205,657 221,445 440,428 -------------- -------------- ---------------- ----------------- Total operating expenses 723,818 593,840 1,672,353 1,992,057 -------------- -------------- ---------------- ----------------- Income(Loss) from operations (308,120) 49,509 (648,846) (827,577) Interest income 179 1,782 19,705 11,326 Interest expense (1,120) (2,659) (2,728) (10,028) -------------- -------------- ---------------- ----------------- Net Income(loss) $ (309,061) $ 48,632 $ (631,869) $ (826,279) ============== ============== ================ ================= Per share data Net income(loss) per share Basic $ (0.01) $ 0.00 $ (0.03) $ (0.03) Diluted $ (0.01) $ 0.00 $ (0.03) $ (0.03) Weighted average number of common shares outstanding Basic 22,875,500 23,902,643 23,847,876 23,902,643 Diluted 22,875,500 25,570,993 23,847,876 23,902,643 The accompanying notes are an integral part of these condensed financial statements.
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ION NETWORKS, INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) For the Six For the Six Months Ended Months Ended June June 30, 30, 2004 2003 ------------------ ----------------- Cash flows from operating activities Net loss $ (631,869) $ (826,279) Adjustments to reconcile net loss to net cash used in operating activities: Restructuring, asset impairments and other charges, non-cash - (192,331) Depreciation and amortization 221,444 440,428 Non-cash stock-based compensation 58,750 (95,000) Interest income from notes receivable from officers (19,253) (8,937) Changes in operating assets and liabilities: Accounts receivable 107,520 (10,820) Inventory 203,226 237,571 Prepaid expenses and other current assets 66,417 157,368 Other assets 465 5,710 Accounts payable and other accrued expenses (48,903) (260,602) Accrued payroll and related liabilities 34,581 (95,643) Deferred income 25,263 (15,337) Sales tax payable (32,694) (13,211) Other current liabilities - (29,571) ------------------ ----------------- Net cash used in operating activities (15,053) (706,654) ------------------ ----------------- Cash flows from investing activities Acquisition of property and equipment (6,946) - Capitalized software expenditures (102,662) (138,803) Restricted cash - 125,700 ------------------ ----------------- Net cash used in investing activities (109,608) (13,103) ------------------ ----------------- Cash flows from financing activities Principal payments on debt and capital leases (47,821) (52,272) ------------------ ----------------- Net cash used in financing activities (47,821) (52,272) ------------------ ----------------- Effect of exchange rates on cash - (109) ------------------ ----------------- Net decrease in cash and cash equivalents (172,482) (772,138) Cash and cash equivalents - beginning of period 357,711 865,684 ------------------ ----------------- Cash and cash equivalents - end of period $ 185,229 $ 93,546 ================== ================= The accompanying notes are an integral part of these condensed financial statements.
6 ION NETWORKS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS June 30, 2004 (Unaudited) NOTE 1 CONDENSED FINANCIAL STATEMENTS ION Networks, Inc ("ION" or the "Company") designs, develops, manufactures and sells infrastructure security and management products to corporations, service providers and government agencies. The Company's hardware and software products are designed to form a secure auditable portal to protect IT and network infrastructure from internal and external security threats. ION's infrastructure security solution operates in the IP, data center, and telephony environments and is sold by a direct sales force and indirect channel partners mainly throughout North America and Europe. The condensed balance sheet as of June 30, 2004, the condensed statements of operations and cash flows for the three and six month periods ended June 30, 2004 and 2003 (Consolidated), have been prepared by the Company without audit. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to make the Company's financial position, results of operations and cash flows at June 30, 2004 and 2003 not misleading have been made. The results of operation for the three and six months ended June 30, 2004 and 2003 are not indicative of a full year or any other interim period. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these financial statements be read in conjunction with the audited financial statements and notes there to included in the report on Form 10-KSB for the year ended December 31, 2003. The Company's financial statements have been prepared on the basis that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. At June 30, 2004 the Company had an accumulated deficit of $43,958,607 and a working capital deficiency of $193,280. The Company also realized a net loss of $309,061 and $631,869 for the three and six month periods ended June 30, 2004, respectively. The Company continues to experience a shortfall in the cash necessary to expand operations. Management and the board of directors are exploring various alternatives to secure funding necessary to meet its cash requirements. These factors raise substantial doubt about the entity's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. NOTE 2. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The accompanying condensed 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 inter-company balances and transactions have been eliminated in consolidation. During the year ended December 31, 2003, the Company ceased the operation of its subsidiaries. 7 ION NETWORKS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS June 30, 2004 (Unaudited) NOTE 2. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Net Loss per Share of Common Stock Basic net loss per share excludes dilution for potentially dilutive securities and is computed by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net loss per share reflects the potential dilution that could occur if securities or other instruments to issue common stock were exercised or converted into common stock. Potentially dilutive securities are excluded from the computation of diluted net loss per share when their inclusion would be antidilutive. Potentially dilutive securities of the Company include the following: For the Six and For the Six and Three Months Ended Three Months Ended June 30, 2004 June 30, 2003 ---------------------- ---------------------- Convertible Preferred Stock 1,668,350 1,668,350 ---------------------- ---------------------- Options and Warrants 6,165,129 - ====================== ====================== Total* 7,915,730 1,668,350 ====================== ====================== * Since there was a loss attributable to common shareholders in the six months and three months ended June 30, 2004 and 2003, the basic weighted average shares outstanding were used in calculating diluted loss per share. Stock Compensation The Company accounts for stock-based employee compensation arrangements in accordance with provisions of Accounting Principals Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and comply with the disclosure requirements of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" as amended by SFAS No. 148 "Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of FASB Statement No. 123," issued in December 2002. Under APB Opinion No. 25, compensation expense is based on the difference, if any, generally on the date of grant, between the fair value of our stock and the exercise price of the option. The Company accounts for equity instruments issued to non-employee vendors in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force ("EITF") Issue No. 96-18, "Accounting for Equity Instruments That are Issued to Other Than Employees from Acquiring, or in Conjunction with Selling, Goods and Services". All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the date on which the counter party's performance is complete. 8 ION NETWORKS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS June 30, 2004 (Unaudited) NOTE 2. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Stock Compensation (Continued) If the Company had elected to recognize compensation costs based on the fair value at the date of grant for awards for the three and six month periods ended June 30, 2004 and 2003, consistent with the provisions of SFAS No. 123, the Company's net loss and basic and diluted net loss per share would have increased to the pro forma amounts indicated below:
Three months Three months Six months Six months ended ended ended ended June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Net income As reported $ (309,061) $ 48,632 $ (631,869) $ (826,279) (loss) Add back (Deduct): Stock based employee compensation determined under fair value methods for all awards granted (23,877) 156,320 (340,030) (177,507) --------------- --------------- -------------- --------------- Pro forma net income (loss) $ (332,938) $ 204,952 $ (971,899) $ (1,003,786) =============== =============== ============== =============== Basic and diluted net income (loss) per share of common stock As reported $ (0.01) $ 0.00 $ (0.03) $ (0.03) Pro forma $ (0.01) $ 0.01 $ (0.04) $ (0.04)
