UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

(Mark One)
              [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

               For the quarterly period ended: September 30, 2006
                                              ---------------------

             [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
                                  EXCHANGE ACT

                        For the transition period from to
                         Commission file number 0-17304

                             CISTERA NETWORKS, INC.
   --------------------------------------------------------------------------
                     (Exact name of small business issuer as
                            specified in its charter)

                     Nevada                          91-1944887
--------------------------------------------------------------------------------
             (State or other jurisdiction          (IRS Employer
         of incorporation or organization)      Identification No.)

                 17304 Preston Road, Suite 975, Dallas, TX 75252
    -------------------------------------------------------------------------
                    (Address of principal executive offices)

                                 (972) 381-4699
                            Issuer's telephone number


                (Former name,  former address and former fiscal year, if changed
since last report.)

         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

         Indicate by check mark whether the  registrant  is a shell  company (as
defined by Rule 12b-2 of the Exchange Act). Yes No X -------- --------

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                   PROCEEDING DURING THE PRECEDING FIVE YEARS

         Check whether the registrant  filed all documents and reports  required
to be  filed  by  Section  12,  13 or  15(d)  of  the  Exchange  Act  after  the
distribution  of  securities  under a plan  confirmed by a court.  Yes X  No




<PAGE>



                      APPLICABLE ONLY TO CORPORATE ISSUERS

         State the number of shares  outstanding of each of the issuer's classes
of common equity, as of the latest practical date:  September 30, 2006 8,152,063


         Transitional Small Business Disclosure Format (check one).
Yes      ;  No   X
    ----       -----












































<PAGE>



                                     PART I

ITEM 1.  FINANCIAL STATEMENTS

                       CISTERA NETWORKS, INC. & SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS



                                 (Unaudited)
                                  September 30,        March 31,
                                      2006                2006
                               ------------------  ------------------
Current Assets:
   Cash                        $           59,554  $           60,990
   Accounts Receivable                    115,278             198,319
   Other Receivable                        23,927              23,927
   Inventory                               23,677              23,127
   Prepaid Expenses                         9,993              41,626
                               ------------------  ------------------

      Total Current Assets                232,429             347,989
                               ------------------  ------------------

Fixed Assets:
   Computer Equipment                     117,859             117,725
   Trade Show Booth & Fixtures             10,026               8,774
   Office Equipment                        74,799              72,622
   Property held under capital             10,205              10,205
   Less Accumulated Depreciatio          (131,389)           (115,524)
                               ------------------  ------------------

      Net Fixed Assets                     81,500              93,802
                               ------------------  ------------------

Intangible Assets:
   Intellectual property                2,717,755           2,717,755
   Software development                   366,040             366,040
   Less Amortization                     (652,914)           (477,091)
                               ------------------  ------------------

      Net Intangible Assets             2,430,881           2,606,704
                               ------------------  ------------------

Total Assets                   $        2,744,810  $        3,048,495
                               ==================  ==================






<PAGE>



                       CISTERA NETWORKS, INC. & SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                                   (continued)


<TABLE>
<CAPTION>
                                                                       (Unaudited)
                                                                       September 30,        March 31,
                                                                           2006                2006
                                                                     -----------------  ------------------
Current Liabilities:
<S>                                                                  <C>                <C>
   Accounts payable                                                  $         793,074  $        1,015,596
   Accrued liabilities                                                         812,825             623,361
   Related party payables                                                       66,873              84,938
   Short-term notes payable                                                     11,000              36,000
   Convertible promissory notes                                                229,000             230,000
   Current portion of long-term debt                                             3,691               3,581
   Current portion of deferred income                                          150,671             110,008
                                                                     -----------------  ------------------

     Total Current Liabilities                                               2,067,134           2,103,484
                                                                     -----------------  ------------------

Long-Term Liabilities
   Lease obligation payable                                                        599               2,415
   Convertible promissory notes                                                260,000              45,000
   Deferred income                                                             112,708              119,151
                                                                     -----------------  ------------------
     Total Long-Term Liabilities                                               373,307             166,566
                                                                     -----------------  ------------------

     Total Liabilities                                                       2,440,441           2,270,050
                                                                     -----------------  ------------------

Stockholders' Equity:
   Common Stock, Par Value $.001
     Authorized 50,000,000 shares,
     Issued 8,152,063 shares at September 30, 2006 and
     8,077,226 shares at March 31, 2006                                          8,152               8,077
   Paid-In Capital                                                           8,720,959           8,684,405
   Retained Deficit                                                         (8,424,742)         (7,914,037)
                                                                     -----------------  ------------------

     Total Stockholders' Equity                                                304,369             778,445
                                                                     -----------------  ------------------

Total Liabilities and Stockholders' Equity                           $       2,744,810  $        3,048,495
                                                                     =================  ==================
</TABLE>








   The accompanying notes are an integral part of these financial statements.


<PAGE>



                       CISTERA NETWORKS, INC.& SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                    (Unaudited)                           (Unaudited)
                                           For the three months ended               For the six months ended
                                                  September 30,                          September 30,
                                            2006                2005                2006                2005
                                      -----------------   -----------------  ------------------  ------------------
<S>                                   <C>                 <C>                <C>                 <C>
Revenues                              $         399,880   $         367,450  $          894,617  $          980,719
Cost of goods sold                               65,280             117,666              93,254             228,282
                                      -----------------   -----------------  ------------------  ------------------

     Gross Profit                               334,600             249,784             801,363             752,437
                                      -----------------   -----------------  ------------------  ------------------

Expenses:
   Sales and marketing                           42,726              22,840              98,436              36,096
   Research and development                     119,746             122,478             248,650             258,060
   Software consulting                          188,997             281,402             456,752             539,335
   General and administrative                   200,625             500,768             478,443             710,542
                                      -----------------   -----------------  ------------------  ------------------

     Total Expenses                             552,094             927,488           1,282,281           1,544,033
                                      -----------------   -----------------  ------------------  ------------------

Other Income (Expense)
   Interest income                                   36                 893                  51               1,050
   Interest expense                             (12,404)            (26,078)            (29,838)            (50,522)
                                      -----------------   -----------------  ------------------  ------------------

  Total Other Income (Expense)                  (12,368)            (25,185)            (29,787)            (49,472)
                                      -----------------   -----------------  ------------------  ------------------

     Net Loss                         $        (229,862)  $        (702,889) $         (510,705) $         (841,068)
                                      =================   =================  ==================  ==================

Basic & Diluted loss per share        $          (0.03)   $          (0.10)  $           (0.06)  $           (0.13)
                                      =================   =================  ==================  ==================

Weighted Average Shares                       8,149,388           6,741,449           8,113,504           6,741,449
                                      =================   =================  ==================  ==================
</TABLE>












   The accompanying notes are an integral part of these financial statements.


