UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
Amendment No. 3
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2004
-----------------
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from .
Commission File No.: 0-13117
ION NETWORKS, INC.
(Name of Small Business Issuer in Its Charter)
Delaware
(State or Other Jurisdiction of 22-2413505
Incorporation or Organization) (IRS Employer Identification Number)
120 Corporate Blvd., S. Plainfield, NJ 07080
(Address of Principal Executive Offices) (Zip Code)
(908) 546-3900
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class On Which Registered
------------------- -------------------
None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
(Title of Class)
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
----- -----
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |_|
The issuer's revenues for its most recent twelve-months ended December 31, 2004
totaled $ 3,616,261.
The aggregate market value of voting stock held by non-affiliates, based on the
closing price of the Common Stock, par value $0.001 (the "Common Stock") on July
27, 2005 of $0.16, as reported on the OTC Bulletin Board was $4,328,007. Shares
of Common Stock held by each officer and director and by each person who owns 5%
or more of the outstanding Common Stock have been excluded in that such persons
may be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for any other purpose.
There were 27,050,044 shares of Common Stock outstanding as of July 29, 2005.
EXPLANATORY NOTE
This Amendment No. 3 on Form 10-KSB/A to ION Networks, Inc. (the "Company" or
the "Registrant") Annual Report on Form 10-KSB for the year ended December 31,
2004 (the "Original Filing") which was filed with the Securities and Exchange
Commission on March 24, 2005, and amended on April 22, 2005 and July 12, 2005,
is being filed to amend the Original Filing as follows:
o Note 2. Summary of Significant Accounting Policies to reflect the
change in disclosure of Revenue Recognition Policy.
Except for the amendments described above, this Form 10-KSB/A does not modify or
update other disclosures in, or exhibits to, the Original Filing as previously
amended.
Item 7: Financial Statements
ION Networks, Inc. and Subsidiary
Index to Consolidated Financial Statements
For the Year Ended December 31, 2004 and 2003
---------------------------------------------
Page(s)
Report of Independent Registered Public Accounting Firm 37
Consolidated Financial Statements:
Consolidated Balance Sheet as of December 31, 2004 38
Consolidated Statements of Operations for the Years Ended December 31, 2004 and 2003 39
Consolidated Statements of Cash Flows for the Years Ended December 31, 2004 and 2003 40
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2004 and 2003 41-42
Notes to Consolidated Financial Statements 43-54
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
ION Networks, Inc.
South Plainfield, New Jersey
We have audited the accompanying consolidated balance sheet of ION Networks,
Inc. and Subsidiary as of December 31, 2004, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years ended December 31, 2004 and 2003. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ION
Networks, Inc. and Subsidiary as of December 31, 2004, and the consolidated
results of their operations and their cash flows for each of the years ended
December 31, 2004 and 2003 in conformity with accounting principles generally
accepted in the United States of America.
/s/ Marcum & Kliegman LLP
New York, New York
February 11, 2005 (Except for Note 16(b), as to which the date is March 31,
2005).
ION Networks, Inc. and Subsidiary
Consolidated Balance Sheet
December 31,
Assets 2004
-----------------
Current assets
Cash and cash equivalents $ 287,437
Accounts receivable, less allowance for doubtful accounts of
$16,923 578,491
Inventory, net 511,426
Prepaid expenses and other current assets 78,436
-----------------
Total current assets 1,455,790
Property and equipment, net 11,847
Capitalized software, net 406,351
Other assets 12,836
-----------------
Total assets $ 1,886,824
=================
Liabilities and Stockholders' Equity
Current liabilities
Current portion of long-term debt 2,311
Accounts payable 354,602
Accrued expenses 549,730
Deferred income 160,212
Sales tax payable 6,074
Other current liabilities 10,000
-----------------
Total current liabilities $ 1,082,929
-----------------
Convertible debenture - related party 204,167
Long term debt, net of current portion 6,942
-----------------
Total liabilities $ 1,294,038
-----------------
Commitments and contingencies
Stockholders' equity
Preferred stock - par value $.001 per share; authorized 1,000,000 shares,
200,000 shares designated Series A; 158,335 shares issued and outstanding
(Aggregate Liquidation Preference $285,003) 158
Common stock - par value $.001 per share; authorized 50,000,000 shares;
22,610,500 shares issued and outstanding 22,611
Additional paid-in capital 44,146,595
Accumulated deficit (43,576,578)
-----------------
Total stockholders' equity 592,786
-----------------
Total liabilities and stockholders' equity $ 1,886,824
=================
The accompanying notes are an integral part of these consolidated financial
statements.
ION Networks, Inc. and Subsidiary
Consolidated Statements of Operations
Years Ended December 31,
2004 2003
------------------ -----------------
Net sales $ 3,616,261 $ 3,342,620
Cost of sales 1,417,603 1,423,509
------------------ -----------------
Gross margin 2,198,658 1,919,111
Research and development expenses 598,012 503,146
Selling, general and administrative expenses, including $58,750 and
$(95,000) of non-cash stock based compensation/(recovery) for the
years ended December 31, 2004 and 2003, respectively 2,314,834 2,452,031
Depreciation expenses 57,325 205,558
Restructuring, asset impairments and other credits (180,533) (405,402)
------------------ -----------------
Loss from operations (590,980) (836,222)
Interest income 25,810 19,872
Interest income/(expense)- related party (4,167) -
Interest income/(expense) (3,334) (14,593)
------------------ -----------------
(572,671) (830,943)
Loss before income taxes
Income tax benefit 322,831 227,151
------------------ -----------------
Net loss $ (249,840) $ (603,792)
================== =================
Per share data
Basic and diluted $ (0.01) $ (0.03)
================== =================
Weighted average number of common shares outstanding
Basic and diluted 23,294,325 23,900,500
================== =================
The accompanying notes are an integral part of these consolidated financial
statements.