Warranty Costs The Company estimates its warranty costs based on historical warranty claim experience. Future costs for warranties applicable to sales recognized in the current period are charged to cost of sales. The warranty accrual is reviewed quarterly to reflect the remaining obligation. Adjustments are made when actual warranty claim experience differs from estimates. The warranty accrual included in other current liabilities as of June 30, 2004 approximated $48,000. NOTE 3 - INVENTORY Inventory, net of allowance for obsolescence of $169,842 at June 30, 2004, consists of the following: -------------------- Raw materials 86,317 Work-in-progress 15,968 Finished goods 396,531 -------------------- $ 498,816 ==================== NOTE 4 - COMMITMENTS AND CONTINGENCIES During the six months ended June 30, 2004, Kam Saifi, former President and Chief Executive Officer, agreed to a final separation agreement from the Company. The Company agreed to accept as full payment for all indebtedness (294,493) owed to the Company by Mr. Saifi the return of 2,000,000 common shares of Company stock and Mr. Saifi released the Company from any obligations, which may have arisen from the separation of Mr. Saifi from the Company. The Company has not been successful as of the date of this filing to negotiate a final agreement with Cameron Saifi, former Chief Operating Officer, relating to his separation and termination of his employment agreement and his indebtedness to the Company. 9 NOTE 5 - SUBSEQUENT EVENTS On August 5, 2004, the Company issued, for $200,000 cash, a convertible debenture (the "Debenture") to Stephen M. Deixler, one of the Company's directors. The Debenture matures on August 5, 2008 and bears interest at five (5%) percent per annum, compounded annually. The principal amount of the Debenture is convertible into shares of the Company's common stock, $.001 par value at a conversion price equal to $0.08 per share (the "Conversion Price"), which is equal to the ten (10) day average of the closing prices of the Company's common stock, as quoted on the OTC Bulletin Board during the five (5) trading days immediately prior to and subsequent to August 5, 2004. The principal amount of the Debenture is convertible at the Conversion Price at the option of the holder, or at the Company's option if the Company's common stock trades at a price of at least $0.08 for twelve (12) trading days in any fifteen (15) trading day period. The Company is also entitled to prepay the principal amount of the Debenture, at any time after August 5, 2005, but shall be required to pay a premium of two (2%) percent in the second year after issuance of the Debenture of the principal amount prepaid, for prepayments made during that period. The Company has granted certain "piggyback" registration rights to the holder to register for resale the shares issuable upon conversion of the Debenture. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OVERVIEW ION Networks, Inc. (the "Company"), designs, develops, manufactures and sells infrastructure security and management products to corporations, service providers and government agencies. The Company's hardware and software products are designed to form a secure auditable portal to protect IT and network infrastructure from internal and external security threats. ION's products operate in the IP, data center, telecommunications and transport, and telephony environments and are sold by a direct sales force and indirect channel partners mainly throughout North America and Europe. The Company is a Delaware corporation founded in 1999 through the combination of two companies - MicroFrame ("MicroFrame"), a New Jersey Corporation (the predecessor entity to the Company, originally founded in 1982), and SolCom Systems Limited ("SolCom"), a Scottish corporation located in Livingston, Scotland (originally founded in 1994). The Company liquidated operations in Scotland during the quarter ended June 30, 2003. RESULTS OF OPERATIONS For the three months ended June 30, 2004 compared to the same period in 2003: Net sales for the three month period ended June 30, 2004, was $606,300 compared to net sales of $874,200 for the same period in 2003, a decrease of $267,900 or 30.6%. Revenues for the second quarter of 2004 were lower compared to the same quarter of 2003 primarily due to the lag in productivity caused by hiring and training a complete new sales force, which occurred during the first quarter of 2004. Cost of sales for the three month period ended June 30, 2004 was $190,602 compared to $230,851 for the same period in 2003. Cost of sales as a percentage of net sales for the three months ended June 30, 2004 increased to 31.4% from 26.4% for the same period in 2003, resulting in gross margins decreasing to 68.6% from 73.6% as compared to the prior year. The decrease in gross margin as a percentage of revenue is due primarily to reduction of certain appliance pricing for the current period as compared to the same period last year. Research and development expenses for the three month period ended June 30, 2004 was $140,007 compared to $124,356 for the same period in 2003 or a increase of $15,651. The increase is primarily attributable to the utilization of outside consultants for new product development and conversion to standards based platform. Selling, general and administrative expenses ("SG&A") for the three months ended June 30, 2004 were $478,094 compared to $579,668 for the same period in 2003, a decrease of $101,574. The decline in SG&A expenses are due primarily to reduced headcount from 24 at June 30, 2003 to 20 on June 30, 2004, sharply reduced executive compensation, steep reductions in facilities expenditures, including rent, sales and marketing and other overhead items. These reductions were partially offset by a loss on forgiveness of debt during the three month period ended June 30, 2004 of $59,570. Depreciation and amortization expenses for depreciation of fixed assets and amortization of capitalized software was $105,717 for the three months ended June 30, 2004 compared to $205,657 in the same period in 2003. The decrease was due to a reduction of depreciable fixed assets, capitalized software and other intangibles subject to amortization in the three month period ended June 30, 2004 as compared to the same period in 2003. Net loss for the three months ended June 30, 2004 amounted to $309,061 and net income for the three months ended June 30, 2003 amounted to $48,632, for an increased loss of $357,693 due primarily to a $315,841 positive impact related to non-recurring reduction of certain expenses reflected as a restructuring credit during the three month period ended June 30, 2003. For the six months ended June 30, 2004 compared to the same period in 2003: Net sales for the six month period ended June 30, 2004, was $1,511,261 compared to net sales of $1,639,319 for the same period in 2003, a decrease of $128,058 or 7.8%. Revenues for the six months ended June 30, 2004 were lower compared to the same period of 2003 primarily due to the lag in productivity caused by hiring and training a complete new sales force, which occurred during the first quarter of 2004. 11 Cost of sales for the six month period ended June 30, 2004 was $487,754 compared to $474,839 for the same period in 2003. Cost of sales as a percentage of net sales for the six months ended June 30, 2004 increased to 32.2% from 29.0% for the same period in 2003, resulting therefore in gross margins decreasing to 67.7% from 71.0% as compared to the prior year. The decrease in gross margin as a percentage of revenue is due primarily to reduction of certain appliance pricing for the current period as compared to the same period last year. Research and development expenses for the six month period ended June 30, 2004 was $260,276 compared to $261,755 for the same period in 2003 or a decrease of $1,479. Selling, general and administrative expenses ("SG&A") for the six months ended June 30, 2004 were $1,190,632 compared to $1,482,205 for the same period in 2003, a decrease of $291,573. The decline in SG&A expenses are due primarily to reduced headcount from 24 at June 30, 2003 to 20 on June 30, 2004, sharply reduced executive compensation, steep reductions in facilities expenditures, including rent, sales and marketing and other overhead items. These reductions were partially offset by stock compensation expense for options granted during the six month period ended June 30, 2004 of $58,750 and loss on forgiveness of debt of $59,570. Depreciation and amortization expenses for depreciation of fixed assets and amortization of capitalized software was $221,445 for the six months ended June 30, 2004 compared to $440,428 in the same period in 2003. The decrease was due to a reduction of depreciable fixed assets, capitalized software and other intangibles subject to amortization in the six month period ended June 30, 2004 as compared to the same period in 2003. Net loss for the six months ended June 30, 2004 and 2003 amounted to $631,869 and $826,279, respectively an improvement of $194,410 due primarily to reduced selling, general and administrative expenses of $291,573 and depreciation and amortization expenses of $218,983. These positive reductions were offset in part by lower gross margin of $140,973 due to lower revenues and the positive effect on earnings of $192,331 for restructuring adjustments for the six month period ended June 30, 2003. FINANCIAL CONDITION AND CAPITAL RESOURCES The Company's financial statements have been prepared on the basis that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. At June 30, 2004 the Company had an accumulated deficit of $43,958,607 and a working capital deficiency of $193,280. The Company also realized a net loss of $309,061 and $631,869 for the three and six month periods ended June 30, 2004, respectively. The Company continues to experience a shortfall in the cash necessary to expand operations. Management and the board of directors are exploring various alternatives to secure funding necessary to meet its cash requirements. Any future operations are dependent upon the Company's ability to obtain additional debt or equity financing, and its ability to generate revenues sufficient to fund its operations. There can be no assurances that the Company will be successful in its attempts to generate positive cash flows or raise sufficient capital essential to its survival. Additionally, even if the Company does raise operating capital, there can be no assurances that the net proceeds will be sufficient enough to enable it to develop its business to a level where it will generate profits and positive cash flows. These matters raise substantial doubt about the Company's ability to continue as a going concern. However, the accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern. Net cash used in operating activities during the six months ended June 30, 2004 was $15,053 compared to net cash used during the same period in 2003 of $706,654. The decrease in net cash used during the six months ended June 30, 2004 compared to the same period in 2003, was primarily due to a reduction in operating losses, an increase in accounts receivable collected, and a decrease in the amount of cash used to reduce accounts payable. Net cash used in investing activities during the six months ended June 30, 2004 was $109,608 compared to net cash used in the same period in 2003 of $13,103. This increase of $96,505 was primarily due to the release of restricted cash of $125,700 during the six months ended June 30, 2003 and zero in the six months ended June 30, 2004. Net cash used from financing activities during the six months ended June 30, 2004 was $47,821 compared to net cash used during the same period in 2003 of $52,272. 