<PAGE>



                       CISTERA NETWORKS, INC. & SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>

                                                                                          (Unaudited)
                                                                                     For the six months ended
                                                                                          September 30,
                                                                                     2006                2005
                                                                              ------------------  ------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S>                                                                           <C>                 <C>
Net Loss                                                                      $         (510,705) $         (841,068)
Adjustments used to reconcile net loss to net cash
     provided by (used in) operating activities:
Depreciation and amortization                                                            191,688              65,458
Deferred income                                                                           34,220             144,438
Stock issued for accrued liabilities                                                           -             521,424
(Increase) Decrease in accounts receivable                                                83,041             135,006
(Increase) Decrease in inventory                                                            (550)             (5,028)
(Increase) Decrease in prepaid expenses                                                   31,633              (7,317)
(Increase) Decrease in Xbridge receivable                                                      -            (569,525)
Increase (Decrease) in accrued liabilities                                               189,464             212,930
Increase (Decrease) in accounts payable                                                 (222,524)            312,036
                                                                              ------------------  ------------------
     Net Cash Used in operating activities                                              (203,733)            (31,646)
                                                                              ------------------  ------------------

CASH FLOWS FROM INVESTING
ACTIVITIES:
Cash acquired from Xbridge                                                                     -               2,834
Purchase of equipment                                                                     (3,563)            (18,065)
                                                                              ------------------  ------------------
 Net cash provided by investing activities                                                (3,563)            (15,231)
                                                                              ------------------  ------------------

CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments on capital lease                                                                 (1,705)             (1,410)
Sale of common stock                                                                           -             200,000
Cash received from convertible debt                                                      215,000                   -
Proceeds from loans                                                                       17,565              50,000
Payments on loans                                                                        (25,000)            (22,000)
                                                                              ------------------  ------------------
 Net Cash Provided by Financing Activities                                               205,860             226,590
                                                                              ------------------  ------------------

Net (Decrease) Increase in cash and cash equivalents                                      (1,436)            179,713
Cash and Cash Equivalents at beginning of period                                          60,990              38,632
                                                                              ------------------  ------------------
Cash and Cash Equivalents at end of period                                    $           59,554  $          218,345
                                                                              ==================  ==================
</TABLE>






<PAGE>



                       CISTERA NETWORKS, INC. & SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (continued)


<TABLE>
<CAPTION>
                                                                                          (Unaudited)
                                                                                    For the six months ended
                                                                                          September 30,
                                                                                     2006                2005
                                                                              ------------------  ------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
<S>                                                                           <C>                 <C>
  Interest                                                                    $            7,784  $                   -
  Franchise and income taxes                                                  $                   $                   -

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
</TABLE>


         On May 27, 2005, the Company issued 4,150,000 shares of common stock to
the shareholders of XBridge Software,  Inc. and cancelled  2,150,000 shares then
held by XBridge,  in connection with the Company's merger with XBridge Software,
Inc. In the merger,  the Company  acquired all of the assets and  liabilities of
XBridge Software,  valued at a net of $782,245, and intellectual property valued
at  $2,717,755.  Goodwill  of  $2,134,821  was also  acquired  and  subsequently
expensed.

         On December 31, 2005, the Company issued 946,392 shares of stock due to
the  conversion  of note  principal  and interest  from private  placement  fund
holders. The amount of principal  represented by these shares was $859,000.  The
amount of accrued interest represented by these shares was $87,392.

         On March 31, 2006, the Company issued 67,785 shares of stock due to the
conversion of note  principal and interest from private  placement fund holders.
The amount of principal  represented by these shares was $57,000.  The amount of
accrued interest represented by these shares was $10,785.

         On July  1,  2006,  the  Company  issued  70,893  shares  of  stock  in
connection  with the  exercise of  warrants  issued in the merger of the Company
with Xbridge  Software,  Inc. at $.46 per share. The warrants were exercised for
notes payable totaling $32,594.

         On August 31, 2006, the Company issued 4,034 shares of stock due to the
conversion of note  principal and interest from private  placement fund holders.
The amount of principal  represented  by these shares was $1,000.  The amount of
accrued interest represented by these shares was $3,034 due to the conversion of
a portion of the note at an earlier  date.  These notes  converted  at $1.00 per
share.







   The accompanying notes are an integral part of these financial statements.


<PAGE>



                       CISTERA NETWORKS, INC.& SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - NATURE OF OPERATIONS AND GOING CONCERN

         The accompanying  consolidated  financial statements have been prepared
in  conformity  with  accounting  principles  generally  accepted  in the United
States,  which contemplate the Company as a going concern.  However, the Company
has  sustained  substantial  operating  losses  in  recent  years  and has  used
substantial amounts of working capital in its operations. Realization of a major
portion of the assets reflected on the  accompanying  balance sheet is dependent
upon continued  operations of the Company which,  in turn, is dependent upon the
Company's  ability to meet its financing  requirements and succeed in its future
operations. Management believes that actions presently being taken to revise the
Company's operating and financial requirements provide them with the opportunity
for the Company to continue as a going concern.

         These consolidated financial statements do not reflect adjustments that
would be necessary if the Company were unable to continue as a "going  concern".
While  management  believes  that the actions  already  taken or  planned,  will
mitigate the adverse  conditions and events which raise doubt about the validity
of the "going concern" assumption used in preparing these financial  statements,
there can be no assurance that these actions will be successful.

         If the  Company  were unable to  continue  as a "going  concern",  then
substantial adjustments would be necessary to the carrying values of assets, the
reported amounts of its liabilities, the reported revenues and expenses, and the
balance sheet classifications used.

Interim Reporting

         The unaudited  financial  statements as of September 30, 2006,  and for
the  three  and  six  month  periods  then  ended  reflect,  in the  opinion  of
management,  all adjustments  (which include only normal recurring  adjustments)
necessary to fairly state the financial  position and results of operations  for
the  three  and six  months.  Operating  results  for  interim  periods  are not
necessarily indicative of the results which can be expected for full years.

Organization and Basis of Presentation

         CNH Holdings  Company,  Inc., a Nevada  corporation (the Company),  was
incorporated in Delaware on April 15, 1987, under the name of I.S.B.C. Corp. The
Company subsequently  changed its name first to Coral Companies,  Inc., and then
to CNH Holdings  Company.  Domicile  was changed to Nevada in 1997.  The Company
conducted an initial public and secondary offerings during the 1980's.

         On June 15, 1998,  the Company  acquired  Southport  Environmental  and
Development,  Inc. This  acquisition,  however,  was  subsequently  rescinded by
agreement  between the parties  and made a formal  order of the court  effective
April 19, 2000.  This order put the Company in the position which it occupied at
June 14, 1998,  as if none of the actions  which had occurred  from that time to
the date of rescission had transpired.

         On May 5, 2003,  Corvero  Networks,  Inc., a Florida  corporation,  was
formed by CNH Holdings  Company as a wholly-owned  subsidiary to acquire the use
of certain  technology known as the XBridge  Technology.  This technology has as
its principal  component the Corvero Convergence  Platform.  The acquisition was
accomplished by entering into a license agreement with XBridge Software, Inc., a
Delaware corporation. See Note 9, for detailed description of acquisition.


<PAGE>



                       CISTERA NETWORKS, INC.& SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

NOTE 1 - NATURE OF OPERATIONS AND GOING CONCERN (continued)

         On August 31, 2004,  CNH  Holdings  Company  absorbed its  wholly-owned
subsidiary Corvero Networks,  and began doing business as Cistera Networks.  All
Corvero products adopted the Cistera name.

         The Company was in the development stage from January 1, 1992 to May 5,
2003. Since May 5, 2003, the Company has commenced planned principal  operations
and is no longer in the development stage.

         On May 27, 2005, the Company acquired XBridge Software,  Inc. through a
merger between XBridge and a Company  subsidiary.  XBridge will continue to be a
wholly-owned subsidiary of the Company.

         On September 27, 2005,  the Company  changed its name from CNH Holdings
Company to Cistera Networks, Inc.

