##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q/A
 Amendment No. 2
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 0-17304
 Cistera Networks, Inc.
  Nevada
    
    91-1944887(State or other jurisdiction of incorporation or
    
    (I.R.S. Employer Identification No.)organization)
 6509 Windcrest Drive, Suite 160, Plano, Texas
    
    75024(Address of principal executive offices)
    
    (Zip Code)
 972-381-4699
 (Registrants telephone number, including area code)
 þ o
   Large accelerated filer: o
    
    Accelerated filer: o
    
    Non-accelerated filer: o
    
    Smaller reporting company: þ(Do not check if a smaller reporting company)
 o þ




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##### 



CISTERA NETWORKS, INC & SUBSIDIARY
 TABLE OF CONTENTS
 PART I: FINANCIAL INFORMATIONItem 1. Financial Statements:Consolidated Balance Sheets  June 30, 2009 (unaudited) and March 31, 2009
(audited) (restated)
    
    
    4Consolidated Statements of Operations  For the three months ended June 30, 2009 and
2008 (unaudited) (restated)
    
    
    5Consolidated Statements of Stockholders Deficit  June 30, 2009 (unaudited) and
March 31, 2009 (audited) (restated)
    
    
    6Consolidated Statements of Cash Flows  For the three months ended June 30, 2009 and
2008 (unaudited) (restated)
    
    
    7Notes to Consolidated Financial Statements (unaudited) (restated)
    
    
    9Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    23Item 4T. Controls and Procedures
    
    
    23PART II: OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    24Item 1A. Risk Factors
    
    
    24Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 3. Defaults Upon Senior Securities
    
    
    25Item 4. Submission of Matters to a Vote of Security Holders
    
    
    25Item 5. Other Information
    
    
    25Item 6. Exhibits
    
    
    26SIGNATURES
    
    
    27EX-31.1
  2




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##### Table of Contents



EXPLANATORY NOTES
    ASC FASB 250-10-50-7 Disclosure
  
    
    Accrued Liabilities have been reduced from $1,830,263 to $1,593,979.
    
    Total Current Liabilities have been reduced from $4,408,862 to $4,172,578
    
    This has resulting a reduction in retained earnings (deficit) from ($21,651,474) to
($21,415,190) for this period only.
    
    Sales and Marketing Expenses have been reduced from $115,295 to $57,497.
    
    Software Development Expenses have been reduced from $152,795 to $29,149.
    
    Engineering and Support Expenses have been reduced from $90,406 to $64,057.
    
    General Administration Expenses have been reduced from $180,241 to $151,750
    
    Total Expenses have been reduced from $636,397 to $400,113.
    
    Loss from Operations has been reduced from $347,161 to $110,877.
    
    Net Loss has been reduced from $428,975 to $192,691 and from 2c per share to 1c per
share.
    
    Accrued Payroll and Taxes has been reduced from $668,854 to $432,570.
 ASC FASB 250-10-50-8 Disclosure
 th
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##### Table of Contents



Part I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 CISTERA NETWORKS, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
 RestatedJune 30, 2009
    
    
    March 31, 2009(Unaudited)
    
    
    (Audited)Current assetsCash and cash equivalents
    
    $
    71,310
    
    
    $
    1,493Accounts receivable, net of allowance for doubtful accounts of $-0-
    
    
    119,145
    
    
    
    151,322Inventory
    
    
    115,724
    
    
    
    124,656Prepaid expenses
    
    
    58,372
    
    
    
    37,341Total current assets
    
    
    364,551
    
    
    
    314,812Property and equipment, net
    
    
    276,418
    
    
    
    324,217Intangible assets, net
    
    
    1,683,499
    
    
    
    1,751,442Total long-term assets
    
    
    1,959,917
    
    
    
    2,075,659TOTAL ASSETS
    
    $
    2,324,468
    
    
    $
    2,390,471Current liabilitiesAccounts payable
    
    
    557,872
    
    
    