12 ITEM 3. CONTROLS AND PROCEDURES. As of the end of the period covered by this report, the Company carried out an evaluation, under the supervisions and with the participation of its Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company's controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports filed by it under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company's management, including the Chief Executive Officer and Chief Financial Officer of the Company, as appropriate to allow timely decisions regarding required disclosure. There has been no change in the company's internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected or is reasonably likely to affect our internal control over financial reporting. 13 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. None. ITEM 2. CHANGES IN SECURITIES. On August 5, 2004, the Company issued, for $200,000 cash, a convertible debenture (the "Debenture") to Stephen M. Deixler, one of the Company's directors. The Debenture matures on August 5, 2008 and bears interest at five (5%) percent per annum, compounded annually. The principal amount of the Debenture is convertible into shares of the Company's common stock, $.001 par value at a conversion price equal to $0.08 per share (the "Conversion Price"), which is equal to the ten (10) day average of the closing prices of the Company's common stock, as quoted on the OTC Bulletin Board during the five (5) trading days immediately prior to and subsequent to August 5, 2004. The principal amount of the Debenture is convertible at the Conversion Price at the option of the holder, or at the Company's option if the Company's common stock trades at a price of at least $0.08 for twelve (12) trading days in any fifteen (15) trading day period. The Company is also entitled to prepay the principal amount of the Debenture, at any time after August 5, 2005, but shall be required to pay a premium of two (2%) percent in the second year after issuance of the Debenture of the principal amount prepaid, for prepayments made during that period. The Company has granted certain "piggyback" registration rights to the holder to register for resale the shares issuable upon conversion of the Debenture. The issuance of the Debenture was pursuant to an exemption granted under Rule 506 of Regulation D, promulgated under the Securities Act of 1933, as amended, in that the purchaser represented his status as an accredited investor, and that he was acquiring the Debenture for investment purposes and not with a view to any sale or distribution. In addition, the Debenture bore a restrictive legend, which stated that the Debenture was a "restricted security" under the Securities Act of 1933, as amended, and a similar legend is required to be placed on any shares issued on conversion of the Debenture. A copy of the Debenture is filed as an exhibit to this Form 10-QSB. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION The Company anticipates that its 2004 annual meeting of stockholders will be held on Friday, August 27, 2004, commencing at 10:00 a.m., Eastern time, at the Company's Headquarters at 120 Corporate Boulevard, South Plainfield, New Jersey, 07080. The Company set the record date for determining stockholders of record entitled to notice of and to vote at the meeting or any and all postponements or adjournments thereof at the close of business on July 12, 2004. The Company mailed its annual report to shareholders for the year ended December 31, 2003 along with the notice of, and proxy statement for, the 2004 annual meeting on or about July 22, 2004. 14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. Exhibit No. Description ------- ----------- 3.2 Amended By Laws 10.1 Convertible Debenture dated August 5, 2004 31.1 Section 302 Certification of the Chief Executive Officer.* 31.2 Section 302 Certification of the Chief Financial Officer.* 32.1 Section 906 Certification of the Chief Executive Officer.* 32.2 Section 906 Certification of the Chief Financial Officer.* * Filed herewith (b) Reports on Form 8-K: 15 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: August 13, 2004 ION NETWORKS, INC. /s/ Norman E. Corn ------------------------------------------ Norman E. Corn, Chief Executive Officer /s/ Patrick E. Delaney ------------------------------------------ Patrick E. Delaney, Chief Financial Officer 16 Exhibit Index Exhibit No. Description ------- ----------- 3.2 Amended By Laws 10.1 Convertible Debenture dated August 5, 2004 31.1 Section 302 Certification of the Chief Executive Officer.* 31.2 Section 302 Certification of the Chief Financial Officer.* 32.1 Section 906 Certification of the Chief Executive Officer.* 32.2 Section 906 Certification of the Chief Financial Officer.* * Filed herewith 17 EX-3.2 2 a4700773ex32.txt EXHIBIT 3.2 AMENDED BYLAWS OF ION NETWORKS, INC. (a Delaware corporation) _____________________________________ ARTICLE I --------- STOCKHOLDERS ------------ 1. CERTIFICATES REPRESENTING STOCK. Certificates representing stock in the corporation shall be signed by, or in the name of, the corporation by the Chairman or Vice-Chairman of the Board of Directors, if any, or by the President or a Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the corporation. Any or all the signatures on any such certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Whenever the corporation shall be authorized to issue more than one class of stock or more than one series of any class of stock, and whenever the corporation shall issue any shares of its stock as partly paid stock, the certificates representing shares of any such class or series or of any such partly paid stock shall set forth thereon the statements prescribed by the General Corporation Law. Any restrictions on the transfer or registration of transfer of any shares of stock of any class or series shall be noted conspicuously on the certificate representing such shares. The corporation may issue a new certificate of stock or uncertificated shares in place of any certificate theretofore issued by it, alleged to have been lost, stolen, or destroyed, and the Board of Directors may require the owner of the lost, stolen, or destroyed certificate, or his legal representative, to give the corporation a bond sufficient to indemnify the corporation against any claim that may be made against it on account of the alleged loss, theft, or destruction of any such certificate or the issuance of any such new certificate or uncertificated shares. 2. UNCERTIFICATED SHARES. Subject to any conditions imposed by the General Corporation Law, the Board of Directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of the stock of the corporation shall be uncertificated shares. Within a reasonable time after the issuance or transfer of any uncertificated shares, the corporation shall send to the registered owner thereof any written notice prescribed by the General Corporation Law. 1 3. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be required to, issue fractions of a share. If the corporation does not issue fractions of a share, it shall (1) arrange for the disposition of fractional interests by those entitled thereto, (2) pay in cash the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined, or (3) issue scrip or warrants in registered form (either represented by a certificate or uncertificated) or bearer form (represented by a certificate) which shall entitle the holder to receive a full share upon the surrender of such scrip or warrants aggregating a full share. A certificate for a fractional share or an uncertificated fractional share shall, but scrip or warrants shall not unless otherwise provided therein, entitle the holder to exercise voting rights, to receive dividends thereon, and to participate in any of the assets of the corporation in the event of liquidation. The Board of Directors may cause scrip or warrants to be issued subject to the conditions that they shall become void if not exchanged for certificates representing the full shares or uncertificated full shares before a specified date, or subject to the conditions that the shares for which scrip or warrants are exchangeable may be sold by the corporation and the proceeds thereof distributed to the holders of scrip or warrants, or subject to any other conditions which the Board of Directors may impose. 4. STOCK TRANSFERS. Upon compliance with provisions restricting the transfer or registration of transfer of shares of stock, if any, transfers or registration of transfers of shares of stock of the corporation shall be made only on the stock ledger of the corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation or with a transfer agent or a registrar, if any, and, in the case of shares represented by certificates, on surrender of the certificate or certificates for such shares of stock properly endorsed and the payment of all taxes due thereon. 5. RECORD DATE FOR STOCKHOLDERS. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for 2 determining the stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by the General Corporation Law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by the General Corporation Law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion, or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. 6. MEANING OF CERTAIN TERMS. As used herein in respect of the right to (A) notice of a meeting of stockholders or a waiver thereof, or (B) to participate or vote at a meeting of stockholders or to consent or dissent in writing in lieu of a meeting, as the case may be, the term "share" or "shares" or "share of stock" or "shares of stock" or "stockholder" or "stockholders" (i) when the corporation is authorized to issue only one class of shares of stock, refers to an outstanding share or shares of stock and to a holder or holders of record of outstanding shares of stock, (ii) where there are two or more classes or series of shares of stock, refers to any such outstanding share or shares of stock and any holder or holders of record of outstanding shares of stock other than those shares of stock as to which voting rights have been denied by the certificate of incorporation and are not otherwise conferred by the General Corporation Law or are otherwise not applicable to a specific matter with respect to such shares. 