Nature of Operations

         Cistera  Networks,  Inc.  designs and  develops  XML-based  application
appliances  utilized  in  the  IP  Communications  and  Enterprise   Application
Integration  (EAI) markets.  The Cistera  Convergence  Platform(TM)  enables the
integration  of  voice,  video  and data into the  network  infrastructure.  The
Cistera  Integration  Platform(TM)  enables companies to easily share data among
multiple applications across the business enterprise,  and with multiple trading
partners at a fraction of the cost of large, complex solutions.

NOTE 2 - SUMMARY OF ACCOUNTING POLICIES

         This  summary of  accounting  policies  for Cistera  Networks,  Inc. is
presented  to assist  in  understanding  the  Company's  consolidated  financial
statements.  The accounting  policies conform to generally  accepted  accounting
principles  and  have  been  consistently  applied  in  the  preparation  of the
consolidated financial statements.

Principles of Consolidation

         The consolidated  financial  statements for the quarter ended September
30, 2006 include the  accounts of Cistera  Networks,  Inc. and its  wholly-owned
subsidiary  XBridge Software,  Inc. XBridge  Software,  Inc. was acquired by the
Company on May 27, 2005.

         The  results  of  subsidiaries  acquired  or sold  during  the year are
consolidated  from their effective dates of acquisition  through their effective
dates of disposition.

         All  significant  intercompany  balances  and  transactions  have  been
eliminated.








<PAGE>



                       CISTERA NETWORKS, INC.& SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)

Use of Estimates

         The financial  statements  are prepared in conformity  with  accounting
principles  generally accepted in the United States of America. In preparing the
financial  statements,  management is required to make estimates and assumptions
that affect the reported  amounts of assets and  liabilities  and  disclosure of
contingent  assets  and  liabilities  as of the date of the  balance  sheet  and
statement of operations for the year then ended.  Actual results may differ from
these estimates. Estimates are used when accounting for allowance for bad debts,
collectibility  of  accounts  receivable,  amounts  due  to  service  providers,
depreciation and litigation contingencies, among others.

Cash and Cash Equivalents

         For purposes of the statement of cash flows, the Company  considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents to the extent the funds are not being held for investment
purposes.

Concentration of Credit Risk

         The Company has no  significant  off-balance  sheet  concentrations  of
credit  risk such as foreign  exchange  contracts,  options  contracts  or other
foreign hedging arrangements.

Revenue Recognition

         The  Company's  revenue  is  comprised  of  three  main  sources:   (1)
hardware/software   sales,  (2)  professional   services  and  (3)  support  and
maintenance  contracts.  Hardware/software  sales revenues are recognized when a
valid purchase  order has been received from a client and the  hardware/software
has been shipped and installed at the client site.  Hardware/software revenue is
fixed and  determinable  at the time of shipment as clients are engaged with the
Company  in  a  two-tier   distribution  model  with  no  refund/return  rights.
Professional  services  revenue and costs are  recognized  when an  installation
project has been completed and client sign-off received.  Professional  services
revenue is fixed and determinable only at the time of client approval as typical
client  install  projects  involve  several  vendors  working  against  shifting
deadlines to install multiple solutions.  Support and maintenance  contracts are
executed on an annual basis and the revenue from these  contracts is  recognized
on a monthly basis as the support fees are earned.

Inventory

         Inventory  consists of equipment  that has been returned to the Company
because  the  customer  has quit the  project  or there were  problems  with the
hardware.  The machines are refurbished and used in future sales.  The inventory
assets are recorded at cost.






<PAGE>



                       CISTERA NETWORKS, INC.& SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)

Depreciation and Amortization

         Fixed assets are recorded at cost and depreciated  using  straight-line
and  accelerated  methods  over the  estimated  useful lives of the assets which
range from three to seven  years.  Fixed assets  consisted  of the  following at
September 30, 2006 and March 31, 2006:


                                           (Unaudited)
                                            September           March 31,
                                               2006               2006
                                        ------------------  -----------------
Computer Equipment                      $          117,859  $         117,725
Trade Show Booth & Fixtures                         10,026              8,774
Office Equipment                                    74,799             72,622
Property held under capital leases                  10,205             10,205
Less accumulated depreciation                     (131,389)          (115,524)
                                        ------------------  -----------------

Total                                   $           81,500  $          93,802
                                        ==================  =================

         Maintenance  and  repairs are charged to  operations;  betterments  are
capitalized.  The  cost  of  property  sold  or  otherwise  disposed  of and the
accumulated  depreciation  thereon are eliminated  from the property and related
accumulated depreciation accounts, and any resulting gain or loss is credited or
charged to income.

         Total depreciation  expense for the six months ended September 30, 2006
and 2005 was $15,865 and $24,160, respectively.

Intangible Assets

         The Company has adopted the Financial  Accounting  Standards Board SFAS
No., 142, "Goodwill and Other Intangible Assets." SFAS 142 requires, among other
things,  that companies no longer amortize  goodwill,  but instead test goodwill
for  impairment  at least  annually.  In addition,  SFAS 142  requires  that the
Company identify reporting units for the purposes of assessing  potential future
impairments of goodwill,  reassess the useful lives of other existing recognized
intangible   assets,  and  cease  amortization  of  intangible  assets  with  an
indefinite  useful life.  An  intangible  asset with an  indefinite  useful life
should be tested for impairment in accordance with the guidance in SFAS 142.










<PAGE>



                       CISTERA NETWORKS, INC.& SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)

         Intangible  Assets consisted of the following at September 30, 2006 and
March 31, 2006:


<TABLE>
<CAPTION>
                                            (Unaudited) September 30, March 31,
           Intangible Asset                     2006               2006            Amortization Period
---------------------------------------  ------------------  -----------------   ------------------------
<S>                                      <C>                 <C>                         <C>
Intellectual Property                    $        2,717,755  $       2,717,755           10 Years
Software Development                                366,040            366,040           4 Years
Less accumulated amortization                      (652,914)          (477,091)
                                         ------------------  -----------------

Total                                    $        2,430,881  $       2,606,704
                                         ==================  =================
</TABLE>

         Software development costs include all development costs incurred after
the Company's software became "technologically  feasible". Prior to the software
reaching that stage, all development  costs were expensed as incurred.  Once the
software was  developed to the point of being ready for sale,  the Company began
amortizing  the costs over the term of the  license  agreement  it entered  into
which was four  years.  The  software  development  costs were  acquired  in the
acquisition of XBridge Software, Inc.

         On May 27, 2005, the Company issued 2,000,000 shares of common stock to
acquire the assets and  liabilities  of XBridge  Software,  Inc. The shares were
valued at the market price on the effective date of the  acquisition,  which was
$2.65 per  share.  The  Company  acquired  net  assets  valued at  $782,245  and
intellectual property valued at $2,717,755.  The Company has determined that the
intellectual  property has a useful life of 10 years, and is using straight-line
amortization.

         Total amortization  expense for the six months ended September 30, 2006
and 2005 was $175,823 and $216,912, respectively.

         The estimated amortization for the next five years is as follows:


2005                                         $           135,888
2006                                                     271,776
2007                                                     271,776
2008                                                     271,776
2009                                                     271,776
                                             -------------------
Total                                        $         1,222,992
                                             ===================









<PAGE>



                       CISTERA NETWORKS, INC.& SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)

Earnings (Loss) per Share

         Basic  earnings  (loss) per share has been  computed  by  dividing  the
earnings for the period  applicable to the common  stockholders  by the weighted
average number of common shares outstanding during the years.