    517,052Accrued liquidated damages  outside investors
    
    
    177,402
    
    
    
    177,402Accrued liabilities
    
    
    1,593,979
    
    
    
    1,527,811Deferred revenue
    
    
    866,899
    
    
    
    865,271Note payable
    
    
    
    
    
    
    7,781Convertible promissory notes and other notes payable, net of
discount
    
    
    976,426
    
    
    
    976,426Total current liabilities
    
    
    4,172,578
    
    
    
    4,071,743Deferred revenue
    
    
    199,694
    
    
    
    174,554Other long-term liabilities
    
    
    58,744
    
    
    
    58,031Total long-term liabilities
    
    
    258,438
    
    
    
    232,585Total liabilities
    
    
    4,431,016
    
    
    
    4,304,328Commitments and contingencies (Note 4)Stockholders deficit:Preferred stock, $0.01 par value; 1,000,000 shares authorized;
-0- shares issued and outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value; 50,000,000 shares
authorized; 17,423,410
shares issued and outstanding,
respectively
    
    
    17,423
    
    
    
    17,423Additional paid-in capital
    
    
    19,291,219
    
    
    
    19,291,219Accumulated deficit
    
    
    (21,415,190
    )
    
    
    (21,222,499
    )Total stockholders deficit
    
    
    (2,106,548
    )
    
    
    (1,913,857
    )TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT
    
    $
    2,324,468
    
    
    $
    2,390,471
  4




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CISTERA NETWORKS, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 Three months ended June 30,Restated2009
    
    
    2008RevenuesConvergence solutions
    
    $
    189,143
    
    
    $
    522,393Professional services
    
    
    35,504
    
    
    
    60,708Support and maintenance
    
    
    233,320
    
    
    
    217,459Total revenues
    
    
    457,967
    
    
    
    800,560Cost of revenuesConvergence solutions
    
    
    103,013
    
    
    
    133,032Professional services
    
    
    47,718
    
    
    
    50,500Support and maintenance
    
    
    18,000
    
    
    
    23,184Total cost of revenues
    
    
    168,731
    
    
    
    206,716Gross Profit
    
    
    289,236
    
    
    
    593,844Operating expensesSales and marketing
    
    
    57,497
    
    
    
    296,006Software development
    
    
    29,149
    
    
    
    158,589Engineering and support
    
    
    64,057
    
    
    
    149,596General and administrative
    
    
    151,750
    
    
    
    429,149Depreciation and amortization
    
    
    97,660
    
    
    
    98,156Total operating expenses
    
    
    400,113
    
    
    
    1,131,496Loss from operations
    
    
    (110,877
    )
    
    
    (537,652
    )Other income (expense)Interest income
    
    
    
    
    
    
    82Other income
    
    
    56Interest expense
    
    
    (66,055
    )
    
    
    (83,182
    )Abandonment loss
    
    
    (15,815
    )
    
    
    Charge for inducements related to stock issued to convertible note holders
    
    
    
    
    
    
    (1,192,813
    )Amortization of discount on convertible notes  outside investors
    
    
    
    
    
    
    (1,079,937
    )Amortization of discount on convertible notes  related parties
    
    
    
    
    
    
    (41,060
    )Credit (charge) for estimated liquidated damages
    
    
    
    
    
    
    11,299Total other income (expense)
    
    
    (81,814
    )
    
    
    (2,385,611
    )Net loss
    
    $
    (192,691
    )
    
    $
    (2,923,263
    )Basic & diluted net loss per share
    
    $
    (0.01
    )
    
    $
    (0.31
    )Weighted average shares outstanding  basic and diluted
    
    
    17,423,410
    
    
    
    9,421,126
  5




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CISTERA NETWORKS, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)  RESTATED
 TotalAdditional
    
    
    Accumulated
    
    
    stockholdersPreferred Stock
    
    
    Common Stock
    
    
    paid-in capital
    
    
    deficit
    
    
    equity (deficit)Shares
    
    
    Amount
    
    
    Shares
    
    
    AmountBalances at March 31, 2009
    
    
    
