Filed Pursuant to Rule 424(b)(5)
Registration Statement No. 333-83686
Prospectus
ION Networks, Inc.
5,120,000 Shares of Common Stock
. The shares of our common stock offered by this prospectus are being
sold by the selling stockholders.
. We will not receive any proceeds from the sale of these shares.
However, since some of these shares are issuable upon the exercise of
warrants, we will receive proceeds from the exercise of such warrants,
and will use such proceeds for our general corporate purposes.
. On September 4, 2002, the closing price of our common stock on the
Nasdaq national Market was $0.22.
. Our executive offices are located at Washington Plaza, 1551 South
Washington Avenue, Piscataway, New Jersey 08854, our telephone number
is (732) 529-0100 and our website is at "www.ion-networks.com."
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NASDAQ national Market symbol for our Common Stock:
"IONN"
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The securities offered by this prospectus involve a high degree of risk. You
should carefully consider the factors described under the heading "Risk Factors"
beginning on page 3 of this prospectus.
___________________________________________________
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
___________________________________________________
The Date of this Prospectus is September 5, 2002
Table Of Contents
Risk Factors ...................................................... 3
Where You Can Find More Information About Us ...................... 10
Incorporation of Certain Documents by Reference ................... 10
Forward-Looking Statements ........................................ 12
Use of Proceeds ................................................... 12
Dividend Policy ................................................... 12
Selling Stockholders .............................................. 13
Plan of Distribution .............................................. 15
Description of Securities ......................................... 18
Indemnification for Securities Act Liabilities .................... 20
Legal Matters ..................................................... 20
Experts ........................................................... 20
Risk Factors
Before you buy shares of our common stock, you should be aware that
there are various risks associated with such purchase, including those described
below. You should consider carefully these risk factors, together with all of
the other information in this Prospectus, and the documents we have incorporated
by reference in the section "Incorporation of Certain Documents by Reference"
before you decide to purchase shares of our common stock.
Risks associated with our business
We are vulnerable to technological changes which may cause our products and
services to become obsolete which could materially and negatively impact our
cash flow
Our industry experiences rapid technological change, changing customer
requirements, frequent new product introductions and evolving industry standards
that may render existing products and services obsolete. As a result, more
advanced products produced by competitors could erode our position in existing
markets or other markets that they choose to enter. It is difficult to estimate
the life cycles of our products and services, and future success will depend, in
part, upon our ability to enhance existing products and services and to develop
new products and services on a timely basis. We might experience difficulties
that could delay or prevent the successful development, introduction and
marketing of new products and services. New products and services and
enhancements might not meet the requirements of the marketplace and achieve
market acceptance. If these things happen, they would materially and negatively
affect cash flow, financial condition and the results of operations.
Hardware and software incorporated in our products may experience bugs or
"errors" which could delay the commercial introduction of our products and
require time and money to alleviate
Due to the complex and sophisticated hardware and software that is
incorporated in our products, our products have in the past experienced errors
or "bugs" both during development and subsequent to commercial introduction. We
cannot be certain that all potential problems will be identified, that any bugs
that are located can be corrected on a timely basis or at all, or that
additional errors will not be located in existing or future products at a later
time or when usage increases. Any such errors could delay the commercial
introduction of new products, the use of existing or new products, or require
modifications in systems that have already been installed. Remedying such errors
could be costly and time consuming. Delays in debugging or modifying products
could materially and adversely affect our competitive position.
There is potential for fluctuation in our quarterly and annual operating
results, which could cause the price of our Common Stock to significantly
decrease
In the past, we experienced fluctuations in our quarterly and annual
operating results and we anticipate that such fluctuations will continue. Our
quarterly and annual operating results may vary significantly depending on a
number of factors, including:
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. the timing of the introduction or acceptance of new products and
services;
. changes in the mix of products and services provided;
. long sales cycles;
. changes in regulations affecting our business;
. increases in the amount of research and development expenditures
necessary for new product development and innovation;
. changes in our operating expenses;
. uneven revenue streams; and
. general economic conditions.
We cannot assure you that our levels of profitability will not vary
significantly among quarterly periods or that in future quarterly periods our
results of operations will not be below prior results or the expectations of
public market analysts and investors. If this occurs, the price of our common
stock could significantly decrease. See also Risks Associated with Our
Securities, "There is potential for fluctuation in the market price of our
securities" page 8.
In the past we have experienced significant losses and negative cash flows from
operations. If these trends continue in the future, it could adversely affect
our financial condition
We have incurred significant losses and negative cash flows from
operations in the past. For the fiscal years ended March 31, 2001 and 2002, we
experienced net losses of $16,676,666 and $6,929,379, respectively, and negative
cash flows from operations of $7,086,246 and $5,026,038, respectively. These
results have had a negative impact on our financial condition. There can be no
assurance that our business will become profitable in the future and that
additional losses and negative cash flows from operations will not be incurred.