         Diluted loss per common share for the six months  ended  September  30,
2006 and 2005 is not  presented as it would be  anti-dilutive.  At September 30,
2006,  the total number of potentially  dilutive  common stock  equivalents  was
3,299,011.  At September  30, 2005,  the total  number of  potentially  dilutive
common stock equivalents was 3,021,537.

Reclassification

         Certain   reclassifications  have  been  made  in  the  2005  financial
statements to conform with the 2006 presentation.

Deferred Income

         Deferred income represents contracts for certain revenue to be received
in the future and come from  support  and  maintenance  contracts.  Support  and
maintenance contracts are executed on an annual basis and the revenue from these
contracts is recognized on a monthly basis as the support fees are earned.

Research and Development

         Research and  development  expenses  consist  primarily of salaries and
related expenses, and allocated overhead related to increasing the functionality
and enhancing the ease of use of the convergence platform and applications.

Stock Options

         Effective April 1, 2006, the company adopted the provisions of SFAS No.
123(R).  SFAS No.  123(R)  requires  employee  equity awards to be accounted for
under the fair value method.  Accordingly,  share-based compensation is measured
at grant date, based on the fair value of the award. Prior to April 1, 2006, the
company  accounted for awards  granted to employees  under its equity  incentive
plans under the intrinsic value method prescribed by Accounting Principles Board
(APB) Opinion No. 25,  "Accounting  for Stock Issued to Employees" (APB 25), and
related  interpretations,  and  provided  the  required  pro  forma  disclosures
prescribed by SFAS No. 123, "Accounting for Stock-Based  Compensation" (SFAS No.
123),  as amended.  No stock  options were  granted to employees  during the six
months ended September 30, 2006 or 2005 and accordingly, no compensation expense
was recognized  under APB No. 25 for the six months ended  September 30, 2006 or
2005. In addition,  no compensation  expense is required to be recognized  under
provisions of SFAS No. 123(R) with respect to employees.






<PAGE>



                       CISTERA NETWORKS, INC.& SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)

         Under the modified  prospective method of adoption for SFAS No. 123(R),
the  compensation  cost  recognized  by the company  beginning  on April 1, 2006
includes (a) compensation cost for all equity incentive awards granted prior to,
but not yet  vested  as of June 1,  2006,  based on the  grant-date  fair  value
estimated in  accordance  with the original  provisions of SFAS No. 123, and (b)
compensation cost for all equity incentive awards granted subsequent to April 1,
2006,  based on the  grant-date  fair value  estimated  in  accordance  with the
provisions of SFAS No. 123(R).  The company uses the  straight-line  attribution
method to recognize  share-based  compensation  costs over the service period of
the award.  Upon  exercise,  cancellation,  forfeiture,  or  expiration of stock
options,  or upon vesting or forfeiture of restricted stock units,  deferred tax
assets for options and  restricted  stock units with multiple  vesting dates are
eliminated  for each vesting  period on a first-in,  first-out  basis as if each
vesting  period was a  separate  award.  To  calculate  the excess tax  benefits
available  for  use in  offsetting  future  tax  shortfalls  as of the  date  of
implementation, the company followed the alternative transition method discussed
in FASB Staff Position No. 123(R)-3.

NOTE 3 - CONCENTRATION OF RISK

         As of September 30, 2006, the Company receives approximately 33% of its
gross  revenues  from its top three  re-sellers.  This  represents a decrease in
concentration  of business from the 62% reported for the quarter ended September
30, 2005. The loss of these  re-sellers  would adversely  impact the business of
the Company.

NOTE 4 - INCOME TAXES

         As of March 31, 2006, the Company had a net operating loss carryforward
for income tax reporting purposes of approximately $7,914,000 that may be offset
against future taxable income through 2026. Current tax laws limit the amount of
loss  available to be offset  against  future  taxable income when a substantial
change in ownership  occurs.  Therefore,  the amount  available to offset future
taxable income may be limited. No tax benefit has been reported in the financial
statements,  because the Company  believes  there is a 50% or greater chance the
carry-forwards  will expire unused.  Accordingly,  the potential tax benefits of
the loss carry-forwards are offset by a valuation allowance of the same amount.

NOTE 5 - LEASE COMMITMENT

         The Company currently leases  approximately 4,264 square feet of office
space at 17304 Preston Road, Suite 975, Dallas, Texas from Memshalah Realty. The
lease payments are approximately $7,355 per month and the lease expires November
30, 2009. This office space is used as the Corporate Headquarters.

         The minimum  future lease  payments  under this lease for the next five
years are:


         April 1, 2006 - March 31, 2007                   $       44,843
         April 1, 2007 - March 31, 2008                           91,107
         April 1, 2008 - March 31, 2009                           93,239
         April 1, 2009 - March 31, 2010                           63,107
         April 1, 2010 - March 31, 2011                                -
                                                          --------------
         Total minimum future lease payments              $      292,296
                                                          ==============

<PAGE>

                       CISTERA NETWORKS, INC.& SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

NOTE 6 - CAPITAL LEASE

         On October 20, 2004,  the Company  entered into an agreement  with Dell
Financial Services to lease five laptop computers and a laser printer. The lease
is for a period of thirty-six  months with a payment of  approximately  $369 per
month.  The Company has an end of lease  purchase  option of $1. The Company has
capitalized  a total of  $10,205  under  capital  leases for the  computers  and
printer in the  financial  statements.  The assets  are  depreciated  over their
related lease terms.  Depreciation of assets under capital leases is included in
depreciation expense for the six months ended September 30, 2006.

         The minimum future lease payments under this capital lease for the next
five years are:


         April 1, 2006 - March 31, 2007                   $        2,214
         April 1, 2007 - March 31, 2008                            2,952
         April 1, 2008 - March 31, 2009                                -
         April 1, 2009 - March 31, 2010                                -
         April 1, 2010 - March 31, 2011                                -
                                                          --------------
         Total minimum lease payments                              5,166
         Less: Amount representing interest                         (876)
                                                          --------------
         Present value of net minimum
            lease payment                                 $        4,290
                                                          ==============

NOTE 7 - COMMON STOCK

         In January 2005,  the Company issued 359,580 shares of common stock for
accrued  liabilities  of  $380,926.  During the year ended March 31,  2005,  the
Company  issued  150,000  shares of common stock to XBridge  Software,  Inc. for
services valued at $270,000.

         On April 29, 2005,  the Company  issued  173,511 shares of common stock
for accrued liabilities of $482,364.

         On May 27, 2005, the Company issued 4,150,000 shares of common stock to
the shareholders of XBridge Software,  Inc. and cancelled  2,150,000 shares then
held by XBridge,  in connection with the Company's merger with XBridge Software,
Inc. In the merger,  the Company  acquired all of the assets and  liabilities of
XBridge Software,  valued at a net of $782,245, and intellectual property valued
at  $2,717,755.  Goodwill  of  $2,134,821  was also  acquired  and  subsequently
expensed.

         On June 24, 2005,  the Company  issued  100,000  shares of common stock
from the exercise of outstanding stock options at $2 per share.

         Effective  September  21, 2005,  the Company's  authorized  shares were
increased from 10 million shares to 50 million shares.

         On December 31, 2005,  the Company  issued  311,600  shares of stock in
connection with the exercise of warrants issued in the 2004 private placement of
notes and warrants at $1.30 per share.