    
    
    
    
    
    
    
    17,423,410
    
    
    $
    17,423
    
    
    $
    19,291,219
    
    
    $
    (21,222,499
    )
    
    $
    (1,913,857
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (192,691
    )
    
    
    (192,691
    )Balances at June 30, 2009
    
    
    
    
    
    $
    
    
    
    
    17,423,410
    
    
    $
    17,423
    
    
    $
    19,291,219
    
    
    $
    (21,415,190
    )
    
    $
    (2,106,548
    )
  6




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CISTERA NETWORKS, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Three months ended June 30,Restated2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (192,691
    )
    
    $
    (2,923,263
    )Adjustments used to reconcile net loss to net cash used in operating
activities:Charge for inducement to convert debt to convertible promissory notes
    
    
    
    
    
    
    1,170,772Charge (credit) for liquidated damages
    
    
    
    
    
    
    (11,299
    )Charge for stock issued for waiver of registration rights payments
    
    
    
    
    
    
    22,041Amortization of discount on convertible promissory notes
    
    
    
    
    
    
    1,120,997Abandonment loss
    
    
    15,815
    
    
    
    Gain on disposition of assets
    
    
    3,149
    
    
    
    Depreciation and amortization
    
    
    97,660
    
    
    
    98,156Changes in operating assets and liabilities:Accounts receivable
    
    
    56,307
    
    
    
    73,960Inventory
    
    
    8,932
    
    
    
    (6,053
    )Prepaid expenses
    
    
    (21,031
    )
    
    
    13,367Accounts payable
    
    
    41,425
    
    
    
    98,847Accrued liabilities
    
    
    42,037
    
    
    
    183,010Deferred revenue
    
    
    26,768
    
    
    
    11,280Other long-tem liabilities
    
    
    714
    
    
    
    22,451Net cash used in operating activities
    
    
    79,085
    
    
    
    (125,734
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property and equipment, net
    
    
    (882
    )
    
    
    (32,997
    )Net cash used in investing activities
    
    
    (882
    )
    
    
    (32,997
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net proceeds from short-term advances
    
    
    
    
    
    
    32,497Net proceeds from exercise of warrants
    
    
    
    
    
    
    304,014Payments on convertible promissory notes and other loans
    
    
    
    
    
    
    (6,508
    )Payments on other notes payable and capital lease
    
    
    (8,386
    )
    
    
    Net cash provided by financing activities
    
    
    (8,386
    )
    
    
    330,003Net decrease in cash and cash equivalents
    
    
    69,817
    
    
    
    171,272Cash and cash equivalents at beginning of period
    
    
    1,493
    
    
    
    125,007Cash and cash equivalents at end of period
    
    $
    71,310
    
    
    $
    296,279
  7




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CISTERA NETWORKS, INC. & SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)  (Unaudited)
 Three months ended June 302009
    
    2008SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the year for:Interest
    
    $
    8,435
    
    
    $
    9,798Income taxes
    
    
    
    
    
    
    SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:Conversion of convertible promissory notes and related accrued interest and
accrued liquidated damages to common stock
    
    $
    
    
    
    $
    3,287,116Conversion of accounts payable and other accrued liabilities to convertible
promissory notesConversion of accrued liabilities to common stock
    
    
    
    
    
    
    53,312Transfer of inventory to equipment
    
    
    
    
    
    
    Allocation of discount on convertible promissory notes to warrants
    
    
    
    
    
    
    Discount related to beneficial conversion feature on convertible promissory
notes
    
    
    
    
    
    
    
  8




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CISTERA NETWORKS, INC. & SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
 NOTE 1  BASIS OF PRESENTATION
  Significant Accounting Policies
  Recently Issued Accounting Pronouncements
    9




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CISTERA NETWORKS, INC. & SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
 Balance Sheet Accounts
  June 30, 2009
    