ION Networks, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Years Ended December 31,
2004 2003
-------------------- --------------------
Cash flows from operating activities
Net loss $ (249,840) $ (603,792)
Adjustments to reconcile net loss to net cash from operating activities:
Restructuring, asset impairments and other charges, non-cash (180,533) (405,402)
Depreciation and amortization 409,485 736,694
Provision for inventory reserves (48,880) (26,002)
Other (39,171) -
Non-cash stock-based compensation charge (credit) 58,750 (95,000)
Non-cash interest income from notes receivable from officers (24,884) (13,130)
Changes in operating assets and liabilities:
Accounts receivable, net (180,747) 164,018
Inventory 239,496 583,228
Prepaid expenses and other current assets 49,702 75,796
Other assets 465 1,577
Accounts payable 126,723 (690,303)
Accrued expenses 20,714 (82,543)
Deferred income (40,093) 45,284
Sales tax payable (32,908) (31,385)
Other current liabilities - (35,980)
-------------------- --------------------
Net cash provided by (used in) operating activities 108,279 (376,940)
-------------------- --------------------
Cash flows from investing activities
Acquisition of property and equipment (11,740) -
Capitalized software expenditures (310,223) (214,996)
Proceeds from sale of equipment - 30,129
Restricted cash - 125,700
-------------------- --------------------
Net cash used in investing activities (321,963) (59,167)
-------------------- --------------------
Cash flows from financing activities
Principal payments on debt and capital leases (67,840) (85,135)
Issuance of convertible debenture 200,000 -
Proceeds from the exercise of stock options 11,250 -
-------------------- --------------------
Net cash provided by (used in) financing activities 143,410 (85,135)
-------------------- --------------------
Effect of exchange rates on cash - 13,269
-------------------- --------------------
Net decrease in cash and cash equivalents (70,274) (507,973)
Cash and cash equivalents - beginning of year 357,711 865,684
-------------------- --------------------
Cash and cash equivalents - end of year $ 287,437 $ 357,711
==================== ====================
Supplemental information
Cash paid during period for interest $ 3,334 $ 13,650
==================== ====================
The accompanying notes are an integral part of these consolidated financial
statements.
ION Networks, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 2004 and 2003
Accumulated
Preferred Common Additional Other
Paid-In Accumulated Comprehensive
Shares Stock Shares Stock Capital Deficit Income (Loss)
---------- --------- ----------- ---------- ------------ --------------- ---------------
Balance, December 31, 2002 166,835 $ 167 24,875,500 $ 24,876 $ 44,680,740 $ (42,722,946) $ (13,269)
Comprehensive loss
Net loss (603,792)
Translation adjustments 13,269
Total comprehensive loss
Notes receivable from officers
-accrued interest
Non-cash stock-based compensation to
officers (95,000)
---------- --------- ----------- ---------- ------------ --------------- ---------------
Balance, December 31, 2003 166,835 $ 167 24,875,500 $ 24,876 $ 44,585,740 $ (43,326,738) $ -
Net loss (249,840)
Conversion of preferred stock to
common stock (8,500) (9) 85,000 85 (76)
Issuances of common stock upon
exercise of options 250,000 250 11,000
Notes receivable from officers -
accrued interest
Cancellation of restricted shares
from former officers (2,600,000) (2,600) (508,819)
Non-cash stock-based compensation
issued to officers 58,750
---------- --------- ----------- ---------- ------------ --------------- ---------------
Balance, December 31, 2004 158,335 $ 158 22,610,500 $ 22,611 $ 44,146,595 $ (43,576,578) $ -
========== ========= =========== ========== ============ =============== ===============
The accompanying notes are an integral part of these consolidated financial
statements.
ION Networks, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 2004 and 2003
Notes
Receivable Total
from former Stockholders'
Officers Equity
--------------- -----------------
Balance, December $ (473,405) $ 1,496,163
31, 2002
Comprehensive loss
Net loss (603,792)
Translation
adjustments 13,269
-----------------
Total
comprehensive loss (590,523)
Notes receivable
from officers -
accrued interest (13,130) (13,130)
Non-cash stock-based
compensation to
officers (95,000)
--------------- -----------------
Balance, December
31, 2003 $ (486,535) $ 797,510
Net loss (249,840)
Conversion of
preferred stock to
common stock -
Issuances of common
stock upon exercise
of options 11,250
Notes receivable
from officers -
accrued interest (24,884) (24,884)
Cancellation of
restricted shares
from former officers 511,419 -
Non-cash stock-based
compensation issued
to officers 58,750
--------------- -----------------
Balance, December
31, 2004 $ - $ 592,786
=============== =================
The accompanying notes are an integral part of these consolidated financial
statements.
ION Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
1. Organization and Basis of Presentation
The Company
ION Networks, Inc. (the "Company"), a Delaware corporation founded in 1999
through the combination of two companies -- MicroFrame, a New Jersey Corporation
(the predecessor entity to the Company, originally founded in 1982), and SolCom
Systems Limited, a Scottish corporation located in Livingston, Scotland
(originally founded in 1994), designs, develops, manufactures and sells network
and information security and management products to corporations, service
providers and government agencies. The Company's hardware and software suite of
products are designed to form a secure auditable portal to protect IT and
network infrastructure from internal and external security threats. ION's
products operate in the IP, data center, telecommunications and transport, and
telephony environments and are sold by a direct sales force and indirect channel
partners mainly throughout North America and Europe.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of ION
Networks, Inc. and a single Subsidiary in 2004 and two subsidiaries in 2003. All
material inter-company balances and transactions have been eliminated in
consolidation. Due to Management's cost containment programs, the Company ceased
its operations in Belgium and Scotland in 2003.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the year. Actual results could differ from those estimates.
The significant estimates include the allowance for doubtful accounts, allowance
for inventory obsolescence, capitalized software costs including estimates of
future gross revenues, and the related amortization lives, deferred tax asset
valuation allowance and depreciation and amortization lives.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less at the time of purchase to be cash equivalents.
Allowance for Doubtful Accounts Receivable
Accounts receivable are reduced by an allowance to estimate the amount that will
actually be collected from our customers. If the financial condition of our
customers were to materially deteriorate, resulting in an impairment of their
ability to make payments, additional allowances could be required.
Inventory, net
Inventory is stated at the lower of cost (average cost) or market. Reserves for
slow moving and obsolete inventories are provided based on historical experience
and current product demand. If our estimate of future demand is not correct or
if our customers place significant order cancellations, inventory reserves could
increase from our estimate. We may also receive orders for inventory that has
been fully or partially reserved. To the extent that the sale of reserved
inventory has a material impact on our financial results, we will appropriately
disclose such effects. Our inventory carrying costs are not material; thus we
may not physically dispose of reserved inventory immediately.
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated using the
straight-line method over the estimated useful lives of the assets, which are
generally two to five years. Expenditures for maintenance and repairs, which do
not extend the economic useful life of the related assets, are charged to
operations as incurred. Gains or losses on disposal of property and equipment
are reflected in the statements of operations in the period of disposal.
