ION Networks, Inc.
120 Corporate Boulevard
South Plainfield, NJ 07080
June 15, 2005
Ms. Barbara C. Jacobs
Assistant Director
US Securities and Exchange Commission
Division of Corporation Finance-Mail Stop 4-6
Washington DC 20549
Via Edgar Correspondence and Federal Express
Re: ION Networks, Inc. Registration Statement on Form SB-2 SEC
File No. 333-124274
Dear Ms. Jacobs:
Reference is made to your comment letter dated May 20, 2005, addressed
to Norman E. Corn, and relating to the Registration Statement on Form SB-2 (the
"Registration Statement"), the Form 10-KSB of ION Networks, Inc. (the "Company")
for the fiscal year ended December 31, 2004, as amended (the "10-KSB") and the
Form 10-QSB of the Company for the fiscal quarter ended March 31, 2005 (the
"10-QSB").
We are filing via the EDGAR system our responses to the comments in
your letter related to the above referenced registration and reports. The
numbered paragraphs in this letter correspond to the consecutively numbered
paragraphs in your comment letter. To the extent indicated, we proposed to amend
our registration in accordance with our response. For your convenience, enclosed
are two marked and two clean copies of the amendment to the Registration
Statement.
Please call if you have any questions or further comments.
Very truly yours,
Patrick Delaney
Chief Financial Officer
FORM SB-2
General
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1. We have complied with this comment as reflected in Amendment No. 1 to
the Registration Statement.
Selling Stockholders, pg. 31
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2. We have complied with this comment as reflected in Amendment No. 1 to
the Registration Statement.
3. We have complied with this comment as reflected in Amendment No. 1 to
the Registration Statement.
4. None of the selling stockholders are registered broker-dealers. None
of the selling stockholders are affiliates of registered
broker-dealers.
Plan of Distribution, pg. 32
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5. We and the selling shareholders are aware of the SEC's position on
short sales. We have indicated in the Registration Statement that no
short sales will be effected prior to the effectiveness of the
Registration Statement.
Signatures, pg. 65
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6. We have complied with this comment as reflected in Amendment No. 1 to
the Registration Statement.
Legal Opinion
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7. Please see the attached written confirmation of Moses & Singer LLP.
FORM 10-KSB/A
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Management's Discussion and Analysis or Plan of Operations, pg. 17
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8. The Company's OEM revenues increased from $638,000 in 2003 to
$1,372,000 in 2004. This change was due primarily to the increase in
unit sales of higher margin 5500 model appliances from 79 to 335 units
offset in part by a decline in sales of older product models i.e.,
3100 from 515 to 440. During the two year period of 2003 and 2004 no
new products were introduced by the Company. The Company has
considered quantifying and discussing these sales components however
the Company does not believe that there are any discernable trends
with respect to the Company's product mix that can be estimated at
this time.
9. The Company has considered disclosing the segmentation between the
combination of hardware and hardware accessory products and our other
products software, maintenance and professional services. However,
since software, maintenance and professional services do not exceed
20% of total revenues for either year ended December 31, 2003 or 2004
the segmentation would not yield useful information for potential
investors.
10. The Company has considered classifying amortization expense in the
cost of sales. The Company decided that to classify amortization
expense in the cost of sales would result in a distortion of the gross
margins, due to the fact that this expense item fluctuates from year
to year based on varying amounts of capitializable costs for new
product development in the technological feasibility stage. Therefore,
in order to increase transparency and clarity the Company classifies
amortization expense on a separate operating expense line in our
financial statements.
Controls and Procedures, pg. 19
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11. During the quarter ended December 31, 2004 and the quarter ended March
31, 2005, respectively, there was no changes that materially affected
or were reasonably likely to materially affect the Company's internal
controls over financial reporting. The Company's future disclosure
will conform to the requirements of Item 308(c) of Regulation S-B and
Rule 13a-15(e).
12. The Company's management continues to believe that disclosure controls
and procedures were effective as of December 31, 2004. The amendment
to the Form 10-KSB was primarily filed in order to include the
accountant's consent, which was inadvertently omitted in the process
of converting the report into EDGAR. The two other amendments were
immaterial.
Note 2 Summary of Significant Accounting Policies
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Revenue Recognition, pg. 44
13. ION's standard payment terms are 30 days from invoice date. The
Company conducts business with several large companies including
Avaya, Sprint, and AT&T who's policy is to pay in full in 45 days.