7. STOCKHOLDER MEETINGS - TIME. The annual meeting shall be held on the date and at the time fixed, from time to time, by the directors, provided, that the first annual meeting shall be held on a date within thirteen months after the organization of the corporation, and each successive annual meeting shall be held on a date within thirteen months after the date of the preceding annual meeting. A special meeting shall be held on the date and at the time fixed by the directors. - PLACE. Annual meetings and special meetings shall be held at such place, within or without the State of Delaware, as the directors may, from time to time, fix. Whenever the directors shall fail to fix such place, the meeting shall be held at the Company's principal executive offices. 3 - CALL. Annual meetings and special meetings may be called by the directors or by any officer instructed by the directors to call the meeting. - NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be given, stating the place, date and hour of the meeting. The notice of an annual meeting shall state that the meeting is called for the election of directors and for the transaction of other business which may properly come before the meeting, and shall (if any other action which could be taken at a special meeting is to be taken at such annual meeting) state the purpose or purposes. The notice of a special meeting shall in all instances state the purpose or purposes for which the meeting is called. The notice of any meeting shall also include, or be accompanied by, any additional statements, information, or documents prescribed by the General Corporation Law. Except as otherwise provided by the General Corporation Law, a copy of the notice of any meeting shall be given, personally or by mail, not less than ten days nor more than sixty days before the date of the meeting, unless the lapse of the prescribed period of time shall have been waived, and directed to each stockholder at his record address or at such other address which he may have furnished by request in writing to the Secretary of the corporation. Notice by mail shall be deemed to be given when deposited, with postage thereon prepaid, in the United States Mail. If a meeting is adjourned to another time, not more than thirty days hence, and/or to another place, and if an announcement of the adjourned time and/or place is made at the meeting, it shall not be necessary to give notice of the adjourned meeting unless the directors, after adjournment, fix a new record date for the adjourned meeting. Notice need not be given to any stockholder who submits a written waiver of notice signed by him before or after the time stated therein. Attendance of a stockholder at a meeting of stockholders shall constitute a waiver of notice of such meeting, except when the stockholder attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice. - STOCKHOLDER LIST. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city or other municipality or community where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this section or the books of the corporation, or to vote at any meeting of stockholders. - CONDUCT OF MEETING. Meetings of the stockholders shall be presided over by one of the following officers in the order of seniority and if present and acting - the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, the President, a Vice-President, or, if none of the foregoing is in office and present and acting, by a chairman to be chosen by the stockholders. The Secretary of the corporation, or in his absence, an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present the chairman of the meeting shall appoint a secretary of the meeting. 4 - PROXY REPRESENTATION. Every stockholder may authorize another person or persons to act for him by proxy in all matters in which a stockholder is entitled to participate, whether by waiving notice of any meeting, voting or participating at a meeting, or expressing consent or dissent without a meeting. Every proxy must be signed by the stockholder or by his attorney-in-fact. No proxy shall be voted or acted upon after three years from its date unless such proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and, if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. - INSPECTORS. The directors, in advance of any meeting, may, but need not, appoint one or more inspectors of election to act at the meeting or any adjournment thereof. If an inspector or inspectors are not appointed, the person presiding at the meeting may, but need not, appoint one or more inspectors. In case any person who may be appointed as an inspector fails to appear or act, the vacancy may be filled by appointment made by the directors in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, if any, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspectors at such meeting with strict impartiality and according to the best of his ability. The inspectors, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots, or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots, or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspector or inspectors, if any, shall make a report in writing of any challenge, question, or matter determined by him or them and execute a certificate of any fact found by him or them. - QUORUM. The holders of a majority of the outstanding stock entitled to vote thereat shall constitute a quorum at a meeting of stockholders for the transaction of any business. The stockholders present and entitled to vote thereat may adjourn the meeting despite the absence of a quorum. - VOTING. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Any other action shall be authorized by a majority of the votes cast except where the General Corporation Law prescribes a different percentage of votes and/or a different exercise of voting power, and except as may be otherwise prescribed by the provisions of the certificate of incorporation and these Bylaws. In the election of directors, and for any other action, voting need not be by ballot. 5 8. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the General Corporation Law to be taken at any annual meeting or special meeting of stockholders, or any action which may be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. Action taken pursuant to this paragraph shall be subject to the provisions of Section 228 of the General Corporation Law. ARTICLE II ---------- DIRECTORS --------- 1. FUNCTIONS AND DEFINITIONS. The business and affairs of the corporation shall be managed by or under the direction of the Board of Directors of the corporation. The Board of Directors shall have the authority to fix the compensation of the members thereof. The use of the phrase "whole board" herein refers to the total number of directors which the corporation would have if there were no vacancies. 2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder of the corporation. The Board of Directors of the corporation shall consist of 1 or more members, each of whom shall be a natural person; the exact number of directors which shall constitute the whole Board of Directors shall be fixed from time to time by action of the Board of Directors of the corporation. 3. ELECTION AND TERM. Directors who are elected at an annual meeting of stockholders, and directors who are elected in the interim to fill vacancies and newly created directorships, shall hold office until the next annual meeting of stockholders and until their successors are elected and qualified or until their earlier resignation or removal. Any director may resign at any time upon written notice to the corporation. Except as the General Corporation Law may otherwise require, in the interim between annual meetings of stockholders or of special meetings of stockholders called for the election of directors and/or for the removal of one or more directors and for the filling of any vacancy in that connection, newly created directorships and any vacancies in the Board of Directors, including unfilled vacancies resulting from the removal of directors for cause or without cause, may be filled by the vote of a majority of the remaining directors then in office, although less than a quorum, or by the sole remaining director. 4. MEETINGS. - TIME. Meetings shall be held at such time as the Board shall fix, except that the first meeting of a newly elected Board shall be held as soon after its election as the directors may conveniently assemble. 6 - PLACE. Meetings shall be held at such place within or without the State of Delaware as shall be fixed by the Board. - CALL. No call shall be required for regular meetings for which the time and place have been fixed. Special meetings may be called by or at the direction of the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, the President, or a majority of the directors in office. - NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required for regular meetings for which the time and place have been fixed. Written, oral, or any other mode of notice of the time and place shall be given for special meetings in sufficient time for the convenient assembly of the directors thereat. Notice need not be given to any director or to any member of a committee of directors who submits a written waiver of notice signed by him before or after the time stated therein. Attendance of any such person at a meeting shall constitute a waiver of notice of such meeting, except when he attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors need be specified in any written waiver of notice. - QUORUM AND ACTION. A majority of the whole Board shall constitute a quorum except when a vacancy or vacancies prevents such majority, whereupon a majority of the directors in office shall constitute a quorum, provided that such majority shall constitute at least one-third of the whole Board. A majority of the directors present, whether or not a quorum is present, may adjourn a meeting to another time and place. Except as herein otherwise provided, and except as otherwise provided by the General Corporation Law, the vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board. The quorum and voting provisions herein stated shall not be construed as conflicting with any provisions of the General Corporation Law and these Bylaws which govern a meeting of directors held to fill vacancies and newly created directorships in the Board or action of disinterested directors. Any member or members of the Board of Directors or of any committee designated by the Board, may participate in a meeting of the Board, or any such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. - CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if present and acting, shall preside at all meetings. Otherwise, the Vice-Chairman of the Board, if any and if present and acting, or the President, if present and acting, or any other director chosen by the Board, shall preside. 