ION Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Capitalized Software
The Company capitalizes computer software development costs in accordance with
the provisions of Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed" ("SFAS No. 86"). SFAS No. 86 requires that the Company capitalize
computer software development costs upon the establishment of the technological
feasibility of a product, to the extent that such costs are expected to be
recovered through future sales of the product. Management is required to use
professional judgment in determining whether development costs meet the criteria
for immediate expense or capitalization. These costs are amortized to Cost of
sales by the greater of the amount computed using (i) the ratio that current
gross revenues from the sales of software bear to the total of current and
anticipated future gross revenues from the sales of that software, or (ii) the
straight-line method over the estimated useful life of the product. As a result,
the carrying amount of the capitalized software costs may be reduced materially
in the near term.
We record impairment losses on capitalized software and other long-lived assets
used in operations when events and circumstances indicate that the assets might
be impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amount of those items. Our cash flow estimates
are based on historical results adjusted to reflect our best estimate of future
market and operating conditions. The net carrying value of assets not
recoverable is reduced to fair value. While we believe that our estimates of
future cash flows are reasonable, different assumptions regarding such cash
flows could materially affect our estimates.
The Company capitalized $310,223 and $214,996 of software development costs for
the year ended December 31, 2004 and 2003, respectively. Amortization expense
totaled $352,160 and $531,136 and is included in Cost of sales for the year
December 31, 2004 and 2003, respectively.
Research and Development Costs
The Company charges all costs incurred to establish the technological
feasibility of a product or enhancement to research and development expense in
the period incurred.
Advertising Costs
The Company incurred approximately $30,000 and $1,000 for the year ended
December 31, 2004 and 2003, respectively.
Revenue Recognition Policy
The Company recognizes revenue from product sales of hardware and software to
end-users, value added resellers (VARs) and original equipment manufacturers
(OEMs) upon shipment if no significant vendor obligations exist and
collectibility is probable. The Company does not offer customers the right to
return products, however the Company records warranty costs at the time revenue
is recognized. Management estimates the anticipated warranty costs but actual
results could differ from those estimates.
In addition, the Company sells internally developed stand-alone finished
software packages ("PRIISMS Software"), which permit end-users to monitor,
secure and administer voice and data communications networks. The software
packages permit the customer to utilize the PRIISMS software pursuant to the
terms of the license. Other than during an initial ninety-day warranty period
from the date of shipment, the purchaser is not entitled to
upgrades/enhancements or services that can be attributable to a multi-element
arrangement. In addition, the customer does not have any rights to exchange or
return the software. Since the software package sale does not require
significant production, modification or customization, the Company recognizes
revenue at such time the product is shipped and collectibility is probable in
accordance with the accounting guidance of under Statement of Position 97-2,
"Software Revenue Recognition".
The Company sells separate customer maintenance contracts and maintenance
revenue is recognized on a straight-line basis over the period the service is
provided, generally one year. On some occasions, maintenance is provided on a
time and material basis in which case revenue is recognized upon shipment of the
repaired item.
Shipping and Handling Costs
Shipping and handling costs incurred are billed to the customer and included as
part of cost of sales.
Fair Value of Financial Instruments
The carrying value of items included in working capital and debt approximates
fair value because of the relatively short maturity of these instruments.
ION Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
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 of 9,327,672 and
4,783,505 at December 31, 2004 and 2003 are excluded from the computation of
diluted net loss per share as their inclusion would be antidilutive.
Stock Compensation
The Company records stock-based employee compensation arrangements in accordance
with provisions of Accounting Principals Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees", and complies 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. Equity instruments issued to non-employee vendors are recorded 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.
The Company issued certain stock options in 2004. The fair value of each option
grant for the Company's common stock is estimated on the date of the grant using
the Black Scholes option-pricing model. The assumptions used to value the 2004
options issued are as follows:
Expected Volatility 214.97%
Risk-free interest rate 4.00
Expected option lives 5.00 years
During the year ended December 31, 2003, the Company issued no stock options.
The fair value of each option grant for the Company's common stock is estimated
on the date of the grant using the Black Scholes option-pricing model. If the
Company had elected to recognize compensation costs based on the fair value at
the date of grant for awards, 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:
Years Ended December 31,
2004 2003
-------------- ------------
Net loss as reported $(249,840) $(603,792)
Add: Stock based compensation expense (recovery) included in net loss 58,750 (95,000)
Deduct: Stock based employee compensation determined under the fair (454,493) (217,158)
value method
-------------- ------------
Pro forma net loss $(645,583) $(915,950)
============== ============
Basic and diluted net loss per share of common stock
As reported (0.01) (0.03)
============== ============
Pro forma (0.03) (0.04)
============== ============
Foreign Currency Translation
The financial statements of the foreign subsidiaries were prepared in local
currency and translated into U.S. dollars based on the current exchange rate at
the end of the period for the balance sheet and a weighted-average rate for the
period on the statement of operations. Translation adjustments are reflected as
foreign currency translation adjustments in stockholders' equity and,
accordingly, have no effect on net loss. Transaction adjustments for the foreign
subsidiaries are included in income and are not material. The Company ceased its
foreign operations during the year ended December 31, 2003.
ION Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Income Taxes
Deferred income tax assets and liabilities are computed annually based on
enacted tax laws and rates for temporary differences between the financial
accounting and income tax bases of assets and liabilities. A valuation allowance
is established, when necessary, to reduce deferred income tax assets to the
amount that is more likely than not to be realized.
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. Adjustments are made when actual
warranty claim experience differs from estimates. The warranty accrual included
in other current liabilities as of December 31, 2004 is $10,000.
For the years ended
December 31, 2004 December 31, 2003
------------------------- -----------------------
Balance at beginning of the year $ 48,388 $ 48,388
Change in liability due to preexisting warranty (38,388) -
------------------------- -----------------------
Balance at the end of the year $ 10,000 $ 48,388
========================= =======================
Reclassifications
Certain amounts in the consolidated financial statements for the year ended
December 31, 2003 have been reclassified to conform to the presentation of the
consolidated financial statements for the year ended December 31, 2004.