<PAGE>



                       CISTERA NETWORKS, INC.& SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

NOTE 7 - COMMON STOCK (continued)

         On December 31, 2005,  the Company  issued 946,392 shares of stock upon
conversion of certain  outstanding  notes issued in the 2004 private  placement.
The amount of principal represented by these shares was $859,000.  The amount of
accrued interest represented by these shares was $87,392.  These notes converted
at $1.00 per share.

         On March 31,  2006,  the  Company  issued  67,785  shares of stock upon
conversion of certain  outstanding  notes issued in the 2004 private  placement.
The amount of principal  represented by these shares was $57,000.  The amount of
accrued interest represented by these shares was $10,785.  These notes converted
at $1.00 per share.

         One March 31, 2006 the Company issued 2,000 shares of stock to a former
contractor for providing project  management  services valued at $2,000. As part
of the initial  agreement with this  contractor,  these shares were to be issued
upon the delivery of services defined by the agreement.

         On March 31, 2006, the Company issued 68,000 shares of stock as part of
a  legal  settlement.  60,000  of the  shares  had  been  previously  issued  as
restricted  and in  settlement  of the legal  issue,  the shares were  returned,
cancelled and reissued as free trading. 8,000 shares were newly issued.

         On July  1,  2006,  the  Company  issued  70,893  shares  of  stock  in
connection  with the  exercise  of  warrants  issued  in the  merger of CNH with
XBridge at .46 per share.  These  warrants  were  exercised  to satisfy  certain
outstanding notes payable.

         On August 31,  2006,  the  Company  issued  4,034  shares of stock upon
conversion of certain  outstanding  notes issued in the 2004 private  placement.
The amount of principal  represented  by these shares was $1,000.  The amount of
accrued interest represented by these shares was $3,034 due to the conversion of
a portion of the note earlier. These notes converted at $1.00 per share.

NOTE 8 - NOTES PAYABLE

         In June 2005, the Company  received loans totaling  $50,000.  The notes
are due May 30, 2006 and carry an interest rate of 8% per annum. Due to the loan
being unpaid at maturity,  the interest rate  increased to 12%. At September 30,
2006, the total amount of principal and interest due on this note was $9,473.

NOTE 9 - RELATED PARTY TRANSACTIONS

         On March 5, 2003,  we (1) obtained an exclusive  license to certain XML
technology  from XBridge in exchange  for the issuance of 500,000  shares of our
common  stock,  and (2)  entered  into an asset  purchase  agreement  to acquire
certain of XBridge's assets. On June 20, 2003, we issued an additional 1,500,000
shares of our common  stock to XBridge in  settlement  of certain CNH  Holdings'
obligations under the license agreement and asset purchase agreement. Subsequent
to the settlement transaction,  the officers and directors of XBridge became our
officers and directors.





<PAGE>



                       CISTERA NETWORKS, INC.& SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

NOTE 9 - RELATED PARTY TRANSACTIONS (continued)

         Subsequent  to  March  2003,  the  Company  had  entered  into a master
services  agreement with XBridge  pursuant to which XBridge provided the Company
with certain  development  and  maintenance  services.  In connection  with this
master  services  agreement,  the  Company had  previously  issued to XBridge an
additional  150,000  shares of its common stock and had  incurred  approximately
$1,860,000 in past due service fee debt.

         Effective  May  27,  2005,  we  acquired   XBridge   through  a  merger
transaction  and obtained  ownership of the XBridge  intellectual  property upon
which our products are based. Prior to entering into the agreement governing the
merger,  (a) Ms. Cynthia Garr, the Company's  Executive Vice President,  interim
Chief Financial Officer and a director, was also the President and a director of
XBridge,  (b), Mr. Gregory Royal, the Company's Chief  Technology  Officer and a
director,  was also a Vice  President  and a director of XBridge,  (c) Mr. Derek
Downs the Company's  acting Chief Executive  Officer and a director,  was also a
consultant to Xbridge.

         On May 31,  2004,  the  Company  received  a loan  from an  officer  of
$55,755.  The note carries an interest rate of 8% and was due December 31, 2005.
At September  30, 2006,  the total amount of principal  and interest due on this
note was $63,435.

         On March 31,  2006,  the  Company  received  a loan from an  officer of
$6,400.  The note carries an interest  rate of 8% and is due March 31, 2007.  At
September 30, 2006,  the total amount of principal and interest due on this note
was $6,656.

         On June 30,  2006,  the  Company  received  a loan from an  officer  of
$16,434.  Currently,  this  note  is  considered  short  term  and  has no  loan
provisions. At September 30, 2006, the balance of the loan was $7,434.

         In July 2003,  XBridge  Software,  Inc. received loans totaling $33,000
from shareholders.  The loans are due on demand and carry on interest rate of 8%
per annum.  The  Company  acquired  these  loans as part of the  acquisition  of
XBridge  Software in May 2005.  At  September  30,  2006,  total  principal  and
interest due on these loans was $0.

         Pursuant to an employment  agreement dated January 1, 2005, the Company
agreed to pay $125,000 per year to Cynthia  Garr, an officer and director of the
Company.

         Pursuant to an employment  agreement dated January 1, 2005, the Company
agreed to pay $125,000  per year to Derek Downs,  an officer and director of the
Company.

         Pursuant to an employment  agreement dated October 1, 2004, the Company
agreed to pay $130,000 per year to Gregory Royal, an officer and director of the
Company.







<PAGE>



                       CISTERA NETWORKS, INC.& SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

NOTE 10 - ACQUISITIONS

         On May 5,  2003,  a License  Agreement  was  entered  into  principally
between Corvero Networks and XBridge Software, although CNH Holdings Company was
party to certain provisions. The License Agreement resulted in XBridge licensing
to Corvero all of  XBridge's  right,  title and  interest  in, and to a software
program (and concomitant hardware platforms) which had been developed by XBridge
and which were,  collectively known as the "XBridge Technology." This technology
principally allows for the development,  implementation and commercialization of
XML  integration  solutions  in the EBI and IP Telephony  markets.  CNH Holdings
Company subsequently issued 2,000,000 "restricted" common shares of its stock to
XBridge as a licensing fee.

         On August 31, 2004,  CNH  Holdings  Company  absorbed its  wholly-owned
subsidiary Corvero Networks,  Inc., and began operating as Cistera Networks.  As
of that date,  all Corvero  products  adopted the Cistera name. All of Corvero's
rights under the License Agreement dated May 5, 2003 passed to Cistera Networks,
Inc.

         On May 27,  2005,  the Company  issued  2,000,000  new shares of common
stock to acquire the assets and liabilities of XBridge Software, Inc. The shares
were valued at the market price on the effective date of the acquisition,  which
was $2.65 per share.  The Company  acquired  net assets  valued at $782,245  and
intellectual  property  valued at  $2,717,755.  Goodwill of $2,134,821  was also
acquired and subsequently expensed.