If these trends continue in the future, it could have a material adverse affect
on our financial condition.
If our expected revenues and assumptions are not met, we may need to raise
additional capital, which may not be available. If we fail to raise additional
capital, we may not be able to execute our business plan and growth strategy
Our business plan and growth strategy are dependent on our working
capital. To the extent that expected revenue assumptions are not achieved, we
will have to raise additional equity or debt financing and/or curtail certain
expenditures contained in the current operating plans. We can not assure that
our sales efforts or expense reduction programs will be successful, or that
additional financing will be available to us, or if available, that the terms
will be satisfactory to us. If we are not successful in increasing our revenue,
reducing our expenses or raising additional equity capital, to generate
sufficient cash flows to meet our obligations as they come due, our financial
condition and results of operations may be materially and adversely affected.
4
We face significant competition and if we do not compete successfully, our
results of operations may be adversely affected
We are subject to significant competition from different sources for
our different products and services. We can not assure you that the market will
continue to accept our hardware and software technology or that we will be able
to compete successfully in the future. We believe that the main factors
affecting competition in the network management business are:
. the products' ability to meet various network management and
security requirements;
. the products' ability to conform to the network and/or computer
systems;
. the products' ability to avoid becoming technologically outdated;
. the willingness and the ability of distributors to provide
support customization, training and installation; and
. the price.
Although we believe that our present products and services are
competitive, we compete with a number of large data networking, network security
and enterprise management manufacturers which have financial, research and
development, marketing and technical resources far greater than ours. Our
competitors include RSA Security, Check Point Software, Symantec, Cisco, Lucent
Technologies, Nortel Networks, Intel, Microsoft, Novell and Sun Microsystems.
Such companies may succeed in producing and distributing competitive products
more effectively than we can produce and distribute our products, and may also
develop new products which compete effectively with our products. Many of our
current or potential competitors have longer operating histories, greater name
recognition, larger customer bases and significantly greater financial,
technical, marketing and other resources than we do. Nothing prevents or hinders
these actual or potential competitors from entering our target markets at any
time. In addition, our competitors may bundle products competitive to ours with
other products that they may sell to our current or potential customers. These
customers may accept these bundled products rather than separately purchasing
our products. If our current or potential competitors were to use their greater
financial, technical and marketing resources in our target markets and if we are
unable to compete successfully, our business, financial condition and results of
operations may be materially and adversely affected.
We have recently changed our marketing position, and introduced a new product
which we expect to account for a significant portion of our revenues. If this
product is not accepted by the market, our revenues and results of operations
could be materially adversely affected.
We recently changed our marketing position and focus from that of
network management monitoring to that of network security. In connection with
this change, we introduced a new product, the ION Secure 5010 in early February
2002. To date, we have only sold limited amounts of this new product and have
not yet achieved marketplace acceptance. While we still generate revenues from
our previously existing products, our continued revenue growth depends largely
on the success of our new marketing position and product offerings. Therefore,
if the ION Secure 5010 does not gain marketplace acceptance, our revenues could
be negatively impacted, which in turn is likely to materially and adversely
affect our financial condition and results of operations.
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We may be unable to protect our proprietary rights, permitting competitors to
duplicate our products and services, which could negatively impact our business
and operations
We hold no patents on any of our technology. If we are unable to
license any technology or products that we may need in the future, our business
and operations may be materially and adversely impacted. However, we do not
consider any of these licenses to be critical to our operations. We have made a
consistent effort to minimize the ability of competitors to duplicate our
software technology utilized in our products. However, there remains the
possibility of duplication of our products, and competing products have already
been introduced. Any such duplication by our competitors could negatively impact
on our business and operations.
We rely on several key customers for a significant portion of our business, the
loss of which would likely significantly decrease our revenues
Historically, we have been dependent on several large customers each
year, but they are not necessarily the same every year. For the fiscal year
ended March 31, 2002, our most significant customers were AT&T (approximately
15% of revenues), Avaya (approximately 12% of revenues), SBC (approximately 12%
of revenues), Nortel (approximately 10% of revenues), and Siemens (approximately
6% of revenues). For the fiscal year ended March 31, 2001, our most significant
customers were SBC (16% of revenues), Worldcom (12% of revenues), Rhythms (8% of
revenues), Celestica (6% of revenues), and KPN (5% of revenues). In general, we
cannot predict with certainty which large customers will continue to order. The
loss of any of these large customers, or the failure to attract new large
customers would likely significantly decrease our revenues and future prospects,
which could materially and adversely affect our business, financial condition
and results of operations.