3. Restructuring, Asset Impairments and Other Credits
The components of the restructuring, asset impairments and other credits
recorded in 2004 and 2003 are as follows:
Asset Impairment Restructuring Other Credits Total
----------------------- ------------------- ------------------ -------------------
First Quarter 2004 charges $ - $ - $ - $ -
Second Quarter 2004 charges (reversals) - - (59,570) (59,570)
Third Quarter 2004 charges (reversals) - (63,716) - (63,716)
Fourth Quarter 2004 charges (reversals) - - (57,247) (57,247)
======================= =================== ================== ===================
Total $ - $ (63,716) $ (116,817) $ (180,533)
======================= =================== ================== ===================
First Quarter 2003 charges $ - $ 123,510 $ - $ 123,510
Second Quarter 2003 charges (reversals) 192,617 (508,458) - (315,841)
Third Quarter 2003 charges (reversals) - - (213,071) (213,071)
Fourth Quarter 2003 charges - - - -
======================= =================== ================== ===================
Total $ 192,617 $ (384,948) $ (213,071) $ (405,402)
======================= =================== ================== ===================
The total amount of restructuring, asset impairments and other credits for the
year ended December 31, 2004 was $180,533. This amount consisted of three items
for which the Company recognized credits; $67,671 for forgiveness of debt
related to legal, taxes and loan amounts; $63,716 related to a change in
management estimate reducing potential liability for damages previously accrued
for related to the abandonment of an office lease and $49,146 related to the
write-off of certain payables for which management believes are not valid
liabilities.
As a result of the Company being notified by the landlord to cancel its lease
effective August 15, 2003 at the Piscataway, NJ facility, the net book value of
leasehold improvements amounting to $28,955 were written-off. In addition, the
Company was required to sell property and equipment in order to move into its
smaller newly leased facility. At June 30, 2003 the Company recorded an
impairment loss of $163,662 which represents the difference between the cash
proceeds of the August 2003 sale and carrying value prior to the impairment.
There is no balance remaining at December 31, 2004.
The Company reserved an estimate of $508,458 in the quarter ended December 31,
2002 for the total potential remaining lease payments. During the quarter ended
June 30, 2003, the Company completed a voluntary liquidation of its UK
subsidiary, which by court action abated all future liabilities, and therefore
the Company reversed the original accrual estimate. There is no balance
remaining at December 31, 2004.
ION Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
During the period from March 2002 through May 2002, the Company was billed and
it booked accounts payable invoices totaling $243,071 from Xetel. Xetel filed
for bankruptcy and ION settled the entire balance during the third quarter 2003
for a payment in the amount of $30,000. There is no balance remaining at
December 31, 2004.
The Company is in negotiations with the landlord from the Fremont, California
location for the disposition of the reserved amount of $123,510 recorded in
2003. The Company has not occupied the space since approximately March 2003. In
2004, Management re-evaluated the current status of the ongoing negotiations and
reversed its prior reserve amount by $63,716. Management believes that the final
settlement amount should not exceed the reserved amount of $60,000..This amount
is included in accrued expenses as of December 31, 2004.
The Company has recorded certain liabilities that may, in the future, result in
additional restructuring credits. The Company recorded accounts payable for
invoices rendered primarily for professional services in the amount of $153,687
and accrued expenses in the amount of $178,671 based on invoices rendered offset
by certain credits for such services. These entries arose from alleged services
provided to the Company between November 2002 through August 2003.The Company is
disputing these amounts with the vendors however, at the present time management
is unable to estimate the final outcome of these disputes but believes that the
final settlement amount should not exceed the total of the above amounts. This
amount is included in accrued expenses as of December 31, 2004.
In January 2003, the Company's sub-tenant, Multipoint voluntarily filed for
Chapter 7 Bankruptcy with the U.S. Bankruptcy Court for the District of New
Jersey. As a result of consideration of Multipoint's financial condition,
culminating with the bankruptcy, the Company wrote-off an amount of $122,550 for
the unpaid balance of rent due from Multipoint which is included in selling and
general and administrative expenses.
4. Inventory
Inventory, net of reserves of $149,853, consists of the following:
December 31,
2004
----------------
Finished goods $ 448,742
Raw materials 61,844
Work-in-progress 840
----------------
Inventory, net $ 511,426
================
The Company evaluates the inventory reserves on a quarterly basis. In 2004, the
Company adjusted its inventory reserves which resulted in a benefit of $48,880
and this amount was included as part of cost of sales in its consolidated
statements of operations. In 2003, the Company recorded a charge of $26,002 to
cost of sales related to reserves for excess and obsolete inventory.
5. Property and Equipment, net
Property and equipment consists of the following:
December 31,
2004
------------------
Computer and other equipment $ 764,900
Furniture and fixtures 68,408
------------------
833,308
Less accumulated depreciation (821,461)
------------------
Property and equipment, net $ 11,847
==================
Depreciation expense for property and equipment for the year ended December 31,
2004 and 2003, amounted to $57,325 and $205,558, respectively. During the year
ended December 31, 2004 and 2003, the Company retired both fully and not fully
depreciated assets amounting to $53,963 and $1,730,369, respectively. During the
year ended December 31, 2003, the Company relocated its headquarters and
therefore, recorded an asset impairment charge of $192,617 to recognize the
retirement of assets not fully depreciated (see Note 3).
ION Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
6. Debt - Related Party
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 $0.083 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 after August 5, 2005 at the Company's option if the
Company's common stock trades at a price of at least $0.166 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. In 2004, the Company recorded $4,167
of related party interest expense as part of the statement of operations.
7. Income Taxes
As of December 31, 2004, the Company has available federal and state net
operating loss carry forwards of approximately $42,773,686 and $26,340,185,
respectively, to offset future taxable income. The federal net operating loss
carry forwards expire during the years 2011 through 2024. In addition, the
Company has investment credit and research and development credit carry forwards
aggregating approximately $405,000, which may provide future tax benefits,
expiring from 2008 through 2020. The Internal Revenue Code contains provisions
which will limit the net operating loss carry forward available for use in any
given year if significant changes in ownership interest of the Company occur.
The Company obtained a corporation business tax benefit certificate pursuant to
New Jersey law which allows the sale of unused state net operating losses. For
the years ended December 2004 and 2003, the Company received a benefit of
$322,831 and $227,151, respectively.