NOTE 11 - CONVERTIBLE DEBT

         Effective  December 13, 2004,  the Company issued and sold an aggregate
of $1,146,000 in principal  amount of Senior  Unsecured  Convertible  Promissory
Notes (the "notes"),  and issued  warrants to purchase  1,146,000  shares of our
common stock, par value $0.001 per share (the "warrants").  Of the $1,146,000 in
notes,  $1,004,000  in  principal  amount of notes  were  issued  for cash,  and
$142,000  in  principal  amount  of notes  were  issued in  connection  with the
cancellation  of an equal amount of the Company's  outstanding  obligations.  At
December  31,  2005,  a number of note  holders  opted to convert  their debt as
provided in their note agreements. The total number of shares issued due to this
conversion was 946,392. The amount of principal  represented by these shares was
$859,000.  The  amount of  accrued  interest  represented  by these  shares  was
$87,392.  At March 31, 2006,  three note holders  opted to convert their debt as
provided in their note agreements. The total number of shares issued due to this
conversion was 67,785.  The amount of principal  represented by these shares was
$57,000. The amount of accrued interest represented by these shares was $10,785.
These notes  converted at $1.00 per share.  The total  amount of  principal  and
interest due at September  30, 2006 was $269,436.  At August 31, 2006,  one note
holder  who had  previously  converted  most of his  outstanding  debt  opted to
convert the outstanding  balance.  The total number of shares issued due to this
conversion  was 4, 034. The remaining  amount of principal  represented by these
shares  was  $1,000.  The  amount  of  interest  earned  on  his  original  note
represented by these shares was $3,034.






<PAGE>



                       CISTERA NETWORKS, INC.& SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

NOTE 11 - CONVERTIBLE DEBT (continued)

         The  notes  bear  interest  at the  rate  of 8% per  annum,  compounded
quarterly on each March 31, June 30, September 30 and December 31 that the notes
are outstanding (each, an interest compounding date). The outstanding  principal
on the notes and all accrued  interest  become due and payable on the earlier of
(a)  December  9,  2006,  or (b) the date on which a change  in  control  of the
Company occurs.

         The  outstanding  principal  and  accrued  interest  on the  notes  are
convertible into shares of common stock at a conversion rate equal to the lesser
of (a) $1.30 per share,  or (b) a 25% discount to the average  closing bid price
of the  Company's  common  stock for the five  days  including  and  immediately
preceding  the interest  compounding  date,  provided that in no event shall the
conversion  price  per  share be less than  $1.00  per  share.  The notes may be
converted, in whole or in part, at the option of the note holder on any interest
compounding date occurring after the effective date of a registration  statement
covering  the resale of shares of common stock to be issued upon  conversion  of
the notes.

         In  addition,  if the  Company  subsequently  issues  or sells  any new
securities  convertible,  exercisable or exchangeable  into shares of our common
stock  ("convertible  securities")  in a private  transaction and receives gross
proceeds of at least $500,000,  the notes may be converted,  in whole or in part
at the option of the noteholders, into the convertible securities, upon the same
terms and conditions governing the issuance of the convertible securities in the
private  transaction.  The right of the note  holders to  convert  the note into
convertible  securities does not apply to any convertible  securities  issued by
the Company (a) in connection with a merger, acquisition or consolidation of the
Company,   (b)  in  connection  with  strategic  license  agreements  and  other
partnering  arrangements  so long as such  issuances  are not for the purpose of
raising  capital,  (c) in  connection  with bona fide firm  underwritten  public
offerings of its securities,  (d) pursuant to the Company's  incentive and stock
option  plans,  (e) as a result  of the  exercise  of  options  or  warrants  or
conversion of convertible  notes or preferred stock which were granted or issued
as of December 13, 2004.

         The Company may prepay the notes in whole or in part,  upon thirty days
prior written notice to note holders;  provided that partial  prepayments may be
made only in increments of $10,000 and, provided further,  that the note holders
may  convert  the amount of the  proposed  prepayment  into shares of our common
stock,  regardless  of the  period  of  time  that  the  notes  have  then  been
outstanding.

         The  warrants  have a term of five  years  and  are  exercisable  at an
exercise  price  of  $1.30  per  share.  Subject  to an  effective  registration
statement  covering  the  resale of the  shares of common  stock  issuable  upon
exercise of the  Warrants,  the  Company  may,  upon  thirty days prior  written
notice,  redeem the  warrants for $0.10 per share,  in whole or in part,  if our
common  stock  closes with a bid price of at least $3.50 for any ten (10) out of
fifteen  (15)  consecutive  trading  days.  Because  at that  price  it would be
profitable for the warrant  holders to exercise  their  warrants  rather than to
allow the  redemption  to  proceed,  we assume  they would  choose to  exercise.
However,  there is no assurance  that our stock price will rise to the $3.50 per
share redemption trigger price, or that all of the warrants will be exercised.


<PAGE>



                       CISTERA NETWORKS, INC.& SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

NOTE 11 - CONVERTIBLE DEBT (continued)

         The Company is currently seeking to issue and sell a second offering of
Senior Unsecured Convertible  Promissory Notes. This second offering will mirror
the terms of the previous Private Placement Funding as stated above,  except for
the  conversion of stock and interest is set at a fixed rate of $1.00 per share.
The notes and  accrued  interest  are due and payable two years from the date of
the note.  As of September  30, 2006,  $260,000 had been received by the Company
from this offering.

NOTE 12 - STOCK OPTIONS

         During the year ended  March 31,  2005,  the Company  issued  1,815,000
stock  options to  employees,  contractors  and other  service  providers to the
Company.  At March 31, 2006,  no  compensation  expense had been recorded as the
exercise price of the options was equal or greater than the fair market value of
the stock.  As of September  30, 2006,  1,015,000 of the total stock options are
not exercisable, as they are not yet approved or registered.

         The following table sets forth the options  outstanding as of September
30, 2006.


<TABLE>
<CAPTION>
                                                                                            Weighted
                                                                     Option /                Average             Weighted
                                                                     Warrants               Exercise             Average
                                                                      Shares                  Price             Fair Value
                                                                ------------------      -----------------    ----------------
<S>                                                             <C>                     <C>                  <C>
Options outstanding,
       March 31, 2005                                                    1,815,000      $               1.29 $              1.43
Options outstanding from Xbridge merger                                    529,945                      0.23                0.34
Warrants outstanding from Xbridge merger                                   312,439                      0.46                0.46
Warrants outstanding from Private Placement                              1,146,000                      1.30                1.30
Outstanding warrants from early exercise of
     Private Placement Warrants                                            155,800                      1.30                1.30
Granted, Exercise price more than fair value                                     -                      -                   -
Granted, Exercise price less than fair value                                     -                      -                   -
Expired                                                                    (18,685)                     -
Exercised                                                                 (482,403)                     1.32                -
                                                                ------------------
Options outstanding,
       June 30, 2006                                                     3,458,096      $               1.04
                                                                ==================      =================
</TABLE>










<PAGE>



                       CISTERA NETWORKS, INC.& SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

NOTE 12 - STOCK OPTIONS (continued)

         Exercise  prices for optioned  shares  outstanding  as of September 30,
2006 ranged from $1.10 to $2.00. A summary of these options by range of exercise
prices is shown as follows:


<TABLE>
<CAPTION>
                                                                                             Weighted-              Weighted-
                                                Weighted-            Shares/                  Average                Average
                            Shares /             Average             Warrants             Exercise Price           Contractual
     Exercise               Warrants            Exercise            Currently                Currently              Remaining
      Price               Outstanding             Price            Exercisable              Exercisable               Life
------------------     ------------------    ---------------    ------------------     ---------------------    -----------------
<S>                    <C>                   <C>                <C>                    <C>                      <C>
$             1.10                640,000    $          1.10               617,500     $                1.10         7 years
1.30                              375,000               1.30               187,500                      1.30         4 years
2.00                              700,000               2.00               700,000                      2.00        10 years
..01                               122,028                .01               122,028                       .01         3 years
..23                                81,352                .23                81,352                       .23         3 years
..46                               326,565                .46               326,565                       .46         3 years
..46                               222,951                .46               222,951                       .46         3 years
1.30                              990,200               1.30               990,200                      1.30         5 years
</TABLE>

         In September 2005, although the stock price had not achieved the levels
necessary  to allow the Company to redeem the  warrants,  warrant  holders  were
offered an  incentive  of one-half  warrant  for each  warrant  exercised.  This
incentive  expired on  December  31,  2005.  The  Company  raised an  additional
$405,080  from the  exercise of 311,600  warrants and issued  155,800  incentive
warrants.