5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the General Corporation Law, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. 7 6. COMMITTEES. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of any member of any such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board, shall have and may exercise powers and authority of the Board of Directors in the management of the business and affairs of the corporation with the exception of any authority the delegation of which is prohibited by Section 141 of the General Corporation Law, and may authorize the seal of the corporation to be affixed to all papers which may require it. 7. WRITTEN ACTION. Any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. 8. CONFERENCE TELEPHONE The Board of Directors of any committee designated thereby may participate in a meeting of such Board or committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time, and participation by such means shall constitute presence in person at a meeting. ARTICLE III ----------- OFFICERS -------- The officers of the corporation shall consist of a President, a Secretary, a Treasurer, and, if deemed necessary, expedient, or desirable by the Board of Directors, a Chairman of the Board, a Vice-Chairman of the Board, an Executive Vice-President, one or more other Vice-Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers with such titles as the resolution of the Board of Directors choosing them shall designate. Except as may otherwise be provided in the resolution of the Board of Directors choosing him, no officer other than the Chairman or Vice-Chairman of the Board, if any, need be a director. Any number of offices may be held by the same person, as the directors may determine. Unless otherwise provided in the resolution choosing him, each officer shall be chosen for a term which shall continue until the meeting of the Board of Directors following the next annual meeting of stockholders and until his successor shall have been chosen and qualified. All officers of the corporation shall have such authority and perform such duties in the management and operation of the corporation as prescribed in these Bylaws and shall have such additional authority and duties as may be designated by the Board of Directors. Any officer may be removed, with or without cause and upon no prior notice, by the Board of Directors. Any vacancy in any office may be filled by the Board of Directors. 8 1. CHAIRMAN OF THE BOARD. The Chairman of the Board shall be a member of the Board and shall preside at its meetings and at all meetings of stockholders. He shall hold such offices, if any, and have such powers and perform such duties as may be prescribed by the Board. 2. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer, subject to the direction and under the supervision of the Board, shall have general charge of the business and affairs of the corporation and shall keep the Board fully advised. At the direction of the Board, he shall have power in the name of the corporation and on its behalf to execute any and all deeds, mortgages, contracts, agreements and other instruments in writing. He shall employ and discharge employees and agents of the corporation, except such as shall hold their offices by appointment of the Board, but he may delegate these powers to other officers as to employees under their immediate supervision. He shall see that the acts of the executive officers conform to the policies of the corporation as determined by the Board and shall have such powers and perform such other duties as may from time to time be assigned to him by the Board.. 3. PRESIDENT. The President, subject to the direction and under the supervision of the Board, shall perform such duties as generally pertain to the office of President, as well as such further duties as may be prescribed by the Board. 4. CHIEF OPERATING OFFICER. The Chief Operating Officer, subject to the direction and under the supervision of the Board, shall perform such duties as generally pertain to the office of Chief Operating Officer, as well as such further duties as may be prescribed by the Board. 5. CHIEF FINANCIAL OFFICER. The Chief Financial Officer, subject to the direction and under the supervision of the Board, shall perform such duties as generally pertain to the office of Chief Financial Officer, as well as such further duties as may be prescribed by the Board. 6. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board, if any, shall be a member of the Board. If the office of Chairman of the Board be vacant, or if the Chairman of the Board be absent, he shall preside at meetings of the stockholders and of the Board. He shall have such powers and perform such duties as may be prescribed by the Board. 7. VICE PRESIDENTS. Each Vice President shall have such powers and perform such duties as the Board or the Chairman of the Board, the Chief Executive Officer, the President or the Vice Chairman of the Board, if any, may from time to time prescribe, and shall perform such other duties as may be prescribed in these Bylaws. In the absence or inability to act of the Chairman of the Board, the Chief Executive Officer, the President and Vice Chairman of the Board, the Vice President next in order as designated by the Board, or in the absence of such designation, senior in length of service in such capacity, who shall be present and able to act, shall perform all the duties and may exercise any of the powers of the President, subject to the control of the Board. The performance of any duty by a Vice President shall be conclusive evidence of his power to act. 9 8. TREASURER. The Treasurer shall have the care and custody of all funds and securities of the corporation which may come into his control and he shall deposit the same to the credit of the corporation in such banks or other depositary or depositories as the Board may designate. He may endorse all commercial documents requiring endorsements for or on behalf of the corporation and may sign all receipts and vouchers for payments made to the corporation. He shall render an account of his transactions to the Board as often as it shall require the same and shall at all reasonable times exhibit his books and accounts to any director, and shall cause to be entered regularly in books kept for that purpose full and accurate account of all moneys received and disbursed by him on account of the corporation. He shall, if required by the Board, give the corporation a bond in such sums and with such securities as shall be satisfactory to the Board, conditioned upon the faithful performance of his duties and for the restoration to the corporation in case of his death, resignation, retirement or removal from office of all books, papers, vouchers, money and other property of whatever kind in his possession, or under his control, belonging to the corporation. He shall have such further powers and duties as are incident to the position of Treasurer, subject to the control of the Board. 9. SECRETARY. The Secretary shall record the proceedings of meetings of the Board and of the stockholders in a book kept for that purpose and shall attend to the giving and serving of all notices of the corporation. He shall have custody of the seal of the corporation and shall affix the seal to all certificates of shares of stock of the corporation (if required by the form of such certificates) and to such other papers or documents as may be proper and, when the seal is so affixed, he shall attest the same by his signature wherever required. He shall have charge of the stock certificate book, transfer book and stock ledger, and such other books and papers as the Board may direct. He shall, in general, perform all duties of Secretary, subject to the control of the Board. 10. ASSISTANT TREASURERS. In the absence or inability of the Treasurer to act, any Assistant Treasurer may perform all the duties and exercise all of the powers of the Treasurer, subject to the control of the Board. The performance of any such duty shall be conclusive evidence of his power to act. An Assistant Treasurer shall also perform such other duties as the Treasurer or the Board may from time to time assign to him. 11. ASSISTANT SECRETARIES. In the absence or inability of the Secretary to act, any Assistant Secretary may perform all the duties and exercise all the powers of the Secretary, subject to the control of the Board. The performance of any such duty shall be conclusive evidence of his power to act. An Assistant Secretary shall also perform such other duties as the Secretary or the Board may from time to time assign to him. 12. OTHER OFFICERS. Other officers shall perform such duties and have such powers as may from time to time be assigned to them by the Board. 13. DELEGATION OF DUTIES. In case of the absence of any officer of the corporation, or for any other reason that the Board may deem sufficient, the Board may confer, for the time being, the powers or duties, or any of them, of such officer upon any other officer, or upon any director. 10 ARTICLE IV ---------- CORPORATE SEAL -------------- The corporate seal shall be in such form as the Board of Directors shall prescribe. ARTICLE V --------- FISCAL YEAR ----------- The fiscal year of the corporation shall be fixed, and shall be subject to change, by the Board of Directors. ARTICLE VI ---------- AMENDMENTS ---------- Subject to the provisions of the certificate of incorporation and the provisions of the General Corporation Law, the power to amend, alter, or repeal these Bylaws and to adopt new Bylaws may be exercised by the Board of Directors or by the stockholders. 