All of our key customers are telecommunications companies. If the
telecommunications industry continues to experience significant economic
downturn, our sales could be adversely impacted.
A significant portion of our revenues is generated from sales of our
products and services to various telecommunications companies. During the last
twelve to eighteen months, the telecommunications industry has endured a
significant economic downturn. Telecommunications service providers have
typically reduced planned capital spending, have reduced staff, and sought
bankruptcy proceedings and/or ceased operations. Consequently, the spending
cutback of these organizations has affected the Company through reduced product
orders. The decline in product orders negatively impacted our revenues,
resulting in significant operating losses and negative cash flows. If the
telecommunications industry experiences further economic downturns, this could
negatively impact our sales and revenue generation, and consequently have a
material adverse effect on our business, financial condition and results of
operations.
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We depend upon key members of our employees and management, the loss of which
could have a material adverse effect upon our business, financial condition and
results of operations
Our business is greatly dependent on the efforts of our President and
CEO, Mr. Kam Saifi, our Chief Operating Officer, Mr. Cameron Saifi, and our
Chief Technology Officer, Mr. David Arbeitel and our Chief Financial Officer,
Mr. Ted Kaminer and other key employees, and on our ability to attract key
personnel. Other than with respect to Messrs. K. Saifi, C. Saifi, Arbeitel and
Kaminer, we do not have employment agreements with our other key employees. Our
success depends in large part on the continued services of our key management,
sales, engineering, research and development and operational personnel and on
our ability to continue to attract, motivate and retain highly qualified
employees and independent contractors in those areas. Competition for such
personnel is intense and we cannot assure you that we will successfully attract,
motivate and retain key personnel. While all of our employees have entered into
non-compete agreements, there can be no assurance that any employee will remain
with us. Our inability to hire and retain qualified personnel or the loss of the
services of our key personnel could have a material adverse effect upon our
business, financial condition and results of operations. Currently, we do not
maintain "key man" insurance policies with respect to any of our employees.
We rely on several contract manufacturers to supply our products. If our product
manufacturers fail to deliver our products, or if we lose these suppliers, we
may be unable to deliver our product and our sales and revenues could be
negatively impacted.
We rely on three contract manufacturers to supply our products. If these
manufacturers fail to deliver our products or if we lose these suppliers and are
unable to replace them, then we would not be able to deliver our products to our
customers. This could negatively impact our sales and revenues and have a
material adverse affect on our business, financial condition and results of
operations.
Our corporate charter and bylaws contain limitations on the liability of our
directors and officers, which may discourage suits against directors and
executive officers for breaches of fiduciary duties
Our Certificate of Incorporation, as amended, and our Bylaws contain
provisions limiting the liability of our directors for monetary damages to the
fullest extent permissible under Delaware law. This is intended to eliminate the
personal liability of a director for monetary damages on an action brought by or
in our right for breach of a director's duties to us or to our stockholders
except in certain limited circumstances. In addition, our Certificate of
Incorporation, as amended, and our Bylaws contain provisions requiring us to
indemnify our directors, officers, employees and agents serving at our request,
against expenses, judgments (including derivative actions), fines and amounts
paid in settlement. This indemnification is limited to actions taken in good
faith in the reasonable belief that the conduct was lawful and in, or not
opposed to our best interests. The Certificate of Incorporation and the Bylaws
provide for the indemnification of directors and officers in connection with
civil, criminal, administrative or investigative proceedings when acting in
their capacities as agents for us. These provisions may reduce the likelihood of
derivative litigation against directors and executive officers and may
discourage or deter stockholders or management from suing directors or executive
officers for
7
breaches of their fiduciary duties, even though such an action, if successful,
might otherwise benefit us and our stockholders.
Risks associated with our securities
We do not anticipate the payment of dividends
We have never declared or paid cash dividends on our common stock. We
currently anticipate that we will retain all available funds for use in the
operation of our business. Thus, we do not anticipate paying any cash dividends
on our common stock in the foreseeable future.
There is potential for fluctuation in the market price of our securities
Because of the nature of the industry in which we operate, the market
price of our securities has been, and can be expected to continue to be, highly
volatile. Factors such as announcements by us or others of technological
innovations, new commercial products, regulatory approvals or proprietary rights
developments, and competitive developments all may have a significant impact on
our future business prospects and market price of our securities.