NOTE 13 - CONTINGENCIES

         In 2005,  the Company was made a  third-party  defendant to  litigation
that was originally  filed on June 5, 2001 in Longview,  Texas,  styled J. David
Bolton, Joanna Bolton, Whitney Gaidry,  Virginia Ille and Kenneth Ille vs. Larry
V. Tate,  Gerald Pybas,  E. Robert Barbee,  H. Paul Estey,  and Robert A. Baker;
Case No. 2001-1196-A; 188th District Court, Gregg County, Texas. Plaintiffs sued
Defendants  and the  Company  for breach of  contract  and sought  approximately
$975,000 in damages.  The Defendants had sued the Company for indemnification of
Plaintiffs' claims.

         On February 7, 2006,  the parties  reached an  agreement to settle this
case at  mediation  and signed a binding  agreement  which  settles the disputes
between them. As part of that  settlement,  the Company agreed to deliver 68,000
unrestricted  stock  certificates  of the  Company's  stock to  Plaintiffs.  The
Plaintiffs held 60,000 shares of restricted stock prior to the settlement. Those
60,000 shares were cancelled and reissued as unrestricted shares. The Plaintiffs
received  8,000 newly issued shares.  The  settlement  should not be taken as an
admission of liability and the Company expressly denies any such liability.






<PAGE>



                       CISTERA NETWORKS, INC.& SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

NOTE 13 - CONTINGENCIES (continued)

         The  Company,  and  certain  of its  current  and former  officers  and
directors are defendants in litigation pending in Dallas,  Texas, styled KINGDON
R. HUGHES VS. GREGORY T. ROYAL,  CYNTHIA A. GARR, JAMES T. MILLER,  JR., CHARLES
STIDHAM, CNH HOLDINGS COMPANY D/B/A CISTERA NETWORKS AND XBRIDGE SOFTWARE, INC.;
Cause No.  DV05-0600-G;  G-134th  District  Court,  Dallas  County,  Texas.  The
plaintiff has alleged a number of complaints  against the defendants,  including
breach of fiduciary duty,  misappropriation of corporate  opportunities,  fraud,
fraudulent inducement,  breach of contract, tortuous interference with contract,
fraudulent transfer,  and shareholder  oppression arising in connection with the
license  agreement  between  the  Company  and  Xbridge  in  May  2003  and  the
acquisition  of Xbridge by the Company in May 2005. The parties held a mediation
conference in April 2006 and have come to an  understanding  with respect to the
principle elements of a potential settlement,  however, no definitive settlement
agreement  has been  entered  into  among  the  parties.  The  likelihood  of an
unfavorable  outcome or the amount or range of any possible  loss to the Company
is not determinable.

         The Company denies these  allegations and is vigorously  defending this
litigation.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

         The  following  discussion  and  analysis  of the  Company's  financial
condition  and  results of  operations  should be read in  conjunction  with the
Company's  consolidated  financial  statements  and related notes that appear in
this filing. In addition to historical  consolidated financial information,  the
following  discussion  contains  forward-looking  statements that reflect plans,
estimates and beliefs. The Company's actual results could differ materially from
those discussed in the forward-looking statements.

OVERVIEW

         In May 2003,  the Company  formally  began  developing,  marketing  and
delivering  Enterprise Voice over Internet Protocol (VoIP) solutions in the fast
growing IP Communications space.

         The Cistera  ConvergenceServer(TM)  (CCS) applications  server platform
was initially  developed to deliver the industry's broadest suite of application
engines to IP Telephony  installations  utilizing  Cisco's Call Manager and Call
Manager Express solutions in a standardized package suited for the channel sales
model.  At the request of customers  and large  Reseller  partners,  Cistera has
begun work to expand its product line to support other IPT solutions.

         Cistera's  software- and  hardware-based  solutions are delivered on an
open-architecture,  component- based platform,  which allows  administrators  to
centrally manage advanced  applications for Enterprise VoIP environments  across
large single-site and multi-site private voice/data networks. The company's four
solutions  categories -- Event Alerting and Notification,  Quality Assurance and
Compliance,  Productivity and  Collaboration,  and Presence  Management--include
multiple application engines within each category that add critical features and
functionality  to  IPT   installations.   The  CCS  platform   delivery  of  the
applications makes the solutions very reliable, secure and highly scalable--both
for  increased  sites and users,  as well as enabling  easy addition of features
when desired.


<PAGE>



         The Company has  demonstrated  the ability to  successfully  execute in
this  emerging  market and has gained  market  acceptance  for the product line.
Research group IDC identified the importance of Applications  Gateway  Providers
to the  growth of IP  Telephony  in a report  released  in April  2006.  Cistera
Networks was one of six companies named as leaders in this new space. The report
said, in part, "if network  equipment vendors want their customers and prospects
to realize the true value  proposition  of IP  telephony  they must  improve the
integration  of  business  critical   applications...as   well  as  develop  new
applications  that make voice  interactions  more  valuable..."  The Company has
termed      this      demand      for      features      and       functionality
"Application-Driven-Telephony"--meaning the capabilities of an IPT solution with
applications  such as the  Company  provides  can  actually  help  sell  the IPT
deployment to potential users.

         As of September 30, 2006, over 500  installations  were in place in the
U.S., Canada, Europe and Latin America, for customers in the financial services,
healthcare, government, education, manufacturing, retail and legal services. The
Company has developed a very strong, reference-able installed-base and continues
to invest heavily to expand operations and sales support  infrastructure.  Sales
are generated through a Value-  Added-Reseller (VAR) channel of over 70 regional
VARS which includes  industry leaders AT&T,  Westcon  Americas/Westcon  EMEA and
Bell Canada, as well as by direct referrals from Cisco. Management believes that
its products are ideally suited for channel  sales,  and has invested to develop
marketing  and channel sales support and  self-service  web-based  tools for the
partners.  To ensure  growth  scalability,  the VAR channel is being  trained to
deliver professional services for standard  installations,  which will allow the
Company to focus on advanced professional services for complex installations.

         The  Company's  objective is to be the leading  provider of  Enterprise
Application  Server Platforms for IP communications  environments for businesses
worldwide.  To address the sizeable market  opportunity,  the management team is
focused on a number of short- and long-term challenges including:  Strengthening
and  extending  the  Company's  solution  offerings;  adding new  customers  and
expanding  sales  efforts into new  territories;  deepening  relationships  with
existing  customers,  value-  added  resellers,  and  system  integrators;   and
encouraging the development of third-party applications on the Cistera platform.

         As  expected,  the  Company's  revenues  were  insufficient  to support
operations and it sustained a net loss in this period. Operations were supported
with continued  financing obtained from a second Private  Placement,  as well as
from a new revolving  credit line established with Allied Capital Group. The net
loss was $229,862 for the quarter, as compared to a net loss of $702,889 for the
same period last fiscal year.