The tax effect of temporary differences which make up the significant components
of the net deferred tax asset and liability at December 31, 2004 are as follows:
December 31,
2004
---------------
Current deferred tax assets
Inventory reserves $ 88,727
Accrued expenses 196,526
Allowance for doubtful accounts 85,239
---------------
Total current deferred tax assets 370,492
Valuation allowance (370,492)
---------------
Net current deferred tax assets -
---------------
Noncurrent deferred tax assets
Depreciation and amortization 245,425
Net operating loss carry forwards 16,103,494
Research and development credit 405,078
---------------
Total noncurrent deferred tax assets 16,753,997
Valuation allowance (16,591,457)
---------------
Net noncurrent deferred tax assets 162,540
Noncurrent deferred tax liabilities
Capitalized software (162,540)
---------------
Total noncurrent deferred tax liabilities (162,540)
---------------
Net noncurrent deferred tax (liabilities) assets $ -
===============
The Company has recorded a full valuation allowance against the deferred tax
assets, including the federal and state net operating loss carry forwards as
management believes that it is more likely than not that substantially all of
the deferred tax assets will not be realized. During the year ended December 31,
2004, the Company had an annual change in the valuation allowance of $1,948,386.
ION Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
8. Stockholders' Equity
Preferred Stock - On September 13, 2002 the Company received equity financing in
the amount of $300,303 ($285,303, net of issuance costs) for the issuance of
166,835 unregistered shares of the Company's preferred stock at $1.80 per share.
The Company has designated 200,000 of the 1,000,000 authorized shares of
preferred stock as Series A Preferred Stock ("Preferred Stock"). Each share of
Preferred Stock is convertible into 10 shares of the Company's common stock at
the conversion price of $0.18 per share of common stock, which was the closing
bid price of the Company's common stock on September 13, 2002. The Preferred
Stock is non-voting, has a standard liquidation preference equal to its purchase
price, and does not pay dividends. Proceeds of the equity financing will be used
for working capital and general corporate purposes. All of the shares of
Preferred Stock were purchased by directors and management of the Company. On
December 27, 2004 8,500 of preferred stock was converted to 85,000 shares of
common stock.
Restricted Stock - Effective October 2001, the Company approved and granted
2,600,000 shares of restricted stock (the "Restricted Shares") to two executives
stockholders at fair value. The Restricted Shares are subject to a repurchase
right which will permit the Company to repurchase any shares which have not yet
vested at the effective date of termination of the officers' employment, as
defined in their employment agreements, for an amount equal to the purchase
price per share paid by the officers. The Company received a series of partial
recourse interest bearing (5.46% on an annual basis) promissory notes for the
value of the Restricted Shares to be repaid by the officers. As of December 31,
2003 Mr. Kam Saifi owes approximately $282,618 (including approximately $24,618
of interest) for 2,000,000 Restricted Shares and; Mr. Cameron Saifi owes
approximately $203,917 (including approximately $18,517 of interest) for 600,000
Restricted Shares.
The notes are to be repaid by the officers at the earlier of ten years or the
date upon which the employees dispose of their shares or under certain
circumstances, when the borrower's employment with the Company terminates for
any reason. The issuance of the restricted shares and the notes receivable due
from the former officers is recorded in the Company's financial statements. On
July 7, 2003, Mr. Kam Saifi and Mr. Cameron Saifi separated from the Company.
On March 29, 2004, the Company agreed to a final separation agreement with its
former President and Chief Executive Officer. As part of the agreement, the
Company agreed to accept the return of 2,000,000 shares of the Company's common
stock as full payment for the former officers' total indebtedness to the Company
of $294,493. In addition, the former officer released the Company from any
obligations, which may have arisen from the separation of the officer from the
Company.
On October 14, 2004, the Company agreed to a final separation agreement with its
former Executive Vice President and Chief Operating Officer. As part of the
agreement, the Company agreed to accept the return of 600,000 shares of the
Company's common stock as full payment for the former officers' total
indebtedness to the Company of $216,926. In addition, the former officer
released the Company from any obligations for the sum of $8,000 as full
compensation for said release.
The variable accounting method used to account for the partial recourse
restricted stock granted to management resulted in a cashless charge of $95,000
for the period ended December 31, 2002. In accordance with accounting guidance
for the partial recourse restricted stock granted to management resulted in a
reversal of the cashless charge of $95,000 for the period ended December 31,
2003.
Common Stock - On February 14, 2002 the Company sold 4,000,000 shares of common
stock at a price of $0.87 per share, for total consideration of $3,480,000. In
connection with this sale, warrants to purchase 1,120,000 shares of common stock
with an exercise price of $1.25 were issued. The warrants expire on February 14,
2007.
Stock Option Plans
In November 2000, the Company adopted its 2000 Stock Option Plan (the "2000
Plan"). The aggregate number of shares of common stock for which options may be
granted under the 2000 Plan is 3,000,000. The maximum number of options which
may be granted to an employee during any calendar year under the 2000 Plan is
400,000. The term of these non-transferable stock options may not exceed ten
years. The exercise price of these stock options may not be less than 100% (110%
if the person granted such options owns more than ten percent of the outstanding
common stock) of the fair value of one share of common stock on the date of
grant. During the year ended December 31, 2004 and 2003, the Company granted
options to purchase 2,048,000 and zero shares, respectively. As of December 31,
2004, 2,626,000 options were outstanding under the 2000 Plan, of which 1,544,750
options were exercisable.
ION Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
The aggregate number of shares of common stock for which options may be granted
under the 1998 Stock Option Plan (the "1998 Plan") is 3,000,000. The maximum
number of options which may be granted to an employee during any calendar year
under the 1998 Plan is 400,000. The term of these non-transferable stock options
may not exceed ten years. The exercise price of these stock options may not be
less than 100% (110% if the person granted such options owns more than ten
percent of the outstanding common stock) of the fair value of one share of
common stock on the date of grant. During the year ended December 31, 2004 and
2003, the Company granted options to purchase 1,285,000 and zero shares,
respectively. As of December 31, 2004, 1,556,629 options were outstanding under
the 1998 Plan, of which 1,020,900 options were exercisable.
In August 1994, the Company adopted its 1994 Stock Option Plan (the "1994
Plan"). The 1994 Plan, as amended, increased the number of shares of common
stock for which options may be granted to a maximum of 1,250,000 shares. The
term of these non-transferable stock options may not exceed ten years. The
exercise price of these stock options may not be less than 100% (110% if the
person granted such options owns more than ten percent of the outstanding common
stock) of the fair market value of one common stock on the date of grant. During
the year ended December 31, 2004 and 2003, there were no option grants provided
under the 1994 Plan. As of December 31, 2004, 25,000 options were outstanding
and exercisable under the 1994 Plan.
Warrants
In connection with the sale of common stock on February 14, 2002, warrants to
purchase 1,120,000 shares of common stock with an exercise price of $1.25,
subject to certain adjustments, were issued. As of March 18, 2005 the exercise
price is $1.08. The warrants expire on February 14, 2007.