Shares that are eligible for sale in the future may affect the market price of
our common stock
As of June 19, 2002, an aggregate of 2,499,122 of the outstanding
shares of our common stock are "restricted securities" as that term is defined
in Rule 144 of the Securities Act of 1933 (Rule 144). These restricted shares
may be sold pursuant only to an effective registration statement under the
securities laws or in compliance with the exemption provisions of Rule 144 or
other securities law provisions. In addition, 2,682,548 shares are issuable
pursuant to currently exercisable options, and 1,624,250 shares are issuable
pursuant to currently exercisable warrants, including 1,120,000 of the shares
registered hereby, which may be exercised for shares that may be restricted or
registered, further adding to the number of outstanding shares. Future sales of
substantial amounts of shares in the public market, or the perception that such
sales could occur, could negatively affect the price of our common stock.
Our common stock may be delisted from Nasdaq
The National Association of Securities Dealers, Inc. has established
certain standards for the continued listing of a security on the Nasdaq National
Market and the Nasdaq SmallCap Market. The standards for continued listing on
either market require, among other things, that the minimum bid price for the
listed securities be at least $1.00 per share. A deficiency in the bid price
maintenance standard will be deemed to exist if the issuer fails the stated
requirement for thirty consecutive trading days, with a 90-day cure period, with
respect to the Nasdaq National Market, and a 180-day cure period with respect to
the Nasdaq SmallCap Market. Our Common Stock has traded below $1.00 since
January 29, 2002, and on March 13, 2002, we received notice from Nasdaq stating
that our Common Stock has not met the $1.00 continuing listing standard for a
period of 30 consecutive trading days. On June 4, 2002, prior to the expiration
of our 90-day cure period, we have applied
8
for a transfer to the Nasdaq SmallCap Market in order to take advantage of the
longer 180-day cure period. On August 5, 2002, we received a letter from Nasdaq
approving the transfer of the Company's securities from the Nasdaq National
Market to the Nasdaq SmallCap Market, effective as of the opening of business on
August 7, 2002. The Nasdaq SmallCap Market requires that the Company's
securities close at $1.00 per share or more for a minimum of 10 consecutive
trading days. If the price deficiency is cured during the 180-day period by
September 9, 2002, and we otherwise continue to comply with the Nasdaq National
Market maintenance standards, we could then transfer back to the Nasdaq National
Market. If we cannot demonstrate compliance with the Nasdaq SmallCap Market
minimum bid price requirement by the end of the 180-day grace period, the
Company may be eligible for an additional 180-day grace period, if we
demonstrate compliance with the initial listing criteria for the Nasdaq SmallCap
Market. As of the date of this filing, the Company is currently not eligible for
this additional 180-day grace period, as it is not in compliance with the
initial listing criteria for the Nasdaq SmallCap Market. If the Company does not
achieve compliance with the minimum bid price requirement or qualify for an
additional 180-day grace period prior to September 9, 2002, Nasdaq may de-list
the Company's Common Stock from Nasdaq SmallCap Market. In that event, the
Company would appeal to the Nasdaq Listing Qualifications Panel and if such
appeal were to be unsuccessful, the Company would attempt to be quoted on the
OTC Bulletin Board or in the "Pink Sheets" maintained by Pink Sheets LLC
(formerly, the National Quotation Bureau, Inc.). If that were to occur, and
because these quotation media are only directly available to member
broker/dealers and market makers, it is likely that the ability to readily
purchase or sell our Common Stock would be adversely affected. The reduction in
liquidity resulting from such delisting could have a material adverse effect on
the market price of the Company's Common Stock. There can be no assurance that
we will continue to satisfy the requirements for maintaining a Nasdaq National
Market or SmallCap listing. If our common stock were to be excluded from Nasdaq,
the prices of our common stock and the ability of holders to sell such stock
would be adversely affected, and we would be required to comply with the initial
listing requirements to be relisted on Nasdaq.
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Where You Can Find More Information About Us
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
over the Internet at the SEC's Website at "http://www.sec.gov."
We have filed with the SEC a registration statement on Form S-3 to
register the shares being offered. This Prospectus is part of that registration
statement and, as permitted by the SEC's rules, does not contain all the
information included in the registration statement. For further information with
respect to us and our common stock, you should refer to the registration
statement and to the exhibits and schedules filed as part of that registration
statement, as well as the documents we have incorporated by reference which are
discussed below. You can review and copy the registration statement, its
exhibits and schedules, as well as the documents we have incorporated by
reference, at the public reference facilities maintained by the SEC as described
above. The registration statement, including its exhibits and schedules, are
also available on the SEC's web site.
This Prospectus may contain summaries of contracts or other documents.
Because they are summaries, they will not contain all of the information that
may be important to you. If you would like complete information about a contract
or other document, you should read the copy filed as an exhibit to the
registration statement.