         Sales  and  marketing  costs  for  this  quarter  totaled  $42,726  and
represented 10.7 percent of revenues, as compared to $22,840 and 6.2 percent for
the same quarter last year.  On an annual basis,  we expect  marketing and sales
costs to  continue  to track  higher and will  always  represent  a  substantial
portion  of total  revenues  in the  future  as we seek to add and  manage  more
customers,  increase the sales and marketing programs to enable our VAR channel,
build  brand  awareness  and  increase  the  number of  web-based  seminars  and
sponsored events.

         As the market has  matured  and the  company  has worked to support its
VARs and technology partners,  sales have become less concentrated in any single
vertical  market.  Sales for the quarter ended  September 2006 were  distributed
among the six primary vertical markets in the following  percentages:  financial
services  22.8%,   healthcare   10.5%,   government   32.5%,   education  15.4%,
manufacturing  7.2%,  and retail  11.6%.  The  company has  continued  to reduce
dependency  on any single  reseller as it has  expanded  its VAR  relationships.
Sales from the largest  reseller were $83,395 or 20.9% of total revenues earned.
Sales  from  the  four  largest  resellers  totaled  $230,845  or 57.7% of total
revenues.  These  percentages  compare  to 15.3% and 45.6%  respectively  in the
quarter ended September June 30, 2006.


<PAGE>



RESULTS OF OPERATIONS

         The  following  discussion  should  be read  in  conjunction  with  the
consolidated statements of financial operations, in their entirety.

OVERVIEW OF RESULTS OF OPERATIONS FOR FIRST QUARTER FISCAL 2007, ENDED
SEPTEMBER 30, 2006

         Revenues  during the quarter ended  September 30, 2006 were $399,880 as
compared to $367,450  for second  quarter of fiscal year 2006,  representing  an
increase of 8.8 percent.  Revenues  were  impacted by a delay in closing a large
sale that  exceeded  $250,000.  This  project  has closed as of the date of this
report,  and will be included in revenues for the quarter ending  December 2006.
The  Company  continued  its focus on  building  out the  tier-one  Value  Added
Reseller  relationships  during  the  quarter.  This  effort  included  on- site
training and webinars to support the sales forces of AT&T,  Westcon/Comstor  and
Bell Canada.

         Gross  profit  during  the  quarter  was  $334,600,  or 84  percent  of
revenues.  Gross  profit for the same period in fiscal year 2006 was $249,784 or
68 percent of revenues.  Because a substantial portion of the Company's revenues
are derived from  software,  gross  margins are  positively  impacted.  For this
quarter,  margins  were  higher  than the  previous  year,  and  higher  than is
sustainable,  in  part  due to  sale  of  equipment  purchased  in the  previous
quarters.

         Management  expects  that as sales  continue to ramp up,  margins  will
remain above 70 percent.

         As  expected,  the  Company's  revenues  were  insufficient  to support
operations and we sustained a net loss in this period. The net loss was $229,862
for the quarter as  compared to a net loss of $702,889  for the same period last
year.

LIQUIDITY AND CAPITAL RESOURCES

         At  September  30, 2006,  the Company had cash,  cash  equivalents  and
short-term  marketable  securities  of  $59,554,  as  compared  to  $218,345  at
September 30, 2005,  accounts  receivable of $115,278,  as compared to $234,707,
and deferred revenue of $263,379, as compared to $248,213 for those same periods
respectively.

         From the start of operations in May 2003 through the end of the current
quarter, operations were funded primarily through sales, financing obtained from
private investors, and from two private placements.

         The Company does not have any special purpose entities,  and other than
operating  leases for office space and computer  equipment,  which are described
below, the Company does not engage in off-balance sheet financing  arrangements.
The Company does not currently  have a bank line of credit,  however  during the
quarter it entered into a funding  agreement  with Allied  Capital Group whereby
Allied  Capital  will  provide a revolving  credit  line of $400,000  secured by
Accounts  Receivable.  This  agreement  has  enabled  the  Company to smooth its
cash-flow   cycles  and  expanded  the   capability   of  the  Company  to  fund
manufacturing credit requirements.

         Future capital requirements will depend on many factors including: rate
of revenue growth;  the expansion of marketing and sales activities;  the timing
and extent of spending to support product development efforts and expansion into
new territories; the timing of introductions of new services and


<PAGE>



enhancements to existing  services;  and the continuing market acceptance of the
Company's products and services. To the extent that existing cash and securities
and cash from operations are insufficient to fund future activities, the Company
will need to raise  additional  funds through  public or private  equity or debt
financing.  Although  the Company is currently  not a party to any  agreement or
letter of intent with respect to potential  investments in, or acquisitions  of,
complementary businesses,  services or technologies,  the Company may enter into
these types of arrangements in the future,  which could also require  additional
equity  or debt  financing.  Additional  funds  may not be  available  on  terms
favorable to the Company or at all.

ITEM 3.  CONTROLS AND PROCEDURES

         The Company's Chief Executive  Officer and Chief Financial  Officer are
responsible for establishing and maintaining  disclosure controls and procedures
for the Company.

         (a) Evaluation of Disclosure Controls and Procedures

         As of the end of the period covered by this report, the Company carried
out an  evaluation,  under the  supervision  and with the  participation  of the
Company's management, including the Company's President, of the effectiveness of
the design and operation of the  Company's  disclosure  controls and  procedures
pursuant to Rule 13a-15 under the  Securities  Exchange Act of 1934,  as amended
(the  "Exchange  Act").  Based  upon the  evaluation,  the  Company's  President
concluded that, as of the end of the period, the Company's  disclosure  controls
and  procedures  were effective in timely  alerting him to material  information
relating to the Company  required to be included in the reports that the Company
files and submits pursuant to the Exchange Act.

         (b) Changes in Internal Controls

         Based  on his  evaluation  as of  September  30,  2006,  there  were no
significant  changes in the Company's internal controls over financial reporting
or in any other areas that could  significantly  affect the  Company's  internal
controls  subsequent  to the date of his most recent  evaluation,  including any
corrective  actions  with  regard  to  significant   deficiencies  and  material
weaknesses.

                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

None.

ITEM 2.  CHANGES IN SECURITIES

None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None/Not Applicable.






<PAGE>



ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

None/Not Applicable.


ITEM 5.  OTHER INFORMATION

None.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS

         The  following  documents  are filed  herewith or have been included as
exhibits to previous filings with the Commission and are incorporated  herein by
this reference:

Exhibit  No. Exhibit

3        Articles of Incorporation (1)
3.2      Bylaws (1)
3.1      Amended Articles of Incorporation (1)
10.1     License Agreement (2)
31.1     Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2     Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1     Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.2     Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K. No reports on Form 8-K were filed
         during the period covered by this
         Form 10-QSB.

(1)      Incorporated  herein  by  reference  from  Registrant's  Form  10SB12G,
         Registration Statement, dated February 16, 2000.
(2)      Incorporated  herein by reference from Registrant's  Form 8-KSB,  dated
         May 16, 2003.

















<PAGE>



                                   SIGNATURES

         In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

Cistera Networks, Inc.
Registrant


DATE: November 14, 2006


/s/    Derek P. Downs
Derek P. Downs
President
(Principal Executive Officer)


/s/    Cynthia A. Garr
Cynthia A. Garr
C.F.O.,
Executive Vice-President of Corporate Development,
and Director
(Principal Financial Officer)


























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