11 EX-10.1 3 a4700773ex101.txt EXHIBIT 10.1 CONVERTIBLE DEBENTURE --------------------- NEITHER THIS DEBENTURE NOR ANY SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS DEBENTURE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR UNDER THE SECURITIES LAWS OF ANY STATE. NEITHER THIS DEBENTURE NOR ANY SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS DEBENTURE MAY BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE DEBENTURE OR SUCH SHARES UNDER SUCH ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ION NETWORKS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED PURSUANT TO A VALID EXEMPTION THEREFROM UNDER THE ACT. ION NETWORKS CONVERTIBLE DEBENTURE August 5, 2004 $200,000.00 1. Loan. In exchange for $200,000.00, receipt of which is hereby acknowledged, the undersigned ION Networks, Inc., a Delaware corporation, with its address at 120 Corporate Boulevard, South Plainfield, New Jersey 07080 (referred to herein as "Borrower"), promises to pay to the order of Stephen M. Deixler, with an address at 371 Eagle Drive, Jupiter, Florida, 33477 ("Lender"), the principal sum of $200,000.00, and interest from the date hereof on the outstanding principal balance, at a rate equal to five (5%) percent per annum. Interest shall be compounded at each twelve (12) month anniversary of the issuance of this Note. The principal balance then outstanding under this convertible debenture ("Debenture") plus accrued but unpaid interest shall be paid in full on August 4, 2008 (the "Maturity Date"), subject to Borrower's prepayment rights as set forth below. Notwithstanding any other provision hereof, interest paid or becoming due hereunder shall in no event exceed the maximum rate permitted by applicable law. All amounts due hereunder are payable in lawful money of the United States of America to the Lender at the address above indicated, or as to any assignee of Lender, at the address provided by such assignee. 2. Conversion. (a) At any time from the date hereof through the date that this Debenture is paid in full, Lender shall have the right, in its sole discretion, to convert the outstanding principal in whole or in part (but if in part, in increments of principal of no less than Ten Thousand ($10,000) Dollars), into shares of Common Stock par value $.001 per share ("Common Stock") of the Borrower, at the Conversion Price per share, subject to adjustment as described below. The Conversion Price shall be equal to the simple average of the closing trading price (or if no trades occurred that day, the mean between the high bid and low ask on such date) of the Borrower's Common Stock as reported on the Yahoo finance page or comparable service (the "Closing Price") over a ten (10) Trading Day period commencing on July 29,2004 until August 12, 2004, excluding closing date. A "Trading Day" shall mean any day on which the Principal Market is open for business and (ii) "Principal Market" shall mean initially the OTC Bulletin Board and shall include the American Stock Exchange, Nasdaq National Market, the Nasdaq SmallCap Market, Bulletin Board or the New York Stock Exchange if the Borrower is listed and its Common Stock trades on such market or exchange. If the Borrower's Common Stock trades on more than one market, the Principal Market shall be the market with the greatest trading volume over the three-month period prior to the date or determination of any event specified herein. (b) Lender may convert the above specified amount of this Debenture at the then applicable Conversion Price by the surrender of this Debenture (properly endorsed) at the principal office of the Borrower, or at such other agency or office of the Borrower in the United States of America as the Borrower may designate by notice in writing to the Lender at the address of Lender appearing herein. Upon any conversion of this Debenture, there shall be executed and issued to the Lender a new Debenture in respect of such outstanding amounts of principal and accrued but unpaid interest hereunder as to which Lender shall not have converted this Debenture, if any. In the event of the conversion of this Debenture, a certificate or certificates for the securities so converted, as applicable, registered in the name of the Lender, shall be delivered to the Lender fifteen (15) days after the receipt by Borrower of this Debenture and Lender's written request for conversion. Such certificate shall bear a legend indicating the restricted nature of the securities issued comparable to the legend on the first page of the Debenture. (c) The Borrower may at any time after August 5, 2005, at its option, automatically convert the principal and accrued interest thereon of this Debenture to shares of Common Stock, at the Conversion Price, if the Borrower's per share Closing Price exceeds the Conversion Price multiplied by two (2) for any twelve (12) Trading Days in any consecutive fifteen (15) Trading Day period. If Borrower elects to automatically convert this Debenture, such conversion shall be effective from the date the Borrower transmits a notice to Lender of this election. (d) If the Borrower, at any time while this Debenture is outstanding, (A) shall pay a stock dividend or otherwise make a distribution on shares of its Common Stock, which dividend or distribution is payable in shares of Common Stock, (B) subdivide outstanding shares of Common Stock into a larger number of shares or (C) combine (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, then the Conversion Price as then in effect shall be adjusted by multiplying it by a fraction, of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding before such event and of which the denominator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding after such event. 2 (e) Any adjustment to the Conversion Price made pursuant to the adjustment provisions of this Section 2 shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision or combination. (f) In case of any consolidation or merger of the Borrower with or into another corporation or entity, or the conveyance of all or substantially all of the assets of the Borrower to another corporation or entity, in either case resulting in a conversion, extinguishment or exchange of the outstanding shares of Common Stock, or any other reclassification of the Common Stock not described above, this Debenture shall thereafter be convertible into the number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock of the Borrower deliverable upon conversion of this Debenture would have been entitled upon such consolidation, merger, conveyance or reclassification; and, in any such case, appropriate adjustment shall be made in the application of the provisions herein set forth with respect to the rights and interest thereafter of the holder of this Debenture, to the end that the provisions set forth herein shall be thereafter applicable, as nearly as reasonably may be, in relation to any shares of stock or other property thereafter deliverable upon the conversion of the Debenture. (g) This Debenture and any of the rights granted hereunder, and any of the shares issuable upon conversion, are freely transferable by the Lender, in its sole discretion, subject to federal and state securities law restrictions. In the event of a transfer of the Debenture, in part, but not in whole, the Borrower will issue a Debenture replacing that of the transferor, with respect to the principal amount of the Debenture not transferred and shall issue a new Debenture to the transferee representing the portion so transferred. (h) The Borrower covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock solely for the purpose of issuance upon conversion of this Debenture, free from preemptive rights or any other actual contingent purchase rights of persons other than the Lender or subsequent Holders (as defined below), not less than such number of shares of the Common Stock as shall be issuable upon the conversion of the outstanding principal amount of this Debenture. The Borrower covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly and validly authorized, issued and fully paid, nonassessable. (i) Upon conversion hereunder, the Borrower shall not be required to issue stock certificates representing fractions of shares of the Common Stock, and in lieu of any fractional shares which would otherwise be issuable, the Borrower shall issue the next highest whole number of shares of Common Stock. (j) If (i) the Borrower shall declare a dividend (or any other distribution) on the Common Stock; (ii) the Borrower shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock; (iii) the Borrower shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; (iv) the approval of any stockholders of the Borrower 3 shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Borrower is a party, any sale or transfer of all or substantially all of the assets of the Borrower, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; or (v) the Borrower shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Borrower; then, in each case, the Borrower shall cause to be filed at each office or agency maintained for the purpose of conversion of the Debenture, and shall cause to be mailed to the Lender and any other Holder at its last address as shall appear upon the debenture records of the Borrower, at least 10 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (i) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distribution, redemption, rights or warrants are to be determined, or (ii) the date on which such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up, provided, that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice; provided further, that if any action is taken on written consent in lieu of meeting, notice shall be made as soon as reasonably practicable thereafter. (k) The issuance of certificates for shares of the Common Stock or other securities on conversion of this Debenture shall be made without charge to the Lender for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificate, provided that the Borrower shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Lender and the Borrower shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Borrower or its designee the amount of such tax or shall have established to the satisfaction of the Borrower that such tax has been paid. (l) Nothing herein shall limit any right granted to Lender by any other instrument or document or by law or equity. 