Incorporation of Certain Documents by Reference
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be a part of this Prospectus, and information that we file later
with the SEC will automatically update or supersede this information. We
incorporate by reference the documents listed below:
. Annual Report on Form 10-KSB for the year ended March 31, 2002 (as
filed on July 1, 2002);
. Amendment No. 1 to the Annual Report on Form 10-KSB/A for the year
ended March 31, 2002 (as filed on July 10, 2002);
. Amendment No. 2 to the Annual Report on Form 10-KSB/A for the year
ended March 31, 2002 (as filed on August 2, 2002);
. Amendment No. 3 to the Annual Report on Form 10-KSB/A for the year
ended March 31, 2002 (as filed on August 21, 2002);
. Current Report on Form 8-K dated (date of earliest event reported)
April 22, 2002 (as filed on April 22, 2002);
. Current Report on Form 8-K dated (date of earliest event reported)
May 21, 2002 (as filed on May 30, 2002);
. Current Report on Form 8-K dated (date of earliest event reported)
July 31, 2002 (as filed on August 6, 2002);
. Current Report on Form 8-K dated (date of earliest event reported)
August 6, 2002 (as filed on August 6, 2002);
. Quarterly Report on Form 10-QSB for the quarter ended June 30,
2002 (as filed on August 14, 2002);
. Amendment No. 1 to the Quarterly Report on Form 10-QSB/A for the
quarter ended June 30, 2002 (as filed on August 21, 2002); and
. The description of our Common Stock contained in the Registration
Statement on Form 8-A filed with the SEC on January 23, 1985.
In addition, any future filing we will make with the SEC, and only
these filings, under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act, will be incorporated herein by reference and will automatically
update or supersede the information contained in the documents listed above.
You may request a copy of these filings, at no cost, by writing or
telephoning us at Washington Plaza, 1551 South Washington Avenue, Piscataway,
New Jersey 08854, telephone (732) 529-0100. Attention: Mr. Kam Saifi, Chief
Executive Officer.
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This Prospectus contains certain forward-looking statements which
involve substantial risks and uncertainties. These forward-looking statements
can generally be identified because the context of the statement includes words
such as "may," "will," "expect," "anticipate," "intend," "estimate," "continue,"
"believe," or other similar words. Similarly, statements that describe our
future plans, objectives and goals are also forward-looking statements. Our
factual results, performance or achievements could differ materially from those
expressed or implied in these forward-looking statements as a result of certain
factors, including those listed in "Risk Factors" and elsewhere in this
Prospectus.
We have not authorized any dealer, salesperson or any other person to
give any information or to represent anything not contained in this Prospectus.
You must not rely on any unauthorized information. This Prospectus does not
offer to sell or buy any shares in any jurisdiction where it is unlawful. The
information in this Prospectus is current as of September 5, 2002.
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Forward - Looking Statements
In this prospectus, we make statements about our future financial
condition, results of operations and business. These are based on estimates and
assumptions made from information currently available to us. Although we believe
these estimates and assumptions are reasonable, they are uncertain. These
forward-looking statements can generally be identified because the context of
the statement includes words such as may, will, expect, anticipate, intend,
estimate, continue, believe or other similar words. Similarly, statements that
describe our future expectations, objectives and goals or contain projections of
our future results of operations or financial condition are also forward-looking
statements. Our future results, performance or achievements could differ
materially from those expressed or implied in these forward-looking statements,
including those listed under the heading "Risk Factors" and other cautionary
statements in this prospectus. Unless otherwise required by applicable
securities laws, we assume no obligation to update any such forward-looking
statements, or to update the reasons why actual results could differ from those
projected in the forward-looking statements.
Use of Proceeds
We will not receive any of the proceeds from the sale of our Common
Stock registered by the Registration Statement, of which this Prospectus is a
part. All such proceeds will be paid to the Selling Stockholders specified under
the heading, "Selling Stockholders." Since some of the shares subject to this
prospectus are shares issuable upon the exercise of warrants, we will receive
proceeds from the exercise of such warrants, and will use such proceeds for
general corporate purposes.
Dividend Policy
We have never declared or paid cash dividends on our Common Stock. We
currently anticipate that we will retain all available funds for use in the
operation of our business. As such, we do not anticipate paying any cash
dividends on our Common Stock in the foreseeable future.
12
Selling Stockholders
This Prospectus covers the resale by the Selling Stockholders or their
transferees of up to 4,000,000 shares (the "Shares") of common stock, par value
$.001 per share, of the Company (the "Common Stock") and interests therein and
up to 1,120,000 Shares of Common Stock (the "Warrant Shares") issuable pursuant
to the exercise of warrants (the "Warrants") and interests therein. The Shares
and Warrants were issued by the Company pursuant to transactions consummated in
February 2002. For more details regarding such transactions, see "Description of
Securities -- The Transactions" and "Description of Securities -- Common Stock".