Revenue is recognized when product is shipped and all fees are fixed
and determinable for these billings. The Company collected all
outstanding balances as of December 31, 2004 and during the past two
years has had nearly zero uncollectible accounts.
14. The Company sells individually packaged and complete hardware units
and recognizes revenue from the date shipped. The Company also sells
individual software packages. The sales of both products are complete
and independent of the other and not part of multi-element
arrangements. Maintenance contracts are sold and revenue is recognized
ratably over the term of the contract. Maintenance contracts do not
impact the pricing of other products.
Foreign Currency Translation, pg. 45
15. During 2004 the Company was not impacted by foreign currency
translation adjustments and during 2003 translations and adjustments
totaled $13,269, an immaterial amount. The Company settles all
international sales invoices and operating expenses in US dollars.
Note 3 Restructuring, Asset Impairments and Other Credits, pg. 46
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16. ION has in FORM 10-KSB for the years ended December 31, 2003 and 2004
disclosed the nature and amounts of all significant restructuring,
asset impairments and other credits in both the Management Discussion
and Analysis and Note 3 to the financial statements. Listed below are
further explanations concerning the significant related items:
California lease abandonment: Reserve of $123,510 was estimated
in March 2003. The estimate represented the total lease payments
from December 2002 through May 2004 offset by the landlord's
stated sub-lease payments. During 2003, the Company requested, of
the landlord, verification of the sub-lease payments for the
period and did not receive any accounting from the landlord.
Therefore, based on the lack of response from the landlord,during
the quarter ended September 30, 2004, the Company lowered it's
estimate of potential liability and reversed $63,716 leaving a
balance of $59,794 accrued at December 31, 2004. ION will
continue to monitor this liability and will adjust when
appropriate.
Xetel Payment: 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.
Livingston lease abandonment: 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 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.
New Jersey Headquarter Moved: During the quarter ended June 30,
2003, the Company was notified by the landlord of the exercise of the
landlord's right to cancel the lease at the Piscataway, NJ facility
effective August 15, 2003. During the quarter ended June 30, 2003 the
Company recorded an impairment loss of $163,662, which represents the
difference between the cash proceeds of August 2003 sale of certain
assets and carrying value prior to the impairment and an additional
charge to write-off a balance of $28,955 for the net book value of
leasehold improvements. There is no longer a value on the books at
December 31, 2004.
Disputed Liabilities Amounts: As of December 31, 2004, the
Company has amounts totaling $332,357 either accrued or in accounts
payable. At the present time, the Company has disputed these amounts
with certain vendors, however, management is unable to estimate the
final determination of these amounts. Management will continue to
monitor these liabilities and will adjust each item when appropriate.
FORM 10-QSB
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17. Please see our response in No. 11 above with respect to the disclosure
of "changes in controls and procedures" as it relates to the Company's
Form 10-QSB for the quarter ended March 31, 2005. We have been
verbally advised that at this time the SEC will not be providing any
further comments to the Company's Form 10-QSB for the quarter ended
March 31, 2005.
Moses & Sinclair LLP
1301 Avenue of the Americas
New York, New York 10019-6076
DIRECT DIAL: 212.554.7800 FACSIMLIE: 212.554.7700
June 10, 2005
Ms. Barbara Jacobs
Assistant Director
US Securities and Exchange Commission
Division of Corporation Finance Mail Stop 4-6
Washington, DC 20549
Re: ION Networks, Inc. Registration Statement on Form SB-2 SEC
File No. 333-124274
Dear Ms. Jacobs:
Reference is made to your comment letter dated May 20, 2005, addressed to
Norman E. Corn and relating to the above referenced Registration Statement on
form SB-2 of ION Networks, Inc. Specifically, reference is made to comment No. 7
of your letter.
This is to confirm to you that we concur with the U.S. Securities and
Exchange Commission's understanding that the reference and limitation to the
"General Corporation Law of the State of Delaware" in our opinion issued in
connection with the above referenced Registration Statement, includes these
statutory provisions and also all applicable provisions of the Delaware
Constitution and reported judicial decisions interpreting these laws.
Very truly yours,
/s/ Moses & Singer LLP
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MOSES & SINGER LLP