    
    March 31, 2009Receivables assigned to factor
    
    $
    137,071
    
    
    $
    125,402Advances to (from) factor
    
    
    (112,205
    )
    
    
    (70,570
    )Fees, expenses and charges to reserve
    
    
    (12
    )
    
    
    (792
    )Amounts due from reserve account
    
    
    7,239
    
    
    
    Amounts due from factor
    
    
    32,093
    
    
    
    54,040Unfactored Accounts Receivable
    
    
    87,052
    
    
    
    97,282Total accounts receivable
    
    $
    119,145
    
    
    $
    151,322
  RestatedJune 30, 2009
    
    
    March 31, 2009Accrued expenses
    
    $
    80,350
    
    
    $
    82,924Reserve for litigation contingency
    
    
    650,000
    
    
    
    650,000Accrued compensation and payroll taxes
    
    
    432,570
    
    
    
    545,626Accrued interest
    
    
    283,345
    
    
    
    225,330Other
    
    
    147,714
    
    
    
    23,931Total Accrued liabilities
    
    $
    1,593,979
    
    
    $
    1,527,811
  June 30, 2009
    
    
    March 31, 2009Deferred rent
    
    $
    58,745
    
    
    $
    58,031$
    58,745
    
    
    $
    58,031
 Loss per Share
   10




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CISTERA NETWORKS, INC. & SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
 Accounts receivable and concentration of credit risk
     Reclassifications
  NOTE 2  FINANCIAL CONDITION
    11




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CISTERA NETWORKS, INC. & SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
   NOTE 3
 DEBT
  PP1 Notes and Warrants
   PP2 Notes and Warrants
    12




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CISTERA NETWORKS, INC. & SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
  STIIP
      PP1 and PP2 Notes:Principal
    
    $
    976,426Accrued interest
    
    
    283,345Accrued estimated liquidated damages
    
    
    177,4021,437,173Less: unamortized discount
    
    
    (95,521
    )Total
    
    $
    1,341,652
 13




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CISTERA NETWORKS, INC. & SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
 Registration Payment Arrangements
     Accumulated deficit, April 1, 2007
    
    $
    (10,586,847
    )Adjustments for the cumulative effect of the change in accounting
principle:Contingent liability recorded for estimated liquidated damages
    
    
    (289,518
    )Reclassification of Warrants from derivative liabilities to
equity securities
    
    
    (465,597
    )Total adjustments
    
    
    (755,115
    )Accumulated deficit, April 1, 2007, as adjusted
    
    $
    (11,341,962
    )
 14




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NOTE 4
 COMMITMENTS AND CONTINGENCIES
   15




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CISTERA NETWORKS, INC. & SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
 NOTE 5  RELATED PARTY TRANSACTIONS
    NOTE 6  SUBSEQUENT EVENTS
 Reverse/Forward Split
 th
   16




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Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 FORWARD-LOOKING STATEMENTS
  EXECUTIVE SUMMARY AND RECENT BUSINESS DEVELOPMENTS
     th
  17




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18




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RESULTS OF OPERATIONS
 Selected Consolidated Statements of Operations Data
  Results of Operations for the Three Months Ended June 30, 2009
 Compared to the Three Months Ended June 30, 2008
 For the three months ended June 30,Restated
    
    
    % of
    
    
    
    
    
    
    % of2009
    
    
    revenue
    
    
    2008
    
    

revenueRevenues:Convergence solutions
    
    $
    189,143
    
    
    
    41
    %
    
    $
    522,393
    
    
    
    65
    %Professional services
    
    
    35,504
    
    
    
    9
    %
    
    
    60,708
    
    
    
    8
    %Support and maintenance
    
    
    233,320
    
    
    
    50
    %
    
    
    217,459
    
    
    
    27
    %Total revenues
    
    
    457,967
    
    
    
    100
    %
    
    
    800,560
    
    
    
    100
    %Cost of revenues:Convergence solutions
    
    
    103,013
    
    
    