At various times over the last 3 years, the Selling Stockholders have made
significant equity investments in the Company.
The following table lists certain information regarding the Selling
Stockholders' ownership of shares of Common Stock as of February 14, 2002, and
as adjusted to reflect the sale of the Shares. Information concerning the
Selling Stockholders may change from time to time. The information in the table
concerning the Selling Stockholders who may offer Shares hereunder from time to
time is based on information provided to us by such stockholders.
Shares of
Common Shares of Common Stock Owned
Stock Owned Shares of after Offering/(2)/
Name of Selling Prior to Common Stock -------------------------------------
Stockholder/(1)/ Offering to be Sold Number Percent of Class
---------------- --------------- ------------ ----------------- ------------------
Special Situations Private
Equity Fund, L.P. 1,148,017/(3)/ 1,029,900/(3)/ 118,117 *
Special Situations Fund III,
L.P. 2,835,365/(4)/ 2,681,400/(4)/ 153,965 *
Special Situations Cayman Fund,
L.P. 909,600/(5)/ 893,800/(5)/ 15,800 *
Special Situations Technology
Fund, L.P. 514,900/(6)/ 514,900/(6)/ 0 *
Total 5,407,882 5,120,000 287,882 1.1%
______________________
* Represents less than one (1%) percent of the issued and outstanding Common
Stock.
(1) MGP Advisors Limited ("MGP") is the general partner of Special
Situations Fund III, L.P. AWM Investment Company, Inc. ("AWM") is the
general partner of MGP and the general partner of and investment
adviser to the Special Situations Cayman Fund, L.P. SST Advisers,
L.L.C. ("SSTA") is the general partner of and investment adviser to the
Special Situations Technology Fund, L.P. MG Advisers, L.L.C. ("MG") is
the general partner of and investment adviser to the Special Situations
Private Equity Fund, L.P. Austin W. Marxe and David M. Greenhouse are
the principal owners of MGP, SSTA, AWM and MG, and are principally
responsible for the selection, acquisition and disposition of the
portfolio securities by each investment adviser on behalf of its fund.
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(2) Assumes that all of the Shares are sold and no other shares of Common Stock
are sold by the Selling Stockholders during the offering period.
(3) Includes 225,300 shares of Common Stock issuable pursuant to a currently
exercisable warrant.
(4) Includes 586,600 shares of Common Stock issuable pursuant to a currently
exercisable warrant.
(5) Includes 195,500 shares of Common Stock issuable pursuant to a currently
exercisable warrant.
(6) Includes 112,600 shares of Common Stock issuable pursuant to a currently
exercisable warrant.
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Plan of Distribution
The Selling Stockholders, which term includes donees, pledgees,
transferees, or other successors-in-interest selling shares of Common Stock or
interests therein received after the date of this prospectus from a Selling
Stockholder as a gift, pledge, partnership distribution or other transfer, may
offer their shares of Common Stock or interests therein at various times in one
or more of the following transactions:
. on any U.S. securities exchange on which the Common Stock may be
listed at the time of such sale;
. in the over-the-counter market;
. in transactions other than on such exchanges or in the
over-the-counter market;
. through the writing or settlement of options or other hedging
transactions, whether through an options exchange or otherwise;
. in connection with short sales; or
. in a combination of any of the above transactions.
The Selling Stockholders may offer their shares of Common Stock or
interests therein at prevailing market prices at the time of sale, at prices
related to such prevailing market prices, at negotiated prices or at fixed
prices.
The Selling Stockholders may also sell the shares or interests therein
under Rule 144 instead of under this prospectus, if Rule 144 is available for
those sales.
The Selling Stockholders may use broker-dealers to sell their shares of
Common Stock. If this occurs, broker-dealers will either receive discounts or
commissions from the Selling Stockholder, or they will receive commissions from
purchasers of shares of Common Stock for whom they acted as agents. Such brokers
may act as dealers by purchasing any and all of the Shares covered by this
Prospectus either as agents for others or as principals for their own accounts
and reselling such securities pursuant to this Prospectus.
The transactions in the shares covered by this prospectus may be
effected by one or more of the following methods:
. ordinary brokerage transactions and transactions in which the
broker solicits purchasers;
. purchases by a broker or dealer as principal, and the resale by
that broker or dealer for its account under this prospectus,
including resale to another broker or dealer;
. block trades in which the broker or dealer will attempt to sell
the shares as agent but may position and resell a portion of the
block as principal in order to facilitate the transaction; or
. negotiated transactions between the Selling Stockholders and
purchasers without a broker or dealer.
