U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
/ X / QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1998
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.
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(Exact Name of Small Business Issuer in Its Charter)
Delaware 22-2413505
------------------------------- ---------------------------
(State or Other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
21 Meridian Road, Edison, New Jersey 08820
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(Address of Principal Executive Offices)
(732) 494-4440
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(Issuer's telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
There were 5,586,367 shares of Common Stock outstanding as of February 16, 1999.
Transitional Small Business Disclosure Format:
Yes No X
--- ---
<PAGE>
ION NETWORKS, INC. AND SUBSIDIARY
FORM 10-QSB/A
FOR THE QUARTER ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Condensed Consolidated Financial Information 1
Condensed Consolidated Balance Sheets as of December 31, 1998
and March 31, 1998 (Unaudited) 2
Condensed Consolidated Statements of Operations for the Three
and Nine Months Ended December 31, 1998 and 1997 (Unaudited) 3
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended December 31, 1998 and 1997 (Unaudited) 4
Notes to Condensed Consolidated Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Information.
--------------------------------------------
The condensed consolidated financial statements included herein have
been prepared by the registrant without audit pursuant to the rules and
regulations of the Securities and Exchange Commission. Although the registrant
believes that the disclosures are adequate to make the information presented not
misleading, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. It is suggested that these condensed financial statements be read
in conjunction with the audited financial statements and the notes thereto
included in the registrant's Annual Report on Form 10-KSB for the year ended
March 31, 1998.
<PAGE>
<TABLE>
<CAPTION>
Ion Networks, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
(unaudited)
DECEMBER 31, MARCH 31,
ASSETS 1998 1998
<S> <C> <C>
Current assets
Cash and cash equivalents $ 345,892 $ 507,726
Accounts receivable, less allowance for doubtful
accounts of $95,249 and $126,000 2,823,565 2,667,319
Inventory, net 2,036,567 1,425,351
Deferred tax asset 337,512 366,137
Prepaid expenses and other current assets 461,557 153,568
------------- -------------
Total current assets 6,005,093 5,120,101
Property and equipment at cost, net of Accumulated
Depreciation and Amortization of $585,015 and $971,903 693,423 421,701
Capitalized software, less accumulated amortization
of $1,266,054 and $1,054,827 944,747 396,351
Noncurrent deferred tax assets, net 119,239 129,689
Goodwill, less accumulated amortization of $33,555
and $26,130 68,055 75,480
Security deposits 39,798 35,716
Other assets 1,026,064
------------- -------------
Total assets $ 8,896,419 $ 6,179,038
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 1,100,428 $ 330,009
Accounts payable 1,694,260 910,842
Accrued payroll and related liabilities 212,348 348,397
Deferred income 95,673 181,573
Other current liabilities 337,697 405,263
------------- -------------
Total current liabilities 3,440,406 2,176,084
Long-term debt 500,000 0
Commitments and contingencies
Stockholders' equity
Common stock - par value $.001 per share; authorized
50,000,000 shares, issued 5,558,428 shares and
outstanding 5,496,397 shares at December 31, 1998;
issued 4,849,531 shares and outstanding 4,849,131 shares
and subscribed 50,000 shares at March 31, 1998 5,558 4,899
Preferred stock - par value $10 per share;
authorized 200,000 shares, none issued
Additional paid-in capital 7,367,315 6,345,613
Stock subscription receivable (104,000)
Accumulated deficit (2,200,227) (2,231,638)
Cumulative translation adjustment (9,434) (7,920)
------------- --------------
5,163,212 4,006,954
Less - Treasury stock, 62,031 shares, at cost (207,199) (4,000)
------------- --------------
Total stockholders' equity 4,956,013 4,002,954
------------- --------------
Total liabilities and stockholders' equity $ 8,896,419 $ 6,179,038
============= ==============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ion Networks, Inc. and Subsidiary
Condensed Consolidated Statements of Operations
(unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------ ------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales $ 3,273,701 $ 3,051,537 $ 9,451,604 $ 7,069,810
Cost of sales 1,372,154 1,366,641 3,436,590 3,153,739
----------- ----------- ----------- -----------
Gross Margin 1,901,547 1,684,896 6,015,014 3,916,071
Research and development
expenses 714,522 254,796 1,767,629 722,144
Selling, general and
administrative expenses 1,488,556 1,213,739 4,125,665 3,075,161
----------- ----------- ----------- -----------
Income (loss) from operations (301,531) 216,361 121,720 118,766
Interest income 0 5,448 5,139 14,652
Interest expense (25,445) (980) (55,725) 3,617
----------- ----------- ----------- -----------
Income (loss) before income tax
provision (benefit) (326,976) 220,829 71,134 129,801
Income tax provision (benefit) (108,868) (144,690) 39,723 (152,410)
----------- ----------- ----------- -----------
Net income (loss) $ (218,108) $ 365,519 $ 31,411 $ 282,211
=========== =========== =========== ===========
Per share data
Basic
$ (0.04) $ 0.08 $ 0.01 $ 0.06
=========== =========== =========== ===========
Diluted $ (0.04) $ 0.07 $ - $ 0.06
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
<TABLE>
<CAPTION>
Ion Networks, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
(unaudited)
NINE MONTHS ENDED
DECEMBER 31,
-----------
1998 1997
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 31,411 $ 282,211
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 410,616 314,626
Provision for bad debts (30,751) (44,374)
Deferred tax provision 39,723 (152,410)
Increase (decrease) in
Accounts receivable (125,495) (910,449)
Inventory (611,216) (237,029)
Prepaid expenses and other current assets (307,989) (24,502)
Security deposits (4,082) (2,436)
(Increase) decrease in
Accounts payable 783,418 620,417
Accrued payroll and related liabilities (136,049) (166,316)
Deferred income (85,900) 246,964
Other current liabilities (67,566) 127,746
---------- ---------
Net cash (used in) provided by operating activities (103,880) 54,448
---------- ---------
Cash flows from investing activities
Capital expenditures (383,582) (126,217)
Capitalized software (759,623) (179,917)
Other assets (1,026,064)
---------- ---------
Net cash used in investing activities (2,169,269) (306,134)
---------- ---------
Cash flows from financing activities
Repayments of debt (30,009) (31,609)
Proceeds of short-term borrowings 1,300,428
Issuance of common stock 840,896 624
---------- ---------
Net cash provided by (used in) financing activities 2,111,315 (30,985)
---------- ---------
Net decrease in cash and cash equivalents (161,834) (282,671)
Cash and cash equivalents - beginning of period 507,726 539,214
---------- ---------
Cash and cash equivalents - end of period $ 345,892 $ 256,543
========== =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
<PAGE>
Ion Networks, Inc. and Subsidiary
Notes to Condensed Consolidated
Financial Statements
December 31, 1998
- --------------------------------------------------------------------------------
(Unaudited)
Note 1 - Condensed Consolidated Financial Statements:
The condensed consolidated balance sheets as of December 31, 1998 and March 31,
1998, the condensed consolidated statements of operations for the three and nine
month periods ended December 31, 1998 and 1997 and the condensed consolidated
statements of cash flows for the nine month periods then ended have been
prepared by the Company without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary for the
fair presentation of the Company's financial position, results of operations and
cash flows at December 31, 1998 and 1997 have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed financial
statements be read in conjunction with the audited financial statements and
notes thereto included in the annual report on Form 10-KSB for the year ended
March 31, 1998.
Note 2 - Inventory:
Inventory consists of the following:
DECEMBER 31, MARCH 31,
1998 1998
Raw materials $ 1,455,619 $ 1,003,132
Work in process 682,981 525,918
Finished goods 82,967 81,301
----------- ------------
2,221,567 1,610,351
Less, allowance for obsolescence (185,000) (185,000)
----------- ------------
Total $ 2,036,567 $ 1,425,351
=========== ============
Note 3 - Earnings Per Share:
The Company has adopted the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" ("SFAS 128") in the quarter ended December 31, 1997. All prior periods
presented have been restated to account for this change.