During July 2001 in connection with services being performed by a consultant,
the Company issued warrants to purchase 48,000 shares of the Company's Common
Stock at $0.62 per share. The warrants expire five years from the date of the
grant.
During January 2002 in connection with services being performed by a consultant
through June 30, 2002, the Company issued warrants to purchase 100,000 shares of
the Company's common stock at $1.35 per share. Warrants to purchase an
additional 50,000 shares of common stock are exercisable at $1.80. All 150,000
warrants expired in January 2005.
Other Options
On September 25, 1996, the Company issued options to certain officers and
directors to purchase 620,000 shares of the Company's Common Stock, of which
420,000 vested immediately and 100,000 vested on April 1, 1998 and 1999. The
options expire ten years from the date of grant. However, in the event of (a)
the liquidation or dissolution of the Company or (b) a merger in which the
Company is not the surviving corporation or a consolidation involving the
Company, the options shall terminate, unless other provision is made in the
transaction. There were no stock option exercised during the year ended December
31, 2004 and 2003. The exercise price of the options is $1.156 and equals to the
market value of the Company's Stock on the date of grant. At December 31, 2004,
400,000 options were outstanding and exercisable.
During March 1999, the Company issued options to certain employees and
consultants to purchase 20,000 shares of the Company's common stock, all of
which vested on the first year anniversary of the date of the grant. The options
expire six years from the date of the grant. The exercise price of the options
is equal to the market value of the Company's common stock on the date of the
grant. There were no stock options exercised during the year ended December 31,
2004 and 2003. At December 31, 2004, 10,000 options were outstanding and
exercisable.
In January 2004, the Company issued options to certain officers to purchase
1,000,000 shares of the Company's common stock, which vested immediately. The
exercise price of the below market options ranged from $0.045 to $0.06 on the
date of grant. The Company recorded a stock based compensation charge of
$58,750. At December 31, 2004, 750,000 options were outstanding and exercisable.
ION Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Accounting for Stock-Based Compensation
The Company continues to apply Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related Interpretations in
accounting for its options. During the year ended December 31, 2004 and 2003 the
Company has recorded compensation expense (benefit) of $58,750 and ($95,000),
respectively.
Details of the options granted are as follows:
Weighted Average
Shares Exercise Price ($)
Options outstanding at December 31, 2002 3,667,102 1.62
-------------------
Granted - -
Canceled (1,821,947) 3.55
Exercised - -
-------------------
Options outstanding at December 31, 2003 1,845,155 1.59
Granted 4,333,000 0.15
Expired (73,250) 5.63
Canceled (487,276) 1.16
Exercised (250,000) 0..05
-------------------
Options outstanding at December 31, 2004 5,367,629 0.51
===================
Options exercisable at December 31, 2004 3,750,650 0.50
===================
Weighted
Weighted Average Weighted Average
Number Remaining Years of Average Number Exercise
Range of Exercise Outstanding Contractual Life Exercise Price Exercisable Price
$0.00 - 7.53 5,320,694 4.67 $ 0.36 3,737,550 $ 0.40
$7.54 - 15.06 36,605 4.85 13.62 3,600 13.62
$15.06 - 22.59 1,500 .05 22.00 1,500 22.00
$22.59 - 30.12 1,500 .25 29.25 1,500 29.25
$30.12 - 37.65 7,060 .49 34.69 6,500 34.66
------------------- --------------------- ---------------- -------------- --------------
$0.00 - 37.65 5,367,629 4.67 $0.51 3,750,650 $0.50
=================== ===================== ================ ============== ==============
9. Commitments
Operating Leases
The Company entered into a lease on August 1, 2003 for approximately 7,000
square feet for its principal executive offices at 120 Corporate Blvd., South
Plainfield, New Jersey. The base rent is $4,505 per month effective October 2003
through July 2006. The Company is also obligated to make additional payments to
the landlord relating to certain taxes and operating expenses.
As a result of the Company being notified by the landlord of their intent to
cancel its lease effective August 15, 2003, the Company no longer occupies the
space at 1551 S. Washington Avenue, Piscataway, New Jersey. The Company entered
into the lease on February 18, 1999 for approximately 26,247 square feet for its
principal executive offices. On March 17, 2003, the Company signed an amendment
with the landlord reducing the space from 26,247 to 12,722 square feet and the
rent from $50,153.64 to $20,143.17 per month effective March 1, 2003. The
Company was also obligated to make additional payments to the landlord relating
to certain taxes and operating expenses.
The Company leases certain equipment under agreements which are classified as
capital leases. Each of the capital lease agreements expire within five years
and have purchase options at the end of the lease term.
ION Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Future minimum payments, by year and in the aggregate, under non-cancelable
capital and operating leases as of December 31, 2004 are as follows:
Capital Leases Operating Leases
--------------------- ---------------------
Year ending December 31,
2005 $ 2,691 $ 77,016
2006 2,691 44,926
2007 2,691 -
2008 2,243 -
--------------------- ---------------------
Total minimum lease payments $ 10,316 $ 121,942
===================== =====================
Less amount representing interest 1,063
---------------------
Present value on net minimum lease payment $ 9,253
=====================
Rent expense under operating leases for the year ended December 31, 2004 and
2003 was approximately $74,500 and $210,800 , respectively.
Employment Contracts
The Company has entered into certain employment contracts with various officers.
Included in these contracts is a provision for severance, where by such officers
if terminated without cause as defined in the agreement is entitled to severance
ranging in terms of three to eighteen months. At December 31, 2004 the Company
had a potential loss for severance costs of approximately $735,000 under these
employment contracts.
10. Contingent Liabilities
In the normal course of business the Company and its Subsidiary may be involved
in legal proceedings, claims and assessments arising in the ordinary course of
business. Such matters are subject to many uncertainties, and outcomes are not
predictable with assurance.
11. Employee Benefit Plans
Effective April 1, 1993, the Company adopted a defined contribution savings
plan. The terms of the plan provide for eligible employees who have met certain
age and service requirements to participate by electing to contribute up to 15%
of their gross salary to the plan, as defined, with a discretionary contribution
by the Company matching 30% of an employee's contribution in cash up to a
maximum of 6% of gross salary, as defined. Company contributions vest at the
rate of 25% of the balance at each employee's second, third, fourth, and fifth
anniversary of employment. The employees' contributions are immediately vested.