In connection with the sale of our Common Stock or interests therein,
the Selling Stockholders may enter into hedging transactions with broker-dealers
or other financial
15
institutions, which may in turn engage in short sales of the Common Stock in the
course of hedging the positions they assume. The Selling Stockholders may also
sell shares of our Common Stock short and deliver these securities to close out
their short positions, or loan or pledge the Common Stock to broker-dealers that
in turn may sell these securities. The Selling Stockholders may also enter into
option or other transactions with broker-dealers or other financial institutions
or the creation of one or more derivative securities which require the delivery
to such broker-dealer or other financial institution of shares offered by this
prospectus, which shares such broker-dealer or other financial institution may
resell pursuant to this prospectus (as supplemented or amended to reflect such
transaction). The Selling Stockholders may also pledge or hypothecate shares to
a broker-dealer or other financial institution, and, upon a default, such
broker-dealer or other financial institution, may effect sales of the pledged
shares pursuant to this prospectus (as supplemented or amended to reflect such
transaction).
The Selling Stockholders and any broker-dealers or other persons acting
on the behalf of parties that participate in the distribution of the shares may
be deemed to be underwriters. As such, any commissions or profits they receive
on the resale of the shares may be deemed to be underwriting discounts and
commissions under the Securities Act.
As of the date of this Prospectus, the Company is not aware of any
agreement, arrangement or understanding between any broker or dealer and any of
the Selling Stockholders with respect to the offer or sale of Shares or
interests therein pursuant to this Prospectus.
The Selling Stockholders and any other persons participating in the
sale or distribution of the shares of common stock will be subject to the
relevant provisions of the Exchange Act, including, without limitation,
Regulation M. These provisions may limit the timing of purchases and sales of
any of the shares by the Selling Stockholders or any other person. Furthermore,
under Regulation M, persons engaged in a distribution of securities are
prohibited from simultaneously engaging in market making and certain other
activities with respect to such securities for a specified period of time prior
to the commencement of such distribution, subject to specified exceptions and
exemptions.
We will indemnify the Selling Stockholders, or its transferees or
assignees, against liabilities under the Securities Act arising in connection
with the registration of the shares being sold by the Selling Stockholders
hereunder, or we will contribute to payments the Selling Stockholders or its
respective pledgees, donees, transferees or other successors in interest, may be
required to make in respect thereof.
We are bearing all costs relating to the registration of the shares,
other than fees and expenses, if any, of counsel or other advisers to the
Selling Stockholders. The Selling Stockholders will pay any commissions,
discounts or other fees payable to broker-dealers in connection with any sale of
the shares utilizing the services of a broker-dealer.
In the stock purchase agreement we executed with the Selling
Stockholders, we agreed to indemnify and hold harmless the Selling Stockholders
against liabilities under the Securities Act, which may be based upon, among
other things, any untrue statement or alleged untrue statement
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of a material fact or any omission or alleged omission of a material fact,
unless made or omitted in reliance upon written information provided to us by
the Selling Stockholders.
The Selling Stockholders are selling all of the shares covered by this
Prospectus or interests therein for their own account. Accordingly, the Company
will not receive any proceeds from the resale of these shares. Since some of
these shares are issuable upon the exercise of warrants, we will receive
proceeds from the exercise of such warrants, and will use such proceeds for our
own general corporate purposes.
We agreed to use commercially reasonable efforts to keep the
registration statement, of which this Prospectus is a part, effective until the
earliest of:
. the date on which all shares registered hereby are sold; or
. the date the shares registered hereby may be sold pursuant to Rule
144(k).
17
Description of Securities
General
The total amount of authorized capital stock of the Company consists of
50,000,000 shares of common stock, par value $.001 per share (the "Common
Stock"), and 1,000,000 shares of preferred stock, par value $.001 per share (the
"Preferred Stock"). As of February 26, 2002, there were 25,138,001 shares of
Common Stock issued and outstanding and no shares of Preferred Stock issued and
outstanding.
Common Stock
Holders of shares of Common Stock are entitled to one vote per share on
all matters that are submitted to the stockholders for their approval and have
no cumulative voting rights. The holders of the Common Stock are entitled to
receive dividends, if any, as may be declared by the Board of Directors from
funds legally available from time to time for this purpose. Upon liquidation or
dissolution of the Company, the remainder of the Company's assets will be
distributed ratably among the holders of Common Stock, after the payment of all
liabilities and payment on any preferential amounts to which the holders of any
Preferred Stock may be entitled. All of the outstanding shares of Common Stock
are fully-paid and non-assessable.
Preferred Stock
The Company's Preferred Stock may be issued from time to time by the
Company's Board of Directors without the approval of the Company's stockholders.