<PAGE>
Ion Networks, Inc. and Subsidiary
Notes to Condensed Consolidated
Financial Statements
December 31, 1998
- -------------------------------------------------------------------------------
(Unaudited)
The computation of Basic Earnings Per Share is based on the weighted average
number of common shares outstanding for the period. Diluted Earnings Per Share
is based on the weighted average number of common shares outstanding for the
period plus the dilative effect of common stock equivalents, comprised of
outstanding stock options and warrants.
The following is a reconciliation of the denominator used in the calculation of
basic and diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
12/31/98 12/31/97 12/31/98 12/31/97
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted Average # of Shares
Outstanding 5,465,331 4,839,303 5,490,922 4,697,257
Incremental Shares for Common
Equivalents 727,023 207,368 964,476 288,652
---------- ---------- --------- ----------
Diluted shares outstanding 6,192,354 5,046,671 6,455,398 4,985,909
========== ========== ========= ==========
</TABLE>
Note 4 - Comprehensive Income:
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income".
The following table reflects the reconciliation between net income per the
financial statements and comprehensive income:
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
12/31/98 12/31/97 12/31/98 12/31/97
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) $(218,108) $365,519 $ 31,411 $ 282,211
Effect of foreign currency translation (11,755) - (1,514) - 7
--------- -------- -------- ---------
Comprehensive income (loss) $(229,863) $365,519 $ 29,897 $ 282,211
========= ======== ======== =========
</TABLE>
<PAGE>
Ion Networks, Inc. and Subsidiary
Notes to Condensed Consolidated
Financial Statements
December 31, 1998
- --------------------------------------------------------------------------------
(Unaudited)
Note 5 - Long Term Debt and Bank Borrowings:
In October 1998, the Company successfully negotiated with United National Bank
to provide the Company with a $2,000,000 line of credit and a $500,000 term
loan, collateralized by the Company's accounts receivable. The borrowings bear
interest at the prime rate (8.25% at December 31, 1998) plus 25 basis points.
Note 6 - Recent Pronouncements:
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS 131,
"Disclosure about Segments of an Enterprise and Related Information" which
becomes effective for financial statements for periods beginning after December
31, 1997. This Statement establishes standards for the way that public business
enterprises report information about operating segments in annual financial
reports and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. The adoption of this standard is not
expected to have a material impact on the Company's financial statements.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure about
Pensions and Other Postretirement Benefits." Among other provisions, it
standardizes certain disclosure requirements for pension and other
postretirement benefits, requires additional information on changes in the
benefit obligations and fair values of plan assets, and eliminates certain other
disclosures. The standard is effective for fiscal years beginning after December
15, 1997. Since the standard applies only to the presentation of pension and
other postretirement benefit information and the Company does not currently
offer such plans, the statement does not have any impact on the Company's
results of operations, financial position or cash flows.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." Among other provisions, the SOP
requires that entities capitalize certain internal-use software costs once
certain criteria are met. The SOP is effective for financial statements for
fiscal years beginning after December 15, 1998, through early adoption is
encouraged. Management is currently assessing the impact on the Company's
consolidated financial statements.
<PAGE>
Ion Networks, Inc. and Subsidiary
Notes to Condensed Consolidated
Financial Statements
December 31, 1998
- --------------------------------------------------------------------------------
(Unaudited)
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Among other provisions, it requires that
entities recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
Gains and losses resulting from changes in the fair values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. This standard is effective for fiscal years
beginning after June 15, 1999, though earlier adoption is encouraged and
retroactive application is prohibited. Management does not expect the adoption
of this standard to have a material impact on the Company's results of
operations, financial position or cash flows.
Note 7 - Other Assets:
Other assets include professional fees and other incremental costs directly
related to the pending acquisition of SolCom which will be recorded as a
purchase transaction. These costs will become part of the purchase price upon
consummation of the transaction, which is expected to close in the fourth
quarter of fiscal year 1999.