As of January 1, 2003, the Company per the provisions of the plan decided not to
make discretionary contributions until further notice.
12. Geographic Information
The Company's headquarters, physical production and shipping facilities are
located in the United States. The Company's domestic and foreign export sales
for each of the years ended December 31, 2004 and 2003 are as follows:
Year Ended Year Ended
December 31, 2004 December 31, 2003
-----------------------------------------------
United States $ 2,875,996 $ 2,743,170
Europe 723,222 477,153
Pacific Rim 16,657 122,188
Other 386 109
-----------------------------------------------
$ 3,616,261 $ 3,342,620
===============================================
ION Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Historically, we have been dependent on several large customers each year, but
they are not necessarily the same every year. For the year ended December 31,
2004, our most significant customers (stated as an approximate percentage of
revenue) were Avaya 38% and MCI 9%, with remaining accounts receivables of
$275,662 and $20,170, respectively, compared to the year ended December 31,
2003, of Avaya 18%, Siemens 12%. Qwest 8% and MCI 7% with remaining accounts
receivables of $80,929, $0, $0, $176,947, respectively.. In general, we cannot
predict with certainty, which large customers will continue to order. The loss
of any of these large customers, or the failure to attract new large customers
would likely significantly decrease our revenues and future prospects, which
could materially and adversely affect our business, financial condition and
results of operations.
The loss of any of these customers or a significant decline in sales volumes
from any of these customers could have a material adverse effect on the
Company's financial position, results of operations and cash flows.
13. Concentration of Credit Risk
The Company maintains deposits in a financial institution which is insured by
the Federal Deposit Insurance Corporation ("FDIC") up to $100,000. At December
31, 2004 and periodically throughout 2004, the Company had deposits in this
financial institution in excess of the amount insured by the FDIC.
The Company designs its products utilizing readily available parts manufactured
by multiple suppliers and the Company currently relies on and intends to
continue to rely on these suppliers. The Company has been and expects to
continue to be able to obtain the parts generally required to manufacture its
products without any significant interruption or sudden price increase, although
there can be no assurance that the Company will be able to continue to do so.
The Company sometimes utilizes a component available from only one supplier. If
a supplier were to cease to supply this component, the Company would most likely
have to redesign a feature of the affected device. In these situations, the
Company maintains a greater supply of the component on hand in order to allow
the time necessary to effectuate a redesign or alternative course of action
should the need arise.
14. Supplemental Cash Flow Information
In 2004 the Company converted 8,500 shares of preferred stock into 85,000 of
common stock.
15. New Accounting Pronouncements
During 2003, SFAS 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity" ("SFAS 150") was issued. SFAS
150 establishes standards for classification and measurement of certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in certain cases). The provisions of SFAS 150 are
effective for instruments entered into or modified after May 31,2003 and
pre-existing instruments as of July 1, 2003. On October 29, 2003, the FASB voted
to indefinitely defer the effective date of SFAS 150 for mandatory redeemable
instruments as they relate to minority interests in consolidated finite-lived
entities through the issuance of FASB Staff Position 150-3. The adoption of SFAS
No. 150 did not have a material impact on the Company's results of operations or
financial position.
In December 2003, a revision of SFAS 132 "Employers' Disclosures about Pensions
and Other Postretirement Benefits" was issued, revising disclosures about
pension loans and other post retirements benefits plans and requiring additional
disclosures about the assets, obligations, cash flows, and net periodic benefit
cost of defined benefit pension plans and other defined benefit postretirement
plans. The adoption of SFAS No. 132 did not have a material impact on the
Company's results of operations or financial position.
In December 2004, the FASB issued SFAS No. 123R "Shared Based Payment." This
statement is a revision of SFAS Statement No. 123, "Accounting for Stock-Based
Compensation" and supersedes APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and its related implementation guidance. SFAS 123R addresses all
forms of shared based payment ("SBP") awards, including shares issued under
employee stock purchase plans, stock options, restricted stock and stock
appreciation rights. Under SFAS 123R, SBP awards result in a cost that will be
measured at fair value on the awards' grant date, based on the estimated number
of awards that are expected to vest and will be reflected as compensation cost
in the historical financial statements. This statement is effective for public
entities that file as small business issuers - as of the beginning of the first
interim or annual reporting period that begins after December 15, 2005. The
Company is in the process of evaluating whether the SFAS No. 123R will have a
significant impact on the Company's overall results of operations or financial
position.
ION Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements
16. Subsequent Events
(a) Subsequent to December 31, 2004 the Company converted 2,778 shares of
preferred stock into 27,780 of common stock.
(b) On March 31, 2005, we completed a private placement of 4,411,764 shares of
common stock and warrants to purchase an additional 2,205,882 shares of common
stock. The total offering price was $750,000. The shares of common stock were
issued at $0.17 cents per share and the warrants are exercisable at a price of
$0.23 per share subject to certain anti-dilution adjustments. The warrants will
expire on expire March 31, 2010. The Company has the right to call the warrants
in the event that its common stock trades at a price exceeding $0.69 per share
for twenty (20) consecutive trading sessions and certain other conditions are
met. The Company also agreed to register for resale the shares of common stock
as well as the shares issued upon exercise of the warrants.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
No. Description
------- ---------
3.1 (i)Certificate of Incorporation of the Company, as filed with
the Secretary of State of the State of Delaware on August 5,
1998./(2)/
(ii)Certificate of Amendment of the Certificate of
Incorporation, as filed with the Secretary of State of the
State of Delaware on December 11, 1998./(2)/
(iii)Certificate of Amendment of the Certificate of
Incorporation, as filed with the Secretary of state of the
State of Delaware an October 12, 1999./(3)/
(iv)Amended and Restated Certificate of Designation of Rights
Preferences, Privileges and Restrictions of Series A
Preferred Stock of ION Networks, Inc. /15/
3.2 By-Laws of the Company./(19)/
3.3 Form of Specimen Common Stock Certificate of the
Company./(4)/
4.1 1994 Stock Option Plan of the Company. /(1)/+
4.2 1998 Stock Option Plan of the Company./(2)/+
4.3 1998 U.K. Sub-Plan of the Company, as amended./(2)/+
4.4 2000 Stock Option Plan of the Company./(12)/+
4.5 Form of Warrant Agreement dated July 17, 2001./(11)/+
4.6 Form of Warrant Agreement dated February 14, 2002./(11)/
4.7 Convertible Debenture dated August 5, 2004./19/
10.3 Agreement dated as of December 19, 1994 by and between
LeeMAH DataCom Security Corporation and Siemens Rolm
Communications Inc./(4)/
10.4 Equipment Lease Agreements dated October 29, 2003
by and between the Company and GE Capital
Corporation. /(21)/
10.5 (i)Non-negotiable Promissory Note in the principal
amount of $750,000 issued by Stephen B. Gray to the
Company./(5)/
(ii)First Amendment to Promissory Note dated as of
August 5, 2000 by and between the Company and Stephen B.