3. Prepayment. Borrower may, at any time after August 5, 2005 and prior to the Maturity Date, prepay the principal balance of this Debenture, in whole or in part, provided, however, that such prepayment be made in increments of principal of no less than Ten Thousand ($10,000) Dollars. Any such prepayment shall be accompanied by accrued interest on any portion of the principal of the Debenture being prepaid. Borrower shall exercise its right of prepayment by mailing a notice to Lender of the amount of the Debenture being prepaid, 30 days in advance of the intended prepayment, and by delivering a check representing the appropriate consideration for the prepayment within 45 days after such notice. No prepayment shall be permitted as to any principal amount for which Lender has requested conversion under Section 2 above prior to the end of the 30-day period following the giving of the notice of prepayment by Borrower. 4 Prepayment shall require a premium on the outstanding principal balance being repaid of (i) four (4%) percent, if prepayment is to be made on or prior to one year from the date hereof and (ii) two (2%) percent, if prepayment is to be made after one year from the date hereof and on or prior to two years from the date hereof. No prepayment premium shall be required for prepayments to be made after two (2) years from the date hereof. 4. Events of Default. Each of the following events, if occurring while any of the principal or interest of this Debenture remains unpaid, shall constitute an "Event of Default" hereunder: (a) The Borrower shall fail to pay the principal or interest of this Debenture or any other amounts payable to the Lender hereunder when due. (b) The Borrower shall commence, or there shall be commenced against the Borrower a case under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor thereto, or the Borrower commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Borrower or there is commenced against the Borrower any such bankruptcy, insolvency or other proceeding which remains undismissed for a period of 60 days; or the Borrower is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Borrower suffers any appointment of any custodian or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of 60 days; or the Borrower makes a general assignment for the benefit of creditors; or the Borrower shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due. (c) Immediately upon the occurrence of an Event of Default, at Lender's option, (i) the Maturity Date shall be deemed to have occurred automatically and (ii) the entire principal amount of this Debenture then outstanding, all other amounts payable by the Borrower hereunder shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower, anything herein to the contrary notwithstanding. Upon the occurrence and during the continuation of an Event of Default and the declaration of the Maturity Date, the Lender shall have, in addition to all other rights and remedies under this Debenture and related documents, all other rights and remedies provided under each applicable jurisdiction and other applicable laws, which rights shall be cumulative. 5. Notices. Any and all notices or other communications or deliveries to be provided by the Lender hereunder shall be in writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier service or sent by certified or registered mail, postage prepaid, addressed to the Borrower, at the address set forth above, facsimile number: ___________, Attn: Chief Executive Officer, or such other address or facsimile number as the Borrower may specify for such purposes by notice to the Lender delivered in accordance with this paragraph. Any and all notices or other communications or deliveries to be provided by the Borrower hereunder shall be in writing and delivered personally, 5 by facsimile, sent by a nationally recognized overnight courier service or sent by certified or registered mail, postage prepaid, addressed to the Lender (or its assignee) at the address of the Lender (or such assignee) appearing on the books of the Borrower, or if no such address appears, at the principal place of business of the Lender. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission if delivered by hand or by telecopy that has been confirmed as received by 5:00 P.M. on a business day, (ii) one business day after being sent by nationally recognized overnight courier or received by telecopy after 5:00 P.M. on any day, or (iii) five business days after being sent by certified or registered mail, postage and charges prepaid, return receipt requested. 6. Registration of Conversion Shares. (a) If (but without any obligation to do so) the Borrower proposes to register (including for this purpose a registration effected by the Borrower for stockholders other than the Lender) any of its stock or other securities under the Act in connection with the public offering of such securities solely for cash (other than a registration statement relating either to (i) the sale of securities to employees of the Borrower pursuant to a stock option, stock purchase or similar plan, or (ii) a SEC Rule 145 transaction), the Borrower shall, at such time, promptly give the Lender and its registered assigns of all or part of this Debenture (the Lender and each such person, a "Holder") written notice of such proposed registration. Upon the written request of a Holder given within twenty (20) days after mailing of such notice by the Borrower in accordance with Section 5 hereof, the Borrower shall, subject to the provisions of Section 8(c), endeavor to cause to be registered for resale under the Act all of the shares of Common Stock issuable upon conversion of the Debenture (the "Conversion Shares") that each such Holder has requested to be registered. (b) Whenever required under this Section 6(a) to effect the registration of any Conversion Shares, the Borrower shall, as expeditiously as reasonably possible use reasonable efforts to (i) file a registration statement (the "Registration Statement"), registering for resale the Conversion Shares and (ii) cause the Registration Statement to be declared effective under the Securities Act of 1933, as amended (the "Act") as soon thereafter as reasonably practicable. The Borrower promptly shall provide each Holder with such copies of the final prospectus contained in the Registration Statement after it becomes effective as they shall reasonably request. In addition, the Borrower shall (a) use reasonable efforts to keep the Registration Statement effective for a period ending on the earlier of (x) one (1) year after the Maturity Date of this Debenture or (y) when all such Conversion Shares can be sold without limitation or delay under Rule 144, and (b) file all reports and forms required to be filed by it under the Securities Exchange Act of 1934, as amended ("Reports") on a timely basis so long as a Holder owns any Conversion Shares and shall provide each Holder copies thereof when filed. The Borrower shall not be required to effect a registration of the Conversion Shares if at the time of filing of a Registration Statement, all such Conversion Shares can be sold without limitation or delay under Rule 144. (c) Notwithstanding anything contained herein to the contrary, the Borrower shall be entitled to postpone the filing of the Registration Statement otherwise required to be prepared and filed by it in accordance with subparagraph (b) or, in the event the Registration Statement has been declared effective, without suspending such effectiveness, instruct the Holder promptly in writing not to sell or distribute any Conversion Shares (a "Delay"), which instruction Holder shall comply with, as long as the reason for non-disclosure continues, if the 6 Borrower would be required to disclose in the Registration Statement the existence of any fact relating to a material business situation, transaction or negotiation, or would be required to disclose information that the Borrower has not otherwise made public, in each case, that the Borrower reasonably determines is in the best interests of the Borrower not to disclose at such time, and unless and until each Holder furnishes to the Borrower in writing information that may be required to prepare the disclosure required by Items 507 and 508 of Regulation S-B promulgated under the Act, with respect to such Holder's Conversion Shares being sold under the Registration Statement; provided that, with respect to Delays because of information related to the Borrower (rather than disclosure required to be provided by the Holders), the Borrower shall only be entitled to a maximum of three (3) Delays, each Delay not to exceed a period of thirty (30) days; and further provided, that no period of Delay shall commence within 60 days of a previous Delay. (d) Each Holder shall (i) reasonably cooperate with the Borrower in connection with the preparation and filing of the Registration Statement and execute and deliver any agreements or instruments reasonably requested by the Borrower or its counsel in connection therewith and (ii) upon discovery that, or upon the happening of any event as a result of which, the Registration Statement (or any prospectus included therein), as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading, in the light of the circumstances under which they were made (as determined by the Borrower or its counsel in its sole discretion), forthwith discontinue its disposition of Conversion Shares pursuant to the Registration Statement, until such time as such Holder have received a supplemented or amended prospectus from the Borrower relating thereto. The Borrower agrees to use its best efforts to prepare any necessary amendments or supplements to the Registration Statement as soon as reasonably practicable after the same becomes necessary and to provide to each Holder quantities of such amendments or supplements reasonably sufficient for the distribution thereof. (e) The Borrower shall indemnify and hold harmless each Holder and its respective officers, directors, employees, members, agents, affiliates and control persons (each of the foregoing, a "Holder Indemnitee") who is or may be a party or is or may be threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of or arising from any actual or alleged misrepresentation or misstatement of facts or omission to represent or state any fact or omission to state a fact necessary to make the facts stated under the circumstances not materially misleading, in the Registration Statement or any amendment or