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
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(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.
4
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.
5
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