    22
    %
    
    
    133,032
    
    
    
    17
    %Professional services
    
    
    47,718
    
    
    
    10
    %
    
    
    50,500
    
    
    
    6
    %Support and maintenance
    
    
    18,000
    
    
    
    5
    %
    
    
    23,184
    
    
    
    3
    %Total cost of revenues
    
    
    168,731
    
    
    
    37
    %
    
    
    206,716
    
    
    
    26
    %Gross Profit
    
    
    289,236
    
    
    
    63
    %
    
    
    593,844
    
    
    
    74
    %Operating expenses:Sales and marketing
    
    
    57,497
    
    
    
    13
    %
    
    
    296,006
    
    
    
    37
    %Software development
    
    
    29,149
    
    
    
    6
    %
    
    
    158,589
    
    
    
    20
    %Engineering and support
    
    
    64,057
    
    
    
    14
    %
    
    
    149,596
    
    
    
    19
    %General and administrative
    
    
    151,241
    
    
    
    33
    %
    
    
    429,149
    
    
    
    53
    %Depreciation and amortization
    
    
    97,660
    
    
    
    21
    %
    
    
    98,156
    
    
    
    12
    %Total operating expenses
    
    
    400,113
    
    
    
    87
    %
    
    
    1,131,496
    
    
    
    141
    %Loss from operations
    
    
    (110,877
    )
    
    
    (24
    )%
    
    
    (537,652
    )
    
    
    (67
    )%Other income (expense)Interest income
    
    
    
    
    
    
    
    %
    
    
    82
    
    
    
    
    %Other income
    
    
    56
    
    
    
    
    %Charge for inducements
related to stock Issued to
convertible note holders
    
    
    
    
    
    
    
    %
    
    
    (1,192,813
    )
    
    
    (149
    )%Amortization of discount on
convertible Notes
    
    
    
    
    
    
    
    %
    
    
    (1,120,997
    )
    
    
    (140
    )%Abandonment loss
    
    
    (15,815
    )
    
    
    (3
    )%Interest expense
    
    
    (66,055
    )
    
    
    (15
    )%
    
    
    (83,182
    )
    
    
    (10
    )%Credit (charge) for estimated
liquidated damages
    
    
    
    
    
    
    
    %
    
    
    11,299
    
    
    
    1
    %Total other income (expense)
    
    
    (81,814
    )
    
    
    (18
    )%
    
    
    (2,385,611
    )
    
    
    (298
    )%Net loss
    
    $
    (192,691
    )
    
    
    (42
    )%
    
    
    (2,923,263
    )
    
    
    (365
    )%
 19




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Revenue
  Gross Profit and Gross Margin
  Operating Expenses
   Interest Expense
  Amortization of Debt Discount
  Charge for Inducements Related to Stock Issued to Convertible Note Holders
  Liquidated Damages
  20




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Liquidity and Capital Resources
      21




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Cash and Cash Flows
  Contractual Obligations
  Critical Accounting Policies
  Recently Issued Accounting Pronouncements
  22




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4(T). Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
    1.
    
    Financial Reporting, including technical accounting surrounding complex accounting transactions2.
    
    Order Entry Accounting & Reporting3.
    
    Debt/Equity Accounting & Compliance4.
    
    Cash & Other Working Capital Management5.
    
    Compensation Accounting & Administration6.
    
    Other Assets & Liability Account Management
  Inherent Limitations of Internal Controls
  23




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 1A. Risk Factors
 We may need to raise additional capital to fund our operations.
   We will need to renegotiate or extend the currently outstanding PP2 Notes and related interest.
  24




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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 None
 
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  25




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Item 6. Exhibits
 31.1
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
 
 *
    
    previously filed. 26




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SIGNATURE
  CISTERA NETWORKS, INC.Date: March 5, 2010
    /s/    Gregory T. RoyalGregory T. RoyalChief Executive Officer and interim

Chief Financial Officer
(Principal Executive, Financial and

Accounting Officer) 27