The Board of Directors is authorized to issue these shares in different classes
and series and, with respect to each class or series, to determine the dividend
rights, the redemption provisions, conversion provisions, liquidation
preferences and other rights and preferences not in conflict with the Company's
Certificate of Incorporation or with Delaware law.
The Transaction
Pursuant to a purchase agreement dated as of February 7, 2002, the
Selling Stockholders purchased an aggregate of 4,000,000 shares of Common Stock
at a price of $0.87 per share, and Warrants to purchase 1,120,000 shares of
Common Stock for an aggregate consideration of $3,480,000. The Warrants expire
on February 14, 2007. The Warrants are exercisable at an exercise price of $1.25
per share, subject to customary anti-dilution adjustments. In addition, the
Company has the right to accelerate the expiration date of the Warrants in the
event that the Common Stock trading price exceeds $1.50 per share for twenty
(20) consecutive trading sessions and certain other conditions are met.
Transfer Agent and Warrant Agent
American Stock Transfer & Trust Company, New York, New York is the
transfer agent and registrar for the Common Stock.
18
Delaware Takeover Statute and Certain Charter Provisions
The Company is subject to Section 203 of the Delaware General
Corporation Law which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the Board of
Directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder; (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (x) by persons who are directors and also
officers and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) on or subsequent
to such date, the business combination is approved by the Board of Directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder.
19
Indemnification for Securities Act Liabilities
Section 145 of the Delaware General Corporation Law provides, in
general, that a corporation incorporated under the laws of the State of
Delaware, such as the Company, may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (other than a derivative action by or in the right of the
corporation) by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe such person's conduct was
unlawful. In the case of a derivative action, a Delaware corporation may
indemnify any such person against expenses (including attorneys' fees) actually
and reasonably incurred by such person in connection with the defense or
settlement of such action or suit if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery of the State of Delaware or any other court in which such
action was brought determines such person is fairly and reasonably entitled to
indemnity for such expenses.
The Certificate of Incorporation, as amended, provides that the
liability of the Company's directors shall be limited to the fullest extent
permitted by the Delaware General Corporation Law. In addition, the Certificate
of Incorporation provides that the Company shall indemnify directors, officers,
employees and agents of the Company acting in such capacity to the fullest
extent permitted by such law.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
Legal Matters
The validity of the securities being offered hereby was passed upon by
Jenkens & Gilchrist Parker Chapin LLP, New York, New York.
Experts
The consolidated balance sheet and the related consolidated statements
of operations', stockholders' equity and cash flows at and for the fiscal year
ended March 31, 2001 incorporated in this Prospectus by reference to the Annual
Report on Form 10-KSB of ION Networks, Inc. for the year ended March 31, 2002
(as filed on July 1, 2002), Amendment No. 1 to the Annual Report on Form
10-KSB/A (as filed on July 10, 2002), Amendment No. 2 to the Annual Report on
Form 10-KSB/A (as filed on August 2, 2002), and Amendment No. 3 to the Annual
Report on Form 10-KSB/A (as filed on August 21, 2002), have been so incorporated
in reliance on the report of
20
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements as of and for the year ended March 31, 2002
incorporated in this prospectus by reference from the Company's Annual Report on
Form 10-KSB for the year ended March 31, 2002 (as filed on July 1, 2002),
Amendment No. 1 to the Annual Report on Form 10-KSB/A (as filed on July 10,
2002), Amendment No. 2 to the Annual Report on Form 10-KSB/A (as filed on August
2, 2002), and Amendment No. 3 to the Annual Report on Form 10-KSB/A (as filed on
August 21, 2002), have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report (which report expresses an unqualified
opinion and includes an explanatory paragraph referring to the Company's ability
to continue as a going concern), which is incorporated herein by reference, and
has been so incorporated in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
21
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We have not authorized any dealer, salesperson
or any other person to give any information or to
represent anything not contained in this Prospectus.
You must not rely on any unauthorized information. This ION Networks, Inc.
Prospectus does not offer to sell or buy any shares in
any jurisdiction where it is unlawful. The information
in this Prospectus is current as of September 5, 2002.
5,120,000 SHARES OF
COMMON STOCK
TABLE OF CONTENTS
Page
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Risk Factors...................................... 3
Where You Can Find More Information About Us...... 10
Incorporation of Certain Documents by Reference... 10
Forward-Looking Statements........................ 12
Use of Proceeds................................... 12
Dividend Policy................................... 12
Selling Stockholders.............................. 13 PROSPECTUS
Plan of Distribution.............................. 15
Description of Securities......................... 18
Indemnification for Securities Act Liabilities.... 20
Legal Matters..................................... 20
Experts........................................... 20
September 5, 2002
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