supplement thereto or to the prospectus incorporated therein from and against any claim, losses, liabilities, costs and expenses (including attorney's fees, judgments, fines and amounts paid in settlement) ("Loss") actually and reasonably incurred by any such Holder Indemnitee in connection with such claim, action, suit or proceeding or the defense thereof, except to the extent such Loss is the direct result of a misstatement or omission for which such Holder Indemnitee is liable to the Borrower under Section 7(h); 7 provided, however, that the indemnification contained in this Section 6(e) with respect to any preliminary prospectus shall inure to the benefit of any Holder Indemnitee on account of any such Loss arising from the sale of the Conversion Shares by such Holder Indemnitee to any person if a copy of the definitive prospectus shall have been delivered or sent to such person within the time required by the Act and the regulations thereunder, and an untrue statement or alleged untrue statement or omission or alleged omission of a material fact contained in such preliminary prospectus was corrected in the definitive prospectus. (f) In connection with any offering involving an underwriting of shares of the Borrower's capital stock, the Borrower shall not be required under Section 8(a) to include any of the Holders' Conversion Shares in such underwriting unless they accept the terms of the underwriting as agreed upon between the Borrower and the underwriters selected by it (or by other persons entitled to select the underwriters), and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Borrower. If the total amount of securities, including Conversion Shares, requested by stockholders to be included in such offering exceeds the amount of securities sold other than by the Borrower that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Borrower shall be required to include in the offering only that number of such securities, including Conversion Shares, which the underwriters determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the selling stockholders according to the total amount of securities entitled to be included therein owned by each selling stockholder or in such other proportions as shall mutually be agreed to by such selling stockholders). 7. Representations of Lender and Holders. The Lender and each subsequent Holder acknowledges that the Borrower will rely on the information and on the representations set forth herein, and the Lender and as applicable, each subsequent Holder, hereby represents, warrants and agrees that: (a) The Lender is an "Accredited Investor", as that term is defined under Section 501(a) of Regulation D under the Act, by virtue of the fact that the Lender is a director of the Borrower. (b) The Lender has not received any general solicitation or general advertising regarding the purchase of the Debenture. (c) The Lender has sufficient knowledge and experience in financial and business matters so that he or it is able to evaluate the merits and risks of purchasing the Debenture as well as substantial experience in previous private and public purchases of securities. (d) The Holder understands that an investment in the Borrower involves significant risk. The Holder does not require the funds to be used to purchase this Debenture for his liquidity or other needs, possesses the ability to bear the economic risk of holding the this Debenture or the Conversion Shares purchased hereunder indefinitely and can afford a complete loss of its investment in the this Debenture or the Conversion Shares. 8 (e) Prior to the issuance of this Debenture, the Lender, and prior to conversion, the Holder, has or will have had full opportunity to ask questions of and receive answers from the Borrower and its officers and authorized representatives regarding the terms and conditions of the Debenture and the transactions contemplated hereby, as well as the affairs of the Borrower and related matters. The Holder confirms that he does not desire to receive any further information. (f) The Holder understands that the Debenture has not been filed with or reviewed by the Commission nor the securities department of any state because of the private or limited nature of this offering as defined by applicable laws, and that the Debenture and the Conversion Shares have not been registered with the Commission under the Act nor with the securities department of any state in reliance upon an exemption therefrom for non-public offerings. (g) The Holder represents and warrants that the Debenture and the Conversion Shares are or will be acquired for investment purposes and not with a view to or for sale or distribution. The Holder represents that, upon acquisition of the Debenture and the Conversion Shares, there is no contract, undertaking, agreement or arrangement with any person to sell, transfer or pledge to such person or anyone else the Debenture and the Conversion Shares or any part thereof, and the Holder, upon acquisition of the Debenture and the Conversion Shares, has no present plans to enter into such contract, undertaking, agreement or arrangement and will neither directly or indirectly seek to assign, transfer or sell the same in any way inconsistent with the legend which is being placed on the Debenture and the Conversion Shares. (h) Each Holder agrees to indemnify and hold harmless the Borrower and each officer, director, employee, agent or control person of the Borrower, who is or may be a party or is or may be threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, to the extent by reason of or arising from any misrepresentation or misstatement of material facts or omission to state material facts necessary to make the facts stated, under the circumstances, not materially misleading, made or omitted by such Holder to the Borrower in a writing provided to the Borrower expressly for the purpose of inclusion in the Registration Statement or any amendment thereto, against losses, liabilities and expenses for which the Borrower, or any officer, director or control person of the Borrower has not otherwise been reimbursed (including attorneys' fees, judgments, fines and amounts paid in settlement) actually and reasonably incurred by the Borrower or such officer, director or control person in connection with such action, suit or proceeding. 8. Amendments and Waivers. Any provision of this Debenture may be modified and compliance with any of the provisions hereof may be waived only with the written consent of the Lender and Borrower. If the Debenture has been assigned in whole or in part, each Debenture outstanding may be modified and compliance with any provision waived, only with the written consent of the Borrower and the Holder of such Debenture. 9. Governing Law. This Debenture and the provisions hereof are to be construed according to and are governed by the laws of the State of Delaware, other than those which would defer to the substantive laws of another jurisdiction. Any dispute arising hereunder shall be subject to adjudication solely in the federal and state courts of the State of New Jersey in __________ County. The Borrower and each Holder hereby consent to the exclusive jurisdiction of such courts, waiving any claim of inconvenient forum. 9 IN WITNESS WHEREOF, the Borrower and Lender have caused this Debenture to be duly executed by a duly authorized officer as of the date first above indicated. ION NETWORKS, INC. By: ------------------------------ Name: Norman Corn Title: Chief Executive Officer Lender: __________________________ Steven M. Deixler 10 EX-31.1 4 a4700773ex311.txt EXHIBIT 31.1 Exhibit 31.1 I, Norman E. Corn, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of ION Networks, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the small business issuer and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals; c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter that has materially affected, or is reasonable likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: August 13, 2004 /s/ Norman E. Corn - ------------------ Norman E. Corn Chief Executive Officer 18 EX-31.2 5 a4700773ex312.txt EXHIBIT 31.2 Exhibit 31.2 I, Patrick Delaney, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of ION Networks, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15f and 15d-15(f)) for the small business and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals; c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter that has materially affected, or is reasonable likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: August 13, 2004 /s/ Patrick Delaney - ------------------- Patrick Delaney Chief Financial Officer 19 EX-32.1 6 a4700773ex321.txt EXHIBIT 32.1 Exhibit 32.1 ION Networks, Inc. CERTIFICATION ------------- In connection with the periodic report of ION Networks, Inc. (the "Company") on Form 10-QSB for the period ended June 30, 2004 as filed with the Securities and Exchange Commission (the "Report"), I, Norman E. Corn, Chief Executive Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge: (1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated. A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to ION Networks, Inc. and will be retained by ION Networks, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. This Certification has not been, and shall not be deemed, "filed" with the Securities and Exchange Commission. Date: August 13, 2004 By: /s/ Norman E. Corn --------------- ------------------ Norman E. Corn Chief Executive Officer 20 EX-32.2 7 a4700773ex322.txt EXHIBIT 32.2 Exhibit 32.2 ION Networks, Inc. CERTIFICATION In connection with the periodic report of ION Networks, Inc. (the "Company") on Form 10-QSB for the period ended June 30, 2004 as filed with the Securities and Exchange Commission (the "Report"), I, Patrick E. Delaney, Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge: (1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated. A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to ION Networks, Inc. and will be retained by ION Networks, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. This Certification has not been, and shall not be deemed, "filed" with the Securities and Exchange Commission. Date: August 13, 2004 By: /s/ Patrick Delaney --------------- ----------------------- Patrick Delaney Chief Financial Officer 21 -----END PRIVACY-ENHANCED MESSAGE-----