Note 8 - Restatement:
The Company has restated its financial statements as of December 31, 1998 and
for the three and nine months then ended to expense $481,820 of research and
development costs which had previously been capitalized. The majority of these
costs were incurred through a research and development agreement with an outside
party that related to projects that had not yet met technological feasibility.
Accordingly, these costs have been reflected as research and development
expenses for the three and nine month periods ended December 31, 1998.
Note 9 - Reclassification:
The Company has reclassified certain prior year amounts to conform with the
fiscal year 1999 presentation.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
A number of statements contained in this report are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 that involve risks and uncertainties that could cause actual results to
differ materially from those expressed or implied in the applicable statements.
These risks and uncertainties include, but are not limited to, the recent
introduction of, and the costs associated with, a new product line; dependence
on the acceptance of this new family of products; risks related to technological
factors; potential manufacturing difficulties; dependence on third parties; a
limited customer base; and liability risks.
RESULTS OF OPERATIONS-THREE MONTHS ENDED DECEMBER 31, 1998 VERSES THREE MONTHS
ENDED DECEMBER 31, 1997
Revenues for the quarter ended December 31, 1998 were $3,273,701 as
compared with revenues of $3,051,537 for the quarter ended December 31, 1997, an
increase of approximately 7.3%. The increase was primarily due to increased
shipments of the Company's Sentinel 2000 product line. The Company continued to
see interest in other members of the family of SNS products, including the
MANAGER 2000 AND SEGASYS 2000. The Company's revenues continued to be positively
impacted as a result of shipments to both the European and domestic markets,
including shipments under its contracts with PTT Holland, MCI, AT&T and Lucent
Technologies.
The Company's cost of goods sold increased from $1,366,641 for the
quarter ended December 31, 1997 to $1,372,154 for the quarter ended December 31,
1998. The Company's cost of goods sold as a percentage of sales decreased from
45% for the previous comparable fiscal period to 42% for this fiscal period.
This is due to the fact that the Company continues to focus on lowering the
costs related to the manufacture of products and has seen an increase in
software related sales that generate a higher margin.
Research and development expenses, net of capitalized software
development, increased to $714,522 from $254,796 in the quarter ended December
31, 1997. The increase is a direct result of an increase in engineering
personnel as well as outside development contracts with third parties. As a
result of increased spending, research and development expenses as a percentage
of revenues increased from 8.3% to 21.8%. Selling, general and administrative
expenses increased approximately 22.6% from $1,213,739 for the prior year's
comparable quarter to $1,488,556 for the quarter ended December 31, 1998.
The Company's income (loss) from operations was ($301,531) for the
three months ended December 31, 1998 compared to income of $216,361 for the same
period a year ago. This decrease was a direct result of the increased spending
on research and development activities as the Company continues to focus its
efforts for growth on the development of new products. The net loss for the
period was ($218,108) as compared to income of $365,519 for the quarter ended
December 31, 1997 mainly due to the increase of research and development
activities as discussed above.
<PAGE>
FIRST NINE MONTHS OF FISCAL 1999 VERSUS FIRST NINE MONTHS FISCAL 1998
Revenues for the nine months ended December 31, 1998 were $9,451,604 as
compared with revenues of $7,069,810 for the comparable period of the previous
fiscal year, an increase of approximately 34%. This improvement is due to the
success of the Company's SENTINEL 2000 family of products, continued shipments
into the European market, sales of SEGASYS 2000 and increased software sales and
continued shipments into the expanding domestic market for Business Oriented
Network Management. The Company's revenues for the nine months ended December
31, 1998 continued to be positively impacted as a result of shipments to the
European market, including shipments under its contract with PTT Holland and in
the US, market shipments to MCI, AT&T and Lucent Technologies. The Company is
continuing to aggressively pursue customers in the global market place.
The Company's cost of goods sold increased to $3,436,590 for the nine
months ended December 31, 1998 compared to $3,153,739 for the nine months ended
December 31, 1997 as a result of increased shipment levels. Cost of goods sold
as a percentage of sales decreased from 45% for the previous comparable fiscal
period to 36% for this fiscal period. This is primarily a result of the
increased sales volume of the Company's product lines and the fact that the
Company continues to focus on lowering the costs related to the manufacture of
products and has increased software related sales that generate a higher margin.