Gray./(5)/
Exhibit
No. Description
------- -----------
10.6 (i) Separation and Forbearance Agreement made as of October
5, 2000 between the Company and Stephen B. Gray./(6)/
(ii)Promissory Note in the amount of $163,000 dated October
5, 2000 made by Stephen B. Gray to the Company./(6)/
10.7 Materials and Services Contract dated January 16, 2001,
between the Company and SBC Services, Inc./(7)/
10.8 Stock Purchase Agreement dated August 11, 2000 by and
between the Company and the parties identified therein./(7)/
10.9 Purchase Agreement by and between the Company and the
Selling Shareholders set forth therein dated February 7,
2002./(13)/
10.10 Employment Agreement dated October 4, 2001 between the Company
and Kam Saifi./(9)/+
10.11 Employment Agreement dated October 17, 2001 between the
Company and Cameron Saifi./(10)/+
10.12 Employment Agreement dated February 25, 2002, between the
Company and William Whitney./15/+
10.13 Amended and Restated Employment Agreement dated August 15,
2003, between the Company and Norman E. Corn./16/+
10.14 Employment Agreement dated September 15, 2003, between the
Company and Patrick E. Delaney./14/+
10.15 Lease Agreement dated July 21, 2003 by and between the Company
and 116 Corporate Boulevard, LLC, Inc. /(17)/
10.16 Separation Agreement dated March 29, 2004 between the Company
and Kam Saifi. /(21)/
10.17 Separation Agreement dated October 14, 2004 between the Company
and Cameron Saifi. /(21)/
10.18 First Amendment to the Amended and Restated Employment
Agreement dated September 8, 2003 by and between the Company
and Norman E. Corn dated November 10, 2004 /(21)/+
10.19 First Amendment to the Employment Agreement dated September 15,
2003 by and between the Company and Patrick E. Delaney dated
November 10, 2004. /(21)/+
10.20 Employment Agreement dated August 31, 2004 by and between the
Company and Henry A. Hill. /20/+
10.21 Severance Agreement dated September 2, 2004 by and between the
Company and William Whitney. /(21)/+
10.22 Severance Agreement dated September 2, 2004 by and between the
Company and Henry Gold. /(21)/+
Exhibit
No. Description
------- -----------
10.23 Option Agreement dated January 28, 2004 by and between the
Company and Norman E. Corn. /(21)/+
10.24 Option Agreement dated January 28, 2004 by and between the
Company and Patrick E. Delaney. /(21)/+
10.25 Agreement dated February 25, 2005 by and between the Company
and Sprint/Untied Management Company. /(21)/
10.26 Agreement dated October 28, 2004 by and between the Company and
General Dynamics Network Systems. /(21)/
16.1 Letter dated October 31,2003, from Deloitte & Touche, LLP.
To the Securities and Exchange Commission./(8)/
21.1 List of Subsidiaries./(21)/
23.1 Independent Auditors Consent.*
31.1 Certification of CEO Pursuant to Section 302 of the Sarbanes
Oxley Act of 2002.*
31.2 Certification of CFO Pursuant to Section 302 of the Sarbanes
Oxley Act of 2002.*
32.1 Certification of CEO Pursuant to Section 906 of the Sarbanes
Oxley Act of 2002.*
32.2 Certification of CFO Pursuant to Section 906 of the Sarbanes
Oxley Act of 2002.*
(1) Incorporated by reference to the Company's Registration Statement on Form
S-8 filed on August 15, 1995.
(2) Incorporated by reference to the Company's Registration Statement on Form
S-8 filed on April 22, 1999.
(3) Incorporated by reference to the Company's Registration Statement on Form
S-8 filed on March 17, 2000.
(4) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended March 31, 1999.
(5) Incorporated by reference to the Company's Annual Report on Form 10-KSB
filed on June 28, 2000.
(6) Incorporated by reference to the Company's Quarterly report on Form 10-QSB
filed on November 14, 2000
(7) Incorporated by reference to the Company's Annual report on Form 10-KSB
filed on June 29, 2001.
(8) Incorporated by reference to the Company's Annual report on Form 8-KSB
filed on October 31, 2003.
(9) Incorporated by reference to the Company's Current Report on Form 8-K filed
on October 23, 2001.
(10) Incorporated by reference to the Company's Current Report on Form 8-K filed
on October 24, 2001.
(11) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended March 31, 2002, as filed on July 1, 2002.
(12) Incorporated by reference to the Company's Registration Statement on Form
S-8 filed on January 11, 2002.
(13) Incorporated by reference to the Company's Registration Statement on Form
S-3 filed on March 4, 2002.
(14) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
filed on November 17, 2003.
(15) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 2002, as filed on April 15, 2003.
(16) Incorporated by reference to the Company's Quarterly Report on Form 10QSB
filed on September 12, 2003.
(17) Incorporated by reference to the Company's Annual Report on Form 10-KSB
filed for the year ended December 31, 2003.
(18) Incorporated by reference to the Company's Annual Report on Form 10-KSB/A,
Amendment No.2, for the fiscal year ended March 31, 2002, as filed on
August 2, 2002.
(19) Incorporated by reference to the Company's Quarterly Report on Form 10QSB
filed on August 13, 2004.
(20) Incorporated by reference to the Company's Quarterly Report on Form 10QSB
filed on November 15, 2004.
(21) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 2004, as filed on March 24, 2005.
* Filed herewith
+ Management contract for compensatory plan or arrangement
(b) Reports on Form 8-K
On November 8, 2004, the Company filed a report on Form 8-K, reporting the
appointment of Mr. Harry Immerman to the Board of Directors.
On November 12, 2004, the Company filed a report on Form 8-K, reporting the
award of a contract by General Dynamics.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this amendment No.3 to Form 10-KSB to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: July 29, 2005
ION NETWORKS, INC.
By: /s/ Norman E. Corn
------------------------
Norman E. Corn
Chief Executive Officer