The Company expects continued manufacturing efficiencies as the products mature
and through improvement of purchasing and materials management systems.
Research and development expenses, net of capitalized software,
increased from $722,144 in the nine months ended December 31, 1997 to $1,767,629
during the nine months ended December 31, 1998, an increase of 145%, primarily
as a result of the increase in development and engineering staff under the
Company's growth plan and payments to SolCom Systems Limited ("SolCom") under
certain technology development agreements. The Company paid $450,000 for the
nine-month period ended December 31, 1998 to SolCom under such technology
agreements. Research and development expenses as a percentage of revenues
increased to 18.7% compared to 10.2% in the prior year. Selling, general and
administrative expenses increased 34% from $3,075,161 for the prior year's
comparable fiscal period to $4,125,665 for the nine months ended December 31,
1998. As a percentage of revenues, selling, general and administrative expenses
remained relatively constant from the fiscal quarter ended December 31, 1998 as
compared with the fiscal quarter ended December 31, 1997.
The Company had income operations of $121,720 for the nine months ended
December 31, 1998 compared to $118,766 for the nine months ended December 31,
1997, an increase of 2.5%. This increase was due to increased margins on the
sale of new and existing products, offset by the increased research and
development spending as discussed above. The Company expects continued positive
growth as a result of the increase in the sales force and a resulting increase
in sales volumes and manufacturing efficiencies gained thereby as its products
continue to mature. The net income for period was $31,411 compared to net income
of $282,211 for the same period in 1997, a decrease of 89% due to increased
interest expense on outstanding borrowings under
<PAGE>
the Company's line of credit in 1998 as well as the effects of a deferred tax
benefit for the nine months ended December 31, 1997.
FINANCIAL CONDITION AND CAPITAL RESOURCES
During the first nine months of fiscal year 1999, the Company recorded
net income of approximately $31,000. Included in this net income were non-cash
charges of approximately $411,000 for depreciation and amortization and $40,000
of deferred taxes.
The Company's operations used $104,000 of cash primarily as a result of
an inventory buildup of $611,000 as the Company prepares to ship its backlog
going into the fourth quarter. The decrease was offset by an increase in
accounts payable.
The Company utilized approximately $2.2 million of cash for investing
activities during the nine-month period ended December 31, 1998. The bulk of
this use of cash was for increased capital spending on plant and equipment and
capitalized software projects as well as for merger related costs associated
with the Company's planned acquisition of SolCom, which is expected to close
early in calendar year 1999.
Financing activities provided approximately $2.1 million of cash
primarily from stock option and warrant exercises ($841,000) and amounts
borrowed under the Company's line of credit ($1,300,000) to finance the
Company's working capital needs and its growth plans. The Company also paid down
$30,000 of debt in the nine months ended December 31, 1998.
In October 1998, the Company successfully negotiated with United
National to provide the Company with a $2,000,000 line of credit and a $500,000
term loan, collateralized by accounts receivable of the Company, to finance
future working capital requirements.
Based on its current cash and working capital position, as well as its
available line of credit, the Company believes that it will have sufficient
capital to meet its operational needs over the next twelve months.
In June 1997, the Financial Accounting Standards Board (FASB) issued
SFAS 131, "Disclosure about Segments of an Enterprise and Related Information"
which becomes effective for financial statements for periods beginning after
December 31, 1997. This Statement establishes standards for the way that public
business enterprises report information about operating segments in annual
financial reports and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The adoption of
this standard is not expected to have a material impact on the Company's
financial statements.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure
about Pensions and Other Postretirement Benefits." Among other provisions, it
standardizes certain disclosure
<PAGE>
requirements for pension and other postretirement benefits, requires additional
information on changes in the benefit obligations and fair values of plan
assets, and eliminates certain other disclosures. The standard is effective for
fiscal years beginning after December 15, 1997. Since the standard applies only
to the presentation of pension and other postretirement benefit information, it
will not have any material impact on the Company's results of operations,
financial position or cash flows.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." Among other provisions, the
SOP requires that entities capitalize certain internal-use software costs once
certain criteria are met. The SOP is effective for financial statements for
fiscal years beginning after December 15, 1998, though early adoption is
encouraged. Management is currently assessing the impact on the Company's
consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Among other provisions, it requires that
entities recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
Gains and losses resulting from changes in the fair values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. This standard is effective for fiscal years
beginning after June 15, 1999, though earlier adoption is encouraged and
retroactive application is prohibited. Management does not expect the adoption
of this standard to have a material impact on the Company's results of
operations, financial position or cash flows.
YEAR 2000 DISCLOSURES
Background. Some computers, software, and other equipment include
programming code in which calendar year data is abbreviated to only two digits.
As a result of this design decision, some of these systems could fail to operate
or fail to produce correct results if "00" is interpreted to mean 1900, rather
than 2000. These problems are widely expected to increase in frequency and
severity as the year 2000 approaches, and are commonly referred to as the
"Millennium Bug" or "Year 2000 Problem."
Assessment. The Company is in the process of modifying software
components that it uses so that such software will properly recognize dates
beyond December 31, 1999 ("Year 2000 Compliance"). The Company expects to
complete the internal review of its Year 2000 Compliance status shortly. The
cost for such modifications and replacements is not currently expected to be
material. If the Company is not successful in implementing the necessary Year
2000 changes, it expects to then develop contingency plans to address any
matters not corrected in a timely manner. The Company has initiated formal
communications with its significant vendors and certain of its customers to
determine the extent that Year 2000 Compliance issues of such parties may affect
the Company. To the extent that responses to such communications with the
Company's vendors are unsatisfactory, the Company expects to take steps to
ensure that its vendors' products have demonstrated Year 2000 Compliance. The
Company has recently compiled information concerning
<PAGE>
the Year 2000 Compliance of certain of its significant customers' systems and
expects to contact other customers. There can be no guarantee that the systems
of the Company's vendors and customers will be timely converted or that such
conversion will be compatible with the Company's systems without a material
adverse effect on the Company's business, financial condition or results of
operation.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
No Reports on Form 8-K were filed during the quarter.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DATE: July 8, 1999
ION NETWORKS, INC.
/s/ Stephen B. Gray
----------------------------------------------
Stephen B. Gray, President, Chief Executive
Officer and Chief Operating Officer
/s/ Mark Simmons
----------------------------------------------
Mark Simmons, Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-1999
<PERIOD-START> OCT-01-1998 APR-01-1998
<PERIOD-END> DEC-31-1998 DEC-31-1998
<PERIOD-TYPE> 3-MOS 9-MOS
<CASH> 345,892 0
<SECURITIES> 0 0
<RECEIVABLES> 2,918,814 0
<ALLOWANCES> 95,249 0
<INVENTORY> 2,036,567 0
<CURRENT-ASSETS> 6,005,093 0
<PP&E> 1,278,438 0
<DEPRECIATION> (585,015) 0
<TOTAL-ASSETS> 8,896,419 0
<CURRENT-LIABILITIES> 3,440,406 0
<BONDS> 0 0
<COMMON> 5,558 0
0 0
0 0
<OTHER-SE> 4,950,455 0
<TOTAL-LIABILITY-AND-EQUITY> 8,896,419 0
<SALES> 3,273,701 9,451,604
<TOTAL-REVENUES> 3,273,701 9,451,604
<CGS> 1,372,154 3,436,590
<TOTAL-COSTS> 2,203,078 5,893,294
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (25,445) (55,725)
<INCOME-PRETAX> (326,976) 71,134
<INCOME-TAX> (108,868) 39,723
<INCOME-CONTINUING> (218,108) 31,411
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (218,108) 31,411
<EPS-BASIC> (0.04) 0.01
<EPS-DILUTED> (0.04) 0
</TABLE>
